Fluence Corporation Limited ($FLC)

Good morning, ladies and gentlemen. My name is Doug Brown. I'm the Chairman of the Board of Fluence, and I will be chairing the meeting today. It is my pleasure to welcome you to the Annual General Meeting of Fluence Corporation Limited. We advise that we have complied with the relevant requirements for convening this meeting and that a quorum is present. I therefore declare the meeting open. I would like to introduce my fellow directors who are present online today: Ben Fash, who's the company's CEO; Paul Donnelly, who's the company's Lead Independent Director; Mel Ashton, who's a Non-Executive Director; and Nikolaus Oldendorff, who's also a Non-Executive Director. We also have some members of our senior executives, the Chief Financial Officer, Osvaldo Llanes; and Chief Legal and Talent Officer, Spencer Smith. I would also like to introduce our Assistant Company Secretary, Sophia Huang. Our auditor, BDO, represented by Kathy Robertson, is also in attendance online. As notice of this -- as the notice convening this meeting was sent to all shareholders on the Fluence Corporation Limited register in accordance with the company's constitution, unless there are any objections, I intend to take the notice of meeting and explanatory statement as read. We are conducting today's meeting using a virtual method. Shareholders who are attending online will be able to participate and view a live webcast of the meeting, ask questions and if appointed by -- as proxy, cast votes at the appropriate time while the meeting is in progress. The format of today's meeting will be a presentation on the operations of the business from Ben Fash, our CEO, followed by a Q&A session of the company's operations. Formal consideration of the business on today's agenda, each resolution will be considered at today's meeting and will be voted on by poll, followed by a Q&A session on the formal items of business. And finally, completion of the poll on the formal items. Our Assistant Company Secretary, Sophia will now outline the Q&A as well as the voting procedures for today's meeting. Sophia?

Thank you, Doug. As mentioned earlier, shareholders will be able to participate, ask questions and cast direct votes at the appropriate times whilst the meeting is in progress. Visitors are reminded that whilst we welcome you at this meeting, it is a shareholders' meeting, and you may not make comments or ask questions. Shareholders can ask questions by sending us a text or request audio to speak. Please note that we may experience some time lag, and this may cause some delay in your text questions or comments coming to our attention. We encourage you to lodge them as early as you can. Shareholders wishing to ask questions via text, please select the Q&A icon located at the bottom of your screen. Type your name and who you are representing along with your questions in the Ask-a-Question box and press the send arrow. Your questions will be addressed at the appropriate time. Shareholders wishing to speak and ask a question, an audio questions facility is available. Please select the raise hand icon located at the bottom of your screen. You'll be placed on queue and authorized to speak when we reach the Q&A session. Prior to asking your questions, can you please state your full name and who you are representing. Regarding voting on today's resolutions, all shareholders, proxy holders and authorized corporate representatives who are entitled to vote will be able to do so via the webinar poll. It is important to note that if you have lost the proxy form and voted prior to the meeting, you do not need to vote again at this meeting unless you wish to change your proxy instructions. For those proxy holders, shareholders and authorized corporate representatives who have not yet voted prior to the meeting, please cast your votes on each of the resolutions when the poll is opened. For proxy holders, you will have a summary of proxy votes, which details the voting instructions for the items of business -- for today's items of business. By completing the voting via the webinar poll, when instructed to vote in a particular manner, you are deemed to have voted in accordance with those instructions. Where the Chair has been appointed proxy on behalf of a shareholder, the Chair of the meeting intends to vote this in favor of all the resolutions. For shareholders, proxy holders and authorized corporate who intend to vote today, please observe the following poll voting instructions. When the poll is declared open, the poll window will appear. To vote, simply select the direction in which you would like to cast your vote. The selected option will be marked. To submit your votes, simply click on the submit button. I'll now hand to Ben to provide an update on the company's operations. Thank you, Ben.

