12th May 2005 07:00
Turbo Genset Inc.12 May 2005 Thursday 12th May 2005 TURBO GENSET INC. ANNOUNCES ITS RESULTS FOR THE QUARTER ENDED 31 MARCH 2005 Quarter Highlights * Sales up 13 % to £0.36 million * Loss before tax reduced by 13% to £1.9 million * Like for like quarterly cash burn down by 36% to £1.3million (a) * MoU with Lotus announced today * Completion of £8.0 million financing (a) Adjusted for £225,000 of restructuring cashflow in Q1 2005, and £718,000 ofR&D tax credit receipts in Q1 2004 Commenting on the Results, Michael Hunt - Chief Executive said, "Quarter 1 revenue was in line with 2004 levels as production against majorcontracts won in 2004 does not impact on sales until after this period. We haveseen a further increase in the volume and value of enquiries and bids in allareas of the business, with activity in the High Speed Electrical Machines,Drives and Motors sector being particularly encouraging. The announcement todayof an MoU with Lotus for a hybrid vehicle motor and drive is an example ofthis activity. The successful conclusion of the financing round in the period was clearly a keyevent for the Company and gives us the financial platform to exploit the growthin opportunities we are identifying." For further information, please contact: Turbo Genset - UK Tel: +44 (0)20 8564 4460Michael Hunt, Chief Executive OfficerStephen Sadler, Chief Financial Officer - CanadaRichard Kapuscinski Tel: +1 (905) 690 1722 Company Website: www.turbogenset.com Gavin Anderson (PR)Ken Cronin Tel: +44 (0)20 7554 1400Michael Turner NOTES TO EDITORS About Turbo Genset Turbo Genset designs and manufactures innovative power solutions which provide local, high quality, controllable electrical power. The Group's products are focused on three independent market areas but are all based on its core technologies of power electronics and high speed electrical machines. The Group operates across the following three market sectors: •Turbine Based and Variable Speed Gensets •High Speed Motors and Motor Drives •Power Electronics Forward Looking statementsThis news release contains forward-looking statements. Forward-lookingstatements include statements concerning plans, objectives, goals, strategies,future events, or performance, and underlying assumptions and other statementsthat are other than statement of historical fact. These statements are subjectto uncertainties and risks including, but not limited to, the ability to meetongoing capital needs, product and service demand and acceptance, changes intechnology, economic conditions, the impact of competition, the need to protectproprietary rights to technology, government regulation, and other risks definedin this document and in statements filed from time to time with the applicablesecurities regulatory authorities. Operational Review Turbine Based Gensets Comprehensive commercial and technical proposals for our Combined Heat and Power("CHP") and Landfill applications are currently under review by customers inIndia, China, West Africa, North America and the UK. The nature of such capitalprogrammes, which are typically for multiple units, each of which has aninstalled cost in excess of $1M, lends itself to an extended decision makingprocess. We are continuing to provide technical and application support to thesecustomers in order to assist their decision making process. We have completed preliminary discussions with a new agent in Malaysia. Malaysiahas a strong natural gas distribution network, a well established and moderncommercial and industrial base and a proactive approach to energy conservation.In addition to the home market, the new agent will provide the initial marketingchannel into Thailand, Indonesia and Vietnam. Our expansion into India continues with the upgrading of our sales and servicecapability in order to provide a cost effective regional support hub for theAsian market sector. Conversion of the existing 1.2MW Natural Gas Turbine to run on non-conventionalfuels such as landfill gas is proceeding well, with engine testing commencing inMay. The pre-production 400kW Genset will conclude its testing programme in Parisduring Q2 and will then be transferred to the UK for deployment at one of anumber of potential sites. This unit will be retained by TGC and will be used toestablish long term endurance and performance data. The opportunity for two 400kW Gensets to be deployed in a hotel application inMumbai has been deferred due