22nd Mar 2006 07:02
Turbo Genset Inc.22 March 2006 Wesnesday 22nd March 2006 TURBO GENSET INC. ANNOUNCES ITS RESULTS FOR THE FOURTH QUARTER AND YEAR ENDED 31 DECEMBER 2005 Highlights for the year ended 31st December 2005 •Revenue and development income increased by 77 percent to £3.12 million (2004:£1.77 million) •Loss before tax reduced by 32 percent to £6.45 million (2004: £9.46 million) •Operating cash outflow reduced by 49 percent to £3.62 million (2004: £7.06 million) •Major contracts signed with Eaton, the National Rail Equipment Company, Trans Elektro and the Toronto Transit Commission •Compact Power agreement announced today •Toronto Transit Commission production order confirmed today Commenting on the results, Michael Hunt, Chief Executive said, "We have made significant commercial progress this year and have had some keysuccesses in our chosen markets. We now have a number of high-profileinternational customers and we have established strategic partnerships that willcontinue to fuel the company's growth. Our management team and operationalinfrastructure have been strengthened during 2005 and we now have the structurein place to move towards profitability." For further information, please contact: Turbo Genset Tel: +44 (0)20 8564 4460Michael Hunt, Chief Executive OfficerStephen Sadler, Chief Financial OfficerCompany Website: www.turbogenset.com Gavin Anderson (PR)Ken Cronin Tel: +44 (0)20 7554 1400 NOTES TO EDITORS About Turbo Genset Turbo Genset designs and manufactures innovative power solutions which provide local, high quality, controllable electrical power. The Group's products are sold into a number of markets but all are based on its core technologiesof power electronics and high speed electrical machines. The Group operates across the following three market sectors: Forward Looking statements This 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. Chairman's statement In 2005 we made good progress in addressing new markets both geographically andby application. This was evidenced by a number of long term contract wins withblue chip customers and a near doubling of turnover within the financial year. From its inception, the inherent value in the Company has been in its innovativehigh speed generator and motor technology which combined with our leading edgepower electronics skills and our new management team, has meant we are now ableto provide products to a widening range of Industrial, Aerospace, Rail,Automotive, and Distributed and Renewable Energy equipment manufacturers. Our biggest contract win in 2005 demonstrates how far the company has come notonly commercially but also technically. Our order to supply Eaton with motordrives for their Boeing 787 fuel pumps demonstrated that we were capable ofmeeting the most rigorous and challenging standards of the Aerospace industry.This endorsement of our technical and operational capabilities underlines thepotential of the business and bodes well for new opportunities. The industrial high-speed motor/drive programmes with SKF and the majorinternational capital equipment manufacturer announced in November 2005, willform the basis of a growing product range. Our power electronics division, I-Power, continues to be successful across itsproduct range. Rail contract successes in the last year include Trans-Elektro insupport of the Netherlands Railways, and the order and long term agreement fromUS based National Rail Equipment Company for traction electronics used inemissions friendly switcher locomotives to be supplied to Union Pacific. As aresult of this continuing success we are reviewing the potential for leasinglarger premises in the Tyneside area. In the Distributed and Renewable Energy field, we recently announced ourparticipation in the Compact Power Ltd Biogas Energy project. The use ofsmall-scale power generation close to consumers and Renewable EnergyTechnologies are becoming increasingly important markets. Our high speedgenerators and inverters provide system integrators with benefits in terms ofefficiency, size and weight, life-cycle cost and ease of grid connection. During2005, it became clear that access to these markets is best achieved bypartnering with companies who have existing manufacturing and global service andsupport facilities. rather than offering our own complete genset solutions tosingle end customers. Our business has evolved over the last few years and has become more balanced aswe continue to broaden our market reach. To reflect this and as an indication ofour future direction we are proposing to change the name of the Company to TurboPower Systems Inc at our AGM. We anticipate an increasing order book in 2006 and expect revenues to growstrongly as a number of development contracts move into their production phase.With the addition of new sales resource and continued commercial focus we areconfident that the business will continue to demonstrate positive progress. Operational review i) Direct Drive High-Speed Motors and Drives The Company manufactures custom high-speed motors and variable frequency drivesin the size range of 15kW to 500kW. Markets: Air and Gas Turbo-Machines: • Gas Compressors and Expanders • Industrial HVAC and Refrigeration Equipment • Laser Blowers • Fuel Cell Blowers The Company's motor drive technology is applicable to a wide range of industrialapplications where TG turbo-machines offer considerable technical and commercialadvantages e.g. • The overall system efficiency (and therefore customer operating cost) is improved by eliminating the gearbox, the mechanical drive-train and associated lubrication system. Direct drive systems also offer significant savings in life-cycle cost. • The