RNS Number:1125C
Turbo Power Systems Inc
15 August 2007
15th August 2007
TURBO POWER SYSTEMS INC. ANNOUNCES ITS RESULTS FOR
THE HALF YEAR AND SECOND QUARTER ENDED 30 JUNE 2007
Highlights
* Production and development income increased by 93 percent to #4.7
million (2006: #2.4 million)
* Loss before tax reduced by 9 percent to #3.3 million (2006: #3.6
million) after taking into account:
* Increase in production costs of 104% (or #1.7 million) in line with
production revenue increase
* Increase in product development costs of 28% (or #0.5m)
* Factory move costs of #0.2 million in Q2
* Orders announced in the half totalling US$ 24 million including:
* NREC - US$2 million
* Bombardier Chicago - US$14 million
* Bombardier Toronto - US$8 million
* Further NREC order announced today - US$3 million
* New factory move successfully completed in June
* Equity fundraising for #4.0 million completed in June
Commenting on the results, Michael Hunt, Chief Executive said,
" The first half of 2007 has seen further strong production growth and our
successful Gateshead factory relocation will provide increased capacity and
drive production efficiency. We have seen a significant increase in the order
book including our acceptance on two further prestigious Bombardier programmes
and further NREC business announced today. The #4 million raised in June has
allowed us to invest further in our development platform and makes us fully
funded on current forecasts. "
For further information, please contact:
Turbo Power Systems Tel: +44 (0)20 8564 4460
Michael Hunt, Chief Executive Officer
Stephen Sadler, Chief Financial Officer
Company Website: www.turbopowersystems.com
Gavin Anderson (PR) Tel: +44 (0)20 7554 1400
Ken Cronin
Michael Turner
KBC Peel Hunt Tel: +44 (0)20 7418 8900
Oliver Scott
Gordon Suggett
NOTES TO EDITORS
About Turbo Power Systems
Turbo Power Systems Inc. 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 are all based on its core
technologies of power electronics and high speed electrical machines. The
Company's products all have in common the aim to provide improved energy
efficiency and reduced energy consumption compared to existing technology.
The Group operates across the following market sectors:
* Direct Drive High-Speed Electrical Machines and Electronics
* Specialist Drives and Motor applications (Aerospace, Oil and Gas)
* High Voltage Power Supplies, Auxiliary Power Systems, Grid-Connected
Inverters for Energy Recovery Systems and Renewable Technologies
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.
OPERATIONAL REVIEW
Business of the Company
Turbo Power Systems designs and manufactures innovative power solutions which
provide local, high quality, controllable electrical and motive power. The
Group's products can be tailored for use in a wide range of industries and
applications, but are all based on its core technologies of high speed
electrical machines and power electronics.
The Group's site at Heathrow is the Head Office for UK operations and the design
and manufacturing centre for Electrical Machines. The Group's site at Gateshead
is the design and manufacturing centre for Power Electronics.
Strategy
The Company's strategy is to build a high performance electric machines and
power electronics business which can demonstrate strong and sustainable growth
in all of its technology areas and is not dependent on any single market sector,
product or operating unit.
Our sales strategy is to focus on developing long term relationships with strong
partners in each of our target market sectors where our technology typically
forms part of a larger product supplied to the end customer.
We will combine the skills of our two sites to match the requirements of our
customers.
Review of operations
During the second quarter, the move to the new factory in Gateshead was
completed with minimum disruption to planned production levels. The layout in
the new facility, which provides the additional manufacturing and engineering
capacity required for the significant planned growth in future production
volumes, incorporates dedicated aerospace manufacturing and test areas, and has
been designed for optimum efficiency. The improved efficiency of the new
manufacturing cell structure, which combines both build and test, is expected to
have an impact in the second half of the year.
The initial feedback from staff and customers to the new site has been extremely
encouraging, and we are confident that this first class facility will make a
strong impression with customers looking to place future orders.
Production revenue has continued to grow through the first half and P&L and cash
flow results were encouraging in the first quarter. The second quarter has been
impacted by exceptional costs associated with the Gateshead factory relocation
and development costs associated with the new rail programmes. In addition a
proportion of the development income scheduled for the first half has actually
been invoiced in July which has adversely impacted second quarter P&L but has
led to a strong start to the third quarter.
The Company is currently engaged in more major development programmes
simultaneously than ever before, with activity at a high level on the Hamilton
Sundstrand and Eaton aerospace programmes, Chicago and Toronto rail programmes
and the Industrial Compression and ALC industrial motor projects. As a
consequence, development cost and recruitment of engineering staff has
increased.
In addition, in order to maintain our competitive position in the future, we are
making an investment in 2007 to improve our rail development technology by
introducing the latest generation micro-processors and developing matching
software, written to the latest IEEE quality standards. This new design platform
will be integral to all our future rail products and will increase performance
in terms of functionality, flexibility and speed of operation.
During 2008, the development activity on these programmes will be replaced by
the start of their production phases, continuing the growth in manufacturing
revenues, and releasing development engineering resource to be allocated to
further new contracts.
While development activities have been key to the results for the first half,
underlying production contracts have continued to grow steadily with increasing
monthly volumes being seen from key customers such as National Railway Equipment
Company in the USA. A number of the new development contracts will begin
production deliveries in the second half of this year.
We have announced today further production orders with the National Railway
Equipment Company worth $3 million, the bulk of which will be delivered in 2007.
