TIDMTPS
RNS Number : 5627Z
Turbo Power Systems Inc
19 March 2012
19 March 2012
Turbo Power Systems Inc. ("TPS" or the "Company") Announces
results for
the Year and Quarter Ended 31 December 2011
Turbo Power Systems Inc, a leading UK based designer and
manufacturer of innovative power solutions, today announces results
for the full year and quarter ended 31 December 2011.
Key Highlights:
-- Full year revenue up 69% to GBP14.4 million
-- Full year order intake up 140% to GBP23 million with strong visibility for 2012 deliveries
-- Full year loss before interest, tax, depreciation,
amortisation, and stock compensation increased to GBP5.10 million
(2010: GBP4.14 million) after 48% increase in headcount and 23%
increase in R&D
-- Increased focus on development of integrated systems and solutions for rail customers
-- Expansion of application engineering for energy, marine and oil and gas sectors
-- Tao Sustainable Power Solutions, TPS' 75.4% majority
shareholder, increased the Company's existing debt financing
facility to GBP8.15 million (31 December 2010:GBP1.9 million) and
further post balance sheet extension of GBP1.02 million at the end
of January 2012
-- Peter Brown appointed Chief Executive Officer in May 2011
James Pessoa, Chairman, said:
"2011 was a year of transition for Turbo Power Systems as we
prepared the business for further growth. Revenue and order intake
grew significantly, positively impacting the overall financial
performance. In accordance with our strategy we invested
significantly in research and product development as well as
headcount and restructured the senior management team. Whilst the
Board expects to require further working capital support in the
first half of 2012 to underpin the growth anticipated for the year
ahead, it also continues to consider a range of options to address
the financial constraints facing the Company. As notified on 30
January 2012, the Board will also continue to consider the issues
raised by the Toronto Stock Exchange. The strong order book is a
clear indication that our refocused business is gaining traction in
the market place and we continue to actively pursue significant and
exciting business opportunities. Our challenge for 2012 is to
accelerate this progress and build upon the firm foundations for
recovery established in the year reported. We look forward with
confidence and optimism."
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)
Robert Speed / 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.
Chairman's statement
The last financial year has been one of considerable change for
Turbo Power Systems Inc. ("TPS" or "the Company") as we have
prepared for future growth.
Performance
Revenue in the year to 31 December 2011 ("2011") of GBP14.4
million was up by 69% compared with the previous year. Order intake
in 2011 of GBP23 million was also significantly improved, securing
an excellent pipeline of contracts which are planned to be
delivered during 2012 and thereafter.
Overall financial performance showed an improvement, with loss
before taxation for the year of GBP6.2 million (2010: loss GBP7.1
million).
Investment
2011's operating loss was GBP5.8 million, a year-on-year
increase of 25%, due predominantly to the Company's investment in
headcount (up by 48% to 206 at 31 December 2011) and restructuring
of the senior management team. The investment was necessary to
address the Company's expectation of increased customer demand,
from a base revenue of GBP0.35 million per month in January 2011 to
more than GBP1.5 million per month in the last quarter of 2011.
Furthermore, in addition to increasing the numbers in our
engineering teams, the Company continued to further strengthen the
technical team, with a number of key appointments to ensure we
support relationships with science-based corporations who have
demanding applications for our technologies.
In line with the Board's strategy and the commercial development
contracts in place, research and product development costs
increased by 23% to GBP3.8 million (2010: GBP3.1 million).
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 48% to GBP4.9 million (2010: GBP3.3
million), attributable to the higher staff costs, as a result of
increased headcount.
Capital investment in 2011 amounted to GBP0.66 million (2010:
GBP0.09 million) and relate to production equipment, enhanced
technology and software capabilities.
Funding
During the year Tao Sustainable Power Solutions (UK) Limited
("TAO UK"), TPS's 75.4% majority shareholder, agreed to increase
the Company's existing debt financing facility to GBP8.15 million
(31 December 2010: GBP1.9 million). Subsequent to the year end, the
Company and TAO UK agreed to further extend this facility by
GBP1.02 million at the end of January 2012.
This funding has been used to invest in the infrastructure of
the business, providing better management control and positioning
the business to deliver significant growth in 2012 and beyond.
As previously reported to shareholders, on 30 January 2012 TPS
noted the announcement of a listing review issued by the Toronto
Stock Exchange ("TSX"). The announcement stated:
"Turbo Power Systems Inc. (the "Company") - TSX is reviewing the
Common Shares (Symbol: TPS) of the Company with respect to meeting
the continued listing requirements. The Company has been granted
120 days in which to regain compliance with these requirements,
pursuant to the Remedial Review Process."
The admission of the Company's shares to trading on Alternative
Investment Market is unaffected by TSX's announcement.
The Board will continue to consider the issues raised by the
TSX. As part of the Board's on-going review, it was noted that
financial constraints will continue for the first half of 2012,
with further support for working capital required to continue
funding the significant growth in 2012 and beyond. The Board is
considering the options available, including new loans, new equity
injections and/or a capital re-structure, and further announcements
will follow in due course.
