Orbital Corporation Limited (OBTEF) Inactive
Filed: 25 Feb 11, 12:00am
Orbital Corporation Limited – Half Year Report
ABN 32 009 344 058
APPENDIX 4D
Half year ended 31 December 2010
Results for announcement to the market
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| A$'000 |
| % |
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| A$'000 |
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Total revenue | Down |
| 577 |
| 7.2 |
| to | 7,440 |
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Net profit for period | Up |
| 2,653 |
| NA |
| to | 29 |
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Profit attributable to equity holders | Up |
| 2,653 |
| NA |
| to | 29 |
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| 31 December 2010 | 30 June 2010 |
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Net tangible assets per share (cents) | 35.86 |
| 39.99 |
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There is no proposal to pay dividends for the six months ended 31 December 2010. |
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ORBITAL CORPORATION LIMITED
ABN 32 009 344 058
AND ITS CONTROLLED ENTITIES
31 DECEMBER 2010
HALF-YEAR FINANCIAL REPORT
DIRECTORS’ REPORT | Orbital Corporation Limited |
Your Directors submit their report for the half year ended 31 December 2010.
DIRECTORS
The names of the company’s directors in office during the half year and until the date of this report are set out below. Directors were in office for this entire period unless otherwise stated.
Name
Information on Directors
William Peter Day
Non Executive Director and Chairman.
Terry Dewayne Stinson
Managing Director and Chief Executive Officer.
John Grahame Young
Non Executive Director. Chairman of the Audit Committee.
Mervyn Thomas Jones
Non Executive Director. Chairman of the Human Resources, Remuneration and Nomination Committee.
Vijoleta Braach-Maksvytis
Non Executive Director.
REVIEW AND RESULTS OF OPERATIONS
Financial Overview
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| Dec 2010 | Dec 2009 | |
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| $'000 | $'000 | |
|
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Alternative Fuels |
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| Revenue | 2,717 | 2,912 | |
|
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| Contribution | (396) | (920) |
Consulting Services |
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| Revenue | 4,202 | 4,526 | |
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| Contribution | 36 | (12) | |
Licences and Royalties |
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| Revenue | 463 | 432 | |
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| Contribution | 273 | 242 | |
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Total |
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| Revenue | 7,382 | 7,870 | |
|
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| Contribution | (87) | (690) | |
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Synerject |
| Dec 2010 | Dec 2009 |
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| |
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| US$'000 | US$'000 |
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Revenue (100%) | 56,608 | 41,584 |
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| equity accounted profit | 1,466 | 314 | |||
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Other income |
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| 564 | 409 | |
Foreign exchange loss |
|
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| (88) | (107) | |
Finance costs (net) |
|
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| (248) | (289) | |
Research and development |
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| (716) | (96) | |
Other expenses |
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| (1,087) | (2,071) | |
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Profit/(Loss) before tax |
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| (196) | (2,530) | |
Taxation |
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| 225 | (94) |
Profit/(Loss) after tax |
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| 29 | (2,624) | |
Detailed comments on Orbital’s four business streams are as follows:
1
DIRECTORS’ REPORT | Orbital Corporation Limited |
Alternative Fuels
|
| Dec 2010 | Dec 2009 |
|
| $'000 | $'000 |
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OAGS | Revenue | 2,717 | 2,912 |
| Contribution | (396) | (920) |
Orbital Autogas Systems (OAGS) has developed and supplies Liquid Petroleum Gas (LPG) systems to Ford Australia, Holden Special Vehicles (HSV) and to the aftermarket. The aftermarket system is branded “Liquid” denoting liquid versus vapour injection and is considered latest ‘benchmark’ performance. In addition, OAGS supplies the previous generation “fumigator” or “vapouriser” LPG systems for aftermarket applications for earlier model vehicles. The new ADR 79/02 emission standards implemented in 2010 necessitates the utilisation of next generation systems such as “‘Liquid” LPG fuel injection systems for all new vehicles.
The next generation Ford E-Gas LPG system will be supplied by Orbital and Ford have announced their plan to release the new model later this year. HSV announced use of the OAGS system late last year for its performance vehicles and these new “Liquid” LPG injection models have been released for sale in Australia. The “Liquid“ LPG system offers seamless performance, equivalent to driving a petrol vehicle, whilst offering both significant operating cost savings and CO2 reduction of up to 13%. OAGS has developed and validated aftermarket “Liquid” kits for some 30 popular vehicle models, including both passenger car and light commercial vehicles.
The LPG aftermarket market has continued to contract and currently is at record low levels. This is due primarily to the much lower gasoline fuel costs (typically $1.22/litre compared to over $1.50/litre in the previous crude oil price rise) and has also been impacted by reductions in Government rebates. The change being experienced in the business is consistent with the 10 year historical cycle, a cyclical high when petrol prices rise and the lows when it falls. The traditional OE business, such as Ford, is more insulated to the changes in petrol prices and is driven by the petrol and LPG price differential.
OAGS revenue is approximately 7% lower than the same period last year due to Ford finishing production of the previous generation LPG systems at the end of September 2010. The loss of sales is partially offset by increased aftermarket kit sales. Gross margins improved due to the stronger Australian dollar compared to the Euro and a 10% decease in overhead expenses resulted in a $524,000 reduction in loss for the half year compared to the same period last year.
During the period Orbital and Mitchell Corporation continued the development of Liquid Natural Gas (LNG) systems for line haul heavy duty truck engine applications. This is an engineering program at this stage and is discussed in more detail below.
Consulting Services
|
| Dec 2010 | Dec 2009 |
|
| $'000 | $'000 |
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Consulting Services | Revenue | 4,202 | 4,526 |
| Contribution | 36 | (12) |
Orbital Consulting Services (OCS) revenue for the first half of $4,202,000 was 7% lower than the previous corresponding period, however cost control and project efficiencies generated a break even segment result, similar to last year.
During the period, major programs for China and Australia were carried over from the 2nd half FY10. Work programs sold, and commenced or undertaken in the period included further programs and program extensions from China, USA and Australia, along with programs using Orbital’s FlexDITM systems for heavy fuels (such as diesel and kerosene).