to unexpected delays in completing new gaspipelines in the region. The hotel successfully concluded all the requiredtechnical and financial approvals; however gas is not now expected to beavailable until 2006. High Speed Motors and Motor Drives TGC has announced today that we have signed an MoU with Lotus Engineering forthe design and supply of a drive system for a hybrid electrical passengervehicle programme on behalf of a major motor manufacturer. The initial development project phase will take approximately 12-18 months andinvolves the design and supply of the motor and motor drive system to beincorporated into two prototype vehicles. End customer internal testing of the SKF 15kW to 35kW size range of motors anddrives is proceeding well, and we have begun detailed discussions on the launchof production deliveries following field trials. The prototype traction controller and drive system for the National RailwayEquipment Company ("NRE") in the USA has been delivered and will be installed ina rail-yard shunting locomotive for trials during the summer. Power Electronics Our I-Power division is continuing to submit substantial proposals in support ofmajor rolling stock programmes in North America and Europe. End customerdecisions are currently outstanding for projects in the Netherlands, USA and theUK. In addition to the rail sector, power electronics opportunities in both civiland military aircraft programmes have been identified and bids have recentlybeen submitted. Financial review Revenue Revenue in the quarter was £0.36 million compared with £0.32 million in 2004 andcomprised; 2005 2004 £'000 £'000Power electronics 360 315Generator systems - 4 -------- -------- 360 319 ======== ======== Power electronics revenues for the quarter included rail hardware sales toBombardier for London Underground District Line systems and for "At Seat" powersupplies for GNER. The other major component of revenue was scheduled deliveriesof laser power supply units to PRC Inc. as part of an existing rolling supplycontract Cost of product revenues The cost of product revenue in the period amounted to £0.37 million, resultingin a gross loss on sales of £0.12 million. 2005 2004 £'000 £'000Power electronics 110 49Generator systems (122) (136) -------- -------- (12) (87) ======== ======== Research and product development costs Research and product development costs in the quarter were £0.95 millioncompared with £1.18 million in 2004, and comprised; 2005 2004 £'000 £'000 Research and product development expenditure 864 1,090Accrued tax credits (20) (78)Sales of prototypes and development contributions (59) (30)Amortisation 161 194 -------- --------Total expenditure 946 1,176 ======== ======== Research and product development expenditure decreased from £1.09 million in2004 to £0.86 million in 2005 due to lower charges across all categories ofcosts. General and administrative General and administrative costs in the quarter of £0.67 million were lower than£0.75 million in 2004 reflecting lower headcount. Amortisation Amortisation on research and development assets was £0.16 million compared with£0.19 million in 2004. Non research and development amortisation was £0.18million compared with £0.19 million in 2004. Interest income Interest income in the quarter reduced to £0.04 million from £0.08 million in2004, due to a lower average cash balance held during the period. Interest expense and finance charges Interest expense and finance charges arise from the issue of convertible bondsin July 2003 and March 2005 and comprise; 2005 2004 £'000 £'000Interest payable 74 45Amortisation of deferred finance charges 35 16Debt accretion 64 46 ------- -------- 173 107 ======= ======== Convertible bonds are considered to be compound financial instruments, and theliability component and the equity component must be presented separately, asdetermined at initial recognition. The Company has valued the equity componentof these bonds using the residual value of equity component method, whereby theliability component is valued first using current market rate for comparableinstruments, at the time of issuance. The difference between the proceeds of thebonds issued and the fair value of the liability is assigned to the equitycomponent. The equity element of the March 2005 bond issue was estimated at£1.11 million. The equity element of the 2003 bond issue was estimated at£0.91 million. The carrying value of the debt element is