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Wellington Drive Technologies': Ross Green

Jenny Ruth

Monday 22nd December 2003

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Jenny Ruth
Wellington Drive Technologiesí first annual profit since its inception in 1986 is at last in sight, although still well in the distance: chairman Shawn Beck told last months annual shareholdersí meeting that the company is expecting another loss for the year ending June, 2004, but that it should make a profit the following year.

SC: Youíve said that the company reached a turning point in November 2002. Can you explain what that was and its importance?

Managing director Ross Green: Weíd been out in the market with a new product range for about 15 to 18 months. In November 2002, we finally signed the deal with Aweco, the worldís leading manufacturer of dish washing (appliances) components. That one was the first of the new era with a customer of a profile that we wanted to work with. It had been pretty difficult for us up to that point. We had been offered quite a few commercial arrangements that we could have accepted, but they werenít just quite right. We didnít feel the sort of arrangements we were being offered would be that beneficial to the end customer. It was quite difficult for a company like this. Naturally enough, investors are keen to see hard results. Whereas 18 months isnít a long time in the overall scheme of things, it was a long time for investors, particularly in New Zealand. What people could see from then was a quickening pace of similar deals being concluded and somewhat more concrete achievements being announced. There was an escalated enquiry level from people we have never approached. More intangible things are the way competitors talk about us and the way customers talk about us. This year weíve been accepted as being more of a valid supplier rather than as an interesting curiosity.

SC: What is the significance of the company capitalising some capital spending for the first time?

RG: Itís a good signpost to the financial community at large. We only capitalise things when we feel thereís a strong chance of any further expenditure being recovered through sales. The boardís always take a very strict line on the question of capitalising intellectual property. Weíve reached a stage with a number of our product lines where they pass the test. The amount we carry on the balance sheet, assuming a dollar value, is almost illusory compared to what someone outside the company would place on that intellectual property. Intellectual property is only genuinely valuable if it comes as a part of the whole. Itís not worth a heck of a lot without the team attached to it. Iíve often found it quite strange dealing with companies in New Zealand after spending a fair bit of time in Europe. New Zealanders have this vision of a magic idea thatís patented and then the world will beat a path to your door. There are cases where thatís happened, but theyíre quite rare. The real strength of the company is the ability to make the technology connect with what the customer needs. Most of our strongest patents date from 1999. One of the real issues with patents as opposed to other forms of intellectual property, such as copyright, is that you have to describe pretty clearly exactly what you do. A lot of companies today are making a conscious decision as to what they patent and what they donít. Wellington is very much like that these days.

SC: Why do you think the recent rights issue was so heavily over-subscribed?

RG: We were very pleased and quite humbled by the support shown. We were most pleased to see over 99% of the shareholders took up their rights. The rights issue was reasonably attractively priced. I hope it means our message is becoming a bit clearer to investors. It isnít an easy company to understand. The market we operate in is quite complex and dynamically changing. Itís becoming easier to understand with the energy crisis. One of the most significant things that got us sales is that our motors save a lot of energy. If people understand what youíre doing, they perhaps come to share the vision. From an American or European investment perspective, the amount of money paid out to develop this technology so far isnít excessive. By international standards, itís minimal.

SC: Why has it taken so long to get to this point?

RG: The real competition for us in the market is inertia. Weíre up against products that are used in extremely large numbers. In the motor market we deal with, thereís roughly one billion units made and sold every year. The market value of those is $US22 billion or $US23 billion. The motors that are widely used today have been in use for a century. Itís very difficult to change when the product is good enough. While people can see the benefits of changing the motor, there are risks. The telephone market was very much the same. People forget that until the early 90s the phone hadnít changed since about 1910. The cellphone rollout didnít start until the late 80s. And the large internet successes like AOL, they basically didnít do very much for 10 or 12 years. Once the market starts to move, it moves very rapidly. Suddenly it gets to the point where technology and needs get a convergence at a price and a whole lot of new services can be offered. Motors are good enough, but everyoneís been aware for a long time that there are a lot of drawbacks. Motors waste from two-thirds to more than three quarters of the energy that goes into them. These small motors Wellington deals with are one of the biggest energy users in the US. There are so many of them that the amount of energy used in them is more than in the big motors. In the US, theyíre much more aware of the benefits of conserving after the blackouts. Because of developments in other areas of industry, we can offer products at a considerably more attractive price than 20 years ago. When the company started, it was a little ahead of its time. The market wasnít ready for it. The science was at the "bleeding edge" rather than the leading edge. When I joined the company (in 1998) there were almost no employees and there were no products. We put our new strategy in place by the middle of 1999 and we closed the doors and got down to work to develop some products to the stage where people could actually buy them and use them. We donít really believe itís been a long time. It has been a little bit longer than we would have liked. For a development of this scale, it hasnít been a long time.

SC: How many partners are you working with that you havenít named yet?

RG: Iíve always felt that we donít want to be working with more than eight companies simultaneously. Once you start and you deliver, customers tend to get pretty excited about what theyíve tapped into and their demands grow. Itís changed a little since weíve got more into having a catalogue of products. We have another five or six who are taking product but donít want to be named. They want to preserve their competitive advantage from our product without their competitors being forewarned. In our market segment in Europe alone there are more than 500 or 600 companies, not all of them large, who are targets for our products. There are three more that weíre doing variant products for Ė from our point of view, theyíre minor variations to the catalogue lines. One of them is releasing product at the end of February 2004. Once they know theyíve secured a relationship with us and theyíve got their product ready to be launched, they become proud to be associated with us. I donít know where our competition is going to come from. I have ideas, but I do know there is going to be a lot of competition (which is why the company is constantly working on new products). Itís the red taillights thing Ė all they can ever see is you taillights.

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