29th Mar 2005 07:00
Turbo Genset Inc.29 March 2005 Tuesday 29th March 2005 TURBO GENSET INC. ANNOUNCES ITS RESULTS FOR THE FOURTH QUARTER AND YEAR ENDED 31 DECEMBER 2004 Highlights: • Revenue for the year of £1.5 million (2003:£1.5 million) • Loss before tax for the year of £9.5 million (2003:£9.5 million) • Cash outflow, before financing and investment sales, reduced by 11% at £7.1 million • Post balance sheet fundraising of £8.0 million • Order book at 31st December £7.8 million Commenting on the results Colin Besant, Chairman, said: "2004 saw a major increase in order intake, the timing of which has meant thatthe revenue impact will be seen in 2005 and onwards. Order value at the 31stDecember was £7.8 million. A further rail order for £2.7 million was awarded inJanuary 2005 and confirms our belief that the Company is now beginning torealise its commercial potential. We appointed Michael Hunt as CEO in June 2004 and welcomed Ross Sayers to theBoard in January 2005. Stephen Sadler joined us as CFO in March 2005. With ourfundraising completed we now have the team and resources in place to exploit theopportunities in our chosen markets." 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 Seton Services (IR)Toni Vallen Tel: +44 (0)20 7727 3073 Fax: +44 (0)20 7792 0430 Email: [email protected] NOTES TO EDITORS---------------- About Turbo Genset Turbo Genset develops innovative products for power generation and powerconditioning. The Group was established in 1993 as a spin-off from ImperialCollege, London and was floated on the London stock exchange in July 2000 andsoon after obtained a secondary listing in Toronto.In July 2001, the Group acquired Intelligent Power Systems Limited (I-Power)specialising in power electronics.The Group operates across the following three market sectors: • Turbine Based and Variable Speed Gensets • High Speed Motors and Motor Drives • Power Electronics About Power ElectronicsPower electronics products take a range of power inputs and condition them toachieve outputs of precisely defined characteristics for applications such asindustrial lasers, Ultra Violet sterilization systems and railway powerelectronics systems. 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. Chief Executive's Review Strategy Turbo Genset (TG) designs and manufactures innovative power solutions whichprovide local, high quality, controllable electrical power. The Group's productsare focused on three independent market areas but are all based on its coretechnologies of power electronics and high speed electrical machines. During 2004, it became clear that there was significant sales potential for theCompany's high speed electrical machines in applications other than gas turbinegensets. As a consequence the Group now operates across the following threemarket sectors: • Turbine Based and Variable Speed Gensets • High Speed Motors and Motor Drives • Power Electronics The expansion of the Group's products into these three market areas creates thepotential for a more balanced business combining revenues from high value/lowvolume capital projects, with more predictable income from long-term productioncontracts. The Company anticipates that all three sectors will make a significantcontribution to future revenues and profits. TG's marketing strategy relies on collaboration with strong partners. Technologypartners such as SKF have been instrumental in the development of the Company'shigh speed drives business whilst in power electronics partnerships withoriginal equipment manufacturers such as PRC Lasers are driving continuedgrowth. In the genset sector, we have already developed relationships with internationalchannel partners with the capacity and resources to fully support both the salesand service requirements for our products. TG sees India, the Middle East, Chinaand South East Asia as being key strategic markets and as a consequence channelpartner programmes and marketing resource are concentrated in those areas.Agreements have been implemented with a leading heat recovery equipmentmanufacturer, who has produced product designs which match the high grade heatoutput from our turbines and provide the optimum levels of usable thermalenergy.The Company has entered into marketing agreements with Tyree Holdings(Australia), Tata International (India) and Cupola Group (Middle East) and is innegotiation to add representation in Malaysia and China. Operational review Order BookThe outstanding order book at 31 December 2004, including the conditionalproduction elements of the Toronto Transit CLRV contract was £7.8 million, a105% increase on 31 December 2003. In addition, in January 2005 a furthercontract with Toronto Transit Commission worth £2.7 million was received. Turbine Based Gensets and Variable Speed Gensets Turbine ProductsThe Company designs and manufactures complete turbine based generating systemsin the size range 400kW to 1.2MW,providing electrical and thermal