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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Turbo Power | LSE:TPS | London | Ordinary Share | CA8999101030 | COM SHS NPV |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0.035 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From May 2019 to May 2024
TIDMTPS
RNS Number : 4792Z
Turbo Power Systems Inc
15 March 2017
TURBO POWER SYSTEMS
Press Release
15 March 2017
The information communicated in this announcement contains inside information.
Turbo Power Systems Inc. ("TPS" or the "Company")
Announces Results for the Fourth Quarter
And Year Ended 31 December 2016
Financial highlights: FY 2016 vs. FY 2015
-- Order intake increased 29% in 2016 to GBP13.89 million (2015: GBP10.77 million) -- Revenue increased 4% to GBP13.92 million (2015: GBP13.39 million).
-- Gross profit increased 8% to GBP5.57 million (2015: GBP5.14 million), with gross margin % up 200 basis points to 40% (2015: 38%), after exceptional provision for a specific warranty claim of GBP0.65 million (2015: GBP0.50 million).
-- Research and development increased 23% to GBP1.82 million (2015 GBP1.47 million). -- Operating loss of GBP0.60 million (2015: GBP0.09 million). -- Adjusted Operating Profit(*) up 138% at GBP0.38 million (2015: GBP0.16 million). -- Net loss reduced by 10% to GBP0.77 million (2015: Loss GBP0.85 million).
Financial highlights: Q4 2016 vs. Q4 2015
-- Order intake decreased 7% to GBP3.94 million (Q4 2015 GBP4.25 million). -- Revenue increased 66% to GBP3.27 million (Q4 2015: GBP1.97 million).
-- Gross profit increased to GBP1.06 million (Q4 2015: GBP0.35 million), with gross margin % increased 2400 basis points 32% (Q4 2015: 18%), after exceptional provision for a specific warranty claim of GBP0.65 million (2015: GBP0.50 million).
-- Research and development increased by 39% to GBP0.50 million (Q4 2015: GBP0.36 million). -- Operating loss of GBP0.75 million (2015: GBP0.90 million). -- Adjusted Operating Profit(*) increased to GBP0.08 million (2015: loss GBP0.40 million).
* Adjusted Operating Profit excludes a specific warranty claim, a Regional Grant Fund termination payment, a R&D tax credit from prior year recorded in 2015 and a bonus accrual made in 2016 for 2015. A reconciliation for the year is provided below in the section titled Definition of non-GAAP financial measures.
Strategic Review:
Strategic Review of the Company's business, remains ongoing. The Board notes, as previously reported, that all expressions of interest received to date from potential offerors for 100% of the issued and to be issued share capital of the Company on a debt-free, cash-free basis have been indicatively priced at a substantial discount to the prevailing share price. Further announcements will be made in due course, as appropriate.
Funding:
As previously reported, the Company remains dependent on continuing financial support by TPS's parent company, Vale S.A. ("Vale"), Brazil's largest mining company, which owns 89.4% of the issued share capital of the Company through its wholly owned subsidiary Tao Sustainable Power Solutions (UK) Ltd ("TAO UK").
Today, pursuant to the terms of the existing agreement announced on 29 March 2016, the Company exercised its option to extend the repayment date of the GBP314,000 loan 6, from 1 April 2017 to 1 April 2018. All other conditions remain the same. At 31 December 2016 the loan amount including accrued interest is GBP0.33 million (2015: GBPnil)
Regional Growth Fund:
The Company previously stated that it was in negotiations about the future of the project underpinned by funding from the Regional Growth Fund ("RGF"). After having consulted with TAO UK the Board decided in December 2016 to terminate the project early. As a consequence of this early termination, a repayment requirement of GBP419,400 has arisen. The cash sum has been settled directly with the RGF by TAO UK, as guarantor. Further details are set out below.
Carlos Neves, Chief Executive Officer, said:
"I am extremely proud of the whole TPS team for the results achieved in 2016. The improved performance versus the previous year in revenues, gross margin and investments in R&D confirms the turnaround being achieved by the business. Adjusted Operating Profit of GBP0.38 million is up 138% from 2015 and it demonstrates the sustainable profitability achieved by the business.
The increasing order intake in 2016 is a testament to the Company's product offering that coupled with the strong pipeline of enquiries give us confidence in the outlook for 2017."
For further information, please contact:
Hot Features
Premium
Turbo Power Systems Tel: +44 (0)191 482 9200
Carlos Neves, Chief Executive
Officer
Charles Rendell, Chief Financial
Officer
Kreab (financial public relations) Tel: +44 (0)20 7074 1800
Robert Speed
finnCap (NOMAD, broker and Tel: +44 (0)20 7220 0500
financial advisor)
Henrik Persson, Emily Watts
Notes to Editors
About Turbo Power Systems
Company Website: www.turbopowersystems.com
Company Twitter: https://twitter.com/turbopowersys
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, which are sold into a number of market sectors including transport, industrial, energy and defence 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, Daikin Applied and Eaton Aerospace. Tao Sustainable Power Solutions (UK) Ltd ("TAO UK"), which is a wholly owned subsidiary of Vale S.A., Brazil's largest mining company, owns 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 on-going 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.
This Review has been prepared as at 15 March 2017.
Operational Review
This is my fourth Chairman's statement. I continue to be pleased with the strong progress the Company has made through all those years and particularly during 2016, full details of which are reported under Performance below.
Performance
Order intake in the year to 31 December 2016 ("2016") of GBP13.89 million (2015: GBP10.77 million) was an increase of 29%, as Turbo Power Systems Inc. ("TPS" or "the Company) concentrated on its key objective to win and deliver profitable contracts.
The impact of the uncertainty over the Strategic Review has led to a delay in signing contracts for certain long term opportunities until the outcome is determined. However, as in the prior year existing customers continued to understand the strategic value that TPS's products bring to them and placed further orders for existing product lines.
Revenue in 2016 of GBP13.92 million was up 4% (2015: GBP13.39 million). As reported in the third quarter results issued on 31 October 2016, customer delivery schedule changes during the fourth quarter adversely impacted the profits. Encouragingly, deliveries have recommenced during early 2017.
Benefits from the continuous improvement initiatives continued to deliver improvements in both gross margin up 8% to GBP5.57 million (2015: GBP5.14 million) and gross margin percentage up 200 basis points to 40% (2015: 38%).
The Company reported a contingent liability as at 31 December 2015 in relation to further costs that might be arising from a specific warranty claim. Having reviewed the current situation, especially in relation to our long term customer relationships and insurance proceeds that might be receivable, the Company has provided a further GBP0.65 million as at 31 December 2016 (2015: GBP0.50 million) to cover any further potential negotiations. Any payment related to this matter will be dependent on agreement with our customer on all matters that are critical for maintaining the long term relationship between the two companies.
Excluding this provision, gross margin is up 10% to GBP6.22 million (2015: GBP5.64 million) and gross margin percentage up 300 basis points to 45% (2015: 42%).
Continuing the positive trend from 2015, Adjusted EBITDA (see section titled Definition of non-GAAP financial measures for reconciliation) for 2016 was up 38% at GBP0.61 million (2015: GBP0.44 million).
Adjusted operating profit for 2016 (see section titled Definition of non-GAAP financial measures for reconciliation) increased 138% to GBP0.38 million (2015: GBP0.16 million) due to investment in research and development, sales and marketing and operational expense increases but a GBP2.32 million improvement since 2014 (2014: loss GBP1.94 million).
The reduced net loss of GBP0.77 million (2015: GBP0.85 million) continues to demonstrate the positive trend of the past 4 years towards profitability. Of the improvement of GBP0.08 million, GBP0.60 million was due to lower interest expense. Interest expense in 2016 was GBP0.01 million (2015: GBP0.61 million, which was waived by the lender in November 2015).
The Company ended the year with a total equity of GBP3.13 million (2015: GBP3.48 million surplus).
