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Cleantech magazine, a Cleantech Investor publication
International AIM - Vycon PDF Print E-mail

Maiden results encouraging

 

 First published in Issue 3 of Cleantech magazine, September 2007. Copyright Cleantech Investor 2007

Vycon, the AIM-listed California-based designer and manufacturer of high speed flywheel based energy storage systems, reported interim results on 31 August 2007. The company is currently targeting its products at the global uninterruptible power supply (UPS) and dockyard crane markets, where its clean technology can significantly reduce emissions of greenhouse gases and other pollutants. With funds from the IPO earlier this year, Vycon has commenced development of a larger flywheel unit aimed at rail use as well as UPS. The company has successfully moved into a new, larger facility which will allow it to add capacity in line with growth in demand. Vycon is also aggressively introducing a cost reduction programme that should bring significant benefits as production ramps up.

The company’s maiden results show that in the six months to 30 June 2007 Vycon has made significant year-on-year progress with encouraging shipments of UPS and crane systems. Sales of US$252,260 are over 30x the corresponding figure of US$8,006 in 1H 2006, and the company has a strong balance sheet with US$14.4 million cash as a result of the IPO in March 2007 and lower operating expenses.

Reclassifying Vycon from a development stage company last year to a company in production in 2007, and the accompanying accounting treatment, has led to a significant change in the way cost of sales is reported and hence to the gross profit. Formerly the vast majority of manufacturing expenses to support assembly, test and development of beta units was treated as R&D, and not cost of goods sold. Now, the manufacturing infrastructure costs are added to the cost of goods sold. The gross loss comprises a gross profit of US$44,332 from sales minus direct costs, and a loss of US$802,271 attributable to indirect and fixed manufacturing infrastructure costs. However, the flip-side of this is that operating costs were reduced, and the operating loss was reduced from US$3.4m in  1H 2006 to US$3.0m. Loss per share was US$0.14 (compared with US$0.77 last year), with the reduction aided by the issuance of new shares over the past twelve months.

Regarding the near term outlook, Vycon had indicated in a trading statement in July 2007 that more extensive testing by some of the port operators would lead to delays in sales, and that there had been disruption in the UPS sales channels in the wake of M&A activity in the sector.

The disruption in Vycon’s UPS sales stemmed from the 2006 acquisition made by the French company Schneider Electric of American Power Conversion, a UPS competitor to Schneider’s subsidiary MGE UPS Systems. Vycon had entered into a strategic alliance with MGE in January 2007 to provide VDC (volts of direct current) systems to be integrated with MGE’s Comet and Galaxy PW models.

The subsequent merger of MGE with APC, both battery-based UPS systems providers, resulted in a disruption of Vycon’s drive to recruit and train manufacturers’ representatives and distributors in the UPS sales channels. Vycon has refocused its UPS sales efforts on continuing to train the remaining manufacturers’ representatives and distributors, and to sign on new ones. However, this has clearly led to a shortfall of sales in the first half of the year which is likely to persist for several quarters.

Three REGEN 120 units for cranes have been shipped to port operators in the half year, and in addition there are two currently undergoing long-term testing at two further port operation sites in the US. Test results have been positive, and in some cases the testing has been expanded to evaluate the use of the flywheels with smaller generator sets, which should lead to even greater fuel savings and emissions reductions. This extended testing has resulted in delays in ordering, and the testing itself has been a protracted issue. Because the port operators are not engine specialists, the diesel units with which the REGEN units have to be connected were not optimally selected, leading to engineering complications. In the course of this work, Vycon has progressed up a steep learning curve in terms of coupling flywheels to smaller engines and control systems from diverse suppliers, making it the most experienced in this type of integration.

In June 2007 the rigorous testing programme of the REGEN system by the University of California, Riverside (CE-CERT) on behalf of the California Air Resources Board (CARB) was completed, and verified the emissions-reducing feature of REGEN. Vycon has thus submitted an application to CARB for a formal verification certificate. This certification, internationally recognised, will be of great assistance both in California and worldwide.

Although frustrating, the delay in sales is not uncommon for a company at this relatively early stage, and the extended crane testing programmes should see Vycon emerge very strongly.
 
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