As previously stated, TAO UK remains fully committed to TPS and
has expressed its continuing financial support of TPS's working
capital requirements during 2012.
The financial statements have been prepared on a going concern
basis, and disclose in Note 2 to the consolidated financial
statements the conditions and events that cast substantial doubt on
the Company's ability to continue as a going concern. As in 2010,
the auditor's report contains an emphasis of matter paragraph
referencing this uncertainty relating to the going concern.
Strategy and Outlook
Looking ahead, the Board intends TPS to remain a technology-led
company.
As such, the business continues to pursue innovative
applications for its technologies and to leverage its relationship
with TAO UK and its parent, Vale Solucoes em Energia S.A. ("VSE"),
which is headquartered in Brazil. Systems based enquiries received
directly from VSE and also from other projects originating in
Brazil continue to grow and we expect significant growth in our
systems related business. The increase in orders and live
opportunities show that TPS' know-how, technology, products and
services are gaining traction in the market place.
Operationally, our emphasis is on developing Integrated Systems
demands, with our two sites at Gateshead and Heathrow working more
closely together, functioning as one business.
We also recognise that our customer base is increasingly keen to
secure regional manufacturing capability outside the UK. In order
to meet these regional demands, TPS is seeking to solidify
partnerships around the world to strengthen technology and product
and service offerings, whilst reducing the significant research and
development burden. As a consequence we have secured partnership
agreements in India and Australia for both power electronics
products and electric machine applications.
Peter Brown was appointed as Chief Executive Officer of the
Company and took up the position in May 2011. Under Peter's
leadership of the Executive Team, the Board's challenge for 2012 is
to accelerate the progress made in 2011 towards making Turbo Power
Systems a profitable business and one capable of sustaining organic
growth.
The current order book is strong. Execution of those orders and
completion of development programmes in a consistent and timely
manner will be the key in delivering the Board's plans for improved
results during 2012.
The Board and I look forward to 2012's performance with both
optimism and confidence.
J J M Pessoa
Chairman
Management's discussion and analysis ("MD&A")
The following information should be read in conjunction with
Turbo Power Systems Inc. ("TPS") audited consolidated financial
statements for the year ended 31 December 2011 and related notes,
which are prepared in accordance with International Financial
Reporting Standards ("IFRS"). All amounts in the MD&A, audited
consolidated financial statements and related notes are expressed
in Sterling, unless otherwise noted.
This MD&A 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. Risk factors are
discussed more fully in the Company's Annual Information Form.
This MD&A has been prepared as at 16 March 2012.
Business of the Company
Turbo Power Systems designs and manufactures high performance
electric motors, generators, and power electronics systems and
provides custom solutions to energy conversion, industrial,
transport and military markets.
TPS is a technology-led organisation and provides solutions to
difficult and challenging requirements. The Company's track record
in engineering innovation, which has been built and tested over a
number of years, allows us to meet challenging design and
manufacturing briefs with specific requirements relating to
environmental performance and performance to volume demands.
TPS has a proven track record in the development and deployment
of equipment in the rail and industrial sectors. The long term
relationships with customers in these markets have been built based
on delivering technology-rich competitive products with proven
reliability.
Based on an established electrical machines and power
electronics expertise developed over the last 30 years, the Company
plans to build upon its existing portfolio of products and expand
in growing markets and regions.
2011 Summary
Strategic Direction
We are intent on remaining a technology-led company.
We have further strengthened the technical team with a number of
key appointments to ensure we support and grow relationships with
science based corporations who have demanding applications for our
technologies and knowhow. At 31 December 2011 the business employed
206 people (including temporary staff), an increase of 67 compared
to 2010. An increase in engineering staff accounts for a
significant portion of the growth, helping to further strengthen
our engineering capabilities and increase our engineering
throughput.
As such, the business continues to pursue applications for its
technologies and to leverage its relationship with TAO UK, the
Company's 75.4% majority shareholder, and its parent VSE, which is
headquartered in Brazil. We have seen an increasing number of
systems based enquiries, both from Brazil and elsewhere, and we
have a firm belief that the marketplace has now recognised the
value of our technology. As a consequence we anticipate significant
new orders.
Operationally our emphasis is on developing Integrated Systems,
and during 2011 we made good progress in this area. Internal
management and functional controls along with investment in
infrastructure will continue in 2012 as we seek to ensure
controlled and sustainable growth is delivered. We also recognise
that our customer base is increasingly keen to secure regional
manufacture capability outside the UK. We are taking steps to
ensure that TPS is commercially and operationally capable of
responding to this global trend.
