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 Terry Stinson,
CEO and Managing Director, Orbital.
Welcome to
Orbital's website, and to the latest instalment of our company newsletter
which I hope you find both informative and interesting.
Since my last
newsletter in October 2009, Orbital has continued to move along
the strategic growth path outlined at the AGM last year.
Our focus is on business creation in the Alternative
Fuels space while continuing to support initiatives to grow our
FlexDI business. The trading environment for all of our existing
business streams continues to be challenging. The Global Financial
Crisis (GFC) has impacted our businesses, and while we are starting
to see potential improvements in some of our business sectors, others
remain subdued.
I was very pleased to recently announce our
LNG Engine Management System development program with Mitchells.
This program fits well with our initiatives, enabling us to use
our expertise to improve the commercial benefits of alternative
fuels to the transport industry. The progam's objective is to significantly
improve the natural gas substitution rate on the existing Mitchell's
LNG fleet. Please refer to the following link for further information:
Click here
for link.
Orbital's Intellectual Property and Synerject
revenues are derived primarily from non-auto applications. The non-auto
markets were hit hard by the GFC. For example, the marine market
dropped 50% during the worst part of the Crisis.
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The good news is that we are seeing a
number of trends that indicate our key non-automotive markets
have bottomed out and are slowly starting to improve. Recreational
product sales in the USA appear to have turned the corner,
albeit with a long way to go to return to pre GFC levels.
The link below indicates the recreational boating market trends
in the USA. Click here
for link.
Our Orbital Autogas business is also
showing signs of beginning to recover. The recent announcements
by VFACTS on the Australian automotive market show sales of
937,328 units in 2009. Click here
for link. Whilst this is a 7% reduction compared to 2008,
it is a commendable figure in comparison to many other countries,
particularly given the global economic environment.
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Although the LPG automotive market
in Australia has been severely affected by the financial crisis
and the very low oil price, continuing increases in the cost
of crude oil have the potential to improve this market. To
drive significant changes in our market, I estimate that the
average price will need to be closer to US$90 to $100 a barrel.
As seen here, the crude oil price is maintaining a steady
increase.
As you might expect, the GFC also had
a negative impact on Orbital's Consulting Services business
(OCS). While most countries Orbital services are now officially
out of recession, the impact of the GFC can still be felt
in our consulting business.
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Our traditional and target customers held back
on external research and development contracts in preference to
doing the work in-house or not at all. The stagnation in the engineering
services market continues.
On the plus side, our specialised systems development
work, for customers such as Changan, heavy fuel engine manufacturers
and LNG users has maintained a priority call for our engineering
services.
I would now like to review the key activities
of our business development, and our business sectors.
Business Development:
Since October we have concentrated on building
on the initiatives discussed in my previous newsletter, both in
our business development and in our existing business sectors.
We are actively working on our ethanol business
development initiatives in Brazil with Sygma Tech, Sygma Motors
and Vale Energy Solutions (VSE). Mr Simon Brewster, Chief R&D
Engineer, has returned to Brazil after the Christmas and New Year
break to support our South American activities.
Opportunities for growth in alternative fuels
are emerging in Asia/India. We have dialogues underway with potential
business partners in the alternative fuel and engine management
systems market.
As a key part of these discussions, we have
hosted high level meetings here in Perth in the first quarter of
this calendar year. This has enabled our potential business partners
to see our capability first hand, meet our people, and understand
the Orbital "energy" that we can bring to a partnership.
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Photo: Kit development at Orbital's Balcatta
Western Australia facility
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Orbital Autogas Systems (OAGS) continues
to concentrate on supporting the Ford program and on developing
Liquid LPG ("LLi") kits for the aftermarket. These
kits are suitable for fleet/dealer fitment to new cars as
well as for existing vehicle conversions.
By the end of June, we expect to have
aftermarket kits available for around 25 popular car models,
including light commercial vehicle applications.
As the cars are converted, I also test
drive them to get a feel for the product and to provide feedback
to the technical team. The product is truly seamless, no longer
is there a performance compromise to enjoy the benefits of
the much reduced fuel operating costs. Studies we have undertaken
indicate the LPG conversion increases the residual value of
the car, another compelling reason for converting to the LPG
systems.
