TIDMTRBO

RNS Number : 5093T

Turbotec Products PLC

14 December 2012

 
 Press Release   14 December 2012 
 

Turbotec Products Plc

("Turbotec" or "the Company")

Half Yearly Report

Turbotec Products Plc (TRBO.L), the designer and manufacturer of high performance heat exchangers and Tru-Twist(R) heat transfer tubing, today announces its interim results for the six months ended 30 September 2012.

Key Performance Data

 
 --   Revenue of $10.6 million (2011: $11.7 million) 
 --   Loss before tax of $0.04 million (2011: profit of $0.43 
       million, including net proceeds from litigation of $0.34 
       million) 
 --   Slight decrease in net assets to $11.6 million (2011: $11.8 
       million) 
 -- 
        *    Continued progress made in relocating operations to 
             manufacturing facility in North Carolina 
 

Overview

First half sales of $10.6 million were below the $11.7 million achieved in the comparable period last year, with shipments to major market segments at decreased levels and unit volumes down by approximately 9%. Despite the reduction in sales volume, the Company generated a profit from operations which was offset by the write down of approximately $0.06 million of certain inventory that will not be relocated to the new manufacturing facility due to cost and space considerations. In the comparable 2011 period the Company recorded operating profit of $0.45 million, which included a one off gain from the settlement of litigation of $0.34 million. Without this gain, income from operating activities for the six months ended 30 September 2011 was comparable to the current year results, after consideration of the 2012 inventory write-down.

The continuing weak economy, coupled with tight credit markets, has prolonged the weak housing market for both new construction and resale properties. Other markets served by the Company have been similarly impacted by the economy. The residential geothermal heat pump market trails previous year's shipments, as a result of both the slow housing market and the sharp reduction in the cost of natural gas, which is a competing fuel for heating systems. The demand for swimming pool heat pump applications continues to be depressed, and combined with the absence of a significant replacement market resulting from severe weather in the Southern United States, is expected to remain at reduced levels through the foreseeable future. Overall the product mix for space conditioning products has shifted to components used in commercial heating and cooling applications which typically are of lower efficiency when compared to the high efficiency residential applications; these products are priced at points resulting in lower gross margins.

Increased competition in certain of the Company's markets continues, as reduced demand and excess available manufacturing capacity have eroded gross margins. The Company has vigorously worked to retain market share through aggressive contract negotiations and has secured long term agreements with some of its major customers which are expected to positively impact the business outlook for the long term.

Upgraded machinery and newly acquired production equipment has been transferred from Connecticut to the new Hickory facility; this process is expected to continue over the next several months. More than half of the total units are now exclusively manufactured by the North Carolina plant, with additional products being transitioned each month once qualification samples are approved by our OEM customers.

Commenting on the interim results, Sunil Raina, Managing Director of Turbotec Products, said:

"Whilst the business climate continues to create new challenges and our markets continue to remain weak, the Company is focused on preserving its market leadership position as it works diligently to complete the transition of its operation to the North Carolina facility. The management team and our staff continue to aggressively manage costs while investing in the development and training of the North Carolina manufacturing work force as it prepares to take on the continually increasing shift in manufacturing demand from the Connecticut facility."

-Ends-

For further information please contact:

 
 Turbotec Products Plc 
 Robert Lowe, Non Executive Chairman        +44 (0) 79 1714 8930 
  RLowe@trbohx.com 
 
  Sunil Raina, Managing Director          Tel: +1 (860) 731-4200 
  SRaina@trbohx.com                     www.turbotecproducts.com 
 
  Robert Lieberman, Finance Director      Tel: +1 (860) 731-4200 
  RLieberman@trbohx.com                 www.turbotecproducts.com 
 
   Seymour Pierce Limited 
 Guy Peters, Corporate Finance         Tel: +44 (0) 20 7107 8000 
  Paul Jewell, Corporate Broking           www.seymourpierce.com 
 

Media enquiries:

 
 Abchurch Communications 
 Sarah Hollins / Simone Elviss       Tel: +44 (0)20 7398 7728 
                                       www.abchurch-group.com 
 

Electronic copies of this announcement can be obtained from the Company's website www.turbotecproducts.com.

