RedFlow Limited (RFX) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Red Flow Limited Annual General Meeting for 2020. I will now hand the conference over to your first speaker for today, Chairman Brett Johnson. Thank you, and please go ahead.

Thank you very much. Good morning. My name is Brett Johnson. I'm the Chair of RedFlow. Due to the current COVID-19 pandemic, we believe that it is prudent to take a conservative approach and hold a virtual annual general meeting this year. As such, I'm very pleased to welcome RedFlow shareholders to our first virtual AGM. If we experience any technical issues today, a short recess or an adjournment may be required depending on the number of shareholders being affected. If this occurs, I'll advise you accordingly. Initially, I'd like to introduce your directors. Tim Harris. Tim was appointed CEO in March 2018. Tim is a seasoned telco executive who brings valuable insight and experience in the telecommunications sector, which is an important target market for RedFlow. Tim has guided RedFlow through its transformation from an R&D organization into a commercially focused sales and marketing entity with a quality manufacturing facility in Thailand. As we start to emerge from the COVID-19 pandemic, Tim is working tirelessly to reestablish our sales and marketing, training and our after sales support infrastructure and is focused on developing a pipeline of orders, which will support the ramp-up of battery production as quickly as possible. He has been a very solid leader during the COVID-19 period and is now moving forward implementing the strategic opportunities he will outline in his presentation. David Brant. David joined the Board in October 2018. David's background includes more than 20 years of senior manufacturing management roles. John Lindsay. John joined the Board in September 2018. John has held a number of senior technology leadership roles in listed and unlisted companies. And David Knox. David joined the Board in March 2017. He's a very experienced CEO of listed and unlisted companies and chairs RedFlow's Audit and Risk Committee. Also present today is our Chief Financial Officer and Company Secretary, Trudy Walsh. I'd like to thank the Board for their support through a difficult period for RedFlow during the COVID-19 pandemic. I would now like to move to the formal part of the meeting and I table the notice of meeting dated 27th October 2020. I've been advised that there is a quorum present, and I declare the meeting open. The agenda for today's meeting will be: a Chairman's address, a CEO address, followed by the formal business of the meeting, which includes the resolutions that need to be considered. I note that questions this year will need to be submitted in writing. If you have a question, please click the Ask Question button, type your question and click Submit. I encourage you to send any question you may have, either in relation to RedFlow generally, or in relation to a specific resolution as soon as possible. Please don't wait until the relevant question times as it will make the meeting run a lot clear -- clearer and cleaner if we have the questions ready to go. Questions will be asked at the appropriate time. And if there are any -- if there are more than 1 question on the same point, we will ensure the general issue raised is asked. Voting on all resolutions today will be conducted by way of poll. Shareholders attending the meeting online will be able to cast their vote using the electronic voting card received when online registration was validated. Please refer to the virtual Annual General Meeting online portal or use the help line. I remind key management personnel and their closely related parties of the applicable voting exclusions and that it is their responsibility to ensure that they do not cast any votes in breach of those exclusions. As a result -- the results of each resolution will not be declared at the meeting but will be announced on the ASX once the results have been finalized. A number of valid proxies have been received by RedFlow, and I will provide proxy details for each resolution at the appropriate time. In relation to proxies which I hold as Chairman, I note that if a shareholder has directed me to vote in a certain way, I will vote in accordance with that direction, as is required by law. If I have not been directed to vote in any way, I intend to vote in favor of resolutions 1 to 6 and against resolution 7. I'd like to take this opportunity to make a few remarks about 2020 before handing over to Tim to update you on the commercial and strategic plans for RedFlow. We started 2020 in reasonably good shape. We are beginning to gain traction in our target markets and, in particular, in the telco market in Southern Africa, which has a significant demand for reliable backup energy in an environment where battery theft is a challenging issue. Tim and his team has had a reason to be optimistic that we would receive our first significant order from South Africa. There was also good interest in the Australian and Southeast Asian markets. Then the global COVID-19 pandemic struck and the resulting government lockdowns and restrictions on international travel impacted the momentum that has been created in the first half of the year as investment decisions were delayed due to general economic uncertainty. Despite these challenges, RedFlow continued to maintain its focus on our key markets, partners and end customers. We also decided to utilize our available technical team to accelerate the development of our next-generation Gen3 zinc-bromine flow battery. The new developments under our Gen3 program include a major advancement in stack technology, tank architecture, improved cooling and a new electronics control system. These developments are expected to deliver manufacturing cost reductions of at least 30% compared to current ZBM2 batteries. Commencement of end customer trials of the Gen3 battery are targeted by the end of calendar 2020. Critically, the Gen3 program will allow us to be more competitive in small distributed energy systems, which is our current target, but also position us for expansion into larger centralized systems over the medium-term through a new stack designed for volume manufacturing. I'd also like to acknowledge the ongoing support from our management team during the worst of the COVID-19 period. All executives agreed to a 25% reduction in base pay while continuing to work full time. Other employees also accepted reduced working hours and remuneration. In addition, your non-executive directors agreed to take a material reduction in their fees with all NED fees being reduced to an amount equivalent to a Job Keeper payment. This commitment to RedFlow, together with government support in the form of the Job Keeper allowance have really assisted us getting through the worst of the pandemic while keeping our core technical team in place. Finally, I'd like to thank those shareholders who participated in the July entitlement offer, which will enable RedFlow to implement our near-term growth and strategic plans. Over the past 2 years, RedFlow has achieved significant progress in establishing the building blocks to position the business for growth in the future. Critically, this included a talented team, a strong manufacturing base, a growing set of reference deployments in our target markets and applications and significant progress in the development of a competitive product. Although COVID-19 has impacted on the progress we hoped to achieve in the 2020 financial year, we remain confident that these investments and capabilities position the business well for the future. Tim will now provide a detailed commercial and strategic update, focusing on the last year as well as our plans for the next 12 months. Over to you, Tim.

