RNS Number:1052R
Turbo Power Systems Inc
31 March 2008
31 March 2008
TURBO POWER SYSTEMS INC. ANNOUNCES ITS RESULTS FOR
THE YEAR AND QUARTER ENDED 31 DECEMBER 2007
Highlights
* Full year production and development income increased by 75 percent to
�11.0 million (2006: �6.3 million)
* Full year loss before tax of �6.4 million (2006: �6.3 million)
* Year end unrestricted cash of �4.2 million and further restricted funds
of �1.4 million
* Investment in aerospace capability now substantially complete
* Rail electronics contracts for Chicago Transit Authority (US$14 million)
and Toronto Transit Commision (US$8 million) announced in the year
* Motor and drive contract for initial 75 systems announced in December
* Successful move to new Gateshead premises
Commenting on the results Graham Thornton, Chairman, said:
"During 2007 our core rail electronics business continued to grow strongly and
we also announced significant production orders in our electrical machines
division. In our aerospace business the investment in building the capability to
complete development and move towards production on our Boeing 787 programmes
has adversely impacted our bottom line performance for the year, however, this
investment is now substantially complete and we look forward to moving into
aerospace production in 2008.
"On becoming Chairman of the company I instigated an operational review which is
now largely complete and we intend to update the market with the outcome of this
review in due course. I have been encouraged by the opportunities that exist and
pleased by the response from our major customers. I look forward with optimism
to a year of significant progress."
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
Nicholas Marren
NOTES TO EDITORS
About Turbo Power Systems
Turbo Power Systems Inc (AIM:TPS.L). is a leading UK based designer and
manufacturer of innovative power solutions. The Group's products are all based
on its core technologies of power electronics and high speed motors and
generators and are sold into a number of market sectors including aerospace,
rail, and various industrial sectors. The Company's products provide improved
efficiency and reduced energy consumption compared to existing technologies.
Turbo Power System's existing customers include bluechip companies such as
Hamilton Sundstrand, Bombardier, The National Rail Equipment Company, Eaton
Aerospace and Lotus.
Forward looking statements
This news release contains forward-looking statements. Forward-looking
statements include statements concerning plans, objectives, goals, strategies,
future events, or performance, and underlying assumptions and other statements
that are other than statement of historical fact. These statements are subject
to uncertainties and risks including, but not limited to, the ability to meet
ongoing capital needs, product and service demand and acceptance, changes in
technology, economic conditions, the impact of competition, the need to protect
proprietary rights to technology, government regulation, and other risks defined
in this document and in statements filed from time to time with the applicable
securities regulatory authorities.
New or updated CICA Handbook sections that have been issued but are not yet
effective, and have a potential implication for the Company, are as follows:
(a) Section 3862 "Financial Instruments - Disclosure" and Section 3863
"Financial Instruments -Presentation"
Section 3862, Financial Instruments - Disclosure, increases the disclosures
currently required to enable users to evaluate the significance of financial
instruments for an entity's financial position and performance, including
disclosures about fair value. Section 3863, Financial Instruments -
Presentation, replaces the existing requirements on the presentation of
financial instruments, which have been carried forward unchanged. These
standards are effective for interim and annual financial statements relating to
fiscal years beginning on or after October 1, 2007. The Company is currently
evaluating the impact of the adoption of these changes on the disclosure and
presentation within its financial statements.
(b) Section 1535 "Capital Disclosures"
Section 1535, Capital Disclosures, requires disclosure of an entity's
objectives, policies and processes for managing capital, quantitative data about
what the entity regards as capital and whether the entity has complied with any
capital requirements and, if it has not complied, the consequences of such
non-compliance. This standard is effective for interim and annual financial
statements relating to fiscal years beginning on or after October 1, 2007. The
Company is currently assessing the impact of the new standard.
(c) Section 3031 "Inventory"
In June 2007, the CICA released new Handbook Section 3031, Inventories,
effective for annual and interim periods beginning on or after January 1, 2008.
This new section requires inventory to be measured at the lower of cost or net
realizable value and provides guidance on the methodology used to assign costs
to inventory, it disallows the use of the last-in first-out inventory costing
methodology and requires that, when circumstances which previously caused
inventories to be written down below cost no longer exist, the amount of the
write-down is to be reversed. The Company is currently assessing the impact of
the new recommendations on its financial statements.
Harmonizing Of Canadian and International Standards
In March 2006, the Accounting Standards Board of the CICA released its new
strategic plan which will abandon Canadian generally accepted accounting
principles ("GAAP") and affect a complete convergence to the International
Financial Reporting Standards. At the end of a transitional period of
approximately five years, Canadian GAAP will cease to exist as a separate,
distinct basis of financial reporting for public companies. The Company will
closely monitor changes arising from this proposed convergence.
Definition of non-GAAP financial measures
EBITDA is calculated as the net loss for the period less financial interest
income and charges, foreign exchange gains and losses, tax charges and receipts,
depreciation, amortization, and stock compensation charges. The Company believes
that EBITDA is useful supplemental information as it provides an indication of
the operational results generated by its business activities prior to taking
into account how those activities are financed and taxed and also prior to
taking into consideration asset amortization. EBITDA is not a recognised measure
under GAAP and, accordingly, should not be construed as an alternative to
operating income or net loss determined in accordance with GAAP as an indicator
of financial performance or of liquidity and cash flows. EBITDA does not take
into account the impact of working capital changes, capital expenditures and
other sources and uses of cash which are disclosed in the consolidated statement
of cash flows. The Company's method of calculating EBITDA may differ from other
issuers and may not be comparable to similar measures provided by other
companies.
CHAIRMAN'S STATEMENT
During 2007 the Company continued to win significant orders and again
demonstrated strong turnover growth with combined production and development
revenues up 75% to �11.0 million.
Whilst we were pleased with the level of turnover in 2007, delayed aerospace
milestone receipts coupled with increased technical resource deployment on the
aerospace programmes, has meant that the planned reduction in losses was not
achieved. The Group's loss before interest, tax, depreciation, amortization and
stock compensation was �4.9 million.
The majority of production revenue, and a significant proportion of our
development income, came from our existing core business of rail power
electronics. In this area the year began well with the announcement of a US$14
million contract for the Chicago Transit Authority in January and a US$8 million
contract for the Toronto Transit Commission in March. Both of these contracts
were placed through Bombardier and demonstrate the continued benefits of our
strategic relationship. I am pleased to report that the prototypes for both
contracts have now been built and are currently undergoing qualification testing
at our Gateshead facility.
The rail business grew strongly in the year and the company delivered production
units to Bombardier on the Beijing and London Underground programmes, as well as
to the Toronto Transit Commission on the H6 programme and various smaller
production and spares contracts. Our largest rail production customer in the
year was NREC and we were pleased to receive follow-on production orders from
them in May and August 2007 and January 2008.
In the area of Electrical Machines, the company spent considerable effort
refining its product offerings during the year, and exhibited at a number of key
industry events. This effort has led to a significantly increased number of
enquiries and requests for quotation for motor and generator systems. Our key
programme in this area with a major international capital equipment manufacturer
proceeded well in 2007. Our successful development efforts were rewarded in
December with an initial production contract for 75 systems. The Company is now
finalising production arrangements, and the majority of these systems are
expected to be delivered in 2008. On the ALC down-hole pump programme, UK
testing is proceeding ahead of operational testing in North America later in
2008.
