Trading Update

3 June 2011

Following further review of the market environment, as outlined in the media release made by the company on the 14th of April, the Windflow board of Directors have today expressed concern that trading conditions have not improved and confirm that further actions are being taken to address this situation.

Due to the continuing uncertainty surrounding the availability of the Feed-in Tariff (FIT) beyond April 2012, the company has yet to receive orders from the United Kingdom. Government guidance on the likely outcome from the review of the FIT may be available in July, but failing that the date for the release of the review is December 2011.

The export guarantee from the New Zealand Export Credit Office has now lapsed due to the passing of time. The company is in the process of reapplying for this guarantee. The UK distribution agreement with VG Energy Limited is also being renegotiated to cater for the change in market conditions referred to above, together with the desire by Windflow that VG Energy Limited expand their distribution network within the United Kingdom.

Whilst the company remains confident of the sustainability of the United Kingdom market and that the review of the FIT will extend the availability and value of the incentive beyond April 2012, the uncertainty associated with the review, together with the presence in the market of larger machines derated to 500 kW, has led to a lack of orders to date. In turn this has created an increasing fundamental uncertainty regarding the future of the business.

In order to address this risk, the company has restructured its manufacturing capacity, reduced its overhead costs and is now actively realising certain assets.

The company is also in the early stages of internationally licensing its intellectual property and is pleased with strong interest received to date. The company’s turbine drive-train technology, in the form of the torque limiting gearbox enabling the use of a synchronous generator, provides competitive advantages which are able to be accessed by international manufacturers far more readily than by Windflow itself. The turbines on the wind farm have handled the demanding storm conditions experienced at the site in early May extremely well, reinforcing the confidence we and others have in the class 1A capabilities of the technology. In this context Windflow is pleased to announce that the last of the 97 Windflow 500 turbines have now been erected on the Te Rere Hau wind farm in Palmerston North.

While it expects turbine orders from the United Kingdom to eventuate following the FIT review, the company is also currently seeking bridging capital to provide liquidity through the period in which the review is complete and any licensing agreements confirmed.

For further information:
Geoff Henderson,
Chief Executive Officer
Ph 03 365 8960