Strong growth in JSF volumes were offset by lower volumes of wing flap assemblies for C-130J. Total JSF deliveries were 1,230 parts, an increase of 108% on the 590 parts delivered in FY16. C-130J shipset deliveries of 27.25 (26 shipsets and 5 spares) returned to normal program volumes after 35 ship-sets were delivered in FY16 as scheduled by Lockheed Martin.
Earnings before interest, tax and research and development was a loss of $0.2 million, compared to a profit of $1.3 million in FY16, driven by lower margins due to the changing program mix and impact of the learning curve. Research and development costs for FY17, including new technology and product development costs, were $5.5 million. After financing costs, the net loss for the year was $6.7 million.
Capital expenditure increased to $3.9 million in FY17, completing projects for forecast production volume increases at Bankstown. This included capital investment for the expansion of JSF production, and the commissioning of automated robot drilling for C-130J production, which will deliver improved efficiency and productivity. These investments are now installed and provide Quickstep with further production capacity to take on additional manufacturing work.
During FY17 significant R&D was undertaken. This was critical to further developing the company’s proprietary process technologies and the new business and production programs at the company’s Geelong facilities. R&D expenditure is fully expensed in the year incurred. Quickstep made substantial progress in the commercialisation of our proprietary capabilities: extensively upgrading the Qure process; developing the key elements of the Quickstep Production System (QPS); developing new tooling and preforming concepts; and developing and deliveringcompletemanufacturingsolutionsfortheKIST,Micro-Xandfrontfenderprojects. Thebusinesswillnow progress with commercialisation of the technology and lower R&D spend.
Learning curve for the JSF program and the new drilling equipment for C-130J impacted the FY17 financial results, and the company is still at a relatively low capacity utilisation at its Bankstown site. Future production volumes are forecast to increase substantially; current JSF production represents approximately 50% of FY19 forecast volumes and 45% of FY20 and FY21 volumes. As production and total sales continue to increase, the company will benefit from economies of scale and improved profitability.
FY17 saw a significant change in Quickstep’s leadership team with recruitment of Mark Burgess as CEO and Managing Director in May 2017, following the resignation of David Marino for personal reasons. A realignment of the executive management team followed a strategy and operational review undertaken by Mark Burgess and the Board. Quickstep now has a strong and highly capable leadership team with extensive aerospace, defence and broader manufacturing and automotive experience, this team has sound capability and experience in leading, improving and growing a globally focused advanced manufacturing business.
Mark Burgess, CEO and Managing Director of Quickstep, said: “Quickstep’s Bankstown business, which is primarily aerospace production, had a strong year in FY17, successfully closing out the capital expansion to support future volume growth, significantly ramping up production volumes for the JSF program and meeting all customer expectations in terms of quality, delivery and customer service.”
“Our Geelong business also had a big year, further industrialising the Qure process. We implemented a number of demonstration and production projects and developed the key elements of QPS, an important element of our future value proposition to customers.
“While we are pleased with our delivery and quality performance, we are not satisfied with the lack of profitability within the business. Higher volumes in future years will improve this, as will a number of cost reduction initiatives and expense reductions that we are putting in place to improve margins.
“With the JSF program ramping up and Quickstep’s composites solutions beginning to secure commercial contracts, Quickstep is a much stronger company today. We have much work to do to grow further and become profitable and this is why we have implemented the OneQuickstep change program.”
OneQuickstep: Realignment for Growth and ProfitabilityOn 1 August, 2017, Quickstep announced that it was realigning the business to drive profitability and growth. This followed a comprehensive strategy and operational review by its new CEO/Managing Director, the executive management team and the Board. The review identified a number of important changes that will be implemented immediately, with the objective of accelerating profitability and growth over the short, medium and longer term.
ark Burgess said, “We have undertaken a comprehensive review of all aspects of the Quickstep business and have developed a strong and robust plan, under the ‘OneQuickstep’ banner, to accelerate profitability and growth. The OneQuickstep program includes a revised organisational structure and leadership roles, productivity and efficiency improvements, refocused R&D investment and a focus on targeted business development and growth.”
The OneQuickstep program is expected to deliver significant benefits and improvements to the business in FY18 and beyond, and is the cornerstone of Quickstep’s vision for the future, which is to become a leading global provider of advanced composite solutions.
Balance sheet and cash flowOperating cashflow was $0.1 million after investment of $5.5 million in R&D. Inventory decreased $1.3 million to close at $10.6 million at 30 June 2017.
Net cash decreased to $3.7 million after the $3.9 million capital equipment investment for future capacity which was completed in FY17. The business also had a net financing cash outflow of $0.3 million in FY17, with repayments of principal and capitalised interest made against the $10 million long term Efic loan and $1.5 million drawn down against a new Efic $3 million Export Contract Loan.
Income from grants including the Geelong Region Innovation and Investment Fund (GRIIF) was $0.5 million in FY17, in line with the previous year. The GRIIF grant will provide a total $1.76 million to June 2018.
As at 30 June 2017 the company had total cash and deposits of $4.4 million of which $718,000 were in restricted term deposits. Net assets at 30 June 2017 were $8.0 million.
The group’s cash balance closed in line with management expectations and will support delivery of Quickstep’s booked orders as well as reduced R&D investment and lower capital expenditure for FY18.
Outlook for FY18Mark Burgess said: “I cannot overstate the significance of OneQuickstep enough, as a values system and cultural change program within our company. A singular, simplified corporate structure, where shared services ensure consistency and quality and a lean ethos that underpins the actions of our executive and wider leadership team. OneQuickstep provides the company with a vision and corporate values that will drive our behaviours and give prominence to the creation of shareholder value at all levels within the Quickstep business.”
In order to accelerate our growth, we need to be a world-class marketing, communications and sales organisation and we will be making key investments in these areas in FY18. We will be more focused in our target segments and key customer relationships with a corresponding investment of resources. The Aerospace and Defence sectors will take a much more prominent role in our growth activities, based on the size of the existing market, the attractive compound annual growth rates in these segments and their margin opportunities.”
“This concentration on Aerospace and Defence does not preclude us from seeking growth opportunities in other market segments – Micro-X and our front fender projects attest to this – however, Aerospace and Defence will be the main focus of our investment and growth initiatives in FY18.”
“Productivity and continuous improvement will be a central factor of our business. Maximising our performance in all areas of the business and ensuring world-class competitiveness in all that we do is essential for Quickstep.”
In closing, Mark Burgess said: “FY18 will be an exciting year for Quickstep, with a focus on efficiency and productivity and acceleration of our growth plans, building on the FY17 foundation. Our reduced R&D investment will be more focused, more market oriented and with a more aggressive commercialisation path. We will be dedicating more resources to aerospace and the rapid exploitation of QPS as we transition to accelerated growth and profitability.”