Quarterly Report To 30 June 2016

HIGHLIGHTS

27 July 2016

FINANCIAL PERFORMANCE

FY16 Sales exceed $50 Million, ahead of expectations

  • Sales of $50.1 million for FY16, with Q4 sales of $14.5 million

  • Firm order book of $125 million at 30 June 2016

  • Cash of $7.6 million

    Increased capital spend to support Aerospace growth and New Technology

  • Ongoing capital program to support JSF expansion; $1.1 million investment in Q4

  • Full year capital spend of $3.4 million across Bankstown and New Technology

    AEROSPACE MANUFACTURING

    Lockheed Martin C-130J production continued at 3 per month

  • 9 ship-sets delivered in Q4 for a total of 35 for the financial year

    Joint Strike Fighter (JSF) production continues to grow

  • 143 parts delivered in Q4, and 558 parts for the year

  • JSF vertical tail spars and skins commenced delivery with 20 VT parts delivered in the quarter

  • Total of 590 parts produced for the JSF program in FY16, 27% increase on previous corresponding period (pcp)

    NEW TECHNOLOGY

    Quickstep signs Memorandum of Understanding with DCNS

  • Extends Quickstep's markets into marine defence, enabling potential participation in SEA 1000 submarine program

    Thales Hawkei vehicle program

  • First parts for Thales Australia's Hawkei completed using resin spray transfer (RST) technology

    Ford Falcon XR6 production under way

  • 377 carbon fibre air intake ducts manufactured

    Korean Institute of Science and Technology (KIST) contract

  • Qure and RST system sale to KIST as part of development opportunity with South Korean industry

    Quickstep begins new development projects

  • New development projects commenced with two leading vehicle manufacturers, a global aircraft manufacturer, tier-1 industry suppliers and DCNS

361 Milperra Road Tel: (02) 9774 0300 ASX Code: QHL

Bankstown Airport NSW 2200 Fax: (02) 9771 0256

www.quickstep.com.au Email: info@quickstep.com.au

1.0 FINANCIAL PERFORMANCE

  1. STRONG SALES PERFORMANCE

    Deliveries against Quickstep's F-35 Lightning II Joint Strike Fighter (JSF) and C-130J Hercules purchase orders continued according to plan. Sales for the fourth quarter of FY16 were $14.5 million, including $1.7 million relating to production automation for C-130J. Following commencement of manufacturing for Ford Australia, commercial automotive production contributed to sales for the first time. Sales for the year to 30 June 2016 were $50.1 million, up 27% compared to the previous corresponding period (pcp).

  2. FIRM ORDER BOOK

At 30 June 2016, Quickstep's firm order book value increased to be in excess of $125 million. This includes purchase orders extending through to 2019.

2.0 AEROSPACE MANUFACTURING

  1. LOCKHEED MARTIN C-130J ADDITIONAL VOLUMES DELIVERED

    Quickstep is the exclusive supplier of composite wing flaps to Lockheed Martin for the C-130J Hercules aircraft under a five-year Memorandum of Agreement (MoA) valued at US$75 million. Discussions are underway with Lockheed Martin to extend the production activities beyond 2020.

    During the quarter 9 ship‐sets were delivered, taking production to 35 ship-sets for the year. C-130J volumes are now expected to return to the normalised long term production rate of two ship-sets per month. In FY16 Quickstep has delivered 11 additional wing flap sets to the program to support historical accumulated spare parts demand.

  2. INCREASING JSF PRODUCTION

    The JSF Program is the world's largest defence aerospace program, and Quickstep is the sole supplier globally to Northrop Grumman for 21 JSF components including doors, panels, skins and other composite parts. In Q4 FY16 Quickstep delivered 143 parts. The JSF program is accelerating and is expected to increase significantly over the next three years.

    Having completed qualification for vertical tail fairings, spars and skins, JSF vertical tail deliveries have now commenced to Marand Precision Engineering. Under the agreement with BAE and Marand, Quickstep plans to supply 700 sets of composite parts including skins, spars and fairings over the next 14 years.

  3. EXPANSION AT BANKSTOWN AIRPORT

The ongoing capital expenditure program at Bankstown Airport to accommodate higher levels of JSF production continued in the fourth quarter. During Q4 Quickstep invested $1.1 million.

Quickstep continues to progress discussions and product development with current customers and other aerospace original equipment manufacturers (OEMs) regarding new opportunities.

  1. NEW TECHNOLOGY

  2. MoU SIGNED WITH DCNS GROUP

In June, Quickstep signed a Memorandum of Understanding (MoU) with DCNS Group, the largest shipbuilder in France, which was selected by the Australian Government as its preferred international partner for the design

of twelve submarines for the Royal Australian Navy. The MoU enables participation in supply chain contracts for the new SEA 1000 Future Submarine Program and formalises DCNS' and Quickstep's cooperation in the manufacturing of components and assemblies using advanced composite materials.

