Wellington Drive Technologies Annual Meeting Address

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Wellington Drive Technologies
Annual Shareholder Meeting
June 25, 2020

Meeting Address


Good afternoon, I am John McMahon, the Chairman of Wellington Drive
Technologies and it’s my pleasure to welcome you all to this annual
shareholders’ meeting. As you are aware, today’s meeting is being held
online via the Lumi platform.

An online only meeting is not Wellington’s preferred option, and for next
year we intend to have a mixed format with both in-person and online
attendance.

The Lumi platform allows shareholders and proxies to ask questions and
vote on resolutions. I shall provide further details on how you do this
shortly.

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I am pleased to confirm that we have a quorum and therefore declare the
2020 Annual Shareholders’ Meeting of Wellington Drive Technologies
open.

The items of business for this meeting and the resolutions to be considered
by shareholders are contained in the Notice of Meeting which was sent to
shareholders on 10
th
June.



Our agenda today will take us through a Chair and CEO commentary on
the 2019 performance, outline the actions taken by Wellington in response
to the COVID-19 crisis, discuss the rights issue announced earlier today,
and then proceed with the formal business of the meeting.

I will now explain the voting process.

You will be able to vote from now, on the resolutions that are to be
considered at this meeting. If you’re eligible to vote, a polling icon will
appear on your screen.

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Selecting this icon will bring up the list of resolutions and present you with
voting options. To cast your vote, simply select one of the options. The
vote will be automatically recorded.

Up until the time the poll is declared closed, you may change your vote by
selecting another option or you may cancel your vote by clicking ‘cancel’.

You may submit questions on each resolution being put to shareholders at
any time.

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To ask a question, click on the speech bubble icon as indicated on the slide
– depending on your device it may be in a slightly different part of the
screen. This will open a new screen. At the bottom of the screen, there is
an area for you to type your question. Once you have finished typing,
please click on the arrow symbol to send.

Whilst you can submit questions from now on, we will not address them
until the relevant time in the meeting. Note that your questions may be
moderated or, if we receive multiple questions on one topic, these will be
combined. H owever, if you don’t consider your question has been
addressed, please resubmit it.

Finally, to ensure all shareholders have a chance to ask a question, please
limit yourself to two questions. We may run out of time to answer all
questions, and if this happens, we will make sure that we respond following
the meeting.

Now I will move on to my review of the business results from 2019,
followed by Greg on our updated 2020 strategy; then I will discuss the
actions we have taken in response to COVID and the rights issue.

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Before reviewing 2019, I do want to note that during Q1 this year we
started to see the impacts of the COVID-19 pandemic and acted quickly to
manage through what were initially supply chain challenges and, more
recently, customer demand challenges. Many of the Company’s customers
are located in the Americas, a region that is currently being hit by the
pandemic, however, we are seeing early encouraging signs from some
European customers who are starting to order again.

The board and management’s focus since Q1 has been preparing for and
managing through COVID-19. We have aimed to ensure our staff,
suppliers and customers were safe and then taken operational decisions
and actions to manage through the subsequent economic impact.

Looking back at 2019, Wellington’s business continued its positive growth
and profit trend with all key financial metrics trending upwards. We think
these results highlight how far the Company has come and what the
Company has the potential to do once COVID-related demand issues start
to abate.

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Key Financial Metrics and achievements


This slide looks at Wellington’s 2019 financial metrics, showing year-on-
year progress, as well as CAGR trends where relevant.

With continued growth in Wellington Connect IoT hardware and data
products and continued ECR2 motor growth the Company saw its highest
revenue and best profit performance ever.

EBITDA was a surplus of $4.22m, up from $2.46m in 2018. The Company
achieved a maiden net profit of $0.45m, up from a loss of $0.71m in 2018.
Connect IoT products and ECR2 motors continued to gain significant
traction, including attracting new customers in the food and beverage
market and for ECR2 specifically, a new customer in the medical cooler
market.

EBITDA and profit continued to improve into Q1 2020, until the impact of
COVID-19 started to impact customer demand.

Wellington paid back all of its high interest debt in Q4 2019 following the
successful capital raise in October 2019.

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Looking at Wellington’s profit trends over the past few years, we are
pleased at the consistent and ongoing improvement, particularly given
headwinds from increased competitive pressure on our legacy motors
business.

Gross Profit expansion was delivered primarily by the increased sales of
our Connect SCS platform, which includes our data services.

