AGM Review

Hi All,

Sorry for the delay, here is some light weekend reading for you. The AGM was a valuable source of information that filled in some gaps and provided understanding in a lot of areas. From the management team we had Ross Maclachlan, Tim Horgan, Jeffry Myers, Malcolm Jacques, John Byrne, Alwyn Davey, Peter Littlewood and Nigel Chea present. So the board made an effort to attend and provide input in each area. Throughout the morning myself (the guy at the back) and a Hartleys representative asked several questions that Ross and other members answered, with Ross often deferring to the individual in the area that they worked in to provide further detail. I will attempt to provide the background to these, and have a taped transcript should anyone wish it by email.

HAINAN

I asked questions around this and the poor communication surrounding it and Ross was able to fill in some important details that i feel have never been clear with the market. I suggested that perhaps had the board communicated this information that there would have been more general acceptance around how the plant has played out.

Essentially, SSNE cocked things up as a legacy licence holder. When Ross stepped in when Kalina was asked over, Ross built the relationship with SINO up to the point that SINO and Ross (Kalina) were on the same side, working towards the goal of plant completion, while still having to deal with the issues from SSNE. Given that the plant was n such a state when Ross stepped in, he recommended a complete restart to which SINO declined and wanted to continue with what they had, hence the long delays in getting the engineering to a standard that would provide the efficiency that  the Kalina cycle was meant to provide. This included meeting with Chinese suppliers who made parts (i believe it was turbines but id have to listen back) to assist in the correct engineering of these items for future use. NOW UNDERSTAND, the above is a very important part of the Chinese cycle for Kalina in the future in meeting guidelines for builds if equipment can be made in China that will suit Kalina requirements for Chinese plants. So Ross, with SINO engineering, has developed several areas of the business in China including suppliers and relationships that will prove valuable in developing the SINO relationships.

ALL TIMELINES PROVIDED BY KALINA TO MARKET RE HAINAN ARE PROVIDED TO KALINA BY SINO. I can't make this statement any more clear. As i have said in the past, Kalina is essentially consulting on the project with the aim of task completion and is doing everything to assist in the commissioning and make it happen quickly. But SINO is providing the guidance and Kalina is passing it on. They DO NOT have control over this project.
This is the single most important fact that will change with any new signing in the future. It will NEVER happen again, as a deal will not be signed that is not going to be high level engineered by Kalina.

This plant IS holding up future deals with SINO, as of course they want the plant done before moving on. Two things that were made clear are: (1) CHINA STILL REPRESENTS THE LARGEST COMMERCIAL OPPORTUNITY TO KALINA and is actively being pursued regardless of plant commissioning. (2) The relationship with SINO is strong and has NOT been impacted by this plant, it has in fact been strengthened. This relationship has further been strengthened with the addition of Nigel Chea and his team, who provide the obvious benefit of Chinese speaking technical skill.

It was brought up that the information in announcements was present, but not clear. I suggested that it be clearer in the future so that people can understand that the company is doing a large amount of work and why things were the way they were. They agreed. Let me be clear, not one board member wanted HAINAN to continue on, they want it done, as they are aware that it is holding up deals for the future.

NIGEL CHEA

This is an excellent time to segway in to how fantastic of an addition Nigel is to the team. Ross asked him to outline what he was up to and given the short period of time that he has been here i am impressed with his delivery. In my private meeting with Ross he said that Nigel and his offsiders Daniel an Jason each command a massive respect in the Chinese environment when they walk in to a room and are well known. This has immediately opened new doors for us, with a meeting next week with BAOSTEEL, as a result of Nigels contacts from Meiya power. This escalated from a phone call amongst contacts and baosteel has requested the meeting and subsequent presentation. Nigel is also focussed on SDIC with a blurb about them below:

State Development & Investment Corporation (SDIC) is a state-owned investment holding company approved by state council. SDIC had a registered capital of 19.47 billion RMB yuan (3 billion USD), 467.1 billion RMB yuan (68.28 billion USD) in total assets, over 1 trillion RMB yuan (1461 billion USD) in the assets under management (AUM) in finance, and 30,000 plus employees by the end of 2016. Its gross revenue and total profit in 2016 were 87.05 billion RMB yuan (12.74 billion USD) and 18 billion RMB yuan (2.63billion USD) respectively. SDIC has been graded A-class in the annual performance assessment conducted by SASAC for 12 consecutive years and appraised as “Excellently-Performing Enterprise” for four consecutive rounds.  

