Attention ASX Company Announcements Platform
Lodgement of Open Briefing
PERTH, Australia, June 11 -- The following is an update issued today by Peter Cook, CEO of Orbital Engine Corporation:
Date of Lodgement: 11-Jun-2003
Title: Open Briefing. Orbital Engine Corp. CEO Updates Outlook
corporatefile.com.au
Orbital Engine Corporation Limited recently raised $2.8 million via the
placement of 23.3 million shares at 12 cents per share and announced a
Share Purchase Plan (SPP) for shareholders at the same price, of which
$3.2 million is underwritten. Given you believe the company's cash
position is now relatively stable, why have you decided to raise these
funds?
CEO Peter Cook
The fund raising provides security for our key customers and ensures we
are in a strong position to sustain our improvement. Our cash burn has
stabilised and we're approaching cash neutrality in the second half of
this fiscal year. Our customers have relatively long work programs,
often two or three years, and the fund raising ensures they're dealing
with a stable organisation. It removes any concerns about our balance
sheet and our ability to deliver over the longer term.
corporatefile.com.au
Why have you decided to have the SPP underwritten and what indications
do you have regarding shareholder support?
CEO Peter Cook
We've decided to have the SPP underwritten simply to generate confidence
amongst our shareholders and to provide a certain outcome. The feedback
to date has been positive and we'd expect reasonably strong shareholder
participation.
corporatefile.com.au
Why did you choose to have a SPP knowing it would exclude shareholders
outside Australia and New Zealand?
CEO Peter Cook
Small capital raisings, such as ours, are very expensive and time
consuming if extended to the US and would have required a prospectus and
extensive due diligence resulting in costs estimated to be in excess of
$1 million. The high cost and the extra effort required, given the
relatively small amount of funds being sought, could not be justified.
This is unfortunate, as we have a very supportive US shareholder base.
US participation is fine if you're raising $100 million-plus but it is
not in shareholder interests when the capital raised is relatively
small. Of all options considered, a placement and SPP was the best and
most commercial outcome.
corporatefile.com.au
Orbital recently announced an adjustment to the share ratio of its
American Depositary Receipts (ADRs). Each ADR now represents 40 shares,
whereas previously the ratio was eight shares to one ADR. What was the
purpose of the adjustment and what impact will it have on the price and
trading of both the ASX-listed shares and the ADRs?
CEO Peter Cook
We adjusted the ratio so as to conform with New York Stock Exchange
(NYSE) continued listing requirements. The NYSE requires all listed
securities to have a selling price over one US dollar and our ADR price
had slipped below that level. By increasing the ratio of Australian
listed shares backing each ADR from 8:1 to 40:1 we ensured compliance
with NYSE rules. The resultant increase in the ADR price was
approximately in line with the ratio change. In general, the change has
been well received in the US.
The adjustment to the ADR ratio has no impact on the total amount of
ordinary shares on issue and therefore should not affect the Australian
listed share price or our market capitalisation.
corporatefile.com.au
You expect Orbital's NPAT result for the current second half ending June
to be within the range of plus or minus $0.5 million compared with a
loss of $2.9 million for the first half. To what extent does this
outcome reflect further cost cuts and to what extent revenue growth over
the current six months?
CEO Peter Cook
In the second half we've seen some growth in our continuing revenue
streams of engineering services, royalties and license fees but the
benefit of cost reductions previously announced is the primary driver
behind our improved performance. We have gone through the process of
getting the costs right and getting the business right-sized, and the
recent restructure of Synerject, which will result in lower system sales
in our books but a much stronger joint venture performance, was probably
the last of the major steps required.
corporatefile.com.au
What costs were incurred as a result of the Synerject restructure and
how has Synerject performed in terms of revenue growth and profitability
since the restructure?
CEO Peter Cook
April 1 was the official transfer date and Synerject's top line, cash
and profit has clearly benefited from the transfer of a proportion of
our system sales. The restructure has cost around $300,000 and will
deliver us annualised cost savings of about $600,000.
corporatefile.com.au
Synerject contributed after-tax earnings of $0.7 million to Orbital's
first-half result. What are your expectations for Synerject's
contribution to the full-year result?
CEO Peter Cook
Typically Synerject has a slightly softer second half but this year, due
to the restructure, we expect a similar second half to the first half.
corporatefile.com.au
What further steps must be taken before Orbital begins to generate
positive cash from its underlying operations on a sustainable basis?
CEO Peter Cook
The focus will move to our top line performance and particularly the
sustainable contribution from royalties and there are some positive
signs in this area.
The six licensed OEMs that have product in the market have been
progressively rolling out new models and market penetration is clearly
on the rise. We will generate around $3 million of royalties this
financial year and we're hopeful that will improve in 2004. We'd expect
some growth from the 3 cylinder Mercury Optimax models in the marine
sector, this northern hemisphere summer.
Securing Indian government approval for the Technical Co-operation
Agreement between ourselves and UCAL is a critical longer term
development. UCAL are a parts and systems manufacturer with a very
credible reputation in India and are in the process of engaging the
Indian motorcycle OEMs in licenses for the incorporation of our
technology in future models. We are encouraged by the initial reception
that UCAL have been given by the Indian OEMs. Within the next 18 months
or so we'd expect the UCAL arrangements to start to generate royalty
streams.
corporatefile.com.au
Engineering Services have been a major focus. What has been driving that
market and what are its prospects?
CEO Peter Cook
Engineering Services is a source of medium term growth, where current
revenues are matching costs at about $10 million per annum. OEMs are
seeking to outsource specialty technologies as their own products become
more and more sophisticated. For example, drive by wire, steer by wire,
active suspension systems, hybrid controls, and variable valve timing
technology are all areas where to a greater or lesser extent, OEMs have
sought to outsource. Our niche skills in powertrain and controls seems
to be similar and we can foresee up to a 50 percent growth in
Engineering Services revenue, to about $15 million, within three years.
corporatefile.com.au
Have you got a view as to your top line growth rate and when you might
open up the automotive sector?
CEO Peter Cook
Predicting time scales on new markets is very difficult and I will not
speculate.
As I've explained there are clearly some areas of growth for us in
motorcycles and motor scooters. Our strategy has been to get to cash
neutrality so we benefit from this growth.
Regarding automotive, we continue a dialogue as well as a number of
engineering programs with the OEMs but they deal with a very demanding
consumer market and must make certain that everything is in place before
they commit to production with new models. Success in the automotive
sector remains the holy-grail for the business.
corporatefile.com.au
Thank you Peter.
For previous Open Briefings with Orbital Engine, visit
www.corporatefile.com.au
For more information about Orbital Engine, visit www.orbeng.com.au