(“Torotrak” or the “Group”)
Interim Management Statement
Torotrak (LSE: TRK) today publishes its Interim Management Statement for the period from 1 October 2013 to 16 February 2014.
The period under review saw a significant development for Torotrak as the Group completed the acquisition of Flybrid Automotive Limited (“Flybrid”), which added Flybrid’s leading flywheel Kinetic Energy Recovery (KERS) technology to the Group and also successfully raised £16.0 million via an equity issue supported by both existing and new investors. The Group is now well positioned with the balance sheet strength to exploit the considerable opportunities for reliable, low cost solutions for CO2 emissions reduction. Demand from, and engagement with, international vehicle and Tier 1 manufacturers is increasing in line with our expectations, driven by the new regulatory targets that impact new vehicle launches in the 2015 to 2020 window.
A summary of progress in the period under review is set out below:
- Raised £16.0 million (gross) via an equity placing and open offer with continued support from our major investor, Allison Transmission Inc. (“Allison”);
- Completion of the acquisition of the remaining 80 per cent. of the issued share capital of Flybrid;
- On target to commence first-to-market M-KERS trials in the bus market during the second quarter of 2014;
- Business development activity and engagement with potential customers confirms strong prospects for Flybrid KERS and V-Charge in both car and commercial vehicle markets, with further increase in funded development programmes expected over the next three months;
- £0.5 million invested in the Leyland facility including new flywheel durability test rigs, and manufacturing equipment, with the first flywheel hubs now being produced on site; and
- Accelerated testing of disc and roller components with Allison is progressing well and on track to meet the required milestones by 31 March.
Acquisition of Flybrid
On 8 January 2014, the Group completed the acquisition of the remaining 80 per cent. of the issued share capital of Flybrid. Whilst the IVT, KERS and V-Charge technologies will retain distinctive, separate identities, the integration of the two businesses to maximise engineering capability is proceeding well. Jon Hilton, previously Managing Director of Flybrid, is now Group Commercial Director, and Doug Cross, previously Technology Director of Flybrid, is now Chief Technology Officer for the Group, forming part of the new four person executive team. Appointments to senior management positions are being drawn from both former Torotrak and Flybrid operations, with sites being maintained in Silverstone and Leyland.
The Group raised £16.0 million (before expenses) through the issue of 76,182,824 new ordinary shares via a placing and open offer and 12,706,064 new ordinary shares through a subscription by Allison Transmission Inc. The fundraise was strongly supported by existing institutional investors as well as bringing a number of new investors onto the register. The open offer was well supported by existing shareholders, with applications being received for 87.34 per cent. of the shares available under the open offer.
The successful equity fundraise provided the Group, after allowing for the consideration payable under the Flybrid acquisition and expenses relating to the transaction, with approximately £9.0 million of additional cash resources. This, and the stronger customer proposition from the combined new enterprise is, in the Directors’ opinion, of considerable assistance in current and future engagement with, and interest from, Tier 1s and OEMs.
The development programme in partnership with Wrightbus is on track to commence trials on a public route with bus operator Arriva during the second quarter of 2014. This trial will provide important real world validation of the Flybrid KERS fuel saving potential. The first bus prototype unit has been built and has successfully completed initial calibration and full speed and overspeed rig testing. Packaging and integration work is now being conducted by Wrightbus.
As part of our plan to supply final units to Wrightbus, the Group will manufacture and assemble the flywheel, retaining the key know-how and intellectual property in-house. The first machine has been commissioned this month and is successfully manufacturing hubs and other flywheel assembly components. The remaining equipment for manufacturing the carbon fibre flywheel rims will be installed and commissioned by the end of the month. In addition, three new flywheel test rigs are being designed, procured and built, with the first rig expected to be ready for operation in March 2014 and the remaining two rigs in operation during the second quarter of 2014. The new rigs will be used to conduct durability and design validation testing as part of the programme for commercial launch initially into the UK bus segment with Wrightbus from 2015 onwards.
