15th May 2008 07:00
15 May 2008
TURBO POWER SYSTEMS INC. ANNOUNCES ITS RESULTS FOR
THE FIRST QUARTER ENDED 31 MARCH 2008
Highlights
Production and development income of £2.0 million (2007: £2.4 million)
Loss before tax of £2.3 million (2007: £1.4 million)
Operational review actions implemented across the Group
New CEO appointed with effect from 1 June 2008
Initial order for 1MW high speed generator announced today
Graham Thornton, Chairman, said: "The Q1 Company performance continued to see the adverse impact of the aerospace programme cost overrun issue which affected the latter part of 2007. Units are now in manufacture for safety of flight testing to support aircraft power-up and flight testing. However, the Company has developed a strong technology base over the years, and has won significant orders with international, blue-chip customers. As we move forward, we must capitalize on that business development success and deliver profitable growth. I am confident that the management and Board changes we have made will be the key to our success".
For further information, please contact:
|
Turbo Power Systems |
Tel: +44 (0)20 8564 4460 |
|
Michael Hunt, Chief Executive Officer |
|
|
Richard Bayliss, Finance Director |
|
|
Company Website: |
www.turbopowersystems.com |
|
Gavin Anderson (PR) |
Tel: +44 (0)20 7554 1400 |
|
Ken Cronin |
|
|
Michael Turner |
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KBC Peel Hunt |
Tel: +44 (0)20 7418 8900 |
|
Oliver Scott |
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Nicholas Marren |
NOTES TO EDITORS
About Turbo Power Systems
Turbo Power Systems Inc (TSX:TPS.TU AIM:TPS.L). is a leading UK based designer and manufacturer of innovative power solutions. The Group's products are all based on its core technologies of power electronics and high speed motors and generators and are sold into a number of market sectors including aerospace, rail, and various industrial sectors. The Company's products provide improved efficiency and reduced energy consumption compared to existing technologies.
Turbo Power System's existing customers include bluechip companies such as Hamilton Sundstrand, Bombardier, The National Rail Equipment Company, Eaton Aerospace and Lotus.
Forward looking statements
This news release contains forward-looking statements. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events, or performance, and underlying assumptions and other statements that are other than statement of historical fact. These statements are subject to uncertainties and risks including, but not limited to, the ability to meet ongoing capital needs, product and service demand and acceptance, changes in technology, economic conditions, the impact of competition, the need to protect proprietary rights to technology, government regulation, and other risks defined in this document and in statements filed from time to time with the applicable securities regulatory authorities.
Notice of no auditor review of interim financial statements
Under Canadian National Instrument 51-102, Part 4, subsection 4.3(3)(a), if an auditor has not performed a review of the interim financial statements, they must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor.
The accompanying un-audited interim financial statements of the Company have been prepared by and are the responsibility of the Company's management.
The Company's independent auditor has not performed a review of these financial statements in accordance with standards established by the Canadian Institute of Chartered Accountants for a review of interim financial statements by an entity's auditor.
Definition of Non-GAAP financial measures
EBITDA is calculated as the net loss for the period less financial interest income and charges, foreign exchange gains and losses, tax charges and receipts, depreciation, amortization, and stock compensation charges. The Company believes that EBITDA is useful supplemental information as it provides an indication of the operational results generated by its business activities prior to taking into account how those activities are financed and taxed and also prior to taking into consideration asset amortization. EBITDA is not a recognised measure under GAAP and, accordingly, should not be construed as an alternative to operating income or net loss determined in accordance with GAAP as an indicator of financial performance or of liquidity and cash flows. EBITDA does not take into account the impact of working capital changes, capital expenditures and other sources and uses of cash which are disclosed in the consolidated statement of cash flows. The Company's method of calculating EBITDA may differ from other issuers and may not be comparable to similar measures provided by other companies.
CHAIRMAN'S STATEMENT
The Company's operating performance continues to be the focus of Management's attention. As a result of an internal review of the business conducted over the past 4 months, a number of management and Board changes have been announced, and there is a detailed action plan to improve our margins:
Paul Summers will be joining the board as Chief Executive Officer on 1st June. Paul will focus on putting the Company on a path to sustainable, cash-generative growth.
Our current CEO, Michael Hunt, will be stepping down from the Board and will be taking up the position of business development director in support of our top-line growth strategy.
Two of our non-executive directors, Nick Brigstocke and Wayne McLeod, will be leaving the Board at the AGM, and I should like to thank them for their valuable contribution to the development of the Company.
The Company expects to appoint a new non-executive director, Mr. Douglas Clark, at the AGM. Mr. Clark will bring valuable operational experience with the Smiths Group, and will be supporting our plans to grow in the North American market.
The shortfall in development and production sales means that staff numbers across our sites will be reduced by up to 10% to better match expected requirements.
Action is underway to reduce working capital in the business to levels consistent with our forecast production in 2008.
In addition, the Board is looking at options to strengthen the Group's balance sheet. Meanwhile the cost savings programme should yield an improved trading result in subsequent quarters.
OPERATIONAL REVIEW
This MD&A has been prepared as at 14 May 2008.
Business of the Company
Turbo Power Systems
Designs and manufactures high-speed permanent magnet based motors and generators for industrial, transport, power generation and military applications, where technical performance, energy efficiency and power density requirements cannot be met by conventional technology.
Designs and manufactures power electronics products which include variable frequency drives and inverters, which combine with our electrical machines to create an integrated solution, and a range of rugged power conversion products for rail and industrial applications.
Strategy
Since the Company's products are sub-systems rather than end-products in themselves, the TPS marketing strategy is targeted towards major Original Equipment Manufacturers ("OEMs") and system integrators rather then end customers, with the objective of developing long term agreements covering both technology development and volume manufacturing.
The Company continues to transform Heathrow and the Electrical Machines operation from a development and prototyping facility into a growing production profit centre, by expanding the number of funded customer demonstrator programmes using the existing design and IPR base.
TPS policy is to undertake demonstrator programmes only where OEM customers have an established business case for ongoing production volumes, or where the application extends the Company's installed base of equipment into sectors and applications considered to offer considerable future growth potential.
TPS maintains the capacity and capability to develop, manufacture and fully test all of its products, however where appropriate it does review the potential for outsourcing those elements of the process where volumes and technical complexity are appropriate.
Q1 2008 Summary
Although good progress continued to be made in the quarter in developing a broader range of commercial opportunities for the electrical machines business in Heathrow, as demonstrated by the announcement today regarding the new generator programme, the overall company performance continued to see the adverse impact of the key aerospace cost overrun issue which affected the latter part of 2007.
The Company continued to incur development costs associated with resolving the technical issues on the Hamilton Sundstrand programme during the period, however modified units are now in manufacture for safety of flight testing to support aircraft power-up and flight testing.
In addition in the rail sector during the quarter, a number of the existing programmes were completed or in the process of final build, and the ramp up in production for the replacement new build projects such as Chicago and Toronto has been slower than anticipated due to delays in pre-qualification testing.
The Company has embarked on a significant cost improvement programme, part of which will potentially include a 10% reduction in manpower across both sites and all disciplines.
High Speed Electrical Machines
The optimal size range for electrical machines based on the Company's permanent magnet technology is between 15kW and 2MW.
Markets
The key markets for the Motor derivatives are:
HVAC and Refrigeration
Air and Gas Compression
Turbo-Machinery
Aerospace - Actuators, Pumps, Fans
Ship Propulsion
Rail Traction Motors
The key markets for Generator derivatives are:
Distributed Generation (Gas Turbines)
Micro-Generation
Vehicle based auxiliary power generation
Flywheel systems
Customers and Contracts
New Order for 1MW high-speed Generator
Today the Company announced a new contract for the supply of a 1MW high-speed generator for integration with a gas turbine. The initial order phase covers preliminary engineering activities and will be superseded by a final contract with an anticipated value of in excess of US$1.5M.