Expect big things from Mr Chea and team in the future.

ROW

Hartleys asked about the ROW and how it was processing. I asked further questions to develop knowledge in this area. Ross made clear in the main meeting what has been mentioned before but probably not truly explained:
They are working in areas that are supportive of waste heat recovery and in provinces (Canada) and states (USA) that provide benefit to industry in using this technology. They are focussed on industry that will create multiple orders in environments that are supportive. Ross does not want to work in areas where they may get a single deal with the government or industry making it difficult to get that deal completed.

The 37 odd Mw that was announced as the 60-80% likely to come off has progressed down the deal line, and they clearly stated that they are comfortable with projections of 29Mw in 2018.

Ross made it clear that providing a Mw number in the future such as the above was not going to happen because deals can be at different stage of development at any given time. Someone asked the question of central america, Iceland Turkey etc of me: he used central america as an example when i asked him:


he said if you had asked me three months ago it would have been just an active file with not much happening, three weeks ago people were working nights and weekends to get the paperwork in, and now there is a holdup. So you guys need to understand, THEY ARE WORKING THEIR BALLS OFF but deals have an ebb and flow that can slow them down. and they will come.

TAUFKIRCHEN

Someone asked the question of what was happening here. It is an $80m CAPEX project in its entirety and there has been several delays that again are related to incorrect choices for components. They chose to use different engineers and installed the wrong heat exchanger, which is currently being bought again. Ross is working with the investment group to correct this and still feels there are still more improvements that can be made. Legacy licence has been revoked.

STAFFING

Someone made a point in a post that Kalina cannot manage a larger project. Let me put some context around that statement as there is more to be said. Ross stated that current staffing was as follows:

China-  7 staff, 2 in BD
ROW - 6 staff, 3 BD
Head Office - 6 Staff

The context lies in the following: Kalina is currently staffed for 2-3  deals a year, and would not have to increase expenditure to meet those requirements. But if 10 deals, drop Ross will increase staffing appropriately to meet the needs of the client. So we will always be staffed according to the number of deals we require people for. They will scale themselves accordingly.

RECURRING LEGACY REVENUE

Someone asked in legacy revenue was recurring. It is not. But legacy engineering fees are budgeted for 1-200k per year ( ie. high level engineering to assist in plant maintenance etc)

LIONS BAY PAN ANDEAN

I asked Ross about this and i am 100% comfortable that this is not impacting the share price in any way. The TSX is slow processing this transaction because they are understaffed.


JOHN BYRNE

Let me also make clear the statement from John about it being a billion dollar company one day. This was around some discussion about how he had personally invested his hard earned to keep the company afloat and how he had suffered along with every other shareholder due to his skin in the game. This was not a flippant comment- it was said he believes that the current board is excellent and can deliver on what they had discussed on the meeting. he conceded that the past was run poorly and that the current team is putting the company on a path that he believes can make it a billion dollar company.

MY OPINION

These guys are working hard and clearly know what they are doing. There has been an issue with communication in key areas to market that needs improvement in the future. I believe that we will get the first deal sooner than later and this share price will be a thing of the past. Speaking to Hartleys afterwards, there are still some believers there but others have sold out as we know. There will be some re-engagement required once deals get announced but there should be no trouble re-rating once they do. Pipeline is progressing and i believe that they are close to getting something(s) across the line. Although it is hard, hold faith and ye shall be rewarded.

I bought more two days before the AGM at 5.5, so of course i was thrilled to see yesterdays action.

any questions or if you want the recording please email or ask on here