Ann: Press Release - XTEK & Morgan Announce Partn, page-27

re: Ann: Press Release - XTEK & Morgan Announ... Old article from the AFR, really highlights all the potential of Xtek:

Tiny defence player XTEK shoots high with major US bodysuit contract
PUBLISHED: 21 NOV 2013 07:28:17 | UPDATED: 21 NOV 2013 07:28:17
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ADAM COURTENAY
The market for defence products and materials is no ­different to any other. Smaller players have to find the gaps the big players miss, and Canberra-based XTEK appears to have found one.

Sharemarket minnow XTEK has recently won a $1.5 million US Department of Defence contract to test its lightweight body armour technology, which apparently no other company worldwide can produce.

XTEK’s XTclave machine, a form of hydroclave that can mesh carbon fibre components using liquids rather than air, is said to be far more efficient than air-based autoclave systems, producing tougher and lighter weight materials at less cost and higher production.

The XTclave is the company’s linchpin. Chairman Uwe Boettcher says if XTEK’s advanced composite technology can attract weapons producers worldwide, it will provide consistent royalty streams to firmly establish the company on the global armaments scene.

The company, which has been listed since 2005, has suffered from government Defence cuts which have ­cruelled many defence companies since the global financial crisis took hold in 2008. “We really are at the bottom of the defence acquisition cycle. Government spending is now at around 1938 levels,” Boettcher says.

Until now, XTEK has been largely an agency business focused on distributing overseas companies’ military products including Unmanned Aerial Vehicles, bomb disposal units and the German-made Blaser precision rifles. Already, Boettcher says, the XTclave has provided added value. Australian Special Forces asked XTEK to produce a lighter weight folding butt stock for the Blaser rifles and larger magazines to carry more bullets. The company used its composite consolidation technology to create the folding butt with good results. Blaser’s ­parent company has since asked XTEK to produce the folding butt for its customers.

NO COMPETITION IS GOOD COMPETITION
The US deal, part of the US Foreign Comparative Testing Program, is the company’s big chance. If the testing goes as Boettcher envisages, there will be a market of 1.5 metre body armour plates up for tender from 2015.

US approval would mean arms manufacturers bidding for bodysuit contracts would almost be forced to buy the company’s carbon composite-bonding machine, Boettcher says. “We are developing the specifications in conjunction with the chief defence scientists in the US. This means that the bigger armament manufacturers will have to do a deal with us to be competitive for any tender. The fact is, we’re not competing to develop for this technology. We’re up against no other company.”

The company’s technology, developed in-house at great expense, is an obvious but intelligent attempt by XTEK to wean itself off a weak agency market.

Boettcher also believes the XTclave concept can be applied outside the scope of the military to any manu­facturer using composite materials, which includes aircraft wings, automobile parts and possibly even high-end bicycles. While the XTclave is efficient – reportedly able to produce three batches of carbon composite material to an autoclave’s one – it is also a more expensive piece of equipment.

The company is staking much on an upturn in local defence needs and even more on the demand for this kind of high-end technology. XTEK has experienced a series of losses since 2008, although last year it reported a slight upturn. Four years ago revenue was about $9 million. Now it is about half this. In the same period, staff have been cut from about 50 to just under 20. Last year the company reported a $730,000 loss. “We’re now working on the smell of an oily rag,” Boettcher says.

CONFIDENT OF A TURNAROUND
On the positive side, the company has recently signed a number of non-disclosure agreements with overseas arms manufacturers, which Boettcher says are ­significant. In October, the company announced a ­non-renounceable rights issue of just under $680,000. Boettcher says about $500,000 of the shares (valued at 0.27¢) have been taken up, and is confident investors will lap up the shortfall. The rights issue was needed, he says, to retire debt but also to meet the costs of entering new markets for its products. “The biggest thing for us is to be cash-flow positive – to grow our revenues,” he says.

“We announced our latest revenue increase to the ASX but there’s no point in trying to forecast the number going into the future.

“We don’t yet have enough long-term contracts and without them, revenue is not predictable with enough accuracy. But we’re very confident there will be a turnaround based on the XTclave concept. In fact, there is already enough interest for things to turn around.”