Turbo Power Systems Inc (TSX:TPS) (AIM:TPS), a leading UK based designer and
manufacturer of innovative power solutions, today announces results for the full
year and quarter ended 31 December 2011.
Key Highlights:
-- Full year revenue up 69% to GBP 14.4 million
-- Full year order intake up 140% to GBP 23 million with strong visibility
for 2012 deliveries
-- Full year loss before interest, tax, depreciation, amortisation, and
stock compensation increased to GBP 5.10 million (2010: GBP 4.14
million) after 48% increase in headcount and 23% increase in R&D
-- Increased focus on development of integrated systems and solutions for
rail customers
-- Expansion of application engineering for energy, marine and oil and gas
sectors
-- Tao Sustainable Power Solutions, TPS' 75.4% majority shareholder,
increased the Company's existing debt financing facility to GBP 8.15
million (31 December 2010:GBP 1.9 million) and further post balance
sheet extension of GBP 1.02 million at the end of January 2012
-- Peter Brown appointed Chief Executive Officer in May 2011
James Pessoa, Chairman, said:
"2011 was a year of transition for Turbo Power Systems as we prepared the
business for further growth. Revenue and order intake grew significantly,
positively impacting the overall financial performance. In accordance with our
strategy we invested significantly in research and product development as well
as headcount and restructured the senior management team.
Whilst the Board expects to require further working capital support in the first
half of 2012 to underpin the growth anticipated for the year ahead, it also
continues to consider a range of options to address the financial constraints
facing the Company. As notified on 30 January 2012, the Board will also continue
to consider the issues raised by the Toronto Stock Exchange.
The strong order book is a clear indication that our refocused business is
gaining traction in the market place and we continue to actively pursue
significant and exciting business opportunities. Our challenge for 2012 is to
accelerate this progress and build upon the firm foundations for recovery
established in the year reported. We look forward with confidence and optimism."
Notes to Editors
About Turbo Power Systems
Company Website: www.turbopowersystems.com
Turbo Power Systems Inc (TSX:TPS) (AIM:TPS) is a leading UK based designer and
manufacturer of innovative power solutions. TPS's products are all based on its
core technologies of power electronics and high speed motors and generators and
are sold into a number of market sectors including aerospace, rail, and various
industrial sectors. The Company's products provide improved efficiency and
reduced energy consumption compared to existing technologies.
Turbo Power System's existing third party customers include blue chip companies
such as Bombardier Transportation, McQuay International and Eaton Aerospace. The
Company also has commercial contracts with its ultimate parent company, Vale
Solucoes em Energia S.A. ("VSE"), the Brazilian energy solutions company, and
with Tao Sustainable Power Solutions (UK) Ltd ("TAO UK"), which is a VSE wholly
owned subsidiary and TPS's parent undertaking.
Chairman's statement
The last financial year has been one of considerable change for Turbo Power
Systems Inc. ("TPS" or "the Company") as we have prepared for future growth.
Performance
Revenue in the year to 31 December 2011 ("2011") of GBP 14.4 million was up by
69% compared with the previous year. Order intake in 2011 of GBP 23 million was
also significantly improved, securing an excellent pipeline of contracts which
are planned to be delivered during 2012 and thereafter.
Overall financial performance showed an improvement, with loss before taxation
for the year of GBP 6.2 million (2010: loss GBP 7.1 million).
Investment
2011's operating loss was GBP 5.8 million, a year-on-year increase of 25%, due
predominantly to the Company's investment in headcount (up by 48% to 206 at 31
December 2011) and restructuring of the senior management team. The investment
was necessary to address the Company's expectation of increased customer demand,
from a base revenue of GBP 0.35 million per month in January 2011 to more than
GBP 1.5 million per month in the last quarter of 2011.
Furthermore, in addition to increasing the numbers in our engineering teams, the
Company continued to further strengthen the technical team, with a number of key
appointments to ensure we support relationships with science-based corporations
who have demanding applications for our technologies.
In line with the Board's strategy and the commercial development contracts in
place, research and product development costs increased by 23% to GBP 3.8
million (2010: GBP 3.1 million).
General and administrative costs, which consist mainly of staff costs,
facilities costs and the costs associated with the Company's public listings,
were up by 48% to GBP 4.9 million (2010: GBP 3.3 million), attributable to the
higher staff costs, as a result of increased headcount.
Capital investment in 2011 amounted to GBP 0.66 million (2010: GBP 0.09 million)
and relate to production equipment, enhanced technology and software
capabilities.
Funding
During the year Tao Sustainable Power Solutions (UK) Limited ("TAO UK"), TPS's
75.4% majority shareholder, agreed to increase the Company's existing debt
financing facility to GBP 8.15 million (31 December 2010: GBP 1.9 million).
Subsequent to the year end, the Company and TAO UK agreed to further extend this
facility by GBP 1.02 million at the end of January 2012.
This funding has been used to invest in the infrastructure of the business,
providing better management control and positioning the business to deliver
significant growth in 2012 and beyond.
As previously reported to shareholders, on 30 January 2012 TPS noted the
announcement of a listing review issued by the Toronto Stock Exchange ("TSX").
The announcement stated:
"Turbo Power Systems Inc. (the "Company") - TSX is reviewing the Common Shares
(Symbol: TPS) of the Company with respect to meeting the continued listing
requirements. The Company has been granted 120 days in which to regain
compliance with these requirements, pursuant to the Remedial Review Process."
The admission of the Company's shares to trading on Alternative Investment
Market is unaffected by TSX's announcement.
The Board will continue to consider the issues raised by the TSX. As part of the
Board's on-going review, it was noted that financial constraints will continue
for the first half of 2012, with further support for working capital required to
continue funding the significant growth in 2012 and beyond. The Board is
considering the options available, including new loans, new equity injections
and/or a capital re-structure, and further announcements will follow in due
course.
As previously stated, TAO UK remains fully committed to TPS and has expressed
its continuing financial support of TPS's working capital requirements during
2012.