In the aerospace sector, 2007 has been a necessary period of investing to gain
experience for the future. Our Boeing 787 programmes with Hamilton Sundstrand
and Eaton Aerospace have made good technical progress, but non-recurring
engineering costs have exceeded planned levels, particularly on the Hamilton
Sundstrand contract. Project milestones were not met, and so development income
will be received later than originally planned. Positive progress has been made
so far in 2008, and the expected qualification of the units in 2008 should
generate further development income and see the start of long-term production
revenues. During 2007 we continued to build a new aerospace design and
production capability at Gateshead with enhanced quality systems to meet
aerospace requirements. While our investment in this capability and the resource
required on our development programmes has been greater than originally
anticipated, this investment positions the Company well to win further orders in
this long-term, international growth market.
Following my appointment as Chairman the Company instigated a review of costs
and operations with the objective of identifying ways to significantly improve
our earnings performance over the next 18 months. This continuous operational
improvement process will become a key part of our strategy to increase
competitiveness and therefore position the Company for growth. Significant
progress has already been made and opportunities for substantial improvement
have been identified. We will update the market with the outcome of this review
in due course.
I would like to take this opportunity to thank Stephen Sadler who will leave his
position as Chief Financial Officer in early May, for his valuable contribution
to the Company over the past three years. We are actively looking for a
replacement for Stephen and will update the market when appropriate.
Outlook
In 2008 I expect to see continued progress in our core market of rail power
electronics with the Chicago Transit and Toronto programmes moving towards
production. In the Electrical Machines area we look forward to the transition
into production with our major capital equipment customer and will continue to
seek new customers for this key part of our technology portfolio. In the
aerospace sector we will look to achieve qualification of the two units with a
subsequent move into production.
Looking forward, the Company will pursue a two-pronged strategy of building
significant business value with a number of key customers in the transport,
energy and aerospace markets while at the same time working on margin
improvement across all product lines. As our installed base grows, we should
start to benefit from higher-margin, aftermarket services business without the
investment levels associated with new design.
With our successful move to new Gateshead premises in June 2007, and our
investment in developing an aerospace design and build capability, the Company
now has in place a strong platform for growth across all three of our sectors
and I anticipate further progress in 2008.
OPERATIONAL REVIEW
Business of the Company
Turbo Power Systems
* Designs and manufactures high-speed permanent magnet based motors and
generators for industrial, transport, power generation and military
applications, where technical performance, energy efficiency and power
density requirements cannot be met by conventional technology.
* Designs and manufactures power electronics products which include
variable frequency drives and inverters, which combine with our
electrical machines to create an integrated solution, and a range of
rugged power conversion products for rail and industrial applications.
Strategy
Since the Company's products are sub-systems rather than end-products in
themselves, the TPS marketing strategy is targeted towards major Original
Equipment Manufacturers ("OEMs") and system integrators, with the objective of
developing long term agreements covering both technology development and volume
manufacturing.
During the year, the Company continued the process of transforming its Heathrow
facility and the Electrical Machines operation from a development and
prototyping facility into a growing production centre, by expanding the number
of funded customer demonstrator programmes using the existing design and IPR
base.
TPS policy is to undertake demonstrator programmes only where OEM customers have
an established business case for ongoing production volumes, or where the
application extends the Company's installed base of equipment into sectors and
applications considered to offer considerable future growth potential.
TPS maintains the capacity and capability to develop, manufacture and fully test
all of its products, however where appropriate it does review the potential for
outsourcing those elements of the process where volumes and technical complexity
are appropriate.
The Company is currently in discussion with a potential partner in India in
order to access the rapidly growing rail and transport markets in India, China
and SE Asia, combining the design, application and technical expertise of the
Company with the necessary low cost base manufacturing resource required to sell
into those markets.
In addition, in recognition of the increasing importance of the North American
market to our future revenue stream, the Company intends to open a sales and
service centre in Chicago, to support our expanding product field population,
and our increasing number of OEM customers.
2007 summary
During 2007 there were many positives in the Company's performance. The number
of opportunities for the Heathrow electrical machines business increased
significantly with important contracts being won and very positive feedback
being received from our new customers. Revenues in the year grew strongly once
again, and the rail and industrial product sales from Gateshead showed strong
growth in order intake.
The new power electronics facility has provided much needed additional capacity
and a high quality environment for staff and customers.
In the aerospace sector, the Eaton project although incurring some additional
cost overruns is now proceeding through to final qualification.
The exception to this strong underlying performance has been the Hamilton
Sundstrand project, which has seen significant increases in TPS design costs
over budget for both the hardware and software phases, and incurred project
delays which meant that key income milestones were not met. Considerable
progress has recently been made in resolving both the software and hardware
issues in conjunction with both Boeing and Hamilton Sundstrand, and updated
hardware is expected to be available to the customer in time for the initial
power-up and flight test programme.
High speed electrical machines
The optimal size range for electrical machines based on the Company's permanent
magnet technology is between 15kW and 2MW.
Markets
The key markets for the motor derivatives are:
* HVAC and refrigeration
* Air and gas compression
* Turbo-machinery
* Aerospace - actuators, pumps, fans
* Ship propulsion
* Rail traction motors
The key markets for generator derivatives are:
* Distributed generation (gas turbines)
* Micro-generation
* Vehicle based auxiliary power generation
* Flywheel systems
Customers and contracts
During the last year, the Company has announced a number of contract awards,
which confirmed the commercial viability of our high speed electrical machine
products.
Industrial motor and drive agreement
In December 2007 TPS received the launch production order for 75 sets of motor
and drive systems valued at some US$2 million. The order for these systems,
which is subject to commercial confidentiality, follows earlier announcements
detailing the framework memorandum and the alpha unit testing programme. These
units are expected to be delivered during the latter part of 2008 to provide the
initial stock in support of the formal product launch in early 2009. Once
launched, the drive system will replace an existing mechanically driven
arrangement used on the existing capital equipment products in this size range,
and can also be supplied for retro-fit to reduce electrical consumption on
existing installations world-wide. Initial alpha testing has gone well, and
extensive field testing will continue throughout 2008.
The framework agreement anticipates sales of 500 systems over the first two
years of production, and incorporates a manufacturing agreement with an initial
term of 5 years. TPS is continuing discussions with the customer regarding the
scaling of these systems to cover a wider range of product sizes.
US process gas customer
In January 2008 TPS received an order from an industrial and process gas company
to supply a high speed electrical machine and variable frequency drive for a
development project. The products to be supplied by TPS utilise the Company's
permanent magnet and inverter technologies, giving a high performance and high
efficiency solution. Once the development phase has been completed it is
intended that these systems will be deployed in the customers' sites.
European programme
Turbo Power Systems recently received an order from a European research
organisation, acting on behalf of a major international manufacturing company,
for the supply of a high speed electrical machine and variable frequency drive
which will be used in a process system development programme.
SKF
Production requirements for the 35kW, 70,000 rpm high speed motor and drive
system (motor elements being manufactured in Heathrow and the drive and magnetic
bearing control systems being integrated at Gateshead) are being discussed
following the extended customer reliability testing programme.
ALC
UK testing of the complete down hole pump system incorporating the TPS motors is
still underway, with the final, high temperature, trials to be concluded prior
to shipment to North America for full operational evaluation.
