Are car parks the new petrol stations?

Peter McUtchen is the CEO of a relatively new business called Parkd. It’s a construction business with a difference: it builds modular car parks. They have invented a new way of creating concrete spans and that’s the IP of the business. They’ve got a patent for it which Peter McUtchen invented in 2016. He is a structural engineer and has been building car parks and shopping centres for a while and started this business. They have built one car park as a kind of demonstration or display home in Perth which they’ve finished and now they’re trying to sell some more of them.

It’s a tiny business and floated last year at 20 cents. It's still burning cash - a million or so per quarter. It’s a very speculative business but also very interesting. 

One of the things he points out in the interview is that car parks are the new petrol stations which is an interesting idea, I hadn’t really thought of that. What he is saying is that when people have electric cars they won’t be going to petrol stations to fill up they’ll just park them somewhere, either at a shopping centre or at work, and plug them in. Car parks have, in his view, got a real future and he has got a cheaper way of building them. He’s saying that his method is 30% to 35% cheaper to build a car park than the existing way.  

Here's Peter McUtchen, the CEO of Parkd.

Peter, Parkd listed last year at 20 cents, now 17 cents, obviously a slightly challenging 12 months but can you just tell us a bit about the business before you listed?  You were incorporated in October 2016 but how long has the company actually been going?

When it was incorporated the company essentially came together at that point.  I was the owner of the IP behind the design and the technology.  I teamed up with the person who had the concept and the vision to start with, David Thomas, and there was one other person who came in to form the founding directors to build the business.

When you say you owned the IP did you buy it off David Thomas?

No, I developed it for David Thomas at the time in partnership so to speak but the IP was held with me.  I’m a structural engineer by background profession and it was at the time an engineering exercise coming up with a smart way to build a car park that you can then remove or deconstruct later.

What is the IP?

The IP is around the structural elements.  In particular the beam element which we have used some existing technology in the industry called hollow core and re-engineered it so to speak and turned it into a beam element that can span up to 17 metres which makes it one of the few bits of structure that can do that job.  17 metres is the golden number for car parks because that’s the accumulation of a car bay, an aisle and then a car bay so you can span right across the car park so to speak.

Your technology, your IP, is the ability to span 17 metres, is that right?

It’s the ability to span the 17 metres but it’s also using this beam element which is an extruded concrete product in the way of a beam.  The IP is actually this extruded product that can be used as a supporting beam.  It’s a little bit engineering and sort of techy but that gives the business…

I think it’s important for the investors to get their head around it so perhaps you’d explain to people who aren’t engineers exactly what you’re talking about, so it’s not just the fact that it spans 17 metres, obviously a piece of steel could do that.  You’re talking about a piece of extruded concrete, is that right?

Yes, it’s an amazing bit of construction technology, it’s one of the few concrete products that can be made in a robotic or automated process.  If I run you through the manufacturing of this beam it’s quite important because it gives us our price point and also the ability for us to scale and do big structures or big areas of structure very quickly.  The beam is extruded on a pre... it’s between 150 to 200 metres long depending on who does it and it’s done essentially without any labour. 

The concrete comes in on a robotic rail and dropped into a hopper and extruded out into a form and it has embedded voids so that it’s very lightweight, it’s highly pre-stressed so it can span long distances without having a huge amount of mass and a 200 metre long beam isn’t particularly useful but once it’s cast you can then cut it to the size that you went.  One casting of this 200-metre length beam you get around 11 beams that you can then take and put onto a job.  You can make these beams very quickly.

Is this plain concrete or have you got additives in it?

It’s plain concrete, it’s high strength at 60 MPA-concrete that goes into make this extruded product it’s batched at the pre-cast, it’s a fairly high-performance concrete but it is plain concrete.  There are ways that we are looking to put in some additional strengthening elements in the way of steel fibre to give it an enhanced sort of structural ability.

What is it that’s special about it, is it the fact that the machine can put it into 200 metre lengths or is it the fact that there are holes in it or gaps or whatever you call them in it…

Voids, yeah.

Voids, that make it light, is that what makes it special?

