Robotic technology company FBR Limited (ASX: FBR) has provided its financial statements and director’s report for the year ended 30 June 2020.
FBR is the inventor of the Hadrian X®, the world’s first automated end-to-end bricklaying robot. Functioning like a 3D printer, the Hadrian X® builds brick structures in situ, course by course, using adhesive to bond the bricks together. The Hadrian X® is capable of working in outdoor environments thanks to the unique Dynamic Stabilisation Technology®, or DST®, which rapidly measures and adjusts for dynamic interference caused by uncontrolled environmental conditions. The Hadrian X® completed its first suburban builds in mid-2020 and has demonstrated its ability to build brick structures safer, faster, and more accurately than traditional bricklaying methods while producing far less waste.
Significant changes in the state of affairs
In November 2019, FBR received the completion payment for the tenth Full Home Structure constructed under a commercial arm’s length contract using FBR’s robotic home building technology, the Hadrian X®. The receipt of this completion payment met the performance condition for 166,666,666 Class B Performance Shares issued as part of the deferred consideration for the acquisition of FBR under the Prospectus and approved by shareholders on 6 October 2015.
FBR also completed a placement of 122,222,223 fully paid ordinary shares in the capital of the Company with a small number of international and domestic institutional and sophisticated investors. The shares were allotted in December 2019 at $0.045 per share and raised a total of $5.5 million. FBR also invited its shareholders to participate in a Share Purchase Plan, issuing a further 66,489,304 fully paid ordinary shares at a price of $0.045 per share to raise a further $3.0 million. The funds were raised to continue the development and testing program for the Hadrian X® and to provide the working capital necessary to demonstrate the capabilities of the Hadrian X® in a suburban environment.
No other significant changes were made in the state of affairs during the period.
Review of operations and financial results
In September 2019, FBR announced that Fastbrick Australia had entered into a three-stage Building Pilot Program Agreement with Western Australian-based builder Archistruct Builders & Designers (Archistruct Agreement), building upon the Framework Agreement between FBR and Archistruct announced to the ASX on 6 September 2016. FBR completed 11 homes under the Demonstration Stage of the Archistruct Agreement, with each structure signed off by an independent building engineer, accepted by Archistruct (as the customer) and paid for by Archistruct.
Following completion of the Demonstration Stage of the Archistruct Agreement, FBR and Archistruct commenced preparations for the Display Home Stage. FBR entered into a contract to purchase a block of land on which the Display Home would be constructed by Archistruct at FBR’s cost. FBR and Archistruct entered into a residential building contract under which Archistruct would build a display home using Fastbrick Australia’s blocklaying services. Subsequent to the end of the period, this Agreement was amended to allow FBR to provide the blocklaying services to Archistruct directly rather than through the Fastbrick Australia joint venture, which was dissolved in June 2020.
FBR also announced in September 2019 that it had entered into a Building Pilot Program Agreement with GP Vivienda, the housing division of Mexican construction giant Grupo GP. This Agreement represents the next stage of the Strategic Collaboration Agreement between FBR and GP Vivienda announced to the ASX on 20 June 2018 (Vivienda Agreement).
The Vivienda Agreement is also a three-stage agreement. In the Pilot Program Stage, FBR will supply Wall as a Service (“WaaS®”) for between one and five house structures on FBR premises using a range of common Mexican designs supplied by GP Vivienda. This stage of the Vivienda Agreement was completed subsequent to the end of the period.
In the Block Testing Stage, GP Vivienda and FBR will work together to test the performance of FBR’s adhesive with concrete blocks that are commonly used in Mexico. FBR and GP Vivienda have engaged a structural engineer to work with the University of Monterrey to complete the Block Testing Stage.
In the Collaboration Stage, GP Vivienda and FBR will consult to collate and assess the learnings from the Pilot Program Stage and the Block Testing Stage and identify, scope and schedule the next steps in the Strategic Collaboration Agreement.