Following a detailed market and capability review, a revised
business strategy was established and areas of real growth
identified. The management team believes that TPS' success will
hinge on a balanced business strategy based on three key
elements:
-- Growing the existing markets of rail and industrial systems
through improved product designs, reduced cost and increased margin
and scope of supply;
-- Expansion of engineered solutions offerings in energy,
marine, oil & gas sectors where TPS is the supplier of choice
owing to its responsiveness and technology capabilities;
-- Development of complete products based on VSE/TPS Synergies
allowing us to access multiple customers and to transition to a
'value based pricing' model.
Based on our established electrical machines and power
electronics expertise developed over the last 30 years, the Company
plans to build upon its existing portfolio of products and expand
in growing markets and region, as follows:
-- Rail
TPS' addressable market for power electronics products is
significant. Customers' key buying criteria are conformance to
specifications, lower size and weight and also lower price. In
order to remain competitive and eliminate some of the barriers to
growth, the Company will pursue technologies that will not only
increase the power density of its products, but also increase their
efficiency and reduce their cost by increasing material
utilisation. The Company will focus on platform products to
optimise cost, quality and delivery performance. In addition, TPS
will focus on establishing a profitable and long term future,
through strategic partnerships in countries with high growth
potential, especially Brazil, India and North America.
-- High-Speed Motors Offerings
The Company offers electric motors and associated high speed
drives to the global chiller compressor market in which we can
potentially participate in over 40% of the total market. Over the
years, TPS has forged a strong relationship with one of the major
heating, ventilation and air conditioning ("HVAC") global
suppliers. Building on that relationship, the Company plans an
expansion of its technology to the greater power required by the
growing market of industrial HVAC and gas compression. TPS will
pursue strategies to increase its scope of supply, as well as forge
strategic partnerships with key component manufacturers to secure
its supply going forward.
-- Specialist Applications Sector
TPS' current portfolio of products is specific to specialised
markets. These include laser power supplies and blowers and
Megawatt class power generators for the military.
These markets have been, and are expected to remain, steady in
the future. In 2012 the Company anticipates a continuation of
current order levels. Furthermore, based on the success of the TPS
Megawatt class generator, it is anticipated further units will be
required.
-- Maintenance Repair and Overhaul ("MRO")
MRO for both our products and those of our competitors is a
growth area for the Company.
One particular market with substantial global growth is the rail
sector, both designing obsolescence out and replacing rotary power
supplies with static converters.
The MRO function is critical to our core business as TPS will be
judged on its ability to support its products over the life
cycle.
In 2012 TPS plans to implement a detailed MRO business strategy
and form a support organisation to deliver it. In all current and
future bids, the company intends to introduce a service element to
extend TPS's value proposition.
-- Future Markets
The new growth engines for the Company's product portfolio will
be driven by the desire for TPS to become a systems and solution
provider, rather than a component supplier. Achieving this will
move the Company up the value chain.
The Company has proven that it has the expertise to develop
Megawatt class turbine driven permanent magnet generator systems
through the development of its 1.2 MW system. Now the know-how and
expertise will be applied to 5 and 10 MW systems. With their small
foot print and light weight, the Company's offering has the
required attributes for applications in distributed generation and
off shore platforms which are in high demand. The expansion to
these higher power levels will be used as a platform to develop
medium voltage technology and as well as the approach of
standardised building blocks for the energy sector. This would lead
to a reduction in cycle time and lower cost of development for
future products.
Our intention is that TPS' offerings will consist of a compact
permanent magnet generator, associated power converter and
conditioning equipment. The generator will be coupled to the gas
turbine using a flexible coupling. The power converter provided by
TPS will be integrated with the gas turbine control system.
The Company's high speed electrical machines can be integrated
with turbo machinery provided by VSE to develop integrated
generator systems for energy recovery systems. These types of
systems can be used to extract energy from the exhaust of diesel
engines used in power generation and marine propulsion systems.
This is a growing market that would allow energy systems to improve
in efficiency. Systems from 300 KW to 1 MW are anticipated and
these will use building blocks already in production or under
development for other markets to reduce the non-recurring cost. The
business will be based on a combination of hardware sales or
revenue sharing models.
There are great opportunities for TPS and VSE to enter into the
fast growing field of subsea equipment. The need for subsea power
distribution and processing equipment is driven by the challenges
posed by the depths and distances involved in the new off shore
finds around the globe, particularly in Brazil.
Current Operating Climate
The transport market continues to show resilience, while the
industrial sector has been largely stable. This has made it
possible for TPS to deliver a strong manufacturing output during
2011. Further growth is anticipated during 2012, supported by the
strong order book and the completion of certain delayed development
programmes.
As stated last year, governments are continuing to invest in
infrastructure projects and, indeed, view transport initiatives
such as new rail programmes as a way of helping to sustain their
industries whilst providing necessary public transportation and
having a positive impact on the environment.
In the defence arena, the Company has continued to identify
specialist pockets of growth potential in areas where TPS'
technology can be applied. We have initiated contact with potential
future partners and will continue to investigate this market
further and hope to see increased activity during the coming
years.
