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23 October 2007
CHAIRMAN'S SPEECH AND AGM PRESENTATION
Good morning ladies and gentlemen and welcome
to the 19th Annual General Meeting of Orbital Corporation
Limited. My name is Peter Day and I will be chairing today's meeting.
We have a quorum of shareholders present, so
I am pleased to declare the meeting open.
With me today are my fellow non-executive Directors,
Grahame Young and John Marshall, and Managing Director and Chief
Executive Officer, Dr Rod Houston. Also present is Mr Keith Halliwell,
our Chief Financial Officer and Company Secretary.
In addition, we have with us today Mr Brent
Steedman, representing our auditors, KPMG.
Before addressing the business on today's agenda,
on your behalf and on behalf of all the Directors and Staff at Orbital,
I would like to formally recognise Don Bourke's contribution as
a Director and Chairman of Orbital over the last four years. As
recently announced, Don sadly passed away in August this year. Throughout
his Chairmanship Don demonstrated strong leadership, taking Orbital
through significant change, leaving a Company positioned to generate
consistent profits and to take advantage of growth opportunities
in a number of markets. Many of you would have known Don far better
than I. I had the privilege of briefly meeting with him and I very
much appreciated his encouragement and perspective and his positive
contribution right to the end.
Next I would like to give you a brief overview
of Orbital's year, including a financial overview and some strategic
milestones. Rod Houston will then follow up with a more detailed
operational review of the 2007 financial year after which we will
conduct the formal business of the meeting. We will then take questions
from the floor.
Financial Results
I am pleased to report that the Company achieved
an improved net profit after tax in the 2007 financial year of $1.3
million compared to $0.5 million last year. The improvement was
after accounting for the cost of the settlement of a legal dispute
in the year for $0.6 million.
The Engineering Services business unit had
a good year. Engineering services revenue increased by 45% to $12.5
million with increased development activity on Orbital's Direct
Injection (DI) programs and growth in a number of new fields such
as alternative fuel applications. The sharp increase in revenue
in this business, which has a high proportion of fixed costs, generated
an engineering contribution of $3.2 million; a significant improvement
on $0.4 million in 2006.
Royalty volumes were flat year on year but
the revenue was marginally down compared to 2006 due to the stronger
Australian dollar. We were pleased to announce in May that Bajaj
had commenced production of an autorickshaw for the Indian market
utilising Orbital's DI technology. We understand that this product
is achieving significant fuel economy benefits which are very important
in this commercial market in India. Bajaj extended its licensing
arrangements with Orbital during the year, entering into a licence
for LPG and CNG autorickshaws.
Synerject, Orbital's joint venture with Siemens-VDO,
provided an equity accounted profit of $3.2 million for the 2007
financial year compared to $4.1 million last year. The result was
impacted by the stronger Australian dollar and Synerject's costs
in establishing a manufacturing plant in China which has recently
commenced production of an electronic control unit for application
in the Chinese motorcycle market. Synerject achieved revenue growth
through the acquisition in March 2006 of Delavan which manufactures
E-TEC fuel systems and electronic control units for Bombardier.
In the 2007 financial year Delavan contributed more than $30 million
revenue to Synerject and margin improvements were achieved in line
with the business plan.
Capital Raising
I would like to thank shareholders for their
support for the share placement and oversubscribed share purchase
plan implemented during the year. Orbital raised $8.8 million after
costs and this together with a significant improvement in cash flow
from operating activities provided cash on hand of $11.3 million
at 30 June 2007. This provides a solid financial platform as we
go forward.
Keeping shareholders informed
Before turning to the outlook I would like to say a few words about
how we intend to keep you informed about developments in your company.
I am very aware of the history of Orbital and that it has generated
great expectations at certain times in its life. It also seems to
generate occasionally somewhat uninformed and vigorous comment -
but that is part of the rough and tumble of a free market.
Your Directors of course remain committed to
keeping you informed and fully adhering to ASX requirements and
our continuous disclosure obligations. We will thus advise you of
material price sensitive events and news via the ASX. We will also
publish on our website those ASX disclosures plus information of
an ongoing nature which might not otherwise warrant ASX disclosure,
to keep you informed of our progress.
Our vision is to grow a sustainably profitable
and valuable enterprise founded on
Innovative Technical Solutions for a Cleaner
World
Through the exploitation of:
- our existing intellectual property portfolio
enhanced by ongoing research and development
- our engineering services capability leveraging our human talent
and expertise
- our joint venture arrangements to exploit our products and service
capability
- plus our appetite for new activities which complement our strategic
position
This will take time and we are focused on building
shareholder value.
Outlook
Orbital started the current financial year
with an engineering order book of $5 million compared with $6 million
at 31 December 2006. This has resulted in reduced engineering activity
in the 1st quarter. I am pleased to say however that order intake
for the current year to date is now ahead of budget; supported in
particular by the recent award of a new contract by the Roads and
Traffic Authority of NSW in excess of $2 million to complete the
Second National In-Service Emissions Study (NISE2) for and on behalf
of the Federal Department of the Environment and Water Resources.
The order book is thus in excess of $8.0 million, underpinning the
engineering services division activity for a substantial part of
this financial year.
We anticipate additional royalties as a result
of the launches of the Bajaj DI autorickshaw and the Polaris ATV
in the last 6 months. We believe that Orbital's existing royalty
customers will provide steady product volumes supported by recent
product launches such as Mercury's two new Optimax engines.
Overall we don't expect significant royalty
revenue growth as increased volume will be offset by the strengthening
Australian dollar.
The weaker North American marine market and
the strong Australian dollar will also adversely impact Orbital's
share of Synerject's result when equity accounted in Australian
dollars. Synerject has invested in the development of the "M3"
electronic control unit (ECU) for a number of years and has now
commenced production in manufacturing facilities in China. The low
start up volumes in 2008 will not fully cover all the ongoing manufacturing
plant costs and we believe that it will be 2009 before profits are
generated in this sector. The Delavan plant which was acquired by
Synerject in March 2006 continues to meet acquisition expectations
and on going efficiencies will support the Delavan contribution
in 2008.
The net result for Orbital is that the 1st
quarter has been tough from an operational and financial point of
view. However, we believe that the 2nd quarter will show improvement
but we expect our 1st half profit result will be substantially behind
last year, when we had record engineering revenues. We expect Orbital
will have a profitable second half in line with the typical cyclical
nature of our business.
We will clearly be in a better position to
give you a full year outlook as we come off the first half results,
knowing the then state of the engineering order book, a sense of
the operating performance for Synerject and our exchange rate outlook.
What I can say is that management is tasked to continue to improve
the underlying operating performance across all areas of the business.
Your Board is confident that the investment in this past financial
year in new business opportunities such as the M3 ECU production
launch will provide significant returns in future years. Licensees
have recently adopted Orbital's direct injection technology on new
products and the engineering services division has taken on projects
in new areas as heavy duty LNG/CNG systems development; all of which
provides confidence in the future.
We believe that global environmental concerns
continue to support Orbital's strategy of targeting efficient use
of energy and resources. We look forward to continue to provide
innovative technology solutions for a cleaner world.
Thank you.
Please click here
to view the AGM's slide presentation (PDF 2.5MB).
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