Regional Growth Fund ("RGF") - Termination
During 2011 the Company made a successful application for a grant under the Regional Growth Fund. The grant is to promote investment in the North East of England, through capital expenditure and job security and creation. The first tranche (GBP0.75 million) of the award was received in February 2013, a second tranche (GBP0.25 million) in June 2013 and a final tranche (GBP0.04 million) in March 2014. The total received was GBP1.10 million.
During December 2016 the Company decided to terminate the RGF project. As part of the early termination the Company was required to repay GBP419,400 of the grant previously received. Having previously provided GBP242,000, the Company suffered an additional loss of GBP177,400 which is reflected in the Income Statement on the "Other Operating Expense" line in line with prior year disclosure.
The GBP419,400 has been settled directly by TPS's 89.4% majority owner Tao Sustainable Power Solutions (UK) Limited ("TAO UK"), which resulted in a capital contribution of GBP419,400 addition to reserves. This accounting is in line with transactions of this nature between parent companies and subsidiaries.
Funding
During March 2016, the Company took a loan from TAO UK, TPS's majority shareholder, of GBP0.3 million leaving the Company with a debt at the year-end of GBP0.3 million (31 December 2015: Nil). TAO UK is a wholly owned subsidiary of Vale Soluções em Energia ("VSE") a Brazilian company, itself a wholly owned subsidiary of VALE S.A., Brazil's largest mining company. Following the year end, in March 2017, TAO UK extended the loan repayment date to 1 April 2018. All other conditions remain the same.
The Directors regularly review and consider the current and forecast activities of the Company in order to satisfy themselves as to the viability of operations. These ongoing reviews include consideration of current order book and future business opportunities, current development and production activities, customer and supplier exposure and forecast cash requirements and balances. Based on these budgets and forecasts TAO UK has continued to support the Company through the existing loan arrangements and cash advances as and when required.
The Company is dependent upon major customers paying to contractual terms in order to meet budgeted and forecasted working capital requirements and support the Company's growth plans. If not, this may result in the curtailment of the Company's activities.
The Directors are aware that the Company remains dependent on its own cash flow, but have a reasonable expectation that the Company has sufficient cash resources to achieve its target of being cash flow positive. For these reasons, the Directors continue to adopt the Going Concern basis in preparing these Consolidated Financial Statements, and disclose in Note 2 to the Consolidated Financial Statements the conditions and events that cast significant doubt on the Company's ability to continue as a going concern.
As in 2015, the Independent Auditor's report contains an Emphasis of Matter paragraph referencing this uncertainty relating to the going concern.
The TPS team
On 7 September 2016 Livia Castro and Rodrigo Lauria joined the Board of Turbo Power Systems Inc as Non-Executive Directors. Both Ms Castro and Mr Lauria are in full time employment with VALE S.A. Together Livia and Rodrigo bring a wealth of experience in finance, budgeting and control and in corporate strategic planning to the Company.
The Board appreciates the sales and marketing activities to promote our brand and products, engineers working in design and development, the staff who manufacture the products and those support staff responsible for the smooth delivery of goods and operations of the Company. I thank them all for their continued support and drive in providing quality products with on time delivery.
The knowledge and creativity of our people and the ability to deliver customer satisfaction in an increasingly demanding and competitive environment are key determinants of our success. Based in the North East of England, our workforce is a mix of local experience and international talent.
The Company maintained its excellent Health & Safety record during 2016. It continues to improve the training programme and reporting methods. The Board would like to thank the employees for their participation in the new focus groups and their Health & Safety awareness.
Strategic Review
On 20 February 2015 shareholders were informed that the Board are conducting a strategic review of the Company's business and as part of this review are looking at a potential sale of the Company. The Board has appointed Lincoln International LLP to assist in this process. The Company is a Canadian Business Corporation, registered in Yukon, Canada and is not subject to the provisions of the UK City Code on Takeovers and Mergers.
Further announcements were made during 2015 and 2016 explaining that all expressions of interest received to date as part of the Strategic Review from potential offerors for 100% of the issued and to be issued share capital of the Company on a debt-free, cash-free basis have been indicatively priced at a substantial discount to the share price.
The Board continues to regularly discuss with its majority owner how best to proceed with the Strategic Review. Further announcements will be made in due course, as appropriate. In the meantime there can be no certainty that any potential transaction will proceed, or as to the terms of any such transaction. The Company may discontinue the strategic review process at any time.
Strategy and Outlook for the Business
Looking ahead, the Board intends TPS to remain a technology-led company. Our commitment to embrace new ideas and fund research and development will drive products that are more efficient to operate and provide a competitive advantage in the market place.
The Company continues to operate a development programme, which leads the design of new efficient and cost effective products and a manufacturing base that exports units across the globe. The Board believes that by having design and manufacture working closely together better allows the required synergies and efficiencies to be realised.
Building on the UK Energy Innovation Award in 2015, the Company was a winner in the 2016 Elektra Awards for its innovative 100kW DC-DC power module utilising silicon carbide. In addition, the Company was a winner in the UK Rail Industry Awards, Traction and Rolling Stock category, for its novel refurbishment solution that enables Class 321 trains to utilise power from an otherwise un-utilised source. We are very pleased to be recognised in both the Energy and the Rail sectors for our innovative designs.
During the year the Company continued to actively pursue exciting new projects with new customers to increase the diversity of both our customer base and our technology portfolio, with the right level of profitability. This drive, which coupled with a continued focus on operational efficiencies throughout the business, is a key part of the plan to further improve performance and achieve annual profitability.
The Board and I look forward to 2017's performance with measured confidence.
Fernando Senhora
Chairman
15 March 2017
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 2016 and related notes, which are prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the IASB. 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.
This MD&A has been prepared as at 15 March 2017.
Business of the Company
Turbo Power Systems is a technology-led Company that designs and manufactures high-speed permanent magnet electric motors, generators and power electronics systems and provides bespoke solutions to transport, industrial, energy conversion, and defence markets.
Its track record in engineering innovation, which has been built and tested over a substantial 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 many sectors, especially in rail and industrial. Long term relationships with customers in these markets have been built based on delivering competitive products with proven reliability.
Developed over the last 30 years, expertise in high-speed electrical machines and power electronics, allows the Company to explore its current and future portfolio and adjust accordingly to grow successfully in its chosen markets.
Business Model
TPS operates by selling engineering design services and manufacture of high-speed electric machines and power electronics. The design and manufacture could be undertaken as separate activities or as one single contract, depending on the needs of the customer. The Company seeks to retain ownership of the intellectual property created as a result of any design activities. The Company also undertakes speculative research and development activities in order to remain at the forefront of technology.
Engineering design contracts are accounted for as long-term contracts, where revenue is matched to costs incurred to provide recognition of profit based on the activity undertaken.
For manufactured units, revenue and profit is recognised as units are delivered.
TPS seeks to capitalise on the special design capabilities within the Company. This can be in the form of increased down payments on long-term contracts or increased revenue for that part of a contract. A typical contract involves an upfront down payment to cover engineering design work followed by milestone payments followed by a per unit sales rate as units are manufactured.
The Company also licenses parts of its intellectual property where the situation and customer needs are appropriate. This allows the Company to capitalise on its prior expenditure but without the need for full scale production. This is a relatively new revenue stream for the Company, with the potential for further opportunities in the market place, and is accounted for under the development segment.
The Company typically provides a warranty on units delivered for typically one or two years, then moving to undertaking repairs on a revenue bearing basis.
The Company can also undertake maintenance, repair and overhaul of units that were not manufactured by the Company. This revenue is included in the production segment.
Way Forward
As a technology-led company, we understand the challenges of the market regarding quality, costs and timing. We continue to concentrate on three important pillars that will be key to achieving our long term strategy, as follow:
-- Improve the quality of the 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 the following portfolio categories: products offered, operational sites, inventory, receivables and staffing.
The Company strives to improve, working to dilute the concentration of revenues from its then largest customers, sectors and geographies.
