Quickstep Holdings Limited Annual Report 2019

Plain-text annual report

TECHNOLOGY DRIVEN GROWTH ANNUAL REPORT 2019 (a2 x b2) - (ab2) = ab2(π2 x y2) + (zyb2) = πb2CONTENTS CONTENTS OUR ACHIEVEMENTS $5.8M EBITDA IN FY19 UP $4.6M 37% INCREASE IN JSF CONTRACT REVENUE FIRST PART DELIVERIES TO BOEING DEFENSE $5.6M NPAT IMPROVEMENT ON FY18 22.3% GROSS MARGIN UP 6.5% $0.3M NET DEBT - DOWN $11.2M FROM DEC 18 FIRST FULL YEAR OF POSITIVE OPERATING CASHFLOW 5YR CONTRACT EXTENSION C-130J $73.3M SALES REVENUE UP 24.1% $2.7M MAIDEN FULL YEAR NET PROFIT $2.2M COMMERCIALLY FOCUSED R&D SPEND $4.6M LIFT IN EBITDA ON FY18 CONTENTS 01 PROMISES TO SHAREHOLDERS 02 CHAIR’S REPORT 04 CEO'S REPORT 08 TECHNOLOGY LED GROWTH 12 OUR LEADERS 14 THE BOARD 18 DIRECTORS REPORT 26 REMUNERATION REPORT 34 FINANCIAL REPORT 80 SHAREHOLDER INFORMATION 82 CORPORATE DIRECTORY QUICKSTEP ANNUAL REPORT 201901 TECHNOLOGY DRIVEN GROWTH DELIVERED TO SHAREHOLDERS Commercially Focused R&D spend of $2.2m Successful share placement and SPP, $11.7m net of fees Board renewal process continuing to plan Supply of wheelchair access train ramps to Lockelec Supply of chassis units for x-ray device to MicroX Healthy pipeline of new business opportunities Further commercialisation of Qure and QPS 4.0 solutions First full year of positive operating cashflow (a2 x b2) - (ab2) = ab2b2 x y2 = x2QUICKSTEP.COM.AU02 CHAIR’S REPORT CHAIR'S REPORT FY2019 was milestone year for QUICKSTEP as we achieved a net profit and positive operating cashflow for the full-year, the first in the history of the company, as we continued our journey towards accelerated growth and long-term profitability. TONY QUICK CONTINUING TO DELIVER — FULL YEAR PROFITABILITY. (π2 x y2) + (zyb2) = ∏2QUICKSTEP ANNUAL REPORT 201903 In FY19, we delivered: 24% INCREASE IN ANNUAL SALES REVENUE EBIT POSITIVE EBIT FOR THE FULL YEAR OF FY19 COSTS COST SAVINGS & EFFICIENCY IMPROVEMENTS IMPLEMENTATION OF CHEMRING PROJECT FINANCIAL PERFORMANCE BUSINESS GROWTH AND PROFITABILITY CLOSING REMARKS Our financial results for FY2019 reflect the success of our focus on continuous improvement and efficiency, targeted R&D expenditure, which combined with volume growth from the JSF program, resulted in total sales of $73.3 million in FY2019, up 24% from $59.0 million in FY2018. A maiden full year net profit after tax (NPAT) of $2.7 million, represented a $5.6 million improvement on FY2018 and included a $4.6 million lift in EBITDA and $1.0m tax benefit reflecting future taxable income. The company also delivered $0.4 million operating cash flow for FY19, its first full year positive result, and at 30 June 2019 reported net debt of $0.3m, a reduction of $11.2 million from 31 December 2018. Operating cash flow improved year on year by $1.0 million despite a $3.1 million increase in working capital, principally inventory to support our growth. The much improved debt position was in large part attributable to the successful share placement and Share Purchase Plan (SPP) in early 2019 that raised $11.7 million net of fees. The placement resulted in an issue of 125 million new shares to institutional and sophisticated investors. These funds were used to strengthen our balance sheet to allow flexibility to accelerate future growth projects and reduce debt. Additional shares were also offered to existing eligible Quickstep shareholders in FY2019, under a Share Purchase Plan. $73.3M SALES REVENUE UP 24.1% The unprecedented scale of Australian defence procurement and Quickstep’s unique position in the Australian defence industrial base has created a very favourable market environment for the company in the US. Based on this we have focused on developing a strong pipeline of new business opportunities in the US market and we have made substantial progress in a number of confidential negotiations with US customers. We anticipate significant new business awards during FY2020. In FY2019, we announced that we secured a new project to produce carbon fibre composite housings for an F-35 counter-measure flare for Chemring Australia, further expanding our advanced manufacturing capability. At year end, we were in the final stages of commissioning and testing all of the advanced manufacturing equipment for the Chemring project. The result will be a highly automated manufacturing cell that demonstrates high volume carbon fibre production methods with integrated quality control and product traceability for high performance and precision products. Trial production commenced in Q1 FY20. We also signed a Memorandum of Understanding (MoU) with Lockheed Martin for a Long Term Flexible Contract (LTFC) associated with the ongoing supply of C-130J/ LM-100J wing flaps for an additional five- years, covering the period 2020 to 2024. We have an existing contract with Lockheed Martin to provide wing flaps for the C-130J/ LM-100J aircraft through to end-2019, and this contract extension will see us continue our successful supply chain relationship with Locked Martin. We are continuing to seek new opportunities in the Defence sector and to develop the appropriate process and people capabilities to support new business opportunities in commercial markets. This will be a major focus for the Quickstep team in FY2020. In closing, I would like to recognise the ongoing support of our shareholders, customers and suppliers and my fellow Board members. I would like to acknowledge the addition of Leanne Heywood who the joined the Board in February 2019. Subsequent to the end of the year we also welcomed Elisabeth Mannes (joined August 2019) to the Board and Bruce Griffiths left the Board at the end of August 2019 consistent with our on-going Board