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Alan Kohler full interview constant investor FBR

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    Fastbrick is a 3D printer for houses and they’ve just done a deal with Caterpillar

    Alan Kohler July 10, 2017 CEO Interviews


    • Fastbrick Limited signed a memorandum of understanding with Caterpillar and received a $2 million injection of capital
    • The software controlled robotic arm can lay 1000 bricks an hour and it increases on-site safety
    • The patent process for Fastbrick is crucial to ensure investor confidence that they cannot be disrupted or copied easily
    When news broke last week of Fastbrick’s memorandum of understanding with US building giant Caterpillar, their stock went up faster than a house built with Fastbrick’s robotic bricklaying technology.
    Fastbrick’s patent protected “Hadrian X” robot can put down 1,000 bricks an hour. CEO Mike Pivac says the watershed moment came when the Hadrian team realised they could forgo traditional mortar for construction adhesives. Mike thinks the company will have a global reach and has been in discussion with corporates and governments in the Middle East and Europe.
    Mike Pivac tells Alan Kohler they expect to be cashflow positive in 2018 and that this disruption is good for the industry because no one dreams of being a bricky these days.
    Perhaps we should just start with just a description of Hadrian. Because it started off with Hadrian 105 as a prototype, and now you’re onto Hadrian X. Sounds a little bit like Tesla actually, but anyway. Tell us about Hadrian X.
    The name, Hadrian X, did have a little bit of a leaning toward Tesla and all of the X models that were coming out at the time. It follows on from the work we’ve done with the Hadrian 105, the initial testing prototype. And then that was first conceptualised back in 2005, using a technology that my cousin, Mark, had developed a few years earlier. And in 2005, there was a major brick layer shortage in Western Australia and it initiated some thoughts around how a machine could possibly do the work of a bricky. Off the back of that, Mark thought that the technology that he had developed, but had shelved because he didn’t really have an application for, might be a good place to first use it. With some seed funding that came in from a couple of large organisations in the construction industry and a lot of assistance through the government grants process, the programme was kicked off in, let’s say, 2005.
    The prototype was built and almost got to the stage where it could demonstrate. Then along came the GFC, which put a big dent in the programme back then, as it did with most R&D projects that were happening in Australia at the time. It went through a five-year period of hibernation and around about 2013, we’ve felt it might be appropriate time to revisit the project and we went out and had a lot of discussions with people who’d been in the industry, just to ensure that what we were planning on do was still relevant and that the technology still had a place.
    And over the last few years, we’ve been able to progress it along and get that testing prototype working to a point where we could get people excited by it.
    Did you raise some money into 2013?
    We didn’t raise money in 2013. Mark and I self-funded the project for a couple of years. Then we did a backdoor listing and RTO in November 2013 and we raised $5.75 million back then. We’ve since raised another $8 million dollars and of course, just recently, as you would know, we just did a placement with Caterpillar.
    One of the things that’s happened, while you were working on this is the development of 3D printing. And what’s happening, as you’re describing what you’re doing, is a 3D printing of a house. Explain that.
    Yes, that’s exactly right. Well, in 2005, nobody had heard of 3D printing. In fact, we didn’t realise at the time that what we were producing was the world’s largest 3D printer. One that instead of using metals and plastics as an additive material, we used masonry products. We’ve taken that further. We’ve put it onto a truck, so we’ve made it highway ready and enabled it to go out into the marketplace and conduct work from a mobile platform, in a very commercially viable way.
    Looking at the videos of it, what seems to be missing is mortar. Tell us how they’re sticking together.
    Well, we’ve been using mortar to put bricks together for about 5,000 years in various forms. And over the last 10 or 15 years, most brick manufacturers around the world have been producing precision brick products. This means they rectified top and bottom, so that they’re very accurate in their dimension and the geometry. But, of course, manual bricklayers need a wet bed of mortar as their levelling agent. And it’s a porous, corrosive, and quite a weak material.
    It was one of these decisions that we struggled with for a couple of years actually. Because to get this machine working very fast, very efficiently, dealing with an old, outdated material like wet mortar was always going to be something that was a real challenge. We made the decision to move towards construction adhesives. A lot of work has been done in that area over the years. It was a real watershed moment, because as soon as we put information out through the industry that we were moving away from wet mortar and towards construction adhesives, we got a lot of attention from some of the world’s largest construction companies.
