Terry Stinson, CEO and Managing Director, Orbital.

Welcome to Orbital's website, and to the "From the CEO" newsletter.

In the 5 months since my last newsletter, the organisation has been busy managing the challenges arising from the global financial situation whilst actively pursing our growth initiatives and strategies. This CEO newsletter, #6, will summarise where we are and discuss the key significant activities and market movements in Orbital's business sectors.

These CEO Newsletters have been well received. I have received positive feedback from shareholders, brokers, fund managers and other stakeholders related to the letter. I have also received constructive suggestions on the information that our stakeholders are interested in and ideas to improve how this information is presented. Many of these suggestions have been incorporated. Many of you would like to have more specific financial, volume and program information presented. I will endeavour to present what we can without compromising our customer's confidential information.

We are still feeling the effects of the Global Financial Crisis in all of our business sectors. We announced a $2.5m loss for FY09, and whilst we are seeing today some small encouraging signs that the market is at least stabilising, our core businesses of Consulting Services and Royalties can be expected to remain subdued until the market shows sustained recovery. I project that our markets will remain depressed and have projected a similar loss for the coming year. In contrast, my view is that this year will not be a year of losses, but a year of investment. Part of the reason for the projected loss is due to our decision to invest in new business streams to restructure the company and provide profitable growth for the future.

At the end of the financial year, we had AU$10.1 million cash, a strong position to support on ongoing operations and growth strategies.

Growth in alternative fuels remains our key expansion strategy. The drivers for alternative fuel are reduced end-customer vehicle operating costs, reduction in Greenhouse Gas emissions and use of domestically available fuels to reduce Australian consumers' reliance on imported fuels.

The justification for our alternative fuels initiatives remains strong, and as the financial world improves, the alternative fuels strategy will become even more compelling. The cost of crude oil is slowly on the rise; the US, Europe and other countries are legislating forced improvements for average fuel economy and reduced CO2 emissions, and here in Australia, we have an abundance of CNG and LPG.

I have had the honour of being invited to join the Australian Automotive Innovation Industry Council (please see here for details of AIIC). The key purpose of the AIIC is best summarised as presented on the AIIC website "The AIIC provides advice to the Minister for Innovation, Industry, Science and Research and acts as an innovation advocate for the industry. The Council considers industry innovation challenges like climate change, sustainability and industry competitiveness as well as issues such as regulatory reform, workforce capability, skills needs, access to new technologies and other priorities for industry.

The AIIC provides leadership to the automotive sector. It also communicates the Government's innovation policies and goals, and builds relationships and linkages with peak industry bodies and industry stakeholders."

This invitation is a positive indication of the Commonwealth's view of Orbital's capabilities and potential contribution to Australia's future automotive industry strategies. The recent meetings with the AIIC have been in the initial development of the "Vision 2020" roadmap that explores the future prospects to ensure Australia maintains, and grows, a healthy automotive industry. The initial roadmap overview was recently published, and I would certainly recommend it's reading, as this is a critical time for the Australian Automotive Industry and determining it's future directions. The report can be found here.

To support the AIIC initiative and to support the Commonwealth's commitment to the Australian Automotive Industry and the supply base, I was asked to join a trade mission to the United States. I accompanied Hon Minister Carr and Minister Bracks along with other key Australian research and supply executives and visited automotive company senior executives and other industry executives in the USA. The goal of the mission is to secure a positive future for the Australian automotive industry and to create a forum for Australian companies like Orbital to interface with key industry executives in the USA. These companies not only have operations in the USA but also have global footprints that extend to all parts of the world. The mission provides us with a better understanding of the US companies' current situations and future plans and how Australian companies can participate.

Whilst many of you may have already had the opportunity to read our Annual Report, (available here) I would like to expand a little on key status and activities of the various business sectors. Since my last newsletter, Orbital Autogas Systems (OAGS) has achieved some major milestones. Under the leadership of our new Orbital Autogas System's Managing Director, Tony Fitzgerald, the first "LLi" or Liquid LPG Injection system, developed by Orbital for the Australian market under license from Vialle of Netherlands has now been sold to the retrofit market. A similar system, based on our liquid injection technology, will be supplied to Ford Australia for the E-Gas vehicles from mid 2010 onwards. The initial commercial applications went very well with positive customer feedback, a very commendable achievement of the Orbital team that developed the LLi kit.

