OEC’s industry experience gives it a unique advantage for growth in the tactical UAV market amid broader tailwinds for defence spending.

Advanced engine manufacturer Orbital Corp (ASX:OEC) is looking forward to further expanding its business development opportunities across global markets in FY22, after progressing its customer diversification strategy in the 2021 financial year.

In its latest trading update yesterday, the company flagged full-year FY21 revenues of $31.2m, flowing through to core earnings (EBITDA) of $1.2m.

And looking ahead, OEC’s technological advantages and strategic relationships with major US defence customers leave it “well-positioned at the forefront of the global unmanned aerial vehicle market”, CEO Todd Alder said.


Year in review

Speaking with Stockhead, Alder said FY21 was a “tale of two halves” as the company dealt with a reduced production environment in H2.

After booking strong first-half revenues of $19m, H2 revenue growth slowed to $12.2m.

Among those operational challenges, OEC managed production delays with its cornerstone client Insitu – a wholly-owned subsidiary of defence & aerospace giant Boeing.

As part of its long-term five engine supply deal, production of the third engine model was delayed due to customer-requested design changes. Order volumes for H2 also slowed (which OEC previously flagged to the market in February).

OEC’s management team also executed on a capital restructure which included one-off costs totalling $9.5m. These included business restructuring activities and rework provisioning due to a faulty supplier component.

Despite those challenges, Orbital’s full-year revenue result still fell within its forecast guidance range.

And looking ahead, Alder said he’s “proud of the team and the work done to restructure the business for profitability in FY22”.


Looking ahead

Having navigated those operational and external industry challenges, Orbital’s management team said it expects full-year revenues for FY22 to still be in line with the previous year.

In addition, it flagged medium term revenue opportunities from engine development work carried out with Textron-Lycoming as well as a Singapore defence customer.

Both programs are “progressing well and will support accelerated revenue growth in FY23”, Alder said.

The company shipped its first prototype engine to Textron subsidiary Lycoming Engines in May and is on track for a second prototype shipment in December. The engine program is expected to transition into production in 2022.

The Textron contract “represents a significant new revenue stream in the mid-term, and we are continuing to work to secure additional defence prime customers this calendar year”, Alder said.

Orbital also delivered its first engine system to Singapore in May, and additional prototypes for evaluation have now been requested by the customer.

The company is also targeting a “further 1 to 2” contract wins in FY22, as it builds off its existing client development work and industry reputation to land long-term deals with Tier One global defence customers.

“With further opportunities identified in the US and Australia, the company continues to progress its growth strategy and objective of delivering long term shareholder value,” Alder said.

More broadly, the company is set to play a key role in the ongoing development and deployment of unmanned aircraft systems as defence spending increases amid rising geopolitical tensions.

“Our engines and associated technologies have accumulated hundreds of thousands of flight hours and with that comes a growing reputation for capability, quality and reliability,” Alder said.

“We are now leveraging that reputation to build our pipeline of opportunities, as we look to expand Orbital UAV’s customer base and market share.”

This article was developed in collaboration with Orbital OEC, a Stockhead advertiser at the time of publishing.

 This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.