CONFERENCE CALL SYNOPSIS:
The call started with Kathy Roberts stating that the nature of the call
is to discuss 4th Qtr and year-end results and to answer such questions
as are submitted by callers. The participants on the call were Cal Reed(C.A.)
and David Archibald(D.A.)
Cal Reed started the discussion with a brief introduction(clearly reading
from a script). He then turned the call over to D.A. to discuss the financials.
D.A. then went on to capsulize the financial news already available to everyone
here. He did state that VLNC's burn rate is $20 Million(approx. $5 Mil per
qtr). D.A. then turned the call back over to C.R..
C.R. began by giving the status of the Northern Ireland(N.I.) plant. The
1st line is a flexible type of line. By that he meant that this one line can
produce batteries of different sizes. Because of this lines flexibility the
current battery reliability yields is low(their working to increase the speed
of the line, but what with its complexity it is taking time). They do expect
this line to continue to ramp up in the 2nd quarter on '97. Please note that
this line mainly produces NMP type cells(cellphone types). The 2nd line will
produce more "computer" type cells(ie. laptop batteries, etc.). C.R. still
feels they are on target for commercial production of batteries by 1st qtr
of '98. The N.I. plant will ultimately have 4 lines by end of next year. These
lines will be: 1 multiple battery size type(line 1), and 3 high speed type of
lines. He stated that there is a learning curve to undergo with the high speed
lines but the 2nd line(for example) is a high speed dedicated line by a
different manufacturer. This line is less complex and of higher quality. I
took this to mean he was confident of experiencing fewer problems.
C.R. stated that the Korean plant is now under construction and will be set
up to produce 8x10 cells on a high speed line. The plant is only for the Korean
market(ie batteries can only be sold in Korea), but there's a loophole(my words)
in that this plant is also to be used for the electronic market, so any batteries
sold within the context of a laptop are available worldwide(ie Korea makes laptops
for the world).
C.R. then turned the call over to questions. I won't relay the names of
the individuals who asked the questions but they came from such institutions/
brokerage houses as: Joseph & Ross, Odin Partners, Advantage Capital, Slotkin
& Associates, Covington & Assoc., Smith Barney, Paine Webber, Delphi Investments,
Prudential Securities, Paine Webber, Dean Witter and several private investors.
The questions were as follows:
1. $37 Million on hand and a burn rate of $5 Million per qtr. Any need for
additional capital? C.R. - No decision has been made although their burn rate
is expected to go up due to increased capital expenditures relating to line
build-up.
2. A materials question - Cobalt vs Manganese:
C.R. - Cobalt has more energy density, ie. ~10% more but there are certain
environment issues(particularly from Europe), its a more violatile element and
its sources derive from an unstable area of the world. Cobalt costs ~$87 per
kilo. "Refined" manganese costs ~half that amount with the raw material
costing about $1. Although the lines can use either material they will be using
Manganese.
3. Market size question - What are their indications from Nimura Research?
C.R. Nimuri's research indicates a marketsize of billion cells needed for
cellphones/batteries of a Lithium Ion Polymer type by the year 2005.
4. A question was asked about line 1's product viability.
C.R. stated he is pleased with line 1's improved reliability and yields
progress. He further stated that line 2 has already been accepted and is
scheduled to come off the ferry as soon as Thursday(if all goes well).
Line 2 will be ready by end of year. He reiterated feeling good about
commercial production by 1st qtr of '98.
5. A question was asked about the Irish governments reimbursement agreement
with VLNC. C.R. stated that the agreement states that once VLNC has produced
$4.5 Million in product then the government will reimburse, based on a
formulae, upwards of 30% of the 1st Million(in costs? - my commentary).
6. Class Action lawsuit question:
C.R. stated that a summary judgement motion is expected in the next several
months. They're looking at a Sept. trial date and are attempting to coordinate
things for that date.
7. R & D queston - Based on R&D '97 expenses is it a safe presumption that
these costs will go down and operating expenses go up, what with the plant
rampups.
C.R. stated that yes, a lot of the R&D expenses were related to operating
systems rampup BUT there'll still be R&D expenses because of the continuing
need for product enhancement/development(the usual product evolution R&D - my
words).
8. Question - Could C.R. ballpark the capital outlay $'s he projects going
forward. C.R. stated the burn rate is now ~$5 Million and you should see it
increase because of line rampups. That is, each line costs $10/18 Million
dollars JUST FOR THE PLANT, then there are the coating plant dollars, ie.
$10/15 Million, so yes, the capital outlay $'s will increase but he could
give an accurate picture.
9. Question - What is the status of Motorola?(I'm paraphrasing).
C.R. - The relationship is good but there is no contractual relationship at
this time.
10. Question about the other lines.
C.R. Line 2 due in Thursday. Line 3 is slated for delivery later thi year, but they're
still discussing the tooling for the battery size of this line.
11. Manufacturing line volumes.
C.R. In the best of possible worlds, with the lines running 100%, but depending
on the battery size being produced, 240 bi-cells per minute(NMP size batteries
use 10 bi-cells for each one produced). Laptops us in the 4/6 range. He would
be comfortable with the line producing upwards of 60% of that maximum figure. Note
that the laptop lines could produce 25 bi-cells per minute, but they're bigger
configurations.
12. A question was asked looking for commentary on Ultralifes product line.
C.R. suggested the caller ask Ultralife that question, but he felt the marketplace
was big enough for multiple manufacturers.
13. Another question about Motorola. Was they're relationship in the form of
a purchase order or a contract for commercial quantity and can the plant meet
Motorolas battery specifications?
C.R. stated they have no formal contract with Motorola but they do communicate
with each other. He stated, "Yes, we believe we can build a battery that meets
Motorolas requirements," but would not go any further with the discussion.
14. A question was asked regarding electric vehicles and VLNC's battery technology.
C.R. made references to the Delco partnership but wouldn't comment any further on
conjecture of using VLNC batteries in electric vehicles.
15. A question was asked about their batteries viability.
C.R. stated the basic process works. He's not yet comfortable with the battery's
viability, BUT expects to be comfortable with it sometime in the 2nd half of this
year. No insurmountable problems have surface with regard to what has been produced
so far.
16. A question was asked regarding their battery submittal process.
C.R. stated they are still adhering to VLNC's process of submitting battery samples
to OEM's for testing prior to any solicitation for contract. They've been
sending TECHNOLOGY samples to OEMs for testing BUT for PRODUCTION PURPOSES they're
still trying to prove they can make a viable battery. They expect to send out
COMMERCIAL, not pilot, samples to OEM's later this year with general commercial
production by 1st qtr next year.
17. A question about battery testing--can it be speeded up?.
C.R. stated that testing is a variable thing. Absolute proof of viability takes
upwards of 60/90 days and involves such things as cycle times, power availability,
storage and safety. VLNC will not status everyone with the regarding how the
testing is going.
18. A final question revolved around how many plant shifts could they foresee.
C.R. stated they'll rampup like all manufacturing processes but that they certainly
could sell all they could make.
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Whew!!!!! That's about it! Here and there I paraphrase, in order to shorten
this outline, but that's about it. I'd say their progressing nicely. Forgive
any/all typo's but in the interest of speed I wanted to get this out to all
interested parties who may not have been able to attend the call.
Regards!
John~ |