The financial statements have been prepared on a going concern basis, and
disclose in Note 2 to the consolidated financial statements the conditions and
events that cast substantial doubt on the Company's ability to continue as a
going concern. As in 2010, the auditor's report contains an emphasis of matter
paragraph referencing this uncertainty relating to the going concern.
Strategy and Outlook
Looking ahead, the Board intends TPS to remain a technology-led company.
As such, the business continues to pursue innovative applications for its
technologies and to leverage its relationship with TAO UK and its parent, Vale
Solucoes em Energia S.A. ("VSE"), which is headquartered in Brazil. Systems
based enquiries received directly from VSE and also from other projects
originating in Brazil continue to grow and we expect significant growth in our
systems related business. The increase in orders and live opportunities show
that TPS' know-how, technology, products and services are gaining traction in
the market place.
Operationally, our emphasis is on developing Integrated Systems demands, with
our two sites at Gateshead and Heathrow working more closely together,
functioning as one business.
We also recognise that our customer base is increasingly keen to secure regional
manufacturing capability outside the UK. In order to meet these regional
demands, TPS is seeking to solidify partnerships around the world to strengthen
technology and product and service offerings, whilst reducing the significant
research and development burden. As a consequence we have secured partnership
agreements in India and Australia for both power electronics products and
electric machine applications.
Peter Brown was appointed as Chief Executive Officer of the Company and took up
the position in May 2011. Under Peter's leadership of the Executive Team, the
Board's challenge for 2012 is to accelerate the progress made in 2011 towards
making Turbo Power Systems a profitable business and one capable of sustaining
organic growth.
The current order book is strong. Execution of those orders and completion of
development programmes in a consistent and timely manner will be the key in
delivering the Board's plans for improved results during 2012.
The Board and I look forward to 2012's performance with both optimism and
confidence.
J J M Pessoa, Chairman
Management's discussion and analysis ("MD&A")
The following information should be read in conjunction with Turbo Power Systems
Inc. ("TPS") audited consolidated financial statements for the year ended 31
December 2011 and related notes, which are prepared in accordance with
International Financial Reporting Standards ("IFRS"). All amounts in the MD&A,
audited consolidated financial statements and related notes are expressed in
Sterling, unless otherwise noted.
This MD&A contains forward-looking statements. Forward-looking statements
include statements concerning plans, objectives, goals, strategies, future
events, or performance, and underlying assumptions and other statements that are
other than statement of historical fact. These statements are subject to
uncertainties and risks including, but not limited to, the ability to meet
ongoing capital needs, product and service demand and acceptance, changes in
technology, economic conditions, the impact of competition, the need to protect
proprietary rights to technology, government regulation, and other risks defined
in this document and in statements filed from time to time with the applicable
securities regulatory authorities. Risk factors are discussed more fully in the
Company's Annual Information Form.
This MD&A has been prepared as at 16 March 2012.
Business of the Company
Turbo Power Systems designs and manufactures high performance electric motors,
generators, and power electronics systems and provides custom solutions to
energy conversion, industrial, transport and military markets.
TPS is a technology-led organisation and provides solutions to difficult and
challenging requirements. The Company's track record in engineering innovation,
which has been built and tested over a number of years, allows us to meet
challenging design and manufacturing briefs with specific requirements relating
to environmental performance and performance to volume demands.
TPS has a proven track record in the development and deployment of equipment in
the rail and industrial sectors. The long term relationships with customers in
these markets have been built based on delivering technology-rich competitive
products with proven reliability.
Based on an established electrical machines and power electronics expertise
developed over the last 30 years, the Company plans to build upon its existing
portfolio of products and expand in growing markets and regions.
2011 Summary
Strategic Direction
We are intent on remaining a technology-led company.
We have further strengthened the technical team with a number of key
appointments to ensure we support and grow relationships with science based
corporations who have demanding applications for our technologies and knowhow.
At 31 December 2011 the business employed 206 people (including temporary
staff), an increase of 67 compared to 2010. An increase in engineering staff
accounts for a significant portion of the growth, helping to further strengthen
our engineering capabilities and increase our engineering throughput.
As such, the business continues to pursue applications for its technologies and
to leverage its relationship with TAO UK, the Company's 75.4% majority
shareholder, and its parent VSE, which is headquartered in Brazil. We have seen
an increasing number of systems based enquiries, both from Brazil and elsewhere,
and we have a firm belief that the marketplace has now recognised the value of
our technology. As a consequence we anticipate significant new orders.
Operationally our emphasis is on developing Integrated Systems, and during 2011
we made good progress in this area. Internal management and functional controls
along with investment in infrastructure will continue in 2012 as we seek to
ensure controlled and sustainable growth is delivered. We also recognise that
our customer base is increasingly keen to secure regional manufacture capability
outside the UK. We are taking steps to ensure that TPS is commercially and
operationally capable of responding to this global trend.
Following a detailed market and capability review, a revised business strategy
was established and areas of real growth identified. The management team
believes that TPS' success will hinge on a balanced business strategy based on
three key elements:
-- Growing the existing markets of rail and industrial systems through
improved product designs, reduced cost and increased margin and scope of
supply;
-- Expansion of engineered solutions offerings in energy, marine, oil & gas
sectors where TPS is the supplier of choice owing to its responsiveness
and technology capabilities;
-- Development of complete products based on VSE/TPS Synergies allowing us
to access multiple customers and to transition to a 'value based
pricing' model.
Based on our established electrical machines and power electronics expertise
developed over the last 30 years, the Company plans to build upon its existing
portfolio of products and expand in growing markets and region, as follows:
- Rail
TPS' addressable market for power electronics products is significant.
Customers' key buying criteria are conformance to specifications, lower size and
weight and also lower price. In order to remain competitive and eliminate some
of the barriers to growth, the Company will pursue technologies that will not
only increase the power density of its products, but also increase their
efficiency and reduce their cost by increasing material utilisation. The Company
will focus on platform products to optimise cost, quality and delivery
performance. In addition, TPS will focus on establishing a profitable and long
term future, through strategic partnerships in countries with high growth
potential, especially Brazil, India and North America.