TG motors use frictionless magnetic bearing technology, providing longer life and contaminant free operation. • The motor and drive package is considerably smaller and lighter than conventional solutions and can be better integrated into the customer's end product Customers: Industrial motor and drive agreement In 2005, the Company announced that it had signed an agreement with aninternational capital equipment manufacturer to design and supply three sizes ofmotors and drives between 250kW and 500kW, and is currently in the process ofdesigning and building the initial prototypes. This development will continueduring 2006 and, subject to the satisfactory completion of the prototype trials,includes a commitment for the purchase of 500 systems to meet the anticipatedvolume requirements in the initial two years of production. The value of thisinitial commitment is expected to be in excess of £7 million with deliveriescommencing in 2007.The product is planned to be formally launched at a NorthAmerican industry trade show in early 2007. SKF Following receipt of the development contracts and the Supply Agreement for the15, 25 and 35kW high speed motors and drives for the gas compressor application,initial production schedules were received during December 2005 and volumes willgradually ramp up, beginning in the first quarter of 2006. ii) Specialist Drives and Motor Systems (Aerospace, Oil and Gas) In developing its range of high speed electrical machines and associated powerelectronics, the Company has acquired scarce skills which have been successfullyemployed in breaking into new markets for motor and drive applications. Markets: The design of motors or drives, where the required performance in terms ofreliability, operating environment, speed and complexity demands a customisedsolution. Customers: Eaton The key success in 2005 was the Aerospace contract placed by Eaton for highperformance electronic drives which provide motor control for the fuel transferand jettison pumps on the new Boeing 787 commercial airliner. The Company wonthe contract against strong international competition, all of whom had anestablished Aerospace track record. The selection by Eaton confirms TG'scapacity for meeting the challenging commercial and technical demands in thissector. Based on Boeing's projections up until 2020 for the 787 aircraft buildand aftermarket sales the contract value for TG is expected to exceed £11million. Development work will be ongoing with qualified flight hardwaresupplied as part of the aircraft pre-production flight trials in 2006 andinitial production quantities are scheduled to commence in 2007. ALC - Oil and Gas The development contract placed by the Artificial Lift Company for a smalldiameter modular down-hole pump motor is proceeding to plan, with the initialunderground test trials in the UK scheduled for the middle of 2006, and thefield trials planned with a major US oil company in Alaska intended to commenceby the end of the year. This is a technically challenging project, however once the system has beenrigorously proven in the oil field environment the commercial potential for thetechnology will be very significant given the number of wells world-wide whosedaily oil output could be improved. Lotus Engineering In 2005 the Company won a contract from Lotus to design and manufacture a motorand drive system for a hybrid vehicle programme. The modified energy efficientpassenger vehicles will be extensively tested by the sponsoring car manufacturerin 2006 prior to any decision regarding the production release. iii) High Voltage Power Supplies, Auxiliary Power Systems, Grid-ConnectedInverters for Energy Recovery Systems and Renewable Energy Systems Markets: Rugged high performance power electronics products: •High-voltage power supplies for the laser and UV water disinfection sectors. •Battery chargers, auxiliary power supplies and power converters for international rail and light transit systems. •Grid connectable inverters for distributed and renewable energy technologies. With governments in the developed economies increasingly making commitments to significant and increasing proportions of their energy needs being met from renewable sources, there is a growing requirement for compatible electronics to seamlessly connect them to the relevant national electricity grids. TG with its practical experience in grid connection of gas turbines has developed hardware and software solutions which are well placed to support emerging technologies. Customers: Toronto Transit Commission - H6 subway car Auxiliary Power Unit (APU) In January 2005 TTC placed a £2.7 million contract with the Company for thesupply of 128 units to be delivered between 2005 and 2008. The equipment isbeing installed as part of an upgrade programme for the existing H6 subway cars. Toronto Transit Commission -CLRV Tram Upgrade Programme TG delivered the initial prototype low voltage power supplies during 2005 andfollowing extensive vehicle testing the customer plans to begin vehicle upgradescommencing in early 2007. Trans Elektro Trans Elektro (Holland) placed a contract valued at £500k for the design andmanufacture of air-conditioning power supplies required as part of arefurbishment programme for rolling stock in service with the Netherlands railoperator, Nedtrain. NREC The National Rail Equipment Company (USA) placed a contract with TG at the endof 2004 for a prototype power electronics traction system to drive its plannedrange of low emissions switcher locomotives. The NREC requirement is in responseto the imposition by the Environmental Protection Agency of strict deadlines forlocomotive operators to meet reduced emissions