Thank you, Sophia. Good morning, everyone. My name is Ben Fash, CEO and Managing Director of Fluence. Thank you to all shareholders for attending today and for your attention. Today, I want to provide you with an overview of our results in fiscal 2025 and provide some context as it pertains to the strategic shift this management team initiated a little over 3 years ago. I and the rest of the management team believe that 2025 represented an inflection point in the business, and the results are an illustration that the turnaround is working and why now we are focused on the future growth opportunities that I'll cover at the end. If you could go back up one slide, please, to one prior slide. Thank you. Just a quick reminder before we begin. The presentation contains forward-looking statements and unaudited figures provided for illustrative purposes only. It is not an offer or recommendation to buy securities. All figures are stated in U.S. dollars unless otherwise noted. Please flip to the investment highlights slide, please. Thank you. Three years ago, we set out to reshape this company. And I think this single slide captures the thesis behind that work. These 7 highlights are essentially the strategic playbook that we have been executing over the past few years. An experienced and refreshed leadership team, proprietary well-established technology with a diverse product portfolio, exposure to high-growth global end markets, a deliberate strategic shift toward higher-margin revenue segments, disciplined cost management, a leading ESG profile in wastewater treatment and wastewater to energy and a strong growth profile with the operating leverage to expand profitability quickly. Taken together, these are the key pillars of the turnaround. And as you'll see in the next few slides, they are now translating into real financial momentum. Next slide, please. We think that the successful turnaround really needed to start with the right team. And ours was substantially rebuilt 3 years ago, with Doug joining the Board in May of 2022 and becoming Chairman in March of 2023. I joined as CFO in January of 2023 and recently stepped into the CEO role following Tom Pokorsky's retirement. Our new CFO, Ozzie Llanes, joining in December of 2025. Our Chief Growth Officer, Rick Cisterna, joined in December of 2021; and of course, Spencer Smith, our Chief Talent and Legal Officer, who provides continuity with a decade of institutional knowledge. This group between us has more than 100 years of water industry experience. And most importantly, we have done this before. Doug has led 2 multibillion-dollar exits in water. I was part of a turnaround at Newterra with similar modular water treatment business, taking EBITDA from negative $8 million to $14.5 million and exiting successfully. And the rest of the team have had similar successes. And really, the same playbook is being run here, strong organic growth in core markets, improvement in sales mix, driving margin expansion and cost discipline leading to significant growth in EBITDA. Next slide, please. Of course, we believe that the market backdrop is really the wind at our back. Global water and wastewater is a massive market, and it's growing rapidly. Population growth, urbanization, intensifying water scarcity are driving structural demand. A 40% global water deficit is expected by 2030 and the global water and wastewater treatment market is forecasted to grow at more than 5% until [ 2022 ]. And within that, the segments that we play are particularly attractive, a $10 billion-plus decentralized muni wastewater and reuse market, more than $200 billion of U.S. municipal upgrades are required over the next 20 years as estimated by the EPA, a $6 billion industrial wastewater and wastewater to-energy niche where we have unique advantages and a $3 billion-plus industrial water and reuse market that is growing with water scarcity and energy concerns. The market is more than large enough. The question has always really been about strategy and execution, and that's what our team has been working hard at executing. Next slide, please. I can't see the slide very well here. Our portfolio spans the full water cycle, drinking water, wastewater, reuse and wastewater to energy. That breadth is particularly unusual for a company of our relative size, and it allows us to solve just about any water or wastewater challenge that a customer brings to us. And that, in turn, supports the cross-selling and recurring revenue strategy that we've been deploying over the past few years. Next slide, please. This map is a really important one, and it illustrates our global installed base and one of our key advantages, more than 1,000 plants worldwide that have been built up over multiple decades of our companies. In our industry, references wind projects and very few mid-market competitors can show the breadth and depth of an operating history like we can. Our flagship technologies, MABR for decentralized wastewater, anaerobic digestion for wastewater to energy and NIROBOX for modular drinking and industrial water needs are just a few that we can name. Several of them proprietary, all of them proven and ready to scale into the growth markets that we're targeting. Next slide, please. Realize this is a busy slide, but it's important to note that one of the major pillars of our turnaround was structural, reorganizing the company itself. When our new team arrived, Fluence was running with 13 separate stand-alone P&Ls, none of which were integrated and not taking advantage of the global scale that the business had. We rationalized those into 4 market-focused business units, those being municipal water and wastewater, industrial wastewater and biogas, industrial water and reuse and Southeast Asia and China. Each business unit now has a very clearly defined customer set, a focused technology stack, a sharpened competitive position and much more efficient cost structure. Each core business unit is delivering meaningful revenue growth, expanding their gross margins and most importantly, contributing positive and growing EBITDA. Alongside the 4 core business units, we also have our Ivory Coast project, which is winding up this year, and I'll cover that separately and our global water services platform, which today is comprised of 2 Build, Own & Operate projects in the Bahamas and Jamaica. Next slide, please. Once the 4 core business units were in place, the next phase was to start operating as a single globally integrated water company, our One Fluence strategy. That means, among other things, a refreshed mission, vision and values that we relaunched in 2024, deliberate cross-selling strategy across business units and geographies, aligned global execution and operations capabilities, a global talent management function and a unified global water services group designed to lift -- to improve the customer experience and grow our recurring revenue base. Next slide, please. I think this slide really quantifies the changes to the business since the strategic shift that we made 3 years ago and really shows it in our revenue mix. Our geography, products and end markets really kind of shows where we started from in 2022, where we are now and where we're heading over the next 2 to 3 years. Three years ago, the business was concentrated in lumpy, low-margin CES project revenue and in regions outside of our core geographies. Today, the picture is materially different, a much more balanced geographic footprint with growing North American exposure, a product mix that is increasingly weighted toward higher-margin SPS system sales and recurring revenue and a far more diversified end market portfolio across our 4 core business units. This rebalancing isn't an accident. It's the direct -- it's a result of direct strategic reset that we began 3 years ago, and it's producing a more durable and profitable revenue base for the company going forward. Next slide, please. 