This MoU takes Quickstep into the marine defence industry, which is a natural extension of its technology and complements its involvement in the JSF F-35 Program, the world's largest defence aerospace program.

A joint Quickstep / DCNS committee will consider parts and projects which are most relevant to implementation of Quickstep's technology. Over the next twelve months, the company expects to develop and manufacture demonstration parts. Testing of Quickstep's process technologies for naval applications may lead to the production of components for DCNS' submarine program for Australia and other markets.

  1. FORD FALCON XR6 SPRINT PRODUCTION

    Quickstep has completed 377 carbon fibre air intake ducts for the Ford Falcon XR6 Sprint, and production is ongoing. The Ford Motor Company is Quickstep's first automotive original equipment manufacturer production client.

  2. THALES AUSTRALIA HAWKEI LIGHT ARMOURED VEHICLE

    Quickstep has completed the first set of composite parts for Thales Australia's Hawkei light protected vehicle using its resin spray transfer technology. Quickstep is the exclusive supplier of Hawkei bonnet, side skirts and mud guards, and expects to deliver ten sets of parts - comprising more than 150 individual components - for testing by end-September 2016.

  3. NEW TECHNOLOGY SITES UPDATE

    Waurn Ponds, Victoria

    The Waurn Ponds facility is now in production, and features a fully operational RST cell, clean room, small and large ovens and a carbon fibre trimming cell. Installation of a full-scale Qure cell is now complete and demonstration parts are being produced. The global R&D Centre is working to expedite the Qure process to support volume production in excess of 10,000 parts per annum. In addition, a number of projects are currently underway in Waurn Ponds for product development programs.

    Ottobrunn, Germany

    The Qure cell at the Ottobrunn facility has been upgraded. Quickstep has a number of active material (resin and carbon fibre) qualification programs in partnership with both OEM automotive clients and Tier 1 suppliers.

  4. QUICKSTEP SECURES SOUTH KOREAN RESEARCH INSTITUTE CONTRACT

    Quickstep has secured a new sales contract with the Korean Institute of Science and Technology (KIST), the multi-disciplinary research institute which has had a significant role in the development of South Korea's growing carbon fibre composite materials industry. KIST is based in Seoul and will use the Qure system to extend its research in the field of composite materials science, expediting its research goals.

    Quickstep will develop and supply composite manufacturing equipment, including its RST and Qure machine technologies, which KIST will use to develop prototype, demonstrator and niche-volume composite parts.

    Delivery is expected to be completed by the end of 2016.

  5. NEW DEVELOPMENT PROJECTS

Quickstep has commenced a number of development projects which may lead to production parts manufacturing contracts. Commercialisation of Quickstep's Qure and RST technologies and product development and the associated investment in R&D and product development will continue throughout FY17.

4.0 CORPORATE

  1. CASH POSITION

    At the end of the quarter, the consolidated group cash balance was $7.6 million and the company held, in addition, $1.0 million in restricted term deposits to be held to maturity. Net assets at 30 June 2016 were $16.1 million. Note that $0.6 million was due from a major customer by end of June, but received early July. If received in line with terms, the cash balance would have finished at $8.2 million.

  2. CASHFLOW

    Operating cash outflow for Q4 was $3.4 million, reflecting an increase in inventory of $1.6 million, higher R&D spend and costs associated with the commencement of VT production. Cashflow was also negatively impacted

    $0.6 million by the customer payment not received as per above. Total inventory has increased due to increasing sales plus safety stock to ensure there is no disruption to the JSF Program while capital expansion at Bankstown is underway. Inventory was also impacted by work in progress for the KIST project and a number of finished goods completed late in June that were delivered and invoiced in July.

    The full year operating cash outflow was $5.5 million, reflecting the additional inventory build in the second half.

  3. FINANCIAL OUTLOOK

FY16 sales were strong at $50.1 million. FY17 should see total sales grow at a more modest rate as JSF-related sales continue to increase but are offset by C-130J volume moving to longer term production levels. R&D and product development costs are expected to increase in FY17 as the company pursues new business opportunities.

5.0 OUTLOOK

Quickstep's long-term goal is to become a world leader in advanced composites manufacturing and the company is focused on expanding its business in the aerospace, defence, automotive and transport sectors.

The company continues to focus on increasing its market share as a product manufacturer. Investments will be increased in both the Bankstown Aerospace manufacturing facility and product development for New Technology applications in Waurn Ponds and Germany. The priority for new technology is to convert current development projects into new orders for components. This is expected to occur in the next 12-24 months as the company progresses through the product development phase.

Quickstep Holdings Limited published this content on 27 July 2016 and is solely responsible for the information contained herein.
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