- High-Speed Motors Offerings
The Company offers electric motors and associated high speed drives to the
global chiller compressor market in which we can potentially participate in over
40% of the total market. Over the years, TPS has forged a strong relationship
with one of the major heating, ventilation and air conditioning ("HVAC") global
suppliers. Building on that relationship, the Company plans an expansion of its
technology to the greater power required by the growing market of industrial
HVAC and gas compression. TPS will pursue strategies to increase its scope of
supply, as well as forge strategic partnerships with key component manufacturers
to secure its supply going forward.
- Specialist Applications Sector
TPS' current portfolio of products is specific to specialised markets. These
include laser power supplies and blowers and Megawatt class power generators for
the military.
These markets have been, and are expected to remain, steady in the future. In
2012 the Company anticipates a continuation of current order levels.
Furthermore, based on the success of the TPS Megawatt class generator, it is
anticipated further units will be required.
- Maintenance Repair and Overhaul ("MRO")
MRO for both our products and those of our competitors is a growth area for the
Company.
One particular market with substantial global growth is the rail sector, both
designing obsolescence out and replacing rotary power supplies with static
converters.
The MRO function is critical to our core business as TPS will be judged on its
ability to support its products over the life cycle.
In 2012 TPS plans to implement a detailed MRO business strategy and form a
support organisation to deliver it. In all current and future bids, the company
intends to introduce a service element to extend TPS's value proposition.
- Future Markets
The new growth engines for the Company's product portfolio will be driven by the
desire for TPS to become a systems and solution provider, rather than a
component supplier. Achieving this will move the Company up the value chain.
The Company has proven that it has the expertise to develop Megawatt class
turbine driven permanent magnet generator systems through the development of its
1.2 MW system. Now the know-how and expertise will be applied to 5 and 10 MW
systems. With their small foot print and light weight, the Company's offering
has the required attributes for applications in distributed generation and off
shore platforms which are in high demand. The expansion to these higher power
levels will be used as a platform to develop medium voltage technology and as
well as the approach of standardised building blocks for the energy sector. This
would lead to a reduction in cycle time and lower cost of development for future
products.
Our intention is that TPS' offerings will consist of a compact permanent magnet
generator, associated power converter and conditioning equipment. The generator
will be coupled to the gas turbine using a flexible coupling. The power
converter provided by TPS will be integrated with the gas turbine control
system.
The Company's high speed electrical machines can be integrated with turbo
machinery provided by VSE to develop integrated generator systems for energy
recovery systems. These types of systems can be used to extract energy from the
exhaust of diesel engines used in power generation and marine propulsion
systems. This is a growing market that would allow energy systems to improve in
efficiency. Systems from 300 KW to 1 MW are anticipated and these will use
building blocks already in production or under development for other markets to
reduce the non-recurring cost. The business will be based on a combination of
hardware sales or revenue sharing models.
There are great opportunities for TPS and VSE to enter into the fast growing
field of subsea equipment. The need for subsea power distribution and processing
equipment is driven by the challenges posed by the depths and distances involved
in the new off shore finds around the globe, particularly in Brazil.
Current Operating Climate
The transport market continues to show resilience, while the industrial sector
has been largely stable. This has made it possible for TPS to deliver a strong
manufacturing output during 2011. Further growth is anticipated during 2012,
supported by the strong order book and the completion of certain delayed
development programmes.
As stated last year, governments are continuing to invest in infrastructure
projects and, indeed, view transport initiatives such as new rail programmes as
a way of helping to sustain their industries whilst providing necessary public
transportation and having a positive impact on the environment.
In the defence arena, the Company has continued to identify specialist pockets
of growth potential in areas where TPS' technology can be applied. We have
initiated contact with potential future partners and will continue to
investigate this market further and hope to see increased activity during the
coming years.
Marine and oil & gas sector development has seen the number of opportunities to
utilise TPS products and technologies in 'new' markets increase markedly. A
significant amount of market analysis and concept work started during 2011 and
will continue in 2012. The market potential is significant and the links with
VSE shareholder have provided the business with important leverage in Brazil.
The requirements for high system efficiencies and sustainability are becoming
important factors by which products and services are selected. TPS's
technologies and know-how have allowed it to offer competitive solutions in the
road to sustainability. These technologies are applicable to the renewable
energy sector and to waste energy recovery applications. The technology is
intended to enhance system efficiencies and thus contribute to the
sustainability goals. The market potential for TPS technologies in this sector
is significant and further development in these markets is anticipated this
year.
Current Programmes
The Company operates with two reportable divisions with several segments, as
follows:
1. Power Electronics Division is involved in the development and
manufacture of electrical power supply and control systems, encompassing
rail and aerospace activities and industrial power supplies.
2. Electrical Machines Division is involved in the development and
commercialisation of high speed electrical machines which are currently
marketed within the industrial and defence markets.
- Transport
-- Rail
The programme to develop the auxiliary power solution for Bombardier Systems'
new Innovia ART Vehicle platform continues to make progress, while the business
is also engaged in the overhaul and support of the CL165 vehicle auxiliary power
solution for Chiltern Rail. The rate of delivery continues to grow on the major
programmes (Bombardier Chicago Transit Authority and Bombardier Toronto). During
2012 activity on the Sao Paulo monorail project will increase, with production
expected to commence by mid-year.
Deliveries on our smaller rail programmes continue to be made to customers' call
off requirements.
We continue to pursue new customers in this segment with the intention to
provide platform solutions that are applicable for more than one project at a
time.
-- Aerospace
The Jettison Fuel Pump motor drives for Eaton Aerospace continue to be delivered
in line with the customer's call-off rate. Now the Boeing 787 Dreamliner has
entered into revenue service, orders quantities have increased in line with the
aircraft build acceleration.
- Energy
TPS has received an initial development order from VSE for units up to 10MW in
power, a programme of work that will span multiple years.
- Industrial
-- Laser Power Supplies
As expected, increased demand from our customer continued during 2011 and
surpassed production rates in previous years. The expectation for 2012 is that
demand will stabilise.
