XTEK (ASX:XTE) 1H20 results and outlook

Interviews

by Katrina Bullock

XTEK Limited (ASX:XTE) Managing Director Philippe Odouard talks 1H20 results, the company's front-line products for the Australian Defence Force and police forces, US strategy and outlook.

Katrina Bullock: Hello, I'm Katrina Bullock for the Finance News Network, and joining me from XTEK (ASX:XTE) is Managing Director Philippe Odouard. Philippe, welcome to the network.

Philippe Odouard: Yes, thank you very much, Katrina.

Katrina Bullock: Now, XTEK is quite a unique ASX company, specialising in homeland security. For investors out there who might be a little new to XTEK, could you start with giving us an introduction to the company?

Philippe Odouard: Well, the company has actually been listing on the stock exchange for a while. As you said, we specialise in frontline equipment for the soldier, typically. We do a lot of work in terms of drones on one side, and protective equipment on the other. We are importing some of it, but we've developed our own technology, especially in the protection side of things, where we have a world best protection technology for ballistic plates on one side, and helmets on the other.

Maybe I can say a couple of words on the present atmosphere in the world, with the coronavirus (COVID-19) in particular. We are in an area that has little been affected by this crisis. We are not in tourism or in retail. We're mainly doing government supply. The government has been very active in terms of buying, shown by the number of announcements we've made in the last few days for new contracts that we've signed. In general terms, our supply chains are doing fairly well. I mean, we are working very hard because we have equipment and material coming from all over the world. But, in general terms, it's not affecting us at this stage. So in general terms, I think we can say we are doing reasonably well. When I see the rest of the world collapsing around us, we're very, very strong. So, we are very optimistic.

Katrina Bullock: Now, turning to your first half 2020 results, could you take us through the highlights?

Philippe Odouard: So, the first half has been pretty good. We had about $16 million worth of sales, compared to $9 million last year. So, it's a very big increase, which is unusual. Typically, the first half of the year tends to be very subdued. We normally get a lot of orders during the first half and deliver them in the second. So, that means the overall results have been low, as we expected. But the second half should be strong as last year. We expect similar, if not a bit better, I'd say, compared to last year, which I remind you was at $37 million.

Katrina Bullock: Thanks, Philippe. Now turning to your products, could you tell us a bit more, starting with armour?

Philippe Odouard: So armour, on one side, is we have a process that we've developed for quite a few years, so about 12 years. And it gives you a product that gives you much better ballistic performance for the same weight. And that's for plates that you put on the back and the front of the soldier, or the police forces, as well as helmets. And in terms of helmets, we're doing helmet protection for AK-47 rounds, which is quite unique in the world. So, we're pushing that very hard, and we'll come back on some of this a bit later. But being a world best, we are pushing very hard on the US market, which, by definition, is the biggest in the world, and there is a huge interest for our products because they are definitely the best available on the market.

Katrina Bullock: And what about your advanced composites? How are they faring?

Philippe Odouard: We use the same process which is used for ballistics, and that has some particular applications in the space industry. So, we've signed a number of MOUs with the Australian Space Agency, with a company making satellites as well. Very well adapted for that kind of industry.

Katrina Bullock: And what about drones? With the onset of COVID-19, there's been a lot of talk in the media about the use of drones for delivery and sort of other things. How's your drone products progressing?

Philippe Odouard: Well, the drones, we've now been delivering drones for the past three, four years to the Australian army. We have a very large contract worth about $40 million that we're delivering. We're about two thirds of the delivery through. We have a maintenance contract for this, worth about the same amount, over the next five to seven years. So, it's actually a very large contract for us. And compared to the $37 million we did last year, we'd say it's very significant. How they're going to use it, I'm not sure. I'm not sure if they have particular applications in that area, but the use has actually massively increased in the past few years in terms of having an intelligence and surveillance and reconnaissance capability in the battlefield, using those drones. They're now central to the operation of an army. So, it is very encouraging, and what we've delivered is actually a very, very good drone.

Katrina Bullock: Thanks, Philippe. And now turning to strategy and your share price, could you provide a comment on each?

Philippe Odouard: Well, our strategy is to launch all that activity in terms of helmets and plates. For that, we've developed the process on one side. We've put together a factory that we inaugurated in February. We have bought a company in the US called HighCom that is distributing and manufacturing armour equipment. So that gives us access to the US market by having a US company involved in this. So, we've done a lot of work to sort of make sure that we can grasp that particular market, which is the biggest in the world. And it's a very, very fast-growing market when you have a particularly unique product like we do.

Share price-wise, well, I mean, anyone at the present time trying to say that they're managing their share price is, I think, maybe disappointed. We're doing reasonably well, slightly better than the market. Certainly, we are a very strong defensive sort of share, which you know...

Katrina Bullock: In every sense of the word.

Philippe Odouard: The day the economy rebounds, we should be first in line. And today, it's actually a lot better than what the rest of the market is doing. So, in those times, it's really hard to sort of brag about it, but it's a really good steady thing because we have strong markets, strong products and international reach. So, I think it's a good position to be in.

Katrina Bullock: Absolutely. And before we let you go, Philippe, any final words for investors?

Philippe Odouard: We're there in a market that is growing very fast. Remember that the defence market in the West, in general, is pushing towards 2 per cent of GDP, when it was a lot less not that long ago. The US is actually quite strong on that as well. We're not really affected by the coronavirus (COVID-19) at this stage. So, in general terms, I'd like to say that we should be a very good investment for people.

Katrina Bullock: Philippe Odouard, thanks for the update.

Philippe Odouard: Thank you very much, Katrina.


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