Orbital Corporation Ltd. March 12, 2012

March 9, 2012: Price US $5.90

Richard C. Nelson (727) 329-8652 [email protected]

Orbital Corp. - Stock Chart ($ AU)

Initiation Report

Industrial Research

HIGHLIGHTS • The company is a leader in fuel injection technology that can be applied to most spark ignition combustion engines and is adaptable to diesel and natural gas derived alternative fuels. •

Using a sum of the parts approach, applying a 0.5x revenues valuation for Orbital, the parent, and an 8x multiple on after tax income for Synerject, the company’s 42% owned and U.S. based joint venture with Continental AG, we calculate a combined value in a range of $41 million to $45 million (and as high as $70 million when using average peer company multiples, 1.1x and 12x, respectively), well surpassing its current market valuation of $17 million.

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Synerject, a 42% owned joint venture with Continental AG, a major international industrial company, focuses on non-automotive engine and EMS markets (motorcycles, outboard engines, snowmobiles, etc.). Synerject has been generating very healthy revenues and profits, even during one of the worst recessions in history.

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The price of oil and refined gasoline products and fuel security are making alternative fuels such as LNG, CNG (both Natural Gas) and LPG (Autogas; propane + butane) increasingly appealing. Such fuels are abundant outside of the traditional and problematic oil producing areas.

Company Description Orbital Corp. is a leading designer and manufacturer of fuel injection components and engine management systems for both gasoline and alternative fuel systems. Orbital has introduced nextgeneration LPG “Liquid” fuel injection technology (LPi; liquid phase injection) which offers enhanced performance compared to previous generation LPG systems.

Source: Australian Stock Exchange

PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT

Orbital Corporation Ltd.

GENERAL COMMENTS Orbital Corp. is a leading designer and manufacturer of fuel injection components and engine management systems for both gasoline and alternative fuel systems. The company’s most significant patented process, FlexDi™, allows for precise calibration of the air/fuel mixtures and the focused and limited projection of the fuel vapor within a combustion chamber, thus allowing for substantial improvements in fuel efficiency and a substantial reduction in harmful emissions. More recently, Orbital has introduced next-generation LPG “Liquid” fuel injection technology (LPi; liquid phase injection) which offers enhanced performance compared to previous generation LPG systems. The company’s shares are listed on the Australian Stock Exchange (OEC), the AMEX in New York (OBT: $5.90), and the Deutsche Bourse (DB: OREA - €0.24). Highlights •

The company is a leader in fuel injection technology that can be applied to most spark ignition combustion engines and is adaptable to diesel and natural gas derived alternative fuels.

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Using a sum of the parts approach, applying a 0.5x revenues valuation for Orbital, the parent, and an 8x multiple on after tax income for Synerject, the company’s 42% owned and U.S. based joint venture with Continental AG, we calculate a combined value in a range of $41 million to $45 million (and as high as $70 million when using average peer company multiples, 1.1x and 12x, respectively), well surpassing its current market valuation of $17 million.

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The price of oil and refined gasoline products and fuel security are making alternative fuels such as LNG, CNG (both Natural Gas) and LPG (Autogas; propane + butane) increasingly appealing. Such fuels are abundant outside of the traditional and problematic oil producing areas.

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The evolution of increasingly tougher engine emissions standards render alternative fuels much more attractive. The emissions from LNG, CNG and LPG engines are substantially lower than conventional gasoline and diesel engines.

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The Asian markets are in the process of catching up with implementing more stringent emission standards. In the substantial and growing markets of Asia, emission legislation is tightening up, and the customer demand for better fuel economy and increased functionality is driving the need for Engine Management Systems (EMS) for both 2 and 4 stroke engines in the motorcycle market, and for CNG/LPG systems for Automotive applications.

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Synerject, a 42% owned joint venture with Continental AG, a major international industrial company, focuses on non-automotive engine and EMS markets (motorcycles, outboard engines, snowmobiles, etc.). Synerject has been generating very healthy revenues and profits, even during one of the worst recessions in history.

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Orbital’s new generation, Liquid LPG systems are now being installed in the new model Ford Falcon EcoLPi, which has only recently been launched. The EcoLPi Falcon is built by Ford of Australia and it has received exceptional critical acclaim in comparison with other, similar gasoline fueled vehicles. It won the 2011 Australian Best Car Awards in the category of Best Large Car under the price of $60,000.

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It was announced in January that Orbital has been working with a major supplier in the defense industry to develop a unique engine incorporating Orbital’s patented technology for an advanced unmanned aircraft system (UAS). This project has the potential for future U.S. military contracts.

Chart 1 - Orbital Corp. - Stock Chart ($ AU)

Source: Australian Stock Exchange

Company web site: http:\\www.orbitalcorp.com.au

Company Background Orbital Corp. is a leading designer and manufacturer of fuel injection components and engine management systems for both gasoline and alternative fuel engine applications. The company’s most significant patented process, FlexDi™, allows for precise calibration of the air/fuel mixtures and the focused and controlled projection of the fuel droplets and vapor within a combustion chamber, thus allowing for substantial improvements in fuel efficiency and a substantial reduction in harmful emissions. Orbital’s technology has evolved such that its FlexDi™ process can be used with gasoline and most alternative fuels. FlexDi™ is now utilized on more than 650,000 non-automotive engines worldwide. Important markets for the company’s two and four stroke engine technology are the marine, motorcycle and scooter engine sectors, but more recent engagements with Ford of Australia and HSV (Holden Specialty Vehicles) have allowed the company to initiate an important presence in the automotive market as well. A current LNG dual fuel-testing program involving long-haul trucks in Western Australia also reflects the company’s diversity of engineering capabilities and willingness to tackle new markets. Given that the company’s technologies can be adapted to a

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range of combustion engines, the potential for the company is very scalable and very encouraging. The roots of the company go back to the 1960’s when its founder, Ralph Sarich, designed and worked to develop and commercialize the Orbital rotary internal combustion engine (the Orbital Engine). Partnered with BHP in 1973 in a 50-50 joint partnership, work began on the development of the Orbital Engine. Over the next 15 years the company went through several corporate structures such that by 1990 the surviving entity was renamed the Orbital Engine Corporation Ltd. During that interval the success of the company in designing new fuel injection technology in its many forms substantially exceeded the increasingly more challenging commercial prospects of the original Orbital Engine project. In 1983 the company’s commitment to a complete, internally developed rotary engine was ended and by 1999 BHP had sold in the marketplace all of its shares in Orbital. In 1997, Orbital entered into a 50-50 joint venture with Siemens-VDO Automotive to design, develop, manufacture, distribute and sell fuel rail assemblies incorporating the company’s proprietary fuel system technology (FlexDi™), exclusively in non-auto engines. The joint venture is called Synerject and has expanded robustly to the extent that it accounts for the largest proportion of Orbital’s business. In 1998 Synerject expanded its product offering to include all EMS systems including conventional port injection. The FlexDi™ technology essentially calibrates and regulates the electronically controlled injection and ignition of air and gasoline (or another hydrocarbon fuel), thereby providing additional combustion and emission efficiencies to an engine. Different demands and loads can be accommodated in the electronic management of the ignition system in order to reach maximum efficiency. In 2007 Continental Automotive AG, a major German based industrial company, bought Siemens VDO, thereby replacing Siemens as Orbital’s joint venture partner in Synerject. In March of 2009, an economic adjustment of the partnership took place whereby Orbital sold to Continental 16% of its 50% interest in the partnership, thereby realigning the joint venture to 42% ownership for Orbital and 58% ownership for Continental. The economic framework of the company clearly shows that Synerject is the primary edifice of Orbital Corp. Ltd. As we explore the different elements of the company, one recognizes that there are three avenues through which the company generates income; consulting and engineering services, the direct sale of components (including through Synerject), and license and royalty income. However, the company has many initiatives in place, both large and small, which convey a sense that there are more than three silos at work. This is not necessarily a negative, simply because the target market landscape is so big and broad that the opportunities for growth are considerable. Orbital’s strategy going forward is to focus more on higher margin or niche volume manufacturing supply business and less on licensing and consulting revenue.

