Unison makes transformational investment

TRANSFORMATION: Unison Group chief executive Ken Sutherland has big hopes for its overseas acquisition. PHOTO/WARREN BUCKLAND

Unison Group chief executive Ken Sutherland has a faraway look in his eyes when he talks of the potential of Indonesia.

Unison's transformer company ETEL has invested in an Indonesian transformer equivalent.

While a lot smaller it was "hub" for Unison's ambitions into other ASEAN countries.

The potential of Indonesia alone, the fourth most populated country in the world, is vast.

Unison went into the transformer manufacturing business in 2009 when it bought Auckland-based ETEL.

"It was an opportunity for us when we were looking at our whole smart grid performance ability," he said.

The Smart Grid is Unison's system of using new technologies to receive more information about the performance of its electricity distribution network.

"In Hawke's Bay we have had quite a challenge about how do we upgrade our network and the constraints of free cash flows.

"We could have done what everybody else has done or ask if there was a smarter way to actually improved performance, reduce your investment cost and reduce your risk of operating your network. This we did and we call that part of our Smart Grid philosophy."

A critical component of electricity distribution is transformers.

"At the time ETEL's owner was ageing and thought it was probably time to divest his business activities.

"We saw that opportunity to acquire it and integrate in some of the technology upgrades/innovations that we were looking to do in the market.

Since Unison's purchase ETEl has doubled in size.

"Staff has gone up to just under 250 and it is working extremely well.

"By leveraging off our innovative Smart Grid developments ETEL has become one of the most progressive distribution transformer manufacturers in Australasia.

"ETEL's presence is firmly established in New Zealand, Australia and the Pacific region, with more than 50 per cent of its total output supplied to the Australian and the Pacific Island markets, so the move into South East Asia was a natural next step."

A New Zealand consultant put them in touch with Lucky Light founder Hasim Tan, who was already known to Unison through his former work with a multi-national power company with contracts in New Zealand.

Mr was looking to expand its manufacturing capability, so ETEL purchased a 90 per cent shareholding in five-year-old Lucky Light Globalindo, which supplies the Indonesian market.

Because Indonesia is an Asean nation Lucky Light has unfettered access to the markets of the Phippines, Singapore, Thailand, Brunei Darussalam, Laos, Myanmar and Cambodia.

While the potential for transformers is huge, there is scope for Unison to export other Smart Grid innovations.

"We are confident this investment will enable ETEL to market the smart transformer in to South East Asia, but could also provide a platform for Unison to leverage possible commercial opportunities from its own smart technology innovations.

"We identified the smart transformer as a critical hub for power quality and asset management and we now have two of ETEL's smart transformers on our Hawke's Bay network. This, together with Unison's other Smart innovations, may provide further potential."

While Mr Sutherland has a faraway look in his eyes when talking potential from the Lucky Light investment, Unison chairman Kevin Atkinson grows another twinkle.

"The lifespan of their transformers is about 10 years and ours is 40 to 50 years, so we can implement technology into that to network that can increase the life of the assets from 10 years to 40 years," Mr Atkinson said.

"The Indonesia government has indicated an investment of $15 billion in distribution networks over the next five years. That is what we are interested in.

"The distribution transformer requirement for 2015 was 2865 units, the requirement for 2016 was 31,720 and in 2026 they are estimating they will require 60,000 transformers per year."

Indonesia is parochial when choosing suppliers and Lucky Light has patents and manufacturing licences in place.

"It can take years to get some of those licences."

Mr Sutherland said Mr Tan retained 10 per cent of the company and has "interests aligned".

There is also political will to increase trade between New Zealand and Indonesia.

In July New Zealand Prime Minister John Key met with Indonesian President Joko Widodo in Jakarta, where Luck Light is based.

"New Zealand and Indonesia have a strong and growing relationship," Mr Key said.

"Indonesia is our 13th largest trading partner. It has a population of over 250 million people and has significant human and natural resources so we see great opportunities to work together more closely in a number of areas.

"That's why last year our governments agreed to the target of increasing two-way trade to $4 billion by 2024 - from around $2 billion currently."

While the Indonesian transformer market is big it is simpler to supply - Lucky Light makes about six core products, compared with 500 ETEL variations.

Mr Sutherland said Unison was able to make the move into Southeast Asia because it was "an interesting size".

"We have capabilities to get stuff done that smaller companies find challenging and bigger companies find harder to get traction with.

"We have quite an agile and capable network that we can leverage off for business.

"We have attracted some top class people to help us and also be able to help us to take value added services out."

He said about 10 per cent of Unison's profit came from outside Hawke's Bay, which enhanced returns to its power-consumer shareholders.

"We take our business bloody seriously to be honest. We know why we are here, we know who we represent and we are about creating value and performance for our shareholders. That's the game we play and we've been doing a pretty solid job.

"We see Lucky Light as the beginning of a good future."