TIDMTPS
RNS Number : 0993R
Turbo Power Systems Inc
31 October 2011
31 OCTOBER 2011
TURBO POWER SYSTEMS INC. ("TPS" or the "Company") ANNOUNCES
RESULTS FOR
THE THIRD QUARTER AND NINE MONTHS ENDED 30 SEPTEMBER 2011
Key Features:
-- Order intake in the third quarter (Q3) of GBP6.36 million
(2010: GBP1.34 million) and in the nine months ended 30 September
(YTD) of GBP21.36 million (2010: GBP5.69 million) with a strong
pipeline of prospective orders
-- Total revenue in Q3 increased by 143% to GBP4.60 million
(2010: GBP1.89 million) and YTD by 35% to GBP9.97 million (2010:
GBP7.39million)
-- Production revenue in Q3 increased by 116% to GBP3.87 million
(2010: GBP1.79 million) and YTD by 35% to GBP8.31 million (2010:
GBP6.14 million)
-- Board strategy to invest in further improving TPS's
development and operational capabilities has continued:
-- Research and product development expenditure in Q3 increased
24% to GBP0.89 million (2010: GBP0.72 million) and YTD by 44% to
GBP2.67 million (2010: GBP1.86 million)
-- Headcount increased in the three months to September 2011 by
21% and in the nine months to 30 September 2011 by 55% to 164;
general and administrative costs YTD rose 42% to GBP3.55 million
(2010: GBP2.50 million)
-- EBITDA loss for Q3 of GBP0.69 million (2010: GBP0.77 million)
and YTD GBP3.29 million (2010: GBP1.15 million)
-- Net loss in Q3 GBP0.94 million (2010: GBP0.99 million) and
YTD GBP4.00 million (2010: GBP 4.14 million
-- Net cash outflow from operating activities YTD of GBP5.17 million (2010: GBP3.03 million)
-- Continuing support by TAO Sustainable Power Solutions (UK)
Limited, TPS's parent undertaking, evidenced by an increase in
their loan to 30 September 2011: GBP7.80 million (31 Dec 2010:
GBP1.90 million)
-- Appointment of Carlos Neves as Chief Financial Officer in September
Peter Brown, CEO, said:
In the past quarter we have made significant progress in the
development of the growth opportunities we have identified in all
of our markets. The strategies that the business has implemented
are designed to improve the long term financial performance of the
business. Focus will remain on significant, funded Research and
Development projects.
During the quarter we have continued to be successful in growing
the order book. Our Power Electronics business continues to
flourish and Electrical Machines is well placed to start to take
advantage of the expanding markets in which we operate. I
anticipate order intake in Q4 to be similar to that achieved in Q3,
with a good mix of production and development contracts.
We remain a technology-led company, and have continued to
strengthen the technical team to ensure we support relationships
with science-based customers who have demanding applications for
our technologies. We have also continued to invest in the
infrastructure of the business, with particular emphasis on quality
and project management. Investing in these key competencies will
help us in achieving sustainable controlled growth.
At 30 September we employed 164 staff with further recruitment
planned for the fourth quarter.
The growth in headcount in key areas of the business has enabled
increased investment in research and product development which
reached GBP2.67 million at the end of September. The business will
continue to invest in technologies that are applicable to markets
that show significant future growth opportunities. Numerous
development opportunities have been identified spanning one, two
and three year periods with a good mix of customer funded and self
funded projects.
During the year, the business was successful in its bid for
funding through the prestigious, UK Government-backed Regional
Growth Fund. In order to start drawing down on this award, TPS will
undergo due diligence of the plans that were submitted along with
the application. Due to the continued growth of the Company to
date, the proportion of the grant to be received for 2011 has
increased. The first submission for 2011 will be in January
2012.
We announced the appointment of Carlos Neves as Chief Financial
Officer in September. I look forward to working with him and
believe that his strategic and analytical strengths will make a
strong contribution as we continue to refocus and build the
company.
The business is being repositioned for growth and has a strong
order book to deliver. In an exciting and challenging environment,
focus will remain on developing products and technology, with the
success of the business dependent on excellence in execution and
delivering on our commitments to customers. I am confident that the
long term prospects for the business are positive.
For further information, please contact:
Turbo Power Systems Tel: +44 (0)20 8564 4460
Peter Brown, Chief Executive Officer
Kreab Gavin Anderson (financial public Tel: +44 (0)20 7074 1800
relations)
Ken Cronin / Michael Turner
finnCap (NOMAD, broker and financial Tel: +44 (0)20 7600 1658
advisor)
Marc Young/ Henrik Persson
NOTES TO EDITORS
About Turbo Power Systems
Company Website: www.turbopowersystems.com
Turbo Power Systems Inc (TSX:TPS.TO AIM:TPS.L) is a leading UK
based designer and manufacturer of innovative power solutions.
TPS'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 third party customers include blue
chip companies such as Bombardier Transportation, McQuay
International and Eaton Aerospace. The Company also has commercial
contracts with its ultimate parent company, Vale Solucoes em
Energia S.A. ("VSE"), the Brazilian energy solutions company, and
with Tao Sustainable Power Solutions (UK) Ltd ("TAO UK"), which is
a VSE wholly owned subsidiary and TPS's parent undertaking.
Forward looking statements
This press 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.
Definition of non-IFRS 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 IFRS and, accordingly, should not
be construed as an alternative to operating income or net loss
determined in accordance with IFRS 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.
Notice of no auditor review of interim financial statements
Under Canadian National Instrument 51-102, Part 4, subsection
4.3(3)(a), if an auditor has not performed a review of the interim
financial statements, they must be accompanied by a notice
indicating that the financial statements have not been reviewed by
an auditor.
The accompanying un-audited interim financial statements of the
Company have been prepared by and are the responsibility of the
Company's management.
The Company's independent auditor has not performed a review of
these financial statements in accordance with standards established
by the Canadian Institute of Chartered Accountants for a review of
interim financial statements by an entity's auditor.
OPERATIONAL REVIEW
This review has been prepared as at 28 October 2011.
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.
-- power electronics products, including variable frequency
drives and inverters, which combine with the Company's electrical
machines to create an integrated solution, and a range of rugged
power conversion products for rail and industrial applications.
Strategic Direction
We remain a technology-led company. During the first nine months
of 2011 we have continued to strengthen the technical team to
ensure we support relationships with science-based customers who
have demanding applications for our technologies.
Carlos Neves was appointed as Chief Financial Officer in
September. Carlos has strategic and analytical strengths in
developing and implementing growth plans to ensure that the Company
remains focused on financial aims.
The business continues to pursue applications for its leading
technologies and to leverage its relationship with TAO UK, TPS's
parent undertaking, and its ultimate parent company, VSE, which is
headquartered in Brazil.
The rapidly developing market place for advanced technologies in
Brazil offers many exciting opportunities and, in the coming year,
we expect to see tangible results from the Agency Agreement signed
with VSE, which was announced in December 2010. Equally, there are
active opportunities on almost every continent and we see clear
signs that confidence is returning to our market places. We have
seen an increasing number of system-based enquiries and contract
wins in the period. This strengthens our belief that the
marketplace is starting to recognize the value of our
technology.
Operationally, our emphasis upon developing Integrated Systems
demands that our two sites at Gateshead and Heathrow will work more
closely together, functioning as one engineering team. We also
recognize that our customer base is increasingly keen to secure
regional manufacture capability outside the UK. We are taking steps
to seek to ensure that TPS is commercially and operationally
capable of responding positively.
Current Operating Climate
The rail and industrial sectors have shown strong signs of
recovery, with good order intake achieved in 2011, and continued
good prospects for our laser power suppliers and motors/drives for
other industrial applications.