The board and staff were very pleased to record Wellington’s first ever full
year net profit, a direct result of the new product innovation, operational
excellence and customer relationships the team has built and delivered
over a number of years.

The continued success of our Connect SCS and ECR2 product platforms
drove the profit expansion in 2019. As the COVID-19 crisis unwinds we
believe those products, along with new developments that we are
launching later in 2020, should underpin improved fina ncial performance.

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Revenue and Gross Profit


Wellington’s revenue and gross profit mix continued to be dominated by its
Connect IoT products and its ECR2 motor as growth from these products
offset the declining growth from legacy motors.

Revenue billings from Connect IoT products and services, including
Connect SCS hardware, data services, and iProximity software was
$24.0m, a 32% increase over 2018. Invoicing of IoT data services
increased 32% to $2.7m.

ECR2 motor unit sales were 20% higher, and revenue increased 26% to
$22.5m. This was primarily due to increasing demand for the ECR2
product in the USA. The legacy motor business declined 35% in the year.

The Company continues to work with a number of customers on iProximity
marketing services trials in the food and beverage market and on some
interesting targets in other sectors.

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I would like to provide one further update before I hand over to Greg.

You would have recently seen our announcement on Gottfried Pausch
spending more time in the business to assist and support the New Zealand
team as they work through COVID strategies and look for new
improvement opportunities and strategy creation as we move towards a
new post-COVID normal. This is an interim arrangement until our CEO and
management team are able to more freely travel to customers and global
offices, or we have more clarity around post-COVID market conditions.

I’ll now hand over to Greg to outline the strategic focus as we work through
the challenges of 2020.


Wellington’s 2020 Priorities

Thank you John

As John mentioned earlier, the Wellington team is now focused on
managing through the impact of COVID on the business. The board and I
think it’s critical to maintain the Company’s core capabilities and new
product options, so the Company is ready to resume its positive
performance trend once customers start to come back on line.

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Even while customers have temporarily reduced their demand, they are
continuing to discuss and demand new technology options. We think that
one of the impacts of the COVID pandemic could be a greater focus by our
customers on ensuring their cooling solutions are even more reliable and
their cooler fleets are managed more efficiently.

Our Connect SCS and proximity marketing platform is particularly relevant
as consumer engagement and buying behaviour may also change, with
more consumers and retailers requiring mobile connectivity to their point of
sale coolers.


Our primary goal is to effectively manage through the COVID situation and
ensure the Company comes out of the other side in a strong position
Our main focus areas in 2020 are.

• Reduce operating costs and conserve cash. The team has stepped
up here and sacrificed on average 20% of their salaries for the

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balance of 2020 to support reduced cash burn. This is in addition to
other cost savings and significant reductions in capital expenditure.
• Retain viable product development and sales capability to enable
resumption of business when conditions begin to normalise. We have
purposely not significantly reduced development capability nor sales
and customer capability. Through the downturn, we have continued
technical and marketing discussions with all customers.
• Continue to develop and launch critical new IoT hardware and
software products to ensure increased revenue options. While we
have put a freeze on all hiring, we have continued the work on our
new product roadmap so we can launch new products as customers
come back online.
• Strengthen marketing activities for Wellington’s solutions in new
markets and with new customers. Continuing to market our products
to new customers and into new markets (such as medical coolers) is
a key objective.

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We acted early.

In March we cancelled our planned hiring, reduced capex spend by around
$2m, and our travel costs dropped to zero. Then in May, with staff and
board support, we reduced our salary and board costs by around $2m. We
also worked with suppliers to extend payment terms to match the payment
delays we are seeing from customers.

Through doing this, we believe we are able to maintain most of the
operational capability we need to execute for customers and regain our
financial performance momentum as the market begins to recover from
customer and regional shutdowns.

Underpinning our ability to access new revenue opportunities is the
continued work on new product launches, targeted for later in 2020. As part
of capex reduction, we have rescheduled some targeted launches. We are
focusing on accelerating new Connect SCS hardware and software
products as we think that is where the predominant customer opportunities
will be as the market returns to more normal levels of demand.

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New product launch targets



In 2019 we continued to develop our software apps and data platform for
customers to connect with their beverage and food service equipment and
improve their asset management.

Some examples of our product launches targeted over the coming 12
months include:

• The Connect Monitor, which is a battery operated, low-cost
refrigeration sensor, primarily targeted at after-market and retrofit
opportunities.