energy toindustrial and commercial customers. Turbine Markets Distributed Generation (DG), the use of small-scale power generation close tothe load being served, is a concept that is generating significant interest inglobal markets. The requirement for reliable, high quality power is increasingmore rapidly than the ability of most regions of the world to supply that powerthrough the existing distribution grid. Even in areas with well developed gridsystems, brownouts and interruptions in quality supply are happening with everincreasing frequency and the ability of traditional power providers to increasecapacity is limited by a wide range of constraints. Combined Heat and Power (CHP) extends the beneficial effects of DG by utilisingthe waste heat products from the combustion process and utilising them as a"free" energy source. Such thermal by-products include hot water for heatingrequirements, steam for industrial continuous process requirements, chilledwater for air-conditioning and direct heat for drying applications. Turbine Competitive Advantage Historically CHP schemes in the 400kW to 2MW size range have been based ondiesel or gas fired reciprocating gensets. However, turbine based systemsprovide much larger volumes of recoverable heat from their cleaner exhaust gasesand are ideal for producing high temperature/high pressure steam for CHPapplications. The TG generator products, which are based on small lightweight aero-enginesprovide customers with: • lower installation and life-cycle costs • simple, controlled interface with the mains grid where required • reliable high quality electrical power • substantial savings in energy costs over conventional solutions 1.2MWTG has seen significant interest in the 1.2MW size unit, where the electricaland thermal output matches the requirements for continuous process industriesand larger commercial customers. As a consequence this product is expected to bethe main source of genset revenues in the next two years.The strategy for the 1.2MW product is based on penetrating the market with anexisting 3rd party low speed 1.2MW system from North America using aconventional gearbox/synchronous generator combination and then introducing thehigher performance TG high speed generator ("HSG") version from 2006 onwards.This will allow earlier sales than would otherwise be achievable and will createthe necessary window to carry out extensive high temperature, high humiditytesting for the new TG generator and power electronics technologies prior tocommercial release. In August 2004 the Company announced an agreement with a US company to provide aland-fill gas fuelled genset, and the initial evaluation unit is scheduled to beinstalled in the US in 2005. It is intended that the US partner will implementan ongoing programme of land fill installations in the US. Further 1.2MW proposals for conventional natural gas fuelled systems in Asia arecurrently under customer review and negotiations and installations are expectedto be concluded during 2005. In December 2004, TG decided not to proceed with a master distributor agreementfor a 1.2MW low-speed genset manufactured by Magellan Aerospace of Ontario,Canada under contract to the Altek Power Corporation of British Columbia, and toretain the flexibility to source the low-speed genset from the most economicmanufacturer for each specific customer application. 400kWThe initial 400 kW pilot system is currently undergoing endurance testing inParis. However, negotiations for the initial commercial launch of the systems inIndia were not completed in 2004 and are now expected to reach a conclusion in2005. Market feedback has confirmed that the 400kW size is a niche product andas such the forward volume assumptions for this product have now been reduced. Variable Speed Gensets (VSG) VSG ProductsThe Company has developed and tested a 130kW variable speed diesel enginegenset, which uses the TG power electronics technology to manage the performanceof the engine and increase effective power output and fuel efficiency. The VSGdesign decouples the engine from the system output frequency and therefore thereis no longer any need to continuously operate the engine at constant speed. Theengine can be controlled to run at the optimum operating speed over a wide rangeof load conditions. VSG MarketsThe VSG product is targeted at specific customer applications where size, weightor range of engine speeds and electrical loads are critical. The TG strategy isto partner with specialist engine manufacturers and the Company is currentlydiscussing the potential for VSG technology in a military application in Asia. High Speed Motors and Drives ProductsThe Company designs and manufactures bespoke, high-speed motor drives includingthe electrical motor and associated power electronics hardware and software.These systems range in size from 15kW up to 350kW. MarketsThe motor drive technology is applicable to a wide range of industries