Orbital Financial and Synerject Investment
Outlook
PERTH, Australia, May 18 Orbital Engine Corporation today announced the results of a
preliminary financial and operational review for the financial year ending
30 June 2001. It has also announced major positive developments concerning
its 50%-owned joint venture company Synerject.
* Orbital is forecasting a loss for the second half of the financial year
of between A$8 million and A$14 million. This is a small improvement
on the first half loss of A$16.2 million.
* Total revenue for the financial year is forecast to be higher than the
previous corresponding period, driven by rapid growth in system sales
and royalties. Licence fee income, which historically has been a large
part of total revenue and directly impacts on the bottom-line
performance, is not expected to make a significant contribution to this
forecast.
* The Company has begun implementation of a cost reduction program with
A$4 million of savings identified. In addition Synerject, with
rationalisations, lower product costs and increased sales volume, will
move into a break-even position next financial year while also
delivering an improved result in the second half of this year.
* Orbital remains in a strong cash position, with A$31.5 million cash at
bank on 1 May 2001. It currently does not see a need to consider a
capital raising or the establishment of debt facilities.
* Siemens Automotive, Orbital's 50:50 joint venture partner in Synerject,
after earlier this year expressing the desire to divest its entire
holding has decided to remain as a substantial shareholder of
Synerject. Siemens has indicated it may reduce its shareholding to a
position of holding up to 20%.
* Orbital is considering reducing its 50% shareholding in Synerject to
accommodate customers and suppliers who wish to acquire a substantial
shareholding.
Orbital CEO Kim Schlunke said that despite the forecast result, the
Company had achieved substantial advances in many areas of its business.
"Many new Orbital-equipped products will be launched next year, producing
a further growth in revenue. Combined with the benefits of our cost-cutting
program, we expect a greatly improved bottom-line result.
"In the automotive sector, we have made significant progress in
negotiations with automotive manufacturers and suppliers. This progress would
not have been possible if we had not continued to invest in technology
incorporated into test vehicle demonstrators that showcase our unique ability
to improve both fuel consumption and emissions standards.
"We are also pleased that Siemens will remain a substantial shareholder in
Synerject. This is a clear vote of confidence by an industry leader in
Orbital's direct injection technology and demonstrates the value they see in
the Synerject business."
Details of these announcements follow:
2nd Half Outlook
Orbital continues to be engaged in negotiations in both the automotive and
non-automotive sectors relating to new licence agreements, new product
launches and other matters. The intrinsic nature of these negotiations makes
it difficult to predict precisely when they will be completed. Given these
timing issues, the Board now expects a second-half loss of between $8 million
and $14 million, following the first-half loss of $16.2 million.
System sales revenue from the Marine and Recreation sector is expected to
double compared to the 1999-2000 financial year. With 11 Orbital-equipped
products now in the marketplace and more to follow next financial year,
Orbital looks forward to continued growth from this division.
Royalty revenue is also expected to double, albeit from a low base, and to
continue to grow over the foreseeable future. This reflects the increased
sales of Orbital-equipped products by existing licensees in the Motorcycle and
Marine and Recreation markets and the prospect of more Orbital-equipped
products being released by new licensees such as Tohatsu. The success of
Aprilia's acclaimed DITECH scooters, launched in May 2000, demonstrate how
customer acceptance will boost Orbital's market penetration. For example,
Aprilia is planning to launch later this year the Orbital equipped Scarabeo
air-cooled 50cc scooter to meet Euro II emissions standards.
Engineering revenue is derived from customers engaging Orbital to adapt
its technology to their engines. Total engineering revenue is expected to be
down from last year, reflecting the completion of several major automotive
programs which are now being assessed and the maturing of the Marine and
Recreation business where engineering activity has declined following the
release of multiple products. Orbital expects total engineering revenue to
increase next financial year as automotive and motorcycle customers increase
their activity in order to achieve emission standards and fuel economy
improvements.
Orbital has continued to invest in Synerject, as planned, to support
continued growth in customer demand and promote improved efficiencies in
Synerject's injector production facilities. Importantly, Orbital's share of
Synerject's net loss in the second half of the financial year is expected to
show an improvement from the first half result demonstrating Synerject's
success in cutting expenses and increasing revenue. All aspects of
Synerject's business are continually being addressed to improve financial
performance. These include overhead reductions, component cost reduction,
increased sales volumes and selling prices. We expect that Synerject will
move into a break-even position next year.
Excluding non-cash expenses, Orbital expects overheads to be in line with
last financial year. Orbital's ongoing cost base will be reduced by
approximately A$4 million per annum as a result of the cost reduction program
which includes actions such as staff reductions at the Balcatta development
facilities. All anticipated costs of implementing the staff reductions are
included in our expected trading result.
Orbital remains in a strong working capital position, with A$31.5 million
cash at bank on 1 May 2001. This compares to cash of A$34.5 million at
31 December 2000. The reduced cash spend is a reflection of increased focus
on minimising cash expenses and the improved working capital management of the
organisation.
Synerject Investment Update
Negotiations currently underway are expected to result in several
customers and suppliers joining Siemens and Orbital as shareholders in
Synerject. Siemens announced earlier this year that it had begun to explore a
possible sale of its 50% shareholding. It now has expressed the intention to
remain a substantial shareholder with a holding of up to 20%.
Commenting on the ownership developments, Mr Schlunke said:
"Current and potential customers of Synerject are keen to invest in the
business because they can see Synerject's growth potential, based on the
strategic importance of emissions controls. Likewise, suppliers in the
automotive and non-automotive sectors see a strong future for Synerject and
want to participate.
"Siemens decision demonstrates the value they see in Synerject's outlook
and is a vote of confidence in Orbital's direct injection technology. It also
enables Siemens to support its automotive customers with Orbital products in a
low volume environment."
Mr. Schlunke said Orbital may reduce its 50% shareholding in Synerject to
accommodate new investors who want to acquire a substantial shareholding.
Orbital is aiming for final resolution of this matter in the first half of
next financial year.
Orbital is a leading international developer of engine technologies using
direct in-cylinder fuel injection and lean-burn systems for enhanced fuel
economy and lower emissions. The company serves the worldwide automotive,
marine, recreational and motorcycle markets. Headquartered in Perth, Western
Australia, Orbital stock is traded on the Australian Stock Exchange (OEC), the
New York Stock Exchange (OE) as well as the Berlin (ORE) and Frankfurt (OREA)
Exchanges.
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