Follow on systems beyond the initial development system contract are expected in due course.
Industrial motor and drive agreement
The industrial motor drive system has now been incorporated into the initial beta site location and will soon commence life cycle and field performance testing.
Procurement of materials in support of the US$2M production launch order is well underway, with all 75 systems still programmed for manufacture and delivery before the end of 2008.These units are intended to provide the initial stock in support of the formal product launch in early 2009. Once launched the drive system will replace an existing mechanically driven arrangement used on the existing capital equipment products in this size range, and can also be supplied for retro-fit to reduce electrical consumption on existing installations world-wide.
The framework agreement anticipates sales of 500 systems over the first two years of production, and incorporates a manufacturing agreement with an initial term of 5 years.
TPS is continuing discussions with the customer regarding the scaling of these systems to cover a wider range of product sizes.
US Process Gas Customer
The order for a high speed electrical machine and variable frequency drive for a development project from the North American Industrial and Process Gas Company is proceeding with delivery scheduled for Q3 2008. The products to be supplied by TPS utilize our own permanent magnet and inverter technologies giving a high performance and high efficiency solution. Once the development phase has been completed it is intended that these systems will be deployed in the customers' sites.
European Programme
Production of the high speed electrical machine and variable frequency drive which will be used in a process system development program against an order from the European Research Organization, acting on behalf of a major international manufacturing company, will be dispatched in early Q3.
Discussions on follow on orders and for other size ranges are well advanced.
SKF
Extended reliability trials on the 35kW -70,000 rpm high speed motor and drive system (motor elements being manufactured in Heathrow and the drive and magnetic bearing control systems being integrated at Gateshead) are now completed satisfactorily, discussions are currently underway with SKF regarding the production volumes
ALC
UK Testing of the complete down hole pump system incorporating the TPS motors is still ongoing, with the final high temperature trials to be concluded prior to shipment to North America for full operational evaluation.
The North American tests will consist of two three month periods of continuous operation, with a removal and assessment review between them, and is not expected to be completed before the end of 2008.
Customer interest and demand remains very high, particularly given the current oil pricing.
High Performance Power Electronics
TPS designs and manufactures rugged power electronics products for rail, industrial and transport applications, all of which require high reliability and availability in operation.
Markets
The key markets for the electronics products are:
Auxiliary Power Conversion for Rail and Light Transit
Variable Frequency Drives to complement HSEMs
Motor Drives for aerospace application
Industrial Pulsed Power Supplies
Grid Connected Inverters
Customers and Contracts
Bombardier Transportation-Canada ("BT")
BT Beijing
Production of the auxiliary power systems for the unmanned rail transit cars for the Beijing airport subway extension has now been completed.
TPS is continuing to provide periodic commissioning and engineering support in China and is intending to provide a support team during the Olympics.
BT- Chicago Transit Authority
The initial prototype units have now been built and are undergoing functional testing at TPS, to be followed by formal qualification tests which will be observed by both Bombardier and CTA. Preliminary testing at TPS has identified a number of technical issues which require modifications to be installed and final qualification will be delayed until those have been implemented. It is still expected that the planned quantities will still be delivered during 2008 in support of the 2008 and 2009 train test programme.
The Chicago (and Toronto) designs incorporate a new generation of hardware and software microprocessor control system which the Company is investing in as a common modular platform for all future rail products.
The base CTA contract is valued at some US$14 million including production, spares and engineering services, which with possible options for additional cars, could increase the value to in excess of US$20 million.
BT- Toronto
As with the CTA hardware, the Toronto prototypes, which consist of three unit types (a main Power Supply and two variants of HVAC Inverter), also have to undergo functional tests to be followed by the formal qualification programme.
Electrical testing is proceeding well at TPS, however TPS is carrying out a unit weight review with Bombardier which will require completion prior to first article inspection and production release.
Unlike CTA, the programme does not include an extended vehicle testing phase and TPS production deliveries are expected to commence in 2008 and then ramp up.
The contract for the initial quantity of 234 cars is expected to exceed US$8 million, with the potential for further option quantities to extend that to some US$14 million.
National Rail Equipment Co ("NREC").
Sales of the traction power electronics system to NREC in support of their low emissions switcher locomotives accounted for a significant proportion of the increased sales turnover in 2007.
Volume demand in Q1 2008 was at a lower run rate than during the second half of the 2007 when TPS was supplying equipment at accelerated rates to support an NREC order backlog. NREC is currently actively bidding on a number of major international locomotive programmes which are expected to support their future build programme.
In order to support the expanding field population of NREC locomotives, additional TPS field service resources have been provided in North America, and the planned Sales and Service centre in Chicago is well located to support both the NREC locomotive build yards and their customers.
Toronto Transit Commission ("TTC") - H6 Subway Programme
Manufacture of the final quantities of the auxiliary power supply supplied to TTC for the H6 vehicle upgrade programme will be completed in early Quarter 2.
Other Rail Products
Bombardier -UK LUL
Production of the drivers air-conditioning power supply for London Underground's District Line, was completed in Q1 2008.
PT3000
Regular small orders for the PT3000 At-Seat power supply, currently in operation with many UK operators including Virgin and National Express, continue to be received, however there are a number of UK rolling stock refurbishment programmes currently under review where the potential quantities of PT3000s are considerably larger. TPS has now produced over a thousand of these units which allow the commuter to safely charge up mobile phones and laptops.
PRC Industrial Lasers
TPS continues to see strong ongoing demand from PRC Lasers who have now standardized on the TPS high voltage power supply for their complete range of industrial lasers. Recently TPS has developed a new "higher power" derivative which is now undergoing testing.
Aerospace
Boeing 787
Our first steps in the commercial aerospace sector have represented a very steep learning curve, and undertaking two major programmes effectively in parallel gave us little opportunity to apply the lessons learned on Eaton into the HS programme. As a consequence the level and depth of engineering required on HS was underestimated and the resulting costs exceeded both our expectations and the customer's contractual funding. Additionally, programme delays have deferred contracted stage payments from 2007 to 2008.
Dedicated production and test facilities, including temperature cycling and vibration testing have been put in place, and aerospace product assembly staff have been trained.
TPS has now absorbed the lessons of these two contracts and is much better placed to bid on future aerospace programmes from a basis of experience. We still believe that the core TPS technology of high performance electrical machines and matched power electronics is well suited to the growing demands of the all-electric aircraft, and are continuing to identify opportunities on other programmes and platforms.
Eaton Aerospace
Override Jettison Pump Control Unit
Safety of Flight testing has been completed and the initial batch of hardware to support Boeing aircraft flight testing has been delivered.
Formal qualification testing is well underway although some delays have been incurred due to a customer specification change.
At present the production delivery programme for the Override Jettison Pump Control Unit from Eaton for 2008 is still being maintained despite the reported 787 delays from Boeing.
The production facilities and trained staff are now in place and materials are on hand to support the aggressive Boeing production ramp up this year.
Hamilton Sundstrand
Ram Fan Motor Controller
The motor controller which was a late addition to the 787 programme following weight reduction reviews by Boeing, has suffered a number of delays due to technical problems incurred by TPS in developing both the hardware and the software, which is outsourced to an aerospace approved software house in India.
With extensive support from both Boeing and Hamilton Sundstrand, the operational software is now functioning well, and a series of interim hardware modifications have now been implemented to resolve the outstanding hardware issues. The current plan is that the updated hardware will be available to carry out safety of flight testing before the end of Q2 in order that Ram Fan units will be available to the customer for the initial aircraft power -up and flight test programme.
TPS North America
In order to support our growing customer base in North America and to take the opportunity to expand both direct sales and aftermarket revenues, TPS has entered into a short term lease for a small service and support centre in the Greater Chicago area.