andapplications, including air and gas compressors, motion control (tractiondrives), hybrid vehicles, renewable energy and turbo-chargers. In combinationwith magnetic and air bearing systems the drives offer improvements inperformance, reliability and operational life over conventional systems.TG designs drives for applications where the performance or operatingenvironment require non-standard solutions. SKFThe SKF contracts announced in June 2004 and January 2005 demonstrate thepotential for this area of technology. TG signed an agreement for thedevelopment of a 35kW, 25kW and 15kW high speed motor and drive for a gascompressor application. The agreement consists of a development and evaluationphase, and an initial 5 year production supply arrangement. Power Electronics ProductsThe Company designs and manufactures high-voltage power supplies, inverters,battery chargers, and auxiliary power supplies through its I-Power division. MarketsI-Power concentrates on supplying products to the following sectors: • International rail and light transit. The Group supplies auxiliary power supplies and power conversion products. The agreement in 2002 with Rolls Royce Industrial Controls ("RRIC") to acquire certain rights to rail product intellectual property has contributed greatly to the growing number of rail contracts being won by TG. • Industrial Products. -TG provides bespoke high voltage pulsed power supplies to industrial laser and pulsed power systems manufacturers. • Power Generation and Power Quality. -TG supplies grid connected inverters for a wide range of power generation technologies including TG's own turbine based gensets. The growing need to interconnect a wide range of alternative and renewable energy technologies with the power grid, safely and cost effectively, is creating an expanding market for power converters using advanced microprocessor technologies. The TG inverter technology meets international grid connection standards. Major Power Electronics Contracts Bombardier London Underground (LUL)This £1.95 million contract to build 150 6KW 3-phase inverters to powerair-conditioning equipment on trains on the District Line started shipping inMay 2004, and runs to 2007. Toronto Transit Commission (TTC) - Canadian Light Rail Vehicle (CLRV)The £3.4 million contract from TTC announced in September 2004 covers thedevelopment and supply of 194 composite multiple output power supplies to chargebatteries and provide mains power for air-conditioning on trams in Toronto.Deliveries are scheduled over the period to 2012, commencing Q4 2005. Toronto Transit Commission - H6 subway car Auxiliary Power Unit (APU)The £2.7 million contract to supply 128 units over 2005-2008 was announced inJanuary 2005 following extensive trials of four prototypes. Competitive AdvantageRail and light transit customers require a combination of affordability, provenreliability and low technical and safety risk. As a result there are significantbarriers to entry for new suppliers. With the acquisition of rights to the RRICintellectual property and the recruitment of key members of their engineeringteam, TG has been able to build on its experience, and demonstrate theperformance of its own new products. The TG grid connected inverters use proprietary software algorithms to controlthe process of connecting to and from the grid, in such a way as to eliminateany voltage or transient effects being seen at the local loads. The technologyis scaleable up to 3MW. Other SystemsDeliveries have now been made against the GE Global Research projects, thelocomotive hybrid turbocharger, and the Department of Environment (DoE) funded200kW generator for the Advanced Integration Microturbine System (AIMS)programme. Once the GE development trials have concluded, TG activities willcease pending the decision by GE Global Research on whether to take the productsinto commercial manufacture. Outlook The coming year is extremely important to Turbo Genset and will see furthersteps taken to transform the business from a development stage company into acommercial enterprise. In the genset business the Company intends to increase the level of direct salesrepresentation in South East Asia to facilitate sales of its genset solutionsand, in particular, sales of the Company's low speed 1.2MW system. In the area of high speed motors and drives the Group aims to expand the productrange to build on the success of the SKF contracts. In its power electronics business the Group aims to continue to build on theorders won in 2004 and deliver revenue growth in 2005. The Company is committed to strict cost control and will continue to exploreopportunities to make cost savings wherever possible. Financial review Revenue Revenue in 2004 was £1.46 million compared with £1.54 million in 2003 andcomprised; 2004 2003 £'000 £'000Power electronics 1,423 1,344Generator systems 41 198 ------- ------ 1,464 1,542 ======= ======Power electronics