increased over the termof the debt and this accretion expense is charged to the profit and lossaccount. During the quarter this charge amounted to £0.06million (2004:£ 0.05 million). Cash flows Cash outflow from operating activities Cash outflow from operating activities in the quarter was £1.44 million,compared with £1.27 million in 2004. In 2004 the Company recorded an operatingloss of £2.2 million and had a decrease in working capital of £0.58 million. The2005 operating loss was £1.80 million and working capital decreased by £0.26million during the period. The decrease in working capital in 2004 was mainly due to a decrease inoperating debtors of £0.70 million following the receipt of £0.59 million in UK R&D tax credits. Restructuring payments of £0.23 million paid during the first quarter of 2005relate to redundancy and property disposal costs charged to the profit and lossaccount in prior periods. Interest paid of £0.07 million during the period represents payments made on theconvertible bonds issued in 2003. Capital investment activities Cash outflows from capital investments in the quarter were £0.01 millioncompared with inflows of £0.03 million in 2004 as shown below; 2005 2004 £'000 £'000 Purchase of capital assets 12 101Capitalised R&D tax credits cash receipts - (128) -------- --------- 12 (27) ======== ========= The reduction in expenditure on capital assets reflects reduced expenditure ontangible assets following the completion of the Company's investment programmeat its London site. Cash flow from financing activities Cash inflow from financing of £7.72 million in the quarter relates to net fundsreceived from the issue of convertible notes. On 11 March 2005 the Company completed an £8,000,000 (gross) financing agreementwith institutional investors. The financing comprised unsecured ConvertibleNotes and Warrants. The Convertible Notes have a term of five years plus one dayand bear interest at a rate of 6.5% per annum. They are convertible into anaggregate of 66,666,667 Common Shares in Turbo Genset Inc. at a conversion priceof £0.12 per share. The Warrants have a term of five years and are convertibleinto an aggregate of 7,000,000 Common Shares in Turbo Genset Inc. at an exerciseprice of £0.15 per share. Overall Cash outflow for the period Overall the cash inflow during the quarter was £6.23 million, including proceedsof the debt issue of £7.72 million. This compares with an overall cash outflowof £1.23 million in 2004. Balance sheet as at 31 March 2005 The Company ended the quarter with a cash balance of £8.30 million compared with£2.07 million at 31 December 2004. Substantially all of the Company's cashbalances are denominated in Sterling. The increase in cash funds relates to the £8,000,000 (gross) financing agreementwith institutional investors referred to above. In addition the Company had restricted cash amounts of £1.88 million relating toperformance bonds entered into as part of a contract with the Toronto TransitCommission. Long-term assets have increased from £6.01 million at 31 December 2004 to£6.16 million at 31 March 2005, due to additions to deferred finance charges of£0.49 million and after amortisation charges of £0.40 million. Deferred finance charges relate to the fair value of the warrants issued and theexpenses in connection with the convertible bond issue that occurred in theperiod. These costs are amortised over the term of the convertible bonds and thewarrants. The related amortisation charges are included in interest expense andfinance charges. Long term liabilities have increased to £10.33 million at 31 March 2005 comparedto £4.64 million at 31 December 2004, reflecting the increase in debtattributable to the convertible bond issue. Net working capital at 31 March 2005, excluding cash balances, was £0.27million, compared with £0.31 million as at 31 December 2004. Shareholders' equity The movement in shareholders' funds comprised; 2005 2004 £'000 £'000 As at 1 January 5,616 15,057Loss for the period (1,939) (2,241)Exchange adjustments arising on consolidation (7) (22)Equity element of convertible bond 1,114 -Fair value of warrants issued 231 -Conversion of bonds to equity 1,266Stock compensation expense 2 2 ------- ---------As at 31 March 6,283 12,796 ======= ========= During March 2005 investors who had subscribed for the convertible bond issueconverted bonds into 10,549,997 ordinary shares. As at 31 March 2005, theCompany had 186,176,927 