With the factory move in Gateshead now complete, new manufacturing processes
bedded in and a number of development milestones due to be met in the third
quarter, we expect to see stronger second half performance and continued
progress towards profitability.
Customers and Contracts Update
TPS designs and manufactures motor/generator and power electronics technology
across a range of sectors and applications but the Company's products all have
in common the aim to provide improved efficiency and reduced energy consumption
compared to existing technology.
1) Direct Drive Industrial High Speed Motors and Drives
The TPS direct drive technology is designed to provide significant performance
improvements and operating cost reductions for a wide range of industrial
compression and turbo-machinery applications. By eliminating the need for
mechanical gearboxes and conventional low speed motors and by operating more
efficiently across a wider range of load points, the customer's energy
requirements and costs can be reduced.
SKF
Following the successful completion of end-customer field trials, production
orders have now been released for the complete compressor product including the
TPS motor and variable frequency drive and the SKF magnetic bearing system.
Production deliveries of the drive and motor systems will begin in August at a
rate of 20 systems per month.
Industrial Motor and Drive Agreement
Initial testing of the new TPS high speed motor and electronics integrated with
the customer's compressor application has commenced in the USA, and preliminary
data confirms that the unit is meeting planned performance and efficiency
targets. Beta units are scheduled to be installed at friendly customer sites in
October, with the product launch scheduled for January 2008, and initial
production systems being scheduled for Q4 2007.
2) Specialist Motors and Drives
In addition to the long-term design investment that the Company has made in the
high speed electrical machine technology, the Company has accumulated
considerable expertise in motor and controller designs for aggressive and high
performance environments This expertise is now providing the basis for a new
range of products targeted at both the aerospace sector and the oil and gas
markets.
Eaton Aerospace
Initial Jettison Fuel Pump motor drives have been supplied to Eaton Aerospace in
support of the Boeing System Integration Testing Laboratories. Formal
qualification testing in the UK is now nearing completion and TPS is currently
carrying out some additional safety of flight testing in support of the Boeing
ground power and initial aircraft flight programme dates. The programme is
proceeding well and hardware manufacture in support of the initial 787 aircraft
is still scheduled to begin later this year.
Hamilton Sundstrand
The HS 787 Ram Fan motor drive programme, which was placed with TPS late on in
the 787 programme, is running behind the original development schedule. Initial
hardware is currently completing development and undergoing preliminary safety
of flight testing in support of the Boeing programme, with a target date for
initial hardware deliveries of August 2007. TPS is working closely with Hamilton
Sundstrand to complete the remaining development tasks and we are optimistic
that the schedule for initial production deliveries in 2007 will still be
maintained.
Artificial Lift Company (Oil and Gas)
Testing of the prototype down hole pump and motor system is being carried out in
a test well at Great Yarmouth and will continue throughout August to prove out
the electrical and mechanical performance of the complete system.
On successful completion of the UK trials, six motor modules will be provided by
TPS in support of the operational oil field testing in North America in the
spring of next year, when the systems will be then undergo endurance testing
under extremes of temperature and pressure.
If this testing is successful then initial production quantities are expected to
commence in June 2008 and volumes will ramp up during the second half of 2008
and into 2009.
3) Rail and Industrial Power Electronics
TPS designs and manufactures rugged power electronics products for both rail and
industrial applications, all of which require high reliability and availability
in operation.
Bombardier Transportation-Canada
Beijing
Production is ongoing on the Beijing programme, and TPS has delivered the
initial 3 rail car sets of equipment. Commissioning of the complete cars is
currently underway in China, and TPS has engineers on-site supporting
Bombardier. Production will continue at a rate of 4 auxiliary power units per
month until early 2008. The Company is supplying 40 car sets with a contract
value of US$1.5M.
Chicago Transit Authority
Prototype development is underway on the CTA project, with customer design
reviews having been successfully completed in July. The scheduled date for
completion of the prototype qualification testing is December 2007, with initial
production quantities in support of the customer testing programme planned for
early 2008.
The base contract is valued at some US$14M including production, spares and
engineering services, with possible options for additional cars which could
increase the value to more than US$20M. The development project is currently
underway with the units scheduled for initial customer prototype vehicles
planned for delivery in January 2008.
Toronto
Although placed some months later than CTA, the Toronto S1 programme has an
aggressive schedule and also has a target prototype qualification testing date
of the end of 2007. The initial production schedule for 2008 is 15 car sets,
with the rate ramping up into 2009. The contract for the initial quantity of 234
cars is expected to exceed US$8M, with the potential for further option
quantities to extend that to some US$14M.
National Rail Equipment Co.
NREC continues to expand its market share for environmentally compliant shunting
locomotives, and as a result has placed further purchase orders with TPS.
Today's announcement of a further production order adds $3M to our order book
with the bulk of these units scheduled to be delivered between now and December
2007.
NREC will remain the major customer for rail and traction equipment until the
Bombardier CTA and Toronto contracts enter production in the latter half of
2008, and the NREC production cell in the new facility has been planned to
provide for significant increases in monthly capacity. NREC marketing activities
have extended to cover Europe and Australasia as well as North America, and
prospects for future growth look promising.
Toronto Transit Commission - H6 Subway Programme
Production is proceeding smoothly, with contract completion scheduled for early
mid-2008.
PRC
Production demand from the customer for the pulsed laser power supply continues
to be maintained at good monthly quantity levels, with a high level of customer
satisfaction in the equipment performance. TPS is currently evaluating a "high
power" design which would complement the existing product.
