TIDMCAP
RNS Number : 1139I
Clean Air Power Limited
23 March 2015
23 March 2015
CLEAN AIR POWER LIMITED
("Clean Air Power" or "the Group")
Preliminary Announcement of Results for the Year Ended 31
December 2014
Operational Highlights
-- In December 2014, the US Genesis-EDGE Dual-Fuel(TM) system
passed the US Environmental Protection Agency emission standards
and, in February 2015, became the only certified dual-fuel system
in the US
-- Signed contract with a global truck manufacturer for Phase 1
of a second-generation MicroPilot production development program
for the South East Asian and other markets
-- Challenging European market. Operations restructured to reduce cost base by GBP1.0m
-- Collaborative research program with Queens University,
Belfast to develop a compression-ignited natural gas system for
small-cylinder engines targeting the light-duty automotive
market
Financial Highlights
-- Revenue from Dual-Fuel(TM) system sales decreased 47% to
GBP3.2m (2013: GBP6.0m), but underlying(1) other income increased
64% to GBP3.6m (2013: GBP2.2m)
-- Underlying(1) group revenue for the period decreased 17% to GBP6.8m (2013: GBP8.2m)
-- Underlying(1) operating loss before non-cash items(2)
increased 39% to GBP3.2m (2013: GBP2.3m) due to lower system sales
and the impact of delays to US Genesis-EDGE
-- Underlying(1) revenue less cash costs(3) , which represents
underlying cash consumption before working capital timing
differences, increased 10% to GBP4.5m (2013: GBP4.1m)
-- GBP1.0m equity raise successfully completed in July 2014
-- GBP2.2m period end cash balance
Post Period End
-- US Genesis distribution agreement signed with Bruckner's, a
major Volvo/Mack dealer covering Southwestern region, including
Oklahoma and Colorado where there are significant state subsidies
for our system
-- $1m signed contract extension to develop and deliver a
demonstration vehicle to the South East Asian MicroPilot production
development program, with a total contract award to date of $5m
-- Successful trials of our Dual-Fuel(TM) systems in Russia, but
exchange and interest rates are having a severe impact on sales
into Russia
-- Research at Brunel University, London showing we can now
deliver consistently over 90% substitution, 10% more power and 60%
less methane and NO(x) compared to conventional Dual-Fuel(TM)
-- Inherent uncertainty around US sales growth and the timing of
OEM contract cash flows will make 2015 a challenging year and
options have been identified to provide the financial headroom
required
1 Underlying results exclude non-recurring income and provision
releases in 2013 and non-recurring costs in 2014. A full analysis
is set out in the Financial Review
2 Non-cash items are: depreciation, amortisation, impairment
charges and share-based payments
3 Revenue less cash costs is calculated as operating loss before
non-cash items less capitalised development costs and capitalised
software and measures cash consumption before timing
differences
Commenting on the results, John Pettitt, Chief Executive,
said:
"This has been a very challenging year. Following the
introduction of the Euro VI emissions standard and narrowing diesel
to natural gas price differentials, we saw a steep decline in
European sales which prompted us to take the difficult step of
restructuring the European business. On top of this, issues with
the after-treatment system on the base diesel engine delayed our US
Genesis-EDGE program by at least six months. Despite these
challenges, we have continued to focus on our strategy to be a
design, development and delivery partner on funded MicroPilot
programs by securing Phase 1 of a major production development
program for South East Asia and other markets. We also advanced the
performance capabilities of our MicroPilot technology significantly
through our research program with Brunel University, London.
Nevertheless, 2015 will continue to be a challenging year as we
tackle the inherent uncertainties around the rate of growth in the
US, the economic situation in Russia, the timing of a second major
production development program. However, with our strong patents,
highly sophisticated control systems, years of know-how, and
partnerships, particularly with Ricardo, I feel we are well placed
to achieve a major step towards our vision in 2015."
For further information, please contact:
Clean Air Power Tel:+44 (0)1772
John Pettitt, Chief Executive 624 499
Neill Skinner, Chief Financial Officer
Citigate Dewe Rogerson
Chris Gardner / Malcolm Robertson Tel: +44(0)20
7282 2867
Panmure Gordon
Corporate Finance: Freddy Crossley / Atholl
Tweedie
Corporate Broking: Tom Salvesen Tel:+44 (0)20
7886 2500
Peat & Co
Charlie Peat
Tel:+44 (0)20
3540 1721
Forward Looking Statements
This report includes statements that are forward looking in
nature which involve known and unknown risks, assumptions,
uncertainties and other factors which may cause the actual results
of the Group to be materially different from any future results
expressed or implied by any such forward looking statements in this
report. Except as required by the AIM Rules for Companies and
applicable law, the Group undertakes no obligation to update,
revise or change any forward looking statements to reflect events
or developments occurring after the date of this report.
About Clean Air Power
Clean Air Power designs, develops and delivers
compression-ignited natural gas engines for heavy duty transport
applications and manufactures innovative hydraulic valves,
injectors and filters for natural gas engines sold to truck
manufacturers around the world. Clean Air Power's patented
Dual-Fuel(TM) and second-generation MicroPilot technology enables
engines to run on natural gas mixed with diesel providing the
"spark" that ignites the gas. Substituting natural gas for diesel
cuts fuel costs, emissions of carbon, nitrous oxide and
particulates whilst retaining the original engine's power,
efficiency and reliability characteristics. Clean Air Power
operates, directly or through distributor partnerships, in the US,
Europe, Russia and Australia.
Initially founded in the USA in 1991, over $90m has been
invested in developing the technology with the result that 62
patents are currently held or pending. The holding company of the
Group is based in Bermuda with operational subsidiaries in the UK,
the USA and Australia. The Group was admitted to the AIM market of
the London Stock Exchange in February 2006.
CHAIRMAN'S STATEMENT
This has been a year of transition for Clean Air Power as we
continue to implement our strategy. We have managed the move away
from our traditional market in Europe to new markets in North
America and South East Asia whilst making major steps in our
strategy to transition the business to a more stable, lower risk
business model to market our unique intellectual property as a
design, development and delivery partner on funded programs.
In the early part of the year, we moved from supplying Euro V
Dual-Fuel(TM) system kits into our European OEM partner's
production program to being an installer of our own Euro V
Genesis-EDGE Dual-Fuel(TM) retro-fit product. We anticipated that
the introduction of the Euro VI emission standard in early 2014
would bring our European OEM partner's production program to an end
in 2014, and our investment in Genesis-EDGE provided a commercial
hedge against this by targeting the high level of Euro V vehicle
purchases made at the end of 2013.
Although we made good progress with Genesis-EDGE sales in the
first quarter of 2014, the lack of a coherent natural gas strategy
in Europe and low diesel to natural gas price differentials led to
a sharp decline in demand in the second quarter, and in the second
half of 2014 we made the difficult decision to restructure our
European operations.
In 2014 we shifted our focus towards Russia working closely with
the Russian subsidiary of our European OEM partner to support the
Russian Government's ambitious plans to establish natural gas as
mainstream road fuel. However, despite making good progress with
our partner and having conducted successful trials with potential
customers, the economic situation in Russia means we do not expect
meaningful sales volume until the conditions change.
Running in parallel to the changes in Europe was our planned
entry into the US market with a US2010 variant of our Genesis-EDGE
Dual-Fuel(TM) system. At the same time as we were restructuring our
European business, we incurred delays in our US program due to
issues with the base diesel engine. Nevertheless, I am delighted
that we have now achieved full certification by the US
Environmental Protection Agency ("EPA") and the fact that we are
the only dual-fuel system in the US that is fully certified by the
EPA provides us with a distinct competitive advantage.
Whilst these have been very challenging transitions, we have
also maintained focus on the most important transition towards
being a design, development and delivery partner on funded
MicroPilot production programs.
MicroPilot is our second-generation technology for
compression-ignited natural gas engine systems and delivers a step
change in performance over conventional Dual-Fuel(TM) technology.
Our research program with Brunel University, London demonstrates
that MicroPilot consistently delivers over 90% diesel to natural
gas substitution with 10% more power and a 60% reduction in NOx and
methane emission compared to conventional Dual-Fuel(TM) .
MicroPilot is more than a concept. Following a successful
concept study this year, we signed a contract with a global truck
manufacturer for Phase 1 of a production development program for
the South East Asian and other markets. This contract was extended
in early 2015 and, when, as anticipated, we pass the gateway to
Phase 2 this year, then we anticipate having a game-changing
product on the market in 2017.