    And we were getting comments like, thank goodness somebody has finally come up with a system where we can move away from this. One very large US construction company said, that they pump more mortar around the world than any other company and they are very, very excited about a technology that’s going to enable them to construct buildings in the future without using it. We got really excited about that. And what it’s enabled us to do now is produce structures that are about five times stronger than standard methods. We’re able to eliminate, sand, cement, water, cement mixes, all those types of things from building sites and it enables you to go even further with that, in terms of cleaning up a building site and improving the worksite OH&S, by having a machine that can plant itself in one position and build the entire structure from one position very fast and very efficiently using modern brick and block products, in a way and in a manner that’s never been done before.
    We’ve had a really strong response from that and a lot of people think that no mortar, no structure as far as they’re concerned. And it’s a polarising point for a lot of people. The truth of the matter is the thermal bridging in a home takes place through the mortar bed. About 70% of your heating and cooling evaporates out of your home through the mortar bed in the walls. By closing that up, and putting the bricks basically face to face and using a construction adhesive material, we’re able to increase the efficiency of the home considerably.
    There’s a hell of a lot of upside by moving away from wet mortar and moving towards construction adhesives. And now we’re able to investigate really howwell we can operate in environments from plus 60 degrees Celsius to minus 25 and we can do that in a manner now that you simply can’t with wet mortars.
    Does your machine just spray adhesive onto the bricks or the blocks as they are laid, is it?
    Yes, as each brick arrives at the laying head, it gets a very accurately measured dose of mortar or construction adhesives, and then the brick is flipped and laid in position.
    Tell us about the software that’s needed to make sure that the walls are in the right places. Also, there’s grooves in the wall to allow wiring and plumbing and also, windows. It’s quite a complex. You’re not just making walls. You’ve got to make windows, grooves for wiring and plumbing, and also the walls have to be in the right places. Is that controlled by software?
    Yes, it is. So, we model the structure in a basic 3D CAD programme, but we run that through some of the bespoke software that we’ve developed internally. It enables us to be able to have the machine conduct all of the functions that a bricky or a following trades person might do with that wall. What we aim to do is get a brick structure into place that didn’t require any following trades to come along and cut grooves in walls. It’s a very dangerous and dirty job, by the way. It’s one of the things that we wanted to eliminate. But the software enables you to model the home in a way that speeds up the efficiency of building the entire structure.
    Because the accuracy that we get now at the end of the build enables other components of the home to be manufactured offsite and in parallel and then brought to site and be simply fitted, because we understand that if a structure’s being built to a 3D CAD model accurately, we can now build all the other components of the house offsite and simply bring them there and they will fit.
    Having a software program to run the machine is one thing, but we’ve also taken this view. We also needed to develop the transition tool, if you like, for construction companies and builders to move toward automated laying services. And to do that, it needs to be easy. Everyone’s resistant to change in almost every area. To contemplate going to a construction company or a builder and saying, hey you guys should now think about using a machine to do your brick or block laying, what we want to be able to say is, and in a couple of days, we can actually transition your designers to a software package that we’ve developed internally and design the entire home in that package and allow us then to transport that data from that package immediately into the Hadrian machine.
    We can actually e-mail the programme of that structure to the machine on a building site at a moment’s notice.
    What sort of reduction in building cost, does your system represent?
    Well, that’s a very interesting question. We’ve always anticipated that it would present around about a 10% cost saving overall on the cost of building a standard home here in Australia. But interestingly, we’ve been having some discussions with industry professionals around the world but also governments who are interested in transitioning and up-skilling their workforces. Some of these places have had the benefit of very low labour costs over the years. In some places as little as $20 a day. Just recently we had a private consultancy firm in the Middle East do an entire value chain assessment on what the Hadrian X machines could present to a government or a country that wants to transition this way. Even in an environment like that, they’re assessing that it was potentially a 25% saving overall.
    We’ve estimated 10%. We’re aiming for 10%, but in actual fact it could be much more than that.