revenue comprised deliveries of high voltage power supplyproducts and rail products, in particular catering car converters and "At-Seat"power supplies.A reduction in the number of units called off against the existing contract withDtech resulted in a reduction in generator system revenues. Cost of product revenues The cost of product revenue in the period amounted to £1.80 million, resultingin a loss on sales of £0.35 million. The gross loss on product revenue for 2004and 2003 is as follows; 2004 2003 £'000 £'000Power electronics 194 226Generator systems (545) (720) ------ ------ (351) (494) ====== ======The loss is primarily due to the overheads attributable to the generator systemmanufacturing operation, which is currently operating below capacity due to therescheduling of customer orders. The loss is reduced in 2004 compared to 2003due to a reduction in overheads. Research and product development costs Research and product development costs before amortisation were £3.95 million in2004 compared with £3.08 million in 2003, and comprised; 2004 2003 £'000 £'000Research and product development expenditure 4,498 4,257Accrued tax credits (250) (420)Sales of prototypes and development contributions (302) (758) ------- -------Total expenditure 3,946 3,079 No research or development expenditure was deferred in 2003 or 2004. Research and product development expenditure increased from £4.26 million in2003 to £4.50 million in 2004 primarily due to stock write offs of £0.31million. Accrued tax credits were lower in 2004 as projects moved from development tocommercialisation. Sales of prototypes and development contributions reduced in the year asdevelopment contributions in 2003 included payments from Dtech. General and administrative General and administrative costs in 2004 decreased to £3.02 million comparedwith £3.24 million in 2003 due mainly to a reduction in general andadministrative wage costs following the redundancy programme in September. Amortisation Amortisation on research and development assets was £0.78 million compared with£0.82 million in 2003. Non research and development and development amortisationwas £0.88 million compared with £0.83 million in 2003. Profit on sale of investments net of adjustments to carrying valuesIn November 2004 the Company disposed of its shareholding in Ceres Power for acash consideration of £1.27 million, realising a profit on disposal of£0.97million. Following an impairment review at the year end the Company made a provision of£0.25 million against the carrying value of its investment in a convertibledebenture issued by Altek Power Corporation. Interest income Interest income in 2004 reduced to £0.22 million from £0.38 million in 2003, dueto a lower average cash balance held throughout the year. Interest expense and finance charges Interest expense and finance charges arise from the issue of a £5 millionconvertible bond in July 2003 and comprises; 2004 2003 £'000 £'000Interest payable 175 87Amortisation of deferred finance charges 66 33Debt accretion 183 91 ------ ------ 424 211 ====== ======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 was estimated at £ 0.91 million. The carryingvalue of the debt element is increased over the term of the debt and thisaccretion expense is charged to the profit and loss account. During 2004 thischarge amounted to £0.18million (2003:£ 0.09 million). Provision for impairment of capitalised development expenditure The Group reviews, at least annually, capitalised development costs to ensurethat no impairment has occurred. If a project's commercial viability is notassured, then an impairment provision is recognised in the period that such adetermination is made. In the year ended 31 December 2004 the Company provided £0.58 million againstthe carrying value of capitalised development costs in respect of the 400kWgenerator system supplied to Dtech. Since the development programme commenced in late 2000 the US Dollar hassignificantly weakened. This weakening of the US Dollar has adversely impactedthe profitability of these systems, since the revenue is denominated in USDollars. In addition, the Company announced in November 2003 that it had beenadvised that deliveries of 400kW gensets to Dtech were to be rescheduled. As a result the Company recorded an impairment provision in 2003 of £700,000against the development costs of the system. The Company now expects the 400kWunit to provide a lower level of future revenue than had previously beenexpected and accordingly has made a further provision of £577,000 in 2004. At 31December 2004, the net book value of the capitalised development costs inrespect of this project, and after the impairment provision, amounted to£405,000. Restructuring charges In September 2004, the Company initiated a redundancy programme at its Londonsite, which resulted in a 15% reduction in the Company's workforce. As a resulta restructuring charge of £428,000 has been incurred. Cash