common shares issued and outstanding. As at that datethere were 32,895,426 outstanding share options and 10,500,000 outstandingwarrants. TURBO GENSET INC.CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND DEFICITUNAUDITED Notes Three months ended 31 March 2005 2004 £'000 C$'000 £'000 C$'000 Revenue 360 842 319 772 ExpensesProduction costs 372 871 406 982Research and product development 5 946 2,214 1,176 2,844General and administrative 666 1,559 748 1,811Amortisation 176 411 201 486 -------- -------- -------- -------- 2,160 5,055 2,531 6,123 -------- -------- -------- -------- Operating loss (1,800) (4,213) (2,212) (5,351) Other income and expensesInterest income 41 96 80 193Interest expense and financecharges 6 (173) (405) (107) (258)Foreign exchange gains/(losses) (7) (16) (2) (5) -------- -------- -------- ------- (139) (325) (29) (70) -------- ------- -------- -------- Loss before taxation (1,939) (4,538) (2,241) (5,421)Taxation - - - - -------- -------- -------- -------- Loss for the period (1,939) (4,538) (2,241) (5,421)Deficit, beginning of year (38,265) (87,390) (28,809) (68,724) -------- -------- -------- --------Deficit, end of period (40,204) (91,928) (31,050) (74,145) ======== ======== ======== =========Loss per share (1.1) p (2.6) c (1.3) p (3.1) c TURBO GENSET INC.CONSOLIDATED BALANCE SHEETSUNAUDITED Notes As at 31 March As at 31 December 2005 2004 £'000 C$'000 £'000 C$'000Assets:Current assets:Cash and cash equivalents 8,300 18,978 2,067 4,797Debtors 1,508 3,448 1,711 3,970Stock and work in progress 476 1,088 482 1,119 -------- -------- -------- -------- 10,284 23,514 4,260 9,886 -------- -------- -------- -------- Restricted cash 8 1,876 4,289 1,876 4,353 -------- -------- -------- -------- Long term assets:Investments 9 180 412 180 418Intangible assets 9 2,297 5,252 1,895 4,397Tangible assets 9 3,683 8,421 3,932 9,124 -------- -------- -------- -------- 6,160 14,085 6,007 13,939 -------- -------- -------- -------- 18,320 41,888 12,143 28,178 ======== ======== ======== ======== Liabilities and shareholders' equity: Creditors: amounts falling duewithin one year 1,710 3,910 1,884 4,372 -------- ------- -------- -------Creditors: amounts falling due after morethan one year 13 10,327 23,613 4,643 10,774 -------- ------- -------- ------- Capital and reservesShare capital and otherequity instruments 2,10 46,572 106,485 43,959 102,007Exchange adjustments 2 (85) (192) (78) (181)Profit and loss account deficit 2 (40,204) (91,928) (38,265) (88,794) ---------- ---------- ---------- ----------Shareholders' funds 6,283 14,365 5,616 13,032 --------- ---------- --------- ---------- 18,320 41,888 12,143 28,178 ========= ========== ========= ========== TURBO GENSET INC.CONSOLIDATED CASH FLOW STATEMENTSUNAUDITED Three months ended 31 March Notes 2005 2004 £'000 C$'000 £'000 C$'000 Cash outflow from operatingactivities 3 (1,435) (3,358) (1,272) (3,077) Interest received 35 82 80 194Interest paid (70) (164) (67) (162) --------- --------- --------- ---------Net cash outflow from operatingActivities (1,470) (3,440) (1,259) (3,045) Capital investment activitiesPurchase of long term assets (12) (28) 27 65 --------- --------- --------- ---------Cash inflow/(outflow) fromcapital investment activities (12) (28) 27 65 --------- --------- --------- ----------Net cash outflow beforefinancing activities (1,482) (3,468) (1,232) (2,980) Financing activitiesProceeds from debt issue 7,715 18,052 - - --------- --------- --------- ---------Cash inflow/(outflow)from financing activities 7,715 18,052 - - --------- --------- --------- ---------Increase/(Decrease) in cashin the period 6,233 14,584 (1,232) (2,980) ========= ========= ========== =========Cash and cash equivalents:Beginning of year 2,067 9,819 ---------- ----------End of period 8,300 8,587 ========== ========== TURBO GENSET INC.THREE MONTHS ENDED 31 MARCH 2005NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1 Basis of preparationThe financial statements of the Company have been prepared by management in accordance with International Accounting Standards and generally accepted accounting principles in Canada for interim financial statements. The financial statements have, in management's opinion, been properly prepared using judgement within reasonable limits of materiality. These financial statements do not include all the note disclosures required for annual financial statements and therefore they should be read in conjunction with the Company's audited consolidated financial statements for the year ended 31 December 2004. The significant accounting policies are consistent with prior years'. 