|
24 August 2005
ORBITAL RESULTS FOR THE YEAR
ENDED
30 JUNE 2005
Perth, Australia: Orbital Corporation
Limited today announced its financial results for the year ended
30 June 2005.
Key Features
Key features of Orbital's performance in the
period were:
- Loss after tax of $1.1 million
- A second half profit after tax of $0.4 million
- Increased R&D expenditure by 110% to
$1.1 million
- Total revenue down 31% from the 2004 financial
year to $11.6 million
- Continuing increase in the profitability
of Synerject, Orbital's joint venture with Siemens-VDO
- Further licensing of Orbital's OCP technology
in niche markets
- Start of production of Kymco's 100cc motor
scooter with OCP in Taiwan
In commenting on the results Orbital's retiring
Chief Executive Officer, Peter Cook, said "The automotive market
has experienced a very difficult 12 month period, which has resulted
in reduced demand from the major OEM's for outsourced powertrain
engineering services. In the period we have increased our focus
and efforts on the market for powertrain engineering services in
new and emerging markets, particularly India and China, both of
which present significant opportunities."
He added that while the overall results were
disappointing, they were in line with Orbital's previous guidance
to the market and the Company had returned to profitability in the
second half. The outlook for F2006 is expected to be better than
F2005, with return to profitability forecast to occur in the second
half.
Mr Cook said that the longer lead times associated
with developing business in the emerging markets had created shortages
in new powertrain engineering service (PES) orders, but positive
signs were emerging, with an encouraging forward pipeline of sales
opportunities."
"We have also continued to make further
reductions in overheads to complement previously implemented measures
and to position Orbital to benefit from the increasing world-wide
need for lower emissions and improved fuel consumption solutions."
"Synerject, our joint venture with Siemens-VDO,
continued its increase in profitability, up 14% in US dollar terms,
on the previous year, notwithstanding appreciable expenditure on
new product development", he added.
FINANCIAL SUMMARY
The headline financial results for Orbital
for the year ended 30 June 2005 are shown below.
| |
Year ended
30 June 2005
|
Year ended
30 June 2004
|
| Revenue ($m) |
11.597
|
16.761
|
| Net profit/(loss) ($m) |
(1.108)
|
3.405
|
| EPS (cents) |
(0.3)
|
0.8
|
Total revenue for the year ended 30 June 2005
fell 31% to $11.6 million, primarily due to the reduced demand for
PES, reduced licence income and a reduction of $0.8 million of non
recurring revenue recorded in the 2004 financial year, including
ACIS credits and proceeds from sale of plant and equipment.
Total engineering and overhead expenses fell
8.3% to $14.4 million due to reduced head count, depreciation and
continued cost reduction programs across all overheads. To keep
OCP at the leading edge of technical innovation, R&D expenditure
was increased by 110% to $1.1 million.
Orbital's share of Synerject's profit rose 8.7% to $2.9 million
for the year, despite the strengthening Australian dollar.
Detailed comments on Orbital's three revenue
streams are as follows:
Powertrain Engineering Services
Orbital's PES business provides professional
powertrain engineering consultancy services to engine manufacturers,
OEMs and their suppliers, and governments in the Asia-Pacific region,
Europe and the USA. The provision of these services is designed
to create a third revenue and profit stream while allowing Orbital
to work closely with its customers on advanced powertrain applications
and developments.
During the year, PES successfully extended
its reputation, quality and cost effectiveness outside its traditional
proprietary technology (OCP) base and has continued to develop key
relationships with major OEMs and suppliers. Over 65% of Orbital's
PES revenue in the 2005 financial year was derived from non-OCP
related engineering services. The full effect of this progress has
not been reflected in revenue due to major cutbacks by the automotive
industry in their outsourced services requirements.
At the same time, further research and development
was undertaken to extend the capability and application of OCP technology
in high performance 2-stroke engines, spark ignited heavy fuel for
both 2-stroke and 4-stroke engines and alternate fuels. This was
complemented by research into the development of the OCP proprietary
injector hardware for direct injection of compressed natural gas
(CNG) powered vehicles, which is attracting significant interest,
particularly in Asia.
Royalties and Licences
Orbital licences its patented direct injection
technology to OEMs and suppliers. Royalties and licence fees are
derived from a wide range of customers in the marine, motorscooter,
personal watercraft and autorickshaw sectors.
