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Redflow seeking $14.5m, shifts focus to lead-acid replacement market

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ASX-listed battery maker Redflow has announced a $14.5 million funding round, as the Brisbane-based company takes its manufacturing base offshore and turns its attention to a market “sweet-spot” including the off-grid, telecom, commercial and industrial sectors.

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The capital-raising follows Redflow’s recent strategic review, the outcome of which has shifted the company’s focus away from Australia’s residential battery storage market – although it will still be active in this market – to a sector better suited to its proprietary zinc-bromine flow batteries.

Redflow, which is headed up by its biggest investor, Simon Hackett, says its key focus is now on disrupting the existing lead-acid battery replacement market, replacing short-lifetime lead-acid batteries with long-life flow batteries in proven high demand areas such as telecommunications.

The equity raising comprises a share placement $10.5 million in two tranches to sophisticated and professional investors and the issue of $4 million worth of shares to Hackett CP Nominees Pty Ltd, in exchange for already issued convertible notes.

The money is expected to be used to help Redflow relocate its manufacturing closer to priority markets – namely south-east Asia – to cut supply chain costs, as well as to implement “cost-down projects” to create a sustainable gross operating margin.

According to a Redflow statement on Friday, the cost-down projects are expected to reduce delivered product manufacturing cost by at least 30 per cent over the next 18 months, and to target “sustainable cashflow-positive operations” by the end of 2018.

Redflow’s strategic focus on the large-scale commercial and industrial market was first flagged in February this year, when it revealed it was pursuing “massive potential demand” in Asia’s telecommunications sector.

The company, which had spent much of 2016 positioning itself as a contender for Australia’s burgeoning residential battery storage market, said then that it was successfully selling its larger-scale batteries in Asian countries where telecommunications have leap-frogged copper lines into wireless telephony and broadband.

While its ZCell range is touted for its safety and environmental credentials, in the home market it is competing against a growing number of increasingly cheap and well tested lithium-ion batteries, including the much-hyped Tesla Powerwall.

The road to commercialisation hit another speed-hump in April, when a fault in a small batch of the the flow batteries prompted the Brisbane-based company to suspend deliveries.

That fault was rectified in early May, at the same time as the company revealed it had secured its largest contract – for a Pacific Islands hybrid storage installation.

In an investor presentation this month, however, the company stressed that “deployments of battery storage to augment on-site renewables (typically solar)” had expanded rapidly in residential over the last 18 months and were expected to further accelerate.

“Redflow’s ZCell installer channel is successfully selling and deploying ZCell batteries to high-value customers who are sensitive to the inherent technical, lifetime and safety advantages of this product,” the presentation said, adding that it expects its new manufacturing location and cost-down initiatives to boost ZCell penetration in the residential market in the future.

Hackett – who serves as the company’s executive chairman and CEO – said the company had now adopted the best forward operating stance, including the adoption of a new manufacturing partner, Malaysian-based MPTS, which has been a long-term supplier of a core component of its battery stack..

“We have identified that the telecommunications sector has a strong, proven and ongoing demand for energy storage that fits the ‘sweet spot’ of Redflow’s unique value proposition,” he said.

RedflowPresTelco

“At the same time, Redflow will continue supplying into its ZCell residential battery sales channel which is delivering our compelling energy storage solution for residential and SOHO customers, especially those located in off-grid areas or warm climates.”

Redflow COO Richard Aird said the process of disengaging from the company’s former manufacturing location was almost complete.

“The activities Redflow is undertaking to transition manufacturing and to implement key product cost-down projects are critical to the future success of the company,” he said.

“Product deliveries will continue from built-up stock-on-hand and stock in transit ahead of the planned resumption of manufacturing in South-East Asia toward the end of this calendar year. Redflow staff are keen and committed to achieving the steps needed to maximise our prospects of future success.”  

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  • David Mitchell

    This share placement is a kick in the guts for Redflow’s retail investors, of which I am one. It is at a 35% discount to yesterdays share price, but only open to professional investors.

