The Redflow Effect: Alan Kohler interviews Simon Hackett

2121Leading Australian financial journalist Alan Kohler interviews Redflow’s Simon Hackett about how the Australian innovator is using its world-leading expertise at miniaturising zinc-bromine flow batteries to disrupt the large, established market for lead-acid batteries in telecommunication sites.

Republished with permission of The Constant Investor, the following article is the transcript of Alan Kohler’s interview with Simon Hackett – who at the time was Redflow’s CEO – first published as a podcast on September 21, 2017.

ALAN KOHLER: Redflow is an Australian-based company focussed on its zinc-bromine flow batteries that are designed for stationary energy storage applications. It trades on the ASX under the code RFX. Redflow is a battery company which invests in zinc-bromine flow batteries, not those made with lithium. The company’s largest shareholder is also their CEO, Simon Hackett (Editor’s note: Simon stepped down as Redflow CEO on September 27, 2017), who founded the broadband company Internode which he then sold to iiNet. Over the past year, Redflow’s share price has fallen from 50 cents down to 10 cents. Is Redflow being left behind by the battery revolution being led by Tesla’s Elon Musk? I spoke to Simon Hackett to find out.

ALAN KOHLER: Simon, I think when I met you, you were driving a Tesla around Adelaide. I think it was one of the first Tesla roadsters in the country and then at a later time you told me that you had a big battery in your backyard, like the size of a shipping container. Was that a Redflow battery? This was when you were running Internode, was that a Redflow battery – a zinc-bromine flow battery?

SIMON HACKETT: No, the order – it’s slightly out of order, Alan. Yeah, I am indeed a huge fan of Tesla and their cars, and indeed, I think electric vehicles are a fabulous use of lithium and you’re right, I brought in the Tesla Roadster in the country and in fact my wife and I bought the first two Model S cars to be delivered in Australia as well. We’re huge fans of that technology. But the big battery I’ve got, it’s actually inside of my office here, at Base64, the company I operate from and started here in Adelaide since selling Internode. That is a shipping container-sized battery and it is indeed full of Redflow ZBM2 batteries. That’s a really nifty beast and a completely different sort of battery that we use for driving energy back and forth in the office.

ALAN KOHLER: But you had that before you invested in and became the CEO of Redflow, right?

SIMON HACKETT: No, no.

ALAN KOHLER: I see, I’m sorry.

SIMON HACKETT: We were maybe talking about a different battery. But no, that big battery was me being a customer of the technology I had found and invested in.

ALAN KOHLER: Yeah, right.

SIMON HACKETT: Slightly out of order. I sold Internode in 2012, Alan, and I was out looking for other interesting investments in the technology and sustainability space and I found one. I found a company called Redflow that make a globally unique and I think very cool, an Australian-designed bit of battery energy storage technology that’s completely unlike let’s say, lithium batteries. Apart from investing in it and these days actually having climbed all the way to being its CEO, because I’m that keen, yes, I do use that technology at home and in the office and am obviously a big part of spreading it around other places.

ALAN KOHLER: I was going to ask whether you regret going into that kind of battery as opposed to lithium, but obviously you don’t.

SIMON HACKETT: No, not at all and Alan, this is one of those, I think interesting conversations. People tend to conflate battery with lithium or tend to think that if you need energy storage there’s only one sort of it. There’s lots of sorts of energy storage and it’s a horses-for-courses situation in my view. There is appropriate energy storage technology to particular applications. And there’s a tendency if you like lithium to think well, if that’s your hammer, everything looks like an appropriate nail, but that really ain’t so. To explain what I mean, lithium is a very high energy density technology. Very good energy to weight ratio. Brilliant for portable consumer electronics, brilliant for cars, but that brilliance for those applications comes with a plethora of technical compromises and risks that mean that it’s not the best thing in other places.

You accept those compromises, you’ve got to have portability in your portable device, you’ve got to have high energy density in your car. But against that there’s a whole lot of things that go wrong with lithium batteries. The most popular and well-understood one being that they have this occasional tendency to catch fire and that’s contra-indicated in a number of environments. The other thing about lithium is that like all conventional batteries, it loses capacity with age. It has the tendency to wear out very fast if you use it heavily. It’s a good example of technology that’s good for short very punchy uses, like accelerating from the lights. But it has a tendency to live fast and die young and there’s a whole growing use of energy storage applications, Alan, where instead of wanting short pulses of high energy, you want to move energy on a very long time base and you want to do it every day.

