Torotrak, (LSE: TRK), a leading developer and supplier of emissions reduction and fuel efficiency technology for vehicles and other machines, provides a trading update prior to announcing its preliminary results for the year to 31 March 2016 at the end of June.
The Group has made good progress in executing the three year strategy to commercialise its technologies – allocating resources to deliver near-term commercial returns to shareholders. During the last 12 months there has been a significant increase in interest from potential licensees and OEM customers in gaining access to the Group’s KERS technology in off-highway and V-Charge in passenger cars. The Group is now focusing its resources to deliver the near-term commercial opportunities in these two key areas:
- Strong interest in our V-Charge technology from Tier 1s and OEMs, both for passenger cars and off-highway vehicle applications:-
- On-engine V-Charge testing programme being conducted by University of Bath on track with results due early next month
- A ‘should cost’ study conducted with the Tier 1 study partner demonstrating the total system cost advantage of V-Charge technology compared to other advanced boosting solutions
- On track to demonstrate the real-world performance of the V-charge twin-stage boosting configuration in a Ford Focus from late July 2016
- KERS off-highway is gaining significant traction – the largest near term opportunity for commercialising the KERS technology:
- A fully funded project with one of the largest global manufacturers of off-highway construction and mining equipment to design, develop and demonstrate a high-power KERS system
- The Group is actively engaged with several global off-highway OEMs and in discussions with a number of Tier 1s who have expressed interest in KERS for applications in construction and materials handling
- KERS-equipped bus has so far delivered fuel savings of 11.1% on the MLTB cycle when compared to the baseline latest Euro6 bus – simulations show that this could be potentially increased up to 14%
- The results of the UK Government’s Ultra Low Emission Bus (‘LEB’) grant applications have been delayed and no announcement has been made by the Government to confirm the new date for the awards:
- This uncertainty, coupled with persistent low fuel prices, is causing bus operators to postpone investment in all low emission technologies
- Wrightbus and Torotrak have therefore agreed to delay further investment in the production launch of bus KERS until the situation becomes clearer
- Torotrak’s engineering and cash resources will be redeployed onto the other more promising, revenue generating and near-term commercial opportunities, in line with the Company’s stated strategy of focusing its resources on the delivery of the key products which are most likely to secure commercial take-up and deliver near-term commercial returns
- Successfully achieved a ~20% reduction in net cash operating expenses
- Cash at 31 March 2016 was GBP11.3 million (which excludes R&D tax credits of GBP0.4 million received on 1 April 2016)
- The Group continues to work with a number of passenger car OEMs who are investigating the benefits of installing KERS into conventional internal combustion powered vehicles to achieve fuel efficiency, performance improvements and/or lower CO(2) emissions
Brian Maybin, Group Engineering Director Wrightbus, said: “We are pleased that our Euro6 StreetLite bus equipped with the new smaller, lighter and more efficient second generation KERS now has the capability to achieve close to our targeted 15% fuel saving on the reference drive cycle. However, the bus diesel price and the operators’ commercial expectations have significantly changed recently and therefore we are consulting with Torotrak on a revised timeline to launch this product.”
Nick Barter, Non-Executive Chairman, said: “I am pleased with the overall progress that the business has made this year, but disappointed at the decision to delay the launch of the bus KERS. Despite the ongoing low fuel price environment that is creating significant challenges for hybrid technologies such as KERS, we foresee a strong year ahead building on the progress we have made with our Tier 1 and OEM partners to commercialise our technologies.”
Adam Robson, CEO, said: “When we set out our strategy last year, we chose to focus on three key areas (bus KERS, off-highway KERS and V-Charge) in order to best optimise the use of our engineering and cash resources. With the challenges facing all low emission technologies in the UK bus market, we have decided to focus our resources on the two areas (off-highway KERS and V-Charge). I am optimistic about the market and the opportunities and believe we can deliver the necessary licences over the coming 12 months in these two key areas.”