In the defence sector we have identified specialist pockets of
growth potential in areas where TPS technology can be applied. We
have been able to initiate contact with potential future partners
and will continue to investigate this market further and hope to
see increased activity in this sector.
Current Programmes
The Company operates with two reportable business segments.
The Power Electronics Division is involved in the development
and manufacture of electrical power supply and control systems,
encompassing rail and aerospace transport activities, power
conditioning within the renewable energy area and industrial power
supplies.
The Electrical Machines Division is involved in the development
and commercialization of high speed electrical machines which are
currently marketed within the renewable energy, industrial and
defence markets.
As noted in the Strategic Direction above, the emphasis of the
Board is moving to developing integrated solutions. This will mean
that over time the divisional structure of the Company will be
replaced by reporting as a single unit.
-- Transport
o Rail
The rate of delivery continues to grow on the major programmes
(Bombardier Chicago Transit Authority and Bombardier Toronto). The
team continues to focus upon the recently awarded Bombardier
Monorail APU project. The programme to develop the Auxiliary Power
solution for Bombardier Systems' new Innovia ART Vehicle platform
continues to make progress, whilst the business is also engaged in
the overhaul and support of the CL165 vehicle Auxiliary Power
solution for Chiltern Rail.
o Aerospace
The Jettison Fuel Pump motor drives for Eaton Aerospace continue
to be delivered in line with our customer's call-off rate.
-- Energy
The development work on the 1.2MW High Speed Generator &
associated Power Electronics package has enabled a follow on
programme with VSE to develop a 0.8MW demonstrator motor for
Brazil. Revenue expectations from this programme remain as
previously expected.
-- Industrial
o Laser Power Supplies
Demand from our customer has continued during 2011 and, as
reported previously, will surpass the production rates of earlier
years. The product range has also been streamlined and improved to
support the needs of our customer's business.
o Industrial Motors and Drives
An order for 175 systems from our Industrial Motors and Drives
OEM (McQuay International) was awarded this year. These units are
for use in McQuay International's recently launched Magnitude WME
chiller.
Following the re-start of the manufacturing of the S2M Laser
Blower products, there has been a continuing demand for this
product throughout the year, with indication that there will be
continuing demand for these units during the rest of 2011.
-- Defence
o 1MW High-Speed Generator
System trials of our high-speed machine are nearing completion.
We expect that the overall system will be subject to rigorous field
trails during Q4. As and when the trials are successful, we have
indications that additional units and/or further products are
likely to be required.
Financial Performance
Transition to International Financial Reporting Standards
("IFRS")
In February 2008, the Canadian Accounting Standards Board
announced the adoption of IFRS for publicly accountable enterprises
in Canada effective 1 January, 2011. The accompanying unaudited
condensed consolidated interim financial statements for the three
months and the nine months ended 30 September 2011 are TPS's third
quarterly financial statements prepared under IFRS. The significant
accounting policies adopted under IFRS were included in Note 3 to
the unaudited condensed consolidated interim financial statements
for the three months ended 31 March 2011 and the reconciliations
and descriptions of the effect of transitioning from Canadian GAAP
to IFRS were included in Note 6. In accordance with the transition
rules, the Company has retroactively applied IFRS to the
comparative data and has restated the 2010 comparative data
throughout this document to reflect the adoption of IFRS, with
effect from 1 January 2010 (Transition Date).
Quarterly Financial performance
Total revenues in the quarter ended 30 September 2011 ('Q3') of
GBP4.6 million were 143% higher than in the same quarter in the
previous year, 2010: GBP1.89 million, primarily due to increased
production volumes.
The Board continued to implement its strategy of seeking to
further improve the Company's development and operational
capabilities.
Research and product development costs increased by 24% to
GBP0.89 million (2010: GBP0.72 million), in line with the Board's
strategy and the commercial development contracts in place.
General and administrative costs, which consist mainly of staff
costs, facilities costs and the costs associated with the Company's
public listings, were up by 82% to GBP1.31 million (2010: GBP0.72
million). The major element in the increase of GBP0.59 million was
higher staff costs, as a result of increased headcount.
The Company recorded a loss before interest, tax, depreciation,
amortization, and stock compensation for the quarter of GBP0.69
million (2010: GBP0.76 million), primarily as a result of increased
cost of sales and general and administration expenditure.
The Company also recorded an operating cash outflow before
working capital movements of GBP3.29 million for the year to date
(2010: GBP1.15 million). After adjusting for changes in working
capital items and purchases of property, plant and equipment, the
Company suffered an overall cash outflow of GBP5.42 million (2010:
GBP3.09 million).
The Company ended the quarter with an unrestricted cash of
GBP1.28 million and held restricted cash of GBP0.34 million, the
majority of which is associated with a rent deposit. During the
period the Company obtained the release of restricted cash held
against performance bonds on contracts. The performance bonds with
the customer are still in place but security for the bank, if the
Company is unable to satisfy the bond, has been provided by VSE the
parent Company of TAO UK.
In Q3 the Company undertook significant transactions with
related parties. In September 2011 the Company negotiated a loan
facility from TAO UK, its parent undertaking, which provided GBP1.5
million to support working capital requirements bearing interest at
6% and being repayable upon request after 2 January 2012.
Going Concern
These condensed consolidated interim financial statements have
been prepared on the basis of International Financial Reporting
Standards applicable to a 'going concern', which assume that the
Company will continue in operation for the foreseeable future and
will be able to realize its assets and discharge its liabilities in
the normal course of operations. As at 30 September 2011 the
Company had net operating cash outflows. Therefore the Company may
require additional funding which, if not raised, may result in the
curtailment of activities. The Company has a cumulative deficit of
GBP84.09 million as at 30 September 2011.
At 30 September 2011 the Company had an unrestricted cash
balance of GBP1.28 million and held restricted cash of GBP0.34
million, the majority of which is associated with rent deposit. If
the Company is unable to generate positive cash flow from
operations or secure additional debt or equity financing these
conditions and events would cast substantial doubt regarding the
"going concern" assumption and, accordingly, the use of accounting
principles applicable to a going concern. These condensed
consolidated interim financial statements do not reflect
adjustments to the carrying values of the assets and liabilities,
the reported expenses and the balance sheet classifications, which
could be material, which would be necessary if the "going concern"
assumption were not appropriate.
On 5 September 2011 the Company announced that it had extended
the loan financing agreement with TAO UK, its parent undertaking,
to provide the Company with access to a further GBP1.5 million of
debt financing to support working capital requirements.
The Directors regularly review and consider the current and
forecast activities of the Company in order to satisfy themselves
as to the viability of operations. These ongoing reviews include
consideration of current order book and future business
opportunities, current development and production activities,
customer and supplier exposure and forecast cash requirements and
balances. Based on these evaluations the Directors consider that
the Company is able to continue as a going concern.
Summary of Quarterly Results
The following table sets out selected quarterly consolidated
financial information of the Company for the last eight
quarters:
Revenue Research General Net profit/ Profit/
All amounts in GBP'000 and product and administrative (loss) (loss)
development per
share
Prepared under Canadian
GAAP
December 2009 3,193 743 845 211 0.1
Restated under IFRS
March 2010 2,581 619 699 (21) 0.0
June 2010 1,765 523 1,085 (3,127) (0.4)
September 2010 1,789 716 720 (992) (0.1)
December 2010 777 1,401 1,235 (2,969) (0.2)
March 2011 1,794 950 1,166 (1,617) (0.1)
June 2011 2,643 836 1,076 (1,439) (0.1)
September 2011 3,872 887 1,309 (941) (0.1)
Note: Revenue in the table above excludes development income.
General and administrative includes depreciation, amortisation and
foreign exchange gains/losses.
Production revenues decreased through 2010 as 2009 production
programmes finished. The weak 2009 economy resulted in lower than
normal order activity resulting in a declining customer production
requirement through the following year. Production revenues have
been increasing significantly in 2011 in line with the increasing
order intake.