Orbital’s heavy duty engine testing facility, completed in 2009, has been in strong demand in this reporting period. This facility, capable of testing and certifying heavy duty engines of up to 600 kW is unique in Australia.
OCS supports the Mitchell Corporation LNG engine management systems (EMS) development program. Part of Mitchell’s business is to move iron ore in Western Australia and using LNG as the primary fuel provides a significant saving in energy cost. Several trucks have been converted and more are being converted as the project progresses. Mitchell’s Managing Director, Ian Kent, confirmed that they are very pleased with the progress to date. The natural gas substitution rates are on target and the journey times for the trucks have decreased.
Orbital is taking a conservative approach to this market. The key is to ensure customer satisfaction, and product reliability and durability. With continued success, Orbital will expand this business within Australia and our progress with Mitchell’s is generating interest from other key transport and resource companies in Australia.
The Changan program, applying Orbital’s FlexDITM system to the Changan vehicle continues to meet targets and has led to extended engineering orders. Success with Changan could lead to fresh opportunities in the automotive sector. The results we have achieved on this program are “best in class”.
New opportunities were developed in the application of Orbital’s FlexDITM system for heavy fuels. A significant portion of work undertaken in this period was the development of heavy fuel EMS systems for Unmanned Aeronautical Vehicles (UAV’s). This niche application has the potential to lead to another recurring revenue stream.
At 31 December 2010, the order book stood at $3,500,000 (30 June 2010: $3,400,000).
Intellectual Property
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| Dec 2010 | Dec 2009 |
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| $'000 | $'000 |
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Royalties | Revenue | 463 | 432 |
| Contribution | 273 | 242 |
Orbital earns licensing and royalty from EMS utilising its FlexDITM systems and technology. The royalty bearing products today are in the marine, recreational and scooter/motorcycle markets.
The marine and recreational markets, key markets for Orbital systems, remain subdued due to the continuation of the tough US economic conditions. Revenue increased by 7.2% continuing the improvement seen in the 2nd half of last financial year but the look-ahead in this market remains conservative.
Synerject
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| Dec 2010 | Dec 2009 |
|
| US$'000 | US$'000 |
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Synerject | Revenue | 56,608 | 41,584 |
| Profit after tax | 2,573 | 849 |
Operating cashflow, including capex | 4,053 | 7,702 | |
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| |
| A$’000 | A$’000 | |
Equity accounted contribution | 1,466 | 314 | |
Synerject, Orbital’s Joint Venture investment with Continental Corporation supplies Engine Management Systems (EMS) to the non automotive global market.
A continuing success story, Synerject achieved 36% sales growth, notwithstanding that many of Synerject’s markets are still challenged by the aftermath of the global financial crisis. Along with revenue growth, Synerject has improved efficiencies and improved EBIT margins.
The marine and recreational markets in North America continue to show signs of recovery over the last 12 months, however volumes remain close to historically low levels and slow growth at best can be expected in the 2nd half. Synerject achieved sales growth in this market compared to the same period last year primarily through additional EMS business acquired from Continental in May 2009.
Taiwan, with its motorcycle in-field conformity emission requirements, calling for the use of EMS, continues to be a strong and growing market for Synerject. In addition, Synerject has been successful in growing the recently launched snowmobile business in Europe and North America.
China, the world’s largest motorcycle market, introduced the Motorcycle Euro III emissions standards in 2010; however it will take a little while for the domestic manufacturers to apply EMS. Synerject with its facilities at Chongqing and Changchun is well positioned in China in anticipation of future growth in this important market. The Indian motorcycle market shows similar promise with their Bharat 4 emissions requirements anticipated to be introduced in the next two to three years. Continental and Orbital have experience and infrastructure in India.
The equity accounted contribution to Orbital was $1,466,000 compared to $314,000 for the previous reporting period notwithstanding the stronger Australian dollar compared to the US dollar.
Synerject generated operating cash flow after capital expenditure of US$4,053,000 compared to US$7,702,000 in the corresponding prior period including the funding required to support increased working capital. At 31 December 2010 Synerject had a gearing ratio (net debt:equity) of only 6% (June 2009: 20%).
Orbital received a dividend of $737,000 from Synerject (2009: $495,000).
Synerject is well positioned in all of their markets. The North American and Taiwanese markets are stable and/or growing. This provides an excellent foundation for expansion into new markets.
e world’s largest independent EMS supplier in the non-automotive market.
2
DIRECTORS’ REPORT | Orbital Corporation Limited |
Other
In December 2010 Orbital entered into an agreement to sell and leaseback its engineering facilities and head office in Balcatta. The sale for $8,650,000, generating a profit of $4,400,000, was settled in February 2011 and will be reflected in the full year results. The lease is for an initial term of 10 years with two five year options. The sale proceeds will be invested strategically in cash generating assets, will provide a significant cash reserve and will strengthen the balance sheet.
Net cash used in operating activities (including the receipt of dividends from Synerject) for the half year improved by $1,793,000 to $256,000 reflecting the improved operating performance and in particular reduced expenses. During the half year Orbital repaid $1,509,000 trade facility (2009: $610,000 repayment.) At 31 December 2010 Orbital had cash of $1,958,000 (June 2010: $3,608,000).
Research and development expenditure increased to $716,000 (2009: $96,000). The increased investment related primarily to applications of Orbital’s FlexDITM system in conjunction with the Changan project in China.
During the half year management irrevocably waived their right to cash bonuses which were awarded and accrued in FY2010; resulting in a credit to the Income Statement of $400,000 in this half year.
Other overhead expenses were managed closely and a range of savings were achieved including travel and accommodation, communication costs and insurance.
Outlook
Orbital anticipates that the 2nd half will provide a similar result to the 1st half, reinforcing previous guidance that Orbital targets a positive operating result for the full year.
The improvements experienced in the 1st half year will underpin an improving market place for Orbital’s and Synerject’s products.
OAGS’s revenue in the 2nd half will be adversely affected by the subdued aftermarket and the gap in production of Ford E-Gas vehicles, however it will see a significant increase in revenue next financial year when it experiences a full year of supply of the new LPG system for the Ford E-Gas Falcon. The launch of the “Liquid” injection product on the HSV line of vehicles significantly enhances Orbital’s position in the market.
