oec fy2010 agm

i did this writeup on request on another board so you guys might as well have a read and we'll see what other discussions might result.


OEC FY2010 AGM

i came out of the AGM rather disappointed. the much vaunted company mantra of patience, opportunity, hope has not weakened one bit; it's as strong and frustratingly more so than ever.


CEO Terry's speech:
it basically followed the AGM presentation. he just did it "commando style" walking in front of the presentation screen doing his somewhat impressive but as always not detailed with specifics sale-sy pitch rather than standing behind the lectern.


Government loan:
i misremembered. i thought that starting 2014, if the engine production unit requirement hadnt been reached, repayments were to be made in a number of annual equal amounts until repaid and not that it had to be repaid in full by 2014. that being the case, i'm glad the loan got restructured as the requirement for full repayment on May 2014 would have been fatal for the company. wonder what
the government loan is now secured against since the 2 properties are being sold; probably just the equipment and thus the reason for the recent re-audit of the insurance cover, as revealed by Terry, which valued the equipment at ~$20m.

From FY2002 20-F:
"Under the terms of Orbital's loan facilities with Westpac Banking Corporation and State Government of Western Australia, the assets of Orbital, including its plant and equipment (but excluding patents, licenses and technologies and research and development deposits), have been pledged to
secure the level of borrowings under such facilities."

"..a loan of $19,000,000 from the Government of Western Australia. Repayment of this loan is to occur in May 2014 or prior to that date, by five equal annual instalments, if the worldwide aggregate number of OCP engines produced exceeds 5,000,000. No interest accrues on this facility until such time as the loan becomes repayable."


SALE of Property:
sale of property as indicated by chairman in his speech is still in the process. when asked for ballpark indication of amount of funds that will the raised, the request was refused citing commercial confidentiality. this i cannot really understand if they are willing to give an indication of how much they are willing to pay in rent (not directly to us shareholders thought, unfortunately), surely they can give us shareholders an idea, a price range, how much capital could potentially be raised. so with their refusal, we'll just have to do the homework ourselves.
http://www.realcommercial.com.au/commercial-real-estate/5689345
referencing how much the annual commercial property loan rate is and working backwards to get some indication.
http://www.commercial-loans.net.au/commercial_property_loans.html
http://www.commercial-loans.net.au/commercial_loan_quotes.html

am guessing $6-8m at current rates. obviously the higher the better ;)

Keith has indicated that there will be a capital gain involved in the transaction but OEC is carrying tax-offsets that can be used so no tax will be paid on the property transaction. one of the reasons for selling up is to free
up working capital and that business rent is tax deductible. hope this benefit can be carried to later years as OEC wont be making profit for a few years yet.


Bajaj GDI:
this one isnt going anywhere fast. seems like Bajaj took too long and is taking too long getting caught out by the Indian bureaucracy. it seems that in Delhi, at least, where sole CNG use in 3-wheelers is mandated, the bureaucracy requires that CNG be used regardless of how efficient the particular implementation is environmentally or how fuel efficient. the requirement it that it just has to be CNG so if this is true, it doesnt make sense to go through the expense of implementing DI-CNG as per the Bajaj-OEC CNG DI license expansion agreement a few years back.


CNG DI Product:
a CNG-DI presentation was left flipping on the presentation screen before the start of the meeting. this presentation had english and chinese explanations so it implies that it was put together for a presentation to the chinese at some
stage giving the impression that OEC is going after CNG business in China. no specifics about this effort was given in the formal AGM presentation other than the throw-away line that there are growing opportunities for CNG in China and India.

Terry has again stated that OEC has no CNG product for sale at this stage. i couldnt understand why he keeps saying that since and "2nd Generation CNG-DI" injector was supposed to have been developed in the final few years of Houston's reign. Looking at row 2 of columns 1 & 5 of the Orbital EMS Product Planning Matrix on pg21 of the AGM presentation probably gives an indication - the "2nd
generation injectors" developed were/are prototypes/CAD designs that havent reached manufacturing stage for widespread commercial sale as yet.


UAV Market:
i cant understand why this is being trotted out as a new opportunity. is it a case of saying something just for the sake of saying it so that it seems that they're doing something? i believe Rotax/Hirth has had OCP-DI based heavy-fuel capable products out for some years now and these products unlike the "2nd Generation CNG injectors" mentioned above are, i believe, commercially ready products for sale.


