Windflow Technology Limited Interim Report December 2017

Transcription

1 Windflow Technology Limited Interim Report

2 Windflow Technology Limited Interim Report 2017 Contents Directors Review... 3 Directors Declaration... 4 Financial Statements... 5 Unaudited Consolidated Interim Statements of Financial Position... 5 Unaudited Consolidated Interim Statements of Comprehensive Income... 6 Unaudited Consolidated Interim Statement of Changes in Equity... 7 Unaudited Consolidated Interim Statements of Cash Flows... 8 Notes to the Financial Statements

3 Directors Review In the half-year to 2017, a gross profit of $0.9 million was earned by the Windflow Group on revenue of $1.7 million. Below this top-line result, other revenue was dominated by the sale of WUK - this major transaction resulted in the recognition of net revenue of $12.7 million. After deducting overheads, finance costs and exchange rate effects, the Group s comprehensive income was $10.0 million (compared with a loss of $1.5 million in the prior corresponding period). The half-year has been dominated by financial and operational restructuring: Sale of Windflow UK Ltd this transaction with the Company s largest shareholder has strengthened the consolidated balance sheet by removing a liability which had previously been the primary cause of liabilities exceeding the allowed accounting value of Windflow UK s assets. Another key element of this transaction was that all outstanding redeemable convertible preference shares were converted and the liabilities to pay outstanding preferential dividends have been cancelled. Operational restructuring to focus on managing the UK turbine fleet core revenue now comes from a management contract with Windflow UK Ltd, under which the Company provides a range of services around the operation and maintenance (O&M) of the eight Windflow 500 turbines in Scotland (six of which are owned by Windflow UK Ltd or its subsidiaries). During the half-year to 2017, the Company undertook the restructuring necessary to achieve financial stability, based on the revenue stream from this contract. This restructuring involved the hard decision to close the factory at Mandeville St and downsize staff numbers in the New Zealand operation from 14.4 to 4.8 full time equivalents. While staff numbers are now aligned with the capability and capacity required to support the operation of the UK turbines, that core group of people also have the competencies and intellectual property to address any other revenue-generating opportunities as they arise. Examples would include licensing opportunities, supporting the US prototype of the Class 2 turbine in Texas, or supply of turbines for small or mid-size projects. The Company continued its licensing efforts during the half-year to 2017, with emphasis on our unique selling point the synchronous power-train, as enabled by the Company s patented TLG/LVS technology, which is scalable and readily adaptable for the 2 MW turbines which dominate the global market. A highlight of these efforts came in October when Geoff Henderson presented papers at conferences in Beijing and Berlin about Windflow s field experience with its synchronous wind turbines. However, to date these licensing efforts have not borne fruit. In summary, the main activities during the half-year have been around the restructuring which has been necessary to achieve financial stability. Now that this restructuring is complete, and without precluding other revenue-generating opportunities, the coming months will see the Company focussed on ensuring its management of O&M for Windflow UK Ltd achieves a new and sustainable equilibrium for the Company. For further details, we refer you to the Financial Statements and Notes. 3

4 Directors Declaration In the opinion of the directors of Windflow Technology Limited (the Company ), the consolidated interim financial statements of Windflow Technology Limited for the six months ended 2017 and notes, on pages 5 to 15: comply with New Zealand generally accepted accounting practice and give a true and fair view of the financial position of the Company and the Group as at 2017 and the results of its operations and cash flows for the 6 months ended on that date; and, have been prepared using appropriate accounting policies, which have been consistently applied and supported by reasonable judgments and estimates. The directors believe that proper accounting records have been kept which enable, with reasonable accuracy, the determination of the financial position of the Company and facilitate compliance of the consolidated interim financial statements with the Financial Reporting Act The directors consider that they have taken adequate steps to safeguard the assets of the Company and to prevent and detect fraud and other irregularities. Internal control procedures are also considered to be sufficient to provide a reasonable assurance as to the integrity and reliability of the consolidated interim financial statements. For and on behalf of the Board of Directors: Chairman Director 19 March March

