TIDMTPS
RNS Number : 5262E
Turbo Power Systems Inc
13 May 2013
13 May 2013
Turbo Power Systems Inc. ("TPS" or the "Company")
Announces Results for Quarter Ended 31 March 2013
Key Features
-- Significant improvement in order intake in the quarter of
GBP4.71 million (Q1 2012: GBP0.10 million)
-- Revenue in the quarter decreased 17% to GBP3.76 million (Q1 2012: GBP4.53 million)
-- Gross profit in the quarter increased 66% to GBP0.96 million
(Q1 2012: GBP0.58 million)Cost management improving - overhead
expense in the quarter decreased by 9% to GBP2.27 million (Q1 2012:
GBP2.50 million) with headcount at 31 March 2013 at 178, down 19%
since 31 March 2012
-- Net loss in the quarter reduced by 54% to GBP0.95 million (Q1 2012: GBP2.06 million)
-- Secured first tranche of GBP0.75m of Regional Growth Grant
funding, expected to amount to GBP1.10m in total
-- Continuing financial support by TAO Sustainable Power
Solutions (UK) Limited, TPS's parent undertaking
Carlos Neves, Chief Executive Officer, said:
"Order intake in the three months to 31 March 2013 was GBP4.71
million, with a further GBP4.81 million in April 2013, after the
period end. During the quarter we continued to focus on reducing
our cost base, seeking to win contracts with attractive margins
whilst entering into negotiations on current contracts to improve
our terms.
We increased our loan from TAO UK in April 2013 by GBP2.10
million and we are aware that we remain critically dependent on
this loan funding."
For further information, please contact:
Turbo Power Systems Tel: +44 (0)20 8564 4460
Carlos Neves, Chief Executive Officer
Charles Rendell, Chief Financial Officer
Kreab Gavin Anderson (financial public Tel: +44 (0)20 7074 1800
relations)
Robert Speed
finnCap (NOMAD, broker and financial Tel: +44 (0)20 7220 0500
advisor)
Ed Frisby, Henrik Persson
Notes to Editors
About Turbo Power Systems
Company Website: www.turbopowersystems.com
Turbo Power Systems Inc (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 high speed
motors and generators and power electronics and are sold into a
number of market sectors including aerospace, rail, and various
industrial sectors. The Company's products provide high performance
while improving efficiency and reducing process energy consumption
compared to existing technologies.
Turbo Power System's existing 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 Soluções 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, owning 89.4% of the issued
share capital of the Company.
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.
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.
Financial Performance
Quarterly Financial performance
Total revenues in the quarter ended 31 March 2013 of GBP3.76
million were 17% lower than 2012 (2012: GBP4.53 million), primarily
because of decreased production volumes, due to the timing of
continuation orders for industrial products.
The Board continued to implement its strategy of seeking to
further improve the Company's development and operational
capabilities, with a review of costs in the business that resulted
from in a 19% reduction in headcount compared with 31 March 2012
(31 March 2013: 178, 31 December 2012: 176, 31 March 2012: 221).
Research and product development costs in the quarter decreased 32%
to GBP0.65 million (2012: GBP0.95 million) attributable to
movements in the timing of project expenditures.
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 7% compared to 2012 to GBP1.43 million
(2012: GBP1.33 million) but down 7% compared prior quarter (Q4
2012: GBP1.53 million). The major elements in the increase of
GBP0.10 million were the increases in facilities costs due to the
commencement of the re-balancing of our facility requirements.
Other operating income of GBP0.46 million was due to the release
of the government grant (2012: GBPnil)
The Company recorded a net loss of GBP0.95 million (2012:
GBP2.06 million) as a result of increased operating margin on
production contracts and the receipt of the government grant.
The Company recorded an operating cash outflow before working
capital movements of GBP1.20 million for the quarter (2012: GBP1.75
million). After adjusting for changes in working capital items and
purchases of property, plant and equipment the Company suffered an
overall cash outflow of GBP1.48 million (2012: GBP3.21 million).
