TIDMTPS
RNS Number : 7985N
Turbo Power Systems Inc
31 October 2016
Turbo Power Systems Inc. ("TPS" or the "Company")
Announces Results for the Third Quarter
Ended 30 September 2016
TPS reports Q3 profit, but expects challenging Q4
Financial highlights: Q3 2016 vs. Q3 2015
-- Revenue increased 10% to GBP3.58 million (Q3 2015: GBP3.25 million).
-- Net profit down by 50% to GBP0.02 million (Q3 2015 Profit GBP0.04 million).
-- Gross profit increased 13% to GBP1.56 million (Q3 2015:
GBP1.38 million), with gross margin up 2% to 44% (Q3 2015:
42%).
-- Research and development increased fourfold to GBP0.49
million (Q3 2015 GBP0.12 million). And total expenses for the
period increased by 43% to GBP1.47 million (Q3 2015: GBP1.03
million
-- Operating profit reduced to GBP0.07 million (Q3 2015 GBP0.35 million).
Financial highlights: YTD 2016 vs. YTD 2015
-- Order intake increased 53% to GBP9.95 million (YTD 2015 GBP6.52 million).
-- Net profit of GBP0.04 million (YTD 2015 Profit GBP0.14
million), mainly due to contract signing delays and re-scheduling
of current contracts.
-- Revenue decreased 7% to GBP10.66 million (YTD 2015: GBP11.41 million).
-- Gross profit decreased to GBP4.51 million (YTD 2015: GBP4.79
million), with gross margin maintained at 42% (YTD 2015: 42%).
-- Research and development increased by 18% to GBP1.32 million (YTD 2015: GBP1.11 million).
-- Total expenses for the period increased 6% to GBP4.24 million (YTD 2015: GBP4.01 million).
-- Cash outflow from operating activities halved to GBP0.57
million (YTD 2015: GBP1.22million).
Strategic Review:
Strategic Review of the Company's business, first announced
February 2015, remains ongoing. The Board notes, as previously
reported, that all expressions of interest received to date as part
of the Strategic Review from potential offerors for 100% of the
issued and to be issued share capital of the Company on a
debt-free, cash-free basis have been indicatively priced at a
substantial discount to the prevailing share price. Further
announcements will be made in due course, as appropriate.
Funding:
As previously reported, the Company remains critically dependent
on continuing financial support by TPS's parent company, Vale S.A.
("Vale"), Brazil's largest mining company, which owns 89.4% of the
issued share capital of the Company through its wholly owned
subsidiary Tao Sustainable Power Solutions (UK) Ltd ("TAO UK").
Carlos Neves, Chief Executive Officer, said:
"The profitable results achieved in the first nine months of
2016 are a creditable achievement, not least because of the impact
of the uncertainties about the ultimate outcome of the Strategic
Review.
The hard work of our employees, in all areas, has demonstrated
that the trend to profitability achieved last year could be
maintained while we keep reinforcing the pillars for our continuous
growth. The increasing order intake in the first nine months on
2016 is also encouraging. Due to the Company's global presence, the
Company has US Dollar revenue streams that have had a positive
impact on the results.
However, recent changes in customer delivery schedules for Q4
2016 that are beyond our control are expected to adversely impact
the Company's results for the current year as a whole.
Nevertheless, our rising order book and ongoing enquiries give us
confidence in the outlook for 2017."
For further information, please contact:
Turbo Power Systems Tel: +44 (0)191 482 9200
Carlos Neves, Chief Executive
Officer
Charles Rendell, Chief Financial
Officer
Kreab (financial public relations) Tel: +44 (0)20 7074 1800
Robert Speed
finnCap (NOMAD, broker and Tel: +44 (0)20 7220 0500
financial advisor)
Ed Frisby, Emily Watts
Notes to Editors
About Turbo Power Systems
Company Website: www.turbopowersystems.com
Company Twitter: https://twitter.com/turbopowersys
Turbo Power Systems Inc. (AIM: TPS.L) is a leading UK based
designer and manufacturer of innovative power solutions. TPS's
products are all based on its core technologies of high-speed
motors and generators and power electronics, which are sold into a
number of market sectors including transport, industrial, energy
and defence sectors. The Company's products provide high
performance while improving efficiency and reducing process energy
consumption compared to existing technologies.
Turbo Power System's existing customers include blue chip
companies such as Bombardier Transportation, Daikin Applied and
Eaton Aerospace. Tao Sustainable Power Solutions (UK) Ltd ("TAO
UK"), which is a wholly owned subsidiary of Vale S.A., Brazil's
largest mining company, owns 89.4% of the issued share capital of
the Company.
Forward looking statements
This press release contains forward-looking statements.
Forward-looking statements include statements concerning plans,
objectives, goals, strategies, future events, or performance, and
underlying assumptions and other statements that are other than
statement of historical fact. These statements are subject to
uncertainties and risks including, but not limited to, the ability
to meet on-going capital needs, product and service demand and
acceptance, changes in technology, economic conditions, the impact
of competition, the need to protect proprietary rights to
technology, government regulation, and other risks defined in this
document and in statements filed from time to time with the
applicable securities regulatory authorities.
Notice of no auditor review of interim financial statements
Under Canadian National Instrument 51-102, Part 4, subsection
4.3(3(a), if an auditor has not performed a review of the interim
financial statements, they must be accompanied by a notice
indicating that the financial statements have not been reviewed by
an auditor.
The accompanying un-audited interim financial statements of the
Company have been prepared by and are the responsibility of the
Company's management.
The Company's independent auditor has not performed a review of
these financial statements in accordance with standards established
by the Canadian Institute of Chartered Accountants for a review of
interim financial statements by an entity's auditor.
This review has been prepared as at 31 October 2016.
OPERATIONAL REVIEW
Business of the Company
Turbo Power Systems is a technology-led Company that designs and
manufactures high-speed permanent magnet electric motors,
generators and power electronics systems and provides bespoke
solutions to transport, industrial, energy conversion, and military
markets.
Its track record in engineering innovation, which has been built
and tested over many years, allows the Company to meet challenging
design and manufacturing briefs with specific requirements relating
to environmental performance and performance to volume demands
across the world.
TPS has a proven and worldwide track record in the development
and deployment of equipment in many sectors, especially in rail and
industrial. Long term relationships with customers in these markets
have been built based on delivering competitive products with
proven reliability.
Developed over the last 30 years, expertise on high-speed
electrical machines and power electronics, allows the Company to
exploit its current and future portfolio and adjust accordingly to
grow successfully in its chosen markets.
Way Forward
As a technology-led business, the Company understands the
challenges of the market regarding quality, costs and timing. Since
2013 TPS has concentrated on three important pillars to
successfully implement the strategy of achieving sustained
profitability:
-- Improve the quality of the portfolio;
-- Superior execution within design development, manufacturing
operations and support activities; and
-- Consistent delivery of internal improvements.
