Dear our valued shareholders
Webmaster ㅣ 2017-09-15 ㅣ 4729
After careful considerations, our management has decided to
raise capital by issuing additional common stocks. We understand that this
decision will surprise many of our shareholders. On behalf of our company, I
would like to explain the reasons to account for this decision following brief
updates on our industry and on our capex plan.
There is a growing preference for nanofibers in the technical
textile, filtration, protective wear and consumer product industries. Following
are the latest market trends for each industry and how Finetex EnE is
positioned to capitalize such trend:
Waterproof breathable (WPB) market has been dominated by
cheap, non-air permeable PU membranes and environmentally hazardous PTFE
membranes that has little to zero air permeability. Past few years, both global
and local apparel and footwear brands were searching for the ‘next generation
material’ that will replace the mentioned two existing technologies. The
greatest appeal of nanofiber membrane is its extreme breathability,
waterproofness and 4-way stretchability.
Finetex EnE nanofiber membrane has been accepted as the
industry standard for new WPB and very recently, one of the largest global
brand has launched a new product line with Finetex EnE membranes. This has
provided us with great momentum and further exposure in the market.
5 years ago, our company had to convince and explain what
nanofiber was and why it is needed to the filtration customers. Now in 2017, it
is nearly impossible to find industrial air filtration companies that does not
offer nanofiber in their product line. In an industry where product replacement
cycle can range from 6 – 36 months, business is growing rapidly in industrial
For residential and commercial applications, as pollution
becomes a threat to the general public, governmental regulation is
strengthened. Alternative technologies are in demand to replace conventional
technology such as electrostatic and glassfiber technology. Nanofiber provides
unique functionality of high efficiency after discharge and 40% lower pressure
drop versus glassfiber that results in cleaner air and high energy savings. New
ISO16890 standard that was introduced in 2017 and expected to fully implemented
globally in 2018 is heavily favoring the properties of nanofiber.
As benefits of
nanofiber membrane incorporated fabrics was introduced and distributed in the
technical textile industry, nanofiber’s benefits were noted by industry leaders
in this sector as well. This industry’s customer internal development and
approval process for products such as coveralls, NBC suits, surgical drapes,
surgical masks are wide ranging and specific which takes time to come to
fruition. Certain FDA procedures must be met as well, which Finetex EnE is deep
in to the process for. This is an industry where successful product development
has potential for decades of revenue.
Two flagship Finetex EnE consumer product
lines, the face mask and window screen, showed high growth in 2017 and will
continue its growth path going forward. There are few driving forces for the
growth, which consists of increase in air pollutants, changes in government
initiatives and smarter consumers. The last point is critical as consumers,
especially in Asia region, are more aware of dangers of PM2.5, starting to
understand different types of face mask technology and negative stigma of
wearing masks is slowly fading away. Health conscious consumers are starting to
realize the benefits of nanofiber window screen, that allows home owners open
their window without worry of pollutants entering.
On the other hand, Finetex EnE’s energy business has struggled from the
recession in the construction industry and the decrease oil prices. However, we
plan to take advantage of favorable government policies in the development of
photovoltaic power plants to generate more revenue in our energy business.
Despite running at full capacity at our Philippines factory, we are
struggling to meet increasing market demands. In order to retain our market
leading position and to fulfill pending orders, our management has decided to
invest in additional production lines. From the current 3 membrane production
lines for technical textile, we plan to increase production efficiency by
consolidating our capacity in to 2 lines. We will
also be expanding our capacity to 8 membrane production lines by the end of June 2018.
For the filtration business, Finetex
EnE currently has 4 coating lines. Given the growth in traditional filtration
applications such as Air Pollution Control, Gas Turbine and growth in newly
developing applications in HVAC, Automotive and Emission Control, we plan to invest
in 2 additional coating lines by June 2018. Furthermore, we have 1 coating line
in China through our joint venture with our Chinese partner company. As
advancement in nanofiber products require multiple different functioning
layers, we also plan to invest in additional laminating lines for innovative, high
margin filtration products.
