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Welcome to Orbital's website, and to the
"From the CEO" newsletter.
It has been
a very active two months since my last newsletter, and I would like
to update you on key activities and the directions your company
is heading. Whilst we face challenges with the worldwide Financial
Crisis, as discussed in my previous newsletters, we are starting
to see positive results of the key strategies and initiatives introduced
last year. Our market is responding to three key market drivers:
- consumer
market and legislative push for fuel economy improvement
- increased
focus on climate change
- alternative
fuels market
As the opportunities
for consulting engineering services contracted in our traditional
markets of Europe, USA and Japan, we implemented new marketing initiatives.
These included an increase on our focus on alternative and renewable
fuels together with additional attention for China.
As announced in late February, we commenced
major programs with Sygma Motors in Brazil for an Ethanol application
of our FlexDI™ system on to large commercial engines - see
http://www.orbitalcorp.com.au/orbital/investorinformation/news/090209.htm.
Simon Brewster, who presented Orbital's Ethanol FlexDITM developments
at the 2007 SAE Congress in Brazil, will be heading up the Sygma
program and is spending half his time in Brazil.
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I visited Brazil in early May, and met
with the principles of Sygma Motors and VSE (Vale Solutions
in Energy). The work that we are carrying out with Sygma Motors
is the foundation work for the Ethanol sector of Orbital's
overall alternative fuel strategy.
There is a growing demand from the Brazilian
government and industry for ethanol to be applied to heavy
duty industrial and transport applications where diesel is
the predominant fuel. Brazil is ranked #1 for using renewable
fuels and through the efforts of Sygma Motors and VSE, plans
to be a leader in application of ethanol for power generation
and heavy duty applications.
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Marcos Langeani, Managing Director, Sygma
Motors, James Pessoa, CEO & President, VSE with Terry
Stinson
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In late March, we finalised
our commercial arrangements with Continental AG for the ownership
of our joint venture company Synerject. Orbital had the option
to take up 10% |
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a 50:50 joint ownership by payment of US$4 million. However,
to enable expansion of Synerject, Continental requested to take
controlling interest in Synerject and new commercial arrangements
were negotiated. Continental has taken on an additional 8% ownership
of Synerject in exchange for the US$4 million. |
This brings immediate benefits to Synerject
as Continental now has a controlling interest in the joint venture
entitling Synerject to have better access to Continental's purchasing
systems and processes. This will significantly improve Synerject's
purchasing power; increased Synerject profits is projected to deliver
greater returns to Orbital in the future.
As a part of the Synerject transaction Continental
contributed a North American marine Engine Control Unit business
with revenue of US$10m to Synerject. Orbital also received a special
dividend of US$2.25m from Synerject, and will use this dividend
for strategic investments going forward.
A further benefit is Orbital will become the
Australian and New Zealand representative for the supply of specific
Continental LPG and CNG fuel supply components. This includes software,
injectors, regulators and fuel rails for passenger cars, heavy duty
engine and mining applications and is important in supporting our
growth strategy for our OGP business and in the alternative fuel
markets. For more detailed information, please refer to the following
link: http://www.orbitalcorp.com.au/orbital/investorinformation/news/300309.htm
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In
early May we secured a major development contract with Changan
in China. Through this joint program, Changan and Orbital will
apply FlexDI™ and other advanced technologies to a concept/demonstration
Changan automotive product. The aim is to achieve significant
improvements in fuel economy whilst maintaining the engine performance
and meeting the stringent Euro IV emissions being introduced
in China. |
A successful proof of concept could result
in a production program. We are cautiously optimistic as Orbital
has been in this same position with several customers over the past
ten years. Previous demonstration programs with major automotive
customers achieved significant improvements, however these programs
did not move into production. Our team will take the Changan program
step-by-step, delivering on the concept is the primary focus and
is imperative to have a chance at future production opportunities.
I expect many of you will have future follow-on
questions related to the progress of the Changan project. From this
point, please do not expect further updates from Orbital. Our customer,
Changan, has requested that the progress and the results from this
endeavour be kept strictly confidential. Changan may release the
results in the future at their discretion. The Changan announcement
may be found at http://www.orbitalcorp.com.au/orbital/investorinformation/news/010509.htm
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We recently announced that
OGP (Orbital Gas Products) has been appointed as the OEM supplier
of the new-generation LPG system for Ford Falcon models, commencing
in the second half of 2010. |
| This is a major milestone
for OGP and Orbital. It will allow Orbital to further develop
our expertise in alternative fuel engine technology targeted
for application and sale in our home country, Australia. |
The new agreement will see OGP deliver more
content to Ford, resulting in significantly greater revenues. In
addition, Orbital Gas Products will expand through the planned introduction
of new generation LPG technology to the After-OEM and retrofit markets
commencing in the second half of 2009.
