20/08/2009 - 00:00

Ford deal gives Orbital LPG opportunity

20/08/2009 - 00:00

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BALCATTA-BASED Orbital Engine Corporation has a history of creating business opportunities from innovative advancements in alternative fuels technology, but has chronically failed to turn its technical expertise into financial success.

Ford deal gives Orbital LPG opportunity

BALCATTA-BASED Orbital Engine Corporation has a history of creating business opportunities from innovative advancements in alternative fuels technology, but has chronically failed to turn its technical expertise into financial success.

The company is looking to move on from its fuel injection business, based on technology derived from its ill-fated rotary engine concept, and is seeking to expand its range of alternative fuel systems to include automobiles.

Orbital chief executive Terry Stinson told WA Business News the company was expanding its liquefied petroleum gas business primarily through an equipment supply agreement with Ford Australia.

Orbital announced in May that its LPG division, Orbital Gas Products, had been appointed as the original equipment supplier for Ford's Falcon models.

Mr Stinson said the shift to LPG equipment supply and retrofitting was modelled on a previously successful strategy shift, which established the non-automotive fuel injection specialist Synerject, a joint venture between Orbital and international automotive suppliers Continental.

Synerject supplies fuel injection systems for 2-stroke and 4-stroke engines.

"We created Synerject to provide fuel systems, electronics, and fuel injection components for non-automotive, and that business is now successful; it's around $85 million, makes a profit, it's worldwide and serves a huge variety of customers," Mr Stinson said.

"The thinking is we can do that again. We have the engine management system knowledge, the fuel system knowledge and the engineering infrastructure to be able to create new businesses that are centred around our Orbital core, which is our knowledge around engine management systems.

"One of those was our LPG business, and that started with an acquisition from Boral at the end of June last year; we purchased that business to create something new."

Orbital Gas Products managing director Tony Fitzgerald said the agreement with Ford would allow Orbital to expand into the aftermarket LPG systems supply space.

"We bought (Orbital Autogas) knowing we couldn't keep it in its current form," he said.

"We wanted to expand it and our strategy there was to get Ford's next generation of Euro-4 systems business, which we've done now.

"We also want to open up into new areas, go after the others - Holden, Toyota, the importers, basically those looking to respond to the Ford Falcon type product and also the general aftermarket - where there are government grants for people to convert their cars, and things like this.

"We're in the process of restructuring and expanding that business to go after those new areas."

Mr Stinson, who has been a member of the Orbital board since June last year, said he was appointed chief executive to identify the potential markets Orbital could exploit.

"When I came on board we got Tony [Fitzgerald] and the rest of the key staff together and asked what our niche in this business was," he said.

"We're not big enough to take on Bosch and Continental; we have this excellent fuel systems experience that we've been able to create other businesses from and sustain ourselves, so what's our niche?

"One of the areas where we feel we've got a really strong opportunity is in alternative fuels."

Although confident of the venture's success, Mr Stinson said it was important for shareholders to understand the process of creating a new business.

"Business creation is not easy, there's no silver bullet," he said.

"With intellectual property, which is what the business was before, you can go out and make an investment, sell the licence, get a lot of revenue and then get royalties.

"This is a little bit different; you have to buy the material, do some value creation and then resell that, and then collect the money.

"Some of our shareholders will be challenged by that, but this is the right thing to do, it's what I was brought here to do.

Convincing long-term investors that Orbital was on the right path posed a constant challenge, Mr Stinson said.

"The IP part of what Orbital does has not been successful, so when I go to investors, the ones that are long-standing investors, they say 'well why should I believe you', and I say 'here's what we're doing, we're creating another Synerject model,'" he said.

"We're entering the autogas business, which is a huge potential market here in Australia, not only on the fleet side, but also on the private side if the right product was there."

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