Are steps being taken to pursue those responsible for the fraudulent activity relating to the China business?
Various authorities have been made aware of the matters relating to the fraudulent activity. The Company has reserved its rights in relation to pursuing legal action and is taking legal advice in that respect.
Are any of the losses incurred in China able to be recovered?
The Company is working with its legal advisers, its insurers and relevant authorities to determine if any misappropriated Company funds can be recovered. Legal proceedings were commenced in China recently in respect of some of those matters and the outcome of an arbitration process is expected to be known before the end of this calendar year.
What is the basis of the Company’s confidence in new management in China?
PET’s China business has been fundamentally restructured and a new senior management team is being put in place, with recruitment underway for a new General Manager. Appropriate due diligence has been undertaken in respect of those appointments, including with the support of a professional recruitment firm in China. The new leadership team in China is professional, experienced and is implementing new go-to-market strategies and business development plans. Financial reporting procedures, delegated authority policies and risk management processes have been reviewed and improved and material banking transactions now require head office authorisation.
Has any of the Company’s valuable intellectual property been compromised as a result of the China matters?
The Company does not believe that its IP has been compromised. As soon as the mismanagement and accounting irregularities came to light in China, steps were taken to safeguard commercially confidential information. Subsequent investigations into the matters included the forensic review of email communications. The Company continues to closely manage its IP assets and invest in the protection of those assets, with various patent applications continuing to progress in jurisdictions around the world.
Is the Phoslock business in China impacted by current trade tensions between China and Australia?
We do not believe so. PET has an established presence in China and has demonstrated its efficacy with successful treatments in a number of locations. PET engages with regional or local authorities in relation to local projects and has a manufacturing presence in China, with product supplied internally.
What is the status of the Phoslock product registration in Canada?
The Company is working closely with the Canadian regulatory authorities – and with specialist consultants in Canada – in relation to securing the relevant regulatory approvals in Canada. The delays relate to ongoing discussions with the regulators on the studies that are required, the overall process and the product definitions that will apply to Phoslock from a registration stand-point. The Canadian market is an important and potentially valuable market for PET and this matter will continue to be given a high priority.
Is PET confident in its competitive position?
Phoslock is currently the only product on the market which binds phosphorus and keeps phosphorus bound across the entire pH range found in natural water bodies. Unlike products like aluminium salts, which are commonly used in the U.S., the introduction of Phoslock into an aquatic system will not cause a drop in pH or an increase in conductivity and the product can be used safely without any adverse effects on aquatic life or buffering agents. The Company believes it has a very strong competitive position.
Why is the Company not now providing a quantitative update on its ‘pipeline’?
Given the recent matters in China and other unexpected external impacts such as flooding in China and COVID-related impacts on the market, the Company does not believe there is sufficient certainty to quantify the value of projects expected to be secured within a specific timeframe. Management believes it is in the interests of shareholders to report new projects and contracts when an appropriate degree of certainty exists. To assist shareholders, the Company has recently been disclosing a breakdown of projects based on those that are ‘contracted’, those that are the subject of a ‘heads of agreement’ and those that have a ‘highly probability’. Those projects in the ‘high probability’ category are considered to have at least a 75% chance of progressing to a heads of agreement.
What is the approximate level of costs expended to date on the fraud and mismanagement issues and what level of costs on these matters is expected to be booked in the second half of the current financial year?
Post what was reported in the FY20 accounts and addressed in the May AGM, the company continues to incur costs associated with interim management support in China, investments in systems and process upgrades to improve governance standards and legal advice in relation to legacy tax matters, securing receivables and recourse action to recover misappropriated funds. The Company will update shareholders on the extent of that expenditure when full year results are reported.
What discussions are underway with your US distributor, SePRO?
The Company continues to review its sales and marketing strategy in the US to help determine the best distribution model for that market. SePRO is our current distribution partner in the US and is closely involved in those discussions. The US market represents an important growth opportunity for PET.
Your most recent breakdown discloses that no US-based projects are currently contracted for FY21. Are you confident that prospective projects in the US will be secured?
We have a large number of potential projects at either the trial stage or contract negotiation stage in the US. We are working with SePRO to advance those projects to contract stage as quickly as possible and hope to be able to report on some positive outcomes before the end of the year.
SePRO has its own product which appears to have some similarity with PET’s ‘Zeep’ product. Is there a conflict?
We do not see a current conflict. Zeep remains a development project for PET. It is a different class of compound to that marketed by SePRO and we remain confident that it will have some competitive advantages.
Will it be possible to cancel any options or shares issued to former employees found to have been involved in the illegal activities?
This is a complex issue and we continue to investigate our options. Some of those options have been converted into shares and sold by the individuals involved. We are taking legal advice on what, if any, avenues are available to the Company.
What detail are you providing in terms of forecast tonnes and revenues for FY21 or subsequent periods?
The Company is not providing specific guidance or forecasts on volumes or revenues. Significant uncertainty remains in relation to the timing of various projects due to COVID impacts.
Do you expect the new Rotterdam project to be invoiced and completed within the current financial year?
Yes, this project is scheduled to start in early November and remediation works should be completed before the end of the year if no delays are experienced. We have products available to undertake this work. We also expect to invoice this project within the current financial year.
Are you able to pass through most of the increased costs associated with higher shipping/freight charges?
In most cases, these increased costs are able to be passed through. In some instances, however, they represent a significant addition to the cost of the project and the Company may need to bear some of these costs.
Have you considered a merger or business sale with ALS?
While the Company may, at any time, be considering potential partnerships and other corporate activity involving a variety of businesses, it is not appropriate to comment on those matters until discussions reach a point where a disclosure is appropriate/required.