Orbital Engine Corporation's Quarterly Newsletter to Shareholders
1 July 1999
Orbital Engine Corporation's Quarterly Newsletter to Shareholders
PERTH, Australia, July 1 -- The following press release was
issued today by Orbital Engine Corporation Ltd. :
1 July 1999
Dear Shareholder
We are pleased to provide you with an update on the commercial progress of
Orbital Engine Corporation Ltd. since the announcement of our half year result
on February 25, 1999. During this period, we have continued to focus on the
successful completion of production programs underway and the acquisition of
additional commitments from customers across all business units. Our ultimate
goal is to ensure the widespread adoption of Orbital Combustion Process (OCP)
technology, which is essential to generate the earnings streams necessary to
grow shareholder value.
MOTORCYCLE
The production programs previously announced with Aprilia in Italy and
Sundiro in China continue to advance towards commercial release of motorcycles
incorporating OCP technology. Both companies are dynamic players in their
respective markets, and Aprilia in particular, has placed significant
competitive pressure on other participants in the evolving European market.
The ever tightening emissions regime in Europe is forcing a change in
motorcycle manufacturers away from the conventional carburetted two stroke
engine. OCP direct fuel injection is a cost effective solution to the
challenges imposed by these regulations. The emissions regulations, combined
with the announcement of Aprilia's production intent, has significantly
increased our customer activity within Europe and also in Asia. During the
last few months, Orbital has delivered customer motorcycles converted to OCP
technology to a further two key European manufacturers and programs with
customers throughout Asia continue to progress on schedule. Orbital's
motorcycle customers with production intent programs produce a combined
2 million units per year.
MARINE & RECREATION
We have signed an agreement with Outboard Marine Corporation resolving our
allegations of patent infringement in their Ficht outboard engines. The
specific terms of the settlement are confidential, however OMC are required to
pay substantial sums to Orbital. This agreement is significant for our
company as it is the first time our patents have been genuinely challenged and
they have held firm. Our intellectual property portfolio is a critical asset
of our business and we must take all actions necessary to aggressively protect
it.
Elsewhere in this business unit Mercury Marine continue to achieve
outstanding success with their Optimax product line. Mercury again dominated
the recent 24 Hours of Rouen endurance race. They won the race with a high
performance S3000 racing engine, and achieved third place with a low emissions
200XS Optimax engine. Not only did the Optimax engine complete the grueling
24 hour test flawlessly, it was only beaten by two high performance race
engines from the 83 boat field. The durability of these production engines is
a credit to both Mercury and Orbital. Mercury currently sells 115, 135, 150,
200 and 225 horsepower Optimax engines.
Production programs with personal watercraft manufacturer
Bombardier-Rotax, and Japanese outboard manufacturer Tohatsu continue to
advance on schedule.
AUTOMOTIVE FOUR STROKE
Orbital continues to dedicate significant resources to customer funded
engineering programs that demonstrate the benefits of direct fuel injection
technology on conventional automotive engines. In addition to the significant
effort in continuing to support Daimler Chrysler's assessment of the Orbital
technology programs are also on-going with nine other manufacturers for
application on a range of engine sizes in various regions. The goal of these
programs, is to secure a production commitment for upcoming model years.
Orbital has focused on developing a direct fuel injection system that
produces real world, in car fuel economy improvements, while maintaining the
capability to meet future emissions standards. Orbital has achieved an
advanced level of maturity that meets these objectives over a vehicles full
operating cycle, in the most cost effective manner possible.
During the last few months Orbital has made solid developments that
enhance the maturity of its system in automotive applications. As a result of
extensive testing on multiple customer engine configurations, as well as
internal core technology development programs, Orbital has found injector
location to be a critical element in yielding the significant benefits of
direct fuel injection. We have found central injector location to be the
ideal set up to harness the combination of fuel economy improvements and
emissions control. This conclusion is supported by several industry technical
leaders, including Daimler Chrysler in papers recently presented at the Vienna
Motorsymposium. We are currently in the process of migrating all customer
programs over to central or "spray guided" injection from the previous side
injection programs.