• The Connect Network with updated software apps for real-time
monitoring of equipment. Network powers ‘always on’ data
connectivity through 4G and Wi-Fi technologies.

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• The ECR2+ motor, a higher power derivative of the successful ECR2
platform, engineered to access a broader range of cooling
applications

The new product launch plans targeted for 2020 will continue to
demonstrate the evolution of the Company’s roadmap towards higher value
asset management solutions.

Before handing over to John, I will close with a few comments on our
expected first -half performance



The impact of COVID-19 on customer demand varies by geographical
region, with the Americas region currently feeling the effects of customer
shutdowns and the European region starting to emerge from shutdowns.

While our Q1 results were strong and continued the growth trends from
prior years, we envisage much weaker second and third quarters as most
of our customers are just starting to reopen and it is unclear when their
production volumes will return to a more normal level.

First Half Estimates
Metric (NZD)H1 2020 (Est)H1 2019 (Act)Change
Revenue$20.6m$33.3m-38.2%
Gross Profit$6.3m$8.8m-28.0%
Gross Margin %30.7%26.4%+4.3%
Operating expenses net of other
income
$5.2m$6.3m-17.3%
EBITDA$1.1m$2.4m-55.8%
EBIT-$0.1m$1.3m-$1.4m
Cash net of debt$1.1m-$3.0m$4.1m

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The current estimated sales for Q2 is around $5m, with a moderate
EBITDA loss expected for the quarter. However, given the strong Q1
performance, the Company expects a modest EBITDA profit for the first
half.

Given the lower first-half volumes and uncertainty over the balance of 2020
both in terms of demand and customer payment terms, the board has
decided that it is important to strengthen the Company’s balance sheet.

With that goal in mind, I’ll now pass over to John to discuss Wellington’s
funding plans.

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Thanks Greg.

This morning Wellington announced a rights issue to support the Company
through the period of financial uncertainty. This will provide Wellington with
the financial capacity to continue to deliver for customers as they come out
the other side of the pandemic.



Wellington took prompt action to conserve cash and reduce costs to
weather the storm of COVID-19. This was all within a framework of
ensuring we maintained business capability and new product growth
options to expand our future revenue opportunities.

Reducing costs further at this stage, while possible, would impair
Wellington’s ability to deliver results as our customers progressively
recover from the impact of the pandemic.

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Capital is required to support the financial effect of currently lowered
revenues, as well as manage the flow through effect into working capital
pressure.

The new funds will be used to bridge the financial outturn of the demand
gap caused by COVID-19 and provide Wellington with the subsequent
ability to launch the new products that can open up new revenue streams.

Coupled with already implemented cost and cash actions, which may, if
required, include further operational initiatives over the next 12 months, the
board believes that this new cash should be adequate to manage through
the period impacted by COVID.

Reason for New Capital
Support revenue declines while customers in hiatus
Bridging working capital gap due to extended customer terms
Continue with strategic product development to increase revenue options

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The rights issue is targeting a raise of $5.4m before costs. The structure of
the rights issue is a 1 for 3 offer at 5c.

The issue price represents a 52% discount to the last closing price of
Wellington’s shares on the NZX on 24 June 2020 (being $0.104). It is a
discount of 45% to the theoretical ex-rights price of $0.0905.

We have firm commitments and statements of intent to take up rights and
apply for oversubscription from large institutions, our strategic partner and
professional investors to 100% of the offer size.

We are deeply grateful to our shareholders and our staff for their support
through this period. We believe that the momentum and performance
Wellington delivered up to the end of first quarter shows that the Company
is on the right track.

The board and staff are working extremely hard to ensure we regain
revenue momentum as our customers begin to recover from COVID.

Notification: 25 June
Ex date/Record Date: 26 June / 29 June
Offer opens: 30 June
Offer closes: 5pm 16 July
Shares allotted: 22 July
Rights Issue Structure
StructureTiming (2020)
1 for 3 @ 5c
Issuing up to 107,962,197 new shares
Targeting a $5.4m raise
Firm plus oversubscriptions commitment at 100%
Rights renounceable / not quoted onNZX

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We will now pause to take questions on the business update and rights
issue.

Again; To ask a question, click on the speech bubble icon on your screen.
This will open a new screen. At the bottom of the screen there is an area
for you to type your question. Once you have finished typing, please click
on the arrow symbol to send.