levels. NRE demonstrated the emissions friendly prototype switcher to Union Pacific in2005 and in February 2006, they received an order for a quantity of thelocomotives. NRE in turn placed an order with TG for £3 million covering itsfirm and forecast requirements until the end of 2007. In addition, TG has now concluded an exclusive long term agreement to supplyNREC with their traction electronics, with an initial term of 5 years. In addition to Union Pacific, NREC continues to promote this technology to awide range of rail freight companies and large industrial freight users in NorthAmerica and anticipates continued growth in sales. Future Opportunities TG is currently bidding for auxiliary power electronics systems on a wide rangeof international rolling stock projects in North America, the United Kingdom,South East Asia, and Europe. iv) Direct Drive High-Speed Generators and Inverters for the DistributedGeneration and Renewable Energy Markets Markets: Distributed Generation (the use of small-scale power generation close to theload being served) and Renewable Energy Technologies remain an important marketfor TG. High speed generators and inverters in sizes up to 5MW provide systemintegrators with benefits in terms of efficiency, size and weight, life-cyclecost and ease of grid connection. During 2005 the Company reviewed its performance in delivering complete turnkeygenset sales into these sectors and has recognized that access to these marketsis best achieved by partnering with companies who have existing manufacturingand global service and support facilities for the prime movers, whether they aregas turbines ,steam turbines, fuel cells or emerging renewable technology. TGwill now concentrate on the design, manufacture and supply of the generator andinverter sub-systems to the generating system providers. Customers: Compact Power TG has recently announced that it has signed an agreement to collaborate withCompact Power Ltd in the development of a packaged biomass distributedgeneration system. Compact Power has a successful existing biomass processingplant in Avonmouth operating on a wide range of municipal and biological wasteproducts, and is in the process of developing a "green biomass" module forcommercial exploitation. TG will supply the generator and inverter technology which, in conjunction witha gas turbine and recuperator being provided by other partners, will improve theefficiency and power output of the overall system. Hydro-Venturi In the Renewable Energy sector, TG has identified a number of emergingtechnologies that have the potential to use our small lightweight generators orgrid connectable inverters. To that end the Company intends to collaborate in anumber of preliminary pilot schemes using items of our existing hardware, withthe objective of being well positioned to take benefit from those renewableenergy systems which can demonstrate technical and commercial viability. One such collaboration is currently underway with Hydro-Venturi Ltd, where a TGgenerator is part of a pilot project to demonstrate electrical generation from alow-head hydro scheme currently running in the Midlands, UK. RESULTS OF OPERATIONS Revenue Revenue in 2005 was £2.64 million compared with £1.46 million in 2004 andcomprised; 2005 2004 £'000 £'000 Power electronics 2,482 1,423Motor and generator systems 154 41 -------- ------ 2,636 1,464 ========= ====== Revenues for 2005 in the power electronics division grew by 74% over 2004. Railindustry contracts have been the major contributor to revenue in the yearthrough agreements with Bombardier (on London Underground and other projects),The Toronto Transit Commission and other international rail contractors. Inaddition industrial power supplies to PRC and the development of hybridelectrical drive systems for Lotus have generated income. Spares and service revenues are making an increasing contribution to the powerelectronics business as it moves into production contracts and this revenuestream was worth £0.52 million in 2005 (2004:£0.41 million). Motor and generator systems revenue derives from contracts with SKF and ALC. During the year the company raised invoices for £0.17 million to Rolls RoyceIndustrial Controls for retention payments on rail contracts purchased as partof the acquisition of certain business interests in 2002. This income has beenshown under other income in the profit and loss account. Development income Development income in 2005 was £0.48 million compared with £0.30 million in 2004and comprised; 2005 2004 £'000 £'000 Power electronics 439 267Motor and generator systems 42 35 ----- ----- 481 302 ====== ====== Development income in the power electronics division was made up primarily ofincome from the Toronto Transit Commission. Motor and generator systems development income arises from the contract withEaton Aerospace. Cost of product revenues The cost of product revenue in the period amounted to £2.08 million and consistsmainly of labour and material costs on shipped production units. The grossprofit/loss on product revenue for 2005 and 2004 is as follows; 2005 2004 £'000 £'000 Power electronics 691 194Generator systems (136) (545) ------ ------ 555 (351) ===== ======= Certain fixed facilities costs attributable to the manufacturing operation meanthat the generator systems division recorded an overall loss on product sales. Research and product development Research and product development costs were £2.50 million in 2005 compared with£4.25 million in 2004, and comprised; 2005 2004 £'000 £'000 Research and product development expenditure 3,232 4,498Total tax credits (736) (250) ------- ------Total expenditure 2,496 4,248 ======= ====== Gross