Synerject:
Synerject is doing surprisingly well in spite of current world economic conditions. According to Terry, Synerject has about 60% of the Taiwan market and attempts are being made to establish themselves in India and China as EFI
requirement takes hold whenever that is. There was a throw away line that when Continental bought over the business from Siemens-VDO, Continental had a policy of needing control and thus OEC did a deal to sell 8% of their stake in
Synerject to Continental. from memory, OEC paid a few million to extend the original dateline for re-determination of its share in Synerject and when the
redetermination was finally done, OEC didnt have a choice! either pay up to maintain total 50% ownership or lose 10%. seeing that OEC gave up 8% and Continental injected non-auto EMS business into Synerject, at least that was
something...

When asked, Terry stated that Synerject is for sale only at the right price i.e. if someone was willing to pay e.g. $100m, he'd sure that he could find a better use for the money by selling Synerject. Never say never.


ChangAn:
Chinese representatives were recently in Perth for an update on the development to their engine. Terry in his slick salesman manner states that work to date shows benchmark performance/efficiency however he does qualify that past similar undertakings for other manufacturers showed similar promise but the ventures didnt progress any further. he reiterates that the Chinese continue to show
interest in being different. Geoff was more reticent in stating that all requirements for the engine have been achieved thus far and project is due for completion by the end of this year or early next year. the ChangAn project is an application project meaning the tech used is OEC's own basic OCP-DI/Flex-DI - the tech is not new, it's the application to the ChangAn designed engine that's different; probably analogous to the Envirofit effort but in the case of a 4-wheeler. Orbital owns all the tech which probably means some kind of royalty agreement and a possible components manufacturing deal has to be agreed upon if the ChangAn opportunity goes to general production. The ChangAn prototype with OCP-DI showed at few years back was a complete non-functioning mock-up.


Ford E-gas:
According to Geoff, delay was due to some implementation technicalities on both OEC and Ford side but mainly on Ford's. from the looks at the recent press, i'd say that Ford is moving following it's integrated pre-determined
marketing/product launch plan. the problems cant be anything technically serious as there are already aftermarket conversion kits for various Fords that work and
Terry himself currently drives a Ford XR6 Turbo.

the directly below wasnt mentioned at the AGM
================================
from: The Weekend West - Motoring (Oct 30-31, 2010 - pg:3)

THE BAD:
Ford Falcon LPI slated for late 2011 i.e. probably end of the calendar year next year

THE GOOD (probably):
Holden Commodore 3.0 V6 LPI slated for Oct 2011
cant imagine Holden using any other LPI system other than Orbital's since HSV is already using ours and thus there wont be much more work to do to get it on the bog-standard 3.0 V6.

Aside:
Oct 2012 - Volt petrol-electric car
late 2011 - EcoBoost Falcon
================================


NeoEMS/Sygma:
currently vaporware as no formal/commercial agreement has been signed according to Geoff. that's why no announcement has been made through the ASX and the only mention stems from the 1 Spanish article that's been repeated in slight
variations in the online South-American press. OEC owns the basic tech in the Sygma project. anything that comes out on top of this is jointly owned and will open up possibilities for future product development and sale by Orbital. Terry
has mentioned DI application in this project while previously it seemed, from ASX announcements that the project only called for OEC involvement in the EMS.
that said, requirement for specific DI injection of ethanol is being delayed as flagged on pg12 of the AGM presentation.


Mitchell:
Orbital is being paid by Mitchell to do the project and OEC owns all tech as a result of the work being carried out. According to Terry, there is an informal agreement to "take good care of Mitchell" if there is any success in commercializing the results of the project.


Conducting of Poll, Resolutions:
no surprise that all resolutions got passed. the surprise was that this year, chairman invited Dr Maksyvtis to say a few words in support of her re-election. the disappointment was that what she said was utter fluff and pointless saying
when she first joined, how impressed she was with the tech and the people absolutely nothing of what her contribution has been, what her role entails... nothing of the important stuff. she was basically being interviewed for her job
and she came across to me as being indifferent to the role and responsibilities. if you or i or anyone else were to act in such a manner in an interview, we would be mercilessly laughed out of the room. considering how well qualified and experienced she's supposed to be, totally and utterly disappointed. maybe she had prior knowledge that she'd be re-elected looking at the proxy voting pattern
and just couldnt be bothered. regardless, more professionalism shown would have been nice!

am not overly happy that the consolidation is taking place. bet on an attempt to raise funds through re-dilution at some stage. just hope that the board and CEO carry out their responsibilities diligently and not dilute existing long-term shareholders out of existence as per what has happened with e.g. Metal Storm and ERG. seeing how 600k was wasted on consultants and fees in the aborted alternative fuels acquisition, let us all sure as hell hope those in-charge have learnt something! unfortunately no one raised this matter for further clarification and insight at the AGM; not that it would have solved anything, would just have been interesting to know more of why it was done the way it was, what exactly happened, what kind of business it was etc. i guess the waiving of the bonuses goes in someway to recompense for this fiasco - grasping at straws looking for the bright side in spite of it being wrapped up in what i perceive as conceited.