The North American tests will consist of two, three month periods of continuous
operation, with a removal and assessment review between them, and are not
expected to be completed before the end of 2008.
End customer interest and demand remains very high, particularly given the
current oil pricing.
High performance power electronics
TPS designs and manufactures rugged power electronics products for rail,
industrial and transport applications, all of which require high reliability and
availability in operation.
Markets
The key markets for the electronics products are:
* Auxiliary power conversion for rail and light transit
* Variable frequency drives to complement HSEMs
* Motor drives for aerospace application
* Industrial pulsed power supplies
* Grid connected inverters
Customers and contracts
Bombardier Transportation-Canada
Bombardier Transportation - Beijing
Deliveries of the auxiliary power systems for the unmanned rail transit cars for
the Beijing airport subway extension are on programme and the contract should be
completed on schedule. Bombardier and its Chinese partners have delivered the
first car sets to the customer for testing in advance of revenue service and the
Olympics. TPS is continuing to provide periodic commissioning and engineering
support in China.
Bombardier Transportation - Chicago Transit Authority
The initial prototype units have now been built and are undergoing functional
testing at TPS, to be followed by formal qualification tests which will be
observed by both Bombardier and the Chicago Transit Authority. Once the initial
auxiliary power units have been supplied to Canada, Bombardier will build the
vehicles and then commence extended vehicle trials on a number of evaluation
cars, which will continue throughout 2008 and into 2009.
The Chicago (and Toronto) designs incorporate a new generation of hardware and
software microprocessor control system which the Company is investing in as a
common modular platform for all future rail products.
The base Chicago Transit Authority contract is valued at US$14 million including
production, spares and engineering services, which with possible options for
additional cars, could increase the value to in excess of US$20 million.
Bombardier Transportation - Toronto
As with the Chicago Transit Authority hardware, the Toronto prototypes, which
consist of three unit types (a main Power Supply and two variants of HVAC
Inverter), have also been built and are undergoing functional tests to be
followed by the formal qualification programme.
Unlike the Chicago Transit Authority work, the Toronto programme does not
include an extended vehicle testing phase and TPS production deliveries are
scheduled to commence in 2008 and then ramp up.
The contract for the initial quantity of 234 cars is expected to exceed US$8
million, with the potential for further option quantities to extend that to some
US$14 million.
National Rail Equipment Co ("NREC")
Sales of the traction power electronics system to NREC in support of their low
emissions switcher locomotives accounted for a significant proportion of the
increased sales turnover in 2007.
In order to support the expanding field population of NREC locomotives,
additional TPS field service resources have been provided in North America, and
the planned Sales and Service centre in Chicago will be well located to support
both the NREC locomotive build yards and their customers.
Toronto Transit Commission ("TTC") - H6 Subway Programme
Manufacture of the final quantities of the auxiliary power supply supplied to
TTC for the H6 vehicle upgrade programme will be made in Q1 2008 in accordance
with the programme schedule. Following the success of this programme, TPS is
intending to use the Chicago service centre as a base to offer refurbishment of
auxiliary power hardware, repairs and upgrades to rail and subway operators
throughout the US.
Other Rail Products
Bombardier -UK London Underground
Production of the drivers air-conditioning power supply for London Underground's
District Line, which has been a very successful programme, will complete in
early 2008.
PT3000
Regular small orders for the PT3000 At-Seat power supply, currently in operation
with many UK operators including Virgin and National Express, continue to be
received, however there are a number of UK rolling stock refurbishment
programmes currently under review where the potential quantities of PT3000s are
considerably larger. TPS has now produced over a thousand of these units which
allows the commuter to safely charge up mobile phones and laptops.
PRC Industrial Lasers
TPS continues to see strong ongoing demand from PRC Lasers who have now
standardised on the TPS high voltage power supply for their complete range of
industrial lasers. Recently TPS has developed a new "higher power" derivative
which is now undergoing testing.
Aerospace
Boeing 787
Our first steps in the commercial aerospace sector have represented a very steep
learning curve, and undertaking two major programmes effectively in parallel
gave us little opportunity to apply the lessons learned on the Eaton programme
to the Hamilton Sundstrand programme. As a consequence, the level and depth of
engineering required on the Hamilton Sundstrand work was underestimated and the
resulting costs exceeded both our expectations and the customer's contractual
funding. Additionally, programme delays have deferred contracted stage payments
from 2007 to 2008.
TPS has now absorbed the lessons of these two contracts and is now much better
placed to bid on future aerospace programmes from a basis of experience.
Dedicated production and test facilities, including temperature cycling and
vibration testing have been put in place, and aerospace product assembly staff
have been trained. We still believe that the core TPS technology of high
performance electrical machines and matched power electronics is well suited to
the growing demands of the All-electric aircraft, and are continuing to identify
opportunities on other programmes and platforms.
Eaton Aerospace
Override Jettison Pump Control Unit
The hardware has successfully met the first major qualification requirement by
completing the Safety of Flight Test programme. The initial batch of units has
been delivered to Boeing to support the Aircraft Flight Test Programme.
The formal qualification programme is underway with encouraging initial results.
The programme has been subject to a delay as a result of a change in technical
requirement.
The Company has now ensured that production facilities and trained staff are in
place at our facilities and materials are on hand to support the aggressive
Boeing production ramp up this year.
Hamilton Sundstrand
Ram Fan Motor Controller
The motor controller, which was a late addition to the 787 programme following
weight reduction reviews by Boeing, has suffered a number of delays due to
technical problems incurred by TPS in developing both the hardware and the
software, which is largely outsourced to an aerospace approved software house in
India.
With support from both Boeing and Hamilton Sundstrand, the software is now
performing well, and a series of interim modifications have been identified to
resolve the outstanding hardware issues in time for updated hardware to be
available to the customer for the initial power -up and flight test programme.
Work is continuing in procurement and discussions are ongoing with Hamilton
Sundstrand to ensure that profitability is achieved in the production phase once
a final design has been approved.
TPS North America
In order to support our growing customer base in North America and to take the
opportunity to expand both direct sales and aftermarket revenues, TPS is setting
up TPS North America in a facility in Greater Chicago.
Initial activities will be focused on sales and service functions, however it is
anticipated that some elements of hardware upgrades/modification and partial
final assembly may follow in due course.
Financial Performance
During 2007, TPS's existing core business sectors of rail and industrial power
electronics showed continued development on the back of increased production.
However, work on our new aerospace programmes has consumed more resource than
was expected which has had a detrimental impact on EBITDA and cash flow. As a
result the company has shown strong revenue growth in 2007 but increased EBITDA
losses and cash outflows compared to 2006. Significant technical progress has
been made on the Hamilton Sundstrand programme in the first quarter of 2008 and
the company expects to receive the remaining development income and move into
the production phase during 2008. As a result the extra front end investment in
this programme during 2007 is expected to be recovered from 2008 onwards.
In terms of orders won 2007 began well with the award of two major rail
contracts from Bombardier in the first quarter. The base CTA contract is
expected to be worth US$14m over 6 years with options which could increase the
contract value to US$20 million. Similarly, the Toronto Transit Commission order
has a base value of US$8 million over 5 years with options to increase to US$14
million. Orders worth US$5.5 million were received from NREC during the year for
our traction control electronics with a further order for US$1 million announced
in January 2008.
