Orbital Engine (NYSE:OE)
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Attention ASX Company Announcements Platform Lodgement of Open
Briefing
PERTH, Australia, May 5 /PRNewswire-FirstCall/ -- The following is a
transcript of an interview between corporatefile.com.au and Peter Cook, CEO of
Orbital Engine Corp:
Date of lodgement: 05-May-2004
Title: Open Briefing. Orbital Engine Corp. CEO on Bajaj, Outlook
Record of interview:
corporatefile.com.au
Orbital Engine Corporation Limited recently announced a technical cooperation
agreement with Bajaj Auto Limited, one of India's largest producers of two and
three wheeler vehicles. How will Orbital derive revenue under the agreement
and what are the implications for earnings going forward?
CEO Peter Cook
Our arrangement with Bajaj is a fairly standard licence and royalty agreement.
A small amount of the licence fee was payable on the signing of the agreement
and certain milestone payments are due over the next 12 months or so. Then,
once Bajaj goes into production, we'll derive a royalty from every unit made.
The implications for earnings are twofold. Firstly, the volume and size of the
Bajaj autorickshaw market is significant relative to those of other licences we
hold. We're hopeful it will prove to be of a similar value to the Mercury
royalty stream for us. Secondly, this is the first time our product will be
used on a commercial vehicle - autorickshaws are predominantly taxis in India
-- and the fuel benefits will have a significant meaning for the operator.
We're hopeful we'll see significant market penetration and growth in the sector
overall.
corporatefile.com.au
The agreement gives Bajaj exclusive use of Orbital's fuel injection technology
on its autorickshaws for three years following the commencement of production.
Why was it necessary to provide exclusivity? Does this relate only to the
Indian market?
CEO Peter Cook
The exclusivity is only in the Indian market and is restricted to a particular
capacity range of two stroke engines. We agreed to this because Bajaj has
pioneered, grown and developed this market sector and it wanted to make certain
there were no competitive pressures from other manufacturers moving into the
sector with what it sees as the superior technology.
corporatefile.com.au
What other opportunities are there for Orbital in the Indian market?
CEO Peter Cook
This is our first venture with a commercial vehicle and our first venture into
the Indian marketplace, so we have to tread a little warily. We're optimistic
however, that with some success in this sector, and particularly with our
emissions and fuel economy demonstrated on a commercial vehicle, there'll be
other opportunities over time.
corporatefile.com.au
Orbital said at its first-half results announcement that it expected the
results of the second half ending June 2004 to be in line with the first half,
excluding any foreign exchange gains or losses. First-half net profit was $2.1
million. How do results so far in the half compare with this expectation?
CEO Peter Cook
At the time, we also alerted the market that one of the sectors where we derive
royalties, the 50cc scooter market in Europe, was reasonably volatile with
manufacturers under profit pressure from changing market circumstances. We're
still concerned about that, and the position could deteriorate, but on our
current reading of the environment in Europe, we believe our second half should
be consistent with our first half.
I should also add that despite these concerns in Europe, we have a greater
level of confidence about the market for outboards. Current indications are
quite positive for Mercury's Optimax range in North America.
corporatefile.com.au
Is the volatility of the 50cc market in Europe a cyclical event, or are there
signs that it could be a structural change that could have a long-term impact?
CEO Peter Cook
It could be either. Like a lot of European manufacturers, our licensees have
found it very difficult to sustain a position against imported Asian products.
But they're moving to secure manufacturing points in Asia, so we're hopeful
that this is just a cyclical shake-out.
corporatefile.com.au
Orbital's overhead expenses fell to $7.2 million in the first half from $10.6
million in the previous corresponding period. What has been the trend in
overheads in the second half and to what extent will your head office
relocation contribute to lowering costs over the remainder of the year and
going forward?
CEO Peter Cook
There'll be some minor savings in terms of occupancy and related costs, but
we're not seeing any significant change in overheads compared with the first
half. We've got our overheads fairly stable and where we want them to be.
corporatefile.com.au
Can you give any guidance on the level of any one-off costs that might be
associated with the head office relocation? To what extent are these cash
costs?
CEO Peter Cook
The one-off costs were all cash and amounted to some $950,000. They were
either fully provided for in earlier financial periods or will be capitalised
and therefore will have no impact on this year's profit. The costs related to
two elements, the termination and make-good obligations under the lease and the
refurbishment of one of our existing buildings into which we've relocated.
corporatefile.com.au
Orbital reduced its net operating cash outflow to $0.3 million in the first
half, compared with $6.1 million previously. The result included some final
redundancy payments relating to the Synerject restructure. As you generate
positive cash from operations, what will be your priorities for employing the
cash?
CEO Peter Cook
We now want to rekindle some support work for our underlying Orbital combustion
process technology, and particularly second generation products for OEMs that
have our product out in the marketplace. Our first generation product's been
in the market for upwards of five to six years, so we'll be looking to do some
product improvement aimed at lowering cost for the OEM, achieving easier
application and reducing the number of components.
This will be a very focused development spend, not a research spend, and will
be driven off the needs of our customers. We'd therefore expect it to be
reflected fairly quickly in improved royalties and improved market penetration.
corporatefile.com.au
Orbital's shares are currently trading at around $0.15, more than 30 percent
below their 52-week high of $0.22 in September. Given you're still within the
period during which the New York Stock Exchange is monitoring the company for
compliance with its listing rules, does the share price fall have any
implications for your NYSE listing?
CEO Peter Cook
The answer's got to be yes. One of the issues the NYSE considers is market
capitalisation, so decline in share price is relevant. We've now been
monitored by the NYSE for 18 months, and we're not fully meeting all of their
requirements although we are requesting that the company be allowed to continue
to trade on the exchange on the basis that we expect to move back into a
position of full compliance in the medium term.
We're committed to ensuring that our US-based shareholders have an accessible
market on which to trade their ADRs and our preference is to remain listed on
the NYSE. In the event that proves not to be possible, we'll canvass alternate
markets in the US.
corporatefile.com.au
Thank you Peter.
For previous Open Briefings with Orbital Engine, visit
http://www.corporatefile.com.au/
For more information about Orbital Engine, visit http://www.orbeng.com.au/
DATASOURCE: Orbital Engine Corporation
CONTACT: Peter Cook, Chief Executive Officer of Orbital Engine
Corporation, +61-8-9441-2311, or , or USA, +1-810-245-0621
Web site: http://www.orbeng.com.au/
http://www.orbeng.com/