The relationship with our MicroPilot development partner, our
strong intellectual property, the support we have from our
technology partner, Ricardo plc, supported by our work with Brunel
University, London, and the progress we are making on this project
provides me with confidence that we can secure a second MicroPilot
development program in 2015 which will move us a long way towards
delivering our strategy and our ultimate transition to being the
design, development and delivery partner on funded programs.
We still have much work to do though to reduce risk in the
Group. The inherent uncertainties in the rate of growth in the US
market and our limited ability to control the timing of OEM-funded
contract awards means that there is a risk to the Group's ability
to continue as a going concern and, therefore, we have identified
options for alternative funding which are planned to provide
headroom in the business and finance growth in 2015. We have a
reasonable expectation that we will be successful in this exercise
and this is discussed more fully in Note 2 to the Financial
Information.
Rodney Westhead
Chairman
CHIEF EXECUTIVE'S REVIEW
Strategy
Clean Air Power's value lies in its intellectual property and,
in particular, the sophistication of its control systems, its
patents and the years of know-how that we have acquired in systems
development, supply chain management and supporting
compression-ignited natural gas vehicles operating in the
field.
Up to this point, we have had to fund a large proportion of the
costs of development programs and bear the risk of sales volumes in
immature markets. Going forward, this is not a sustainable business
model and we have a clear vision to transition from being a largely
internally-funded operation to being a design and development
specialist on customer-funded programs where we can also bring
substantial experience in supply chain and field operations.
Our vision is "to be the design, development and delivery
partner of compression-ignited natural-gas engine systems for OEMs
and Tier 1s" and in order to deliver this vision, we have a
three-step strategy:
Step 1
Sell current Dual-Fuel(TM) products in new markets delivered
through distribution agreements with the local operations of our
OEM partners or major dealer networks. This has two key objectives:
(1) to promote product awareness and showcase the technology; and
(2) to generate cash to fund investment in second-generation
MicroPilot and third-generation technologies.
Step 2
With engines becoming more complicated and emissions standards
becoming ever stricter, the only viable model for developing the
technology is through partnerships with OEMs and Tier 1
manufacturers. Step 2 of the strategy is, therefore, to reduce risk
in the business and grow stable revenues by securing further
OEM-funded or Tier 1-funded design, development and delivery
programs; initially for on-highway programs and eventually
diversifying into off-highway programs, such as power generation
and oil & gas pumps, where the potential cost savings are
significantly higher than in on-highway applications.
Step 3
Maintain technology leadership and competitive advantage by
investing in "third generation" technology. Our research programs
at Brunel University, London and Queens University, Belfast are
already producing results that demonstrate the future potential of
the technology.
Step 1: Sales of Dual-Fuel(TM) Systems
US
In the US, the program to develop a US2010 variant of our
Genesis-EDGE Dual-Fuel(TM) system suffered a setback in the second
half of the year when technical issues with the selective catalytic
reduction ("SCR") after-treatment system on the base diesel engine
prevented the completion of independent emissions testing by
Ricardo plc and the product launch had to be delayed until Quarter
1 of 2015.
Nevertheless, in February 2015 we achieved full certification by
the US Environmental Protection Agency ("EPA") and we are now the
only dual-fuel system in the US that is fully certified.
Our Operations Director has relocated to the US to lead the
drive to deliver the first customer orders and work with our
distribution partners who will promote, install and service our
systems.
Russia
Good progress was made in the second half of the year and we
formalised our partnering agreement with the Russian business of
our European OEM partner whereby our Dual-Fuel(TM) system will be
fitted to new vehicles and marketed under our partner's own
branding. Our fleet of trial vehicles performed well within
customer fleets and we secured our first sales orders, including a
number of trial units for a major natural gas supplier. However, as
discussed under "outlook" below, we expect 2015 to be a challenging
year and for sales growth to be very modest.
CHIEF EXECUTIVE'S REVIEW (CONTINUED)
Europe and Other Markets
The introduction of the Euro VI emissions standard across the
European Union at the start of 2014 for all new truck sales brought
our European OEM partner's Euro V diesel-natural gas production
program to an end.
In response, the business mix shifted to our Genesis-EDGE
Dual-Fuel(TM) retro-fit system which is sold directly into the
after-market and installed at our facilities in the UK or through
approved partners in Mainland Europe. We enjoyed some notable
successes in the first half of the year with existing customers,
but the lack of a coherent natural gas strategy across Europe and a
narrowing diesel to natural gas price differentials meant that by
the half year we were only seeing a small number of opportunities
with customers who had substantial sums invested in their own
natural gas fuelling infrastructure and ran large fleets of newer
Euro V vehicles. Furthermore, these market factors led many
customers to delay orders or reconsider their fleet strategies,
despite a number of successful trials where our Genesis-EDGE
Dual-Fuel(TM) system proved its ability to generate significant
cost savings, even at the lower diesel to natural gas price
differentials.
As a result, system sales in Europe dropped off sharply during
the second half of the year and with no certainty around the timing
or quantum of future orders and mounting pressure on cash, the
difficult decision was taken to restructure the European business,
resulting in expected cost savings of GBP1.0m a year. The Group is
not pursuing new opportunities in Europe currently, but will
continue to try and support customers on a case-by-case business
where incremental value can be earned.
Sales of our legacy Caterpillar C15 system in the US and sales
of Genesis-EDGE Dual-Fuel(TM) in Australia have both been
disappointing and below expectations. We have appointed a
distributor for the Australian market and we are focussing our
resources on the US.
Components
Our Components business unit provides reasonably stable earnings
to support investment in second-generation MicroPilot and
third-generation technologies. A notable highlight was securing an
order for GBP0.3m to supply gas injectors for a global truck
manufacturer's new product launch into Russia.
Step 2: MicroPilot Development Partnerships
MicroPilot is our second-generation compression-ignited natural
gas engine technology. MicroPilot can offer heavy-duty truck
operators fuel economy (natural gas substitution over 80% and fuel
efficiency on par with diesel) whilst retaining diesel operational
characteristics (450-500BHP and diesel fall-back) and relatively
low costs of ownership (low running costs and residual protection
through the ability to convert back to diesel).
In November 2014, following a successful concept study earlier
in the year, we signed the formal contract with a global truck
manufacturer for Phase 1 of a funded MicroPilot engine production
development program for the South East Asian and other markets. The
program is being delivered in partnership with Ricardo plc
("Ricardo") under a wider co-operation agreement between Ricardo
and ourselves. There is a project gateway decision in May 2015 with
production planned for 2017.
In August 2014, we also secured $1.7m of grant funding from the
US Department of Energy to support the development of a
compression-ignited natural gas engine system compatible with the
US2014/15 model year trucks.
Step 3: Investment in Third-Generation Technologies
Europe is now on the Euro VI emissions standard and, despite
strong support from our customer base, we have taken the strategic
decision that the development of a MicroPilot system able to meet
the challenging Euro VI emissions requirements would only be
commercially viable if developed in partnership with a major
manufacturer. This is because of the complexity of Euro VI engine
control systems, which use on-board diagnostics, and the technical
limitations of current after-treatment systems which prevent
Dual-Fuel(TM) engines meeting the tighter methane limits under the
new standard.
CHIEF EXECUTIVE'S REVIEW (CONTINUED)
Nevertheless, we continue to pursue this opportunity and an
exciting development that is being progressed as part of our
research program at Brunel University, London is Pre-Mixed
MicroPilot Combustion ("PMPC").
This new combustion management strategy is showing that we can
achieve 10% more power as well as 60% less methane and NO(x)
compared to conventional Dual-Fuel(TM) , technology and this opens
the pathway to delivering a Euro VI system that may not require
selective catalytic reduction.
In May, we also entered into a two to three year collaborative
research program with Queens University, Belfast, to develop an
advanced diesel-natural gas combustion process for small-cylinder
engines aimed at the light-duty automotive market which is funded
by the Department for Education and Learning and the Centre for
Advanced Sustainable Energy.
We also continued to strengthen our intellectual property
portfolio with the granting of US Patent No. 8,688,351
"Modification of Engine Control Signal Timing by Emulation of
Engine Position Sensors". This technology further improves our
engine control mechanism and delivers practical advantages in terms
of improved gas utilisation and engine performance.