Suggestions and ideas for improvement from our first customers are being reviewed and improvements implemented into the products.

We are now developing kits for additional models and will be continuing this development through-out the coming financial year. We are incorporating technologies and products from Vialle, Continental, Motonic and others in conjunction with our Orbital technologies and know how into new Orbital Autogas products specifically designed for the Australian market and that meet Australia's unique standards.

Owner's manual and warrantee book for new owners of retrofitted LLi systems

To support this expanded activity, Orbital Autogas Systems has moved into larger premises in Arndell Park, Sydney. This facility will support the assembly, test, and distribution of the LLi systems, provide technical and logistical support to Ford Australia for the E-Gas vehicle production and after-sales support and to the LPG retrofit industry and will also undertake commercial retrofit conversions of the LLi system. Our plans to grow in this market extend to the other Australian automotive OEMs and to automobile companies who import into Australia.

Orbital Autogas System's New Premises, Arndell Park

With the product now commercially available for the retrofit market, Orbital Autogas Systems has started a marketing campaign, with both the introduction of their own web-site, and brochures/advertising of the product.

Orbital Autogas Systems Brochure

I welcome you to visit to the new web-site, as this shows the kits that are available, and the benefits of the LLi system.

In addition, to support the retrofit introduction, Orbital Autogas Systems had provided training classes to LPG retrofit operators as a key part of supporting the sales process. Classes have been held at both Orbital's Sydney and Perth facilities over the last month.

As with many of Orbital's markets, the emission requirements are a key driver for next generation Engine Management Systems. As of the middle of next year, the Australian emission regulations, as defined by ADR 79/02, calls for all production vehicles to achieve the equivalent of the European Euro IV emission level. The existing "vapouriser" or "fumigator" LPG system cannot achieve this emission level, hence only the sequential LPG injection systems (gaseous or liquid) have the capability to meet this emission requirement and we can expect to see the phasing out of the fumigator style system in the retrofit market over the next several years.

The LLi system uses a liquid injection system that has inherent advantages compared to sequential gaseous LPG systems as fuel metering precision will always be better with a liquid compared to a gas. Further, the LLi system has performance advantages, as air in the inlet manifold is not displaced by gaseous LPG. Air displacement in the manifold can result in a loss of power and torque. We are targeting to have the highest performance and lowest CO2 emissions compared to all other products offered to the Australian market.

To achieve this benchmark level of performance, the system will cost more to develop, and the cost and price of the system to the consumer will be marginally higher than the competition but will be offset with less time required to install the system. Our view is that this will be recognised by the OEM and retrofit markets facilitating significant market penetration and increasing volumes. Our goal is to change the image of Autogas in the market. Today it is viewed as the poor man's fuel. With advanced liquid injection systems, we plan to change this image to be the fuel of choice for Australians. A way to save money whilst lowering greenhouse emissions and retain the same performance you expect from a modern car. This change in image must extend to the retro-fitters. Our standards will be high and retrofitters that desire to install our systems will need to be trained and to meet rigorous standards.

To support the Orbital Autogas Systems work, we have developed very strong and supportive supply partners. We have exclusive access to Continental specific gaseous injection system parts for the Australian and New Zealand market, and we recently announced establishing a supply relationship with Motonic.

Motonic are a key LPG system supplier to the South Korean automotive industry (volumes of around 150,000 - 200,00 LPG vehicles produced each year) and we are very pleased to be able to work with them for the supply of some key components. For more information, please see here. At Orbital Autogas Systems we are targeting benchmark quality levels, with each component and the system fully validated to Australian requirements, and we welcome Motonic as a quality supplier.

As discussed in my introduction, growth in the alternative fuels business is one key area where Orbital's business opportunities lie. There is growing legislative pressure for reduced CO2, there is growing awareness of potential future shortages of the crude oil supply.

Australia has domestic proven reserves of CNG of some 66 years, in stark contrast to that of crude oil supply. CNG vehicles, already available in high volumes in Europe and other parts of the world, offer some 20 to 25% reduction in CO2. The fuel cost is lower and the return on investment for CNG systems is compelling, especially for fleet type operations. There are very compelling reasons for our interest in Alternative Fuels!

