Week's Special INT: OFFERS GREAT OPPORTUNITY - TECHNOLOGY EQUAL TO THE BEST AS SMART METERING ROLL OUT BEGINS IN 08, WITH PRODUCTS FOR ENTIRE ENERGY MANAGEMENT CYCLE By Jenny Prabhu and Gerald Stanley
Intermoco Ltd has been focused on automated meter reading since listing in January 2001. While it has achieved several significant orders with various utilities over the years, the great opportunity is now, with the mandatory roll out of smart metering across Australian States - seen as an essential tool to monitor domestic electricity and water use as efficiently and cost effectively as possible, as governments as well as individuals fight climate change.
Automated metering infrastructure (AMI) enables the householder as well as major businesses (many of whom already have smart metering in place) to both save money and reduce carbon emissions while enabling the utilities to monitor multiple customer usage from a central location. With the increased requirement for customer consumption information, AMI offers significant cost, efficiency and productivity gains over traditional meter reading - a work force employed to physically read domestic meters quarterly - which is still the norm in Australia. Also, should rationing of electricity or water become necessary at any stage, smart meters become essential monitors.
The Victorian government is in the midst of the largest and most complex trial in the world of smart meter technologies and is being closely watched by the relevant authorities in the rest of the world. This follows the initial study in July 2005 when the Victorian Government, the Victorian Electricity Distribution Business and a range of Electricity Retailers commissioned a study on Enhanced Interval Metering Communications. Based on a positive business case for the addition of communications to interval meters being rolled out to customers consuming less than 160 MWh p.a., the Victorian Government has committed to the rollout of AMI to all electricity consumers. Pricing consumer response trials are being run independently over about two years and including two summers.
The Victorian government decision is expected early next year. There are some 3.5 million meters scheduled to be changed in Victoria beginning 2008 up until 2011. New South Wales has 4 million to 4.5 million meters to be changed with other States expected to follow. There are some 12 million or so households in Australia expected to be converted to smart meters - for electricity and later undoubtedly for water as well. Intermoco's "back office" technology provides the smart interface that permits the reading of many meters at one central place and is expected to attract a recurring - or annuity type - fee.
Meanwhile, Intermoco sees its Automated Meter Reading (AMR) solution as one step in the whole energy management cycle, which is its focus. All parties involved in the energy cycle are now actively considering energy conservation and greenhouse gas emission issues, and the market is moving towards measuring total energy costs including environmental costs and the requirements for carbon credit trading. Intermoco sees revenue flows emerging from this development in its secondary market activities.
Acquisitions in related fields to deliver measurable and rising profits Meanwhile, Intermoco has been active in acquiring other companies in related fields - including specialist energy management technology company Powersave Pty Ltd, announced on November 15, the earlier acquisition of the Ausmeter business which supplies meters, metering technology and services to major Australian water and gas utilities, the acquisition of UDS, which enabled a "World's Best Practice" win for water metering services , the acquisition of 10 pct of Energy Mad, a New Zealand company that has developed energy saving bulbs that use less mercury (en route to acquisition of 51 pct ) plus the acquisition of Energy Mad's distributor in Australia . (All Australian household incandescent bulbs must be replaced by 2009). Intermoco has also signed a licensing deal and joint venture alliance with metering major PRI of the UK (its parent Entity has become Intermoco's largest shareholder).
The recent $6 million capital raising, at 5c a share by Bell Potter was very quickly filled and a convertible note issue is underway, which should provide the capital required for the next 2/3 years, barring any major acquisition opportunities. While there were substantial management changes during the year, directors are long serving employees of the company, previously in management roles. Intermoco is energetically managed with a clear focus.
At its current share price, Intermoco offers investors a great opportunity to get in on the ground floor of the growing focus on the smart management and monitoring of reduction in greenhouse gas emissions.
INTERMOCO LTD - A SNAPSHOT
Intermoco Ltd was founded in July 1999 to commercially develop automation and remote monitoring and control system solutions and products using the LonWorks standard. It was acquired by Gawler Gold for $65 million in a scrip issue to the former owners and listed as Australon on January 15 2001 in the shell of Gawler Gold, with a name change to Intermoco in October 2002.
Intermoco's products have been developed using LonWorks technology licensed from Echelon in the US that focused on the remote control automation market, using the internet to allow monitoring from anywhere in the world.