2025 was the year that the strategic shift really began to show up in our results. We delivered 52% revenue growth and an $8 million improvement in EBITDA. Operating cash flow turned positive at almost $11 million. Three of our core business units expanded gross margins by 5% to 8% individually. And fixed cost SG&A is now more than 25% lower than it was in 2022. We also set an all-time record for SPS and recurring revenue orders in Q4, and our backlog across our core business units grew by more than 40%. Despite those successes, we still have some work to do. Quarterly revenue still remains variable and seasonal. We're working to improve that. Cash collections are still slower than we'd like them to be and our ultimate targets. And we still have a few legacy risks that we are managing our way through. And lastly, I think our global cross-border execution capabilities will continue to improve and are still maturing. These are some of the core and key focus areas for 2026. Next slide, please. This is where the turnaround really shows up, I think, in the numbers and why we described fiscal 2025 as an inflection point for the company. 2025 revenue, as I said before, grew 52% to $78 million. EBITDA came in at $4 million, which was an $8 million improvement year-over-year, with each business unit contributing higher EBITDA than the prior year. Looking at the changes over the longer term, going back to 2022, gross margins are up nearly 700 basis points since 2022 and SG&A is down approximately 25%. 2025 operating cash flow was almost $11 million, and that was driven in large part because the Ivory Coast Addendum project is now sitting in a significant cash surplus position where it was at the end of the year and still is today. And more importantly, the majority of the new contracts that the new management team are writing are cash flow positive throughout and significantly reduced in terms of the risk profile. After 3 years of repositioning the company and instilling this cost discipline, I think the financial scoreboard is really starting to quickly move in the right direction. Next slide, please. Orders and backlog are really the forward indicators of where the business is heading and both are moving in the right direction. 2025 new orders -- or sorry, Q4 new orders 2025 reached $24.5 million, which was a record quarterly record input. And for the full year, the new order flow was up 28.5% with Municipal North America and industrial wastewater and biogas posting a combined order growth of 98% and 67%, respectively. More importantly, backlog as of year-end stood at $75 million with the core business units adding almost $15 million of new net backlog, a 44% increase. This is really what gives us confidence as we head into 2026 and supports our longer-term growth trajectory. Next slide, please. Next slide, please. Thank you. The Ivory Coast project progressed well in 2025 as well, and we are on schedule to complete the Addendum works in Q3 of 2026. We've collected 73% of the milestone payments through Q1 of 2026, and the project is, as I noted before, in a significant cash surplus position. But really, the strategic prize that we're after is the O&M contract that we've been talking about for a number of quarters. The company is currently in direct exclusive negotiations with the government and is in a strong position to secure the contract with the target of signing in the third quarter. The result is transforming a lumpy CES project into a multiyear recurring revenue O&M contract that will form the basis of our global water services business and at materially higher margins, exactly the kind of mix shift that we've been driving across the business through this strategic shift. Next slide, please. But we're not stopping there really. We -- with the turnaround now well underway, we're now shifting really from defense to offense. Each business unit has a clear focused growth agenda. I'm not going to go through each of the details here, but suffice to say, these have been built out individually by business units and involve strategic and tactical elements to them. In addition to the organic growth that we are enjoying across each of our core business units, we're layering on top of that organic growth story, increasing our recurring revenue as a percentage of our total revenue mix. Obviously, as we talked about earlier, the Ivory Coast O&M conversion, the potential build-out of a rental and lease fleet for rapid deployment and replicating the aftermarket model success that we have in our industrial water and reuse business across other business units. And as we go forward and our balance sheet improves, strategic M&A may play a role in inorganic growth, opportunistic accretive tuck-in acquisitions in key growth markets, focused on services and recurring revenue that support the organic growth of our key business units. Next slide, please. So as we look forward, I think the financial picture really comes into focus. SPS and recurring revenue continue to grow as a share of our total, expanding our gross margins and helping us to gain operating leverage on our fixed cost base, which remains disciplined. Ultimately, we believe this business can and should generate double-digit annualized revenue growth, expanding gross margins with mid-teen EBITDA margins within a few years. That, in summary, is really the full arc. The platform of a diversified global modular water company with a turnaround that's been executed over the past 3 years that's now starting to gain traction in 2025 with demonstrated profitability and significant growth prospects. That's why our team is very excited about the opportunity that's in front of us. Next slide, please. So to close, look, we believe that Fluence has reached an inflection point, as I've talked about. The leadership team has rebuilt the strategy. We've reorganized into 4 market-focused business units, and we're demonstrating a shift in the revenue mix toward higher-margin SPS and recurring revenue. I think 2025 is where that traction is starting to show and be proven. From here, we're pivoting the story from transformation into growth, and it's a pretty exciting place for us to be. At this point, I'm going to conclude the business update, and I'm happy to take operational questions at this time.

