Orbital Annual Result
Orbital Annual Result
PERTH, Australia, Aug. 23 Orbital Engine Corporation today announced its financial and
operational results for the year ended 30 June 2001.
Key features of our financial year include:
-- an operating loss after tax of A$26.8 million, in line with the
forecast released by the Company on 18 May 2001;
-- an improved operating result in the second half, once again as forecast
by the Company;
-- sharply reduced net cash outflow down from $19.1 million in the first
half to $2.9 million in the second half;
-- the launch of six new Orbital-equipped products in the motorcycle and
marine & recreation markets. This lifts to 15 the total number of
Orbital-equipped products in the market; and
-- an 18.5% increase in revenue to A$59.3 million.
Orbital CEO Kim Schlunke said, "It is disappointing that anticipated
commercial progress was not completed in line with expected timeframes and
this is reflected in a financial result which is not acceptable to the
Company. This has resulted in the review and restructure of our business as
explained in this release."
Financial Results
The operating loss after tax of A$26.8 million compared with a loss of
A$9.9 million in the previous financial year. The full-year result comprised
a first-half loss of A$16.2 million and a smaller second-half loss of
A$10.6 million. These results are in line with the forecast released by the
Company on 18 May 2001.
The increased use of Orbital technology in motorcycles and marine and
recreation products led to an 18.5% increase in total revenue to
A$59.3 million.
-- System sales revenue, which encompasses sales of integrated fuel
systems and components, more than doubled to A$37.9 million.
-- Royalty income also more than doubled, to A$3.5 million.
-- These increases were partly offset by a small drop in engineering
services income and sharply lower licence income, reflecting the
irregular timing of licence payments.
The cost of system sales increased to A$35.4 million, reflecting the rapid
growth in production volumes. Importantly the margin on system sales has
improved to 6.8% from 1.1%.
Total overhead expenses (including depreciation and amortisation) fell by
1.7% to A$40.8 million and the Company anticipates a further reduction in the
current financial year as the benefits of a cost-cutting program flow through.
Most of the cost-cutting initiatives were implemented late in the financial
year. Therefore Orbital's overhead expenses include approximately
A$1.9 million of restructuring costs (primarily redundancy payments) but do
not reflect the benefits of the cost-cutting program.
AUS GAAP AUS GAAP
JUNE 2001 JUNE 2000
A$000's A$000's
Revenue
Licence income 1,398 12,205
Royalties 3,537 1,542
System sales 37,939 17,537
Engineering 14,736 16,097
57,610 47,381
Other Revenue
Proceeds on sale of fixed assets 939 626
Marketing and development income -- 1,840
Other 764 207
1,703 2,673
Total Revenue (Excluding Interest) 59,313 50,054
Cost of System sales (35,352) (17,342)
Gross Contribution 23,961 32,712
Overhead Expenses (35,407) (36,305)
Earnings before interest, tax,
depreciation, amortisation & Synerject (11,446) (3,593)
Depreciation & Amortisation (3,038) (3,022)
Prepaid Marketing Expense (2,319) (1,836)
Share of Synerject Net Loss (12,834) (5,335)
Net Interest Income 2,269 904
Operating profit (loss) before tax (27,368) (12,882)
Income tax credit 807 2,998
Operating profit (loss) after tax (26,561) (9,884)
Outside equity interest (276) (45)
Operating profit (loss) after tax
attributable to members (26,837) (9,929)
The following table summarises the 2001 financial year results under
United States Generally Accepted Accounting Principles (US GAAP).
US GAAP US GAAP
JUNE 2001 JUNE 2000
US$000's US$000's
Revenue
Licence income 713 3,134
Royalties 1,804 921
System sales 19,349 10,471
Engineering 6,074 7,941
27,939 22,467
Other Revenue
Proceeds on sale of fixed assets 479 374
Marketing and development income -- 1,099
Other 390 124
869 1,596
Total Revenue (Excluding Interest) 28,808 24,063
Cost of System sales (18,030) (10,355)
Gross Contribution 10,778 13,708
Overhead Expenses (16,616) (20,007)
Earnings before interest, tax,
depreciation, amortisation & Synerject (5,838) (6,299)
Depreciation & Amortisation (1,549) (1,804)
Share of Synerject Net Loss (6,545) (3,186)
Stock Compensation (298) (2,285)
Net Interest Income 1,157 540
Operating profit (loss) before tax (13,073) (13,034)
Income tax credit/(expense) (128) 1,159
Operating profit (loss) after tax (13,201) (11,875)
Outside equity interest (141) (27)
Operating profit (loss) after tax
attributable to members (13,342) (11,902)
Orbital's share of Synerject's net loss was A$12.8 million compared with
A$5.3 million previously. Synerject, owned 50:50 by Orbital and Siemens
Automotive, completed an extensive operational restructure during the year.
However, as with Orbital, the restructuring took effect late in the financial
year and the benefits are not reflected in the reported results.
Orbital sharply reduced its net cash outflow in the second half of the
financial year. This placed the Company in a strong cash position at 30 June
with cash at bank of A$32.7 million.
The net cash outflow in the second half of the year was A$2.9 million
compared with A$19.1 million in the first half. This improvement mainly
reflects better working capital management and one-off debt and equity
payments to Synerject in the first half that were not repeated in the second
half.
