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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 : 2831T
Turbo Power Systems Inc
29 March 2016
Turbo Power Systems Inc. ("TPS" or the "Company")
Announces Results for the Fourth Quarter
and Year Ended 31 December 2015
Financial highlights: FY 2015 vs FY 2014
-- Revenue decreased 12% to GBP13.39 million (2014: GBP15.17 million).
-- Gross Profit increased 30% to GBP5.14 million (2014: GBP3.97 million) with gross margin of 38% (2014: 26%).
-- Total expenses reduced by 10% to GBP5.26 million (2014: GBP5.83 million). -- EBITDA positive GBP0.19 million (2014: negative GBP1.38 million).
-- Operating profit of GBP0.41 million (2014: operating loss GBP1.66 million) before one off charge of GBP0.5 million.
-- Total net loss reduced 63% to GBP0.85 million (2014: GBP2.31 million). -- Order intake was down 40% to GBP10.77 million (2014: GBP18.00 million).
-- Tao Sustainable Power Solutions (UK) Ltd ("TAO UK"), on 12 November 2015 waived the entire outstanding loan of GBP10.48 million and all unpaid accrued interest of GBP1.89 million (including GBP0.61 million which was accrued during 2015 and reported in the net loss of GBP0.85 million above).
-- Shareholder surplus at year end of GBP3.48 million (2014: deficit GBP8.04 million).
Financial highlights: Q4 2015 vs Q4 2014
-- Revenue 42% lower at GBP1.97 million (Q4 2014: GBP3.42 million).
-- Gross profit decreased 75% to GBP0.35million (Q4 2014: GBP1.40 million), with a decrease in gross margin to 18% (Q4 2014: 41%).
-- Total expenses for the period increased slightly by 7% to GBP1.25 million (Q4 2014: GBP1.16 million).
-- Operating loss of GBP0.40 million (Q4 2014: profit GBP0.26 million) before one off charge of GBP0.5 million.
-- Pre-Tax loss of GBP0.98 million (Q4 2014: profit GBP0.08 million). -- Order intake of GBP4.25 million (2014:GBP8.46 million).
Strategic Review
-- Strategic Review of the Company's business, announced February 2015, is ongoing.
-- The Board notes 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 prevailing 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.
Funding
As previously reported, the Company remains critically 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 UK.
As at 31 December 2015 there was no loan repayable. Today the Company's wholly owned subsidiary, Turbo Power Systems Limited ("TPSL") has entered into an agreement to draw down on a new loan to be provided by TAO UK totalling GBP0.3 million. 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.
Carlos Neves, Chief Executive Officer, said:
"We are pleased to announce that the Company made an annual EBITDA of GBP0.19 million (2014: negative GBP1.38 million). This demonstrates all the hard work done in the past 4 years, and how focused our teams are on generating new opportunities, contract profitability and product creation efficiencies.
The order intake of GBP10.8 million (2014: GBP18.0 million) has been impacted by both a more stringent selection process and by uncertainties about the ultimate outcome of the Strategic Review. Nevertheless, our sales pipeline remains very good and I foresee a significant improvement in the quantity and quality of our opportunities for the next 12 months.
The strategy, current results and the increasing opportunities pipeline re-affirm the Board's measured confidence for 2016."
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 and broker) Tel: +44 (0)20 7220 0500
Ed Frisby, Emily Watts
This review has been prepared as at 29 March 2016
Operational Review
This is my third Chairman's statement and I am pleased with the strong progress the Company has made through all those years and especially during 2015, as reported under performance below.
Performance
Order intake in the year to 31 December 2015 ("2015") of GBP10.77 million (2014: GBP18.00 million) was down 40%, as Turbo Power Systems Inc. ("TPS" or "the Company) concentrated on its key objective to win and deliver profitable contracts. In addition to that, the end of the year was particularly difficult with a combination of new project delays originated at the end customer level, and the impact of the uncertainty over the Strategic Review that led to certain customers delaying signing new contracts until the position is clear. However, I am pleased that during the year most existing customers continued to understand the value that our products bring to them and placed further orders for existing product lines.
Revenue in 2015 of GBP13.4 million was down 12% (2014: GBP15.2 million).