Chairman's Statement

Your board is disappointed that it cannot report a real change in the economic climate that overrides our opportunities and objectives as a Company. We had hoped that with more activity in our key markets, particularly the housing market, we could have reported an upswing in our performance. The housing market has improved in numbers of sales of existing stock, but not significantly in the new build sector where our customers make sales. As an OEM supplier we are held captive by the performance of our customers in their own markets. These customers have reported weakening demand for their products domestically and internationally. More than one customer has cut plant operations to four days a week reflecting a real weakness in the marketplace.

We are working very closely with all our customers and are being proactive in trying to help them retain profitability and market share. The business model of some customers has been truly turned on its head adding to the uncertainty of our future sales figures. History is no longer useful as a tool in helping us understand current changes.

As we look to the future, we are not standing still and are considering the manufacture of other products that have applications in different areas of the HVAC industry, using our proprietary technology. We believe that actions we are taking now will bring higher sales. Our future growth is dependent on us achieving this product diversity.

The move of the Windsor manufacturing capability to the new facility in Hickory NC continues apace with more than 50% of production now coming from Hickory. These products have been rigorously tested by our customers and accepted as fit for purpose. We plan to complete the transition by the end of this fiscal year.

I am disappointed to have to report this financial performance during the period but rest assured that we are taking the proper steps to cut costs, including strict inventory control, headcount reduction where possible and close management monitoring of all expenses.

My thanks to the management team under Sunil Raina for working hard to deliver the best performance possible, under difficult circumstances.

Rob Lowe

Chairman

14 December 2012

TURBOTEC PRODUCTS PLC

UNAUDITED CONSOLIDATED STATEMENT OF TOTAL COMPREHENSIVE INCOME

 
                                               Six Months      Six Months   Year Ended 
                                             30 September    30 September     31 March 
                                                     2012            2011         2012 
                                                    $'000           $'000        $'000 
                                     Note 
 Revenue                                           10,590          11,728       22,062 
 Cost of sales                                    (9,088)         (9,872)     (18,952) 
                                           --------------  --------------  ----------- 
 Gross profit                                       1,502           1,856        3,110 
 
 Distribution costs                                 (262)           (341)        (632) 
 Administrative expenses                          (1,214)         (1,066)      (2,294) 
                                           --------------  --------------  ----------- 
 Operating profit                                      26             449          184 
 
 Finance costs 5                                     (68)            (20)         (58) 
 
 (Loss) / profit before tax                          (42)             429          126 
 
 Income tax (expense) benefit 2                      (33)            (59)           15 
 
 (Loss) / profit and total comprehensive 
  (loss) / income for the period                     (75)             370          141 
                                           ==============  ==============  =========== 
 
 (Loss) / earnings per share - 
  basic 3                                         (0.59c)           2.89c        1.10c 
 (Loss) / earnings per share - 
  diluted 3                                       (0.59c)           2.56c        0.97c 
 
 
 There were no items of other comprehensive (loss) / income for 
  any period. 
  All of the (loss) / profit and total comprehensive (loss) / income 
  is attributable to the owners of the parent. 
 

TURBOTEC PRODUCTS PLC

UNAUDITED CONSOLIDATED statement of changes in equity

 
                                      Share      Share    Retained     Merger    Total 
                                    capital    Premium    earnings    Reserve 
 
 
                                      $'000      $'000       $'000      $'000    $'000 
 
 Balance at 31 March 
  2011                                  228      3,441       7,925      (168)   11,426 
 
 Profit and total comprehensive 
  income for the period                   -          -         370          -      370 
 
 Share based payment 
  expense                                 -          -          41          -       41 
 
 
 
 Balance at 30 September 
  2011                                  228      3,441       8,336      (168)   11,837 
 
 (Loss) and total comprehensive 
  (loss) for the period                   -          -       (229)          -    (229) 
 
 Share based payment 
  expense                                 -          -           7          -        7 
 
 
 Balance at 31 March 
  2012                                  228      3,441       8,114      (168)   11,615 
 
 (Loss) and total comprehensive 
  (loss) for the period                   -          -        (75)          -     (75) 
 
 Share based payment 
  expense                                 -          -          24          -       24 
 
 
 Balance at 30 September 
  2012                                  228      3,441       8,063      (168)   11,564 
                                  =========  =========  ==========  =========  ======= 
 
 

TURBOTEC PRODUCTS PLC

UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 
                                                                                      30 SEPT     30 SEPT    31 MARCH 
                                                                                         2012        2011        2012 
                                                                         Note           $'000       $'000       $'000 
                                                                                -------------  ----------  ---------- 
 Assets 
 Non-current assets: 
  Property, plant and equipment                                                        13,944      12,919      13,336 
  Intangible assets 4                                                                     145         229         187 
  Other                                                                                    39          37          36 
                                                                                -------------  ----------  ---------- 
                                                                                       14,128      13,185      13,559 
                                                                                -------------  ----------  ---------- 
 