FINANCIAL PERFORMANCE
REVIEW OF HALF YEAR TO 30 JUNE 2007
Overview
The first half of 2007 saw the company continue to demonstrate strong growth in
production turnover as more programmes moved into the production phase. First
quarter development income was also strong and EBITDA and cash flow performance
in that quarter were encouraging. Second quarter EBITDA was impacted by an
absence of development income from programme milestone payments, combined with
the costs of the Gateshead factory relocation and development expenditure on the
new rail programmes and new development platform. With the factory move now
complete and a number of development milestones met in the third quarter the
company expects to see improved performance in the second half of the year.
Production turnover has been increasing smoothly through 2006 and 2007 and in
the first quarter we recorded turnover in excess of #2.0 million for the first
time. This was followed by second quarter production turnover of #2.3 million.
As in previous quarters the great majority of this revenue was from power
electronics at the Gateshead site but production quantities of SKF motors at
Heathrow commenced shipping in March and are scheduled to increase in the second
half of 2007. Our contract with NREC for rail traction electronics has made an
increasing contribution to revenues as the customer has experienced good sales
success and this programme was our largest contributor to turnover in the first
half.
Of the #0.37 million of development income recorded for the half year #0.34
million was in the first quarter and comprised receipts from Bombardier on the
Toronto, Chicago and Beijing programmes as well as receipts from Hamilton
Sundstrand on the 787 programme. No further contract milestones on our major
development programmes fell in the second quarter and as a result only #0.03
million was billed. However, milestones on the Eaton, Toronto and Beijing
programmes were met in July and development income billed in the third quarter
already totals #0.28 million.
Development costs of #2.2 million throughout the half year comprise continued
work on our aerospace and major rail development programmes as well as costs
associated with a new development platform to be used for future rail and
aerospace business.
Administrative expenses for the half year were #1.9 million. Included in this
figure in the second quarter are expenses related to the relocation of our
Gateshead factory totaling #0.2 million. The relocation is now complete and as
well as resolving medium term capacity constraints we expect the new production
layout to have a direct effect on production efficiency.
The loss before interest, tax, depreciation, amortisation and stock compensation
for the half year was (#2.4) million. Second quarter EBITDA of (#1.5) million
reflects the lack of development income and the factory move costs.
Cash outflows before movements in working capital of #2.6 million for the half
year included interest payments in January of #331,000 to convertible note
holders relating to the period 1 July 2006 to 31 December 2006. The following
convertible note interest payment, paid in July 2007, was significantly less at
#56,000 following the redemption of #9.36 million of the convertible notes in
late December 2006 and early January 2007. Also included in cash outflows before
movements in working capital are Gateshead relocation costs not capitalized of
#0.2 million.
Continuing production growth and the purchase of long lead time items led to
significant stock increases in the half year of #945,000.
Tax credits received in the first half of #312,000 comprise research and
development tax credit claims for the year to 31 December 2006.
Long term assets purchased of #0.5 million principally represent the investment
in fixed assets at the company's new production facilities in Gateshead. The
completion of the move should allow TPS to claim in the region of #250,000 of
grant funding from the development agency, One North East in the second half of
2007.
Movements in restricted funds of #335,000 represent net movements in performance
bond cash during the half year as certain performance bonds reached maturity
including the release of performance bond cash on the cancelled CLRV programme.
Net receipts from an institutional equity placing during the second quarter
contributed #3.9 million.
The overall increase in cash during the half year was #1.0 million leaving the
Company with an unrestricted cash balance of #7.7 million and further restricted
cash of #1.1 million at 30 June 2007.
Revenue
Production revenue in the six months ended 30 June 2007 was #4.38 million
compared with #2.16 million in 2006 and comprised
2007 2006
#'000 #'000
Power electronics 4,239 2,079
Electrical machines 136 82
----- -----
4,375 2,161
The Power Electronics division has again seen strong turnover growth, both as a
result of increased volumes on established programmes and the start of
production runs on new contracts. Output volumes have grown significantly on the
majority of production contracts and in particular, National Railway Equipment
Co which is the highest contributor to revenues for the half year.
Spares and service revenues were #0.2m for the half year (2006: #0.5m).
In the Electrical Machines division revenue for the quarter related principally
to the SKF contract and initial units on the Industrial motor and drive
programme.
Development income
Development income in the six months was #0.37 million compared with #0.29
million in 2006 and included receipts from Hamilton Sundstrand on the Boeing 787
Dreamliner programme, and initial incomes from Bombardier on both the Chicago
Transit and Toronto Transit programmes.
2007 2006
#'000 #'000
----- -----
Development income 370 292
Production costs
The cost of product revenues in the six months amounted to #3.41 million (2006:
#1.67 million) and reflects the growth in production revenue.
2007 2006
#'000 #'000
Power electronics 2,881 1,346
Electrical machines 527 326
----- -----
3,408 1,672
Production costs include certain fixed facilities costs attributable to the
manufacturing operation.
Included in production costs for the six months are stock compensation charges
on options awarded of #52,000 (2006: #17,000).
Research and product development
Research and product development expenditure in the six months was #2.17 million
compared with #1.69 million in 2006, and comprised
2007 2006
#'000 #'000
Research and product development expenditure 2,166 1,733
Accrued R&D tax credits - (40)
----- -----
Total expenditure 2,166 1,733
Product development costs increased in the six months as development work
commenced on both the Eaton contract and the Hamilton Sundstrand contract for
the Boeing 787 Dreamliner and the Bombardier Chicago and Toronto Rail
programmes.