Benefits from the continuous improvement initiatives that were started in 2012 continued to deliver improvements in gross margin up 29% to GBP5.1 million (2014: GBP4.0 million) and a gross margin percentage of 38% (2014: 26%).
Most encouragingly, EBITDA for 2015 was positive GBP0.19 million (2014: negative GBP1.38 million). The Company also finished the year with a 95% reduction in operating loss to GBP0.09 million (2014: loss GBP1.7 million).
The net loss of GBP0.8 million (2014: GBP2.3 million) demonstrates the positive trend of the past 4 years towards profitability.
As explained below, under Funding, included in the net loss is interest expense in 2015 of GBP0.6 million (2014: GBP0.7 million) which was waived by the lender in November 2015.
The Company ended the year with an equity surplus of GBP3.5 million (2014: GBP8.0 million deficit).
Funding
Most importantly, in November 2015 Tao Sustainable Power Solutions (UK) Limited ("TAO UK"), TPS's majority shareholder, agreed to waive the Company's existing outstanding debt, including all accrued interest up to the date of the waiver (of which GBP0.6 million was accrued in 2015), of GBP12.4 million leaving the Company debt free at the year end (31 December 2014: GBP11.8 million). TAO UK agreed to this waiver for the benefit of all TPS shareholders. TAO UK is a wholly owned subsidiary of Vale Soluções em Energia ("VSE") a Brazilian company, which in August 2015 itself became a wholly owned subsidiary of VALE S.A., Brazil's largest mining company.
The Company did not increase its principal drawdown during 2015 (2014: GBP1.0 million), the first year since TAO UK became the majority shareholder in 2010.
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.
Following the loan waiver by TAO UK, the Company is critically dependent upon 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 2014, the Independent Auditor's report contains an Emphasis of Matter paragraph referencing this uncertainty relating to the going concern.
The TPS team
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 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.
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.
(MORE TO FOLLOW) Dow Jones Newswires
March 29, 2016 02:01 ET (06:01 GMT)
Further announcements were made on 12 November 2015 and 7 January 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. The 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.
As reported last year, the Board has realigned the Company's focus as follows:
-- Improve the quality of the portfolio;
-- Superior execution within design development, manufacturing operations and support activities; and
-- Consistent delivery of internal improvements.
The Board believe that this is an effective way forward, as evidenced by the much improved financial position in 2015.
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.
The focus on diversifying the customer base has moved forward in 2015 with the signing of new contracts. For instance, within the UK Rail market the Company had signed strategic contracts with one of the rolling stock owners and a very important refurbishment operator. These wins have increased the market penetration within the Company's home market.
The contract with UK Power Networks (UKPN), who distribute more than a quarter of the UK's electricity through its networks of substations, underground cables and overhead lines across London, the South East and the East of England, has now entered field trails. These will extend into Q3 2016 and once complete there is an expectation that the technology will be rolled out to other areas.
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 2016's performance with measured confidence.
Fernando Senhora
Chairman
29 March 2016
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 2015 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 29 March 2016.
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 military 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 on 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.
Way Forward
As a technology-led company, we understand the challenges of the market regarding quality, costs and timing. Since 2013 we have concentrated on three important pillars that will continue to 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.
Since 2013 the Company has made improvements, working to dilute the concentration of revenues from its then largest customers, sectors and geographies. An example of this are the contracts won with Wabtec Rail and Porterbrook in the UK during 2015. The focus remains on developing our capabilities, products and bespoke solutions and recognising where the value of our proposal can be fully appreciated. The Company is seeking to use the existing designs as a base for families of product lines in 2016. These include standard products in the Rail and the Industrial markets.
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 older contracts are with large multinational companies, this continued in 2015 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 does not have a history of bad debts, but during 2015 suffered its first bad debt (GBP0.01 million) as one new customer entered into a Company Voluntary Arrangement. Part of the debt written-off in full may be repaid in part in 2017 or subsequently. While the amount of the bad debt is not material, the Company continues to review each new customer in depth to ensure that the appropriate level of credit is maintained.
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. Due to this added value the Company believes that this can 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 Board undertook changes in the Sales and Marketing activities of the Company:
-- The appointment of a new position to target the UK Rail market, both MRO and new build areas. Whilst the initial impact was slower than initially expected, results are now being achieved, as evidenced by the recent Porterbrook contract.
