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22nd
February 2006
ORBITAL
RESULTS FOR THE HALF YEAR ENDED 31 DECEMBER 2005
PERTH,
AUSTRALIA:
Orbital Corporation Limited today reports
results for the six months ended 31 December 2005.
In commenting on the results Orbital's Chief
Executive Officer, Dr. Rod Houston said the results were slightly
better than Orbital's guidance to the market.
Key Features
Key features of Orbital's performance in the
period were:
- net loss after tax of $1.4 million compared
to a loss of $1.8 million for the same period last year
- total revenue of $5.1 million in line with
the prior year
- Polaris enters into a licence to manufacture
products utilising Orbital's DI fuel injection technology
- since 1 July Orbital has secured more than
$9 million of engineering contracts (up 25% from the same time
last year), the full impact of which will commence in the second
half of this financial year.
- Synerject purchases electronic components
manufacturing facility in the US, with effect from 1 March 2006.
"Despite disappointing 1st half results
we are pleased that we have made considerable commercial progress
during this period" said Dr Houston "We are confident
about our 2nd half prospects and anticipate a full year profit."
Dr Houston said that the engineering services
order book had increased significantly and it was also pleasing
to note the increased interest in Orbital's DI technology with new
product in the pipeline.
"Synerject's growth strategy is unfolding
with the significant steps being the acquisition of the Delavan
business, which increases their annualised revenue by over 50%,
as well as their continued investment in the development of new
products. We are excited by Synerject's prospects." added Dr
Houston.
FINANCIAL SUMMARY
The headline financial results for Orbital
for the six months ended 31 December 2005 are shown below.
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31
December 2005
|
31
December 2004
|
| Revenue
($m) |
5.1
|
5.1
|
| Net loss after tax ($m) |
(1.4)
|
(1.8)
|
| EPS
(cents) |
(0.3)
|
(0.4)
|
Total revenue for the half year ended 31 December
2005 of $5.1 million is in line with the prior year. This reflects
a reduction of engineering services revenue by $0.3m offset by a
35% increase in royalty and licensing income to $1.2 million.
Total expenses fell by 11% to $7.2 million
with continued savings across most expense categories. The half
year result includes increased finance costs of $306k arising from
the introduction of Australian equivalents to international accounting
standards with effect from 1 July 2005. This requires the write
down of long term borrowings to fair value and an unwinding discount
expense (non cash) being recorded in each accounting period.
Orbital continues to report profits arising
from it's investment in Synerject LLC. Synerject's profit is cyclical
being stronger in the 2nd half as customers build product for the
northern hemisphere summer. Included in Orbital's result is a contribution
from Synerject of $805k which is $131k lower than the prior year
however Synerject's annualised results are expected to improve year
on year and this will be reflected in the 2nd half. Synerject was
cash flow positive during the 1st half year.
Cash outflow from operating activities of $2.0
million for the half year included $0.3 million settlement of employee
entitlements due to the reduction in staff numbers. At 31 December
2005 Orbital had cash of $6.0 million and anticipates positive operating
cash flow in the 2nd half year in line with increased engineering
revenue.
Detailed comments on Orbital's three revenue
streams are as follows:
Engineering Services
Engineering Services' revenue fell 9% to $3.4
million for the half year ended 31 December 2005. This is a result
of the decline in the order bank in the last 12 to 18 months due
to cutbacks by Orbital's traditional automotive customers.
Since 1 July Orbital has however secured more
than $9 million of engineering contracts which represents an increase
of 25% in our order book in comparison to the same period last year.
These include significant long term engineering contracts in both
China and India. While Orbital didn't benefit from revenue recognition
in the 1st half, these programs will provide medium to long term
continuing engineering revenue. Importantly this sales base provides
a good platform and improved confidence to win further engineering
contracts going forward.
In addition we have commenced a number of new
programs for the application of the Orbital DI system on new products.
