Orbital Corporation Ltd which was formerly known as the Orbital Engine Corporation Ltd is founded by Ralph Sarich which is an Australian company that has its Base in Balcatta, Western Australian which aims to provide clean engine technologies and alternative system of fuel with lower impact on the environment from the emission of gas and enhanced fuel economy. Orbital was founded in 1972 to fundamentally design and develop products to reduce the emission of gas and to make the economy fuel efficient (Orbital, 2018). The business of the company is uniquely placed to meet the performance requirement by bringing revolution in technology. The company has globally leading propulsion solutions that exceed the benchmark for competition in the areas of reliability, power and durability of system. The company is the world class leader in the supply of real time propulsion system diagnostics. The patented system of fuel injection provides spark ignition that uses heavy fuel.
Orbital has investment in associate company as the company Synerject LLC has sold 30% of its shares to Orbital for a sum of US $17.8 million. During the end of the financial year of 2015, the consolidated company has held 30% of the interest in Synerject LLC, an organization that is formed in United States (Orbital, 2018). The company has also formed a 30:70 partnership with Continental AG for the supply of engine management system and fuel systems into the non-automotive market.
Beside the Australian operations Orbital the company has the foreign operation in United States that designs and manufacture subsystem with major components of prime contractors. The company has the overseas facility located in the Hood River, Oregon which is in close proximity to the operational base of Key Orbital customer Insitu-Boeing.
Headings and sub-headings of corporate governance:
The corporate governance of Orbital is committed to provide highest standard of corporate governance. The headings and subheadings are as follows;
Operation and accountabilities of board:
Governance Policies applicable to group:
The board of directors of the Orbital Corporation Ltd is accountable for the corporate governance of the Group. The board guides and monitors the business and affairs of the company on behalf of its shareholder (Orbital, 2018). The corporate governance statements reports regarding the Orbital vital corporate governance principles and practices. The company reviews the principles and practices constantly to reflect the changes in the developments made in corporate governance.
The position and composition with total remuneration of Orbital is stated below
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Directors John P Welborn Terry D Stinson Stave Gallagher John H Poynton |
Chairman Chairman (Non-executive) Non-Executive Director Non-Executive Director Non-Executive Director |
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Executives Todd M Alder Geoff P Cathcart Michael C Lane Roule Jones Ian G Veitch Charis Law |
CFO Executive Officer and Management Director Chief Technical Officer Chairman Executive CFO CFO Chief Commercial Officer |
The chairman of the Orbital Board is paid the highest remuneration of $120,000 whereas the non-executive directors of Orbital receives a base fee of $60,000 (Orbital, 2018).
Orbital has three subsidiary company namely
Remsafe Ptd Ltd manufactures remote isolation system that has its base in Canning Vale Australia.
Orbital Fluidtechnoloies manufactures Wood building and components that is located in Newport News.
Orbital Gas Products is the reliable developer of products and integrated solutions for environmental emissions and petrochemicals that is located in United Kingdom.
The total amount invested by the company in the net assets for the year 2017 stands 19,183,000. The value of the net assets changed over the years as all the impairment losses are identified in the profit and loss (Orbital, 2018). Any form of cumulative loss relating to the available for sale financial asset identified in the previous years are transferred to profit and loss. The carrying amount of the net asset for Remsafe stood $2,682,000.
The total amount of equity that is reported by the company for the year 2017 stands 19,183,000. The total equity over the last three years of Orbital reflected a change as the company in October 13 2016 acquired the remaining amount of minority interest in Remsafe in consideration of 1,000,000 orbital shares at the issue price of $0.86 each share. Additionally in 1st march the company issued the notice of redeeming all the convertible notes that were outstanding leading the holders to exercise their right of converting the 153 outstanding notes and converting the same to the ordinary shares.
The current asset for Orbital during the year 2017 stood $29,510,000. The components of current assets included cash and cash equivalents, other financial assets, trade and other receivable and inventories (Orbital, 2018). Over the years the changes in current assets is attributed to the financial assets that are valued through the profit and loss that represents the investment into the equity shares of the listed companies. The company amortizes the short term deposits at costs. Furthermore, changes in the current assets over the years can be attributed to the maturities of the cash and cash equivalents and short term deposits.
The list of items that are listed under the non-current liabilities includes
The new current liabilities that has been reported by the company over the last few years includes
During the financial year of 2017 Orbital group reported a loss of $12,251,000. Comparatively in 2014 and 2015 the company reported a net profit of $1,676,000 however in the year 2015 the company reported net loss of $4,729,000. In the preceding year of 2016 the company reported net profit of $1,215,000 respectively (Orbital, 2018). The primary reason for the changes in the value of net profit is the employee benefit expenses as the company over the last three years has reported a highest amount of employee benefit expenditure that resulted changes in the net profit for Orbital.
The total amount of revenue that is reported by the company over the last three years is greater as the company in the year 2015 reported total revenue of $9,660,000 however in the subsequent years the total revenue increased to $14,370,000 and $11,751,000 respectively (Orbital, 2018). The company generated large proportion of revenue from the engineering service in 2015 and 2016 respectively.
