Quickstep Holdings Limited (ASX:QHL) Managing Director and CEO Mark Burgess talks aerospace and defence work, partnerships and advanced manufacturing.
Jessica Amir: Hello I’m Jessica Amir for the Finance News Network, here with Quickstep Holdings Limited (ASX:QHL) CEO and Managing Director, Mark Burgess. Mark, welcome to the Network.
Mark Burgess: Thanks for having me.
Jessica Amir: For new investors, just give us a quick introduction to the company?
Mark Burgess: Quickstep is Australia’s largest independent supplier of carbon composites in the aerospace industry. We have a strong position. We’ll generate about a billion dollars of revenue over the production lifecycle of the F-35 program, the world’s largest defence aerospace project. We’re also global sole source on the C-130 Hercules aircraft, which is the world’s longest running large freighter, for the military.
Our primary production capability is out of Bankstown in New South Wales, where we produce parts for both the F-35 and C-130, as well as other new start programs that are just beginning. And we have a global R&D centre in Geelong, Victoria, where we’re taking full advantage of some of the post-auto engineering capability that can be of real use to the aerospace sector. So we’ve got a lot of ex-auto guys in that R&D facility down in Victoria.
Jessica Amir: Now to your manufacturing capabilities in a little bit more detail. What can you tell us about your composites?
Mark Burgess: The current composites that we produce at our Bankstown facility are using the traditional autoclave high-pressure oven curing process. We build those parts for the Joint Strike Fighter. And so the production life of that contract will be responsible for about a billion dollars worth of manufacturing content, on the F-35. We also are global sole source for the wing flaps on the C-130 Super Hercules. And we have rolling five-year contracts with Lockheed Martin for that, again using conventional autoclave technology.
And we’re also developing new parts for Lockheed Martin and others at our Bankstown facility, where we take existing metal components and manufacture them, using carbon composite. Or we seek to enhance existing carbon composite parts, through product improvement. At our Geelong facility, we focus there on removing the autoclave from the manufacturing process. So our premier proprietary out of autoclave manufacturing process technology cure is significant, in that it reduces capital investment by five times or more.
But most importantly, it allows process optimisation. It allows the flow, the continual flow of parts, rather than flow batch, to put in the high-pressure oven and then back to flow. That’s important for two reasons. One, it substantially reduces the manufacturing cost, as well as allowing unprecedented rate achievement. And in our industry at the moment, manufacturing to rate customer demands in an increasingly high volume market, is a really significant differentiator for us.
Jessica Amir: Now to financials Mark. What can you tell us about the sales for the first nine months of the financial year?
Mark Burgess: Sales for the first nine months were $42.5 million, that’s 14 per cent up year-on-year. At the AGM in November, we said we would be increasing sales year-on-year by greater than 10 per cent. We’re on track to do that. Additionally, we’ve been significantly improving our margin performance. Our last quarterly, the third quarter of our financial year, was notable for a number of reasons. Firstly, strong sales performance - up 15 per cent on the prior comparable period. Most importantly from my perspective, we demonstrated significant margin expansion. And that’s the result of some of the changes that we implemented eight/nine months ago, under the one Quickstep banner to drive operational efficiency. So significant margin improvement on greater sales.
We also paid down debt substantially during the quarter, and exited the quarter with more cash on hand, than we had entered it. So it was a strong financial performance. I expect that to be repeated in Q4, allowing us to post a strong second half performance, then move into Fiscal 19, which will demonstrate both positive cash flow and positive EBIT.
Jessica Amir: Can you tell us about your strategy and how that’s progressing?
Mark Burgess: Our strategy is threefold really. First of all, our core defence aerospace business is growing strongly. We expect sales to almost double between now and 2020/2021, to about $90 million plus. We’re going to continue to pursue incremental opportunities with existing and new customers, in that segment. As well as then exploiting our proprietary process technology cure, and the Quickstep production system. The material to finish par technology flow that we’re investing heavily in at the moment, in both the aerospace and automotive industries. With then the third phase of that strategy being a more expansionary, offshore focus on significant inorganic growth, as well as making moves in a substantial and meaningful way, into the commercial aerospace domain.
Jessica Amir: Why should investors be adding Quickstep Holdings to their portfolio?
Mark Burgess: I think over the last 12 years that we’ve been listed; we’ve often set expectations that we’ve failed to meet. We’re being much more diligent and deliberate in the expectations that we’re setting. We’ve got a strong order book, booked orders growth, as well as some really exciting opportunities on the new technology side. The business is at an inflection point. We’ve I think, cast off some of our legacy issues around failing to meet expectations and poor financial performance.
The last quarterly financial performance I think is going to be repeated, every quarter going forward. And I’m confident that over the next two quarters, we’ll be announcing new program activities and new contract wins, with existing and new customers. So it’s a real inflection point for the business, our share price has never been so low, yet we’ve never been in a stronger position, operationally or financially. I think now is absolutely the sort of time to buy our shares.
Jessica Amir: Mark Burgess, thank you so much for the update.
Mark Burgess: Thank you.