RNS Number : 2245M
27 July 2017
27 July 2017
("Torotrak", the "Company" or the "Group")
Preliminary Final Results for the year ended 31 March 2017
Torotrak (LSE: TRK), a developer and supplier of emissions reduction and fuel efficiency technology for vehicles, announces its Preliminary Final Results for the year ended 31 March 2017.
Two years ago we set out to definitively realise the value of the Group's three technologies within a three year period and to return the maximum achievable value to our shareholders. We are now close to having completed this process and whilst the capabilities of the Company's technology have been proven, for reasons largely beyond our control, the commercial progress that the Board would like to have made has not been forthcoming. The clear strategic focus of the Board is to realise value from the Company's technology portfolio and other assets, be it through licence deals or actual sales of the assets and Intellectual Property ('IP') portfolio.
Adam's review set out below details the activities of the last 12 months and I would like to highlight the key achievements and some of the difficult decisions that we have taken during the year.
In Flybrid, we have successfully continued our focus on developing products for the off-highway sector following the decision last year to stop our development for the bus sector (due to the pressures of continued low fuel prices and the adoption of electrification to achieve zero emissions within city centres). We now have a proven off-highway product, offering a family of flywheel energy recovery and storage modules (ERS) for manufacture in conjunction with our Tier 2 manufacturing partners. There is a growing market interest in these products, with at least one potential new customer expected to start their evaluations by the end of 2017. This result is encouraging but has been slow to achieve, due to the severe resource constraints the off-highway sector has faced over the last four to five years. These same pressures have also affected our development programmes with partners. The programme with the Energy Technologies Institute to demonstrate a transmission-connected KERS in a large mining truck application has been on hold for eight months but has recently re-started. Our first Advanced Propulsion Centre (APC) programme with JCB to demonstrate the use of an ERS on an excavator has now been completed and the results used to inform the development and launch of the new ERS product family. The start of our new APC programme with Caterpillar Inc. to demonstrate the integration of a low cost flywheel into off-highway machines and construction equipment had been delayed by seven months but commenced in May 2017.
In V-Charge, we successfully completed the product development to the point of being ready for licensing and productionisation by a Tier 1 partner. We had confirmation of the performance advantages and system benefits of V-Charge compared to other advanced boosting technologies endorsed by OEMs and Tier 1s through evaluation of our demonstration vehicles and on-engine test results. Their findings confirmed that V-Charge can enable significant engine downsizing and downspeeding, to help vehicle OEMs meet the challenging emissions regulations in a cost-effective and practical manner, which can also improve vehicle performance. However, we have done this at the same time as the passenger car industry reached a consensus to significantly accelerate the investment in the mass electrification of vehicle powertrains. The result has been to make it imperative for industry participants to focus all their available resources on technologies linked to vehicle electrification and has made these electric solutions increasingly more competitive as the resulting high volume projections and development focus have driven down forecast costs. Consequently, we now believe that the investment required by Tier 1s to productionise and commercialise V-Charge for mass market passenger cars is unlikely to advance any further. Whilst continuing to seek to find buyers for this technology, the Board took the decision in January 2017 to suspend further engineering development activity.
Lastly, as previously reported, IVT/CVT has not been a key focus for the Group over this time with our licensees remaining largely inactive, with the Board's approach being to try and find buyers for the Group's IVT/CVT IP and tangible assets with a view to realising value wherever possible.
Impact on our Business
The decisions taken by our Tier 1 and OEM partners not to take V-Charge forwards into production coupled with the lack of progress from our IVT/CVT licensees, led us to the inevitable but painful decision that we must cease all further investment in the traditional Torotrak variable transmission-related technologies. As a result, we started a consultation process in January 2017 to close the Leyland site which was the home of this technology and this process is substantially completed with the site to be vacated by the end of 2017. Our aim has been to minimise the impact on our licensees, whilst realising any possible residual value for our shareholders. We have made redundant all the employees based at Leyland and the majority have now left the business, except for a small team who are completing customer engineering programmes and supporting the sale of the IP and assets. We expect over the coming months to complete the sale and/or licensing of the technology and associated IP portfolio and sell the remaining physical assets such as test rigs and demonstrator vehicles. The proceeds from this are being used to off-set the closure costs.
We have continued investment in, and business development efforts within, the Flybrid business unit in Silverstone and this has brought some success with the development of the ERS modules for the off-highway market and growing interest from OEM customers. However, as noted above, the difficult conditions in the off-highway market have delayed the product development cycle and pushed out the anticipated market launch.
The Board is exploring a range of possible options to realise the best value for shareholders including licensing or selling the Group's IP and assets and/or providing additional funding to further develop ERS.
We closed the financial year with GBP5.1m in cash as anticipated, which was less than originally hoped for at the start of the year as the targeted licensing and other commercialisation events did not materialise as described above. Consequently, the Company must now generate additional cash inflows during the current financial year to fund the operating costs of the Group including the ongoing development and other costs of the Flybrid business and the costs of closing the Leyland site.
The operating loss for the year before intangible asset amortisation (know-how) and exceptional items was GBP7.3m, in line with the previous year (2016: GBP7.4m). The Group recorded exceptional costs in the year of GBP13.5m (2016: GBP6.1m), of which GBP12.5m (2016: GBP5.4m) was non-cash and non-cash annual intangible asset amortisation (know-how) of GBP0.8m (2016: GBP0.8m), resulting in a loss attributable to shareholders of GBP19.7m (2016: GBP13.5m). The exceptional costs in the year include: GBP2.0m (2016: GBP0.6m) of restructuring and other costs including the closure of the Leyland site and sale of IVT/CVT assets; and a GBP11.4m non-cash impairment of the Group's know-how and goodwill assets. This impairment charge is required under International Financial Reporting Standards to reflect the current uncertainty created by the Company's financial position and whether it can obtain the necessary funding to enable the Group to continue to operate these assets over the long term. Impairing the value of the assets, as required by the Accounting Standards, reflects the current funding uncertainty and does not reflect the Board's assessment of the value of the technology which has a wide range of potential values depending on the success (or otherwise) of the different value realisation options being pursued which are set out above.
Note 2 to this statement provides further details on the basis of preparation of the financial statements and the material uncertainty created by the Company's financial position, which may cast significant doubt on the Group's ability to continue as a going concern. Adam's review below provides further details on the financial performance of the Group during the year.
Board and People
I would like to thank all of our colleagues for their hard work and dedication during the last twelve months. This has been a difficult year; our number of employees has reduced from 76 at the close of last year to 33 now.
The staff at Leyland have been exemplary in their professionalism and commitment to the business. I would like to wish them every success in the next phase of their careers, in many cases in new industries and with some continuing to push to see the Torotrak IVT/CVT technology enter production with our licensees.
For the staff at Silverstone, I wish to thank them for all their hard work and to wish them every success at this exciting period in Flybrid's growth.
Given the size of the Company and the need to minimise costs we are reducing the size of the executive team and the Board. In particular, we have agreed that John McLaren will step down from the Board with immediate effect and that Eric Alströ