-- The appointment of a new position to develop new businesses within the Energy market has been made to capitalise on the recent developments made for the UK Power Networks and subsequently. The position will expand the focus over the UK market, and target other European markets where the technology is appropriate.
-- Our representative in South America has been targeting power distribution companies, especially in Brazil, as the technology developed in our projects is particularly useful there.
-- The marketing of the Company took a new direction during 2015:
o The Company improved its use of social media with campaigns on LinkedIn and Twitter. This has allowed the Company to use it substantial customer contact database to be targeted and brought together. The Company has profited with increased new enquires and requests for quotes.
o A revamping of the website to keep the information fresh and up to date. This includes new white papers and case studies as well as the usual search engine optimisation updates.
(MORE TO FOLLOW) Dow Jones Newswires
March 29, 2016 02:01 ET (06:01 GMT)
o A new logo has also been developed, which reflects a maze with TPS at the centre depicting an intelligent and smarter way to approach the customer's challenges. The icon symbolises a magnifying glass and this showcases the culture of the Company to its customers - which is to discover the best solution and exceed customer's expectations.
o A complete review of the Company's presence at industry events. The aim is to target events in the relevant sectors and have a much larger presence, either by attendance or through speaking opportunities.
The Board believes that these changes are in line with results of the studies undertaken in prior years, and are starting to bring the desired results.
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 KPIs, so the Company has encouraged everyone in the organisation, irrespective of the efficiency value or size, to keep thinking of alternatives and new solutions.
Some of the most relevant continuous improvements achieved in 2015 include:
-- 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. A year on from initial implementation, the business is now benefiting from a suite of tailored reports. Further Epicor modules will be implemented in 2016.
-- The Board has been working closely with its majority shareholder during the year. It was identified that the financing structure of the Company and the subsidiaries was hindering the credit rating of the Company. As part of a review the external and internal loan relationships were reviewed and the position made simpler. TAO UK waived the external loan (and accrued interest), leaving the Company with no external debt at the year end. It is envisaged that when the year-end accounts of Turbo Power Systems Limited, the Company's main trading subsidiary, are filed at Companies House the credit rating agencies will re-rate the Company at levels that will provide to customers and suppliers an even greater confidence at TPS.
All the above objectives will continue the culture of cost consciousness and seek to eliminate excess costs.
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.
The Company has had a strategy of diversifying the customer base to reduce the reliance on Bombardier as its major customer in this sector. 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. Shipments were expected to recommence in October 2015, but the customer requested that production not recommence until January 2016. This delay had an adverse impact on the results for 2015.
During 2013 the Company entered into an agreement to supply units to SCOMI for the Malaysian market. The Company shipped units during 2014, with the final shipments expected in mid-2015. However, due to delays in Malaysia, unit deliveries did not recommence until December 2015. The Company is currently expecting that final deliveries should take place in the first quarter of 2016.
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.
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.
o Laser Power Supplies
The expectation for 2015 was that demand would continue at a similar rate to prior years. Our major customer suspended production during 2015 and deliveries are not expected to recover until 2017 as inventory is moved through their customer base.
The Company noted last year that it was seeking to expand in this area with reviews of potential new customers and market appraisals. However, this market is changing significantly and after a review the Board has decided to stop focussing on 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 Company's Strategic Review is underway. It is hoped that once the Review is completed 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. These units are now in field trials and when these are completed during 2016 further production orders are expected.
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.
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 would involve an upfront down payment to cover engineering design work followed by milestones as value is transferred, 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 accounted for under the production segment.
(MORE TO FOLLOW) Dow Jones Newswires
March 29, 2016 02:01 ET (06:01 GMT)
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.
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 changing the
of the Company. 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 its major market of
train design and manufacture Rail, whilst the Company
and therefore revenue could tries to mitigate customer
be delayed. issues with train manufacture
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 Euros and in the Company seeks to match,
Canadian and US Dollars. to the extent possible,
The Company's major contracts planned currency sales
are denominated in US Dollars through forward foreign
and therefore a major portion currency exchange contracts.
of cash receipts are in The level of currency hedging
US Dollars. The Company is dependent on the credit
is therefore exposed to limits available for future
movements in foreign currency currency deals and the
rates over time. perceived currency forecast
movement.