These will continue to underpin the Company's strategy as the
Company drives forward in its chosen markets.
Current Operations
Revenue in the quarter was up by 10% compared with the third
quarter of 2015, but down by 4% on the second quarter of 2016. The
decrease in the Engineering design revenue from 2015 was due to the
delay in signing new contracts in the first nine months of
2016.
During October 2016, a large customer announced the move to the
next generation of their product line. This decision has impacted
the delivery schedule of the current product, leading to reduced
quantities required in Q4 2016.
This change, coupled with the impact of other smaller changes in
customer demand, will lead to a reduction in production units
shipped in quarter four. The Company is in discussions with the
customers involved over the exact impact that this will have on the
Company's profitability and cash flow in the short term.
Gross margin was maintained at 44% from Q2 2016, reflecting the
benefit of the Company's focus on opportunities for efficiencies.
Gross margin decreased by 9% from Q2 2015 to GBP1.56 million.
The overhead base has been reducing since its peak level in
2012, with overall expenses in the quarter of GBP1.47 million up 7%
compared to GBP1.37 million for Q2 2016 driven by an increase in
research and development.
Headcount at 30 September 2016 was 115, up four from 31 December
2015 and level with 30 June 2016.
Strategic Review
On 20 February 2015 shareholders were informed that the Board
are conducting a Strategic Review of the Company's business and as
part of this review are looking at a potential sale of the Company.
The Board has appointed Lincoln International LLP to assist in this
process. The Company is a Canadian Business Corporation, registered
in Yukon, Canada and is not subject to the provisions of the UK
City Code on Takeovers and Mergers.
Further announcements were made on 12 November 2015, 7 January
2016, 29 March 2016, 6 May 2016 and 28 July 2016 explaining that
all expressions of interest received to date as part of the
Strategic Review from potential offerors for 100% of the issued and
to be issued share capital of the Company on a debt-free, cash-free
basis have been indicatively priced at a substantial discount to
the share price.
The Board continues to regularly discuss with its majority owner
how best to proceed with the Strategic Review. Further
announcements will be made in due course, as appropriate. In the
meantime there can be no certainty that any potential transaction
will proceed, or as to the terms of any such transaction. The
Company may discontinue the strategic review process at any
time.
Support from TAO UK
On 29 March 2016 the Company entered into a new loan of
GBP314,000, which accrues interest at 6% per annum, with its parent
company, TAO UK, repayable on 1 April 2017, which can be extended
at the Company's request for a further year.
As at 30 September 2016 the loan amount was GBP0.31 million plus
accrued unpaid interest of GBP 0.01 million (30 September 2015:
GBP10.48 million plus accrued unpaid interest of GBP1.89 million,
the full outstanding loan was waived in full on 12 November
2015).
Summary
In summary, the Company has continued to implement its strategy
of bidding for profitable production and development contracts,
whilst maintaining a disciplined and considered approach to
costs.
We believe that this was reflected in the significant
improvement in the gross margin and operating profit of the Company
during 2015, which has continued in the first three quarters of
2016.
As noted in the first two quarters results, whilst the current
order book extends over the next two years and beyond, the need to
win further substantial orders, execution of those orders and
completion of development programmes in a consistent and timely
manner are all key to delivering management's plans for improved
results during the final quarter of 2016 and in 2017.
The current position with regard to customers revising down
their demand for production in Q4 2016 is expected to cause the
Company to report a loss before tax for the fourth quarter. The
move towards selling the newly designed products in 2017 allows the
Company to reset its financial base.
Going Concern
These consolidated financial statements have been prepared on
the basis of International Financial Reporting Standards (IFRS)
applicable to a "going concern", which assume that the Company will
continue in operation for the foreseeable future and will be able
to realise its assets and discharge its liabilities in the normal
course of operations.
As at 30 September 2016 the Company had net operating outflows,
with a net debt of GBP3.45 million, being GBP3.56 million of debt
less GBP0.11 million of cash. The Company has a cumulative retained
deficit of GBP99.39 million as at 30 September 2016 and was profit
making for the period then ended.
The Company remains critically dependent upon i) customers
paying to contractual terms and ii) the continued financial support
of its intermediate parent undertaking TAO Sustainable Power
Solutions (UK) Limited (TAO UK), who in turn is dependent on their
parent undertaking VSE (which in turn is dependent on its parent
company Vale S.A. (Vale)). The Company relies on TAO for continued
financial support in the form of the loan made available to the
Company, and in order to meet any shortfall in budgeted or
forecasted working capital requirements and support the Company's
growth plans. If not secured, this may result in the curtailment of
the Company's activities.
However, the Directors believe that they will succeed in
delivering the Company's projected financial performance and that
financial support from TAO UK and, ultimately, VSE, and its parent
company, Vale, Brazil's largest mining company, will remain in
place to enable the Company to meet budgeted and forecasted working
capital requirements and support the Company's growth plans.
Although there are no formal letters of support in place for the
purpose of the directors' going concern assessment of the Company,
the directors of the Company have taken comfort from the actions
taken by TAO UK, in that loans have been provided when required
(the latest being GBP0.31 million on 29 March 2016), that the
existing debt was waived in November 2015 and that VSE has Board
representation, in forming their conclusion that they believe it is
appropriate to prepare these financial statements on a going
concern basis. Accordingly, they have continued to adopt the going
concern basis of preparation.
If the Company is unable to either generate positive cash flows
from operations or ensure the continued financial support from TAO
UK and ultimately VSE and its parent company, or secure additional
debt or equity financing, these conditions and events indicate the
existence of a material uncertainty which may cast significant
doubt regarding the 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.
Summary of Quarterly Results
The following table shows selected quarterly consolidated
financial information of the Company for the last eight
quarters:
Revenue Research General Operating Net (loss)/ Loss
All amounts and product and administrative (loss)/ profit per
in GBP'000 development profit share
pence
December
2014 3,424 520 553 264 76 0.00
March 2015 4,082 544 872 202 29 0.00
June 2015 4,086 448 978 257 81 0.00
September
2015 3,246 118 831 346 34 0.00
December
2015 1,973 360 790 (895) (992) (0.03)
March 2016 3,350 416 916 (136) (148) (0.00)
June 2016 3,732 413 863 227 164 0.00
September
2016 3,575 485 883 66 22 0.00
Quarterly revenue decreased 4% in September 2016 over June 2016,
due to customer driven delays to production shipments.
Research and development expenditure is increasing as the
Company develops to new technologies to attract new customer
contracts in line with the Board approved strategy to drive the
Company's technology forward.
General and Administration expenses have increased by GBP0.02
million (2%) in September 2016 over the second quarter.
Copies of Quarterly and Annual Results
The Company's full Financial Results and Managements' Discussion
and Analysis for 2015 together with the half year 2016 Financial
Results and Managements' Discussion and Analysis are available on
www.sedar.com. The Annual Report and Financial Statements for 2015
have been mailed to shareholders.
