This was published on September 5th - surprised it hasn't been mentioned.
Alan Kohler: I checked in with Peter Rowland, the CEO of Micro-X, the Adelaide based small x-ray machine business because there was a bit of a blip in the share price last month when they announced an impairment charge and then clarified it a few days later and the shares went back up again so I thought we’d better find out what was going on. We had a subscriber query about that, worried about whether there was a problem with the company so I thought we’d better get Peter on the phone to explain what’s going on so we did that but we got far more than we bargained for – it turned into a long interview, 35 minutes or so talking about all of the other things they’re doing that sound pretty interesting really.
Firstly, he’s given us an update on where they’re at with Carestream which is the hospital x-ray machine deal that they’ve got with one of the world’s biggest suppliers of hospital x-rays and that’s interesting.
They’re also exploring airport security and they’ve got a contract with a UK business, the UK airport company in fact, to explore the use of their machines firstly to inspect whether there’s any bombs inside laptops but mostly and more importantly to look at whether these machines, the Micro-X machines, can replace the entire airport security.
Thirdly they’re looking at putting small x-rays into every ambulance to detect strokes because at the moment strokes are detected by CT scans and Melbourne has got one stroke ambulance at the moment which has a CT scan in it but they’re quite big and expensive and so they can’t really do it, they certainly can’t do it with every ambulance. What Peter is trying to do, he reckons he can do, is to come up with a product that can go into every ambulance to pick up a stroke to be able to x-ray and see the stroke.
A few lines of business are opening up for Peter and Micro-X, very interesting, well worth hearing about.
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Peter, perhaps we’d better start with the announcement on 13th of August about your impairment charge which you then subsequently had an explanation of or a clarification three days later. Tell us what that was about because the share price fell sharply and then since recovered, of course. What happened?
Yeah, I think we probably didn’t communicate clearly enough that this issue isn’t related to anything to do with Micro-X, or Nano, or any of the programmes that are in our horizon, it’s to do with XinRay who we own 30% of have set up a joint venture manufacturing facility in China which is – I think they’re struggling to get the people and things set up in the way that they wanted to so XinRay had written down in their books the value of the joint venture and geared somewhat with what that would mean for XinRay’s business. But that’s not great for you, you own 30% of that business, it’s important to you and they’re having trouble.
They’re having trouble in a venture that they set up in China but that wasn’t part of our plan so it doesn’t impact our plans at all. That’s what I made clear in the qualification. It would be good if it was successful but it’s not bad because it’s just running behind schedule and they’ve taken an opportunity to write down the value of that in their books and we’re doing the same. The important thing is that it doesn’t send any message at all about our future confidence and the technology or our future plans. Before we get onto other matters and your future plans just to finalise the discussion about XinRay systems. The thing that they’re setting up in China, is that to make carbon nanotubes for you?
Not for us, no, it was a joint venture to set up a tube manufacturing facility because something like 90% of the world’s x-ray tubes are made in China because it’s a labour-intensive activity. All of the big players have set up manufacturing facilities in China to make the core x-ray tube, those tubes are then supplied into units which look like they’ve been built in Germany, or Holland, or America, or wherever, but in fact the x-ray tubes are all made in China so XinRay embarked on a similar venture for this carbon nanotube. You mainly own the 30% of XinRay to protect your IP, correct, because they own it?
That’s correct, yes, and because they’re a strategic technology partner so having a seat on the board and steering their fortunes is good practice to protect a key partnership. Right. As we mentioned the share price fell after that impairment charge was announced and since then after you clarified it it’s recovered back to 35 cents. Tell us about where you’re at in general with the business, all that stuff aside?
Very excited about where we’re at and where we’re going. We’ve had a few irritating little last minute delays in our business with Carestream. I’ve got a fairly full report in the review of operations which you’ll see in our annual report. We had encountered an issue to do with the air freight shipment in the units that once they’d left us here and when they got to Carestream in New York were exhibiting a malfunction which was an occasional malfunction which took us a little time to trace this down to some impact damage that happened which we were rather upset with because of course we had done the professional thing and tested the Nano as part of its safety testing to all the international shipping specifications. We thought we’d tested it, when we put a Tell-Tale on the unit and examined it it turned out it was getting impacts that were like five times the maximum of what we’d seen in the spec and what we tested it to so that required us to do a little last minute catch up in fixing that issue which we’ve done now and the shipments to Carestream are back on. What you said in the annual report was that the cause of those issues was poor management of processes and quality in the transition from early low volume prototype operations. Who’s poor management was that?
No, that was a reference earlier in the year to the delays that we experienced really starting about this time last year. That was XinRay’s management and to some extent perhaps not surprising because it’s a small company that’s very technology focussed and the rigours of managing a supply chain in a production environment is just something that was new to them, they just didn’t have the people with the skills. We’re lucky we had because we had strategically decided that we wanted to base all our manufacturing practices on the car industry because the car industry is used to that concept of final assembly of a large number of parts from their supply chain but XinRay wasn’t and so that was the misstep there. They don’t have the rigour there of spending time in the supply chain, one of their welding contractors was doing some appalling welding and had they sent a supply chain quality person to that welder to watch the processes and check they were world’s best practice, no they hadn’t… Has Carestream got your product on the market now? I think it’s called Revolution Nano, isn’t it?
Revolution Nano, yes. It went on sale a few months ago so they’re showing it at exhibitions and doing demonstrations and starting to take orders. The heat on that will start to build because obviously we’ve had the July and August have been the kind of holiday season so most selling activity is pretty quiet but that’s starting to ramp up right now. Have they sold some?