Part of the Board's strategy
has been to seek increased
sales to UK based companies
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 (which of the financial situation
was waived in November of the Company on a very
2015). As noted in the regular basis and also
Directors' Report and Note of customer concerns. The
2 Going Concern, TPS is Company seeks to gain approval
critically dependent on for all budgets, working
customers paying to contractual closely with VSE on all
terms in order to meet financial and operational
forecast working capital matters, assisted by the
requirements and support two representatives of
the Company's growth plans. VSE on the Board.
If not secured, this may
well result in the curtailment
of the Company's activities,
partly due to customer
concerns over the Company's
continuing viability.
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 a year. The Review's Lincoln International whom
(MORE TO FOLLOW) Dow Jones Newswires
March 29, 2016 02:01 ET (06:01 GMT)
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. Importantly the loan waiver in November 2015 has allowed the Company to be debt free and to enter 2016 with a solid balance sheet and on a firm financial footing.
Whilst the current order book extends over the next two years and beyond, nevertheless 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 2016 and beyond.
Financial Performance
2015 saw the Company significantly reduce its operating loss to GBP0.09 million (2014: loss GBP1.66 million), a year-on-year improvement of 95%, 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 to the drive towards both annual profitability and cash generation from its operations.
During 2015 the Company continued to both strengthen its relationships with its existing customers and diversify its customer base with the addition of the Wabtec and Porterbrook contracts. There have been further development contracts for Daikin and Calnetix, both for existing products and for new innovative designs. The Company strategy continues the drive towards annual profitability.
Order intake during the year amounted to GBP10.77 million (2014: GBP18.00 million), as the Company concluded contracts with new customers. The current order book will deliver revenue for 2016 through to 2019, due to long term supply contracts.
Total revenues in the year of GBP13.39 million (2014: GBP15.17 million) were 12% lower than in the previous year, primarily due to completing some production contracts, reduced production volumes and delays in certain customer requirements on existing contracts.
As part of the Company's strategy to control costs, headcount was adjusted from 125 in December 2014 to 111 in December 2015, a reduction of 11%, in line with the revenue decrease of 12%.
During the final quarter of 2015 the Company received a claim for warranty, relating to a fault within motor units delivered to a customer initiated at the end of 2013. The results include a one off expense in the year of GBP0.50 million (2014: GBPnil), of which GBP0.44 million remains as a liability at the year end. The provision was made net of the insurance proceeds that the Company expects to receive. It is expected that the majority of the cash outlay will be in the first half of 2016.
Research and development net costs have reduced by 16% to GBP1.47 million (2014: GBP1.75 million), with a better focus and in line with the Board's plans for the year. Gross costs were stable at GBP1.97 million (2014: GBP1.91 million). The net costs are after a research and development tax credit of GBP0.50 million that is due to the Company from HM Revenue & Customs (2014: GBP0.16 million).
General and administrative costs, which consist mainly of staff costs, facilities costs and the costs associated with the Company's public listing, remained constant at GBP3.47 million (2014: GBP3.46 million) as the Company maintained overheads at a sustainable level as it moves towards profitability. The Company has also reviewed the asset retirement provision and has released GBP0.04 million as a one-off benefit in 2015 (2014: benefit GBP0.26 million).
There was no other operating income in 2015 (2014: release of GBP0.23 million being the release of the Regional Growth Fund grant to the income statement). The cumulative amount of the grant released to date is GBP0.80 million. The Company has to maintain an average of 152 jobs secured or created, over the 5 years of the project. The Company's current plan envisages that the average headcount over the five year period will fall below this requirement. Accordingly it maintains unrecognised grant income of GBP0.25 million as a liability on the balance sheet.
Most encouragingly, EBITDA for 2015 was positive GBP0.19 million (2014: negative GBP1.38 million), while 2015's operating loss of GBP0.09 million was a 95% improvement on the operating loss in 2014 of GBP1.66 million.
The loss before taxation for the year was GBP0.70 million (2014: loss GBP2.31 million), an improvement of 70%.
As explained below under transactions with related parties, included in the net loss is interest expense in 2015 of GBP0.61 million (2014: GBP0.65 million) which was waived by the lender in November 2015.