Research and development expenditure has begun to increase
compared with previous years reflecting the commencement of
development activities related to opportunities presented by the
investment from TAO UK, which became TPS's parent undertaking, and
the commercial development contract with VSE, which is TAO UK's
parent.
Subsequent to the controlling investment made by TAO UK in June
2010, as from 1 January 2010 the Company no longer qualifies for
R&D tax credit cash refunds under the UK SME R&D tax credit
regime, which would previously have been used to reduce the
Company's total research and development expenditure. Accordingly,
in the year 2010 as a whole no tax credits were offset against such
expenditure.
In Q2 2011 the Company agreed its claim for the UK SME R&D
tax credit for 2009, receiving GBP580,000 and booking a one-time
benefit of GBP230,000 in 2011.
The quarterly pattern of research and development expenditure,
with reductions for R&D tax credits in the table below shown in
brackets, was:
All amounts in GBP'000 Research and Product Development
Gross Tax Credits Net
December 2009 743 - 743
March 2010 694 (75) 619
June 2010 598 (75) 523
September 2010 716 - 716
December 2010 1,251 150 1,401
March 2011 950 - 950
June 2011 1,066 (230) 836
September 2011 887 - 887
Reconciliation of net loss to EBITDA result
Quarter ended Nine months ended
30 September 30 September
2011 2010 2011 2010
GBP'000 GBP'000 GBP'000 GBP'000
Net profit/( loss) (941) (992) (3,997) (4,141)
Add back:
Net finance expense 135 - 195 2,455
Depreciation & amortisation 190 153 472 457
Stock Compensation 31 73 44 79
EBITDA profit/(loss) (685) (766) (3,286) (1,150)
-------- -------- --------- ---------
Copies of Quarterly and Annual Results
The Company's full Financial Results and Managements' Discussion
and Analysis for 2010, together with the Second Quarter 2011
Financial Results and Managements' Discussion and Analysis are
available on www.sedar.com.
Copies of the quarterly and annual results are available from
the Company's office at Unit 3 Summit Centre, Hatch Lane, West
Drayton, Middlesex UB7 0LJ, United Kingdom or available to view
from the Company's website at www.turbopowersystems.com.
Review of the quarter ended 30 September 2011
Production revenue
Production revenue in the quarter ended 30 September 2011 was
GBP3.87 million (2010: GBP1.79 million.)
2011 2010
GBP'000 GBP'000
Power electronics 3,357 1,212
Electrical machines 515 577
-------- --------
3,872 1,789
-------- --------
Revenue for the power electronics division has increased mainly
because of anticipated increase in unit requirements for major
programmes with Bombardier.
Development income
Development income in the quarter was GBP0.73 (2010: GBP0.10
million).
2011 2010
GBP'000 GBP'000
Development income 732 98
-------- --------
Development income has increased as work commences on the new
contract wins in H1 2011.
Cost of Sales
The cost of sales in the quarter amounted to GBP3.09 million
(2010: GBP1.35 million).
2011 2010
GBP'000 GBP'000
Power electronics 2,926 868
Electrical machines 159 481
-------- --------
3,086 1,349
-------- --------
Production costs include certain facilities costs attributable
to the manufacturing operation. The revenue increase included
revenue from contracts with higher cost of sales.
Research and product development
Research and product development expenditure in the quarter was
GBP0.89 million, (2010:GBP0.72 million).
2011 2010
GBP'000 GBP'000
Research and product development
expenditure 887 716
887 716
-------- --------
General and administrative costs
General and administrative costs, which consist mainly of staff
costs, facilities costs and the costs associated with the Company's
public listings, were up by 82% from GBP0.72 million in 2010 to
GBP1.31 million in 2011.
The major element in the increase of GBP0.59 million was higher
staff costs, as a result of increased headcount.
Finance income
Finance income in both 2010 and 2011 was insignificant due to
low cash balances maintained.
Finance expense
Finance expense in 2011 arises from the loans from TAO UK and
comprises:
2011 2010
GBP'000 GBP'000
Interest payable 135 -
135 -
-------- --------
Following the settlement in June 2010 of the outstanding loan
notes no finance charges were incurred in the quarter ended 30
September 2010.
Review of the nine months ended 30 September 2011
Production revenue
Production revenue in the nine months ended 30 September 2011
was GBP8.31 million (2010: GBP6.14 million).
2011 2010
GBP'000 GBP'000
Power electronics 7,329 4,033
Electrical machines 980 2,102
-------- --------
8,309 6,135
-------- --------
Revenues at Power Electronics increased as the new major
programmes with Bombardier for the Chicago Transit Authority and
Toronto Rocket increase in delivery rate. Electrical Machines
decreased compared with 2010 due to the completion of a major
contract.
Development income
Development income in the nine months was GBP1.66 million (2010:
GBP1.26 million).
2011 2010
GBP'000 GBP'000
Development income 1,656 1,257
-------- --------
Cost of Sales
The cost of sales in the nine months amounted to GBP7.07 million
(2010: GBP4.22 million).
2011 2010
GBP'000 GBP'000
Power electronics 6,323 2,690
Electrical machines 749 1,525
-------- --------
7,072 4,215
-------- --------
Production costs include certain facilities costs attributable
to the manufacturing operation.
Research and product development
Research and product development expenditure in the nine months
was GBP2.67 million. (2010: GBP1.86 million).
2011 2010
GBP'000 GBP'000
Research and product development
expenditure 2,903 2,008
R&D Tax credits (230) (150)
2,673 1,858
-------- --------
Subsequent to the controlling investment made by TAO UK in June
2010,as from 1 January 2010 the Company no longer qualifies for
R&D tax credit cash refunds under the UK SME R&D tax credit
regime, which would previously have been used to reduce the
Company's total research and development expenditure.
In June 2011 the Company agreed its claim for the UK SME R&D
tax credit in respect of 2009, receiving a cash payment of
GBP580,000 and recording in the income statement a one-time benefit
of GBP230,000.
General and administrative costs
General and administrative costs, which consist mainly of staff
costs, facilities costs and the costs associated with the Company's
public listings, were up by 42% from GBP2.50 million in 2010 to
GBP3.55 million in 2011. The major element in the increase of
GBP1.05 million was higher staff costs, partly as a result of
increased headcount and a management restructuring cost of GBP0.22
million.
Finance income
Finance income in both 2011 and 2010 was insignificant due to
low cash balances maintained.
Finance expense
Finance expenses arises from the loans from TAO UK (2010: from
the issue of convertible bonds in March 2005 and June and August
2008, and risk premium payment) and comprise:
2011 2010
GBP'000 GBP'000
Interest payable 195 412
Accretion of debt - 96
Loan risk premium - 2,122
-------- -----------
195 2,630
-------- -----------
Cash flows for the nine months ended 30 September 2011
Cash outflow from operating activities
Operating cash outflow before movements in working capital was
GBP3.29 million for the nine months (2010: GBP1.15 million)
Movements in working capital produced a net cash outflow of
GBP1.88 million during the nine months (2010: GBP1.30 million).
Investing activities
Cash outflows from capital investments in the nine months were
GBP0.26 million (2010: GBP0.05 million).
Financing activities
Cash inflows in the period of GBP5.90 million relate to the
increase in the loan from TAO UK (2010: GBP1.30 million, relates to
the investment in the Company, and the settlement of the
outstanding Loan Notes following the investment, and the settlement
of the outstanding 2005 Loan Notes).
Overall cash outflow for the period
Overall the cash inflow during the nine months was GBP0.48
million (2010: cash outflow of GBP0.31 million).
Balance sheet as at 30 September 2011
The Company ended the period with an unrestricted cash balance
of GBP1.28 million (31 December 2010: GBP0.80 million).