Thank you, Brett, and good morning, everyone. Thank you all for joining us this morning. As required by the ASX listing rules, RedFlow has released both the Chairman and my address on the ASX today. It will also be available through our website. My address will firstly cover our progress over the last 12 months, assess our position today, and then lastly, look forward to the prospects and focus of the company over the next 12 months and beyond. As everyone will appreciate, this year has been one like no other. Coverage of the Australian and international impact of COVID-19 has been well documented, and we've commented previously on the various impacts that the virus has had on our business. Despite these headwinds, we have continued to make headway in the financial year 2020. These include: 144% increase in sales with revenue achieving nearly $2 million, this is the highest since 2012, even taking into account our second half, which was materially impacted by the pandemic; a growing ecosystem of high-quality partners in our target markets, such as TIEC, 720 Electrical as well as SSS and Mobax in South Africa; a set of high-quality end customers with an increasing set of deployments and proof points in the field that showcases our credentials; demonstration of the flexibility we have in our business model by scaling down our tire and manufacturing facility to preserve cash and working capital requirements; launch of a number of exciting customer-led innovations, which significantly adds to our value proposition; ongoing cost measures, including payroll cost reduction of approximately $2 million, which resulted in a 52% improvement to cash flow for FY '20 compared to FY 2019; and finally, material progress in our new Gen3 battery, which will enable a more competitively priced battery and volume manufacturing ability. In addition, as Brett noted, we also raised $6.9 million under a successful capital raising, which exceeded our stated target of $6.25 million. This capital injection, in conjunction with the cost savings measures outlined above, has positioned RedFlow to execute further on its growth strategy and weather the current environment. I would like to thank those shareholders who participated and/or supported our broader efforts during the raise. We continue to implement prudent cost measures to ensure that we are spending our cash reserves appropriately whilst recognizing we need a core team and set of capabilities to make progress against our growth strategy. Commercially, our story for 2020 has been a game of 2 halves. After a positive first half of the year and growing activity in our target markets, the impact of market conditions and COVID-initiated restrictions had a significant effect. These, combined with travel restrictions, had a material impact on our momentum, particularly in South Africa and selected opportunities in Australia. Nevertheless, we have managed to make very good progress across a number of fronts. Our relationship with various Australian partners, notably Carbon Friendly Enterprises in Queensland, 720 Electrical in Victoria and TIEC in Western Australia have deepened significantly. They can all now confidently position and sell our value proposition in the market with minimal support from us. We have also brought on new partners, which align with our market focus and values. The Australian and New Zealand market remains an important one for us across telco, commercial, industrial and the high-end residential space. We have exciting set of opportunities that we will look to convert into firm orders over the coming months. More aggressive pricing over the last few months has also increased our market competitiveness and interest. Our activity in Australia with selected telcos continues across several exciting projects but has been slower than we had originally hoped at the start of the year. Being only one part of an overall system means that we remain dependent on the broader telco deployment machine. We've also had a few disappointments and frustrations on the sales front. RCG in New Zealand, under new management, decided not to go with our partner after a protracted tender process and is reportedly favoring a cheaper battery solution on a small number of further sites. We will continue to support the handful of systems that RCG have already rolled out with our battery solution. More broadly, the Australian renewable energy market continues to accelerate. A number of exciting new energy storage projects, including multi megawatt scale, continue to grow as well as emerging initiatives across various states for higher levels of grid independence. Earlier this year, Angus Taylor, the Federal Minister for Energy and Emissions Reduction released the highly anticipated Technology Investment Roadmap. The Ministerial Reference Panel is chaired by Dr. Alan Finkel, who investors will recall, visited our deployment at the Knox City Council Wantirna South Childcare Center in Melbourne in November last year and has made positive statements around the role with flow batteries. The first low emissions technology statement clearly advocates that technology-led approach as key to Australia achieving reduced emissions while supporting economic growth. The roadmap includes a stretch target of energy storage, electricity from storage for firming under $100 per megawatt hour. The report reflects the Australian government's recognition of the critical role of new technologies to help achieve key emissions targets and the core role of government support and funding to help bridge the gap between new technologies and commercialization. AEMO, the Australian Energy Market Operator, released its 2020 Integrated System Plan in July of this year. As its planning horizon is at least 20 years, the ISP must provide a least-regret, dynamic, resilient and transparent road map for the NEM through Australia's energy transition as well as increase system resilience to better deal with future challenges. The report highlighted that the market will likely need 6 to 19 gigawatts of new dispatchable resources to firm up the inherently variable nature of distributed and large-scale renewable generation. The report noted relatively shallow 1-2 hour energy storage is initially needed to provide firming capacity and intraday energy system -- shifting