flows Cash outflow from operating activities Cash outflow from operating activities in 2004 was £7.06 million, compared with£7.09 million in 2003. In 2003 the Company recorded an operating loss of £9.58million, which included an impairment charge of £1.13 million, and had anincrease in working capital of £0.56 million. The 2004 operating loss of £9.55million included an impairment charge of £0.58 million and working capitaldecreased by £0.49 million during the year. The decrease in working capital is partly due to a decrease in trade debtors of£0.10 million and a decrease in tax recoverable of £0.45 million, which isprincipally due to a decrease in accrued R&D tax credits. The Company received£0.72 million of R&D tax credits in 2004. The decrease of stocks and work in progress during the year includes write downsof £0.31 million against obsolete stock and work in progress. The decrease in creditors of £0.25 million is primarily due to reductions inaccruals and other creditors. Interest received was £0.22 million in 2004, compared with £0.38 million in2003, and comprised interest received on the Company's cash balances.Interest paid of £0.17 million represents payments made on the convertible bondsissued in 2003. Capital investment activities Cash inflows from capital investments in 2004 were £1.19 million compared withoutflows of £0.98 million in 2003 as shown below; 2004 2003 £'000 £'000Purchase of capital assets (85) (531)Investment in debt instruments - (444)Proceeds from sale of shares 1,273 - ------ ------ 1,188 (975) ====== ======The reduction in expenditure on capital assets reflects reduced expenditure ontangible assets following the completion of the Company's investment programmeat its London site. The investment in debt instruments in 2003 comprised an investment of £444,000in a 6% Convertible Debenture issued by Altek Power Corporation ("Altek"). Thedebenture was convertible, at the option of the Company, over two years into anaggregate of 1,785,715 Units at a conversion price of $0.56 (£0.249) per Unit,with each Unit consisting of one common share of Altek and one half of a sharepurchase warrant. Each warrant entitled the Company to purchase, at a price of$0.63 (£0.28) per share, up to 892,857 additional common shares in Altek for atwo year period from the date the warrants are issued. The debenture was securedagainst certain design rights. This investment was part of an agreement that theCompany signed with Magellan Aerospace Corporation ("Magellan") of Ontario,Canada and Altek Power Corporation ("Altek") of British Columbia, Canada for theconversion of an industrial standard turbine engine, which can be coupleddirectly to the Company's 1.2MW high speed generator. On 9 March 2005 the Company restructured its investment in Altek to release bothAltek and the Company from the agreement entered into. As part of therestructuring, the Company converted CDN $500,000 of the loan receivable fromAltek into 892,857 shares of Altek. The term of the remaining CDN $500,000convertible notes was extended to become due on 9 October 2008. In November 2004 the Company sold its shareholding in Ceres Power for a cashconsideration of £1.27 million. Cash flow from financing activities Cash outflow from financing of £1.88 million in 2004 relates to areclassification into restricted cash of cash set aside for performance bonds.The performance bonds were put in place during the year as part of a contractwith The Toronto Transit Commission. Cash flow from financing of £4.93 million in 2003 principally comprised£5 million from the issue of a convertible bond in July 2003, net of loanrepayments of £0.11 million. The loan was fully satisfied in 2003. Cash outflow for the year Overall the cash outflow during 2004 was £7.75 million, including movements inrestricted cash of £1.88 million. This compares with an overall cash outflow of£3.14 million in 2003 which included proceeds from debt issues of £5.0 million. Balance sheet as at 31 December 2004 The Company ended the year with a cash balance of £2.07 million compared with£9.82 million at 31 December 2003. Substantially all of the Company's cashbalances are denominated in Sterling. 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 reduced from £8.67 million at 31 December 2003 to£6.01 million at 31 December 2004, due to the amortisation charge of£0.88 million, an impairment provision of £0.58 million, adjustments toinvestment carrying values of £0.25 million and share disposals of £0.30million. Net working capital at the year end, excluding cash balances, was £0.31 million,compared with £1.10 million as at 31 December 2003, with the decrease mainly dueto reductions in debtors and stock. Shareholders' equity The movement in shareholders' funds comprised; 2004 2003 £'000 £'000 As at 1 January 15,057 23,508Loss for the year (9,456) (9,527)Exercise of options - 32Shares issued to directors' for fees - 32Exchange adjustments