Disclaimer: All information on this section is of a general nature.
Before making any investment decision, you should consult your adviser.
Quickstep Holdings (ASX:QHL). 2Q FY19 update
QHL’s update for the December 2018 quarter was, inour view, a bit of a mixed bag.
While total sales of A$15.8m was up (only) a modest3% on the pcp, quarterly customer receipts were boosted by delayed Septemberquarter customer payments; as a result, customer receipts in the Decemberquarter hit an historical high of A$18.1m.
Sales were adversely impacted by extended outage ofa key machine (PMM) and limited industrial action during the quarter.Production delays from the equipment outage resulted in a A$3.3m inventoryincrease (largely raw materials), negatively impacting cash flows. While thisinventory is expected to normalise during the second half of FY19 on increasedproduction, management has indicated that the machine outage is likely toimpact March 2019 quarter sales. Importantly, however, QHL maintains itsguidance of full year revenue growth of +20%, and positive operating cash flowfor the full year.
While management states that cost cuttinginitiatives across all functions at the group’s Bankstown and Geelong sites helpedincrease gross margins in the quarter, we note that admin & corporate costsincreased to A$1.67m in the December quarter from A$770,000 in the Septemberquarter. We believe this increase stemmed from bonus payments and new businessdevelopment expenses.
QHL paid down A$1m in debt during the quarter, reducingthe outstanding debt balance (including capitalised interest) to A$15.5m as at31 Dec 2018. We imagine that a key challenge for management over the secondhalf of FY19 will be balancing working capital and investment requirements withthe group’s capital structure. A furtherA$1.7m of long-term loans is scheduled for repayment by the end of June 2019,while we believe QHL will be looking to extend its Efic working capitalfacility (A$7m) beyond the current draw-down date of 28 June 2019