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Synerject An absolutely critical dimension of Orbital, and one, which might escape a full understanding by many in the investment community, is its participation in Synerject. Synerject is a joint venture that was originally created to leverage the fuel injection technology of Orbital with the wide range of potential markets served by Siemens VDO and now Continental Automotive. Today, Synerject serves as Continental’s platform for its non-automotive fuel injection design and development initiatives. Orbital brings to the joint venture its innovative FlexDi™ technology as well as expertise in engine management systems and new fuel injection technologies. The company sells only to OEMs (Original Equipment Manufacturers), and over the past few years has been entering small engine markets, i.e., lawn and garden equipment. Based in Newport News, Virginia with facilities in France, Taiwan, Chongqing and Changchun, China and Delavan, Wisconsin, Synerject provides products and services to well over 30 customers worldwide. Some of its most important relationships include Bombardier Recreational Products (outboard marine engines and snowmobiles in the U.S. and Europe) Mercury Marine (Brunswick Corp., global outboard marine engines) and both Kymco and Sanyang (major Taiwanese scooter and motorcycle manufacturers). We will further explore Synerject later in this report. The Competition Orbital faces a good number of companies, many with deep resources, in the fuel injection and engine management systems marketplace. Competitors include the likes of Bosch, Delphi Automotive, Magneti Marelli and Keihin. To a certain extent its library of patents and other IP claims provide some degree of protection, but engineers can be very clever in designing functional devices with slightly different physical characteristics. First mover advantage is often a more effective way of gaining market share. The company currently has over 150 patents in its library.

Orbital Consulting Services - Research, Development, Testing Orbital has also built a versatile testing and consulting group that has the ability to provide a range of services including EMS, fuel systems development and testing on a wide range of equipment (Orbital Consulting Services - OCS). All aspects of engine design and durability are within the company’s province and include the evaluation of engine and vehicle fuel efficiency and emissions. When one considers the myriad of engines and applications that exist worldwide and the fact that all engine manufacturers are looking to improve their own products, companies such as Orbital need to be creative, flexible and expert at providing innovative solutions to a customer’s engine management requirements. Indeed, the company is licensed to provide Australian certifications for other automotive vendors. Orbital’s main consulting/research work is conducted from its home facility in Balcatta, Western Australia. Management does not regard its consulting services as a major revenue growth area for the simple reason that its development and testing facilities are remote from the customer base, the market is highly competitive and margins are slim. However, the information that is gleaned from such testing and the necessary research and development involved in new product

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development is critical to the company’s long-term objective of expanding its manufacturing and product distribution in markets around the globe.

The Alternative Fuels Imperative The cost of oil and the issue of fuel security are constant reminders to consumers that engines that use cheaper alternative fuels such as Compressed Natural Gas, Liquid Petroleum Gas (Autogas) and Liquid Natural Gas might be preferable to conventional gasoline and diesel-based engines. Other hydrocarbon alternative fuels include ethanol, hydrogen and HCNG (hydrogen compressed natural gas), the specific combination of hydrogen and carbon giving a fuel its particular properties. The advantages and disadvantages of such alternatives often present a matrix of various dynamics that include storage logistics, combustion power, availability and cost of fuel dispensing infrastructure, emissions level mandates and the added cost of conversion or original equipment manufacturing. Orbital provides the technology to allow these alternative fuels to be used in combustible engines in a more cost efficient manner with similar power metrics and with substantially lower emissions. The Alternative Fuel Landscape There are a multitude of alternative fuels (to gasoline) that vary in properties and logistical challenges. The different fuels include: • • • • • • • •

Alcohols - ethanol and methanol. Compressed natural gas (CNG) - natural gas under high pressure. Electricity - stored in batteries. Hydrogen - a very special type of gas. Liquefied natural gas (LNG) - natural gas cooled to extremely low temperatures Liquefied petroleum gas (LPG) (a propane/butane combination) - hydrocarbon gases under low pressure. Liquids made from coal - alternative source of gasoline and diesel fuel that doesn't originate with extracted petroleum. Biodiesel - very much like diesel fuel, but made from plant oil or animal fat.

Orbital has spent many years developing fuel injection technologies and related control systems that can deal with alternative fuels, particularly Liquefied Natural Gas (LNG), Compressed Natural Gas (CNG), Liquefied Petroleum Gas (LPG, Autogas) and ethanol. All conventional combustion engines that use gasoline can be adapted to burn alternative fuels, though a number of logistical issues are involved. Since 2001, the number of vehicles using Natural Gas based fuels has been growing at an annual clip of 24.2%. Most of the growth has been in Asia where certain cities have mandated conversion to LPG and CNG technologies and lower running costs have provided an incentive to convert.

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Orbital Corporation Ltd.

Table 1

Source: NGV Global 2011 www.iangv.com

Inasmuch as the growth in the number of NG vehicles has been substantial, the number of such vehicles still pales in comparison with gasoline-based vehicles. Alternative Fuel Economics The value of a fuel alternative to gasoline is dependent upon a wide range of factors, some of which are not necessarily directly economic. Of course, the difference in the price of a gallon (or litre) equivalent for CNG, Diesel, LNG or LPG relative to gasoline is only the start. The cost of conversion must also be considered, as are the myriad of incentives that are offered by local and national governments throughout the world. The mileage efficiency of a fuel (miles/km per gallon) is also a critical factor, and one that can be enhanced depending on the fuel delivery technology that is used. Other considerations include tank storage (if not included in original design) and the cost and availability of fueling stations. Government fuel taxes, incentives, subsidies and credits also play a role in the economic dynamics of a conversion/purchase.