as we have seen from the Tesla battery system in South Australia, which has been wildly successful. Critically, the report noted a significant growth expected in the medium-term storage requirements for intraday shifting, including 4-plus hour batteries. AEMO has modeled that as the share of variable renewable energy reaches 65%, it expects the proportion of medium energy storage capacity is required to grow to around 15% of total variable renewable energy. The value of this category of storage is in its intraday shifting capability driven by demand and solar cycles. With our new Gen3 battery as a core building block, we believe this opens the door to RedFlow's ability to target these medium duration markets, which are naturally well suited to flow batteries. On this topic, we have continued with our attempts to engage with several federal and state government stakeholders to continue to position ourselves as a proudly Australian technology with characteristics, which are ideal for the Australian environment. Our efforts in this space are ongoing and recent discussions mean that I remain optimistic that the important role of flow batteries and, therefore, RedFlow is slowly but surely being recognized. Now is the time for action, and we hope this includes further recognition of support of Australian-based technologies in 2021. On a global basis, we continue to believe that South Africa and the broader African market presents an exciting opportunity for RedFlow. We have continued to build our profile in this market and remain engaged in a number of smaller and volume opportunities through our partners, Mobax and Specialized Solar Systems. South Africa has suffered significantly from the impact and associated severe travel restrictions. We have continued to build further proof points across the country. These include 3 telco sites, which have RedFlow batteries installed and have been targeted by thieves. 2 of these attempted thefts were abandoned. Whilst in a third tower, the site was vandalized to target copper cabling and other equipment was stolen from the site. The RedFlow batteries were left intact. That's great news for our telco antitheft value proposition. In a tower site that was previously 100% reliable -- reliant on diesel-generated power, data gathered from our partner on the RedFlow battery solution indicated an over 50% reduction in generator run time, suggesting a payback period for RedFlow batteries of significantly less than 12 months. And lastly, we released an updated case study early this month on end customer, Bosco, South Africa's largest printed circuit board manufacturer. Bosco has been using a RedFlow battery energy storage system with rooftop solar PV since 2016 to avoid disruptions caused by power outages that are common in South Africa and mitigate peak demand charges. It's great to get this level of end customer support and advocacy for our battery solution. We continue to engage actively with our partners around targeting large-scale deployment opportunities with telcos in South Africa and other markets. More broadly, South Africa and the broader African continent present a large strategic opportunity for RedFlow. Over 60% of sub-Saharan Africans, 600 million people, live without connection to the electricity grid. The market presents multiple opportunities for us. This includes broken grid environments where the frequency of grid outages means that conventional batteries end up cycling frequently and longevity is further compromised by harsh conditions. It also includes completely off-grid environments where long life, harsh climate, full capacity cycling batteries like the RedFlow ZBM can dramatically curtail diesel use, maximize solar penetration, save money and reduce pollution. As such, we are supporting our current partners' efforts but also exploring partner opportunities in other markets where we feel comfortable progressing. Depending on the size and trajectory of our growth opportunity over the next 12 months in South Africa and other African markets, a number of strategic and commercial factors means that we may consider establishing operations and localized manufacturing over time to support this market. Finally, it's worth spending some time on China, given some of the announcements we have seen over the past few weeks. To reiterate what I said at the November 2019 AGM, China presents a potentially important and exciting strategic option for the company. But it is a market where we tread cautiously and continue to have preservation of shareholder value at the forefront of our mind. We had initiated a number of activities for the China market, which we think give us some insight and potential ability to participate in the market. Firstly, we initiated a demonstration project with the ZBest Haidong Transportation Group's Smart Grid projects in the Qinghai province. The project involves 100-kilowatt hour system using RedFlow batteries. The 100-kilowatt hour system was commissioned and successfully used to engage a number of PRC governments and private stakeholders in the China renewable industry. The system, after being put into hibernation during the Chinese winter and during the COVID-19 outbreak, has recently been restarted with further engagement planned. We also note, as contained in our ASX announcement last week that we are planning to use selected ZBest Power materials in our Gen3 battery. This represents a culmination of many months of interaction, testing and engagement with ZBest management and technical teams. It is a relationship we see potential to develop further, both from a supplier and go-to-market perspective. But we remain judicious in our engagement and conservative in our approach. It is worth noting that over the last 12 months, we have been approached by various Chinese parties offering to collaborate and license our technology for manufacture in China. We have approached these inquiries with an open mind and spent meaningful time to explore and validate these opportunities where warranted. We also remain mindful of the various challenges we have experienced ourselves in manufacturing, including managing third-party manufacturing relationships. Various discussions are broadly paused, but we remain open to exploring similar opportunities with credible organizations, with