renewal process. I would like to thank Bruce for his six and a half years on the Board and his significant contribution to our strategic direction and growth plans. Finally, I would also like to sincerely thank Mark Burgess, the executive management team and all of our staff at Quickstep, for the significant contributions they have made throughout FY2019. We have had an extraordinary year in FY2019 and the outlook for the year ahead is extremely promising. Quickstep remains focused on continued successful execution of our existing defence contracts, on implementing further improvement and efficiency initiatives, on developing our process and people capabilities and on converting our pipeline of opportunities into production programs. Our strong long-term order book and advanced manufacturing technologies and capabilities will provide us with the opportunity to further accelerate our global growth and provide long-term sustainable profitability and improved shareholder value. TONY QUICK Chair QUICKSTEP.COM.AU04 CEO’S REPORT CEO’S REPORT I am extremely pleased to deliver this report to you, as the CEO and Managing Director of QUICKSTEP. In FY2019 we continued to deliver on our commitments to all stakeholders and have shifted the business from a loss position to position of profit. I am excited to report that this is a sustainable profit position and we can look forward to accelerated growth. Some of the significant initiatives undertaken by our talented and dedicated team at Quickstep in FY2019 include: CONTINUING TO DRIVE OUR COMPETITIVENESS AND EFFICIENCY IMPLEMENTING QPS4.0 AND BUILDING A WORLD-CLASS BUSINESS DELIVERING AND INCREMENTALLY EXPANDING ALL EXISTING PRODUCT LINES PROTECTING AND GROWING OUR CORE DEFENCE BUSINESS BY CONVERTING OUR DEFENCE PIPELINE IDENTIFYING AND WINNING NEW BUSINESS IN COMMERCIAL AEROSPACE MARKETS BEING AN ‘EMPLOYER OF CHOICE’, RECOGNISED BY PROSPECTIVE CANDIDATES GLOBALLY MARK BURGESS A HIGH PERFORMANCE CULTURE. (π2 x y2) + (zyb2) = πb2QUICKSTEP ANNUAL REPORT 201905 I am immensely proud of what our team has achieved in FY2019 and I am truly excited about the ongoing expansion and growth of the Quickstep business over the next five years. Over the past twelve months we set, and achieved all key targets resulting in a full year profit for the first time since commencing the business. We have made a number of operational improvements that have improved our efficiency and cost competitiveness and we have developed a new pipeline of business that will accelerate our growth in the future. We have also spent time developing the capabilities of our people and this will ensure that we have the resources on hand to take greater steps forward in FY2020. OPERATIONAL EFFICIENCY IMPROVEMENTS Production volumes grew in FY2019 on the back of increased JSF volumes. We are a major supplier to the global Joint Strike Fighter (JSF) program, manufacturing and supplying a range of centre fuselage and vertical tail composite parts for the F-35 aircraft. We anticipate that the business will continue to grow strongly in FY2020, as JSF deliveries ramp up further towards peak production volumes during FY2020. During FY2019 Quickstep undertook a number of operational efficiency improvements including: » Improvements to production cycle times » Production process flow improvements » Additional cross-skilling and job rotation » Increased visual management » Process and value chain mapping » Introduction of new workplace organisation methods » Further implementation of our Lean/ Continuous Improvement (CI) program Quickstep is continuing to invest in advanced manufacturing capabilities, installing and utilising a range of advanced processes within our facilities including 3D printing, automated Robotic drilling and riveting and automated preforming technologies to name a few. DEVELOPMENT OF A PIPELINE OF NEW BUSINESS Throughout FY2019, Quickstep has been in detailed discussions with a number of existing and new customers further developing our healthy pipeline of opportunities for future growth. These activities are part of a comprehensive business plan to grow Quickstep’s sales revenue and diversify our customer base in the Defence and Aerospace sectors, while expanding our capabilities to further increase business globally in the Aerospace, Defence and other advanced industry sectors. Quickstep has a clear focus on the North American market where we continue to make significant investment in business development (both in Defence and Commercial Markets) and supply chain resources. We remain extremely positive that these efforts will deliver significant new business wins in FY2020. 23.3% GROSS MARGIN UP 6.5% An FY2019 gross margin of 22.3% (6.5% points improved on FY2018) was achieved through a combination of efficiency gains, process improvements, economies of scale and cost reductions, despite a challenging operating environment mid-way through the year as a consequence of a three month long repair to a key production item. As efficiency gains continue and production ramps up further we expect margins to maintain a strong trajectory of positive improvement. TARGETED INNOVATION AND CAPABILITY DEVELOPMENT During FY2019 we furthered the development and industrialisation of Qure 2.5 bar and our AeroQure to meet aerospace qualification standards. Quickstep has commenced the manufacture of test plaques that are being tested by an independent aerospace laboratory and a major global material systems company. The objective of this testing is to validate that AeroQure meets aerospace qualification requirements. The AeroQure process delivers dramatically reduced cycle times versus the