[Chair and CEO take questions]



Questions
on Business Update

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We will now move to the business of the meeting.

Voting will be by way of poll and though proxy submission. Once all the
votes have been cast, they will be counted by the Company’s share
registrar, Computershare. The results of today’s meeting will be released
on the NZX on the completion of verification of voting.

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As a reminder; You have been able to vote since the meeting opened. If
you’re eligible to vote, a polling icon would have appeared on your screen.

Selecting this icon will bring up the list of resolutions and present you with
voting options. To cast your vote, simply select one of the options. The
vote will be automatically recorded.

Up until the time the poll is declared closed, you may change your vote by
selecting another option or you may cancel your vote by clicking ‘cancel’.

I would also ask you to start asking your questions on these resolutions
now, and I will address those questions as we discuss each resolution.

Resolutions 1 and 2 are ordinary resolutions and are required to be passed
by a simple majority of votes. Resolution 3 is a special resolution and is
required to be passed by 75% of the votes cast.


Resolution 1 – Re-election of Director


Notices of Motion
Resolution 1 – Re-election of Director
“To re -elect Gottfried Pausch as a director of the Company.”
Gottfried Pausch is considered by the Board to be a non-independent director

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NZX Listing Rule 2.7.1 requires that the Company’s Directors must not hold
office without re-election past the third Annual Meeting of shareholders
following their appointment or three years, whichever is longer.

Gottfried Pausch will retire from office at this year’s Annual Meeting. Being
eligible, he offers himself for re-election as a Director of the Company. His
biography was in the Notice of Meeting.

I’ll take that as read and ask Gottfried to say a few words.

[Gottfried to speak]

Good afternoon everyone, my name is Gottfried Pausch.
Since 2014,
when I joined Wellington Drive Technologies as a director, we have seen
significant changes and a tremendous improvement in our financial
performance.
As John mentioned earlier, the current situation resulting
from the global COVID pandemic limits our CEO, who resides in Canada,
and other senior management team from traveling.
For the foreseeable
future and in close alignment with Greg, my task will be to provide on the
ground leadership here in our Auckland office.
I will assist the New Zealand
team as they identify new improvement opportunities and support Greg in
formulating our strategies for the time post-COVID. This is an interim
arrangement until our CEO, and the management team are able to travel
again more freely and until we have a clearer picture around market
conditions going forward.


Thank you, and now I will hand back to John.

[answer any questions]

I move, as an ordinary resolution, “To re-elect Gottfried Pausch as a
director of the Company.”

I would remind you at this time, if you haven’t already voted for this
resolution, please do so using the Lumi app

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Resolution 2 – Auditor’s Fees



Deloitte is the existing auditor of the Company and is automatically re-
appointed by virtue of section 207T of the New Zealand Companies Act
1993. The proposed ordinary resolution is required to authorise the
Directors of the Company to fix the auditor’s remuneration for the purposes
of section 207S of the New Zealand Companies Act 1993.

[answer any questions]

I now move, as an ordi nary resolution “To authorise the directors of the
Company to fix the remuneration of the auditor for the ensuing year”

I would remind you at this time, if you haven’t already voted for this
resolution, please do so using the Lumi app.

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Resolution 3 – Special Resolution to amend Constitution



The Company’s current Constitution was approved by shareholders on 26
November 2004. A number of amendments to it are required to be made to
ensure that it meets the requirements of, and is consistent with, the current
NZX Listing Rules (as required by NZX Listing Rule 2.18.1) and to reflect
changes in legislation and to better reflect current commercial practice.

These changes are summarised in the Notice of Meeting.

The proposed changes are compliance driven.

[answer any questions]

I now move, as a special resolution “That the Company amend its existing
Constitution, in the manner marked in the Constitution as presented to
shareholders at the meeting and signed by the Chairman of the Board for
the purposes of identification”.

I would remind you at this time, if you haven’t already voted for this
resolution, please do so using the Lumi app.

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If not already done so, please cast your votes now

[pause for 10 secs]

If there are any other questions on the matters discussed today this is your
final opportunity to ask questions in the meeting.

The results of today’s meetings will be published on the NZX once
Computershare have collated the online voting.

Thank you for your questions, your votes and for attending our meeting
today. Stay safe, and we will look forward to seeing you next year.

I now declare the meeting closed

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