5 Financial Statements Unaudited Consolidated Interim Statements of Financial Position As at 2017 Unaudited Audited 30 June Note ($000 s) ($000 s) Current assets Cash on hand and at bank Trade and other receivables Asset Held for Sale - 10,198 Inventory and work in progress 1,705 2,205 Goods and services tax refund 16 - Total current assets 2,595 13,188 Non-current assets Property, plant & equipment Intangible assets Total non-current assets 1,1 1,590 Total assets 3,906 14,778 Equity Contributed capital 46,587 46,588 Foreign currency translation reserve 5 1,399 Accumulated losses (43,404) (55,656) Equity attributable to the owners of the Company 3,188 (7,669) Non controlling interests - (134) Total equity 3,188 (7,803) Current liabilities Trade and other payables 594 1,711 Loan from shareholder - 20,699 Interest payable Goods and services tax - 46 Total current liabilities ,562 Non-current liabilities Interest payable 8-18 Total non-current liabilities - 18 Total equity and liabilities 3,906 14,778 Net tangible assets per share $0.06 $(0.22) The notes on pages 9 to 15 are an integral part of these financial statements. For and on behalf of the Board of Directors who authorise these financial statements on 19 March Chairman Director 5

6 Unaudited Consolidated Interim Statements of Comprehensive Income For the 6 months ended 2017 Unaudited Unaudited Note ($000 s) ($000 s) Operating revenue 4 1,670 2,942 Cost of sales 725 2,248 Gross profit Other revenue 7 & 9 12,718 - Less:- Depreciation (657) (325) Amortisation of licences and patents (120) (1) General and administration costs (877) (1,474) Engineering costs (170) (361) Marketing costs (28) (88) Wind farm development, operations & maintenance (235) (236) Operating Profit/(loss) before finance income and expenses 11,576 (1,920) Finance income 1 1 Finance expense (279) (403) Profit / (Loss) before income tax 11,298 (2,324) Income tax expense / (credit) - - Profit / (Loss) for the period 11,298 (2,324) Other comprehensive income: Recovery of losses attributable to minority shareholders Exchange differences on translating foreign operations (1,394) 828 Total comprehensive income/(loss) for the period attributable to the shareholders of Windflow Technology Limited 10,038 (1,496) Total comprehensive income/(loss) for the period attributable to: Non-controlling interest 134 (19) Ow ners of the parent 9,904 (1,477) 10,038 (1,496) The notes on pages 9 to 15 are an integral part of these financial statements. 6

7 Unaudited Consolidated Interim Statement of Changes in Equity For the 6 months ended 2017 (with comparative figures for full year to 30 June 2017) Ordinary Share Capital Preference Share Capital Foreign Currency Translation Reserve Retained Earnings Total Equity Attributable to ow ners of the Group Equity Attributable to noncontrolling Interests Total Equity Note ($000 s) ($000 s) ($000 s) ($000 s) ($000 s) ($000 s) ($000 s) Balance at 1 July ,100 8, (50,228) (2,7) (97) (2,828) Total comprehensive loss for the year (4,765) (4,268) (43) (4,1) Foreign currency translation - - (6) (6) 6 - Preferential dividends (663) (663) - (663) Issue costs of Preference Shares - (1) - - (1) - (1) Balance at 30 June ,100 8,488 1,399 (55,656) (7,669) (134) (7,803) Total comprehensive profit for the period - - (1,394) 11,298 9, ,038 Exchange differences on translating foreign operations Preferential dividends Issue costs of Shares (1) (1) - (1) Balance at ,099 8,488 5 (43,404) 3,188-3,188 The notes on pages 9 to 15 are an integral part of these financial statements. 7