Copies of the quarterly and annual results are available from
the Company's office at 1 Queens Park, Queensway North, Team Valley
Trading Estate, Gateshead, NE11 0QD, United Kingdom or available to
view from the Company's website at www.turbopowersystems.com.
Review of the quarter ended 30 September 2016
Revenue
Revenue in the quarter ended 30 September 2016 was up 10% at
GBP3.58 million (Q3 2015: GBP3.25 million.)
2016 2015
GBP'000 GBP'000
Production 3,360 2,823
Development 216 423
-------- --------
3,576 3,246
-------- --------
Production revenue increased by 19% over the same period last
year to GBP3.36 million (Q3 2015: GBP2.82 million), while
development revenue decreased by 49% to GBP0.22 million (Q3 2015:
GBP0.42 million) due to the timing of development projects and the
revenue recognised on these projects.
Cost of Sales
The cost of sales was GBP2.02 million (Q3 2015: GBP1.87 million)
an increase of 8%.
Gross Profit
Gross profit increased by 13% to GBP1.56 million (Q3 2015:
GBP1.38 million), with gross margin increasing slightly to 44% (Q3
2015: 42%).
The Company remains committed to seek to increase the
profitability of its current and future contracts.
Research and product development
Research and product development costs in the quarter increased
fourfold to GBP0.49 million (Q3 2015: GBP0.12 million), in line
with the Board's plans for the Company to become more product
focused. This is net of Research and Development tax credits of
GBP0.06 million (Q3 2015: GBP0.25 million).
General and administrative costs
General and administrative costs, which consist mainly of staff
costs, facilities costs and the costs associated with the Company's
public listings, were increased by 6% compared to 2015 to GBP0.88
million (Q3 2015: GBP0.83 million).
The Company continues to control its costs without prejudicing
the business operational strengths, while also committing to
recruit staff with the correct skill sets to complement and enhance
the Company's technical capabilities. This resulted in an increase
in headcount of 6% compared with 30 September 2015 (30 September
2016: 115, 30 September 2015: 108).
Operating profit
Operating profit before other operating income was GBP0.07
million (Q3 2015: profit GBP0.35 million).
Other operating income
There was no other operating income arising from the Regional
Growth Fund in the quarter (Q3 2015: GBPnil).
The Company is in negotiations about the future of the project
and the financial impacts thereto. The Board notes that there is
GBP0.24 million liability in the balance sheet to cover any
potential repayments.
Finance expense
Finance expense was GBP0.01 million (Q3 2015: GBP0.18 million
arose from the interest on the historical loans from TAO UK, which
were waived in full in November 2015).
Net profit
The Company recorded a net profit of GBP0.02 million (Q3 2015:
profit GBP0.03 million).
Review of the nine months ended 30 September 2016
Revenue
Revenue in the nine months ended 30 September 2016 decreased 7%
to GBP10.66 million (Q3 2015: GBP11.41 million.)
2016 2015
GBP'000 GBP'000
Production 10,034 9,597
Development 623 1,817
-------- --------
10,657 11,414
-------- --------
Production revenue for the nine months increased by 4% to
GBP10.03 million (Q3 2015: GBP9.60 million) primarily due to
increased demand for Daikin production units.
Development revenue decreased by 65% to GBP0.62 million (Q3
2015: GBP1.82 million) as development contracts in 2015 have been
completed and the timings of current development contracts affects
the revenue recognised.
Cost of Sales
The cost of sales reduced 7% to GBP6.15 million (Q3 2015:
GBP6.62 million).
Gross Profit
Gross profit decreased by 6% to GBP4.51 million (Q3 2015:
GBP4.79 million), with gross margin remaining at 42% (Q3 2015:
42%).
The Company remains committed to seek to increase the
profitability of both its current and future contracts.
Research and product development
Research and product development costs in the period decreased
by 19% to GBP1.32 million (Q3 2015: GBP1.11 million), This is net
of Research & Development tax credits of GBP0.23 million (Q3
2015: GBP0.25 million).
General and administrative costs
General and administrative costs, which consist mainly of staff
costs, facilities costs and the costs associated with the Company's
public listings, remained constant at GBP2.66 million (Q3 2015:
GBP2.68 million).
The Company has continued to control its costs without
prejudicing the business operational strengths. The headcount has
increased by 4 to 115 in the nine months to 30 September 2016 (31
December 2015: 111).
Operating profit
Operating profit before other operating income was GBP0.27
million (Q3 2015: profit GBP0.79 million).
Other operating income
There was no other operating income arising from the Regional
Growth Fund in the nine months to 30 September 2016 (Q3 2015:
GBPnil). As noted above, the Company is in negotiations about the
future of the project
Finance expense
Finance expense of GBP0.01 million (Q3 2015: GBP0.53 million)
arose from the interest on the loans from TAO UK, which were waived
in full in November 2015.
Net profit
The Company recorded a net profit for the nine months of GBP0.04
million (Q3 2015: profit GBP0.14 million).
Cash flows for the nine months ended 30 September 2016
Operating cash flows
The Company recorded an operating cash inflow before working
capital movements of GBP0.20 million for the period (Q3 2015:
inflow GBP0.87 million).
After adjusting for changes in working capital items the Company
had an overall cash outflow from operations of GBP0.57 million (Q3
2015: Outflow of GBP1.22 million).
Investing activities
Cash outflows from capital investments in the nine months were
GBP0.12 million (Q3 2015: GBP0.34 million).
Financing activities
Cash inflow received from financing activities amounted to
GBP0.31 million, from the new TAO UK loan (Q3 2015: GBPnil).
Overall cash outflow for the period
Overall the cash outflow during the nine months was GBP0.38
million (Q3 2015: Outflow GBP1.56 million).
Balance sheet as at 30 September 2016
The Company ended the period with an unrestricted cash balance
of GBP0.11 million compared with GBP0.50 million at 31 December
2015. Substantially all of the Company's cash balances are
denominated in Sterling.
In addition, the Company had restricted cash amounts of GBP3,000
(31 December 2015: GBP0.07 million), relating to utilities
deposits. The Company was released from the performance bond of
GBP0.06 million in September 2016.
Non-current assets have decreased from GBP0.87 million at 31
December 2015 to GBP0.82 million at 30 September 2016, after
depreciation and amortisation charges of GBP0.17 million.
Loans and borrowings have increased since 31 December 2015 by
the new TAO UK loan of GBP0.31 million and accrued interest of
GBP0.01 million (31 December 2015: GBPnil). The loan and interest
are shown as a current liability repayable on 1 April 2017, which
can be extended, at the Company's request, for a further year, and
accrues interest at 6% per annum, payable annually.
Net current assets at 30 September 2016, excluding restricted
cash balances included under current assets, were GBP3.03 million
(31 December 2015: GBP2.88 million).
As at 30 September 2016, the Company had 3,336,865,922 common
shares issued and outstanding and 892,777,778 A ordinary shares
issued and outstanding. As at that date there were 4,872,728
outstanding share options.