    Tell us about your patent protections.
    We started our patent suite around about 2005 and we’ve continued to build on that over time. In very recent times we’ve put a lot of new patent applications forward on certain elements of the Hadrian X that are very unique to our technology and very unique to our company. One of the things about a technology company like ours is you’ve got to keep your technology interesting and relevant, but it’s also got to remain green. To do that you have to continually work to improve it and that obviously builds barriers to competition.
    But it is what creates the initial value in your technology and as I’ve said to people in the past, often people comment that, patents are not worth anything. People will always find a work around. But what I say to them is go out there and try and raise money without a firm and solid patent in place. It’s simply not possible. People want to see that you’ve done the work on your technology and you done the work to protect it. That is an ongoing challenge all the time. That’s something that always requires a focus, and of course funding for that matter. You’re always working on developing that. We’ve just put forward a range of new patent applications on certain elements of the Hadrian X for that, that are unique to that machine and system.
    Are you aware of anyone else developing robotic bricklayers?
    You can go back 150 years in patent searches and see where people have tried to automate this process. In the last decade there’s been a few companies around the world that have been developing 3D robotic bricklaying, or 3D robotic construction techniques. What sets us apart is we have a unique and valuable underlying intellectual property and that is in our boom guidance and compensation system.
    Now there’s been a company in the US, Construction Robotics, who’s done some great work in bringing their robotic machine out into the market place. But they’ve very low uptake and very low traction with it simply because: a) they’re continuing to use wet mortar, which we see as a real hindrance, but b) they’re only able to build a structure wall by wall. The intellectual property that we’ve developed and the machine and system that we’ve developed enable us to build the entire structure from one position, just the way a 3D printer would. That’s what sets it apart from everybody else.
    There are also companies around the world that have developed 3D printing construction techniques using mortar-like substances where they’re able to print entire structures from the ground up, but using a toothpaste-type material. That has restrictions in terms of how high you can build in a day, whereas we don’t have that. By eliminating the wet mortar, one of the advantages we get is that we don’t have any vertical limitation. We can continue to build 24 hours a day if we wish to without having to stop and let anything set.
    We’ve carved out certain part of this market and it is unique to what we do, but I’ll make the point again. What makes this possible is the underlying IP that we’ve developed that enables you to guide a robot and compensate for dynamic interferences in an outdoor, uncontrolled environment. This opens up a whole range of new opportunities across a range of different industries and sectors.
    Are you saying you can build multi-story buildings?
    I’m saying the underlying technology that we have now enables that to be possible, yes. The discussions we’ve had with machine manufacturers around the world with very large, multinational construction companies has everybody excited by the thought of being able to now contemplate, being able to construct buildings in the high-rise environment and do some of the very dangerous things that have taken place on a daily basis.
    I’ll give you an example. I was in London recently and I was with a very large construction company there who are predominantly in the high-rise sector. One of their managers said to me “Right now, today, I’ve got 450 people in harnesses, working on the edge of high-rise buildings around this city. Are you telling me that in the future we could see machines that would be out of place -glass panels and wall panels on the outside of high-rise structures without us having to have people in harnesses and working in that dangerous environment?” And I said, yes, absolutely you now can.
    Anything where we can place a product over distance in an environment where we get dynamic interferences from wind and vibration and other factors, we can now eliminate that. We can now compensate for that movement, and we can keep two points in space, looking at each other regardless of that dynamic interferences. When I say across a range of sectors, I mean from the oil and gas sector, maritime sector, construction sector, and many others where you have the need for machines to do things faster, but we’ve never been able to do it with the accuracy or the intricacy that you can be able to do it with a human hand. That will now be possible.
    The Hadrian X is the first application of this IP, but by no means is it going to be the last. In fact, this is what has our machine manufacturing people around the world quite excited by the fact that they’ve had a number of things on their drawing board for a number of years now, but it’s lacked this point. They’ve been able to take their machine progress and development to a certain place, but they haven’t been able to progress any further because as soon as you try to do something outdoors and you get those interferences coming into play, you have to be able to compensate for it in real time and that is what we do.
    Do you feel guilty about replacing all those jobs?