research and product development expenditure decreased from £4.50 millionin 2004 to £3.23 million in 2005 reflecting strict cost control and the movementof projects from development into the production phase. In December 2005 the company received research and development tax credit cashof £1.03 million relating to tax claims for the 2003 and 2004 financial years.These receipts contributed to an overall credit to the profit and loss accountof £0.74 million (2004 : £0.25 million). No research or development expenditure was deferred in 2004 or 2005. General and administrative General and administrative costs in 2005 reduced to £2.90 million compared with£3.02 million in 2004. General and administrative costs consist mainly of staffcosts, facilities costs and the costs associated with the Company's publiclistings. In 2005 general and administrative costs included £0.13 million ofstock compensation costs charged to the profit and loss account in respect ofoption gains. Amortisation Amortisation was £1.65 million in 2005 compared with £1.73 million in 2004. Of this figure £1.51 million (2004:£1.66 million) was charged to operatingcosts, and £0.14 million (2004:£0.07 million) relates to amortisation ofdeferred finance costs. The reduction in overall amortisation reflects a number of assets becoming fullywritten down in the year. Loss / profit on sale of investments net of adjustments to carrying values In March 2005 the Company restructured its investment in Altek Power Corporation("Altek"). As part of the restructuring the Company converted CDN $500,000 ofthe loan receivable into shares of Altek. Following an impairment review in June 2005 the Company made a further provisionagainst the carrying value of its investment in the shares and the convertibledebenture issued by Altek Power Corporation of £0.09 million ( 2004 : £0.25million ). In December 2005 the Company disposed of its shareholding in Altek PowerCorporation realising a loss of £0.01 million. Interest income Interest income in 2005 increased to £0.33 million from £0.22 million in 2004,due to a higher average cash balance following the £8 million fundraising inMarch 2005. Interest expense and finance charges Interest expense and finance charges primarily relate to the issue of a£5 million convertible bond in July 2003 and the subsequent issue of an £8million convertible bond in March 2005 and comprise; 2005 2004 £'000 £'000 Interest payable 520 175Debt accretion 368 183Amortisation of deferred finance charges 137 66 ------ ------ 1,025 424 ======= ====== Convertible bonds are considered to be compound financial instruments, and theliability component and the equity component must be presented separately, asdetermined at initial recognition. The Company has valued the equity componentof these bonds using the residual value of equity component method, whereby theliability component is valued first using current market rate for comparableinstruments, at the time of issuance. The difference between the proceeds of thebonds issued and the fair value of the liability is assigned to the equitycomponent. The equity element of the 2003 Bond was estimated at £0.91 millionand of the 2005 Bond was £1.33 million. The carrying value of the debt elementis increased over the term of the debt and this accretion expense is charged tothe profit and loss account. During 2005 this charge amounted to £0.37 million(2004:£0.18 million). Provision for impairment of capitalised development costs 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. No impairment charge has been made in 2005 (2004 : £0.58million). CASH FLOWS Cash outflow from operating activities Cash outflow from operating activities was £3.52 million, compared with£7.11 million in 2004. In 2004 the Company recorded an operating loss of £9.55million, which included an impairment charge of £0.58 million. The 2005operating loss was £5.87 million. Net working capital decreased by £0.61 million. The Company received£1.03 million of R&D tax credits in the year. The increase of stocks and work in progress during the year is a reflection ofthe increase in manufacturing levels. Interest received was £0.33 million in 2005, compared with £0.22 million in2004, and comprised interest received on the Company's cash balances. Interest paid of £0.44 million (2004: £0.17 million) represents payments made onthe convertible bonds issued in 2003 and 2005. Capital investment Cash outflow from capital investments were £0.06 million compared with inflowsof £1.19 million in 2004 as shown below; 2005 2004 £'000 £'000 Purchase of capital assets (55) (85)Proceeds from sale of shares 49 1,273 ------- ------- (6) 1,188 ======= ======= The reduction in expenditure on capital assets reflects reduced expenditure ontangible assets following the completion of the Company's investment programmeat its London Heathrow site. In 2003 the Company invested £444,000 in a 6% Convertible Debenture issued byAltek Power Corporation. The debenture was convertible, at the option of theCompany, over two years into an aggregate of 1,785,715 Units at a conversionprice of $0.56 (£0.249) per Unit, with each Unit consisting of one common shareof Altek and one half of a share purchase warrant. Each warrant entitled theCompany to purchase, at a price of $0.63 (£0.28) per share, up to 892,857additional common shares in Altek for a two year period from the date thewarrants are issued. The debenture was secured against certain design rights.This investment was part of an agreement that the Company signed with MagellanAerospace Corporation of Ontario, Canada and Altek Power Corporation of BritishColumbia, Canada for the conversion of an industrial standard turbine engine,which can be coupled directly 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 has been extended to become due on October 9, 2008. In December 2005 the Company sold its share investment in Altek, realisingconsideration of £0.05 million which is included in debtors at the year end. Cash flow from financing Cash inflow from financing of £8.09 million in 2005 comprised £7.71 million fromthe issue of a convertible bond in March 2005, and £0.38 reflecting a reductionin the restricted cash balances set aside for performance bonds as part ofcontracts with The Toronto Transit Commission. 