The following report is the transcript of a presentation by Redflow Limited Chairman Brett Johnson made to the Redflow Annual General Meeting at 10:30am – Friday 24 November 2017.
Good morning Ladies and Gentlemen and welcome to the 2017 Redflow Limited Annual General Meeting. My name is Brett Johnson and I am the recently appointed Chairman of the Board of Redflow.
Clearly there is a quorum present so I declare this meeting open. Please check your phones and make sure that they are switched off or switched to silent.
Initially, I’d like to introduce your Board.
- Richard Aird – Redflow’s Chief Executive Officer and Managing Director. Richard was previously Redflow’s Chief Operating Officer and brings many years of experience to his new role. Richard will be available to answer questions during the meeting.
- Simon Hackett – the previous Executive Chairman and Chief Executive who is also Redflow’s largest shareholder. I’d like to express the Board’s appreciation to Simon for his contribution and commitment to Redflow in these roles. Simon remains fully engaged with Redflow as a Non-Executive Director and a champion for our world-leading energy storage technology.
- Howard Stack – the Deputy Chairman
- Bruce Brown – the Chair of the Audit Committee
- Patrick Tapper – who has advised that due to his other major work commitments he wishes to stand-down from the Board at the end of this meeting. Patrick, many thanks for your significant contribution to the Board and good luck for your ongoing commitments.
- David Knox – who was appointed to the Board during the year and is, like me, standing for election today.
We have a very full Agenda and we will need to devote most of our time today to the formal business set out in the Notice of Meeting. Nevertheless, prior to the formal business I would like to provide a brief update then Simon Hackett will make some general comments on the technology and why he felt it appropriate to reorganize the company.
I was appointed as Non-Executive Chairman of Redflow on 27 September 2017 – so I’ve been in the position for a little under two months. In that time, I have met with the company’s executive team and a number of its major shareholders to inform and develop my views about the steps we need to take to continue and accelerate Redflow’s success.
Redflow is at an important crossroad – it has successfully designed, developed and commercialized the world’s smallest zinc-bromine flow battery – the 10kWh ZBM2. Our business model is to sell our batteries to system integrators who incorporate them into energy systems.
The small size of the ZBM2 battery allows it to access telecommunications, commercial, industrial and residential market opportunities that are physically inaccessible to any other flow battery on the market today.
In the telco market segment, the ZBM2 is typically deployed in cabinets or containers designed by our integrators. When our integrators deploy the ZBM2 for on and off-grid residential and small to medium sized commercial applications, the battery can be installed in a purpose-built outdoor enclosure and it is then called a ZCell.
Our battery has some significant advantages over its major competitors, lead-acid and lithium-based batteries. The Redflow battery:
- supports 100% daily cycle depth with no loss of storage capacity;
- retains full energy storage over its lifetime;
- lifetime is not affected by cycle depth or daily use and can be completely discharged for
- extended periods;
- operates at ambient temperatures of up to 50 degrees without external cooling;
- is not prone to thermal runaway or fire; and
- is smart – with active control, monitoring and self-protection systems.
Redflow’s technology is protected by a combination of patents in multiple countries and trade-secret technology in the core electrode stack and the Battery Management System.
We have been able to demonstrate that Redflow batteries work in the real world and have received significant interest in and commercial orders for the product. This has been clearly demonstrated by the 160+ batteries ordered to date by the NZ integrator, Hi-Tech Solutions, being progressively installed in a variety of on and off-grid communication tower sites spread across a Pacific island nation.
Our major issue today is not our battery technology, it is our ability to manufacture a sufficient number of complete batteries to give our customers the confidence to place significant orders.
Several years ago, Redflow outsourced manufacture to the North American contract manufacturer, Flex. A key outcome of the Strategic Review announced in May was the Board’s decision to relocate manufacturing to a facility in Thailand, closer to our priority markets. I’m pleased to report that the transfer of the Redflow owned manufacturing equipment from North America to Thailand is progressing well and is on budget. We have partnered with a long-term supplier, MPTS, which will provide and manage the trained labour force required to operate the factory.
Thailand was chosen as it has a well-trained, lower cost manufacturing labour-force and is closer to our supply-chain and target markets. Our Manufacturing Engineering Manager, Thomas John, and his team are working tirelessly to get the facility up and running.
We are expecting to commence the initial manufacture of components for our electrode stacks during December and are on-track to have manufactured our first complete electrode stack by the end of January 2018. These new stacks will be shipped to Brisbane where they will be installed on approximately 200 tank sets (without stacks) which were manufactured by Flex. These complete batteries will be tested and supplied to customers to meet existing and new orders.
While our initial focus will be on the manufacture of stacks for these existing Flex tank sets, we will progressively validate high quality components and sub-assemblies until ultimately producing complete, fully tested batteries in our Thai factory. This milestone is planned for June 2018. We will then be able to ramp-up production in Thailand in line with customer demand. Once fully operational and orders warrant it, the manufacturing line should be able to manufacture up to 250 complete batteries a month.
Should demand increase beyond that volume, the capital cost involved to establish a second manufacturing line is not problematic.
I understand that shareholders have heard many times that Redflow is poised for success. I believe that today we have a settled battery design, are managing our own supply chain and will have access to a trained, expert manufacturing labour-force supported by our own manufacturing management team. The Board and management are confident that we will be producing well-made and reliable Redflow batteries in substantial numbers during the second half of 2018.
Richard’s sales team, headed by Andrew Kempster, will work closely with our integrator partners to make them aware of our production plans in order to synchronize our sales pipeline with our expected production ability.
As noted earlier, our target markets include telecommunication towers (replacing lead-acid), on-grid and off-grid residential customers and commercial, industrial, mining, micro-grid and remote power applications.
At the same time, our Research & Development team in Brisbane, led by Alex Winter, Mike Giulianni and Brent O’Connor, will focus on further reducing the production cost of the Redflow battery. This ongoing work is critical to ensure that, as production increases, so does the margin on each battery.
Redflow’s current priority must be to establish our cost-effective manufacturing facility. Once established and sales revenue increases we should be in a position to progressively reduce our negative cash-flow.
The Board is absolutely focused on short-term cash-flow. Following the capital raising which was completed in August 2017, Redflow has approximately $7m of cash on its balance sheet. We are also expecting to receive an approximate $2m research & development credit in early 2018.
Significant effort has been taken to refine our cash-flow model and this work shows that the timing of moving to cash-flow positive operations is likely to be delayed. Should we require additional working capital in the transition to cash-flow positive operations, we have a number of alternatives including: accessing support from government entities such as the Clean Energy Finance
Corporation or the Export Finance & Investment Corporation; a working capital line from a financial institution or an additional capital raising, including from a new cornerstone shareholder.
As both the cost-down and cash-flow positions are dependent on successfully implementing the fully operational manufacturing facility in Thailand, we will update the market once this has occurred.
At this point, this is all I am in a position to disclose to investors but please be assured that we will take such action as is required to protect your investment. You, our Redflow shareholders, have been patient and supportive and we believe that the company is now well positioned for success.
We will, as required by the Listing Rules, keep the market fully informed of progress over the next few months. We hope to report meeting these significant milestones at our 2018 AGM.
I would also like to talk briefly about Board renewal. The Redflow Board has made a major contribution to the company over the years but I believe there is now an argument for some renewal. Richard and I have spent considerable time discussing the skill set required for the Board and it is clear that the minimum experience we require are:
- an appropriately qualified NED to chair the Audit Committee, overview Redflow’s financial management and contribute to our strategic discussions;
- a “technology champion”; and
- an experienced industrial/supply chain executive.
We are working through this process and will update you on progress.