traditional standard autoclave process, while delivering multiple processing benefits and overall cost reduction. The Quickstep Production System 4.0 (QPS 4.0) is an advanced lean production system. QPS 4.0 is a complete material to finished part solution and is focused on production rate improvement, process efficiency, automation, one piece material flow and cost competitiveness. QPS 4.0 projects undertaken in FY2019 include the design and commissioning of unique manufacturing solutions to produce: » Completely automated manufacturing cell to manufacture advanced composite flare housings for the global JSF program. These will be supplied to Chemring Australia » Carbon fibre composite chassis bodies for a portable x-ray device manufactured for an Australian SME, MicroX, which are exported to the North American market » Portable wheelchair access ramps for another Australian SME, Lockelec, for use on the Victoria metro rail system (a2 x b2) - (ab2) = ab2(a2 x ∑2) ÷ ~(zyb2) = π2QUICKSTEP.COM.AU06 CEO’S REPORT REFINEMENT AND IMPLEMENTATION OF OUR STRATEGIC PLAN During the course of FY2019, the Board and the leadership team spent considerable time reviewing and reframing our Strategic Plans for the next five years and beyond. Quickstep’s mission is to become a ‘Globally Relevant Provider of Advanced Composite Solutions’. Our aim over the coming five years is to become a $200 million mid-tier business and we are aiming to become a $500 million+ business by 2030. We will achieve this by strategically and aggressively: » Continuing to drive our competitiveness and efficiency » Implementing QPS4.0 and building a OUTLOOK FOR FY2020 world-class business » Delivering and incrementally expanding all existing product lines » Protecting and growing our core defence business by converting our defence pipeline » Identifying and winning new business in commercial aerospace markets » Being an ‘Employer of Choice’, recognised by prospective candidates globally The leadership team at Quickstep is fully focused and aligned on developing the technical, operational and people capabilities to support all current and future Defence programs and evolve and expand into the global commercial aerospace sector. Quickstep’s revenue is expected to grow further in FY2020 but, subject to new work being secured, at a more modest pace than in FY2019. JSF deliveries on existing contracts will ramp up to peak production volumes during the financial year. Our gross margins are expected to continue to improve year on year through economies of scale, further cost reductions and increasing efficiencies. We expect to continue to deliver positive NPAT for FY20 as well as positive operating cash flow. Quickstep has significant growth potential through securing and implementing additional advanced composite manufacturing contracts, primarily in the defence and aerospace sector, using traditional techniques and our proprietary advanced manufacturing process, $200M MID-TIER BUSINESS IN THE NEXT 5YRS + $500M BUSINESS BY 2030 GLOBALLY RELEVANT PARTNER OF ADVANCED COMPOSITE SOLUTIONS Our aim is to become a:QUICKSTEP ANNUAL REPORT 201907 Commercial Markets Our longer-term plan is to grow and expand into the global commercial aerospace market and we are focusing on a number of target segments including commercial airliners, electric aircraft and new mobility markets. Finally, I would like to acknowledge the capability, support and dedication of our Board of Directors and my leadership team, who have turned this business around and set the company up for an extremely bright and profitable future. MARK BURGESS CEO and Managing Director CLOSING REMARKS In closing, I would like to sincerely thank all of our shareholders, customers and collaboration partners for their ongoing support and confidence in Quickstep. We are a unique business and provide a strong value proposition. We have a fantastic and dedicated team of highly capable people at Quickstep and I am extremely proud of their efforts throughout FY2019. Qure and its aerospace equivalent AeroQure and our QPS4.0 technologies provide faster, more controllable methods for curing of parts and enable a Class A finish. In FY2020 we will continue to focus on winning additional business with our existing customers and adding new customers to our portfolio. We will support this growth through strategic partnerships and alliances, enabling us to build our global presence and scale. We will continue to accelerate our business development activities, with a strong focus on the key following key segments: Core Defence Aerospace We will do this by adding new business with our existing customers and diversifying our customer base within the sector. This will see us fully-utilise our current facilities and expand our core capabilities to convert the current pipeline of new business we are working on, into greater export sales. Aerospace Qure and Advanced Manufacturing We are also focusing on new growth within the Aerospace and Defence sector, using our Qure, AeroQure and innovative QPS4.0 technology solutions. (a2 x b2) - (∞2) = ab2QUICKSTEP.COM.AU08 TECHNOLOGY LED GROWTH TECHNOLOGY LED GROWTH Quickstep is at the forefront of advanced composites manufacturing and technology development. Innovation and technology is leading our growth and we are continuing to develop our state-of-the-art process technologies to support both current and future customer programs in the defence sector and to enter both traditional and new commercial markets. The key to our future and competitive differentiation lies in: ADVANCED MANUFACTURING QURE AND AEROQURE QPS 4.0 Quickstep has and will continue to invest in R&D, new