The focus remains on developing TP's capabilities, products and bespoke solutions and recognising where the value of our proposal can be fully appreciated. The Company commenced design for standard products in the Rail and the Industrial markets during 2016 but has yet to exploit this commercially.
TPS has in place a rigorous process to control the Company's outstanding debtors. Currently the Company has a small number of large debtors and works to ensure that any overdue balances are effectively managed. Given that the majority of contracts are with large multinational companies, this continued to be an area of major emphasis for the Company. The long-term nature of the contracts gives the Company guaranteed revenue, but can lead to longer payment cycles by the customer. For newer contracts the Company is seeking to implement a process of controlling debtors by the use of such instruments as irrevocable letters of credit, or smaller more immediate delivery contracts.
The Company has always undertaken maintenance, repair and overhaul ("MRO") activities. As noted last year the Company implemented changes in the internal management of this area to accelerate growth in these MRO activities where the Company's expertise can bring added value to customers. During 2016 the revenue from MRO increased by 52% to GBP2.0 million, providing early validation of the emphasis that the Company has placed on this area. Due to this added value the Company believes that this will continue to be a growing and profitable revenue stream in the future.
Superior execution within design development, manufacturing operations and support activities
The Company recognises that its 40 years of experience together with the talented and highly skilled workforce are the most important assets it has. The Board remains focussed on the continuous pursuit of efficiencies, so as to allow TPS to react faster and be even more integrated to fulfil the market's needs.
The Company focused on some innovative research and development activities during the year:
-- Development of an efficient, compact and lightweight DC-DC converter that achieves galvanic isolation up to ratings of 100kW for the rail industry. Whilst the development is proven at voltages appropriate for third rail supply, the scope can be extended to higher voltage supply to exploit other geographic markets, such as the European market.
-- Development of a new robust and compact "at seat power supply" for use in UK rail Diesel Multiple Units (DMUs) which have limited battery capacity available for on board power supply.
-- Development of an AC-AC converter for use as a "Smart grid transformer" in domestic dwellings to enable increased utilisation of existing electricity distribution assets.
-- Next Generation Soft Open Point converters utilising silicon carbide technology to achieve greater efficiency when embedded into Smart Grid applications.
The Board believes that the broad range of experience that the Company has in power electronics has been demonstrated as meeting the new requirements of the burgeoning smart grid market.
Consistent delivery of internal improvements
Our employees are conscious of the need for a consistent and continued generation of efficiencies as part of their normal Key Performance Indicators ("KPIs"). Accordingly the Company has encouraged everyone in the organisation, irrespective of the efficiency value or size, to keep thinking of alternatives and new solutions.
Continuous improvements achieved in 2016 include:
-- The Company worked to change the focus of Health & Safety process implementation and reporting from centralised committees to focus groups based on specific types of operations. The objective is to ensure that Health & Safety matters continue to be considered at all levels within the Company.
-- The Company reviewed the training methods employed in the dissemination of Health & Safety information to employees. The three year web based training programme was renewed for a further three years after it was found to provide a solid foundation for the Company's employees. Additional training and video sessions were also added to the Health and Safety programme.
-- In 2015 the Company implemented Epicor as its Enterprise Resource Planning (ERP) system, specifically bringing together inventory management, purchasing, production management and financial reporting. The Company undertook a detailed review of its requirements and chose Epicor as being able to match those requirements with only limited customisation. During 2016 the Company widened the scope of Epicor reporting and included a project management reporting module. Given the long term nature of some of the projects, time and expense management has always been a high priority. The integrated approach of Epicor is ideal for time and expense recording and then providing high quality reports for project status review.
All the above objectives will continue the culture of Health and Safety consciousness and seek to implement efficient processes.
All the details discussed on the three pillars above are part of the Company's drive for a new culture where each of the areas is more integrated and capable of better understanding and contributing to the overall objectives of the Company.
Current Sectors
-- Transport
o Rail
Rail is a growing sector with huge investment globally, both in developed and developing countries. As an established supplier for auxiliary power units and battery charges TPS market share can increase based on traction systems, electric distribution systems and other added value services.
As part of the Board's plan to diversify the customer base, especially in the UK, during 2015 the Company won contracts with Wabtec Rail to supply at seat power supplies and air conditioning power supplies which have a shorter delivery timescale which presents fewer long term obstacles to revenue generation. These were shipping during 2016. However, due to changes in the Class 321 upgrade programme, at Wabtec Rail's behest production of the air conditioning power supply ceased. Production is unlikely to recommence and the Company is liaising with the customer on the way forward to a satisfactory commercial resolution to this project.
As noted last year the Bombardier Sao Paulo unit continued in production until September 2014, when shipments were halted, by the customer, due to a delay in the introduction of the Monorail train in Sao Paulo. There were a small number of shipments in 2016, but current production is not due to restart until 2019.
In 2016 the Company won the coveted UK Rail Industry Award under the 'Traction and Rolling Stock' category for innovation, planning and execution on the Class 321 air conditioning power supply project.
o Aerospace
The Jettison Fuel Pump motor drives for Eaton Aerospace continue to be delivered in line with the customer's call-off rate. As the Boeing 787 Dreamliner has entered into revenue service, orders quantities continue to increase in line with the aircraft build and remain a stable and profitable revenue stream.
-- Industrial
o Industrial Motors and Drives
The Company has a major ongoing relationship with Daikin and is expanding the previous US centric relationship to the global reach of Daikin. Current orders are continuing and the Company's expectation is that this demand will continue in the coming years.
Further development work is on-going on newer designs for electric motors and drives to ensure the business remains competitive in this market.
-- Defence
o High speed motor design
There is a growing market due to electrification of ships, one where TPS's technologies are suitable for energy recovery, traction and emission mitigation in marine systems. It is a specialised field with high entry barriers. Following the market reviews in 2013, the Company identified that there were unique characteristics to the product range that would be applicable to this market.
The Company had entered into a small design agreement for a low power, high speed motor. It was hoped that this initial agreement will lead to a further contract for the design of a large multi megawatt motor. Currently this is envisaged to be design work with the end customer performing the manufacture. This approach has been adopted to reduce the level of working capital required to complete the project and concentrate on the higher value intellectual property (IP) created by design work. However, this is currently on hold while the outcome of the Company's Strategic Review is determined. At which point it is expected that the Company will be able to sign the contract and start the design work.
-- Energy
o Development
Grid linked inverters is a growing and very competitive sector with many low cost players. TPS has the pedigree and experience with grid linked inverters, and will focus on specialised niche applications, such as, inverters for smart grid.
In 2014 the Company announced a major contract with UK Power Networks to supply the prototypes for the ground-breaking new design of electrical energy controller for trials on the electricity distribution networks in the London and Brighton areas. This contract demonstrates the Company's ability to produce these specialised units as well as the design work.
Awards won in 2015 and 2016 were:
-- The technology won the award for "Best Electricity Network Improvement" at the annual Energy Innovation Awards, organised by the Energy Innovation Centre during 2015.
-- TPS have been awarded the 'Highly Commended' certificate by IET Innovation Awards after being shortlisted and recognised under the Energy 2016 category.
-- Our technology won the Power 2016 category of the IET Innovation Awards, as it formed part of the UK Power Networks entrant for that category.
The Company continues to pursue the energy efficiency market for its electric motors and generators. Market studies have been conducted into energy recovery systems and the Board believes that TPS's technology would work very well with the push into the energy space. The Company is currently exploring opportunities with partners to provide systems that can be self-sufficient for energy recovery and subsequent energy generation at on site locations.
Notwithstanding that this is a market where acceptance by the customer for production takes a considerable period, the Company sees this as an important market for future growth in both development design revenue and production revenues.