An income tax expense in the year of GBP0.15 million (2014: GBPnil) was due to tax withheld on the research and development tax credits received and accrued in the year.
Capital investment in 2015 amounted to GBP0.37 million (2014: GBP0.28 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 GBP0.33 million for the year (2014: GBP1.55 million). After adjusting for changes in working capital items and purchases of property, plant and equipment, the Company suffered an overall cash outflow before financing of GBP1.33 million (2014: GBP1.01million).
There was no net cash inflow from financing activities in 2015 (2014: GBP0.99 million), which resulted in an overall net cash outflow for the year of GBP1.33 million (2014: outflow GBP0.02 million).
The Company finished the year with an unrestricted cash balance of GBP0.50 million (2014: GBP1.83 million) and held further cash of GBP0.07 million (2014: GBP0.07 million) associated with a performance bond, rent and utility deposits.
During the year ended 31 December 2015 the Company undertook significant transactions with related parties.
The Company had a loan facility from its majority investor TAO UK, to support working capital requirements, bearing interest at 6% and being repayable upon request after 1 April 2016. At the beginning of 2015 the loan balance outstanding was GBP11.76 million, including accrued interest of GBP1.28 million. During the year, on 16 March 2015 the repayment date of the loan was extended to 1st April 2017. On 12 November 2015 TAO UK, agreed to waive the Company's existing outstanding debt, including accrued interest, of GBP12.37 million (of which GBP0.61 million was accrued in 2015), leaving the Company debt free at the year-end (31 December 2014: GBP11.76 million).The Company raised no invoices to VSE, the parent organisation of TAO UK, in 2015 (2014: 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 2015 the Company had net operating outflows, with a net debt of GBP2.58 million, being GBP3.08 million of debt less GBP0.50 million of cash. The Company has a cumulative deficit of GBP99.43 million as at 31 December 2015 and was loss making for the year then ended.
The Company is critically dependent upon i) 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 for continued financial support in the form of the loan made available to the Company, and in order to meet any shortfall in budgeted or 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.
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. 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 (as evidenced by note 13 - Post Balance Sheet Event), that the existing debt was waived in November 2015 and that the majority of the Board are VSE representatives, 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 going concern assumption and, accordingly, the use of accounting principles applicable to a going concern.
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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.
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 2014 3,298 502 1,071 (1,257) (1,442) (0.04)
June 2014 4,160 378 968 (659) (900) (0.03)
September
2014 4,292 351 870 (6) (47) (0.00)
December
2014 3,424 520 553 264 76 0.00
-------- ------------- -------------------- --------------- ------------------ ---------
15,174 1,751 3,462 (1,658) (2,313) (0.07)
-------- ------------- -------------------- --------------- ------------------ ---------
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)
-------- ------------- -------------------- --------------- ------------------ ---------
Research and development net expenditure in 2015 of GBP1.47 million was 16% lower than 2014: GBP1.75 million. The Company continues to invest in new technologies to maintain its technical capabilities in the future and has capitalised GBP0.09 million of internally generated development costs (2014: GBP0.09 million) and reduced the net cost of research and development by recognising GBP0.50 million of research & development tax credit due from HM Revenue & Customs in 2015 (2014: GBP0.16 million). Gross research and development costs were stable at GBP1.97 million (2014: GBP1.91 million).
The Company has continued to control its general and administrative costs in 2015 with costs of GBP3.47 million unchanged from 2014: GBP3.46 million.
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 result
Year ended
31 December
2015 2014
GBP'000 GBP'000
Net (loss) (848) (2,313)
Add back:
Taxation 148 -
Finance expense 610 655
------ ---------
Operating loss (90) (1,658)
Add back:
Depreciation 191 226
Amortisation 91 49
---------- ----------
EBITDA profit/(loss) 192 (1,383)
---------- ----------
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 2016.
