17.03.06

17.3.2006: Meldung: Solco Announces Half Year Review of Operations and Accounts

During the half year ended 31 December 2005 the company continued to develop its product range and expand its distribution network both domestically and internationally.
With the addition of Choice Electric Co (Aust) Pty Ltd into the Solco group, consolidated revenues grew by 181% to $9.02m. However with the cost of expanding its network and other factors associated with its Australian operations, as mentioned below, consolidated profits to fell by $0.66m to a loss after tax of $(0.60m).

Solco International

Solco"s international operations contributed $1.30m to first half revenue, with profit before tax of $0.71m, up from the previous corresponding period of revenues of $0.98m and a profit before tax of $0.53m. Highlights of the half-year include:

* A joint venture with the University of New South Wales to deliver a permanent, local water supply to one of the worst hit Tsunami villages in Sri Lanka. This venture follows on from the first Solco clean water project completed in Seenigama, Sri Lanka in July which has made an important contribution to the rehabilitation in the region. The new project will be one of the few commercially integrated systems in the world to comprise a solar powered water pump and gravity- feed filter technology. The first installation is expected in March 2006, and there is the urgent need for thousands of these systems in Sri Lanka over the next few years to establish reliable, clean water for the villages. One of Sri Lanka�s largest companies and long time Solco distributor, CIC, will help implement the project, providing water tanks and stands. In the future Solco plan to use this technology to provide decentralised water supply solutions to developing countries in Africa and Asia through their international licensing network.

* A signed agreement to supply a Solco Manufacturing System (SMS) to Malta. The SMS is a turnkey manufacturing plant, which is built in Solco�s Perth factory and allows the licensee to manufacture the world�s only polymer-based solar hot water system (SHWS). This was the 15th license sold worldwide. Commissioning of the project was completed during February 2006. Solco retains a 20% shareholding in the operations which has a license to manufacture and distribute SHWS to Malta and other selected Mediterranean markets.

* Receipt of a non-refundable USD 30,000 option payment to secure the SMS rights for a number of countries in Western Africa including Ghana. The option must be exercised by 23 March 2006 and the fee is $900,000 USD.

* Formal accreditation for the Solartech Genius (the product produced by the Solco SMS) to be sold in Spain by our Portuguese license. Approximately 500,000 new homes are built in Spain each year and the Spanish government has recently passed legislation which encourages the installation of a solar hot water system on every new home. Portugal has also announced similar legislation, providing further evidence of the worldwide trend towards solar hot water as governments attempt to reduce energy usage and meet their Kyoto greenhouse gas targets. Solco has retained a 19% interest in Solco Portugal, which was established in October 2004 and is now expected to make a considerable impact on the Spanish hot water market.

* Part completion of a new Malaysian manufacturing plant, with completion scheduled for April 2006. The new plant is being installed by the original Solco licensees who first bought an SMS factory 15 years ago. They then moved into steel-based solar hot water systems but bought the replacement Solco plant earlier this year owing to consumer demand for the polymer-based system, which has proved its effectiveness in the harsh Malaysian climate. Solco retains a 30% interest in the Malaysian factory. The Malaysian licensees also have business interests in China and it is hoped that Solco�s strong business relationship with them over the past 15 years will lead to opportunities to manufacture solar hot water systems in that country.

Combined with the other operational licensees in Mauritius, Philippines, Sri Lanka, and Borneo, these new licensees will form a key part of the Solco global network. Solco�s vision is to be a global leader in the distribution of sustainable water and power solutions and these international partners provide excellent infrastructure for the deployment of other Solco products such as solar pumps and water purification technology.

Solco Australia

Much of the focus during the previous six months has been geared around expanding the distributor network and product offerings. While this has taken longer than first anticipated the quality that has been established places Solco in a solid position to fulfill its vision of being the number one choice in sustainable water and power solutions. Highlights of the half-year include:

* In July 2005 Solco Ltd officially opened its major new warehouse in Adelaide, South Australia. The new hub has allowed Solco to better service its major customers as well as meet the growing demand for products in Southern and central Australia. The Adelaide operation forms part of the national strategy to establish Australia�s largest network for delivery of sustainable water and power solutions and to provide the best possible support to retail distributors.