Substantially all of the Company's cash balances are denominated in
Sterling.
In addition the Company had restricted cash amounts of GBP0.34
million (31 December 2010: GBP0.77 million), principally relating
to a rent deposit on the Company's office lease.
Non-current assets (excluding restricted cash) have decreased
from GBP1.07 million at 31 December 2010 to GBP0.84 million at 30
September 2011, after depreciation and amortisation charges of
GBP0.47 million.
Loans and borrowings (including accrued interest) increased from
GBP1.92 million at 31 December 2010 to GBP8.01 million at 30
September 2011. The amounts are now shown as a current liability as
the loan is repayable on 30 days notice expiring on or after 2
January 2012.
Net current liabilities at 30 September 2011, excluding
restricted cash balances included under current assets, were
GBP4.36 million (31 December 2010: current asset GBP0.70
million).
As at 30 September 2011, the Company had 1,437,754,811 common
shares issued and outstanding and 448,333,334 A ordinary shares
issued and outstanding. As at that date there were 31,377,273
outstanding share options.
Contractual Obligations
Payments due by period GBP'000
Total 2011 2012 2013 2014 2015 2016 and
thereafter
Trade and other
payables 4,935 4,935 - - - - -
Loan and borrowings 8,012 - 8,012 - - - -
Operating leases 3,545 154 617 383 266 266 1,859
16,492 5,089 8,629 383 266 266 1,859
------- ------ ------- ----- ----- ----- ------------
Shareholders' equity
The movement in shareholders' equity comprised:
2011
GBP'000
As at 1 January 2011 (238)
Loss for Q1 (1,617)
Loss for Q2 (1,439)
Loss for Q3 (941)
Stock compensation 44
--------
As at 30 September
2011 (4,191)
--------
As at 28 October 2011, the Company had 1,437,754,811 common
shares issued and outstanding and 448,333,334 A ordinary shares
issued and outstanding. As at that date there were 31,377,273
outstanding share options.
Liquidity
Cash, cash equivalents and short-term investments at 30
September 2011 were GBP1.28 million (31 December 2010: GBP0.80
million).
Restricted cash at 30 September 2011 was GBP0.34 million (31
December 2010: GBP0.77 million).
The Company reported a loss in the nine months of GBP4.00
million and has a cumulative deficit of GBP84.09 million. The
Company's ability to continue as a going concern depends on its
ability to generate positive cash flows from operations or secure
additional debt or equity financing.
The Company has not changed its approach to Currency risk and
Interest rate risk management from that of the prior year and as
disclosed in the annual statements at 31 December 2010.
Currency risk management
Essentially 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 30 September 2011 the Sterling equivalent of Canadian Dollar
denominated net liabilities amounted to GBP77,600 (31 December
2010: net liabilities GBP103,000).
Interest rate risk management
The analysis of the Company's financial assets and borrowings
analysed between floating and fixed interest rates is shown
below
30 September 31 December
2011 2010
GBP'000 GBP'000
Floating rate financial
assets 1,622 1,571
Fixed rate borrowings (7,800) (1,900)
The fixed rate borrowings are at 6.0% per annum.
Financial instruments
The Company's financial assets and liabilities consist primarily
of the cash and cash equivalents, restricted cash, trade
receivables, investments, trade payables and loan notes.
Loans and Financial
Classification receivables liabilities
at amortised
cost
30 September 2011 GBP'000 GBP'000
Asset (liability)
Cash and cash equivalent 1,279
Restricted cash 343
Trade and other receivables 4,888
Trade and other payables (4,935)
Loan notes (8,012)
Provisions (1,295)
------------- --------------
Total 6,510 (14,242)
------------- --------------
Loans and Financial
Classification receivables liabilities
at amortised
cost
31 December 2010 GBP'000 GBP'000
Asset (liability)
Cash and cash equivalent 799
Restricted cash 772
Trade and other receivables 1,969
Trade and other payables (3,291)
Loan notes (1,916)
Provisions (1,293)
------------- --------------
Total 3,540 (6,500)
------------- --------------
The amounts at which the assets and liabilities above are
recorded are considered to approximate to fair value.
Fair value estimation
The fair value of financial instruments that are not traded in
an active market is determined by using valuation techniques. The
Company uses a variety of methods and makes assumptions that are
based on market conditions existing at each balance sheet date.
Techniques, such as estimated discounted cash flows, are used to
determine fair value for the financial instruments. The fair value
of forward foreign exchange contracts is determined using quoted
forward exchange rates at the balance sheet date.
The carrying value less impairment provision of trade
receivables and payables are assumed to approximate their fair
values due to the short-term nature of trade receivables and
payables. The fair value of financial liabilities for disclosure
purposes is estimated by discounting the future contractual cash
flows at the current market interest rate that is available to the
group for similar financial instruments.
Financial Risk Management and Capital Structure
The Company's risk management programme remains as detailed in
the Annual Report and Accounts 31 December 2010. There have been no
significant changes since 31 December 2010.
Further information is provided in Management's Discussion and
Analysis and the notes to the Financial Statements.
Related Party Transactions
During the quarter ended 30 September 2011 the Company undertook
one significant transaction with related parties. In September 2011
the Company negotiated an extension in the loan facility provided
by its majority investor TAO UK, which provided GBP1.5 million to
support working capital requirements bearing interest at 6% and
being repayable upon request after 2 January 2012.
Critical accounting policies and estimates
Included in the 2010 annual consolidated financial statements,
as well as in the 2010 annual MD&A, the Board has identified
the accounting policies and estimates that are critical to the
understanding of the business and to the results of operations. On
1 January 2011, with the adoption of IFRS, the Board has updated
the critical accounting policies and estimates. See Notes 2 and 5
of the Q1 2011 condensed consolidated interim financial statements
for a description of the adoption of IFRS and a detailed discussion
regarding the significant accounting policies and the application
of critical accounting estimates and judgments.
These condensed consolidated interim financial statements have
been prepared on the basis of International Financial Reporting
Standards applicable to a 'going concern', which assume that the
Company will continue in operation for the foreseeable future and
will be able to realize its assets and discharge its liabilities in
the normal course of operations. As at 30 September 2011 the
Company had net operating cash outflows. Therefore the Company may
require additional funding which, if not raised, may result in the
curtailment of activities.
Future accounting pronouncements
As of 1 January 2013, the Company will be required to adopt IFRS
9 Financial Instruments, which is the result of the first phase of
the IASB's project to replace IAS 39 Financial Instruments:
Recognition and Measurement. The new standard replaces the current
multiple classification and measurement models for financial assets
and liabilities with a single model that has only two
classification categories: amortized cost and fair value. The
Company is currently assessing the impact of this standard on its
consolidated financial statements.
As of 1 January 2013, the Company will be required to adopt IFRS
10 Consolidated Financial Statements, which establishes principles
for the preparation and presentation of consolidated financial
statements when an entity controls one or more other entities. The
Company does not expect IFRS 10 to have a material impact on its
consolidated financial statements.
As of 1 January 2013, the Company will be required to adopt IFRS
13 Fair Value Measurement, which defines fair value and sets out a
framework for measuring fair value when fair value measurements are
required or permitted by other IFRSs. The Company is currently
assessing the impact of this standard on its consolidated financial
statements.
As of 1 January 2013, the Company will be required to adopt
amendments to IAS 1 Presentation of Financial Statements, which
require that an entity present separately the items of OCI that may
be reclassified to profit or loss in the future from those that
would never be reclassified to profit or loss. The Company intends
to adopt the amendments in its financial statements for the annual
period beginning on January 1, 2013. As the amendments only require
changes in the presentation of items in other comprehensive income,
the Company does not expect the amendments to IAS 1 to have a
material impact on the financial statements.
