Quarterly Report To 30 September 2016

HIGHLIGHTS

25 October 2016

FINANCIAL PERFORMANCE

Continued sales growth and improved cash position

  • Sales of $13.4 million for Q1 FY17, up 6% on Q1 FY16.

  • Closing cash of $8.1 million, up from $7.6 million 30 June, 2016.

  • Inventory reduced $1.0 million from 30 June 2016 to $10.9 million.

  • Total capex spend of $0.6 million.

  • Total R&D and product development investment of $1.3 million.

  • Firm order book in excess of $115 million at 30 September 2016.

    AEROSPACE MANUFACTURING

    Joint Strike Fighter (JSF) production

    • A total of 256 parts delivered for the quarter, 72% up on the pcp

    • 179 parts JSF fuselage parts delivered in Q1 up 20% on the pcp

  • 77 vertical tail components delivered

  • Monthly production record in September, exceeding 100 parts milestone (FY16 average: 49 parts)

    Lockheed Martin C-130J production

  • 7 ship-sets delivered in Q1, compared to 10 in the prior corresponding period (pcp)

    NEW TECHNOLOGY

    Key Activities

  • Ten sets (190 components) of Thales Hawkei body parts completed

  • Automotive panel projects in prototype tooling phase

  • KIST project on track for factory acceptance testing November and delivery in December

  • Production of initial 660 Ford components completed

  • Seat back panel development parts completed for RapidQure development activities

  • Several development projects underway with OEM and Tier-one customers

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. Q1 SALES IN LINE WITH EXPECTATIONS

    Production of parts for the F-35 Lightning II Joint Strike Fighter (JSF) continued to grow, offsetting C-130J Hercules return to long-term rates. Sales for Q1 FY17 were $13.4 million, in line with expectations and 6% up on the same quarter last year.

  2. FIRM ORDER BOOK

At 30 September 2016, Quickstep's firm order book was valued in excess of $115 million.

2.0 AEROSPACE MANUFACTURING 2.1 JSF

Quickstep is the key supplier globally to Northrop Grumman for 21 JSF components including doors, panels, skins and other composite parts for the JSF program. Quickstep will also supply 700 sets of vertical tails composite parts including skins, spars and fairings over the next 14 years under an agreement with BAE System's supplier, Marand Precision Engineering.

In Q1 FY17, Quickstep delivered 256 parts compared to 149 parts in Q1 FY16, an increase of 72%. Production for JSF is accelerating and is expected to increase significantly over the next three years.

2.2 C-130J

Quickstep is the exclusive supplier of composite wing flaps to Lockheed Martin for the C-130J Hercules aircraft under an initial five- year memorandum of agreement (MoA) which has now been extended through to 2019 in line with Lockheed Martin's C-130J Multiyear II contract with the US Department of Defense.

During the first quarter, 7 ship‐sets were delivered, consistent to plan.

2.3 CAPITAL EXPANSION AND GROWTH OPPORTUNITIES

Quickstep continued its capital expenditure program at its Bankstown site to accommodate higher levels of contracted production for the JSF program. The capital expenditure program is expected to be completed in the financial year.

Quickstep is engaged with its current customer base for growth opportunities on new and existing platforms and other defence projects. In Q1, the Aerospace Manufacturing business was awarded additional vertical tail component volumes from BAE Systems worth US$1.3 million for delivery over the balance of this financial year. This shows a strong confidence in Quickstep's start-up in vertical tails manufacturing post the qualification in Q4 of FY16.

3.0 NEW TECHNOLOGY
  1. NEW TECHNOLOGY UPDATE

    Quickstep has made a significant investment in the commercialisation of its advanced manufacturing processes, with 30 technical and process manufacturing staff working on New Technology product development and project deployment in Waurn Ponds and Germany. The key areas of focus are:

    • Working with global customers on prototype tooling and parts development to ensure customer specifications can be delivered at higher volume levels

    • Developing optimised materials and resin solutions to meet specifications at target cost

    • Development of complementary processes to increase throughput capability in conjunction with Qure and RST processes

    • Materials screening, testing and development with key supply partners to automotive and aerospace customers

  2. CURRENT PROJECTS STATUS

    Thales Hawkei: Quickstep completed the first 10 full sets of composite body parts for the Hawkei military vehicle in the quarter. These will be used on test and evaluation vehicles. This is the first project where the Company's patented Resin Spray Transfer (RST) is being used in production.

    KIST Equipment: The Korea Institute of Science and Technology (KIST) project is on track and will see Quickstep deliver an RST cell & Qure machine to KIST by the end of 2016. This project opens up opportunities for Quickstep to partner and manufacture in South Korea, one of the world's largest automotive production markets.

  3. RAPIDQURE UPDATE

    Quickstep is continuing the commercialisation of its New Technology manufacturing through its maturing RapidQure process. Substantial progress has recently been made on increasing the heating rate of Qure technology, using an isothermal process. In conjunction with rapid curing resins, Isothermal Qure will allow a 30-minute cure time with further optimisation opportunities in development. The recently announced seating development project with Futuris Automotive will focus on utilizing latest manufacturing processes to deliver annual volumes in excess of 20,0000 units/annum.

  4. NEW BUSINESS

Projects currently underway include composite seat structures, a composite front fender and composite body panels.

4.0 CORPORATE
  1. CASH POSITION

    At the end of the quarter, the consolidated group cash balance was $8.1 million versus $7.6 million 30 June 2016. The company also held $1.0 million in restricted term deposits to be held to maturity.

  2. Q1 CASHFLOW

Operating cashflow for Q1 was $1.2 million, including an inventory decrease of $1.0 million, being the first stage of the $2.0 million decrease targeted for 31 December 2016. The business continues to invest in R&D and product development, with $1.3 million spent during the quarter, up $0.8 million versus the same quarter last year. Total capex spend for the quarter was $0.6 million, as the business completes installation of new equipment at Bankstown to facilitate JSF growth.

5.0 OUTLOOK

Sales for Q2 FY17 are expected to be in line with Q1.

Quickstep's long-term vision 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 other transport sectors. The company's FY17 priorities and targets are:

  1. Aerospace Manufacturing

    • Complete the capital investment plan to support JSF growth

    • Leverage existing customer relationships on new project opportunities

    • Surpass volumes of 100 parts per month for JSF

    • Reduce inventory and improve manufacturing efficiencies

  2. New Technology

    • Deliver Qure & RST to KIST

    • Work with global customers on product development programs and demonstrator parts for future contracts

    • Win contracts for target products

    • Work with partners (Deakin, CSIRO, key suppliers) on material science initiatives

    • Continue commercialisation of New Technology manufacturing through maturing of RapidQure process

-ENDS-

Quickstep Holdings Limited published this content on 25 October 2016 and is solely responsible for the information contained herein.
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