credible proposals and a credible execution plan that we feel will add to long-term shareholder value, whether in China or in other markets. We have continued to access various expertise and insights from several Australian government agencies and other third parties around doing business in China, assessing specific opportunities and protecting our intellectual property. From a technical and operational perspective, there are 2 key milestones we achieved over the last 12 months. Firstly, RedFlow now has over 100 deployments active in the field, ranging from single 10-kilowatt systems up to 450-kilowatt hour systems. This represents an over 40% increase over the previous 12 months. We believe this is one of the highest commercial deployments across the flow battery sector in the world. This provides RedFlow with a wealth of operational experience across a varied range of applications, user profiles and external environments. Critically, this has also meant that we have been able to understand, test and refine the elements and components required to ensure optimal operation and performance, which is based on real-world experiences. Various measures that we have implemented in 2020 have included adjustments to pump management, improvements to the RedFlow designed pressure release valve and various software measures to optimize battery health. The second key milestone is how a RedFlow ZBM battery is being independently tested here in Australia that has now reached over 1,000 cycles. As shareholders will be aware, RedFlow is part of an Australian Federal Government-funded testing of multiple batteries through the Australian Institute of Technology. This is managed by ITP Renewables, a Canberra-based renewable energy consultancy. A Thailand-manufactured RedFlow battery has been on test since February 2019, and is cycled twice per day close to 100%. The September 2020 CIT report was recently published and is available on the battery test center website. The report noted that the RedFlow battery had reached approximately 860 cycles. Internal reporting showed that the same RedFlow battery on the CIT test bay reached the significant milestone of 1,000 cycles on the 28th of October 2020. The CIT report noted that the data suggests a minor capacity fade with a state of health of 97%. The program estimates state of health by dividing the energy delivered at each capacity test by the energy delivered in the first capacity test. Further testing by the RedFlow technical team has confirmed temperature and cycle variations may be significant contributing factors to the state of health variation. The RedFlow technical team is continuing to assess this in more detail and remains confident that the battery can continue to deliver 10-kilowatt hours throughout its life. The Tesla Powerwall 2 and an LG Chem battery is also under test in the program. The report states that the data suggests a state of health of approximately 88% after 1,250 cycles for the Powerwall 2 and a state of health of approximately 84% and after 1,110 cycles for the LG Chem battery. Based on the linear regression between estimated state of health and cycle completed, the report states that both the Tesla Powerwall 2 and the LG Chem battery are estimated to be around 60% state of health at approximately 3,100 cycles. The report also notes that a linear extrapolation may not be appropriate. The September report also notes the battery -- the RedFlow battery efficiency is estimated at 78%. We believe this is one of the highest efficiency levels across any flow battery currently commercially available. These 2 milestones represent a significant step forward for the company. It is core to a clear demonstration to our partners and end customers of RedFlow's unique features versus other battery chemistries. Critically, this has also given us invaluable knowledge and experience through the breadth of different deployments, application uses and external environments. It also gives us an unprecedented depth of understanding about how individual components and the overall battery performs after multiple cycles in real-life customer environments versus lab testing. There is no substitute for field experience for any new technology and we know have it. In parallel, led by new CTO, Steve Hickey, RedFlow has also significantly increased its understanding of battery operations to enhance analysis of the vast amount of accumulated data from the batteries deployed as well as further core chemistry research and testing. Critically, this accumulated field experience an accelerated analysis over recent months has led to the recent conclusion that there are new levels of requirements around active management of a core battery chemistry as a battery reaches a moderate number of cycles in the field. Specifically, the focus of this management is around ensuring pH levels in the RedFlow battery remain within certain parameters. This is necessary for managing core battery functionality, long life and battery performance. As such, we have initiated a program to add small amounts of activated carbon to our batteries. Currently deployed to maintain battery performance by ensuring pH levels of the battery remain at optimal levels. This has been extensively lab tested and proven in the field to effectively manage pH in batteries to required levels. These measures, alongside enhanced operational management, will reinforce the durability of the battery against instances of pH excursions, which generates hydrogen which can then significantly reduce battery function. Work in the field will also include some minor upgrades of particular elements of the battery, notably the gas handling unit, which is known to accelerate pH levels, if not functioning properly. This program, which will be done at RedFlow's cost, is expected to be completed by the end of January 2021. The cost is not material, but the work is essential to ensure that the batteries perform to the required level. In parallel, RedFlow is working closely with its electrolyte supplier, ICL, one of the largest chemical companies in the world, on potential core enhancements of the electrolytes to include pH management in our Gen3 battery. We remain confident that we can develop a core embedded pH management solution for our Gen3 battery over the coming months. These