-- Industrial Motors and Drives
The delivery of systems to our industrial motors and drives OEM (McQuay
International) continues with further orders placed during 2011 for production
in 2012. The customer's expectation is that the demand will keep increasing
across the coming years. These units are for use in McQuay International's
Magnitude WME chiller.
Further development work is ongoing to ensure the business remains competitive
in this market.
The S2M and Becker laser blower products have seen a continuing demand
throughout the year, with firm indication that the demand will continue for
these units during 2012.
- Defence
-- 1MW High-Speed Generator
System trials of our high-speed machine are now completed. We are now
anticipating demand for additional units and also seeing increasing numbers of
inquiries for further products.
- Marine/Oil & Gas
-- Development
During the year the business has seen a marked increase in the number of
opportunities to utilise its products and technologies in new markets. A
significant amount of market analysis and concept work started during 2011 and
will continue in 2012. The market potential is remarkable and the links with VSE
have provided the business with important access to the Brazilian market.
In summary, 2011 was a year of significant growth. The business has invested and
will continue to invest in operational capability, strong functional management
and infrastructure to maintain and sustain that growth. The markets in which the
business operates are either stable or growing. New opportunities in the Marine
and Oil & Gas sectors are exciting and should provide the business with
additional opportunities for sustained growth.
Financial constraints will continue for the first half of 2012, with further
support for working capital required to continue funding the significant growth
in 2012 and beyond.
The current order book is strong. Execution of those orders and completion of
development programmes in a consistent and timely manner will be the key in
delivering management's plans for the improved results during 2012.
Financial Performance
Transition to International Financial Reporting Standards ("IFRS")
In February 2008, the Canadian Accounting Standards Board announced the adoption
of IFRS for publicly accountable enterprises in Canada effective 1 January,
2011.
The accompanying consolidated financial statements for the year ended 31
December 2011 are TPS' first consolidated financial statements prepared under
IFRS.
The significant accounting policies adopted under IFRS were included in Note 3
to the unaudited condensed consolidated interim financial statements for the
three months ended 31 March 2011 and the reconciliations and descriptions of the
effect of transitioning from Canadian GAAP to IFRS are included in Note 4. In
accordance with the transition rules, the Company has retroactively applied IFRS
to the comparative data and has restated the 2010 comparative data throughout
this document to reflect the adoption of IFRS, with effect from 1 January 2010
(Transition Date).
Total revenues in the year of GBP 14.4 million were 69% higher than in the
previous year, (2010: GBP 8.5 million), primarily due to increased production
volumes.
The Board continued to implement its strategy of seeking to further improve the
Company's development and operational capabilities.
Research and product development costs increased by 23% to GBP 3.78 million
(2010: GBP 3.11 million), in line with the Board's strategy and the commercial
development contracts in place.
General and administrative costs, which consist mainly of staff costs,
facilities costs and the costs associated with the Company's public listings,
were up by 48% to GBP 4.9 million (2010: GBP 3.3 million). The major element in
the increase of GBP 1.5 million was higher staff costs, as a result of increased
headcount.
The Company recorded a loss before interest, tax, depreciation, amortization,
and stock compensation of GBP 5.10 million (2010: GBP 4.14 million), primarily
as a result of increased cost of research and product development and general
and administration expenditure.
The Company recorded an operating cash outflow before working capital movements
of GBP 5.40 million for the year (2010: GBP 3.88 million). After adjusting for
changes in working capital items and purchases of property, plant and equipment
suffered an overall cash outflow before financing of GBP 6.40 million (2010: GBP
3.01 million).
Net cash inflow from financing during 2011 of GBP 6.25 million (2010: GBP 3.16
million), resulted in an overall net cash outflow for the year of GBP 0.15
million (2010: inflow GBP 0.15 million).
The Company finished the year with an unrestricted cash balance of GBP 0.65
million (2010: GBP 0.80 million) and held further cash of GBP 0.34 million
(2010: GBP 0.77 million) associated with rent and utility deposits.
During the year ended 31 December 2011 the Company undertook significant
transactions with related parties.
In 2010 the Company negotiated a loan facility from its majority investor TAO
UK, which provided GBP 1.9 million to support working capital requirements,
bearing interest at 6% and being repayable upon request after 1 January 2012.
In 2011 the Company increased this loan by a further GBP 6.25 million.
Subsequent to the year end the Company has drawn down a further GBP 1.02
million. The Company raised invoices for GBP 0.89 million (2010: GBP 0.67
million) to VSE, the parent organization of TAO UK, for initial development
activities under arms-length commercial contracts.
Going Concern
These consolidated financial statements have been prepared on the basis of
International Financial Reporting Standards applicable to a going concern, which
assume that the Company will continue in operation for the foreseeable future
and will be able to realize its assets and discharge its liabilities in the
normal course of operations.
As at 31 December 2011 the Company had net operating cash outflows. The cash
position at the beginning of the year and all the necessary investments to
support the growth plan will require additional funding which, if not raised,
may result in the curtailment of activities.
The Company has a cumulative deficit of GBP 86.25 million as at 31 December 2011.
At 31 December 2011 the Company had an unrestricted cash balance of GBP 0.65
million and held restricted cash of GBP 0.34 million, the majority of which is
associated with rent deposit. If the Company is unable to generate positive cash
flow from operations or secure additional debt or equity financing these
conditions and events would cast substantial doubt regarding the "going concern"
assumption and, accordingly, the use of accounting principles applicable to a
going concern. These consolidated financial statements do not reflect
adjustments to the carrying values of the assets and liabilities, the reported
expenses and the balance sheet classifications, which could be material, which
would be necessary if the "going concern" assumption were not appropriate.
On 30 January 2012 the Company announced that it had extended the loan financing
agreement with TAO UK, its parent undertaking, to provide the Company with
access to a further GBP 1.02 million of debt financing to support working
capital requirements.
The Directors regularly review and consider the current and forecast activities
of the Company in order to satisfy themselves as to the viability of operations.