Contractual Obligations
Payments due by period
Total 2016 2017 2018 2019 2020
and
there
after
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Trade and other
payables 3,123 3,123 - - - -
Loan notes 323 - 323 - - -
Operating leases 1,842 74 295 295 295 883
______ ______ ______ ______ ______ ______
5,288 3,197 618 295 295 883
______ ______ ______ ______ ______ ______
Shareholders' equity
The movement in shareholders' surplus comprised:
2016
GBP'000
As at 1 January
2016 3,478
Loss for quarter
1 (148)
Profit for quarter
2 164
Profit for quarter
3 22
As at 30 September
2016 3,516
--------
As at 31 October 2016, the Company had 3,336,865,922 common
shares issued and outstanding and 892,777,778 A ordinary shares
issued and outstanding. As at that date there were 4,872,728
outstanding share options.
Liquidity
Cash and cash equivalents at 30 September 2016 were GBP0.11
million (31 December 2015: GBP0.50 million).
Restricted cash at 30 September 2016 was GBP3,000 (31 December
2015: GBP0.07 million).
The Company reported a profit in the nine months of GBP0.04
million and has a cumulative deficit of GBP99.39 million.
The Company's ability to continue as a going concern depends on
its ability to generate positive cash flows from operations or
secure additional debt or equity financing.
The Company has not changed its approach to Currency risk and
Interest rate risk management from that of the prior year and as
disclosed in the annual statements at 31 December 2015.
Currency risk management
The Company's expenditure is principally denominated in
Sterling, which is funded from Sterling cash balances. Exchange
differences, which arise on consolidation of the Company's Canadian
operations, are included in exchange adjustments within the income
statement. At 30 September 2016 the Sterling equivalent of Canadian
Dollar denominated net liabilities amounted to GBP3,100 (31
December 2015: net liabilities GBP1,950).
The Company receives a significant proportion of its revenue in
US Dollars (including from contracts with Canadian customers). As
such the Company routinely maintains a significant receivables
balance in US Dollars, which are revalued at each period end. At 30
September 2016 the Sterling equivalent of the US Dollar denominated
assets amounted to GBP1.59 million (31 December 2015: GBP1.96
million).
To manage its foreign exchange risk arising from future
commercial transactions and recognised assets and liabilities, the
Company uses forward foreign exchange contracts. Further
information is provided in Note 7 Derivative Financial
Instruments.
Interest rate risk management
The analysis of the Company's financial assets and borrowings
analysed between floating and fixed interest rates is shown
below
30 September 31 December
2016 2015
GBP'000 GBP'000
Floating rate
financial assets 114 496
Fixed rate borrowings (323) -
The fixed rate borrowings are at 6.0% per annum.
Financial instruments
The Company's financial assets and liabilities consist primarily
of the cash and cash equivalents, restricted cash, trade
receivables, trade payables and loans.
30 September 2016 31 December 2015
Loans and Financial Loans and Financial
receivables liabilities receivables liabilities
at amortised at amortised
cost cost
GBP'000 GBP'000 GBP'000 GBP'000
Asset/(Liability)
Cash and cash
equivalent 114 - 496 -
Restricted
cash 3 - 66 -
Trade, prepayments
and other receivables 3,169 - 2,675 -
Trade and other
payables - (3,123) - (3,075)
Loans - (323) - -
Total 3,286 (3,446) 3,237 (3,075)
============= ============== ============= ==============
The amounts at which the assets and liabilities above are
recorded are considered to approximate to fair value.
Fair value estimation
The fair value of financial instruments that are not traded in
an active market is determined by using valuation techniques. The
Company uses a variety of methods and makes assumptions that are
based on market conditions existing at each balance sheet date.
Techniques, such as estimated discounted cash flows, are used to
determine fair value for the financial instruments. The fair value
of forward foreign exchange contracts is determined using quoted
forward exchange rates at the balance sheet date.
The carrying value less impairment provision of trade
receivables and payables are assumed to approximate their fair
values due to the short-term nature of trade receivables and
payables. The fair value of financial liabilities for disclosure
purposes is estimated by discounting the future contractual cash
flows at the current market interest rate that is available to the
group for similar financial instruments.
Derivative financial instruments
The Company uses foreign exchange forwards to help manage its
foreign exchange risk. The Company classifies these derivatives as
financial assets at fair value through profit and loss. Derivatives
are classified as current assets.
Financial assets carried at fair value through profit or loss
are initially recognised at fair value, and transaction costs are
expensed in the income statement. Financial assets are derecognised
when the rights to receive cash flows from the investments have
expired or have been transferred and the group has transferred
substantially all risks and rewards of ownership.
Gains or losses arising from changes in the fair value of the
'financial assets at fair value through profit or loss' category
are presented in the income statement within 'Other gains - net' in
the period in which they arise.
Financial Risk Management and Capital Structure
The Company's risk management programme remains as detailed on
page 51 in the Annual Report and Financial Statements 31 December
2015. There have been no significant changes since 31 December
2015.
Further information is provided in Management's Discussion and
Analysis and the notes to these Condensed Consolidated Interim
Financial Statements.
Related Party Transactions
On 29 March 2016 the Company announced that its wholly owned
subsidiary Turbo Power Systems Limited had entered into an
agreement to draw down on a new loan to be provided by TAO UK, to
support working capital requirements. The additional amount
available to draw down as follows:
A summary of the loan movement is:
GBP'000
Balance at 1 -
January 2016
Drawdown 29 March
2016 314
Accrued interest
2016 9
------------------- --------
Balance at 30
September 2016 323
------------------- --------
This amount is repayable on 1 April 2017, which can be extended,
at the Company's request, for a further year, and accrues interest
at 6% per annum, payable annually
Critical accounting policies and estimates
These condensed consolidated interim 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 30 September 2016 the
Company had net operating cash outflows. Therefore the Company may
require additional funding which, if not raised, may result in the
curtailment of activities. The Company has a cumulative deficit of
GBP99.39 million as at 30 September 2016.
Further information on Going Concern is provided in Note 2.
The preparation of financial statements in conformity with IFRS
requires management to make judgments, estimates and assumptions
that affect the application of accounting policies and the reported
amounts of assets and liabilities, revenue and expenses and the
related disclosures of contingent assets and liabilities. Although
these estimates are based on management's best knowledge of the
amount, event or actions, actual results ultimately differ from
those estimates.
Estimates and underlying assumptions are continually evaluated
and are based on historical experience and other factors, including
expectations of future events that are believed to be reasonable
under the circumstances. Revisions to accounting estimates are
recognised in the period in which the estimates are revised and in
any future period affected.
The estimates and assumptions that have a significant risk of
causing a material adjustment to the carrying amounts of assets and
liabilities within the financial year are disclosed on page 42 in
the Annual Report and Financial Statements for 31 December
2015.