Principal Risks and Uncertainties
Risk or uncertainty Mitigation approach
Operating revenues
TPS has entered into large The Company is seeking
development and manufacturing to change the emphasis
contracts. The outcome on new contract signings.
of this is that large amounts The Company has a growing
of revenue are associated revenue stream associated
with one product line and with repair, maintenance
one customer. As there and overhaul that does
is reliance on large contracts not rely on large value
being signed by the Company, contracts. The Company
the impact of not signing is focusing efforts to
a large contract would increase the percentage
be high on the results of revenue associated with
of the Company in any one these activities in addition
year. The Company recognises with the new major contract
that it is increasingly awards.
difficult to forecast when The Company has always
these new contracts will worked closely with its
be signed due to the importance current customer base.
customers associate such Going forward this will
large values. The Company continue, but greater emphasis
has suffered and will continue is being put into working
to suffer from delays in with new customers and
expected contract award hence increasing the number
dates. of contracts in bid and
diluting the relative impact
of individual contract
awards.
Cost overrun on contracts
due to technology risk The Company seeks to mitigate
TPS is a technology-led these risks by significant
company. As the products up front planning and research.
that it develops are technology The new ideas are reviewed
driven, the Company is by senior personnel and
looking to use the latest approved before use in
design and practices when new projects. A project
a new contract is won. based reporting and review
This enables the Company system is in place to monitor
to make the most efficient the activities and the
solution for each project. output from design and
Due to these technology testing phases. A system
advances there is a significant of cost control is in place
risk extra costs may be to ensure that budgets
incurred while developing are monitored and any variances
new ideas to fulfil contracts. recognised early and taken
into account to mitigate
them in future activities.
Further development activities
TPS undertakes research The Company has a structure
activities to ensure that of senior engineers who
the technology used is are responsible for reviewing
current and forward looking. market trends and identifying
There is a risk that the new technologies as they
Company misses a directional become useful in our products.
change in where technology The Company also partakes
is moving and does not in research projects that
produce new and efficient are originated via bodies
designs. such as Innovate UK. These
projects typically involve
University departments
as well as a diverse group
on interested parties.
This helps the Company
understand potential customer
and supplier's knowledge
and requirements.
Manufacturing issues
The Company is at the forefront The Company seeks to minimise
of electrical machine design manufacturing issues by
and power electronic forethought. conforming to international
The Company is always looking quality standards such
for ways to make its products as ISO 9001, and AS 9100.
more efficient and to use The Company is fiercely
latest technology to enhance proud of its quality process
the product offering. and takes good practice
seriously.
As part of this culture,
the manufacture of the During the manufacturing
product can be extremely process all new processes
complex and time consuming. are documented with pictures
There may be issues with to ensure that they are
the design that are only easy to follow and check.
evident when in volume The process is then approved
manufacture and there may by operations, engineering
be a difficult, and therefore and quality departments
risky, manufacturing process. in line with best practice.
These may adversely impact
the quality of the units The manufacturing engineer
manufactured and the manufacturing role acts as a bridge between
efficiency cost effectiveness. the design team and the
If faults are found internally, manufacturing personnel.
then there is an increase This is pivotal in ensuring
in manufacturing costs that any issues are resolved
and therefore decrease efficiently and with the
profitability. If faults correct long term objective.
are only found when with
the customers then this The quality inspections
impacts warranty costs during manufacture should
and can have a big impact reduce the chances of incorrect
on reputation. assembly and lead to a
quality unit being produced.
Commercial relationships
TPS has longstanding commercial The Company seeks to mitigate
relationships with major this risk by working closely
customers. However, there with the customer. This
is no guarantee that customers involvement starts with
will continue to design understanding their future
and manufacture the appropriate product roadmap and working
products that require our closely at an early stage
technology. Any integration, to help overcome new design
design or manufacturing problems. This works especially
problems that the customer well on projects with existing
encounters could adversely customers. However, the
affect the financial results Company is constantly reviewing
of the Company. the profile of its salesforce
as part of seeking to expand
The risk could be that the customer base. This
the customer's designs requires the Company to
no longer require, say, bring new fresh ideas to
an auxiliary power unit the market and identify
and therefore future orders current problems encountered
cease. Alternatively, a in the marketplace.
customer could be having
issues with, say, the overall In Rail, whilst the Company
train design and manufacture tries to mitigate customer
and therefore revenue could issues with train manufacture
be delayed. in regard to its own product
line it will always be
at risk of the overall
train manufacture timing
issues. The Company seeks
to mitigate these through
contractual timeframes
and terms.
Dependence of key personnel
TPS is a technology-led The Company works closely
company and hence reliant with key personnel to ensure
on key personnel. The Company that they are fully motivated
has a group of senior personnel and engaged on interesting
who oversee the design and rewarding projects.
research and implementation. The Company believes that
Having been through major the roles should be aligned
personnel number changes to the individual's ability,
in the last few years, so these can be within
key positions exist within technical expertise or
the Company that require management responsibility.
succession plans to be
in place. Where a key position has
been identified a succession
plan has been drawn up.
Foreign currency exchange
rate fluctuations The Company seeks over
TPS is subject to foreign time, to balance currency
currency risk. Foreign requirements with currency
currency sales (and to inflows. Where there is
a much lesser extent) purchases excess currency inflow
are made in US Dollars. the Company seeks to match,
The Company's major contracts to the extent possible,
are denominated in US Dollars planned currency sales
and therefore a major portion through forward foreign
of cash receipts are in currency exchange contracts.
US Dollars. The Company The level of currency hedging
is therefore exposed to is dependent on the credit
movements in foreign currency limits available for future
rates over time. currency deals and the
perceived currency forecast
This fluctuation has been movement.
significantly severe during
2016 following the referendum Part of the Board's strategy
in June to leave the European has been to seek increased
Union. sales where contracts are
undertaken in GBP Sterling.
Future funding
The Company has been loss The Company works closely
making for a number of with VSE, its majority
years and has been critically shareholder, to ensure
reliant on regular increases that it is fully aware
in external funding. As of the financial situation
noted in the Directors' of the Company on a very
Report and Note 2 Going regular basis and also
Concern, TPS is dependent of customer concerns. The
on customers paying to Company seeks to gain approval
contractual terms in order for all budgets, working
to meet forecast working closely with VSE on all
capital requirements and financial and operational
support the Company's growth matters, assisted by the
plans. If this does not three representatives of
continue, this may well VSE on the Board.
result in the curtailment
of the Company's activities, Having started the year
partly due to customer with no borrowings, during
concerns over the Company's 2016 the Company borrowed
continuing viability. GBP314,000 (2015: Nil)
from TAO UK to support
its working capital requirements.
Strategic Review
In conjunction with VSE, The Board has been working
the Company has been undertaking closely with VSE to understand
a Strategic Review for its requirements and with
over two years. The Review's Lincoln International whom
continuation could impact the Board and VSE appointed
the future orders due to to undertake the Review.
the uncertainty that customers Notwithstanding the Review,
and potential customers the Board is operating
might perceive before the the Company in a normal
outcome is determined. manner.
Summary
In summary, the Company has continued to implement its strategy of bidding for profitable production and development contracts, whilst maintaining a disciplined and considered approach to costs.
We believe that this is reflected in the significant improvement in the gross margin and operating profit of the Company.
In line with prior years the need to win further substantial orders, execution of those orders and completion of development programmes in a consistent and timely manner are all key to delivering management's plans for the improved results during 2017 and beyond.
Financial Performance
2016 saw revenue increase 4% to GBP13.92 million (2015: GBP13.39 million) and gross profit increase 8% to GBP5.57 million (2015: GBP5.14 million). This improvement was due predominantly to management's actions in better controlling costs, winning profitable projects and negotiating increased margins on certain long-term contracts. The Company's strategy continues to be the drive towards both annual profitability and cash generation from its operations.
During 2016 whilst the Company continued to increase production revenues with a 14% increase over 2015, it saw less development contracts with new customers than in the prior year resulting in a reduction of 52% in development revenues.
However, the Company entered 2017 with a strong order pipeline and the strategy continues the drive towards annual profitability.
Order intake during the year amounted to GBP13.89 million (2015: GBP10.77 million), as the Company concluded contracts with existing and new customers. The current order book will deliver revenue for 2017 through to 2020, due to long term supply contracts.