Outlook
Step 1: Sell Dual-Fuel(TM) Systems
As noted above, our US Genesis-EDGE Dual-Fuel(TM) system is the
only dual-fuel system in the US that is fully certified by the EPA.
In March 2015 we signed a distribution partnership with Bruckner's,
a major Volvo and Mack dealer covering the lower Southwestern
states, including Oklahoma and Colorado where State subsidies will
cover 45% and 55% of the capital cost of our system respectively.
We hope to follow this with further distribution partnerships
across the US in the near future and we remain confident about the
US opportunity.
The current economic situation in Russia makes it very difficult
to estimate the impact on our business. Sales have been minimal in
the first Quarter of 2015, and there is no certainty over how long
the current situation will continue. We are exploring other options
with our OEM partner, including the retro-fit market, and will
continue to keep the position under close review. However, whilst
we remain confident in the long-term opportunity in Russia, we
expect 2015 to be a challenging year and for sales growth in 2015
to be very modest.
Whilst we are not actively pursuing new opportunities in Europe,
we are seeing a number of small conversion opportunities that could
provide incremental income.
Step 2: Secure Funded MicroPilot Development Partnerships
We believe that the real value of the Group is in commercial
partnerships to develop second-generation MicroPilot and
third-generation technologies.
We are making good progress on the South East Asian MicroPilot
program and look forward to securing Phase 2 of the production
development program which will see a MicroPilot product on sale in
South East Asia in 2017.
To underline our partner's commitment to this program, in
February 2015 we announced a $1m contract extension to design and
deliver a demonstration vehicle, with an option for a second
vehicle. This takes the value of overall contract award to $5m. The
vehicle will be used by the global truck manufacturer to
demonstrate to its target markets the high levels of performance,
efficiency and natural gas substitution that can be achieved using
our MicroPilot technology.
CHIEF EXECUTIVE'S REVIEW (CONTINUED)
Step 3: Invest in Third-Generation Technologies
Our research work at Brunel University, London is showing that
the possibilities of MicroPilot are surpassing our expectations and
not only provides us with confidence around our ability to secure
further funded development programs, but also provides a pathway to
resolve the technical challenges currently limiting our ability to
develop a Euro VI MicroPilot solution.
In March 2014, we secured additional funding from the UK
Government's Knowledge Transfer Partnership ("KTP") scheme that
will extend our research program at Brunel University, London by a
year.
Summary
We are making good progress towards our strategic goals. We
remain confident about US Genesis-EDGE sales, we are on track to
secure the next phase of the South East Asian OEM-funded program
and, with the recent results coming out of our research program
with Brunel University, London, we remain very confident about our
ability to secure further OEM-funded development programs.
Nevertheless, this will be a challenging year for Clean Air
Power. It is very difficult to estimate the quantum of US
Genesis-EDGE revenues so soon after product launch or control the
timing of OEM-funded contract cash flows so we have identified
funding options to inject the financial headroom we need and
provide greater flexibility to support growth in the US. There is a
risk to the Group's ability to continue as a going concern if we
cannot increase our headroom, but we expect that we will be
successful, and this is discussed more fully in Note 2 to the
Financial Information.
John Pettitt
Chief Executive
FINANCIAL REVIEW
Highlights
The Group's financial and non-financial highlights of the year
ended 31 December 2014 were as follows:
2014 2013 Change
GBPm GBPm
----------------------------------------------------------------------- -------- -------- -------
Dual-Fuel(TM) systems sold (number of units) 124 387 -68%
----------------------------------------------------------------------- -------- -------- -------
Actual results
Dual-Fuel(TM) systems sales revenue 3.2 6.7 -52%
Other revenue (Engineering Services, After-Sales and Components) 3.6 3.2 +13%
Group revenue 6.8 9.9 -31%
Gross profit 1.6 4.4 -64%
Gross margin (%) 24% 44%
Operating loss before non-cash items(2) (3.9) (0.6) -550%
Operating loss (6.3) (2.0) -215%
Revenue less cash costs(3) (5.2) (2.4) -117%
Loss per share (p) (2.55p) (0.85p) -200%
----------------------------------------------------------------------- -------- -------- -------
Underlying results(1)
Dual-Fuel(TM) systems sales revenue 3.2 6.0 -47%
Other revenue (Engineering Services, After-Sales and Components) 3.6 2.2 +64%
Group revenue 6.8 8.2 -17%
Gross profit 2.1 2.7 -22%
Gross margin (%) 31% 33%
Operating loss before non-cash items(2) (3.2) (2.3) -39%
Operating loss (5.2) (3.7) -41%
Revenue less cash costs(3) (4.5) (4.1) -10%
Loss per share (p) (2.12p) (1.72p) -23%
----------------------------------------------------------------------- -------- -------- -------
Net decrease in cash and cash equivalents before financing activities (2.9) (3.9) 26%
Cash and cash equivalents 2.2 4.0 -45%
Net current assets 1.4 5.5 -75%
Shareholders' funds 5.1 10.0 -49%
----------------------------------------------------------------------- -------- -------- -------
1. Underlying results exclude non-recurring income in 2013
(GBP1.7m) and non-recurring costs in 2014 which are set out in the
table below.
2. Non-cash items are: depreciation of GBP0.1m (2013: GBP0.2m),
amortisation GBP1.9m (2013: GBP1.2m), impairment charges GBP0.4m
(2013: GBPnil) and share-based payments GBP0.08m (2013:
GBP0.04m).
3. Revenue less cash costs is an internal performance measure
calculated as operating loss before non-cash items less capitalised
development expenditure and capitalised software
Revenues
Group revenue was GBP6.8m (2013: GBP9.9m).
In total, 124 Dual-Fuel(TM) systems were delivered in 2014,
compared to 387 for 2013, a decrease of 68%. However, excluding
sales to our European OEM partner's diesel-natural gas program,
units sold directly into the after-market increased from 63 in 2013
to 119 in 2014. Revenue from Dual-Fuel(TM) system sales was GBP3.2m
in 2014, compared to GBP6.7m in 2013. The higher average sale price
per unit of GBP26,000 (2013: GBP17,000) reflects the shift in sales
mix towards Genesis-EDGE Dual-Fuel(TM) which includes installation
costs. Other income rose 13% to GBP3.6m (2013: GBP3.2m)
In 2013, we received a one-off grant for GBP1.5m towards our US
Genesis-EDGE program which was recognised as revenue in the year
and the associated program costs in 2013 were capitalised against
future commercial revenues. GBP0.7m was allocated to system sales
and GBP0.8m was allocated to other income. Also in 2013, GBP0.2m of
deferred income relating to a legacy contract was released to
income as the final terms crystallised.
Excluding these non-recurring revenue items, underlying systems
sales fell 47% to GBP3.2m (2013: GBP6.0m) and underlying other
income increased 64% to GBP3.6m (2013: GBP2.2m) driven by revenues
earned on the South East Asian program and after-market sales.
Underlying total revenue fell 17% to GBP6.8m from GBP8.2m in
2013.
FINANCIAL REVIEW (CONTINUED)
Gross Profit
Gross profit was GBP1.6m (2013: GBP4.4m). Of the GBP2.8m
difference, GBP0.6m is due to reduced sales volumes and a different
sales mix. The remaining GBP2.2m is due to due to the GBP1.7m of
non-recurring income in 2013 discussed under "Revenues" above and a
non-recurring GBP0.5m stock write down charge resulting from the
restructuring of the European business.
Adjusting for these non-recurring items, underlying gross profit
was GBP2.1m (2013: GBP2.7m) with the difference due to lower sales
volumes and a different sales mix (GBP0.6m).
Underlying gross margin decreased slightly from 33% to 31% due
to the higher proportion of Genesis-EDGE sales which carry a lower
margin due to the inclusion of installation costs in the price.
Operating Loss
Operating loss was GBP6.3m (GBP2013: GBP2.0m). Of the GBP4.3m
difference, GBP2.2m is due to the same non-recurring items that
impacted gross profit and a further GBP0.6m is down to other
non-recurring costs made up of the external costs of remediation
work on US Genesis-EDGE (GBP0.1m), restructuring costs in the
European business (GBP0.1m) and the impairment of the European
intangible asset (GBP0.4m).