In the Electrical machines division we announced a production order from a major
industrial motor and drive customer for 75 systems which is worth US$2 million
to be delivered in 2008. A number of bid enquiries requiring similar technology
have been received in early 2008.
Production revenue grew strongly in the year as new power electronics programmes
moved into production and in particular volumes shipped to NREC grew steadily.
Total production revenue of �9.8 million for the year is a 79% increase over
2006.
Development income increased 48% to �1.2 million and includes receipts from the
Hamilton Sundstrand, Eaton Aerospace and Bombardier Rail programmes.
Development costs of �5.5 million reflect the increased development activity on
the two new Bombardier contracts and on the Eaton and Hamilton Sundstrand
Aerospace programmes. Development expenditure on the Hamilton Sundstrand
programme was �1.7 million.
Administrative costs including amortization increased by 12% to �4.7 million in
2007.
The group's loss before interest, tax, depreciation, amortization and stock
compensation increased by 15% to �4.9 million.
Financing costs for 2007 reduced significantly as the benefits of the
restructuring of convertible notes, which was completed in December 2006, were
seen. Interest expense for 2007 was �0.2 million compared with �1.0 million for
2006.
Staff numbers increased steadily in the areas of development and production to
reflect the increased activity but remained steady in administrative
departments. Overall permanent headcount at the year end was 165 (2006: 139).
Operating cash outflows before tax increased to �6.0 million (2006: �5.1
million) reflecting the increased losses and increased stock.
Purchases of long term assets of �0.7 million (2006: �0.2 million) relate
primarily to the new premises in Gateshead and are partially offset by grant
funding from One North East of �0.1m.
In June 2007 the Company raised �3.8 million net from the placing of 44,500,000
Common shares.
The Company finished the year with an unrestricted cash balance of �4.2 million
and held further cash of �1.4 million associated with performance bonds.
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 �6.42
million in 2007 and has a cumulative deficit of �62.67 million as at 31 December
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.
Further detail of the Company's financial performance is shown below:
Production revenue
Production revenue in the year ended 31 December 2007 was �9.80 million compared
with �5.48 million in 2006 and comprised
2007 2006
�'000 �'000
Power electronics 9,581 5,257
Electrical machines 244 225
_____ _____
9,825 5,482
The Power electronics division has seen continued strong turnover growth,
primarily as a result of increased volumes on established programmes but also
through initial production runs on new contracts such as the Beijing Airport
project. Output volumes have grown significantly on the existing production
contracts for NREC, Toronto Transit Commission H6 and Bombardier London
Underground.
Spares and service revenues within the Power electronics division were �0.42
million for the year (2006: �0.98 million).
In the Electrical machines division revenue increased marginally over 2006 as
the first units were delivered as part of the Industrial Motor and Drive
agreement.
Development income
Development income in the year was �1.18 million compared with �0.79 million in
2006 and included further milestone receipts from Eaton Aerospace and Hamilton
Sundstrand on the Boeing 787 Dreamliner programmes.
2007 2006
�'000 �'000
Development income 1,176 794
Production costs
The cost of product revenues in the year amounted to �7.28 million (2006: �4.23
million).
2007 2006
�'000 �'000
Power electronics 6,280 3,423
Electrical machines 999 804
_____ _____
7,279 4,227
Production costs include certain fixed facilities costs attributable to the
manufacturing operation. Overall gross margin for the year was 26% compared to
23% in 2006. The improvement reflects production efficiency gains from the move
to new premises which were partially offset by New Product Introduction costs on
NREC and other new production programmes.
Included in production costs for the year are stock compensation charges on
options awarded of �91,000 (2006: �51,000).
Research and product development
Research and product development expenditure in the year was �5.48 million
compared with �3.32 million in 2006, and comprised
2007 2006
�'000 �'000
Research and product development expenditure 5,509 3,734
Accrued R&D tax credits (27) (410)
_____ _____
Total expenditure 5,482 3,324
Product development costs increased in 2007 as work commenced on both the
Bombardier Chicago and Toronto rail programmes and activity increased on the
Eaton and Hamilton Sundstrand contracts for the Boeing 787 Dreamliner.
Development expenditure on the Hamilton Sundstrand programme was �1.7 million.
Included in research and product development expenditure for the year are stock
compensation charges on options awarded of �405,000 (2006: �255,000).
The level of R&D tax credits accrued in the year reduced as more of the
Company's development resource moved on to commercial programmes.
General and administrative
General and administrative costs of �3.86 million (2006: �3.12 million) consist
mainly of staff costs and facilities costs, which have increased following the
relocation of the Gateshead operation to larger facilities. Also included are
stock compensation charges on options awarded of �203,000 (2006: �205,000), and
increased costs for additional sales and promotional activities.
Amortisation
Amortisation was �0.86 million compared with �1.09 million in 2006. The
reduction reflects a number of assets becoming fully written down during the
year.
Interest income
Interest income for the twelve months was �0.37 million compared with
�0.23 million in 2006 reflecting a higher average cash balance held in the year.
Interest expense and finance charges
Interest expenses arise from the issue of convertible notes in July 2003 and
March 2005 and comprise
2007 2006
�'000 �'000
Interest 188 662
Accretion of debt 60 387
_____ _____
248 1,049
Convertible notes 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
notes issued and the fair value of the liability is assigned to the equity
component. The equity element of
the March 2005 note issue was estimated at �1.11 million. The equity element of
the 2003 note 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 twelve months this charge
amounted to �0.06 million (2006: �0.39 million).
Finance charges for 2007 were �66,000 (2006: �nil) and were made up as below:
During the fourth quarter the company purchased U.S. dollar denominated currency
contracts covering expected dollar income from programmes scheduled for 2008.
The premium cost for these options was �51,000 (2006: �81,000) and has been
charged to profit and loss in the year. The maturing 2007 US dollar option
returned �8,000, resulting in a net loss for the year of �36,000 (2006: gain of
�62,000).
During the first quarter the company redeemed �4,860,000 loan notes, resulting
in a net credit of �47,000 (2006: charge of �190,000).
Financial service charges primarily related to the cost of creating and
maintaining performance bonds were �16,000 in 2007. In 2006 the transfer to the
AIM market resulted in the release of the provision for financial costs on share
issuance of �230,000.
During the year the Company recorded a fair value adjustment of �10,000 (2006:
�21,000) against the investment in Altek Power Corporation.
Cash flows for the twelve months
Cash outflow from operating activities
Operating cash outflow before movements in working capital was �5.20 million for
the year (2006: �4.17 million), as a result of higher incurred costs on the
aerospace development programmes in 2007.
Movements in stocks, work in progress and debtors and creditors resulted in a
net cash outflow of �0.79 million during the year (2006: outflow of �0.97
million).
Tax credits
During the year the company received research and development tax credits of
�0.31 million (2006: �0.12 million).
Investing activities
Purchases of long term tangible assets amounted to �0.73 million (2006: �0.22
million) and relate to production equipment and leasehold property improvements.
Cash outflows related to financial instruments of �0.05 million (2005: �0.06)
are the net premium costs of currency contracts.
Cash flow from financing activities
Cash inflow from financing in 2007 of �3.80 million during the twelve months
relates to net funds received from the issue of shares in June 2007, when the
Company completed a �4,000,000 (gross) financing agreement with institutional
investors. The financing comprised placing of Common Shares in Turbo Power
Systems Inc.