As of 1 January 2013, the Company will be required to adopt IAS
19 Employee Benefits, which requires recognition of actuarial gains
and losses immediately in other comprehensive income, the full
recognition of past service costs immediately in profit or loss,
recognition of the expected return on plan assets in profit or loss
to be calculated based on the rate used to discount the defined
benefit obligation, and certain additional disclosures. The Company
is currently assessing the impact of this standard on its
consolidated financial statements.
Risks and uncertainties
The development and commercialisation plans for the Company's
products presented in this Management's Discussion & Analysis
are forward-looking statements and as such are subject to a number
of risks and uncertainties including those detailed below and in
the Going Concern section above.
The business entails risks and uncertainties that affect the
outlook and eventual results of the business and commercialisation
plans. The primary risks relate to meeting the product development
and commercialisation milestones, which require that the products
exhibit the functionality, cost, durability, and performance
required in a commercial product.
There is a risk that the markets for certain of our products may
never develop, or that market acceptance might take longer to
develop than anticipated. Our business planning process recognises
and, to the extent possible, attempts to manage these risks by
pursuing diverse markets for each of our products. Within these
markets our commercialisation plan is focused on products that we
believe have a competitive advantage.
We develop both subsystems and complete systems across our high
speed motors and generators and power electronics product ranges
and these development programmes are subject to risk. These risks
include problems or delays due to technical difficulties and
inability to meet design performance goals, including power output,
life and reliability. We mitigate these risks to the extent
possible through detailed project management, formal design
reviews, reviews by external experts, contingency plans which
anticipate likely problems, safety reviews, training and testing
programs related to the operation and maintenance of the
products.
We seek to maintain our technology lead through our strong
intellectual property position, which will act as a barrier against
competitors, and by continuing to invest in technology development.
However, there can be no assurance that our present or future
issued patents will protect our technology lead. We also rely upon
know-how and trade secrets to maintain our technology lead.
However, there is no assurance that this information can be
completely protected.
Another market driver for products is the development of
government policy related to the environment. Unfavourable
decisions related to environmental policies (such as noise and
exhaust emission levels) could result in delays in the introduction
of our distributed power generation products. We mitigate, to the
extent possible, the effects of changes in government regulations
by developing products for diverse geographic locations.
We cannot predict with certainty our future revenues or results
from our operations. If we experience significant cost overruns on
any of our programs and we cannot obtain additional funds to cover
such overruns or additional cash requirements, certain research and
development activities may be delayed, resulting in changes or
delays to our commercialisation plans. We may be required to raise
additional capital through the issuance of equity or debt. We seek
to mitigate this risk by securing funding commitments from a
variety of sources and through adjustments to our development
plans, by maintaining a substantial cash reserve, by being
financially conservative in our expenditures and by maintaining
good communications with investors and investment bankers to assist
us should we need to access the public or private capital
markets.
We are also subject to normal operating risks such as credit
risks and foreign currency risks. Foreign currency sales and
purchases are made in Sterling, Euros, Canadian and US Dollars.
Over time, currency balances are matched, to the extent possible,
to planned currency purchases.
Internal Control
The Board of Directors has overall responsibility for the
accounting policies and ensuring that the Company maintains an
adequate system of internal financial control to provide them with
reasonable assurance that assets are safeguarded and of the
reliability of financial information used for the business and for
publication. There are inherent limitations in any system of
internal financial control and, accordingly, even the most
effective system can provide only reasonable, and not absolute,
assurance with respect to the preparation of financial information
and the safeguarding of assets.
Management, under the supervision and with the participation of
the Chief Executive Officer and the Chief Financial Officer, is
also responsible for establishing and maintaining adequate internal
controls over financial reporting within the Company. Management
have designed and evaluated the effectiveness of the Company's
Internal Controls over Financial Reporting to provide reasonable
assurance that the financial reporting is reliable and that the
consolidated financial statements are prepared in accordance with
International Financial Reporting Standards. Based on the latest
evaluation, management has concluded that the following potential
weaknesses existed as at 30 September 2011, but that they are
sufficiently mitigated through appropriately designed controls.
Management has determined that these controls are effective and
provide reasonable assurance that the financial reporting is
reliable and in accordance with IFRS.
Limited resources
Given the Company's size, it has limited resources within the
Finance department. This impacts on its ability to provide
comprehensive knowledge in certain areas of financial accounting,
as detailed below. The Company is highly reliant on the knowledge
of a limited number of employees and on the performance of
mitigating procedures during its financial close and consolidation
process to ensure that the consolidated financial statements are
presented fairly and in all material respects.
Income taxes
Income tax law is a highly technical area that requires an
in-depth understanding of national, international, federal and
provincial tax laws and the Company's Finance staff has only a fair
and reasonable knowledge of the rules related to income tax
accounting and reporting. Although this represents a weakness in
the Company's control environment, the Company retains and will
continue to retain the services of external experts to provide
advice and guidance on income tax accounting and disclosures. The
Company does not consider that this weakness in control environment
has resulted in any material misstatements of the financial
statements.
Complex and non-routine transactions
At times the Company records complex and non-routine
transactions which are extremely technical in nature and require an
in-depth understanding of IFRS. The Company's Finance staff has a
fair and reasonable knowledge of the rules related to IFRS. There
is potential that these transactions could be recorded incorrectly
resulting in potential material misstatement of the financial
statements of the Company. Where the Company identifies a
transaction as potentially complex or non-routine it will utilize
the services of external experts to provide guidance and
advice.
Turbo Power Systems Inc.
Condensed consolidated interim statement of comprehensive
income
Unaudited
Notes Quarter ended Nine months
30 September ended 30 September
2011 2010 2011 2010
GBP'000 GBP'000 GBP'000 GBP'000
Continuing operations
Revenue 4,604 1,887 9,965 7,392
Cost of sales (3,086) (1,349) (7,072) (4,215)
-------- -------- ---------- ----------
Gross profit 1,518 538 2,893 3,177
Expenses
Distribution costs (128) (94) (472) (502)
Research and product
development (887) (716) (2,673) (1,858)
General and administrative (1,309) (720) (3,551) (2,503)
-------- -------- ---------- ----------
Total expenses (2,324) (1,530) (6,696) (4,863)
Operating loss (806) (992) (3,803) (1,686)
Finance income - - 1 175
Finance expense (135) - (195) (2,630)
Loss before tax (941) (992) (3,997) (4,141)
Income tax expense - - - -
Net loss for the period (941) (992) (3,997) (4,141)
Total comprehensive loss
for the period attributable
to equity shareholders (941) (992) (3,997) (4,141)
======== ======== ========== ==========
Loss per share - basic
and diluted 0.07p 0.07p 0.28p 0.29p
======== ======== ========== ==========
The Notes on pages 27 to 38 form an integral part of these
condensed consolidated interim financial statements.
Turbo Power Systems Inc.
Condensed consolidated interim statement of financial
position
Unaudited
Notes As at 30 As at 31
September December
2011 2010
GBP'000 GBP'000
Non-current assets
Intangible assets 85 -
Property, plant and equipment 756 1,066
Restricted cash 320 320
----------- ----------
1,161 1,386
Current assets
Restricted cash 23 452
R&D tax credits receivable - 350
Inventories 2,699 1,656
Trade and other receivables 4,888 1,619
Cash and cash equivalents 1,279 799
----------- ----------
8,890 4,876
----------- ----------
Total assets 10,051 6,262
----------- ----------
Current liabilities
Trade and other payables 12 4,935 3,291
Loans and borrowings 13 8,012 -
Provision for other liabilities
and charges 280 430
----------- ----------
13,227 3,721
----------- ----------
Non-current liabilities
Loans and borrowings 13 - 1,916
Provision for other liabilities
and charges 1,015 863
----------- ----------
1,015 2,779
----------- ----------
Total liabilities 14,242 6,500
----------- ----------
Net Liabilities (4,191) (238)
=========== ==========
Equity (deficit)
Share capital 14 62,862 62,862
Convertible shares 15,310 15,310
Other reserves 1,725 1,681
Accumulated deficit (84,088) (80,091)
----------- ----------
Equity (deficit) attributable
to shareholders of the
company (4,191) (238)
=========== ==========
Approved by the Board:
J J M Pessoa, Chairman
28 October 2011
The Notes on pages 27 to 38 form an integral part of these
condensed consolidated interim financial statements.