arising on consolidation 5 (26)Equity element of convertible bond - 910Fair value of warrants issued - 117Stock compensation expense 10 11 ------- -------As at 31 December 5,616 15,057 ======= ======= As at 31 December 2004, the Company had 175,626,874 common shares issued andoutstanding. As at that date there were 26,263,641 outstanding share options and3,500,000 outstanding warrants. Review Of Fourth Quarter 2004 Results Of Operations And Cash Flows Revenue Revenue in the quarter was £0.51 million compared with £0.47 million in 2003 andcomprised; 2004 2003 £'000 £'000Power electronics 507 368Generator systems - 106 ------ ------ 507 474 ====== ======Power electronics revenues comprised deliveries of high voltage power supplyproducts and rail products, in particular catering car converters and "At-Seat"power supplies. The reduction in generator systems revenue reflects thereduction in systems called off against the Dtech contract. Cost of product revenues The cost of product revenue in the period amounted to £0.59 million, (2003 -£0.66 million) resulting in a loss on product sales of £0.08 million (2003 -£0.18 million). The loss on product sales during the period is as follows; 2004 2003 £'000 £'000Power electronics 44 34Generator systems (128) (218) ------- ------- (84) (184) ======= ======= The overall loss is primarily due to the overheads attributable to the generatorsystem manufacturing operation, which is currently operating below capacity dueto low volumes. Research and product development costs Research and product development costs charged to earnings in the quarter were£1.37 million compared with £1.03 million in 2003, and comprised; 2004 2003 £'000 £'000Research and product development expenditure 1,237 1,308Accrued tax credits - (320)Sales of prototypes and development contributions (61) (362) ------- ------Total expenditure 1,176 626Net amounts deferred during the period - 136Amortisation 196 271 ------- ------Net expenditure charged to profit and loss account 1,372 1,033 ======= ====== Research and development expenditure decreased from £1.31 million to£1.24 million, and in 2004 relates primarily to the 400kW and 1.2 MW turbinesystem programmes, and the variable speed genset project. No accrued R&D tax credits were recognised in the final quarter in 2004,reflecting the adequacy of the existing rebate accrual. The sales of prototypesand development contributions in 2004 and 2003 relate to power electronicsproducts. The lower level of amortisation in 2004 compared to 2003 is due to amortisationof capitalised development costs being based on a lower amount in 2004 followingthe impairment write-off of £1.13 million in the final quarter of 2003. Provision for impairment of capitalised development expenditure In the quarter ended 31 December 2004, the Company provided £0.58 millionagainst the carrying value of the capitalised development costs in respect ofthe 400kW generator system supplied to Dtech. General and administrative costs General and administrative costs in the quarter were £0.64 million compared with£0.95 million in 2003. The decrease is due to a reduction in general andadministrative wage costs following the redundancy programme in September 2004. Interest income and expense Interest income in 2004 of £0.03 million is lower than 2003 (£0.10 million), dueto lower average cash balances during the quarter.Interest expense and finance charges of £0.10 million in 2004 is in line with2003 (£0.10 million) and relates primarily to the convertible bond that wasissued in July 2003. Cash flowCash outflow from operating activities was £1.67 million in the quarter,compared with £1.62 million in 2003.The net cash inflow in capital investment of £1.25 million in the quarter,compared with an outflow of £0.52 million in 2003, is principally due to thedisposal of the shareholding in Ceres Power for £1.27 million.Cash outflow from financing of £1.88 million in the quarter relates to thereclassification of cash under performance bonds as restricted cash.Overall the cash outflow during the quarter was £2.29 million compared with£2.02 million in 2003 and is due to the investment disposal, movements inrestricted cash in respect of performance bonds and working capital movements. TURBO GENSET INC.CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND DEFICIT - PART 1 OF 2 YEAR ENDED 31 DECEMBER 2004 Notes Year ended 31 December 2004 2003 £'000 C$'000 £'000 C$'000 Revenue 1,464 3,482 1,542 3,541 ExpensesProduction costs 1,815 4,316 2,036 4,676Research and product development 5 4,728 11,244 3,898 8,952Provision for impairment of 10 577 1,372 1,129 2,593capitalised development costsGeneral and administrative 3,015 7,170 3,236 7,432 Amortisation 883 2,100 829 1,904 -------- -------- -------- -------- 11,018 26,202 11,128 25,557 -------- -------- -------- --------Operating loss (9,554) (22,720) (9,586) (22,016) Other income and expenses Profit on sale of investments,net