 Current assets: 
  Inventories                                                                           3,660       4,385       4,151 
  Trade and other receivables                                                           2,665       2,083       2,619 
  Cash and cash equivalents                                                                 6           4          22 
                                                                                -------------  ----------  ---------- 
                                                                                        6,331       6,472       6,792 
                                                                                -------------  ----------  ---------- 
 
 Total Assets                                                                          20,459      19,657      20,351 
                                                                                =============  ==========  ========== 
 
   Liabilities 
   Non-current liabilities: 
  Loans and borrowings 5                                                                3,179       3,320       2,965 
  Deferred tax liability 2                                                              1,276         894       1,146 
                                                                                -------------  ----------  ---------- 
                                                                                        4,455       4,214       4,111 
                                                                                -------------  ----------  ---------- 
 Current liabilities: 
  Trade and other payables                                                              1,582       2,217       1,633 
  Loans and borrowings 5                                                                2,858       1,389       2,992 
                                                                                -------------  ----------  ---------- 
                                                                                        4,440       3,606       4,625 
                                                                                -------------  ----------  ---------- 
 
 Total Liabilities                                                                      8,895       7,820       8,736 
                                                                                -------------  ----------  ---------- 
 
 Net Assets                                                                            11,564      11,837      11,615 
                                                                                =============  ==========  ========== 
 
   Shareholders' equity: 
  Share capital                                                                           228         228         228 
  Share premium account                                                                 3,441       3,441       3,441 
  Merger reserve                                                                        (168)       (168)       (168) 
                                                                                -------------  ----------  ---------- 
  Retained earnings                                                                     8,063       8,336       8,114 
                                                                                -------------  ----------  ---------- 
 
  Total equity                                                                         11,564      11,837      11,615 
                                                                                =============  ==========  ========== 
 
 

TURBOTEC PRODUCTS PLC

UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS

 
                                                    SIX 
                                                 MONTHS   SIX MONTHS   YEAR ENDED 
                                                30 SEPT      30 SEPT     31 MARCH 
                                                   2012         2011         2012 
                                              ---------  -----------  ----------- 
                                                  $'000        $'000        $'000 
 
 Cash flows from operating activities 
 (Loss) / profit before tax                        (42)          429          126 
 Adjustments to reconcile net income 
  to net 
  cash provided by operating activities: 
 Depreciation and amortization                      251          259          458 
 Finance expense                                     68           20           58 
 Charge recognized in respect of share 
  based payment                                      24           41           48 
 
 Cash flows from operating activities 
  before changes in working capital                 301          749          690 
 
 
 (Increase) in trade and other receivables         (49)        (141)        (392) 
 Decrease / (increase) in inventory                 491         (20)          214 
 Increase / (decrease) in trade and 
  other payables                                     46        (285)        (803) 
 
 Cash (used in) generated from operations           789          303        (291) 
 
   Taxes paid                                         -         (43)         (67) 
                                              --------- 
 Net cash generated from / (used in) 
  operations                                        789          260        (358) 
                                              ---------  -----------  ----------- 
 
 Cash flows from investing activities 
 Purchases of property, plant and equipment       (817)      (1,358)      (1,932) 
                                              ---------  ----------- 
 Net cash (used in) investing activities          (817)      (1,358)      (1,932) 
                                              ---------  -----------  ----------- 
 
 Cash flows from financing activities 
 Proceeds from bank borrowings                      467        1,270        2,668 
 Principal payments on long term debt             (387)        (153)        (303) 
 Finance expense                                   (68)         (20)         (58) 
                                              ---------  -----------  ----------- 
 Net cash provided by financing activities           12        1,097        2,307 
                                              ---------  -----------  ----------- 
 
 Net change in cash and cash equivalents           (16)          (1)           17 
 
 Cash and cash equivalents, beginning 
  of period                                          22            5            5 
                                              ---------  -----------  ----------- 
 
 Cash and cash equivalents, end of 
  period                                              6            4           22 
                                              =========  ===========  =========== 
 

