WDT - Wellington Drive Technologies

[upside_umop]

It's quite sad, as they do have a good product. Sales levels are getting high, but seem to have sh1t contracts...i.e. not indexed in FX terms.

If they survive, and push margins, this would be a great stock...but unfortunately it looks like it won't.

Good luck.

[Voltaire]

It's quite sad, as they do have a good product. Sales levels are getting high, but seem to have sh1t contracts...i.e. not indexed in FX terms.

If they survive, and push margins, this would be a great stock...but unfortunately it looks like it won't.

I agree re the quality of the products but the management and governance of this company has been dire over a long period of time. Broken promise has been stacked upon broken promise and accordingly this teetering house of cards now looks set for collapse.

Actually, I think the company deserves to fail (it will cost me - I hold). As I have said in earlier posts, in their desperation to keep the company afloat the directors have sacrificed the interests of existing holders in favour of massive dilution in the sp and gains for short-term speculators. My hope is that the directors of WDT are permanently tainted by their behaviour in "support" of this company (keep an eye out for rats jumping ship in the meantime) ...

I'd say the best we can hope for is a lowball takeover offer from someone who recognises the value of the ip but has no compunction about ditching under-performing executives (the board will be lucky to be sent home clutching a saveloy and a paper hat).

[Lizard]

I just had a play with a few scenarios...

To me, it looks as though underlying cash-burn is probably sitting at about $4-$5m per 6 months at present. However, it is possible they could get this down to $1.5-$2m in the first half, as they may have been able to extract something back from working capital given how heavy the inventory was at end of December. If so, that may buy them some time.

However, they may need quite a bit of time, as I estimate that some scenarios that might get them to nil cash burn would include

• tripling sales (off YTD run rate) at current gross margins
• a dramatic increase in gross margin to 30% on a small increase in sales to about $40m pa
• a 50% increase in sales to about $50m pa and an increase in margins to 20% with a 30% reduction in overheads.

Getting the $8.4m raised to see them through until they can achieve something like one of these ends looks to be stretching it thin. Though if they could get the 20% margins, there might be some takeover interest.

[Voltaire]

Thanks Liz, appreciate your calcs and input.

On past performance I'd have to say that achieving any of the three scenarios you paint (in sufficient time frame) strikes me as highly unlikely - especially given the strong $NZ and the bed-in time for a new CEO (which incidentally is an issue that should have been confronted by the board much earlier).

[h2so4]

Thanks Liz, appreciate your calcs and input.

On past performance I'd have to say that achieving any of the three scenarios you paint (in sufficient time frame) strikes me as highly unlikely - especially given the strong $NZ and the bed-in time for a new CEO (which incidentally is an issue that should have been confronted by the board much earlier).

I am sure there are ways they could load up their distribution channels to recognize premature sales.

[kiwi_on_OE]

I more or less agree with Lizard's thoughts. My numbers are a bit different though.

Extrapolating figures for the first 5mths, EBITDA -3.2m for the half, NPAT of -4.2m on sales of 18+m. Cash burn more like 3-3.5m rather than the $4-5m. That 3.5m might come from selling their inventory. So they might still have 11m in the bank at present.

Sales of 18+m in the first half will hopefully increase in the second half, but maybe not to the same extent? Are the delayed sales from 2010 recurring sales, or was it just a one-off delay? 21+m gives a nice round number of 40m for the year. Assuming they don't drastically improve/change/degrade their margins in the second half, maybe their overall figures will be EBITDA -6m, NPAT -8m, and maybe upto 8 mill still in the bank. Is that the rose-tinted view? Probably.

Would they go to shareholders for some more cash? What do they think will happen next year?

I can't see them tripling sales within a year, nor cutting overheads significantly. Although impact of new CEO might be interesting. Can they manage another year of 40-50% increase in sales? Can they increase margins to 20%? If they did then they might have sales 60m & EBITDA 0m next year.