Included in research and product development expenditure for the six months are
stock compensation charges on options awarded of #193,000 (2006: #122,000).
No R&D tax credits were accrued in the six months as the majority of the Group's
development resource moved on to commercial programmes.
General and administrative
General and administrative costs of #1.94 million (2006: #1.57 million) consist
mainly of staff costs and facilities costs. Included in this category are
Gateshead move costs of #0.20 million which have not been capitalized. Also
included are stock compensation charges on options awarded of #127,000 (2006:
#96,000).
Amortisation
Amortisation was #0.44 million compared with #0.66 million in 2006. The
reduction reflects a number of assets becoming fully written down.
Interest income
Interest income for the six months was #0.16 million compared with #0.15 million
in 2006.
Interest expense and finance charges
Interest expense and finance charges arise from the issue of convertible bonds
in July 2003 and March 2005, and the redemption of bonds and issue of shares in
January 2007, and comprised
2007 2006
#'000 #'000
Finance charges 115 -
Interest payable 58 288
Amortisation of deferred finance charges - 81
Debt accretion 52 194
----- -----
225 563
Finance charges for the six months were #115,000 (2006: #nil) and were made up
as below:
- During 2006 the company purchased U.S. dollar denominated currency
contracts covering expected dollar income from programmes scheduled for
2006 and 2007. The value of the option as at 30 June 2007 was #28,000,
resulting in a net decrease and cost during the six months of #16,000
(2006: #nil).
- During the six months the company redeemed 4,500,000 loan notes, resulting
in a net charge of #82,000 (2006: #nil).
- Charges related to the restricted cash movements and performance bonds
totaled #17,000 (2006: #nil).
Convertible bonds are considered to be compound financial instruments, and the
liability component and the equity component must be presented separately, as
determined at initial recognition. The Company has valued the equity component
of these bonds using the residual value of equity component method, whereby the
liability component is valued first using current market rate for comparable
instruments, at the time of issuance. The difference between the proceeds of the
bonds issued and the fair value of the liability is assigned to the equity
component. The equity element of the March 2005 bond issue was estimated at
#1.11 million. The equity element of the 2003 bond issue was estimated at
#0.91 million. The carrying value of the debt element is increased over the term
of the debt and this accretion expense is charged to the profit and loss
account. During the six months this charge amounted to #52,000 (2006: #194,000).
CASH FLOWS FOR THE SIX MONTHS
Cash outflow from operating activities
Operating cash outflow before movements in working capital was #2.56 million for
the period (2006: #1.97 million). Included in this amount are interest payments
to convertible note holders of #0.33 million for the period 1 July 2006 to 31
December 2006 and Gateshead move costs of #161,000.
Movements in stocks, work in progress and debtors and creditors produced a net
cash outflow of #0.42 million during the period (2006: outflow of #0.39
million).
Tax credits
During the six months the company received research and development tax credit
receipts of #0.31 million (2006: #nil).
Investing activities
Purchases of long term tangible assets amounted to #0.47 million (2006: #0.05
million) and principally relate to the new Power Electronics facility in
Gateshead.
Cash inflows related to movements in restricted funds of #0.36 million (2006:
#nil) are the net result of the cancellation of performance bonds previously
provided of #250,000 and #515,000, and the creation of new bonds totaling
#410,000.
Cash flow from financing activities
Cash inflow from financing in the six months of #3.81 million relates to net
receipts of #3.88 million from an institutional placing of #4,000,000 (gross)
completed in June 2007, and the payment of final expenses of #7,000 in relation
to the fundraising in December 2006, when the Company completed a #6,000,000
(gross) financing agreement with institutional investors.
Overall cash flow for the six months
Overall the cash inflow for the period was #1.02 million. This compares with a
cash outflow of #2.41 million in 2006.
BALANCE SHEET AS AT 30 JUNE 2007
The Company ended the period with an unrestricted cash balance of #7.69 million
compared with #6.67 million at 31 December 2006. Substantially all of the
Company's cash balances are denominated in Sterling.
In addition the Company had restricted cash amounts of #1.14 million relating to
performance bonds entered into as part of contracts with the Toronto Transit
Commission and Bombardier Transportation (2006: #1.50 million).
Long term assets excluding restricted cash have decreased from #3.69 million at
31 December 2006 to #3.41 million at 30 June 2007, after depreciation charges of
#0.44 million and additions in plant and equipment of #0.31.
Long term liabilities have decreased to #1.87 million at 30 June 2007 compared
to #6.13 million at 31 December 2006, reflecting the reduction in Loan Notes
following the redemption of #4,500,000 notes in January 2007.
Net working capital at 30 June 2007, excluding cash balances, was #1.38 million,
compared with #0.85 million as at 31 December 2006.
As at 30 June 2007, the Company had 318,571,062 common shares issued and
115,000,000 A shares. As at that date there were 32,237,681 outstanding share
options and 10,500,000 outstanding warrants.
REVIEW OF SECOND QUARTER TO 30 JUNE 2007
Revenue
Production revenue in the quarter ended 30 June 2007 was #2.34 million compared
with #1.19 million in 2006 and comprised
2007 2006
#'000 #'000
Power electronics 2,222 1,130
Electrical machines 120 62
----- -----
2,342 1,192
===== =====
The Power Electronics division has again demonstrated strong turnover growth,
both as a result of increased volumes on established programmes and the start of
production runs on new contracts.