Against this, receipt of GBP0.75 million of net cash inflow from
the grant during the quarter (2012: GBPNil) resulted in an overall
net cash outflow for the quarter of GBP0.73 million (2012: GBP0.39
million after loan increase of GBP2.82 million).
The Company finished the quarter with unrestricted cash balance
of GBP0.13 million (2012: GBP0.86 million) and held further cash of
GBP0.03 million (2012: GBP0.03 million) associated utility bonds.
After 31 March 2013 the Company undertook a significant transaction
with a related party, TAO UK its parent undertaking, negotiating an
extension of its loan by GBP2.10 million in April 2013, repayable
on 1 April 2014.
OPERATIONAL REVIEW
This review has been prepared as at 13 May, 2013.
Business of the Company
Turbo Power Systems is a technology-led business that designs
and manufactures high performance electric motors, generators, and
power electronics systems and provides bespoke solutions to energy
conversion, industrial, transport and military markets.
Its track record in engineering innovation, which has been built
and tested over a number of years, allows the Company to meet
challenging design and manufacturing briefs with specific
requirements relating to environmental performance and performance
to volume demands across the world.
TPS has a proven and worldwide 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 competitive products with proven
reliability.
The know-how developed over the last 30 years, on both
electrical machines and power electronics, allows the Company to
explore its current and future portfolio and adjust accordingly to
grow in markets and segments with the targeted profitability.
Way Forward
As detailed in its 2012 Annual Report dated 11 March 2013, the
Company understands the challenges of the market, particularly
regarding quality, costs and timing. Accordingly it has sought to
realign its objectives to focus on:
-- Improved quality of the product portfolio;
-- Superior execution within design development, manufacturing
operations and support activities; and
-- Consistent delivery of internal improvements.
Improve the quality of the portfolio
The Company aims to optimise, simplify, standardise and automate
wherever possible its product offering, operational sites,
inventory, receivables and staffing.
The Company recognises that it currently has a concentration of
revenues within just a few customers. The focus has now moved to
enlarge the customer base with a view to diluting the impact of the
current large customers, mainly where our capabilities, products
and bespoken solutions are recognised and the value of our proposal
can be fully appreciated.
Superior execution within design development, manufacturing
operations and support activities
The Company recognises that its 30 years of experience together
with the talented and highly skilled workforce are the most
important assets we have. We firmly believe that these assets under
the new structure put in place in 2012, and our continuous pursuit
of efficiencies, will allow us to react faster and be even more
integrated to fulfil the market's needs.
Consistent delivery of internal improvements
Due to its size and the flat management structure put in place
during the second half of 2012, the Company has been able to drive
a culture where each of the areas are more integrated and each is
capable of a better understanding of the overall objectives of the
Company and the roles and responsibilities of each individual. Now,
under this scenario, the Company has been able to start a series of
initiatives that will address long term revenue growth and cost
reductions.
These measures will together continue the culture of cost
consciousness and drive excess costs out of the business.
Current Operations
During the quarter the Company announced two significant orders,
and since 31 March 2013 has won two more major orders. The orders
from Bombardier total almost $11 million and McQuay of $2.4 million
are for further production of existing contracts and, we believe,
reaffirm the quality of our products. These orders cover both the
rail market and the industrial motors and drive market and together
continue to demonstrate that the Company is a major player in those
markets.
The contract that the Company has with Bombardier for the
production of auxiliary power units for the Chicago Transit
Authority (CTA) is a major long term contract which was first
awarded in 2007. Production of the auxiliary power units is
scheduled to continue during 2013 and 2014, subsequent to the
exercise of an option contained in the original contract to extend
the contract by a further $7.7million. The Company is also due to
deliver the spare parts order of $3.2 million in that timeframe
too. There are many further opportunities in the rail market, as
local and national governments seek to upgrade and replace the
current rail fleets.
The design study of subsea power distribution concepts for the
Oil & Gas market in Brazil is a modest first contract in this
market place. The Company believes that this initial concept study
is an excellent opportunity to demonstrate the Company's ability in
that market place. The contract is for engineering design and
development drawing on the many years of experience within the
Company in power electronics. The Company believes that this
contract gives the Company experience in the both the important Oil
& Gas market as well as the growing Brazilian market.