Adjusting for these non-recurring items, underlying operating
loss was GBP5.2m (2013: GBP3.7m). The underlying difference of
GBP1.5m is due to lower sales and a different sales mix (GBP0.6m),
internal costs of remediation work on US Genesis-EDGE not
capitalised (GBP0.5m) and higher amortisation (GBP0.6m), offset by
GBP0.2m of costs savings resulting from the restructuring of the
European business). The table below shows the bridge between
underlying gross profit and operating loss when these non-recurring
income and expenditure items are excluded.
Gross Less: Operating Add back: Operating Less: Revenue
profit expenses loss depreciation, loss internal less
and charges amortisation, before capitalised cash
impairment, non-cash development costs
& share-based items expenditure
payments & capitalised
(Note software
4) (Note
13)
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------- -------- ------------- ---------- --------------- ---------- --------------- --------
Actual for the year
to 31 December 2013 4.4 (6.4) (2.0) 1.4 (0.6) (1.8) (2.4)
Non-recurring income
in 2013
US Genesis-EDGE program
grant income (1.5) (1.5) (1.5) (1.5)
Release of legacy
contract deferred
income (0.2) (0.2) (0.2) (0.2)
Underlying for year
to 31 December 2013 2.7 (3.7) (2.3) (4.1)
Impact of lower sales
& different sales
mix (0.6) (0.6) (0.6) (0.6)
Overhead savings - 0.2 0.2 0.2
US Genesis remedial
work not capitalised (0.5) (0.5) -
Amortisation timing - (0.6) - -
differences
Underlying for year
to 31 December 2014 2.1 (5.2) (3.2) (4.5)
Non-recurring costs
in 2014
External costs of
US Genesis remedial
work - (0.1) (0.1) (0.1)
European restructuring
costs
Stock write-off
(Note
16) (0.5) (0.5) (0.5) (0.5)
Other restructuring
costs - (0.1) (0.1) (0.1)
Impairment of the - (0.4) - -
European intangible
(Note 13)
Actual for the year
to 31 December 2014 1.6 (7.9) (6.3) 2.4 (3.9) (1.3) (5.2)
-------- ------------- ---------- --------------- ---------- --------------- --------
The table above shows "operating loss before non-cash items" and
"revenue less cash costs" which are used as key internal
performance measures.
FINANCIAL REVIEW (CONTINUED)
Operating Loss before Non-Cash Items
Operating loss before non-cash items was GBP3.9m (2013:
GBP0.6m), and adjusting for non-recurring items, underlying
operating loss before non-cash items was GBP3.2m (2013:
GBP2.3m).
Revenue less Cash Costs
Revenue less cash costs is used as a measure to reflect the fact
that a significant proportion of the product development costs
which are capitalised in accordance with IAS38 "Intangible Assets"
relate to the staff costs and expenses of the Engineering Team. As
a result, the full cost base is not reflected in operating loss
before non-cash items. Revenue less cash costs is operating loss
before non-cash items less capitalised development expenditure and
capitalised software, and shows the cash consumption excluding
working capital timing differences.
Revenue less cash costs, which was a loss in 2014, was GBP5.2m
(2013: GBP2.4m), and adjusting for non-recurring items, underlying
revenue less cash costs was GBP4.5m (2013: GBP4.1m).
Taxation
Income tax credits resulting from a Research and Development
claim were GBP0.1m, compared to GBP0.3m in 2013.
Dividend
The Directors do not recommend a dividend in respect of the
current financial year (2013: GBPnil) and no interim dividend was
paid (2013: GBPnil).
Intangible Assets
Intangible assets are carried at GBP3.5m (2013: GBP4.3m) and
reflect product and software development costs capitalised in
accordance with IAS38 "Intangible Assets". Intangible assets are
tested annually for impairment and at 31 December 2014, as a result
of the restructuring of the European business and the uncertainties
surrounding the short-term economic and political situation in
Russia, the European intangible asset was written down to GBPnil,
resulting in an impairment charge of GBP0.4m.
Inventories
Inventories are GBP0.7m (2013: GBP1.8m) reflecting lower trading
in Dual-Fuel(TM) systems at the end of 2014. As part of the
restructuring of the European business, GBP0.5m of stock was
written off at 31 December 2014.
Trade and Other Receivables
Trade and other receivables are GBP0.9m (GBP2.8m), again
reflecting lower levels of trading in Dual-Fuel(TM) systems at the
end of 2014 and tight management of the Group's cash resources.
Cash and Cash Equivalents
The cash position as at 31 December 2014 was GBP2.2m compared
with GBP4.0m at 31 December 2013. However, this includes a number
of large contract payments amounting to GBP0.8m that were expected
in early January 2015 but received before the year end. There were
no such items at 31 December 2013. If these are excluded from the
year end cash balance, then the underlying cash balance at 31
December 2014 would have been GBP1.4m.
FINANCIAL REVIEW (CONTINUED)
Trade and Other Payables
Trade and other payables were GBP1.2m (2013: GBP1.8m), again
reflecting lower levels of trading in Dual-Fuel(TM) systems at the
end of 2014 and tight management of the Group's cash resources.
Financing
A GBP1.0m equity raise was successfully completed in July 2014
to provide additional working capital headroom.
Treasury Policy and Financial Risk
The Group's treasury operation is managed within formally
defined policies which are reviewed by the Board. The Group
finances its activities with cash and overnight deposits. Other
financial assets and liabilities, such as trade receivables and
trade payables, arise directly from the Group's operating
activities. Surplus funds of the Group are invested through the use
of short-term deposits with the objective of maximising fixed
interest rate returns whilst still providing the flexibility to
fund on-going operations when required. It is not the Group's
policy to engage in speculative activity or to use complex
financial instruments.
Going Concern
The Group's position on going concern is discussed in the Note 2
to the Financial Information.
GROUP INCOME STATEMENT
For the year ended 31 December 2014
2014 2013
Notes GBP'000 GBP'000
-------------------------------------------------------------------------------- ------ -------- --------
Revenue 3 6,756 9,930
Cost of sales (5,118) (5,562)
Gross profit 1,638 4,368
Administrative expenses (7,509) (6,321)
Impairment charge (393) -
Share-based payments charge (80) (44)
Operating loss 4 (6,344) (1,997)
Loss on ordinary activities before finance revenue, finance costs and taxation (6,344) (1,997)
Finance revenue 6 18 9
Finance costs 7 (3) (13)
Loss on ordinary activities before taxation (6,329) (2,001)
Income tax credit (Research & Development related) 10 95 326
Loss for the year attributable to Equity holders of the parent (6,234) (1,675)
-------------------------------------------------------------------------------- ------ -------- --------
Basic and diluted loss per share 11 (2.55p) (0.85p)
-------------------------------------------------------------------------------- ------ -------- --------
All items dealt with in arriving at loss for the current and
prior year above relate to continuing operations.
