Windflow losses ease, but Windfarms exposure blurs outloook

Monday 14th September 2009

Christchurch turbine manufacturer Windflow Technology made a net loss of $1.233 million in the year to June 30, in line with expectations and down from the $2.044 million loss a year earlier, but its future is clouded by difficulties with its sole customer for turbines, NZ Windfarms.

It also reported for the first time that its Windflow 500 turbines had been under-performing in recent months at Windfarms' Te Rere Hau project in the Manawatu, which Windflow says reflects first year teething problems.

"In contrast to calendar year 2008, when availability was above the warranted level of 95%, these issues have reduced turbine availability to below 95% for the first half of calendar year 2009," said Windflow in a statement to the NZX.

"While the availability has improved in recent months, it is possible that at the end of calendar year 2009, Windflow will need to compensate NZ Windfarms ... a few tens of thousands of dollars in January 2010".

The company supplied an additional 45 turbines during the year to complete Stages two and three of Te Rere Hau windfarm, bringing operating revenue for the year to $29.522 million, compared with $10.991 million a year earlier.

While each turbine manufactured is now returning a gross profit, net profitability per unit has yet to be achieved and Windfarms has recently withheld payments to Windflow, claiming it is entitled to do so until Windflow achieves IEC Type Certification for the Windflow 500 turbine. Windflow rejects this claim and says it is "working towards a possible resolution" of the issue with Windfarms.

Windfarms has also announced it is uncertain whether its current cashflows allow it to continue operating as a going concern, leaving Windflow exposed to the possibility that Stage four of Te Rere Hau may not proceed.

"If Windfarms cannot raise additional funding, then Windflow could have major cash flow issues," said Windflow chairman Barrie Leay and ceo Geoff Henderson.

"Windflow's financial statements have been prepared using the assumption that Windflow is a going concern. If the going concern assumption were anot appropriate, then the amounts at which items are recorded in the financial statements could change significantly."

Also muddying the picture is Windfarms' application to place some or all of the 32 Stage four Te Rere Hau turbines, already ordered, on a site with higher wind speeds, but for which no resource consent is yet issued. Windfarms is seeking consent for 56 turbines on the extension site.

"While this matter is unresolved, it creates some additional risk for Windflow about the overall costs and profitability of the Stage four build," Windflow said. "If a resolution is agreed that involves the relocation of some or all of the Stage four turbines to the extension site, it is likely to enhance the success of Te Rere Hau for our customer."

Meanwhile, Windfarms pulled out of a resource consent application for a development at Mangatua, near Dunedin, which would have used 50 Windflow turbines, while the network company, Mainpower's, application for an 83 Windflow turbine project at Mt Cass was rejected by the Hurunui District Council and is now caught up in Environment Court appeals.

Windflow says it remains competitive in the Australasian market, and is seeking customers in the United States and South America, where it has signed a marketing and distribution licence for Chile and Argentina with a Chilean company, Seawind Sudamerica.

The company ended the year with $11.727 million in cash, had no long term debt, and succeeded in raising $10.6 million in new equity during the year, largely from its new 20% cornerstone shareholder, MightyRiverPower.

Windflow is seeking resource consents for MRP to use Windflow turbines at the Long Gully windfarm proposal behind the Wellington suburb of Brooklyn.

Businesswire.co.nz

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