Principal Risks and Uncertainties
Risk or uncertainty Mitigation approach
Operating revenues
TPS has entered into large The Company is seeking
development and manufacturing to change the emphasis
contracts. The outcome on new contract signings.
of this is that large amounts The Company has a growing
of revenue are associated revenue stream associated
with one product line and with repair, maintenance
one customer. As there and overhaul that does
is reliance on large contracts not rely on large value
being signed by the Company, contracts. The Company
the impact of not signing is focusing efforts to
a large contract would increase the percentage
be high on the results of revenue associated with
of the Company in any one these activities in addition
year. The Company recognises with the new major contract
that it is increasingly awards.
difficult to forecast when The Company has always
these new contracts will worked closely with its
be signed due to the importance current customer base.
customers associate such Going forward this will
large values. The Company continue, but greater emphasis
has suffered and will continue is being put into working
to suffer from delays in with new customers and
expected contract award hence increasing the number
dates. of contracts in bid and
diluting the relative impact
of individual contract
awards.
Cost overrun on contracts
due to technology risk The Company seeks to mitigate
TPS is a technology-led these risks by significant
company. As the products up front planning and research.
that it develops are technology The new ideas are reviewed
driven, the Company is by senior personnel and
looking to use the latest approved before use in
design and practices when new projects. A project
a new contract is won. based reporting and review
This enables the Company system is in place to monitor
to make the most efficient the activities and the
solution for each project. output from design and
Due to these technology testing phases. A system
advances there is a significant of cost control is in place
risk extra costs may be to ensure that budgets
incurred while developing are monitored and any variances
new ideas to fulfil contracts. recognised early and taken
into account to mitigate
them in future activities.
Further development activities
TPS undertakes research The Company has a structure
activities to ensure that of senior engineers who
the technology used is are responsible for reviewing
current and forward looking. market trends and identifying
There is a risk that the new technologies as they
Company misses a directional become useful in our products.
change in where technology The Company also partakes
is moving and does not in research projects that
produce new and efficient are originated via bodies
designs. such as Innovate UK. These
projects typically involve
University departments
as well as a diverse group
on interested parties.
This helps the Company
understand potential customer
and supplier's knowledge
and requirements.
Commercial relationships
TPS has longstanding commercial The Company seeks to mitigate
relationships with major this risk by working closely
customers. However, there with the customer. This
is no guarantee that customers involvement starts with
will continue to design understanding their future
and manufacture the appropriate product roadmap and working
products that require our closely at an early stage
technology. Any integration, to help overcome new design
design or manufacturing problems. This works especially
problems that the customer well on projects with existing
encounters could adversely customers. However, the
affect the financial results Company is changing the
of the Company. profile of its salesforce
as part of seeking to expand
The risk could be that the customer base. This
the customer's designs requires the Company to
no longer require, say, bring new fresh ideas to
an auxiliary power unit the market and identify
and therefore future orders current problems encountered
cease. Alternatively, a in the marketplace.
customer could be having
issues with, say, the overall In its major market of
train design and manufacture Rail, whilst the Company
and therefore revenue could tries to mitigate customer
be delayed. issues with train manufacture
in regard to its own product
line it will always be
at risk of the overall
train manufacture timing
issues. The Company seeks
to mitigate these through
contractual timeframes
and terms.
The Company works closely
with the customers to ensure
that all production warranty
issues are identified and
treated in line with contractual
relationships. Further
information is provided
in the Financial Statements
Note 9 Contingent Liabilities.
Dependence of key personnel
TPS is a technology-led The Company works closely
company and hence reliant with key personnel to ensure
on key personnel. The Company that they are fully motivated
has a group of senior personnel and engaged on interesting
who oversee the design and rewarding projects.
research and implementation. The Company believes that
Having been through major the roles should be aligned
personnel number changes to the individual's ability,
in the last few years, so these can be within
key positions exist within technical expertise or
the Company that require management responsibility.
succession plans to be
in place. Where a key position has
been identified, a succession
plan has been drawn up.
Foreign currency exchange
rate fluctuations The Company seeks over
TPS is subject to foreign time, to balance currency
currency risk. Foreign requirements with currency
currency sales (and to inflows. Where there is
a much lesser extent) purchases excess currency inflow
are made in Euros and in the Company seeks to match,
Canadian and US Dollars. to the extent possible,
The Company's major contracts planned currency sales
are denominated in US Dollars through forward foreign
and therefore a major portion currency exchange contracts.
of cash receipts are in The level of currency hedging
US Dollars. The Company is dependent on the credit
is therefore exposed to limits available for future
movements in foreign currency currency deals and the
rates over time. perceived currency forecast
movement.
Part of the Board's strategy
has been to seek increased
sales to UK based companies
where contracts are undertaken
in GBP Sterling.
Future funding
The Company has been loss The Company works closely
making for a number of with VSE, its majority
years and has been critically shareholder, to ensure
reliant on regular increases that it is fully aware
in external funding (which of the financial situation
was waived in November of the Company on a very
2015). As noted in the regular basis and also
Directors' Report and Note of customer concerns. The
2 Going Concern, TPS is Company seeks to gain approval
critically dependent on for all budgets, working
customers paying to contractual closely with VSE on all
terms in order to meet financial and operational
forecast working capital matters, assisted by the
requirements and support two representatives of
the Company's growth plans. VSE on the Board.
If not secured, this may
well result in the curtailment
of the Company's activities,
partly due to customer
concerns over the Company's
continuing viability.
Strategic Review
In conjunction with VSE, The Board has been working
the Company has been undertaking closely with VSE to understand
a Strategic Review for its requirements and with
over a year. The Review's Lincoln International whom
continuation could impact the Board and VSE appointed
the future orders due to to undertake the Review.
the uncertainty that customers Notwithstanding the Review,
and potential customers the Board is operating
might perceive before the the Company in a normal
outcome is determined. manner.
Internal Control
The Board of Directors has overall responsibility for the
accounting policies and ensuring that the Company maintains an
adequate system of internal financial control to provide them with
reasonable assurance that assets are safeguarded and of the
reliability of financial information used for the business and for
publication. More detail on the Company's internal control can be
found on page 27 of the Annual Report and Financial Statements for
the year ended 31 December 2015.
Turbo Power Systems Inc.
Condensed consolidated interim income statement
Unaudited
Notes Quarter Nine Months
ended Ended
30 September 30 September
2016 2015 2016 2015
GBP'000 GBP'000 GBP'000 GBP'000
Revenue 5 3,575 3,246 10,657 11,414
Cost of sales (2,017) (1,871) (6,146) (6,620)
-------- -------- -------- --------
Gross profit 1,558 1,375 4,511 4,794
Expenses
Distribution costs (97) (80) (267) (216)
Research and product development (485) (118) (1,315) (1,110)
General and administrative (883) (831) (2,662) (2,681)
-------- -------- -------- --------
Total expenses (1,465) (1,029) (4,244) (4,007)
Operating profit before
other operating income 93 346 267 787
Other (losses)/gains net (27) 6 (110) 24
Operating profit 66 352 157 811
Finance expense (4) (182) (9) (531)
Profit before tax 62 170 148 280
Income tax expense (40) (136) (110) (136)
Net profit and total comprehensive
profit for the periods 22 34 38 144
======== ======== ======== ========
Profit per share - basic
and diluted 6 0.00p 0.00p 0.00p 0.00p
======== ======== ======== ========
The Notes form an integral part of these condensed consolidated
interim financial statements.
