September quarter activities and cash flow    

293 F-35 JSF parts delivered (243 fuselage and 50 VTF parts). This represents +14% increase YoY, but a 27% decline relative to the June 2017 quarter. Importantly, management is maintaining full year JSF volumes at +1,500 parts, with production targeted to ramp up in the second half of FY18E.  

Six (6) Lockheed Martin C-130J shipsets delivered (vs 8 in the prior quarter and 7 in the pcp).

In other programs, production of parts using Qure technology for portable X-ray manufacturer Micro-X Limited (ASX: MX1) continued, following commencement of production for the contract in 3Q FY17. Production of the final set of parts for Thales Hawkei started and will be completed in 2H FY18. This contract for glass-fibre panels is non-core to QHL’s strategy. Commercialisation of the Quickstep Production System (QPS) continued, with the front fender project for a European original equipment manufacturer (OEM) completing phase one of the project to demonstrate the effectiveness of Qure as a substitute for traditional autoclave technology.

Sales revenue was $12.4m with 1Q cash receipts from customers of $15.3m benefitting from advance payments; operating cash flow (backing out A$180k in government grants/tax incentives) was effectively cash neutral.

QHL drew down $1m from the A$3m Efic Export Contract Loan, taking the total drawdown at 30 September 2017 to $2.5m.

The September year-end cash position of $4.3m was $600k up on the end-June quarter cash balance of A$3.7m.  

QHL did not provide revenue or profit guidance for FY18E. Management states however that they plan to increase focus on the aerospace and defence sector over the next 12-24 months whilst looking at cost reduction strategies. 

We believe that the benefits of the business reorganisation and cost cutting initiatives announced in August 2017 – the OneQuickstep change program – will assist margin expansion, particularly from the second half of FY18E. We forecast that the group will be cash positive in FY19E, with cash flows increasing in FY20/21E on the back of a significant ramp-up in JSF parts sales.