Initial activities will be focused on sales and service functions, however it is anticipated that some elements of hardware upgrades/modification and partial final assembly may follow in due course.
Financial Performance
Overview of the three months ended 31 March 2008
During 2008, TPS's existing core business sectors of rail and industrial power electronics saw reduced production levels as existing production programmes concluded and new production programmes were delayed. Work on our new aerospace programmes has continued to consume more resources than was expected and in particular the Hamilton Sundstrand programme suffered additional cost overruns and delays in meeting development income milestones which have had a detrimental impact on EBITDA and cash flow. As a result the company has suffered increased EBITDA losses and cash outflows compared to 2007.
Technical progress has been made on the Hamilton Sundstrand programme in the first quarter of 2008 and the company expects to receive the remaining development income during the latter half of 2008.
Delays in final qualification of the new Bombardier Chicago Transit Authority and Toronto Rail units meant that overall production volumes decreased during the quarter.
Development income was below that for 2007 as a result of the delays incurred on the Hamilton Sundstrand aerospace programme, which has moved expected development income receipts later into 2008.
Development costs remained high during the three months as we continued to address the requirements of the Hamilton Sundstrand Ram Fan Controller.
Administrative costs including amortization were higher than the first three months of 2007 as a result of the increased charges in 2008 related to the new Gateshead facility that became operational during the second quarter of 2007.
The group's loss before interest, tax, depreciation, amortization and stock compensation increased to £2.0 million (2007: £0.9 million) as a result of significantly higher development costs and reduced development income receipts.
Operating cash outflows before tax increased to £1.8 million (2007: £1.3 million) reflecting the increased development expenditure and reduced development income.
The Company finished the quarter with an unrestricted cash balance of £2.4 million and held further cash of £1.3 million associated with performance bonds.
The Company has had no transactions with related parties.
There are no proposed transactions to disclose.
The Critical Accounting Estimates included within these statements are assessed on an unchanged basis from that disclosed in the Company's Financial Statements for the year ended 31 December 2007.
These consolidated financial statements have been prepared on a going concern basis, which presumes that the Company will be able to realise its assets and discharge its liabilities in the normal course of operations for the foreseeable future. The Company has incurred cumulative losses including a loss of £2.3 million in 2008 and has a cumulative deficit of £64.96 million as at 31 March 2008. The Company's ability to continue as a going concern depends on its ability to generate positive cash flow from operations or secure additional debt or equity financing.
SUMMARY OF QUARTERLY RESULTS
The following table sets forth selected quarterly consolidated financial information of the Company for the last 8 quarters;
|
All amounts in £'000 |
Revenue |
Research and product development |
General and administrative |
Net loss |
Loss per share |
|
June 2006 |
1,192 |
867 |
818 |
(1,742) |
(0.9) |
|
September 2006 |
1,470 |
917 |
814 |
(1,623) |
(0.8) |
|
December 2006 |
1,851 |
714 |
735 |
(1,123) |
(0.6) |
|
March 2007 |
2,033 |
1,015 |
841 |
(1,403) |
(0.5) |
|
June 2007 |
2,342 |
1,151 |
1,102 |
(1,768) |
(0.6) |
|
September 2007 |
2,700 |
1,736 |
1,083 |
(1,666) |
(0.5) |
|
December 2007 |
2,750 |
1,580 |
831 |
(1,578) |
(0.5) |
|
March 2008 |
1,962 |
1,591 |
1,059 |
(2,287) |
(0.7) |
Quarterly revenue has decreased in 2008 reflecting the conclusion of mature production programmes and the delay in commencing production on the newer Bombardier rail programmes. Research and development expenditure has remained high reflecting development activities on the new Bombardier Chicago and Toronto rail programmes and continuing development on the Eaton and Hamilton Sundstrand Boeing 787 contracts. General and administrative costs increased as the Gateshead facility relocated to larger premises in quarter two of 2007.
Diluted earnings per share figures have not been provided as the loss in each period would be anti-dilutive.
REVIEW OF FIRST QUARTER 2008
Production revenue
Production revenue in the three months ended 31 March 2008 was £1.96 million compared with £2.03 million in 2006 and comprised
|
|
2008
|
2007
|
|
|
£’000
|
£’000
|
|
Power electronics
|
1,955
|
2,017
|
|
Electrical machines
|
7
|
16
|
|
|
_____
|
_____
|
|
|
1,962
|
2,033
|
Revenues from the Power electronics division decreased from previous quarters as a result of decreased revenues from mature contracts with NREC and Toronto Transit Commission, and a delay in commencing production on the Bombardier rail programmes, resulting in a consistent performance compared with 2007.
Development income
Development income in the three months was lower in 2008 at £0.07 million compared with £0.34 million in 2007 as a result of fewer milestone payments falling due in the quarter. The principal difference relates to the Hamilton Sundstrand programme, where the technical complexity has resulted in milestone qualification dates moving later into 2008.
|
2008 |
2007 |
|
|
£'000 |
£'000 |
|
|
Development income |
70 |
341 |
Production costs
The cost of product revenues in the three months amounted to £1.50 million (2007: £1.62 million).
|
2008 |
2007 |
|
|
£'000 |
£'000 |
|
|
Power electronics |
1,348 |
1,412 |
|
Electrical machines |
152 |
204 |
|
_____ |
_____ |
|
|
1,500 |
1,616 |
Production costs include certain facilities costs attributable to the manufacturing operation.
Included in production costs for the three months are stock compensation charges on options awarded of £24,000 (2007: £26,000).
Research and product development
Research and product development expenditure in the three months was £1.59 million compared with £1.02 million in 2007, and comprised
|
|
2008
|
2007
|
|
|
£’000
|
£’000
|
|
|
|
|
|
Research and product
development expenditure
|
1,591
|
1,015
|
|
|
_____
|
_____
|
|
Total expenditure
|
1,591
|
1,015
|
Development costs remain high compared with 2007 principally as a result of additional investment into the Hamilton Sundstrand Ram Fan Controller programme.
Included in research and product development costs for the three months are stock compensation charges on options awarded of £45,000 (2007: £104,000).
General and administrative
General and administrative costs in the three months of £1.06 million (2007: £0.84 million) consist mainly of staff costs, facilities costs and the costs associated with the Company's public listings. Administrative costs have increased following the relocation of the Gateshead facility to new larger premises in the second quarter of 2007. Included in general and administrative costs for the quarter are stock compensation charges on options awarded of £29,000 (2007: £83,000).
Amortisation
Amortisation was £0.19 million compared with £0.22 million in 2007.
Interest income
Interest income in the three months was £0.04 million compared with £0.09 million in 2007 and reflects the smaller cash balances held.
Interest expense and finance charges
Interest expenses arise from the issue of convertible bonds in July 2003 and March 2005 and comprise
|
2008 |
2007 |
|
|
£'000 |
£'000 |
|
|
Interest payable |
29 |
36 |
|
Accretion of debt |
15 |
15 |
|
_____ |
_____ |
|
|
44 |
51 |
During the quarter the Company recorded an increase in fair value of £4,000 (2007: £nil) against the investment in Altek Power Corporation.
CASH FLOWS FOR THE FIRST QUARTER
Cash outflow from operating activities
Operating cash outflow before movements in working capital was £2.01 million for the quarter (2007: £1.07 million) principally as a result of reduced development income and increased development expenditure on the aerospace programmes compared with the first quarter of 2007.
Movements in stocks, work in progress, and debtors and creditors produced a net cash inflow of £0.17 million during the quarter (2007: outflow of £0.27 million).
Tax credits
During the quarter the company received no research and development tax credits (2007: £0.3 million).
Investing activities
Cash outflows from capital investments in the three months were £0.10 million compared with £0.18 million in 2007. The spend in both periods was primarily on the new facilities at Gateshead.