    Again this is another very polarising point and I had this discussion on a radio program yesterday. I always say to people, no one would be pleased driving down a highway today and seeing people working in a cane field cutting cane by hand, or cutting wheat by hand. Progress is going to happen. We didn’t move out of the Stone Age because we ran out of stone. We did that because we found a better way. Yes, we have a disruptive technology and yes it will disrupt people. It will disrupt a number of things.
    We’re trying to be as responsible with this as we possibly can, but I think the main point that I like to make is that we’re creating the jobs of the future. There are many companies around the world now that are working to create those jobs of the future, and that will come about by the introduction of new technologies. Now there are five million new devices being connected to the internet every single day now. There are new technologies being contemplated all around the world, in all range of products and services.
    Yes, they are going to change the way people work and as I mentioned yesterday, I think that this is a challenge for government and it’s a challenge for the education system to ensure that school leavers of the future are well skilled and well tooled up to move into a digital age. The other factor is that this invention of ours came about by the fact that brick layers were in short supply back in 2005, and that environment has not improved. This is not a job choice for 21st century teenagers. I don’t know of anyone whose teenage son is contemplating coming out of school and becoming a brick layer.
    If you’re a brick manufacturer or construction company that predominantly uses bricks or blocks as your building material, this has to go this way. We don’t actually have a choice. There’s going to be another 3 billion people on this planet within the next 35 years. They have to be housed, fed, watered, and clothed, and we have not solved these problems yet. People say to me, these big machines will take jobs. And I often say, maybe we should be controlling population growth. If you’re worried about supplying mundane dull, dirty and dangerous jobs to the unskilled, I look at that in an entirely different way.
    Tell us about the deal with Caterpillar. How is that going to work? What are they doing for you?
    We’ve been fortunate to spend a lot of time with the Caterpillar team over the last year. We’ve discussed a whole range of things. I’ve been very fortunate to have toured some of their facilities around the world: their manufacturing facilities, innovation facilities, innovation teams, with their customers, dealerships, and they are a fantastic and multi-resource organization. They can bring a lot of resources to bear when they choose to do so. This is a really important bit. This is really solid third-party validation for our technology, and it has a company like Caterpillar excited about what is possible. When we talk about creating the machines of the future, this is an organisation who has had a vision to move into the digital construction arena for the last decade. When we publicly listed a couple of years ago, or 18 months ago actually, our technology and our information came to light for the first time. The initial discussions that we had with Caterpillar were very very interesting, and what we found, and it was really exciting for us, was that we found a group of people who saw what we saw and could see the same needs out there in the industry that we could see, and they had a genuine desire to go there.
    Our relationship started off very well with Caterpillar and we worked very closely with them over the last 12 months. We’ve taken the very important first step of formalising a memorandum of understanding that will allow our two teams now to sit and work together and speak with a much higher level of freedom. It contemplates many things, but the initial first stages right now are for us to form our respective strategy alliance boards, and we will sit to formalise our strategic alliance agreements and our development agreements. We can now openly discuss IP sharing and royalty sharing with the technology in the hands of Caterpillar moving forward. This is a very very important early stage step for our company, and we’re excited by what we see in terms of the capability of Caterpillar to help us take this technology out to the world, apply it across a range of machines and machinery suites across a range of industry sectors. We couldn’t be more pleased to have a partner or a strategic alliance with a company like Caterpillar.
    Tell us what does the strategy alliance potentially involve? Are we talking about your licensing your technology to them or having a joint venture, or Caterpillar just owning a big chunk of your company?
    No, I think it would be suffice to say at this point in time that an MOU contemplates potentially all of those things, but we haven’t developed any of them to the point where we can formalise them, or to a point where I can speak about them openly, or present them to our shareholders or the general market, but it’s an important first step. These things do happen in steps and stages. We’re excited about what it may mean potentially. We believe that Caterpillar are genuinely excited about what it may mean also, and our teams will now begin to meet on a regular basis both here in Australia and in the US, and we’ll be able to now formalise all of the agreements that we need to have in place to enable Caterpillar to delve deeper into our technology and to also sit with us and contemplate and develop where our technology is best used within their current machinery suite, and in developing those machines in the future.
