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Phoslock Environmental Technologies (ASX:PET) downgrades guidance after fresh COVID-19 outbreaks in China
  • Water treatment company Phoslock Environmental Technologies (PET) has downgraded its revenue guidance as a new outbreak of COVID-19 hits China
  • The company is predicted to bring in between $30 and $40 million in revenue for the 2020 financial year, compared to the originally forecast $50 million to $70 million
  • Phoslock says as governments need to focus on more immediate health issues, its commissioned water treatment projects might be delayed
  • Nevertheless, the company has a strong balance sheet to move ahead with its plans to increase production capacity and build new facilities
  • Still, investors seem disappointed with today's guidance downgrade, with Phoslock shares currently trading over 12 per cent lower and worth 40 cents each

As the threat of a second wave of COVID-19 infections looms overseas, water treatment company Phoslock Environmental Technologies (PET) has downgraded its revenue guidance.

The company's operations have been resistant to the havoc caused by the coronavirus until now, but with fresh outbreaks across China, Phoslock has finally succumbed. The company is now forecasting a full-year 2020 revenue of between $30 million and $40 million, compared to the originally forecast $50 million to $70 million.

Phoslock said realistically, it's unlikely any of its projects will be affected in size or scope due to the virus. However, there are concerns some of its projects could be delayed as governments need to deal with more immediate health problems.

As such, Phoslock is adopting an "extremely cautious" attitude to its short-term forecasts.

Water treatment tech

Phoslock's namesake technology is designed to make unhealthy or polluted water fit for human and animal consumption. The treatment can be pumped into large bodies of water, such as lakes, dams, and canals, where it permanently binds phosphorous and stops the growth of toxic algae.

The company has been commissioned by the Chinese government to clean up several polluted water bodies across the country to increase general health and boost tourism. As such, with the government's hands full trying to stem the renewed spread of COVID-19, Phoslock thinks the water-treatment projects might take a temporary back seat.

It's important to note, however, that the $30 million to $40 million predicted revenue would still mean a 40 per cent increase in sales over the same time period last year.

What now?

Despite the predicted headwinds, Phoslock said its plans are currently continuing unchanged.

With $35 million cash on hand and $16 million in receivables available, Phoslock's balance sheet is healthy enough to support its plans to increase production capacity and build new facilities.

"It is important to note that PET remains in a very exciting position with a strong balance sheet and extraordinary global opportunities," Phoslock Managing Director Lachlan Mckinnon said.

"Phoslock remains the prime product for remediation of algae in water around the world," he said.

Still, investors seem disappointed with the guidance downgrade. In mid-morning trade, Phoslock shares are sitting 12.09 per cent lower at 40 cents a share.


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