With the aftermarket, we are focusing
on key government, private and trade fleets and believe we
have entered this market at the right time. As petrol prices
increase and new emissions legislation rolls out in Australia,
Orbital will be ready with the products and infrastructure
to support a new growth cycle in the LPG market.
While the Ford OEM business continues
to provide a solid foundation of base business to support
our LPG initiative, Orbital Autogas revenues are below our
projections for the first half of this year. This is primarily
due to the current low cost of petrol. The retrofit market
in general has been impacted by this and sales are off compared
to 2008 by about 50%. We have adjusted our costs and plans
in the aftermarket business to allow for this.
As Ford moves closer to releasing the
LLi E-Gas vehicles, and we gain maturity and the number of
vehicle model kits available for the aftermarket applications,
OAGS will take on a more prominent and proactive marketing
program. Tony Fitzgerald (Managing Director, OAGS) and Phil
Westlake (OAGS's Business Development Manager) supported Orbital's
participation in the March ALPGA (Australia LPG Association)
demonstration.
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The "LPG Exceptional Energy Event" was held in
Canberra as a showcase for the Australian Government and interested
parties. Our converted vehicles, a Ford XR6 sedan and a HSV
V8 Commodore received plenty of hard driving and both impressed
the drivers. For feedback on this demonstration, please click
here.
Photo: the Orbital Autogas Systems LLi
Ford Falcon
doing its paces
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Following on from the Canberra Energy
Event, Phil will be representing OAGS at a number of local
events in May including the Sydney NRMA BusinessWise Industry
Drive Day and the LPG Exceptional Energy - Regional Industry
Trade Show being held in Toowoomba.
Photo: Phil Westlake, OAGS's
Business Development Manager
at the Exceptional Energy Event
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Synerject, our partnership with Continental AG, has maintained
profitability, and is expanding operations in the key market
of Taiwan, where stringent in-field emission requirements
are driving all motorcycle and scooter manufacturers to adopt
fuel injection and Engine Management Systems (EMS).
Synerject has performed well in a difficult
market, and has increased its sales year-on-year. Declines
in the US and European markets are offset by growing sales
in Asia and the introduction of products in the high-end motorcycle
and recreation markets. Synerject generated around US$7.7
million cash in the first half of this financial year, and
is well positioned for growth as its markets recover.
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Synerject
locations in Taiwan.
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Orbital's Consulting Services business
(OCS) continues to support a range of customer programs including
some key projects in China and South America. OCS also provides
engineering support for OAGS OEM and aftermarket development
programs. |
Winning new engineering consultancy work has
been a challenge. The Japanese, European and North American markets
continue to recover, however the investment in external R&D
is limited. To offset the slowdown in our more traditional markets
we continue to focus on new business in Brazil, India and China.
As part of increasing our domestic presence, we have formed the
"Orbital Resource Group" specifically to support the resources
industry in both Western Australia and nationwide.
Whilst our order book for consulting services
is lower than at this time last year, fee earning activity is high,
indicating a shorter time period for Lead-Quote-Program Acceptance.
As part of our marketing campaign, we are targeting and winning
more short turnaround work in our own Australian domestic market.
The Mitchell's program, as discussed earlier in this Newsletter,
is a result of these marketing endeavours.
Our new Heavy Duty Test Facility, capable of
certifying engines up to 600 kW, is now certified and generating
revenues. The order book for this facility is filling up and we
have internal R&D projects in the LNG field lined up to fill
the gaps.
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Our work with
Lotus, on the Omnivore engine concept, has continued to break
new barriers in advanced combustion. For status reports, please
click here |
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Our FlexDI program with Changan is on
schedule, and progressing. We received a Green Car Innovation
Fund (GCIF) grant to assist in the research and development
required to support this program. We were honoured by a visit
from Senator Kim Carr, Federal Minister for Innovation, Industry,
Science and Research to view the program and to understand
the developments being carried out by Orbital under the Government
grant. The grant enables us to do additional research to support
both the final result, and the timely completion of this very
important program. Please click here
for additional information:
Photo:
Dave Worth, OCS Director Sales and Marketing showing the technology
used on the Changan Program to Senator Carr.
