Legal Battles and Market Risks Shadow Phoslock’s Path to Profitability

Operational Momentum Builds

Phoslock Environmental Technologies Limited (ASX, PET) is gearing up for its reinstatement to official quotation on the ASX, armed with encouraging operational updates and a clearer path to profitability. The company reported a cash position of $6.2 million as of 30 June 2025, despite a modest cash flow deficit during the quarter. Sales volumes have shown a marked improvement, with 579 tonnes sold in the first half of the year, more than triple the volume from the corresponding period in 2024.

Much of this growth is underpinned by the near completion of the refurbishment of Phoslock’s factory in Changxing, China. While some maintenance on the wastewater treatment plant has been deferred, commissioning is underway, and commercial production is expected to resume later this year or early next year. This factory revival is critical to meeting the company’s sales ambitions and restoring supply chain stability.

Financial Outlook and Profitability Targets

On an unaudited basis, Phoslock posted sales revenue of $1.425 million and a gross profit of $540,000 for the half-year, though it recorded a net loss after tax of just over $1 million. The company is budgeting for sales between 1,300 and 1,500 tonnes for the full financial year, with Brazil remaining its largest market and Europe expected to benefit from deferred sales.

Significantly, Phoslock has slashed its general and administrative costs, reducing the breakeven sales volume from 6,000 tonnes under previous management to approximately 3,000 tonnes. This cost discipline, combined with a stable gross profit margin of around 38%, positions the company closer to profitability than it has been in recent years.

Innovation and Market Expansion

Research efforts continue in China to develop improved products with higher lanthanum content, which could enhance phosphorus-binding efficacy. While still in early stages, this innovation could offer a competitive edge if production costs remain manageable. Parallel product development initiatives are also underway in Australia, signaling a multi-pronged approach to product evolution.

Phoslock is also exploring new market segments such as wastewater treatment, aiming to diversify its revenue streams and leverage its core technology in broader environmental applications. These strategic moves could help sustain growth momentum beyond traditional lake and reservoir remediation.

Navigating Legal Challenges

On the legal front, Phoslock faces ongoing group proceedings initiated in late 2024, involving claims against the company, former directors, and its former auditor KPMG. The company has received a cross claim from KPMG and is currently considering its response. Early mediation is scheduled for September 2025, offering a potential avenue to resolve these disputes without protracted litigation.

While these legal matters introduce uncertainty, Phoslock has maintained compliance with ASX Listing Rules and expects to lodge its half-year financial statements on time, with no anticipated auditor qualifications. The outcomes of mediation and the final audited results will be closely watched by investors.