GROUP STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2014
2014 2013
Notes GBP'000 GBP'000
-------------------------------------------------------------------------------------- ------ -------- --------
Loss for the year 3 (6,234) (1,675)
Other comprehensive loss to be reclassified to profit or loss in subsequent periods:
Exchange differences on translation of foreign operations 242 (156)
Total comprehensive loss for the year (5,992) (1,831)
-------------------------------------------------------------------------------------- ------ -------- --------
Attributable to:
Equity holders of the parent (5,992) (1,831)
-------------------------------------------------------------------------------------- ------ -------- --------
GROUP STATEMENT OF FINANCIAL POSITION
As at 31 December 2014
Notes 2014 2013
GBP'000 GBP'000
----------------------------------------------------- ------ --------- ---------
Assets
Non-current assets
Plant and equipment 12 338 286
Intangible assets 13 3,463 4,276
------------------------------------------------------ ------ --------- ---------
3,801 4,562
----------------------------------------------------- ------ --------- ---------
Current assets
Inventories 14 716 1,759
Trade and other receivables 15 875 2,755
Tax receivables 10 156 -
Cash and cash equivalents 16 2,157 4,006
------------------------------------------------------ ------ --------- ---------
3,904 8,520
----------------------------------------------------- ------ --------- ---------
TOTAL ASSETS 7,705 13,082
------------------------------------------------------ ------ --------- ---------
Equity and liabilities
Equity attributable to equity holders of the parent
Ordinary share capital 17 159 144
Share premium 27,977 27,001
Translation reserve 1,048 806
Other reserves 33,504 33,504
Accumulated loss (57,590) (51,421)
------------------------------------------------------ ------ --------- ---------
TOTAL EQUITY 5,098 10,034
------------------------------------------------------ ------ --------- ---------
Non-current liabilities
Trade and other payables 21 88 5
Provisions 19 43 43
------------------------------------------------------ ------ --------- ---------
131 48
----------------------------------------------------- ------ --------- ---------
Current liabilities
Trade and other payables 18 1,142 1,804
Provisions 19 869 912
Deferred revenue 20 465 284
------------------------------------------------------ ------ --------- ---------
2,476 3,000
----------------------------------------------------- ------ --------- ---------
TOTAL LIABILITIES 2,607 3,048
------------------------------------------------------ ------ --------- ---------
TOTAL EQUITY AND LIABILITIES 7,705 13,082
------------------------------------------------------ ------ --------- ---------
The financial statements were approved by the Board of Directors
on 23 March 2015 and were signed on its behalf by:
Neill Skinner
Director
GROUP STATEMENT OF CASH FLOWS
For the year ended 31 December 2014
As restated (Note 2)
2013
2014
Notes GBP'000 GBP'000
------------------------------------------------------ ------ -------- ---------------------
Cash flows from operating activities
Loss for the period (6,234) (1,675)
Adjustments for:
Income tax credits (95) (326)
Net finance (revenue)/cost (15) 4
Depreciation of plant and equipment 12 110 153
Amortisation of intangibles 13 1,887 1,212
Impairment of intangibles 13 393 -
Share-based payments 80 44
Decrease/(increase) in trade and other receivables 1,880 (1,653)
(Decrease)/ increase in trade and other payables (684) 89
Decrease/(increase) in inventories 569 (428)
Write down/(back) of inventory 474 (124)
(Decrease)/increase in provisions (43) 487
Increase in deferred revenue 181 202
Non-cash foreign exchange and other movements (31) (181)
(1,528) (2,196)
Income tax received - 326
Interest received 6 18 9
Interest paid 7 (3) (13)
Net cash outflow from operating activities (1,513) (1,874)
------------------------------------------------------ ------ -------- ---------------------
Investing activities
Payments to acquire plant and equipment (48) (202)
Sale of plant and equipment 12 11 3
Payments to acquire intangible assets 13 (1,323) (1,844)
Net cash outflow from investing activities (1,360) (2,043)
------------------------------------------------------ ------ -------- ---------------------
Financing activities
Proceeds from the issue of ordinary share capital 22 1,055 5,104
Share issue costs 22 (64) (414)
Net cash inflow from financing activities 991 4,690
------------------------------------------------------ ------ -------- ---------------------
Net (decrease)/increase in cash and cash equivalents (1,882) 773
Net foreign exchange differences 33 29
Cash and cash equivalents at 1 January 4,006 3,204
Cash and cash equivalents at 31 December 16 2,157 4,006
------------------------------------------------------ ------ -------- ---------------------
GROUP STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2014
Ordinary share Share premium Translation Other reserves Accumulated Total equity
capital reserve loss
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------- ---------------- -------------- ---------------- --------------- ---------------- -------------
Balance at 1
January 2013 109 22,346 962 33,504 (49,790) 7,131
Comprehensive
income
Loss for the
year - - - - (1,675) (1,675)
Other
comprehensive
income
Exchange
differences on
retranslation
of overseas
operations - - (156) - - (156)
---------------- ---------------- -------------- ---------------- --------------- ---------------- -------------
Total
comprehensive
loss for the
year - - (156) - (1,675) (1,831)
Share-based
payments - - - - 44 44
On issue of new
shares 35 5,069 - - - 5,104
Share issuance
costs - (414) - - - (414)
Balance at 31
December 2013 144 27,001 806 33,504 (51,421) 10,034
Comprehensive
income
Loss for the
year - - - - (6,234) (6,234)
Other
comprehensive
income
Exchange
differences on
retranslation
of overseas
operations - - 242 - - 242
---------------- ---------------- -------------- ---------------- --------------- ---------------- -------------
Total
comprehensive
loss for the
year - - 242 - (6,234) (5,992)
Share-based
payments - - - - 65 65
On issue of new
shares 15 1,040 - - - 1,055
Share issuance
costs - (64) - - - (64)
Balance at 31
December 2014 159 27,977 1,048 33,504 (57,590) 5,098
---------------- ---------------- -------------- ---------------- --------------- ---------------- -------------
NOTES TO THE FINANCIAL INFORMATION
1. PRINCIPAL ACCOUNTING POLICIES
The preliminary results presented by the Directors in this
statement are derived from the Group financial statements which
were prepared in accordance with International Financial Reporting
Standards (IFRSs) as adopted by the European Union and IFRIC
Interpretations as they apply to the financial statements of the
Group for the year ended 31 December 2014. There have been no
changes in accounting policies during the year.
The preliminary results for the year ended 31 December 2014,
which are not the Group's statutory accounts, were approved by the
Directors on 23 March 2015. The auditors of the Group financial
statements for the year ended 31 December 2014 have issued an
unqualified audit report which included an emphasis of matter in
respect of going concern.
The Annual Report will be published following the Company's
Annual General Meeting and will be published on the Company's
website, www.cleanairpower.com and will be available from the
Company's registered office at Clarendon House, 2 Church Street,
Hamilton HM 11, Bermuda and from the Company's UK office at Aston
Way, Leyland, Lancashire, PR26 7UX.
2. GOING CONCERN
Overview
The Group's business activities, together with the factors
likely to affect its future development, performance and position
are set out in the Chairman's Statement and Chief Executive's
Review. The financial position of the Group, its cash flows and
financing are described in the Financial Review.
Trading Risks
Firstly, the Group's main source of revenue from sales of
Dual-Fuel(TM) systems in the next twelve months will be the US
market. The US variant of the Group's Genesis-EDGE Dual-Fuel(TM)
system was certified by the US Environmental Protection Agency in
February 2015, and in March 2015, the Group announced it had signed
a distribution deal with the leading Volvo and Mack dealer in the
Southwestern region of the US, with discussions continuing with
major dealers in other regions. The Directors remain confident
about the future success of the US Genesis-EDGE Dual-Fuel(TM)
system, but as the Group is bringing a new product to a market it
has not had significant exposure to for several years, there is an
inherent uncertainty around the rate of growth and overall sales
quantities. In the short-term, a slower rate of growth than
expected would improve the Group's cash position as working capital
levels are kept low, but in the longer-term the Group's cash flows
will be adversely impacted by lower profits being earned. On the
other hand, if sales accelerate beyond expectations, then the
Group's working capital position would come under pressure.
However, in such circumstances the Directors are confident that the
Group could secure trade finance or, worst case, the Group would
have to grow the US business within existing working capital
constraints.
Secondly, in November 2014, following a successful concept study
earlier in the year, the Group signed the formal contract with a
global truck manufacturer for the first phase of a funded
MicroPilot development program for South East Asia and other
markets. There is project gateway in May 2015 and the Directors are
confident the program will proceed to the next phase based on the
program's overall progress plus the award in February 2015 of a
contract extension for demonstration vehicle. Cash flows will,
however, come under pressure if, for any reason, the next phase of
this program is delayed several months. If this or further phases
are not secured then there would be significant doubt over the
Group's ability to continue as a going concern.
Finally, the Group's ability to meet its future working capital
requirements is also dependent upon securing a second OEM or Tier 1
funded development program in 2015. Progress on the South East
Asian program and developments at Brunel University, London which
demonstrate MicroPilot's ability to exceed performance expectations
lead the Directors to feel optimistic around the Group's ability to
secure a second OEM or Tier 1 contract in 2015. Discussions are
ongoing with a number of manufacturers and the award of a second
OEM or Tier 1 development contract could have a material, positive
impact on cash flows. However, if a second, major OEM or Tier 1
contract cannot be secured before the end of 2015, then there would
be significant doubt over the Group's ability to continue as a
going concern.
Financing Risk
With the trading risks described above and, following the
restructuring of the European business in 2014, less scope to
generate further cost savings, the Directors have identified
options to provide the financial headroom required by the Group and
inject additional working capital to capitalise on expected growth
in the US. These options include the cash flows that a second
OEM-funded contract would generate, as well as alternative sources
of funding. If the Directors were unable to secure additional
funding, then there would be significant doubt over the Group's
ability to continue as a going concern.