You want to charge up a battery during the day, and you want to drain it completely at night, you want to do it every day of the battery’s life. That isn’t something lithium is well suited to, and it’s something that turns out that zinc-bromine flow batteries are incredibly well-suited to and that’s what got me interested in Redflow.

ALAN KOHLER: Given that, I mean I may be jumping a bit forward here, but given that, I half expected Redflow to win the tender for the 100-megawatt battery in South Australia that Tesla ended up winning.

SIMON HACKETT: Right.

ALAN KOHLER: Because, as you say, storage is better for large scale stationary batteries, which is what the South Australian thing is and you’re in South Australia as well.

SIMON HACKETT: It is and it isn’t. It’s a great question, let me give you an interesting answer to it. It’s not the appropriate – that particular battery is not the appropriate use case for our technology. There are two very distinct uses for grid-scale energy storage. One of them is long time base moving energy around stuff, for which we’ve just said we think batteries are the best technical solution. The other one is for frequency and voltage stabilisation. It’s for having the battery there to provide short pulses of ultra-high amounts of energy to stabilise the grid, not to add energy to it, but to keep its frequency and its voltage right across perturbations to the grid, like storm damage.

ALAN KOHLER: Is that what South Australia’s trying to achieve?

SIMON HACKETT: Yeah. I mean the standard criticism of that big battery, Alan – and I think that big battery is a fabulous thing because it’s the start of the change, right? – is, you know, the critics say ‘look, that thing will only keep the South Australian grid going for a few minutes’ and the answer is ‘yes’, for the exact few minutes it would have taken back in September for the wind farms not to disconnect, when the grid was unstable because a whole lot of towers fell over. It’s not about keeping the lights on, it’s about letting the other energy sources on the grid, not having them disconnect due to lack of stability. F&V (Frequency and Voltage) stabilisation is a major, major requirement of energy grids. It’s why all of this focus is on having very fast response when the grid is about to run out of power or when it’s about to run out of stability and it’s spitting out gas fired generators. Well, the only thing that’s faster than them is batteries.

That thing, if that’s used to keep the grid stable, then it’s going to be a fantastic asset. If it’s used to be completely filled and completely emptied every day I think it will wear out pretty rapidly because it’s the wrong use for lithium. There’s use for both, Alan. If you think about looking at the graph of the use of an energy grid, if you look at it like a line on the oscilloscope screen or on a graph, there’s two signals there. There’s a long time-based signal that reflects the demand of a city or a country as the hours pass and there’s short term spike demands and flow and lithium batteries are perfectly suited to each of those respective uses. They actually work together in this context, in the ultimate grid that will have a lot of both.

ALAN KOHLER: Are you saying that your batteries, your zinc bromide batteries, can’t provide pulses of that sort?

SIMON HACKETT: Yes, they’re not suited to it. It’s a consequence of the energy density. Let me give you a specific example, if you have a battery that stores, let’s say 10 kilowatt-hours – and one of the things people get confused about, is the difference between kilowatt-hours and kilowatts, 10 kilowatt-hours, let’s say, which is an expression of capacity right, how large the bucket is. If you have 10 kilowatt-hours of energy stored away in a lithium battery, you can punch 100 or 200 kilowatts out of that storage for a short period. So you can stabilise a grid with it or you can have a car that’s the fastest thing from 0 to 100 in the planet in terms of road legal vehicles, like the Tesla I own. Alternatively, you might want to draw energy in and out on a much longer time base instead of drawing from that 10 kilowatt-hour storage at 100 kilowatts, you might only want to draw at three kilowatts. In other words, you might want to take three or four hours to drain it, rather than five or 10 minutes.