Turbo Power Systems Inc.
Condensed consolidated interim statement of financial
position
Unaudited
Notes As at As at
30 September 31 December
2016 2015
GBP'000 GBP'000
Current assets
Restricted cash 3 66
Inventories 3,090 3,253
Trade and other receivables 3,169 2,675
Prepayments 214 162
Cash and cash equivalents 114 496
-------------------------- ------------------
6,590 6,652
-------------------------- ------------------
Non-current assets
Intangible assets 426 433
Property, plant and equipment 396 434
822 867
Total assets 7,412 7,519
========================== ==================
Current liabilities
Trade and other payables 3,123 3,075
Derivative financial instruments 7 110 -
Loans and borrowings 10 323 -
Provisions 8 - 635
-------------------------- ------------------
3,556 3,710
-------------------------- ------------------
Non-current liabilities
Provisions 8 340 331
-------------------------- ------------------
340 331
-------------------------- ------------------
Total liabilities 3,896 4,041
Equity
Share capital 11 71,408 71,408
Capital contribution reserve 11 12,367 12,367
Convertible shares 11 17,310 17,310
Other reserves 1,823 1,823
Retained deficit (99,392) (99,430)
-------------------------- ------------------
Equity 3,516 3,478
Total liabilities and equity 7,412 7,519
========================== ==================
Approved by the Board:
F Senhora, Chairman
31 October 2016
The Notes form an integral part of these condensed consolidated
interim financial statements.
Turbo Power Systems Inc.
Condensed consolidated interim statement of changes in
equity
Unaudited
Common Capital Convertible Other Accumulated Total
Share Contribution Shares reserves deficit
capital reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1
January 2015 71,408 - 17,310 1,823 (98,582) (8,041)
Net Profit - - - - 144 144
Balance at 30
September 2015 71,408 - 17,310 1,823 (98,438) (7,897)
Capital contribution - 12,367 - - - 12,367
Net loss - - - - (992) (992)
Balance at 31
December 2015 71,408 12,367 17,310 1,823 (99,430) 3,478
Net Profit - - - - 38 38
Balance at 30
September 2016 71,408 12,367 17,310 1,823 (99,392) 3,516
========= ============== ============ ========== ============ ========
The Notes form an integral part of these condensed consolidated
interim financial statements.
Turbo Power Systems Inc.
Condensed consolidated interim statement of cash flows
Unaudited
Nine months
ended
30 September
2016 2015
GBP'000 GBP'000
Cash flows from operating
activities
Net profit for the period 38 144
Adjustments for:
Finance expense 9 531
Taxation 110 -
Depreciation of property,
plant and equipment 89 155
Amortization of intangible
assets 79 66
R and D tax credits (231) -
Derivative financial instrument 110 (24)
Operating cash flows before
movements in working capital 204 872
Changes in working capital
items
Decrease in inventories 163 207
Decrease in restricted
cash 63 2
(Increase) in trade and
other receivables (504) (166)
(Increase)/ decrease in
prepayments (52) 20
Increase/(decrease) in
trade and other payables 48 (2,042)
(Decrease) in provisions (626) (116)
-------- --------
Cash absorbed from operating
activities (704) (1,223)
-------- --------
Taxes Received 131 -
-------- --------
Net cash absorbed from operating
activities (573) (1,223)
-------- --------
Investing activities
Purchase of property, plant
and equipment (51) (72)
Purchase of intangible
assets (72) (268)
Net cash used in investing
activities (123) (340)
Cash flows from financing
activities
Proceeds from increase 314 -
in loans
-------- --------
Net cash from financing 314 -
activities
-------- --------
Net decrease in cash and
cash equivalents (382) (1,563)
Cash and cash equivalents
at the beginning of the
period 496 1,825
Cash and cash equivalents
at the end of the period 114 262
======== ========
The Notes form an integral part of these condensed consolidated
interim financial statements.
Turbo Power Systems Inc.
Notes to the condensed consolidated interim financial
statements
Unaudited
1 Reporting entity
Turbo Power Systems Inc. ("The Company") is subsisting pursuant
to the Business Corporations Act (Yukon Territory). The Company's
registered office is Suite 200-204 Lambert Street, Whitehorse,
Yukon Y1A 3T2, Canada.
The Company conducts operations through its wholly owned
subsidiary company, Turbo Power Systems Limited ("TPSL"), whose
main trading address is 1 Queens Park, Queensway North, Team Valley
Trading Estate, Gateshead NE11 0QD, 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 S.A.
("Vale"), a company registered in Brazil.
These condensed consolidated interim financial statements of the
Company as at and for the quarter ended 30 September 2016 comprises
of the Company and its subsidiaries. The Company's subsidiaries
comprise:
Trading Place of % Ownership
status incorporation
Turbo Power Systems Limited Trading England 100%
Turbo Power Systems Development
Limited Dormant England 100%
Intelligent Power Systems
Limited Dormant England 100%
Nada-Tech Limited Dormant England 100%
2 Going concern
These consolidated financial statements have been prepared on
the basis of International Financial Reporting Standards (IFRS)
applicable to a "going concern", which assume that the Company will
continue in operation for the foreseeable future and will be able
to realise its assets and discharge its liabilities in the normal
course of operations.
As at 30 September 2016 the Company had net operating outflows,
with a net debt of GBP3.45 million, being GBP3.56 million of debt
less GBP0.11 million of cash. The Company has a cumulative deficit
of GBP99.39 million as at 30 September 2016 and was profit making
for the period then ended.
The Company continues to be critically dependent upon i)
customers paying to contractual terms and ii) the continued
financial support of its intermediate parent undertaking TAO
Sustainable Power Solutions (UK) Limited (TAO UK), who in turn is
dependent on their parent undertaking VSE (which in turn is
dependent on its parent company Vale S.A. (Vale)). The Company
relies on TAO for continued financial support in the form of the
loan made available to the Company, and in order to meet any
shortfall in budgeted or forecasted working capital requirements
and support the Company's growth plans. If not secured, this may
result in the curtailment of the Company's activities.
However, the Directors believe that they will succeed in
delivering the Company's projected financial performance and that
financial support from TAO UK and, ultimately, its parent company,
Vale, Brazil's largest mining company, will remain in place to
enable the Company to meet budgeted and forecasted working capital
requirements and support the Company's growth plans. Although there
are no formal letters of support in place for the purpose of the
directors' going concern assessment of the Company, the directors
of the Company have taken comfort from the actions taken by TAO UK,
in that loans have been provided when required (the latest being
GBP0.31 million on 29 March 2016), that the existing debt was
waived in November 2015 and that VSE has Board representation, in
forming their conclusion that they believe it is appropriate to
prepare these financial statements on a going concern basis.
