Open Briefing. Orbital Engine Corp. CEO on Profit Improvement
February 22 2004 - 8:48PM
PR Newswire (US)
Open Briefing. Orbital Engine Corp. CEO on Profit Improvement
PERTH, Australia, Feb. 22 /PRNewswire-FirstCall/ -- Record of
interview: corporatefile.com.au Orbital Engine Corporation Limited
recently reported net profit of $2.1 million for the first half
ended December 2003 compared with a loss of $2.9 million in the
previous comparable period. The result is more than double your
$1.0 million net profit in the second half of 2003 and was achieved
in spite of a 67 percent fall in revenue.What were the key
contributors to the continuing profit improvement? CEO Peter Cook
The key contributors were the improved performance in our
engineering consulting area, the increase in licences and royalties
half on half, and the continuing cost benefits, particularly in our
overheads, that are coming from restructuring we've put in place
over the past 18 months. The revenue shortfall was expected and the
result of the transfer of our marine and recreation systems
business to Synerject, our joint venture with Siemens VDO, which
was completed as at April 1, 2003. The restructuring's made a
positive contribution to profit. corporatefile.com.au First-half
EBIT was $1.9 million. This compares with an EBIT loss of $3.1
million previously and aprofit of $1.1 million in the recent second
half. Is it realistic to expect this level of operational profit
improvement to continue over the remainder of the current year
ending June 2004? CEO Peter Cook We expect the second half to look
pretty much like the first, excluding currency gains or losses.
We're expecting the benefits of our restructuring to continue to
roll out and on the revenue side, we'd expect to see similar
results in our engineering consulting activities with some
softening in our royalty and licence income due to timing. We also
expect some earnings increases from Synerject. corporatefile.com.au
Synerject contributed after-tax earnings of $0.9 million to the
first half result, compared with $0.7 million previously. What were
the drivers of this growth and is Synerject performing in line with
expectations following its 2003 restructure? CEO Peter Cook In US
dollar terms, Synerject's meeting our expectations following the
restructuring. Synerject's a US business andits contribution to our
profit improved in spite of the currency translation loss compared
with the previous period. corporatefile.com.au Given Synerject's
based in the US and some of its major markets are in Europe, what
impact is the current weakness of the US dollar having on its
pricing and margins? CEO Peter Cook Synerject essentially sources
its componentry and builds its product in the US and does sell a
reasonable proportion of its output in Euros. So in the current
currency environment,it's had an improvement in profitability
attributable to currency. Of course when we take up our 50 percent
share of that profit and translate it into Australian dollars, the
benefit's reduced. Generally, Synerject's reasonably well protected
from currency movements but it did benefit in the first half.
corporatefile.com.au What's the outlook for Synerject's earnings
for the full year? CEO Peter Cook All I'm willing to say is that
Synerject's underlying business is performing reasonably well and
that it usually produces a better second half than first half.
corporatefile.com.au In the first half, Orbital's engineering
services income was $6.1 million, up 26 percent from the previous
comparable period and ahead of your 20-percent growth target for
the current year. What's driving this revenue growth and can you
maintain the momentum? CEO Peter Cook The growth reflects our focus
on the area and our ability to win business. But, while we do
expect to deliver our targets, there is a timing issue and we don't
expect to sustain that 26 percent growth over the full year. Work
on hand indicates that a reasonable proportion of the orders we
need in the second half have already been received. Sales are the
key. We seem to be developing appropriate relationships with key
customers and the market is receptive. However, we're primarily an
outsource service provider and very dependent on the health of the
automotive and power-train industries. corporatefile.com.au
Engineering servicesmade an EBIT profit of $1.2 million in the
first half. Will further profit improvement in this area depend
purely on driving top-line growth? What's the size of the potential
market? CEO Peter Cook The global market for engineering
power-train services is estimated at something like A$15 billion.
Probably about 15 percent of that's supplied by external
engineering consultants such as ourselves, which makes it a market
of more than A$2 billion globally. Obviously, we're a tiny, niche
player in that market, and shouldn't be limited by the market size
or the opportunity. However, all our work is under individual
contracts of variable size that we have to win separately. The
business does have an element of fixed cost, so what will drive
profit improvement is clearly the top line and our ability to
secure sales and assignments. That means being responsive to what
our customers need and making certain we provide those services in
a cost-effective way. corporatefile.com.au Royalty and
licenceincome was $1.9 million in the first half, up from $1.6
million previously. What's the outlook for royalty and licence
income over the remainder of the year? CEO Peter Cook Licence
income's always lumpy, and we did receive a licence payment in the
first half. We do have some concern that there'll be a
deterioration in our royalty income from the 50 cc scooter market
in the second half. That stems from some instability we're seeing
in the European market, partly because of imports and partly
because of underlying cost problems the European manufacturers are
having. On the positive side, Mercury's new three-cylinder engine
range is looking better than we'd have thought, which could partly
compensate. corporatefile.com.au Cash flow from operations was
negative $0.3 million in the first half, compared with negative
$6.1 million previously. When do you expect the business to
generate positive cash flow from operations? CEO Peter Cook We view
our cash flow from operations as being positive. The negative $0.3
million at the end of December reflects the timing of collections
and collections made in the early part of January have corrected
that. We see the underlying business as capable of generating cash
hence forth. We will have some cash outlays in the second half as
we reduce our rental expense and relocate from our current leased
offices into existing, owned premises. But those expenses are
directed at cost saving. corporatefile.com.au Orbital's capex
appears to have been minimalin recent periods while the business
was being turned around. What will be the capital requirements of
the business going forward, particularly if you're to sustain
growth? CEO Peter Cook In terms of plant and facility upgrades, we
do foresee the need for some expenditure over the next three years.
We'd expect it to be well within our depreciation figure.
corporatefile.com.au Orbital had cash in hand of $12.0 million as
of the end of December, up from $9.0 million at the end of June.
What level of cash backing do you require for your on-going
operations and what's the outlook for cash at the end of June 2004?
CEO Peter Cook We'd expect to generate positive cash from
underlying trading in the second half. So excluding the capital
spending for the office relocation, we'd expect cash in hand at
June 30, 2004 to be similar to the December 31, 2003 number.
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
Limited CONTACT: Australia, Mr. Peter Cook, Chief Executive Officer
of Orbital Engine Orbital Engine, +61-8-9441-2311, , or in USA,
+1-810-245-0621 Web site: http://www.orbeng.com.au/
http://www.corporatefile.com.au/
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