* The continued growth of Solco�s newest subsidiary, Choice Electric Co. (Aust) Pty Ltd. In comparison to the previous corresponding period Choice"s revenue grew by 47% to $5.62m, with profit before tax up 13% to $0.455m. Choice"s strong management team and staff are playing an essential role in Solco"s expansion throughout Australia.

* In December 2005, Solco was successful in receiving one of 10 grants made in the first round of the Renewable Energy Development Incentive Fund (REDI) from the federal government to help it develop a revolutionary polymer solar hot water system project. Solco now expects to have the unit in commercial production in early 2007 and will be designed to be the world�s lowest cost and most efficient water heater. The new unit will be a split-system which allows the solar collectors to be placed on the roof while the storage tank is situated in the ceiling or at ground level, giving a more visually appealing profile as well as a more efficient converter of the sun�s rays into hot water production. The unit would have application in both export and domestic markets. All current SMS factories will be able to manufacture the new unit using their existing plant and equipment and will provide an immediate revenue stream for Solco, as they will be required to buy new moulds and pay new license fees for the technology.

* In January 2006 Solco unveiled its network of local independent energy and water specialists and launched a range of seven new products at its first national conference. This was the culmination of six months hard work and will allow the company to substantially expand its Australian sales in the 2006 calendar year. The company has built up a network of 19 specialists who can deliver customised, sustainable energy and water solutions for the home, business and farm, which now covers the major cities and towns in all significant rural areas of Australia.

Through the Solco network, the consumer now has an expert group in their community that has access to the best sustainable products at best prices, has expert knowledge of how to practically integrate them into any particular home situation, can take advantage of Government renewable incentives, can assist with finance, can project-manage skilled trades people to undertake the project, and can co-ordinate after sales support.

The most significant increase in product range comes in the solar hot water category, where Solco has added three new products, a stainless steel system to compete with Solarhart and Edwards in the mass market, along with a split system which allows collectors and tanks to be mounted separately for aesthetic reasons; and a state-of-the-art, German-designed heat pump. Other new products relate to more efficient use of water and/or power, and fit within the Solco ethos of �simple and efficient�. The products include rainwater harvesting for homes, grey water systems and solar home heating, which can be fitted to any ducted air-conditioning system. Home builders in NSW, Victoria and Queensland can all fulfill new government requirements on energy use, simply by fitting Solco products. With similar legislation due to be introduced in SA and WA, Solco is positioning itself to be the �one stop shop� for sustainable power and water products.

* The Solar Hot Water (�SHW�) division was hampered by low margins during the December half year, stemming from its long term contract with a major builder that had been entered into prior to the companies acquisition by Solco Ltd. A large portion of the companies manufacturing output went towards fulfilling this contract, which was substantially completed by December 2006. The drop in government rebates associated with the deal further impacted the low margin. With the completion of the above contract and the high demand from the new distribution network, margins are expected to return to more acceptable levels in the second half year of the current financial year.

* Solar Pumping sales recorded their lowest levels in around five years, as a direct result of unseasonable weather conditions across Australia. This was consistent with sales throughout the solar pumping industry. On a positive note, non West Australian sales accounted for over 80% of total sales. This is a reversal of previous years, and is an encouraging sign for when conditions return to �normal�.

* In late 2005, Solco made the strategic decision to outsource part of its manufacturing in order to diversify its risk and enable the company to concentrate on its core operations, the provision and distribution of sustainable water and power solutions. Solco still maintains control over its intellectual property and quality of product but can now do so without the burden of excessive manufacturing facilities. Whilst the change resulted in a number of redundancies, with the costs being borne in the December half, substantial savings are expected from early 2006.
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