Marine and oil & gas sector development has seen the number
of opportunities to utilise TPS products and technologies in 'new'
markets increase markedly. A significant amount of market analysis
and concept work started during 2011 and will continue in 2012. The
market potential is significant and the links with VSE shareholder
have provided the business with important leverage in Brazil.
The requirements for high system efficiencies and sustainability
are becoming important factors by which products and services are
selected. TPS's technologies and know-how have allowed it to offer
competitive solutions in the road to sustainability. These
technologies are applicable to the renewable energy sector and to
waste energy recovery applications. The technology is intended to
enhance system efficiencies and thus contribute to the
sustainability goals. The market potential for TPS technologies in
this sector is significant and further development in these markets
is anticipated this year.
Current Programmes
The Company operates with two reportable divisions with several
segments, as follows:
1. Power Electronics Division is involved in the development and
manufacture of electrical power supply and control systems,
encompassing rail and aerospace activities and industrial power
supplies.
2. Electrical Machines Division is involved in the development
and commercialisation of high speed electrical machines which are
currently marketed within the industrial and defence markets.
-- Transport
o Rail
The programme to develop the auxiliary power solution for
Bombardier Systems' new Innovia ART Vehicle platform continues to
make progress, while the business is also engaged in the overhaul
and support of the CL165 vehicle auxiliary power solution for
Chiltern Rail. The rate of delivery continues to grow on the major
programmes (Bombardier Chicago Transit Authority and Bombardier
Toronto). During 2012 activity on the Sao Paulo monorail project
will increase, with production expected to commence by
mid-year.
Deliveries on our smaller rail programmes continue to be made to
customers' call off requirements.
We continue to pursue new customers in this segment with the
intention to provide platform solutions that are applicable for
more than one project at a time.
o Aerospace
The Jettison Fuel Pump motor drives for Eaton Aerospace continue
to be delivered in line with the customer's call-off rate. Now the
Boeing 787 Dreamliner has entered into revenue service, orders
quantities have increased in line with the aircraft build
acceleration.
-- Energy
TPS has received an initial development order from VSE for units
up to 10MW in power, a programme of work that will span multiple
years.
-- Industrial
o Laser Power Supplies
As expected, increased demand from our customer continued during
2011 and surpassed production rates in previous years. The
expectation for 2012 is that demand will stabilise.
o Industrial Motors and Drives
The delivery of systems to our industrial motors and drives OEM
(McQuay International) continues with further orders placed during
2011 for production in 2012. The customer's expectation is that the
demand will keep increasing across the coming years. These units
are for use in McQuay International's Magnitude WME chiller.
Further development work is ongoing to ensure the business
remains competitive in this market.
The S2M and Becker laser blower products have seen a continuing
demand throughout the year, with firm indication that the demand
will continue for these units during 2012.
-- Defence
o 1MW High-Speed Generator
System trials of our high-speed machine are now completed. We
are now anticipating demand for additional units and also seeing
increasing numbers of inquiries for further products.
-- Marine/Oil & Gas
o Development
During the year the business has seen a marked increase in the
number of opportunities to utilise its products and technologies in
new markets. A significant amount of market analysis and concept
work started during 2011 and will continue in 2012. The market
potential is remarkable and the links with VSE have provided the
business with important access to the Brazilian market.
In summary, 2011 was a year of significant growth. The business
has invested and will continue to invest in operational capability,
strong functional management and infrastructure to maintain and
sustain that growth. The markets in which the business operates are
either stable or growing. New opportunities in the Marine and Oil
& Gas sectors are exciting and should provide the business with
additional opportunities for sustained growth.
Financial constraints will continue for the first half of 2012,
with further support for working capital required to continue
funding the significant growth in 2012 and beyond.
The current order book is strong. Execution of those orders and
completion of development programmes in a consistent and timely
manner will be the key in delivering management's plans for the
improved results during 2012.
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 consolidated financial statements for the year
ended 31 December 2011 are TPS' first consolidated 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 are included in Note 4. 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).
Total revenues in the year of GBP14.4 million were 69% higher
than in the previous year, (2010: GBP8.5 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 23% to
GBP3.78 million (2010: GBP3.11 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 48% to GBP4.9 million (2010: GBP3.3
million). The major element in the increase of GBP1.5 million was
higher staff costs, as a result of increased headcount.
The Company recorded a loss before interest, tax, depreciation,
amortization, and stock compensation of GBP5.10 million (2010:
GBP4.14 million), primarily as a result of increased cost of
research and product development and general and administration
expenditure.
The Company recorded an operating cash outflow before working
capital movements of GBP5.40 million for the year (2010: GBP3.88
million). After adjusting for changes in working capital items and
purchases of property, plant and equipment suffered an overall cash
outflow before financing of GBP6.40 million (2010: GBP3.01
million).
Net cash inflow from financing during 2011 of GBP6.25 million
(2010: GBP3.16 million), resulted in an overall net cash outflow
for the year of GBP0.15 million (2010: inflow GBP0.15 million).