capital for secured programs and operational improvements to deliver greater efficiencies and profitable growth. Priorities for Quickstep include: Research & Development Further commercialisation of our patented Qure and AeroQure processes, as well as QPS 4.0 (Quickstep Production System 4.0), our implementation of an advanced manufacturing system based on Industry 4.0; volume/rate improvement for composite solutions; introduction of automated lay-up technologies to further industrialize our Out Of Autoclave (OOA) curing solutions; development of manufacturing solutions for new emerging aviation markets (electric aircraft and Urban Air Mobility). Manufacturing Capability Digital manufacturing practices; automated fibre lay-up; new preforming processes; additional curing techniques (i.e. Resin Transfer Moulding and others); specific engineering, tooling and production fixtures for newly secured projects; automated measuring and testing cells for specific projects. Operational Improvement Lean manufacturing and continuous improvement activities; OHS&E improvements; digital manufacturing and industry 4.0 processes and practices; facility improvements including the soon to be completed, Quickstep Learning Academy. NSW PREMIER’S 2018 EXPORT AWARDS "This award is a testament to the hard work and dedication of the entire Quickstep team and we are pleased that we have been recognised for our defence export achievements and our contribution to NSW’s economy and job creation in the state. We are extremely proud that we have been presented this prestigious award." Mark Burgess | CEO & MD WINNER DEFENCE INDUSTRIES CATEGORY X2 - (ab2) = ab2(a2 x b2) ± (ab2) = ab21800QUICKSTEP ANNUAL REPORT 201909 ADVANCED MANUFACTURING Advanced manufacturing capability is a critically important element of Quickstep’s overall strategy. In respect of conventional aerospace production we have placed ourselves at the forefront of the available technology by pursuing and winning highly complex, close-tolerance work and commissioning state-of-the-art advanced manufacturing equipment in Bankstown, NSW and advanced technical capabilities in Geelong, Victoria. Our advanced manufacturing capabilities include: » CNC ply-cutting and laser-guided lay-up » Autoclave and Out-of-Autoclave curing » Range of NDT testing equipment » PMM cells and robotic trimming » Robotic/Automated drilling and riveting » Complex assembly and painting » Laboratory testing of materials/components 1400QUICKSTEP.COM.AU10 QUICKSTEP ANNUAL REPORT 2019 TECHNOLOGY LED GROWTH QURE SYSTEM SCHEMATIC Pictured: Quickstep proprietary Out Of Autoclave (OOA) composite curing technologies. QURE AND AEROQURE Quickstep’s patented system, Qure, and its high-performance version for aerospace applications, AeroQure, is an advanced composites manufacturing process that offers significant advantages over traditional manufacturing techniques such as autoclave curing, including: » low capital cost for set-up » significantly shorter cure cycle times » reduced energy consumption » design flexibility to meet or improve material properties of the end product » ability to produce complex integrated parts Qure is currently being used by Quickstep to manufacturer a lightweight carbon fibre chassis for a portable medical device (x-ray machine) and to manufacture portable wheelchair ramps for the public transport sector. It is suitable for use in a range of defence and commercial aerospace applications, requiring lightweight, advanced composite components at a higher rate of production and lower overall cost than traditional autoclave curing. AeroQure, is the most advanced version of our Out Of Autoclave proprietary curing technology. In our journey to fully industrialise the technology we are planning to integrate it with an efficient automated lay-up process, MY OPTUS BUSINESS AWARDS NOVEMBER 2018 as well as other components like trimming and inspection. Apart from intensive internal testing of parts cured with AeroQure, our plan also includes validation from results by third party independent aerospace labs, as well as major global material systems providers. These results will allow us to demonstrate how we can achieve dramatically reduced cycle times compared to the traditional autoclave process, while delivering multiple processing benefits. WINNER DEFENCE BUSINESS OF THE YEAR 2018 "Australia has a highly capable aerospace and defence sector, needless to say we are deeply humbled to have won this prestigious national award. It’s a reflection of the depth of skill and talent we have within the business." Mark Burgess | CEO & MD Buﬀer TankCooling ElementHea�ng ElementHeated Liquid TankPumpPower SupplyMould Tool BaseHea�ng ElementControl TerminalMouldUpper Qure TrayBladderChiller11 QPS 4.0 Quickstep Production System 4.0 (QPS 4.0), is an advanced LEAN production system, developed by Quickstep, which provides a complete material to finished part solution. QPS 4.0 articulates the most relevant aspects of an Industry 4.0 manufacturing solution and can be adapted to multiple markets and part applications. QPS 4.0 integrates different technological components and methodologies, in particular LEAN manufacturing, automation, advanced manufacturing processes and digitalisation, and is used by Quickstep to develop and transform production systems. The key building blocks of QPS 4.0 are: » Agile Engineering – element + production » Core Composite Manufacturing Technologies IP and know-how » Processes like Project Life Cycle Management and systems like our Product Life Cycle Management & Enterprise Resource Planning systems. » LEAN production techniques » Digital Integration and