Synerject is finally profitable.Augurs well for OEC, in my...

Synerject is finally profitable.
Augurs well for OEC, in my opinion.

Regards

Desmond

ORBITAL
ENGINE CORPORATION LIMITED
A.C.N. OW3 344 058
ASX AND MEDIA RELEASE: 21 FEBRUARY 2003
FOR IMMEDIATE RELEASE
ORBITAL - HALF YEAR RESULTS
1 WHIPPLE STREET
BALCATTA WA 5021
AUSTRALIA
TELWHONE: +61 8 9441 2311
FACSIMILE: +61 8 9441 2133
http:llwww.orbenq.com
ASX Code: OEC
NYSE Code: OE
Berlin Code: ORE
Frankfurt Code: OREA
PERTH, AUSTRALIA:
Highlights
I After tax result of $2.9 million loss compared with $20.7 million loss for corresponding period last
I Revenue of $29.9 million, 29% up on corresponding period last year.
I Net cash out flow for the Ralf-year $7.1 million, including non-recurring amounts of $5.1 million.
I Overheads down by 28% compared to corresponding period last year.
I Synerject profitable, $0.7 million profit compared to $2.3 million loss for corresponding period last
I Synerject loan restructure completed with Siemens retaining 50% equity.
I Manufacturing alliance finalised with UCAL as a precursor to entering the lndian motorcycle market.
I New York Stock Exchange listing retained.
year.
year.
Summary
Orbital Engine Corporation today announced an after tax loss for the Ralf-year ended 31 December 2002 of
$2.9 million compared to a $20.7 million loss in the corresponding period last year. The results announced are
in line with expectations that were foreshadowed in an announcement released to the Australian Stock
Exchange on 20 December 2002.
The $17.8 million improvement in its first half result demonstrates that the Company is benefiting from the
initiatives taken to improve operating performance as well as the resolution of several long-standing issues.
These initiatives are intended to put the Company in a better position financially and establish long-term
sustainability.
The Company has been restructured and resized to ensure the conservation of cash whilst still providing
customers with the necessary level of support to enable growth in revenue.
The organization is now focused on day-to-day sales activity and at December 31 was 30% ahead of last year
in the area of fee for service engineering activity.
One significant development during the period as announced on 10 January 2003, was the restructure and
refinancing of Synerject, Orbital’s joint venture with Siemens VD0 Automotive. Siemens WO’s continued
commitment to Synerject removes the uncertainty that had existed over their future involvement in the
venture, as well as addressing the market’s concern over on-going finance.
As a result of the restructure, which involves the addition of Orbital’s marine and recreational systems
business and the Siemens VD0 non-automotive systems business, Synerject will enjoy improved sales
revenue and enhanced growth prospects. Synerject has already provided a positive profit contribution to
Orbital in the first half and the expanded operations should enhance this contribution in the second half. As a
consequence of this restructure, Orbital will no longer consolidate the marine and recreational system sales,
however engineering fees, royalties and licence income from this business segment will be retained by Orbital
and there will be minimal impact on the bottom line.
Synerject is uniquely positioned as a non-automotive, engine management supply company, with franchises
from both Orbital and Siemens VD0 for fuel injection and engine management systems. Synerject’s business
is now well established in the motorcycle, marine and recreational sectors and with this wider customer and
product base further broadens the revenue base from which Orbital benefits as co-owner. In the motorcycle
sector, for example, Synerject is able to offer either Orbital direct fuel injection technology for two and four
stroke applications as well as Siemens VDO’s port fuel injection systems for four stroke applications.
Orbital recently announced arrangements with the Indian parts and systems manufacturer UCAt, further
demonstrating its unique position in motorcycle emission control technology. The UCAL arrangements
provide a springboard to enter the large Indian motor scooter market.
Financial Results
Orbital’s loss after tax of $2.9 million for the Ratf-year ended 31 December 2002 compares to a loss of $20.7
million in the corresponding period last year.