As part of the Company's strategy to control costs, headcount was stable, up by 1 from 31 December 2015: 111 to 31 December 2016: 112.
As reported in the Annual Report 2015, during 2015 the Company received a claim for warranty, relating to a fault within motor units delivered to a customer from the end of 2013. The Company reported a one off expense in 2015 of GBP0.50 million, of which GBP0.44 million remained as a liability at 31 December 2015. As expected, the majority of the cash outlay of the original GBP0.50 million provision was incurred in 2016, such that the remaining provision at 31 December 2016 was GBPNil. Having reviewed the current situation, especially in relation to ongoing customer relationships and insurance proceeds that might be receivable, the Company has provided a further GBP0.65 million as at 31 December 2016 to cover any further potential negotiations. Any payment related to this matter will be dependent on agreement with our customer on all matters that are critical for maintaining the long term relationship between the two companies.
Research and development net costs have increased by 24% to GBP1.82 million (2015: GBP1.47 million), with a better focus and in line with the Board's plans for the year. Gross costs were up 5% to GBP2.07 million (2015: GBP1.97 million). The net costs are after a research and development tax credit of GBP0.25 million that is receivable from HM Revenue & Customs (2015: GBP0.50 million, of which GBP0.25 million related to years prior to 2015).
General and administrative costs, which consist mainly of staff costs, facilities costs and the costs associated with the Company's public listing, grew 8% at GBP3.76 million (2015: GBP3.47 million) as the Company maintained overheads at a sustainable level as it moves towards profitability. There was a one-off benefit in 2016 of GBP 0.04 million (2015: GBP0.26 million) from the release of the asset retirement obligation following the review of the provisions required. Excluding the one-off benefit, the underlying costs restated would be GBP3.80 million in 2016 (2015: GBP3.73 million) a 2% increase.
During December 2016 the Company decided to terminate the Regional Growth Fund project. As part of the early termination the Company was required to repay GBP0.42 million of the grant previously received. Having previously provided GBP0.24 million, the Company suffered an additional loss of GBP0.18 million which is reflected in the Income Statement on the "Other Operating Expense" line in line with prior year disclosure.
The GBP0.42 million has been settled directly by TPS's 89.4% majority owner TAO UK, which resulted in a capital contribution of GBP0.42 million to reserves. This accounting is in line with transactions of this nature between parent companies and subsidiaries.
Continuing the positive trend from 2015, Adjusted EBITDA for 2016 was up 38% at GBP0.61 million (2015: GBP0.44 million).
Operating loss for 2016 was GBP0.60 million (2015: loss GBP0.09 million). Adjusted operating profit for 2016 increased 138% to GBP0.38 million (2015: GBP0.16 million).
The loss before taxation for the year was GBP0.61 million (2015: GBP0.70 million), an improvement of 13%.
As explained below under Transactions with Related Parties, included in the net loss is interest expense in 2016 of GBP0.01 million (2015: GBP0.61 million, which was waived by the lender in November 2015).
An income tax expense in the year of GBP0.16 million (2015: GBP0.15 million) was due to tax withheld on the research and development tax credits receivable from HM Revenue & Customs and accrued in the year and overseas withholding taxes paid and not recoverable.
The reduced net loss of GBP0.77 million (2015: GBP0.85 million) continues to demonstrate the positive trend of the past 4 years towards profitability. Of the improvement of GBP0.08 million, GBP0.60 million was due to lower interest expense.
Capital investment in 2016 amounted to GBP0.19 million (2015: GBP0.37 million) and related to production equipment, internally generated development costs, computer equipment and a new enterprise resource planning business system.
The Company recorded an operating cash outflow before working capital movements of GBP0.66 million for the year (2015: GBP0.33 million). After adjusting for changes in working capital items and purchases of property, plant and equipment and intangible assets, the Company suffered an overall cash outflow before financing of GBP0.35 million (2015: GBP1.69 million).
There was net cash inflow from financing activities in 2016 of GBP0.31 million (2015: GBPnil), which resulted in an overall net cash inflow for the year of GBP0.07 million (2015: outflow GBP1.33 million).
The Company finished the year with an unrestricted cash balance of GBP0.57 million (2015: GBP0.50 million) and held further cash of GBP4,000 associated with utility deposits(2015: GBP0.07 million, associated with a performance bond, rent and utility deposits).
Transaction with Related Parties
During the year ended 31 December 2016 the Company undertook two significant transactions with related parties.
First, the Company took a new loan facility of GBP0.3 million from its majority investor TAO UK, to support working capital requirements, bearing interest at 6% and being repayable upon request on 1 April 2017. The balance at 31 December 2016 was GBP0.33 million (31 December 2015: GBPNil). Following the year end, in March 2017, TAO UK extended the loan repayment date to 1 April 2018. All other conditions remain the same.
Secondly, as noted above, the Company received a capital contribution of GBP0.42 million from TAO UK to fund the termination of the Regional Grant Fund.
The Company raised no invoices to VSE, the parent organisation of TAO UK, in 2016 (2015: GBPnil).
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 realise its assets and discharge its liabilities in the normal course of operations.
As at 31 December 2016 the Company had net operating cash outflows, with current liabilities of GBP3.61 million and current assets of GBP6.17 million, which includes GBP0.57 million of cash. The Company has a cumulative deficit of GBP100.20 million as at 31 December 2016 and was loss making for the year then ended.
The Company is dependent upon i) major customers paying to contractual terms and ii) the continued financial support of its intermediate parent undertaking TAO Sustainable Power Solutions (UK) Limited (TAO UK), who in turn is dependent on their parent undertaking VSE (which in turn is dependent on its parent company Vale S.A. (Vale)). The Company relies on TAO UK for continued financial support in order to meet any shortfall in budgeted or forecasted working capital requirements and to support the Company's growth plans. If this support does not continue, this may result in the curtailment of the Company's activities. The timing of required financial support from TAO UK will depend on the Company's ability to generate cash from operations. In reasonably sensitised cash flow forecasts, and particularly dependent on the yet to be agreed settlement, including payment profile, of certain warranty provisions, support may well be required before the date of loan repayment in April 2018.
As described in the Chairman's statement, the Board are conducting a strategic review of the Company's business and as part of this review are looking at a potential sale of the Company. The Board continues to regularly discuss with its majority owner how best to proceed with the Strategic Review. At this time there can be no certainty that any potential transaction will proceed, as to the terms of any such transaction. The Company may discontinue the Strategic Review at any time.
However the Directors believe that they will succeed in delivering the Company's projected financial performance and that financial support from TAO UK and, ultimately, VSE, and its parent company, Vale, Brazil's largest mining company, will remain in place to enable the Company to meet budgeted and forecasted working capital requirements and support the Company's growth plans. As is typical with any company placing reliance on other group entities for financial support, there can be no certainty that this support will continue although, at the date of approval of these financial statements, the Board have no reason to believe that TAO will not do so. Although there are no formal letters of support in place for the purpose of the directors' going concern assessment of the Company, the directors of the Company have taken comfort from the actions taken by TAO UK, in that loans have been provided when required (the latest being GBP0.31 million on 29 March 2016), rescheduling the repayment date of that loan to 1 April 2018 (see note 11 - Post Balance Sheet Event), that all the debt existing at 12 November 2015 was waived and that VSE has Board representation, in forming their conclusion that they believe it is appropriate to prepare these financial statements on a going concern basis. Accordingly, they have continued to adopt the going concern basis of preparation.
If the Company is unable to either generate positive cash flows from operations or ensure the continued financial support from TAO UK and ultimately VSE and its parent company, or secure additional debt or equity financing, these conditions and events indicate the existence of a material uncertainty which may cast significant doubt regarding the Company's ability to continue as a going concern and, therefore, to continue realising its assets and discharging its liabilities in the normal course of business.
These consolidated financial statements do not reflect any adjustments that would be necessary if the going concern assumption were not appropriate.