Accordingly, they have continued to adopt the going concern basis
of preparation.
If the Company is unable to either generate positive cash flows
from operations or ensure the continued financial support from TAO
UK and ultimately VSE and its parent company, or secure additional
debt or equity financing, these conditions and events indicate the
existence of a material uncertainty which may cast significant
doubt regarding the going concern assumption and, accordingly, the
use of accounting principles applicable to a going concern.
These consolidated financial statements do not reflect
adjustments to the carrying values of the assets and liabilities,
the reported expenses and the balance sheet classifications, which
could be material, which would be necessary if the going concern
assumption were not appropriate.
3 Basis of preparation
These condensed consolidated interim financial statements have
been prepared in accordance with IAS34 Interim Financial
Reporting.
The Company's condensed consolidated interim financial
statements were prepared in accordance with the accounting policies
set out in Note 3 to the consolidated financial statements for the
year ended 31 December 2015, and using the same methods of
computation.
The condensed consolidated interim financial statements were
authorised for issuance by the Board of Directors on 31 October
2016.
The condensed consolidated interim financial statements have
been prepared under the historical cost convention, except for the
revaluation of certain financial instruments.
The condensed consolidated interim financial statements are
presented in GBP sterling, rounded to the nearest GBP1,000, which
is the Company's functional and presentation currency.
4 Critical accounting judgements and key sources of estimation uncertainty
These condensed consolidated interim 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 30 September 2016 the
Company had net operating cash outflows. Therefore the Company may
require additional funding which, if not raised, may result in the
curtailment of activities. The Company has a cumulative deficit of
GBP99.39 million as at 30 September 2016.
Further information on Going Concern is provided in Note 2.
The preparation of financial statements in conformity with IFRS
requires management to make judgments, estimates and assumptions
that affect the application of accounting policies and the reported
amounts of assets and liabilities, revenue and expenses and the
related disclosures of contingent assets and liabilities. Although
these estimates are based on management's best knowledge of the
amount, event or actions, actual results ultimately may differ from
those estimates.
Estimates and underlying assumptions are continually evaluated
and are based on historical experience and other factors, including
expectations of future events that are believed to be reasonable
under the circumstances. Revisions to accounting estimates are
recognised in the period in which the estimates are revised and in
any future period affected.
5 Segmental analysis
The Company reports by its distinct segments of production and
development, both segments operate in the United Kingdom. Except
for the investments held by the Company which are located in
Canada, all of the Company's assets are located in the United
Kingdom.
Nine months ended Production Development Unallocated Total
30 September 2016
GBP'000 GBP'000 GBP'000 GBP'000
Revenue 10,034 623 - 10,657
=========== ============ ============ ========
Segment operating
profit/(loss) 2,423 (2,156) (110) 157
Finance expense - - (9) (9)
Taxation expense - - (110) (110)
Net profit/(loss)
and total comprehensive
profit/(loss) 2,423 (2,156) (229) 38
=========== ============ ============ ========
Total assets 6,621 674 117 7,412
Total liabilities (2,343) (780) (773) (3,896)
Nine months ended Production Development Unallocated Total
30 September 2015
GBP'000 GBP'000 GBP'000 GBP'000
Revenue 9,597 1,817 - 11,414
=========== ============ ============ =========
Segment operating
profit/(loss) 1,528 (741) 24 811
Finance expense - - (531) (531)
Taxation expense - - (136) (136)
Net profit/(loss)
and total comprehensive
profit/(loss) 1,528 (741) (643) 144
=========== ============ ============ =========
Total assets 6,194 755 328 7,277
Total liabilities (1,718) (573) (12,883) (15,174)
Geographic Segmental Information
Quarter ended Nine months
30 September ended 30 September
Total Revenues by 2016 2015 2016 2015
destination
GBP'000 GBP'000 GBP'000 GBP'000
USA 1,850 1,292 5,311 3,718
UK 1,299 1,458 4,473 4,525
Rest of world 199 173 489 428
Canada 227 323 384 2,743
3,575 3,246 10,657 11,414
======== ======== ========== ==========
All property, plant and equipment were located within the United
Kingdom during both periods ended 30 September 2016 and 30
September 2015
6 Profit per share
Profit per common share has been calculated using the weighted
average number of shares in issue during the relevant financial
periods.
Quarter ended Nine months ended
30 30 September
September
2016 2015 2016 2015
Numerator for basic
profit per share calculation:
Profit attributable GBP22,000 GBP34,000 GBP38,000 GBP144,000
to equity shareholders
Denominator:
For basic net profit
- weighted average shares
outstanding 3,336,865,922 3,336,865,922 3,336,865,922 3,336,865,922
For diluted net profit
- weighted average
shares 4,235,071,428 4,244,724,609 4,235,086,428 4,244,724,609
Basic and diluted
Basic net profit per
common share - pence 0.00p 0.00p 0.00p 0.00p
Diluted net profit per
common share - pence 0.00p 0.00p 0.00p 0.00p
Details of dilutive potential securities outstanding included in
EPS calculations at 30 September 2016 are as follows:
30 September 30 September
2016 2015
Common shares potentially
issuable:
- under stock options 4,872,728 15,080,909
- pursuant to A Ordinary
Share conversion 892,777,778 892,777,778
------------- -------------
897,650,506 907,858,687
============= =============
7 Derivative financial instrument
30 September 31 December
2016 2015
Assets Liabilities Assets Liabilities
GBP'000 GBP'000 GBP'000 GBP'000
Forward Exchange - 110 - -
Contracts
Total - 110 - -
-------- ------------ -------- ------------
Less non-current - - - -
portion:
-------- ------------ -------- ------------
Current portion - 110 - -
======== ============ ======== ============
The notional principal amounts of the outstanding forward
foreign exchange contracts at 30 September 2016 were GBP1.04
million (30 September 2015: GBP0.65 million, 31 December 2015:
GBP0.67 million).
8 Provisions
Onerous Asset Warranty Total
Contracts Retirement
Obligations
GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1 January
2015 77 324 310 711
Utilised in period (77) (39) - (116)
Balance at 30 September
2015 - 285 310 595
Utilised in period - - (56) (56)
Provided in period - - 500 500
Release in period - - (73) (73)
Balance at 31 December
2015 - 285 681 966
Utilised in period - (191) (435) (626)
Balance at 30 September
2016 - 94 246 340
=========== ============= ========= ========
30 September 31 December
Analysed as: 2016 2015
GBP'000 GBP'000
Current liabilities - 635
Non-current
liabilities 340 331
Total 340 966
============= ============
Onerous Contracts: The Company entered 2015 with one contract
where the estimated material and labour costs were in excess of the
expected revenues. In 2015 the final GBP77,000 was utilised as the
contract was concluded. There are no onerous contracts in 2016.