Digital Thread » People and Culture QPS 4.0 creates value for the company, our employees, our customers, our suppliers and our shareholders and has been utilised in FY2019 on the Chemring counter-measure flare housing project. Quickstep is in the final stages of commissioning all of the manufacturing equipment for the flare housing project. The result will be a leading advanced manufacturing production line that demonstrates “cutting edge” high volume carbon fibre production methods, with integrated quality control and product traceability for high performance and precision products. Trial production commenced in Q1 FY2020. (∏2 x ∑2) - √ab2 ≠ ∆2 QUICKSTEP.COM.AU12 OUR LEADERS OUR LEADERS The leadership team is aligned and focused on developing and fostering a high performance culture at Quickstep, through technology, innovation, business excellence and long-term sustainable growth. With extensive local and international aerospace, defence, automotive and advanced manufacturing experience, the leadership team is determined to deliver continuing value to all our stakeholders. MARK BURGESS CHIEF EXECUTIVE OFFICER & MANAGING DIRECTOR DAVID DORAL CHIEF TECHNICAL OFFICER & HEAD OF ENGINEERING ALAN TILLEY CHIEF FINANCIAL OFFICER ALIGNED AND FOCUSED ON DELIVERING RESULTS. Mark Burgess, CEO and Managing Director, leads the senior management team and believes that “Quickstep has an exceptionally talented team of people, dedicated to delivering value to our customers and stakeholders. Our role as the leadership team is to ensure that we provide our people with the direction, support and resources that they need to perform at the highest level”. This is echoed by Alan Tilley, Quickstep’s Chief Financial Officer, who not only oversees the financial activities of the company, but sees a major part of his role as being “to encourage teams to engage more deeply with the business drivers and processes and to lift the capability and skills of the people in the teams that I lead”. Each member of the leadership team has their own functional accountabilities, however it is people, teamwork and collaboration that is turning the business around and driving a high performance culture. As Jacque Courtney Pitman, Executive General Manager, Human Resources, puts it “we are about being an ‘employer of choice’ and developing our people. My role is to ensure that we retain, recruit and develop talented people and that we invest in increasing our diversity, giving us a variety of thoughts, industries and experience to achieve great outcomes”. Innovation is a key element of our business strategy and to be successful engineering and operations need to work closely together to deliver the most effective and efficient manufacturing solutions for our customers. David Doral, Chief Technical Officer & Head of Engineering draws on his extensive experience in the global aerospace industry to “identify and implement advanced manufacturing processes and technologies to create advanced composite solutions for our customers to ensure that Quickstep has a competitive advantage in the global aerospace market”. QUICKSTEP ANNUAL REPORT 201913 CARL DE KONING GENERAL MANAGER, CORPORATE AFFAIRS JACQUE COURTNEY-PITMAN EXECUTIVE GENERAL MANAGER, HUMAN RESOURCES GARY ROBINSON EXECUTIVE GENERAL MANAGER, OPERATIONS From an operations perspective, Gary Robinson, Executive General Manager, Operations, is upbeat about Quickstep and manufacturing in Australia, “Quickstep’s success proves that you can base your operations in Australia, provide jobs and give rise to a whole new industry in our country. Not only is it possible, but as we have shown, it can be profitable.” Carl de Koning, General Manager Corporate Affairs, has worked and lived overseas for a number of years and is “immensely proud to be working with an Australian business that is pushing itself into the global aerospace market. Australians have a unique way of thinking, and our team at Quickstep is no exception. We are developing and delivering innovative solutions and true value to our customers”. Winning and implementing new work is the life blood of any business and Steve Osborne, General Manager Business Development and Michael Schramko, General Manager, Programs, know a lot about this. Steve Osborne who resides in Texas in the US, joined the company because he “saw high potential in Quickstep. I recognised a growing and very capable company. And I saw that by helping Quickstep access global markets, I could help accelerate growth”. Michael Schramko loves the challenges that new work brings to the company “Quickstep’s size makes us extremely agile as a company – we can move on projects very quickly. We are growing and expanding in different directions and we have a great team for implementing complex new projects”. As a final thought, Mark Burgess said “I am immensely proud of what we have achieved in FY2019 and I am truly excited about the ongoing growth that our highly capable and talented team will provide over the next five years”. QUICKSTEP.COM.AU14 THE BOARD THE BOARD JAMES DOUGLAS NON-EXECUTIVE DIRECTOR JAMIE PINTO COMPANY SECRETARY ELISABETH MANNES NON-EXECUTIVE DIRECTOR MARK BURGESS CEO & MANAGING DIRECTOR BOARD RENEWAL PROCESS COMMENCED. The Quickstep Board commenced a process of renewal in FY2019, with the appointment of Leanne Heywood as a new Non-Executive Director and Chair of the Audit and Risk Committee. Further changes have commenced in FY2020, with Lis Mannes replacing Bruce Griffiths. The Board led by Tony Quick as Chair, currently consists of four Non-Executive Directors (including the Chair) and our CEO and Managing Director, Mark Burgess. QUICKSTEP ANNUAL