The Company finished the year with an unrestricted cash balance
of GBP0.65 million (2010: GBP0.80 million) and held further cash of
GBP0.34 million (2010: GBP0.77 million) associated with rent and
utility deposits.
During the year ended 31 December 2011 the Company undertook
significant transactions with related parties.
In 2010 the Company negotiated a loan facility from its majority
investor TAO UK, which provided GBP1.9 million to support working
capital requirements, bearing interest at 6% and being repayable
upon request after 1 January 2012.
In 2011 the Company increased this loan by a further GBP6.25
million. Subsequent to the year end the Company has drawn down a
further GBP1.02 million. The Company raised invoices for GBP0.89
million (2010: GBP0.67 million) to VSE, the parent organization of
TAO UK, for initial development activities under arms-length
commercial contracts.
Going Concern
These consolidated 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 31 December 2011 the Company had net operating cash
outflows. The cash position at the beginning of the year and all
the necessary investments to support the growth plan will require
additional funding which, if not raised, may result in the
curtailment of activities.
The Company has a cumulative deficit of GBP86.25 million as at
31 December 2011.
At 31 December 2011 the Company had an unrestricted cash balance
of GBP0.65 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 consolidated 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 30 January 2012 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 GBP1.02 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 on-going 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
Restated under IFRS
March 2010 3,113 619 699 (21) 0.0
June 2010 2,392 523 1,085 (3,127) (0.4)
September 2010 1,887 716 720 (992) (0.1)
December 2010 1,138 1,251 785 (2,969) (0.2)
March 2011 2,083 950 1,166 (1,617) (0.1)
June 2011 3,278 836 1,076 (1,439) (0.1)
September 2011 4,604 975 1,221 (941) (0.1)
December 2011 4,438 1,016 1,438 (2,176) (0.1)
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 in
June 2010, 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 and throughout 2011 (save as noted
below) no tax credits were offset against such expenditure. Tax
credits recognised in quarter one and quarter two of 2010 were
decognised in quarter four.
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.
Reconciliation of net loss to EBITDA result
Quarter ended Year ended
31 December 31 December
2011 2010 2011 2010
GBP'000 GBP'000 GBP'000 GBP'000
Net loss (2,176) (2,969) (6,173) (7,110)
Add back:
Finance income 1 (16) (2) (191)
Finance expense 142 14 337 2,644
Foreign exchange loss/(gain) 48 (237) 65 (318)
Depreciation 110 311 581 768
Amortisation 14 - 14 -
Stock Compensation 31 (13) 75 66
---------- ---------- ---------- ----------
EBITDA loss (1,830) (2,910) (5,103) (4,141)
---------- ---------- ---------- ----------
Copies of Quarterly and Annual Results
The Company's full Financial Results and Managements' Discussion
and Analysis are available on www.sedar.com and full financial
statements will be mailed to shareholders during April 2012.
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.
Turbo Power Systems Inc.
Consolidated statement of comprehensive loss
Notes Quarter ended Year ended 31
31 December December
2011 2010 2011 2010
GBP'000 GBP'000 GBP'000 GBP'000
Revenue 5 4,438 1,138 14,403 8,530
(3,872) (1,979) (10,944) (6,194)
Cost of sales -------- -------- -------- --------
Gross Profit 566 (841) 3,459 2,336
Expenses
Distribution expenses (147) (94) (619) (596)
Research and product development
expenses (1,016) (1,251) (3,777) (3,109)
General and administrative
expenses (1,438) (785) (4,901) (3,288)
-------- -------- -------- --------
Total expenses (2,601) (2,130) (9,297) (6,993)
Operating loss (2,035) (2,971) (5,838) (4,657)
Finance income 1 16 2 191
Finance expense (142) (14) (337) (2,644)
-------- -------- -------- --------
Loss before tax (2,176) (2,969) (6,173) (7,110)
Income tax expense - - - -
-------- -------- -------- --------
Net loss and total comprehensive (2,176) (2,969) (6,173) (7,110)
loss for the year ===== ===== ===== =====
Loss per share - basic and 6 (0.1)p (0.2)p (0.4)p (0.8)p
diluted ===== ===== ===== =====
The Notes are an integral part of these Consolidated Financial
Statements
Turbo Power Systems Inc.
