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Fluence Corporation Limited (ASX:FLC) (OTCMKTS:EMFGF) is pleased to provide the following quarterly business update to the market alongside its Appendix 4C: Quarterly cashflow report for the three months ended 31 December 2017 (Q4 2017).

- Year-end 2017 contract revenue backlog of US$95 million

- Expect to nearly double revenue in 2018

- Successful merger puts in place a strong global foundation to accelerate growth

Key Q4 2017 highlights: Backlog of US$95 million to underpin accelerated growth in 2018

- Growth to accelerate

o Contract revenue backlog of US$95 million at 31 December 2017, of which US$75 million anticipated to convert into revenue in 2018

o Revenue expected to nearly double to between US$105 million to US$115 million in 2018

o Gross profit anticipated to be between US$22 million to US$25 million in 2018

- Innovation driving new market opportunities with first contract awarded for the SUBRE product

- Rapid expansion in South America with US$6 million of new contracts awarded in Ecuador and Argentina; and restart of contract in Venezuela worth US$18 million in 2018

- Building pipeline of new opportunities in Africa, including US$4.1 million tender win for Smart Packaged NIROBOX(TM) desalination systems

- Positioned for growth in the US with a demonstration/reference site for MABR successfully commissioned and operational at Stanford University

- Strong momentum building in China with several opportunities in advanced stages of negotiation that are anticipated to be finalized after Chinese New Year and into Q2 2018

- Awarded the "2018 Global Decentralized Water & Wastewater Treatment Company of the Year" by Frost and Sullivan.

Preview of 2017 results (full year pro forma Emefcy / RWL Water combined)

- Full year revenue expected to be around US$58 million due to project delays as noted in our interim update of December 19, 2017. The delayed projects are anticipated to result in revenue during 2018.

- Pro forma gross margin to increase from 19% in 2016 to be in the range between 24% to 26%. Preliminary financial results for the year ended 31 December 2017 are expected to be released no later than 28 February 2018, with full audited financial results released by 31 March 2018.

Henry Charrabé, Managing Director and CEO of Fluence commented:

"2017 was a transformational year, and we are excited by the growth opportunities we see for an innovative company like Fluence in the underserved decentralized water and wastewater treatment markets globally. Having successfully completed all merger-related integration activities in just six months, Fluence is now recognized as the leading decentralized water and wastewater treatment company globally by Frost & Sullivan.

Over the fourth quarter of 2017, Fluence was awarded several new contracts across the globe and this has grown the Company's backlog of contracted revenue to US$95 million at the end of 2017. This important lead indicator is expected to underpin significant growth in revenue this year, and move the company closer to positive EBITDA, which we continue to target to occur during 2019.

Gross profit should increase substantially this year. We are streamlining our operations, focusing individual teams on specific geographic or industry-specific sales opportunities, and rolling out new disruptive wastewater related technologies like SUBRE, a submerged version of our flagship MABR product, as well as our award winning Smart Packaged water treatment system NIROBOX(TM).

Fluence is poised for accelerated growth this year as we build and execute on the foundations that have been put in place to deliver sustainable growth in the years ahead, while also benefiting the environment in which we all live."

Backlog to underpin substantial growth in revenue in 2018

Fluence's contract order book - "backlog" - stood at US$95 million at the end of 2017. This is a key lead indicator that underpins future growth. The current backlog includes revenues from delayed projects originally anticipated to close in 2017, including the San Quintin project in Baja California, Mexico; and a project with PDVSA Agricola in Venezuela.

The Company is aware of reports that a complaint about state legislative processes has been made to the Supreme Court of Mexico that may delay the commencement of the San Quintin project in Baja California, Mexico. The practical impact, if any, that this resolution may have is not yet known. We note, however, that Baja California is in a continuing drought and reliable water supply solutions is still urgently needed.

While the Company anticipates financial close for San Quintin to occur in Q1 and first project disbursements in Q2, any delays beyond the Company's control may have the effect of pushing these milestones out to a later date. The 2018 revenue and gross profit forecasts include a contingency factor in case of any delay in the commencement of the project. As previously disclosed, the projected margins on the project during the construction phase are small. We will continue to keep the market informed of any material developments.

The company has also already received payment from PDVSA - the PDVSA component of backlog relates to the timing of work and resulting revenue recognition.

Based on the Company's current backlog and pipeline of new tenders, the Board expects revenue for 2018 to be in the range between US$105 million to US$115 million. Visibility of forecasted 2018 revenues is high, with almost 70% (US$75 million) covered by the current backlog expected to be recognized in 2018.