Lastly, we are aiming to diversify our product lines to include surgical
masks and protective wears. We will further
explain about our expected capital expenditure through our IR meeting and
Expected Impact on Revenue through Capital Expenditure
We expect technical textile, filtration
and consumer products to be our major revenue streams in the near future. It is
difficult to estimate the effect of capital expenditure on our industrial and
automotive full filter businesses because there is a diverse range of products.
However, we expect each nanofiber membrane
production line to generate at least US$4-6M in revenue. This implies that the membrane
lines will be able to generate approximately US$32-48M when in full operation
with 8 production lines.
That being said, our technical textile has two business models, where we
supply membrane alone to customers and where we supply fully laminated fabric. Higher
total revenue figures can be expected as fully laminated fabric sales increase
with increased membrane capacity.
As aforementioned, we are issuing additional common stocks to invest in
capital necessary to further expand our business by June 2018. The remaining
fund from the raised capital will be held under working capital.
When we initially raised US$30M by issuing a BW last year, our management had
expected that our business would generate between US$8M and US$10M in cash
within 18 months from the issue. This would have allowed Finetex EnE to prepare
for the possible earlier redemption (exercising put option) that may be
exercised by our BW holders later this year. However, our predicted growth in
revenue was delayed. Furthermore, we had to invest in additional
capital as we expected rapid growth in demand for our products. Nevertheless, our
management should have executed investments and expenditures with more
foresight with the funds that were raised through our investors. We sincerely
apologize for the way we managed our funds.
Our company’s outstanding warrants are expected to be exercised over the
course of the next 20 months to 13 May 2019 and that would help bring in
approximately US$26.5M of capital to Finetex EnE’s account by this date. Our management plans to use this cash to buy
treasury stock when it is legally feasible. The purpose of buying treasury
stock is to protect shareholder value by cancelling the outstanding shares. In
addition, the management has decided to buy back 35% of the outstanding stocks
in the future. Furthermore, our management will devise ways and introduce
systems to keep this promise in an official and transparent way.
Finetex EnE will concentrate more in near future and medium term future to
the commercially most advanced areas of nanofiber applications such as
technical textiles, consumer goods and protective wear, protective filtration such
as face masks and window screens and all other filtration industries like
industrial filtration to cut emissions and reduce industrial dust in various manufacturing
areas, automotive filtrations and residential
and commercial building filtration.
Finetex EnE will actively seek to find the best business model and best
business partners in each segment to continue and ensure the increasing adoption
of electrospun nanofiber containing products. We have progressed very well to
establish our products with the main global players in each of our main
business areas and we are expecting to engage with a growing number of business
partners to spread our business further.
Although the focus will be in increasing the business in these areas, Finetex
EnE will allocate funds to continue in participation on the development of more
advanced applications for the nanofibers, energy conservation and medical
applications in order to secure company’s long term success in all the possible
application areas for nanofiber products.
Our management team would like to apologize for the slow progress in
creating an IR platform that bridges the gap between Finetex EnE and our
investors. We are aware that there has been a growing need to renovate our IR. Our
management has been struggling to find the appropriate individual to lead our IR
tasks. Nevertheless, Finetex EnE will proactively update our investors in a
timely manner through periodic IR meetings, news postings on our company
website and other appropriate communication channels. We hope that these
efforts to communicate and increase transparency will further help our
investors decision making process.
I would like to wrap up this letter with some personal messages. As the CEO
of Finetex EnE, over the past 20 years, I have devoted my life to
commercializing the our nanofiber technology. I am confident that Finetex EnE
will be able to achieve significant progress in its businesses. In hindsight, I
should have raised sufficient capital for a long-term strategy. This would have
allowed our firm to carefully plan our capital expenditures and manage our
operational funds. Nevertheless, I promise that this will be the last time I
depend on our shareholders for raising capital. I sincerely apologize for the
events that have recently taken place. I will also strive to improve Finetex
EnE’s financial performance to provide opportunities to reward our investors
for their patience and perseverance throughout our firm’s difficult times.
Founder and CEO
Finetex EnE, Inc.