Summary
The Directors have concluded that the trading risk and financing
risks described above represent material uncertainties that may
cast significant doubt upon the Group's ability to continue as a
going concern and, therefore, the Group may be unable to realise
its assets and discharge its liabilities in the normal course of
business. However, the Directors remain confident that the business
can achieve its targets for 2015 and that there is a reasonable
expectation that the Group will be able to secure alternative
funding. The Directors have, therefore, concluded that it is
appropriate to continue to prepare the Group's financial statements
on a going concern basis and, therefore, the financial statements
do not include the adjustments that would result if the Group was
unable to continue as a going concern.
NOTES TO THE FINANCIAL INFORMATION (CONTINUED)
3. SEGMENTAL INFORMATION
Revenue by Business Segment
For management purposes the Group is organised into business
units based on their products and services, and has two reportable
operating segments as follows:
The Dual-Fuel(TM) segment sells, installs and services
compression-ignited natural gas engine systems.
The Components segment designs and delivers innovative hydraulic
valves and components for natural gas engines.
Management monitors the operating results of its business units
separately for the purpose of making decisions about resource
allocation and performance assessment. Segment performance is
evaluated based on operating profit or loss. However, financing and
income taxes are managed on a Group basis and are not allocated to
operating segments. Transfer prices between operating segments are
on an arm's length basis in a manner similar to transactions with
third parties.
Year ended 31 December 2014 (GBP'000)
Dual-Fuel(TM) Components Adjustments and eliminations Total
-------------------------------------------- -------------- ----------- ----------------------------- --------
Revenue
Third party sale of goods (1)(7) 4,855 1,373 - 6,228
Third party rendering of services (1)(7) 528 - - 528
Inter-segment (2) 431 - (431) -
Total revenue 5,814 1,373 (431) 6,756
-------------------------------------------- -------------- ----------- ----------------------------- --------
Depreciation and amortisation (3) (1,958) (62) 23 (1,997)
-------------------------------------------- -------------- ----------- ----------------------------- --------
Impairment of intangible asset (393) - - (393)
-------------------------------------------- -------------- ----------- ----------------------------- --------
Operating loss (4) (6,315) 129 (158) (6,344)
-------------------------------------------- -------------- ----------- ----------------------------- --------
Other tax credit 95
Net finance expense 15
-------------------------------------------- -------------- ----------- ----------------------------- --------
Loss for the year (6,234)
-------------------------------------------- -------------- ----------- ----------------------------- --------
Assets
Operating assets (5) 2,980 942 (18) 3,904
-------------------------------------------- -------------- ----------- ----------------------------- --------
Provisions 866 46 - 912
-------------------------------------------- -------------- ----------- ----------------------------- --------
Operating liabilities including provisions 2,092 515 - 2,607
-------------------------------------------- -------------- ----------- ----------------------------- --------
Other disclosures
Capital expenditure (6) 1,479 - - 1,479
-------------------------------------------- -------------- ----------- ----------------------------- --------
1. Dual-Fuel(TM) segment includes revenue arising from design
and development contracts
2. Inter-segment revenues are eliminated on consolidation
(GBP431k)
3. Amortisation eliminated (GBP23k) following transfer of
intangible assets to Clean Air Power Inc.
4. Elimination of intragroup management charges (GBP42k) and
intragroup foreign exchange gains (GBP200k)
5. Adjustment to profit in inventory (GBP18k)
6. Capital expenditure consists of additions to plant and
equipment and intangible assets
7. Three customers contributed revenue in excess of 10% of total
revenues, generating GBP1,412k, GBP1,360k and GBP918k
respectively.
NOTES TO THE FINANCIAL INFORMATION (CONTINUED)
Year ended 31 December 2013 (GBP'000)
Dual-Fuel(TM) Components Adjustments and eliminations Total
-------------------------------------------- -------------- ----------- ----------------------------- --------
Revenue
Third party sale of goods (1)(7) 7,256 1,704 - 8,960
Third party rendering of services (1)(7) 970 - - 970
Inter-segment (2) 1,785 - (1,785) -
Total revenue 10,011 1,704 (1,785) 9,930
-------------------------------------------- -------------- ----------- ----------------------------- --------
Depreciation and amortisation (3) (1,328) (52) 15 (1,365)
-------------------------------------------- -------------- ----------- ----------------------------- --------
Impairment - - - -
-------------------------------------------- -------------- ----------- ----------------------------- --------
Operating loss (4) (2,754) 296 461 (1,997)
-------------------------------------------- -------------- ----------- ----------------------------- --------
Other tax credit 326
Net finance expense (4)
-------------------------------------------- -------------- ----------- ----------------------------- --------
Loss for the year (1,675)
-------------------------------------------- -------------- ----------- ----------------------------- --------
Assets
Operating assets (5) 7,547 989 (16) 8,520
-------------------------------------------- -------------- ----------- ----------------------------- --------
Provisions 901 54 - 955
-------------------------------------------- -------------- ----------- ----------------------------- --------
Operating liabilities including provisions 2,758 290 - 3,048
-------------------------------------------- -------------- ----------- ----------------------------- --------
Other disclosures
Capital expenditure (6) 2,046 - - 2,046
-------------------------------------------- -------------- ----------- ----------------------------- --------
1. Dual-Fuel(TM) segment includes revenue arising from design
and development contracts
2. Inter-segment revenues are eliminated on consolidation
(GBP1,785k)
3. Amortisation eliminated (GBP16k) following transfer of
intangible assets to Clean Air Power Inc.
4. Elimination of intragroup management charges (GBP48k) and
intragroup foreign exchange losses (GBP413k)
5. Adjustment to profit in inventory (GBP16k)
6. Capital expenditure consists of additions to plant and
equipment and intangible assets
7. Revenue from one customer amounted to GBP5,443k arising from
sales related to the Dual-Fuel(TM) and Components segment
Geographical Information
2014 2013
GBP'000 GBP'000
---------------------------------- -------- --------
Revenues from external customers
UK 2,843 904
USA 449 2,462
Australia 341 596
Rest of Europe 1,557 5,860
Rest of World 1,566 108
---------------------------------- -------- --------
6,756 9,930
---------------------------------- -------- --------
The revenue information is based on the location of the
customer.
NOTES TO THE FINANCIAL INFORMATION (CONTINUED)
Non-Current Assets
2014 2013
GBP'000 GBP'000
----------- -------- --------
UK 170 1,337
USA 3,631 3,224
Australia - 1
----------- -------- --------
3,801 4,562
----------- -------- --------
Non-current assets for this purpose consist of plant and
equipment and intangible assets.
4. OPERATING LOSS
2014 2013
GBP'000 GBP'000
----------------------------------------------------------------------- -------- --------
Loss on ordinary activities before taxation is stated after charging:
Inventory expensed in the year 4,033 5,763
Depreciation of plant and equipment 110 153
Amortisation of capitalised development and software expenditure 1,887 1,212
Impairment of intangible asset 393 -
Foreign exchange differences 33 28
Operating lease rentals
- Other 133 150
- Land and buildings 365 408
Research and development expensed to income statement 1,383 547
Other income -Research & Development expenditure credit 48 -
----------------------------------------------------------------------- -------- --------
5. AUDITORS' REMUNERATION
2014 2013
GBP'000 GBP'000
--------------------------------------------- -------- --------
Audit of parent company and group financial
statements 42 40
Audit of company's subsidiaries 13 13
Other services - interim review fees 12 11
--------------------------------------------- -------- --------
67 64
--------------------------------------------- -------- --------
In 2014 there were no other fees (2013: GBPnil).
6. FINANCE INCOME
2014 2013
GBP'000 GBP'000
-------------------------- -------- --------
Bank interest receivable 18 9
-------------------------- -------- --------
NOTES TO THE FINANCIAL INFORMATION (CONTINUED)
7. FINANCE COSTS
2014 2013
GBP'000 GBP'000
-------------------------------------------- -------- --------
Supplier finance facility Interest payable 3 12
Finance lease charges - 1
-------------------------------------------- -------- --------
3 13
-------------------------------------------- -------- --------
8. STAFF COSTS
The average monthly number of employees of the Group during the
year, including Executive Directors, was as follows:
2014 2013
Number Number
--------------------------------------------------- ------------ ------------
Operational 47 40
Administrative 25 24
--------------------------------------------------- ------------ ------------
72 64
--------------------------------------------------- ------------ ------------
Staff costs for all employees, including executive Directors, consist of:
2014 2013
GBP'000 GBP'000
--------------------------------------------------- ------------ ------------
Wages and salaries 3,330 3,118
Social security costs 306 286
Other pension costs 83 96
Expense of share-based payments 65 44
--------------------------------------------------- ------------ ------------
3,784 3,544
--------------------------------------------------- ------------ ------------
The Group operates money purchase (defined contribution) pension
schemes. The assets of these schemes are held separately from those
of the Group in independently administered funds. The pension cost
for the year represents contributions payable by the Group to these
funds and amounted to GBP83k (31 December 2013: GBP96k). Unpaid
pension costs at the year-end amounted to GBP5k (2013: GBP17k).