Reflecting the changing mix of contracts in 2018, Gross Profit is anticipated to be in the range between US$22 million to US$25 million. This also reflects the lower gross profit margin during the construction phase of the San Quintin project.

Based on current backlog and pipeline, and consistent with historic experience, the Company anticipates bookings and revenue to be much more weighted to the latter part of the year. We continue to target a positive EBITDA to occur during 2019.

Executing on global opportunities post-merger

The 2017 merger of Emefcy and RWL Water has enabled Fluence to expand the global reach and market opportunities for its key products: desalination, wastewater treatment, and wastewater-toenergy. Below are updates on progress in key regions over Q4 2017.

Innovation driving new market opportunities - SUBRE

In October 2017, Fluence was awarded its first contract to upgrade a centralised wastewater treatment plant in Israel using its new SUBRE product. SUBRE is a submerged version of the Company's flagship Membrane Aerated Biofilm Reactor (MABR) technology and enables compliance with tighter nitrogen discharge rules without using hazardous chemicals, while also increasing plant capacity.

This contract will lead the commercial roll out of SUBRE globally. As regulations in many countries regarding total nitrogen content in treated effluent are becoming stricter, based on industry information from various sources the Company estimates the SUBRE market opportunity in Europe alone may be US$2 billion, with even larger market potential in the USA and China. Discussions are progressing with some partners regarding SUBRE deployments in China.

Rapid expansion in South America

Several notable contracts were awarded in Q4 2017 with a total value of US$6 million, including:

- Ecuador: A second water treatment plant for Eurofish SA, a leader in the processing and exportation of tuna, sardine and mackerel.

- Argentina: Supply (with Coarco) of aeration equipment to upgrade and rehabilitate two wastewater treatment plants owned by AySA, a municipal utility in Argentina. Another contract was awarded for the supply of aeration and ancillary wastewater treatment equipment for the production facility of Nutreco, a Dutch producer of animal nutrition, fish feed and processed meat products.

To meet growing demand across South America, Fluence is constructing a new manufacturing facility in Argentina, that is scheduled to open in Q2 2018.

- Venezuela: State-owned PDVSA Agricola has requested the reinstatement of a wastewater treatment solution for Ethanol plants in Portuguesa. This project has the potential to generate US$18 million in revenue in 2018.

Building pipeline of opportunities in Africa

During Q4 2017, the Company was awarded a US$4.1 million tender for its Smart Packaged NIROBOX(TM) desalination systems in Africa. Several NIROBOX(TM) contracts in North Africa are under negotiation and are expected to close in Q2 2018. In addition, several tenders for the provision of desalination water treatment in South Africa have been submitted, with decisions anticipated no later than Q2 2018.

Foundation in place for growth in the US

Until now, the impediment to US sales has been the lack of a demonstration plant and reference site. This has now been resolved following the deployment of a MABR demonstration unit at the Codiga Resource Recovery Center (CR2C) at Stanford University. Fluence's MABR unit will allow CR2C faculty and research students to test for, and certify, compliance with California's strict Title 22 requirements for water reuse, as well as allow observation of the plant in operation.

Strong momentum building in China

China is a major focus given the substantial growth opportunity available in that market. The rural wastewater treatment opportunity in China is estimated in the billions of dollars over the next five years, and Fluence is now in a position of strength to capture a share of this market. The Chinese Government's 13th five-year plan targets improved water quality nationwide by 2030, and mandates that local city officials improve sewage capacity and treatment, from currently 10% of treated rural wastewater to 70% treated rural wastewater.

A distribution network, manufacturing capability, and market presence has been established. The Company's sales pipeline has grown significantly, with several opportunities in advanced stages of negotiation that are anticipated to be finalized after the upcoming Chinese New Year celebrations and into the second quarter of this year. Smaller private partners are moving quickly to capture opportunities, while larger State-Owned Enterprises are expected to deliver larger deployments over time but move a little slower.

Progress in China over Q4 2017 included the signing of a framework agreement with partner Jiangsu Jinzi Environmental Science and Technology Company. The agreement contemplates the delivery of six Containerized Smart Packaged wastewater treatment plants based on Fluence's MABR technology (C-MABR). The plants are part of a multi-million-dollar order, and are expected to be delivered, installed and become operational during 2018.

In preparation for the Jinzi and other deployments, Fluence successfully produced its first MABR module and Smart Packaged C-MABR Unit in its newly-built production facility in Changzhou, Jiangsu Province. Those important milestones demonstrated to Chinese strategic partners, Fluence's longterm commitment to supplying wastewater treatment solutions for rural regions and the Company's ability to rapidly respond to growing local demand.