    What is the Redflow Board saying?

    Either they had to price the issue that low to get it over the line, in which case what do they know that the market does not, or they are giving a sling to their mates?

    Not happy Jan.

    • Rod

      At 15c? it is already a 25% loss on Hackett’s initial purchase price.
      Maybe he was keen on a discount.
      Every new placement dilutes the value of current share holdings.
      People eventually throw their hands in the air and bail.

      • David Mitchell

        Of course share placements dilute holdings. But why does one shareholder get to participate at the discounted price and not another? I’d be very happy to subscribe for a proportional allocation at 10 cents a share. But I’m not going to get the opportunity.

        • Rod

          You must have more confidence in them than I do.

    • Jolly Roger

      It’s been obvious something was up for a while with the share price trending down to the issue price on the back of low trading volumes. Some form of capital raising was always coming. I see this more as the kick along the company needs. Assuming they get the investment they need and make the sales they expect the share price would have to increase in the medium term. I’m not expecting much movement or any dividends for the next 12 months though.

      • Rod

        They have been promising to be cash positive for a while.
        But that particular goalpost keeps moving.
        I think the latest stock exchange advice was 2018

    • Phil

      I’ll be looking to see what happens with the RFX share price on Monday ASX opening.

      12-18 months will pass before they even start to get their costs down on manufacturing according to their presentation

      That’s a whole new model generation for many manufacturers based on historical data.

      The TELCO market would want to be a “no brainer” to the point they sell 2000 plus batteries in the next 12 months JUST into that market to get my confidence.

      If the product is so good it should be selling NOW. 30% off the MANUFACTURED cost should mean they sell a lot more.

  • Phil

    So they chased the retail market with a some “trendy looking” covers. Then sold so little but realised the TELCO market might buy a few.

    Now they FINALLY move the manufacture to Asia where it should have been from day 1 and it’s going to be 30% less cost.

    What consumer is going to buy a redflow ZBM TODAY knowing in 2018 they are 30% cheaper ?

    UNLESS they drop the price 30% . But at $18k – $20k installed now that’s still a $15k battery after discounts installed with NO inverter , NO battery back up in a power failure (unless the inverter supports it) and no MPPT solar or genset or mains battery charger. These are all optional items at extra cost from other manufacturers.

    • Michael James

      But the real question is, are you making a fair comparison? What is the true lifespan of any of these lithium-ion batteries especially in a domestic situation where they will be cycled deeply every day? Does anyone even know? ARENA are currently testing all those domestic packages but I doubt they can report on lifespan (unless via some dubious modelling/assumptions).
      Even the grid installations don’t last ten years and need excess capacity installed at the beginning and then steady addition of new capacity at years 4-6 onwards (all of which might be covered by the manufacturers as they desperately chase volume and that market). Redflow should outperform lithium and have a much longer lifespan (and the two electrolytes can simply be replaced). As the article implied:

      to high-value customers who are sensitive to the inherent technical, lifetime and safety advantages of this product,

      Especially for those who want to go off-grid (because the non-usage charges are actually as big as the usage charges) I know I wouldn’t spend anything on lithium-ion.

      • Rod

        Anyone thinking of going off grid will need back up for the Zcell.
        It shuts down for self maintenance. I can’t recall how often but that would rule it out for some.

        • David Mitchell

          Agree here. But doubt you would ever go off the grid with a single unit anyway. (Still grumpy btw).

          • Rod

            I can’t see this capital raising causing the price to jump.
            I would sit tight as it may settle down to near the 10c price.

            I get their comms as I used to be a shareholder and all I ever see is rights going to directors, cash balance dropping and promises of a pot of gold someday.

            Don’t get me wrong, I love the tech and can see the possibilities but I lost patience and bailed while still ahead.

          • David Mitchell

            Beginning to think that would have been the right decision!