The Company has been focusing on its costs, both for production
costs and overheads. Though we have reported a lower turnover than
in the same period last quarter, the Company has been able to
achieve significantly improved gross profit margins on this sales
volume. The overhead base has been reducing since its peak level in
the second quarter 2012.
Regional Growth Fund Grant
In February 2013 the Company announced the award of the first
tranche, being of GBP750,000, of a Regional Growth Fund grant ("the
grant"), which could in due course amount to a total of GBP1.1
million. The Company first applied for the Grant in the first
quarter of 2011. It has been working with UK Trade and Investment
since then to secure the funds. The Company is to safeguard 152
jobs in aggregate in the 5 year monitoring period.
The Company recognises the benefit of the Grant over the
expected life of the assets to which it relates. To date the
Company has recognised GBP463,000 of the GBP750,000 received. It is
expected that the remainder will be recognised over the next 2
years.
Support from VSE
The Company extended its loan from its parent company, VSE on 2
April 2013, by GBP2.1 million. This takes the current loan position
to GBP8.7 million. The Company has also entered into the modest
development contract with VSE for GBP0.2 million to provide support
in a concept study in the Oil & Gas market.
Summary
In summary, the business is leveraging its investment in
operational capability, functional management and infrastructure.
We believe that the markets in which the business operates are
either stable or growing. New opportunities in the Oil & Gas
market are exciting and should provide the business with additional
opportunities for sustained growth.
The Company remains critically dependent on loan fundingin 2013
to continue funding the growth in 2013 and beyond.
The current order book extends over the next two years. The need
to win further substantial orders, execution of those orders and
completion of development programmes in a consistent and timely
manner is key to delivering management's plans for the continued
improved results during 2013 and beyond.
Financial Performance
Total revenues in the quarter ended 31 March 2013 of GBP3.76
million were 17% lower than 2012 (2012: GBP4.53 million), primarily
due to lower production volumes associated with the timing of
continuation orders for industrial products.
Research and product development costs decreased by 32% to
GBP0.65 million (2012: GBP0.95 million), as the Company continues
to support current projects, although a continuing trend of focused
activity and timing of external spend affected costs in the
quarter.
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 GBP0.10 million, 7%, compared to 2012
to GBP1.43 million (2012: GBP1.33 million) but down 7% compared
prior quarter (Q4 2012: GBP1.53 million). The major element being
the increase of the facility costs due to the expansion of the
Gateshead site. During this quarter the Company's' headcount
increased slightly to 178 from 176 in December 2012.
Other operating income of GBP0.46 million was due to the release
of the government grant (2012: GBPnil)
The Company recorded an operating cash outflow before working
capital movements of GBP1.20 million for the quarter (2012: GBP1.75
million). After adjusting for changes in working capital items and
purchases of property, plant and equipment suffered an overall cash
outflow of GBP1.48 million (2012: GBP3.21 million). GBP0.75 million
net cash inflow from financing during the quarter (2012:
GBP2.82million) resulted in an overall net cash outflow for the
quarter of GBP0.73 million (2012: GBP0.39 million after loan
increase of GBP2.82 million).
The Company finished the quarter with an unrestricted cash
balance of GBP0.13 million (2012: GBP0.86 million) and held further
cash of GBP0.03 million (2012: GBP0.03 million) associated with
rent and utility deposits.
During the quarter ended 31 March 2013 the Company undertook no
significant transactions with related parties.
The Company has a loan facility from its parent undertaking TAO
UK (a subsidiary of VSE), to support working capital requirements,
bearing interest at 6% and being repayable upon request after 1
April 2014. As at the 31 March 2013 the amount outstanding is
GBP6.17 million including rolled up interest. After the period end,
on 2 April 2013 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 GBP2.1 million of debt
financing to support working capital requirements, under the same
terms and conditions as the previous loans.
Going Concern
These consolidated interim 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.
The Company is dependent upon the continued financial support of
its intermediate parent undertaking TAO UK, which in turn is
dependent on its parent undertaking Vale Soluções em Energia S.A.