REPORT 201915 TONY QUICK CHAIR & NON-EXECUTIVE DIRECTOR BRUCE GRIFFITHS NON-EXECUTIVE DIRECTOR LEANNE HEYWOOD NON-EXECUTIVE DIRECTOR CURRENT QUICKSTEP BOARD: » Tony Quick: Chair and Non-Executive Director » Mark Burgess: CEO and Managing Director » James Douglas: Non-Executive Director » Leanne Heywood: Non-Executive Director » Elisabeth Mannes: Non-Executive Director The renewal process provides the Quickstep Board with opportunities for greater diversity including gender diversity plus new skills and capabilities to support the future growth of the business. The Board will continue to focus on providing strategic direction, overseeing corporate governance and reviewing the performance of the business, all with the view of creating and sustaining shareholder value. QUICKSTEP.COM.AU 16 skills x passion x knowledge = success2 (∞)(∏2 x ∑2) - (∞) = ∏∑2QUICKSTEP ANNUAL REPORT 201917 MARK BURGESS WE ARE A UNIQUE BUSINESS AND PROVIDE A STRONG VALUE PROPOSITION. WE HAVE A FANTASTIC AND DEDICATED TEAM OF HIGHLY CAPABLE PEOPLE AT QUICKSTEP AND I AM EXTREMELY PROUD OF THEIR EFFORTS THROUGHOUT FY2019. dedication x vision2 = success2 (∞)180o(a2 x b2) - (∞2) = ab2QUICKSTEP.COM.AU18 DIRECTORS’ REPORT QUICKSTEP ANNUAL REPORT 2019CONTENTS19 QUICKSTEP.COM.AU20 DIRECTORS’ REPORT QUICKSTEP ANNUAL REPORT 2019CONTENTS21 QUICKSTEP.COM.AU22 DIRECTORS’ REPORT QUICKSTEP ANNUAL REPORT 2019CONTENTS23 QUICKSTEP.COM.AU24 DIRECTORS’ REPORT QUICKSTEP ANNUAL REPORT 2019CONTENTS25 QUICKSTEP.COM.AU26 AUDITED REMUNERATION REPORT QUICKSTEP ANNUAL REPORT 2019CONTENTS27 QUICKSTEP.COM.AU28 AUDITED REMUNERATION REPORT QUICKSTEP ANNUAL REPORT 2019CONTENTS29 QUICKSTEP.COM.AU30 AUDITED REMUNERATION REPORT QUICKSTEP ANNUAL REPORT 2019CONTENTS31 QUICKSTEP.COM.AU32 AUDITED REMUNERATION REPORT QUICKSTEP ANNUAL REPORT 2019CONTENTS33 QUICKSTEP.COM.AU34 FINANCIAL STATEMENTS QUICKSTEP ANNUAL REPORT 2019CONTENTS35 QUICKSTEP.COM.AU36 FINANCIAL STATEMENTS QUICKSTEP ANNUAL REPORT 2019CONTENTS37 QUICKSTEP.COM.AU38 FINANCIAL STATEMENTS QUICKSTEP ANNUAL REPORT 2019CONTENTS39 QUICKSTEP.COM.AU40 QUICKSTEP ANNUAL REPORT 2019CONTENTSNOTES TO THE FINANCIAL STATEMENTS41 QUICKSTEP.COM.AU42 QUICKSTEP ANNUAL REPORT 2019CONTENTSNOTES TO THE FINANCIAL STATEMENTS43 QUICKSTEP.COM.AU44 QUICKSTEP ANNUAL REPORT 2019CONTENTSNOTES TO THE FINANCIAL STATEMENTS45 QUICKSTEP.COM.AU46 QUICKSTEP ANNUAL REPORT 2019CONTENTSNOTES TO THE FINANCIAL STATEMENTS47 QUICKSTEP.COM.AU48 QUICKSTEP ANNUAL REPORT 2019CONTENTSNOTES TO THE FINANCIAL STATEMENTS49 QUICKSTEP.COM.AU50 QUICKSTEP ANNUAL REPORT 2019CONTENTSNOTES TO THE FINANCIAL STATEMENTS51 QUICKSTEP.COM.AU52 QUICKSTEP ANNUAL REPORT 2019CONTENTSNOTES TO THE FINANCIAL STATEMENTS53 QUICKSTEP.COM.AU54 QUICKSTEP ANNUAL REPORT 2019CONTENTSNOTES TO THE FINANCIAL STATEMENTS55 QUICKSTEP.COM.AU56 QUICKSTEP ANNUAL REPORT 2019CONTENTSNOTES TO THE FINANCIAL STATEMENTS57 QUICKSTEP.COM.AU58 QUICKSTEP ANNUAL REPORT 2019CONTENTSNOTES TO THE FINANCIAL STATEMENTS59 QUICKSTEP.COM.AU60 QUICKSTEP ANNUAL REPORT 2019CONTENTSNOTES TO THE FINANCIAL STATEMENTS61 QUICKSTEP.COM.AU62 QUICKSTEP ANNUAL REPORT 2019CONTENTSNOTES TO THE FINANCIAL STATEMENTS63 QUICKSTEP.COM.AU64 QUICKSTEP ANNUAL REPORT 2019CONTENTSNOTES TO THE FINANCIAL STATEMENTS65 QUICKSTEP.COM.AU66 QUICKSTEP ANNUAL REPORT 2019CONTENTSNOTES TO THE FINANCIAL STATEMENTS67 QUICKSTEP.COM.AU68 QUICKSTEP ANNUAL REPORT 2019CONTENTSNOTES TO THE FINANCIAL STATEMENTS69 QUICKSTEP.COM.AU70 QUICKSTEP ANNUAL REPORT 2019CONTENTSNOTES TO THE FINANCIAL STATEMENTS71 QUICKSTEP.COM.AU72 QUICKSTEP ANNUAL REPORT 2019CONTENTSNOTES TO THE FINANCIAL STATEMENTS73 QUICKSTEP.COM.AU74 INDEPENDENT AUDITOR’S DECLARATION Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 To the Directors of Quickstep Holdings Limited I declare that, to the best of my knowledge and belief, in relation to the audit of Quickstep Holdings To the Directors of Quickstep Holdings Limited Limited for the year ended 30 June 2019 there have been: i. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and I declare that, to the best of my knowledge and belief, in relation to the audit of Quickstep Holdings no contraventions of any applicable code of professional conduct in relation to the audit. Limited for the year ended 30 June 2019 there have been: ii. i. ii. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and no contraventions of any applicable code of professional conduct in relation to the audit. KPM_INI_01 KPMG KPM_INI_01 KPMG Charmaine Hopkins Partner Sydney, 26 August 2019 PAR_SIG_01 Charmaine Hopkins Partner Sydney, 26 August 2019 PAR_SIG_01 PAR_NAM_01 PAR_POS_01 PAR_DAT_01 PAR_CIT_01 PAR_NAM_01 PAR_POS_01 PAR_DAT_01 PAR_CIT_01 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Liability limited by a scheme approved under Professional Standards Legislation. KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Liability limited by a scheme approved under Professional Standards Legislation. QUICKSTEP ANNUAL REPORT 2019CONTENTS 75 Independent Auditor’s Report To the shareholders of Quickstep Holdings Limited Report on the audit of the Financial Report Opinion We have audited the Financial Report of Quickstep Holdings Limited (the Company). In our opinion, the accompanying Financial Report of the Company is in accordance with the Corporations Act 2001, including: • • giving a true and fair view of the Group’s financial position as at 30 June 2019 and of its financial performance for the year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion The Financial Report comprises: • Consolidated Balance Sheet as at 30 June 2019 • Consolidated Statement of profit or loss and other comprehensive income, Consolidated Statement of