Spares and service revenues were #0.1m for the quarter (2006: #0.2m).
In the Electrical Machines division revenue for the quarter related principally
to the SKF contract.
Development income
Development income in the quarter was #0.03 million compared with #0.19 million
in 2006.
2007 2006
#'000 #'000
Development income 29 193
===== =====
Production costs
The cost of product revenues in the quarter amounted to #1.79 million (2006:
#0.94 million) and reflects the growth in production revenue.
2007 2006
#'000 #'000
Power electronics 1,469 763
Electrical machines 323 175
----- -----
1,792 938
Production costs include certain fixed facilities costs attributable to the
manufacturing operation.
Included in production costs for the quarter are stock compensation charges on
options awarded of #26,000 (2006: #17,000).
Research and product development
Research and product development expenditure in the quarter was #1.15 million
compared with #0.87 million in 2006, and comprised
2007 2006
#'000 #'000
Research and product development expenditure 1,151 892
Accrued R&D tax credits - (25)
----- ------
Total expenditure 1,151 867
===== ======
Product development costs increased in the quarter as development work commenced
on the Bombardier Chicago and Toronto programmes.
Included in research and product development expenditure for the quarter are
stock compensation charges on options awarded of #89,000 (2005: #66,000).
No R&D tax credits were accrued in the quarter as the majority of the Group's
development resource moved on to commercial programmes.
General and administrative
General and administrative costs of #1.10 million (2006: #0.82 million) consist
mainly of staff costs and facilities costs. Included in this category are
Gateshead move costs of #0.20 million which have not been capitalized. Also
included are stock compensation charges on options awarded of #44,000 (2006:
#55,000).
Amortisation
Amortisation was #0.22 million compared with #0.27 million in 2006. The
reduction reflects a number of assets becoming fully written down.
Interest income
Interest income for the three months was #0.08 million compared with
#0.07 million in 2006.
Interest expense and finance charges
Interest expense and finance charges arise from the issue of convertible bonds
in July 2003 and March 2005, and the redemption of bonds and issue of shares in
January 2007, and comprised
2007 2006
#'000 #'000
Finance charges 12 -
Interest payable 29 154
Amortisation of deferred finance charges - 41
Debt accretion 30 97
----- -----
71 292
===== =====
CASH FLOWS FOR THE THREE MONTHS
Cash outflow from operating activities
Operating cash outflow before movements in working capital was #1.49 million for
the period (2006: #0.74 million).
Movements in stocks, work in progress and debtors and creditors produced a net
cash outflow of #0.15 million during the period (2006: outflow of #0.49
million).
Investing activities
Purchases of long term tangible assets amounted to #0.30 million (2006: #0.03
million) and principally relate to the new Power Electronics facility in
Gateshead.
Cash flow from financing activities
Cash inflow from financing in the three months relates to net receipts of #3.88
million from an institutional placing of #4,000,000 (gross) completed in June
2007.
Overall cash flow for the three months
Overall the cash inflow for the period was #1.95 million. This compares with a
cash outflow of #1.25 million in 2006.
TURBO POWER SYSTEMS INC.
CONSOLIDATED STATEMENTS OF NET LOSS, COMPREHENSIVE LOSS AND LOSS DEFICIT
UNAUDITED
Notes Six months ended 30 June
2007 2006
#'000 #'000
(unuadited) (unaudited)
Statement of Net Loss
Revenue 2,3 4,375 2,161
Development income 2 370 292
-------- --------
4,745 2,453
Expenses
Production costs 3,408 1,672
Research and product 4 2,166 1,693
development
General and administrative 1,943 1,570
Amortisation 442 662
-------- --------
7,959 5,597
Loss before interest and (3,214) (3,144)
finance charges
Interest income 163 147
Interest expense and 5 (225) (563)
finance charges
Foreign exchange gains/
(losses) 13 (11)
-------- --------
(49) (427)
-------- --------
Net loss for the period (3,263) (3,571)
======== ========
Statement of Comprehensive
Loss
Net loss (3,263) (3,571)
Exchange adjustment on
consolidation 92 61
-------- --------
Comprehensive loss for the
period (3,171) (3,510)
======== ========
Statement of Loss Deficit
Loss deficit, beginning of
period (53,636) (44,718)
Net loss for the period (3,263) (3,571)
Adjustment on adoption of 1
CICA3855 (140) -
Equity adjustment on issue 11
of shares (2,512) -
-------- -------
Loss deficit, end of
period (59,551) (48,289)
======== =======
Loss per share - basic 7 (1.2) p (1.9) p
Loss per share - diluted 7 (1.2) p (1.9) p
TURBO POWER SYSTEMS INC.