Fluence recognized as the industry leader

The prestigious global consulting firm Frost & Sullivan recognized Fluence with its "2018 Global Decentralized Water and Wastewater Treatment Company of the Year" award.

Frost & Sullivan noted the key benefits of modular, decentralized systems, such as lower operating cost, easier maintenance, and lower capital outlays. In addition, Frost & Sullivan estimates that the market for decentralized systems will grow to $6 billion annually by 2023, confirming the substantial global growth opportunity for Fluence.

Q4 2017 cash flow report

The Appendix 4C quarterly cashflow report for the three months ended 31 December 2017 is attached (see link below).

Total cash usage (Net Cash Used from Operating Activities) in Q4 2017 of US$10.5 million was in line with expectations and below Q3 2017 usage. Cash usage for the quarter included a modest build of NIROBOX(TM) and C-MABR inventory and the impact of the delay in some receipts from customers due to the timing of shipments in the latter half of the quarter.

Cash and Cash Equivalents increased to US$75.2 million at the end of Q4 2017, up from US$45.1 million at the end of Q3 2017. The increase resulted mainly from a change in classification of prepaid PDVSA funds into Cash and Cash Equivalents from Short Term Investments. On a comparable basis, cash available to support working capital and future company growth was approximately US$33 million as of the end of 2017.

Quarterly update - conference call

Richard Irving (Executive Chairman) and Henry Charrabé (Managing Director & CEO) will host an investor conference call regarding the Company's quarterly update.

The conference call will be held on Wednesday 31 January 2018 at 9.00am Australia Eastern Daylight Time (Tuesday 30 January at 5:00 pm US Eastern Standard Time).

For those wishing to dial into the call, please call your respective local number below:

- Conference ID: 8687895

- Participant Dial-In Numbers:

US TOLL-FREE 1-800-239-9838
US TOLL/INTERNATIONAL 1-323-794-2551
AUSTRALIA TOLL-FREE 1 800 573 793
ISRAEL TOLL-FREE 1809 212 883

A live webcast will be accessible through the "Investors" page on Fluence's website. Questions will need to be submitted electronically through the webcast interface:

http://www.abnnewswire.net/lnk/OBPAIP31

To view the release with figures, please visit:
http://abnnewswire.net/lnk/267CC227


About Fluence Corporation Ltd

Fluence Corporation (ASX:FLC) (OTCMKTS:EMFGF) has experience operating in over 70 countries worldwide and employs more than 300 highly trained water professionals around the globe. The Company provides local, sustainable treatment and reuse solutions, while empowering businesses and communities worldwide to make the most of their water resources.

Fluence offers an integrated range of services across the complete water cycle, from early stage evaluation, through design and delivery to ongoing support and optimization of water related assets. With established operations in North America, South America, the Middle East and Europe, Fluence is also expanding into China's rural wastewater treatment market.

Global consultancy Frost and Sullivan recently awarded Fluence Corporation "2018 Global Decentralized Water and Wastewater Treatment Company of the Year", noting in their award dissertation:

"While typical decentralized water treatment systems are relatively expensive, complicated, and inefficient, Fluence Corporation leverages innovative and smart technology solutions backed by decades of industrial know-how to excel in water and wastewater treatment solutions. Fluence's excellence becomes apparent through its success, as the company continues to expand its existing offerings as well as partnerships with other prominent companies in the industry. With its easy to use, sustainable, smart and cost-effective solutions as well as a remarkable year of growth, innovation, and leadership, Fluence Corporation earns Frost & Sullivan's 2018 Global Company of the Year Award in the decentralized water and wastewater treatment industry."

Further information can be found at http://www.fluencecorp.com/

    

Contact

Corporate:
Henry Charrabé (USA)
Managing Director & CEO
E: hcharrabe@fluencecorp.com
P: +1-212-572-3766

Investors & media (Australia):
Ronn Bechler
Market Eye
E: ronn.bechler@marketeye.com.au
P: +61-400-009-774

Richard Irving (USA)
Executive Chairman
E: rirving@fluencecorp.com
P: +1-408-382-9790

Investors & media (USA):
Gary Dvorchak, CFA
The Blueshirt Group
E: gary@blueshirtgroup.com
P: +1-323-240-5796 (US) or +86-138-1079-1480 (China)

Ross Kennedy (Australia)
Company Secretary & Advisor to the Board
E: rkennedy@fluencecorp.com
P: +61-409-524-442



Link: Appendix 4C - quarterly Q4 and Commentary



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