Orbital : 2019 Half-Yearly Report and Accounts

ORBITAL CORPORATION LIMITED

APPENDIX 4D

Company Details

Name of Entity: ABN:

Reporting period:

Previous corresponding period:

Orbital Corporation Limited 32 009 344 058

Half-Year ended 31 December 2018 Half-Year ended 31 December 2017

Results for announcement to the market

Total revenue from continuing operations

A$'000

Down

-62%to

2,229

Net (loss)/profit from continuing operations after tax

Down

-75% to (3,997)

Net loss for the period attributable to members

Down

-154% to (4,024)

Net tangible assets per share

31 Dec 2018

30 June 2018

Net tangible assets per share (cents)

14.35

20.88

Dividends

There is no proposal to pay dividends for the half-year ended 31 December 2018.

CORPORATE INFORMATION

ABN 32 009 344 058

REGISTERED AND PRINCIPAL OFFICE

4 Whipple Street

Balcatta, Western Australia 6021 Australia

CONTACT DETAILS

Australia

Telephone: [phone]

Facsimile: [phone]

USA

Address: 210 Wasco Loop, Hood River, OR 97031, USA Telephone: [phone]

INTERNET ADDRESS

http://www.orbitaluav.com

Email:[e-mail]: @OrbitalCorpASX Linkedin: OrbitalUAV

DIRECTORS

J.P. Welborn, Chairman

T.M. Alder, Managing Director and Chief Executive Officer S.B. Gallagher

T.D. Stinson F.K. Abbott

COMPANY SECRETARY

R. Jones

SHARE REGISTRY

Link Market Services Limited Level 4 Central Park

152 St Georges Terrace Perth, Western Australia 6000 Telephone: [phone]

SHARE TRADING FACILITIES

Australian Stock Exchange Limited (Code "OEC")

AUDITORS

PricewaterhouseCoopers 125 St Georges Terrace Perth, Western Australia 6000

31 December 2018 Half-Year Financial Report

DIRECTORS' REPORT

FOR THE HALF-YEAR ENDED 31 DECEMBER 2018

Your Directors submit their report for the half-year ended 31 December 2018.

DIRECTORS

The names of the Group'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
John P Welborn	Chairman (Non-executive) (appointed Chairman 18 March 2015).
Todd Alder	Managing Director and Chief Executive Officer (Executive - Appointed 11 August 2017).
Terry D Stinson	Non-Executive Director
Steve Gallagher	Non-Executive Director
Kyle Abbott	Non-Executive Director

REVIEW AND RESULTS OF OPERATIONS

Orbital UAV operates within the tactical unmanned aerial vehicle ('UAV') market. The Group provides world leading propulsion system solutions that deliver customers flight endurance, reliability and power-to-weight advantages.

Key milestones achieved during the period include:

• • Expanded Long Term Agreement ('LTA') with key customer Insitu Inc. ('Insitu'), with a value up to A$350M over five years

  • o LTA covers the delivery of five propulsion systems, to be applied across Insitu's entire unmanned aircraft system (UAS) fleet

• • Launch of Orbital UAV's revolutionary Modular Propulsion Solution

• • Official opening of U.S. operational facility in Hood River, Oregon

Financial Review

The Group's consolidated revenue for the period was $2,229,000 (2017: $5,941,000) with a comprehensive loss after taxes of $4,024,000 (2017: $1,587,000).

At 31 December 2018, cash, term deposits and receivables were $18,909,000 (2018: $24,178,000). Net cash generated in operating activities during the period was $2,675,000 and used in the prior period (2017: $3,667,000).

Change in Operations

The official opening of Orbital UAV's operational facility in Hood River, Oregon, USA in September 2018, provides the Company with a second world class production environment, in addition to its Perth, Australia headquarters.

Strategically positioned in the heart of the growing U.S. tactical UAV market, the purpose built facility continues to ramp up to full capacity. Testing and overhaul work for North American customers continues to be conducted at the facility.

In October 2018, Orbital UAV signed an expanded LTA with Insitu, increasing the scope, scale and term of work outlined in the original LTA, signed in December 2016.

The expanded LTA has potential value up to A$350 million over a period of five years, with the full value of the Agreement dependent on confidential Insitu customer contracts and the volumes identified therein.

The LTA covers the delivery of multiple propulsion systems and services that will be applied across Insitu's entire range of UAS platforms, including:

• • The assembly, supply and overhaul of three highly configurable propulsion systems, forming Orbital UAV's Modular Propulsion Solution; and

• • The assembly, supply and overhaul of two Insitu designed engines - built and serviced from Orbital UAV's operational facility in Hood River.

All five engines are planned to be in production in FY20.

The launch of Orbital UAV's revolutionary Modular Propulsion Solution (MPS) in October 2018 addresses a growing need within the tactical UAV market for aircraft to have the flexibility and versatility to adapt to varying end customer mission parameters and for the rapid deployment of those aircraft.

The MPS will provide tactical UAV manufacturers with a modular range of propulsion systems, capable of being integrated across multiple UAV platforms with varying payloads and capability.

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DIRECTORS' REPORT

FOR THE HALF-YEAR ENDED 31 DECEMBER 2018

Outlook

Orbital UAV's expanded LTA with key customer Insitu demonstrates the significant progress the Company has made within the growing tactical UAV market as it targets superiority in UAV propulsion systems and flight critical components.

This organic growth aligns to Orbital UAV's stated objectives and represents a key milestone in the Company's strategy to deliver long term sustainable growth.

In February 2019, the Company revised revenue guidance for FY19 to A$20 million.

This adjustment resulted from a delay in the planned start of production (SOP) of the first of the two Insitu designed engines, identified under the LTA.

SOP of this engine has been pushed back to Q3 2019 - previously Q2 2019 - as Orbital UAV and Insitu continue to work together to finalise the technical review and engine performance validation processes.

Delivery of the targets set out in the LTA remain Orbital UAV's core focus.

All five engines forming part of the LTA are scheduled to be in production in FY20. This amended timeframe does not impact customer delivery requirements nor Orbital UAV's advised LTA potential value of up to A$350M over the next five years.

LEAD AUDITOR'S INDEPENDENCE DECLARATION UNDER SECTION 307C OF THE CORPORATIONS ACT 2001

The lead auditor's independence declaration is set out on page 3 and forms part of the Directors' Report for the half-year ended 31

December 2018.

ROUNDING

The Group is of a kind referred to in ASIC Corporations (Rounding in Financial/ Directors' Reports) Instrument 2016/191, dated 24 March 2016, and in accordance with that Instrument, amounts in the half-year financial report and Directors' Report have been rounded off to the nearest thousand dollars unless otherwise indicated.

Signed in accordance with a resolution of the directors.

Todd Alder

Managing Director & Chief Executive Officer Perth, 21 February 2019

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