Sales need drives new rights offer
Struggling Christchurch turbine maker Windflow Technology pitched a rights offer to shareholders in Christchurch on Thursday night in a bid to raise much- needed funding.
The company hopes to raise up to $5.1 million by offering shareholders the right to buy redeemable, convertible preference shares at 50 cents a share, for every two ordinary shares they hold in the company.
Chief executive Geoff Henderson has been on a roadshow around the country trying to drum up interest in this latest in a series of capital raisings held by the company in its 11 years.
Preference shareholders will have the right - subject to the company satisfying the solvency test and complying with all applicable law - to receive preferential dividends at 10 per cent per annum of the price of each preference share, but returns are not guaranteed.
The preference shares can be converted to ordinary shares at the company's or the shareholder's option.
If the company opts to convert, one preferential share will be converted into two ordinary shares. If a shareholder opts to convert, it will be a one-for-one conversion.
One of about 20 shareholders at the Russley Golf Club venue last night asked what prevented the company from not paying the 10 per cent return and converting the preference shares to two ordinary shares.
Henderson responded that the company's directors knew that if they let that happen and they came back to the market to ask for further shareholder support, they were unlikely to get it.
In a recorded video message, new chairman Michael Chick told shareholders that Windflow "is a quality product", but to be successful the company had to grow sales.
The company had interviewed for a sales-centred deputy chief executive who would initially be based in Britain, as well as two sales staff, also to be based in Britain, Chick said.
Windflow Technology reported a loss of $1.88m for the half-year to December 2012, following a loss of $2.37m for the six months till December 2011.
If this rights issue raises only the minimum $2m, then Windflow would need to start selling one turbine a month from July onwards to break even, or obtain revenue from other sources.
Risks for investors include the fact that Windflow needs ongoing revenue to meet its warranty provisions for the 97-turbine Te Rere Hau wind farm near Palmerston North, and revenue risk in its British market.
Windflow's short-term budget was strongly based on selling its turbines and any delay or shortfall would have "significant cash flow implications".
The offer closes on March 14.
Shareholders also approved an additional $1m loan from major shareholder David Iles.
Iles' loan facility, now totalling about $6.1m at 20 per cent per annum, compounded daily, is secured against Windflow Technology, its British subsidiaries Windflow UK Ltd and Windflow Hammer Ltd, and the turbine components.
The security over Windflow Technology will be released once the turbines are commissioned.
Windflow's first turbine project, on the Scottish island of Westray, has been installed and substantially commissioned but is not yet running unattended.
Another two single turbine projects are expected to be installed by the end of this year.
Windflow expects to make money either by selling turbines in Britain, selling an established turbine project or holding on to the projects itself and drawing the revenue earned by the projects under the British government feed-in tariff scheme.
Scottish customers had asked whether Windflow would still be around in five or 10 years, Henderson said.
"And that's a real barrier to sales."
Windflow last year secured a licensing agreement with GD Satcom, a subsidiary of Fortune 500 company General Dynamics, and had now signed a memorandum of understanding with GD Satcom in terms of which the US company would provide warranty insurance case by case for turbine sales by Windflow.
That insurance would be secured against the licence for Windflow's intellectual property in the British market.
Windflow shares last traded at 18 cents a share.