LPG (Autogas) LPG is a combination of propane and butane that can be easily liquefied such that the handling of “autogas” is not much different from gasoline. Importantly, much of the propane is extracted naturally from existing domestic sites (both in Australia and the U.S.) and does not rely as extensively on imported oil. Orbital has developed a liquid fuel injection technology (LLi) that

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not only improves vehicle performance but meets the ever increasingly stringent emission standards that are evolving. The Advantages of LPG • •

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Propane exhaust creates 60 to 70 percent less smog-producing hydrocarbons than gasoline (Southwest Research Institute). Compared to gasoline, propane yields 12 percent less carbon dioxide, about 20 percent less nitrous oxide, and as much as 60 percent less carbon monoxide (World Liquid Propane Gas Association, January 2003; California Energy Commission, January 2003). Propane cuts emissions of toxins and carcinogens like benzene and toluene by up to 96 percent compared to gasoline (Southwest Research Institute). Propane’s octane rating is 104, while premium grade gasoline’s is only 91 to 92, which allows for a higher compression ratio in the engine and greater engine efficiency. This leads to significant reductions in exhaust emissions such as carbon monoxide. Compared with CNG or LNG, the cost of establishing a fuel dispensing facility is far less.1 The two negatives associated with LPG were complications with a “cold start/ operation, performance lost” and the added size of the fuel tank in the boot (trunk). The “cold start/ operation and performance loss” has been resolved with Orbital’s new Liquid LPG injection, and the added fuel tank size can be resolved through using a donut tank where the spare tyre sits or purchasing a mono-fuel vehicle such as that provided by Ford Australia. Australia has been one of the more progressive nations in terms of using LPG fuel. In that country, the cost of converting to an LPG fuel injection based engine can be in the range of A$3,000 to A$5,000. The Australian government had been providing substantial grants for both original registration purchases and engine conversion, but these grants have been reduced and are being further reduced, particularly for conversions, thus extending the payback period (see page 13). A $2,000 grant is still available for the original equipment products such as the Ford Falcon EcoLPi. For the most part, the price advantage of Propane (LPG) over Petrol in the U.S. has been about $1 per gallon, but this relationship has widened considerably over the past two years.

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The cost of an LNG facility is in the range of $1 million $1.7 million. A small CNG facility would cost about $400k, with a larger capability costing from $600k to $1.7 million. By comparison, the addition of an LPG (Autogas) station would be about $45k to $60k.

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Chart 2 - Historical Price of Propane to Gasoline - $ per Gallon

Source: U.S. Energy Information Administration

ICF, a well-known industrial consulting organization, anticipates that the difference in pricing is expected to remain relatively constant over the next several years, as the following chart indicates: Chart 3 - Projected Fuel Price Estimates

Source: ICF

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Mandates - Emission Standards Although not a direct element of an economic equation, fuel emission standards can greatly influence market dynamics (and occasionally go hand in hand with government support programs). Over the past decade the U.S. and Europe have introduced increasingly stringent emission standards. Most Asian countries as well as the Australasian countries have also been beefing up standards, though China has been slow in mandating its regulatory evolution. Over 90% of China’s two and three wheel vehicles are still using carburetor based combustion technology. (In due fairness, China is one of the major users of electric powered two wheelers.) India is the 2nd biggest motorcycle market (approximately 12 million motorbikes per annum) and at this stage does not appear to be following the Chinese electric powered route. The following table conveys a sense of the relative carbon emissions proffered by various fuels: Chart 4 - Total Carbon Emissions for Various Fuels

Source: Autogas for U.S.A

More specifically, LPG (Autogas) emits about 20% fewer emissions than gasoline. Furthermore, particulate matter is reduced by well over 90% compared to diesel and NO2 emissions are approximately 50% that of gasoline and 5% that of diesel. It is clear from the table that the emission improvements resulting from the use of LPG, CNG and LNG alternative fuels are much better than the emissions wrought by most gasoline grades. LPG in Australia Australia has made good progress in developing an infrastructure that supports the use of LPG. As of 2009, the U.S. Dept. of Energy estimated that there were 620k LPG fueled vehicles in Australia with approximately 3,200 dispensing sites. This compares with about 15.3 million total vehicles in that country. Whilst most LPG dispensing sites are found near city centers where fleets are much more concentrated and the ability to leverage the use of a fueling station is much greater, there is nationwide coverage on all major interstate highways.

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It is interesting that Australia has a much lower usage of other, Natural Gas Vehicles (NGVs). To help the LPG market gain traction Australia instituted grants for the purchase of LPG vehicles. Australian LPG Vehicle Scheme For several years the Australian government provided healthy credits to those who either purchased LPG vehicles or converted their gasoline engines to LPG. The conversion credit is A$1,250 and is due to fall to A$1,000 between July 2013 and June 2014. The grant for the purchase of a new vehicle with LPG technology is at A$2,000 but is due to expire in June of 2014. There are also incentives in place for fueling stations to add LPG capability as well. Because of the declining incentives and the government’s decision to impose a national fuel tax on LPG increasing to A$0.12 per litre over 5 years (still low compared with the A$0.38/litre gasoline fuel excise tax), the private consumer market has become less enthusiastic about the LPG initiative. However, the cost savings still provide benefits and this is particularly important for the commercial market. Table 2

Source: U.S. Dept. of Energy

The United States and NGVs The U.S. has seen limited expansion of NGV and LPG fueled vehicles. As is the case with Australia, long distances and a limited fuel station infrastructure have made expansion difficult. Again, fleet trucks and buses are the primary users of LNG, CNG and LPG fuels. The New Alternative Transportation to Give Americans Solutions Act of 2011, if passed, would provide new and extended tax credits for vehicles and facilities that use CNG or LNG. The Act also gives specific direction to the Secretary of Energy to provide funding for and authority to direct the improvement of emissions levels and the integration and enhanced efficiency of vehicles that use CNG and LNG. What is disturbingly missing is the inclusion of LPG as a

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supported alternative fuel. This might not be directly material to Orbital in the U.S. given that CNG and LNG use is more concentrated in the medium and heavy (truck) vehicle markets. Orbital’s strategy is to focus on LPG in the passenger car market in Australia where the infrastructure is well established. The CNG/LNG opportunity is emerging in Australia with Toll (Mitchells) but the market drivers in the U.S. provide further opportunities for the truck market in the U.S. Table 3

Global Autogas Prospects As one can see from the table below, several countries have moved to use Autogas in a meaningful way. Australia is in the top ten while the United States lags well behind in terms of market acceptance. The key point to take away is that the number of Autogas dedicated vehicles is still only a very small percentage of the world’s vehicle population (2.18% in the table below, but is actually smaller since numerous other countries have not been included on this list). When combined with the fact that the available reserves of natural gas and propane are enormous and much is located away from the cartel states of the middle east, logic would suggest that, just as a matter of national security, let alone the demands for new stringent emission standards, there will be a constant push toward greater adoption of autogas use. The challenge will be on a country-by-country basis and the manner in which an effective infrastructure can be installed and a critical inflection point be crossed.

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Table 4 - Autogas Vehicles in Use, 2005-2010 (thousands)

* Compound average annual rate of growth. ** 2006-2010. Sources: WLPGA, Statistical Review of Global LP Gas (various issues), Wards Auto

Ford Australia One of the flagship programs at Orbital is its relationship with Ford of Australia. Due to tougher emission standards, Ford decided to transition its Ford Falcon “E-Gas” LPG engines to meet those new standards, a transition that was complicated by considerable delays in the introduction of the new models. As a result, Ford revenues to Orbital sharply declined for nearly eight months, thereby resulting in approximately $2 million in losses to Orbital. The new models are out, however, and the reviews have been exceptional. In fact, the Ford EcoLPi won the 2011 Australian Best Car Awards in the category of Best Large Car under the price of $60,000. Essentially, the new Liquid Phase Injection (LPi) technology allows the LPG, which is stored in tanks to begin with, to maintain its liquid state at the point of being injected into the combustion chamber, whereupon it quickly vaporizes and allows for a much more efficient and robust burn. The liquid injection allows for a more precise fuel injection that produces a much more efficient burn and, unlike vapor systems, does not displace incoming air in the inlet manifold thereby