Revenue
System sales
Engineering
Royalties
Licence income
Other Income
Proceeds on sale of fixed assets
Other
Total Revenue (excluding interest)
Cost of system sales
Gross Contribution
Overhead expenses
Restructuring expenses
Foreign exchange gain/(loss)
Share of Synerject net profit/(loss)
Provision Texmaco investment
Earnings before Interest, Tax, Depreciation,
and Amortisation
Depreciation & amortisation
Amortisation of prepaid marketing
Net interest income
Operating Loss before Tax
Income tax (expense) credit
Operating Loss after Tax
Dec 2002
A$000’s
23,236
4,856
1,529
91
29,712
80
65
145
29,857
(21,696)
8,161
(10,3463
249
664
(1 99)
(1 ,471 1
(1 , j 98)
(4843
147
(2,966)
67
(2,899)
Dec 2001
A$000’s Change
16,91 9 +37%
3,736 +30%
1,213 +26%
1,155
23,023
82
60
142
23,165 +29%
(15,919)
7,246
(14,375) (-28%)
t 1,884)
(388)
(2,694)
(6,446)
(18,541)
(1,398)
(1 ,159)
39 I
(20,707)
(30)
(20,737)
The key points to note with respect to this result are as foIlows: -
Revenue increased by 29% to $29.9 million.
Overhead expenses decreased by 28% to $1 0.3 million.
Depreciation and amortisation, including amortisation of marketing expenses decreased by 36% to
Orbital’s joint venture, Synerject, contributed a profit of $0.7 million compared with a loss of $2.7
$1 .6 million.
million in the previous year.
Orbital’s three recurring revenue streams, Le. system sales, engineering services and royalty income, all
achieved growth. The improvement in system sates (37%) reflects increased product range and
improvements in the marine sector as this market recovers from recent lows. Engineering services revenue
has increased by 30% as Orbitat has introduced more rigorous sates and marketing processes, and expands
outside its OCP focus to increase the scope of its business. This trend should continue in the second half.
Royalty income (+26%) results from the introduction of a number of additional products in the motorcycle
market. Piaggio and Peugeot Motocycles each launched 2 products into the European market during the last
9 months. We anticipate increased volumes of these models during the next European summer.
Overhead expenses (excluding restructuring costs) have decreased by $4.0 million compared to the previous
corresponding period, primarily due to staff reductions in January 2002 and in June 2002. In the half-year
ended 31 December 2001, Orbital incurred redundancy costs of $1.4 million and other one-off restructuring
costs of $0.4 million. This half-year, total restructuring costs were contained to $0.2 million. Orbital atso
achieved savings across a range of other cost centres.
Depreciation and amortisation expense decreased primarily due to the completion of the amortisation of
prepaid marketing, which has been expensed over the last 3 years at $2.3 million per annum.
Net cash outflow during the half-year was $7.1 million compared to $10.6 million in the Ralf-year ending 31
December 2001. There were several non-recurring cash costs during the half-year, which made up a
significant proportion of net cash outflows:
The staff reductions, announced in June 2002, were implemented after the year end, resulting in
Orbital provided Synerject with engineering and other sewices during the half-year to the value of $0.8
$2.0 million working capital increase due to prior year (early) receipt of trade receivables.
payments in respect of redundancies, annual and long service leave of $2.3 million in this half-year.
million, which has been capitalised as part of the Synerject restructure.
The above items are one-off in nature and we anticipate that future periods will not be affected by such items.
At 31 December 2002, Orbital Rad cash on hand of $6.7 million.
Review of Operations
Automotive
Orbital has a number of active funded programs from automotive OEMs, exploring the use of Orbital’s
technology in future products. Programs are ongoing both within Orbital facilities and those of customers. In
addition to these current programs, several manufacturers Rave carried out extensive evaluations of the
Orbital technology applied to their development engines. These evaluations place the technology in a
position for use in future serial production.
The improvement in fuel consumption available by the use of Orbital’s air assisted direct fuel injection system
continues to be a key reason for manufacturer interest. Orbital automotive customers, including
DaimlerChrysler and General Motors, continue to acknowledge the merits of the technology. The European
manufacturers accord to reduce vehicle fuel consumption to 140g/km of COz by 2008, should prove to be a
major driver of technology improvements.
In addition to work specifically directed to the application of Orbital technology, Orbital is securing significant
engineering contracts in the automotive arena. One such contract is for the design of a completely new four
stroke automotive engine. Another involves the evaluation of the impact of petrol containing 20% ethanol on
the performance and reliability of cars for Environment Australia. These activities broaden Orbital’s revenue
base and improve the absorption of overheads, whilst allowing the use of key expertise in fee earning activity.
Motorcvcle
During the next European summer, up to 8 different models of motor scooters should be on sale using
Orbital’s direct fuel injection system. Activity on further new models for introduction continues within Aprilia,
Peugeot and Piaggio. After initial product Iaunches of direct injected scooters, Peugeot Motocycles unveiled
their new “JetForce” scooters at the International Motorcycle Exhibition held in Milan in September 2002.