These on-going reviews include consideration of current order book and future
business opportunities, current development and production activities, customer
and supplier exposure and forecast cash requirements and balances. Based on
these evaluations the Directors consider that the Company is able to continue as
a going concern.
Summary of Quarterly Results
The following table sets out selected quarterly consolidated financial
information of the Company for the last eight quarters:
Profit/
Research and Net (loss)
All amounts in product General and profit/ per
GBP '000 Revenue development administrative (loss) share
Restated under
IFRS
March 2010 3,113 619 699 (21) 0.0
June 2010 2,392 523 1,085 (3,127) (0.4)
September 2010 1,887 716 720 (992) (0.1)
December 2010 1,138 1,251 785 (2,969) (0.2)
March 2011 2,083 950 1,166 (1,617) (0.1)
June 2011 3,278 836 1,076 (1,439) (0.1)
September 2011 4,604 975 1,221 (941) (0.1)
December 2011 4,438 1,016 1,438 (2,176) (0.1)
Production revenues decreased through 2010 as 2009 production programmes
finished. The weak 2009 economy resulted in lower than normal order activity
resulting in a declining customer production requirement through the following
year. Production revenues have been increasing significantly in 2011 in line
with the increasing order intake.
Research and development expenditure has begun to increase compared with
previous years, reflecting the commencement of development activities related to
opportunities presented by the investment from TAO UK, which became TPS's parent
undertaking in June 2010, and the commercial development contract with VSE,
which is TAO UK's parent.
Subsequent to the controlling investment made by TAO UK in June 2010, as from 1
January 2010 the Company no longer qualifies for R&D tax credit cash refunds
under the UK SME R&D tax credit regime, which would previously have been used to
reduce the Company's total research and development expenditure. Accordingly, in
the year 2010 as a whole and throughout 2011 (save as noted below) no tax
credits were offset against such expenditure. Tax credits recognised in quarter
one and quarter two of 2010 were decognised in quarter four.
In Q2 2011 the Company agreed its claim for the UK SME R&D tax credit for 2009,
receiving GBP 580,000 and booking a one-time benefit of GBP 230,000 in 2011.
Reconciliation of net loss to EBITDA result
Quarter ended Year ended
31 December 31 December
2011 2010 2011 2010
GBP '000 GBP '000 GBP '000 GBP '000
Net loss (2,176) (2,969) (6,173) (7,110)
Add back:
Finance income 1 (16) (2) (191)
Finance expense 142 14 337 2,644
Foreign exchange loss/(gain) 48 (237) 65 (318)
Depreciation 110 311 581 768
Amortisation 14 - 14 -
Stock Compensation 31 (13) 75 66
----------------------------------------
EBITDA loss (1,830) (2,910) (5,103) (4,141)
----------------------------------------
Copies of Quarterly and Annual Results
The Company's full Financial Results and Managements' Discussion and Analysis
are available on www.sedar.com and full financial statements will be mailed to
shareholders during April 2012.
Copies of the quarterly and annual results are available from the Company's
office at Unit 3 Summit Centre, Hatch Lane, West Drayton, Middlesex, UB7 0LJ,
United Kingdom or available to view from the Company's website at
www.turbopowersystems.com.
Quarter ended 31 Year ended 31
Notes December December
2011 2010 2011 2010
GBP '000 GBP '000 GBP '000 GBP '000
Revenue 5 4,438 1,138 14,403 8,530
Cost of sales (3,872) (1,979) (10,944) (6,194)
----------------------------------------
Gross Profit 566 (841) 3,459 2,336
Expenses
Distribution expenses (147) (94) (619) (596)
Research and product
development expenses (1,016) (1,251) (3,777) (3,109)
General and administrative
expenses (1,438) (785) (4,901) (3,288)
----------------------------------------
Total expenses (2,601) (2,130) (9,297) (6,993)
Operating loss (2,035) (2,971) (5,838) (4,657)
Finance income 1 16 2 191
Finance expense (142) (14) (337) (2,644)
----------------------------------------
Loss before tax (2,176) (2,969) (6,173) (7,110)
Income tax expense - - - -
----------------------------------------
Net loss and total
comprehensive loss for the
year (2,176) (2,969) (6,173) (7,110)
----------------------------------------
----------------------------------------
Loss per share - basic and
diluted 6 (0.1)p (0.2)p (0.4)p (0.8)p
----------------------------------------
----------------------------------------
The Notes are an integral part of these Consolidated Financial Statements
As at 31 As at As at
Notes December 31 December 1 January
2011 2010 2010
GBP '000 GBP '000 GBP '000
Current assets
Restricted cash 23 452 645
Research and
developments tax
credits receivable - 350 350
Inventories 3,201 1,656 1,943
Trade and other
receivables 3,203 1,251 1,657
Prepayments 326 368 435
Cash and cash
equivalents 653 799 649
---------------------------------------------
7,406 4,876 5,679
---------------------------------------------
Non-current assets
Intangible assets 350 - -
Property, plant and
equipment 777 1,066 1,066
Restricted cash 320 320 169
---------------------------------------------
1,447 1,286 1,235
---------------------------------------------
Total assets 8,853 6,262 6,914
---------------------------------------------
---------------------------------------------
Current liabilities
Trade and other
payables 5,453 3,281 3,508
Loans and borrowings 8,166 - 261
Provisions 540 430 -
---------------------------------------------
14,159 3,711 3,769
---------------------------------------------
Non-current liabilities
Loans and borrowings - 1,916 3,386
Provisions 1,020 863 100
---------------------------------------------
1,020 2,779 3,486
---------------------------------------------
Total liabilities 15,189 6,490 7,255
Equity (deficit)
Share capital 7 62,862 62,862 56,225
Convertible shares 7 15,310 15,310 13,310
Other reserves 1,756 1,681 3,095
Retained
equity/(deficit) (86,254) (80,081) (72,971)
---------------------------------------------
Equity (deficit) (6,326) (228) (341)
Total liabilities and
equity (deficit) 8,853 6,262 6,914
---------------------------------------------
---------------------------------------------
The Notes are an integral part of these Consolidated Financial Statements
