Windflow Technology calls time on turbine manufacturing
David Iles, a US shareholder of Windflow Technology who bankrolled its UK activities, will take control of the unprofitable turbine maker and forgive some $21 million of loans in exchange for the company's UK subsidiaries.
The announcement was made with Windflow's annual results, which showed a wider loss of $4.3 million in the year ended June 30 and an acknowledgment that its seven-year investment in the UK market "has not paid off", with the eight turbines in operation far below expectations and sales generated not enough to cover the company's overheads as a turbine manufacturer.
Annual sales were $606,000, excluding revenue from discontinued operations of about $1.1 million from the UK, up from $363,00 a year earlier. Faced with negative equity of $7.3 million (up from $2.8 million a year ago) as a result of its accumulating loan liabilities, which has hindered Windflow's ability to enter new long-term business relationships, the company has entered a conditional agreement with Iles that will allow it to repay the debts by transferring the UK-based assets to him and converting all its outstanding convertible preference shares. His holding would rise to 73 percent from 42 percent if the deal, which needs shareholder approval and is subject to due diligence, proceeds.
However, repaying the debt won't be enough to maintain Windflow as a going concern, it said today. As a result, the company will shutter its Christchurch factory and shrink its headcount down to "the minimum staff numbers" needed to support the operation and maintenance of the UK turbines and chase other potential sources of revenue. It hasn't been able to conclude any licence deals for its technology.
Winflow also gave a gloomy account of the New Zealand market, which it said "continues to stagnate because of an oversupply of power and weak prices for carbon in the global emissions trading markets." The company had intended to raise more capital in 2016-17 but that had depended on being able to increase licensing, engineering services, turbine sales, turbine project developments and electricity sales.
"During the year ended 30 June progress with licensing, turbine sales and turbine project developments have fallen short of expectations," it said.
Iles agreed to provide the shareholder loan facility in July 2012, giving the company the funds to undertake its UK wind turbine projects.
As at June 30, the aggregate liability under the loans was $20.7 million with a security over the 'wind turbine' fixed assets $10.2 million and work in progress and inventories of $2.7 million, notes to its accounts say. It is recorded as a current liability "as the negative equity as at 30 June 2017 places the company in breach of the loan covenants and enables the lender to call the loans," although Iles has told the company he won't call any of the loans before Oct. 31 this year.
Shareholders will be asked to vote on the restructuring and the conversion of 17.8 million preference shares to 53.5 million ordinary shares at a meeting, it said.
"It is intended that the company continue as a going concern without continuing to rely on the sole support of its largest shareholder, with a small engineering team, primarily focused on managing the operation and maintenance of the UK turbines," it said. "The company also intends to address licensing opportunities as they arise. Details of this downsizing will be announced in due course following consultation with staff."
"If the proposed financial restructuring does not proceed or overheads are not able to be reduced significantly, the directors would have to re-consider the going concern assumption and take appropriate action," the Windflow notes say. "If that process results in the directors concluding that the group was no longer a going concern, the net assets of the company and the group would reduce significantly and this would likely result in a material negative effect."
Windflow shares last traded at 1.3 cents on the NZAX market, valuing the company at $502,000. The shares have shed 93 percent of their value in the past five years.