Cash inflow from financing in 2006 of �5.45 million during the twelve months
relates to net funds received from the issue of shares in December 2006, when
the Company completed a �6,000,000 (gross) financing agreement with
institutional investors. The financing comprised placing of Common Shares and A
-Ordinary shares in Turbo Power Systems Limited.
Overall cash outflow for the twelve months
Overall the cash outflow for the period was �2.43 million. This compares with a
cash inflow of �0.14 million in 2006.
Summary of quarterly results
The following table sets forth selected quarterly consolidated financial
information of the Company for the last two years;
All amounts in �'000 Revenue Research General and Net loss Loss per
and product administrative share
development
March 2006 969 826 752 (1,770) (0.9)
June 2006 1,192 867 818 (1,742) (0.9)
September 2006 1,470 917 814 (1,623) (0.8)
December 2006 1,851 714 735 (1,123) (0.6)
March 2007 2,033 1,015 841 (1,403) (0.5)
June 2007 2,342 1,151 1,102 (1,768) (0.6)
September 2007 2,700 1,736 1,083 (1,666) (0.5)
December 2007 2,750 1,580 831 (1,578) (0.5)
Quarterly revenue has increased during 2007 reflecting increased production.
Research and development expenditure has increased reflecting development
activities on the new Bombardier Chicago and Toronto rail programmes and
continuing development on the Eaton and Hamilton Sundstrand Boeing 787
contracts. General and administrative costs increased as the Gateshead facility
relocated to larger premises in quarter two of 2007.
Diluted earnings per share figures have not been provided as the loss in each
period would be anti-dilutive.
Review of fourth quarter 2007
Production revenue
Production revenue in the three months ended 31 December 2007 was �2.75 million
compared with �1.85 million in 2006 and comprised
2007 2006
�'000 �'000
Power electronics 2,726 1,798
Electrical machines 24 53
--------------
2,750 1,851
==============
Revenues from the Power electronics division increased as a result of production
revenues from contracts with NREC, Toronto Transit Commission, Bombardier and
PRC.
Revenue in the Electrical machines division relates primarily to the SKF
contract.
Development income
Development income in the three months was lower in 2007 at �0.16 million
compared with �0.22 million in 2006 as a result of fewer milestone payments
falling due in the quarter.
2007 2006
�'000 �'000
Development income 159 217
===============
Production costs
The cost of product revenues in the three months amounted to �1.96 million
(2006: �1.43 million).
2007 2006
�'000 �'000
Power electronics 1,736 1,174
Electrical machines 223 251
_____ _____
1,959 1,425
Production costs include certain facilities costs attributable to the
manufacturing operation.
Included in production costs for the three months are stock compensation charges
on options awarded of �11,000 (2006: �17,000).
Research and product development
Research and product development expenditure in the three months was
�1.58 million compared with �0.71 million in 2006, and comprised
2007 2006
�'000 �'000
Research and product development expenditure 1,607 1,074
Accrued R&D tax credits (27) (360)
_____ _____
Total expenditure 1,580 714
Included in research and product development costs for the three months are
stock compensation charges on options awarded of �115,000 (2006: �67,000).
General and administrative
General and administrative costs in the three months of �0.83 million (2006:
�0.74 million) consist mainly of staff costs, facilities costs and the costs
associated with the Company's public listings. Included in general and
administrative costs for the quarter are stock compensation charges on options
awarded of �33,000 (2006: �55,000).
Amortisation
Amortisation was �0.20 million compared with �0.19 million in 2006.
Interest income
Interest income in the three months was �0.10 million compared with
�0.02 million in 2006.
Interest expense and finance charges
Interest expenses arise from the issue of convertible bonds in July 2003 and
March 2005 and comprise
2007 2006
�'000 �'000
Interest payable 50 245
Accretion of debt 49 (28)
_____ _____
99 151
During the quarter receipts on maturing options were received of �8,000 (2006:
�17,000).
During the fourth quarter the company purchased a U.S. Dollar option to cover
expected 2008 programme dollar income at a cost of �51,000.
During the quarter the Company recorded an impairment of �10,000 (2006: �21,000)
against the investment in Altek Power Corporation.
Cash flows for the fourth quarter
Cash outflow from operating activities
Operating cash outflow before movements in working capital was �1.46 million for
the quarter (2006: �0.67 million).
Movements in stocks, work in progress, and debtors and creditors produced a net
cash inflow of �0.47 million during the quarter (2006: outflow of �0.75
million).
Tax credits
During the quarter the company received no research and development tax credits
(2006: �nil).
Investing activities
Cash outflows from capital investments in the three months were �0.14 million
compared with �0.01 million in 2006. This spend was primarily on the new
facilities at Gateshead.
Overall cash outflow for the period
Overall the cash outflow during the three months was �1.34 million. This
compares with an overall cash inflow of �4.21 million for the fourth quarter of
2006 which included fundraising receipts of �5.45 million.
Balance sheet as at 31 December 2007
The Company ended the period with an unrestricted cash balance of �4.24 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 �1.36 million relating to
performance bonds entered into as part of contracts with the Toronto Transit
Commission and Bombardier (2006: �1.50 million).
Long term assets excluding restricted cash have decreased from �3.69 million at
31 December 2006 to �3.00 million at 31 December 2007, after depreciation
charges of �0.86 million.
Long term liabilities have decreased significantly to �1.98 million at 31
December 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 31 December 2007, excluding cash balances, was �1.62
million, compared with �0.60 million as at 31 December 2006.
As at 31 December 2007, the Company had 318,571,062 common shares issued and
outstanding and 115,000,000 A ordinary shares issued and outstanding. As at that
date there were 30,847,250 outstanding share options and 10,500,000 outstanding
warrants.
Contractual Obligations �'000 Payments Due by Period
at 31 December 2007
Total Less than 1 - 3 4 - 5 After
1 year years years 5 years
Convertible notes 1,789 - 1,789 - -
Operating leases 4,990 519 1,583 858 2,030
Total contractual obligations 6,779 519 3,372 858 2,030
Liquidity
Cash, cash equivalents and short-term investments at 31 December 2007 were
�4,235,000, compared with �6,669,000 at 31 December 2006.
Restricted cash at 31 December 2007 was �1,362,000, compared with �1,496,000 at
31 December 2006.
Convertible bonds
On 11 March 2005 the Company completed a �8,000,000 (gross) financing agreement
with institutional investors. The financing comprised 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 Convertible notes are unsecured. 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 2,360,000 Convertible Notes were redeemed. On 6 January 2007 a
further 2,000,000 Convertible Notes were redeemed. At 31 December 2007 there
were 1,789,000 Convertible Notes outstanding..
On 11 July 2003, the Company completed a �5,000,000 financing agreement with
Island Investment (Securities) Ltd. and Argun Investments Limited. The financing
comprised Convertible Notes and Warrants. The Convertible Notes have a term of
five years, bear an annual interest rate of 3.5% and are convertible into an
aggregate of 25 million Common Shares of 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 3.5 million Common Shares of Turbo Power
Systems Inc. at an exercise price of �0.15 per share. These warrants expired on
11 July 2007. On 28 December 2006 2,500,000 Convertible Notes were redeemed. The
remaining 2,500,000 Convertible Notes were redeemed on 6 January 2007.