For those of you who read the article in the paper about the OEC shareholder joking about having to "put the cat down" for not receiving dividend to be able to afford to buy food to feed his cat, the rest of the story goes thus:

this shareholder made a longish comment commending the board/CEO for waiving their right to the medium-term bonuses recently awarded but would urge all of them to only except bonuses once long suffering shareholders start receiving dividends. there's a dramatic pause of a few seconds before the chairman said he'll take that comment under advisement. doesnt that just ruin the mood and show just how insincere the waiving of the recent bonuses is. as i've said before, the real reason for not accepting the bonuses is that the company couldnt afford to pay it out so why not make it seem that a magnanimous act is being perpetrated? FY2011 will be bad. Ford E-gas has been further delayed and with the vaporizer E-gas production stopped in spite of a rider supposedly obtained from the government to continue to sell the outdated version due to
non-compliance of new emissions regulations, this means Autogas probably will incur a loss and thus management's flagging that "returning to profit for FY2011 will be challenging" in spite of having advised otherwise previously as Ford E-gas is such a large component of Autogas' business and the retrofit market has fallen off the cliff due to reduced government subsidies and potential
imposition if excise by the government. Terry stated that a restructure of the business is being under taken; so soon after Autogas was expanded - 1 step forward 2 steps back. so many missteps over the years albeit uncontrollable and
somewhat unforseen :((

By not accepting the essentially non-payable-never-likely-to-have-been-paid bonuses, there's a now a handy $400k reversal in the accounts that can be used conveniently to mask to some little degree the severity of the probable downturn in FY2011.

The shareholder also asked when the last dividend was paid. Grahame Young replied (as he's been on the board the longest since Sarich's time and is still on the board of Cape Bouvard, Sarich's property development venture), the
company had never paid a dividend. i could have sworn i got a cheque to buy myself a very small bag of sweets quite a few years back.... from memory, it was a fraction of a cent/share. it was paid out when the OEC made its first profit, i think; profit years have really be very few and far between and certainly never been sustainable without accounting trickery. am not an accountant but i think there's a term called operating profit where profit is counted from the result of actual operations... that's more useful rather than having the numbers contaminated and skewed by depreciation, amortisation, deductions, grants, etc.

This year, the company's registrar ComputerShare was explicitly called up to conduct the poll. maybe ComputerShare has always done this in the background but
this year the chairman explicitly called ComputerShare forth to conduct the poll; maybe a change in listing rules.... proxy voting as can be seen in the results announcement cemented the outcome prior to counting of votes tended at the AGM. this outcome of the proxy votes was not disclosed prior to the voting by attendees. A case for and against prior disclosure of proxy voting could be
made but that's neither here nor there.... the importance to me is to have my say regardless of the outcome thus i gave the board and CEO their kick-in-the-butt by voting against all resolutions other than the reelection of
Dr Maksyvtis in spite of her dismal speech; gotta trust she's at least contributing something worthwhile behind the scenes.

Chairman seemed distracted and conducted some of his duties out of order this year. he came across as a little lacking in knowledge and had to rely a little more than usual on the rest of the board. the last time i witnessed such
flubbing was when Don Burke put up such a performance, he carked it and was pushing up daisies about a year later *shrugs*

Conclusion:
Am not expecting anything substantial to happen until FY2013 baring further unforseen circumstances. hope the capital raised from the property sale is used very wisely to tie OEC over until then and not wasted. also hoping that the board/CEO consider very carefully before initiating a re-dilution effort especially before the steady cashflow from the Ford E-gas venture flows at the very least.

As always since Terry joined. the strategy seems more coherent and a little better put together and presented BUT it's still all the same-old-same-old with us shareholders needing the patience, hoping, wishing for a better future while the board/CEO draw their assured salaries and bonuses when they can slip them by us as long as the company is on life-support, alive and barely kicking.

at this stage, i dont plan on turning up to any more OEC AGMs.

BTW: AGM presentation pg6, there is a typo. should say "Vision2020/AAIC..."