Flow batteries, as an expression of their chemistry, do the latter and not the former. Right? So our 10 kilowatt-hour zinc bromide battery can be filled and emptied at 3-5 kilowatts. It takes two to four hours to fill it and to empty it again. When you want to put more storage in, you put more of them there, but you can’t draw faster than that. The chemistry just won’t do it. Lithium you can draw faster than that, but when you do it, you’re wearing it out very rapidly. If you put a lithium battery in a house and you only draw at a fraction of its nameplate capacity, you’re actually not using that technology to its advantage and you are very much using ours to its advantage because our stuff doesn’t wear out, doesn’t lose capacity with age the same way lithium does. And the consequence of that lower energy density is it’s extremely hard to make it burn anything down. That’s the issue with lithium that causes the fire risk, it’s so energy dense that if you short it out you will start a fire.

ALAN KOHLER: I take it therefore that you’re disrupting or trying to disrupt the stationary lead-acid market?

SIMON HACKETT: Yes, precisely. And even more specially, a heartland market for us apart from houses and small businesses where this stuff works extremely well too is the telecommunications sector. It’s installations on the top of – mobile phone tower sites, things like that, communication installations, where there’s a constant energy demand from the battery. If you’ve got a mobile phone tower site, it’s typically pure 48-volt DC and it needs perhaps 2 or 3 kilowatts continuously. So about the same amount of power it takes to boil a kettle, running 24/7. That continuous draw is perfectly suited to a battery which is meant to be a marathon runner.

In a world where lithium batteries, I think are best typified as sprinters, and have this kind of aspect of living fast and dying young as anyone that owns a battery in a laptop is aware. Marathon runners are what you need for that sort of environment.

The point of them, Alan, is whether you have solar panels there or not, you might have solar panels on an off-grid telco site or diesel generators or both, but the idea is you want to charge the batteries up and then to get the best return on investment, you want to shut the generator down, completely drain that battery before you fire it up and fill it again. Think about it like a saw-tooth pattern. That saw-tooth completely using the battery every day, wears out anything except a flow battery, and that’s the key.

ALAN KOHLER: You announced the other day that you’d sold US$600,000 worth of batteries to a Pacific island, I can’t remember the name of the country now.

SIMON HACKETT: Well the country hasn’t been announced yet, it turns out, when the deployment gets put out Alan, the location will be announced in a blaze of glory because the government of that currently unnamed Pacific island nation, wants to be a part of the story. That’s the second US$600K order that we’ve got from a company in New Zealand called Hitech Solutions and they specialise in building telecommunications installations, energy installations, in Pacific island nations in harsh environments.

ALAN KOHLER: What do they get for $600,000?

SIMON HACKETT: They get about 80 of our batteries and they get to put them in a variety of cluster sizes across a whole lot of mountain tops right across a multiple island, Pacific island nation. Right, so think about a telecommunications deployment where you’ve got towers spanning lots of hilltops. They’ll be deploying five of our batteries in small sites up to, I think, 45 of our batteries in a larger single site and that’s based on the energy needs of each of those sites. Those sites run on diesel generators or solar or both, they’re generally off-grid sites and their idea is reliability. One key thing here, Alan, one of the things that distinguishes the Redflow battery from other batteries, all the stuff I was talking about batteries, the advantages of them, so won’t burn your house down, doesn’t lose capacity with age, lasts a long time – all of that, that’s true of all flow batteries. But we make the world’s smallest one. At 10 kilowatt-hours, about the sort of capacity of say a Tesla Powerwall, and about the size of a bar fridge. A telco site needs three or four of those, and that’s great, every other battery in the world is born huge. By huge I mean shipping container size is as little as they get. So you’re never going to stick that in your house, you’re never going to stick that in a mobile phone site.

So here’s the cool piece, if you believe the thesis that there’s a role for flow batteries, we make the only one that is small enough to go in a telecommunications site. And telco sites might not sound exciting, Alan, but there are millions of them in the world.

ALAN KOHLER: But what do they use now?

SIMON HACKETT: lead-acid as you said, and the lead-acid in these environments gets worn out in two to three years against a battery that we think has got at least 10 years in it – ours. The simple equation is not having to keep climbing those mountains every couple of years to replace the lead-acid batteries. And if you’re in a developing nation, you also then have an emerging recycling issue, because while people give lip service to recycling, you know, if you’re in South Africa, a place where we sell and deploy our batteries, recycling is often throwing them under a tree somewhere and walking away. You know, there’s a whole lot of reasons why you don’t want to change them.