Currency risk management
Principally all of the Company's expenditure is denominated in Sterling, which
is funded from Sterling cash balances. Exchange differences, which arise on
consolidation of the Company's Canadian operations, are included in exchange
adjustments within the income statement. At 31 December 2007 the Sterling
equivalent of Canadian Dollar denominated net assets amounted to �60,000 (2006 -
�59,000), and the principle element comprised the investment of �25,000 in the
loan note issued by Altek.
Interest rate risk management
The analysis of the Company's financial assets and borrowings analysed between
floating and fixed interest rates is shown below;
2007 2006
�'000 �'000
Floating rate financial assets 5,597 8,165
Fixed rate financial assets 25 31
Floating rate borrowings - -
Fixed rate borrowings 2003 Bond - (2,500)
Fixed rate borrowings 2005 Bond (1,789) (3,789)
The fixed rate borrowings for the 2003 Bond were at 3.5% per annum, and for the
2005 Bond are at 6.5% per annum, and the fixed rate financial assets are at 6.0%
per annum.
The Company invests surplus cash funds in short term money market deposits with
financial institutions and cash funds which have at least a short term credit
rating of F1. The maturity of the deposits is between one and three months.
Derivative financial instruments
During the fourth quarter the company purchased U.S. dollar denominated currency
contracts covering expected dollar income from programmes scheduled for 2008.
The premium cost for these options was �51,000 (2006: �81,000) and has been
charged to profit and loss in the year. The maturing 2007 US dollar option
returned �8,000, resulting in a net loss for the year of �36,000 (2006: gain of
�62,000).
TURBO POWER SYSTEMS INC.
CONSOLIDATED STATEMENTS OF LOSS, COMPREHENSIVE LOSS AND DEFICIT
Notes Quarter ended 31 December Year ended 31 December
2007 2006 2007 2006
�'000 �'000 �'000 �'000
restated restated
Production revenue 2,3 2,750 1,851 9,825 5,482
Development income 2,3 159 217 1,176 794
----------------------------------------------------
2,909 2,068 11,001 6,276
Expenses
Production costs 1,959 1,425 7,279 4,227
Research and product development 4 1,580 714 5,482 3,324
General and administrative 831 735 3,857 3,119
Amortisation 198 194 858 1,086
----------------------------------------------------
4,568 3,068 17,476 11,756
Loss before interest, finance charges (1,659) (1,000) (6,475) (5,480)
and foreign exchange
Interest income (98) (20) (367) (226)
Interest expense 5 99 151 248 1,049
Finance charge/(income) (52) - 66 -
Foreign exchange loss/(gain) (30) (8) (7) (45)
Net loss and Comprehensive loss
----------------------------------------------------
(81) 123 (60) 778
----------------------------------------------------
(1,578) (1,123) (6,415) (6,258)
====================================================
Statement of Deficit
Deficit, beginning of year, as
previously stated (53,636) (44,718)
Prior period adjustment 13 (68) (128)
----------------------
Deficit, beginning of year, as
restated (53,704) (44,846)
Net loss (6,587) (6,258)
Transitional adjustment (140) -
Equity adjustment on
issue of shares (2,512) (2,600)
----------------------
Deficit, end of year (62,943) (53,704)
======================
Loss per share - basic 7 (0.5)p (0.6)p (2.1)p (3.3)p
Loss per share - diluted 7 (0.5)p (0.6)p (2.1)p (3.3)p
Weighted average number of
shares outstanding 318,571,062 195,079,375 310,387,089 191,827,517
TURBO POWER SYSTEMS INC.
CONSOLIDATED BALANCE SHEETS
Notes As at 31 December As at 31 December
2007 2006
�'000 �'000
Current assets restated
Cash and cash equivalents 4,235 6,669
Restricted cash 8 - 765
Trade and other receivables 2,871 1,817
Stock and work in progress 2,376 1,230
Prepayments 422 419
R&D tax credits receivable 208 445
-------------------------------------------------
10,112 11,345
-------------------------------------------------
Long-term assets
Restricted cash 8 1,362 731
Prepayments - 254
Investments 9 25 31
Intangible assets 9 47 77
Goodwill 9 820 820
Deferred finance charges 9 - 145
Tangible assets 9 2,106 2,361
------------------------------------------------
14,472 15,764
------------------------------------------------
Liabilities and shareholders' equity
Creditors: amounts falling due within
one year
Trade and other payables 3,700 3,109
Deferred income 555 206
------------------------------------------------
4,255 3,315
------------------------------------------------
Creditors: amounts falling due after
more than one year
Warranty provision 151 303
Convertible notes 1,661 5,827
------------------------------------------------
1,812 6,130
------------------------------------------------
Capital and reserves
Common share capital 10 55,804 51,919
Class A Ordinary share 10
capital 13,310 6,123
Contributed surplus 1,964 1,981
Deficit (62,673) (53,704)
------------------------------------------------
Shareholders' funds 8,405 6,319
------------------------------------------------
14,472 15,764
================================================
TURBO POWER SYSTEMS INC.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
UNAUDITED
Common Share A Ordinary Contributed Deficit Total Equity
capital capital surplus
�'000 �'000 �'000 �'000 �'000
restated
Balance at 1 January 2006 (restated) 44,753 - 2,144 (44,846) 2,051
Net loss (restated) (6,258) (6,258)
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
Share issue costs (393) (197) (590)
------------------------------------------------------------------
Balance at 31 December 2006 (restated) 51,919 6,123 1,981 (53,704) 6,319
Net loss (6,415) (6,415)
Stock
compensation 699 699
Conversion to shares 7,187 (716) (2,414) 4,057
Issue of shares 4,017 4,017
Share issue costs (132) (132)
Transitional adjustment (140) (140)
------------------------------------------------------------------
Balance at 31 December 2007 55,804 13,310 1,964 (62,673) 8,405
==================================================================
TURBO POWER SYSTEMS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Quarter ended 31 December Year ended 31 December
2007 2006 2007 2006
�'000 �'000 �'000 �'000
restated restated
Net loss from operations (1,578) (1,123) (6,415) (6,258)
Amortisation 53 287 858 1,179
Accretion of debt (2) 96 60 387
Provision for impairment on investment 6 28 6 28
Stock compensation charges 159 138 699 511
Deferred finance movement - (46) - (46)
Foreign currency instrument loss 28 19 35 19
Unrealised foreign exchange differences (23) 14 (7) (45)
Movement in net interest accrual (100) 186 (440) 52
----------------------------------------------------------
Cash outflow before movements in (1,457) (401) (5,204) (4,173)
working capital
Decrease/(increase) in debtors (384) (711) (820) (1,589)
Decrease/ (increase) in stock (128) (165) (1,146) (689)
Increase/ (decrease) in creditors 977 124 1,176 1,309
---------------------------------------------------------
Net cash outflow from operating (992) (1,153) (5,994) (5,142)
activities before tax ------------------------------------------------------------
Tax credits - - 312 121
Net cash outflow from operating
activities after tax (992) (1,153) (5,682) (5,021)
------------------------------------------------------------
Investing activities
Purchase of long-term tangible assets (137) (25) (727) (217)
Purchase of long-term intangible assets - - (6) (6)
Grant income (150) - 100 -
Movement in restricted funds (13) - 34 -
Financial instruments (52) (63) (52) (63)
-------------------------------------------------------------
Cash outflow from investing activities (352) (88) (551) (286)
--------------------------------------------------------------
Financing activities
Net proceeds from equity placing - 5,451 3,799 5,451
------------------------------------------------------------
Cash inflow/(outflow) from - 5,451 3,799 5,451
financing activities ------------------------------------------------------------
Increase/(decrease) in cash in the (1,344) 4,210 (2,434) 144
period ============================================================
Cash and cash equivalents:
Beginning of period 5,579 2,459 6,669 6,525
------------------------------------------------------------
End of period 4,235 6,669 4,235 6,669
TURBO POWER SYSTEMS INC.