2 Movements in shareholders' funds Share Other Exchange Profit capital equity adjustments and loss Total £'000 £'000 £'000 £'000 £'000 Balance at 1 January 2004 42,922 1,027 (83) (28,809) 15,057Loss for the period (9,456) (9,456)Exchange (loss) / gain 5 5Stock compensation 10 10 --------- --------- --------- --------- ---------Balance at 31 December 2004 42,932 1,027 (78) (38,265) 5,616Loss for the period (1,939) (1,939)Exchange (loss)/ gain (7) (7)Stock compensation 2 2Equity component of financial 1,114 1,114instrument Warrants issued 231 231Conversion of bonds to equity 1,266 1,266 ---------- --------- ---------- ---------- ----------Balance at 31 March 2005 44,200 2,372 (85) (40,204) 6,283 ========== ========= ========== ========== ========== 3 Reconciliation of operating loss to cash outflow from operating activities Three months ended 31 March 2005 2004 £'000 £'000 Operating loss for the period (1,800) (2,212) Movements in working capital balancesDecrease / (increase) in debtors 208 701Decrease / (increase) in stocks and 6 (16) work in progress(Decrease) / increase in creditors 47 (109)Restructuring payments (225) (23)Adjustment for amortisation (a) 338 396Stock compensation expense 2 2Foreign exchange (losses)/gains (11) (11) --------- ---------Cash outflow from operating activities (1,435) (1,272) ========= ========= 4 Segmental analysisThe Group's three reportable segments are the power electronics segment, which is involved in the development and manufacture of electrical power supply and control systems, the generator systems segment, which is involved in the development and commercialisation of gensets and high speed electrical machines,and the corporate segment which is responsible for the financing of the group and other related corporate activities. The power electronics and generator system segment operate in United Kingdom. The corporate segment operates in Canada. All amounts in £'000 Power electronics Generator systems Corporate Total 2005 2004 2005 2004 2005 2004 2005 2004Three months ended 31 MarchRevenue 360 315 - 4 - - 360 319Net interestincome/(expense) - - (167) (40) 35 13 (132) (27)Amortisation 31 53 148 145 - - 176 201 Loss for the period (397) (569) (1,247) (1,448) (295) (224) (1,939) (2,241) Capital Expenditure 10 20 2 95 - - 12 115 As at March Dec March Dec March Dec March Dec 2005 2004 2005 2004 2005 2004 2005 2004Total Assets 3,672 3,948 14,006 7,198 642 997 18,320 12,143Total Liabilities 642 643 11,311 5,839 84 45 12,037 6,527 5 Research and product development expenditure Research and product development expenditures incurred during the period comprised: Three months ended 31 March 2005 2004 £'000 £'000 Research and product 864 1,090development expenditureAccrued tax credits (20) (78)Sales of prototypes and (59) (30)development contributions -------- ---------Total expenditure 785 982Amortisation 161 194 -------- ---------Net expenditure charged to profit and 946 1,176loss account -------- --------- Deferred development expenditure, net of accrued tax credits, amortisation and provisions for impairment, at 31 March 2005 amounted to £614,000 (2004 -£1,586,000). Total accrued tax credits receivable at 31 March 2005, including those credited against deferred development expenditure, amounted to £477,000(2004 - £207,000). Capitalised development costs comprise materials, labour andallocated overheads. 6 Interest expense and finance charges Three months ended 31 March 2005 2004 £'000 £'000 Interest payable 74 45Debt accretion 64 46Amortisation of deferred 35 16finance charges ------- -------- Cash outflow from operating activities 173 107 ======= ======== 7 Loss per shareLoss per common share has been calculated using the weighted average number ofshares in issue during the relevant financial periods. The treasury stock method was used in determining the weighted average number of shares outstanding for each period and for diluted earnings per share, if applicable. The weighted average number of shares outstanding in the quarter was 175,837,930 (2004 - 175,626,874). No diluted earnings per share have been reported as the Company has losses in both years and the effect would be anti-dilutive. The loss for the three months ended 31 March 2005 was £1,939,000 (2004 - £2,241,000). 