Ben, we've got a few questions coming through. First one relating to the [ risk session ]. Are you able to expand on the legacy risk that you mentioned and quantify the size of the risk?

The risks that we continue to manage are from existing contracts that we are managing our way through. The reality is at the point that we're at now, they are relatively minimal. We've talked a little bit about the exposure that we have in our Egypt business before. That continues to be a business that we're monitoring. But outside of that, there aren't significant legacy risks that we need to manage. Those -- that would probably be the largest piece.

And also a question in relation to our competitor. There was a report about Jiangsu Fenghai New Energy Desalination Development Company, which seems to have a technology similar to Fluence, are you able to comment on the competitive positioning relative to what Fluence is doing? And do you come across them as a competitor in the market?

No, we haven't come across that competitor directly to my knowledge. And in fact, I think one of the successes that we've been having in the early part of 2026 in our Southeast Asian markets is expanding our reference list with regard to desalination and seawater RO projects. The team has expanded the pipeline quite significantly as we've brought the NIROBOX product into that market and have had some key strategic wins with more to come that we believe.

Thank you, Ben. We have another question addressed to Ben or Doug. Once joined the Australian Water Association as a Silver member earlier this year and has a booth at Ozwater '26 in Brisbane this week. Given that prior management explicitly deprioritized the Australian market, can you help shareholders understand what's changed, what the specific opportunity looks like in Australia and whether this represents a strategic pivot towards the Australian market?

I can answer that question. Yes, our team does have a booth at Ozwater and the new management team that we have in place in our Southeast Asia business has identified Australia and New Zealand as a growth opportunity, and we are selectively investigating that as we move forward. What we believe the opportunity for us really has been the maturity of the wastewater market and frankly, the opportunity for us to take advantage of some early successes that our MABR competitors have had in the region. The technology is now, we believe, more mature and accepted in both markets. So we believe that the opportunity for the MABR wastewater product is quite significant in both countries. And so we're in the early stages of evaluating the market opportunity in both markets. That's probably the main opportunity. Secondly, we have had several pipeline opportunities that have come our way from our industrial wastewater and biogas business as a result of the success that Fabio and our team in Italy have had in growing that business globally. So that hasn't been a particularly concerted effort in marketing in Australia, but frankly, clients seeking us out because of our expertise in that product line. So there are a couple of fronts that we think that may develop over the course of the next few years that open up the market for us. But we're still in the early stages at this point.

