RedFlow Limited
ACN 130 227 271
30 January 2017
Company Announcements Office
Australian Securities Exchange Limited
REDFLOW LIMITED (ASX:RFX) JANUARY 2017 MARKET UPDATE
This market update intended to provide shareholders with information regarding current
progress being made by Redflow Limited (Redflow) toward its commercial goals.
Strategic Review
As noted at the recent Redflow AGM, an in-depth Strategic Review is being conducted to
maximize the prospects of success for the company. The review is being conducted with the
assistance of external professional consultants.
The review includes areas of focus on:
- Market Place
- Competitor Analysis
- Manufacturing and Supply Chain
- Channels to Market
- Financial and Organisational
Key deliverables include:
- Proposed improvements to the business operating model
- Proposed revision to organisational structure
- Revised cash flow projections and capital requirements modelled for multiple
operating scenarios
The review will include a gap analysis in terms of executive skill set and will also inform a
board skills evaluation and refresh plan for 2017.
The review is being conducted with the active engagement of all key staff in all geographic
sites and is scheduled for completion in time for a company board meeting in March.
Production Update
Redflow’s CEO and COO, other relevant staff and a representative from our strategic
consultants have visited Flex in North America last week. The purpose of the visit has been to
evaluate production quality and consistency, to participate in a regular Quarterly Business
Review, and to verify that a consistent manufacturing flow has been established by Flex.
Flex manufactured a total of 84 batteries during the last quarter of 2016, with an inconsistent
weekly production rate across the quarter. This was the result of a number of manufacturing
process optimisation activities that were undertaken by Flex in cooperation with Redflow
during that period.
From January 2017, Flex has commenced consistent production on the manufacturing line
and has committed to a minimum supply of 90 batteries in each month of the first quarter of
2017, for a total of at least 270 batteries to be manufactured across the quarter.
Flex has confirmed during the Quarterly Business Review its commitment to meet this
production rate and has also confirmed that the existing production line has physical capacity
sufficient to at least double that monthly production rate.
In accordance with that commitment, and as verified by Redflow during the January factory
visit, Flex are now in the latter stages of testing and shipment of 90 new ZBM2 batteries in the
week ending 3rd February 2017. These batteries will be sea freighted to integrators, with key
destinations being Australia and South Africa. Batteries will also be delivered to fill orders for
deployments in various other countries.
Multiple production scaling paths exist to extend production beyond the capacity of the
existing line. These paths are currently under discussion between Flex and Redflow with a
view to optimizing both supply chain and delivery chain efficiency when the production rate
scales up.
Production volume from Flex is specified by Redflow on a rolling quarterly basis. The
production quantity ordered for each quarter is determined by Redflow in response to sales
order flow and sales forecasts.
ZBM2 units on test at the Flex factory last week
ZBM2 units being readied for shipment from the Flex factory last week
ZCell Warranty Update
The warranty for the Redflow ZCell product was previously segmented and differentiated
between the core electrode stack and the balance of system components.
The ZCell Warranty has been simplified and now covers whole device for ten years or
36,500kWh of delivered energy (whichever occurs first).
Additional Sales in Various Countries
Paid evaluations of our product in our key Telecommunications market segment are currently
being undertaken by integrators (on behalf of telecommunications industry end customers) in
countries including Indonesia, Singapore, Thailand and the Philippines.
An evaluation system was also delivered and commissioned in January in India for an
integrator that intends to develop, market and sell our product into commercial applications in
that country.
Vertiv (formerly Emerson Network Solutions) is currently installing a new 4 x ZBM2 system
into a telecommunications site in Australia. This deployment is based on a standard Vertiv
system design used for the deployment in New Zealand that was highlighted at the Redflow
AGM in 2016.
Small sales of further ZBM2 products have also been delivered and deployed (from
production during the last quarter) in multiple European countries.
ZCell Sales and Deployment Update
ZCell deployments are continuing. Installers have deployed systems in multiple states and for
a variety of end-customer applications.
The unique technical attributes of the ZBM2 are highly compatible with off-grid energy system
deployments.
A number of new ZCell orders have been received in December with a particular focus upon
off-grid energy system deployments using Victron Energy inverter/charger hardware.