LPG is an attractive alternative fuel option
in Australia, with good supply infrastructure in place. In 2008,
more than 125,000 vehicles in Australia were fitted with LPG, resulting
in an estimated 104,000 fewer tonnes of CO2 being released into
the atmosphere. Due to the worldwide financial crisis and Australian
recession, the LPG retrofit market has recently softened. We expect
this to rebound with the economy and with increases in the price
of petrol.
The new Orbital LPG system significantly improves
vehicle performance compared to the current vapouriser systems.
It delivers good cold start/operation, with power and torque levels
similar to the gasoline engine. The LPG system demonstrates over
10% reduction in CO2 compared to the gasoline equivalent vehicle.
This new system, targeted at Australian application, will build
on our close relationship with Vialle and on the new commercial
relationship with Continental.
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LPG
pricing is typically only 40 to 50% of unleaded petrol. As the
cost of gasoline increases, the operating cost savings - without
compromise on performance - makes switching to LPG a very compelling
argument.
OGP is currently
developing the new LPG system and retrofit kits that will
cover a range of popular Australian car models. For more information
re the LPG announcement, please refer to:
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http://www.orbitalcorp.com.au/orbital/investorinformation/news/070509.pdf
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On the topic of alternative fuels for
large engine applications, our Heavy Duty Test cell is progressing
well. It is expected to be commissioned in a July/August 2009
timeframe. This new test facility will assist in our alternative
fuel development, especially with LNG, 100% ethanol and fuels
that work particularly well in heavy transport and industrial
engine applications. Using LNG can save up to $80,000 per
year for a high mileage C15 powered road train. This saving
is a very attractive proposition to the user and comes with
an added benefit of 15% greenhouse gas savings.
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Many of Orbital's shareholders
have asked me how the existing Orbital DI products are faring.
Key markets, specifically North America, Europe and to a lesser
extent Japan, are in recession, as a consequence we have seen
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| significant fall off in our
traditional gasoline FlexDI™ product volumes. The marine
products in particular have been heavily impacted as these are
mostly discretionary income products. As Synerject is the key
supplier of non auto FlexDITM systems to these customers, Synerject's
business is also being negatively impacted. Most of our North
American and European customers warn us not to expect any significant
improvement in the immediate future. We will take this into
account as we prepare our FY10 budgets. |
On a more positive side, all of our outboard,
motorcycle and three wheeler models continue in production, albeit
with the reduced volumes in the recreational market.
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In India, the three wheeler
GDI autorickshaw is now listed on the Bajaj website. This is
a positive sign and shows continued support by Bajaj for FlexDI
technology. I expect questions related to sales volumes and
market expansion for this product. Please accept that this information
is customer confidential and cannot be disclosed by Orbital.
The benefits of the GDI vehicle compared to the baseline and
more detailed information are available at this link: http://www.bajajauto.com/3wheeler_regdi.html |
You may recall in my last newsletter I commented
that the impact of the worldwide financial crisis has not dimmed
my spirits related to Orbital's prospects. This is still the case.
You can see from this newsletter that our staff have been very busy
and despite the financial conditions have done well and we continue
to secure new contracts. Since the end of February, we have had
engineers on site supporting funded programs in USA, Germany, Austria,
UK/Scotland, Brazil and France. I am continually encouraged with
the global recognition of the unique skills that we can offer engine
and vehicle manufacturers.
In the last two months, the executive management
team and the Board of Directors have further developed the base
strategies introduced at the last AGM. Whilst this is ongoing work,
our strategy reviews have confirmed that our growth opportunities
lie in the alternative fuel area. We will be vigorously pursuing
these opportunities from supply, service and development perspectives
for engines ranging from small, to automotive, to large industrial
engine applications. Orbital currently has sufficient financial
and technical resources to pursue our objectives, however, to achieve
the growth that the Orbital Board and Management team are targeting,
addition funding to support this growth may be required. We are
evaluating each investment very carefully and will endeavour to
investment in opportunities that will yield the best returns for
our shareholders.
With regards
Terry Stinson
Chief Executive Officer and Managing Director
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