In October 2019, FBR announced that Fastbrick Australia and Summit Homes had entered into an agreement with a similar structure to the Archistruct Agreement, with the Demonstration Stage commencing on FBR premises and work orders for the first two builds issued and accepted. Under the agreement, Fastbrick Australia was paid for each of the structures built under the Summit agreement at the prevailing market rate for bricklaying services in Western Australia.
On 18 March 2020, FBR released a corporate strategy update to the ASX in light of the COVID-19 pandemic, which included the announcement of a cost rationalisation program. FBR undertook a strategic resizing of the team designed to protect the Company’s financial position and its valuable portfolio of intellectual property through a significant reduction in payroll costs of approximately $10 million per annum. Critically, FBR maintained a core team with the capability to both continue the Hadrian X® testing and development program as well as deploy and operate Hadrian X® robots once global conditions have improved.
As part of the strategy update, FBR announced that the decision had been made to postpone the first display home build using the Hadrian X® under the Archistruct Agreement. This decision came during final testing outdoors at FBR’s facility in Perth prior to deployment and was driven primarily by health considerations and an estimation of return on investment at the time given global conditions. Soon after the decision was made to postpone the build, Government directives on social distancing and working from home policies were released which would have required FBR to cease the outdoor build program mid-stream to comply. For the wellbeing of FBR’s staff and marketing reasons given the global media landscape, FBR made the decision to postpone the first display home build until July 2020.
Following postponement of the display home build, FBR’s technical team implemented significant speed and reliability upgrades on the Hadrian X® robots. Hadrian 2 was kept in a steady state ready to be demonstrated or deployed on short notice, and in June 2020 it achieved a peak lay speed of over 200 blocks per hour, representing a major milestone in the commercialisation journey of the Hadrian X®.
The top speed of over 200 blocks per hour was achieved periodically during routine testing as part of FBR’s continuous improvement program. A sustained laying rate of over 200 blocks per hour throughout the course of a full house build makes the Hadrian X® commercially competitive and its use case highly compelling when measured against traditional manual bricklaying in most markets around the world.
Hadrian 1 is receiving a significant upgrade of both mechanical componentry and software, with testing results expected to be available early in the 2021 calendar year.
In June 2020 it was announced that FBR and Brickworks had mutually agreed to discontinue the Fastbrick Australia joint venture, citing uncertainty in the residential construction market and the broader economy stemming from the COVID-19 pandemic, and the escalating nature of the obligations of each party under the joint venture agreements.
FBR has received increasing attention and demand for its technology from Northern Hemisphere markets during the COVID-19 crisis, and the dissolution of Fastbrick Australia freed up equipment and resources previously committed to the joint venture, enabling FBR to accelerate the progress of its global opportunities.
In September 2019, FBR received a research and development tax incentive cash refund of $9,449,954 for the 12-month period ended 30 June 2019. The R&D tax incentive program is jointly administered by the Australian Tax Office and the Department of Innovation, Industry and Science on behalf of Innovation and Science Australia.
In June 2020, FBR received an advance payment from Radium Capital secured against the Company’s research and development tax incentive refund for the year ended 30 June 2020. Issued at an annual interest rate of 15% per annum, the agreement with Radium Capital saw the Company receive a $2.8 million portion of its anticipated R&D tax incentive rebate. FBR repaid the advanced funds issued subsequent to the end of the period.
The net consolidated loss of the Group for the financial period was $10,996,775 (2019: loss of $9,141,554). The audited net consolidated loss of the Group is greater than the net consolidated loss of the Group provided in the Appendix 4E & Preliminary Final Report by $1,699,646. This is primarily due to a determination that certain development costs did not fully meet the recognition criteria of AASB 138 intangible assets.
No dividends were proposed or paid during the period or up to the date of signing this report.
Events arising since the end of the reporting period
2 July 2020 – The Company signed a contract with Archistruct Builders & Designers to supply blocklaying services for the construction of a display home in Western Australia, with the display home to be purchased by FBR.