Simon Brewster, our senior engineer responsible for Orbital's R&D is currently stationed in Brazil to support our endeavours in this market. This is a strategic and long term project with production targeted after 2012. Sygma and VSE (Vale Solutions in Energy) earlier this year selected FlexDITM as the EMS and Fuel System option that achieves higher levels of performance to competitive systems.

Protecting for the future market has been a key strategy for Synerject. As emission standards become more stringent, the move to Engine Management Systems (EMS) becomes stronger.

In Taiwan, for example, where the motorcycle manufacture's have to guarantee the Euro III emission capability for either 3 years, or 15,000 kms, whichever occurs first, there has been a major move to EMS for all sized scooters, including the high volume 100 and 125 cc. Taiwan, through Kymco and Sanyang, is now Synerject's second largest customer market. Other countries will ultimately follow the Taiwanese emission requirement model! In Europe, there is already discussion for a motorcycle "Euro V" emission standards around the 2015 timeframe, with the emissions from a motorcycle planned to be on parity with that of a passenger car. This continually more stringent emissions regulation implementation is a key driver to Synerject's EMS products. China, the largest motorcycle market in the world, is in the process of implementing Euro III emission regulations. Whilst it is difficult to predict exactly when there will be a major shift to EMS in China, Synerject with its manufacturing facility in Changchun and service and application centre in Chongqing, is well prepared to support this market.

Consulting services experienced a tough year in FY09. This will continue to be challenging for the coming year. The majority of work we have secured is in India, China and Brazil.

We have increased marketing efforts into the Asian market (Vietnam, Thailand, and Indonesia) and we are quoting on a number of programs at present to private companies. We also provide testing and consulting to the Australian Commonwealth Government, this work will continue with new programs planned over the coming months for our new Heavy Duty Engine Test facility. This heavy duty engine test cell is capable of both R&D and complete engine homologation, emissions certification, for truck sized engines up to 600 kW and it is now fully commissioned. This test cell was designed, built and commissioned by our own Orbital technical team and is testimony to the capability of the group at our Balcatta facilities. Orbtital's Engineering group continue to support our Alternative Fuels development, for Orbital Autogas Systems product and applications development, and for the R&D undertaken across the Orbital group of companies to support strategic growth initatives.

At the start of this financial year, the order book for our consulting services stood in excess of $5 million, in line with the previous year. Even in a very tough market, Orbital's consulting services business, led by Dr Geoff Cathcart, have been able to secure new projects building on the technical capabilities of our team in Perth.

Whilst we expect the market to remain subdued this coming financial year, we are starting to see some, possibly early, signs that the recreational market in North America is stabilising, and in some products, has actually seen a very slight improvement towards the end of the North American summer. We monitor this market closely, and information such as this indicates that the recreational market may have reached beyond the lowest point.

Bajaj, using our FlexDI system on their autorickshaw, are gaining confidence in the system. At a recent meeting, a senior VP at Bajaj commented "Fuel consumption is extremely important to our customers. This technology delivers very significant fuel costs savings while cleaning up the emissions on this important class of vehicle. We have experienced challenges during the launch of this new technology, but are now expanding the number of cities where these vehicles are sold as we continue to gain confidence in the product. Some cities have exclusively mandated the use of these vehicles as they move to clean up their environment. We look forward to these autorickshaws becoming the new standard for clean and efficient transportation across India." However, given the higher royalty value attached to the recreational product, increase in the Bajaj product volumes will only go a limited way to offsetting the reduced volumes in the recreational/marine market.

In summary, as a result of the Global Financial Crisis it has been a challenging year, but I think it fair to say that there is some light at the end of the tunnel. As we look forward, I am more convinced than ever that growth in the alternative fuels market, and the opportunities that this creates in the Engine Management Systems business is the key strategy for our company.

I hope to be able to meet with many of you at our Annual General Meeting, held at 10am on the Wednesday 21st October at the Perth Convention Exhibition Centre. The Board of Directors, Orbital's executive management group and I would welcome you to attend and hope that you are available for discussions over tea and coffee after the AGM. If you are not attending the AGM and have questions related to Orbital's business, please send them to me using our website. I may not answer right away, however do try to respond to all inquires, or direct them for response to the appropriate expert within our organization.

With regards

Terry Stinson
13th October 2009

Orbital Corporation Limited, 4 Whipple Street, Balcatta, Western Australia 6021.
Phone: +618 9441 2311    Fax: +618 9441 2133    Email: info@orbitalcorp.com.au