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28 October 2003
OPEN BRIEFING
CEO's Q1 Update
ccorporatefile.com.au
Orbital Engine Corporation Limited said at
its recent AGM that profit after tax for the first quarter ended
September 2003 was $3.2 million ahead of the previous comparable
period, while underlying trading generated cash of $0.6 million.
Are you in a position to now give firmer earnings guidance for the
current year ending June 2004?
CEO Peter Cook
There are certain non-recurring elements in
the first-quarter results, notably the timing of some licence fees
and the receipt of ACIS credits, which did contribute to the good
start to the year.
For the full year, we'd expect to see a better
performance than last year overall. We expect the year to be profitable
and cash positive. I'm reluctant to be more specific given there
are factors beyond our control, for example the direction of the
Australian dollar, which could have an impact on our earnings.
corporatefile.com.au
Synerject, your 50:50 joint venture with Siemens
VDO Automotive, was restructured in April 2003. In the first quarter,
Orbital's earnings share from the joint venture was $0.4 million,
up 16 percent. How does the Synerject contribution compare with
expectations and to what extent are the benefits of the restructure
being realised?
CEO Peter Cook
Synerject continues to meet its targets and
it's meeting the expectations of both joint venture partners.
corporatefile.com.au
Following the restructure, Synerject now controls
the system sales business and Orbital has three income streams -
royalties, licence fees and fee-for-service income from engineering
services. What's been the trend in these three areas during the
first quarter and what are your expectations for the full year?
CEO Peter Cook
It's worthwhile clarifying what we regard as
our three business sectors. One is Synerject, which we've just discussed.
The second is royalties and licences, which we link together because
they relate to income from our intellectual property. And the third
is our engineering service activities. I'm pleased to report that
royalties and licences are slightly ahead of the same period last
year and that engineering services are comfortably ahead of the
same period last year.
We expect some growth in our royalty and licence
income this year. It'll be positive but modest. We expect to continue
to improve our volumes and market share in existing makes and models
as well as planned new model launches. However, that has to be taken
in the context of a flat scooter market, particularly in Europe,
which is our major market, and a declining personal watercraft (PWC)
market.
Also, we've advised the market we're targeting
20 percent growth in our engineering revenue this year. In our current
environment, these are both fairly aggressive targets.
corporatefile.com.au
Orbital raised a total of $6.2 million via
a share placement and the offer of a share purchase plan to existing
shareholders. Is the improved financial position enabling you to
win more or better quality development projects?
CEO Peter Cook
One of the reasons we targeted 20 percent growth
in the engineering services area was because of our strengthened
balance sheet. It's just one of the components we needed to put
in place to achieve that level of growth, and it's contributing.
corporatefile.com.au
Orbital's overhead expenses fell nearly $6
million to $19.5 million in 2003, implying average monthly overhead
expenses of $1.6 million. What's been the overhead run rate during
the first quarter and what's the expected trend over the remainder
of the year?
CEO Peter Cook
Our first quarter run rate is on target and
we see very few difficulties with our overheads for the remainder
of the year.
As we've said, we expect the annualised impact
of last year's overhead expense reductions to be picked up fully
in 2004. There'll be some further reductions based on initiatives
we'll take this year, but they'll be modest in comparison.
corporatefile.com.au
Kwang Yang Motor Co. Ltd. (Kymco), one of Taiwan's
biggest motorcycle manufacturers, recently announced it planned
to use Orbital Combustion Process (OCP) technology in models scheduled
for release next year. What will this mean for Orbital in terms
of earnings?
CEO Peter Cook
I always hesitate to predict the success of
an individual make or model, however there are certainly positive
aspects for us. One is that Kymco plans to launch a larger 100 cc
capacity scooter in Europe, which would be an innovation in that
marketplace. Another plus is that Kymco will be our first Asian
scooter manufacturer, so our product will now have some presence
in the Asian markets.
corporatefile.com.au
Why did Kymco adopt OCP technology and what
opportunities are there for OCP to be used by other Taiwanese motorcycle
makers?
CEO Peter Cook
Kymco saw the merits of our technology a number
of years ago in terms of the improved emissions, the improved fuel
economy and the easy start it offers on scooters. But it'd be wrong
to deny the impact Taiwanese emissions legislation has had in the
overall process. And the success the European manufacturers have
had with our technology would also have played a part given the
export markets are a significant portion of Taiwanese producers'
total build.
We've also had a long history with Sanyang,
the other significant Taiwanese scooter maker and even though it's
chosen to compete with Kymco's models using alternative technology,
both Orbital and Synerject have made a major contribution to the
development of those models.
corporatefile.com.au
You also recently announced that the New York
Stock Exchange has confirmed it no longer considers Orbital below
the US$1 listing criterion, but will continue to monitor the company
for another seven months. What's the broad purpose of the NYSE's
continued monitoring of the company and what happens after seven
months?
CEO Peter Cook
The NYSE's on-going listing requirements are
multi-factorial, only one of which is the share price. It's only
in relation to the share price that the exchange has advised we're
now in conformity. On two of the other factors, shareholders' equity
and market capitalisation, we've improved but are not yet fully
in conformity with its stated requirements. So the exchange will
continue to monitor our progress at regular intervals through to
April 2004. At that time it will consider our overall progress,
which has been positive up until now.
corporatefile.com.au
Thank you Peter.
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