andrew neilson reply

Very interesting reply from Andrew Neilson posted on a british bb this morning (20th oct) by mikemine at 10:46.

http://www.iii.co.uk/investment/detail/?display=discussion&code=cotn%3ACFU.L&threshold=0&pageno=2&it=le


I wrote to Andrew Neilson over a couple of concerns I had and here I post his reply. As he says, developing a company is not a precise science.

Thanks for your note.

I can't recall the reference to the integrated products being ready in
June - in any event they are on track to be completed this Qtr, November
from memory. (I am typing this at home.)

Re the Heinsberg factory - this has been a long term strategic decision.
It was part of our IPO prospectus in March 2006. We announced the
factory location in Dec 2006 - so we have been working on this for a
while, as part of our strategic plan to get to volume production, as the
only real way of getting down to commercial unit costs. All those
strategic reasons are long term factors; they will not change from month
to month. Having said that, it is valid to ask "why build a plant
now?".
The answer/s, in no real order, are:
- we need to have volume capacity to get costs down in order to get
commercial orders (the 'chicken and egg' dilemma for all new products)
- there is current demand: from our integrated mCHP partners - including
from E,On in the UK (100,000 units from 2012 in order to maintain
exclusivity) - and, significantly, from the new BlueGen product.
- there is strong future demand - We see very large markets for BlueGen,
including Australia and North America, as well as Europe.
- building an automated plant increases consistency, yield and quality
control, which is needed to produce commercial quality products.

Companies commercialising a new product like us always face a balancing
act between: scaling up too fast and having under utilised production
capacity, vs not scaling up and not being able to get costs down to
expand demand. In our opinion the greater risk is to keep tinkering
away at hand made units in very small volumes, missing the opportunity
to deploy the technology into the market. We mitigate the scale up risk
by scaling up in modest steps: 10,000 units is a lot from where we are
today but is only a tiny fraction of the addressable market.

I have rambled somewhat but I hope you get the sense that Management and
the Board have given a lot of thought to this strategic decision over
several years. There will always be some under-utilised capacity in the
early stages but in our view this is the lesser evil than never taking
the step up to automated production.

Once again thanks for your note.

Regards

Andrew