AUTOMOTIVE TWO STROKE
Our relationship with Texmaco continues to mature towards production of
OCP two stroke automotive engines. Texmaco's announcement of production
intent has generated strong interest from external customers. In addition to
servicing Texmaco's own internal requirements, we are currently working on
two programs that would source engines from the Texmaco facility. The more
advanced of these programs has progressed to the stage of show car
construction.
The Genesis program has been an outstanding success with more than
5 million kilometres accumulated without a fundamental engine failure. The
program has more than achieved its durability goals and will now be scaled
down. Over the coming months we will commence the removal of the bulk of this
fleet from circulation to examine the condition of the engines and conduct
final high mileage emissions tests. A significantly smaller fleet will be
retained for marketing and promotional purposes.
SYNERJECT
Synerject continues to meet Mercury Marine's production requirements from
their facilities in Newport News, Virginia. The extremely low level of
warranty claims experienced by Mercury are a testament to the quality
standards achieved by this facility. In addition to these production fuel
systems, Synerject are intensively supporting product launch programs in the
motorcycle and marine and recreational business units. Synerject also provide
support for the ten manufacturers with engineering programs currently underway
in the automotive sector. Synerject has established operations at Siemens
second high volume facility in Pisa, Italy to meet the production needs of
Orbital's multiple European motorcycle and automotive customers.
SHARE BUY BACK
The Board and management do not believe the prevailing share price fully
reflects the underlying value implicit in the commercial status discussed
above. The share price has experienced pressure from sources external to the
operations of the company, most notably the recent selling volumes in
Australia due to the 30 June tax year end. The company however, remains in
sound financial condition with strong cash reserves. As a result, on 17 June
1999, the Board resolved to buy back up to 5% of the company's issued capital
on the open market. In the current circumstances, the Board believes this
initiative is an appropriate use of shareholder funds, and it is consistent
with their capital management policies.
Orbital has completed the necessary filings with the Australian Securities
and Investments Commission and the Australian Stock Exchange, allowing the buy
back period to commence on 2 July 1999 and conclude on 2 January 2000. The
filings provide for Orbital to buy back up to 16,000,000 ordinary shares
(equivalent to 2,000,000 ADR's). Under Australian regulations, a fourteen day
notice period is necessary prior to commencement, and a maximum term of
six months, unless extended, is permitted. The regulations allow Orbital to
buy back up to 10% of it's issued capital in any twelve month period without
seeking shareholder approval. All shares purchased under this arrangement
must be cancelled.
TRADE SHOWS
The last few months have been an extremely busy period for Orbital
exhibiting and presenting papers at industry trade shows throughout the world.
These trade shows are an important means of maintaining and raising our
profile within the various industries we participate in. We have participated
in the following events since the last communication with shareholders:
* Society of Automotive Engineers (SAE) Congress in Detroit, 1-4 March.
* Oz Tech 99 in Taipei, 6-10 April
* Vienna Motorsymposium, 6-7 May
* SAE Japan, 1999 Automotive Engineering Exhibition in Yokohama,
19-21 May
* Engine Expo in Hamburg, 8-10 June
* 1999 Emissions Seminar in Beijing, 7-11 June
OTHER MATTERS
The Tecumseh facility has now been sold for US $4.15 million and the
transfer to the new owner is almost complete. We anticipate receiving
additional funds for the sale of assets within the facility and expect this
closure to produce ongoing annual savings in the region of US $5 million.
With the closure of the Tecumseh facility, we have relocated our US investor
relations representative, Ms. Roberta Saling. Her contact details are now:
Orbital Engine Company (USA) Inc.
PO Box 338
Tecumseh MI 49286
USA
Phone: 517-423-6623
Fax: 517-423-6079
Shareholders may receive a communication from an organisation named "Share
Donations Australia" requesting shares held in amounts less than marketable
parcels are donated to them. This scheme does not have the endorsement of the
company and has been conducted completely independently.
We expect to release our financial results for the full year ended
30 June 1999 in late August. We anticipate reporting a strong cash position
and an operating result around break even for the second half of the fiscal
year.
Yours sincerely
KIM SCHLUNKE
Chief Executive Officer