Synerject will not replicate, in the 2nd half, the revenue growth achieved year to date, primarily because the market recovery and new product launches commenced early in the 2nd half FY09. Synerject is also planning increased development expenditure on further new products and this will impact EBIT in the 2nd half. Synerject will however provide a solid 2nd half result, positive cashflow, pay increased dividends and the investment in new products will underpin growth in future years.
The OCS, Licences and Royalty business segments will continue to perform in line with the 1st half with possible growth aligned to the recovery of the markets in which we operate. The OCS business acts as an ‘incubator’ for EMS opportunities and recent developments in the UAV, heavy duty ethanol and transport (LNG) sectors may lead to niche system supply businesses in line with Orbital’s strategic goals in the alternative fuel market.
The Orbital Board is confident that the strategy to invest in specialist EMS, and particularly alternative fuel applications, is supported by the long term pressure on crude oil price and increasing recognition and interest in our technology and products. Orbital has a strong balance sheet to take up the growth opportunities as they arise.
3
DIRECTORS’ REPORT | Orbital Corporation Limited |
LEAD AUDITOR’S INDEPENDENCE DECLARATION UNDER SECTION 307C OF THE CORPORATIONS ACT 2001
The lead auditor’s independence declaration is set out on page 5 and forms part of the Directors’ Report for the half year ended 31 December 2010.
ROUNDING
The amounts contained in this report and in the financial report have been rounded to the nearest $1,000 (unless otherwise stated) under the option available to the Company under ASIC Class Order 98/0100. The Company is an entity to which the Class Order applies.
Signed in accordance with a resolution of the directors
/s/ William Peter Day
WP Day
Chairman
Perth, 24 February 2011
4
Auditor's independence declaration to the Directors of Orbital Corporation Limited
In relation to our review of the financial report of Orbital Corporation Limited and its controlled entities for the half-year ended 31 December 2010, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of theCorporations Act 2001 or any applicable code of professional conduct.
/s/ Ernst & Young
Ernst & Young
/s/ Geoff Lotter
G Lotter
Partner
Perth
24 February 2011
5
Income Statements | Orbital Corporation Limited |
|
| Consolidated | ||
For the half year ended 31 December 2010 | Note | 2010 |
| 2009 |
|
| $'000 |
| $'000 |
|
|
|
|
|
Engineering services income |
| 4,202 |
| 4,526 |
Sale of goods |
| 2,717 |
| 2,912 |
Licence and royalty income |
| 463 |
| 432 |
Other revenue | 3(a) | 58 |
| 147 |
Total Revenue |
| 7,440 |
| 8,017 |
|
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|
|
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Other income | 3(b) | 936 |
| 409 |
|
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|
Raw materials and consumables used |
| (2,731) |
| (3,048) |
Change in inventories of finished goods and work in progress |
| 1,001 |
| 778 |
Employee benefits expense | 3(c) | (4,799) |
| (5,127) |
Depreciation and amortisation |
| (617) |
| (388) |
Engineering consumables and contractors |
| (757) |
| (746) |
Travel and accommodation |
| (285) |
| (487) |
Communications and computing |
| (360) |
| (423) |
Patent costs |
| (100) |
| (103) |
Insurance costs |
| (206) |
| (221) |
Audit, compliance and listing costs |
| (256) |
| (256) |
Finance costs | 5 | (306) |
| (436) |
Other expenses | 3(d) | (622) |
| (813) |
Share of profit of equity accounted investment | 4(a) | 1,466 |
| 314 |
Loss before income tax |
| (196) |
| (2,530) |
|
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Income tax benefit/(expense) | 6(a) | 225 |
| (94) |
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Net profit/(loss) for the period |
| 29 |
| (2,624) |
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Profit/(loss) for the period attributable to owners of the parent |
| 29 |
| (2,624) |
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Basic profit/(loss) per share (in cents)* |
| 0.06 |
| (5.48) |
Diluted profit/(loss) per share (in cents)* |
| 0.06 |
| (5.48) |
* On 28 October, 2010 the shareholders, in Annual General Meeting, approved the consolidation of ordinary shares on the basis that every ten ordinary shares be consolidated into one ordinary share. The effect of the share consolidation has been retroactively applied to the Earnings per share calculations for the comparative period presented.
6
Statements of Comprehensive Income | Orbital Corporation Limited |
|
| Consolidated | |||||||
For the half year ended 31 December 2010 |
| 2010 |
| 2009 | |||||
|
| $'000 |
| $'000 | |||||
|
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Net profit/(loss) for the period |
| 29 |
| (2,624) | |||||
|
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Other comprehensive loss |
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Foreign currency translation |
| (2,192) |
| (1,621) | |||||
Other comprehensive loss for the period, net of tax |
| (2,192) |
| (1,621) | |||||
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TOTAL COMPREHENSIVE LOSS FOR THE PERIOD |
|
(2,163) |
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(4,245) | |||||
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Total comprehensive loss for the period attributable to owners of the parent |
| (2,163) |
| (4,245) | |||||
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Statements of Changes in Equity |
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For the half year ended 31 December 2010 | Share Capital | Accumulated Losses | Employee Equity Benefits Reserve | Foreign Currency Translation Reserve | Total |
| $’000 | $’000 | $’000 | $’000 | $’000 |
|
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At 1 July 2009 | 19,055 | (3,224) | 884 | 399 | 17,114 |
Loss for period | - | (2,624) | - | - | (2,624) |
Other comprehensive income | - | - | - | (1,621) | (1,621) |
Total comprehensive loss for the half-year | - | (2,624) | - | (1,621) | (4,245) |
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Transactions with owners in their capacity as owners |
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Shares issued in accordance with share plan | 117 |
| (117) |
| - |
Share based payments | 89 | - | 147 | - | 236 |