experiences have reinforced the fact that we remain on a continuous learning curve around our battery, particularly at the core chemistry level. This will require ongoing lab testing, analytics and monitoring of experiences in the field but will ultimately embed and extend our technology leadership position. We are confident we are the global leaders in zinc-bromine flow batteries in the world, and indeed one of the global leaders in flow batteries. Our ambition is to become one of the leaders and sustainable long duration energy storage. I'm acutely aware of the frustration by RedFlow investors, which includes all RedFlow executives and directors, around the long pathway to commercial success. Patience has been further tested by the challenges thrown up by the impact of COVID-19 on the business this year. When is there going to be light at the end of the tunnel? Firstly, I think it's important to note that we're in the right industry. The latest analysis by Wood MacKenzie shows energy -- global energy storage capacity could grow at a compound annual growth rate of 31%, recording 741 gigawatt hours of cumulative capacity by 2030. Alongside this broad energy storage growth, we're also seeing interest in the longer storage duration requirements. The same Wood MacKenzie report noted that most lithium-ion energy storage systems economically maxed out at 4 to 6 hours, leaving a gap in the market. This has also been increasingly recognized by Australian industry participants that I referred to earlier and globally influential entities like the California Energy Commission, which is actively promoting projects using non lithium solutions for longer duration requirements. The emerging recognition of the need for alternative technologies to address medium to longer-term energy storage duration requirements means flow batteries are ideally positioned. In addition, as we have noted previously, we believe we have several core advantages over vanadium flow batteries, including cheaper raw material costs in that we don't need expensive vanadium minerals and significantly higher energy density. There is also increasing recognition around the role of zinc-based battery technologies for longer duration requirements. The California Energy Commission officials were quoted in an article by Forbes last month that they expect zinc energy storage technologies to help the state attain 100% clean energy by 2045, proving cheaper and safer solutions than lithium-ion while holding a charge longer. California is one of the leaders in renewable energy in the world and expect to need another 20,000 to 30,000 megawatts of energy storage by 2045. Interaction with our direct peers in the zinc flow battery industry over the last 12 months also support our belief that we are a considerable way technically -- ahead technically of other commercially available zinc-bromine flow batteries in the market. As noted earlier, this is enhanced by the significant learning curve we have benefited from by having a material number of deployments working in the field. But having the right technical products is not enough. We also need end customers who value our unique features and be at the right price. Our new Gen3 battery sits at the heart of our commercial success going forward. It will allow us to be more competitive in our target markets, such as telco, commercial and industrial, off grid and high-end residential sectors. Through Gen3, we are targeting a 30% reduction in manufacturing costs through supply chain and engineering productivity improvements. Furthermore, we believe further savings can be targeted through increased production levels of Gen3 and supply chain benefits that can be generated with scale. This is the fundamental capability of RedFlow being able to offer a commercially competitive product in our target markets while driving a reasonable commercial margin at target sales volumes. Our Gen3 program is on track. We are targeting an initial small-scale customer trial here in Brisbane by the end of the year. And we look forward to keeping our shareholders, partners and end customers updated as the project progresses. Critically, Gen3 will also position us for expansion into larger megawatt hour systems over the next 12 months. Our preliminary analysis suggests that we can achieve a globally competitive levelized cost of storage through the development of a multi decade, multi megawatt hour scale system that can be achieved through a commercial proposition, further engineering based on our Gen3 technology and economies of scale at a fraction of current lithium production levels. We can confirm we are currently engaged with several parties around larger RedFlow megawatt hour scale systems here in Australia and in other global markets. We hope to provide further updates in the coming months. As a company, I believe we have weathered what has been an extremely challenging 12 months for RedFlow reasonably well. We have progressed across multiple fronts, including continued sales and a very positive sales pipeline. We've also developed a far deeper level of technical understanding of battery performance, which positions us well for our strategic future. As previously noted to investors, we remain open to credible strategic investors and partners to help us accelerate the commercialization and value of our unique technology and investments to date. This includes Australian and overseas organizations, and we are in active discussions with a number of interested parties where we believe a closer partnership has the potential to generate significant shareholder value. In closing, it's worth reminding ourselves that we currently sit in the middle of a once-in-a-generation shift from a fossil fuel-based world to one that is powered by renewable energy. Energy storage sits right at the heart of this transformation. It is gathering pace, and RedFlow has the technology leadership and strategy to make a significant contribution to this journey whilst delivering value to our customers and shareholders. We remain confident of our success and future. Realization of our ambition will be determined by focus, hard work, opportunity, readiness and timing. I look forward to keeping you updated as we progress our activities over the next 12 months. Brett, I'll pass back to you, please.