ALAN KOHLER: Are you also competing with lead-acid on price as well as operational life?

SIMON HACKETT: We are in terms of total cost of ownership. The life thing matters. To give you a sense of scale, the other thing about our batteries is you can use all of their capacity, so to have an equivalent amount of lead-acid, to have let’s say 10 kilowatt-hours worth of lead-acid you need to actually deploy two or three times that amount because you can’t fully drain lead-acid without breaking it. On a like for like basis, in other words, based on what you have to buy to get the same outcome, our batteries are a bit more expensive than lead-acid up front – let’s say 50 per cent more expensive – but they last five times as long. It’s a pretty simple equation.

ALAN KOHLER: When I saw the announcement about the deal with the Pacific island country, whatever it is.

SIMON HACKETT: Yeah, the undisclosed Pacific island nation, yep.

ALAN KOHLER: That one, yeah, what I thought was how come you’re not announcing a $10 million deal with Telstra or Optus.

SIMON HACKETT: Right, that’s a great question. A couple of answers to it. One is because we make an utterly new technology, Alan, in other words, no-one else makes the world’s smallest flow battery, we’re the new kid on the block. You’re right to infer that telco deals by their nature wind up being huge ones. You don’t want to change one site, you want to change 1000 or 10,000 sites. But nobody wants to go first. It’s taken us a while to build a reputation for having a real product that actually works and that’s one of the reasons I drove this into the residential market, was to put proof of life out there, to say, “Hey look, this thing is real and it works.” The telcos that start buying our battery – and Hitech are the ones starting to buy them in volume – felt like they weren’t buying an untested technology. There’s that.

The other half of it – and it’s a journey Redflow’s had to go through is because our battery is physically unique – we’ve had to develop our own manufacturing techniques for it and we are right now this year, scaling up our capacity to manufacture them. This year we can’t sell 100,000 of them, we just can’t make – we haven’t yet got the facility set up to make them fast enough. This year for us is about actually building manufacturing scalability, so we don’t have the classic challenge a start-up has. You know, there’s two things to kill a start-up, Alan, not being able to deliver a product at all or not being able to deliver enough of them when you get popular and we are, at the moment, setting ourselves up to not be knocked off by the second of those, right, to not be knocked off by too much popularity. The Hitech order has been great because it’s actually proving the stuff and now we’re gearing up to be able to do bigger and bigger orders.

ALAN KOHLER: Where are you manufacturing them?

SIMON HACKETT: We were manufacturing them in North America, which is code for Mexico. We’re actually shifting manufacturing right now. We’re in the process of transitioning it right now to a new site in Thailand and there’s a number of reasons for that. It turns out, what Redflow found, you know, five years ago Redflow thought it would be selling its batteries mostly in North America, where we’re actually selling them is equatorial regions that kill lead-acid batteries. Which turn out to be places that are hot, and places the grid doesn’t work very well. Think about South Africa, remote areas in any country, including Australia, Pacific islands, that sort of environment where lead-acid doesn’t last very long and when you need something better.

We’re relocating our manufacturing to Thailand itself. We’re relocating manufacturing to where our markets are, so we aren’t shipping raw materials across the planet just to ship batteries back. We also have a manufacturer in Thailand we’ve worked with for years that makes a critical component of that battery, so they’re spreading their wings to make the whole lot of it. It has been a challenge, people think, why don’t you just make more batteries? It’s not like a mobile phone, the jelly has taken a long time to set in the mould here and it’s a new and it’s a complex device. That process of getting manufacturing right has been a genuine challenge.

Here’s the thing, Alan, if we just made another lead-acid battery or another lithium battery and we struck a manufacturing challenge we’d ask our mates up the road who also make the same thing, “Hey when this happened, what did you do?” But we’re a class of one, and that’s a blessing and a curse, right. There’s only one of these things so we’ve actually had to fight our own battles and bury our own dead. It’s taken a while.

ALAN KOHLER: Is no-one else in the world making zinc bromide batteries?