CONSOLIDATED STATEMENTS OF NET LOSS
UNAUDITED
Notes Three months ended 30 June
2007 2006
#'000 #'000
(unaudited) (unaudited)
Statement of Net Loss
Revenue 2,3 2,342 1,192
Development income 2 29 193
-------- --------
2,371 1,385
Expenses
Production costs 1,792 938
Research and product 4
development 1,151 867
General and administrative 1,102 818
Amortisation 219 271
-------- --------
4,264 2,894
Loss before interest and
finance charges (1,893) (1,509)
Interest income 75 68
Interest expense and 5
finance charges (71) (292)
Foreign exchange gains 13 21
-------- --------
17 (203)
-------- --------
Net loss for the period (1,876) (1,712)
======== ========
Statement of Comprehensive
Loss
Net loss (1,876) (1,712)
Exchange adjustment on
consolidation 108 (28)
-------- --------
Comprehensive loss for the
period (1,768) 1,740)
======== ========
Loss per share - basic 7 (0.7) p (0.9) p
Loss per share - diluted 7 (0.7) p (0.9) p
TURBO POWER SYSTEMS INC.
CONSOLIDATED BALANCE SHEETS
UNAUDITED
Notes As at 30 June As at 31
December
2007 2006
#'000 #'000
(unaudited) (unaudited)
Current assets
Cash and cash equivalents 7,690 6,669
Restricted cash 8 - 765
Trade and other receivables 1,857 1,544
Stock and work in progress 2,175 1,230
Prepayments 388 419
Tax recoverable 520 718
-------- --------
12,630 11,345
-------- --------
Long-term assets
Restricted cash 8 1,141 731
Prepayments 254 254
Investments 9 34 31
Intangible assets 9 63 77
Goodwill 9 820 820
Deferred finance charges 9 - 145
Tangible assets 9 2,242 2,361
-------- --------
4,554 4,419
-------- --------
17,184 15,764
========= ========
Liabilities and shareholders'
equity
Creditors: amounts falling
due within
one year
Trade and other payables 3,175 3,109
Deferred income 641 206
-------- --------
3,816 3,315
-------- --------
Creditors: amounts falling
due after
more than one year
Warranty provision 303 303
Convertible notes 1,570 5,827
-------- --------
1,873 6,130
-------- --------
Capital and reserves
Share capital and other 10
equity 71,022 60,023
instruments
Accumulated other
comprehensive
income 24 (68)
Loss deficit (59,551) (53,636)
--------- ---------
Shareholders' funds 11,495 6,319
--------- ---------
17,184 15,764
========= =========
TURBO POWER SYSTEMS INC.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
UNAUDITED
Common A Other Accumulated Loss Total
Share Ordinary equity other deficit Equity
capital capital income
#'000 #'000 #'000 #'000 #'000 #'000
Balance at 1 January
2006 44,753 - 2,144 (128) (44,718) 2,051
Loss for the period (6,318) (6,318)
Exchange gain 60 60
Stock compensation 511 511
Conversion to shares 3,383 4,320 (674) (2,600) 4,429
Issue of shares 4,059 2,000 6,059
Expiry of warrants 117 117
Fundraising costs (393) (197) (590)
-----------------------------------------------------------------------------
Balance at 31 December
2006 51,919 6,123 1,981 (68) (53,636) 6,319
Loss for the period (3,263) (3,263)
Exchange gain 92 92
Stock compensation 372 372
Conversion to shares 7,379 (638) (2,512) 4,229
Issue of shares 4,017 4,017
Fundraising costs (131) (131)
Charge arising on
adoption of CICA
Section 3855 -
Financial Instruments -
Recognition and
Measurement (140) (140)
---------------------------------------------------------------------------
Balance at 30 June 2007 55,805 13,502 1,715 24 (59,551) 11,495
===========================================================================
TURBO POWER SYSTEMS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
Six months ended 30 June
Notes 2007 2006
#'000 #'000
(unaudited) (unaudited)
Net loss from operations (3,263) (3,571)
Amortisation 587 743
Accretion of debt 36 194
Stock compensation charges 372 235
Foreign currency instrument
loss 16 -
Movement in net interest
accrual (307) -
--------- ---------
Cash outflow before
movements in
working capital (2,559) (2,399)
Decrease/(increase) in
debtors (84) (129)
Decrease/(increase) in stock (945) (414)
Increase/(decrease) in
creditors 610 583
--------- ---------
Net cash outflow from operating activities before tax (2,978) (2,359)
--------- ---------
Tax credits 312 -
--------- ---------
Net cash outflow from operating activities after tax (2,666) (2,359)
--------- ---------
Investing activities
Purchase of long-term assets (473) (48)
Movement in restricted funds 355 -
--------- ---------
Cash outflow from investing
activities (118) (48)
--------- ---------
Financing activities
Equity placing 11 4,001 -
Net expense from equity
placing 11 (196) -
--------- ---------
Cash inflow from financing
activities 3,805 -
--------- ---------
Increase/(decrease) in cash
in the period 1,021 (2,407)
========= =========
Cash and cash equivalents:
Beginning of period 6,669 6,525
--------- ---------
End of period 7,690 4,118
========= =========
TURBO POWER SYSTEMS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
Three months ended 30 June
Notes 2007 2006
#'000 #'000
(unaudited) (unaudited)
Net loss from operations (1,876) (1,712)
Amortisation 340 352
Accretion of debt 21 97
Stock compensation charges 159 138
Foreign currency instrument
loss/(gain) (5) -
Movement in net interest
accrual (126) (40)
--------- ---------
Cash outflow before
movements in
working capital (1,487) (1,165)
Decrease/(increase) in
debtors (129) 54
Decrease/(increase) in stock (483) (251)
Increase/(decrease) in
creditors 467 137
--------- ---------
Net cash outflow from operating activities before tax (1,632) (1,225)
--------- ---------
Tax credits - -
--------- ---------
Net cash outflow from operating activities after tax (1,632) (1,225)
--------- ---------
Investing activities
Purchase of long-term assets (298) (29)
Movement in restricted funds - -
--------- ---------
Cash outflow from investing
activities ( 298) (29)
--------- ---------
Financing activities
Equity placing 11 4,001 -
Net expense from equity
placing 11 (125) -
--------- ---------
Cash inflow from financing
activities 3,876 -
--------- ---------
Increase/(decrease) in cash
in the period 1,946 (1,254)
========= =========
Cash and cash equivalents:
Beginning of period 5,744 5,372
---------- ---------
End of period 7,690 4,118
========== =========
TURBO POWER SYSTEMS INC.
