XTEK sets sights on commercialising proprietary products in second half of FY21

XTEK Ltd (ASX:XTE) is targeting revenue growth in the second half of financial year 2021 as it shifts focus towards its proprietary products tailored for the government, law enforcement, military, space and commercial sectors.  During the half-year ended 31 December 2020, the company focused on driving higher margins through a shift in its product mix, including XTclaveTM produced ballistic products and advanced composite solutions and XTatlasTM real-time contextual video, which provides unique solutions for western military forces and other government agencies.  The company reported revenue for the first half of financial year 2021 was $12.4 million, and gross profit margins increased to 26% (compared to 18% in the first half of financial year 2020). XTEK expects a higher revenue contribution in the second half, in line with the typical seasonality of the business. HighCom acquisition XTEK’s US ballistics business performed strongly with continued robust demand. The company recently acquired HighCom Armor Solutions Inc (HighCom), and notably, the turnout for financial year 2020 was up 30% from calendar year 2019 to US$10 million. The HighCom acquisition allows XTE to sell its products to the US military as an American supplier with production from its new US facility. HighCom has also secured approval for a permanent export licence for ballistic products to Mexico City with current exports worth US$2.1 million. In addition, the subsidiary has been awarded a five-year National Association of State Procurement Officials (NASPO) ValuePoint Body Armor and Ballistic Resistant Products contract for its range of personal protective equipment ballistic body armor platforms following a competitive request for proposal process. This will allow for quick and easy access to HighCom’s Body Armor and Ballistic Resistant Products for public sector entities in all 50 states through the US. Virolens distribution agreement The company recently announced the signing of an exclusive distribution agreement with KeyOptions Pty Ltd, a master agent for Virolens, a test that screens for SARS-CoV-2 in around 30 seconds.  Subject to regulatory and other relevant approvals, XTEK will supply Virolens products, consumables, training and maintenance to end-users, third-party service providers and others, who will carry out testing at sites.  Virolens is designed to screen for SARS-CoV-2 in about 20-30 seconds with 98.1% sensitivity [true positive], 99.7% specificity [true negative] based on results of an internal in-vitro validation study of 184 samples.  The test has been approved by the UK Medical and Healthcare product Regulation Agency and an application for approval has been lodged with the Therapeutic Goods Administration (TGA) in Australia.  R&D investment continues The company reported a first-half net loss of $3.5 million, which incorporated a substantial R&D investment in its proprietary technologies and its Adelaide Manufacturing Centre (AMC), a focus on fully integrating the US acquisition HighCom – as well as ongoing development of XTatlas and new product development including the sensor payload SARBI. The AMC is set to ramp up production over the third and fourth quarters of financial year 2021 with production capacity designed to produce 80,000 SAPI plates or 40,000 helmets per annum. The group plans to continue to invest heavily in the R&D of its proprietary products, which it is starting to commercialise internationally. Strong second-half anticipated Underlying demand for XTE’s products continues to be driven by defence spending, which has proven resilient to economic cycles despite the current COVID-19 environment.  The company predicts a strong second half in its Australian-based activities in line with the typical seasonality of the business, enhanced by the ongoing delivery of Small Unmanned Aerial Systems (SUAS) to the Australian Defence Force, repair and maintenance revenue streams, and exports of XTclave manufactured products. Going forwards, the company is in a strong financial position with cash of $10.1 million and a positive sales outlook, driven by customer inquiries of plates from the US and Europe.