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 contractswith The Toronto Transit Commission. Cash outflow for the year Overall the cash inflow during 2005 was £4.46 million which included proceedsfrom debt issues of of £7.71 million. This compares with an overall cash outflowof £7.75 million in 2004 which included transfers to restricted cash of£1.88million. REVIEW OF FOURTH QUARTER 2005 RESULTS OF OPERATIONS AND CASH FLOWS Revenue Revenue in the quarter was £0.87 million compared with £0.51 million in 2004 andcomprised; 2005 2004 £'000 £'000 Power electronics 815 507Generator systems 59 - ------ ----- 874 507 ====== ===== Revenues for the quarter in the power electronics division grew by 61% over2004. Power electronics revenue comprised rail contracts, power supplies to PRCand the development of hybrid electrical drive systems for Lotus Engineering. Development income Development income in the quarter was £0.10 million (2004: £0.06 million) andconsists of income from the Toronto Transit Commission and Eaton. Cost of product revenues The cost of product revenue in the period amounted to £0.53 million, (2004 -£0.59 million) resulting in a profit on product sales of £0.34 million (2004 -£0.08 million loss). The profit on product sales during the period is asfollows; 2005 2004 £'000 £'000 Power electronics 425 44Generator systems (85) (128) ------- -------- 340 (84) ======= ======== Certain fixed facilities costs attributable to the manufacturing operation meanthat the generator systems division recorded an overall loss on product sales. Research and product development costs Research and product development costs charged to earnings in the quarter were£0.15 million compared with £1.18 million in 2004, and comprised; 2005 2004 £'000 £'000 Research and product development expenditure 887 1,237Total tax credits (736) - --------- ------Total expenditure 151 1,176 ========= ====== Research and development tax credits of £1.03 million (2004: nil) were receivedin the quarter relating to claims for the 2003 and 2004 financial years. General and administrative costs General and administrative costs in the quarter were £0.79 million compared with£0.64 million in 2004. Stock compensation charges of £0.13 million (2004: nil)are included in general and administrative costs. Interest income and expense Interest income in 2005 of £0.10 million is higher than 2004 (£0.03 million),due to higher average cash balances during 2005. Interest expense and finance charges of £0.24 million in 2005 are higher than2004 (£0.10 million) and relate primarily to the convertible bonds that wereissued in March 2005 and July 2003. Cash flow Cash inflow from operating activities was £0.31 million in the quarter, comparedwith a £1.67 million outflow in 2004. Overall the cash inflow during the quarter was £0.36 million compared with a£2.29 million outflow in 2004 and is due principally to the receipt of R&D taxcredits of £1.03 million in the quarter. BALANCE SHEET AS AT 31 DECEMBER 2005 The Company ended the year with a cash balance of £6.53 million compared with£2.07 million at 31 December 2004. Substantially all of the Company's cashbalances are denominated in Sterling. In addition the Company had restricted cash amounts of £1.50 million relating toperformance bonds entered into under contracts with the Toronto TransitCommission and Eaton. Long-term assets have reduced from £6.01 million at 31 December 2004 to£4.54 million at 31 December 2005 due to amortisation. Net working capital at the year end, excluding cash balances, was £(0.30)million, compared with £0.31 million as at 31 December 2004, with the decreasemainly due to increases in creditors and reductions in tax debtors. During 2005 investors who had subscribed for the convertible bond issueconverted bonds into 114,883,385 common shares. As at 31 December 2005 theCompany had 190,510,259 common shares issued and outstanding. As at that datethere were 34,995,134 outstanding share options and 10,500,000 warrants. TURBO GENSET INC.CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND DEFICIT YEAR ENDED 31 DECEMBER2005 Notes Year ended 31 December 2005 2004 £'000 C$'000 £'000 C$'000 Revenue 4 2,636 5,807 1,464 3,482Development Income 5 481 1,059 302 718 ExpensesProduction costs 2,081 4,585 1,815 4,316Research and productdevelopment 5 2,496 5,499 4,248 10,102Provision for impairment of capitaliseddevelopment costs - - 577 1,372General and administrative 2,897 6,382 3,015 7,170Amortisation 1,511 3328 1,665 3,960 -------- -------- -------- -------- 8,985 19,794 11,320 26,920 -------- -------- -------- --------Operating loss (5,868) (12,928) (9,554) (22,720) Other income and expensesLoss/Profit on (99) (218) 722 1,717sale of investments, netof adjustments tocarrying values Other income 168 370 - -Interest income 334 736 219 521Interest expenseand finance charges 6 (1,025) (2,258) (424) (1,008)Restructuring charge 7 - - (428) (1,018)Foreign exchange gains 37 82 9 21 -------- -------- -------- ------- (585) (1,288) 98 233 -------- ------- -------- ------- Loss before