SIX MONTHS ENDED 30 JUNE 2007
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 (Canadian GAAP). The Company provides a reconciliation from
Canadian GAAP to International Financial Reporting Standards in Note 21 of
the Consolidated Financial Statements for the year ended 31 December 2006.
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
consolidated financial statements include the accounts of Turbo Power
Systems Inc. ("the Company"), and the accounts of its wholly owned
subsidiary company Turbo Power Systems Limited (collectively "the Group").
The significant accounting policies are consistent with prior years. Certain
comparative figures have been reclassified to conform to the financial
statement presentation adopted for 2006.
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 2006. These interim financial statements are prepared in accordance
with the requirements of Canadian GAAP for interim financial statements as
recommended by CICA Handbook section 1751 "Interim Financial Statements".
These consolidated financial statements follow the same accounting policies
and methods of application as for the Company's 31 December 2006 financial
statements, except as described below:
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 #3.26 million for the six month period ended June 30, 2007 and has
a cumulative deficit of #59.55 million as at 30 June 2007. 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.
On January 1 the Company adopted new CICA accounting standards comprising
CICA Handbook Section 3855 "Financial Instruments - Recognition and
Measurement", Section 1530 "Comprehensive Income", and Section 3251,
"Equity". As a result of adopting these requirements, a new statement has
been added to report movements in Comprehensive Loss, after Net Loss, and
consists of the gains and losses from the translation of the Company's
self-sustaining foreign operations. Accumulated other income is presented
as a separate section within the Statement of Changes in Equity. In
determining the fair value of financial instruments, as required by
Section 3855, the carrying value of the Convertible debt was decreased by
#140,000, and the net value of the Deferred Finance Charges was offset
against the Convertible debt balance, resulting in the elimination of the
deferred finance charge asset, and a reduction in the Convertible debt
balance of #145,000.
TURBO POWER SYSTEMS INC.
SIX MONTHS ENDED 30 JUNE 2007
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
1 Basis of preparation (continued)
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.
Most of the Company's operations are conducted by its United Kingdom
subsidiaries in Sterling. All numbers reported in these financial statements
are stated in Sterling unless otherwise noted.
2 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 Electrical Total
electronics machines
2007 2006 2007 2006 2007 2006
Six months ended 30 June
Revenue 4,239 2,079 136 82 4,375 2,161
Development income 370 292 - - 370 292
Interest income 81 45 82 45 163 90
Interest expense (113) (253) (112) (253) (225) (506)
Amortisation (70) (70) (372) (592) (442) (662)
Net loss (877) (979) (2,386) (2,592) (3,263) (3,571)
Capital expenditure 294 39 19 24 313 63
Three months ended 30 June
Revenue 2,222 1,130 120 62 2,342 1,192
Development income 29 193 - - 29 193
Interest income 37 19 38 20 75 39
Interest expense (35) (131) (36) (132) (71) (263)
Amortisation (35) (45) (184) (226) (219) (271)
Net loss (779) (439) (1,097) (1,273) (1,876) (1,712)
Capital expenditure 210 21 10 23 220 44
TURBO POWER SYSTEMS INC.
SIX MONTHS ENDED 30 JUNE 2007
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
2 Segmental analysis
(continued)
As at Jun Dec Jun Dec Jun Dec
2007 2006 2007 2006 2007 2006
Total assets 5,012 3,868 12,172 11,896 17,184 15,764
Total liabilities 2,953 2,159 2,736 7,286 5,689 9,445
3 Significant Customers
During the six month period ended 30 June 2007, 54% of the Company's revenue
was from two customers (2006: 39% from three customers). During the three
months to 30 June 2007, 45% of the Company's revenue was from one customer
(2006: 65% from four customers).
4 Research and product development
Research and product development expenditure incurred during the period
comprised:
Six months ended Three months ended
30 June 30 June
2007 2006 2007 2006
#'000 #'000 #'000 #'000
Research and product
development cost 2,166 1,733 1,151 892
Accrued tax credits - (40) - (25)
-------- -------- -------- --------
Total expenditure 2,166 1,693 1,151 867
======== ======== ======== ========
Total accrued tax credits receivable at 30 June 2007 amounted to #181,000 (31
December 2006: #490,000).
5 Interest expense and finance charges
Six months ended Three months ended
30 June 30 June
2007 2006 2007 2006
#'000 #'000 #'000 #'000
Finance charges 115 - 12 -
Interest payable 58 288 29 154
Amortisation of deferred
finance charges - 81 - 41
Debt accretion 52 194 30 97
--------- --------- --------- ---------
225 563 71 292
========= ========= ========= =========
TURBO POWER SYSTEMS INC.