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
2015 2014 2015 2014
GBP'000 GBP'000 GBP'000 GBP'000
Revenue 5 1,973 3,424 13,387 15,174
Cost of sales (1,626) (2,025) (8,246) (11,202)
-------- -------- -------- ---------
Gross profit 347 1,399 5,141 3,972
Expenses
Distribution costs (98) (91) (314) (620)
Research and product development (360) (520) (1,470) (1,751)
General and administrative (790) (552) (3,471) (3,462)
-------- -------- -------- ---------
Total expenses (1,248) (1,163) (5,255) (5,833)
Other operating Income - 52 - 227
Other (losses)/gains -
net - (24) 24 (24)
Operating profit/(loss) (901) 264 (90) (1,658)
Finance expense (79) (188) (610) (655)
Loss before tax (980) 76 (700) (2,313)
Income tax expense (12) - (148) -
Net loss and total comprehensive
loss for the periods (992) 76 (848) (2,313)
======== ======== ======== =========
Profit/(loss) per share
- basic and diluted 6 (0.03)p 0.00p (0.03)p (0.07)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
2015 2014
GBP'000 GBP'000
Current assets
Restricted cash 66 68
Inventories 3,253 2,894
Trade and other receivables 2,675 2,995
Prepayments 162 226
496 1,825
Cash and cash equivalents -------- --------
6,652 8,008
-------- --------
Non-current assets
Intangible assets 433 235
Property, plant and equipment 434 541
-------- --------
867 776
-------- --------
Total assets 7,519 8,784
==== ====
Current liabilities
Trade and other payables 3,075 4,333
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Derivative financial 14 -
instruments - 24
635 308
Provisions -------- --------
3,710 4,665
-------- --------
Non-current liabilities
Loans and borrowings 7 - 11,757
331 403
Provisions -------- --------
331 12,160
-------- --------
Total liabilities 4,041 16,825
Equity surplus/(deficit)
Share capital 8 71,408 71,408
Convertible shares 8 17,310 17,310
Capital contribution
reserve 8 12,367 -
Other reserves 8 1,823 1,823
(99,430) (98,582)
Retained deficit ---------- ----------
Surplus/(deficit) 3,478 (8,041)
Total liabilities and
equity 7,519 8,784
===== =====
Approved by the Board:
F Senhora Chairman
29 March 2016
The Notes are 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 2014 71,408 17,310 - 1,823 (96,269) (5,728)
Net loss for
the year - - - - (2,313) (2,313)
--------- --------- --------- --------- --------- ---------
Balance at 31
December 2014 71,408 17,310 - 1,823 (98,582) (8,041)
Capital Contribution - - 12,367 - - 12,367
Net loss for
the year - - - (848) (848)
--------- --------- --------- --------- --------- ---------
Balance at 31 71,408 17,310 12,367 1,823 (99,430) 3,478
December 2015 ====== ====== ====== ====== ====== ======
The Notes are an integral part of these Consolidated Financial Statements
Turbo Power Systems Inc.
Consolidated statement of cash flows
________________________________________________________________________________
Year ended
31 December
Notes 2015 2014
GBP'000 GBP'000
Cash flows from operating
activities
Loss before tax for
the year (848) (2,313)
Adjustments for
Taxation 148
Finance expense 610 655
Foreign exchange - 177
Grant release - (227)
R & D Credits (500) -
Depreciation of property,
plant and equipment 191 226
Amortisation of intangible
assets 91 49
Movement in asset
retirement obligation - (164)
Derivative financial
instruments (24) 45
--------- ---------
Operating cash flows before
movements in working capital (332) (1,552)
Changes in working
capital items
(Increase) in inventories (359) (135)
Decrease in restricted
cash 2 57
Decrease in trade and other
receivables 317 858
Decrease in prepayments 64 12
Increase / (decrease) in
provisions 255 (164)
(Decrease) in trade and
other payables (1,259) (3)
--------- ---------
Cash used in operating activities (1,312) (927)
--------- ---------
Interest received - -
Taxation received 356 159
Grant received - 35
--------- ---------
Net cash used in operating activities (956) (733)
Cash flows from investing
activities
Purchase of property, plant
and equipment (84) (72)
Purchase of intangible
assets (289) (207)
--------- ---------
Net cash used in investing (373) (279)
activities --------- ---------
Cash flows from financing
activities
Proceeds from increase
in loans - 988
--------- ---------
Net cash from investing - 988
activities --------- ---------
Net (decrease) / increase
in cash and cash equivalents (1,329) (24)
Cash and cash equivalents
at the beginning of 1,825 1,849
the year ---------- ----------
Cash and cash equivalents 496 1,825
at the end of the year ====== ======
The Notes are an integral part of these Consolidated Financial Statements
Turbo Power Systems Inc.