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Photo: Tony Fitzgerald being thanked by Lyn Johnsen,
CFO of Synerject, for his contributions to Synerject
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We have made key changes to our executive
team to support the company's strategic goals. Mr Dave Worth
now leads our OCS Sales and Marketing team. Mr Tony Fitzgerald,
Managing Director of our OAGS business, has handed over his
Synerject director's role to Dr Geoff Cathcart to enable Tony
to concentrate on the LPG business. We, along with Synerject,
thank Tony for his contribution to Synerject over the past five
years.
As part of our commitment to the LPG
industry, Tony has now joined the ALGPA (Australian LPG Autogas)
Board of Directors. For information on the activities of ALGPA,
please click here
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As we now have facilities in both Perth
(Orbital Australia) and in Sydney (Orbital Autogas), we alternate
our Board meetings from the west to the east coast. This enables
the Directors to see what is happening directly and engage
in discussions with the executive teams at both facilities.
This highlights that Orbital is an Australia-wide company,
not just the Perth based Engineering and R&D centre.
Photo: The Orbital Board of Directors outside
Orbital Autogas facilities in Sydney
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As part of our participation in the Automotive
Industry Innovation Council, Orbital was one of 25 companies
selected to be profiled on the Industry Innovation Council's
website. The profiles are being used to promote Australian
innovation to the global markets.
Orbital's profile can be viewed in pdf
and video format, and can be accessed via clicking here
In May this year, Dr Geoff Cathcart (Director
Engineering) and I will be joining the Department of Innovation,
Industry & Regional Development's auto mission to China.
The mission will include a hosted VIP reception at the Australian
Pavilion at the Shanghai
World Expo as well as visits to a range of local automotive
companies.
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We remain very active in the Innovation Industry
Council's work and their "Vision 2020". We see this being
very important in determining the technical direction Australia
heads in, in both the near term and in the future. Today, more than
ever, transport technology is being challenged at an ever increasing
rate to come up with necessary solutions to combat challenges such
as crude oil availability and pricing, CO2 emissions, global warming
and noxious emissions. Commercial considerations such as the relatively
small size of the Australian automotive market and of the globalisation
trends of large auto manufacturers have to be considered. Where
and how the Australian auto business goes forward are the very key
questions on the future of this industry.
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To better prepare Orbital for growth,
we have restructured our loan from the Western Australian
Government. Under the agreed restructure, the original 1989
loan of $19 million has been terminated and replaced by a
new loan of $14.35 million (being the net present value of
the old loan at 30 June 2009) with interest free repayments
of $0.2 million in 2010 increasing up to a maximum of $2.1
million per annum in 2023. For further information, please
click here
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In February Orbital announced the first half
of the financial year results. A net loss of $2.6 million was in
line with the first half of the previous financial year, and in
line with forecasts. For more detailed information on the half yearly
results, and discussion with Open Briefing, please refer to the
following links: Click here
and here
respectively.
In late March, we applied for the listing of
our American Depositary Receipts (ADRs) on the NYSE AMEX. To meet
the share price requirements of the NYSE AMEX, Orbital has implemented
a reverse split to change the ratio of ADRs to ordinary shares from
1:40 to 1:160. The application is currently underway with the plan
that Orbital will move from its current trading platform on the
OTC Bulletin Board. The aim is to give Orbital a much higher trading
profile in the USA and to provide greater liquidity to our current
and future shareholders in this important market. For further information,
please refer click here
As we move forward, we need to respond carefully
to the improving market conditions. Consulting services and recreational
products, in particular, will take a long time to fully recover
given that these markets are effectively reliant upon discretionary
income at both the big company and individual levels. The improving
market conditions opens up potential business opportunities for
us in line with our growth strategies.
We have put strategic initiatives in place
over the past year and new initiatives are being prepared. I look
forward to updating you further on our progress later in the year.
With regards
Terry Stinson
10th May 2010
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