Thanks, Ben. One last question about just the general business update and it's also in relation to the scheduling of our AGM today. The question relates to why we are holding the AGM the last possible day of the month? Given that there are actually 46 public company AGMs being held today, will you consider to undertake to avoid holding the last possible day AGM in future years?

We'll take the comment under consideration. I will note that we have consistently held our AGM at about the same time every year virtually at the end of May. So it has been consistent with the timing for our AGM in prior years as well, but we'll take the comments under consideration. Thank you.

Actually, one more question coming through. Can you please provide update on U.S.A. production and the target date for go-live and when stock for leasing capacity is at the level of market demand?

Could you repeat the second part of that question, please?

When stock for leasing capacity is at the level of market demand?

Okay. I'll answer the first part of that question. We're still evaluating when the opportunity to start up membrane manufacturing in the U.S. Right now, the volume does not necessitate it and to do so would require us to make some commitments in terms of fixed costs that, frankly, don't justify it given the volume of the business right now. And in certain cases, we may need to consider partnering with local fabricators to meet Build America Buy America provisions. But for the most part, the opportunities that we're looking at, we're able to satisfy with our current manufacturing base. So at this time, we're still evaluating it, and we're not prepared to commit those fixed costs until we see the demand get to a point where it's necessary to build out that membrane capacity in the United States. On the second part of the question, I'm not sure I really understand it. I think it related to the rental market. So I'm not really sure if I can answer that question without a little more context.

Thank you, Ben. That's all for the business update.

Okay. Thank you. Lastly, I appreciate everyone's attention and engagement, and I appreciate everyone attending today.

Thank you, Ben and Sophia. I will now move to the formal business of today's meeting. Before opening the poll, I wish to remind shareholders that the poll will remain open for an additional minute or 2 after we have considered all the resolutions. I now declare the poll open. I now refer you to the first item of business as set forth in the notice of the meeting. If you have a question on this item of business, please follow the questioning process, which was previously outlined. We will address your questions after the last resolution. The first item of business pertains to the receipt and consideration of the financial report of the company together with the directors' report and the auditor's report for the year ending December 31, 2025. These items are contained in the annual report, so I'll ask that they be taken as read. The annual report is available on the ASX announcement platform and on the company's website. The Corporations Act requires the accounts and reports to be laid before the shareholders at the Annual General Meeting. However, except as set out in Resolution 1 to be considered later, there is no requirement for a vote of members to be taken on them. No written questions to the auditor under Section 250PA of the Corporations Act were received by the cutoff date 5 business days before this meeting. Questions may be directed through myself to the auditor in relationship to the conduct of the audit, the audit report, the company's accounting policies or the independence of the auditor. As this matter does not require a vote, we will now move on to the first resolution. I now turn to the first resolution. The remuneration report is set out in the company's 2025 annual report -- the remuneration report sets out the company's remuneration arrangements for the directors and key management personnel of the company. The vote on this resolution is advisory only and does not bind the directors of the company. The proxies received with respect to each item of business at today's meeting are outlined in the presentation displayed on the screen. I move that the shareholders consider and, if thought fit, pass the ordinary resolution. I now move to Resolution 2, which relates to the reelection of Mr. Nikolaus Oldendorff as a Director of the company. I move that the shareholders consider and, if thought fit, pass the ordinary resolution. I now move to Resolution 3, which relates to the reelection of Mr. Paul Donnelly as a Director of the company. I move that shareholders consider and if thought fit, pass the ordinary resolution. I now move to Resolution 4, which relates to the ratification of the prior issue of 19 million unlisted options. I move that shareholders consider and if thought fit, pass the ordinary resolution. I now move to Resolution 5, which relates to the approval to grant options to Thomas Pokorsky and/or his nominee. I move that the shareholders consider and if thought fit, pass the ordinary resolution. I now move to Resolution 6, which relates to the approval of the Fluence Corporation Omnibus Equity Incentive Plan. I move that the shareholders consider and, if thought fit, pass the ordinary resolution. I now move to Resolution 7, which relates to the approval of the 10% placement capacity. I move that the shareholders consider and, if thought fit, pass the special resolution. As this is a special resolution, it requires 75% of votes in favor in order to be deemed as passed. We will now go to shareholders' questions for these resolutions.