(VSE), for such continued financial support in order to meet
forecasted working capital requirements and support the Company's
growth plans. If not secured, this may result in the curtailment of
the Company's activities.
As at 31 March 2013 the Company had net operating outflows, with
a net debt of GBP10.09 million, being GBP10.22 million of debt less
GBP0.13 million of cash. The Company has a cumulative deficit of
GBP94.37 million as at 31 March 2013 and continued to be loss
making for the period then ended.
If the Company is unable to generate positive cash flows 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.
However the Directors believe that they will succeed in
delivering the Company's projected financial performance and that
support from TAO UK and, ultimately, VSE will remain in place to
enable the Company to achieve its growth plans. Accordingly they
have continued to adopt the going concern basis of preparation.
Summary of Quarterly Results
The following table sets forth selected quarterly consolidated
financial information of the Company for the last eight
quarters;
Revenue Research General Net (loss) (Loss)
All amounts in GBP'000 and product and administrative per
Except (Loss) per development share
share Pence
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)
March 2012 4,525 953 1,336 (2,061) (0.1)
June 2012 4,039 1,219 1,516 (1,475) (0.1)
September 2012 3,555 974 1,736 (1,669) (0.1)
December 2012 3,545 758 1,530 (1,959) (0.1)
March 2013 3,760 648 1,428 (950) (0.03)
Revenues decreased during 2013, mainly due to the timing of the
continuation production orders for industrial products.
Research and development expenditure has decreased compared with
previous years, reflecting the continuing trend of focused activity
and timing of external spend.
Copies of Quarterly and Annual Results
The Company's full Financial Results and Managements' Discussion
and Analysis for 2012, together with the First Quarter 2013
Financial Results and Managements' Discussion and Analysis are
available on www.sedar.com and full 2012 financial statements have
been mailed to shareholders during April 2013.
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 31 March 2013
Revenue
Revenue in the quarter ended 31 March 2013 was GBP3.76 million
(2012: GBP4.53 million.)
2013 2012
GBP'000 GBP'000
Production 3,403 4,132
Development 357 393
-------- --------
3,760 4,525
-------- --------
Production revenue decreased by 18%, attributable to the timing
of the continuation production orders for industrial products.
Development income, which is recognised on a percentage complete
basis, decreased by 9% as the timing of project effort has affected
the revenue recognition.
Cost of Sales
The cost of sales in the quarter amounted to GBP2.80 million
(2012: GBP3.95 million) net of release of provisions for loss
making contracts.
The Company continues with loss making production contracts in
2013, but is working with customers seeking to increase unit
production selling prices and/or effect design changes to allow
material and cost decreases to be implemented.
Research and product development
Research and product development expenditure in the quarter was
GBP0.65 million (2012: GBP0.95 million).
General and administrative costs
General and administrativecosts, which consist mainly of staff
costs, facilities costs and the costs associated with the Company's
public listings, were up by 7% compared to 2012 to GBP1.43 million
(2012: GBP1.33 million) but down 7% compared prior quarter (Q4
2012: GBP1.53 million). The major element in the increase of
GBP0.10 million being higher facility costs from the expansion of
the Gateshead site, as the Company commences the re-balancing of
its facility requirements.
Other operating income
Other operating income of GBP0.46 million was due to the release
of the government grant (2012: GBPnil).
Finance income/expense
Finance expense of GBP0.09 million (2012: GBP0.14 million) arose
from the interest on the loans from TAO UK.
Cash flows for the quarter ended 31 March 2013
Cash outflow from operating activities
The Company recorded an operating cash outflow before working
capital movements of GBP1.20 million for the quarter (2012: GBP1.75
million). After adjusting for changes in working capital items and
purchases of property, plant and equipment suffered an overall cash
outflow of GBP1.48 million (2012: GBP3.21 million). Against this,
receipt of GBP0.75 million of net cash inflow from the grant during
the quarter (2012: GBPNil) resulted in an overall net cash outflow
for the quarter of GBP0.73 million (2012: GBP0.39 million after
loan increase of GBP2.82 million).