SIMON HACKETT: There are two or three other companies that are making them, Alan, and all of them are 5-10 times bigger than ours. We have expertise in miniaturising these things that is globally unique and so no one makes one like ours that you can actually get through the door of a domestic house or office, literally. Like no other battery, you could actually manage to do that with and that miniaturisation, there’s a massive amount of intellectual property development in building the electrode stack, the core of the battery. And it’s been a great journey but we really are the only ones that make this thing.

ALAN KOHLER: Do you have any patent protection?

SIMON HACKETT: Hell yeah, we have patent protection, we have trade secret protection on the stack, we also have more than a decade of development of software that embodies how to run this engine properly. Frankly even if somebody managed to rip off the core electrode stack, and frankly Alan, it’s been such a hard thing to work out how to make right, that if they did that, I’d want to pay them to do it for us. The other half of this is actually the software, you know, if you copied this engine you would blow it up if you didn’t know how to run it properly. You know, our mission is to make it easy from the outside but from the inside there’s an astonishing amount of intellectual property involved in making this complex process work really well.

ALAN KOHLER: Can you give us insight into your sales process? Who are you talking to, what’s involved in it and which countries?

SIMON HACKETT: Yeah, it’s a great question. It took Redflow in its early days before I was involved, a while to figure this out. Where we’ve come to is that we wholesale our battery into the industry sector, quite a big industry sector, that builds energy systems for customers, right. So we’re a wholesaler of the core battery to people that install them as part of an energy system and today would install them using lead-acid or lithium. And so in our case, for us we present to them a third alternative where the business case makes sense to use us instead of one of the other two. So in a house, that’s the company that whacks your battery in to go with your solar panels. In telecommunications, that’s global energy system integrators. For instance, a company called Vertiv, we’ve worked with for years, used to be called Emerson Network Power. They’re the sort of company that a Telstra or an Optus or a Vodafone commissions to build a mobile phone site for them including importantly, the energy system. So we simply wholesale a battery into there. One of the things I’ve spent a lot of time on in the last 12 to 18 months is making our technology interfaces, in the software sense, work so that you can just drop it in to replace lead-acid or lithium. That wasn’t originally true, Alan. Originally, the propeller heads that designed the battery, built a new mousetrap and laid on their back and wondered why the world didn’t beat a path to their door. The answer was, because we were different. So we’ve had to build a whole lot of software layers to make us the same from the outside point of view, to make it an easy drop in. So we wholesale a battery, so we’re not Tesla, we’re much more like Panasonic, right, if that makes sense, who was the historical maker of batteries for Tesla before they started to make their own. We just make the thing we make that’s better and we are deliberately Switzerland in terms of interfacing with other people. Tesla, here’s a bit of a comparison, Tesla more and more are acting like Apple. They’re building a vertically integrated empire where they will sell you everything from the building integrated PV tiles on your roof, to the battery in your home, to the battery in your car. We instead, are much – ironically, for me because I’m an Apple fan ironically – much more like Android world, right, where we are part of the component-based world where integrators will take the best-in-breed in each layer and integrate them themselves. We make the best battery and then it plugs into energy systems and panels and generators that come from other people.

ALAN KOHLER: Do you have only one product or more?

SIMON HACKETT: We have essentially only one product. And again, like – we’re taking a leaf out of the lithium industry’s book here, Alan. What ultimately drove cost down in the lithium game was standardising on particular sizes of cell and particular capacities of cell. The lithium industry, historically, although there’s another model starting to show up now, almost all build or use a thing called an 18650 which is about like a stretched AA battery size and the bottom of my Tesla cars have got thousands of those batteries jammed in them. The same ones that were originally build to go into laptops. The standardisation means people will build energy system designs around that standard size. So we make a standard thing, we make a standard 10 kilowatt-hour storage battery, very much smaller than anyone else’s. When you want more power, you just put more of them in and that gives you more capacity.

ALAN KOHLER: When you say they’re small, they’re the size of a bar fridge, is that right?

SIMON HACKETT: Yeah, correct.

ALAN KOHLER: How much do you charge for them?