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imparting greater power to the engine. Car Advice2also noted the much improved power dynamics of the Ford Falcon EcoLPi. One of the additional benefits is that LPi allows for an immediate cold start. The simple act of opening the car with an electronic key starts the process of pump priming the engine, such that the engine fires up immediately when the ignition is triggered. The models on which Orbital’s technology can be fitted are the XT, XR6, G6 or G6E sedan (and XL, R6 and XR6 ute [utility vehicle]). The XT is the more basic model and mainstream seller with fleet taxis being a prime target market. Most of these cars are higher end models, which provide luxury comfort for long-distance travelling. For the most part, the critics gave Ford high marks in this area as well. The only negative is that the spare tire occupies a hefty size of the trunk, a concern given the distant reaches of the Australian landscape. Given the large trunk space, the inclusion of either a space saver spare tire and/or sealant repair/pump kit is more than sufficient for most practical vehicle use. From an economic standpoint, the decision to go with a Ford EcoLPi model is a strong one. Assuming the A$2,000 Australian original registration rebate is still in place, that the cost of the Falcon EcoLPi is about A$2,500 more expensive than its gasoline sibling, that gasoline costs A$1.45/litre, that autogas costs A$0.75 /litre and that the average driver drives 15,000 km per annum, the fuel savings calculate to about A$758 per annum. On a breakeven basis, and given the A$2,000 rebate, the breakeven time is very short. Table 5 - Breakeven Calculation for Ford Falcon EcoLPi

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The vast improvement (27% better power and 10% more torque) over the outgoing Ford Falcon’s LPG system is due to the new LPi technology which enables the injectors to deliver the LPG liquid into the intake port as the engine sucks in the air/fuel mix. As the LPG liquid is released from the injector, because it is no longer under pressure, it expands approximately 250 times into gas and almost freezes the incoming air. This creates the ideal condition for maximum fuel burning efficiency. Heaps more power and greater torque link with even better fuel economy. In fact, the economy of the Ford Falcon EcoLPi is better than the gasoline equivalent, so you should expect an average fuel consumption of around 12 litres/100 km. (Source: Private Fleet, 2012)

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The Economics of Conversion The conversion grant for existing privately owned vehicles in Australia has been reduced to A$1,250 and is set to expire in July of 2014. The payback period for such an installation is totally dependent on the fuel savings. Based on the most recent prices for Autogas and Petrol, the following table reveals a much longer breakeven period for an already registered vehicle: Table 6 Breakeven Calculations With Rebate

Without Rebate

The gradual reduction in government rebates for conversions has undoubtedly impacted the overall level of demand for LPG conversions and new purchases. There has never been a rebate for commercial vehicle retrofits. Holden Special Vehicles (HSV) Orbital also provides fuel injection technology for performance vehicles produced by Holden Special Vehicles, a partner of GM Holden Ltd., GM’s subsidiary responsible for all vehicle sales and operations in Australia. Sprint Gas (Australia) In May of 2011, Orbital purchased, through a newly created holding company, 55% of Sprint Gas, a national Australian company that specializes in the importation and wholesaling of LPG systems. A special call/put option arrangement for the balance of the 45% ownership of Sprint Gas obliges Orbital to report Sprint’s results on a fully integrated basis. For a cost of $2.0 million, Orbital should report an additional $7-$8 million in annual revenues as a result. Aside from making a further, forceful commitment to the LPG market, the Sprint Gas acquisition will serve as a nationwide platform from which Orbital’s relatively new liquid fuel injection technology can be commercially exploited.

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Other LPG Related Initiatives Orbital has and will continue to pursue all avenues that offer the opportunity for it to leverage its knowledge and experience in fuel injection technology and engine management systems. The following events round out a fairly comprehensive approach to not only the LPG markets, but other alternative markets as well. 2003 - The company entered into a Technical Cooperation Agreement with UCAL Fuel Systems Ltd., a manufacturer of carburetors and fuel injection components for the Indian motorcycle and automotive markets. 2008 - Orbital has been licensed by Vialle Alternative Fuel Systems, a Dutch company, for the sale and distribution of LPG fuel and liquid fuel systems in Australia and New Zealand. 2009 - Motonic Corporation, a Korean based auto components company and one of the largest suppliers of Autogas components, has licensed Orbital to deploy Motonic products in the Australian market. Motonic is a major supplier to Hyundai, one of the worlds’ largest manufacturer of LPG vehicles. 2009 – Continental granted Orbital exclusive rights to distribute specific LPG and CNG products for passenger cars, transport and mining applications in Australia and New Zealand.

Unmanned Air Systems - A Military Opportunity Orbital is working to develop new engines and engine systems that meet the requirements for the military’s movement toward a “One Fuel” policy. When it comes to unmanned aircraft systems, for small reconnaissance UAS applications, engine size and weight are critical. Orbital’s FlexDi™ systems, coupled to purpose designed lightweight two-stroke engines, enable a spark-ignition engine package that can operate independently on heavy fuels. Recently, Orbital was noted in ”Aerospace & Defense News” that they are prospectively supplying a new, lighter and more powerful Orbital 2-stroke engine, to the UAS market.

Long-Haul Diesel Trucks - NG & Diesel / Dual Fuel Although much of Orbital’s attention has been focused on expanding its liquid fuel injection prospects within the LPG dimension, and that LPG appears to be the alternative fuel of choice for lighter vehicles, the economics of CNG and LNG applications for medium and heavyweight fleet vehicles are very strong. To this end Orbital is also spending much time and effort. Dual Fuel Dual fuel diesel engines are retrofitted diesel engines that incorporate a flow of natural gas and air that is then ignited by small amounts of diesel. The reliance on diesel fuel is substantially reduced (up to 85%) and CO2 emissions can be reduced by up to 15%.

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The economics of LNG fuel are favorable mainly when used for large fleets of trucks, high loads and long distances. The cost to modify a diesel engine and the cost of establishing an LNG fueling station are all to be considered in the value equation, but the major efficiencies are realized when larger vehicle fleets are involved. Chart 5

LNG Conversions LNG is used far less than that of LPG, but it has found a niche with large-scale truck fleets that tend to be concentrated around ports and city centers. Orbital has entered into a collaboration with Australia’s Toll Mining Services on an LNG program that entails the installation of dual fuel technology on commercial trucks. Large iron ore road transportation trucks have been fitted with Orbital’s LNG conversion system and are carrying ore from Cue, Australia to the port of Geraldton. The trucks, up to 150 tons in total weight, have been meeting target performance and target LNG substitution rates (the higher the substitution, the better cost savings). This program has been expanded from three trucks to ten and will likely soon be further expanded. Looking at the bigger picture, overall global Capex on LNG facilities for the 2010-2014 period is forecast to total over $108 billion - a growth of 10% relative to the 2005-2009 period. (DouglasWestwood, “The World LNG Market Report 2010-2014”)

Cummins Westport - Spearheading the LNG Truck Engine Market in the U.S. Cummins Westport, a Vancouver based joint venture between Cummins Inc. (NYSE: CMI $118.93) and Westport Innovations (NASDAQ:WPRT - $45.46 / TSX:WPT), specializes in the manufacture of dedicated natural gas engines for regional haul truck / tractor, vocational and refuse applications.