Consolidated statement of financial position
Notes As at 31 As at As at
December 31 December 1 January
2011 2010 2010
GBP'000 GBP'000 GBP'000
Current assets
Restricted cash 23 452 645
Research and developments tax
credits receivable - 350 350
Inventories 3,201 1,656 1,943
Trade and other receivables 3,203 1,251 1,657
Prepayments 326 368 435
653 799 649
Cash and cash equivalents -------- -------- --------
7,406 4,876 5,679
-------- -------- --------
Non-current assets
Intangible assets 350 - -
Property, plant and equipment 777 1,066 1,066
320 320 169
Restricted cash -------- -------- --------
1,447 1,286 1,235
-------- -------- --------
Total assets 8,853 6,262 6,914
==== ==== ====
Current liabilities
Trade and other payables 5,453 3,281 3,508
Loans and borrowings 8,166 - 261
540 430 -
Provisions -------- -------- --------
14,159 3,711 3,769
-------- -------- --------
Non-current liabilities
Loans and borrowings - 1,916 3,386
1,020 863 100
Provisions -------- -------- --------
1,020 2,779 3,486
-------- -------- --------
Total liabilities 15,189 6,490 7,255
Equity (deficit)
Share capital 7 62,862 62,862 56,225
Convertible shares 7 15,310 15,310 13,310
Other reserves 1,756 1,681 3,095
(86,254) (80,081) (72,971)
Retained equity/(deficit) ---------- ---------- ----------
Equity (deficit) (6,326) (228) (341)
Total liabilities and equity (deficit) 8,853 6,262 6,914
===== ==== ====
The Notes are an integral part of these Consolidated Financial
Statements
Turbo Power Systems Inc.
Consolidated statement of changes in equity
Share Convertible Other Retained Total
capital shares reserves deficit
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 31 December
2009 56,225 13,310 3,095 (72,971) (341)
Net loss for the year - - - (7,110) (7,110)
Stock compensation (21) - 87 - 66
Share conversion 289 - (708) - (419)
Expiry of warrants 849 - (793) - 56
Issue of shares 5,520 2,000 - - 7,520
--------- --------- --------- --------- ---------
Balance at 31 December
2010 62,862 15,310 1,681 (80,081) (228)
Net loss for the year - - (6,173) (6,173)
Stock compensation - - 75 - 75
--------- --------- --------- --------- ---------
Balance at 31 December 62,862 15,310 1,756 (86,254) (6,326)
2011 ===== ===== ===== ====== =====
The Notes are an integral part of these Consolidated Financial
Statements
Turbo Power Systems Inc.
Consolidated statement of cash flows
Year ended 31 December
2011 2010
GBP'000 GBP'000
Cash flows from operating
activities
Loss for the year (6,173) (7,110)
Adjustments for
Finance income (2) (191)
Finance expense 337 2,542
Tax credit in operating expenses (230) -
Depreciation of property,
plant and equipment 581 768
Amortisation of intangible 14 -
assets
Asset retirement obligation - 49
Share based payment expenses 75 66
--------- ---------
Operating cash flows before movements
in working capital (5,398) (3,876)
Changes in working capital
items
Decrease/(increase) in inventories (1,545) 287
Decrease/(increase) in restricted
cash 429 (42)
Decrease/(increase) in trade and
other receivables (1,952) 406
Decrease/(increase) in prepayments 42 67
Increase/(decrease) in provisions 267 470
Increase/(decrease) in trade and
other payables 1,835 (227)
--------- ---------
Cash used in operating activities (6,322) (2,915)
--------- ---------
Interest received 2 -
Taxes received 580 -
--------- ---------
Net cash used in operating activities (5,740) (2,915)
Cash flows from investing
activities
Purchase of property, plant and
equipment (292) (94)
Purchase of intangible assets (364) -
--------- ---------
Net cash used in investing (656) (94)
activities --------- ---------
Cash flows from financing
activities
Proceeds from issue of share
capital - 7,520
Repayment of loans - (6,261)
Proceeds from increase in
loans 6,250 1,900
--------- ---------
6,250 3,159
Net cash from investing activities --------- ---------
Net (decrease)/increase in
cash and cash equivalents (146) 150
Cash and cash equivalents 799 649
at the beginning of the year ---------- ----------
Cash and cash equivalents 653 799
at the end of the year ====== ======
Turbo Power Systems Inc.
Notes to the consolidated financial statements
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.
The Company's subsidiaries comprise:
Trading Place of % Ownership
status incorporation
Turbo Power Systems Limited Trading England 100%
Turbo Power Systems Development
Limited Dormant England 100%
Turbo Power Systems N.A. LLC Dormant USA 100%
Intelligent Power Systems Limited Dormant England 100%
Nada-Tech Limited Dormant England 100%
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 consolidated financial statements have been prepared on
the basis of International Financial Reporting Standards ("IFRS")
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 31 December 2011 the Company had net operating cash
outflows, with net debt (excluding restricted cash) of GBP7.51 m,
being GBP8.17m of debt less GBP0.65m of cash. The net debt
(excluding restricted cash) position at the beginning of 2012 and
all the necessary investments to support the Company's growth plan
will require additional funding which, if not raised, may result in
the curtailment of activities.
The Company has a cumulative deficit of GBP86.25 million as at
31 December 2011 (31 December 2010: GBP80.08 million).
At 31 December 2011 the Company had an unrestricted cash balance
of GBP0.65 million (31 December 2010: GBP0.80 million) and held
restricted cash of GBP0.34 million (31 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 consolidated
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, on 5 September 2011 a further GBP1.5million and 20
December 2011 GBP0.35 million taking the total loan to GBP8.15
million at 31 December 2011 (31 December 2010: GBP1.90
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 outstanding orders 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 for the
foreseeable future.