YEAR ENDED 31 DECEMBER 2007
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 27
of the Consolidated Financial Statements for the year ended 31 December
2007. 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 include the accounts of Turbo Power Systems Inc, and
the accounts of its wholly owned subsidiary company Turbo Power Systems
Limited. The significant accounting policies are consistent with prior
years. Certain comparative amounts have been reclassified to conform to
the financial statement presentation adopted for 2007.
The Company's interim financial statements do not conform in all respects
to the requirements of Canadian GAAP for annual financial statements. The
Company's interim statements should be read in conjunction with the
consolidated financial statements of the Company for the year ended 31
December 2007. 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 2007 financial statements.
Derivative financial instruments are used by the Company to manage a
portion of its exposure to foreign exchange rate fluctuations. The Company
does notutilise derivative financial instruments for trading or speculative
purposes. The Company enters into foreign currency options denominated in
U.S. Dollars,
to manage foreign exchange rate fluctuation exposure on receipts from
customers billed in U.S. Dollars. These derivative contracts, not accounted
for as hedges, are marked to market, and any changes in the market value
are recorded in income or expense when the changes occur. The fair value of
these instruments is recorded as accounts receivable or payable.
The Company's functional and reporting currency is Pound Sterling.
Going concern
These consolidated financial statements have been prepared on a going
concern basis, which presumes that the Company will be able to realise its
assets and discharge its liabilities in the normal course of operations for
the foreseeable future. The Company has incurred cumulative losses
including a loss of �6.42 million for the year ended 31 December 2007 and
has a cumulative deficit of �62.67 million as at 31 December 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.
TURBO POWER SYSTEMS INC.
YEAR ENDED 31 DECEMBER 2007
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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
Year ended 31 December
Revenue 9,581 5,257 244 225 9,825 5,482
Development income 1,176 794 - - 1,176 794
Amortisation (143) (133) (715) (953) (858) (1,086)
Interest income 183 142 184 84 367 226
Interest expense (99) (658) (149) (391) (248) (1,049)
Net loss (2,352) (1,902) (4,063) (4,356) (6,415) (6,258)
Capital expenditure 523 190 50 33 573 223
Three months ended 31 December
Revenue 2,726 1,798 24 53 2,750 1,851
Development income 159 217 - - 159 217
Amortisation (39) (29) (159) (165) (198) (194)
Interest income 49 20 49 - 98 20
Interest expense (50) (75) (98) (76) (148) (151)
Net loss (998) (662) (596) (402) (1,594) (1,064)
Capital expenditure 115 103 22 3 137 106
As at 31 December
Total assets 6,800 3,868 7,672 11,896 14,472 15,764
Total liabilities 3,523 2,159 2,544 7,286 6,067 9,445
Total income �'000 Year ended Three months ended
31 December 31 December
2007 2006 2007 2006
UK 1,980 1,890 372 507
USA 6,314 2,591 1,711 1,228
Canada 2,465 790 729 175
Rest of world 242 1,005 97 158
-------------------- -------------------
11,001 6,272 2,909 2,068
==================== ===================
TURBO POWER SYSTEMS INC.
YEAR ENDED 31 DECEMBER 2007
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3 Significant Customers
During the year ended 31 December 2007, 67% of the Company's sales were
derived from three customers (2006: 41% from three customers). During the
three months to 31 December 2007, 65% of the Company's revenue was from two
customer (2006: 48% from two customers).
4 Research and product development
Research and product development expenditure incurred during the period
comprised:
Year ended Three months ended
31 December 31 December
2007 2006 2007 2006
�'000 �'000 �'000 �'000
Research and product
development cost 5,509 3,734 1,607 1,074
Accrued tax credits (27) (410) (27) (360)
------------------- ------------------
Total expenditure 5,482 3,324 1,580 714
=================== ==================
Total accrued tax credits receivable at 31 December 2007 amounted to �208,000 (31
December 2006: �490,000).
5 Interest expense
Year ended Three months ended
31 December 31 December
2007 2006 2007 2006
�'000 �'000 �'000 �'000
Interest 139 662 50 55
Accretion of debt 60 387 49 96
------------------- -------------------
248 1,049 148 151
=================== ===================
TURBO POWER SYSTEMS INC.
YEAR ENDED 31 DECEMBER 2007
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
6 Financial Instruments
Certain of the Company's business transactions occur in currencies other
than Sterling. The Company entered into foreign exchange average rate
option contracts during the twelve months ended 31 December 2007 and 31
December 2006 to reduce exposure to fluctuations in foreign exchange rates
on remittances from customers denominated in U.S. Dollars.
During 2007 the Company purchased an average rate option over $4.200
million US Dollars at a strike rate of 2.09 U.S. Dollars, which expires
between 26 March 2008 and 24 December 2008. During 2006 the Company
purchased an average rate option over $1.965 million U.S. Dollars at a
strike rate of 1.90 U.S. Dollars, which expired on 27 December 2006, and an
average rate option over $5.898 million U.S. Dollars at a strike rate of
2.00 U.S. Dollars which expired on 27 December 2007.
During the year a purchase cost of �51,000 (2006: �80,000) was recognised
and a loss of �35,000 (2006: gain of �17,000) was realised on these
options.
As at 31 December 2007 the unrealised gain from the contracts, included
within prepayments
was �nil (2006: �44,000). Included within other debtors at the year end was
an amount of �8,000 (2006: �nil) due following settlement of the 2006
options. The Company records unrealised gains or losses arising from these
contracts in the income statement.
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 year was
310,387,089 (2006: 191,827,517). The loss for the year ended 31 December
2007 was �6,415,000 (2006: �6,258,000).
The weighted average number of shares outstanding in the three months ended
31 December 2007 was 318,571,062 (2006: 195,079,375 ). The loss for the
three months ended 31 December 2007 was �1,578,000 (2006: �1,123,000)
Anti-dilutive potential securities outstanding not included in the loss per
common share calculation at 31 December 2007 total 171,255,583 (2006:
128,892,281)
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 of
�730,000 being under the performance bond restriction until 2010.
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.
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.
During March 2007 the Company committed cash bonds totalling USD$800,000 in
support of contracts placed by Bombardier Transportation for the CTA and
TTC programmes. The associated contracts require the bonds to remain in
place until after development and the prototype equipment is delivered.
TURBO POWER SYSTEMS INC.
YEAR ENDED 31 DECEMBER 2007
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
8 Restricted cash (continued)
The Company has also provided a property lease guarantee bond which is held
in escrow and totals �231,000.
At 31 December 2007 cash subject to restrictions totalled �1,362,000
(December 2006: �1,496,000).
