Jenny Ruth: Boat-builder finding sea legs

Shareholders Association chairman Bruce Sheppard isn't ready to give amphibious boat-maker Sealegs Corp his seal of approval.

Asked if his view of the company has changed from a year ago, when it was described as being "Seadog run by Mickey Mouse", Sheppard asks if there's any reason to change his view.

"Have they just done a deal to sell a minimum of 200 boats a year to some tosser in Europe?"

Not quite, but the company has hardly been idle and has reached several milestones towards building much-needed credibility.

Its history is unfortunate, to say the least. It has been listed on the stock exchange since October 1994 but has never reported a profit. Accumulated losses to March 31 were $36.2 million.

Previous incarnations include mining, chicken farming, a building materials distributor and an investor in high-tech companies, then named IT Capital, before turning into Sealegs in 2003.

That last metamorphosis was a long time coming. The company's two largest investors, managing director David McKee Wright and chief operating officer Maurice Bryham, whose brainchild Sealegs was, took over the company's management in early 2002.

Their original plans to sell three ventures into IT's shell raised Sheppard's ire over inadequate information and the proposed prices of three ventures.

Thanks to a mixture of this criticism and a failure to agree on terms, the duo and the company bowed out of the other two business ideas to concentrate on Sealegs.

McKee Wright and Bryham have also overseen the sale of all IT's high-tech investments, including Terabyte, Golden Orb and then, in July last year, its stake in Deep Video Imaging (DVI), which raised $1.025 million in cash.

That was money the company sorely needed. By March last year, it had only $420,050 in the kitty. The company raised $147,000 during the year ended March through two placements. It also won a couple of government grants, $20,000 from New Zealand Trade and Enterprise last November to assist with patenting costs and $100,000 from Technology New Zealand to develop a new model of boat in May.

Even so, it finished the year to March with just $183,614 in cash. Auditors Ernst & Young again tagged the accounts, saying the company needed extra funding.

It had already been preparing for another rights issue but, first, it announced last November a much-needed share consolidation. Its shares, all 672.4 million of them, were trading at around the 2c level.

It rolled every 16 shares into one from late November and then cleaned up its register by requiring all shareholders to build their stake to a minimum parcel of 1000 shares or have their holdings compulsorily sold.

Sealegs says the number of shareholders dropped from 4759 to 2068 after that exercise, saving the company more than $50,000 a year in costs.

McKee Wright says one of the benefits of the registry tidy-up is that the company shed many of its disgruntled shareholders.

Then in mid-May it announced a one-for-three rights issue priced at 15c a share which aimed to raise $2.12 million.

The company's previous rights issues met significant shortfalls. In November 2003, a one-for-one rights issue of 303 million shares to raise $500,000 ended up with a 69 million share shortfall, which McKee Wright and Bryham took up as underwriters as well as their own entitlements. At March 31, McKee Wright owned 15.7 per cent and Bryham 21.6 per cent, both through family trusts.

In mid-2002, the company tried to raise $3.7 million but managed only $2.1 million, including $1.2 million provided by McKee Wright and Bryham.

But this time around, it found new underwriters, Wellington broker McDouall Stuart.

It agreed to take up to 9.3 million of any shortfall in the 14.2 million share issue. In the event, the issue was reasonably well supported and McDouall Stuart had to take only 3.2 million shares.

"We were happy to underwrite the issue. We undertook extensive modelling of the company and commercial due diligence prior to entering the underwrite agreement," says principal Andrew McDouall.

"We think the company's got an interesting future."

He said his firm had no trouble finding sub-underwriters.

The key reason for this faith in Sealegs is that the company has actually been building and selling its boats, although not in numbers Sheppard might like.

This month, its orders reached 50 boats, of which 30 have been delivered. The first boat was delivered 18 months ago.

Sales, excluding the proceeds from selling DVI in the year to March, were $1.55 million.

The successful rights issue means the company has another couple of years of funding available.

One of its aims is to ramp up its production capabilities from about three boats a month and also to bring more production in-house rather than contracting to third parties.

McKee Wright says the company expects to produce about 40 boats this year and wants to lift that to 100 next year, dependent on finding a new production facility.

"We're selling more boats than we thought we would sell. It's frustrating that we can't produce enough. As we build faster, they sell faster," he says.

The company even has to borrow boats from its customers to show off at boat shows.

This week, McKee Wright was at the Hamilton Boat Show where he was to release a new aluminium-framed model.

The increasing rate of production means the company has been able to lower its prices from $98,000 a boat to $79,000.

The average price it sold at in the latest year was $75,000 and McKee Wright says that's because it did a promotion in Australia selling boats at just $59,000 each.

Although Sealegs has appointed a number of distributors, McKee Wright is also keen on selling directly where it can and is handling its Australian sales directly.

"Distributors tend to focus on other products. We think there's no one more motivated to sell boats than ourselves."

He admits this is all stretching the company's resources and is looking to open an office in Australia.

The company passed another key milestone recently when its inflatable boat crossed the English Channel in 43 minutes 12 seconds, easily beating British entrepreneur Sir Richard Branson's record for an amphibious vehicle of one hour, 40 minutes and six seconds.

The company sold two boats in Britain that week as a result.

Who, what, where

Sealegs head office: 7B Douglas Alexander Parade, Albany, Auckland.

Profile: The company makes and sells amphibious boats.

Market capitalisation: $13 million.

Latest results: Sealegs reported a $1.06 million net loss for the year ended March, down from a $2.7 million loss the previous year.

Management: Managing director David McKee Wright and chief operating officer Maurice Bryham.

Major shareholders: Bryham with 21.55 per cent and McKee Wright with 15.67 per cent, both held through family trusts.