Orbital Engine (NYSE:OE)
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Orbital - Half Year Results
PERTH, Australia, Feb. 19 /PRNewswire-FirstCall/ -- The Directors of Orbital
Engine Corporation are pleased to announce the financial results for the
half-year ended 31 December 2003.
Highlights
* Profit after taxation of $2.1 million compared to a loss of
$2.9 million in the corresponding period last year.
* Continuing increase in engineering services, royalty and licence
income.
* Overheads reduced by 32% to $7.2 million.
* Record result by Synerject, contributing $0.9 million to Orbital's
result, an increase of 35% over the previous year.
* Successful share purchase plan generating $3.3 million in July 2003.
* Improved cash flow.
* Continuing progress in new markets, particularly India and Taiwan.
Orbital CEO, Peter Cook, said that the Company had consolidated the turnaround
demonstrated in the second half of last financial year: "This result is another
step forward in our process of getting the fundamentals right. Over last years
corresponding period and after the Synerject restructuring, all business
segments have shown improvement and contribution to the bottom line."
Financial Summary
Dec 2003 Dec 2002
A$'000 A$'000 Change
Revenue
System sales - 23,236 N/A
Engineering services 6,141 4,856 +26%
Licencing income 1,937 1,620 +20%
8,078 29,712
Other Income
Foreign exchange gain 818 249
Proceeds on sale of fixed assets 70 80
ACIS credits 587 -
Other 53 65
1,528 394
Total Revenue (excluding interest) 9,606 30,106
System purchases - (21,696)
Licence costs (422) -
Gross Contribution 9,184 8,410 +9%
Overhead expenses (7,203) (10,562) (34%)
Restructuring expenses (11) 17
Share of Synerject net profit 896 664 +32%
Earnings before Interest, Tax
Depreciation and Amortisation 2,866 (1,471)
Depreciation & amortisation (932) (1,158)
Amortisation of prepaid marketing - (484)
Net interest income 276 147
Operating Profit/(Loss) Before Tax 2,210 (2,966)
Income tax (expense)/credit (102) 67
Operating Profit/(Loss) After Tax 2,108 (2,899)
Revenue
As previously reported, the restructure of Synerject included the transfer of
Orbital's marine and recreation systems sales business to Synerject with effect
from 1 April 2003. This has resulted in a decrease in total revenue
consolidated by Orbital, however the net result after elimination of system
sales overheads and take up of an improved Synerject result is a positive
contribution.
Engineering services and royalty and licence income have increased by 26% and
20% respectively over the previous year, despite the strengthening of the
Australian dollar which has eroded royalty revenue by some $200,000 compared to
the prior year's exchange rate.
Engineering consulting revenue continues the improvements demonstrated last year
as Orbital has expanded its sales and marketing focus beyond its traditional
technology customers.
Royalty and licence revenue has continued to grow with the introduction of
Mercury's 115 and 90 horsepower 3-cylinder Optimax(TM) product range, launched
during the last 9 months. The increase also reflects progress made in the
introduction of OCP technology into new markets, including a licence fee
instalment made by UCAL India. Expenses
Orbital commenced a restructuring program in FY2001, resulting in progressive
reduction of overhead expenses over the last few years. Overheads have
decreased a further 32% to $7.2 million in this half-year. The savings were
derived primarily from the closure of Orbital's US office in April 2003, as a
result of the transfer of the system sales business to Synerject noted above.
In addition, all other business expenses have been subject to review and have
contributed to the savings achieved.
Synerject
Synerject, Orbital's 50:50 joint venture with Siemens VDO Automotive, continues
to achieve improved results with Orbital's share of Synerject's profit for the
half-year increasing by 35% to $0.9 million for the half-year. Synerject derives
revenue in United States dollars and Euros, and the translation of Synerject's
results into Australian dollars has eroded reported revenue by $210,000 compared
to the prior corresponding period.
Synerject realised the benefits of the transfer of Orbital's marine and
recreation system sales and Siemens VDO's non-automotive systems business for
the full half-year. In addition, sales volumes increased with the introduction
of direct injection fuel systems to Mercury's 3-cylinder Optimax(TM) range of
engines. Mercury introduced the 115hp engine in April 2003, the 90hp engine in
July 2003 with the 75hp due for introduction in early 2004.
Cash
EBITDA reflects the steady improvement in the operating results and consequent
cash flows, as illustrated in the accompanying graph.