These scooters introduce innovative chassis design and styling and are on schedule for release during the
2003 European summer. The first available models within this range will feature the new liquid cooled direct
injected 50 cc Peugeot Motocycle engine.
There is growing interest in Asia for direct injection for two stroke engines due to pending emission standards
in these growth markets. For example, the emission levels proposed for India in 2005 will be difficult to
achieve for two stroke engines, without the use of direct injection systems. Orbital is currently involved with
two of the major Indian motorcycle manufacturers as well as ongoing activity with Taiwanese producers.
The recently announced arrangement with UCAL will provide the ability to localise supply of much of the
direct injection system and should provide local costs, service and support to the lndian motorcycle
manufacturers. In addition to the 2-wheeler market in lndia and Asia, there are also fuel economy and
emission benefits for J-wheeler vehicles. Retrofit programs are being considered by some Indian
manufacturers of 3-wheelers as, given their high use, they are a major contributor to poor air quality in some
cities.
While most of the activity in the motorcycle sector is being directed to two stroke engines, Orbital’s direct
injection technology provides a number of benefits on four stroke motorcycles. Orbital is engaged in
customer-funded activity on four stroke engines and is actively promoting the benefits to the wider industry.
Marine and Recreation
During the December 2002 half-year, the number of marine and recreation products utilizing Orbital’s direct
injection technology continued to grow. In September, Bombardier unveiled their Sea-DooB XPTM Dl
personal watercraft (PWC) for model year 2003 release. This sports model will bring Bombardier’s OCP Dl
line-up to eight models, comprising four PWC and four Mercury Marine OptiMaxB powered sport boats.
Polaris, a US$1.5 billion manufacturer of ATVs, snowmobiles, personal watercraft and motorcycles also
recently announced their entry into the jet-powered sport boat market and will begin selling their EX21 00 sport
boat in the North American spring of 2003. The EX2100 will offer two engine choices from Mercury Marine,
including a 250 horsepower OptiMaxO.
Mercury Marine’s OptiMaxB range continues to grow with seven models now in the range, including two
models from Mercury Racing (consurner performance outboards). Tohatsu (Japan) continues with its UCP Dl
range of four J-cylinder TLDITM models ranging from 40hp to 90hp.
Calendar year 2002 was a difficult year for the marine and recreation market as it struggled with a slow US
economy and general consumer concerns. Industry associations have reported the year ending “better than
expected” with the overall decline in sales less than originally anticipated. Looking forward to 2003, it is too
early in the season to accurately predict whether the expected recovery will occur. Weak consumer
confidence continues in the US, however dealer inventories are low and manufacturers appear lean, well
prepared and with an innovative model line up, should confidence return.
Svneriect
Synerject contributed a profit to the Orbital result for the first time. As previously reported, Synerject has
introduced a range of operational and structural changes over the fast 18 months, including price increases
and overhead cost reductions. There has been significant revenue growth, particularly in the motorcycle
sector, with a number of direct injection and port injection products launched in Europe and Taiwan. This
growth, together with improved margins and cost containment has resulted in a significant improvement in
Synerject’s financial results.
The expansion of Synerject’s activities and the associated refinancing of its loan arrangements announced on
10 January 2003 now provide a solid base from which to grow its business. The improving volumes and
expanded product range should considerably improve the operational efficiencies and profitability of
Synerject.
ENDS
Orbital is an infernational developer of engine and related technofogies, providing research, design and
development services for the worlds producers of powerfrains and engine managemenf sysfems for
application in motorcycles, marine and recreational vehicles, aufomobiles and trucks. Orhifal’s principal
operafions in Perth, Western Australia, provide a world class facility with capabilities in design, manufacturing,
development and tesfing of engines and powertrains unparalleled in the Asia Pacific region. Orbital provides
its customers with leading edge, world class, engineering expertise. Headquartered in Perth, Western
Australia, Orbital stock is traded on the Australian Stock Exchange (OECJ, the New York Stock €xchange
(OE) as well as the Berlin (ORE;) and Frankfurt (OR€A) Exchanges
CONTACTS Etnail - Info6Borboncr.com Website - www.orbenq.com
Australia: Mr Peter Cook USA: 1 810 245 0621
Chief Executive Officer
Tel: +61 8 9441 2311