Here's an idea for their new CEO - outsource the entire staff and mgmt to F&P, leverage off their global manufacturing, distribution, sales & industry knowledge. How much do you think they would charge 5m-10m pa?

[Raven]

Six month results out.

Close to some of the predictions made. Not sure if they'll have enough cash. Perhaps the potential deal with Ziehl might inject a little cash?

Six Month Highlights
• Sales volume for the period was 636,000 motors, up 52% over the same period in 2010,
with the volume of EC Refrigeration motors up 57% to 489,000 units.
• Revenue generated during the period was NZ$18.1m, up 44% on the prior year, increasing
in US$ terms by 62%.
• During the period Wellington progressed the previously announced review of its Ventilation
business, following which it will restructure to reduce complexity, working capital and
operating expenditure, leading to an improvement in operating margins.
• Post restructuring Wellington will focus tightly on its rapidly expanding Commercial
Refrigeration business in the primary growth markets of Latin America and Europe,
significantly reducing its exposure to the manufacturing and sale of the more complex and
working capital intensive ventilation products.
• Including restructuring costs of $1,921,000, Wellington recorded a loss of NZ$6,986,000
for the six month period to 30 June. This result also included foreign exchange losses of
$372,000.
• The normalised product gross margin, after adding back restructuring costs was 10.8%,
an improvement from 8.6% in the 2010 first half.
• The global search process for a new Chief Executive is nearing completion.

The plan
The key aspects of the restructuring plan are:
• A reduction in Wellington’s Singapore-based in-house manufacturing activities. In
future, Singapore operations will focus on the management and development of contract
manufacturing partners in the Asian region and elsewhere. The intended changes will
result in lower operational expenditures and substantial reductions in related levels of
working capital;
• Discussions are well advanced with our partner Ziehl-Abegg AG (“Ziehl”) regarding a
substantially changed agreement between our companies. The revised agreement is not
yet fully complete, but major provisions include the transfer of manufacturing capability to
Ziehl for certain motors that are currently made by Wellington for Ziehl.
• A review of operational expenditures has been undertaken across the Group, and planned
reductions are being implemented.
• A key objective of the restructuring plan is to increase funds available for investment in our
Latin American businesses (particularly Mexico and Brazil) and to strengthen Wellington’s
European business, headquartered in Turkey. These markets are driving Wellington’s
current growth, and offer the best prospects for profitable growth.
• Financial projections assume a staged introduction of the restructuring changes.
Inventory is projected to reduce from the NZ$14.2m as at 31 December 2010 to NZ$9m or
below by the second half of 2012. Six month operating expenditure (prior to depreciation
and amortisation) for the second half of 2012 is projected to be approximately NZ$5m,
down from NZ$6.3m in this current results period and $13.4m for the full 2010
financial year.

[Nevl]

Not a bad result and better than expected. The loss is not too bad given restructuring costs and now the heat is on for the 2nd half. Like the focus on South America and glad they are not manufacturing in Singapore as it is a high cost country with higher wages than NZ. Hopefully they will diversify their manufacturing base. A new CEO could really take this company forward. They have made a lot of strategic mistakes in the past. I still think they need to set up in competition to the "old School" motor users and market end products using their technology. Maybe once they are making some actual profit they can do this. Can't see any need for cash in the near future either but we will wait and see.

[Lizard]

I thought the result was unimpressive - or at least did not do any of the things it needed to do to have a halfway hope of getting to profitability without more funds. However, there are some things that are a step in the right direction and "The Plan', sounds good - although I did feel like I might have heard some of it before.

Assuming they can implement the inventory and cost reductions planned for second half, the market should get a chance to see performance in second half, before there is a likelihood of needing more funds, so I guess it is back on the wait and see list. Still a small chance they can make it, but nowhere near enough to get optimistic about.

[emearg]

http://www.seek.co.nz/Job/internatio...shore/20536510