of 722 1,717 - -adjustments to carrying values Interest income 219 521 382 877Interest expense and finance charges 6 (424) (1,008) (211) (485)Restructuring charge 7 (428) (1,018) (123) (282) Foreign exchange gains 9 21 11 25 -------- -------- -------- -------- 98 233 59 135 -------- -------- -------- --------Loss before taxation (9,456) (22,484) (9,527) (21,881)Taxation - - - - -------- -------- -------- --------Loss for the year (9,456) (22,484) (9,527) (21,881) Deficit, beginning of year (28,809) (66,310) (19,282) (44,429) -------- -------- -------- Deficit, end of year (38,265) (88,794) (28,809) (66,310) ======== ======== ======== ========Loss per share - pence (5.4) p (12.8) c (5.4) p (12.5) c TURBO GENSET INC.CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND DEFICIT - PART 2 OF 2THREE MONTHS ENDED 31 DECEMBER 2004 - UNAUDITED Notes Three months ended 31 December 2004 2003 £'000 C$'000 £'000 C$'000 Revenue 507 1,206 474 1,089 ExpensesProduction costs 591 1,406 658 1,511Research and product 5 1,372 3,263 1,033 2,372 development Provision for impairment of 577 1,372 1,129 2,593capitalised development costsGeneral and administrative 642 1,527 948 2,177 Amortisation 286 680 204 469 -------- -------- -------- -------- 3,468 8,248 3,972 9,122 -------- -------- -------- --------Operating loss (2,961) (7,042) (3,498) (8,033) Other income and expenses Profit on sale of investments, 722 1,717 - -net of adjustments to carrying valuesInterest income 28 67 95 218Interest expense and finance 6 (106) (252) (105) (241)chargesRestructuring charge 7 17 40 (126) (289)Foreign exchange gains 20 48 22 51 -------- -------- -------- -------- 681 1,620 (114) (261) -------- -------- -------- -------- Loss before taxation (2,280) (5,422) (3,612) (8,294)Taxation - - - - -------- -------- -------- --------Loss for the period (2,280) (5,422) (3,612) (8,294) ======== ======== ======== ======== Loss per share (1.3) p (3.1) c (2.1) p (4.7) c TURBO GENSET INC.CONSOLIDATED BALANCE SHEETSAS AT 31 DECEMBER 2004 Notes As at 31 December As at 31 December 2004 2003 £'000 C$'000 £'000 C$'000Assets:Current assets:Cash and cash equivalents 2,067 4,797 9,819 22,600Debtors 1,711 3,970 2,261 5,204Stock and work in progress 482 1,119 803 1,848 -------- -------- -------- -------- 4,260 9,886 12,883 29,652 -------- -------- -------- -------- Restricted cash 1,876 4,353 - - -------- -------- -------- -------- Long term assets:Investments 10 180 418 734 1,689Intangible assets 10 1,895 4,397 3,098 7,130Tangible assets 10 3,932 9,124 4,834 11,126 -------- -------- -------- -------- 6,007 13,939 8,666 19,945 -------- -------- -------- -------- 12,143 28,178 21,549 49,597 ======== ======== ======== ======== Liabilities and shareholders'equity: Creditors: amounts falling due within one year 1,884 4,372 1,963 4,518 -------- ------- -------- -------Creditors: amounts falling due after more than one year 4,643 10,774 4,529 10,424 -------- ------- -------- -------Capital and reservesShare capital and other equityinstruments 2,11 43,959 102,007 43,949 101,157 Exchange adjustments 2 (78) (181) (83) (192)Profit and loss account deficit 2 (38,265) (88,794) (28,809) (66,310) --------- --------- -------- ---------Shareholders' funds 5,616 13,032 15,057 34,655 --------- --------- -------- --------- 12,143 28,178 21,549 49,597 ========= ========= ======== ========= TURBO GENSET INC.CONSOLIDATED CASH FLOW STATEMENTS - PART 1 OF 2YEAR ENDED 31 DECEMBER 2004 Year ended 31 December Notes 2004 2003 £'000 C$'000 £'000 C$'000 Cash outflow from operating activities 3 (7,112) (16,914) (7,466) (17,146) Interest received 219 521 375 861Interest paid (171) (407) (3) (7) --------- --------- --------- ---------Net cash outflow from operating (7,064) (16,800) (7,094) (16,292)activities Capital investment activitiesPurchase of long term assets (85) (202) (531) (1,219)Investment in debt instruments - - (444) (1,020)Proceeds from the sale of investment 1,273 3,027 - - --------- --------- --------- ---------Cash inflow/(outflow)from capital 1,188 2,825 (975) (2,239)investment activities --------- --------- --------- --------- Net cash outflow before financing (5,876) (13,975) (8,069) (18,531)activities Financing activities Proceeds from exercise of share - - 32 73options and warrantsProceeds from debt issue - - 5,000 11,483Movement in restricted cash (1,876) (4,462) - -Loan repayment - - (105) (241) --------- --------- --------- ---------Cash inflow/(outflow)from financing (1,876) (4,462) 4,927 11,315activities --------- --------- --------- ---------Decrease in cash in the year (7,752) (18,437) (3,142) (7,216) ========= ========= ========= ========= Cash and cash equivalents:Beginning of year 9,819 12,961 --------- ---------End of year 2,067 9,819 ========= ========= TURBO GENSET INC.CONSOLIDATED CASH FLOW STATEMENTS - PART 2 OF 2THREE MONTHS ENDED 31 DECEMBER 2004 - UNAUDITED Three months ended 31 December Notes 2004 2003 £'000 C$'000 £'000 