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 Operating Net (loss)/profit Loss
All amounts and product and administrative (loss)/profit per
in GBP'000 development share
pence
March 2015 4,082 544 872 202 29 0.00
June 2015 4,086 448 978 257 81 0.00
September
2015 3,246 118 831 346 34 0.00
December
2015 1,973 360 790 (895) (992) (0.03)
-------- ------------- -------------------- --------------- ------------------ ---------
13,387 1,470 3,471 (90) (848) (0.03)
-------- ------------- -------------------- --------------- ------------------ ---------
March 2016 3,350 416 916 (136) (148) (0.00)
June 2016 3,732 413 863 227 164 0.00
September
2016 3,575 486 883 66 22 0.00
December
2016 3,267 504 1,102 (753) (803) (0.02)
-------- ------------- -------------------- --------------- ------------------ ---------
13,924 1,819 3,764 (596) (765) (0.02)
-------- ------------- -------------------- --------------- ------------------ ---------
Definition of non-GAAP financial measures
EBITDA is calculated as the net loss for the period less financial interest income and charges, foreign exchange gains and losses, tax charges and receipts, depreciation, amortization, and stock compensation charges. The Company believes that EBITDA is useful supplemental information as it provides an indication of the operational results generated by its business activities prior to taking into account how those activities are financed and taxed and also prior to taking into consideration asset amortization. EBITDA is not a recognised measure under GAAP and, accordingly, should not be construed as an alternative to operating income or net loss determined in accordance with GAAP as an indicator of financial performance or of liquidity and cash flows. EBITDA does not take into account the impact of working capital changes, capital expenditures and other sources and uses of cash which are disclosed in the consolidated statement of cash flows. The Company's method of calculating EBITDA may differ from other issuers and may not be comparable to similar measures provided by other companies.
Reconciliation of net loss to EBITDA , Adjusted EBITDA and Adjusted operating profit
Quarter ended Year ended
31 December 31 December
2016 2015 2016 2015
GBP'000 GBP'000 GBP'000 GBP'000
Net (loss) (803) (992) (765) (848)
Add back:
Taxation 45 12 155 148
Finance expense 5 79 14 610
-------- -------- --------- --------
Operating loss (753) (901) (596) (90)
Add back:
Depreciation 28 36 117 191
Amortisation 29 25 108 91
EBITDA (loss)/profit (696) (840) (371) 192
Adjustments
Regional Growth Fund
termination cost 177 - 177 -
Specific warranty provision 650 500 650 500
R&D tax credits relating
to the prior year - - - (250)
Bonus accrual - - 154 -
-------- -------- --------- ---------
Adjusted EBITDA profit/(loss) 131 (340) 610 442
-------- -------- --------- ---------
Adjusted operating profit/(loss) 74 (401) 385 160
-------- -------- --------- ---------
Adjusted EBITDA and Adjusted operating profit are before non-routine items. As previously noted the termination of the RGF grant gave rise to a charge of GBP177,000 (2015: GBPnil), the specific warranty provision of GBP650,000 (2015: GBP500,000) as detailed in Note 7, research and development tax credits recognised in the year that related to the prior year and the bonus accrual that related to the performance in 2015, but was not agreed by the Board until October 2016.
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 2017.
Copies of the quarterly and annual results are available from the Company's office at 1 Queens Park, Queensway North, Team Valley Trading Estate, Gateshead, NE11 0QD, 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 Year Ended
ended 31 December
31 December
2016 2015 2016 2015
GBP'000 GBP'000 GBP'000 GBP'000
Revenue 5 3,267 1,973 13,924 13,387
Cost of sales (2,210) (1,626) (8,356) (8,246)
-------- -------- -------- --------
Gross profit 1,057 347 5,568 5,141
Expenses
Distribution costs (133) (98) (400) (314)
Research and product development (504) (360) (1,819) (1,470)
General and administrative (1,102) (790) (3,764) (3,471)
-------- -------- -------- --------
Total expenses (1,739) (1,248) (5,983) (5,255)
Other operating expense (177) - (177) -
Other (losses)/gains net 106 - (4) 24
Operating loss (753) (901) (596) (90)
Finance expense (5) (79) (14) (610)
Loss before tax (758) (980) (610) (700)
Income tax expense (45) (12) (155) (148)
Net loss and total comprehensive
loss for the periods (803) (992) (765) (848)
======== ======== ======== ========
Loss per share - basic
and diluted 6 (0.03)p (0.03)p (0.02)p (0.03)p
======== ======== ======== ========
The Notes are an integral part of these Consolidated Financial Statements
Turbo Power Systems Inc.
Consolidated statement of financial position
________________________________________________________________________________
Notes As at As at
31 December 31 December
2016 2015
GBP'000 GBP'000
Current assets
Restricted cash 4 66
Inventories 3,163 3,253
Trade and other receivables 2,272 2,675
Prepayments 170 162
565 496
Cash and cash equivalents -------- --------
6,174 6,652
-------- --------
Non-current assets
Intangible assets 431 433
Property, plant and equipment 402 434
-------- --------
833 867
-------- --------
Total assets 7,007 7,519
==== ====
Current liabilities
Trade and other payables 2,569 3,075
Derivative financial 4 -
instruments
Loans and borrowings 8 328 -
712 635
Provisions 7 -------- --------
3,613 3,710
-------- --------
Non-current liabilities
262 331
Provisions 7 -------- --------
262 331
-------- --------
Total liabilities 3,875 4,041
Equity surplus
Share capital 9 71,408 71,408
Convertible shares 9 17,310 17,310
Capital contribution
reserve 9 12,786 12,367
Other reserves 9 1,823 1,823
(100,195) (99,430)
Retained deficit ---------- ----------
Surplus 3,132 3,478
Total liabilities and
equity 7,007 7,519
===== =====
Approved by the Board:
F Senhora Chairman
15 March 2017
The Notes form an integral part of these Consolidated Financial Statements Turbo Power Systems Inc.
Consolidated statement of changes in equity
________________________________________________________________________________
Share Convertible Capital Other Retained Total
capital shares Contribution reserves deficit
reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1 January
2015 71,408 17,310 - 1,823 (98,582) (8,041)
-------------------------- --------- ------------ -------------- ---------- --------- --------
Total comprehensive
income for the
period
Net loss for the
year - - - - (848) (848)
-------------------------- --------- ------------ -------------- ---------- --------- --------
Total comprehensive
income for the
period - - - - (848) (848)
-------------------------- --------- ------------ -------------- ---------- --------- --------
Transactions with
owners, recorded
directly in equity
Capital contributions
by owners - - 12,367 - - 12,367
-------------------------- --------- ------------ -------------- ---------- --------- --------
Total contributions
by and distributions
to owners - - 12,367 - - 12,367
-------------------------- --------- ------------ -------------- ---------- --------- --------
Balance at 31 December
2015 71,408 17,310 12,367 1,823 (99,430) 3,478
========================== ========= ============ ============== ========== ========= ========
Balance at 1 January
2016 71,408 17,310 12,367 1,823 (99,430) 3,478
-------------------------- ------- ------- ------- ------ ---------- ------
Total comprehensive
income for the
period
Net loss for the
year - - - - (765) (765)
-------------------------- ------- ------- ------- ------ ---------- ------
Total comprehensive
income for the
period - - - - (765) (765)
-------------------------- ------- ------- ------- ------ ---------- ------
Transactions with
owners, recorded
directly in equity
Capital contributions
by owners - - 419 - - 419
-------------------------- ------- ------- ------- ------ ---------- ------
Total contributions
by and distributions
to owners - - 419 - - 419
-------------------------- ------- ------- ------- ------ ---------- ------
Balance at 31 December
2016 71,408 17,310 12,786 1,823 (100,195) 3,132
========================== ======= ======= ======= ====== ========== ======
The Notes form an integral part of these Consolidated Financial Statements
Turbo Power Systems Inc.