You’ve got two of those things but there’s probably three or four.  One is that it’s extruded so it’s low labour, so low cost.  You can make a lot of them very quickly, these things come in a double bed so you can make 400 to 800 metres a day, usually you can get two runs in a day.  The voids make it extremely light, around half the weight of the same thickness of beam so it’s easy to transport.  It’s pre-stressed which means that it’s extremely high strength.  All of those things make it very attractive for modular construction and the IP and where we’re sort of getting to is that we’re using it as a beam structure instead of a slab structure.  For the last 25 years of using hollow core in the market, and it’s quite a mature market for hollow core, we have taken this element and turned it into a beam element and married it to other construction technology to make an extremely light system.

When you came up with this idea what was your key insight?

My background is in post tension structures, for 14 years I’ve been working in designing high rise buildings, big shopping centres, lots of car parks and the insight was looking what was available on the market.  In the design of this car park, the Parkd car park, I wasn’t doing something brand new other than in that I wasn’t taking a whole new approach to a problem.  Using existing construction technology method there’s an existing supply chain, there’s an existing understanding of the technology and repurposing that technology and improving it to suit car parks specifically. 

When you look at the design of any structure you can group them into actually different spanning types.  If you’re looking at a residential tower or construction the maximum span you need for anything between supports is about six or seven metres.  There’s a lot of technology out there that can span that distance and you move it to commercial buildings commercial buildings are more open in space so they have a spanning range of between sort of eight and twelve metres, and there’s again quite a bit of construction tech around in how you can build those types of structures.

When you look car parks car parks have got one of the longest spans that you will design as a free-spanning structure.  You can put intermediate supports in as well which is supports towards the aisles of the car park but ideally people want something that’s going to be an open experience within a car park.  That’s where the technology is heading, is we’re offering people something that is an improvement on what’s currently out there in terms of the construction.

I presume you’ve got patents, have you?  If so, what do they cover?

Currently we have a certified innovation patent in Australia and we have applied for international patents around the beam element.  That’s what the...resilience of this hollow core member as a beam, it’s been re-engineered and as I said it’s a brand-new look at the use of this product.

Tell us what your business model is, are you selling licenses, are you selling the beams, are you selling the machinery to make them, or what?

We’re into selling car parks.  At the moment we are all about partnering with the right people who want a car park that can be built quickly and is a cost-efficient solution or they’re looking for the ability to remove that car park and re-use it later or move it down the road or give the land more option for later use.

Your plan is to basically build car parks for people, is that what you’re saying?

At the moment we are proving our technology through building the car parks.  The car parks are a great vehicle for us to be able to look at the opportunities for operating car parks, the opportunities around the way that property is utilised in this space, so assessing land banks and vacant spaces around city centres.  There’s also another stream of blue sky opportunity for the business around power as well, that’s something that we’re also looking into because at the end of the day car parks will become the future petrol station, when you’re looking to refuel your car with electricity it won’t be done at a bowser standing there holding the petrol pump it’ll be you’ll plug it in, go and do some shopping, come back and that will be the future of fuelling outside of residential charging at home.

I see that you’ve got a contract to build a 49-bay car park for Perth City Subaru.  Is that the only deal you’ve got so far that’s confirmed?

That’s been delivered.

You’ve built that?

That’s been built, that was a great success for the business.  As a part of our listing we had this contract to build this car park for City Subaru and once we got across the line on the boards we went about building up the team and then delivering the car park so once the foundations were complete on the job, which was the 12^th of July, six weeks later we handed over the car park to City Subaru, painted, lights and gutters and everything like that.  It was a great demonstration of the speed of construction and the new way of building that meant that there was very little disruption to their business.  They could still operate while we were constructing.

With that project were you the builder or the developer or did you employ a builder to do it?

The way we delivered that job was by engaging a builder underneath Parkd and we assembled the structure within that contract.  Parkd operations worked alongside the builder in assembling the structure, the builder did the footings and the inground works and then they did the fit-out as well, so painting and line marking and all the rest of it.  What Parkd operations delivered was the supply of car park and assembly of the car park.  That’s really where our strengths lie, is in the supply and the assembly of the structure.  We can either be the lead manager or the developer or we can just sit within a building team.

Are you in a position to tell us details about the thing, how much it costs and sort of the detailed numbers on that project?

I’m happy to discuss them.

How is the cost of a car park measured, is it per space?  Do you usually look at it that way?

