Orbital Corporation (ASX:OEC) Managing Director and CEO Terry Stinson discusses the company’s REMSAFE technology and growth plans.An introduction to Orbital would be about innovation. It’s a small company located in Perth, Western Australia. We’re focused on industrial innovation. We’ve got a couple of key markets. One of them is aerospace primarily in the unmanned air vehicle space – drones (most of those are surveillance). And then in productivity and safety. And that’s our REMSAFE business. We plan to grow those two businesses around industrial innovation.
The market’s really huge. It’s difficult to estimate how big it is. If we just take mining, for example, looking at for the REMSAFE product, we’re looking at conveyance systems and other heavy plant for mining in Australia. We had a third party look at it – $1.7 billion worth of potential market just in Australia. Now that’s just mining, that’s in fact just iron ore and coal. So this is truly billions of dollars on the REMSAFE side.
For the drone business, UAVE, that business is growing. As you know drones are very much in the market. The area we’re focused in is defence, aerial surveillance (so, in the small). I’d say that market’s around $1 billion. Today, our clients on the productivity and safety side for REMSAFE business is Rio Tinto Limited
(ASX:RIO), BHP Billiton Limited
(ASX:BHP), AngloGold Ashanti Limited (JSE:ANG) in South Africa and we’ve got quite a few other clients lined up.
On the drone side or aerospace, aerial surveillance, our UAVE business has Insitu, which is a subsidiary of Boeing Corporation (NYSE:BA). So our biggest customer is Boeing in the US. We also have Textron Inc. (NYSE:TXT) who is number two in that market. Between the two of them, they pretty much own the small drone or small UAVE market. We’ve also got other customers in that field, and customers on deck.
The unmanned aerial vehicle business is doing very well. We secured a $12 million contract, the first with Insitu division,with Boeing last year. We’ve recently secured another contract – just another $12 million contract. Those two are leading up to a long-term agreement. So we’ve got a nice good healthy order book that’s going to take us through this year. And in the long-term agreement, we expect to be three to five years. On the REMSAFE business, this is brand new, so it’s a foundational business. We’ve installed our first systems – nine since December 2015. We’re continuing to develop that market, so that business is just at the cusp of its growth.
Synerject business was a success story for us. The Synerject business we’ve been in for many years. In fact I was the founder of the Synerject business. Orbital and Continental AG (ETR:CON) out of Germany were partners – the big German giant Continental. Now we just recently sold our 30 per cent interest to Continental. So we’ve divested that. That’s part of why we have such a strong cash balance. So with the Synerject business, moving on, we’ve exited the consumer business. And it’s not really a space for us. We need to be specialised, unique, low volume – that’s really our space. Trying to compete with the likes of Siemens and Continental is really tough, for a company like Orbital.
So we’ve morphed Accelerator over the last year, looking at mid-stage innovation in the industrial innovation segment.
For FY16, we did reasonably well for a business in the launch of its transformation – $1.2 million of profit on an $11 million in revenue. We’re relatively low debt, we’ve got a little over $8 million in debt and that’s long-term debt with the Western Australian Government. Capitalisation of the business is quite good. Our market cap is between $60 million and $70 million, depending on where the market is at the time. And the market’s really recognised our strategic growth plan, and our market capitalisation’s done well over the last 12 to 18 months.
FY17 is a growth year. As I mentioned, our UAV engine business, the two ordered from Insitu – it will be a ‘delivery year’ for that. We’ll be looking at the long-term agreement and getting that set, so we have the next three to five years sorted. I expect that business, as I’ve said in previous talks, to be a $100 million business in the next two to three years. It has the potential to be that. The REMSAFE business is still foundational. This will be an ‘establishing foundation with key customers’ year for us. I expect that we’ll have similar sales to what we’ve had in the past, but the growth probably will be year after, and year after that.
12 months from now, REMSAFE will be very well established with key customers. We’ll have long-term agreements, partnership agreements with OE Partners – to try to expand the REMSAFE product around the world. UAVE will continue to grow, along with Insitu and Boeing, and we will have secured other customer contracts by that time.
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