Turbo Power Systems Inc.
Condensed consolidated interim statement of changes in
equity
Unaudited
Common Convertible Convertible Contributed Accumulated Total
Share Shares loan notes surplus deficit
capital
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1 January
2010 56,225 13,310 1,501 1,594 (72,981) (351)
Net profit - - - - (4,141) (3,149)
Stock compensation (21) - - 100 - 79
Share conversion - - (708) - (708)
Expiry of warrants 701 - (793) - - (92)
Issue of shares 7,036 2,000 - - - 9,036
--------- ------------ ------------ -------------- ------------ --------
Balance at 30 September
2010 63,941 15,310 - 1,694 (77,122) 3,823
Net loss - - - - (2,969) (2,969)
Stock compensation - - - (13) - (13)
Share conversion 289 - - - - 289
Expiry of warrants 148 - - - - 148
Issue of shares (1,516) - - - - (1,516)
--------- ------------ ------------ -------------- ------------ --------
Balance at 31 December
2010 62,862 15,310 - 1,681 (80,091) (238)
Net loss - - - - (3,997) (3,997)
Stock compensation - - - 44 - 44
Balance at 30 September
2011 62,862 15,310 - 1,725 (84,088) (4,191)
========= ============ ============ ============== ============ ========
The Notes on pages 27 to 38 form an integral part of these
condensed consolidated interim financial statements.
Turbo Power Systems Inc.
Condensed consolidated interim statement of cash flows
Unaudited
Nine months
ended 30 September
Notes 2011 2010
GBP'000 GBP'000
Operating activities
Loss for the period (3,997) (4,141)
Adjustments for:
Net finance costs 195 (175)
Adjustment to loan note conversion - 2630
Depreciation of property, plant and
equipment 469 457
Amortisation of intangible assets 3 -
Movement on provisions
Share based payment expenses 15 44 79
Operating cashflows before movements
in working capital (3,286) (1,150)
Changes in working capital items
(Increase) in inventories (1,043) (50)
Decrease/(increase) in restricted
cash 429 51
Decrease/(increase) in R&D tax credits 350 -
receivable
Decrease/(increase) in trade and other
receivables (3,269) 243
Increase/(decrease) in provisions 2
Increase/(decrease) in trade and other
payables 1,642 (1,543)
---------- ----------
Cash generated by/(used) in operations (5,175) (2,449)
Interest received/(paid) 1 (585)
---------- ----------
Net cash from operating activities (5,174) (3,034)
---------- ----------
Investing activities
Purchase of property, plant and equipment (158) (53)
Purchase of intangible assets (88) -
Net cash used in investing activities (246) (53)
---------- ----------
Financing activities
Increase/(repayment) of borrowings 14 5,900
Fundraising proceeds - 9,036
Loan note settlement - (6,261)
Net cash used in/from financing activities 5,900 2,775
---------- ----------
Net increase/(decrease) in cash and
cash equivalents 480 (312)
Cash and cash equivalents at the beginning
of the period 799 649
Cash and cash equivalents at the end
of the period 1,279 337
========== ==========
The Notes on pages 27 to 38 form an integral part of these
condensed consolidated interim financial statements.
Turbo Power Systems Inc.
Notes to the condensed consolidated interim financial
statements
Unaudited
1 Reporting entity
Turbo Power Systems Inc ("The Company") is subsisting pursuant
to the Business Corporations Act (Yukon Territory). The Company's
registered office is Suite 200-204 Lambert Street, Whitehorse,
Yukon Y1A 3T2, Canada.
The Company conducts operations through its wholly owned
subsidiary company, Turbo Power Systems Limited ("TPSL") and the
main trading address is Unit 3, Heathrow Summit Centre, Skyport
Drive, Hatch Lane, West Drayton, Middlesex UB7 0LJ, United
Kingdom.
The Company's parent undertaking is TAO Sustainable Power
Solutions (UK) Limited ("TAO UK"), a company registered in England
and Wales, UK. The Company's ultimate parent company is Vale
Solucoes em Energia S.A. ("VSE"), a company registered in
Brazil.
These consolidated financial statements of the Company as at and
for the quarter and nine months ended 30 September 2011 comprises
the Company and its subsidiaries.
TPSL has initiated commercialisation of its technology in
relation to high speed permanent-magnet machine systems for power
generation and industrial motor applications at its London
location, whilst its operation based in North East England is an
established provider of advanced power electronics.
2 Going concern
These interim financial statements have been prepared on the
basis of International Financial Reporting Standards applicable to
a 'going concern', which assume that the Company will continue in
operation for the foreseeable future and will be able to realize
its assets and discharge its liabilities in the normal course of
operations.
At 30 September 2011 the Company had net operating cash
outflows. Therefore the Company may require additional funding
which, if not raised, may result in the curtailment of activities.
The Company has a cumulative deficit of GBP84.09 million as at 30
September 2011 (December 2010: GBP80.09 million).
At 30 September 2011 the Company had an unrestricted cash
balance of GBP1.28 million (December 2010: GBP0.80 million) and
held restricted cash of GBP0.34 million (December 2010: GBP0.77
million) the majority of which is associated with rent deposit. If
the Company is unable to generate positive cash flow from
operations or secure additional debt or equity financing these
conditions and events would cast substantial doubt regarding the
"going concern" assumption and, accordingly, the use of accounting
principles applicable to a going concern. These interim financial
statements do not reflect adjustments to the carrying values of the
assets and liabilities, the reported expenses and the balance sheet
classifications, which could be material, which would be necessary
if the "going concern" assumption were not appropriate.
On 15 April 2011 the Company announced that it had extended the
loan financing agreement with its principal shareholder, TAO UK, to
provide the Company with access to a further GBP2.2 million of debt
financing to support working capital requirements. In May 2011 a
further GBP1.0 million was provided through the loan financing
agreement, and on 5 September 2011 a further GBP1.5m taking the
total loan to GBP7.8 million.
The Directors regularly review and consider the current and
forecast activities of the Company in order to satisfy themselves
as to the viability of operations. These ongoing reviews include
consideration of current order book and future business
opportunities, current development and production activities,
customer and supplier exposure and forecast cash requirements and
balances. Based on these evaluations the Directors consider that
the Company is able to continue as a going concern.
3 Basis of preparation and statement of compliance
The Company's consolidated financial statements were prepared in
accordance with Canadian Generally Accepted Accounting Principles
(Canadian GAAP) until 31 December 2010. As from 1 January, 2011,
publicly accountable enterprises are required to adopt IFRS.
Accordingly, we have commenced reporting on this basis in these
condensed consolidated interim financial statements.
These interim financial statements (the interim financial
statements) have been prepared in accordance with IAS 34 Interim
Financial Reporting. These are the Company's third IFRS interim
financial statements for part of the period covered by the first
International Financial Reporting Standards (IFRS) annual financial
statements and IFRS 1 First-time Adoption of International
Financial Reporting Standards relevant to interim reports has been
applied. They do not include all of the information required for
full annual financial statements.