Thank you, Tim. A very comprehensive update, which I'm sure was appreciated by our shareholders. Moving to the formal matters to be considered by the meeting. The first item of business is the financial statements and reports for the year ended 30 June 2020. The following are now laid before this meeting: the financial reports for RedFlow for the year ended 30 June 2020, the Director's report and the auditor's report. Mr. Simon Neill, our partner from RedFlow external auditors, PricewaterhouseCoopers, is present to answer any questions of shareholders and their proxies may have in relation to the conduct of the audit and the preparation and content of the auditor's report. As this is his final year as RedFlow's audit partner, I'd like to thank Simon for his positive contribution to RedFlow over his 5-year term. At this point, I would like to provide shareholders the opportunity to ask any and all questions or make any comments that you may have in relation to the financial statements of the management and operation of RedFlow generally. As I said earlier, if you have a question, please click on the Ask a Question button, type your questions and click Submit. Are there any questions or comments in relation to the tabled financial statements, reports or about the management or operations of RedFlow?

Thank you, Mr. Chairman. There are no questions in relation to this item.

Thank you. I just need to -- I think I need to repeat that there is no general question section at the end of this -- of the meeting. So now is the time I would take any general questions relating to the management of RedFlow.

Thank you, Mr. Chairman. There are several questions relating to general business. The first question is from [ Robert Andrew Nor ]. What is RedFlow doing to increase its brand awareness and availability within the East Coast residential market? And in particular, how much large -- how much longer until larger installers like Origin Energy are brought in as distributors of a residential product like ZCell or even an enclosed ZBM 2 or 3 at a comparable cost with other lithium batteries?

Thank you. I think I'll let the Chief Executive respond to that.

Robert, thank you very much for your question. In response to that, we still target the residential sector but we often refer to that as kind of high-end residential because of the profile of our battery that goes -- requires a maintenance cycle every 3 days. For residential customers who require full backup across any period, we often recommend a 2 battery system. And we've been successful about selling 2 battery systems to a number of residential customers over this year. Looking forward, we still see the high-end residential market to be a potentially attractive market to us, and we'll continue to progress those. I think the key thing that we're seeing in terms of progress in the Eastern Coast of Australia around the residential market is the proof points that our battery can operate in terms of performance. And also that we can get to a price point that we feel comfortable enables us to sell our value proposition effectively against the market. Against that, I would state, and I think we've stated this a number of times, because we're not a lithium battery, we don't have the benefits of any subsidized state or federal government subsidies around residential energy storage batteries, which is a frustrating state of affairs. We're continuing to work on that, but we still see a moderate level of interest and growth that we can get into the high end residential market in Australia.

Thanks, Tim.

