Finally got around to a closer look at the HY result, following initial disregard on the basis of cash-burn and low gross margin.
There are still some good things going on here. First half sales were a little higher than I'd expected, although more than off-set by lower margins (even allowing for restructuring costs). Forecasts for the second half include a necessary reduction in operating costs and significant reduction in inventory. Assuming the inventory reduction is achieved through sales rather than write-downs, and looking for margin improvement to 12-14%, along with further sales increases, this
could see cash-burn in the second half reduced to under $1m.
Continuing patterns into 1H12, but with only minor further reductions in operating costs and reliant on further margin increases, cash-burn is still likely to be in the $2-$3m range (no inventory reductions and probable overall increase in working capital requirements again). So, based on this, would be stretched to get through with no further cash requirement - although the amounts required might be relatively smaller than in the past. Increasing gross margin to at least the 20% level remains the toughest challenge to crack, especially while maintaining the rate of sales growth.
However, in the meantime, the outcomes of the Ziehl-Abegg discussions are likely to be crucial to cash position. Possible outcomes include improved margins, but lower sales, reduced inventory freeing up cash and perhaps a technology transfer payment? Certainly, from the
Ziehl-Abegg web-site, they look to be pushing their high-efficiency fan technology hard and achieving significant sales success. Any announcements regarding the outcome of discussions would be worth reading closely.
Overall, I would say WDT is still on watch and wait. If they can implement the items they've committed to this half, then they may start to look interesting for 2012, but, even so, profitability seems unlikely before 2013. Another capital raising in 9 months time can not be ruled out, although the scale of it may be reduced from past requirements. And the "risk" for long-term holders remains that a takeover will be mounted around the time shareholders get bored with waiting...