Consolidated statement of cash flows
________________________________________________________________________________
Year ended
31 December
Notes 2016 2015
GBP'000 GBP'000
Cash flows from operating
activities
Loss after tax for
the year (765) (848)
Adjustments for
Taxation 155 148
Finance expense 14 610
R & D Tax Credits (294) (500)
Depreciation of property,
plant and equipment 117 191
Amortisation of intangible
assets 108 91
Derivative financial
instruments 4 (24)
--------- ---------
Operating cash flows before
movements in working capital (661) (332)
Changes in working
capital items
Decrease/(increase) in inventories 90 (359)
Decrease in restricted
cash 62 2
Decrease in trade and other
receivables 444 317
(Increase)/decrease in
prepayments (8) 64
Increase in provisions 8 255
Decrease in trade and other
payables (87) (1,259)
--------- ---------
Cash used in operating activities (152) (1,312)
--------- ---------
Taxation received 100 356
--------- ---------
Net cash used in operating activities (52) (956)
Cash flows from investing
activities
Purchase of property, plant
and equipment (87) (84)
Purchase of intangible
assets (106) (289)
--------- ---------
Net cash used in investing (193) (373)
activities --------- ---------
Cash flows from financing
activities
Proceeds from increase 314 -
in loans
--------- ---------
Net cash from financing 314 -
activities --------- ---------
Net increase/(decrease)
in cash and cash equivalents 69 (1,329)
Cash and cash equivalents
at the beginning of 496 1,825
the year ---------- ----------
Cash and cash equivalents 565 496
at the end of the year ====== ======
The Notes form an integral part of these Consolidated Financial Statements.
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"). The main trading address is 1 Queens Park, Queensway North, Team Valley Trading Estate, Gateshead, NE11 0QD, United Kingdom.
The Company's intermediate parent undertaking is TAO Sustainable Power Solutions (UK) Limited ("TAO UK"), a company registered in England and Wales, UK. The Company's ultimate parent undertaking is Vale S.A. ("Vale"), 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%
Intelligent Power Systems
Limited Dormant England 100%
Nada-Tech Limited Dormant England 100%
The registered office for all of the above subsidiaries is 1 Queens Park, Queensway North, Team Valley Trading Estate, Gateshead, NE11 0QD, United Kingdom.
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 realise its assets and discharge its liabilities in the normal course of operations.
As at 31 December 2016 the Company had net operating cash outflows, with current liabilities of GBP3.61 million and current assets of GBP6.17 million, which includes GBP0.57 million of cash. The Company has a cumulative deficit of GBP100.20 million as at 31 December 2016 and was loss making for the year then ended.
The Company is dependent upon i) major customers paying to contractual terms and ii) the continued financial support of its intermediate parent undertaking TAO Sustainable Power Solutions (UK) Limited (TAO UK), who in turn is dependent on their parent undertaking VSE (which in turn is dependent on its parent company Vale S.A. (Vale)). The Company relies on TAO UK for continued financial support in order to meet any shortfall in budgeted or forecasted working capital requirements and to support the Company's growth plans. If this support does not continue, this may result in the curtailment of the Company's activities. The timing of required financial support from TAO UK will depend on the Company's ability to generate cash from operations. In reasonably sensitised cash flow forecasts, and particularly dependent on the yet to be agreed settlement, including payment profile, of certain warranty provisions, support may well be required before the date of loan repayment in April 2018.
As described in the Chairman's statement, the Board are conducting a strategic review of the Company's business and as part of this review are looking at a potential sale of the Company. The Board continues to regularly discuss with its majority owner how best to proceed with the Strategic Review. At this time there can be no certainty that any potential transaction will proceed, as to the terms of any such transaction. The Company may discontinue the Strategic Review at any time.
However the Directors believe that they will succeed in delivering the Company's projected financial performance and that financial support from TAO UK and, ultimately, VSE, and its parent company, Vale, Brazil's largest mining company, will remain in place to enable the Company to meet budgeted and forecasted working capital requirements and support the Company's growth plans. As is typical with any company placing reliance on other group entities for financial support, there can be no certainty that this support will continue although, at the date of approval of these financial statements, the Board have no reason to believe that TAO will not do so. Although there are no formal letters of support in place for the purpose of the directors' going concern assessment of the Company, the directors of the Company have taken comfort from the actions taken by TAO UK, in that loans have been provided when required (the latest being GBP0.31 million on 29 March 2016), rescheduling the repayment date of that loan to 1 April 2018 (see note 11 - Post Balance Sheet Event), that all the debt existing at 12 November 2015 was waived and that VSE has Board representation, in forming their conclusion that they believe it is appropriate to prepare these financial statements on a going concern basis. Accordingly, they have continued to adopt the going concern basis of preparation.
If the Company is unable to either generate positive cash flows from operations or ensure the continued financial support from TAO UK and ultimately VSE and its parent company, or secure additional debt or equity financing, these conditions and events indicate the existence of a material uncertainty which may cast significant doubt regarding the Company's ability to continue as a going concern and, therefore, to continue realising its assets and discharging its liabilities in the normal course of business.
These consolidated financial statements do not reflect any adjustments that would be necessary if the going concern assumption were not appropriate.
3 Basis of preparation
These financial statements comply with and have been prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards (IFRSs) in issue and effective at 31 December 2016.
The consolidated financial statements were authorised for issuance by the Board of Directors on 15 March 2017.
The consolidated financial statements have been prepared under the historical cost convention.
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 Critical accounting judgements and key sources of estimation uncertainty
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 realise its assets and discharge its liabilities in the normal course of operations. As at 31 December 2016 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 GBP100.20 million as at 31 December 2016.
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 operates an integrated operation structured along the lines of product research and development, and production. The Board and management make strategic decisions and review the results of the Company on this basis. Corporate charges relating to the financing of the Company and other related management activities are allocated between the two reportable segments.
The Board together with the Chief Executive Officer and the Chief Financial Officer are the chief operating decision makers for the Company.
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 December 2016 Production Development Unallocated Total
GBP'000 GBP'000 GBP'000 GBP'000
Revenue 12,981 943 - 13,924
=========== ============ ============ ========
Segment operating
profit/(loss) 2,542 (3,134) (4) (596)
Finance expense - - (14) (14)
Taxation expense - - (155) (155)
----------- ------------ ------------ --------
Net loss and total
comprehensive loss 2,542 (3,134) (173) (765)
=========== ============ ============ ========
Total assets 6,047 637 323 7,007
Total liabilities (1,927) (642) (1,306) (3,875)
31 December 2015 Production Development Unallocated Total
GBP'000 GBP'000 GBP'000 GBP'000
Revenue 11,431 1,956 - 13,387
=========== ============ ============ ========
Segment operating
profit/(loss) 1,293 (1,407) 24 (90)
Finance expense - - (610) (610)
Taxation expense - - (148) (148)
----------- ------------ ------------ --------
Net loss and total
comprehensive loss 1,293 (1,407) (734) (848)
=========== ============ ============ ========
Total assets 6,082 903 534 7,519
Total liabilities (2,310) (765) (966) (4,041)
6 Loss per share
Loss per share has been calculated using the weighted average number of shares in issue during the relevant financial periods.
2016 2015
Loss attributable to ordinary GBP765,000 GBP848,000
shareholders
Weighted average number
of shares outstanding 3,336,865,922 3,336,865,922
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.