Investing activities
Cash outflows from capital investments in the quarter were
GBP0.09 million (2012: GBP0.31 million).
Financing activities
There were no cash inflows in the quarter related to financing
activities (2012: GBP2.82 million from the increase in loan from
TAO UK).
Overall cash outflow for the period
Overall the cash outflow during the quarter was GBP0.73 million
(2012: GBP0.39 million).
Balance sheet as at 31 March 2013
The Company ended the period with an unrestricted cash balance
of GBP0.13 million compared with GBP0.86 million at 31 December
2012. Substantially all of the Company's cash balances are
denominated in Sterling.
In addition, the Company had restricted cash amounts of GBP0.03
million (31 December 2012: GBP0.03 million), principally relating
to utilities deposits.
Non-current assets (excluding restricted cash) have increased
from GBP0.83 million at 31 December 2012 to GBP0.84 million at 31
March 2013, after depreciation and amortisation charges of GBP0.1
million.
Loans and borrowings remained the same in the quarter at GBP5.92
million. The loan and interest are shown as a non-current liability
repayable on 1 April 2014.
Net current liabilities at 31 March 2013, excluding restricted
cash balances included under current assets, were GBP3.88 million,
compared with net current liabilities of GBP2.94 million as at 31
December 2012.
As at 31 March 2013, the Company had 3,336,865,922 common shares
issued and outstanding and 892,777,778 A ordinary shares issued and
outstanding. As at that date there were 31,007,273 outstanding
share options.
Contractual Obligations
Payments due by period
Total 2012 2013 2014 2015 2016 2017 and
there
after
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Trade and other
payables 4,580 4,580 - - - - -
Loan notes 2,820 - - 2,820 - -
Operating leases 3,649 612 383 295 295 295 1,767
______ ______ ______ ______ ______ ______ ______
11,049 5,192 383 3,115 295 295 1,767
______ ______ ______ ______ ______ ______ ______
Shareholders' equity
The movement in shareholders' equity comprised:
2013
GBP'000
As at 1 January 2013 (2,907)
Loss for quarter 1 (950)
Stock Compensation 10
--------
As at 31 March 2013 (3,847)
--------
As at 13 May 2013, Company had 3,336,865,922 common shares
issued and outstanding and 892,777,778 A ordinary shares issued and
outstanding. As at that date there were 31,007,273 outstanding
share options.
Liquidity
Cash and cash equivalents at 31 March 201 were GBP0.13 million,
compared with GBP0.86 million at 31 December 2012.
Restricted cash at 31 March 2013 was GBP0.03 million, compared
with GBP0.03 million at 31 December 2012.
The Company reported a loss in the quarter of GBP0.95 million
and has a cumulative deficit of GBP94.37 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 2012.
Currency risk management
Principally all of the Company's expenditure is denominated in
Sterling, which is funded from Sterling cash balances. Exchange
differences, which arise on consolidation of the Company's Canadian
operations, are included in exchange adjustments within the income
statement. At 31 March 2013 the Sterling equivalent of Canadian
Dollar denominated net liabilities amounted to GBP17,000 (31
December 2012: net liabilities GBP12,000).
Interest rate risk management
The analysis of the Company's financial assets and borrowings
analysed between floating and fixed interest rates is shown
below
31 March 2013 31 March 2012
GBP'000 GBP'000
Floating rate financial
assets 154 605
Fixed rate borrowings (6,174) (10,970)
The fixed rate borrowings are at 6.0% per annum.
The Company invests surplus cash funds in short term money
market deposits with financial institutions and cash funds which
have at least a short term credit rating of F1.
Financial instruments
The Company's financial assets and liabilities consist primarily
of the cash and cash equivalents, restricted cash, trade
receivables, trade payables and loans.
31 March 31 March
2013 2012
Loans and Financial Loans and Financial
receivables liabilities receivables liabilities
at amortised at amortised
cost cost
GBP'000 GBP'000 GBP'000 GBP'000
Asset/(Liability)
Cash and cash equivalent 126 - 262 -
Restricted cash 28 - 343 -
Trade, prepayments and other
receivables 3,425 - 4,648 -
Trade and other payables - (4,978) - (5,631)
Loans - (6,174) - (10,970)
Total 3,579 (11,152) 5,253 (16,601)
============= ============== ============= ==============
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 on
page 51 in the Annual Report and Accounts 31 December 2012. There
have been no significant changes since 31 December 2012.