NOTES TO THE FINANCIAL STATEMENTS

   1.      BASIS OF PREPARATION 

The AIM Rules for Companies require that the annual consolidated financial statements of the company for the 52 week period ending 31 March 2013 be prepared in accordance with International Financial Reporting Standards adopted for use in the EU ("IFRS"). This half year financial statement has been prepared on a consistent basis in accordance with the accounting policies adopted in the accounts for the year ended 31 March 2012 and on the basis of the recognition and measurement requirements of IFRS in issue that are either endorsed by the EU and effective (or available for early adoption) at 14 December 2012 and hence on the basis of IFRS that are expected to apply in preparation of the accounts for the year ending 31 March 2013. The preparation of the interim financial statements requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates. These interim financial statements have neither been audited nor reviewed pursuant to guidelines issued by the Auditing Practices Board

The comparatives for the full year ended 31 March 2012 are not the Company's full statutory accounts for that year. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditors' report on those accounts was unqualified and did not contain a statement under Section 498(2) or 498(3) of the Companies Act 2006.

   2.      TAXATION 

Analysis of charge in period:

 
                        Six months   Six months   Year ended 
                          ended 30     ended 30     31 March 
                              Sept         Sept         2012 
                              2012         2011 
                             $'000        $'000        $'000 
 
 Current / (Benefit)          (97)           59        (267) 
 Deferred                      130            -          252 
                       -----------  -----------  ----------- 
 Total Taxation / 
  (Benefit)                     33           59         (15) 
                       ===========  ===========  =========== 
 

Tax reconciliation:

The effective tax rates for the periods are different than the standard rate of corporate tax in the UK (see table for applicable tax rate). The differences are attributable to the following:

 
                                          Six months   Six months   Year ended 
                                            ended 30     ended 30     31 March 
                                                Sept         Sept         2012 
                                                2012         2011 
                                               $'000        $'000        $'000 
 
   (Loss) / profit before tax                   (42)          429          126 
 
 (Loss) / profit before tax multiplied 
  by rate of corporate tax in the 
  UK of 24% (30 Sept 2011: 28%, 
  31 March 2012: 26% )                          (10)          120           33 
 
 Effect of: 
 Differences between book and 
  taxable income                                  47           10           50 
 Higher rate of tax on overseas 
  earnings                                       (2)           34         (62) 
 Utilisation of tax loss carry 
  forward                                        (5)         (94)         (34) 
 Tax credits used to reduce taxes 
  paid                                             -          (5)            - 
 Other                                             3          (6)          (2) 
                                         -----------  -----------  ----------- 
 Total taxation / (benefit)                       33           59         (15) 
                                         ===========  ===========  =========== 
 
   3.      BASIC EARNINGS PER SHARE AND DILUTED EARNINGS PER SHARE 

The calculations of basic and diluted earnings per ordinary share are based on the profit / (loss) for the period and the weighted average number of equity voting shares in issue and dilutive shares during the period.

 
                               Six Months 30 Sept     Six Months 30 Sept             Year Ended 31 March 
                                             2012                   2011                            2012 
                               $'000    Weighted    $'000     Weighted            $'000      Weighted 
                                        Average                Average 
                                         Shares                 Shares                    Average Shares 
 Basic EPS 
 
 (Loss) / profit 
  for the period           (75)            -         370          -            141              - 
 
   Weighted average 
   shares                    -         12,806,773     -       12,806,773          -         12,806,773 
 
 
 Diluted EPS-Effect 
  of Dilutive 
  Securities 
 Stock options               -                 -      -        1,623,470          -         1,756,450 
 
 
 Diluted EPS               (75)        12,806,773    370      14,430,243        141         14,563,223 
                      ==============  ===========  =======  ============  =============  =============== 
 
   4.         INTANGIBLE ASSETS 
 
                                         Capitalized 
                                         Development 
 Net Book Value               Goodwill         Costs   Total 
                                 $'000         $'000   $'000 
                             ---------  ------------  ------ 
 Period Ended 30 Sept 2012 
 
 Balance at 1 April 2012            94            93     187 
 Amortization                        -          (42)    (42) 
                             ---------  ------------  ------ 
 Balance at 30 Sept 2012            94            51     145 
                             ---------  ------------  ------ 
 
 
 Period Ended 30 Sept 2011 
 
 Balance at 1 April 2011            94           177     271 
 Amortization                        -          (42)    (42) 
                             ---------  ------------  ------ 
 Balance at 30 Sept, 2011           94           135     229 
                             ---------  ------------  ------ 
 
 
  Period Ended 31 March 2012 
 
 Balance at 1 April 2011        94    177     271 
 Amortization                    -   (84)    (84) 
                               ---  -----  ------ 
 Balance at 31 March 2012       94     93     187 
                               ---  -----  ------ 
 
 

Goodwill relates to the acquisition of a technology company acquired by the US parent company in 1985. The operations of that company were subsequently integrated into the company's primary manufacturing facility. The technology acquired continues to be used by the Group as an integral part of the engineering and manufacturing of its current product line.