Thank you, Doug. We have, yes, 3 questions coming through. The first one relating to audit and account. Our accounts showing accumulated loss of USD 244.3 million and negative equity of USD 10 million when the market cap is AUD 100.7 million today. Is there any way future audits can present a more realistic picture? Or are we hampered by accounting standards and would have to sell assets to produce a balance sheet bearing more resemblance to the market's assessment of our value?

I would defer that to either Ben or Ozzie.

Yes. I'm happy to take that, Doug. I think that the market value of the equity and the book value of equity are not necessarily correlated. And I think that, that is something that ultimately, the market value of the company is determined independently and through the freely traded share value of the company. The book value and share value for many companies don't always tie together. And it's a reflection of the future opportunities of the company, and I can't really comment on where that will head today or in the future. In terms of the accuracy of the audited accounts, I believe that with a clean audit opinion, BDO and our finance team stand behind the accuracy of those audited statements, but really shouldn't necessarily tie the 2 things together.

Thank you, Ben.

Thank you. We also have a question in relation to the credit facility extension. Thank you, Doug and Niko, for support. Is there any update available relating to the extension to end of June '27?

Doug, I can take that as well, if you'd like.

Sure, Ben. Go ahead.

Yes. So as we updated at the end of Q1 in our business update, the lenders, Doug and Niko and management continue to negotiate in good faith and are highly confident that we'll come to an arrangement to extend the facility likely for as much as 12 months, the terms of which we will detail once that agreement is finalized and entered into. But at this point in time, that has not been finalized, but we are highly confident it will be and will be communicated in due course to the shareholders.

And I think I can speak for Niko that both he and I are very supportive of the company. We're encouraged with the progress the company is making. And as Ben started this meeting, we believe the company has turned a significant corner and we want to continue to be supportive.

Thank you, Ben and Doug. A question relating to Resolution 3 on Paul's reelection. Why does Paul Donnelly choose to serve on this Board when he is CEO of Flagstaff Partners and involved in advising dozens of listed companies every year. We don't see CEOs of Macquarie, Barrenjoey, MA Financial or Bell Potter serving on unrelated public boards. So why is Paul serving here? What is the history of Flagstaff relationship with Fluence? And do we use any other corporate advisers apart from Flagstaff?

You like me to answer that?

Thank you, Paul.

Well, firstly, the company has never used Flagstaff for financial advice. And I don't think it would be appropriate for Flagstaff to ever seek such a role, notwithstanding, I believe Flagstaff would be very capable of it. I joined the Board some years ago, as you know, and I joined the Board because I was fundamentally interested in the company. And as a CEO, I think it's important in giving advice to companies and often to the Boards of companies that the adviser has some relevant experience of sitting on boards. In addition to the Board of Fluence, I also sit on the Board of WEHI, the Medical Research Institute. And prior to that, I was a Director of the Melbourne Recital Centre. I find the time to do both, and I believe I do both roles very well. Thank you for the question.

Thank you, Paul.

And I would add that Paul has been an invaluable member to the Board.

Thank you. Also a final question in relation to Resolution 5 and possibly the 10% placement capacity. The question is, why do we continue to signal a preference for raising capital through selective placement rather than doing pro rata raisings, which treat all shareholders equally and don't require any specific shareholder approval such as this one. Please focus on pro rata raisings in future and don't ask for 10% placement capacity. Are there any material proxy protest votes on this resolution? And if you do a future placement, will retail shareholders be offered an SPP share purchase plan?

Well, we don't have any specific plans to raise capital at this time. And so it's very difficult to answer those questions.

I would also add, Doug, this is a measure that we have sought approval for in prior years and was passed very close to 100% approvals in the past and in terms of the voting. So no material, I would say, objection to it in prior years either.

Thank you, Ben. Mr. Chair, that concludes the question.

Just for the record, the last time we raised capital included...

Yes.

Doug, that concludes all the questions received.

Okay. I'm going to give another minute or 2 to keep the poll open for voting. [Voting]

As the additional time is now up, I declare the poll closed. Ladies and gentlemen, since the poll is now closed and there is no other business that can be brought forward at this meeting, I declare the meeting closed. After the votes have been counted, the results of the poll will be released to the ASX later today. We thank you for your attention, and we look forward to your continued support. Thank you very much.

Thank you all, ending the webinar now.