Share Convertible Other Retained
capital shares reserves deficit Total
GBP '000 GBP '000 GBP '000 GBP '000 GBP '000
Balance at 31 December
2009 56,225 13,310 3,095 (72,971) (341)
Net loss for the year - - - (7,110) (7,110)
Stock compensation (21) - 87 - 66
Share conversion 289 - (708) - (419)
Expiry of warrants 849 - (793) - 56
Issue of shares 5,520 2,000 - - 7,520
-----------------------------------------------------
Balance at 31 December
2010 62,862 15,310 1,681 (80,081) (228)
Net loss for the year - - (6,173) (6,173)
Stock compensation - - 75 - 75
-----------------------------------------------------
Balance at 31 December
2011 62,862 15,310 1,756 (86,254) (6,326)
-----------------------------------------------------
-----------------------------------------------------
The Notes are an integral part of these Consolidated Financial Statements
Year ended 31 December
2011 2010
GBP '000 GBP '000
Cash flows from operating activities
Loss for the year (6,173) (7,110)
Adjustments for
Finance income (2) (191)
Finance expense 337 2,542
Tax credit in operating expenses (230) -
Depreciation of property, plant and
equipment 581 768
Amortisation of intangible assets 14 -
Asset retirement obligation - 49
Share based payment expenses 75 66
------------------------------
Operating cash flows before movements in
working capital (5,398) (3,876)
Changes in working capital items
Decrease/(increase) in inventories (1,545) 287
Decrease/(increase) in restricted cash 429 (42)
Decrease/(increase) in trade and other
receivables (1,952) 406
Decrease/(increase) in prepayments 42 67
Increase/(decrease) in provisions 267 470
Increase/(decrease) in trade and other
payables 1,835 (227)
------------------------------
Cash used in operating activities (6,322) (2,915)
Interest received 2 -
Taxes received 580 -
------------------------------
Net cash used in operating activities (5,740) (2,915)
Cash flows from investing activities
Purchase of property, plant and equipment (292) (94)
Purchase of intangible assets (364) -
------------------------------
Net cash used in investing activities (656) (94)
------------------------------
Cash flows from financing activities
Proceeds from issue of share capital - 7,520
Repayment of loans - (6,261)
Proceeds from increase in loans 6,250 1,900
------------------------------
Net cash from investing activities 6,250 3,159
------------------------------
Net (decrease)/increase in cash and cash
equivalents (146) 150
Cash and cash equivalents at the beginning of
the year 799 649
------------------------------
Cash and cash equivalents at the end of the
year 653 799
------------------------------
------------------------------
1 Reporting entity
Turbo Power Systems Inc. ("The Company") is subsisting pursuant to the Business
Corporations Act (Yukon Territory). The Company's registered office is Suite
200-204 Lambert Street, Whitehorse, Yukon Y1A 3T2, Canada.
The Company conducts operations through its wholly owned subsidiary company,
Turbo Power Systems Limited ("TPSL") and the main trading address is Unit 3,
Heathrow Summit Centre, Skyport Drive, Hatch Lane, West Drayton, Middlesex UB7
0LJ, United Kingdom.
The Company's parent undertaking is TAO Sustainable Power Solutions (UK) Limited
("TAO UK"), a company registered in England and Wales, UK. The Company's
ultimate parent company is Vale Solucoes em Energia S.A. ("VSE"), a company
registered in Brazil.
The Company's subsidiaries comprise:
Place of
Trading status incorporation % Ownership
Turbo Power Systems Limited Trading England 100%
Turbo Power Systems Development
Limited Dormant England 100%
Turbo Power Systems N.A. LLC Dormant USA 100%
Intelligent Power Systems
Limited Dormant England 100%
Nada-Tech Limited Dormant England 100%
TPSL has initiated commercialisation of its technology in relation to high speed
permanent-magnet machine systems for power generation and industrial motor
applications at its London location, whilst its operation based in North East
England is an established provider of advanced power electronics.
2 Going concern
These consolidated financial statements have been prepared on the basis of
International Financial Reporting Standards ("IFRS") applicable to a going
concern, which assume that the Company will continue in operation for the
foreseeable future and will be able to realize its assets and discharge its
liabilities in the normal course of operations.
As at 31 December 2011 the Company had net operating cash outflows, with net
debt (excluding restricted cash) of GBP 7.51 m, being GBP 8.17m of debt less GBP
0.65m of cash. The net debt (excluding restricted cash) position at the
beginning of 2012 and all the necessary investments to support the Company's
growth plan will require additional funding which, if not raised, may result in
the curtailment of activities.
The Company has a cumulative deficit of GBP 86.25 million as at 31 December 2011
(31 December 2010: GBP 80.08 million).
At 31 December 2011 the Company had an unrestricted cash balance of GBP 0.65
million (31 December 2010: GBP 0.80 million) and held restricted cash of GBP
0.34 million (31 December 2010: GBP 0.77 million) the majority of which is
associated with rent deposit. If the Company is unable to generate positive cash
flow from operations or secure additional debt or equity financing these
conditions and events would cast substantial doubt regarding the going concern
assumption and, accordingly, the use of accounting principles applicable to a
going concern. These consolidated financial statements do not reflect
adjustments to the carrying values of the assets and liabilities, the reported
expenses and the balance sheet classifications, which could be material, which
would be necessary if the going concern assumption were not appropriate.
On 15 April 2011 the Company announced that it had extended the loan financing
agreement with its principal shareholder, TAO UK, to provide the Company with
access to a further GBP 2.2 million of debt financing to support working capital
requirements. In May 2011 a further GBP 1.0 million was provided through the
loan financing agreement, on 5 September 2011 a further GBP 1.5million and 20
December 2011 GBP 0.35 million taking the total loan to GBP 8.15 million at 31
December 2011 (31 December 2010: GBP 1.90 million).