Cash at bank at 31 December 2003 was $12.0 million compared to $9.0 million at
30 June 2003. In July 2003, Orbital received $3.3 million arising out of a
share purchase plan which was extremely well supported by existing
shareholders.
Orbital has reduced net cash used in operating activities from $6.1 million in
the half-year to 31 December 2002 to $0.3 million this year. Increased
engineering revenue has required some additional working capital and final
payments with respect to staff reductions arising out of the Synerject
restructure were settled during the half-year.
Net cash requirements for investing activities are now minimal as Synerject is
self-funding.
United States Generally Accepted Accounting Principles.
The financial result for the half-year ended 31 December 2003 under US GAAP is a
profit after taxation of A$10.0 million compared to a loss in the corresponding
period last year of A$2.6 million.
The most significant difference between Australian GAAP and US GAAP is the
recognition under US GAAP of income tax losses not previously brought to account
of $8.0 million. Under Australian GAAP tax losses can only be recognised when
the realisation of the asset is virtually certain, however under US GAAP
recognition is required if it is more likely than not that the tax losses will
be utilised.
Orbital has total future tax benefits of approximately $38 million and the
Directors have determined that it is more likely than not that Orbital will
realise at least $8.0 million of available losses. The determination is
supported by factors including: -
* Recent profits in Synerject and Orbital's US subsidiaries.
* Profit for the 6 months ended 31 December 2003 in Orbital's Australian
operations.
* Forecast profits for Orbital going forward.
Commercial Update
Orbital continues to expand its engineering customer base beyond traditional OCP
customers.
This is reflected in the 26% improvement in engineering services revenue for the
half-year, which includes, for instance, continued assessment of ethanol blends
in petrol, and the provision of calibration and validation services for OEMs
seeking to outsource engineering services.
In the marine sector, Mercury continued the introduction of 1.5 litre
Optimax(TM) 3 cylinder engines. The 115hp model which was released in April
2003 was followed by the 90hp in September 2003. It is anticipated that the
75hp model will be released in early 2004.
In October 2003 Kymco, a leading Taiwanese motorcycle manufacturer, announced
the adoption of Orbital direct injection technology for the planned introduction
of a 100cc scooter model scheduled for launch in 2004. Kymco have made further
progress in production plans having received qualified EPA approval with initial
launch volumes anticipated prior to the end of the financial year.
Whilst taking longer than originally envisaged, Orbital continues to make
progress with 2-wheeler and 3-wheeler initiatives in India. As a precursor to
any licence agreement, several engineering programs have been undertaken during
the year with Indian motorcycle OEMs and UCAL, Orbital's licensed system
supplier in India.
Outlook
Orbital is reasonably confident that the level of engineering consultancy
services provided in the first half will continue for the remainder of the
financial year. Cost reductions implemented in the last two years which relate
primarily to this business sector are now finalised ensuring a stable business
with secure returns.
Royalty and licence income, however, will most probably be affected by the
unstable 50cc European scooter market. Delays in implementation of Euro III
emissions legislation and escalating European manufacturing costs are
contributing to the market uncertainty in this price sensitive sector.
Synerject will also be affected by the weakness in the motorcycle sector however
the cyclical nature of Synerject business should see continued growth in
Synerject profits in the second half as OEMs build inventory for the northern
hemisphere summer.
Orbital's first half result had the benefit of translation gains arising from
foreign exchange movements.
The Directors anticipate that the financial results in the second half will be
in line with the first half, after excluding any foreign exchange gains or
losses.
Orbital is an international developer of engine and related technologies,
providing research, design and development services for the worlds producers of
powertrains and engine management systems for application in motorcycles, marine
and recreational vehicles, automobiles and trucks. Orbital's principal
operations in Perth, Western Australia, provide a world class facility with
capabilities in design, manufacturing, development and testing 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 (OEC), the New York Stock Exchange (OE) as well as the Berlin (ORE) and
Frankfurt (OREA) Exchanges
CONTACTS: Email - Web site - http://www.orbeng.com/
Australia: Mr Peter Cook USA, 1 810 245 0621
Chief Executive Officer
Tel: 61 8 9441 2311
DATASOURCE: Orbital
CONTACT: Australia, Mr Peter Cook, Chief Executive Officer,
+61-8-9441-2311, or , or in USA, +1-810-245-0621
Web site: http://www.orbeng.com.au/
http://www.orbeng.com/