Orbital Engine (NYSE:OE)
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Orbital Engine Corporation Ltd (NYSE: OE): CEO Update
PERTH, Australia, Oct. 27 /PRNewswire-FirstCall/ --
Date of lodgement: 27-Oct-2003
Title: Open Briefing. Orbital Engine Corp. CEO's Q1 Update
Record of interview:
corporatefile.com.au
Orbital Engine Corporation Limited said at its recent AGM that profit after tax
for the first quarter ended September 2003 was $3.2 million ahead of the
previous comparable period, while underlying trading generated cash of $0.6
million. Are you in a position to now give firmer earnings guidance for the
current year ending June 2004?
CEO Peter Cook
There are certain non-recurring elements in the first-quarter results, notably
the timing of some license fees and the receipt of ACIS credits, which did
contribute to the good start to the year.
For the full year, we'd expect to see a better performance than last year
overall. We expect the year to be profitable and cash positive. I'm reluctant
to be more specific given there are factors beyond our control, for example the
direction of the Australian dollar, which could have an impact on our earnings.
corporatefile.com.au
Synerject, your 50:50 joint venture with Siemens VDO Automotive, was
restructured in April 2003. In the first quarter, Orbital's earnings share from
the joint venture was $0.4 million, up 16 percent. How does the Synerject
contribution compare with expectations and to what extent are the benefits of
the restructure being realized?
CEO Peter Cook
Synerject continues to meet its targets and it's meeting the expectations of
both joint venture partners.
corporatefile.com.au
Following the restructure, Synerject now controls the system sales business and
Orbital has three income streams - royalties, license fees and fee-for-service
income from engineering services. What's been the trend in these three areas
during the first quarter and what are your expectations for the full year?
CEO Peter Cook
It's worthwhile clarifying what we regard as our three business sectors. One is
Synerject, which we've just discussed. The second is royalties and licenses,
which we link together because they relate to income from our intellectual
property. And the third is our engineering service activities. I'm pleased to
report that royalties and licenses are slightly ahead of the same period last
year and that engineering services are comfortably ahead of the same period last
year.
We expect some growth in our royalty and license income this year. It'll be
positive but modest. We expect to continue to improve our volumes and market
share in existing makes and models as well as planned new model launches.
However, that has to be taken in the context of a flat scooter market,
particularly in Europe, which is our major market, and a declining personal
watercraft (PWC) market.
Also, we've advised the market we're targeting 20 percent growth in our
engineering revenue this year. In our current environment, these are both
fairly aggressive targets.
corporatefile.com.au
Orbital raised a total of $6.2 million via a share placement and the offer of a
share purchase plan to existing shareholders. Is the improved financial
position enabling you to win more or better quality development projects?
CEO Peter Cook
One of the reasons we targeted 20 percent growth in the engineering services
area was because of our strengthened balance sheet. It's just one of the
components we needed to put in place to achieve that level of growth, and it's
contributing.
corporatefile.com.au
Orbital's overhead expenses fell nearly $6 million to $19.5 million in 2003,
implying average monthly overhead expenses of $1.6 million. What's been the
overhead run rate during the first quarter and what's the expected trend over
the remainder of the year?
CEO Peter Cook
Our first quarter run rate is on target and we see very few difficulties with
our overheads for the remainder of the year.
As we've said, we expect the annualized impact of last year's overhead expense
reductions to be picked up fully in 2004. There'll be some further reductions
based on initiatives we'll take this year, but they'll be modest in comparison.
corporatefile.com.au
Kwang Yang Motor Co. Ltd. (Kymco), one of Taiwan's biggest motorcycle
manufacturers, recently announced it planned to use Orbital Combustion Process
(OCP) technology in models scheduled for release next year. What will this mean
for Orbital in terms of earnings?
CEO Peter Cook
I always hesitate to predict the success of an individual make or model, however
there are certainly positive aspects for us. One is that Kymco plans to launch
a larger 100 cc capacity scooter in Europe, which would be an innovation in that
marketplace. Another plus is that Kymco will be our first Asian scooter
manufacturer, so our product will now have some presence in the Asian markets.
corporatefile.com.au
Why did Kymco adopt OCP technology and what opportunities are there for OCP to
be used by other Taiwanese motorcycle makers?
CEO Peter Cook
Kymco saw the merits of our technology a number of years ago in terms of the
improved emissions, the improved fuel economy and the easy start it offers on
scooters. But it'd be wrong to deny the impact Taiwanese emissions legislation
has had in the overall process. And the success the European manufacturers have
had with our technology would also have played a part given the export markets
are a significant portion of Taiwanese producers' total build.
We've also had a long history with Sanyang, the other significant Taiwanese
scooter maker and even though it's chosen to compete with Kymco's models using
alternative technology, both Orbital and Synerject have made a major
contribution to the development of those models.
corporatefile.com.au
You also recently announced that the New York Stock Exchange has confirmed it no
longer considers Orbital below the US$1 listing criterion, but will continue to
monitor the company for another seven months. What's the broad purpose of the
NYSE's continued monitoring of the company and what happens after seven months?
CEO Peter Cook
The NYSE's on-going listing requirements are multi-factorial, only one of which
is the share price. It's only in relation to the share price that the exchange
has advised we're now in conformity. On two of the other factors, shareholders'
equity and market capitalisation, we've improved but are not yet fully in
conformity with its stated requirements. So the exchange will continue to
monitor our progress at regular intervals through to April 2004. At that time it
will consider our overall progress, which has been positive up until now.
(Q) 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 Limited
CONTACT: Keith Halliwell of Orbital, +618-9441-2311, or in the US
1-866-714-0668
Web site: http://www.orbeng.com.au/
http://www.corporatefile.com.au/