SIX MONTHS ENDED 30 JUNE 2007
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
6 Financial Instruments
Certain of the Company's business transactions occur in currencies other
than Sterling. The Company had a foreign exchange average rate option
contract in place during the six months ended 31 June 2007 (2006: nil) to
reduce exposure to fluctuations in foreign exchange rates on remittances
from customers denominated in U.S. Dollars.
The Company holds an average rate option over $5.898million U.S. Dollars at
a strike rate of 2.00 U.S. Dollars which expires on 27 December 2007.
During the period a loss of #16,000 was realised on this option (2006: #nil).
As at 30 June 2007 the unrealised gain from the contract included within
prepayments was #28,000 (2006: #nil).
7 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 six months was
279,630,958 (2006: 191,165,301). No fully diluted earnings per share have
been reported as the Company has made losses in both years and the effect
would be anti-dilutive. The loss for the six months ended 30 June 2007 was
#3,263,000 (2006: #3,571,000).
The weighted average number of shares outstanding in the three months ended
30 June 2007 was 285,254,837 (2006: 191,051,924). The loss for the three
months ended 30 June 2007 was #1,876,000 (2006: #1,712,000)
Anti-dilutive potential securities outstanding not included in the loss per
common share calculation at 30 June 2007 total 172,646,014
(2006: 120,735,449)
8 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 being under the
performance bond restriction until 2010. In March 2007 the CLRV contract was
cancelled and the cash bond of #515,000 in respect of this programme was
cancelled and the cash became unrestricted. In September 2005 the Company
committed cash bonds of #250,000 in support of a development contract. The
contract required the bonds to remain in place until completion of certain
contract milestones. These milestones were completed in January 2007 when
the bond was cancelled and the cash became unrestricted. During March 2007
the Company committed cash bonds totalling #410,000 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. At 30 June 2007 cash
subject to restrictions totalled #1,141,000 (December 2006: #1,496,000) and
is secured over an equivalent cash balance.
TURBO POWER SYSTEMS INC.
SIX MONTHS ENDED 30 JUNE 2007
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
9 Long - term assets
Cost Impairment Amortisation Net book
value
#'000 #'000 #'000 #'000
At 30 June 2007:
Investments 107 73 - 34
Intangible assets 4,079 1,663 2,353 63
Goodwill 863 43 - 820
Tangible assets 8,653 - 6,411 2,242
-------- -------- -------- --------
Total long term assets 13,702 1,779 8,764 3,159
======== ======== ======== ========
At 31 December 2006:
Investments 104 73 - 31
Intangible assets 4,074 1,663 2,334 77
Goodwill 863 43 - 820
Deferred finance 474 - 329 145
Tangible assets 8,350 - 5,989 2,361
-------- -------- -------- --------
Total long term assets 13,865 1,779 8,652 3,434
======== ======== ======== ========
10 Share capital - issued shares
Common A Ordinary
Number #'000 Number #'000
At 1 January 2006 190,510,259 44,753 - -
Conversion of convertible notes 541,665 65 - -
Redemption of convertible notes 32,450,000 3,435 31,250,000 4,320
Issue of common shares, net of
share issue costs 50,442,668 3,666 25,000,000 1,803
--------------- -------- ----------- --------
At 31 December 2006 273,944,592 51,919 56,250,000 6,123
=============== ======== =========== ========
Redemption of convertible notes - - 58,750,000 7,379
Issue of common shares, net of
share issue costs 44,626,470 3,886 - -
-------------- -------- ----------- --------
At 30 June 2007 318,571,062 55,805 115,000,000 13,502
============== ======== =========== ========
No options or warrants were exercised during the six months ended 30 June 2007.
On 7 June 2007 the Company completed a #4,000,000 placing agreement with
institutional investors for 44,450,000 Common shares of no par value in Turbo Power
Systems Inc., at a price of #0.09 per placing share.
TURBO POWER SYSTEMS INC.
SIX MONTHS ENDED 30 JUNE 2007
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
11 Financing
On 11 July 2003 the Company completed an #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 are 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.
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 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 13).
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 and an increase in retained deficit of
#2,512,000.
12 Stock options, warrants and compensation expense
The number of options and warrants outstanding as at 30 June 2007, and the
movement during the six months then ended, are as follows:
Options Warrants
Number Number
Outstanding at 1 January 2007 21,567,281 7,000,000
Cancelled (1,089,600) -
Issued 11,760,000 3,500,000
---------- ----------
Outstanding at 30 June 2007 32,237,681 10,500,000
========== ==========
TURBO POWER SYSTEMS INC.
SIX MONTHS ENDED 30 JUNE 2007
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
12 Stock options, warrants and compensation expense (continued)
The stock based compensation expense for the six month period ended 30 June
2007, included in Production costs was #52,000 (2006: #17,000), in Research
and product development was #193,000 (2006: #122,000), and in General and
administrative costs was #127,000 (2006: #96,000).
On 6 January 2007 the Company issued 3,500,000 warrants as part of its
financing agreement with institutional investors (see Note 11).
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 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 UK
#'000 #'000 pence
September 2005 809 (1,584) (0.9)
December 2005 874 (1,249) (0.6)
March 2006 969 (1,859) (1.0)
June 2006 1,192 (1,712) (0.9)
September 2006 1,470 (1,624) (0.8)
December 2006 1,851 (1,124) (0.6)
March 2007 2,033 (1,387) (0.5)
June 2007 2,342 (1,876) (0.7)
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR OKQKBKBKBKFD
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