The new contract replaced the previous agreement between Archistruct and Fastbrick Australia following the announcement of the discontinuation of the Fastbrick Australia joint venture.
11 July 2020 – On Saturday, 11 July 2020, the Hadrian X® finished building the structural walls of its first display home in Dayton, Western Australia. The Hadrian X® was deployed to the Dayton site on the afternoon of Tuesday, 7 July 2020 in preparation for commencement of building activities the following morning, and completed the structure in three and a half standard shifts, demobilising back to FBR’s facilities on 11 July.
Completion of the build using the Hadrian X® represented a significant step forward for digital construction, with FBR at the forefront of construction robotics globally.
5 August 2020 – FBR announced the appointment of Mr Greg Smith to the Board of FBR as a NonExecutive Director. Mr Smith has 39 years’ experience in the building products industry in manufacturing, technical and sales across the clay and concrete products sectors. Mr Smith was the General Manager of Midland Brick, at the time Boral’s Western Australian clay and concrete product operations, and has worked for Selkirk Brick Pty Ltd, The Austral Brick Company, and Metro Brick across his career. Mr Smith specialises in operations and project management, safety transformation leadership, lean implementation and contract negotiation. His previous Board positions include directorships at Think Brick Australia, the Concrete Masonry Association of Australia, and Phillips Bricks and Pottery Pty Ltd. Mr Smith holds a Master of Business Administration (Exec) and a Graduate Diploma in Management from the University of Queensland, a Certificate of Applied Science – Industrial Ceramics from the Holmesglen College of TAFE, a Certificate in Quality Control from the School of Mines Ballarat TAFE, and is a graduate of the Company Directors Course run by the Australian Institute of Company Directors.
19 August 2020 – FBR completed a placement of 280,701,765 fully paid ordinary shares at $0.057, raising $16 million through existing and new institutional and sophisticated investors in Australia and overseas.
25 August 2020 – The Pilot Program Stage of the Building Pilot Program Agreement between FBR and GP Vivienda was completed. FBR constructed four Mexican-style two-bedroom, one-bathroom house structures using the Hadrian X® at FBR’s premises, with each structure taking less than one standard shift on average to complete.
Two of the structures were built indoors at FBR’s facility, with the remaining two structures built simultaneously side by side outdoors to emulate the most economical operating process for a Hadrian X® in a residential development in Mexico.
Having completed the Pilot Program Stage, FBR and GP Vivienda intend to progress the Block Development Stage before planning for the establishment of a North American Wall as a Service® operating entity and market entry for the Hadrian X® in North America.
4 September 2020 – FBR repaid in full the advance payment of $2.8 million it received from Radium Capital secured against FBR’s research and development tax incentive refund for the year ended 30 June 2020.
9 September 2020 – FBR completed the structural walls of a commercial and community centre in Byford, Western Australia, using the Hadrian X®. This was the first non-residential structure the Hadrian X® had built, and the first time the Hadrian X® had built both the internal and external leaf of a double brick cavity wall with slab step-down.
The project was completed as the third and final stage of FBR’s Building Pilot Program Agreement with Archistruct Builders & Designers following the amendment of the Agreement to encompass commercial structures in addition to residential structures.
Over the duration of the build, the Hadrian X® achieved an average laying speed during uptime of approximately 174 blocks per hour, or approximately 800 standard brick equivalents per hour, bettering the results achieved during the display home build in Dayton, Western Australia. A peak laying speed of 228 blocks per hour, or 1,049 standard brick equivalents per hour was demonstrated during the build. The Hadrian X® also worked in hail for the first time, as well as high winds and heavy rain.
Construction commenced on Tuesday 1 September 2020, with the Hadrian X® returning to FBR’s headquarters on the weekend before completing the structure on Tuesday, 8 September 2020. The completed structure is 15 courses high, including slab step-down, or approximately one and a half storeys, with brick ties manually installed.
