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25 August 2006
OPEN BRIEFING
CEO and CFO on FY06 Results
corporatefile.com.au
Orbital Corporation
Limited yesterday reported net profit of $0.5 million for the year
ended June 2006, up from a net loss of $1.7 million in the previous
year. In the second half, Orbital booked net profit of $1.9 million
compared with a loss of $1.4 million in the first half. What were
the main drivers of the recovery in the second half and are they
sustainable?
CFO Keith Halliwell
The second-half recovery
was the result of increased engineering services revenue and a particularly
good contribution from Synerject, our 50:50 joint venture with Siemens
VDO.
We expect engineering
activity to continue at current levels and Synerject typically has
a strong second half supplying product for the northern hemisphere
summer. Synerject will now go into its quiet season, however its
long-term prospects are good.
corporatefile.com.au
What's the outlook
for earnings in the current year ending June 2007?
CEO Rod Houston
We anticipate we'll
achieve earnings growth off the back of strong engineering revenue
growth. At this stage it's too early in the year to provide detailed
guidance.
corporatefile.com.au
Total expenses fell
$1.0 million to $15.3 million in the 2006 financial year. Can you
achieve your growth ambitions for the company without significantly
increasing the expense base going forward?
CEO Rod Houston
We have the infrastructure
in place to support a significant increase in engineering revenue
growth. Any increase in costs will inevitably be aligned with our
revenue growth.
corporatefile.com.au
Synerject contributed
after-tax earnings of $4.1 million to the result, up from $2.9 million
in the previous year. What was the contribution to Synerject's earnings
of the Delavan engine management modules facility it acquired from
Bombardier Recreational Products in March, and how is the facility
performing versus your initial expectations?
CFO Keith Halliwell
The Delavan facility
contributed a small proportion of Synerject's earnings in the four
months since acquisition. This was in line with expectations. We
anticipate an improvement in Delavan's margins in the next 12 months
as cost reductions and efficiencies are put in place as planned.
corporatefile.com.au
What conditions is
Synerject experiencing in its traditional markets in the US and
Europe and to what extent will future growth depend on new markets
like China and India?
CEO Rod Houston
The European direct
injection (DI) scooter market continues to struggle. However, the
port injection market in Europe and the DI market in the US are
quite buoyant. We'd also expect the Delavan facility to provide
growth in the US in 2007.
China and India provide
significant growth opportunities for the long term as they switch
to engine management systems required under future emissions legislation.
corporatefile.com.au
Orbital's Powertrain
Engineering Services (PES) business booked pre-tax profit of $0.4
million on revenue of $8.6 million, up from a loss of $0.1 million
on revenue of $8.3 million. The second half saw an increase in revenue
to $5.3 million, up from $3.4 million in the first half. Can you
comment on PES's current order book and the sustainability of revenue
levels?
CEO Rod Houston
As at the end of
June 2006 the order book was more than $8 million and this gives
us more certainty for our revenue levels. We must also continue
to be attentive to our markets to ensure we maintain this strong
order book.
corporatefile.com.au
In recent periods,
PES has focused on broadening its customer base in China and India.
What has been your progress in these markets and how do they compare
with your traditional markets?
CEO Rod Houston
We've seen a significant
increase in revenue generated from these emerging
markets over the last year. In general, the types of services and
products the Chinese and Indian markets require are quite similar
to our other markets, and we see opportunities for our technology
and our engineering services as well as products from Synerject.
Like our traditional markets, one of the key drivers of these emerging
markets is the tightening of emissions regulations.
corporatefile.com.au
Orbital's Royalty
and Licence revenue increased to $2.4 million from $2.2 million.
In the current first half you expect
Bajaj to launch production of its autorickshaw carrying Orbital
direct injection technology. What's the expected impact of the Bajaj
launch on your Royalty and Licence income in the current year?
CEO Rod Houston
Initial volumes will
be low however, if the launch goes to plan we'll see a
significant step up in royalties.
corporatefile.com.au
Orbital had net cash
outflow from operations of $1.9 million for the year, with a positive
result of $0.2 million in the second half slightly offsetting the
first half's outflow of $2.0 million. Is the second half's positive
cash flow sustainable? What's the
outlook for operating cash flow over the coming year?
CFO Keith Halliwell
The improved operating
cash flow in the second half was driven by the increased engineering
services revenue. The strong order book at the beginning of June
will give us a good start to the year, and we anticipate continuing
growth in engineering services. We'd therefore expect the improvement
in operating cash flow to align with our revenue growth.
corporatefile.com.au
You made a $2.7 million
equity investment in Synerject during 2006. Reflecting this and
the cash outflow from operations, cash on hand fell to $3.3 million
at the end of June, down from $8.0 million a year earlier. Is this
an adequate cash buffer to sustain operations?
CFO Keith Halliwell
The Synerject equity
investment was our biggest cash requirement in the 2006 financial
year. Synerject now has sufficient cash and loan facilities to meet
its growth opportunities so we don't anticipate further calls for
equity this year. On that basis, we believe our cash levels are
appropriate assuming normal operating requirements.
corporatefile.com.au
With oil prices close
to record highs and consumers beginning to switch to more fuel efficient
vehicles, can you comment on the outlook for Orbital's technology
in the automotive market? How is your technology positioned versus
competing technologies in the market?
CEO Rod Houston
We see the rise in
oil prices having a generally positive influence on our business;
our technology is well positioned to deliver improved fuel efficiency
and reduced oil dependence in various parts of the market. We're
also seeing the emergence of alternative fuel and gaseous fuel markets
in response to the increased oil price and this also opens up a
number of new opportunities for our technology and services.
Over recent years
we've developed new products that can handle alternative fuels and
gaseous fuels as well as expertise that can assist in the application
and commercialisation of other systems for both the Australian and
Asian markets.
corporatefile.com.au
Thank you Rod and
Keith.
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