Further information is provided in Management's Discussion and
Analysis and the notes to the Financial Statements.
Related Party Transactions
During the period ended 31 March 2013 the Company undertook no
significant transactions with related parties.
After the period end on 2 April 2013 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
GBP2.1 million of debt financing to support working capital
requirements, under the same terms and conditions as the previous
loans.
Critical accounting policies and estimates
These interim condensed 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 March 2013 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
GBP94.37 million as at 31 March 2013.
Further information on Going Concern is provided in Note 2.
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 financial year are disclosed on page 42 in
the Annual Report and Accounts for 31 December 2012.
Risks and uncertainties
The development and commercialisation plans for the Group's
products presented in this Annual Report and 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, 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 electrical machine 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 being financially conservative in our expenditures and by
maintaining good communications with our major shareholder, TAO UK,
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 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 31 March 2013, 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
31 March
2013 2012
GBP'000 GBP'000
Revenue 5 3,760 4,525
Cost of sales (2,801) (3,948)
-------- --------
Gross profit 959 577
Expenses
Distribution costs (198) (211)
Research and product
development (648) (953)
General and administrative (1,428) (1,336)
-------- --------
Total expenses (2,274) (2,500)
Other Operating Income 463 -
Operating loss (852) (1,923)
Finance expense (98) (138)
Loss before tax (950) (2,061)
Income tax expense - -
Net loss and total comprehensive
loss for the periods (950) (2,061)
Loss per share - basic
and diluted 6 0.03p 0.1p
======== ========
The Notes 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 As at
31 March 31 December
2013 2012
GBP'000 GBP'000
Current assets
Restricted cash 28 28
Inventories 3,172 2,695
Trade and other receivables 2,919 3,540
Prepayments 533 298
Cash and cash equivalents 126 857
---------------------- ------------------
6,778 7,418
---------------------- ------------------
Non-current assets
Intangible assets 102 63
Property, plant and equipment 735 770
837 833
Total assets 7,615 8,251
====================== ==================
Current liabilities
Trade and other payables 4,050 3,730
Provisions 104 221
---------------------- ------------------
4,154 3,951
---------------------- ------------------
Non-current liabilities
Loans and borrowings 8 6,174 6,085
Provisions 1,134 1,122
---------------------- ------------------
7,308 7,207
---------------------- ------------------
Total liabilities 11,462 11,158
Equity (deficit)
Share capital 7 71,408 71,408
Convertible shares 7 17,310 17,310
Other reserves 1,803 1,793
Retained equity/(deficit) (94,368) (93,418)
---------------------- ------------------
Equity (deficit) (3,847) (2,907)
Total liabilities and equity (deficit) 7,615 8,251
====================== ==================
Approved by the Board:
R Braga, Interim Chairman
13 May 2013
The Notes 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 Other Accumulated Total
Share Shares reserves deficit
capital
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1 January
2012 62,862 15,310 1,756 (86,254) (6,326)
Net loss - - - (2,061) (2,061)
Stock compensation - - 41 - 41
Balance at 31 March
2012 62,862 15,310 1,797 (88,315) (8,346)
Net loss - - - (5,103) (5,103)
Stock compensation - - (4) - (4)
Issue of Shares 8,546 2,000 - - 10,546
--------- ------------ ---------- -------------- -----------
Balance at 31 December
2012 71,408 17,310 1,793 (93,418) (2,907)
Net loss - - - (950) (950)
Stock compensation - - 10 - 10
Balance at 31 March
2013 71,408 17,310 1,803 (94,368) (3,847)
========= ============ ========== ============== ===========
The Notes form an integral part of these condensed consolidated
interim financial statements.
Turbo Power Systems Inc.