taxation (6,453) (14,216) (9,456) (22,487)Taxation - - - - -------- -------- -------- -------- Loss for the year 2 (6,453) (14,216) (9,456) (22,487) Deficit, beginning of year (38,265) (75,533) (28,809) (66,310) -------- -------- -------- --------Deficit, end of year 2 (44,718) (89,749) (38,265) (88,794) ========= ========= ========= ========= Loss per share - pence 8 (3.5) p (7.6) c (5.4) p (12.8) c CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND DEFICIT-PART 2 OF 2THREE MONTHS ENDED 31 DECEMBER 2005- UNAUDITED Notes Three months ended 31 December 2005 2004 £'000 C$'000 £'000 C$'000 Revenue 4 874 1,925 507 1,206Development Income 5 95 209 61 145 ExpensesProduction costs 534 1,177 591 1,406Research and productdevelopment 5 151 332 1,041 2,476Provision forimpairment of capitaliseddevelopment costs - - 577 1,372General and administrative 792 1,791 642 1,527 Amortisation 584 1,240 678 1,612 -------- -------- -------- -------- 2,061 4,540 3,529 8,393 -------- -------- -------- --------Operating loss (1,092) (2,406) (2,961) (7,042) Other income and expenses Loss / Profit on saleof investments, net of adjustments to carrying values (99) (218) 722 1,717 Interest income 95 209 28 67Interest expense and finance charges 6 (238) (524) (106) (252)Restructuring charge 7 - - 17 40 Foreign exchange gains 67 148 20 48 -------- -------- -------- ------- (175) (385) 681 1,620 -------- ------- -------- ------- Loss before taxation (1,267) (2,775) (2,280) (5,422)Taxation 18 39 - - -------- -------- -------- --------Loss for the period 2 (1,249) (2,752) (2,280) (5,422) ========= ========= ========= ========= Loss per share 8 (0.6) p (1.2) c (1.3) p (3.1) c CONSOLIDATED BALANCE SHEETS AS AT 31 DECEMBER 2005 Notes As at 31 December As at 31 December 2005 2004 £'000 C$'000 £'000 C$'000Assets:Current assets:Cash and cash equivalents 6,525 13,096 2,067 4,797Debtors 11 1,346 2,701 1,711 3,970Stock and work in progress 541 1,086 482 1,119 -------- -------- -------- -------- 8,412 16,883 4,260 9,886 -------- -------- -------- --------Restricted cash 9 1,496 3,002 1,876 4,353 -------- -------- -------- -------- Long termassets:Investments 10 59 118 180 418Intangible 10 1,471 2,952 1,895 4,397assetsTangible assets 10 3,007 6,036 3,932 9,124 -------- -------- -------- -------- 4,537 9,106 6,007 13,939 -------- -------- -------- -------- 14,445 28,991 12,143 28,178 ======== ======== ======== ======== Liabilities and shareholders' equity: Creditors: amounts falling due within one year 12 2,183 4,381 1,884 4,372 ------- -------- ------- -------Creditors: amounts falling dueafter more than oneyear 13 10,211 20,494 4,643 10,774 -------- ------- -------- ------- Capital and reservesShare capitaland other equity instruments 2,14 46,897 94,122 43,959 102,007 Exchange adjustments 2 (128) (257) (78) (181) Profit and loss accountdeficit 2 (44,718) (89,749) (38,265) (88,794) ---------- ---------- ---------- ----------Shareholders' funds 2 2,051 4,116 5,616 13,032 --------- ---------- --------- ---------- 14,445 28,991 12,143 28,178 ========= ========== ========= ========= CONSOLIDATED CASH FLOW STATEMENTS - PART 1 OF 2 YEAR ENDED 31 DECEMBER 2005 Year ended 31 December Notes 2005 2004 £'000 C$'000 £'000 C$'000 Cash outflow from operating activities 3 (3,517) (7,748) (7,112) (16,914) Interest received 329 725 219 521Interest paid (435) (958) (171) (407) --------- --------- --------- ---------Net cash outflow from operatingActivities (3,623) (7,981) (7,064) (16,800) Capital investment activities Purchase of long term assets (55) (121) (85) (202) Proceeds from the saleof investment 49 108 1,273 3,027 --------- --------- --------- ---------Cash inflow/(outflow)from capital investment activities (6) (13) 1,188 2,825 --------- --------- --------- ----------Net cash outflowbefore financing activities (3,629) (7,994) (5,876) (13,975) Proceeds from debt issue 7,707 16,978 - -Movement in restricted cash 380 837 (1,876) (4.462) --------- --------- --------- ---------Cash inflow/(outflow) from financingactivities 8,087 17,815 (1,876) (4,462) --------- --------- --------- ---------Increase / (decrease)in cash in the year 4,458 9,821 (7,752) (18,437) ========= ========= ========= ========= Cash and cash equivalents:Beginning of year 2,067 9,819 ---------- ----------End of year 6,525 2,067 ========== ========== CONSOLIDATED CASH FLOW STATEMENTS - PART 2 OF 2THREE MONTHS ENDED 31 DECEMBER 2005- UNAUDITED Three months ended 31 December Notes 2005 2004 £'000 C$'000 £'000 C$'000 Cash inflow /(outflow) from operating activities 3 271 553 (1,669) (3,969) Interest received 90 184 5 12Interest paid (55) (112) - - --------- --------- --------- ---------Net cash outflow fromoperating activities 306 625 (1,664) (3,957 Capital investment activitiesPurchase of long-term assets (16) (33) (23) (55) Proceeds from the sale ofinvestment 49 100 1,273 3.027 --------- --------- --------- ---------Cash inflow/(outflow)from capital investmentactivities 33 67 1,250 2,972 --------- --------- --------- ----------Net cash outflowbefore financing activities 339 692 (414) (985) Taxation 18 37 - - Financing activitiesMovement in restricted cash - - (1,876) (4,462) --------- --------- --------- ---------Cash inflow/(outflow)from - - (1,876) (4,462)financing activities --------- --------- --------- --------Increase / (decrease)in cash in the period 357 729 (2,290) (5,447) ========== ========= ========== ========= Cash and cash equivalentsCash, beginning of the period 6,168 4,357 ---------- ----------Cash, end of year 6,525 2,067 =========== =========== NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - PART 1 OF 7 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 2005. The significant accounting policies are consistent with prior years. 