The Directors regularly review and consider the current and forecast activities
of the Company in order to satisfy themselves as to the viability of operations.
These ongoing reviews include consideration of current outstanding orders and
future business opportunities, current development and production activities,
customer and supplier exposure and forecast cash requirements and balances.
Based on these evaluations the Directors consider that the Company is able to
continue as a going concern for the foreseeable future.
3 Basis of preparation
The Company's consolidated financial statements were prepared in accordance with
Canadian Generally Accepted Accounting Principles ("Canadian GAAP") until 31
December 2010. As from 1 January 2011, publicly accountable enterprises are
required to adopt IFRS. Accordingly, we have commenced reporting on this basis
in these consolidated financial statements.
These financial statements have been prepared in accordance with the accounting
policies set out in Note 3 to the unaudited condensed consolidated interim
financial statements for the three months ended 31 March 2011 which are based on
the recognition and measurement principles of IFRS in issue and effective at 31
December 2011.
The consolidated financial statements were authorised for issuance by the Board
of Directors on 16 March, 2012.
The consolidated financial statements have been prepared under the historical
cost convention, except for the revaluation of certain financial instruments.
The consolidated financial statements are presented in GBP sterling, rounded to
the nearest GBP 1,000, which is the Company's functional and presentation
currency.
4 Changes in accounting policies on adoption of IFRS
IFRS 1, which governs the first-time adoption of IFRS, generally requires
accounting policies to be applied retrospectively to determine the opening
balance sheet on our transition date of 1 January 2010, and allows certain
exemptions on transition to IFRS. The Company did not take any exemptions.
We adopted IFRS on 1 January 2011 and in accordance with IFRS 1, we have applied
IFRS retrospectively to our comparative data as at 1 January 2010, the
Transition date.
An explanation of how the transition from Canadian GAAP to IFRS has affected the
Company's financial position, financial performance and cash flows is set out
below. The following reconciliations are provided:
a. Reconciliation of equity at the date of transition, 1 January 2010, to
IFRS;
b. Reconciliation of equity at 31 December 2010;
c. Reconciliation of net earnings for the year ended 31 December 2010;
d. Any material adjustments to the prior year cash flow statement.
Reconciliation of equity:
31 December
1 January 2010 2010
GBP '000 GBP '000
Equity in accordance with Canadian GAAP (341) (228)
------------------------------
Equity in accordance with IFRS (341) (228)
------------------------------
Reconciliation of net earnings:
31 December
2010
GBP '000
Net earnings in accordance with Canadian GAAP (7,110)
---------------
Net earnings in accordance with IFRS (7,110)
---------------
Notes to the reconciliations
Under IAS 32 the convertible shares have been classified as an equity instrument
and classified as a part of shareholders equity. Previously under Canadian GAAP
this was classified as an equity instrument but classified as a non-controlling
interest.
Cash Flow statement
The adoption of IFRS did not significantly impact our cash flows compared to
Canadian GAAP.
5 Segmental analysis
The Company has historically operated from two facilities in the UK and run each
location as a separate unit. During the year the Company has undergone
management and operational changes to bring the reporting segments in line with
the strategy of designing and manufacturing integrated systems. The Company's
two reportable segments are the power electronics segment, which is involved in
the development and manufacture of electrical power supply and control systems
and the electrical machines segment, which is involved in the development and
commercialisation of high speed electrical machines.
Corporate charges relating to the financing of the Company and other related
management activities are allocated between the two reportable segments.
The power electronics and electrical machines systems segments both operate in
the United Kingdom. Except for the investments held by the Company which are
located in Canada, all of the Company's assets are located in the United
Kingdom.
31 December 2011 Power Electrical
electronics machines Elimination Total
GBP '000 GBP '000 GBP '000 GBP '000
Production revenue -
external 10,713 1,251 - 11,964
Production revenue -
internal 194 - (194) -
Development revenue -
external 2,050 389 - 2,439
------------------------------------------------
12,957 1,640 (194) 14,403
------------------------------------------------
Segment result (4,069) (1,769) - (5,838)
Finance income 2
Finance expense (337)
Net loss for the year (6,173)
Total assets 5,997 2,856 8,853
Total liabilities (5,438) (9,751) (15,189)
31 December 2010 Power Electrical
electronics machines Elimination Total
GBP '000 GBP '000 GBP '000 GBP '000
Production revenue -
external 5,138 1,774 - 6,912
Production revenue -
internal 906 - (906) -
Development revenue -
external 1,122 496 - 1,618
Development revenue -
internal 54 - (54) -
------------------------------------------------
7,220 2,270 (960) 8,530
------------------------------------------------
Segment result (903) (3,753) - (4,657)
Finance income 191
Finance expense (2,644)
Net loss for the year (7,110)
Total assets 3,287 2,975 6,262
Total liabilities (3,255) (3,245) (6,500)
Geographic Segmental Information
Total Revenues by destination
2011 2010
GBP '000 GBP '000
UK 3,518 1,748
USA 5,463 5,648
Canada 4,254 376
Rest of world 1,168 758
------------------------------
14,403 8,530
------------------------------
------------------------------
All property, plant and equipment was located within the United Kingdom during
both periods ended 31 December 2011 and 31 December 2010.
6 Loss per share
Loss per share has been calculated using the weighted average number of shares
in issue during the relevant financial periods.
Quarter ended 31 December Year ended 31 December
2011 2010 2011 2010
Loss
attributable to
ordinary
shareholders GBP 2,176,000 GBP 2,969,000 GBP 6,173,000 GBP 7,110,000
Weighted average
number of
shares
outstanding 1,437,754,811 1,437,754,811 1,437,754,811 940,760,440
As the Company experienced a loss in both years all potential common shares
outstanding from dilutive securities are considered anti-dilutive and are
excluded from the calculation of diluted loss per share.