The net cash used from the operating activities for the year 2017 stood $4,853,000. The largest inflow of cash was the cash receipts from customers of $13,155,000 and the highest cash outflow was the cash that was paid to the suppliers and employees stood $18,003,000 (Orbital, 2018). Similarly over the three years the cash receipts from the customers stood 22,689 and the cash paid to suppliers and employees stood $27,618. Over the years the company has reported higher amount of cash paid to the suppliers under the operating activities.
The net cash used in the investing activity for the current year stood $1,909,000. The new investment cash flows in the current year as compared to the previous three years include acquisition of subsidiary, net of cash acquired stood $850,000 in 2016.
The net increase in the cash flow for Orbital during the year stood $17,374,000. The cash flow in previous year reported by company stood $24,872 reflecting a decline in the cash and cash equivalents (Orbital, 2018). The primary reason for such fall in the net cash activities is that there were non-cash financing activities that were redeemed early to convertible notes outstanding stood $9,136,000.
The profit margin for the Orbital Corporation over the period of three years represented a tumultuous result (Scott, W. R. (2015). As in 2015 the profit margin negatively stood -49% while in 2016 the profit gained positively to 10% however in 2017 the profit margin declined to -85%. The reason for negative profit margin is because the company faced financial challenges over the period of last 12 months as the revenue was impacted by the interruptions of UAVE build program. The net loss of $12,251,000 includes the goodwill impairment of REMSAFE. The change indicates that the company experienced a lower than anticipated sales of REMSAFE hardware.
Figure 1: Figure representing Profit Margin
(Source: As Created by Author)
A declining trend of return on equity ratio has been identified. The Orbital Corporation reported a tumultuous trend of return on equity. As evident in 2015 the ROE stood negatively at -22% while in 2014 it gained marginally stand positively at 4%. The ratio however in 2016 declined significantly to -64% primarily because of higher amount of loss reported by Orbital Corporation (Schaltegger & Burritt, 2017). The primary reason for declined in the equity is because during the year ended June 2017 Orbital Corporation recognized contingent considerations of $3,440 into the equity in the consolidated balance sheet of the company.
Figure 2: Figure representing Return on Equity
(Source: As Created by Author)
Asset Turnover Ratio refers to efficient ratio that is used to measure the liability of the organization to generate the sales from its assets (Deegan, 2013). The ratio usually helps in determining how well the company is using assets to generates sales. The asset turnover ratio for the company over the last three years represented a rising trend. As in 2015 the company reported an asset turnover of 23% while in 2016 it marginally increased to 24%. In 2017 a stronger asset turnover ratio of 34% was reported by Orbital Corporation. The ratio provides an indicator that Orbital corporation is using its assets efficiently to derived sales revenue. The increase in assets is largely because of the translation of foreign subsidiary along with the acquisition of REMSAFE business offset by present year loss after tax.
Figure 3: Figure representing Asset Turnover Ratio
(Source: As Created by Author)
The receivables turnover ratio can be defined as the ratio that is used to measure how effectively an organization uses its assets (Williams, 2014). The accounts receivable turnover ratio over the period of three years represented a growing trend. The trade receivables for 2015 stood 1.52 while in 2016 it rose to 1.81. In the later year of 2017 the trade receivables increased to 2.30 representing a rising trend. The trade receivables have increased by $1,583,000 over the years which ultimately led to the growth of the company. The company has reduced the terms of payment between 30-60 days that contributed to the rise in trade receivables.
Figure 4: Figure representing Receivables Turnover
(Source: As Created by Author)
Inventory turnover can be defined as the turnover ratio represents the number of times an organization sale its inventory and replaced over the period of time (Warren & Jones, 2018). The inventory turnover over the last three year suggest a rise in turnover rate as in 2015 the inventory turnover for the company stood 0.29 while in 2016 the inventory turnover increased to 0.49. During the financial year 2017 the ratio further rose to 0.90. In spite of the rising rate of turnover Orbital corporation a decreased inventory of $2,938,000. The company further recognized an inventory expenditure from the continued operations that totalled $3,394,000 with REMSAFE inventories being written down to the nil of net realisable value.
Figure 5: Figure representing Inventory Turnover Ratio
(Source: As Created by Author)
The current ratio is largely used to provide an overview of an organization ability to pay its liabilities with its assets (Adams, 2017). The company reported a strong current ratio of 2.15 in 2015 while in 2016 the ratio increased to 3.81. However, in 2017 the current ratio declined marginally to stand at 3.07 mainly because of the lower profits. The ratio has increased over the past three years despite falling marginally in 2017. The ratio represented a better result for the company and it can be stated that Orbital corporation has sufficient amount of current ratios to pay meet its short term debt obligations.