Overall cash outflow for the period
Overall the cash outflow during the three months was £1.86 million. This compares with an overall cash outflow of £0.93 million for the first quarter of 2007, and is the result of the increased aerospace development expenditure and lower development income receipts during the first quarter of 2008.
BALANCE SHEET AS AT 31 MARCH 2008
The Company ended the period with an unrestricted cash balance of £2.38 million compared with £4.24 million at 31 December 2007. The unrestricted cash balance has reduced principally as a result of higher development expenditure and a lack of matching development income receipts during the quarter. Substantially all of the Company's cash balances are denominated in Sterling.
In addition the Company had restricted cash amounts of £1.28 million relating to performance bonds entered into as part of contracts with the Toronto Transit Commission and Bombardier (2007: £1.36 million).
Long term assets excluding restricted cash have decreased from £2.97 million at 31 December 2007 to £2.88 million at 31 March 2008, after depreciation charges of £0.19 million.
Long term liabilities at £1.83 million at 31 March 2008 are consistent with £1.81 million at 31 December 2007, reflecting the Convertible Loan Notes that remain outstanding.
Net working capital at 31 March 2008, excluding cash balances, was £1.48 million, compared with £1.62 million as at 31 December 2007, as a result of improved debtor collection during the quarter.
As at 31 March 2008 and 15 May 2008, the Company had 318,571,062 common shares issued and outstanding and 115,000,000 A ordinary shares issued and outstanding. As at 31 March 2008 date there were 30,464,398 outstanding share options and 10,500,000 outstanding warrants.
The Company has no off balance sheet arrangements.
LIQUIDITY
Cash, cash equivalents and short-term investments at 31 March 2008 were £2.4 million compared with £4.3 million at 31 December 2007, and have fallen as a result of timing delays on achieving payment milestones and continued expenditure on the Hamilton Sundstrand development programme.
Restricted cash at 31 March 2008 was £1.2 million compared with £1.4 million at 31 December 2007. Of this, £0.4 million is expected to be released during the next 12 months as development programmes complete and the performance requirements are met.
The Company incurred a loss in the quarter of £2.29 million and has a cumulative deficit of £64.96 million. The Company's ability to continue as a going concern depends on its ability to generate positive cash flows from operations or secure additional debt or equity financing.
There have been no significant changes to the Convertible bonds issued by the Company, or the US Dollar options held by the Company, and the Company has not changed its approach to Currency risk and Interest rate risk management from that disclosed in the annual statements at 31 December 2007.
CONTRACTUAL OBLIGATIONS
|
Contractual Obligations £'000 at 31 March 2008 |
Payments Due by Period |
||||
|
Total |
Less than 1 year |
1 - 3 years |
4 - 5 years |
After 5 years |
|
|
Convertible notes |
1,789 |
- |
1,789 |
- |
- |
|
Operating leases |
4,860 |
389 |
1,583 |
858 |
2,030 |
|
Total contractual obligations |
6,649 |
389 |
3,372 |
858 |
2,030 |
FINANCIAL INSTRUMENTS
There has been no change in the classifications adopted by the Company regarding its financial instruments and full analysis is provided in the Company's financial statements for the year ended 31 December 2007.
CHANGES IN ACCOUNTING POLICY AND RECENT ACCOUNTING PRONOUNCEMENTS
(i) Changes in accounting policy
On January 1 2008 the Company adopted the new recommendations of Canadian Institute of Chartered Accountants (CICA) Handbook Section 1535, Capital Disclosures. This new handbook section establishes disclosure requirements about an entity's capital and how it is managed. It requires the disclosure of information about an entity's objectives, policies and processes for managing capital.
On January 1 2008 the Company adopted the new recommendations of CICA Handbook Section 3862 Financial Instruments - Disclosures and Section 3863 Financial Instruments - Presentation which replaces Section 3861 Financial Instruments - Disclosure and Presentation, revising and enhancing disclosure requirements while carrying forward its presentation requirements. Section 3862 requires entities to provide disclosures in their financial statements that enable users to evaluate the significance of financial instruments on the entity's financial position and its performance and the nature and extent of risks arising from financial instruments to which the entity is exposed during the period and at the balance sheet date, and how the entity manages those risks. Section 3863 establishes standards for presentation of financial instruments and non-financial derivatives. It deals with the classification of financial instruments, from the perspective of the issuer, between liabilities and equities, the classification of related interest, dividends, losses and gains, and circumstances in which financial assets and financial liabilities are offset. These new sections place increased emphasis on disclosure about the nature and extent of risks arising from financial instruments and how the entity manages those risks.
The adoption of these standards has resulted in increased note disclosures in the Company's consolidated financial statements.
On January 1 2008 the Company adopted the new recommendations of CICA Handbook Section 3031, Inventories, which requires inventory to be measured at the lower of cost or net realisable value and provides guidance on the methodology used to assign costs to inventory, it disallows the use of the last-in first-out inventory costing methodology and requires that, when circumstances which previously caused inventories to be written down below cost no longer exist, the amount of the write down is to be reversed. The adoption of this standard has not affected the Company's existing policies.
(ii) Recent accounting pronouncements
New or updated CICA Handbook sections that have been issued but are not yet effective, and have a potential implication for the Company, are as follows:
Section 3064 "Goodwill and Intangible Assets"
In February 2008 the CICA issued Handbook Section 3064 Goodwill and Intangible Assets, effective for interim and annual financial statements relating to fiscal years beginning on or after October 1 2008. Section 3064, which replaces Section 3062 Goodwill and Other Intangible Assets, and Section 3450 Research and Development Costs, establishes standards for the recognition, measurement and disclosure of goodwill and intangible assets. This new standard is effective for the Company's fiscal year commencing January 1 2009. The Company is currently assessing the impact of the new standard.
Harmonizing Of Canadian and International Standards
In March 2006, the Accounting Standards Board of the CICA released its new strategic plan which will abandon Canadian generally accepted accounting principles ("GAAP") and affect a complete convergence to the International Financial Reporting Standards. At the end of a transitional period of approximately five years, Canadian GAAP will cease to exist as a separate, distinct basis of financial reporting for public companies. The Company will closely monitor changes arising from this proposed convergence.
Subsequent events
On 26 February 2008 the Company announced that Stephen Sadler, CFO, had tendered his resignation. Stephen Sadler left the Company on 29 April 2008.
On 2 May 2008 the Company announced that Paul Summers will be appointed as Chief Executive Officer on 1 June 2008, and that Michael Hunt, currently CEO, would step down and take up the role of Director of Business Development at the Company's AGM on 29 April 2008.
The search for a successor to Stephen Sadler will continue once the new CEO and Non-Executive Directors have had sufficient time to fully assess the needs of the Company. Effective immediately, Richard Bayliss, who has served at TPS as Financial Controller since November 2005, will become Finance Director.