8 Unaudited Consolidated Interim Statements of Cash Flows For the 6 months ended 2017 Cash flows from operating activities Cash receipts from customers Unaudited Unaudited Note ($000 s) ($000 s) Sales of turbines and components Other Interest received 1 1 Cash paid to suppliers and employees Suppliers (994) (3,246) Employees (538) (1,040) Other (62) 221 Net cash used in operating activities (180) (3,298) Cash flows from investing activities Disposal of property plant and equipment - - Acquisition of property plant, equipment and capital WIP - (640) Net cash used in investing activities - (640) Cash flows from financing activities Issue of redeemable convertible preference shares - - Dividends on redeemable convertible preference shares - - Loan from a shareholder - 3,525 Issue costs of equity (1) (1) Net cash from financing activities (1) 3,524 Net increase (decrease) in cash and cash equivalents (181) (415) Cash and cash equivalents at beginning of the period Cash and cash equivalents at end of the period The notes on pages 9 to 15 are an integral part of these financial statements. 8

9 Notes to the Financial Statements 1. General Information Windflow Technology Ltd (the Company or Windflow ) is a company incorporated and domiciled in New Zealand. The Company, its subsidiaries and associates comprise the Windflow Technology Group (the Group ). Nature of business Interest percentage Windflow UK Ltd Trading (UK) (sold ) Windflow Hammer Ltd Trading (UK) (sold ) Hammer Westray LLP Trading (UK) (sold ) Monan Wind Company Ltd Trading (UK) (sold ) 0 90 Wind Blades Ltd Non-trading Our Wind Ltd Non-trading Windflow International Ltd Non-trading See Note 7 which sets out the details in respect of the disposal of the UK subsidiaries. The Company is an Issuer for the purpose of the Financial Reporting Act These Financial Statements have been prepared in accordance with the Financial Reporting Act The Company has elected not to separately report the financial statements of the Parent Company. The Company is profit oriented and undertakes wind turbine development, manufacturing, technology licensing, operations and management. The Company operates principally in New Zealand and the United Kingdom. The Group is not subject to impacts of seasonality or cyclicality. 2. Basis of Preparation of Half Year Report The Group is profit-oriented and this condensed consolidated interim financial information for the six months ended 2017 has been prepared in accordance with New Zealand Generally Accepted Accounting Practice (NZ GAAP). These financial statements comply with NZ IAS 34 Interim Financial Reporting and with International Accounting Standard 34 (IAS 34). The condensed consolidated interim financial information should be read in conjunction with the annual financial statements for the period ended 30 June 2017, which have been prepared in accordance with New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) and International Financial Reporting Standards (IFRS). 3. Significant Accounting Policies The accounting policies applied are consistent with those of the annual financial statements for the period ended 30 June Segmental Reporting The Group has been operating with two separately reportable business segments during the reporting period, the Wind Turbines segment and the Licensing segment. All other activities are aggregated as all other segments. Transactions between reporting segments are accounted for on an accruals basis. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Chief Executive Officer. Wind Turbines Segment: Represents manufacturing, selling, installing, commissioning, operating and maintaining wind turbines and related parts. It is an aggregation of the activities in New Zealand and the United Kingdom. Licensing Segment: Derives revenue from licensing agreements with other manufacturers of wind turbines All Other : Represents the design and development of wind turbines, general marketing and administration expenses; it includes the parent and subsidiary companies and their general central administration income and expenses that are not applicable to the Licensing Segment nor the Wind Turbines Segment. Following the disposal of the UK subsidiaries the Company operates mainly as wind turbine operations and maintenance entity and will address licensing opportunities as they arise.

10 a) Business Segmental Analysis Revenue Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Wind Licensing All Other Total Wind Licensing All Other Total Turbines Turbines ($000 s) ($000 s) ($000 s) ($000 s) ($000 s) ($000 s) ($000 s) ($000 s) From external customers 14, ,388 2, ,942 Segment revenues 14, ,388 2, ,942 Less:- Operating expenses 1,785-1,305 3,090 2,949-2,7 5,266 Profit/(Loss) before income tax 12,583 - (1,285) 11,298 (88) - (2,236) (2,324) Unaudited Unaudited Unaudited Unaudited Audited Audited Audited Audited 30 June 30 June 30 June 30 June Assets and Liabilities Wind Licensing All Other Total Wind Licensing All Other Total Turbines Turbines ($000 s) ($000 s) ($000 s) ($000 s) ($000 s) ($000 s) ($000 s) ($000 s) Segment assets 3, ,906 15, ,421 Segment liabilities ,390-1,659 21,049 Total equity 2, ,188 (3,396) 64 (1,296) (4,628) b) Geographic Revenue Revenue from external trading customers by geographic locations is detailed below. Revenue is attributed to each geographic location based on the location of the trading customer. Differences in foreign currency transactions can impact funds received. Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Wind Turbines Licensing All Other Total Wind Turbines Licensing All Other Total ($000 s) ($000 s) ($000 s) ($000 s) ($000 s) ($000 s) ($000 s) ($000 s) New Zealand United Kingdom & Europe North America Revenue , ,912 2, , , ,388 2, ,942 10