Figure 6: Figure representing Current Ratio
(Source: As Created by Author)
The quick ratio refers to measure of how better an organization is able to meet its short-term financial liabilities (Wang, 2014). The current ratio for Orbital Group over the period of three years stood relatively strong as in 2016 the current ratio stood 20.9 while in the subsequent year of 2016 the company has reported strong rise as the ratio stood 3.36 in 2016. Moving to 2017 the ratio declined to 2.73 yet it can be inferred that a sufficient amount of current assets is held by Orbital corporation to meet its short-term debt obligation.
Figure 7: Figure representing Quick Ratio of Orbital Corporation
(Source: As Created by Author)
The cash ratio represents that the total cash and cash equivalents in respect to the current liabilities (Eccles & Serafeim, 2014). The cash flow to current liability or cash ratio is computed for Orbital Corporation for the last three years. The ratio indicates a fluctuating trend as in 2015 the cash ratio stood 0.87 while in 2016 the cash ratio increased significantly to stood 2.59. In the later year the cash ratio declined to 1.78. The fall in the cash flow is primarily because of the net cash used in the operation activities of $3,382,000 with a higher operational expenditure of $4,202,000 and fall in the working capital of $820,000.
Figure 8: Figure representing cash ratio
(Source: As created by Author)
The debt to equity ratio for the company stood positively over the period of three years as the ratio has improved over the years. In 2015 the debt to equity ratio stood 1.17 while in 2016 the debt to ratio declined to 0.57 however because of the loss reported in 2017 the debt ratio increased marginally to stand at 0.90. The reason for increased in the debt to equity is because of the company reporting a debt component of convertible notes of $9,032.
Figure 9: Figure representing Debt-to-Equity ratio
(Source: As Created by Author)
A horizontal analysis of income statement conducted represents a declining trend in revenue over the four-year time. The total revenue in 2015 stood 39% while in 2017 it declined to 22%. The profit before tax too represented a negative trend of -555% in 2017. Relatively the profit for the year also continued a negative trend of -126%.
On the other hand, in balance sheet the current assets represented a rising trend with current increased to 124%. The total assets representing a declining trend with ratio falling 26% to negative of -26%. The total liabilities also represented a negative figure of -3% with rising trend of debts being reported by the company.
The vertical analysis of the income statement represents that the company reported a higher trend of employee benefit expenditure of 101% in 2014. Additionally, engineering consumables and contracted represented a share of 35% from the total revenue. The profit and loss from the total revenue stood 49% in 2015. Moving into the 2016 and 2017 the trend represents a profit of 10% from the total revenue with 85% loss from the total revenue reported in 2017.
The vertical analysis of balance sheet represents 42% of current assets from the reported sum of total assets in 2014. The current liabilities stood 36% of the total liabilities while the total liabilities standing 79% of the total assets. The total current asset represented 34% of the total assets while the current liabilities constituted 35% of the total liabilities in 2015. In 2016 and 2017 the total current asset stood 74% and 81% of the total liabilities respectively. While in 2017 the total current liabilities stood 50% of the total liabilities with total noncurrent liabilities standing 40% of the total liabilities.
The trend analysis for revenue represents a rising trend as revenues in 2015 stood 9660 while in 2016 it increased to 11,751. The revenue further stood strongly in 2017 to stand at 14,370. The net profit after tax stood negatively to -4,729 in 2015 while it increased to 1215 in 2016 but declined to -12,251 in 2017. Over the last three years the revenue represented a rising trend while the profit have significantly represented a declining trend.
Figure 10: Figure representing Trend in Revenues
(Source: As Created by Author)
Figure 11: Figure representing Trend in NPATA
(Source: As Created by Author)
Conclusion:
On a conclusive note, the report have assessed the corporate governance principles. While the analysis of income statement and balance sheet has represented that the company has faced challenges in its business environment. The analysis represents that the financial performance of the company has declined with the company reporting significant amount of loss. The fall in profit was largely attributable to poor performance in LPG related sectors however the company has undertaken initiatives by lowering the operating cost through implementation of automated isolation system.
Reference List:
Adams, C. (2017). Understanding integrated reporting: The concise guide to integrated thinking and the future of corporate reporting. Routledge.
Corporate Governance – Orbital. (2018). Orbital. Retrieved 11 April 2018, from https://www.orbitalcorp.com.au/about-us/corporate-governance/
Deegan, C. (2013). Financial accounting theory. McGraw-Hill Education Australia.
Eccles, R. G., & Serafeim, G. (2014). Corporate and integrated reporting: A functional perspective.
Our Business – Orbital. (2018). Orbital. Retrieved 11 April 2018, from https://www.orbitalcorp.com.au/about-us/our-business/
Schaltegger, S., & Burritt, R. (2017). Contemporary environmental accounting: issues, concepts and practice. Routledge.
Scott, W. R. (2015). Financial accounting theory (Vol. 2, No. 0, p. 0). Prentice Hall.
Wang, C. (2014). Accounting standards harmonization and financial statement comparability: Evidence from transnational information transfer. Journal of Accounting Research, 52(4), 955-992.
Warren, C. S., & Jones, J. (2018). Corporate financial accounting. Cengage Learning.
Williams, J. (2014). Financial accounting. McGraw-Hill Higher Education.
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