Details of anti-dilutive potential securities outstanding not included in loss
per share calculations at December 31 are as follows:
2011 2010
Common shares potentially issuable:
- under stock options 31,377,273 56,399,091
- pursuant to A Ordinary stock conversion 448,333,334 448,333,334
------------------------------
479,710,607 504,732,425
------------------------------
7 Share capital and other reserves
Share Capital
Convertible Shares
Common Shares (A Ordinary Shares)
Number GBP '000 Number GBP '000
At 1 January 2010 341,398,222 56,225 115,000,000 13,310
Shares issued 1,096,356,589 6,637 333,333,334 2,000
------------------------------------------------
At 31 December 2010 1,437,754,811 62,862 448,333,334 15,310
Shares issued - - - -
------------------------------------------------
At 31 December 2011 1,437,754,811 62,862 448,333,334 15,310
------------------------------------------------
------------------------------------------------
The Company is authorised to issue an unlimited number of common shares and an
unlimited number of preferred shares, issuable in series, without nominal or par
value. All common shares rank equally with regard to the Company's residual
assets.
The holders of common shares are entitled to receive dividends as declared from
time to time, and are entitled to one vote per share at meetings of the Company.
Holders of A Ordinary Shares of Turbo Power Systems Limited ("TPSL")
(Convertible shares), carry no voting rights, cannot attend any shareholder
meetings and, in the event of winding-up of TPSL are entitled to a maximum
distribution of GBP 500,000 in aggregate, to rank before the Common Shares. The
A Ordinary shares are convertible into an equal number of Common Shares of the
Company on request by the holder, having given 61 days notice. Under certain
take over or change in control events, the A Ordinary Shares are exchangeable
under "super exchange" rights, converting for 3 Common shares of the Company for
every A Ordinary Share held.
As the A Ordinary Shares are non-participating interests in TPSL and are
non-voting, no current year or cumulative net losses have been allocated to the
A Ordinary Shares.
Issue of common shares:
On 28 January 2010 the Company issued 9,069,769 common shares, and on 8 February
2010 3,953,488 common shares as a result of conversions of GBP 280,000 of 2005
Convertible Loan Notes, at a conversion price of 2.15p per share.
On 16 June 2010 the Company issued 1,083,333,333 common shares to TAO UK as a
result of the financing and investment in the Company, at a price of 0.6p per
share.
On 16 June 2010, TPSL, as part of the TAO financing, issued 333,333,334
A-Ordinary shares at 0.6p each in settlement of the 2008 loan note principal,
accrued interest and agreed risk premium due to one of the institutional
investors.
Other reserves
At 31 December 2011, other reserves comprise of the stock compensation reserve
of GBP 1,756,000 (2010: GBP 1,681,000).
Potential issue of common shares
The Company has issued share options under the 2002 Stock Option Plan and A
Ordinary Shares that are convertible into common shares of the Company.
31 Dec 31 Dec 1 Jan
2011 2010 2010
Under stock option plan 31,377,273 56,399,091 25,485,700
Pursuant to A Ordinary stock
conversion 448,333,334 448,333,334 115,000,000
Pursuant to warrants - - 23,357,142
Pursuant to loan note
conversion - - 137,046,512
---------------------------------------------
479,710,607 504,732,425 300,889,354
---------------------------------------------
8 Related party transactions
Transactions with the parent and ultimate parent company
On 16 June 2010 the Company completed a fundraising and investment transaction
that resulted in TAO UK, the wholly owned UK subsidiary of the Brazilian energy
solutions company VSE, investing GBP 6.5million in exchange for 1,083,333,334
Common Shares in the Company, giving TAO UK a 75.4% controlling stake in the
Company on an undiluted basis. The transaction was recorded at exchange amount.
On 22 October 2010 the Company completed a loan funding facility from its
majority investor, TAO UK, that made available up to GBP 1.9 million (amended as
below) to support the working capital requirements of the Company as it
develops. The loan carries a 6% interest rate and is secured by a fixed and
floating charge over the assets of the Company, and is repayable on request
after 1 January 2012. A summary of the drawdowns is :
Date of drawdown GBP '000
28 October 2010 GBP 1,200
26 November 2010 GBP 700
25 February 2011 GBP 800
28 March 2011 GBP 400
15 April 2011 GBP 2,200
25 May 2011 GBP 1,000
5 September 2011 GBP 1,500
20 December 2011 GBP 350
Accrued interest GBP 353
---------------
Total GBP 8,503
---------------
Accrued interest is recorded within trade and other payables (2010: GBP 16,000)
On 16 June 2010, following the fundraising and investment from TAO UK, the
Company settled it's liabilities in relation to the outstanding 2008 convertible
loan notes, accrued interest and agreed risk premium. The holder of the A-Shares
was one of the institutional investors who received a settlement valued at GBP 2
million, which was settled by the issuance of 333,333,334 additional A-Shares.
The transaction was recorded at exchange amount.
During 2011 the Company has transacted business with both TAO UK, totalling GBP
82,000 (2010: GBP 17,000), and with VSE, totalling GBP 888,000 (2010: GBP
674,000). Amounts outstanding as at 31 December 2011 are: the Company owes TAO
UK GBP 63,000 (2010: GBP nil); VSE owe GBP nil (GBP nil) to the Company.
All transactions were conducted within the normal course of business for supply
of engineering design services and were transacted at arms-length.
Key Management personnel compensation
In addition to their salaries, the Company provides non-cash benefits to
executive management and contributes to a defined contribution pension plan.
Some executive officers participate in the share option programme.
Key management personnel compensation comprises the following:
2011 2010
GBP '000 GBP '000
Salaries 664 581
Bonus and other payments 612 401
Pension contributions 40 46
Stock compensation expense 68 112
------------------------------
1,384 1,140
------------------------------
------------------------------
Bonus and other payments include payments made in relation to the change of
control in June 2010, arising from the TAO UK investment in the Company, and
termination payments.
9 Subsequent events
On 30 January 2012 the Company negotiated an increase of GBP 1,020,000 in the
facility limit of its loan with TAO UK, and was advanced a further GBP 1,020,000
under the same terms as the loan secured in October 2010. TAO UK remains fully
committed to TPS and has expressed its continuing financial support of TPS'
working capital requirements during 2012.
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