changes in equity, and Consolidated Statement of cash flows for the year then ended • Notes including a summary of significant accounting policies • Directors’ Declaration. The Group consists of the Company and the entities it controlled at the year-end or from time to time during the financial year. We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report. We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with the Code. QUICKSTEP.COM.AU 76 INDEPENDENT AUDITOR’S REPORT Key Audit Matters Revenue recognition Refer to Note B.1 to the Financial Report ($73,275,000) The key audit matter How the matter was addressed in our audit The Group generates revenue through sale of goods to customers under long term contract arrangements and is recognised over time based on performance completed to date of individual purchase orders. We focused on this as a key audit matter due to the significance of the quantum of revenue recognised combined with the large volume of transactions. This necessitated additional audit effort across the transactions. In addition to the above, the transition to the new accounting standard AASB 15 Revenue from contracts with customers (AASB 15) (with effect from 1 July 2018 for the Group) has resulted in additional disclosure of the transition adjustments. We focussed on the transitional disclosures as a key audit matter due to the audit effort required from the: • • complex nature of the changes to the accounting standard and the impact on long term contract accounting requiring senior team involvement; and consideration of consistency in application of AASB 15 across the contracts of the Group. Our procedures included: • We obtained an understanding of the Group’s process for revenue recognition and deferral of advanced payments and assessed the Group’s revenue recognition policy in accordance with the accounting standards; • We tested a statistical sample of revenue transactions recognised during the year and checked the recognition of revenue against underlying invoices to customers, customer signed dispatch dockets or evidence of delivery. • We selected a sample of pre and post year end revenue transactions and checked the recognition of revenue in the correct period against underlying invoices to customers, customer signed dispatch dockets or evidence of delivery. • We selected a sample of advanced payment receipts from customers and checked to the Group’s bank statements. For a sample of revenue transactions we checked the release of deferred revenue against underlying invoices to customers, signed dispatch dockets or evidence of delivery. • We selected a sample of transactions forming part of purchase orders in progress and checked to actual labour and materials performance completed to date. • For a sample of contracts, we compared the relevant features of the underlying contracts to the criteria in the AASB 15 accounting standard, those in the Group’s policy, and against what the Group identified as performance obligations. • We assessed the new disclosures relating to the adoption of AASB 15 against the requirements of the accounting standard and evidence obtained from our procedures above. QUICKSTEP ANNUAL REPORT 2019CONTENTS 77 Going concern basis of accounting Refer to Note A to the Financial Report The key audit matter How the matter was addressed in our audit The Group’s use of the going concern basis of accounting and the associated extent of uncertainty is a key audit matter due to the high level of judgement required by us in evaluating the Group’s assessment of going concern and the events or conditions which may cast significant doubt on their ability to continue as a going concern. These are outlined in Note A. The Directors have determined it appropriate to prepare the financial report on a going concern basis of accounting. Their assessment of going concern was based on cash flow projections. The preparation of these projections incorporated a number of assumptions and significant judgements. The range of possible outcomes considered in arriving at this judgement has been concluded by the Directors to not give rise to material uncertainty casting significant doubt on the Group’s ability to continue as a going concern. We critically assessed the levels of uncertainty, as it related to the Group’s ability to continue as a going concern, within these assumptions and judgements, focusing on the following: • • • the Group’s planned levels of operational expenditure including efficiencies and, improvement in working capital. This included the feasibility, projected timing, and quantum of potential improvement in working capital and efficiencies and progress of these; • the Group’s ability to raise additional funds from shareholders or other parties; and the Group’s planned levels of capital expenditure and research and development spending, and the ability of the Group to achieve cash outflows within available funding In assessing this key audit matter, we involved senior audit team members who understand the Group’s business, industry and the economic environment it operates in. Our procedures included: • We analysed the cash flow projections by: • Evaluating the underlying data used to generate the projections. We specifically looked for their consistency with those used by the Directors, and tested by us, their consistency with the Group’s intentions, and their comparability to past practices; • Analysing the impact of possible changes in projected cash flows and their timing, to the projected periodic cash positions. Assessing the resultant impact to the ability of the Group to pay debts as and when they fall due and continue as a going