In the passenger car market, the Group is engaged in commercial discussions with a number of Tier 1 and OEM potential commercial partners. These discussions are at different stages ranging from feasibility studies through to potential low volume supply in special vehicle operations and ultimately licensing arrangements for the premium and mass car segments. These on-going discussions reflect the need for vehicle manufacturers to identify low cost solutions that can help meet the tightening emissions targets from 2015 onwards.
Main Drive Transmissions
As we reported in our interim results in December last year, the Group’s engineering focus has been on completing the next milestone in the Allison commercial vehicle programme. The Group has made significant progress to support successful commercialisation, including advances in durability, cost and commercial supply routes.
As a sign of our commitment and confidence in the commercial vehicle programme, £2.0 million of the £2.6 million licence payment due from Allison was agreed to be contingent upon the completion by Torotrak of a number of successful accelerated tests using representative disc and roller components, being a key programme gateway for Allison. This test programme is substantially complete and we have high confidence in achieving the required milestones.
The European Truck and Bus Manufacturer (ETBM), licensed for on highway commercial vehicles over 14 tonnes GVW, has not confirmed its position regarding its manufacturing licence rights. We had expected to have a clear statement of their position by the end of 2013. However, in the absence of this, our current assumption is that they will not seek to progress to manufacture IVT in-house. Should this position change, we will notify investors accordingly.
Our IVT technology in prototype trials for ETBM demonstrated approximately a 20% increase in fuel savings in the highest urban drive cycles against a benchmark product, and a number of other very important benefits including: excellent premium driveability and passenger experience; substantially reduced nitrogen oxide and CO2 emissions; and excellent controllability. We have commented previously that the substantial benefits of IVT for ETBM lay in a smaller part of their overall portfolio orientated towards more stop/ start events, although future product development could see IVT’s attractiveness expanding to the entire range. We will continue to engage with this important customer on all relevant group technology.
The Group continues its development successfully in three key areas:
- As a single variable device appropriate for 1.3-litre vehicles we are already working with two OEMs who are being supplied with the prototype hardware. Our next step, in collaboration with a major manufacturer, is to conduct detailed analysis of the full system benefits when linked to an advanced engine technology. This is a comprehensive programme, and an essential next gateway, with first key results expected during the fourth quarter of 2014.
- As part of a multi-stage system, we are working with one major passenger car OEM. The next stage of this programme is hardware verification and model validation.
- We are also working with a key technology provider to deliver prototypes to commercial vehicle customers for evaluation in the middle of this year.
Our target remains to launch V-Charge in lower volume via partners such as The Proving Factory and to target higher volume launch via a Tier 1 licensee. Following the increased financing from the fundraise, our immediate commercial priority is to optimise the V-Charge proposition and thereby increase its commercial opportunity before agreeing licence rights and triggering a valuation of the technology.
Jeremy Deering, Torotrak’s Chief Executive said: “Since completing the acquisition of Flybrid five weeks ago, I have been delighted by the progress made in integrating the businesses and the step change in our combined engineering capability. Engagement with prospective new customers, even in the few weeks since completing the acquisition, has been strong and I am confident we will see some early wins and new engagements.
“We are on track to launch our first-to-market Flybrid KERS in bus trials in quarter two of this year, with flywheel components already being produced in Leyland from our state of the art manufacturing machinery – a major step in our journey towards production and market launch”
For more information, please visit www.torotrak.com or contact:
For more information, please contact:
Jeremy Deering, Chief Executive / Rex Vevers, Finance DirectorTel: +44 1772 900931Charles Stanley Securities (financial adviser and joint broker to Torotrak)
Marc Milmo / Karri Vuori / Carl HolmesTel: +44 20 7149 6000N+1 Singer (joint broker to Torotrak)
Andrew Craig / Ben WrightTel: +44 20 7496 3000Tavistock Communications (financial PR)
Simon Hudson / Lulu Bridges / James CollinsTel: +44 20 7920 3150 or +44 (0)7966 477256