24 September 2020 – FBR provided notification of the issue of 61,220,000 securities issued on 21 September 2020 under an employee incentive scheme that are not being immediately quoted on ASX.
Likely developments, business strategies and prospects
FBR’s commercial strategy is to create Wall as a Service® (‘WaaS®’) operating entities around the world that deliver erected walls on demand to customers (builders, contractors, government bodies etc). These global WaaS® operating entities will be rapidly scaled by allowing strategic partners to buy in to the WaaS® operation in that region. Funds from strategic partners will be used to procure more Hadrian X® robots.
WaaS® is the servitisation and digitalisation of the old way of selling bricks and bricklaying labour separately. Sold as a fixed price single delivered service to customers, the WaaS® operating entity will supply the blocks and robotically constructs walls onsite to the precise specification of a digital architectural plan.
WaaS® allows customers to access the benefits of robotic construction such as improvements in speed, accuracy, safety and waste, without having to build robotics capability into their businesses. The benefits of the Hadrian X® methodology and output improve the commerciality of brick and block structures, helping manufacturers to sell more blocks and compete against alternative building products and methodologies.
WaaS® provides a digitalisation and software driven pathway for house construction and completion, and enables more efficient and certain scheduling for customers, who can organise subsequent trades based on single data source service provision. The end user (e.g. a homebuyer) receives delivery of a higher quality structure quicker, as well as all the other flow-on benefits of digital construction.
FBR currently maintains 100% ownership and control of its global intellectual property and global commercial opportunity, giving the Company a monopoly position as the only enabling technology for autonomous brick and block wall construction.
FBR will have initial control over the Hadrian X® product, supply chain, operation, maintenance and brand reputation during the scaling period. The Company has identified the need to establish WaaS® operating entities in North America, Europe and the GCC region, and has commenced preparatory works to register these subsidiaries.
FBR is also continuously improving the Hadrian X® design, with the next iteration of the technology expected to be commissioned in the first half of 2021. This will complement the Hadrian X® currently operating in the field, generating income through the delivery of WaaS® in Western Australia. FBR’s continuous improvement program will ensure it maintains its position at the forefront of construction robotics globally.
Key Relationships – In parallel with the Hadrian X® program, FBR will continue to develop its existing relationships with key partners as well as attracting new partners to help deliver on strategic objectives.
During and subsequent to the period, FBR completed its Pilot Program with Archistruct Builders & Designers and the Pilot Program Stage of its Building Pilot Program Agreement with GP Vivienda. FBR also completed house structures for Summit Homes, and completed a Commercial and Community Centre for a client in Byford, Western Australia.
Intellectual Property Portfolio – FBR’s proprietary Hadrian X®, DST® and Fastbrick Wall System™ technology is protected by a broad and expanding portfolio of intellectual property rights in key markets including Australia, USA, Europe and the GCC region.
FBR’s global IP portfolio comprises 29 patent families, 145 patent applications (16 granted), 60 design applications/registrations, and 85 trademark applications/registrations.
In 2019, FBR was the third highest resident corporate filer of patent applications in Australia. FBR has recently secured grant of patents in the United States covering the Hadrian X® and associated boom delivery system.
New IP is currently being developed around advanced metrology solutions for outdoor robotics and enhancements to the Hadrian X®.
FBR Employees – FBR undertook a strategic resizing during FY20 that saw staff costs reduced significantly while maintaining the adequate skillsets to continue with the testing, deployment and improvement of the Hadrian X®. As FBR progresses the commercialisation of the Hadrian X® technology, it anticipates increasing staff numbers, notably in the area of machine operators.
New Applications for FBR’s core technology Subject to successfully executing key components of the Company’s Hadrian X® program, FBR intends to seed new Research & Development projects to utilise the Company’s core DST™. In the immediate term, FBR remains focussed on delivering on the Hadrian X® program, however at an appropriate time the Company will allocate resources to progress some of the new applications and commercialisation opportunities for DST®.