Intermoco's Automated Meter Reading (AMR) solution and iEnable Gateway means that electricity meters can be read as often as half hourly in real time, providing critical information on electricity consumption to the utility to allow informed purchasing from the national electricity grid. Intermoco's Automated Meter Reading (AMR) solution is seen as one step in the whole energy management cycle, which is its focus.
Intermoco's AMR supplies the "back office" technology - the smart interface unit capable of reading a number of electricity meters at one central place. This is expected to provide Intermoco with a recurring annual fee.
Meanwhile, Intermoco has been active in acquiring other companies in related fields.
*Powersave Pty Ltd - technology reduces energy cost of fluorescent lighting by up to 30 pct Nov 15 2007: Intermoco announced the acquisition of specialist energy management technology company Powersave Pty Ltd which owns the exclusive Australian distribution rights to "Flouresave" technology - microprocessor controlled energy saving technology for commercial lighting. The energy cost of fluorescent lighting can be reduced by up to 30 pct utilising the Flouresave technology. The Flouresave technology is marketed in a number of countries including the US, Europe, UK, Singapore and South Africa.
Powersave markets this technology and energy management solutions to major commercial, industrial organisations, educational institutions and governments. It has forecast revenues for the 2008 calendar year in excess of $7 million. Intermoco's final consideration for the acquisition of Powersave is to be calculated at 5x the agreed EBIT for the 2008 calendar year with the total maximum consideration to be capped at $5.15 million, in cash or shares at Intermoco's discretion.
*Ausmeter business - supplies meters and metering tech to water and gas utilities Nov 13 2007: Intermoco reached agreement to acquire the Ausmeter business currently owned by Australian Meter Company Pty Ltd. Ausmeter has been in operation since 2001. It supplies meters, metering technology and services to major Australian water and gas utilities. Ausmeter recorded sales of $1.3 million for the 2007 financial year and projected sales for 2008 are in excess of $2 million. The Ausmeter business and Intermoco's Utility Data Solutions (UDS) business have worked cooperatively on projects in the past and have recently jointly tendered for a major metropolitan water utility contract for the supply of metering equipment and software solutions for manual and remote meter reading. The combination of the businesses will add remote meter reading capabilities for major water utilities, meters, meter reading and billing services for Embedded Networks and installation and commissioning capabilities for gas, water and electricity meters. The consideration is $1.32 million, payable $200,000 in cash and the balance in shares.
*10 pct of Energy Mad Ltd en route to 51 pct - mass market light bulbs that use less mercury Oct 10 2007: Energy Mad Ltd is a New Zealand company that controls the intellectual property, manufacturing and distribution rights for the mass market, new technology light bulb branded as EcoBulb. The bulbs use less mercury and provide a greater benefit to electricity distribution utilities than market competitors. Intermoco will buy approximately 10 pct of Energy Mad for $NZ5 million, expects to move progressively to 33 pct and ultimately 51 pct. Over 3.5 million EcoBulbs were sold last year in New Zealand through distribution arrangements with Shell, Government agencies and utilities. A householder using the EcoBulbs throughout the house will save approximately $NZ650 in energy cost over the life of the bulbs. Intermoco is acquiring Advanced Energy Ltd (subject to shareholder approval), which is the retail distribution company marketing these products in Australia and internationally. Sales of the new product range are expected to exceed 75 million units over the next four years. Ecobulb is currently retailing in Australia at $8.75 a bulb. All household incandescent lights in Australia must be replaced by end 2009.
*Purchase of Utility Data Solutions Pty Ltd May 16 2007: Intermoco purchased Utility Data Solutions Pty Ltd, (UDS) an established Australian software and services company with over 10 years experience in providing metering data collection solutions to major Water Utilities and Councils in Australia and internationally. UDS processes 10 million meter reads per annum for Water Utilities. UDS and Intermoco's software solutions complement each other and will provide the market with an overall enhanced product. UDS is highly profitable and will provide a strong profit and cash flow return to Intermoco. The agreement provides for the company to be acquired for $500,000 including stock on hand, comprising a mix of cash and shares. UDS continues to operate with its existing management team with Andrew Meehan continuing as CEO. The purchase of UDS will also facilitate the development of new meter data solutions aimed at meeting the needs of both water and energy utilities. In October this year Intermoco announced Sydney Water, using Intermoco's UDS real time meter management system has won world's "Best Practice" for metering services. UDS has also won a major contract with Tamworth Regional Council.