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Waste Management, the nation's largest handler of refuse and owner of the largest fleet of garbage trucks in North America, has more than 1,400 CNG/LNG-powered trucks in operation and uses Cummins Westport equipment. Table 11 - U.S. Alternative Fuel Dispensing Stations By State

California is the U.S.’s largest domain for alternative fueling stations. In 2009 a large NG fuel station was built by Clean Energy Fuels Corp. (Nasdaq: CLNE - $20.77) and is now open for business on a 2.9-acre site adjacent to the Ports of Long Beach and Los Angeles. Two years earlier Clean Energy built its initial NG fueling station that services a major trucking company (Southern Counties Express) in the LA/Long Beach port area. Since 2010 Pilot Flying J, an operator of over 550 truck travel centers in 43 states and six Canadian provinces and is the largest truck-fueling operator in the country, has been expanding its fueling capability to provide CNG and LNG product at its centers. These are only a few examples of the broader, significant message that momentum is building in the development of NG alternative fuel capabilities and that there is much potential for additional growth. Interestingly, Westport Innovations recently raised $273.5 million of equity in the capital markets at a valuation of roughly 10.5x revenues and 11.4x listed book value. Moreover, trailing twelve months net income was a loss of $59.3 million on revenues of $203.6 million. Clearly, the investment community has been persuaded that the long-term market potential of LNG based alternative fuels is substantial. Global Use of Natural Gas Vehicles The following table conveys a sense of the adoption of NGVs worldwide. It is interesting that in this particular category Australia, which has long, long stretches of highway, has been slow to adopt NG for fleet trucks. This may be a positive for Orbital. Though based in Perth, Australia,

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Orbital has long looked far and wide for its market opportunities. It just seems that there might be a good opportunity in their back yard. The number of NGVs worldwide grew from about 1.8 million in 2001 to about 12.7 million in 2010, a compound annual growth rate of 24.2%. According to the American Public Transportation Association, the share of transit buses in the U.S. powered by natural gas has been growing steadily and now approaches 20%. As mentioned earlier, the New Alternative Transportation to Give Americans Solutions Act of 2011 provides considerable support to the development of LNG and CNG powered vehicles and infrastructure in the U.S. Table 8 - Global Use of NG Vehicles

Source: International Road Federation

Synerject: Outboard Engines, Motorcycles and Scooters Not only has economic and population growth in China and India helped propel growth over the past decade for 2 stroke and 4 stroke engines, but India and China are finally implementing fuel efficiency and emissions standards that, over time, will generate an evolution of fuel system and EMS technology that meet the newer emission standards.

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European motorcycles already must meet the Euro 3 standards that are likely to remain in place until 2016. In the U.S., new emission standards took hold in 2010. Motorcycle Markets Orbital’s (Synerject’s) Engine Management System products are widely used in the motorcycle and scooter markets with end users such as Kymco and Sanyang (Taiwan) and Piaggio (Italy) incorporating their fuel injection and/or related components in one or several of their vehicles. Important customers Kymco and Sanyang account for a substantial portion of Synerject’s revenues where Synerject’s technology is used to meet Taiwanese emissions standards on motorcycles. Orbital also provides fuel injection technology for Piaggio. It bears mentioning that Piaggio last year announced that it would open a research center in Foshan, China, thereby taking advantage of China’s huge market size. The Asian motorcycle market has expanded greatly over the past ten years, though growth has leveled off recently in the wake of the distress in the global financial landscape. However, there is some evidence to suggest that in certain countries the worst has been experienced and that some semblance of recovery is unfolding. This is particularly apparent in many Asian countries, China being an exception. Currently, Synerject is holding discussions with a myriad of companies in addition to the ones mentioned above; to assist them with their technology migration towards cleaner and more efficient engines. During fiscal year 2007 Synerject established a manufacturing facility in Changchun, China and an engineering support facility in Chongqing, China. These facilities have been established to produce low cost electronic control units for motorcycle applications. Table 9

The tables that follow are from other sources and corroborate the view that growth in Asia (nonJapan) is taking place, albeit moderately, and that even in China there appears to be some progress.

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Orbital Corporation Ltd.

Table 10

Honda and Yamaha have strong. Virtually dominant market positions in Japan, such that Orbital’s presence in that market is quite limited. Table 11

In Taiwan, however, Synerject supplies Sanyang and Kymco, two of the three largest motorcycle manufacturers in that country. Table 12

Source: Taiwan Transportation Vehicle Manufacturers Association

According to Freedonia, a research group that has done an extensive examination of the global motorcycle markets, countries such as Thailand and India are showing particularly strong growth of late. It is interesting that “e-cycles” are gaining wider acceptance in China than in other parts of Asia: World demand for motorcycles powered by internal combustion engines (ICEs) and electric motors (“e-cycles”) will grow 6.3 percent annually through 2015 to 119 million units, reflecting both the expected rebound in the developed “triad” markets (the U.S., Western Europe and Japan) and continued increases in demand in emerging markets. Sales revenues will expand strongly as well, increasing 8.3 percent annually to $66 billion in 2015 as the triad markets return to economic health. Motorcycles powered by ICEs, the most dominant segment worldwide, will experience slower growth than e-cycles, expanding 5.9 percent annually to 80 million vehicles in 2015. Growth will be constrained by aging populations in triad markets, the continued transition of key emerging markets away from motorcycles to light vehicles, and the rising efforts by governments to limit ICE motorcycle use in urban areas. - Freedonia

Freedonia also asserted that the performance of the China motorcycle industry is forecast to decelerate, with an anticipated CAGR of 5.4% for the five-year period 2010 - 2015, which is expected to drive the industry to a value of $17.3 billion by the end of 2015. Other key emerging markets include Indonesia and Brazil. Both countries are experiencing reasonably healthy growth after suffering through some meaningful declines in 2009.

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Orbital Corporation Ltd.

Table 13

Source: Motorcycle Industry Council

Table 14

Table 15

Marine Outboard Engine Markets Synerject has a substantial and long-standing relationship with Mercury Marine, a division of Brunswick Corp. (NYSE: BC - $23.94). Mercury is one of the largest manufacturers of marine engines and pleasure boats in the world. Mercury uses Synerject’s low-pressure direct fuel injection components in the fuel system (FlexDi™) in its outboard engines. Synerject offers a 2-stroke, low-pressure fuel injection technology (FlexDiTM) that provides for lower emissions (over 20% reduction) relative to the carburetor 4-stroke engine and an 80% reduction in emissions and a 40% improvement in fuel economy relative to the equivalent carbureted 2-stroke engine. Fuel efficiency is further promoted as a result of the electronic engine management system (EMS) and, because of these enhancements, provides more power than a comparable 4-stroke engine. Tohatsu Ltd., a private company based in Tokyo, also utilizes FlexDi™ on a range of 2-stroke outboard engines. Synerject also has a long-standing arrangement to provide components to BRP (Bombardier Recreational Products Inc.), a private company (owned by Bain Capital) that is particularly well known for its Evinrude™ outboard engine brand name. The majority of this work is conducted in Synerject’s facility in Delavan, Wisconsin. The U.S. outboard engine market has been declining for several years yet it appears finally to be stabilizing. (See charts below).

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Orbital Corporation Ltd.