Balance at 31 December 2009 | 19,261 | (5,848) | 914 | (1,222) | 13,105 |
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At 1 July 2010 | 19,261 | 1,292 | 1,017 | (770) | 20,800 |
Profit for period | - | 29 | - | - | 29 |
Other comprehensive income | - | - | - | (2,192) | (2,192) |
Total comprehensive income/(loss) for the half-year | - | 29 | - | (2,192) | (2,163) |
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Transactions with owners in their capacity as owners |
|
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Shares issued in accordance with share plan | - | - | - | - | - |
Share based payments | - | - | 255 | - | 255 |
Balance at 31 December 2010 | 19,261 | 1,321 | 1,272 | (2,962) | 18,892 |
7
Statements of Financial Position | Orbital Corporation Limited |
|
| Consolidated | ||
As at 31 December 2010 | Note | 31 Dec 2010 |
| 30 June 2010 |
|
| $'000 |
| $'000 |
ASSETS |
|
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Current assets |
|
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Cash and cash equivalents | 7 | 1,958 |
| 3,608 |
Trade and other receivables |
| 4,807 |
| 5,084 |
Inventories |
| 2,794 |
| 3,722 |
Non-current assets held for sale | 12(a) | 3,679 |
| - |
Total current assets |
| 13,238 |
| 12,414 |
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Non-current assets |
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Investment in associate | 4(b) | 10,873 |
| 11,534 |
Deferred taxation asset | 6(b) | 4,824 |
| 5,215 |
Property, plant and equipment | 12(a) | 3,823 |
| 7,911 |
Intangibles and goodwill |
| 1,714 |
| 1,525 |
Total non-current assets |
| 21,234 |
| 26,185 |
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TOTAL ASSETS |
| 34,472 |
| 38,599 |
|
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LIABILITIES |
|
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Current liabilities |
|
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Trade payables and other liabilities |
| 2,691 |
| 2,676 |
Interest bearing borrowings |
| 547 |
| 2,056 |
Employee benefits |
| 1,970 |
| 2,420 |
Deferred revenue |
| 316 |
| 316 |
Government grants |
| 225 |
| 225 |
Other provisions |
| 85 |
| 173 |
Total current liabilities |
| 5,834 |
| 7,866 |
|
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Non-current liabilities |
|
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|
|
Long term borrowings | 8 | 7,852 |
| 7,604 |
Employee benefits |
| 133 |
| 455 |
Government grants |
| 1,761 |
| 1,874 |
Total non-current liabilities |
| 9,746 |
| 9,933 |
|
|
|
|
|
TOTAL LIABILITIES |
| 15,580 |
| 17,799 |
|
|
|
|
|
NET ASSETS |
| 18,892 |
| 20,800 |
|
|
|
|
|
EQUITY |
|
|
|
|
Share capital | 9 | 19,261 |
| 19,261 |
Reserves |
| (1,690) |
| 247 |
Retained profits |
| 1,321 |
| 1,292 |
|
|
|
|
|
TOTAL EQUITY |
| 18,892 |
| 20,800 |
8
Statements of Cash Flows | Orbital Corporation Limited |
|
| Consolidated | |||
| Note | 31 Dec |
| 31 Dec | |
For the half year ended 31 December 2010 |
| 2010 |
| 2009 | |
|
| $'000 |
| $'000 | |
|
|
|
|
| |
Cash Flows from Operating Activities |
|
|
|
| |
Cash receipts from customers |
| 8,583 |
| 7,903 | |
Cash paid to suppliers and employees |
| (9,052) |
| (10,070) | |
Cash used by operations |
| (469) |
| (2,167) | |
Interest received |
| 58 |
| 147 | |
Interest paid |
| (70) |
| - | |
Income tax paid |
| - |
| (12) | |
|
|
|
|
| |
Net cash used in operating activities | 10 | (481) |
| (2,032) | |
|
|
|
|
| |
Cash Flows from Investing Activities |
|
|
|
| |
Dividends received from associate |
| 737 |
| 495 | |
Proceeds from sale of property, plant and equipment |
| 30 |
| 26 | |
Acquisition of property, plant and equipment |
| (118) |
| (1,074) | |
Costs incurred on development of intangibles |
| (306) |
| (601) | |
|
|
|
|
| |
Net cash from/(used) in investing activities |
| 343 |
| (1,154) | |
|
|
|
|
| |
Cash Flows from Financing Activities |
|
|
|
| |
Repayment of borrowings |
| (1,509) |
| (610) | |
Net cash used in financing activities |
|
(1,509) |
|
(610) | |
|
|
|
|
| |
Net decrease in cash and cash equivalents |
| (1,647) |
| (3,796) | |
|
|
|
|
| |
Cash and cash equivalents at 1 July |
| 3,608 |
| 6,623 | |
Effects of exchange rate fluctuations on the balances of cash held in foreign currencies |
|
(3) |
|
(16) | |
|
|
|
|
| |
Cash and cash equivalents at 31 December |
| 1,958 |
| 2,811 | |
9
Notes to the Financial Statements | Orbital Corporation Limited |
For the half year ended 31 December 2010
1.
BASIS OF PREPARATION AND ACCOUNTING POLICIES
(a)
Basis of preparation
This general purpose financial report for the half year ended 31 December 2010 has been prepared in accordance with AASB 134Interim Financial Reporting and theCorporations Act 2001.
The half-year financial report does not include all notes of the type normally included within the annual financial report and therefore cannot be expected to provide as full an understanding of the financial performance, financial position and financing and investing activities of the consolidated entity as the full financial report.
It is recommended that the half-year financial report be read in conjunction with the annual report for the year ended 30 June 2010 and considered together with any public announcements made by Orbital Corporation Limited during the half year ended 31 December 2010 in accordance with the continuous disclosure obligations of theASX listing rules.
Except as disclosed below, the accounting policies and methods of computation are the same as those adopted in the most recent annual financial report.
(b)
Application of new and revised accounting standards
From 1 July 2010 the Group has adopted the following applicable Standards and Interpretations, mandatory for annual periods beginning on or after 1 July 2010.
AASB 2009-5
Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project
The amendments to some Standards result in accounting changes for presentation, recognition or measurement purposes, while some amendments related to terminology and editorial changes.
AASB 2009-8
Amendments to Australian Accounting Standards – Group Cash-settled Share-based Payment Transactions
The amendments clarify the accounting for group cash-settled share-based payment transactions in the separate or individual financial statements of the entity receiving the goods or services when the entity has no obligation to settle the share-based payment transaction.