C$'000 Cash outflow from operating activities 3 (1,669) (3,969) (1,619) (3,718) Interest received 5 12 87 200Interest paid - - - - --------- --------- --------- ---------Net cash outflow from operating activities (1,664) (3,957) (1,532) (3,518) Capital investment activitiesPurchase of long-term assets (23) (55) (76) (174) Investment in debt instruments - (444) (1,020)Proceeds from the sale of investment 1,273 3,027 - - --------- --------- --------- ---------Cash inflow/(outflow)from capital 1,250 2,972 (520) (1,194)investment activities --------- --------- --------- ---------Net cash outflow before financing (414) (985) (2,052) (4,712)activities Financing activitiesProceeds from exercise of share - - 32 73options and warrants Proceeds from debt issue - - - - Movement in restricted cash (1,876) (4,462) - -Loan repayment - - - - --------- --------- --------- ---------Cash inflow/(outflow)from financing (1,876) (4,462) 32 73activities --------- --------- --------- ---------Decrease in cash in the period (2,290) (5,447) (2,020) (4,639) ========= ========= ========= ========= Cash and cash equivalentsCash, beginning of the period 4,357 11,839 --------- --------- Cash, end of year 2,067 9,819 ========= ========= TURBO GENSET INC.YEAR ENDED 31 DECEMBER 2004NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - PART 1 OF 6 1 Basis of preparation The 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 and Total capital equity adjustments loss £'000 £'000 £'000 £'000 £'000 Balance at 1 January 2003 42,847 - (57) (19,282) 23,508 Loss for the period (9,527) (9,527) Exchange (loss) / gain (26) (26) Stock compensation 11 11 Exercise of share options and warrants 32 32 Equity component of financial instrument 910 910 Warrants issued 117 117 Shares issued to directors in respect of fees 32 32 ------- ------- ------- -------- -------- Balance at 31 December 2003 42,922 1,027 (83) (28,809) 15,057 Loss for the period (9,456) (9,456) Exchange (loss)/ gain 5 5 Stock compensation 10 10 ------- -------- ------- -------- -------- Balance at 31 December 2004 42,932 1,027 (78) (38,265) 5,616 ======= ======== ======= ======== ======== 3 Reconciliation of operating loss to cash outflow from operating activities Year ended Three months ended 31 December 31 December 2004 2003 2004 2003 £'000 £'000 £'000 £'000 Operating loss for the period (9,554) (9,586) (2,961) (3,498) Movements in working capital balances Decrease /(increase)in debtors 423 (611) (89) 43 Decrease /(increase)in stocks and 321 (77) 348 (321) work in progress (Decrease) /increase in creditors (251) 124 35 520 Restructuring payments (319) (127) (92) (22) Adjustment for amortisation (a) 1,665 1,647 482 474 Provision for impairment 577 1,129 577 1,129 Stock compensation expense 10 11 3 6 Foreign exchange losses gains 16 24 28 50 -------- --------- --------- --------- Cash outflow from operating activities (7,112) (7,466) (1,669) (1,619) ======== ========= ========= ========= TURBO GENSET INC.YEAR ENDED 31 DECEMBER 2004NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - PART 2 OF 6 3 Reconciliation of operating loss to net cash outflow from operating activities - continued (a) The total amortisation for the three months ended 31 December 2004 and 31 December 2003 includes £196,000 and £271,000, respectively which is included in research and product development expenditure in the profit and loss account. The total amortisation for the year ended 31December 2004 and 31 December 2003 includes £782,000 and £819,000, respectively which is included in research and product development expenditure in the profit and loss account 4 Segmental analysis The 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 system 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 2004 2003 2004 2003 2004 2003 2004 2003Year ended 31 DecemberRevenue 1,423 1,344 41 198 - - 1,464 1,542Net interest income/ - (3) (441) (123) 236 297 (205) 171(expense)Amortisation 189 245 694 584 - - 883 829Restructuring charges - - 428 123 - - 428 123Provision for impairment - 429 577 700 - - 577 1,129of capitalised developmentdevelopment costs Loss for the period (1,991) (1,697) (6,223) (6,885) (1,242) (945) (9,456) (9,527)Capital Expenditure 38 136 160 360 - - 198 496 As at 31 DecemberTotal Assets 3,948 3,497 7,198 10,058 997 7,994 12,143 21,549Total Liabilities 643 689 5,839 5,753 45 50 6,527 6,492 Three months ended 31 DecemberRevenue 507 368 - 106 - - 507 474Net interest income / - (3) (133) (86) 55 79 (78) (10)(expense) Amortisation 37 56 249 148 - - 286 204Loss for the period (486) (800) (1,358) (2,549) (436) (263) (2,280) (3,612) TURBO GENSET INC.YEAR ENDED 31 DECEMBER 2004NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - PART 3 OF 6 5 Research and product development expenditure Research and product development expenditures incurred during the period comprised: Year ended Three months ended 31 December 31 December 2004 2003 2004 2003Related Shares:
TPS.L