Condensed consolidated interim statement of cash flows
Unaudited
Quarter ended
31 March
Notes 2013 2012
GBP'000 GBP'000
Cash flows from operating activities
Loss for the period (950) (2,061)
Adjustments for:
Grant release (463) -
Finance expense 98 138
Depreciation of property, plant and
equipment 96 135
Share based payment expenses 10 41
(1,209) (1,747)
Operating cash flows before movements
in working capital
Changes in working capital items
(Increase) / decrease in inventories (477) 2
Decrease/(increase) in trade and
other receivables 621 (1,070)
(Increase) in prepayments (235) (137)
Increase in trade and other payables 13 112
Decrease in provisions (105) (64)
-------- --------
(1,392) (2,904)
Cash generated by operations
Grant received 750 -
Net cash from operating activities (642) (2,904)
-------- --------
Investing activities
Purchase of property, plant and equipment (42) (238)
Purchase of intangible assets (47) (69)
Net cash used in investing activities (89) (307)
-------- --------
Cash Flows from financing activities
Proceeds from increase in loans 8 - 2,820
Net cash from investing activities - 2,820
-------- --------
Net increase/(decrease) in cash and
cash equivalents (731) (391)
Cash and cash equivalents at the beginning
of the period 857 653
Cash and cash equivalents at the end
of the period 126 262
======== ========
The Notes 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
Soluções em Energia S.A. ("VSE"), a company registered in
Brazil.
These condensed consolidated interim financial statements of the
Company as at and for the quarter ended 31 March 2013 comprises of
the Company and its subsidiaries. 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%
Intelligent Power Systems Limited Dormant England 100%
Nada-Tech Limited Dormant England 100%
TPSL designs 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 Goingconcern
These consolidated interim 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.
The Company is critically dependent upon the continued financial
support of its intermediate parent undertaking TAO UK, who in turn
is dependent on their parent undertaking Vale Soluções em Energia
S.A (VSE), for such continued financial support in order to meet
forecasted working capital requirements and support the Company's
growth plans. If not secured, this may result in the curtailment of
the Company's activities.
As at 31 March 2013 the Company had net operating outflows, with
a net debt of GBP10.09 million, being GBP10.22 million of debt less
GBP0.13 million of cash. The Company has a cumulative deficit of
GBP94.37 million as at 31 March 2013 and continued to be loss
making for the period then ended.
If the Company is unable to generate positive cash flows 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.
However the Directors believe that they will succeed in
delivering the Company's projected financial performance and that
support from TAO UK and, ultimately, VSE will remain in place to
enable the Company to achieve its growth plans. Accordingly they
have continued to adopt the going concern basis of preparation.
3 Basis of preparation
These condensed consolidated interim financial statements have
been prepared in accordance with IAS34 Interim Financial
Reporting.
The Company's condensed consolidated interim financial
statements were prepared in accordance with the accounting policies
set out in Note 3 to the consolidated financial statements for the
year ended 31 December 2012, and using the same methods of
computation.
The condensed consolidated interim financial statements were
authorised for issuance by the Board of Directors on 13 May
2013.
The condensed consolidated interim financial statements have
been prepared under the historical cost convention, except for the
revaluation of certain financial instruments.
The condensed consolidated interim financial statements are
presented in GBP sterling, rounded to the nearest GBP1,000, which
is the Company's functional and presentation currency.
4 Critical accounting judgements and key sources of estimation uncertainty
These interim condensed 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 March 2013 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
GBP94.37 million as at 31 March 2013.
Further information on Going Concern is provided in Note 2.
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.