Internal Control over Financial Reporting
The management of the Company are responsible for establishing and maintaining adequate internal controls over financial reporting within the Company to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with Canadian GAAP. Further to the evaluation conducted at 31 December 2007, management has concluded that following the departure of Stephen Sadler, CFO, the Company faces an increased risk as a result of limited resources and a lack of segregation in duties within the finance department. The Company will look to recruit a replacement CFO and to further expand its current knowledgebase, together with utilization of external experts, in order to minimize this risk. The Company does not consider that this weakness in control environment has resulted in any material misstatements in the financial statements.
|
TURBO POWER SYSTEMS INC. |
|||||
|
CONSOLIDATED STATEMENT OF LOSS AND COMPREHENSIVE LOSS UNAUDITED |
|||||
|
Notes |
Quarter ended 31 March |
|||||||||
|
2008 |
2007 |
|||||||||
|
£'000 |
£'000 |
|||||||||
|
(restated) |
||||||||||
|
(note 1) |
||||||||||
|
Revenue |
3,4 |
1,962 |
2,033 |
|||||||
|
Development income |
3,4 |
70 -------- |
341 -------- |
|||||||
|
2,032 |
2,374 |
|||||||||
|
Expenses |
||||||||||
|
Production costs |
1,500 |
1,616 |
||||||||
|
Research and product development |
5 |
1,591 |
1,015 |
|||||||
|
General and administrative |
1,059 |
841 |
||||||||
|
Amortisation |
188 -------- |
223 -------- |
||||||||
|
4,338 |
3,695 |
|||||||||
|
Loss before interest, finance charges and foreign exchange |
(2,306) |
(1,321) |
||||||||
|
Interest income |
36 |
88 |
||||||||
|
Interest expense |
6 |
(44) |
(51) |
|||||||
|
Finance charge |
(4) |
(103) |
||||||||
|
Foreign exchange gain/(loss) |
31 -------- |
(16) -------- |
||||||||
|
19 |
(82) |
|||||||||
|
-------- |
-------- |
|||||||||
|
Net loss and Comprehensive loss |
(2,287) ===== |
(1,403) ===== |
||||||||
|
Loss per share - basic |
8 |
(0.7) p |
(0.5) p |
|||||||
|
Loss per share - diluted |
8 |
(0.7) p |
(0.5) p |
|||||||
|
Weighted average number of shares outstanding |
318,571,062 |
273,944,592 |
||||||||
|
TURBO POWER SYSTEMS INC. |
|||||
|
CONSOLIDATED BALANCE SHEETS UNAUDITED |
|||||
|
Notes |
As at 31 March |
As at 31 December |
|||
|
2008 |
2007 |
||||
|
£'000 |
£'000 |
||||
|
Current assets |
|||||
|
Investments |
7 |
28 |
25 |
||
|
Cash and cash equivalents |
2,375 |
4,235 |
|||
|
Restricted cash |
7 |
403 |
- |
||
|
Trade and other receivables |
2,002 |
2,871 |
|||
|
Stock and work in progress |
2,827 |
2,376 |
|||
|
Prepayments |
517 |
422 |
|||
|
R&D tax credits receivable |
208 -------- |
208 -------- |
|||
|
8,360 -------- |
10,137 -------- |
||||
|
Long-term assets |
|||||
|
Restricted cash |
7 |
879 |
1,362 |
||
|
Intangible assets |
9 |
39 |
47 |
||
|
Goodwill |
9 |
820 |
820 |
||
|
Tangible assets |
9 |
2,023 -------- |
2,106 -------- |
||
|
12,121 ===== |
14,472 ===== |
||||
|
Liabilities and shareholders' equity |
|||||
|
Creditors: amounts falling due within one year |
|||||
|
Trade and other payables |
3,581 |
3,700 |
|||
|
Deferred income |
496 -------- |
555 -------- |
|||
|
4,077 -------- |
4,255 -------- |
||||
|
Creditors: amounts falling due after more than one year |
|||||
|
Warranty provision |
151 |
151 |
|||
|
Convertible notes |
1,677 -------- |
1,661 -------- |
|||
|
1,828 -------- |
1,812 -------- |
||||
|
Capital and reserves |
|||||
|
Common share capital |
10 |
55,804 |
55,804 |
||
|
Class A Ordinary share capital |
10 |
13,310 |
13,310 |
||
|
Contributed surplus |
2,062 |
1,964 |
|||
|
Deficit |
(64,960) ---------- |
(62,673) ---------- |
|||
|
Shareholders' funds |
6,216 --------- |
8,405 --------- |
|||
|
12,121 ====== |
14,472 ====== |
||||
|
TURBO POWER SYSTEMS INC. |
|||||
|
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY AND DEFICIT |
|||||
|
UNAUDITED |
|||||
|
Common Share capital |
A Ordinary capital |
Contributed surplus |
Accumulated other income |
Deficit |
Total Equity |
|||||
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|||||
|
(restated) |
(restated) |
|||||||||
|
(note 1) |
(note 1) |
|||||||||
|
Balance at 1 January 2007 as previously stated |
51,919 |
6,123 |
1,981 |
(68) |
(53,636) |
6,319 |
||||
|
Prior year adjustment (note1) |
68 |
(68) |
- |
|||||||
|
--------- |
--------- |
--------- |
--------- |
--------- |
--------- |
|||||
|
Balance at 1 January 2007 as restated |
51,919 |
6,123 |
1,981 |
- |
(53,704) |
6,319 |
||||
|
Net loss |
(6,415) |
(6,415) |
||||||||
|
Stock compensation |
699 |
699 |
||||||||
|
Conversion to shares |
7,187 |
(716) |
(2,414) |
4,057 |
||||||
|
Issue of shares |
4,017 |
4,017 |
||||||||
|
Share issue costs |
(132) |
(132) |
||||||||
|
Transitional adjustment |
(140) |
(140) |
||||||||
|
--------- |
--------- |
--------- |
--------- |
--------- |
--------- |
|||||
|
Balance at 31 December 2007 |
55,804 |
13,310 |
1,964 |
- |
(62,673) |
8,405 |
||||
|
Net loss |
(2,287) |
(2,287) |
||||||||
|
Stock compensation |
98 |
98 |
||||||||
|
--------- |
--------- |
--------- |
--------- |
--------- |
--------- |
|||||
|
Balance at 31 March 2008 |
55,804 ===== |
13,310 ===== |
2,062 ===== |
- ===== |
(64,960) ====== |
6,216 ===== |
||||
|
TURBO POWER SYSTEMS INC. |
||||||
|
CONSOLIDATED STATEMENTS OF CASH FLOWS |
||||||
|
UNAUDITED |
||||||
|
Quarter ended 31 March |
|||||||||||
|
|
2008 |
2007 |
|||||||||
|
£'000 |
£'000 |
||||||||||
|
(restated) |
|||||||||||
|
(note 1) |
|||||||||||
|
Net loss from operations |
(2,287) |
(1,403) |
|||||||||
|
Amortisation |
188 |
247 |
|||||||||
|
Accretion of debt |
15 |
15 |
|||||||||
|
Adjustment to fair value of instrument |
(3) |
- |
|||||||||
|
Stock compensation charges |
98 |
213 |
|||||||||
|
Foreign currency instrument loss |
- |
21 |
|||||||||
|
Unrealised foreign exchange differences |
(31) |
16 |
|||||||||
|
Movement in net interest accrual |
6 |
(181) |
|||||||||
|
--------- |
--------- |
||||||||||
|
Cash outflow before movements in |
(2,014) |
(1,072) |
|||||||||
|
working capital |
|||||||||||
|
Decrease/(increase) in debtors |
774 |
45 |
|||||||||
|
Decrease/(increase) in stock |
(451) |
(462) |
|||||||||
|
Increase/(decrease) in creditors |
(153) |
143 |
|||||||||
|
--------- |
--------- |
||||||||||
|
Net cash outflow from operating activities before tax |
(1,844) --------- |
(1,346) --------- |
|||||||||
|
R&D tax credits |
- |
312 |
|||||||||
|
--------- |
--------- |
||||||||||
|
Net cash outflow from operating activities after tax |
(1,844) |
(1,034) |
|||||||||
|
--------- |
--------- |
||||||||||
|
Investing activities |
|||||||||||
|
Purchase of property, plant and equipment |
(96) |
(175) |
|||||||||
|
Movement in restricted funds |
80 |
355 |
|||||||||
|
--------- |
--------- |
||||||||||
|
Cash outflow from investing activities |
(16) --------- |
180 --------- |
|||||||||
|
Financing activities |
|||||||||||
|
Net expenses from equity placing |
- |
(71) |
|||||||||
|
--------- |
--------- |
||||||||||
|
Cash inflow/(outflow) from financing activities |
- --------- |
(71) --------- |
|||||||||
|
Increase/(decrease) in cash in the period |
(1,860) ====== |
(925) ====== |
|||||||||
|
Cash and cash equivalents: |
|||||||||||
|
Beginning of period |
4,235 ---------- |
6,669 ---------- |
|||||||||
|
End of period |
2,375 ====== |
5,744 ====== |
|||||||||
|
TURBO POWER SYSTEMS INC. |
|||||||||
|
QUARTER ENDED 31 MARCH 2008 |
|||||||||
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
|||||||||
|
1 |
Basis of preparation |
||||||||
|