Thank you. We have a question from [ Jack Graham Laru ] from [ Moorestown Superannuation Fund ]. Given that Mr. Hunter Jiang's proposal seems to be an attempt to pass RedFlow's IP to a Chinese competitor for free and the recent arbitrary export restrictions placed upon other Australian businesses by the Chinese authorities, it appears to me that China is at best a capricious place to do business. Has the Board considered that it may be best for our company to cut all ties with Chinese partners and abandon the Chinese market in favor of the rest of the Asia Pacific region, Europe, Africa and, of course, the domestic market? I note that New South Wales has recently announced $32 billion in investment to foster a move to renewables, including battery storage.

Thank you very much. We are -- the Board and management are well aware of the risks of doing business in China. And in particular, we are aware of the risks of transferring our IP to China. Therefore, in any situation where we are approached by someone interested in using our technology in China, we -- the main due diligence we do is around protecting our IP and protecting the RedFlow investment. We obviously also will focus on opportunities in rest of Asia and in Australia. Overall, we believe that the technology has the ability to -- and the application, which is -- which are broadly applicable right throughout the Asian region, and we are focusing on opportunities as they arrive. Tim, do you want to add anything to that?

Brett, I think you've covered that. I mean, [ Jack ], thanks for your question. I mean, I think there's no doubt that China has the potential to be an enormous market that it has its own challenges. And I think, as I noted before, we look at any opportunity in any dialogue with a very conservative approach with preservation and shareholder value at the forefront of our minds. And I think we've been very deliberate in our approach in terms of engagement with ZBest and the decision that we've made to put a demonstration project that I mentioned earlier. So look, we continue to see that, and we'll continue to explore opportunities there but very judiciously. I do note your point, [ Jack ], that outside of China, there's other enormous other markets in the range of energy storage, both here in Australia, in Asia and other markets like the U.S. And we remain active in pursuing those opportunities over the immediate term.

I will just add that we are well aware of the geopolitical issues between Australia and China at the moment. And obviously, we would take that into account and take appropriate advice before we made any decision in relation to China. Are there any other questions?

Yes, Mr. Chairman, there are several other questions. There's a question from [ Alex Bizanski ], which is a process question in relation to today's AGM. The question is -- or statement, I am surprised that I was unable to ask several questions live as in the past. Why is that? It raises a concern that you are not willing to be open and transparent.

I think the answer -- this is straight forward. I mean, we use the virtual AGM process available by -- from our share registry. It is -- this is the process used by most other companies this year. You have the opportunity to ask whatever questions you like via the method that you just asked. But you just made that statement. Thank you.

Thank you, Mr. Chairman. There is a question from [ Tim Caulgan ]. The question is during the recent capital raising, it was mentioned that there was a tender underway for more than 1,000 batteries. Has there been any progress on this?

Yes. There was the opportunity, which we hoped to see occur in Southern Africa, which I referred to in my speech. Tim, I'll let you respond.

Yes, just talking about that, that is correct. Look, on a broader basis in South Africa and other African markets, we do believe there's volume opportunities, and we still remain in active discussions with our partner, Mobax, about targeting those volume opportunities in 2021. I think as investors will appreciate, one of the key reasons that we're focused on South Africa is the challenges around good stability that means that deep cycling batteries are much more required plus the endemic problem of battery theft. Now the instances of battery theft and vandalism declined significantly during the COVID period, mainly due to the pretty strict lockdown requirements that we're operating in South Africa at the time. But anecdotal reports that we've got from our partners and other people in the market indicates that battery theft has come back with a vengeance. And some of the other measures that the telcos are initiating around using epoxy concrete to embed lithium batteries is not proving as effective as they had originally hoped. So we remain pretty optimistic and are working with our partners to target volume opportunities with telcos in that region in 2021.

I have a question from [ Marion Michael Mari ]. The question is, there has been speculation that RedFlow might enter voluntary administration. Can you please clarify voluntary administration is being seriously considered by management and/or the Board?

Short answer to this is no. We had a successful entitlement offer in July where we raised in excess of $6.9 million. That provides us with more than adequate capital to implement our medium-term strategic plan. Our current cash balance is healthy, and we will release -- we -- I'll advise the market exactly what that is and I foresee it end of January. And we have a very prudent cash management policy. And a number of very feasible opportunity is available to RedFlow as outlined in Tim's address.

Thank you, Mr. Chairman. I have a question from [ Matthew Shading ]. The question is, why did it take a pandemic for the Board to accelerate the development of the Gen3 battery? Given the potential upside, why was this not a higher priority beforehand?