Notes to the condensed 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%
2 Going concern
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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 2015 the Company had net operating outflows, with a net debt of GBP2.58 million, being GBP3.08 million of debt less GBP0.50 million of cash. The Company has a cumulative deficit of GBP99.43 million as at 31 December 2015 and was loss making for the year then ended.
The Company is critically dependent upon i) 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 for continued financial support in the form of the loan made available to the Company, and in order to meet any shortfall in budgeted or 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.
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. 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 (as evidenced by note 13 - Post Balance Sheet Event), that the existing debt was waived in November 2015 and that the majority of the Board are VSE representatives, 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 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.
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 2015.
The consolidated financial statements were authorised for issuance by the Board of Directors on 29 March 2016.
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 2015 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 GBP99.43 million as at 31 December 2015
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 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)
31 December 2014 Production Development Unallocated Total
GBP'000 GBP'000 GBP'000 GBP'000
Revenue 13,369 1,805 - 15,174
=========== ============ ============ =========
Segment operating
profit/(loss) 114 (1,772) 0 (1,658)
Finance expense - - (655) (655)
Net loss and total
comprehensive loss 114 (1,772) (655) (2,313)
=========== ============ ============ =========
Total assets 5,785 649 2,350 8,784
Total liabilities (3,250) (1,083) (12,492) (16,825)
Geographic Information
Quarter ended Year ended 31
31 December December
Total Revenues by 2015 2014 2015 2014
destination
GBP'000 GBP'000 GBP'000 GBP'000
UK 1,253 1,646 5,778 4,913
USA 720 403 4,438 3,973
Canada 32 1,114 2,775 4,768
Rest of world (32) 231 396 1,520
1,973 3,424 13,387 15,174
======== ======== ======== ========
All property, plant and equipment was located within the United Kingdom during both periods ended 31 December 2015 and 31 December 2014. All significant revenue for 2015 and 2014 is related to the sale of goods.
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 Year ended 31
31 December December
2015 2014 2015 2014
Numerator for basic loss
per share calculation:
(Loss) attributable GBP(992,000) GBP76,000 GBP(848,000) GBP(2,313,000)
to equity shareholders
Denominator:
For basic net loss -
weighted average shares
outstanding 3,336,865,922 3,336,865,922 3,336,865,922 3,336,865,922
Basic profit/(loss) per
common share - pence (0.03)p 0.00p (0.03)p (0.07)p
Diluted profit/(loss)
per common share - pence (0.03)p 0.00p (0.03)p (0.07)p
As the Company experienced a loss in both full years all potential common shares outstanding from dilutive securities are considered anti-dilutive and are excluded from the calculation of diluted loss per share.
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Details of anti-dilutive potential securities outstanding not included in loss per share calculations at December 31 are as follows:
2015 2014
Common shares potentially
issuable:
- under stock options 6,012,728 15,320,999
- pursuant to A Ordinary
stock conversion 892,777,778 892,777,778
____________ ____________
898,790,506 908,098,777
____________ ____________
7 Provisions
Onerous Contracts Asset Retirement Warranty
Obligations
2015 2014 2015 2014 2015 2014
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at
1 January 77 - 324 565 310 310
Provided during
the year - 201 - 19 500 -
Utilised during
the year (77) (124) (39) - (56) -
Released during
the year - - - (260) (73) -
--------- --------- --------- -------- --------
Balance at
31 December - 77 285 324 681 310
========= ========= ========= ======== ======== ========
31 31
Dec Dec
Analysed as: 2015 2014
GBP'000 GBP'000
Current liabilities 635 308
Non-current
liabilities 331 403
Total 966 711
======== ========
Onerous Contracts: The Company entered 2015 with one contract where the estimated material and labour costs were in excess of the expected revenues. A review of this contract was undertaken in 2014 which resulted in a GBP201,000 provision being made. GBP124,000 of this provision was utilised in 2014 leaving a GBP77,000 provision at the end of 2014. In 2015 the final GBP77,000 was utilised as the contract was concluded.
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 (2014: GBP260,000) of this provision. The Company has recorded no further increase in accretion expense in 2015 (2014: GBP19,000, within general and administrative expenses).