These interim financial statements have been prepared in
accordance with the accounting policies set out in note 4 of the
first quarter 2011 interim financial statements, which are based on
the recognition and measurement principles of IFRS in issue and are
effective at 30 September 2011 or are expected to be adopted and
effective at 31 December 2011, our first annual reporting date at
which we are required to use IFRS. These interim financial
statements should be read in conjunction with the Annual Report and
Accounts 2010 and the first quarter 2011 interim financial
statements.
An explanation of how the transition to IFRSs has affected the
reported financial position, financial performance and cash flows
of the Company is provided in note 5. This note includes
reconciliations of equity and total comprehensive income for
comparative periods reported under Canadian GAAP.
The unaudited interim financial statements were authorised for
issuance by the Board of Directors on 28 October, 2011.
The interim financial statements have been prepared under the
historical cost convention, except for the revaluation of certain
financial instruments.
The interim financial statements are presented in GBP sterling,
rounded to the nearest GBP1,000, which is the Company's functional
and presentation currency.
As of 1 January 2013, the Company will be required to adopt IFRS
9 Financial Instruments, which is the result of the first phase of
the IASB's project to replace IAS 39 Financial Instruments:
Recognition and Measurement. The new standard replaces the current
multiple classification and measurement models for financial assets
and liabilities with a single model that has only two
classification categories: amortized cost and fair value. The
Company is currently assessing the impact of this standard on its
consolidated financial statements.
As of 1 January 2013, the Company will be required to adopt IFRS
10 Consolidated Financial Statements, which establishes principles
for the preparation and presentation of consolidated financial
statements when an entity controls one or more other entities. The
Company does not expect IFRS 10 to have a material impact on its
consolidated financial statements.
As of 1 January 2013, the Company will be required to adopt IFRS
13 Fair Value Measurement, which defines fair value and sets out a
framework for measuring fair value when fair value measurements are
required or permitted by other IFRSs. The Company is currently
assessing the impact of this standard on its consolidated financial
statements.
As of 1 January 2013, the Company will be required to adopt
amendments to IAS 1 Presentation of Financial Statements, which
require that an entity present separately the items of OCI that may
be reclassified to profit or loss in the future from those that
would never be reclassified to profit or loss. The Company intends
to adopt the amendments in its financial statements for the annual
period beginning on January 1, 2013. As the amendments only require
changes in the presentation of items in other comprehensive income,
the Company does not expect the amendments to IAS 1 to have a
material impact on the financial statements.
As of 1 January 2013, the Company will be required to adopt IAS
19 Employee Benefits, which requires recognition of actuarial gains
and losses immediately in other comprehensive income, the full
recognition of past service costs immediately in profit or loss,
recognition of the expected return on plan assets in profit or loss
to be calculated based on the rate used to discount the defined
benefit obligation, and certain additional disclosures. The Company
is currently assessing the impact of this standard on its
consolidated financial statements.
4 Critical accounting judgements and key sources of estimation uncertainty
The preparation of financial statements in conformity with IFRS
requires management to make judgments, estimates and assumptions
that affect the application of accounting policies and the reported
amounts of assets and liabilities, revenue and expenses and the
related disclosures of contingent assets and liabilities. Although
these estimates are based on management's best knowledge of the
amount, event or actions, actual results ultimately may differ from
those estimates.
Estimates and underlying assumptions are continually evaluated
and are based on historical experience and other factors, including
expectations of future events that are believed to be reasonable
under the circumstances. Revisions to accounting estimates are
recognised in the period in which the estimates are revised and in
any future period affected.
The estimates and assumptions that have a significant risk of
causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year were set out in Note 5
of the first quarter 2011 interim financial statements.
5 Changes in accounting policies on adoption of IFRS
The Company adopted IFRS on 1 January 2011 and in accordance
with IFRS 1 has applied IFRS retrospectively to its comparative
data as at 1 January 2010, the Transition date.
An explanation of how the transition from Canadian GAAP to IFRS
has affected the Company's financial position, financial
performance and cash flows is set out below. The following
reconciliations are provided:
(a) Reconciliation of equity at 30 September 2010
(b) Reconciliation of total comprehensive income for the quarter
ended 30 September 2010;
(c) Reconciliation of total comprehensive income for the nine
months ended 30 September 2010.
(d) Any material adjustments to the prior year cash flow
statement.
Reconciliation of equity:
30 September
2010
GBP'000
Equity in accordance with Canadian
GAAP 3,889
Holiday pay accrual (56)
-------------
Equity in accordance with IFRS 3,833
-------------
Reconciliation of total comprehensive loss:
Quarter Nine months
ended ended
30 September 30 September
2010 2010
GBP'000 GBP'000
Total comprehensive loss in accordance with
Canadian GAAP (1,009) (4,085)
Holiday pay accrual 17 (56)
------------- -------------
Total comprehensive loss in accordance with
IFRS (992) (4,141)
------------- -------------
6 Notes to the reconciliations
Under IAS 32 the convertible shares have been classified as an
equity instrument and classified as a part of shareholders equity.
Previously under Canadian GAAP this was classified as an equity
instrument but classified as a non-controlling interest.
IAS 19 Employee benefits
Under Canadian GAAP, the company did not meet the criteria for
accruing outstanding staff holiday pay at the balance sheet date.
IFRS requires that the accrual be calculated at each balance sheet
date.
Cash Flow statement
The adoption of IFRS did not significantly impact our cash flows
compared to Canadian GAAP.
7 Segmental analysis
The Company'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 Company and
other related management activities are allocated between the two
reportable segments.
The power electronics and electrical machines systems segments
both operate in the United Kingdom. Except for the Investments held
by the Company which are located in Canada, all of the Company's
assets are located in the United Kingdom.
Nine months ended Power Electrical Elimination Total
30 September 2011 electronics machines
GBP'000 GBP'000 GBP'000 GBP'000
Revenue - external 7,329 980 - 8,309
Revenue - internal 177 - (177) -
Development income
- external 1,195 461 - 1,656
8,701 1,441 (177) 9,965
------------- ----------- ------------ --------
Segment result (1,389) (2,414) (3,803)
Finance income - 1 1
Finance expense (98) (97) (195)
Profit/(loss) attributable
to equity shareholders (1,487) (2,510) (3,997)
Nine months ended Power Electrical Elimination Total
30 September 2010 electronics machines
GBP'000 GBP'000 GBP'000 GBP'000
Revenue - external 4,033 2,102 6,135
Development income
- external 754 503 1,257
4,787 2,605 7,392
------------- ----------- ------------ --------
Segment result (1,622) (2,193) - (3,815)
Finance expense (163) (163) - (326)
Profit/(loss) attributable
to equity shareholders (1,785) (2,356) - (4,141)
Geographic Segmental Information
Total Revenues by destination Quarter Quarter Nine months Nine months
ended 30 ended 30 ended 30 ended 30
September September September September
2011 2010 2011 2010
GBP'000 GBP'000 GBP'000 GBP'000
UK 402 227 1,276 1,343
USA 774 1,452 1,897 5,335
Canada 2,284 7 4,611 347
Rest of world 1,144 201 2,181 367
4,604 1,887 9,965 7,392
----------- ----------- ------------ ------------
All property, plant and equipment was located within the United
Kingdom during both periods ended 30 September 2011 and 30
September 2010.
