Ghost of HydroWorks lingers as Powerhouse looks for new investments
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Powerhouse Ventures is pitching itself as a turn-around story following a disastrous year.
Chief executive Paul Viney says the Kiwi venture capital firm is tightening up its business model and looking to expand its investments into Australia.
Powerhouse will start putting pressure on its investments to turn exciting intellectual property into products, says Chairman Russell Yardley.
This year, several crises have put pressure on Powerhouse (ASX:PVL) — arguably none more so than the $7 million liquidation of key investment turbine maker HydroWorks.
In an interview with Stockhead, Mr Viney and Mr Yardley were careful how they described the collapse.
Mr Viney said this was because a lawsuit could be on its way.
Path to collapse
HydroWorks began as a consultancy in 2001 before moving into designing its own hydropower turbine technology.
By 2013, after investment from Powerhouse and New Zealand government support through Callahan Innovation, it had won its first export orders in Australia and was eyeing the Solomons, the Philippines and New Caledonia.
The crunch point came in 2015 when it began winning big contracts in Australia.
There was an $8.5 million contract to refurbish a hydroelectric plant at Somerset dam in Queensland, and a $5 million contract with Melbourne Water to build a “mini-hydro” network generating electricity in suburban Melbourne — a project the Australian entity was still promoting in June.
Mr Viney, who joined the HydroWorks board in February, said the Melbourne Water contract was the most damaging as it transferred all risk to the New Zealand company.
Management had little understanding of the risks they had taken on and there was no clear idea how the business would get to the end of the contract, he said
Mr Viney would not go into further details, saying what goes on in boardrooms should stay in boardrooms.
Dominating the share register
Powerhouse usually operated by “dominating the share register” and installing their own board and CEO, Mr Viney said.
But HydroWorks was an anomaly. Powerhouse agreed to buy a minority stake of 23 per cent and work with the founder, Rik Hothersall, who by the end still owned 30 per cent of the business.
Ultimately Powerhouse ended up giving HydroWorks $1.3 million in emergency loans in November and December last year to help fund its projects. Interest and late fees added up to a 48 per cent tariff on top of that, but was never paid.
HydroWorks was supposed to pay these back from money raised during a listing in Australia this year, but that IPO was pulled as board members began to quit from February this year.
Stockhead has tried to contact former HydroWorks managing director Andrew Rodwell several times, without success.
Powerhouse put the company into interim liquidation in August. Deloitte was appointed as the permanent liquidator this month.
No ASIC involvement
Rumours have recently circulated in New Zealand media that Powerhouse might face an ASIC investigation over the valuation it placed on HydroWorks in its own IPO prospectus last year.
But an ASIC spokesman told Stockhead the corporate watchdog was not aware of any investigations.
If an investigation was underway the company’s shares would be suspended, he said.
Powerhouse shares closed up 3 per cent at 34c on Thursday after releasing its annual report.
The listed incubator gave HydroWorks a valuation of $NZ19.3 million ($17.3 million) in its August IPO prospectus last year — a value based on 2015 numbers.
HydroWorks was already in trouble by the time Powerhouse listed. Its value had fallen to $NZ7.7 million by August.