RedFlow announces company restructure following Strategic Review
Following a strategic review by its new chairman and changed board of directors, energy storage company RedFlow Limited (ASX::RFX) today announced a significant company restructure.
RedFlow will continue to focus on fast-tracking the outsourcing of its ZBM battery production and on installing additional demonstration projects as necessary forerunners to large scale commercial sales in its identified target markets. In parallel with these two key activities the company will scale back its Brisbane operations significantly to optimise productivity and efficiency and minimise its cash burn during this continuing demonstration phase.
The company recently launched its US market entry program where it has identified a larger than anticipated market opportunity for its technology. However it was also found that each potential customer will undertake their own paid product trials before placing commercial orders. This will lead to slower growth in commercial sales than initially expected.
This paid and unpaid demonstration activity will continue in the target markets and will absorb all of RedFlow’s production capacity over the next 12 to 24 months. These trials require significant combined engineering effort from RedFlow and the demonstration customers. Consistent with available funds, the company will concentrate on a limited number of the most attractive and beneficial opportunities.
RedFlow is pleased to announce the appointment of Chris Winter, currently CTO, as CEO to implement this restructuring. His remuneration as CEO will remain unchanged and is as disclosed in the Annual Report for 30 June 2011 in his capacity as executive director & CTO.
Richard Aird continues as a director and Chief Operating Officer, Alex Winter remains as Chief Engineer and Paul Clarke remains as Chief Financial Officer. Phil Hutchings has tendered his resignation as CEO and as director of the company.
The strategic review confirmed;
- Significant Market opportunity – the potential market for RedFlow’s core technology is larger and there is demand for the immediate deployment of demonstration product.
- Outsourced commercial production must be accelerated – efforts to scale up manufacture in our non-automated Brisbane pilot production facility to meet existing commitments have been less efficient and more costly than originally envisaged. Scaled back production in Brisbane will be sufficient for our continuing demonstration phase, and should diminish costly production errors which have been experienced to date. A bold redirection of resources must be taken towards highly effective outsourcing of production.
- Larger demonstration projects required – the strategic review confirmed that larger demonstration projects are necessary to unlock commercial sales contracts. The level of interest is significant with a number of multi-national companies prepared to commence the trial process.These companies have confirmed that commercial sales will only occur following the successful completion of these 1-2 year demonstration projects.
- RedFlow recognise this may mean that the continuing low volumes through the demonstration phase could be insufficent for the Jabil Singapore plant and we are in a continuing dialogue with them about this issue. Jabil will provide most value for RedFlow at mass manufacture post this demonstration phase.
As a consequence the company’s focus will be to;
- Expand the demonstration program of the M-class system and technology to larger customers and to internationally-recognised independent testing agencies respected by utility customers.
- Prioritise engineering resources to the development of the mass-production manufacturing processes for outsourcing. The development of RedFlows ZBM battery has advanced to a stage of readiness suited to the application of at-scale manufacturing engineering expertise. RedFlow will incorporate ongoing design for mass production into the ZBM battery with the assistance of its manufacturing partners.
- Maintain sufficient local production to support initial demonstration projects as they are installed and Gen3 ZBM product development. The outsourced supply chain for ZBM battery components is already accelerating as more resources are focused on this activity.
- Restructure staff to achieve these objectives. The outsourcing of the production of components, and the extension of the demonstration phase will result in a reduction in local staff employed by RedFlow by just over 50%. This allows us to streamline spending whilst executing the strategy.
- Continue with the system integrator strategy – RedFlow intends to partner with commercial system integrators to develop high volume commercial systems based around the ZBM battery.
- Continue to develop core Technology – The Gen3 ZBM development will continue to target the next level of cost-down and performance targets required by potential customers.
- Expand the Long Term Testing Program –both internally and with internationally recognised 3rd party organisations to establish ZBM life and performance characteristics under a full range of operating conditions.
- Secure strategic partnerships to secure integration and market expertise and funding necessary to realise this significant market opportunity and global growth potential.
Over the next 12 months RedFlow’s goals are:
- To deploy the first M-class containerised battery system in support of a large solar PV array at the University of Queensland in Q2 2012.
- To put in place an agreement to install a US or Asia based M-class demonstration project.
- To strike an agreement to develop systems with two major system integrators and customers using our ZBMs.
- To commence testing of the Gen3 ZBM prototype by the end of 2012, as part of ongoing cost down and performance targets
- To demonstrate long-term testing of >1000 cycles from the ZBM by the end of 2012.
Consistent with the statements made in the half year report, RedFlow is committed to generating funds through further equity raisings during the next 12 months and reducing costs through a focus on core activities.
The director’s advise that the projected loss for the current financial year is likely to be in a range between 105%-120% higher than the loss reported for the previous financial year.
RedFlow chairman Howard Stack said it was highly encouraging to see the potential size of the market following the strategic review.
“We are positive about embarking on this new strategic direction to prove our core technology in this emerging energy storage market.” Mr Stack said. “While the loss of local jobs is regrettable, the Directors feel that the cost saving measures that have been put in place are in the long term interests of the company stakeholders plans to outsource mass production.’’
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