Licensing and royalty revenue declined 31%
from the previous financial year to $2.2 million for the year. This
reduction primarily relates to a fall in licensing income which,
in the previous financial year, benefited from payments from India
and Japan. Although licences for niche applications of Orbital's
OCP technology were entered into in the 2005 financial year (with
Goebler-Hirth Motoren KG of Germany in respect of heavy fuel engines,
and with Envirofit International Ltd for retrofitting 2-stroke motor
scooter engines in the Philippines with Orbital's direct injection
technology), no up-front licence fees were due in the 2005 financial
year.
Royalties from the marine sector were strong,
with continuing demand for Mercury Marine's OptiMax™ range,
but a decline in the European scooter market, where industry consolidation
and regulatory change have induced consumer uncertainty, coupled
with the impact of exchange rates, saw an overall slight reduction
in royalty revenue in comparison to the 2004 financial year.
The start of production by Kymco of its 100cc
motor scooter in Taiwan in late June 2005, and the anticipated commencement
of production in India by Bajaj in the second half of the 2006 financial
year of autorickshaws incorporating OCP technology, is expected
to add to Orbital's future royalty revenue stream.
Synerject
Orbital's 50%-owned joint venture with Siemens-VDO
Automotive Corporation, Synerject LLC, operates from facilities
in both USA and Europe, is a supplier and manufacturer of engine
management systems (EMS) and electronic fuel injection systems to
the non-automotive OEMs. Synerject specialises in the design, qualification
and integration of electronic engine management modules and components
for both 2-stroke and 4-stroke engine applications.
The value of Synerject continues to increase
and represents a significant asset for Orbital. The growth prospects
for Synerject are encouraging with the overall market for engine
management systems specific to the non-automotive market continuing
to grow strongly with the global implementation of emissions regulations
in this market.
Synerject, which now has an annual turnover
of almost US$42 million (A$55 million), generates significant cash
flow from its operations, enabling it to reduce debt by a further
US$3.8 million in the 2005 financial year. Neither Synerject's revenue
nor cash flows are consolidated into Orbital's financial statements,
although Orbital's statement of financial performance includes its
50% share of Synerject's profit.
Orbital's share of that profit rose 8.7% to
$2.9 million for the 2005 financial year, despite the stronger Australian
dollar. In US dollar terms, Synerject's profits improved by over
14% from fiscal 2004 to US$3.9 million.
Synerject's performance was due to increased
sales, improved overhead efficiency, product mix and reduced interest
expense.
Outlook
The reduced demand from the major traditional
automotive OEMs for PES during F2005, is expected to continue to
affect the results in the first half of the new financial year.
The global automotive business is undergoing major change as the
full impact of higher Asian manufacturing content is realised, which
will carry over into F2006 and beyond. Recognising these structural
changes, Orbital has focused on developing the market for PES in
India and China and whilst, to date, these markets have not compensated
for the sudden down turn in traditional demand, they are expected
to make a more significant contribution to the business later in
the 2006 financial year.
Despite the PES setback in fiscal 2005, Orbital
intends to continue with its strategy of increasing the revenue
opportunities by focusing on the strengths of Orbital's expertise
and experience in the areas of engine management system development
and powertrain design and development. Our PES sales activity and
R&D support will be further expanded in the Asian region. These
actions are expected to increase the number of opportunities and
reduce the sales to order cycle.
Additionally, Orbital will look to consolidate
the improvements that have been made in re-positioning the business
during the course of the last three years. This includes additional
cost reduction measures, which will be substantially implemented
by the end of the first quarter F2006, with expected annualised
savings of approximately $1.0 million.
With continuing global concerns at the level
of greenhouse gas emissions and the significant increase in oil
prices there is a compelling argument for the accelerated adoption
of technologies which improve the fuel economy and emissions of
the gasoline engine. The outlook for increased investment by the
OEMs in gasoline engine development and technology, a core competence
of Orbital, has been further boosted by recent comments from the
automotive industry that it can no longer rely on expensive diesel
engines (which reduce margins and profitability) as the best way
to meet the overall greenhouse gas emissions and fuel economy requirements.
It is expected that royalty revenue from existing
Orbital licensees will improve in fiscal 2006 in the marine outboard,
motor scooter and autorickshaw markets.
Synerject is expected to continue its significant
contribution to the overall Orbital result. There continues to be
opportunities for further growth, both through acquisition and organically,
in the non-automotive market as the sector moves to more widely
adopt EMS systems. Synerject has made an important strategic investment
in the development of a number of new products, which are already
demonstrating significant customer interest. The new products, backed
up by exclusive access to the Siemens VDO EMS componentry, provide
Synerject with the opportunity to become a major supplier to its
market.
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.
|
