ENVIRONMENTAL CLEAN TECHNOLOGIES LIMITED. — Interim / Quarterly Report 2004

Feb 18, 2004

Attention ASX Company Announcements Platform Lodgement of Open Briefing

Environmental Solutions International 21 Teddington Road Burswood WA 6100

Date of lodgement: 19-Feb-2004

Title: Open Briefing. ESI. CEO on Dec 03 Result & Outlook

Record of interview:

corporatefile.com.au

Environmental Solutions International Limited (ESI) recorded a loss of \$1.8 million in the six months ended December 31, 2003. This compares with a loss of \$1.2 million in the previous corresponding period. How do you reconcile the loss of \$1.8 million with the comment at the AGM in November that the loss for the first half would be about \$750,000?

CEO Denis Glennon

At the time of finalising the results for the half it became apparent that problems had arisen on three water projects. The fact is we will lose money on two of the projects, which are now essentially completed, and we've significantly written down the projected profit on the other. This accounts for the bulk of the difference between the two figures. We have undertaken a comprehensive review of all major projects and these are the only three on which there were significant problems identified at this time.

corporatefile.com.au

The last three half-year periods have been loss making. What is causing the losses and do you accept recent results are totally unsatisfactory?

CEO Denis Glennon

The causes of the first-half losses can be summarised as follows: Inaccuracies in tendering on some water contracts due to extremely high tendering activity in a

compressed period of time last year. Commencement of a number of projects across Australia simultaneously with inadequate project delivery capacity, mostly due to a severe shortage of skilled and experienced design engineers in a very active market sector. A continued, albeit smaller, expenditure on the commercialisation of the ENERSLUDGE^TM technology.

I accept the recent results as being unsatisfactory.

The reasons for losses in FY 2003 were provided in earlier ASX releases and an Open Briefing, and there's little to be gained in revisiting those reasons.

corporatefile.com.au

What level of revenue is required for ESI to break even assuming no abnormal costs or adverse contract variations and what EBIT margin do you target?

CEO Denis Glennon

The level of revenue required to breakeven under the circumstances you describe is of the order of \$35 million. Any EBIT margin target needs to reflect the risks of specific projects but as a general statement the water and waste water business, after all corporate charges, should generate net margins in the 5 to 10 percent range. The Australian water/wastewater business is becoming one of the most competitive in the world.

corporatefile.com.au

In an Open Briefing in October 2003 you said you'd achieve record revenues in the full year to June 2004. Does the strong revenue outlook remain valid?

CEO Denis Glennon

The October 2003 comment about "record revenues" in FY 2004 was, and is still, correct. Revenue for the first half was \$17 million and that compares with \$14 million for the full 12 months ending June 2003.

The projected revenue for FY 2004 is in the range of \$35 million to \$40 million, contingent upon existing projects progressing smoothly and the contracts in the pipeline being awarded on time, commencing as anticipated and not experiencing delays in delivery.

The revenue outlook remains strong. The focus and challenge for the company is to complete existing projects profitably and to extract maximum profits from this overall increased level of revenue.

corporatefile.com.au

Are you confident that your tendering or bidding process is commercially focused and designed to generate positive shareholder returns?

CEO Denis Glennon

As I mentioned, we didn't do the tendering or delivery on some water contracts last year very well. The tendering and delivery processes have since been tightened up. We're also being more selective in the contracts on which we tender.

Quite simply, we've learned some costly lessons.

The objective was to gradually build the order book from the \$20 million or so of previous years, to \$40 million, that is, a steady, manageable growth. This growth occurred in a shorter period than we had anticipated and we got caught short.

corporatefile.com.au

What does your order book look like now?

CEO Denis Glennon

The \$60 million mentioned in the notes accompanying the release of the Appendix 4D to the ASX is conservative as we're in the documentation stage in relation to an additional contract valued at \$10 million.

We'll continue to win new work and the benefits will be evident due to our improved, more selective tendering process and the steps we have taken and are continuing to take to improve project delivery. We are continuing to recruit additional project delivery staff to handle the growth in the order book.

corporatefile.com.au

In your results announcement you said the second half is "projected to recover some of the losses." Can you provide more specific guidance with regard to future financial performance?

CEO Denis Glennon

The forecast mentioned in the results announcement is appropriate. Every effort will be made to "claw back" as much of the losses brought to account as possible. There are a number of opportunities to do this. I understand that shareholders are disappointed with the latest result. I'm confident we'll be profitable in the second half-year.

corporatefile.com.au

Thank you Denis.

For previous ESI Open Briefings visit www.corporatefile.com.au

For further information on ESI visit www.environ.com.au