11 c) Non-current Assets by Geographic Location The non-current segment assets are scheduled by the geographic location where the asset is held. The non-current assets which include property, plant and equipment and intangible assets for each geographical location is as follows: Unaudited Unaudited Unaudited Unaudited Audited Audited Audited Audited 30 June 30 June 30 June 30 June Wind Turbines Licensing All Other Total Wind Turbines Licensing All Other ($000 s) ($000 s) ($000 s) ($000 s) ($000 s) ($000 s) ($000 s) ($000 s) New Zealand ,015 United Kingdom and Europe China North America Total non-current assets , ,590 Total 5. Earnings Per Share Weighted average number of shares on issue 38,645,952 38,645,952 Additional shares if all preference shares converted 53,521,740 53,521,740 Additional shares if all convertible notes converted to shares 4,250,000 4,250,000 Additional shares if all staff options converted 177, ,868 Total potential shares 96,594,692 97,2,560 ($000 s) ($000 s) Profit / (Loss) for the period 11,298 (2,324) Basic earnings/(loss) per share $0.29 $(0.06) Diluted earnings/(loss) per share $ Dividends Since 1 July 2015 preferential dividends have been accrued in accordance with the terms in the prospectus but have not been paid while the Company has had negative shareholders funds. No ordinary dividend was declared or paid during the half-year (2016: nil). Further to the debt settlement agreement effective (Note 7) David Iles has forgone payment of the preferential dividend owed to him, which amounted to $1,656,781. The total outstanding and paid to minor shareholders following completion and settlement of this agreement on 29 January 2018 was $108,

12 7. Release of Loan Obligations and Sale of UK subsidiaries In July 2012, a construction financing agreement ( Shareholder Loan Facility ) was entered into with shareholder, David Iles. Under this agreement the Company, together with its wholly owned subsidiaries Windflow UK Limited (WUK) and Windflow Hammer Limited (WHL), was to undertake the building of up to 3 wind turbine projects in Scotland. This number was subsequently increased to up to 11 wind turbine projects (the Projects ). The Shareholder Loan Facility provided for advances of up to 10,880,000 (NZ$21.6 million as at exchange rate) from Mr Iles to WUK to fund the Projects. The Company was covenanter and guarantor of WUK s obligations. As at 30 November 2017 the aggregate liability under these loans was $24.2 million, (30 June 2017: $20.7 million) With effect from (unconditional and settled on 29 January 2018), David Iles has through a Debt Settlement and Share Transfer Agreement irrevocably released the Company from all obligations in connection with the indebtedness of WUK in exchange for the transfer of the shares in the UK subsidiaries and conversion of his redeemable convertible preference shares. At the same time, an Operations and Maintenance Agreement (O&M Agreement) came into effect, under which the Company was appointed to provide services to WUK and its subsidiaries in order for WUK to operate its business. As noted in the Directors Review the Company is continuing with a small engineering team, managing the operations and maintenance of the UK turbines. The fee payable by WUK to the Company is reviewed quarterly. It is set at a level to cover all of the Company s operating costs and is a commitment by WUK to the Company for at least the next 12 months. 8. Interest Payable Convertible Notes interest 6 months 6 months 12 months Unaudited Unaudited Audited 30 June ($000 s) ($000 s) ($000 s) Balance at beginning of period Interest paid Balance at end of period Falling due within one year Falling due after one year Balance at end of period The NZ Windfarms dispute settlement of 30 November 2015 included the issue of Convertible Notes that pay interest for 3 years until maturity unless converted at the option of the holder. Provision has been made for the maximum interest payable. 9. Effects of the disposal of the UK subsidiaries on the financial statements The disposal of the UK subsidiaries has led to the reversal of associated subsidiary losses $10,338,1, the assignment of a trade debtor $(402,760), and the release of associated loans of $2,783,373. The net effect posted to Other Revenue is $12,718,744. The subsidiary disposal has also led to the addition back of exchange gains of $1,399,000 previously accounted for in reserves. 12