Interpretation 19
Interpretation 19 Extinguishing Financial Liabilities with Equity Instruments
This interpretation clarifies that equity instruments issued to a creditor to extinguish a financial liability are “consideration paid” in accordance with paragraph 41 of IAS 39. As a result, the financial liability is derecognised and the equity instruments issued are treated as consideration paid to extinguish that financial liability.
Adoption of these Standards and Interpretations did not have any effect on the financial position or performance of the Group.
The Group has not elected to early adopt any new standards or amendments.
10
Notes to the Financial Statements | Orbital Corporation Limited |
For the half year ended 31 December 2010
2.
SEGMENT INFORMATION
Identification of reportable segments
The Group has identified its operating segments based on the internal reports that are reviewed and used by the executive management team (the chief operating decision makers) in assessing performance and in determining the allocation of resources.
The operating segments are identified by management based on the nature of the revenue stream of each operating segment and the nature of the business conducted by the operating segment. Discrete financial information about each of these operating businesses is reported to the executive management team on at least a monthly basis.
The reportable segments are based on the similarity of the products produced and sold and/or the services provided, as these are the sources of the Group’s major risks and have the most effect on the rates of return.
11
Notes to the Financial Statements | Orbital Corporation Limited |
For the half year ended 31 December 2010
Types of products and services
Engineering services (consultancy)
The engineering services business provides consultancy services to original equipment manufacturers, engine manufacturers and government departments. The engineering services provided include research, design, development, calibration, improvement, production support, performance testing, emissions testing and certification.
Alternative fuels (sale of goods)
The alternative fuels business provides LPG fuel systems to an Australian automobile manufacturer, LPG retrofit installers and also operates a spare parts business for LPG fuel systems.
Royalties and licences (intellectual property rights)
The royalties and licences business receives revenue from licensee of Orbital technologies. Applications utilising Orbital technologies include outboard engines, autorickshaws and scooters.
Accounting policies
The following items and associated assets and liabilities are not allocated to operating segments as they are not considered part of the core operations of any segment:
·
Corporate management and finance and administration overhead expenses.
·
Share of profit from equity accounted investment.
·
Finance costs - including adjustments on provisions due to discounting.
·
Cash and cash equivalents.
·
Borrowings.
Inter-segment pricing is determined on an arm’s length basis.
Operating segments
The following table presents revenue and profit information for reportable segments for the half years ended 31 December 2010 and 31 December 2009.
|
| Consulting Services | Alternative Fuels | Royalties and Licences | Consolidated | ||||
|
| 31 Dec | 31 Dec | 31 Dec | 31 Dec | 31 Dec | 31 Dec | 31 Dec | 31 Dec |
|
| 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 |
|
| $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 |
|
|
|
|
|
|
|
|
|
|
| Revenue | 4,202 | 4,526 | 2,717 | 2,912 | 463 | 432 | 7,382 | 7,870 |
| Unallocated other revenue |
|
|
|
|
| 58 | 147 | |
| Total Revenue |
|
|
|
|
|
| 7,440 | 8,017 |
|
|
|
|
|
|
|
|
|
|
| Result | 36 | (12) | (396) | (920) | 273 | 242 | (87) | (690) |
|
|
|
|
|
|
|
|
|
|
| Research & development costs |
|
|
|
|
| (716) | (96) | |
| Unallocated expenses (net)* |
|
|
|
|
| (553) | (1,622) | |
| Finance costs |
|
|
|
|
|
| (306) | (436) |
| Share of profit from equity accounted investment |
|
| 1,466 | 314 | ||||
| Loss before related income tax |
|
|
|
|
| (196) | (2,530) | |
|
|
|
|
|
|
|
|
|
|
| Income tax benefit/(expense) |
|
|
| 225 | (94) | |||
|
|
|
|
|
|
|
|
|
|
| Net profit/(loss) for the period |
|
|
| 29 | (2,624) | |||
|
|
|
|
|
|
|
|
|
|
*Unallocated expenses (net) includes other income and corporate overheads which are not allocated to operating segments as they are not considered part of the core operations of any segment.
12
Notes to the Financial Statements | Orbital Corporation Limited |
For the half year ended 31 December 2010
2.
Segment information (continued)
Operating segments (continued)
The following table represents asset information for reportable segments as at 31 December 2010 and 30 June 2010.
|
| Consulting Services | Alternative Fuels | Royalties and Licences | Consolidated | ||||
|
| 31 Dec | 30 June | 31 Dec | 30 June | 31 Dec | 30 June | 31 Dec | 30 June |
|
| 2010 | 2010 | 2010 | 2010 | 2010 | 2010 | 2010 | 2010 |
|
| $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 |
|
|
|
|
|
|
|
|
|
|
| Segment assets |
|
|
|
|
|
|
|
|
| Segment assets | 11,089 | 10,695 | 5,472 | 6,784 | 256 | 763 | 16,817 | 18,242 |
| Unallocated assets |
|
|
|
|
|
|
|
|
| Cash and cash equivalents |
|
|
|
|
| 1,958 | 3,608 | |
| Equity accounted investment in associate |
|
|
| 10,873 | 11,534 | |||
| Deferred tax asset |
|
|
|
|
|
| 4,824 | 5,215 |
|
|
|
|
|
|
|
|
|
|
| Consolidated Total Assets |
|
|
|
|
|
| 34,472 | 38,599 |
|
|
|
|
|
|
|
|
|
|
|
|
| 31 Dec |
| 31 Dec |
|
|
| 2010 |
| 2009 |
|
|
| $'000 |
| $'000 |
3. | REVENUE, INCOME AND EXPENSES |
|
|
|
|
|
|
|
|
|
|
(a) | Other revenue |
|
|
|
|
| Interest Income |
| 58 |
| 147 |
|
|
|
|
|
|
(b) | Other Income |
|
|
|
|
| Automotive Competitiveness and Investment Scheme credits | 543 |
| 338 | |
| Government grant | 372 |
| 46 | |
| Other | 21 |
| 25 | |
|
|
| 936 |
| 409 |
|
|
|
|
|
|
(c) | Employee benefits expense |
|
|
|
|
| Salaries and wages * |
| 3,933 |
| 4,150 |
| Contributions to defined contributions superannuation funds |
| 450 |
| 462 |
| Equity settled transactions |
| 255 |
| 237 |
| Decrease in liability for annual leave |
| (93) |
| (209) |
| (Decrease)/increase in liability for long service leave |
| (4) |
| 33 |
| Other associated personnel expenses |
| 258 |
| 454 |
|
|
| 4,799 |
| 5,127 |
| * Salaries and wages includes the reversal of a medium term incentive of $400,000 accrued as at 30 June 2010. |
|
|
|
|
|
|
|
|
|
|
(d) | Other Expenses |
|
|
|
|
| Occupancy costs |
| 411 |
| 376 |
| Administration costs |
| 100 |
| 131 |
| Marketing costs |
| 30 |
| 61 |
| Investor relations |
| 17 |
| 32 |
| Provisions |
| (34) |
| 56 |
| Net foreign exchange losses |
| 88 |
| 107 |
| Other |
| 10 |
| 50 |
|
|
| 622 |
| 813 |
|
|
|
|
|
|
13
Notes to the Financial Statements
Orbital Corporation Limited
For the half year ended 31 December 2010
14
Notes to the Financial Statements | Orbital Corporation Limited |
For the half year ended 31 December 2010
4.