5 Segmental analysis
The Company reports by its distinct segments of production and
development, both segments 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 March 2013 Production Development Unallocated Total
GBP'000 GBP'000 GBP'000 GBP'000
Revenue 3,403 357 - 3,760
=========== ============ ============ =========
Segment operating loss (211) (641) - (852)
Finance expense - - (98) (98)
Net loss and total comprehensive
loss (211) (641) (98) (950)
=========== ============ ============ =========
Total assets 5481 1766 368 7615
Total liabilities (2,623) (267) (8,572) (11,462)
31 March 2012 Production Development Unallocated Total
GBP'000 GBP'000 GBP'000 GBP'000
Revenue 4,132 393 - 4,525
=========== ============ ============ =========
Segment operating loss (658) (1,265) - (1,923)
Finance expense - - (138) (138)
Net loss and total comprehensive
loss (658) (1,265) (138) (2,061)
=========== ============ ============ =========
Total assets 6,111 1,084 2,556 9,751
Total liabilities (2,989) (1,654) (13,304) (17,947)
Geographic Segmental Information
Quarter ended 31 March
Total Revenues by destination 2013 2012
GBP'000 GBP'000
UK 659 532
USA 645 1,520
Canada 2,394 1,706
Rest of world 62 767
3,760 4,525
============ ===========
All property, plant and equipment were located within the United
Kingdom during both periods ended 31 March 2013 and 31 March
2012.
6 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 31 March
2013 2012
Numerator for basic loss per share calculation:
(Loss) attributable to equity shareholders (GBP950,000) (2,061,000)
Denominator:
For basic net loss - weighted average
shares outstanding 3,336,865,922 1,437,754,811
Basic and diluted
Loss per common share - pence 0.03p 0.1p
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 31 March 2013 are as follows:
As at 31 March
2013 2012
Common shares potentially issuable:
- under stock options 31,007,273 31,377,273
- pursuant to A Ordinary Share
conversion 892,777,778 448,333,334
------------ ------------
923,785,051 479,710,607
============ ============
7 Share capital and options
Share capital and other reserves
Share Capital
Common Shares Convertible Shares
(A Ordinary Shares)
Number GBP'000 Number GBP'000
At 31 March 2012 1,437,754,811 62,862 448,333,334 15,310
Shares issued 1,899,111,111 8,546 444,444,444 2,000
---------------------------- -------------------- -------------- ------------------ --------------
At 31 December
2012 3,336,865,922 71,408 892,777,778 17,310
Issued in the period - - - -
At 31 March 2013 3,336,865,922 71,408 892,777,778 17,310
==================== ============== ================== ==============
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.
Other reserves
At 31 March 2013, other reserves comprise of the stock
compensation reserve of GBP1,803,330 (31 December 2012:
GBP1,793,865).
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 March 31 March
2013 2012
Under stock option plan 31,007,273 31,377,273
Pursuant to A Ordinary Share conversion 892,777,778 448,333,334
------------
923,785,051 479,710,607
--------------- ------------
8 Related party transactions
Transactions with the parent and ultimate parent company
During the period ended 31 March 2013 the Company undertook no
significant transactions with related parties.
After the period end, on 2 April 2013 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
GBP2.1 million of debt financing to support working capital
requirements, under the same terms and conditions as the previous
loans.
Accrued interest GBP254,000 is recorded within trade and other
payables (31 December 2012: GBP165,000)
During the three months ended 31 March 2013 the Company
transacted business with TAO UK totalling GBPnil (2012: GBPnil),
and with VSE, totalling GBPnil (2012: GBP 96,310). Amounts
outstanding as at 31 March 2013 are: the Company owes TAO UK GBPnil
(31 December 2012: GBPnil); VSE owes GBPnil (31 December 2011:
GBPnil) to the Company.
All transactions were conducted within the normal course of
business for supply of engineering design services and were
transacted at exchange amount, which is the amount agreed for the
transaction.
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:
Quarter Ended 31
March
2013 2012
GBP'000 GBP'000
Salaries 178 189
Pension contributions 13 13
Stock compensation expense 10 41
--------- --------
201 243
========= ========
9 Post balance sheet date events.
Loan financing
Subsequent to the quarter end the Company announced that it had
extended the loan financing agreement with TAO UK, to support
working capital requirements. The additional amount available to
drawdown as follows:
2 April 2013 GBP2,100,000
These amounts are repayable on 1 April 2014 and accrue interest
at 6% per annum.
Related party transactions
The Company also announced on 2 April 2013 that it had entered
into an agreement with VSE, its ultimate parent company, for
GBP185,000 to work on the initial concept phase of a study into
subsea power distribution for the Oil & Gas industry in
Brazil.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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