          • Rod

            No, the right decision would have been to hang on until it went to 67 cents. Sadly I didn’t. Oh and to buy at 3 cents.
            https://pageshot.net/t0ZCSpCd4psgsU06/au.finance.yahoo.com

          • Phil

            40 units ( 10 sites) a week sold into the Telco market should be the norm TODAY as that’s the PRIME market according to their presentations. They claim in the ASX presentation the lead acid batteries only last 18 months in that application in a hot environment with deep discharge. So there would be Thousands per annum needing replacement NOW .

            ASX pres here http://www.asx.com.au/asxpdf/20170714/pdf/43kmw8hfvmb3v8.pdf

          • Rod

            I recall the US army had some on trial but never saw the results. They didn’t get any sales AFAIK.
            You would think they would be ideal for some of the terrain the US is on these days.
            Maybe transporting a flow battery would be problematic.

          • Phil

            If the product is so good they would have a huge lineup of TELCO customers wanting to LEASE the batteries as it would be a cost saving over replacing Lead Acid batteries that die in 18-36 months.

            I know ( as an engineer) i would do this if i saved say 30% over my existing costs

            And it’s no risk because if there are issues the lease is null and void and you go back to using what you had before.

            Lots to gain but few seem to be doing this . Why ?

          • Rod

            Good point. I never thought about leasing.
            They do have an ongoing cash problem though so need sales.

          • Phil

            The leasing could be external. They would get the money up front. This is why i cant belive their business model is so good. EVERYONE does this , they dont

        • Phil

          You would need 2 for most homes anyway as the output for EACH is limited to continuous output 75 amps at 48 volts or it disconnects.

          Redflow state for the ZBM2 = 3kw continuous / 5kw peak is the max power.

          The tesla powerwall 2 is 5KW continuous , 7kw peak.

          Run the normal home base load of say 500 watts and a microwave and toaster and the Redflow will be on the limit and may drop out. The Tesla will still be going

          • Michael James

            Of course, a robust installation needs two cells though presumably one could use one set of control gear etc? I have always presumed that these are the reasons why Flow batteries can’t compete in domestic and mobile applications Well, that and the failure to get subsidies to boost scale–sometimes I wonder that those DelCons and Nats who constantly bitch about funding CSIRO, aren’t correct; I mean why do we spend money and decades developing technology without then supporting (seriously) its babysteps into the commercial world? Some estimates put Musk’s subsidies from government at up to $4.9 billion! For an inferior tech!

            One does wonder at RedFlow being so slow to target the Telco market. Given that these limitations were intrinsic–ie. easily foreseen a decade ago–it was foolish to look at individual domestic installations where the market (esp. Australia & US) is so penny-pinching and lacking in real-world calculations on future costs; note that the same people bitching about a $5k or $10k difference will go and spend $30k+ more on their Mercedes badge (and seriously, today they are not getting much more than that badge for the increment in cost) and not blink (then do it all again in 3 year intervals!). RedFlow could feasibly still have a niche in heavier vehicles like buses, medium-sized delivery vans etc. (In fact with government support it might develop such a good reliable product that Mercedes might come calling to meet those German-government mandated e-vehicle quotas in ten years!)

            I think it could still look at neighbourhood systems–and the government could consider supporting it–where the extra initial capital cost would be largely irrelevant but the deep cycling and robustness would be fully utilised. Not to mention being an integral part of a buffered grid. (Yeah, I know, that would take a government with vision and determination to overcome all the vested interests. We don’t do that in Australia.)

            And I’m afraid I don’t even accept the so-called “70% at ten years” spiel for Lithium. Can anyone give an example where any kind of Lithium battery performed that well (no “modelling” allowed; no of course they can’t because the technology isn’t that old.) We still don’t know what real-world performance will be, and I think we all know that Musk is desperately pulling out all the stops on establishing a market to feed the sheer scale of his Gigafactory. He is furiously loss-leading (on the back of US subsidies which he is expert at harvesting) and promising the world just to get over this hump–which if he manages it, he will be able to cope with any future problems and consequences of these early systems. Similar model as to how inferior VHS killed technically-superior Sony Betamax. But that comparison is false because energy storage is a much longer-term game.