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 has included a one off provision expense in the year of GBP0.50 million (2014: GBPnil) of which GBP0.44 million remains at the year-end. See note 8.
8 Contingent Liabilities
During the final quarter of 2015 the Company received a claim from a customer for warranty, relating to a fault within motor units delivered during 2013 to 2015.
The financial statements include a one off expense in the year of GBP0.50 million (2014: GBPnil), of which GBP0.44 million remains as a liability at the yearend, as set out in Note 7 to the financial statements. The provision was made to cover the costs of the replacement parts to be supplied and where the cost can be accurately estimated. It is expected that the majority of the cash outlay will be in the first half of 2016.
The matter is subject to an insurance claim by the Company for costs requested by the customer beyond the unit replacement costs. Currently there is uncertainty about the amount of these costs and therefore the amount of the insurance claim and whether the insurance claim will cover all the costs. There is also uncertainty as to whether the Company is liable for all the costs that the customer is requesting.
The Directors believe that based on their current assessment of the facts that the provision made is appropriate. However, the final amount is dependent upon the outcome of the agreements between the parties.
9 Loans and borrowings
On 22 October 2010 the Company agreed to a loan facility with TAO UK, which bears interest at 6% per annum and is repayable upon demand commencing 2 January 2012. During 2012 the repayment term was renegotiated and the loan became due upon demand commencing 1 April 2014. In March 2014 the repayment date was further extended to 1 April 2016. The repayment date was extended by one year on 16 March 2015 to 1 April 2017. The loan is secured by a fixed and floating charge over the assets of the Company's subsidiary TPSL. 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. The total amount of the loans and interest of GBP12.37 million have been transferred to a Capital Contribution reserve.
31 31
Dec Dec
2015 2014
Fixed rate loans GBP'000 GBP'000
Due within one year - -
Due after one year - 11,757
-------- --------
Total - 11,757
======== ========
The Company has drawn down on all its borrowing facilities as at 31 December 2015 (2014: all loans drawn down in full).
Unpaid interest of GBPnil (2014: GBP1,279,000) is recorded in the loan amount.
10 Share capital and other reserves
Share Capital
Common Shares Convertible Shares
(A Ordinary Shares)
Number GBP'000 Number GBP'000
At 1 January
2014 3,336,865,922 71,408 892,777,778 17,310
-------------------- -------------- ------------------ --------------
At 31 December
2014 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
==================== ============== ================== ==============
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. (2014: 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 has created a Capital Contribution reserve of GBP12.37 million (2014: GBPnil)
Other reserves
At 31 December 2015, other reserves comprise of the stock compensation reserve of GBP1,823,000 (2014: 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
2015 2014
Under stock option plan 6,012,728 15,320,909
Pursuant to A Ordinary stock
conversion 892,777,778 892,777,778
-------------
898,790,506 908,098,687
------------- -------------
11 Related party transactions
Transactions with the parent and ultimate parent company
(MORE TO FOLLOW) Dow Jones Newswires
March 29, 2016 02:01 ET (06:01 GMT)
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 the prevailing exchange rate. 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 this was 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.
A summary of the loan movement is:
GBP'000
Balance as at 1 January
2015 11,757
Accrued interest
to November 2015 610
November 2015 loan
waiver (12,367)
Balance at 31 December -
2015
---------
Accrued interest recorded within the loan balance is GBP nil (2014: GBP1,279,000).
During 2015 or 2014 the Company did not transact business with VSE or TAO UK. No amounts are owed by either VSE or TAO UK at 31 December 2015 or 2014.
12 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 Year ended
31 December 31 December
2014 2014 2015 2014
GBP'000 GBP'000 GBP'000 GBP'000
Salaries 137 201 550 734
Pension contributions 10 13 37 51
Termination payments -- - - 37
147 214 587 822
======== ======== ======== ========
13 Post balance sheet date event
Subsequent to the year 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 draw down as follows:
29 March 2016 GBP314,000
This amount is repayable on 1 April 2017, which can be extended in one year, and accrue interest at 6% per annum.
This information is provided by RNS
The company news service from the London Stock Exchange
END
MSCDMGZFNDKGVZM
(END) Dow Jones Newswires
March 29, 2016 02:01 ET (06:01 GMT)
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