The consolidated financial statements of the Company have been prepared by management in accordance with Canadian Generally Accepted Accounting Principles. The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. The consolidated financial statements have, in management's opinion, been properly prepared using careful judgement with reasonable limits of materiality and within the framework of the significant accounting policies summarised in the Company's financial statements for the year ended 31 December 2007, and the subsequent changes in accounting policies as detailed below. Certain comparative amounts have been reclassified to conform to the financial statement presentation adopted for 2008. The Company's interim financial statements do not conform in all respects to the requirements of Canadian GAAP for annual financial statements. The Company's interim statements should be read in conjunction with the consolidated financial statements of the Company for the year ended 31 December 2007. Derivative financial instruments are used by the Company to manage a portion of its exposure to foreign exchange rate fluctuations. The Company does not utilise derivative financial instruments for trading or speculative purposes. The Company enters into foreign currency options denominated in U.S. Dollars, to manage foreign exchange rate fluctuation exposure on receipts from customers billed in U.S. Dollars. These derivative contracts, not accounted for as hedges, are marked to market, and any changes in the market value are recorded in income or expense when the changes occur. The fair value of these instruments is recorded as accounts receivable or payable. The Company's functional and reporting currency is Pound Sterling. Going concern These consolidated financial statements have been prepared on a going concern basis, which presumes that the Company will be able to realise its assets and discharge its liabilities in the normal course of operations for the foreseeable future. The Company has incurred cumulative losses including a loss of £2.29 million for the quarter ended 31 March 2008 and has a cumulative deficit of £64.96 million as at 31 March 2008. The Company's ability to continue as a going concern depends on its ability to generate positive cash flow from operations or secure additional debt or equity financing. Prior period adjustment The Company has previously translated the operations of the Canadian parent company using the current rate method. During the fourth quarter of 2007 it was identified that the functional currency of the Canadian holding company is Sterling, and as such the translation of the transactions should not have been recorded under the current rate method. Accordingly a correction has been made with retrospective restatement of the 2007 comparative financial statements. The foreign exchange differences arising on consolidation have been reclassified and taken to the income statement. This has resulted in a prior year adjustment to cancel the Currency Adjustment Reserve and increase the loss brought forward at 31 December 2006 in retained earnings by £68,000. The Consolidated Statements of Loss and Comprehensive Loss, the Consolidated Statement of Changes in Equity, and the Consolidated Statement of Cash Flows, together with the Segmental Analysis and Loss per Share notes have been restated for 2007 to take account of the changes to reported net loss of £16,000 for the first quarter, and the change to opening equity reserves. |
|||||||||
|
2 |
Changes in accounting policies and recent accounting pronouncements |
|
(i) Changes in accounting policies |
|
|
On January 1 2008 the Company adopted the new recommendations of Canadian Institute of Chartered Accountants (CICA) Handbook Section 1535, Capital Disclosures. This new handbook section establishes disclosure requirements about an entity's capital and how it is managed. It requires the disclosure of information about an entity's objectives, policies and processes for managing capital. |
|
On January 1 2008 the Company adopted the new recommendations of CICA Handbook Section 3862 Financial Instruments - Disclosures and Section 3863 Financial Instruments - Presentation which replaces Section 3861 Financial Instruments - Disclosure and Presentation, revising and enhancing disclosure requirements while carrying forward its presentation requirements. Section 3862 requires entities to provide disclosures in their financial statements that enable users to evaluate the significance of financial instruments on the entity's financial position and its performance and the nature and extent of risks arising from financial instruments to which the entity is exposed during the period and at the balance sheet date, and how the entity manages those risks. Section 3863 establishes standards for presentation of financial instruments and non-financial derivatives. It deals with the classification of financial instruments, from the perspective of the issuer, between liabilities and equities, the classification of related interest, dividends, losses and gains, and circumstances in which financial assets and financial liabilities are offset. These new sections place increased emphasis on disclosure about the nature and extent of risks arising from financial instruments and how the entity manages those risks. The adoption of these standards has resulted in increased note disclosures in the Company's consolidated financial statements. On January 1 2008 the Company adopted the new recommendations of CICA Handbook Section 3031, Inventories, which requires inventory to be measured at the lower of cost or net realisable value and provides guidance on the methodology used to assign costs to inventory, it disallows the use of the last-in first-out inventory costing methodology and requires that, when circumstances which previously caused inventories to be written down below cost no longer exist, the amount of the write down is to be reversed. The adoption of this standard has not affected the Company's existing policies. |
|
|
(ii) Recent accounting pronouncements |
|
|
In February 2008 the CICA issued Handbook Section 3064 Goodwill and Intangible Assets, effective for interim and annual financial statements relating to fiscal years beginning on or after October 1 2008. Section 3064, which replaces Section 3062 Goodwill and Other Intangible Assets, and Section 3450 Research and Development Costs, establishes standards for the recognition, measurement and disclosure of goodwill and intangible assets. This new standard is effective for the Company's fiscal year commencing January 1 2009. The Company is assessing the impact of this new standard on its consolidated financial statements. In March 2006, the Accounting Standards Board of the CICA released its new strategic plan which will abandon Canadian generally accepted accounting principles ("GAAP") and affect a complete convergence to the International Financial Reporting Standards. At the end of a transitional period of approximately five years, Canadian GAAP will cease to exist as a separate, distinct basis of financial reporting for public companies. The Company will closely monitor changes arising from this proposed convergence. |
|
3
|
Segmental analysis
|
|
|
|
|
|
|
The Group’s two reportable segments are the power electronics segment, which is involved in the development and manufacture of electrical power supply and control systems and the electrical machines segment, which is involved in the development and commercialisation of high speed electrical machines.
Corporate charges relating to the financing of the group and other related management activities are allocated between the two reportable segments.
The power electronics and electrical machines segments both operate in the United Kingdom.