13 10. Related Party Disclosures a) Transactions with key management personnel: Key management personnel are classified as any persons, including the Directors, who have the authority and responsibility for planning, directing and controlling the activities of the Group. i) Loans to Directors There were no loans to Directors issued during the period to 2017 (2016: nil). ii) Key management personnel compensation Other than their salaries and incentives and reimbursement of pre-approved expenses, there were no other cash benefits to Directors or executive officers. b) Payments to directors Other than payments of director s fees and reimbursement of travel expenses there were no other amounts paid to the Directors. c) Transactions with a shareholder David Iles is the Company s largest shareholder and a related party (see Notes 6, 7 and 14). 13

14 11. Reconciliation of Reported Deficit with Cash Flows from Operating Activities 6 months 6 months 12 months Audited June 2017 ($000 s) ($000 s) ($000 s) Net Surplus/(Deficit) 11,298 (2,324) (4,808) Less Non-cash items: Amortisation of licences & patents Depreciation ,303 (Profit) on release of associate loan (12,718) - - Loss on disposal of fixed assets Finance expense accrued Other 1,151 (350) 723 (10,511) 510 2,335 Cash flow from operations before working capital changes 787 (1,814) (2,473) Movements in working capital: Increase/(Decrease) in accounts payable excluding asset purchases (986) (633) (930) Increase/(Decrease) in accruals (38) 138 (48) Increase/(Decrease) in leave entitlements (93) (6) 20 (Increase)/Decrease in accounts receivable & accrued income (371) (2,338) 116 (Increase)/Decrease in stock & WIP (Increase)/Decrease in prepayments 83 (53) 1 Increase/(Decrease) in Goods and Services Tax and Value Added Tax (62) Net movements (967) (1,484) 327 Net cash flows from operating activities (180) (3,298) (2,146) 12. Contingent Liabilities The Group had no contingent liabilities as at 2017 (2016: nil). 13. Capital Commitments The Group had no capital commitments as at 2017 (2016: nil). 14

15 14. Significant Events After the Reporting Date On 29 January 2018, the transaction with the Company s largest shareholder (Note 7) became unconditional, with all outstanding conditions and settlement matters having been completed but with settlement with effect as at Going Concern Assumption As at 2017 the Group had positive equity of $3.2 million (30 June 2017: negative equity of $7.8 million). As reported in the financial statements for the year ended 30 June 2017, the Company was undertaking a financial and operational restructuring (completed 29 January 2018 with effect from ) by means of: a transaction with the largest shareholder to settle all WTL s obligations to him by transferring to him the shares in the Group s UK-based subsidiary (including all its assets and trading operations) and converting all outstanding redeemable convertible preference shares to contributed capital; and downsizing operations significantly to reduce overheads. This involved closing the Christchurch factory and reducing staff numbers to the minimum required to support the operation of the UK turbines under an O and M Agreement and any other revenue-generating activities. The Company continues with a small engineering team, primarily focussed on managing the operation and maintenance of the UK turbines. The Company structure also allows for licensing and other opportunities to be addressed as they arise. These Financial Statements have been prepared using the going concern assumption after considering the following matters: The transaction with the largest shareholder having been completed and the Company restored to positive equity; The downsizing of Company operations having been completed; The directors preparing and approving on an ongoing basis operating budgets and cash forecasts as the basis for setting the monthly fee under the O&M agreement with WUK. The O&M Agreement provides specifically for quarterly review of the monthly fee paid under the Agreement to ensure that the fee is covering all of WTL s operating expenses The Directors accordingly consider the going concern assumption to be an appropriate basis on which to prepare these Financial Statements. 15