9. DIRECTORS' EMOLUMENTS
2014 2013
GBP'000 GBP'000
---------------------------------------------------------------------- ----------- ----------
Emoluments
Remuneration for management/non-executive services 482 644
Consultancy paid to Non-Executive Director 2 4
Defined contribution pension payments 12 7
---------------------------------------------------------------------- ----------- ----------
496 655
---------------------------------------------------------------------- ----------- ----------
At the year end, there were GBP625 unpaid pension contributions (2013: GBP1,080). Pension
contributions were made to personal plans of one of the executive Directors (2013: one).
2014 2013
GBP'000 GBP'000
---------------------------------------------------------------------- ----------- ----------
Highest paid Director
Emoluments 251 381
Defined contribution pension payments 4 -
---------------------------------------------------------------------- ----------- ----------
255 381
---------------------------------------------------------------------- ----------- ----------
NOTES TO THE FINANCIAL INFORMATION (CONTINUED)
10. TAXATION
2014 2013
GBP'000 GBP'000
-------------------------------------------- -------- --------
Analysis of (credit)/charge in the year
Corporation tax at 21.5% /23.25% - -
Prior year adjustment to corporation tax (108) (326)
Corporation tax on R&D Expenditure Credits 13 -
Deferred tax - -
-------------------------------------------- -------- --------
(95) (326)
-------------------------------------------- -------- --------
The GBP108k prior year adjustment to corporation tax arises due
to a claim for recoverable UK tax credits in relation to the
Group's research and development activities. The GBP13k corporation
tax on R&D Expenditure Credits may be recovered against future
UK corporation tax liabilities; however, due to the
unpredictability of future profit streams this amount has been
written off to the profit and loss account.
Tax receivables due at 31 December 2014 of GBP156k (2013:
GBPnil) comprise corporation tax receivable GBP108k and other tax
receivable - R&D credit GBP48k.
2014 2014 2013 2013
GBP'000 % GBP'000 %
---------------------------------------------------------------------------------- -------- ------- -------- -----
Reconciliation of tax charge
Loss on ordinary activities before tax (6,329) 100 (2,001) 100
---------------------------------------------------------------------------------- -------- ------- -------- -----
Tax at 21.5%/23.25% (1,360) 21.5 (465) 23
Prior year adjustments to corporation tax in respect of payable research and
development tax
credits (108) 1.5 (326) 16.5
Corporation tax on R&D Expenditure Credits 13 - - -
Tax effect of expenses that are not deductible in determining taxable profit 80 (1) 5 -
Losses arising in the year not recognised in deferred tax 1,121 (17.5) 438 (22)
Movement in temporary differences in the year not recognised in deferred tax 168 (3) 35 (2)
Tax losses utilised (1) - - -
Effect of different tax rates of group companies operating in other jurisdictions (8) - (13) 1
---------------------------------------------------------------------------------- -------- ------- -------- -----
Tax credit for the year (95) 1.5 (326) 16.5
---------------------------------------------------------------------------------- -------- ------- -------- -----
Deferred Tax
The deferred tax asset/(liability) recognised/(provided) at 31
December is as follows:
2014 2013
GBP'000 GBP'000
---------------------------------- -------- --------
Plant and equipment (1,218) (1,215)
Short term temporary differences 330 398
Tax losses 888 817
---------------------------------- -------- --------
- -
---------------------------------- -------- --------
At the balance sheet date the Group has a deferred tax asset
measured at rates of tax between 20% and 34% in relation to unused
tax losses of GBP17.2m (2013: GBP15.8m) available to offset against
future profits. The amount recognised as a deferred tax asset is
GBP888k (2013: GBP817k). Remaining tax losses have not been
recognised as an asset due to the unpredictability of future profit
streams.
As at the balance sheet date, the main rate of UK corporation
tax substantively enacted to apply from 1 April 2015 was 20%.
Deferred tax on timing differences arising in the UK have been
provided for at the rate of 20% as the timing differences are
expected to reverse after 1 April 2015. To the extent that the
deferred tax reverses more quickly than this the net deferred tax
asset will be increased.
NOTES TO THE FINANCIAL INFORMATION (CONTINUED)
Unrecognised tax losses carried forward against certain future
UK and overseas corporation tax liabilities have the following
expiration dates:
2014 2013
GBP'000 GBP'000
--------------------------------------------------- -------- --------
2014 - 4,886
2015 5,136 1,866
2016 2,788 3,912
2017 147 147
2018 and later 38,998 43,385
Available indefinitely 19,087 16,201
--------------------------------------------------- -------- --------
Tax losses available to carry forward 66,156 70,397
Amount of tax losses recognised in the deferred
tax asset 2,229 2,447
--------------------------------------------------- -------- --------
Total gross tax losses available to carry forward 68,385 72,844
--------------------------------------------------- -------- --------
The total gross tax loss carried forward of GBP68.385m is
comprised as follows:
2014 2013
GBP'000 GBP'000
------------------------------ -------- --------
Gross tax losses
UK Corporation Tax losses 17,555 15,505
US Federal Income Tax losses 36,723 32,017
US State Income Tax losses 12,575 23,826
Australian Income Tax losses 1,532 1,496
------------------------------ -------- --------
68,385 72,844
------------------------------ -------- --------
11. LOSS PER SHARE
Basic
Basic loss per share is calculated by dividing net loss for the
year attributable to equity holders of the parent by the weighted
average number of Common Shares in issue during the year.
2014 2013
Loss for the year (GBP'000) (6,234) (1,675)
Weighted average number of shares 244,358,707 196,217,430
Basic and diluted loss per share (2.55p) (0.85p)
----------------------------------- ------------ ------------
The loss for the year and the weighted average number of
ordinary shares for calculating the diluted earnings per share for
the year to 31 December 2014 are identical to those used for the
basic earnings per share. This is because the outstanding share
options would have the effect of reducing the loss per ordinary
share and would therefore not be dilutive.
NOTES TO THE FINANCIAL INFORMATION (CONTINUED)
12. PLANT AND EQUIPMENT - GROUP
Plant and
equipment
GBP'000
---------------------------------- ----------
Cost
At 1 January 2013 1,340
Additions 202
Disposals (12)
Exchange differences (20)
---------------------------------- ----------
At 31 December 2013 1,510
Additions 156
Disposals (108)
Exchange differences 28
---------------------------------- ----------
At 31 December 2014 1,586
---------------------------------- ----------
Depreciation
At 1 January 2013 1,105
Depreciation charge for the year 153
Disposals (9)
Exchange differences (25)
---------------------------------- ----------
At 31 December 2013 1,224
Charge for the year 110
Disposals (97)
Exchange differences 11
---------------------------------- ----------
At 31 December 2014 1,248
---------------------------------- ----------
Net book value
At 31 December 2014 338
---------------------------------- ----------
At 31 December 2013 286
---------------------------------- ----------
At 1 January 2013 235
---------------------------------- ----------
The carrying value of plant and equipment held under finance
leases and hire purchase contracts at 31 December 2014 was GBP111k
(2013: GBP17k).
NOTES TO THE FINANCIAL INFORMATION (CONTINUED)
13. INTANGIBLE ASSETS - GROUP
Internal Software Total
capitalised development expenditure
GBP'000 GBP'000 GBP'000
----------------------------- ------------------------------------- --------- --------
Cost
At 1 January 2013 6,388 307 6,695
Additions 1,824 20 1,844
Disposals - (2) (2)
Exchange differences (91) (4) (95)
----------------------------- ------------------------------------- --------- --------
At 31 December 2013 8,121 321 8,442
Additions 1,282 41 1,323
Exchange differences 197 13 210
----------------------------- ------------------------------------- --------- --------
At 31 December 2014 9,600 375 9,975
----------------------------- ------------------------------------- --------- --------
Amortisation and impairment
At 1 January 2013 2,808 229 3,037
Charge for the year 1,166 46 1,212
Disposals - (2) (2)
Exchange differences (78) (3) (81)
----------------------------- ------------------------------------- --------- --------
At 31 December 2013 3,896 270 4,166
Charge for the year 1,844 43 1,887
Impairment 393 - 393
Disposals - - -
Exchange differences 54 12 66
----------------------------- ------------------------------------- --------- --------
At 31 December 2014 6,187 325 6,512
----------------------------- ------------------------------------- --------- --------
Net book value
At 31 December 2014 3,413 50 3,463
----------------------------- ------------------------------------- --------- --------
At 31 December 2013 4,225 51 4,276
----------------------------- ------------------------------------- --------- --------
At 1 January 2013 3,580 78 3,658
----------------------------- ------------------------------------- --------- --------
Internal capitalised development expenditure relates to the
Group's Dual-Fuel(TM) products. Amortisation begins when the
product is available for use. Amortisation expenses are charged
through administration expenses in the group income statement.