Asset Retirement Obligations: During 2010 the Company recognised
a requirement for a provision for the asset retirement obligations
related to the two properties it then leased. One lease has
subsequently terminated in 2013 and the other will terminate in
2022. Accordingly a provision, based on the present value of the
future expected expenditure was recorded at GBP674,000 as at 31
December 2010. Following a 2015 review of the provision against
expected costs the Company released GBP39,000 of this provision.
During the third quarter of 2016 the dilapidations for the Heathrow
site was settled and the provision of GBP191,000 relating to this
was released (Q3 2015: GBPnil). The Company has recorded no further
increase in accretion expense in 2016 (Q3 2015: GBPnil).
Warranty: Production units sold by the Company are provided with
a warranty against operational failure. The warranty period
provided is dependent upon the sales agreement with the customer
and the nature of the unit, but typically is between one and two
years from the date of delivery. The warranty provision is
maintained at a level calculated to reflect the current costs of
repair and incidence of failure of existing and similar units.
As previously reported, during Q4 2015 the Company received a
claim from a customer for warranty, relating to a fault within
motor units delivered to a customer during 2013 to 2015. The
Company included a one off provision expense in 2015 of GBP0.50
million of which GBP0.44 million remained at 31 December 2015. The
Company has utilised a further GBP0.43 million in the first nine
months of 2016 leaving a provision of GBP0.01 million at 30
September 2016. See Note 9.
9 Contingent Liabilities
As reported in Note 8 Provisions above, during Q4 2015 the
Company received a claim from a customer for warranty, relating to
a fault within motor units delivered during 2013 to 2015.
The financial statements include a one off expense during 2015
of GBP0.50 million, of which GBP0.44 million remained as a
liability as at 31 December 2015. In the nine months to 30
September 2016 a further GBP0.43 million was utilised, with GBP0.01
million remaining at 30 September 2016. The provision was made to
cover the costs of the replacement parts to be supplied and where
the cost can be accurately estimated. The remaining provision will
be utilised in quarter 4 of 2016.
The matter is subject to an insurance claim by the Company for
costs requested by the customer beyond the unit replacement costs.
To date some costs have been covered by the insurance company.
There is significant uncertainty about the amount of some of these
further costs and therefore the amount of any further insurance
claim and whether the insurance claim will cover all the costs.
There is also significant uncertainty as to whether the Company is
liable for some or all the further costs that the customer is
requesting.
The Directors believe that based on independent advice (which
continues to be taken) and their current assessment of the facts
that the provision made is appropriate. However, the final amount
will be dependent upon the outcome of the agreements between the
parties.
10 Loans and borrowings
On 29 March 2016 the Company announced that its wholly owned
subsidiary Turbo Power Systems Limited had entered into an
agreement to draw down on a new loan to be provided by TAO UK, to
support working capital requirements. The additional amount
available to draw down as follows:
29 March 2016 GBP314,000
This amount is repayable on 1 April 2017, which can be extended,
at the Company's request, for a further year, and accrues interest
at 6% per annum, payable annually.
30 September 31 December
2016 2015
Fixed rate loans GBP'000 GBP'000
Due after one year
Loans 314 -
Accrued Interest 9 -
------------- ------------
Total 323 -
============= ============
The Company has drawn down on all its borrowing facilities as at
30 September 2016 (2015: all loans drawn down in full). There is no
unpaid accrued interest included in the loan amount at 30 September
2016.
11 Share capital and options
Share capital and other reserves
Share Capital
Common Shares Convertible Shares
(A Ordinary Shares)
Number GBP'000 Number GBP'000
At 30 September
2015 and at
31 December
2015 3,336,865,922 71,408 892,777,778 17,310
At 30 September
2016 3,336,865,922 71,408 892,777,778 17,310
================ ========== ============== ==============
The Company is authorised to issue an unlimited number of common
shares and an unlimited number of preferred shares, issuable in
series, without nominal or par value. All common shares rank
equally with regard to the Company's residual assets. The holders
of common shares are entitled to receive dividends as declared from
time to time, and are entitled to one vote per share at meetings of
the Company.
Holders of A Ordinary Shares of Turbo Power Systems Limited
("TPSL") (Convertible shares), carry no voting rights, cannot
attend any shareholder meetings and, in the event of winding-up of
TPSL are entitled to a maximum distribution of GBP500,000 in
aggregate, to rank before the Common Shares. The A Ordinary shares
are convertible into an equal number of Common Shares of the
Company on request by the holder, having given 61 days' notice.
Under certain take over or change in control events, the A Ordinary
Shares are exchangeable under "super exchange" rights, converting
for 3 Common shares of the Company for every A Ordinary Share held.
As the A Ordinary Shares are non-participating interests in TPSL
and are non-voting, no current year or cumulative net losses have
been allocated to the A Ordinary Shares.
Capital contribution reserve
At 30 September 2016 the Capital contribution reserve, from the
waiver of the TAO UK Loans and accrued interest, was GBP12.37
million (31 December 2015: GBP12.37 million)
Other reserves
At 30 September 2016, other reserves comprise of the stock
compensation reserve of GBP1,823,000 (31 December 2015:
GBP1,823,000).
Potential issue of common shares
The Company has issued share options under the 2002 Stock Option
Plan and A Ordinary Shares that are convertible into common shares
of the Company.
30 September 31 December
2016 2015
Under stock option plan 4,872,728 6,012,728
Pursuant to A Ordinary
Share conversion 892,777,778 892,777,778
------------
897,650,506 898,790,506
--------------- ------------
12 Related party transactions
Transactions with the parent and ultimate parent company
During the periods ended 30 September 2015 and 30 September 2016
the Company undertook no significant transactions with related
parties. Save for the loans and borrowings (see Note 10 above) and
any accrued interest, there were no amounts outstanding at 31
December 2015 and 30 September 2016 between the Company and TAO UK,
and the Company and VSE. Any transactions are conducted within the
normal course of business for supply of engineering design services
and are transacted at exchange amount, which is the amount agreed
for the transaction.
Key Management personnel compensation
In addition to their salaries, the Company provides non-cash
benefits to executive management and contributes to a defined
contribution pension plan. Some executive officers participate in
the share option programme.
Key management personnel compensation comprises the
following:
Quarter Ended Nine months
30 September Ended 30 September
2016 2015 2016 2015
GBP'000 GBP'000 GBP'000 GBP'000
Salaries 139 138 416 413
Pension contributions 9 9 27 27
148 147 443 440
======== ======== ========== ==========
The information communicated in this announcement is inside
information for the purposes of Article 7 of Regulation
596/2014.
This information is provided by RNS
The company news service from the London Stock Exchange
END
QRTUWONRNUARUAA
(END) Dow Jones Newswires
October 31, 2016 03:00 ET (07:00 GMT)
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