          • Michael James

            Weirdly my post that appeared yesterday has disappeared today. I’ll repost part of it again:

            Of course, a robust installation needs two cells though presumably one could use one set of control gear etc? I have always presumed that these are the reasons why Flow batteries can’t compete in domestic and mobile applications Well, that and the failure to get subsidies to boost scale–sometimes I wonder that those DelCons and Nats who constantly bitch about funding CSIRO, aren’t correct; I mean why do we spend money and decades developing technology without then supporting (seriously) its babysteps into the commercial world? Some estimates put Musk’s subsidies from government at up to $4.9 billion! For an inferior tech!

            One does wonder at RedFlow being so slow to target the Telco market. Given that these limitations were intrinsic–ie. easily foreseen a decade ago–it was foolish to look at individual domestic installations where the market (esp. Australia & US) is so penny-pinching and lacking in real-world calculations on future costs; note that the same people bitching about a $5k or $10k difference will go and spend $30k+ more on their Mercedes badge (and seriously, today they are not getting much more than that badge for the increment in cost) and not blink (then do it all again in 3 year intervals!). RedFlow could feasibly still have a niche in heavier vehicles like buses, medium-sized delivery vans etc. (In fact with government support it might develop such a good reliable product that Mercedes might come calling to meet those German-government mandated e-vehicle quotas in ten years!)

            I think Redflow could still look at neighbourhood systems–and the government could consider supporting it–where the extra initial capital cost would be largely irrelevant but the deep cycling and robustness would be fully utilised. Not to mention being an integral part of a buffered grid. (Yeah, I know, that would take a government with vision and determination to overcome all the vested interests. We don’t do that in Australia.)

          • Phil

            I personally believe Redflow will go the same way as Aquion did.

            The only negative of the Tesla Powerwall 2 i can see is the need to mount them externally. But they are rated from minus 20 to plus 50 degrees celcius. So will work in about 98% of Australian locations. Active cooling and heating is the ONLY way to do it properly as you avoid the added cost ( and risk ) of a climate controlled room

            I’m looking forward to the Tesla Powerwall 3 which will perhaps have a 7/8 kw continuous inverter output and 20kwh plus of storage for around $12k aus INSTALLED in 2019

          • Michael James

            So you have faith that those domestic Lithium ion installations will still be meeting spec in a decade?
            Anyway my main point is where would Redflow be if it had received a fraction of the support that Tesla got from the US feds & state govts? There doesn’t seem anything that intrinsically makes flow batteries more expensive than lithium and indeed several features that should make it outperform lithium. (As it already does in bigger applications.)

          • Jolly Roger

            One word why Redflow woke up to the telco market – Hackett.

      • Phil

        I agree , if buying ANY battery , check the warranty is for the full lifecycle. And ask your self if that company will STILL be in business in 10 years time – 2027 – to honour it.

        https://www.solarquotes.com.au/blog/wp-content/uploads/2016/11/Powerwall-2_DC_Warranty_AUS-NZ_1-0.pdf

        • David Mitchell

          Pretty high bar. What else do you buy where the warranty is for the full life cycle. Certainly not a car.

          • Phil

            Redflow warranty theirs for the lifecycle of 10 years . As does Tesla (see link my previous reply)

          • David Mitchell

            Tesla warrants that the battery will still operate at 70% after 10 years (unlimited cycles). That is nowhere close to the full life cycle. The power wall will continue to operate for much longer, just with a de-rating. You won’t throw it away after 10 years.

          • Phil

            Just Buy and use it as a 10kwh battery , not a 13.5kwh one and it is fully covered

            That’s how i would anyway

            Lead acid is purchased at 30% capacity , Lithum Ion 70% . Redflow is 100% but only 10kwh anyway

  • Michael Murray

    So what’s the backup in Australian mobile phone towers ? Lead-acid ?

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