For more information, please visit www.torotrak.com or contact:
Torotrak plc Adam Robson, Chief Executive / Rex Vevers, Finance Director Tel: +44 1772 900931 Cantor Fitzgerald Europe (Financial Adviser & Broker) Marc Milmo / Will Goode Tel: +44 20 7894 7000 Tavistock (Financial PR) Simon Hudson / Lulu Bridges / James Collins Tel: +44 20 7920 3150
Torotrak is a leading developer and supplier of kinetic energy recovery systems, engine boosting and variable drive transmissions for vehicles. Our portfolio of technology solutions substantially improves fuel economy and reduces CO(2) and other emissions in vehicles through capturing and recycling energy that would otherwise be lost, harnessing the power of supercharging to enable engine downsizing and managing the engine at the optimum point.
Since reporting the half year financial results in November 2015, the Company has continued to make good progress in executing its three year strategy to commercialise the Group’s technology and reduce net cash operating costs by approximately 20%.
We are continuing to see a high level of commercial interest from both Tier 1 and OEM partners in our KERS and V-Charge technologies, particularly in the off-highway and passenger car markets. In the UK bus market, low fuel prices, challenging operator trading conditions and ongoing delays and uncertainty over the Government’s Ultra Low Emission Bus (‘LEB’) grant programme is causing bus operators to delay investment in all low emission technologies, including our bus KERS product. Accordingly, the Board, following discussions with Wrightbus, has decided to delay the additional investments required for production launch of the bus KERS product targeted for later this year until the Group has better visibility of the likely demand for KERS-equipped vehicles from bus operators. The Group will continue to allocate engineering resources to support the bus development programme and KERS fuel trials with bus operators. However, the bulk of the Group’s engineering and cash resources will be redeployed onto the other more promising, revenue generating near-term commercial opportunities in line with the Company’s strategy of focusing resources on its key products which are most likely to secure commercial take-up and deliver near-term commercial returns.
The on-engine V-Charge testing programme, being conducted by the University of Bath (‘Bath’) in collaboration with a global Tier 1 supplier of engine boosting systems and with the participation of the Ford Motor Company, is progressing well and is on track. Our Tier 1 partner delivered the adapted turbocharger last month and Bath is progressing with on-engine testing of the V-Charge system in a production-intent design, twin-stage boosting configuration. As previously announced, the results of this testing are expected to be available by early May 2016. All the parties in the project expect these results to show that this new V-Charge configuration outperforms other advanced boosting systems in real-world drive cycles. The Company remains on track to demonstrate the real-world performance of the V-charge twin-stage boosting configuration in a Ford Focus from late July 2016. The S-Max demonstrator vehicle is planned to be completed and ready for presentation to OEMs after August 2016.
Commercial discussions with our Tier 1 partner on the Bath study are progressing well and the test results from the study will be an important milestone to advancing the licensing discussions to the next stage. The ‘should cost’ study conducted with the Tier 1 has demonstrated the total system cost advantage of our V-Charge technology compared to other advanced boosting solutions. We continue to see very strong interest in our V-Charge technology from Tier 1s and OEMs, both for passenger cars and also for a range of off-highway vehicle applications where emissions legislation is driving a need to downsize engines. A recent market study conducted by Ricardo plc on our behalf has confirmed the significant size of the global addressable market opportunities for our V-Charge technology.
As reported in our half year results, the off-highway sector appears to offer the largest near-term opportunity for commercialising the KERS technology. The Group has been awarded, and will be signing shortly, a contract for a fully funded project in collaboration with one of the largest global manufacturers of off-highway construction and mining equipment to design, develop and demonstrate a high-power KERS for integration in the main drivetrain of a large off-highway vehicle. The project partners believe there are significant potential opportunities for the Group’s low-cost KERS technology in a range of on and off-highway commercial vehicles.
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We are actively engaged with several global off-highway OEMs to install our flywheel-based energy recovery technology into a range of vehicles and other machines. We have recently delivered the first development flywheel system to one of these OEMs for on-rig testing as part of a broader KERS evaluation programme. If successful, we expect this demonstration to be followed by a funded product development programme for KERS.
Separately, we are also in discussions with Tier 1s who have expressed interest in KERS for applications in construction and materials handling. The product being developed with funding from the Advanced Propulsion Centre (‘APC’) and in conjunction with JCB is ready to enter validation testing and we have a volume-capable supply chain ready. However, with the current low fuel prices we are in discussions to amend the programme to incorporate a cost-down design iteration to further reduce the manufactured cost of the KERS. The objective is to enable the KERS to deliver operator paybacks of less than two years at today’s fuel prices and on a broader range of duty cycles, opening up a larger global market opportunity for our low-cost KERS product across a wider range of machines.