This is a reflection of the continuing demand for powertrain emissions
solutions and is an endorsement of the continued evolution of Orbital's
technology arising from the investment in continued research and
development.
Royalties and Licences
Licensing and royalty revenue increased by
35% compared to the previous corresponding period to $1.2 million
for the half year. This reflects increased royalties in the marine
sector with Mercury and Tohatsu increasing units sold incorporating
Orbital's DI technology. Polaris recently entered into a licence
agreement which would enable it to manufacture products utilising
Orbital DI, reinforcing the growth prospects of Orbital's royalty
stream.
Bajaj have informed Orbital they are pleased
with progress of the DI autorickshaw program. The production prototype
engines and vehicles have passed all the validation tests for this
stage of the production launch process. Production launch is now
expected in the first quarter of next financial year.
The European scooter market continues to perform
poorly with regulatory change and weakening of emissions requirements
contributing to the reduced take up of scooter products incorporating
Orbital's DI technology. New R&D programs have been initiated
earlier in the year by Orbital and Synerject to re-invigorate our
offerings in this market. These programs are focused on a second
generation DI system with reduced cost and improved performance
in order to retain the potential long term revenue stream from this
sector.
Opportunities have been identified for the
wider application of Orbital DI in several markets including the
recently announced application to spark ignited heavy fuel for both
2-stroke and 4-stroke engines. Importantly one of these programs
represents the first 4-stroke production engine application incorporating
Orbital DI.
Synerject
Synerject, Orbital's 50% owned joint venture
with Siemens-VDO Automotive Corporation, operates from facilities
in both USA and Europe, manufacturing air/fuel injectors, fuel rail
assemblies and related components. Synerject specialises in electronic
fuel systems in the non-automotive market, where it is able to deliver
the low volume, unique specification components required for these
applications.
Synerject has generated revenue growth of approximately
3% in the 1st half year. This has not been reflected in the bottom
line in this reporting period due to product mix changes and Synerject
has increased overheads in anticipation of increased annualised
business. Synerject's growth opportunities are significant, particularly
in Asia, with an anticipated conversion to electronic management
modules for the motorcycle market.
Orbital recently announced Synerject's acquisition
of the Delavan plant from BRP with effect from 1 March 2006. This
plant based in the United States manufactures electronic components
with a turnover which will add over 50% to Synerject's annualised
revenue and provides Synerject with further growth and synergy opportunities.
Outlook
The engineering order book for the 2nd half
year provides confidence that the engineering group will be particularly
productive during this period. Orbital's 2nd half royalty income
will be supported by continuing strength in the DI outboard market.
As noted Synerject typically enjoys a better 2nd half than 1st half
and this will be the case this financial year. Synerject's underlying
core business is expected to grow year on year and in addition Synerject's
acquisition of the Delavan facility will be EPS positive from the
date of acquisition.
Further cost control actions taken early in
this financial year are expected to yield an annualised cost saving
of at least $1.5 million.
Orbital Chairman, Don Bourke, stated "The
Board is extremely pleased with the progress achieved by Dr Houston
and the whole Orbital team since he took over as CEO in October
last year." Orbital anticipates a return to profitability in
the second half and to be able to report a profit for the full year.
This expectation is based on the current order book in the engineering
business and Synerject's expanding manufacturing operations.
Click here
for financials.
Forward Looking Statements
This release includes forward-looking statements that involve risks
and uncertainties. These forward-looking statements are based upon
management's expectations and beliefs concerning future events.
Forward-looking statements are necessarily subject to risks, uncertainties
and other factors, many of which are outside the control of the
Company, that could cause actual results to differ materially from
such statements. Actual results and events may differ significantly
from those projected in the forward-looking statements as a result
of a number of factors including, but not limited to, those detailed
from time to time in the Company's Form 20-F filings with the US
Securities and Exchange Commission. Orbital makes no undertaking
to subsequently update or revise the forward-looking statements
made in this release to reflect events or circumstances after the
date of this release.
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