In addition, the Company received A$2.4 million in the second half in
respect of a trade debt of US company Outboard Marine Corporation. Orbital
had created a provision for this amount in its first half accounts, after OMC
filed for protection under Chapter 11 of the US Bankruptcy Code.
Commenting on the Company's performance and future outlook, Orbital CEO
Kim Schlunke said:
"A highlight of the year was the exceptional performance and maturity
achieved by Orbital Combustion Process (OCP) technology in automotive
applications. Orbital's strategic investment in a new level of capability has
made Orbital extremely well placed to benefit from the global trend towards
direct injection technology in the automotive industry.
"Another major feature of the year was the positive response from
consumers, dealers and trade press to the Orbital-equipped products in the
motorcycle and marine and recreation markets. Production and sales volumes
were significantly higher than planned and this placed unexpected pressure on
Synerject, Orbital's component manufacturing joint venture with Siemens
Automotive.
"The financial result was disappointing and Orbital has already taken
decisive action to achieve a substantial and sustainable financial performance
that fully exploits the excellent technical capability and market response
that has been achieved. This action includes a program to reduce costs,
re-skill and restructure at both Orbital and Synerject.
"We anticipate improved results in the current financial year, for both
Synerject and Orbital, as the restructuring benefits and higher sales volumes
flow through."
REVIEW OF OPERATIONS
Automotive Four-Stroke
Gasoline direct injection is gaining increased acceptance as one of the
new technologies for the global automotive industry. The major auto companies
are under increased pressure to produce more efficient engines, and the OCP
direct injection fuel system provides a proven, cost effective solution on
both sides of the Atlantic.
Against this backdrop, OCP technology passed new milestones during the
year. In a joint development program with a major car company, a test vehicle
achieved California's stringent ULEV II emissions standard in combination with
a 12% fuel economy improvement. Separately, an Orbital test vehicle achieved a
20% improvement in fuel efficiency over the European test cycle while still
meeting EURO 4 emission requirements.
These results put OCP technology well ahead of alternative direct
injection systems and helped Orbital achieve substantial progress in
commercial negotiations. An Orbital licensee, Saab, displayed an engine
incorporating OCP technology at the 2000 Paris Motor Show. Orbital recognises
the importance of pressing home its competitive advantage by securing
production commitments from major auto makers.
Motorcycles
Orbital-equipped scooters are well placed to achieve strong penetration in
both Europe and Asia. The key driver is strict emissions regulations, which
are already in place in Europe and are being developed in key Asian markets.
In Europe, Aprilia enjoyed great success with its SR 50 DITECH(TM)
scooter, launched in May 2000. Reviews have been consistently positive and
consumer demand has been far higher than expected. Aprilia has signalled its
faith in the DITECH(TM) system by applying it to an air-cooled 50cc Scarabeo
scooter, released this year. This is a major strategic development since
air-cooled models account for the majority of 50cc scooter sales.
A second licensee, China Hainan Sundiro Motorcycle Co Ltd, launched its
50cc HI-JETER(TM) scooter in China, while Peugeot Motorcycles unveiled its
TSDI (2-stroke direct injection) 50cc engine in Europe.
Marine and Recreation
Orbital's three licensees in the marine and recreation sector enjoyed
success with their Orbital-equipped products. As well as winning a number of
industry awards, Orbital-equipped products won the support of consumers and
environmentalists. This reinforced the status of the OCP direct injection
system as the technology of choice in 2-stroke engines.
Mercury Marine enjoyed a substantial sales boost, aided by the bankruptcy
of its main competitor Outboard Marine Corporation (OMC). Mercury Marine's
increased market share shielded it from the effects of the US economic
slowdown, which adversely affected growth in marine sales.
Bombardier released two sports boats, in addition to the two Sea-Doo
personal watercraft launched previously. An Orbital-equipped Sea-Doo again
won PWC of the year. Tohatsu also experienced a good response and launched a
second TLDI outboard engine model.
Automotive Two-Stroke
Encouraging progress was made during the year in Russia and China,
vindicating Orbital's decision to target emerging markets. The large US auto
supplier Venture Industries Inc. is backing a new car project with Russian
company ZIL, and has selected an OCP 2-stroke engine as the powerplant. China
Hainan Sundiro Motorcycle Company signed an MOU to manufacture OCP 2-stroke
engines for third party customers in China.
In both cases, the simplicity and low cost of automotive 2-stroke engines
were key attractions. In addition, the success of Orbital's 100-vehicle
Genesis fleet trial, which ran from 1995 to 1999, has assured potential
customers of the efficiency and durability of Orbital technology.
Synerject
The rapid growth in sales of OCP fuel systems created new challenges
during the year, most significantly a need to restructure Synerject's business
and pricing. The restructuring applied to all areas of the business including
reductions in overhead and component costs along with higher selling prices.
The successful restructure has put the existing joint venture partners in
an improved position when negotiating a new ownership structure. Both Siemens
and Orbital have held discussions with a range of customers and suppliers who
have expressed an interest in acquiring a shareholding in Synerject. The
level of interest indicates the value that other industry participants see in
Synerject.
The ownership uncertainty surrounding Synerject, along with the
restructuring of the business, had the effect of stalling some new product
announcements. However, with the restructuring now well underway and Siemens
indicating it will remain as a significant shareholder, the outlook is
positive.
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