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RedFlow To Raise $16.1M In Placement, Fully Underwritten Rights Issue

Energy storage company RedFlow (ASX:RFX) will up the ante in 2015 with a $16.1 million capital raising, of which A$6.4 million is already underwritten.

Most notably, the placement includes $3.4 million to interests associated with director Simon Hackett, who led a consortium to invest $2.2 million in the company in May 2014.

Hackett is a non-executive director of RedFlow and a director of NBN Co. The placement is subject to shareholder approval to be sought at a meeting in late April.

The raising will be at $0.20 and will comprise a A$9.7 million placement, and a fully underwritten 1 for 9 non-renounceable entitlement offer to raise A$6.4 million.

The entitlement offer is fully underwritten by Morgans Corporate Limited.

The capital raising is at a 20.8% discount to the then-day VWAP, and a 9.1% discount to the last traded price

Making sales is the company's prime focus for 2015.

RedFlow produces a unique modular zinc-bromide flow battery which provides cost effective, safe energy utilisation and storage.

Company's capital structure pro-forma

Before the raising RedFlow had around 256 million shares, and post the offer and placement the company will have around 336.5 million shares.

Use of funds

- Funding a higher level of inventory;

- Placing demonstration systems of both individual batteries and containerised solutions in selected regions. These demonstration units will be available for immediate sale; and

- Investment in new machinery to facilitate higher volumes and reduce costs through automation of some key processes in manufacturing.

RedFlow sells first large scale energy storage system

Earlier in the year the company sold its first commercial large scale energy storage system to Base64 Pty Ltd.

The system is a 20ft shipping container modified to accommodate 60 ZBM3 battery modules providing up to 300kW and 660kWh of energy with a voltage output between 400V and 800V DC.

Delivery and installation is expected in June 2015.

This system is well suited to commercial buildings where solar or other renewable energy sources can be integrated with larger scale energy storage.

The design of this commercial system, once completed, will be available to the company's system integration partners at no charge.

Base64 Pty Ltd is a company associated with Simon Hackett.

Key benefits of this system are a full DC architecture, easy installation, ability to be interfaced with a range of commercially available inverters and a DC voltage of between 440V and 800V and it is relocatable.

Target applications for this system are larger mini-grid applications, grid support, distributed generation and renewables integration.

Key catalysts for the next 12 months

Sales is the prime focus for 2015:

- Large global companies engaged who have significant reach and channels to market;
- Converting trials currently underway in Australasia, Africa, Europe, USA, Central and South America, and the Philippines to firm sales orders;
- Significant sales prospects building with a number of system integrators;
- Primary objective is commercial sales and introducing our flow battery as an accepted credible alternative to other traditional forms of energy storage;
- Market opportunities significant and will focus on key segments identified;
- Consolidation and focus on current geographic markets and opportunities with no additional regions to be added unless in conjunction with existing system integration partner using existing product; and
- Sales team in place in USA and Asia Pacific with Europe to commence from 1 April.

Continuing focus on cost reduction in manufacturing:

- Incentive for Flextronics to reduce manufactured cost through sharing of cost savings they initiate; and
- RedFlow has a program of work to reduce bill of material costs substantially before end of 2015 with further ongoing reductions expected in 2016.

Continued ongoing product development:

- Developments focused on a combination of improved performance, lower cost and ease of manufacturability; and
- Commercial outcome for all ongoing developments.

RedFlow's achievements over past 12 months

- Cost per kWh reduced by over 36% with improvements in product performance - from $0.70c/kWh to $0.44c/kWh;
- Manufacturing transition completed to Flextronics;
- Containerized prototype successfully completed on time and budget;
- CE certification achieved by independent EU nominated body validating product safety;
- Product improvements, expanding applications and decreasing manufacturing cost achieved and continuing; and
- Engaged with eight system integration partners across 5 continents.

The product offering, markets and geographies have been expanded:

- Product offering expanded to include 3 different products as well as large scale high voltage containerised solution;
- Market applications expanded to now include telco, residential and mini-grid applications such as mining;
- Large scale containerised solution suits commercial applications, mini & micro grids and larger scale distributed generation;
- Price per kWh reduced and fast approaching grid tariffs in some countries increasing market opportunities;
- Distribution points in USA (Austin, Texas), Europe (Frankenburg, Austria) and Asia Pacific (Australian operations); and
- Distribution for Africa currently through 3 system integrators with existing facilities and channels to market.

Manufacturing has been successfully outsourced:

- Flextronics successfully manufacturing batteries in commercial quantities providing security of supply and consistent quality; and
- Scalable, outsourced manufacturing completed with full turnkey agreement and incentives in place for cost reductions.

RedFlow has continued to develop its partnering business model and is engaging with key stakeholders:

- Trials and testing underway in Africa, Europe, USA, Central and South America, Philippines and Australasia;
- Partnering strategy in place with both large multinational companies with scale, expertise and established channels to market, including Emerson and Raytheon, and smaller companies including Probe, BlueSky and SMS Global Technologies; and
- Ongoing technical development collaboration includes Albemarle, ICL, CSIRO and the Universities of Sydney and Queensland amongst others.

Analysis

The new investment and $3.4M placement to director Simon Hackett is a bullish signal to investors.

Hackett likely sees the opportunity in the energy storage market is within grasps of the company as it looks to make sales 2015.

The energy storage market is estimated to have a potential of $114 billion by 2017 of which zinc-bromide flow batteries will have a 19% market share - this equates to a USD$21 billion opportunity.

Solar integrated storage alone is forecast to be €15 billion by 2020.

Relevant applications for the ZBM include: Telecommunications infrastructure, Residential applications, Renewable integration, Remote power opportunities, Microgrids including community power and Sustainable solutions.

RedFlow currently has trials underway in Australasia, Africa, Europe, USA, Central & South America and the Philippines.

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