Weighted average number of common shares:
2016 2015
Issued common shares at 1
January 3,336,865,922 3,336,865,922
____________ ____________
Weighted average number of
common shares at 31 December 3,336,865,922 3,336,865,922
Details of anti-dilutive potential securities outstanding not included in loss per share calculations at December 31 are as follows:
2016 2015
Common shares potentially
issuable:
- under stock options (Note
28) 4,872,728 6,012,728
- pursuant to A Ordinary
stock conversion (Note 28) 892,777,778 892,777,778
__________ __________
897,650,506 898,790,506
7 Provisions
Asset Retirement Warranty
Obligations
2016 2015 2016 2015
GBP'000 GBP'000 GBP'000 GBP'000
Balance at
1 January 285 324 681 310
Provided during
the year - - 650 500
Utilised during
the year (191) (39) (451) (56)
Released during
the year - - - (73)
--------- -------- --------
Balance at
31 December 94 285 880 681
========= ======== ======== ========
31 31
Dec Dec
Analysed as: 2016 2015
GBP'000 GBP'000
Current liabilities 712 635
Non-current
liabilities 262 331
Total 974 966
======== ========
Asset Retirement Obligations:
During 2010 the Company recognised a requirement for a provision for the asset retirement obligations related to the two properties it then leased. One lease has subsequently terminated in 2013 and the other will terminate in 2022. Accordingly a provision, based on the present value of the future expected expenditure was recorded at GBP674,000 as at 31 December 2010. Following a 2015 review of the provision against expected costs the Company released GBP39,000 of this provision. In 2016 the Company agreed a settlement for the lease that was terminated in 2013 and consequently released the provision of GBP191,000 relating to this lease. The Company has recorded no further increase in accretion expense in 2016 (2015: GBPnil). After the expiry of the current lease in 2022 the provision is expected to be released.
Warranty:
Production units sold by the Company are provided with a warranty against operational failure. The warranty period provided is dependent upon the sales agreement with the customer and the nature of the unit, but typically is between one and two years from the date of delivery. The warranty provision is maintained at a level calculated to reflect the current costs of repair and incidence of failure of existing and similar units.
During the final quarter of 2015 the Company received a claim from a customer for warranty, relating to a fault within motor units delivered to a customer during 2013 to 2015. The Company included a one off provision expense in 2015 of GBP0.50 million, of which GBP0.45 million remained at 31 December 2015, during 2016 the GBP0.45 million has been fully utilised.
The Company reported a contingent liability as at 31 December 2015 in relation to further costs that might be arising out of the warranty claim. Having reviewed the current situation, especially in relation to ongoing customer relationships and insurance proceeds that might be receivable, the Company has provided a further GBP0.65 million as at 31 December 2016 (2015: GBP0.50 million) to cover any further potential negotiations. Subject to those negotiations, this matter has been treated as a current liability as it is more than likely to be resolved within the next twelve months. Any payment related to this matter will be dependent on agreement with our customer on all matters that are critical for maintaining the long term relationship between the two companies.
8 Loans and borrowings
On 29 March 2016 the Company announced that its wholly owned subsidiary Turbo Power Systems Limited had entered into an agreement to draw down on a new loan to be provided by TAO UK, to support working capital requirements. The additional amount available to draw down as follows:
29 March 2016 GBP314,000
This amount was repayable on 1 April 2017, which can be extended, at the Company's request, for a further year, and accrues interest at 6% per annum, payable annually. Following the year end, in March 2017, TAO UK extended the loan repayment date to 1 April 2018. All other conditions remain the same.
31 31
Dec Dec
2016 2015
Fixed rate loans GBP'000 GBP'000
Due within one year 328 -
Total 328 -
======== ========
The Company has drawn down on all its borrowing facilities as at 31 December 2016 (2015: all loans drawn down in full).
Unpaid interest of GBP0.01 million (2015: GBPnil) is recorded in the loan amount.
9 Share capital and other reserves
Share Capital
Common Shares Convertible Shares
(A Ordinary Shares)
Number GBP'000 Number GBP'000
At 1 January
2015 3,336,865,922 71,408 892,777,778 17,310
-------------------- -------------- ------------------ --------------
At 31 December
2015 3,336,865,922 71,408 892,777,778 17,310
-------------------- -------------- ------------------ --------------
At 31 December
2016 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. All common shares have been issued at nil par value.
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:
There were no common shares issued in the year. (2015: nil).
Capital Contribution reserve
On 12 November 2015 Tao Sustainable Power Solutions (UK) Limited waived the entire outstanding loan of GBP10.48 million and accrued interest of GBP1.89 million. This created a Capital Contribution reserve in 2015 of GBP12.37 million. In December 2016 Tao Sustainable Power Solutions (UK) Limited agreed to repay GBP0.42 million of the government grant which increased the capital contribution reserve to GBP12.79 million.
Other reserves
At 31 December 2016, other reserves comprise of the stock compensation reserve of GBP1,823,000 (2015: GBP1,823,000).
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
2016 2015
Under stock option plan 4,872,728 6,012,728
Pursuant to A Ordinary stock
conversion (Note 29) 892,777,778 892,777,778
-------------
897,650,506 898,790,506
------------- -------------
10 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 GBP6.5 million 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 25 May 2012 the Company issued 1,899,111,111 common shares to TAO UK as a result of the conversion of GBP8.54 million of debt in the Company, at a price of 0.45p per share, increasing the controlling share to 89.4%
On 22 October 2010 the Company agreed a loan facility with TAO UK (as subsequently amended), which bears interest at 6% per annum and is repayable upon demand commencing 2 January 2012. The loan is secured by a fixed and floating charge over the assets of the Company's subsidiary Turbo Power Systems Limited. During 2012 the loan repayment date was extended to 1 April 2014. During March 2014 the repayment date was further extended to 1 April 2016. On 16 March 2015 it was announced that the repayment date had been extended by one year to 1 April 2017.
On 12 November 2015 TAO UK agreed to waive the entire outstanding loan of GBP10.48 million and all unpaid accrued interest of GBP1.89 million. TAO UK agreed to this waiver for the benefit of all TPS shareholders. The total amount of the loans and interest of GBP12.37 million have been transferred to a Capital Contribution reserve.
On 29 March 2016 the Company announced that its wholly owned subsidiary Turbo Power Systems Limited had entered into an agreement to draw down on a new loan to be provided by TAO UK, to support working capital requirements. The additional amount available to draw down as follows:
29 March 2016 GBP314,000
This amount is repayable on 1 April 2017, which can be extended, at the Company's request, for a further year, and accrues interest at 6% per annum, payable annually. Following the year end, in March 2017, TAO UK extended the loan repayment date to 1 April 2018. All other conditions remain the same.
A summary of the loan movement is:
GBP'000
Balance as at 1 -
January 2016
29 March loan drawdown 314
Accrued interest
2016 14
Balance at 31 December
2016 328
--------------
Accrued interest is recorded within the loan balance GBP14,000 (2015: GBPnil)
During December 2016 the Company decided to terminate the RGF project. As part of the early termination the Company was required to repay GBP419,400 of the grant previously received. Having previously provided GBP242,000, the Company suffered an additional loss of GBP177,400 which is reflected in the Income Statement on the "Other operating expense" line in line with prior year disclosure.
The GBP419,400 has been settled directly by TPS's 89.4% majority owner Tao Sustainable Power Solutions (UK) Limited ("TAO UK"), which resulted in a capital contribution of GBP419,400 addition to reserves. This accounting is in line with transactions of this nature between parent companies and subsidiaries.
During 2016 or 2015 the Company did not transact business with VSE or TAO UK. No amounts are owed by either VSE or TAO UK at 31 December 2016 or 2015.
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:
2016 2015
GBP'000 GBP'000
Salaries 556 550
Bonus 154 -
Pension contributions 38 37
748 587
============== ==============
The bonus of GBP154,000 charged to 2016 related to the Company's performance in 2015. No bonus had been paid as at 31 December 2016 or accrued for 2016's performance.
11 Post balance sheet date event
Subsequent to the year end the Company's wholly owned subsidiary Turbo Power Systems Limited had entered into an agreement to reschedule the repayment date of the loan provided by TAO UK on 29 March 2016 from 1 April 2017 to 1 April 2018. All other conditions remain the same.
The principle amount of GBP314,000 plus any accrued interest, will therefore be repayable on 1 April 2018. The loan accrues interest at 6% per annum, payable annually.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR JIMPTMBIBBRR
(END) Dow Jones Newswires
March 15, 2017 03:00 ET (07:00 GMT)
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