The Group operates as a single integrated business and as such has one operating segment, which is used as the reporting unit for the purposes of evaluating goodwill impairment. In accordance with IFRS 3, the Group regularly monitors the carrying value of intangible assets. A review was undertaken at 31 March 2012 to assess whether the carrying value of assets was supported by the net present value of cash flows derived from those assets using detailed future cash flow forecasts for a period of two years followed by projections up to a ten year period. Management has deemed this time frame appropriate to measure this asset given the expected marketability of the underlying products supported by this technology. The discount rates for the review were based on Company specific weighted average cost of capital, which approximated 8%. The future cash flows have been modeled to increase in line with historic rates. Further to the review, there have been no impairments to the carrying amount of goodwill in any period.

5. LONG TERM BORROWINGS

 
                                  30 Sept   30 Sept   31 March 
                                     2012      2011       2012 
                                    $'000     $'000      $'000 
 Current financial liabilities 
 
 Bank loans - secured                 465       261        466 
                                 ========  ========  ========= 
 
 Non-current financial 
  liabilities 
 Bank loans - secured               3,179     3,320      2,965 
                                 ========  ========  ========= 
 

The bank loans and overdraft are secured by a fixed charge over the assets of the Group. In addition, the Group must comply with certain non-financial covenants, non-compliance with which would be considered an event of default and provide the bank with the right to demand repayment prior to the loan's maturity date.

In April 2010 the Group entered into a mortgage agreement with its bank as the primary source of funding for the Hickory, North Carolina facility. The mortgage was in the amount of $2,215,000, repayable under a 25 year amortization schedule with a maturity date of April 2015. Interest for the first three years has been fixed at a rate of 5.4% with a floating rate thereafter.

During the current year the Company received funding of approximately $467,000 for manufacturing equipment purchases under a line of credit arrangement with its bank that provides for a total of $500,000 to be advanced for qualified purchases. Under the terms of the agreement, interest only is payable at a floating rate on advances made through April 2013, with the aggregate principal amount repayable in 48 successive equal monthly installments.

The interest rate on floating rate financial liabilities is linked to the bank's prime rate. The interest rates charged at the balance sheet date are as follows:

 
                                30 Sept 2012   30 Sept 2011   31 March 2012 
 Bank overdrafts and secured 
  loans                                3.25%          3.25%           3.25% 
 

Maturities of long term borrowings over the next five years are as follows (including interest payments at current rates):

 
                          30 Sept   30 Sept   31 March 
                             2012      2011       2012 
                            $'000     $'000      $'000 
 
   In less than 1 year        671       501        638 
 In 1-2 years                 709       569        596 
 In 2-3 years                 634       553        592 
 In 3-4 years               1,915       482      2,081 
 In 4-5 years                  59     1,919          - 
                         --------  --------  --------- 
                            3,988     4,024      3,907 
                         ========  ========  ========= 
 

The Group has a revolving line of credit with its primary bank, originally dated October 31, 1994, that is subject to annual renewal. The agreement provides for a borrowing base equal to the sum of 80% of qualified receivables, plus the lesser of $1,500,000 or 50% of the lower of cost or market value of eligible inventory (as defined), less undrawn letters of credit and acceptances issued by the bank, to a maximum of $3,250,000. Interest is charged at the bank's prime rate. In April 2012, concurrent with the issuance of a new $500,000 line of credit for future capital expenditures, the availability under the revolving line of credit was reduced to $2,500,000.

Approximately $107,000, $2,122,000 and $724,000 was available for borrowing against the Company's revolving line of credit at 30 September 2012, 30 September 2011, and 30 March 2012, respectively.

6. APPROVAL

This interim report was approved by the Directors of the Company on 14 December 2012. Copies may be obtained on the Company's website, www.turbotecproducts.com, or from the Company Secretary.

This information is provided by RNS

The company news service from the London Stock Exchange

END

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