At 31 December 2014 and following the restructuring of the
European business, the carrying amount of the capitalised
development expenditure relating to the European market (GBP393k)
was reviewed for impairment and the Directors felt, with the Group
no longer pursuing new business in Europe and the ongoing
uncertainty around Russia, that the intangible asset relating to
the European business should be fully impaired.
Internal capitalised development expenditure relates to the US
Genesis-EDGE program and the carrying value at the end of the year
was GBP3,413k. Of this balance, an amount of GBP2,962k relates
specifically to development expenditure on the Genesis-EDGE system
calibrated to be compliant with the US2010 emissions standard and
which received certification from the US Environmental Protection
Agency in February 2015 and enables the product to be sold in the
US. The asset will be amortised from this point over a period of 2
years. The Directors have compared the carrying amount to the cash
flows expected to be generated from the sales of the US2010
Genesis-EDGE system, which is now approved for sale in the US. As
this represents a new market for the Group, forecast unit sales are
inherently uncertain and therefore the carrying value might not be
recoverable if there are significant shortfalls in the sales
compared to expectations. Nevertheless, the Directors are satisfied
that the review has been based on reasonable and appropriate
assumptions.
The remaining balance of GBP451k relates to development
expenditure on the Group's control systems software which is used
across a number of development programs, including the US2014/15
Genesis-EDGE program for which the Group has secured grant funding
from the US Department of Energy and the South East Asian
MicroPilot program. The asset will be amortised over 5 years.
NOTES TO THE FINANCIAL INFORMATION (CONTINUED)
14. INVENTORIES - GROUP
2014 2013
GBP'000 GBP'000
------------------ -------- --------
Raw materials 588 1,395
Work in progress 32 258
Finished goods 96 106
------------------ -------- --------
716 1,759
------------------ -------- --------
There is no significant difference between the replacement value
of stock and the amount at which it is stated in the financial
statements.
During 2014 the amount of inventory written down was GBP474k
which has been charged to cost of sales, this follows the Group
taking a cautious view of future sales of Dual-Fuel(TM) products in
the European market. In 2013, GBP124k was written back and credited
to cost of sales.
15. TRADE AND OTHER RECEIVABLES (CURRENT) - GROUP
2014 2013
GBP'000 GBP'000
-------------------------------- -------- --------
Trade receivables 712 2,205
Prepayments and accrued income 149 524
VAT receivables 14 26
-------------------------------- -------- --------
875 2,755
-------------------------------- -------- --------
Trade receivables are non-interest bearing and are generally on
30-day terms, apart from vehicle conversions which are settled on
collection of the vehicle conversion. The credit quality of trade
receivables that are neither past due nor impaired is assessed on
an individual customer basis by the Group's credit control
procedures.
As at 31 December 2014, trade receivables at nominal value of
GBP43k (2013: GBPnil) were impaired. Movements in the provision for
impairment of receivables were as follows:
Total
GBP'000
------------------------------ --------
At 1 January 2014 -
Additional provision in year 43
Utilised during the year -
------------------------------ --------
At 31 December 2014 43
------------------------------ --------
As at 31 December, the ageing analysis of trade receivables that
were past due but not impaired is as follows:
Neither past due nor impaired
<30 days 30 - 60 61 - 90 91 - 120 >120 days Total
days days days
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------ --------- -------- -------- --------- ---------- --------
2014 397 121 1 28 165 712
2013 1,443 307 455 - - 2,205
------ --------- -------- -------- --------- ---------- --------
16. CASH AND CASH EQUIVALENTS
2014 2013
GBP'000 GBP'000
-------------------------- -------- --------
Cash at bank and in hand
Sterling 1,448 3,473
US Dollar 615 476
Australian Dollar 94 57
-------------------------- -------- --------
2,157 4,006
-------------------------- -------- --------
Cash at bank and in hand earns interest at floating rates based
on daily bank deposit rates.
NOTES TO THE FINANCIAL INFORMATION (CONTINUED)
17. SHARE CAPITAL
2014 2013
GBP'000 GBP'000
------------------------------------------------------------------------ -------- --------
Authorised
375,000,000 (31 December 2013: 250,000,000) Common Shares of US$0.001 227 152
------------------------------------------------------------------------ -------- --------
Issued and paid up
256,849,139 (31 December 2013: 231,019,139) Common Shares of US$0.001 159 144
------------------------------------------------------------------------ -------- --------
For details of shares issued during the year, refer to note
22.
18. TRADE AND OTHER PAYABLES (CURRENT) - GROUP
2014 2013
GBP'000 GBP'000
--------------------------------- -------- --------
Trade payables 393 971
Taxation and social security 22 28
Other payables 121 118
Accruals 584 680
Obligations under finance lease 22 7
--------------------------------- -------- --------
1,142 1,804
--------------------------------- -------- --------
Total creditor days for the period ending 31 December 2014 were
55 days (2013: 50 days).
19. PROVISIONS - GROUP
Dilapidations Engine maintenance provisions Total
GBP'000 GBP'000 GBP'000
------------------------------- -------------- ------------------------------ --------
At 1 January 2014 43 912 955
Additional provisions in year - 154 154
Utilisation of provisions - (179) (179)
Unused amounts reversed - (42) (42)
Exchange differences - 24 24
------------------------------- -------------- ------------------------------ --------
At 31 December 2014 43 869 912
------------------------------- -------------- ------------------------------ --------
Dilapidations provisions relate to property.
Engine maintenance provisions relate to warranties given by the
Group in respect of products sold and provisions for environmental
compliance testing. The warranty period in most cases is 12 months
or 250,000 miles, whichever comes first. In certain cases, the
customer may negotiate a period longer than 12 months. This
expenditure arises at different times over the life of the product
and is expected to be fully utilised within one year.
The Group has made assumptions in relation to historical
warranty claims and the expected cost of settling such claims. In
relation to future claims, the Group has made assumptions based on
warranty expiry dates and the history of previous claims.
Dilapidations Engine maintenance provisions Total
GBP'000 GBP'000 GBP'000
----------------------------------- -------------- ------------------------------ --------
Non-current (greater than 1 year) - - -
Current (less than 1 year) 43 869 912
----------------------------------- -------------- ------------------------------ --------
At 31 December 2014 43 869 912
----------------------------------- -------------- ------------------------------ --------
NOTES TO THE FINANCIAL INFORMATION (CONTINUED)
20. DEFERRED REVENUE - GROUP
2014 2013
GBP'000 GBP'000
------------------ -------- --------
Deferred revenue 465 284
------------------ -------- --------
The deferred revenue refers to development revenue that has been
invoiced but not completed at 31 December 2014 and completion is
expected during 2015.
21. OTHER PAYABLES (NON CURRENT) - GROUP
2014 2013
GBP'000 GBP'000
--------------------------------- -------- --------
Obligations under finance lease 88 5
--------------------------------- -------- --------
22. FINANCING
The movement in the number of ordinary shares, ordinary share
capital and share premium are as follows:
Ordinary Ordinary Share
shares share capital premium
(number) GBP'000 GBP'000
------------------------------------------- ------------ -------------- --------
At 1 January 2014 231,019,139 144 27,001
Placing of shares 25,000,000 15 920
Exercise of share options by P Rowse 500,000 - 41
Issue of shares to long-serving employees 17,500 - -
Professional services paid by issue
of share capital 312,500 - 15
------------------------------------------- ------------ -------------- --------
At 31 December 2014 256,849,139 159 27,977
------------------------------------------- ------------ -------------- --------
This information is provided by RNS
The company news service from the London Stock Exchange
END
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