INVESTMENT IN ASSOCIATE
As at 31 December 2010, the consolidated entity holds a 42% interest in Synerject LLC, a joint venture entity with Continental Corporation (30 June 2010: 42%; 31 December 2009: 42%). The principal activities of Synerject LLC are the marketing, sale and manufacture, including research and development in the area of engine management of non-automotive systems and components and automotive components related to the Orbital combustion process.
|
|
| 31 Dec |
| 31 Dec |
|
|
| 2010 |
| 2009 |
|
|
| $'000 |
| $'000 |
(a) | Results of Synerject |
|
|
|
|
| Share of Synerject’s profit before income tax | 1,271 |
| 434 | |
| Share of income tax benefit/(expense) | 59 |
| (26) | |
|
| 1,330 |
| 408 | |
| Adjustments: |
|
|
| |
| - dissimilar accounting treatment with respect to development expenditure | 36 |
| (210) | |
| - dissimilar accounting treatment with respect to intangibles | 100 |
| 116 | |
| Share of jointly controlled entity’s net profit accounted for using the equity method | 1,466 |
| 314 | |
|
|
|
|
|
|
|
|
| 31 Dec |
| 30 June |
|
|
| 2010 |
| 2010 |
|
|
| $’000 |
| $’000 |
(b) | Movements in the carrying amount of the Group’s interest in Synerject |
|
|
|
|
| Balance at the beginning of reporting period | 11,534 |
| 11,264 | |
| Share of profits after tax | 1,466 |
| 1,874 | |
| Share of reserves | 233 |
| (357) | |
| Dividends received | (737) |
| (677) | |
| Unrealised foreign exchange movements | (1,623) |
| (570) | |
| Balance at the end of reporting period | 10,873 |
| 11,534 | |
(c) | Summary financial information of Synerject LLC |
|
| ||||||
|
| Revenues (100%) $’000 | Profit (100%) $’000 | Total Assets (100%) $’000 | Total Liabilities (100%) $’000 | Net Assets as reported by Synerject (100%) $’000 | |||
| 31 Dec 2010 | 59,656 | 2,712 | 42,334 | 24,490 | 17,844 | |||
| 31 Dec 2009 | 45,582 | 972 | 38,534 | 23,594 | 14,940 | |||
| 30 June 2010 | 104,323 | 5,476 | 53,478 | 34,461 | 19,017 | |||
|
| Revenues (100%) US$’000 | Profit (100%) US$’000 | Total Assets (100%) US$’000 | Total Liabilities (100%) US$’000 | Net Assets as reported by Synerject (100%) US$’000 |
| 31 Dec 2010 | 56,608 | 2,573 | 42,127 | 24,370 | 17,757 |
| 31 Dec 2009 | 41,584 | 849 | 34,831 | 21,327 | 13,504 |
| 30 June 2010 | 90,375 | 4,744 | 46,071 | 29,688 | 16,383 |
15
Notes to the Financial Statements | Orbital Corporation Limited |
For the half year ended 31 December 2010
16
Notes to the Financial Statements | Orbital Corporation Limited |
For the half year ended 31 December 2010
|
|
|
|
|
| ||||||
|
|
| 31 Dec |
| 31 Dec | ||||||
|
|
| 2010 |
| 2009 | ||||||
|
|
| $'000 |
| $'000 | ||||||
5. | FINANCE COSTS |
|
|
|
| ||||||
|
|
|
|
|
| ||||||
| Non-cash interest expense WA Government Loan (a) | 248 |
| 380 | |||||||
| Trade finance facility | 58 |
| 56 | |||||||
|
| 306 |
| 436 | |||||||
|
|
|
|
|
| ||||||
(a) | The non-interest bearing loan from the Government of Western Australia was recognised initially at fair value and subsequently stated at amortised cost with any difference between cost and repayment value being recognised in the income statement over the period of the borrowings on an effective interest basis. | ||||||||||
17
Notes to the Financial Statements
Orbital Corporation Limited
For the half year ended 31 December 2010
6. | TAXATION |
|
|
|
|
|
|
|
|
|
|
(a) | Current income tax |
|
|
|
|
| Withholding tax | (1) |
| (6) | |
| United States of America Federal and State taxes | (83) |
| (88) | |
|
|
| (84) |
| (94) |
|
|
|
|
|
|
| Deferred tax |
|
|
|
|
| Benefit on recognition of tax losses |
| 309 |
| - |
|
|
| 309 |
| - |
|
|
|
|
|
|
| Total income tax benefit/(expense) in income statement |
| 225 |
| (94) |
|
|
|
|
|
|
No income tax is payable by the consolidated entity in Australia due to the existence of substantial losses available to offset future assessable income. Due to losses in the six months to 31 December 2010, none of these losses have been recouped and it is inappropriate to recognise a future income tax benefit for Australian losses until it is probable that the consolidated entity will have future taxable profits.