SIMON HACKETT: They’re about US$8000 as the root cost of the battery and to give you a sense of scale, that’s substantially more than lithium, but by the time you build it into a full system and do the total cost of ownership calculation, it actually comes out pretty well. But that’s the sense of scale and these things, if you want more than that, the typical telco site needs about 40 kilowatt-hours of storage and you put four of them in. The point about four of those rather than one big one is, if one of them breaks, the other three are still working.

ALAN KOHLER: Can you tell us how much they cost to make?

SIMON HACKETT: Less than that and not enough less than that, which is the other thing that we are spending the next year doing, Alan, it’s one of the things we just raised capital to do apart from shifting and optimising manufacturing. The other reason we just raised some capital was to improve the cost of building the thing because we obviously need to have a decent gross margin in there. It’s not big enough yet and the other aim over the next year is to drive enough gross margin into that thing, that we are very happy to build lots of them. Obviously, no point in building squillions of them until you make enough money. The reason for that situation is that this thing was really hard to get the hang of building. So in a hierarchy-of-needs sense, we had to prove we could make it and that we work reliably and that people would buy it. Having done all of those things, now we’ve got a reason to drive the cost out. The thing is the lithium game has been driving cost out for 30 years, we have got some enormous wins in build costs that we can drive out of this battery in the next year. You know, big instances of low hanging fruit and now we have the luxury of doing it, having proven that someone’s going to buy it. Because until we were clear that we had a real market, there wasn’t much point in spending that engineering time to make it cheaper, now we can.

ALAN KOHLER: The Hitech deal tells you that you’ve got a market, is that right?

SIMON HACKETT: Yeah, correct, it’s an example of an integrator that’s looked at the business proposition, Alan, and said that what we charge for it right now, it makes business sense to use that instead of lead-acid or lithium and they’re happily buying them, they see the advantages, they see it working. In a lot of ways that’s the signature customer for us, which is a telco integrator, a telco

industry integrator that sees the merit and is buying against it at today’s price. The thing here is this is not about a price war with lithium, this is about doing a better job than lead-acid in places that lithium fears to tread.

ALAN KOHLER: Is there no sign of telcos replacing the lead-acid batteries with lithium?

SIMON HACKETT: There is some sign of it because lithium is cheaper, but against that are all those material disadvantages. Telcos are the ones that understand better than the average bear just how expensive it is for your telephone exchange or your mobile tower site to burn down. Telstra’s had a few instances of exchanges burning down. It’s the follow-on cost to your business that does you in, not the cost of the asset you’ve just lost. The fear of fire is genuine and well-founded and that drives most telcos to not want to use lithium at the moment. You will discover the lithium industry will tell you, “Aha, that’s okay, but variation number 748 of lithium technology is far less dangerous”. And that’s all true, but ultimately the intrinsic energy density of lithium is both unnecessary and ultimately dangerous in longer run constant power draw applications. lead-acid is the devil they know, they want to move to something else that’s reliable and not a e risk. We think there’s a really good market for us in this particular space.

ALAN KOHLER: Tell us a bit about the finances of Redflow? How much cash are you burning at the moment and how much have you got in the bank?

SIMON HACKETT: Well we just raised some capital, Alan, so we’ve got north of $10 million in the bank at the moment. We’ve got a burn rate of the order of $600-700 K a month at the moment and we are, for the first time in our life actually starting to earn money by selling things. That’s a good thing. We’re going through the next year actually using that to set ourselves up for scaling and once we’ve got the costs down and the scale up, we’re expecting to start actually being a company that replaces capital raising progressively with earning money the good old-fashioned way, selling things at a profit.

ALAN KOHLER: When do you expect that transition to take place?

SIMON HACKETT: We’re setting up the manufacturing in Thailand at the moment. We expect that to be operative and ready to start heading up the scale curve in the first quarter of next year so that’s the point at which we expect to actually start to be hitting our straps in terms of making more batteries for a decent amount of money.

ALAN KOHLER: I think you own 17% is that right?

SIMON HACKETT: That’s right.

ALAN KOHLER: Can you tell us when you bought that and what your entry price was?