On-highway commercial vehicles:
Testing of the second generation KERS integrated into a new high-efficiency Euro6 StreetLite Micro Hybrid II bus has recently been completed at the independent vehicle testing centre at Millbrook. Independent certification of the fuel savings confirms that the KERS-equipped bus has so far delivered fuel savings of 11.1% on the standard MLTB (Millbrook London Transport Bus) test cycle when compared to the baseline Euro6 bus. We are working with Wrightbus and the engine manufacturer to further improve this fuel saving by conducting a more complete integration of Wrightbus and Torotrak control systems. Our simulation shows that this has the potential to take the overall fuel economy up to 14%. The Millbrook testing also shows that the KERS-equipped bus exceeded the threshold required to be eligible for the maximum LEB capital grant funding; being 75% of the KERS system cost.
On the MLTB cycle, the bus also achieved significant emissions improvements; CO(2) is down by 11.1% and greenhouse gas emissions are down 14.8%. In parallel, our engineering and procurement teams have worked with our Tier 1 partner and its Tier 2 supply chain confirming the detailed bill of materials and total KERS system cost in line with our previous estimates. Based on these costs, we can reach the KERS system price target that Wrightbus set us in 2015.
Following the KERS trials conducted last year, we understand that a number of bus operators submitted applications in October 2015 for LEB grants to purchase Wrightbus StreetLite vehicles fitted with KERS. Confirmation of the LEB awards was due to have been announced in January 2016. However, the results of the grant applications have been delayed and no announcement has been made by the Government’s Office for Low Emission Vehicles (‘OLEV’) to confirm the new date for the LEB grant awards to be announced. We have received positive interest from bus operators for the Group’s KERS technology. However, in the absence of any visibility of the LEB grant awards and with the current low level of fuel prices (which operators have locked-in with forward hedging), and following discussions with our partner Wrightbus, the Board has decided to delay further investment in production tooling and product and vehicle validation for the planned production launch of the bus KERS later this year. The duration of the delay is uncertain, depending upon the eventual award of LEB grants for KERS-equipped vehicles, sustained higher fuel prices (net of fuel subsidies) and an increased investment appetite amongst bus operators for low emission technologies.
We will update investors on the revised timeline when the LEB grant awards have been announced and Wrightbus has received KERS orders from bus operators. In the meantime, our engineers continue to work on the engineering demonstrator bus which will be showcased to OEMs and bus operators and used for ongoing fuel trials. We have also received a significant enquiry from a Chinese Province interested in retrofitting KERS into their substantial existing bus fleet. We are working to progress this and other potential opportunities for our bus KERS product.
Lastly, we are exploring with commercial partners in the UK and USA the opportunity to install KERS in on-highway trucks and to evaluate the fuel savings and emissions reduction benefits when compared to alternative technologies. If successful, this could provide the opportunity to leverage significant elements of the current bus KERS design as well as the new off-highway vehicle demonstration programme.
Passenger car market:
The passenger car market continues to be a key target market for the Group in which we believe that KERS can make a significant contribution to addressing the regulatory requirement to deliver significant real-world emissions reductions. We are working with a number of passenger car OEMs who are investigating the benefits of installing KERS into conventional internal combustion powered vehicles to achieve fuel efficiency benefits, performance improvements and/or lower CO(2) emissions. Proposals for feasibility studies and follow-on design/development programmes have been submitted and we are waiting to hear how many of these have been successful; generating engineering services revenues and the potential to lead to commercial production programmes.
The Innovate UK funded programme to develop and validate new low-cost manufacturing methods for the supply of core variable drive components such as discs and rollers is on track and is generating intellectual property that is important to our Tier 1 partners for applications including V-Charge and main drive transmissions. We maintain contact with Allison about their programmes but these are not materially progressing at this time.
Closing cash at 31 March 2016 was GBP11.3 million (excluding R&D tax credits of GBP0.4 million that were received on 1 April 2016).
We have successfully achieved a 20% reduction in net cash operating expenses, in line with the cost reduction plan announced in June 2015.