9 Long - term assets
Cost Impairment Amortisation Net book
value
�'000 �'000 �'000 �'000
At 31 December 2007:
Investments 108 83 - 25
Intangible assets 4,078 1,663 2,368 47
Goodwill 863 43 - 820
Property, plant and
equipment 8,782 - 6,676 2,106
----------------------------------------------
Total long term assets 13,831 1,789 9,044 2,998
==============================================
At 31 December 2006:
Investments 104 73 - 31
Intangible assets 4,073 1,663 2,334 76
Goodwill 863 43 - 820
Deferred finance 474 - 329 145
Property, plant and
equipment 8,350 - 5,989 2,361
----------------------------------------------
Total long term assets 13,864 1,779 8,652 3,433
==============================================
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 7,187
Share based
compensation 176,470 17 - -
Shares issued, net of
share issue costs 44,450,000 3,868 - -
--------------------------------------------------------
At 31 December 2007 318,571,062 55,804 115,000,000 13,310
========================================================
TURBO POWER SYSTEMS INC.
YEAR ENDED 31 DECEMBER 2007
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
10 Share capital - issued shares - continued
No options or warrants were exercised during the nine months ended 30
September 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.
11 Financing
On 11 July 2003 the Company completed a �5,000,000 financing agreement
with institutional investors. The financing comprised unsecured
Convertible Notes and Warrants. The Convertible Notes have a term of five
years and bear interest at a rate of 3.5% per annum. They were convertible
into an aggregate of 25,000,000 Common Shares in Turbo Power Systems Inc.
at a conversion price of �0.20 per share. The Warrants had a term of three
years and were convertible into an aggregate of 3,500,000 Common Shares in
Turbo Power Systems Inc. at an exercise price of �0.15 per share, and
lapsed on 10 July 2006
On 11 March 2005 the Company completed a �8,000,000 (gross) financing
agreement with institutional investors. The financing comprised unsecured
Convertible Notes and Warrants. The Convertible Notes have a term of five
years plus one day and bear interest at a rate of 6.5% per annum. They are
convertible into an aggregate of 66,666,667 Common Shares in Turbo Power
Systems Inc. at a conversion price of �0.12 per share. The Warrants have a
term of five years and are convertible into an aggregate of 7,000,000
Common Shares in Turbo Power Systems Inc. at an exercise price of �0.15
per share.
On 28 December 2006 the Company completed a �6,000,000 (gross) financing
agreement with institutional investors. The financing comprised 50,000,000
Common Shares in the company and 25,000,000 A-Ordinary shares in Turbo Power
Systems Limited. The financing included the issue of 3,500,000 Warrants, having
a term of three years and being convertible into an aggregate of 3,500,000
Common Shares in Turbo Power Systems Inc. at an exercise price of �0.15 per
share. These warrants were issued on 6 January 2007 (see note 12).
On 28 December 2006, per an agreement reached with the holders of the
convertible notes, the Company redeemed �2,500,000 of the 2003 Convertible Loan
Notes and �2,360,000 of the 2005 Convertible Loan Notes at a redemption price of
�0.08. The redemption was dependant upon the Company's shares being approved for
trading on the AIM exchange which occurred on 28 December 2006.
A further �2,500,000 of the 2003 Convertible Loan Notes and �2,000,000 of the
2005 Convertible Loan Notes were redeemed in January 2007 at a redemption price
of �0.08.
The Company has incorporated the guidance provided by the CICA's Emerging Issue
Committee Abstract 96 "Accounting for the Early Extinguishment of Convertible
Securities Through (1) Early Redemption or Repurchase and (2) Induced Early
Conversion" (EIC96) in accounting for the early redemption of the convertible
notes. EIC96 provides guidance on the treatment of the fair value of the
conversion feature on the extinguishment of the convertible debenture.
Redemption of the convertible debentures in January 2007 resulted in an increase
in deficit of �82,000 (2006: �73,000) and an increase in retained deficit of
�2,512,000 (2006: �2,600,000).
TURBO POWER SYSTEMS INC.
YEAR ENDED 31 DECEMBER 2007
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
12 Stock options, warrants and
compensation expense
The number of options and warrants outstanding as at 31 December 2007, and the
movement during the year then ended, are as follows:
Options Warrants
Number Number
Outstanding at 1 January 2007 21,567,281 7,000,000
Cancelled (1,737,000) -
Lapsed (593,031) -
Issued 11,610,000 3,500,000
----------------------------
Outstanding at 31 December 2007 30,847,250 10,500,000
============================
The stock based compensation expense for the year ended 31 December 2007,
included in Production costs was �91,000 (2006: �51,000), in Research and
product development was �405,000 (2006:�255,000), and in General and
administrative costs was �203,000 (2006: �205,000).
On 6 January 2007 the Company issued 3,500,000 warrants as part of its
financing agreement with institutional investors.
The fair value of the stock options is the estimated fair value at grant
date. The fair value is calculated using the Black-Scholes option-pricing
model. In calculating the fair values of the options granted during the
quarter ended 31 March 2007 a dividend yield of Nil, expected volatility of
65%, a risk free interest rate of 5.0% and an expected option life of 5 years
have been assumed, and for options granted during the quarter ended 30 June
2007 a dividend yield of Nil, expected volatility of 75%, a risk free
interest rate of 5.0% and an expected option life of 5 years have been
assumed. The fair value of the stock options granted during the quarters
ended 31 March 2007 and 30 June 2007 was �0.06 per share.
The Black-Scholes option-pricing model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option-pricing models require the input of highly
subjective assumptions including the expected price volatility. The Company
uses expected volatility rates, which are based on historical volatility rates
trended into future years. Changes in the subjective input assumptions can
materially affect the fair value estimate, and therefore the existing models
do not necessarily provide a reliable single measure of the fair value of the
Company's stock options.
13 Prior year adjustment
The Company has previously translated the operations of the Canadian
parent company using the current rate method. During the year it was
identified that the appropriate method for translation should be the
temporal method. Accordingly a correction has been made with retroactive
restatement of the 2006 comparative financial statements.
The foreign exchange differences arising on consolidation have been
reclassified and taken to the Income statement. This has resulted in a
prior year adjustment to cancel the Currency Adjustment Reserve and
increase the loss brought forward at 31 December 2005 in Retained Earnings
by �128,000, and the loss for 2006 has been decreased by �60,000.
TURBO POWER SYSTEMS INC.
YEAR ENDED 31 DECEMBER 2007
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
14 Contingent loss
The Company is currently working on a contract with Hamilton Sundstrand
which could result in future losses. Since discussions are ongoing on the
contract in question a reliable estimate of any contingent liability
cannot be made at this time and no amount has been accrued.
15 Selected quarterly
information
The following table sets forth selected consolidated financial information
of the Company for the eight most recent quarters.
Revenue Net loss (Loss) per share UK
pence
�'000 �'000
March 2006 969 (1,770) (0.9)
June 2006 1,192 (1,742) (0.9)
September 2006 1,470 (1,623) (0.8)
December 2006 1,851 (1,123) (0.6)
March 2007 2,033 (1,403) (0.5)
June 2007 2,342 (1,768) (0.6)
September 2007 2,700 (1,666) (0.5)
December 2007 2,750 (1,578) (0.5)
This information is provided by RNS
The company news service from the London Stock Exchange
END
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