Silex Systems expects growth

Validation of key technologies should pave the way for Silex to generate a profit.

Andrew Mudie

Andrew joined the growing team of Motley Fool freelance writers in mid-2013 following years of personal development as a passionate self-taught sharemarket investor. At the time, Andrew was an engineer by trade, writer by hobby, and an investing nerd by passion who spent far too many breaks reading, writing and learning. Andrew’s first investing lesson came with his first stock selection in 2011 when takeover rumours caused a spike and subsequent plunge in the share price of Woodside and then the 21% fall in the market through mid-2011. The next four years of investing saw Andrew dabble in a vast array of strategies until settling on his favourite investment methodology, which is closely aligned with that of the Motley Fool: Fundamentals-based long-term buy-and-hold of great companies at great prices.

Published August 28, 2013 10:28 am AEST

Silex Systems (ASX: SLX) last week announced an upbeat earnings result for the year ending 30 June. The company achieved a number of key milestones during the year, however still generated a net loss of $93,000, down 99.7% from the $31 million loss in FY12.

The company has four major divisions, SILEX Uranium Enrichment, Solar Systems, Translucent, and Chronologic. The SILEX Uranium Enrichment division was the major contributor to revenue and earnings. The division is responsible for marketing and developing the company's "ground-breaking" SILEX uranium enrichment technology.

It received approval from the US Nuclear Registry in September 2012 for a licence to construct and operate a test facility in Wilmington, North Carolina, USA. Following the approval, the Phase 1 validation of the system was successfully undertaken, resulting in a $15 million milestone payment to Silex. This increased group revenue by 150% to $23 million for FY13 and was a key contributor to the reduction in net loss. Phase 1 involved demonstrating and validating the technology, with Phase 2 initiating the commercialisation of the technology.

Silex did not offer guidance on when Phase 2 and the final phase, number 3, would be complete, however the upbeat update indicates that the company is optimistic of the future of the technology.

The Solar Systems division, which operates Australia's largest Concentrating Photovoltaic Solar Power Station, increased revenue by over 1,000% from $62,000 in FY12 to $747,000 in FY13. The loss from the division was $9 million, down from $11.6 million in FY12. The 1.5MW station provides enough power to service 500 average-sized homes and will be used to assess the commercial viability of the technology before a larger 100MW plant is installed at the same location. Construction of the plant is expected to start in late 2014 and has received conditional funding of $110 million from the Commonwealth and Victorian governments so far.

Finally, the Translucent and Chronologic divisions are research arms developing advanced semiconductor and USB technology, respectively. While generating little revenue at present, the company is hopeful that technological advances will advance to commercial production following customer evaluation in late 2013.

Foolish takeaway

Silex Systems is yet to commercialise its key technologies, but with Phase 2 development underway on its uranium enrichment process, and the commercial viability of solar panel technology being assessed, it can be reasonably expected that it will start to reward investors in the next 12 to 24 months. FY13 was much better for the company, however milestone payments for technology development will continue to play a large part in growing revenue until commercial production commences.

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Motley Fool contributor Andrew Mudie does not own shares in any of the companies mentioned in this article.

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