Car parks are interesting in the way that people assess them.  I’ll explain one thing first, is that all car parks have different efficiencies in terms of the number of bays.  A lot of people talk about the cost is per bay, but you can have a car park that has an average square metres per bay of 23 square metres per bay or it could be 40.  The danger in talking about cost per bay is that it varies largely, the efficiencies vary a lot.  The per square metre cost for car parks is something that is for us a better measure of saying how much did it cost per square metre.  On City Subaru we ended up having per bay cost of around $12,500 per bay and the square metre rate was around about $500 a square metre gross area so both of those figures represent a significant improvement on what it would normally cost for somebody to build a car park.

How much of an improvement, tell us what the difference would be both per bay and per square metre?

That’s going to be my opinion on this because obviously there’s a lot of different ways to build car parks.  I have designed a lot of post tension car parks and if I was looking at a post tension car park basically replicating it in traditional construction post tension it would be around 750 a square metre and around $20,000 a bay.

Right.  What’s post tensioning?

Post tensioning is by the far the most efficient way to construct car parks and high-rise buildings and other things.  Post tensioning is where you take cables and embed them in the concrete and then you apply a force to the concrete and you compress the concrete.  It’s a form of engineering or construction that’s been around for 30 years in Australia or longer.  If you look at the east coast of Australia of all the suspended concrete works, it would represent probably 85% of all concrete works just post tension concrete.  It’s the most efficient way to build so that’s why I’m comparing the post tension structure with what we’re doing because from an industry point of view it’s probably the most common and most efficient way to build concrete.

Are you claiming 40% cost savings?

On this particular project the numbers I’ve given in terms of what it would be in traditional construction would be we would say between 30% to 35%.  The project as I’ve quoted, it is without our margin so there’d be 10% margin on top of the costs that I’ve given you, so you have to keep that in mind as well.   As an ample structure we do need to apply 10% on top.

I was going to ask you how much you made out of that project but are you saying that its transparent and you’re doing cost plus 10%?

With our first project, the contract with City Subaru is a lease with option to purchase in six months.  It was recognised at the start that this was very much an R&D exercise and we came up with a lump sum price for City Subaru which worked for them which is going to end up being around $750,000, $690,000 is quoted in our prospectus.  There’s no margin on that particular job for us, it’s a bit of a large job so to speak.

I understand.  It’s a sort of display home, it’s a demonstration.

It is, yeah that’s right.

Have you managed to get many future customers through it to have a look at it?

Absolutely, we’ve had a lot of people through and that ranges from hospitals to retailers to other car dealerships and....  A whole range of people have had a look.  It’s acting as a way for us to progress negotiations with other people.  Throughout the construction and since the start of the year when we’ve listed we’ve had a huge amount of inquiry and we’ve been careful to a degree of how we’ve responded and we have really wanted to get this job finished and there for people to go and kick and feel and look at so that we can progress to our next project. 

We were certainly not intending to sign up another job where we had to provide the same sort of incentives to construct.  We wanted to really say to people if you want one of these, this is the cost and this is the deal.  We have had another contract signed which is through a couple of accountants who are leading a syndicate, it’s around about a $9 to $10 million-dollar project in the middle of Perth.  It’s done the job in terms of progressing one of our negotiations into a contract and we’ve started the feasibility design and architectural work on that project so that’s a really exciting sort of progression for us.  There are other deals out there that will hopefully progress the contracts in the short term.

Can you tell us about what sort of pipeline you’ve got?

Without getting people too excited I have stated before – this is back in August – that essentially within that month we had around $100 million dollars’ worth of inquiry for all sorts of different projects.  That level of inquiry has been sustained in that we are getting similar levels of inquiry.  One of the unique things for the business and for me being in construction for a long time, a lot of the time you’re chasing work or you’re putting in competitive tenders.  A lot of the projects that we’re looking at, inquiries we’re looking at, are responding to people who have seen the opportunities that the system offer that are currently in the market.  We’re getting in at a very early level usually at a feasibility stage looking at all sorts of different projects whether it’s a retail project around Australia, there’s four different retail projects that we’re talking to people with and that’s the likes of ISPT, QIC, Scentre Group, Vicinity and one other here in Perth. 