2 Movements in shareholders' funds Share Other equity Currency Profit and Total capital adjustments loss £'000 £'000 £'000 £'000 £'000 Balance at 1 January 2004 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 Loss for the period (6,453) (6,453) Exchange (loss)/gain (50) (50) Stock compensation 133 133 Equity component of financial instrument 1,331 1,331 Conversion to shares 1,786 (298) 1,488 Equity adjustment 35 (49) (14) --------- --------- --------- --------- --------- Balance at 31 December 2005 44,753 2,144 (128) (44,718) 2,051 ========= ========= ========== ========== ========= 3 Reconciliation of operating loss to cash outflow from operating activities Year ended Three months ended 31 December 31 December 2005 2004 2005 2004 £'000 £'000 £'000 £'000 Operating loss for the period (5,868) (9,554) (1,092) (2,961) Movements in working capital balances Decrease / (increase) in debtors 365 423 823 (89) Decrease / (increase) in stocks and work in progress (59) 321 (14) 348 (Decrease) / increase in creditors 346 (235) 465 63 Restructuring payments (203) (319) 46 (92) Amortisation 1,511 1,665 (47) 482 Provision for impairment 90 577 - 577 Stock compensation expense 133 10 90 3 Other income 168 - - - --------- --------- --------- --------- Cash outflow from operating activities (3,517) (7,112) 271 (1,669) ========= ========= ======== ========= YEAR ENDED 31 DECEMBER 2005NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - PART 2 OF 7 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 motor and generator systems segment, which is involved in the development and commercialisation of 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 motor and generator systems segments operate in United Kingdom. The corporate segment operates in Canada and the United Kingdom. All amounts in £'000's Power electronics Motor and Corporate Total Generator systems 2005 2004 2005 2004 2005 2004 2005 2004 Year ended 31 DecemberRevenue 2,482 1,423 154 41 - - 2,636 1,464Gross profit/(loss)on sales 691 194 (136) (545) - - 555 (351)Development income 439 267 42 35 - - 481 302Amortisation 181 189 1,370 1,476 - - 1,551 1,665Restructuring charges - - - 428 - - - 428Provision forimpairment ofcapitalised developmentcosts - - - 577 - - - 577Loss for the period (875) (1,991) (4,379) (6,223) (1,199) (1,242) (6,453) (9,456)Capital expenditure 16 38 39 160 - - 55 198 As at 31 DecemberTotal assets 4,468 3,948 5,604 7,198 4,373 997 14,445 12,143Total liabilities 787 643 11,494 5,839 113 45 12,394 6,527 Three months ended 31 DecemberRevenue 815 507 59 - - - 874 507Gross profit/(loss)on sales 425 44 (85) (128) - - 340 (84) Development income 95 61 - - - - 95 61Amortisation 101 170 483 508 - - 584 678Loss for the period (397) (486) (581) (1,358) (271) ( 436) (1,249) (2,280) 5 Research and product development Research and product development income and expenditures incurred during the period comprised: Three months ended Year ended 31 December 31 December 2005 2004 2005 2004 £'000 £'000 £'000 £'000 Sales of prototypes and development contributions (95) (61) (481) (302) ======== ====== ====== ====== Research and product development expenditure 887 1,176 3,232 4,498 Tax credits (736) - (736) (250) ======= ======= ======= ======= Total expenditure 151 1,176 2,496 4,248 ======= ======= ======= ======= Deferred development expenditure, net of accrued tax credits, amortisation and provisions for impairment, at 31 December 2005 amounted to £198,000 (2004 - £691,000). Total accrued tax credits receivable at 31 December 2004, including those credited against deferred development expenditure, amounted to £190,000 (2004 - £457,000). Capitalised development costs comprise materials, labour and allocated overheads. 6 Interest expense and finance charges Three months ended Year ended 31 December 31 December 2005 2004 2005 2004 £'000 £'000 £'000 £'000 Interest payable 140 44 520 175 Debt accretion 101 46 368 183 Amortisation of deferred finance charges (3) 16 137 66 --------- --------- --------- --------- 238 106 1,025 424 ========= ========= ========= ========= 7 Restructuring charges In September 2004, the Company initiated a redundancy programme at its London operations, which resulted in a 15% reduction in the Company's workforce. A provision for severance costs amounting to £Nil (2004: £428,000) has been charged to the profit and loss account. During early 2005 final cash payments totaling £203,000 were made. The redundancy programme focused on the elimination of duplicated functions in the London and Gateshead operations and a reduction in both direct manufacturing labour and overhead staffing levels. The Company's engineering capability for current and future product development is unaffected. The movements in the restructuring provisions during the year ended 31 December 2005 were as follows: Redundancy costs Property Total disposal costs £'000 £'000 £'000 Provision at 1 - 194 194 January 2004 Charge/(credit) to 428 - 428 profit and loss Cash payments (225) (94) (319) ---------- ---------- ---------- Provision at 31 203 100 303 December 2004 Charge to profit and - (45) (45) loss Cash payments (203) - (203) ---------- ---------- ---------- Provision at 31 - 55 55 December 2005 ====== ====== ====== The amounts released to the profit and loss accounts comprised; Three months ended Year ended 31 December 31 December 2005 2004 2005 2004 £'000 £'000 £'000 £'000 Provision for redundancy costs - (17) - 428Provision for property disposal costs - - (45) - Property charges - - 45 - ---------- ---------- ---------- ---------- - (17) - 428 ========== =========== ========== ========= 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 2005 was 184,946,854 (2004 - 175,626,874). No diluted earnings per share have been reported as the Company has losses in both years and the effect would be anti-dilutive. The loss for 2005 was £6,453,000 (2004 - £9,456,000). 