3 Basis of preparation
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
consolidated financial statements.
These financial statements have been prepared in accordance with
the accounting policies set out in Note 3 to the unaudited
condensed consolidated interim financial statements for the three
months ended 31 March 2011 which are based on the recognition and
measurement principles of IFRS in issue and effective at 31
December 2011.
The consolidated financial statements were authorised for
issuance by the Board of Directors on 16 March, 2012.
The consolidated financial statements have been prepared under
the historical cost convention, except for the revaluation of
certain financial instruments.
The consolidated financial statements are presented in GBP
sterling, rounded to the nearest GBP1,000, which is the Company's
functional and presentation currency.
4 Changes in accounting policies on adoption of IFRS
IFRS 1, which governs the first-time adoption of IFRS, generally
requires accounting policies to be applied retrospectively to
determine the opening balance sheet on our transition date of 1
January 2010, and allows certain exemptions on transition to IFRS.
The Company did not take any exemptions.
We adopted IFRS on 1 January 2011 and in accordance with IFRS 1,
we have applied IFRS retrospectively to our 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 the date of transition, 1 January 2010, to IFRS;
b) Reconciliation of equity at 31 December 2010;
c) Reconciliation of net earnings for the year ended 31 December 2010;
d) Any material adjustments to the prior year cash flow statement.
Reconciliation of equity:
1 January 31 December
2010 2010
GBP'000 GBP'000
Equity in accordance with Canadian
GAAP (341) (228)
Equity in accordance with IFRS (341) (228)
---------------- ------------------
Reconciliation of net earnings:
31 December
2010
GBP'000
Net earnings in accordance
with Canadian GAAP (7,110)
Net earnings in accordance
with IFRS (7,110)
------------------
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.
Cash Flow statement
The adoption of IFRS did not significantly impact our cash flows
compared to Canadian GAAP.
5 Segmental analysis
The Company has historically operated from two facilities in the
UK and run each location as a separate unit. During the year the
Company has undergone management and operational changes to bring
the reporting segments in line with the strategy of designing and
manufacturing integrated systems. 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.
31 December 2011 Power Electrical Elimination Total
electronics machines
GBP'000 GBP'000 GBP'000 GBP'000
Production revenue
- external 10,713 1,251 - 11,964
Production revenue
- internal 194 - (194) -
Development revenue
- external 2,050 389 - 2,439
12,957 1,640 (194) 14,403
------------- ----------- ------------ ---------
Segment result (4,069) (1,769) - (5,838)
Finance income 2
Finance expense (337)
Net loss for the year (6,173)
Total assets 5,997 2,856 8,853
Total liabilities (5,438) (9,751) (15,189)
31 December 2010 Power Electrical Elimination Total
electronics machines
GBP'000 GBP'000 GBP'000 GBP'000
Production revenue
- external 5,138 1,774 - 6,912
Production revenue
- internal 906 - (906) -
Development revenue
- external 1,122 496 - 1,618
Development revenue
- internal 54 - (54) -
7,220 2,270 (960) 8,530
------------- ----------- ------------ --------
Segment result (903) (3,753) - (4,657)
Finance income 191
Finance expense (2,644)
Net loss for the year (7,110)
Total assets 3,287 2,975 6,262
Total liabilities (3,255) (3,245) (6,500)
Geographic Segmental Information
Total Revenues by destination
2011 2010
GBP'000 GBP'000
UK 3,518 1,748
USA 5,463 5,648
Canada 4,254 376
Rest of world 1,168 758
14,403 8,530
======== =========
All property, plant and equipment was located within the United
Kingdom during both periods ended 31 December 2011 and 31 December
2010.
6 Loss per share
Loss per share has been calculated using the weighted average
number of shares in issue during the relevant financial
periods.
Quarter ended 31 December Year ended 31 December
2011 2010 2011 2010
Loss attributable to GBP2,176,000 GBP2,969,000 GBP6,173,000 GBP7,110,000
ordinary shareholders
Weighted average number
of shares outstanding 1,437,754,811 1,437,754,811 1,437,754,811 940,760,440
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 loss per share calculations at December 31 are as
follows:
2011 2010
Common shares potentially issuable:
- under stock options 31,377,273 56,399,091
- pursuant to A Ordinary stock conversion 448,333,334 448,333,334
____________ ____________
479,710,607 504,732,425
____________ ____________
7 Share capital and other reserves
Share Capital
Common Shares Convertible Shares
(A Ordinary Shares)
Number GBP'000 Number GBP'000
At 1 January 2010 341,398,222 56,225 115,000,000 13,310
Shares issued 1,096,356,589 6,637 333,333,334 2,000
-------------------- -------------- ------------------ --------------
At 31 December
2010 1,437,754,811 62,862 448,333,334 15,310
Shares issued - - - -
-------------------- -------------- ------------------ --------------
At 31 December
2011 1,437,754,811 62,862 448,333,334 15,310
==================== ============== ================== ==============
The Company is authorised to issue an unlimited number of common
shares and an unlimited number of preferred shares, issuable in
series, without nominal or par value. All common shares rank
equally with regard to the Company's residual assets.