|
||||
|
All amounts in £'000 |
Power electronics |
Electrical |
Total |
|||||||
|
machines |
||||||||||
|
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
|||||
|
Three months ended 31 March |
||||||||||
|
Revenue |
1,955 |
2,017 |
7 |
16 |
1,962 |
2,033 |
||||
|
Development income |
48 |
341 |
22 |
- |
70 |
341 |
||||
|
Amortisation |
(47) |
(35) |
(141) |
(188) |
(188) |
(223) |
||||
|
Interest income |
18 |
44 |
18 |
44 |
36 |
88 |
||||
|
Interest expense |
(22) |
(25) |
(22) |
(26) |
(44) |
(51) |
||||
|
Net loss |
(1,160) |
(106) |
(1,127) |
(1,297) |
(2,287) |
(1,403) |
||||
|
Capital expenditure |
72 |
84 |
24 |
9 |
96 |
93 |
||||
|
As at 31 March 2008/ 31 December 2007 |
||||||||||
|
Total assets |
6,272 |
6,800 |
5,849 |
7,672 |
12,121 |
14,472 |
||||
|
Total liabilities |
3,126 |
3,523 |
2,779 |
2,544 |
5,905 |
6,067 |
||||
|
Total income £'000 |
Three months ended 31 March |
|||||
|
2008 |
2007 |
|||||
|
UK |
244 |
400 |
||||
|
USA |
1,237 |
1,425 |
||||
|
Canada |
545 |
423 |
||||
|
Rest of world |
6 --------- |
126 --------- |
||||
|
2,032 ====== |
2,374 ====== |
|||||
|
4 |
Significant Customers |
||||
|
During the three months ended 31 March 2008, 68% of the Company's sales were derived from three customers (2007: 64% from three customers). The three customers included in 2008 are also included in the 2007 period. |
|||||
|
TURBO POWER SYSTEMS INC. |
|
QUARTER ENDED 31 MARCH 2008 |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
|
5 |
Research and product development |
|||||||
|
Research and product development expenditure incurred during the period comprised: |
||||||||
|
Three months ended 31 March |
||||||||
|
2008 |
2007 |
|||||||
|
£'000 |
£'000 |
|||||||
|
Research and product development cost |
1,591 |
1,015 |
||||||
|
-------- |
-------- |
|||||||
|
Total accrued tax credits receivable at 31 March 2008 amounted to £208,000 (31 December 2007: £208,000). |
||||||||
|
6 |
Interest expense |
|||||
|
Three months ended 31 March |
||||||
|
2008 |
2007 |
|||||
|
£'000 |
£'000 |
|||||
|
Interest |
29 |
36 |
||||
|
Accretion of debt |
15 |
15 |
||||
|
--------- |
--------- |
|||||
|
44 ====== |
51 ====== |
|||||
|
7 |
Financial instruments |
|
The following is a summary of the accounting classifications the Company has elected to apply to each of its significant categories of financial instruments outstanding as at 31 March 2008: Cash and cash equivalents: held for trading Restricted cash: held for trading Trade receivables: loans and receivables Investments: held for trading Trade payables: other financial liabilities Convertible notes: other financial liabilities Currency option contracts: held for trading |
|
TURBO POWER SYSTEMS INC. |
|
QUARTER ENDED 31 MARCH 2008 |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
|
7 |
Financial instruments (continued) |
||||||||||||||||||||||||||||||||||||||||
|
Interest rate and currency of cash balances Floating rate financial assets of £3,657,000 at 31 March 2008 (31 December 2007: £5,597,000) comprised Sterling interest bearing bank accounts, money market deposits and cash funds including restricted cash. Fixed rate financial assets at 31 December 2007 amounted to £28,000 (31 December 2007: £25,000) and comprised an investment in a convertible debenture. At 31 March 2008, the increase or decrease in net earnings for each 1% change in interest rates on net financial assets was approximately £37,000 per annum (31 December 2007: £55,000). |
|||||||||||||||||||||||||||||||||||||||||
|
Currency exposure The Group's currency exposure, being those exposures arising from transactions, the net currency gains and losses from which will be recognised in the profit and loss account, is shown below.
The Company utilises US Dollar forward option agreements to reduce exposure to fluctuations in foreign exchange rates. Included in net loss for the three months ended 31 March 2008 is approximately £11,000 of foreign exchange loss resulting from the translation of the financial statements of Turbo Power Systems Inc. (2007: loss of £15,000). The rates used to translate the assets and liabilities as at 31 March 2008 was USD $1.994:£1 and CDN $2.038:£1 (31 March 2007 USD $1.962:£1 and CDN $2.267:£1). |
|||||||||||||||||||||||||||||||||||||||||
|
7 |
Financial instruments (continued) |
|
Derivative financial instruments Certain of the Company's business transactions occur in currencies other than Sterling. The Company entered into foreign exchange average rate option contracts during the twelve months ended 31 December 2007 to reduce exposure to fluctuations in foreign exchange rates on remittances from customers denominated in U.S. Dollars. During 2007 the Company purchased an average rate option over $4.200 million US Dollars at a strike rate of 2.09 U.S. Dollars, which expires between 26 March 2008 and 24 December 2008. During 2006 the Company purchased an average rate option over $1.965 million U.S. Dollars at a strike rate of 1.90 U.S. Dollars, which expired on 27 December 2006, and an average rate option over $5.898 million U.S. Dollars at a strike rate of 2.00 U.S. Dollars which expired on 27 December 2007. During the three months no gain or loss was realized on these options (2007: loss of £21,000). As at 31 March 2008 the unrealised gain from the contracts, included within prepayments was £nil (2007: £23,000). The Company records unrealised gains or losses arising from these contracts in the income statement. |
|
|
Maturity of financial liabilities The maturity of the Group's borrowings at 31 March 2008 and 31December 2007 comprised: 2008 2007 £'000 £'000 Convertible notes due 11 March, 2010 1,789 1,789
At 31 March 2008, the Group's borrowings were at fixed rates of 6.5%. |
|
|
Restricted cash In 2004 the Company committed cash bonds in support of contracts placed by the Toronto Transit Commission for the CLRV and H6 programmes. The associated contracts required 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 related to the H6 programme of £559,000 being under the performance bond restriction until 2010. During March 2007 the Company committed cash bonds totalling USD$800,000 in support of contracts placed by Bombardier Transportation for the CTA and TTC programmes. The associated contracts require the bonds to remain in place until after development and the prototype equipment is delivered, which is expected to occur during 2008. The Company has also provided a property lease guarantee bond which is held in escrow and totals £320,000.
At 31 March 2008 cash subject to restrictions totalled £1,282,000 (December 2007: £1,362,000). |
|
7 |
Financial instruments (continued) |
|
Credit risks
As seen below the Company, in the normal course of business, is exposed to credit risk from its global customers. The accounts receivable are subject to normal industry risks in each geographical region in which the Company operates. The Company attempts to manage these risks by dealing with creditworthy, large well-established customers; however, due to the limited number of potential customers in each market this is not always possible. In these cases the Company reduces its exposure by obtaining up-front payments from the end customer prior to delivery of goods. Significant debtors at 31 March 2008 comprised £937,000 due from four customers, representing 55% of the outstanding balance (2006: £1,048,000 due from three customers, representing 59% of the outstanding balance). Consequently, the Company has concentrations of credit risk with respect to its accounts receivable. Total accounts receivable of £1,700,000 are due as follows: Not past due £1,116,000 Past due for over one day but not more that 30 days £ 181,000 Past due for over 30 days but not more than 60 days £ 291,000 Past due for over 60 days £ 112,000 Allowance for doubtful accounts £ nil At 31 March 2008 and 31 December 2007 the allowance for doubtful accounts was £nil |
|
|
Determination of fair value The fair value of a financial instrument is the amount of consideration that would be agreed upon in an arm's length transaction between knowledgeable, willing parties who are under no compulsion to act. The fair value of a financial instrument on initial recognition is the transaction price, which is the fair value of the consideration given or received. Subsequent to initial recognition, the fair values of financial instruments that are quoted in active markets are based on bid prices for financial assets held and offer prices for financial liabilities. When independent prices are not available, fair values are determined by using valuation techniques which refer to observable market data. These include comparisons with similar instruments where market observable prices exist, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants. For certain derivatives, fair values may be determined in whole or in part from valuation techniques using non-observable market data or transaction prices. A number of factors such as bid-offer spread, credit profile and model uncertainty are taken into account, as appropriate, when values are calculated using valuation techniques. The fair value of short term financial assets and liabilities, including cash and cash equivalents, restricted cash, trade and other receivables, prepayments and trade and other payables as presented in the consolidated balance sheets approximate their carrying value due to the short term period to maturity of these financial instruments. |