SIMON HACKETT: I’ve bought in that progressively, Alan, I found Redflow rather than the other way around. I think it was late 2012, something of that order. Got in touch with them and said hey, that’s a cool technology, if you were raising capital in the future, you should give me a call and six months later they did. I put some money in. Gee it’s gone in at a variety of prices, Alan, the price has gone up and down since then. I think I’m probably sitting on an average effective cost around 12-13 cents a share.

ALAN KOHLER: Well, you’re out of the money right now.

SIMON HACKETT: I am absolutely and that’s just the nature of the beast. We’re a start-up and we’ve had to go through lots of cycles of getting this right. I will say to you Alan, that you don’t create genuinely new technology if you’re not an optimist, and there’s a lot of optimists both in our shareholder base and inside Redflow and it’s Redflow mostly preceding, but also in this latest round of reset which I’ve driven has had to strike problems and solve them and we’ve struck some more problems and now we’re solving them. We believe that if we solve those problems correctly the share price will do the appropriate thing.

ALAN KOHLER: How optimistic are you about your investment in Redflow? When you bought into it, what did you think the price would end up at? Where do you think you’ll be?

SIMON HACKETT: I know this is going to sound a bit counter-culture, because your interest is investment, but my interest is in changing the world and I’ve taken that view a little bit from Elon as well at Tesla, right, he’s got the same motivation. I fully expect the thing to succeed and for the share price to be substantially higher than it currently is when we do succeed. I don’t have a specific mental target. I actually want the technology to be out there succeeding on its own merits and then I think the share price will wind up at some appropriate level. I’m not in a position to predict what that is and the reason I’m not is that Redflow’s still fundamentally a start-up at the moment. Until it’s making profits, it’s hard to start working out what to multiply the EBITDA by to put a conventional valuation on it. It’s actually a very old start-up. It’s something like 12 years old and it’s been doing this stuff for a long time. It is arguably a necessary amount of time and money to spend on it, that’s one of the other things I’ve had to learn. It’s a bit like pharma, like having a new chemical Alan. You know, there tends to be about a 10-year gap between coming up with a brand new medical treatment for something and it winding up in the market as a viable proposition.

ALAN KOHLER: But was that length of time inevitable really or was there a stuff up?

SIMON HACKETT: Yeah, that’s a great question. There were lots of mistakes and lots of reasons to have to learn from them and the reason for that is the technology is entirely new. It’s not been a case where anyone has wanted to take this long but it’s a case where I think in hindsight it probably needed this long to have it happen. I was told a couple of years ago that way back in the early history of Redflow there was an American VC that turned up at Redflow to have a look at it and said to the founders back when it was a tiny company, gee that’s really cool technology, but you know, that’s going to take you 10 years and $100 million before you get anywhere. And he was laughed out of the room, the irony is, I think he’s turned out to be exactly right.

ALAN KOHLER: Right, don’t you hate that?

SIMON HACKETT: But seriously this is America, the money spent on it so far, which is of the order of 80, it’s like a drop in the ocean. It’s one of the annoying things about the Australian investment market. This thing actually does need this sort of support to have it go, it’s genuinely great technology, it’s worth it. This is not the easiest of markets to support a start-up in that is necessarily going to have to go through peaks and troughs while it gets its technology right.

ALAN KOHLER: But do you dream of a time when every telco tower has a couple of these at the bottom of it?

SIMON HACKETT: Yeah, I do, I do and I think that’s a viable thing and it’s an interesting and key point here, that we are not – we are selling these in houses as well, quite successfully, typically to well-heeled people who want to be a part of the future, right? It’s not for them today about business case, it’s about wanting to buy a part of the future. The same reason people used to buy Priuses when they were the big thing in sort of sustainable cars. Here’s the point we are not competing with Elon about you, Alan, making a decision for the next 10 years in your house about going from zero to battery. We are very much disrupting lead-acid, jumping into a two-year cyclic replacement cycle and killing off that replacement cycle with a long-run alternative. That means if we enter a given telco environment a year or two later, we haven’t missed a 10-year window, these replacements are constant. Does that make sense? In other words, the market we’re hitting, which is very much an invisible one to most consumers, the back-end telecommunications market, is one where the replacement of lead-acid is a constant and where that opportunity is not going away.

ALAN KOHLER: Good note on which to end. Thanks very much Simon.