Windflow chases UK, US markets

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Offshore opportunities beckon for listed Windflow Technology - which is looking to raise $5.1 million capital - as it eyes expanding markets in the United Kingdom and United States.

Windflow manufactures dual-bladed 500kW wind turbines (Class I) and supplied 97 turbines to the Te Rere Hau wind farm project, near Palmerston North, but there remain few opportunities in the oversupplied New Zealand generation sector.

Windflow is entering a new era, following its overly public spat with former partner, separately listed WindFarms, over a payment of more than $3.5 million outstanding on an order for 32 turbines.

Court action, which could have threatened both companies' viability, was averted after WindFarms paid $1.8 million. The issue is still under negotiation.

Windflow Technology chief executive Geoff Henderson was in Dunedin last week and will be in Christchurch this week, for presentations on the capital raising.

Just weeks ago the UK Government bought in a ''feed-in tariff'' for wind turbines, essentially subsidising any generator for the next 20 years, while in the US, Windflow has gone into partnership with multibillion-dollar General Dynamics SatCom, designing a new, slightly smaller, Class II turbine, which operates in lower wind conditions.

Mr Henderson said Windflow's present focus was the UK and US markets and the UK feed-in tariff was ''the catalyst'' for the capital raising. Windflow, backed by a $4 million loan last year from a major shareholder and New York broker, has plans for three different types of turbine in Scotland. Each is an example of a separate business model the company could follow.

The first turbine, installed on the Orkney Islands, is in the final stages of commissioning and is being sold to the local community.

The second turbine will be built and operated by Windflow, but then ''likely'' sold to the landowner, while the third will be Windflow owner-operated, possibly for sale some time in the future, Mr Henderson said.

''With the [UK] tariff, Windflow could become a generator [business],'' Mr Henderson said of the incentive subsidy, which is ideally suited to Windflow's 500kW turbines.

If the full $5.1 million is raised, $2.1 million will go towards pre-ordering components for seven turbines to speed UK deliveries, $2 million for five turbines to be delivered and operated in the UK, with the balance spread over spare parts and sales staff.

Mr Henderson had considered a stock exchange float in the UK and did not rule out a similar, second capital raising later in the year.

Craigs Investment Partners broker, Charles Abraham, said while the renounceable issue was open to shareholders and the public, the non-voting rights preferential shares were offering a 10% annual dividend. Ordinary shareholders get no dividend.

Mr Abraham said the share model would raise cash for Windflow, could be treated as equity instead of debt, and as separate preferential shares, would not dilute the value ofthe ordinary shares.

''On the basis of the Orkney turbines, if they can sell one turbine a month, Windflow can pay that [10%] dividend,'' he said.

Mr Henderson said preference shares were being offered, partly to stop share dilution of the 20.5 million ordinary shares on issue, given $30 million had been invested in the company during the past decade. It listed on the alternative exchange in December 2003.

The share price, at a year-low of 15c in November, had rebounded to 24c but since slumped to around 17c last week.

The Class I turbines are worth about $2 million each, in a one-off sale, but efficiencies of scale when building a large wind farm can halve that cost. The Te Rere Hau per-unit cost was just over $1 million apiece.

Mr Henderson declined to put a figure on the Class II cost, but he hoped it would be ''not much more'' than a Class I.

On the General Dynamics partnership, Mr Henderson noted General Dynamics, with its $US30 billion annual turnover, already supplied communications to US military bases around the world.

He believed Windflow had scored another coup from the partnership, at present in a memorandum of understanding form, that General Dynamics would supply insurance for crucial five to 10-year warranties on Windflow turbines in the UK.

''There are also some benefits in GD's global supply chain which could offer more efficiencies,'' Mr Henderson said.

While General Dynamics held Class II licensing for the US and Africa, Windflow had the ''rest of the world'', but principally the UK market.

Mr Henderson said Windflow's gain to the General Dynamics partnership lay in the intellectual property rights and future royalty payments, as General Dynamics would manufacture the Class II turbines in the US.

-simon.hartley@odt.co.nz