|
8 |
Loss per share |
|||||
|
Loss per common share has been calculated using the weighted average number of shares 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. The weighted average number of shares outstanding in the three months was 318,571,062 (2007: 273,944,592). The loss for the three months ended 31 March 2008 was £2,287,000 (2007: £1,403,000). Anti-dilutive potential securities outstanding not included in the loss per common share calculation at 31 March 2008 total 170,872,731 (2007: 170,286,014) |
||||||
|
9 |
Long - term assets |
||||
|
Cost |
Impairment |
Amortisation |
Net book value |
||
|
£'000 |
£'000 |
£'000 |
£'000 |
||
|
At 31 March 2008: |
|||||
|
Intangible assets |
4,078 |
1,663 |
2,376 |
39 |
|
|
Goodwill |
863 |
43 |
- |
820 |
|
|
Property, plant and equipment |
8,878 |
- |
6,855 |
2,023 |
|
|
-------- |
-------- |
-------- |
-------- |
||
|
Total long term assets |
13,819 ===== |
1,706 ===== |
9,231 ===== |
2,882 ===== |
|
|
At 31 December 2007: |
|||||
|
Intangible assets |
4,078 |
1,663 |
2,368 |
47 |
|
|
Goodwill |
863 |
43 |
- |
820 |
|
|
Property, plant and equipment |
8,782 |
- |
6,676 |
2,106 |
|
|
-------- |
-------- |
-------- |
-------- |
||
|
Total long term assets |
13,723 ===== |
1,706 ===== |
9,044 ===== |
2,973 ===== |
|
|
10 |
Share capital - issued shares |
|||||
|
Common |
A Ordinary |
|||||
|
Number |
£'000 |
Number |
£'000 |
|||
|
At 1 January 2007 |
273,944,592 |
51,919 |
56,250,000 |
6,123 |
||
|
Redemption of convertible notes |
- |
- |
58,750,000 |
7,187 |
||
|
Share based compensation |
176,470 |
17 |
- |
- |
||
|
Shares issued, net of share issue costs |
44,450,000 --------------- |
3,868 -------- |
- --------------- |
- -------- |
||
|
At 31 December 2007 and 31 March 2008 |
318,571,062 ========= |
55,804 ===== |
115,000,000 ========= |
13,310 ===== |
||
|
No options or warrants were exercised during the three months ended 31 March 2008. |
|
11 |
Financing |
|
On 11 July 2003 the Company completed a £5,000,000 financing agreement with institutional investors. The financing comprised unsecured Convertible Notes and Warrants. The Convertible Notes have a term of five years and bear interest at a rate of 3.5% per annum. They were convertible into an aggregate of 25,000,000 Common Shares in Turbo Power Systems Inc. at a conversion price of £0.20 per share. The Warrants had a term of three years and were convertible into an aggregate of 3,500,000 Common Shares in Turbo Power Systems Inc. at an exercise price of £0.15 per share, and lapsed on 10 July 2006 |
|
|
On 11 March 2005 the Company completed a £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 Power Systems 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 Power Systems Inc. at an exercise price of £0.15 per share. |
|
On 28 December 2006 the Company completed a £6,000,000 (gross) financing agreement with institutional investors. The financing comprised 50,000,000 Common Shares in the company and 25,000,000 A-Ordinary shares in Turbo Power Systems Limited. The financing included the issue of 3,500,000 Warrants, having a term of three years and being convertible into an aggregate of 3,500,000 Common Shares in Turbo Power Systems Inc. at an exercise price of £0.15 per share. These warrants were issued on 6 January 2007 (see note 12). On 28 December 2006, per an agreement reached with the holders of the convertible notes, the Company redeemed £2,500,000 of the 2003 Convertible Loan Notes and £2,360,000 of the 2005 Convertible Loan Notes at a redemption price of £0.08. The redemption was dependant upon the Company's shares being approved for trading on the AIM exchange which occurred on 28 December 2006. |
|
|
A further £2,500,000 of the 2003 Convertible Loan Notes and £2,000,000 of the 2005 Convertible Loan Notes were redeemed in January 2007 at a redemption price of £0.08. The Company has incorporated the guidance provided by the CICA's Emerging Issue Committee Abstract 96 "Accounting for the Early Extinguishment of Convertible Securities Through (1) Early Redemption or Repurchase and (2) Induced Early Conversion" (EIC96) in accounting for the early redemption of the convertible notes. EIC96 provides guidance on the treatment of the fair value of the conversion feature on the extinguishment of the convertible debenture. Redemption of the convertible debentures in January 2007 resulted in an increase in deficit of £82,000 (2006: £73,000) and an increase in retained deficit of £2,512,000 (2006: £2,600,000). |
|
12 |
Stock options, warrants and compensation expense |
|||||||
|
The number of options and warrants outstanding as at 31 March 2008, and the movement during the year then ended, are as follows: |
||||||||
|
Options |
Warrants |
|||||||
|
Number |
Number |
|||||||
|
Outstanding at 1 January 2008 |
30,847,250 |
10,500,000 |
||||||
|
Cancelled |
(382,852) |
- |
||||||
|
------------- |
------------ |
|||||||
|
Outstanding at 31 March 2008 |
30,464,398 ======== |
10,500,000 ======= |
||||||
|
12 |
Stock options, warrants and compensation expense (continued) |
|
The stock based compensation expense for the three months ended 31 March 2008, included in Production costs was £24,000 (2007: £26,000), in Research and product development was £45,000 (2007: £104,000), and in General and administrative costs was £29,000 (2007: £83,000). On 6 January 2007 the Company issued 3,500,000 warrants as part of its financing agreement with institutional investors. The fair value of the stock options is the estimated fair value at grant date. The fair value is calculated using the Black-Scholes option-pricing model. In calculating the fair values of the options granted during the quarter ended 31 March 2007 a dividend yield of Nil, expected volatility of 65%, a risk free interest rate of 5.0% and an expected option life of 5 years have been assumed, and for options granted during the quarter ended 30 June 2007 a dividend yield of Nil, expected volatility of 75%, a risk free interest rate of 5.0% and an expected option life of 5 years have been assumed. The fair value of the stock options granted during the quarters ended 31 March 2007 and 30 June 2007 was £0.06 per share. |
|
The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions including the expected price volatility. The Company uses expected volatility rates, which are based on historical volatility rates trended into future years. Changes in the subjective input assumptions can materially affect the fair value estimate, and therefore the existing models do not necessarily provide a reliable single measure of the fair value of the Company's stock options. |
|
13 |
Capital management |
|
The Company defines capital that it manages as the aggregate of its cash and cash equivalents, short term investments and equity comprising share capital, contributed surplus and deficit. Its objectives when managing capital are to ensure that the Company will continue as a going concern, so that it can provide services to its customers and returns to its shareholders. The Company manages its capital structure and makes adjustments to it in light of economic conditions. The Company, upon approval from its Board of Directors, will make changes to its capital structure as deemed appropriate under the specific circumstances. The Company is not subject to any externally imposed capital requirements and the Company's overall strategy with respect to management of capital remains unchanged from the year ended 31 December 2007. |
|
14 |
Contingent loss |
|
The Company is currently working on a contract with Hamilton Sundstrand which could result in future losses. Since discussions are ongoing on the contract in question a reliable estimate of any contingent liability cannot be made at this time and no amount has been accrued. |
|
15
|
Selected quarterly information
|
|
|
|
|
|
|
The following table sets forth selected consolidated financial information of the Company for the eight most recent quarters.
|
||||
|
|
|
Revenue
£’000
|
Net loss
£’000
|
(Loss) per share UK pence
|
|
|
|
|
|
|
|
|
|
June 2006
|
|
1,192
|
(1,742)
|
(0.9)
|
|
|
September 2006
|
|
1,470
|
(1,623)
|
(0.8)
|
|
|
December 2006
|
|
1,851
|
(1,123)
|
(0.6)
|
|
|
March 2007
|
|
2,033
|
(1,403)
|
(0.5)
|
|
|
June 2007
|
|
2,342
|
(1,768)
|
(0.6)
|
|
|
September 2007
|
|
2,700
|
(1,666)
|
(0.5)
|
|
|
December 2007
|
|
2,750
|
(1,578)
|
(0.5)
|
|
|
March 2008
|
|
1,962
|
(2,287)
|
(0.7)
|
|
Related Shares:
TPS.L