Advanced Braking Technology : December 2016 - Half Year Accounts

ADVANCED BRAKING TECHNOLOGY LTD AND CONTROLLED ENTITIES ABN 66 099 107 623 HALF-YEAR REPORT AND APPENDIX 4D 31 DECEMBER 2016 DIRECTORS' REPORT

Your directors submit the financial report of the consolidated group for the half-year ended 31 December 2016.

Directors

The names of directors who held office during or since the end of the half-year and until the date of this report are:

Bruce Grey David Slack Adam Levine Graeme Sumner

REVIEW OF OPERATIONS Business Overview

Advanced Braking Technology Ltd (ABT) is an Australian company focusing on the distribution, development and manufacturing of industrial products to the automotive, transport and mining industry incorporating the internationally patented single rotor enclosed wet brake technology, known as Sealed Integrated Braking System or SIBS®, plus the new Terra Dura® polymer brake, which additionally targets the recreational 4WD market.

Highlights

The highlights for the half-year to date and subsequent period to this report include:

• Operating revenue of $2.64m - up 50.1% on 1H 2015/16
• Half-year loss of $0.39m compared with $0.91m loss in 1H 2015/16. Operating profit of $0.025m in December 2016
• Over $1m of orders received in January 2017; a record for SIBS® IV wet brakes.
• Operating cash outflow of $0.15m, compared to a $1.41m outflow in 1H 2015/16
• Based on Current Pipeline, Full Year Trading Revenue expected to be the best in Company's 15 Year History Commentary

  Trading revenue of $2.64m was up 50% for the first-half compared with same period in 2015/16, driven by stronger demand from both domestic and international mining customers. An improved first-half operating loss of $0.39m was supported by a profit of $0.025m in the month of December. Total revenue was up 42.6% to $3.16m, while expenses fell a further 14.6% to $2.03m. These results were reflected in a major improvement in operating cash flow performance.

  Strong Forward Order Book

  The stronger demand in the first half has carried over into the second half with the company receiving

  $1.05m of orders in January 2017 and $0.66m in February. January's orders were the strongest single month's orders received in the company's history. This has continued an upward trend in orders received since July 2015, when our on-shore manufacturing and quality improvement program took effect.

  1200

  ABT Orders Received ($000)

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  Growth Highlights

  For the Financial Year to February 27 2017, orders received of $4.47m were up 98% on the same time last year. Domestic highlights included BHP returning to the market with orders up 200%. Total international orders grew by 201% to $1.63m in the same period and maintained a strong forward pipeline. The development of our markets in Mongolia, Indonesia and Poland were particularly strong and we saw Canadian demand return after a significant downturn in 2016.

  Based on the current pipeline of opportunities, ABT is projecting to record its best trading revenue result in its 15-year history despite delays in delivery from our manufacturing partners impacting the launch of the Terra Dura® brake.

  Product Development

  Despite constrained finances, the company made particularly good progress in bolstering its high end, high value driveline models in the first half, releasing 5 new products to the market. These were;

• The new Medium Vehicle (MV) 16 driveline brake for the Isuzu FSS 550 series 10 Tonne truck. This high-end brake serves as a brake of last resort for mining customers. It has recently had its first installation.

• The upgraded Medium Vehicle (MV) 16 driveline brake for the Isuzu FTS 800 series 13.5 Tonne truck. It has been installed on 8 vehicles so far.

• The new Light Vehicle (LV) 21 driveline brake for the Isuzu NPS 300. This product has just been released. There are several prospects that we are quoting currently.

• An upgraded LV 21 driveline brake for the 8 Tonne Mitsubishi Fuso Canter. ABT will be supplying the first 9 brake sets of this product to a customer in Mongolia.

• The Terra Dura® brake for the Isuzu NPS 300. This high end, non-fail safe, steel housed wet brake is the forerunner of the Terra Dura® polymer brakes and has been designed with specific markets such as Indonesia in mind. ABT shipped 25 sets in the first half to Indonesia and expects to ship 60-80 sets of this product in the financial year.

Terra Dura® Polymer Brake

Further to our advice at the Annual General Meeting of delays in receiving Terra Dura® parts, we now expect commercial deliveries of the polymer version at the end of March 2017. Deliveries received at the end of January resulted in ABT having to reject parts from 2 suppliers because of poor quality. This has been very frustrating for the company as we have a substantial backlog of customers and partners awaiting delivery. We expect this first supplier delivery of 120 sets of brakes to be deployed before June 30 2017, subject to no further supplier delays. In the first instance, ABT will be fulfilling 3 customer orders following successful trials and then meeting the needs of 9 other customers who will purchase individual kits for evaluation. We will also be deploying demonstration sets to our distributors and retail partners including Harrop Engineering, Light Fleet Safety Solutions, ARB Tasmania, Mobile Parts Canada, Brakecore South Africa and Germaz Poland.

While the first 120 sets will be deployed on 70 series Landcruisers, over 90% of the parts delivered will be common to the Landcruiser and the next 2 models for release; the Isuzu DMAX and the Toyota Hilux. As a result, these models are now expected to be available to the market in June 2017.

Deliveries of all our existing products, including the non-polymer Terra Dura® NPS 300 model, continued unaffected as parts were sourced from existing suppliers.

Prototype Terra Dura® polymer brakes have continued to operate in the interim at the Degrussa copper mine, Savage River iron ore mine and Yallourn Coal mine with excellent results.

Linfox Trailer Brakes

Linfox continue to use the trial trailer brakes on one of their dollies in Western Australia. They have now travelled approximately 335,000 km and we have recently performed routine service on the dolly at our workshop in Perth. The brake showed little wear, requiring only a routine oil change. ABT has quoted Linfox on several future applications for the brake and remains hopeful of a breakthrough. In the meantime, the company is directing its limited resource towards its Terra Dura® and SIBS® products, where demand is established.

Conclusion

On the strength of demand experienced so far, ABT is looking forward to a stronger second half and a further strengthening of its position in 2017/18.