9 Restricted cash During 2004 the Company has committed cash bonds in support of contracts placed by the Toronto Transit Commission. The associated contracts require the bonds to remain in place until two years after all equipment is delivered. According to the current contract schedule that would result in the cash being under the performance bond restriction until 2012. In September 2005 the Company committed cash bonds of £250,000 in support of the contract placed by Eaton Aerospace. The contract requires the bonds to remain in place until 31 December 2006 or completion of qualification testing, whichever is later. At 31 December 2005 cash subject to restrictions totalled £1,496,000 (2004 - £1,876,000) and is secured over an equivalent cash balance. 10 Long - term assets Cost Impairment Amortisation Net book value £'000 £'000 £'000 £'000 At 31 December 2005 Investments (a) 104 45 - 59 Intangible assets 5,527 1,706 2,350 1,471 Tangible asset 8,133 - 5,126 3,007 -------- -------- -------- -------- Total long term assets 13,764 1,751 7,476 4,537 ======== ======== ======== ======== At 31 December 2004 Investments (a) 431 251 - 180 Intangible assets 5,250 1,706 1,649 1,895 Tangible assets 8,111 - 4,179 3,932 -------- -------- -------- -------- Total long term assets 13,792 1,957 5,828 6,007 ========= ======== ======== ======== (a) In October 2003, the Group invested C$1,000,000 (£444,400) in a 6% Convertible Debenture issued by Altek Power Corporation ("Altek"). On 9 March 2005 the Company restructured its investment in Altek to release both Altek and the Company from the Memorandum of Understanding (MoU) entered into. Along withthe release, the Company converted C$500,000 of the loan receivable from Altekinto 892,857 shares of Altek. The term of the remaining C$500,000 Convertible Debenture has been extended to become due on October 9, 2008. During the period the Company has made a provision for impairment of £90,000 against the investment. In December 2005 the Company sold it's shareholding in Altek for a cash consideration of £49,000 giving rise to a loss on disposal of £9,000. 11 Debtors 31 December 31 December 2005 2004 £'000 £'000 Trade debtors 631 610 Prepayments 507 534 Other debtors 18 26 Tax recoverable 190 541 -------- -------- 1,346 1,711 ======== ======== 12 Creditors: Amounts falling due within one year 31 December 31 December 2005 2004 £'000 £'000 Trade creditors 547 520 Other creditors 234 75 Tax and social security creditor 126 109 Accruals and deferred income 1,221 877 Provision for restructuring 55 303 -------- -------- 2,183 1,884 ======== ======== 13 Creditors due after more than one year 31 December 31 December 2005 2004 £'000 £'000 Convertible bond Balance at 1 January 4,364 4,181 Issued during the period 8,000 - Conversion of convertible notes during the (1,331) - period (note 2) Less equity component (1,488) - -------- -------- 9,545 4,181 -------- -------- Add: accretion of debt component during 368 183 the period (note 6) -------- -------- 9,913 4,364 ======== ======== Provision for warranty claims 298 279 -------- -------- 10,211 4,643 ========= ======== 14 Share capital - issued common shares Number of shares At 1 January 2004 and 31 December 2004 175,626,874 Conversion of convertible notes 14,883,385 ========= At 31 December 2005 190,510,259 No options were exercised during the year ended 31 December 2004. TURBO GENSET INC.YEAR ENDED 31 DECEMBER 2005NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - PART 7 OF 7 15 Financing On 11 March 2005 the Company completed an £8,000,000 (gross) financing agreement with institutional investors. The financing comprised unsecured Convertible Notes and Warrants. The Convertible Notes have a term of five years plus one day and bear interest at a rate of 6.5% per annum. They are convertible into an aggregate of 66,666,667 Common Shares in Turbo Genset Inc. at a conversion price of £0.12 per share. The Warrants have a term of five years and are convertible into an aggregate of 7,000,000 Common Shares in Turbo Genset Inc. at an exercise price of £0.15 per share. 16 Stock options, warrants and compensation expense The number of options and warrants outstanding as at 31 December 2005, and the movement during the twelve months then ended, are as follows: Options Warrants Number Number Outstanding at 1 January 2005 26,263,641 3,500,000 Cancelled (4,493,620) - Lapsed (324,887) - Issued 13,550,000 7,000,000 -------------- -------------- Outstanding at 31 December 2005 34,995,134 10,500,000 ============= ============= 17 Selected quarterly information The following table sets forth selected consolidated financial information of the Company for the eight most recent quarters. Revenue Net Loss Loss per share £'000 £'000 UK pence March 2004 319 (2,241) (1.3) June 2004 249 (2,326) (1.3) September 2004 389 (2,609) (1.5) December 2004 507 (2,280) (1.3) March 2005 360 (1,939) (1.1) June 2005 593 (1,681) (0.9) September 2005 809 (1,584) (0.9) December 2005 874 (1,249) (0.6) 18 Exchange rates The Sterling amounts have been converted into Canadian Dollar for convenience purposes using either the average or the period end exchange rates shown below: Year and three months, ended 31 December 2005 2.203 Year and three months, ended 31 December 2004 2.378 As at 31 December 2005 2.007 As at 31 December 2004 2.321 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
TPS.L