    Is the MOU fairly open? It’s an agreement to have an agreement at some point. Is that what you’re saying?
    Yes, look it is, but also important to say that we’ve had 12 months to sit and discuss many things. We understand what the environment could potentially look like moving forward. We’re excited by that, but at this point in time we have a memorandum of understanding in place with them that allows our teams to sit together and talk with a much higher level of freedom. From there, we’ll be able to discuss, develop and formalise the agreements that hopefully we’ll be able to put in place with them and move our whole project forward together.
    How much are they buying of the business?
    At the moment their initial investment was for US$2 million, which bought them a few percent of our company.
    How many percent? What’s “a few”?
    I think it’s about three, without having those numbers in front of me. They have options for another US$8 million investment at 20 cents, which they can choose to trigger at any time over the next 12 months. But importantly too, we had a mutual walkaway clause, so that if at any time either organisation feels that their interest or focus are better placed somewhere else, that’s all possible. Either organisation hasn’t tied ourselves to anything. What we’ve done is we’ve developed a really interesting and positive working relationship in the last year, and we’re excited about what that might present in the next 12 months.
    How much do you and Mark still own of the business?
    I actually don’t know. I really don’t know the answer to that. I can tell you that there are around about 500 million performance shares still to be issued based on three very important milestones. Those milestones are building our first home at the end of this year or very early next, and then the completion of our tenth home, and then $10 million revenue through the door in one calendar year. And then we have another three and a half years to meet those milestones, so we’re quite confident of doing that. But I think all-up, our company would have around about 1.4 billion shares on issue. As time goes by and their relationship grows with Caterpillar, they may choose to take a larger stake in our organisation. That would be a very positive message for the market, if they chose to do so, but all those things are yet to be seen.
    I was just wondering, do you and Mark own more than 50% of the business still? How much control do you have?
    Together, Mark and I don’t own 50% of the business, no, but our top 20 shareholders control greater than that. We have quite a tight group there in our top 20. These are people that have followed us from the outset and are very excited about the potential moving forward.
    When do you think you’ll start getting some cash flow?
    I was asked this question in London recently, and I said, by the end of 2018. That is still possible, but with what’s happening now with our potential strategic alliance with Caterpillar, it’s really hard to see clearly what our exact timeline will look like and all that. Caterpillar will bring an amazing amount of resources to bear and they could potentially speed the project up on the back end, and get machines out there distributed into the marketplace if our relationship develops that way and they choose to do this. So we have, on our programme, a number of things over the next 12 months, and they include factory-testing the Hadrian X at the end of the year, and site-testing very early next year, the building of some homes.
    But in the meantime, we’ve been doing a lot of customer discovery work and customer development work. We’ve been talking to a lot of industry-level customers around the world, but also governments, and we’re pretty excited about all the opportunities that exist out there right now for people to make forward orders on machinery, and that certainly seems to be the environment we’re looking at right now, where we’ve had a supply and demand problem for a period of time, balanced the right way for us of course. We’ll have more customers than we’ll be able to deliver to for a period of time, until we can ramp everything up and start to develop and distribute these machines properly. I’m still hopeful that by the end of 2018, we might have some positive cashflow.
    My experience with big companies is they tend to slow things down, not speed them up.
    I didn’t want to say that, but there’s an old adage in this technology field. These are not my words, it’s somebody else’s, but the term sometimes you have to slow down to speed up, can be very true, but it’s for positive reasons. If you have to slow down a little to align with another organisation and their capabilities, generally what that means is that you do all the work at the front end that you need to do to ensure that when you get to the manufacturing and distribution stage, you’re tooled up and ready to go.
    I have had that question a fair bit recently about what does this all mean for our time frames. I really can’t put my finger on that and give a solid answer, because there are so many unknowns now. We’re taking a small Australian public-listed technology company and we’re shouldering it up against a US-based multinational Fortune 50. Two entirely different clock speeds, a bunch of challenges there alone, but with everybody keeping a positive mind and everybody working hard, I’m quite sure that this is going to be a very very good outcome for our organisation.
    Great to talk to you, Mike, thanks very much.
    Thanks Allen, appreciate it.
 
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