open briefing with peter cook

There is nothing new in it.
OEC are keeping a tight clamp on leaks. It suits me that way.

The market like it as it is up to 17.5 on vol af about 1.5 mill. The vol could end up at at least 2 mill today.

Regards



Attention ASX Company Announcements Platform
Lodgement of Open Briefing
Orbital Engine Corporation Ltd
1 Whipple Street
Balcatta
Western Australia 6021
Date of lodgement: 23-Feb-2004
Title: Open Briefing. Orbital Engine Corp. CEO on Profit Improvement
Record of interview:
corporatefile.com.au
Orbital Engine Corporation Limited recently reported net profit of
$2.1 million for
the first half ended December 2003 compared with a loss of $2.9
million in the
previous comparable period. The result is more than double your $1.0
million net
profit in the second half of 2003 and was achieved in spite of a 67
percent fall in
revenue. What were the key contributors to the continuing profit
improvement?
CEO Peter Cook
The key contributors were the improved performance in our engineering
consulting area, the increase in licences and royalties half on
half, and the
continuing cost benefits, particularly in our overheads, that are
coming from
restructuring we've put in place over the past 18 months.
The revenue shortfall was expected and the result of the transfer of
our marine and
recreation systems business to Synerject, our joint venture with
Siemens VDO,
which was completed as at April 1, 2003. The restructuring's made a
positive
contribution to profit.
corporatefile.com.au
First-half EBIT was $1.9 million. This compares with an EBIT loss of
$3.1
million previously and a profit of $1.1 million in the recent second
half. Is it
realistic to expect this level of operational profit improvement to
continue over the
remainder of the current year ending June 2004?
2
CEO Peter Cook
We expect the second half to look pretty much like the first,
excluding currency
gains or losses. We're expecting the benefits of our restructuring
to continue to
roll out and on the revenue side, we'd expect to see similar results
in our
engineering consulting activities with some softening in our royalty
and licence
income due to timing. We also expect some earnings increases from
Synerject.
corporatefile.com.au
Synerject contributed after-tax earnings of $0.9 million to the
first half result,
compared with $0.7 million previously. What were the drivers of this
growth and
is Synerject performing in line with expectations following its 2003
restructure?
CEO Peter Cook
In US dollar terms, Synerject's meeting our expectations following
the
restructuring. Synerject's a US business and its contribution to our
profit
improved in spite of the currency translation loss compared with the
previous
period.
corporatefile.com.au
Given Synerject's based in the US and some of its major markets are
in Europe,
what impact is the current weakness of the US dollar having on its
pricing and
margins?
CEO Peter Cook
Synerject essentially sources its componentry and builds its product
in the US and
does sell a reasonable proportion of its output in Euros. So in the
current currency
environment, it's had an improvement in profitability attributable
to currency. Of
course when we take up our 50 percent share of that profit and
translate it into
Australian dollars, the benefit's reduced. Generally, Synerject's
reasonably well
protected from currency movements but it did benefit in the first
half.
corporatefile.com.au
What's the outlook for Synerject's earnings for the full year?
CEO Peter Cook
All I'm willing to say is that Synerject's underlying business is
performing
reasonably well and that it usually produces a better second half
than first half.
corporatefile.com.au
In the first half, Orbital's engineering services income was $6.1
million, up 26
percent from the previous comparable period and ahead of your 20-
percent growth
target for the current year. What's driving this revenue growth and
can you
maintain the momentum?
CEO Peter Cook
The growth reflects our focus on the area and our ability to win
business. But,
while we do expect to deliver our targets, there is a timing issue
and we don't
expect to sustain that 26 percent growth over the full year. Work on
hand
indicates that a reasonable proportion of the orders we need in the
second half
3
have already been received. Sales are the key. We seem to be
developing
appropriate relationships with key customers and the market is
receptive.
However, we're primarily an outsource service provider and very
dependent on the
health of the automotive and power-train industries.
corporatefile.com.au
Engineering services made an EBIT profit of $1.2 million in the
first half. Will
further profit improvement in this area depend purely on driving top-
line growth?
What's the size of the potential market?
CEO Peter Cook
The global market for engineering power-train services is estimated
at something
like A$15 billion. Probably about 15 percent of that's supplied by
external
engineering consultants such as ourselves, which makes it a market
of more than
A$2 billion globally. Obviously, we're a tiny, niche player in that
market, and
shouldn't be limited by the market size or the opportunity. However,
all our work
is under individual contracts of variable size that we have to win
separately.
The business does have an element of fixed cost, so what will drive
profit
improvement is clearly the top line and our ability to secure sales
and assignments.
That means being responsive to what our customers need and making
certain we
provide those services in a cost-effective way.
corporatefile.com.au
Royalty and licence income was $1.9 million in the first half, up
from $1.6 million
previously. What's the outlook for royalty and licence income over
the remainder
of the year?
CEO Peter Cook
Licence income's always lumpy, and we did receive a licence payment
in the first
half. We do have some concern that there'll be a deterioration in
our royalty
income from the 50 cc scooter market in the second half. That stems
from some
instability we're seeing in the European market, partly because of
imports and
partly because of underlying cost problems the European
manufacturers are
having. On the positive side, Mercury's new three-cylinder engine
range is
looking better than we'd have thought, which could partly compensate.
corporatefile.com.au
Cash flow from operations was negative $0.3 million in the first
half, compared
with negative $6.1 million previously. When do you expect the
business to
generate positive cash flow from operations?
CEO Peter Cook
We view our cash flow from operations as being positive. The
negative $0.3
million at the end of December reflects the timing of collections
and collections
made in the early part of January have corrected that. We see the
underlying
business as capable of generating cash hence forth. We will have
some cash
outlays in the second half as we reduce our rental expense and
relocate from our
current leased offices into existing, owned premises. But those
expenses are
directed at cost saving.
4
corporatefile.com.au
Orbital's capex appears to have been minimal in recent periods while
the business
was being turned around. What will be the capital requirements of
the business
going forward, particularly if you're to sustain growth?
CEO Peter Cook
In terms of plant and facility upgrades, we do foresee the need for
some
expenditure over the next three years. We'd expect it to be well
within our
depreciation figure.
corporatefile.com.au
Orbital had cash in hand of $12.0 million as of the end of December,
up from $9.0
million at the end of June. What level of cash backing do you
require for your ongoing
operations and what's the outlook for cash at the end of June 2004?
CEO Peter Cook
We'd expect to generate positive cash from underlying trading in the
second half.
So excluding the capital spending for the office relocation, we'd
expect cash in
hand at June 30, 2004 to be similar to the December 31, 2003 number.
corporatefile.com.au
Thank you Peter.