Certain State and Federal Income Taxes are payable on portions of the profits generated by Synerject LLC from its various operating locations in the United States of America (“USA”). Synerject LLC is a pass-through enterprise for taxation purposes and as such Orbital is assessed for various State income taxes and Federal income taxes (Alternative Minimum Tax). The amount of income tax paid in the USA is reduced through the utilisation of carried forward tax losses at both a State level, and at the Federal level. A deferred tax asset has been recognised for the probable future benefit arising from the utilisation of these carried forward tax losses.
|
|
|
|
|
| |||||||
|
|
| 31 Dec |
| 30 June | |||||||
|
|
| 2010 |
| 2010 | |||||||
(b) | Deferred tax asset |
| $'000 |
| $'000 | |||||||
| Total benefits at current income tax rates in the USA from prior losses able to be recouped from future assessable income from Synerject revenues: |
| ||||||||||
|
|
|
|
|
| |||||||
| Balance at beginning of reporting period |
| 5,215 |
| 5,054 | |||||||
| Income tax benefit reflecting increase in recognised losses during the period | 309 |
| 417 | ||||||||
| Effect of change in exchange rates on opening balance |
| (700) |
| (256) | |||||||
| Balance at end of reporting period |
| 4,824 |
| 5,215 | |||||||
|
|
|
|
|
| |||||||
18
Notes to the Financial Statements | Orbital Corporation Limited |
For the half year ended 31 December 2010
|
|
| 31 Dec |
| 30 June |
|
|
| 2010 |
| 2010 |
|
|
| $'000 |
| $'000 |
7. | CASH AND CASH EQUIVALENTS |
|
|
|
|
|
|
|
|
|
|
| Cash at bank |
| 102 |
| 148 |
| Cash at bank - US dollars |
| 1,276 |
| 195 |
| Cash at bank - European currency units |
| 116 |
| 23 |
| At call deposits - financial institutions |
| 464 |
| 3,242 |
|
|
| 1,958 |
| 3,608 |
19
Notes to the Financial Statements | Orbital Corporation Limited |
For the half year ended 31 December 2010
8. | LONG TERM BORROWINGS |
|
|
|
|
|
|
|
|
|
|
| Non-current |
|
|
|
|
| Loans and advances - secured (Note 5(a)) |
| 7,852 |
| 7,604 |
9. | SHARE CAPITAL |
|
|
|
| |
|
|
|
|
|
| |
| Ordinary shares |
| 19,261 |
| 19,261 | |
|
|
|
|
|
| |
| Movement in ordinary shares on issue |
| Number |
| $'000 | |
|
|
|
|
|
| |
| At 1 July 2009 |
| 47,888,505 |
| 19,055 | |
| Shares issued pursuant to employee share plans |
| 308,889 |
| 206 | |
| At 31 December 2009 |
| 48,197,394 |
| 19,261 | |
|
|
|
|
|
| |
| At 1 July 2010 |
| 48,197,394 |
| 19,261 | |
| Shares issued pursuant to rounding up of shareholdings during one for ten share consolidation (a) |
| 1,494 |
| - | |
| At 31 December 2010 |
| 48,198,888 |
| 19,261 | |
(a)
On 28 October, 2010 the shareholders in Annual General Meeting approved the consolidation of ordinary shares on the basis that every ten ordinary shares be consolidated into one ordinary share, and where this consolidation results in a fraction of a share being held by a shareholder, the directors of the Company be authorised to round that fraction up to the nearest whole share. The share consolidation became effective on 28 October, 2010.
The effect of the share consolidation has been retroactively applied to the number of shares outstanding, the number of shares offered under share based payment plans, the share price based targets under share based payment plans and earnings per share calculations for the comparative period presented.
20
Notes to the Financial Statements | Orbital Corporation Limited |
For the half year ended 31 December 2010
|
|
| 31 Dec |
| 31 Dec |
|
|
| 2010 |
| 2009 |
|
|
| $'000 |
| $'000 |
10. | NOTES TO THE STATEMENT OF CASH FLOWS |
|
|
|
|
|
|
|
|
|
|
| Reconciliation of cash flows from operating activities |
|
|
|
|
| Profit/(loss) after income tax |
| 29 |
| (2,624) |
|
|
|
|
| |
| Adjustments for: |
|
|
| |
| Profit on sale of property, plant and equipment |
| (3) |
| (2) |
| Depreciation |
| 500 |
| 349 |
| Amortisation |
| 117 |
| 39 |
| Amortisation of deferred revenue and government grants |
| (113) |
| (46) |
| Allowance for doubtful debts |
| (1) |
| 24 |
| Amounts set aside for warranty and other provisions | 1 |
| 22 | |
| Reversal of provision for medium term incentives | (400) |
| - | |
| Share of net profit of equity accounted investment | (1,466) |
| (314) | |
| Amortisation of non-interest bearing loans |
| 248 |
| 380 |
| Non cash changes in tax balances |
| (309) |
| - |
| Employee compensation expense |
| 255 |
| 237 |
| Net foreign exchange losses |
| 88 |
| 107 |
|
|
|
|
| |
| Net cash used in operating activities before changes in assets and liabilities |
| (1,054) |
| (1,828) |
|
|
|
|
| |
21
Notes to the Financial Statements
Orbital Corporation Limited
For the half year ended 31 December 2010
| Changes in assets and liabilities during the period: |
|
|
| |
| Decrease/(increase) in receivables |
| 91 |
| 805 |
| Decrease/(increase) in inventories |
| 928 |
| (778) |
| (Decrease)/increase in payables |
| (74) |
| 68 |
| (Decrease)/increase in employee provisions |
| (372) |
| (299) |
|
|
| 573 |
| (204) |
|
|
|
|
| |
| Net cash used in operating activities |
| (481) |
| (2,032) |
11.
SHARE BASED PAYMENTS
The Company has three employee share plans in which the key management personnel participate.
Employee Share Plan No.1
Key management personnel (together with all other eligible employees) are each offered shares in the Company, at no cost to the employees, to the value of $1,000 per annum under the terms of the Company’s Employee Share Plan. Under the Employee Share Plan, offered shares are held in escrow for a period of 3 years or until the date the employee ceases employment with the Company.
Total expense recognised during the period is $84,000.
