Wynyard Group’s [NZX: WYN] urgent $30 million rights issue announced on Wednesday will be the last new capital it requires, says chief executive Craig Richardson.
The software company’s shares plummeted when the issue was announced after a week-long trading halt, falling from $1.54 to close yesterday at 94c and wipe more than $80m off its market value.
Despite Wynyard’s desperate cash situation, with its accounts revealing a need for capital by the end of March to remain a going concern, Mr Richardson told NBR its sales pipeline would be self-sustaining from now on.
“We’ve been quite clear to the market that this is the last raise and we are focused on getting the business to profitability,” he said. “Based on our current plan we reach that point in the second half of ‘17. We’ve got some levers we can pull if we have any problems tracking on that but certainly we think it’s a robust plan.
“The intent is we reach that point in 2017 and we still have a healthy bank balance.”
Wynyard’s one for four rights issue at 85c a share followed the failure of a planned share placement to new investors, initially priced at a minimum of $2.
No resignation
Mr Richardson said he had been leading the discussions with those investors.
Asked if anyone’s job was on the line as a result of the cash crisis, he said the board would make those decisions.
“I can only relay the discussions of the last few weeks. Both the board and management have been united and focused on working our way through this. I’m very happy with the way we’ve come together to work our way through a pretty difficult situation so the company comes through in good form.
“The institutional feedback we’ve had is they are confident in the company. They understand the opportunity that’s out there. They think we could have done some things better. They are certainly providing that feedback and it seems to me it’s fair and reasonable feedback but it’s very constructive.
“To the best of my knowledge they haven’t asked me to resign and in fact they’ve said they’re supportive. So I guess we’ll work through that.
“I certainly have no intention of handing in my resignation. I’ve worked incredibly hard to build this company and I still believe we’re only just getting started and we have a very strong future.
“I certainly get a sense there’s a high level of confidence from the institutions we have or they wouldn’t have participated in the rights issue we’ve made.
“If other people have got feedback to the contrary I guess the board will take that into account.”
Australian, Asian investors
Mr Richardson said confidentiality agreements prevented him identifying the investors who pulled out.
“What I can tell you is it’s a mix of investors out of Australia and Asia, and there was some interest out of the United States but we really hadn’t progressed that. So most of the discussions we’d had were in Asia and Australia.
“Those conversations were in really good shape in October and through into November. Then we started talking about valuation and really testing that and got a positive response. Then we thought ‘how do we get this transaction away?’ and thought at the time we could progress that ourselves.”
The investors completed due diligence in early January, he said.
“Then, when the world woke up in January, the global markets had started to change and become more volatile, so some of them had to consider that and still stuck with us through January. Then when the tech sector dropped in late January and early February it just made it really difficult for them to continue.”
Perfect storm
Mr Richardson said the company’s strategy was to develop the capability to pursue bigger contracts and involved planned capital raising.
Although the strategy was working, the company ran into a “perfect storm”, he said.
“What changed as we went into the year end is some of those contracts we thought we would execute in early December and late in the third quarter just got pushed out into the new year. Some of those were unexpected and we have in place contingency plans around those. But it was the perfect storm really in terms of the timing of those contracts. The markets got really challenging literally overnight. So we ended up with a situation where we had $10-$11m of contracts we expected to have signed by 31st of December and we would have had a perfectly manageable headroom in our cash balances, to where things became a little bit tight.”
Revenue guidance
Wynyard’s preliminary result announced this week revealed revenue of just $26.3m for the year to December 31, well down on guidance given on November 12 of $40-$45m.
Mr Richardson said the company had told the market as soon as it knew it would not meet the revenue guidance.
“We knew literally when we told the market. As we went through there were a number of contracts that fell into the new year but that didn’t push us outside our range. As we finished December we had a contract in place and understood it met the revenue recognition criteria. There was some new information we received this week which led us to believe we weren’t in a position to recognise that revenue and it would fall into ‘16. Unfortunately given the magnitude of it, it pushed us outside our range. We’re all disappointed the headline number and where we’ve ended up doesn’t really reflect the work that’s been done in the company and the progress we’ve made, but it is what it is and we have to account for revenue correctly.”
On January 5, after balance date, Wynyard announced it had agreed a contract worth $27m over three years, conditional on its contract partner confirming it had completed commercial agreements with end users.
At its results announcement on Tuesday Wynyard said the agreement had been reached in December but it had that day learned $14.3m of revenue could not be booked for 2015 because end user agreements could not be confirmed as of December 31.
Mr Richardson told NBR the contract was one of several that did not close as expected by year end.
“We thought we were well into the [guidance] range in December or we’d have said something [to the market].”
Investors in the proposed placement had not known of the missed target, he said.
“They haven’t been given any information the market hasn’t been given. Due diligence is an opportunity to meet the team, to understand the business, to talk to directors. All major investors have done that. Those conversations took place from October.”
He defended the choice of a placement to raise capital, although it did not achieve any of its goals of speed, certainty and value.
“We felt like we did the right thing. We’ve accepted the criticism of it and we’ve accepted maybe we should have acted earlier and engaged a banker. We’ve done that. It dragged on because of circumstances outside our control. I’m not making excuses for that because we’re here to run a company and make sure we have in place contingencies for those events, but if you talk to any of the institutional bankers around town I don’t think any of them predicted the magnitude and severity of the market movement in January and February.
“We just had to deal with the information we had at the time. We’ve come out of this okay. There’s a lot of reviews taking place internally around how we made those decisions, but at the time we felt we were making the rights ones.
“The criticism of the process - people will take a view, but the feedback we had in December was that this was a good move for the company.”
Disclosure requirements
Asked whether he was confident the company had met its disclosure requirements, Mr Richardson said he was.
“All I can say is we fully comply with our continuous disclosure requirements. The contract wins we disclose on the NZX, we’re required to disclose because they are material contract wins. This is not a bunch of marketing people sitting around figuring out what they can throw into the market.
“I think you’ll find we’ve been very consistent in the timeliness and descriptions we’ve given around contract wins, the materiality of them. We’ve been following to the letter our disclosure requirements.”
Christchurch office
The company’s new Christchurch office was no sign of corporate excess, said Mr Richardson.
“Well we’re not building it ourselves, we’re renting it. We’re currently sharing with our former company Jade. It’s very tight in that building and it’s challenging getting space in Christchurch.
“There’s nothing ostentatious taking place in this company around expenditure on property.”
Governance review
A review of the capital raising process, as demanded by shareholder Harbour Asset Management, was now under way, he said.
“Of course. For last few weeks been focused on working our way through the problem. This morning at 7 o’clock we started reviewing how we got to this position and working our way through what could we have done better. Obviously pulling that information together internally.
“We’ve got a reasonable understanding of how we ended up here and we’ve got a very good understanding of the changes we need to make and in fact many of those started a couple of weeks ago as we knew what we’d have to do to meet the plan we are asking investors to support.
“One thing I can say about the management team and our board is everybody is very focused on making sure the events of the last few weeks don’t occur again. And realistic about the fact, we have to have a very honest look at how things progressed and if things need to change we’ll change them.
“I’d be silly to say they haven’t been challenging [events]. I’ve been super impressed with the attitude within the company to work through the problems and resolve them, which gives me a great deal of faith that in terms of what we do going forward that we can achieve it.
“It’s an experience you probably wouldn’t want to repeat but I genuinely think the company will come through this and be a better company for it. Sometimes it take these things to focus on what’s really important.”