Chart 6

Source: National Marine Manufacturing Association

Table 16

Source: National Marine Manufacturing Association Figures do not include PWCs (personal water craft)

To the extent that Mercury outboard engines are an important part of the Orbital value equation, we thought it worthwhile to show the historical financial results of the Brunswick Corp.’s Marine Engine Segment. Clearly, the post 2007 financial upheaval took its toll on operations, but it is expected that the Brunswick group’s revenue and operating profit results for 2011 (results should come out soon) will show a near return to pre-recessionary levels. Table 17

Source: Brunswick Corp. reports

Providing additional insight into the improving trend in the marine industry, the following chart of U.S. powerboat sales reveals that the prolonged slump appears to have finally tailed off and that a recovery, albeit moderate so far, is underway.

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Orbital Corporation Ltd.

Chart 7 -

All 15 Foot+ Powerboat Sales Trend Rolling 12 month year-over-year % change in unit sales

Based on new U.S. boat registrations. Bellwether states are geographically dispersed states representing roughly half of the U.S. boat market (varies by market segment and time of year). Source: Info-Link

Yamaha is a major competitor to Mercury Marine and Evinrude, and results at that company suggest that a semblance of a recovery was indeed underway by the end of 2010. Chart 8

Source: Yamaha reports

Outboard Motor Outlook The general thinking is that any recovery in the global outboard motor market is likely to be constrained, albeit positive, and our sense from looking at the 9 month results of Yamaha and Honda in the outboard motor segment is that sales activity remains relatively flat in many geographical areas. Encouragingly, Brunswick Corp. actually posted a 9.5% gain in overall sales, though most of that strength came from the U.S. market. Though we have only shown Mercury

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Orbital Corporation Ltd.

Marine’s results above, it bears mentioning that Brunswick’s Boat Group experienced a sales rise of 11% in 2011, with particular strength in the fourth quarter. Again, U.S. sales were much stronger (international sales were actually down) but, overall, management believes that the trends of both the outboard motor markets and recreational boat markets are positive.

The ATV and Snowmobile Markets The ATV market in the United States is estimated to be about $7 billion, but it has been in decline since 2006. Basically, when disposable income goes down and confidence is weak, individuals become much more hesitant to spend money on non-essential, big-ticket items. There is some anecdotal evidence to suggest that, like many other markets, signs of stability are finally emerging, but results in 2011 still showed a year-to-year decline. Synerject’s fuel and emission technologies are well proven in the two and four stroke engine market, so any recovery in this area would correspondingly expand the company’s opportunities in this general area. Table 18

The snowmobile market is showing a little more robustness of late. In fact, though well down from historical highs, snowmobile units sold in 2011 were 10.4% higher than the previous year. Again, this is a relatively small market, but Synerject provides components to BRP for its E-TEC snowmobile engines. BRP is only one of four major manufacturers of snowmobiles and margins can be quite healthy. Chart 9

Snowmobile Unit Sales

Source: International Snowmobile Manufacturing Association

Finally, Synerject is exploring its possibilities in the lawn & garden equipment domain and has held some conversations with Briggs & Stratton.

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Orbital Corporation Ltd.

Synerject’s Solid Operating History The key cornerstone to Orbital’s business profile is its 42% partnership interest in Synerject. Because its interest in Synerject is below 50%, it does not integrate the joint venture’s revenues and earnings with its own operating results. Instead, it merely records the flow of earnings as a minority interest. Cosmetically, a quick view of Orbital’s financial metrics reveals a company that last year had a revenue base of $17.6 million and a current market capitalization of roughly $15 million. However, if one reviews Synerject’s operating history over the past several years, one quickly identifies a solid entity underpinning the overall Orbital Corp. framework. Table 19

Source: Company records

One of the remarkable aspects of Synerject’s performance is that it performed so well immediately following the onset of the deep 2008 recession. This is particularly significant given that Synerject’s target markets are high-end leisure products, the first that suffer when the economy goes into a dive. Management took quick note of the rapid deterioration in the marketplace and made the necessary adjustments to its manufacturing infrastructure to bring costs down ahead of the fall. Combining Synerject’s historical results with Orbital’s on a pro forma basis, the following presentation results: Table 20

Source: Company records

What is key here is that the revenue portion “assigned” to Orbital in this pro forma manner conveys a much more logical balance between revenues and profits.

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Orbital Corporation Ltd.

The profit numbers involve a loan renegotiation gain of $7.42 million (2010), a facility sale/leaseback worth $4.76 million (2011) and a write-off of $2.01 million (2011) that have not helped simplify the company’s operating financials. In fact, two of these transitory events helped alleviate the company’s balance sheet and brought in much needed cash during one of the worst recessions in history.

Synerject’s December 2011 Six-Month Results Further encouragement came in the form of the recent reporting of Synerject’s six months operating results. Strong advances in revenues and profit at a time when most of its target markets are only beginning to experience moderate recoveries suggest that further progress is likely to be experienced over the next several years. Table 21 - Synerject Income Summary - 6 Months

Source: Company reports

Orbital Corp.’s Six Month Results (ended December 31st, 2011) Orbital reported what we would consider to be encouraging operating results for the six-month period ending last December. In particular, revenues at its Synerject joint venture rose 17% to US$66.4 million when compared with last year’s six month period. Profit advanced 65% to US$5.07 million. Net cash at Synerject stood at US$2.3 million, indicating a very low debt load. The profit flow through to Orbital amounted to A$2.15 million. The Orbital Consulting Services group (OCS) experienced a 28% increase in revenues to A$5.37 million, thanks largely to increased work on the unmanned aircraft systems project, but higher cost commitments and A$500k provision for a doubtful account put that group soundly into the red. If one takes the viewpoint that the consulting business also doubles as the company research and development operations, its high expense quotient becomes more understandable. Importantly, this group’s bookings are well down from the previous year, a consequence of softer consumer spending and a strong Australian dollar. Much will depend on how successful the UAS project goes, i.e., whether the U.S. military does, indeed, provide the go ahead for full production. The acquisition and integration of Sprint Gas appears to have gone well with that entity contributing A$3.14 million in revenues to the half-year results. As now part of the Alternative Fuels segment, total group revenues for the six-month period came in at A$7.03 million compared with A$2.7 million the year before. If one discounts the addition of Sprint Gas, one could conclude that the established business (A$3.89 million) grew 43% from the previous year. The Royalty and Licenses group remains a small component of Orbital’s operating framework, with revenues of A$438k and a profit contribution of A$220K. It’s not a bad margin for the work

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Orbital Corporation Ltd.

performed, but volume is obviously on the low side, in part due to management’s preference to emphasize manufacturing supply contracts rather than license and royalty agreements. Overall, management believes that the strength in the Australian dollar relative to the U.S. dollar will likely diminish the contributions from Synerject in the second half of the year and that the weakened status of the OCS group is likely to result in a loss for the year, all of which is likely to produce a flat to down profit performance in fiscal year 2012 (ends June 30th).