The holders of common shares are entitled to receive dividends
as declared from time to time, and are entitled to one vote per
share at meetings of the Company.
Holders of A Ordinary Shares of Turbo Power Systems Limited
("TPSL") (Convertible shares), 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.
As the A Ordinary Shares are non-participating interests in TPSL
and are non-voting, no current year or cumulative net losses have
been allocated to the A Ordinary Shares.
Issue of common shares:
On 28 January 2010 the Company issued 9,069,769 common shares,
and on 8 February 2010 3,953,488 common shares as a result of
conversions of GBP280,000 of 2005 Convertible Loan Notes, at a
conversion price of 2.15p per share.
On 16 June 2010 the Company issued 1,083,333,333 common shares
to TAO UK as a result of the financing and investment in the
Company, at a price of 0.6p per share.
On 16 June 2010, TPSL, as part of the TAO financing, issued
333,333,334 A-Ordinary shares at 0.6p each in settlement of the
2008 loan note principal, accrued interest and agreed risk premium
due to one of the institutional investors.
Other reserves
At 31 December 2011, other reserves comprise of the stock
compensation reserve of GBP1,756,000 (2010: GBP1,681,000).
Potential issue of common shares
The Company has issued share options under the 2002 Stock Option
Plan and A Ordinary Shares that are convertible into common shares
of the Company.
31 Dec 31 Dec 1 Jan
2011 2010 2010
Under stock option plan 31,377,273 56,399,091 25,485,700
Pursuant to A Ordinary stock conversion 448,333,334 448,333,334 115,000,000
Pursuant to warrants - - - 23,357,142
Pursuant to loan note conversion - - 137,046,512
------------- ------------- ------------
479,710,607 504,732,425 300,889,354
------------- ------------- ------------
8 Related party transactions
Transactions with the parent and ultimate parent company
On 16 June 2010 the Company completed a fundraising and
investment transaction that resulted in TAO UK, the wholly owned UK
subsidiary of the Brazilian energy solutions company VSE, investing
GBP6.5million in exchange for 1,083,333,334 Common Shares in the
Company, giving TAO UK a 75.4% controlling stake in the Company on
an undiluted basis. The transaction was recorded at exchange
amount.
On 22 October 2010 the Company completed a loan funding facility
from its majority investor, TAO UK, that made available up to
GBP1.9 million (amended as below) to support the working capital
requirements of the Company as it develops. The loan carries a 6%
interest rate and is secured by a fixed and floating charge over
the assets of the Company, and is repayable on request after 1
January 2012. A summary of the drawdowns is :
Date of drawdown GBP'000
28 October 2010 GBP1,200
26 November 2010 GBP700
25 February 2011 GBP800
28 March 2011 GBP400
15 April 2011 GBP2,200
25 May 2011 GBP1,000
5 September 2011 GBP1,500
20 December 2011 GBP350
Accrued interest GBP353
Total GBP8,503
---------------
Accrued interest is recorded within trade and other payables
(2010: GBP16,000)
On 16 June 2010, following the fundraising and investment from
TAO UK, the Company settled it's liabilities in relation to the
outstanding 2008 convertible loan notes, accrued interest and
agreed risk premium. The holder of the A-Shares was one of the
institutional investors who received a settlement valued at GBP2
million, which was settled by the issuance of 333,333,334
additional A-Shares. The transaction was recorded at exchange
amount.
During 2011 the Company has transacted business with both TAO
UK, totalling GBP82,000 (2010: GBP17,000), and with VSE, totalling
GBP888,000 (2010: GBP674,000). Amounts outstanding as at 31
December 2011 are: the Company owes TAO UK GBP63,000 (2010:
GBPnil); VSE owe GBPnil (GBPnil) to the Company.
All transactions were conducted within the normal course of
business for supply of engineering design services and were
transacted at arms-length.
Key Management personnel compensation
In addition to their salaries, the Company provides non-cash
benefits to executive management and contributes to a defined
contribution pension plan. Some executive officers participate in
the share option programme.
Key management personnel compensation comprises the
following:
2011 2010
GBP'000 GBP'000
Salaries 664 581
Bonus and other payments 612 401
Pension contributions 40 46
Stock compensation expense 68 112
1,384 1,140
============== ==============
Bonus and other payments include payments made in relation to
the change of control in June 2010, arising from the TAO UK
investment in the Company, and termination payments.
9 Subsequent events
On 30 January 2012 the Company negotiated an increase of
GBP1,020,000 in the facility limit of its loan with TAO UK, and was
advanced a further GBP1,020,000 under the same terms as the loan
secured in October 2010. TAO UK remains fully committed to TPS and
has expressed its continuing financial support of TPS' working
capital requirements during 2012.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR EAKDPFSLAEFF
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