Windflow seeks extra capital

ALAN WOOD
Last updated 05:00 26/11/2013

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Struggling turbine maker Windflow Technology is hoping to raise $11.3 million in extra shareholder capital and in loans to keep it operating and for turbine construction in the northern hemisphere.

Christchurch-based Windflow yesterday announced a rights issue to existing shareholders to raise $3.43m and fund its operating expenses in the United Kingdom.

Windflow is also seeking another large loan - £4m (NZ$7.9m) - from its biggest shareholder, ex-pat Kiwi David Iles, who lives New York.

The rights issue and loan amount to $11.3m.

With the extra loan Windflow will owe Iles a total of £7.38m (NZ$14.6m) secured over Windflow's turbine assets.

With Iles also taking part in the capital raising Iles' influence and stakeholding will grow.

The company plans to hold a special meeting for shareholders on December 4 to vote on the new capital raising and related investment proposals.

The increase of Iles' control of the company is examined in an independent adviser's report by Simmons Corporate Finance.

Simmons Corporate said conversion of the preference shares to ordinary shares would enable Iles to increase his control of voting rights depending on the take up by other shareholders.

"Mr Iles' shareholding level will be between 29.65 per cent and 58.29 per cent, with a shareholding level of just under 50 per cent a likely outcome," Simmons Corporate said.

Iles had little control over the uptake by other shareholders or whether Windflow would convert the preference shares, and hence he had little control over the level of his ultimate shareholding, Simmons Corporate said.

Either preference shareholders or the company can choose to swap the preference shares for ordinary shares.

But if the company makes that choice it will issue three ordinary shares for every December 2013 preference share. If shareholders choose they get fewer ordinary shares - one ordinary share for one preference share. Windflow Technology's ordinary shares closed untraded at 16 cents yesterday. It has 20.6m ordinary shares on issue held by 900 shareholders.

Without the rights issue the prospects for Windflow as a going concern "are limited", Simmons Corporate said.

Chief executive Geoff Henderson agreed it would be very tough for the company without the extra funds.

He said a further capital raising was possible next year to help retain turbine ownership.

There were 27 turbines on the drawing boards, with the company wanting to retain ownership in 10.

Windflow wants shareholders to subscribe for one preference share for every three existing ordinary shares they hold in Windflow on December 3.

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The rights issue is not underwritten but Windflow has proposed a "shortfall placement" agreement with Iles, under which Iles would subscribe for up to $2.5 million or 5m preference shares at 50 cents each.

Iles has already offered lifelines to the company which has needed extra funding on a number of occasions.

FUNDRAISING VITAL

Windflow Technology's future hangs on it continuing to be able to raise funds.

But the Christchurch wind turbine maker prepares its accounts as a going concern.

It is trying now to raise $3.4 million from its shareholders for cash to keep the business operating and is taking on another large loan from its biggest shareholder, ex-pat Kiwi David Isles, living in New York.

It said in its 2013 annual report it may have to tap shareholders again next year and in 2015 for more funds.

It said the lion's share of its cash needs in the June 2013 year were provided by its issues of preference shares in March this year - which raised $4.5m - and by a loan from David Iles for the construction of turbines.

"There is a significant element of uncertainty as the the Group's ability to remain a going concern, which is contingent on it being able to raise further capital for its development programme in the United Kingdom, which in turn will enable the parent company to meet its ongoing overheads and warranty obligations," the company said in its 2013 annual report.

Its revenue was a meagre $915,000 in total in the year to June 2013.

But its expenses were a lot larger - $5.2m - leading to a loss after tax of $4.24m.

Its warranty obligations for the Te Rere Hau wind farm near Palmerston North cost it $2m in the year to June 2013.

The remaining warranty provisions would cost it $2.9m, the report said.

That was $2.2m in the year to June 2014 and $800,000 the following year. About two-thirds of the turbines will have come out of warranty by June 30 next year.

Other major expenses are just over $2m of wages and salaries. Five employees earn more than $100,000 including chief executive Geoff Henderson who earned $200,000 as chief executive and $27,500 in directors fees.

The company has six directors with their fees costing $143,000.

It did not sell any turbines to customers in the June 3013 year but sold $1.2m of turbines to its own subsidiaries in the United Kingdom.

KEY POINTS

- Windflow seeks capital from shareholders via a rights issue

- Largest shareholder David Iles could end up with over 50 per cent of Windflow

- Iles also agrees to increase load to Windflow to buy a further £4 million to £7.38m

- Extra funds to be used on turbine projects in the United Kingdom

- Windflow's first turbine overseas is operating on the Orkney island of Westray

- In New Zealand it built the Te Rere Hau Windfarm

- BusinessDay

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