Looking Forward A major factor that will drive the various combustion engine markets will be the mandates that governments issue with regard to emission levels and fuel efficiency. Subsidies, grants and other incentives might also play a role, but one can’t bank on those. It does appear that most of the company’s markets are staging varying levels of recovery from the depth of the recession, but such is to be expected as a natural evolution. Some areas are stronger than others, but the initiatives the company is taking in Asia have promise given the huge populations and conversions of engines to electronic fuel injection and alternative fuel solutions to meet emissions requirements and fuel efficiency. The increase in oil prices, aggravated by intensifying economic unrest in Europe and rising tensions with Iran will likely widen further the difference in price between gasoline and natural gas fuels. The impact on companies like Orbital will not be immediate - lead times are long in establishing connections and contracts - but such dynamics augur well for the company in the long run. Prior to the acquisition of Sprint Gas, Orbital’s revenue base sans Synerject was consistently flat. The delays last year with the new Ford Falcon did not help matters. There are no guarantees that sales of the Ford Falcon will return to their former glory, but the excellent reviews of the new model would suggest that the market should respond favorably. This will help somewhat, but new commercial forays (such as Sprint Gas) away from the Synerject collaboration should only help the cause. Finally, the use of alternative engines in all vehicle markets remains, with only a handful of country exceptions, at a very small number relative to the total universe of gasoline powered engines. History has shown that the convenience of so many available gasoline-refueling stations relative to alternative fuel dispensing stations has made the adoption of alternative fuels a challenge. Nonetheless, we sense that there is a steady and ongoing, albeit restrained impetus unfolding globally in favor of LPG, CNG and LNG alternative fuel usage.

Finances The transition to the new Ford Falcon EcoLPi placed some pressure on Orbital’s cash condition, not only because of the delay in the new model, but a meaningful holding in inventory for the new model had to be built up. Hence, management borrowed an additional $1.92 million from its credit line, increasing its short-term borrowings to $2.5 million. The fruits of that inventory build-up should begin to ripen as the new Ford Falcon models are sold in the marketplace. Orbital ended the calendar year 2011 with a cash and short-term investments balance of $5.36 million.

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Orbital Corporation Ltd.

The only other major component of debt is a long-term $7.6 million loan facility with the State of Western Australia with an original maturity value of $14.35 million with annual payments due in rising increments from 2010 to 2025. There is no interest cost on the facility. Synerject’s debt at the end of December 2011 amounted to US$2.52 million, offset by a cash balance of US$5.29 million. Substantial Tax Loss Carryforwards Of interest is that Orbital has A$59.6 million in tax loss carry-forwards in Australia that do not expire. These substantial losses are a legacy of years of heavy research and development investment that failed to generate immediate commercial returns. In addition, Synerject carries about A$37.4 million (US$40.2 million) of the indicated tax losses, though U.S. law provides for their gradual expiration over an extended period of time. Such losses are difficult to monetize beyond the conventional process of generating operating income. In the United States, an acquiring company can no longer assume those tax loss carryforwards and apply them to their own (or newly combined) operating results. The Australian Dollar Since 2009 the Australian dollar has steadily strengthened. The extensive natural resources of that country in a period of general global currency diminishment has boosted Australia’s dollar. The downside is that Australian companies in non-commodity related overseas businesses have experienced difficult currency adjustments if not hedged. For Orbital, a large portion of joint venture revenue is derived in the U.S. and elsewhere. Accordingly, its results as reported in Australian dollars have correspondingly been affected. From a coincidental standpoint, over the past year the Australian dollar has crossed parity with the U.S. dollar several times, making it a little easier to compare operating results that have been reported in Australian dollars with U.S. dollars. As of this writing, it took $1U.S. to obtain A$0.95. Chart 10 - Australian Dollar vs U.S. Dollar (AUD per $1 U.S.) 5 Year Chart

Source: XE Currencies

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Orbital Corporation Ltd.

Concerns Orbital is a David in markets that have a fair number of Goliaths. The technical expertise of the company stacks up head to head with those they compete against, but the relatively small size of the company does create certain risks if one or two major customers make critical changes in their operating agendas. Another concern is that it often takes considerable time and investment to establish a meaningful supply arrangement with a major OEM. Having said that, Orbital has achieved that with Ford Australia and the impact of just a few successful programs such as the UAS project and Orbital’s initiatives in China could be powerful on a relatively small company such as Orbital. Valuation In assessing the value of Orbital Corp., a number of considerations need to be made. The first and foremost is that the major value component of the company is its 42% interest in Synerject. The integration of Synerject’s profitability into Orbital Corp.’s income statement only via an affiliate investment gain possibly camouflages the greater substance of the revenues supporting that profit, revenues that are not integrated into the Orbital income statement. Thus, valuing the company based on the optics of the reported income statement might tend to understate the overall value of the entity. The “bifurcation” of Orbital into parent operating based entities and Synerject create some value complications given the fact that the parent activities in actuality generate a much lower level of revenues and profitability than the Synerject joint venture. Synerject, on the other hand, has been very profitable for a number of years and its revenue and earnings base continues to grow. From a valuation standpoint, therefore, we believe a sum of the parts approach is appropriate. The Peer Companies table that we have included focuses on industrial companies that provide a range of products to the automotive industry, some with sophisticated products, others less so. We also confined our listing to companies that have market caps between $10 million and $250 million. (This also means that several of Orbital’s very sizeable competitors such as Bosch and Delphi are not on this table. We have provided a separate Competitor Companies table for informational purposes.) We then split the competitor companies into two categories; those that are operating profit positive and those that are negative. We believe that positive operating profit companies tend to be valued on a multiple of that profit basis, whereas those companies in the red are often valued in large measure on their respective revenue bases. Out thinking is that Synerject’s value is better compared with the positive operating profit companies and that Orbital the parent is better compared with the less profitable segment. If we were to apply this two-fold approach, we note that the average multiple of Net Income is 12.0. If we were to use only an 8x multiple and apply it to Synerject’s $8.7 million FY 2011 after-tax profit, we calculate a value of $69.6 million for that entity. With a 42% partnership ownership, that calculates to a value of $29.2 million for Orbital shareholders. As to the Orbital parent operations, we believe a multiple of revenues at this stage is a more appropriate tool. For companies in the negative profitability category the market cap as a multiple of revenues calculates to an average of about 1.1x. Using a conservative 0.5x multiple for Orbital, and assuming that annual revenues will rise to about $24 million (thanks, in part, to

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the Sprint Gas acquisition) we calculate a value of $12.0 million for the parent segment. This does not fully reflect the expectation that the return of the new generation Ford Falcon should improve the group’s operating dynamics and boost its profitability over the next several years. When the two valuations are combined, we generate a total estimated value of $41.2 million. If one were to lift the respective valuation multiples to the averages as indicated in the Peer Companies table (12.0x net income and 1.1x revenues), a total value of $70.2 million is calculated. If one considers the strong six-month after-tax profit of US$5.07 million at Synerject and extrapolate that to a $9 million after-tax profit for the year (some timing issues will slow down the second half profit results), a higher valuation of $45.4 million for Orbital’s 42% interest results when using the full 12.0 average multiple. Applying the lower multiples to both Synerject’s prospective 2012 operating profit of $9 million and to Orbital’s prospective $24 million in revenues, a value point of $42.2 million is calculated. The current market cap of the company is roughly $17 million. Even if one were to completely discount the debt of the company, we still compute a value well in excess of the company’s current market cap. The current debt of the company is approximately $10.5 million of which $7.78 million is tied to a non-interest loan from the State of Western Australia that is to be repaid in rising annual increments from 2010 to 2025. Synerject carries short-term borrowings of US$2.52 million. We don’t regard the company’s debt condition as particularly problematic - the help from the State of Western Australia when the debt was restructured (2009) was timely and significant - and that most peer companies have varying levels of debt that are part of their carrying multiples. Additional Comments If one looks at Westport Innovations (table 27 - Orbital Competitor Comparisons) and Torotrak (table 26 - Company Peer Comparisons), just to name a couple, their valuations seem very lofty given the significant operating losses that they have experienced. One explanation is that the investor market is recognizing that companies that are creating products that substantially enhance fuel efficiency or greatly reduce harmful emissions, or both, are likely to benefit from a broad, albeit gradual, evolution away from gasoline based fuels and traditional combustion engine use. Orbital intends to actively participate in this wave of change. Tax Loss Carry-Forwards Not included in our calculations are the A$59 million in tax loss carry-forwards. Tax loss carryforwards are difficult to monetize in an immediate fashion, though the accounting rules in Australia are a little less stringent than in the U.S. with respect to acquiring companies that might take advantage of those carry-forwards. We did not include this balance into our valuation calculations. Low Liquidity From a U.S. investor standpoint, the low daily trading average of 1,600 shares is a problem for institutional investors. The 14,600 average daily trading volume of the companies Australian traded shares is more acceptable, but still at the low end of the comfort scale. Ultimately value