concern. The specific areas we focused on were informed from our test results of the accuracy of previous Group cash flow projections and sensitivity analysis on key cash flow projection assumptions. • Assessing the planned levels of operating and capital expenditures for consistency of relationships and trends to the Group’s historical results, results since year end, and our understanding of the business, industry and economic conditions; We assessed significant non-routine forecast cash inflows and outflows including the impact of working capital improvements and efficiencies in operating costs for feasibility, quantum and timing, and their impact to going concern. We used our knowledge of the client, its industry and status to assess the level of associated uncertainty. • We have checked the funds received from the capital raise to the Group’s bank statements; and • We evaluated the Group’s going concern disclosures in the financial report by comparing them to our understanding of the matter, the events or conditions incorporated into the cash flow projection assessment, the Group’s plans to address those events or conditions, and accounting standard requirements. QUICKSTEP.COM.AU 78 INDEPENDENT AUDITOR’S REPORT Recognition of deferred tax assets relating to tax losses Refer to Note B.5 to the Financial Report ($989,000) The key audit matter How the matter was addressed in our audit The recoverability of deferred tax assets (DTA) relating to tax losses is dependent on the ability of the Group to generate sufficient taxable income in the future to which the historical tax losses can be applied. This is a key audit matter due to: • • The high level of judgement required by us in evaluating the Group’s assessment on the probability sufficient taxable income will be generated in the future, given the Group’s history of tax losses; and The judgement required by us in evaluating the Group’s interpretation of tax legislation requirements particularly on the treatment of grant income amounts received during the period. These factors increase the risk associated with accurately forecasting future taxable income and create complexity in our work on the recoverability of the DTA. We involved our tax specialists and senior audit team members in assessing this key audit matter. Our procedures included: • • Involved our tax specialists in assessing the groups continuity of ownership assessment and the tax loss availability for consistency with regulatory parameters and legislation; Involved our tax specialists in assessing the Groups tax treatment of grant income amounts received in accordance with the relevant tax legislation; • Compared the forecasts included in the Group’s estimate of future taxable income used in the DTA recoverability assessment to those used in the Group’s assessment of the going concern assumption for consistency. Our approach in testing these forecasts was consistent with the approach detailed above in addressing the key audit matter relating to the going concern basis of accounting; and • Understanding the timing of future taxable income and considering the consistency of the timeframes of expected recovery to our knowledge of the business and its plans. Other Information Other Information is financial and non-financial information in Quickstep Holdings Limited’s annual reporting which is provided in addition to the Financial Report and the Auditor's Report. The Directors are responsible for the Other Information. Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not express an audit opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we consider whether the Other Information is materially inconsistent with the Financial Report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report. QUICKSTEP ANNUAL REPORT 2019CONTENTS 79 Responsibilities of the Directors for the Financial Report The Directors are responsible for: • preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 • • implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material misstatement, whether due to fraud or error assessing the Group and Company’s ability to continue as a going concern and whether the use of the going concern basis of accounting is appropriate. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate the Group and Company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the Financial Report Our objective is: • • to obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement, whether due to fraud or error; and to issue an Auditor’s Report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the Financial Report. A further description of our responsibilities for the audit of the Financial Report is located at the Auditing an Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our Auditor’s Report. Report on the Remuneration Report Opinion Directors’ responsibilities In our opinion, the Remuneration Report of Quickstep Holdings Limited for the year ended 30 June 2019 complies with Section 300A of the Corporations Act 2001. The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with Section 300A of the Corporations Act 2001. Our responsibilities We have audited the Remuneration Report included in pages 26 to 33 of the Directors’ report for the year ended 30 June 2019. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. KPMG Charmaine Hopkins Partner Sydney 26 August 2019 QUICKSTEP.COM.AU 80 SHAREHOLDER INFORMATION QUICKSTEP ANNUAL REPORT 2019CONTENTS81 QUICKSTEP.COM.AU82 CORPORATE DIRECTORY QUICKSTEP ANNUAL REPORT 2019CONTENTSQUICKSTEP.COM.AU 83 WWW.QUICKSTEP.COM.AU (a2 x b2) - (ab2) = ab2(π2 x y2) + (zyb2) = πb2

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