The car dealerships, there’s a numerous number that we’ve responded to and some love the idea, they really want it but they can’t necessarily demonstrate they need it.  The inquiry level is strong which is going to lead to a strong 2019.  Which deals firm up it’s hard to say but one of the exciting things that has happened in the last week is we have been formally sort of requested to price up a big car park project here in Perth which is the Forrestfield train station car park and that’s a $32 million-dollar car park for Salini that’s been sort of in the news.  It’s a tender so not something that’s announcable really, it’s what we do sort of day to day, but it is very exciting for the company because that represents the type of project that we’re looking to deliver on from a construction point of view.

Is there any limit to the size of car park you can make?

No, the design is modular and they’re sort of self-supporting so to speak so we can just plonk these modules on top of each other and next to each other like Lego blocks and it can be as big as you like.  That’s one of the benefits that people are seeing, particularly some of their airport operators when they’re looking at the system is that they’re sort of going well we’re not sure how many we need in 10 years but we know we need this many in the next five years so we’re talking to a couple of these operators about just building what they need and then looking at options to extend or to go up or across in future.

I just wanted to finish off just talking about your cash position.  I think you’re burning close to a million a quarter, at least that was your latest quarterly showed that.  How much of that is fixed because I think about two thirds of that money was R&D and a quarter of it was staff, what’s your position?  How many staff have you got and to what extent are you going to have to keep spending money on research?

Some of those R&D costs relate to the City Subaru project.  There’s been quite a bit of expense on that project, but we are anticipating to be paid or reimbursed by City Subaru in six months for some of that cost.  A lot of that R&D spend has now happened and what you’ll see from our cash burn essentially from the start of September – it’s probably going to be the start of October given there’s a few invoices outstanding – is more of just a staff burn.  We’ve got a General Manager of Finance, we’ve got an Operation Manager, a Business Development Manager, we’ve got a Technical Director, Peter [Biermer], he is leading a lot of the development of the system.  We’ve got some contract staff like our company secretary.

And there’s you, of course.

And me, yes, I’m in there.  You’ll see from our figures that the founding people in the business are all very conscious of the burn rate and very conscious that the success of the business is going to be around for the first few years being very careful with how much we pay ourselves and how much bang for our buck we get out of our people.

You’ve got less than $4 million in the bank according to the quarterly.

Yes.

The other thing I noticed which I was puzzled at, you raised like $187,000 from issue of some options, what was that about?  Because it seemed like a lot of trouble to go to for not much money.

I know, it looks like that doesn’t it.  They’re I suppose what we’re calling loyalty options that we offer existing shareholders back in I think it was June/July.  We sold essentially a quarter of the stock, we offered a quarter out as options.  There’s around 17.5 million options that were put out at 1 cent and that gave you the $170,000 or $180,000 dollars.  Those options, they have a strike price of 30 cents and an expiry at the end of 2019.  What it means for the business is on the continuing sort of success and operation of the business by the end of next year there may be an opportunity where people will purchase those options, exercise them and that will obviously be at 30 cents which would give the business just over $5 million dollars.

Assuming they do.

Assuming they do, if they don’t they don’t, they will just expire.

Just looking at your pipeline do you think you’re going to have to raise some more money?

We’re not planning on it at the moment.  One of the things I mentioned today is that like a lot of construction companies the way that we are structured we don’t need a huge amount of cash to operate.  When we do a project we’re paid upfront when that contract is signed and then there are progress payments along the way so we’re never having to put our hand in our pocket to pay for anything that’s supplied by the market because we will be paid first and that’s common for most sort of builders or construction companies, you don’t need a huge amount of cash in the bank to operate.  The answer is that we’re not planning to raise any cash at the moment, we feel that we have enough money in the bank to be able to operate and to deliver on hopefully a $10 million-dollar pipeline next year.

I note that you and David Thomas have got about 25% of the company between you, any interest from institutions at all yet?

We have a planned roadshow in October, so we’ll be reaching out to everybody to look at the stock again and basically give an update to the market.  We would be looking at all options, love to get an institution involved or there are some individuals who have shown interest in taking larger sort of packages of shares, so it might be that we get creative in finding ways to get those sort of people into the business.

We’ll have to leave it there, Peter.  It’s been really interesting talking to you, thanks.

No worries at all, Alan, it was a pleasure talking to you.

That was Peter McUtchen, the CEO of Parkd Ltd.