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Orbital Corporation Ltd.

prevails, but some additional discount to value would be understandable given the lean liquidity of the stock. Conclusion When using the more conservative valuation multiples as outlined above against historical and prospective operating results for 2012 of Orbital, the parent and Synerject, its joint venture, we calculate a company value range of $41 million to $45 million. However, if one were to use the average valuation multiples of its peer companies and apply them to likely results for this year, one could advocate a value of $70 million. These data points suggest that the company’s common shares are trading at a substantial discount to proper value, a discount that does seem excessive despite its low stock liquidity and relatively small size compared with its major competitors.

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Orbital Corporation Ltd.

APPENDIX

Management Terry Dewayne Stinson, CEO, Managing Director Terry has been the Chief Executive Officer and Managing Director of Orbital Corp. Ltd. since June 21, 2008. He has 30 years experience in manufacturing, engine development and fuel systems design and commercialization, as well as an outstanding general management track record. For seven years he served as a Senior Executive of Siemens VDO. He earlier served as Vice President of Manufacturing of Outboard Marine Corporation. From 1995 until 1999 and again in 2001, Terry has served as the Chief Executive Officer and President of Synerject. While working for Siemens VDO Terry was a Representative Director on the Synerject JV Board.

Keith Anthony Halliwell, CFO Keith has been Chief Financial Officer of Orbital Corp. Ltd. since August 14, 2000. He also served as Company Secretary of Orbital Corp. Ltd. until July 1, 2009. Keith has 28 years international experience as a Professional Accountant. From 1995 to 2000 Keith served as CFO and Company Secretary of Alesco Limited a publicly listed company in Australia. Keith is a representative non-executive Director of Orbital on the Synerject JV Board.

Dr. Geoff Paul Cathcart, Director of Consulting Services, Engineering & Operations Geoff serves as a Director of Consulting Services, Engineering & Operations at Orbital Corp. Ltd. Dr. Cathcart has overall responsibility for the engineering and operations department of Orbital. He has served in a number of senior management positions within the engineering department at Orbital. Geoff is a representative non-executive Director of Orbital on the Synerject JV Board.

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Orbital Corporation Ltd.

Table 21 - Orbital Corp. Income Statement

Source: Company reports LTM - Last twelve months

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Orbital Corporation Ltd.

Table 22 - Orbital Corp. Six Months Income Statement

Source: Company reports

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Orbital Corporation Ltd.

Table 23 - Orbital Corp. Balance Sheet

Source: Company reports

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Orbital Corporation Ltd.

Table 24 - Orbital Corp. Cash Flow

Source: Company reports

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Orbital Corporation Ltd.

Table 25 - Peer Companies For comparison/valuation purposes, we have separated our Peer Company list into two categories, the first being those companies that have annual operating income in excess of $1 million. The second section those companies with operating income that is less than $1 million.

Source: Company reports

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Orbital Corporation Ltd.

Table 26 - Peer Companies (cont’d)

Source: Company reports

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Orbital Corporation Ltd.

Table 27 - Competitor Companies

Source: Company reports Prices are as of March 9, 2012

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Orbital Corporation Ltd.

Richard C. Nelson Mr. Nelson began his career in financial services as an assistant to the senior technical analyst for White Weld in London, UK. He thereafter joined Arnold Bernhard & Co. (Value Line), a well-regarded third party research organization, where he conducted Equity, Options and Convertible Securities Research. For ten years Mr. Nelson developed and expanded Convertible Securities research at Kidder, Peabody & Co., where Greenwich Survey, a major institutional rating organization, rated him #1. Kidder, Peabody fielded one of the most effective convertible security departments on the Street, and Mr. Nelson was instrumental in developing several innovative analytical systems for monitoring and assessing convertible and related derivative instruments. Mr. Nelson subsequently joined Lehman Brothers where he again specialized in Convertible Securities Research and received recognition by Institutional Investor (#2 standing) for that category. Lehman was one of the largest underwriters of convertible securities at that time. As a Managing Director of ING Barings Furman Selz LLC and, subsequently ABN AMRO, Inc., Mr. Nelson focused on Special Situations Equity Research, Convertible Securities Research and Convertible Securities Capital Markets Origination. In addition to his varied analytical responsibilities, he oversaw the placement of approximately $350 million in lead managed transactions as well as participation in numerous co-managed transactions. Mr. Nelson continued to apply his expertise in special situations and convertible securities at Morgan Joseph & Co. Inc. and then as Director of Research for J Giordano Securities, an investment banking and trading boutique. His research department specialized in high yield debt, convertible securities and small and mid-cap company equity research. His deep experience in a wide variety of investment securities embracing all industry sectors has provided him with a ready ability to assess most financial structures. Mr. Nelson holds a BA degree from Valparaiso University and an MBA degree in Finance from the Frank Zarb School of Business at Hofstra University. He holds series 62, 63, 79, 86, 87 and 24 licenses.

Disclosures and Risks Consilium Global Research is an independent research organization. The content of this report has been compiled primarily from information available to the public released by the Company. The Company is solely responsible for the accuracy of that information We do not recommend or solicit an investment in any particular stock or other security. We have prepared our research based upon information and sources considered to be reliable. We are compensated by the issuer. We may distribute our research through other organizations or companies. In some instances, we may be compensated by the Company in stock in the Company. Additionally, we may perform consulting or advisory services for Companies that we produce research for. The opinions expressed in this report are the true opinions of the analyst about this company and industry. Any “forward looking statements” are our best estimates and opinions based upon information that is publicly available and that we believe to be correct, but we have not independently verified with respect to truth or correctness. There is no guarantee that our forecasts will materialize. Actual results will likely vary. THIS REPORT IS PUBLISHED SOLELY FOR INFORMATIONAL PURPOSES AND IS NOT TO BE CONSTRUED AS AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY IN ANY STATE OR PROVINCE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.

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DO NOT MAKE ANY INVESTMENT DECISIONS BASED UPON THIS REPORT. ALWAYS CONSULT WITH YOUR FINANCIAL ADVISOR BEFORE MAKING ANY INVESTMENT DECISIONS. The information contained in this report is intended to be viewed only in jurisdictions where it may be legally viewed and is not intended for use by any person or entity in any jurisdiction where such use would be contrary to local regulations or which would require any registration requirement within such jurisdiction. All prices are as of March 9, 2012

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