I'll put my 2 cents worth in, and then I'll let Tim -- I'll pass it across to Tim. The Gen3 battery has always been a priority for all of RedFlow. But we also needed to ensure that we're able to support the Gen2 batteries and which were in the field. We have a very limited group who focus on both of those issues. What the pandemic did was release some time, which was -- which we used to drive quickly with the Gen3 product. Tim?

Yes. Thanks, [ Matthew ], for the question. I mean, I think the simple answer to that is the best allocation of scarce resources. I think, as Brett mentioned before, we have an engineering team that spent a lot of time supporting various initiatives around Gen2.5. And under the scenario that we were going to ramp up potential sales and manufacturing of the Gen2 point product -- for Gen2.5, that meant that, that was a prioritization alongside Gen3. What I think we've done in the context of the pandemic, where we recognize that some of those sales activities were going to be materially impacted was pivot some of those resources to focus on Gen3. And in particular, also using our tire manufacturing facility to accelerate some of the engineering work and testing that needed to be done. So I think that puts us in a very good position as we start to come out of a global economic recovery in 2021 to have a great product at a great price that we think can have a material impact in the market.

Thank you, Tim.

We have another question from [ Matthew Shading ]. The question is RedFlow has a strong focus on the telecom sector, which is great because we have some competitive advantages in that space. Is the company continuing to broaden its scope to include other sectors, for example, the mining sector. Mining companies have strong ambitions to become greener and they're actively seeking opportunities to implement newer technologies, like batteries, solar, wind, et cetera.

Thank you, Matthew. Again, I'll pass this one across to Tim.

Thanks, [ Matthew ], for the question. I mean I think the short answer is yes. We've had a number of discussions concerning mining/oil and gas type sectors and particularly those environments where the need for energy requirements are in remote harsh conditions, which are ideally suited to our battery. We're also very consciously aware that the mining sector is probably a deeply conservative sector that wants to see technology proven in the market before they start to introduce that into their production type environment. And I think some of the proof points that I mentioned before with the battery put us in a good position to be able to go and target some of those markets over 2021. And we already have a number of discussions that we're quite interested in about progressing. So look, I think that puts us in a very good position. And as you note, I think a number of corporates at the mining sector and other extractive sectors as well are really accelerating their commitments to a renewable energy future. And we think that we have a key role to play in that.

I have another question from [ Matthew Shading ]. The question is -- or statement, I am frustrated that RedFlow raised capital under another entitlement offer because it seems there were several cost-saving initiatives that should have been taken internally before seeking shareholder plan, i.e. reducing discretionary spend maintaining headcount. In the recent annual report to shareholders, it mentions RedFlow has achieved a reduction in payroll costs of nearly $2 million in -- for FY 2020.

Is that the statement? Sorry.

Yes. That's the question/statement.

Okay. Well, Matthew, I think you answered your own question. We did save $2 million. We focused very strongly on the discretionary expenditure. And we do not spend anything, which is discretionary unless it's absolutely critical to achieve our commercial outcome. I mean, I'll be blunt, the -- all of the directors did not take any directors' fees in the first half of the financial year to conserve cash. I mean, I don't believe there's anything else that we could have done to conserve the cash balance we had on hand other than cutting the [ borrowing ] because we had no -- there is no effect in the staffing in RedFlow.

Thank you, Mr. Chairman. We have a question from [ Peter Stevenson ]. Can we hear more specifics on how we are converting the wide range of opportunities into actual sales and dollars going into the RFX bank account? How and when will they be converted into sales? We know the opportunities are there. We heard the same narrative before. Time is running out before a new capital raise will be needed.

I think that -- thank you, [ Peter ], for your question. It's a very fair question. I think we outlined the difficultly we had during the COVID-19 period. Tim and his team are very focused on converting the current opportunities into sales. I don't believe it's appropriate to go into any more detail at this point in time mainly because we'll be giving information we have best to make available to the rest of the market. Tim, just generally, have you got anything you'd like to add to that?

Well, look, I think we remain focused. And I think the sales pipeline that we currently have is in the best shape it's ever been. I mean, I think as I mentioned before, some of the COVID impacts, particularly around our ability to progress opportunities in places like South Africa has been affected, and I think we've been kind of pretty clear on that. And I think the -- I think at a broader level, some aspects of opportunities that we clearly wanted to convert earlier than they are, are slower than we had hoped. And I think I mentioned that earlier, including a number of telco opportunities that we're actively working on here in Australia. And some of that activity has been a process which has been about 6 months. So I think particularly in the telco space, there is a level of patients that we have to have. I think those projects are proceeding well, and we're very excited about hopefully being able to talk about those in the near future and use those as a springboard for further sales in the future.