These off-grid orders are for systems deployed with multiple ZBM2’s per site. Off-grid
systems use 2 or more ZBM2 units, with one order having been received for a 6 x ZBM2 offgrid
system designed to scale to 12 x ZBM2 units later.
AS4777.2 Certification for Victron Energy
Victron Energy, our preferred inverter/charger hardware platform for ZCell deployments, has
recently obtained Australian Standards certification to AS4777.2 for its new MultiGrid 48/3000
product. This is an on-grid version of its highly successful MultiPlus inverter/charger series
that is typically used in off-grid deployments.
This is a significant development for Redflow as it provides a very smooth deployment path
for installers seeking to deploy on-grid ZBM2 based energy systems using our preferred
inverter/charger hardware platform.
We expect this will drive increased on-grid orders for ZCell deployments using the Victron
product set.
Leveraging Fire Safety of the ZBM2
Battery deployments in commercial and industrial settings typically require a Development
Application be lodged with a local council that confirms compliance with relevant national
battery fire safety standards. While the standards concerned are national, certification must
be performed on a state-by-state basis against these standards when submitting a
Development Application for a battery deployment in a commercial environment.
To demonstrate the low compliance burden of our products, Redflow has commissioned a
report from an accredited Private Certifier in South Australia who has mapped the technical
characteristics of the ZCell system to the relevant fire standards.
The report is being used to support two distinct development approval applications in
Adelaide, South Australia to install ZBM2 batteries into energy systems. One application is for
a two battery external system using ZBM2 units in ZCell enclosures and the other is for a six
battery internal rack-mounted ZBM2 system, both without the construction of further fire
barriers.
The report concluded in relation to the proposed installations that the ZBM2 Energy Storage
unit, when installed in accordance with Redflow's guidelines, would comply with applicable
South Australian building regulations. Specifically, it found that there was no need for a fire
rated barrier separation from the remainder of a building in which they are installed.
In reaching the conclusion, it was noted that the ZBM2 units generally have low fire hazard
properties and that:
• batteries located inside a building in an internal dedicated electrical compartment
would be adequately separated because of requirements for the complete electrical
installation; and
• batteries located external to building would be adequately separated as proposed.
This low compliance burden offers considerable advantages relative to some other types of
battery.
Sales Channel Development
The Redflow sales team is working diligently to establish a recurrent order flow from our
existing integration partners in multiple countries, now that we have commitments to supply
rate in place from Flex.
We are focusing our efforts upon the opportunities where our integrators have the most
experience and the highest confidence in our product offering.
Our commercial aim is to smoothly absorb our current production rate through closing sales
and making deliveries to our integrators and to then ramp production in concert with
subsequent ramps in order rate from those integrators
Technology Update
Upgrades to the Redflow ZCell BMS and to the firmware on the ZBM2 on-board system
controller continue to be developed and progressively released.
Recent examples include:
• An automatic ‘run idle’ capability for the ZBM2 that improves energy efficiency and
increases time between ZBM2 maintenance cycles by changing the pump operating
duty cycle dynamically in accordance with current energy system demand
• The Standby Power System (SPS) operating mode for the ZBM2 noted in the AGM
in 2016 is in the final stages of testing before field deployment
• The BMS platform now supports easy and automated updates of BMS software,
along with supporting the remote (in-field) upgrade of ZBM2 battery controller
firmware to enable in new features for such as those noted above
• Battery fault alerts via email are now available, to allow integrators and/or their enduser
customers to receive automated alerts in case of any battery operational issues.
Capital Raising Prospects
The commonwealth government’s R&D tax incentive refund of $2.2million (expected prior to
31 December 2016) was ultimately received on January 6, 2017. The pro-forma cash balance
of the company as at 31 December 2016 (including this refund) was approximately
$6.1million.
Redflow continues to monitor its working capital requirements closely and considers that
there is a reasonable basis to believe that it will secure additional funding for its operations
should that become appropriate or necessary to support the next stages of the delivery of its
products to market.
A detailed roadmap for the growth and development of the company (including associated
capital requirements) is a key outcome of the Strategic Review being conducted at this time.
The company considers that it will be capable of successfully accessing a variety of capital
raising mechanisms as required, with the support of the information and plans being
developed in the strategic review process.
Simon Hackett
CEO & Executive Chairman, Redflow
Phone: +61 8 7324 5564
Email: [email protected]
(20min delay)