There have been no issues under the Employee Share Plan No.1 during the reporting period
Executive Long Term Share Plan
Key management personnel may also be offered shares in the Company’s Executive Long Term Share Plan under which offered shares will be granted subject to the satisfaction of performance conditions over a 3 year period or subject to Board discretion for other qualifying reasons.
22
Notes to the Financial Statements | Orbital Corporation Limited |
For the half year ended 31 December 2010
11.
SHARE BASED PAYMENTS (continued)
During the period, a total of 1,730,900 rights were offered to 6 executives (2009: 1,436,000 rights offered to 7 executives).
The terms and conditions of the offer made during the half year ended 31 December 2010 are as follows:
(a)
50% of the shares offered will be issued depending on the performance of the Company relative to a group of selected peers.
Offer date:
31 August 2010
Share price:
34 cents
Fair value at offer date:
33 cents
Minimum vesting conditions:
3 years subject to TSR ranking at or above 50th percentile
Expected volatility (expressed as weighted average
volatility used in the modelling under binomial lattice model)
60%
Risk-free interest rate (based on government bonds)
4.27%
The basis of measuring fair value is consistent with that disclosed in the consolidated financial report as at and for the year ended 30 June 2010.
(b)
50% of the shares offered will be issued if the Company achieves earnings in excess of 11 cents per share for the year ending 30 June 2013.
23
Notes to the Financial Statements | Orbital Corporation Limited |
For the half year ended 31 December 2010
The relative ranking of the TSR of the Company to the group of selected peers for the 3 years to 1 September 2010 was below the 50th percentile, therefore all of the shares offered in September 2007 with a vesting date of 1 September 2010 lapsed during the reporting period.
Performance Rights Plan
The Company also has a Performance Rights Plan as part of its long-term incentive arrangements for senior executives. Refer to the 30 June 2010 Annual Report for information on the terms and conditions of the Performance Rights Plan.
There have been no issues of shares or performance rights under the Performance Rights Plan during the reporting period.
12.
EVENTS AFTER THE BALANCE SHEET DATE
(a)
Sale of Property.
Subsequent to the end of the half-year, Orbital settled the sale of its Balcatta property for a sale price of $8,650,000.
The Company will record a profit of approximately $4,400,000 on the transaction which will be reflected in the full year results of the Company.
(b)
There have been no other events subsequent to balance date which would have a material affect on the Group’s financial statements at 31 December 2010.
24
Directors’ Declaration | Orbital Corporation Limited |
In accordance with a resolution of the directors of Orbital Corporation Limited, I state that:
In the opinion of the directors:
(a)
the financial statements and notes of the consolidated entity are in accordance with theCorporations Act 2001, including: -
(i)
giving a true and fair view of the financial position as at 31 December 2010 and the performance for the half-year ended on that date of the consolidated entity; and
(ii)
complying with Accounting Standard AASB 134Interim Financial Reporting and the Corporations Regulations 2001; and
(b)
there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.
On behalf of the Board,
/s/ William Peter Day
WP Day
Chairman
Dated: 24 February 2011
Perth, Western Australia
25
To the membersOrbital Corporation Limited
Report on the Half-Year Financial Report
We have reviewed the accompanying half-yearfinancial report of Orbital Corporation Limited which comprises the statement of financial position as at 31 December 2010, income statement, statement of comprehensive income, statement of changes in equity and statement of cash flows for the half-yearended on that date, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the half-yearend or from time to time during the half year.
Directors’ Responsibility for the Half-Year Financial Report
The directors of the company are responsible for the preparation of the half-year financial report that gives a true and fair view in accordance with Australian Accounting Standards and theCorporations Act 2001 and for such internal controls as the directors determine are necessary to enable the preparation of the half-yearfinancial report that is free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express a conclusion on the half-year financial report based on our review. We conducted our review in accordance with Auditing Standard on Review Engagements ASRE 2410Review of Interim and Other Financial Reports Performed by the Independent Auditor of the Entity, in order to state whether, on the basis of the procedures described, we have become aware of any matter that makes us believe that the financial report is not in accordance with theCorporations Act 2001 including: giving a true and fair view of the consolidated entity’s financial position as at 31 December 2010 and its performance for the half-year ended on that date; and complying with Accounting Standard AASB 134Interim Financial Reporting and theCorporations Regulations 2001. As the auditor of Orbital Corporation Limited and the entities it controlled during the half-year, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report.
A review of a half-year financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Independence
In conducting our review, we have complied with the independence requirements of theCorporations Act 2001. We have given to the directors of the company a written Auditor’s Independence Declaration, a copy of which is included in the Directors’ Report.
GL;HG;ORBITAL007
Conclusion
Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the half-year financial report of Orbital Corporation Limited is not in accordance with theCorporations Act 2001, including::
a)
giving a true and fair view of the consolidated entity’s financial position as at 31 December 2010 and of its performance for the half-year ended on that date; and
b)
complying with Accounting Standard AASB 134Interim Financial Reporting and theCorporations Regulations2001.
/s/ Ernst & Young
Ernst & Young
/s/ Geoff Lotter
G Lotter
Partner
Perth
24 February 2011
GL;HG;ORBITAL;007
CORPORATE INFORMATION | Orbital Corporation Limited |
ABN 32 009 344 058
Directors
W.P. Day Chairman
T.D. Stinson Managing Director and Chief Executive Officer
J.G. Young
M.T. Jones
V. Braach-Maksvytis
Company Secretary
I.G. Veitch
Registered Office
4 Whipple Street
Balcatta, Western Australia 6021
Australia
Principal place of business
4 Whipple Street
Balcatta, Western Australia 6021
Australia
Share Register
Computershare Investor Services Pty Ltd
Level 2, Reserve Bank Building
45 St George’s Terrace
Perth, Western Australia 6000
ADR Facility
The Bank of New York Mellon
101 Barclay Street
New York, NY, 10286
United States of America
Share Trading Facilities
Australian Stock Exchange Limited (code “OEC”)
OTC Bulletin Board (code “OBTMY”)
Auditors
Ernst & Young
The Ernst & Young Building
11 Mounts Bay Road
Perth, Western Australia 6000
Liability limited by a scheme approved under
Professional Standards Legislation.