*Alliance with UK based PRI, member of the Entity Group Nov 21 2006: Intermoco has formed an alliance with UK based PRI (Polymeters Response International Ltd) a member of the Entity Group to support smart metering for residential and commercial applications. The Entity Group is one of the top five suppliers of meters and metering services worldwide. Intermoco has granted PRI an exclusive license to market and distribute Intermoco Advanced Metering Infrastructure (AMI) technology in Australasia and in international markets where it has a substantial market position. In addition, a j/v company has been established, PRI Utiligy Pty Ltd, to market metering service solutions to the Australian secondary market. PRI will market multi vendor, end to end AMI solutions to utilities based on the integration of PRI and Intermoco technology. These solutions will retain the multi vendor capability inherent in the Intermoco Utiligy AMI system. The license agreement will earn Intermoco in excess of $10 million from license fees and royalties over a period of five years. It is expected the overall return to Intermoco will exceed this, based on the sales of the Intermoco AMI technology in global markets where the licensee has a substantial market presence. Intermoco is working with PRI to develop a fully integrated meter to be available before Christmas.
Sales so far There are over 13,000 metering points currently monitored using Intermoco's Utiligy AMR technology. In excess of 20 new projects were awarded during the year with key customers/projects including Newcastle Airport, Epping Plaza, Freshwater Place, David Jones, DFO, Honeywell, Westfield, Silverwater, Roxby Downs City Council, YMCA Student Accommodation, Student Housing Australia, Colonial First State Property Management, Western Power, and CitiPower.
Competitors There are numerous competitors, including AMTY Email, the former Email metering business acquired by Bayard, Echelon (suppliers of the chips for various licensees including Intermoco but who also have a competing product), Itron and Iskra from Sweden.
Intermoco Ltd Financials Last Traded price 5.7 cents Shares Issued 1039.7 mln Market Cap $59.3 mln Year ended June 30, Values in Millions$ INCOME 2007 2006 Op Revenue 2.1 1.0 Operating (loss) (2.9) (6.1) Net (loss) (2.9) (6.1) EPS (Cents) (0.33) (0.82)
BALANCE SHEET 2007 2006 Current Assets 2.0 0.6 Non Current Assets.. 11.0 10.8 Current Liabilities 2.7 4.3 Non Current Liabilities 0.6 - Net Assets & Shareholders' Funds 9.7 7.1 Intangibles 10.4 10.4 Net Tangible Assets (0.7) (3.3) Gearing (Net of Cash) % Nil Nil NTA per share (cents) (0.06) (0.42) Shares Issued (Millions) 1023 805.5 Options Issued 40.1 44.1
Cash Flows: 2008 1st Qtr 2007 2006
Cash on hand (at open) 0.7 0.1 0.3 Operating Activities (0.2) (3.9) (2.6) Investing - (0.4) (0.1) Financing Activates - 4.9 2.5 Cash on hand at Year end 0.5 0.7 0.1
Our note: 1/Recently raised $6.0 mln cash by the issue of 120 mln shares at 5 cents. The acquisition of Energy Mad Ltd and Australian Meter Company P/L will absorb $4.5 mln immediate cash. 2/Raising $2 million via a convertible note, currently being finalised. 3/A major consolidation of shares on issue is expected at some stage.
Directors: Harvey Parker, chair. Appointed May 2 2007. Mr Parker is presently chairman of Pacific Turbine Brisbane, Chairman of DWS and Chairman of Newsnet and a former chairman of Dun & Bradstreet Australasia and formerly a director of Volante, returning to the board after initially being appointed a director (of Australon) in February 2001. Mr Parker was previously CEO of United Energy and New Zealand Post, Group managing director Commercial and Consumer for Telstra and head of the Department of Youth and Recreation of the Victorian Government. Steve Black, managing director, appointed as Chief Operating Officer to Intermoco in December 2003. Was earlier Managing Director, United Energy Telecommunications, Director, Forward Planning and Director Strategic Planning with AAPT, Group GM Customer Affairs, Telstra and Director of Gaming, Victorian Government Victoria. Jeffrey Bennett, appointed CFO and Company Secretary in April 2004, appointed executive director in 2007. Was previously in senior management positions with companies including BHP and Shell Oil and was CFO for Simoco Pacific.
Messrs Graeme Shearer, Martin Yii, Aiful A Shahabudin and Dr Azman bin Ahmad resigned during the year.
Major Shareholders: Entity Holdings P/L 9.8 pct
AHL Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
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