8 Loss for the period
Profit/(loss) for the period has been Quarter Quarter Nine Nine
arrived at after charging/(crediting): ended ended months months
30 September 30 September ended ended
30 September 30 September
2011 2010 2011 2010
GBP'000 GBP'000 GBP'000 GBP'000
Employee costs 1,796 978 4,881 3,291
Cost of inventories recognised as
expense 2,709 736 6,004 2,721
Net foreign exchange losses/(gains) (21) (19) 58 (81)
Depreciation of property, plant and
equipment 190 153 469 457
9 Staff costs and employees
Staff costs for all employees, including Quarter Quarter Nine Nine
directors, consist of: ended ended months months
30 September 30 September ended ended
30 September 30 September
2011 2010 2011 2010
GBP'000 GBP'000 GBP'000 GBP'000
Wages and salaries 1,605 845 4,212 2,887
Social security costs 148 47 430 274
Pension costs 12 13 55 51
Stock compensation adjustment 31 73 44 79
Redundancy and termination payments - - 140 -
-------------- -------------- -------------- --------------
1,796 978 4,881 3,291
-------------- -------------- -------------- --------------
10 Significant customers
In the nine months ended 30 September 2011, 58% of the Company's
sales were derived from three customers (2010: 64% from three
customers), each of whom represented 10% or more of the Company's
sales.
Total revenue Total revenue Accounts receivable
Quarter ended nine months
ended
30 September 30 September 30 Sept 31 Dec
2011 2010 2011 2010 2011 2010
Segment GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Customer
1 Power electronics 2,043 665 3,455 2,498 1,786 571
Customer
2 Power electronics 684 366 1,663 1,332 430 131
Customer
3 Power electronics 650 275 650 902 251 -
-------- -------- -------- -------- ---------- ----------
3,377 1,306 5,768 4,732 2,467 702
-------- -------- -------- -------- ---------- ----------
Others 1,228 581 4,197 2,660 1,847 389
4,605 1,887 9,965 7,392 4,314 1,091
-------- -------- -------- -------- ---------- ----------
11 Loss per share
Loss per common share has been calculated using the weighted
average number of shares in issue during the relevant financial
periods.
Quarter ended 30 September Nine months ended 30
September
2011 2010 2011 2010
Numerator for basic loss per share
calculation:
Profit/(loss) attributable to equity (GBP941,000) (GBP992,000) (GBP3,997,000) (GBP4,141,000)
shareholders
Denominator:
For basic net loss - weighted average
shares outstanding 1,437,754,811 1,437,754,811 1,437,754,811 1,437,754,811
Basic and diluted
Loss per common share - pence 0.07p 0.07p 0.28p 0.29p
As the Company experienced a loss in both years all potential
common shares outstanding from dilutive securities are considered
anti-dilutive and are excluded from the calculation of diluted loss
per share.
Details of anti-dilutive potential securities outstanding not
included in EPS calculations at 30 September are as follows:
30 September
2011 2010
Common shares potentially issuable:
- under stock options 31,377,273 75,840,000
- pursuant to A Ordinary stock conversion 448,333,334 448,333,334
479,710,607 524,173,334
------------ ------------
12 Trade and other payables
30 September 31 December
2011 2010
GBP'000 GBP'000
Trade creditors 2,446 1,340
Other creditors 190 584
Deferred income 1,936 1,020
Government grants 30 55
Accruals 333 292
4,935 3,291
------------- ------------
Trade creditors and other payables principally comprise amounts
outstanding for trade purchases and ongoing costs.
The Directors consider that the carrying amount of trade
payables approximates to their fair value.
13 Loans and borrowings
On 22 October 2010 the Company agreed to a loan facility with
TAO UK, which bears interest at 6% per annum and is repayable upon
demand commencing 2 January 2012. The loan is secured by a fixed
and floating charge over the assets of the Company's subsidiary
TPSL.
Date of drawdown Amount
28 October 2010 GBP1,200,000
26 November 2010 GBP700,000
25 February 2011 GBP800,000
28 March 2011 GBP400,000
15 April 2011 GBP2,200,000
25 May 2011 GBP1,000,000
5 September 2011 GBP1,500,000
Accrued interest GBP212,000
Total GBP8,012,000
-------------
30 September 31 December
2011 2010
GBP'000 GBP'000
Balance at 1 January included in creditors
Due within one year - 261
Due after more than one year 1,917 3,386
Add: issued during the year 5,900 1,900
Less: extinguished during the year - (3,211)
Less: converted during the year - (55)
------------- ------------
7,817 2,281
Add: accretion of debt component during
the period - 101
Add: deferred finance charges - 171
Add: interest accrued 195 248
Less: interest paid during the period - (885)
------------- ------------
Balance at end of period 8,012 1,916
------------- ------------
Analysed:
Due within one year 8,012 -
Balance included in creditors due after
more than one year - 1,916
14 Share capital and options
Authorised
At 30 September 2011 and 31 December 2010, the authorised share
capital of the Company comprised an unlimited number of common
shares and an unlimited number of preferred shares, issuable in
series, without nominal or par value.
Issued Number GBP'000
At 1 January 2010 341,398,222 56,225
Shares issued 1,096,356,589 6,637
---------------- --------------
At 31 December 2010 1,437,754,811 62,862
Shares issued - -
---------------- --------------
At 30 September 2011 1,437,754,811 62,862
---------------- --------------
Potential issue of common shares
The Company has issued share options under the 2002 Stock Option
Plan and A Ordinary Shares in Turbo Power Systems Limited that are
convertible into common shares of the Company.
30 September 31 December
2011 2010
Share options outstanding 31,377,273 56,399,091
Convertible shares (A Ordinary shares) 448,333,334 448,333,334
------------- ------------
479,710,607 504,732,425
------------- ------------
Convertible shares
Holders of A Ordinary Shares of TPSL carry no voting rights,
cannot attend any shareholder meetings and, in the event of
winding-up of TPSL are entitled to a maximum distribution of
GBP500,000 in aggregate, to rank before the Common Shares. The A
Ordinary shares are convertible into an equal number of Common
Shares of the Company on request by the holder, having given 61
days notice. Under certain take over or change in control events,
the A Ordinary Shares are exchangeable under "super exchange"
rights, converting for 3 common shares of the Company for every A
Ordinary Share held.
2002 Stock Option Plan
The movements in the outstanding stock options granted under the
2002 Stock Option Plan are as follows:
Number of options Option price Weighted average
per share range exercise price
GBP GBP
Outstanding, 1 January 2010 25,485,700 0.02 - 0.14 0.06
Granted 70,000,000 0.01 0.01
Forfeited (38,970,909) 0.01 - 0.14 0.04
Expired (115,700) 0.10 0.10
Outstanding, 31 December 2010 56,399,091 0.01 - 0.14 0.02
Granted - - -
Forfeited (24,961,813) 0.01 0.01
Expired - - -
Outstanding, 30 September
2011 31,377,273 0.01 - 0.14 0.02
------------------------- ------------------------ ------------------------
There were no share options exercised in either 2011 or
2010.
Stock compensation expense
The Company has recorded stock compensation expense, all of
which related to equity settled share-based payment transactions,
as follows:
Quarter ended 30 Nine months ended
September 30 September
2011 2010 2011 2010
GBP'000 GBP'000 GBP'000 GBP'000
Cost of sales - - - -
Distribution costs - - - -
Research & development 13 27 13 29
General & administration 18 46 31 50
--------- -------- --------- ---------
31 73 44 79
--------- -------- --------- ---------
15 Related party transactions
During the nine months ended 30 September 2011 the Company
undertook five significant transactions with related parties. In
February 2011 the Company negotiated a loan facility from its
majority investor TAO UK, bearing interest at 6% and being
repayable upon request after 2 January 2012. A table of the
drawdowns on the loans in the year are as follows:
Date of drawdown Amount
25 February 2011 GBP800,000
28 March 2011 GBP400,000
15 April 2011 GBP2,200,000
25 May 2011 GBP1,000,000
5 September 2011 GBP1,500,000
Total GBP5,900,000
-------------
In the period the Company has transacted business with TAO UK,
totalling GBP63,000, and VSE in Brazil of GBP340,080 relating to
the 0.8MW demonstrator motor. All transactions were conducted
within the normal course of business and were measured at the
exchange amount.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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