8 Restricted cashIn 2004 the Company committed cash bonds in support of contracts placed by the Toronto Transit Commission. The associated contracts require the bonds to remain in place until two years after all equipment is delivered. According to the current contract schedule that would result in the cash being under the performance bond restriction until 2012. At 31 March 2005 cash subject to restrictions totalled £1,875,742 (2004 - Nil) and is secured over an equivalent cash balance. 9 Long - term assets Cost Impairment Amortisation Net book value £'000 £'000 £'000 £'000At 31 March 2005Investments (a) 431 251 - 180Intangible assets 5,768 1706 1,765 2,297Tangible assets 8,121 - 4,438 3,683 ------- ------- -------- --------Total long term assets 14,320 1,957 6,203 6,160 ======= ======= ======== ========At 31 December 2004Investments (a) 431 251 - 180Intangible assets 5,250 1,706 1,649 1,895Tangible assets 8,111 - 4,179 3,932 -------- ------- -------- ---------Total long term assets 13,792 1,957 5,828 6,007 ======== ======= ======== ========= (a) In October 2003, the Group invested C$1,000,000 (£431,000) in a 6% Convertible Debenture issued by Altek Power Corporation ("Altek"). On 9 March 2005 the Company restructured its investment in Altek to release both Altek and the Company from the Memorandum of Understanding (MOU) entered into. Along with the release, the Company converted CDN $500,000 of the loan receivable from Altek into 892,857 shares of Altek. The term of the remaining CDN $500,000 has been extended to become due on October 9, 2008. 10 Share capital - issued common shares Number of shares At 1 January 2004 and 31 December 2004 175,626,930Shares issued on conversion of Convertible Notes 10,549,997 ------------ 186,176,927 ============ No options were exercised during the three months ended 31 March 2005. 11 FinancingOn 11 March 2005 the Company completed an £8,000,000 (gross) financing agreement with institutional investors. The financing comprised unsecured Convertible Notes and Warrants. The Convertible Notes have a term of five years plus one day and bear interest at a rate of 6.5% per annum. They are convertible into an aggregate of 66,666,667 Common Shares in Turbo Genset Inc. at a conversion price of £0.12 per share. The Warrants have a term of five years and are convertible into an aggregate of 7,000,000 Common Shares in Turbo Genset Inc. at an exercise price of £0.15 per share. 12 Stock options, warrants and compensation expense The number of options and warrants outstanding as at 31 March 2005, and themovement during the three months then ended, are as follows: Options Warrants Number Number Outstanding at 1 January 2005 26,263,641 3,500,000Cancelled (868,215) -Issued 7,500,000 7,000,000 ------------- ------------Outstanding at 30 September 2004 32,895,426 10,500,000 ============= ============ The compensation expense in the three month period ended 31 March 2005 was £2,400(2004-£2,400). 13 Creditors due after more than one year Convertible bond 2005 2004 £'000 £'000 Balance at 1 January included in creditors due after 4,364 4,181more than one yearIssued during the period 8,000 -Conversion of Convertible Notes during the period (1,266) -Less equity component (1,114) - -------- ------- 9,984 4,181Add: accretion of debt component during the period 64 46 -------- -------Balance at 31 March 2005 included in creditors due 10,048 4,227after more than one year ======== ======= Convertible bond 10,048 4,227Provisions for warranty claims 279 343 ======== =======Balance at 31 March 10,327 4,570 ======== ======= 14 Selected quarterly information The following table sets forth selected consolidated financial information of the Company for the eight most recent quarters. Revenue Net loss (Loss) £'000 £'000 per share UK penceJune 2003 277 (2,224) (1.3)September 2003 584 (1,974) (1.1)December 2003 474 (3,612) (2.0)March 2004 319 (2,241) (1.3)June 2004 249 (2,326) (1.3)September 2004 389 (2,609) (1.5)December 2004 507 (2,280) (1.3)March 2005 360 (1,939) (1.1) 15 Exchange rates The Sterling amounts have been converted into Canadian Dollar for conveniencepurposes using either the average or the period end exchange rates shown below: Three months ended 31 March 2005 2.339 Three months ended 31 March 2004 2.419 As at 31 March 2005 2.286 As at 31 December 2004 2.321 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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