Balcatta-based Safe Effect Technologies Ltd was close to calling in the receivers early in 2006 when Ken Johnsen joined as chief executive, mid-way through the company’s recapitalisation and efforts to relist on the Australian Securities Exchange.
Balcatta-based Safe Effect Technologies Ltd was close to calling in the receivers early in 2006 when Ken Johnsen joined as chief executive, mid-way through the company’s recapitalisation and efforts to relist on the Australian Securities Exchange.
Safe Effect, which owns and manufactures the ‘wet breaking’ system used on four-wheel drive vehicles in the mining industry, suspended its stock in August 2003 after failing to complete a rights issue.
The company’s situation was the result of a combination of factors, according to Mr Johnsen, including economic mismanagement and a complicated business structure which resulted in Safe Effect, and associated intellectual property, split into two entities.
After listing on the ASX in 2002 following a $3 million capital raising, the company spent a large amount of money on research and development and marketing, investigating a range of potential applications for the technology.
Mr Johnsen said the reliance on shareholder funds for R&D to adapt the technology “for anything from shopping trolleys to jumbo jets”, with no partnerships or commitments from end-users, presented significant problems.
The company was also in the midst of relocating its manufacturing facility from Victoria to Thailand, which meant it essentially shut down manufacturing for two years.
“They did a number of things wrong – they tried to do too much, and they went away from their core business,” Mr Johnsen said.
“They took their eye off what could make them money, and spent money on too many diverse things.”
By February 2006, when Mr Johnsen took up his role as CEO, the company had amassed $7 million of debt, and had virtually no money in the bank.
Before his appointment, the two separate entities – Safe Effect Technologies Ltd and Safe Effect Technologies International – were merged into one, through the injection of venture capital funds from Sydney-based Claymore Capital via a $7 million convertible note issue.
The venture capital team also acted as the defacto management team, assisting the company with its recapitalisation and relisting efforts, following a restructure of the board and the departure of its CEO and COO.
Mr Johnsen’s first action was to simplify operations and return the company to its core business, cutting all unfunded R&D.
He also convinced the convertible note holders to convert into equity for five cents per share.
With sufficient cash in the bank, and the Thailand manufacturing facility up and running, Safe Effect Technologies Ltd relisted in April 2006. Since then, according to Mr Johnsen, it’s been “head down, tail up”.
And while the company is not yet cash-flow positive, worldwide sales projections indicate it could reach that goal within 12 to 18 months.
Mr Johnsen said that, while the event had tarnished the reputation of the company in the eyes of consumers and distributors, Safe Effect had very publicly separated itself from the previous management team.
“Because the product was well accepted – there were a lot out there – the benefits tended to outweigh the negativity of what happened previously,” he said.
With the key challenges of meeting the relisting requirements and regaining market and consumer confidence successfully met, Mr Johnsen said the company has been actively promoting its new well-managed, financially sound structure.
The company has secured a number of supply contracts from major global mining companies, including BHP Billiton and Xstrata, and is currently focusing on the international rollout of its product.
After commencing distribution to South Africa in January this year, the company is currently in negotiations to distribute into Papua New Guinea, Indonesia, the Philippines and South America.
Parallel to that, Mr Johnsen said Safe Effect would look to broaden the application of the technology and modify it to other 4WD models, in addition to its currently expanded product range catering for Toyota Hilux, Isuzu and Mitsubishi Fuzo trucks.
