Buy, sell, hold: Revved up

By Jenny Ruth

Sunday 1st February 2004

Wellington Drive Technologies is a developer of brushless motors and fans for major appliances. The motors are a technological breakthrough: much smaller and quieter, they use less than half the energy of conventional motors.

VITAL STATISTICS:
The company was founded in 1986 and listed on the New Zealand Stock Exchange in February 2001, but has yet to turn a profit. It made a $2.3 million loss in the year ended June 30, less than its $2.96 million loss the previous year. Accumulated losses since startup to June 30 totalled $15.6 million. Still, an encouraging sign is that it is starting to generate sales. Revenue from sales, fees and royalties rose from $532,000 in 2002 to $953,000 in the latest year. At the same time, operating expenses rose only slightly.

SHARE PRICE PERFORMANCE:
Since listing, the shares briefly flirted with 80 cents before sliding reasonably steadily to hover between 20 and 40 cents for most of 2002 and into April 2003. By late November they were back to 78 cents, giving the company a $103.6 million market capitalisation. That's despite the fact that, with net equity having fallen to just above $2 million at June 30, it has had to go back to the market for more cash - with spectacular success. In August it announced a one-for-eight rights issue priced at 25 cents a share to raise $3.7 million, with the issue 130% over-subscribed. This was its fourth equity raising since 2000, the previous three having been share placements.

MANAGEMENT:
The company has gained considerable credibility since chief executive Ross Green joined in 1998. Green, 47 and an electronics engineer, previously worked for the likes of PA Consulting Services in Britain on product development assignments with companies such as Xerox and BP, and later undertook assignments with Germany's Robert Bosch and Finland's Nokia. He founded Wavedriver in Britain in 1993 with financial backing from PowerGen, a European top 50 company, to develop advanced energy management hardware and software.

CURRENT STRATEGY:
Under Green's management, the company's strategy has changed from its initial licensing model to manufacturing standard-sized motors itself, particularly "drop-in replacements" for conventional motors, which allow the major manufacturers to try out the technology.
Wellington Drive has extended its product range and can now satisfy 80% of its customers' motor requirements, up from about 15% a year ago. Its ability to now satisfy requirements for entire categories - for example heat recovery systems - makes it easier for customers to adopt its technology.

RECENT TRACK RECORD:
As the rising share price and stunning success of the rights issue indicates, the company has reached a significant turning point. "When we write the history of the company, we will probably decide that it [the turning point] was about November 2002," he says. That was when it sold manufacturing rights to German dishwasher and washing machine components manufacturer Aweco, which holds 85% of the European market. The previous month, the company signed a contract with Seeley, an Australia-based air conditioner manufacturer. Since then, new contracts have come thick and fast. While a number of its customers won't allow Wellington Drive to use their names for competitive reasons, it was able to announce deals with Arcelik, the Turkish global appliances manufacturer, and AO Smith Electrical Products, one of the "big three" electric motor manufacturers in the US. Most recently, Belgian company P Lemmens, which makes air conditioners, upped a supply agreement from 15,000 motors to 20,000.

"We've had huge votes of confidence from some of the best companies in the world." Green says. But, he warns, the company still has to prove it can deliver. "We don't have the mugs with 'Go Wellington' yet. The money isn't in the bank yet." But it has never been the company's mission to be a bit part player, he says. While it is extremely difficult to establish relationships with companies of the calibre Wellington Drive is now dealing with, "provided you deliver, it's really hard to be thrown out".

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