RNS Number:0132S
Turbo Genset Inc.
13 November 2003
Thursday 13th November 2003
TURBO GENSET INC ANNOUNCES ITS RESULTS FOR
THE THIRD QUARTER ENDED 30 SEPTEMBER 2003
Highlights
* Sales up 84% to #0.6m (up 64% to #1.1m year to date)
* Year to date cash outflow before financing reduced by 23% to #6.0
million
* #5 million finance secured in early July 2003
* Marketing agreements announced today with TATA to cover the Indian
subcontinent and Tyree Holdings to cover Australasia
* Rail order received to supply power converters to London Underground for
#1.9m
* Engine and packaging partners secured for 1.2MW power generator system
* Launch of the Company's 400kW power generation system and variable speed
gensets well advanced
* Rephasing of US orders into 2004
Commenting on the results, Colin Besant, Chairman, said:
"This quarter has been important for two reasons. Firstly the fragility of
transmission and distribution systems around the world have been laid bare by
events in London, New York and the majority of Italy, highlighting the need for
real alternatives such as distributed generation. Secondly I am delighted to
report significant progress towards our strategic goals. We now have significant
global marketing alliances, which are beginning to show results with the planned
launch of our complete gensets and energy solutions.
Finally our expertise in terms of power electronics continues to be underlined
with real milestone orders to supply prestigious customers such as the London
Underground.
For further information, please contact:
Turbo Genset Tel:+44 (0)20 8564 4460
Colin Besant, Chairman and Chief Executive
Fraser Searle, Chief Financial Officer
Richard Kapuscinski, Business Development Tel: +1 (905) 690 1722
Gavin Anderson (PR) Tel:+44 (0)20 7554 1400
Neil Bennett/Ken Cronin
Seton Services (IR) Tel:+44 (0)20 7727 3073
Toni Vallen
Company Website: www.turbogenset.com
NOTES TO EDITORS
About Turbo Genset
Turbo Genset develops innovative products for power generation and power
conditioning. The Group was established in 1993 as a spin-off from Imperial
College, London and was floated on the London stock exchange in July 2000 and
soon after obtained a secondary listing in Toronto. In July 2001, the Group
acquired Intelligent Power Systems Limited (I-Power) specialising in power
electronics.
About Power Electronics
Power electronics products take a range of power inputs and condition them to
achieve outputs of precisely defined characteristics for applications such as
industrial lasers, Ultra Violet sterilization systems and railway power
electronics systems.
Forward Looking statements
This news 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
ongoing 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.
Review of Operations
Turbine-based Systems
The Company is now moving forward with marketing complete power generation
systems, which include its generator and electronics system integrated with a
gas turbine and Combined Heat Power ("CHP") modules. These modules will be
designed and supplied by our partners. This system approach will enable the
company to gain access to additional revenues and provide direct access to end
users.
400kW Generator System
During the period under review, the Company commenced commercial deliveries of
its 400kW generator and electronics system to the US. To date, 7 units have been
delivered and tested successfully and it is expected that a further 4 will be
delivered by the year-end. At the customer's request, 28 units, that were
scheduled to be delivered in 2003, will be held back until 2004.
The Company is well advanced in its plans for the launch of its 400kW power
generation system, which is targeted at both industrial and commercial customers
for example hotels, hospitals, and continuous process industries.
The first unit is planned to be installed at a power generation facility in
Alberta, Canada during 2Q 2004. The Company, with its Channel Partners, is
evaluating a number of other exciting opportunities.
1.2MW Generator System
In October this year the Company signed an agreement with Magellan Aerospace
Corporation ("Magellan") of Ontario, Canada and Altek Power Corporation
("Altek") of British Columbia, Canada for the conversion of an industrial
standard turbine engine, which can be coupled directly to Turbo Genset's 1.2MW
high speed generator. Magellan is currently upgrading this turbine engine, under
contract to Altek, to meet industrial standards for ground based power
generation.
The agreement provides the basis for an ongoing business relationship with
Magellan and Altek for the assembly of a complete 1.2 MW Turbogenerator System,
which will be marketed, in agreed geographical regions, by Turbo Genset and
Altek.
Commercial launch remains on target for mid 2004.
Other Generator Systems
The full scale prototypes of the Hybrid Electric Turbocharger were delivered to
GE Global Research in early July. During laboratory testing, the units
demonstrated the capability of the system to improve operating performance of
turbochargers on large diesel engines. It is anticipated that this type of
system will lead to emissions and efficiency improvements for such engines.
Discussions are underway with GE to take this system into the next phase.
The 200kW generator for the AIMS programme, in association with GE Global
Research, is well advanced and deliveries are now expected to commence in
January 2004.
Variable Speed Generator Systems
The Company has successfully completed the testing of its 130kW diesel and 100kW
gas Variable Speed Generator systems ("VSG"), and clearly demonstrated fuel
efficiency improvements and operation under variable loads.
The VSG product will provide improved overall fuel efficiency, greater power
density and lower maintenance, together with the power quality improvements
associated with an Uninterruptible Power Supply ("UPS"), combined into one
integrated system.
The Company believes that these systems will have major applications in
developing countries where for a growing number of commercial and industrial
customers, the quality of the power provided by the grid is not adequate to
prevent loss of productivity and damage to equipment.
Product launch of the diesel fuelled 130kW VSG is scheduled for 3Q 2004. The
initial market will be the Indian subcontinent and TATA will take an important
role in the manufacture and market introduction of this product. The gas fuelled
variant will be launched in 4Q 2004 and is targeted at the North American and
European markets.
Power Electronics
The Power Electronics operation continues to demonstrate strong demand for its
products, with total orders received this year of #3.6 million.
Rail applications
The Company recently announced that it had received an order for #1.9 million to
provide 150 6kVA Power Converters for installation on the London Underground D
class rolling stock. These units convert high voltage electricity taken from the
track and provide high quality ac power for use by on-board ancillary systems.
The order for these Converters was placed by Bombardier Transportation and is
part of the ongoing District Line refurbishment programme. First deliveries are
scheduled for February 2004 and the final units will be delivered in February
2008.
This order is not only an exciting new development for Turbo Genset as it is the
first order related to the London Underground but it also further underlines the
Company's position as a major supplier of power electronics to the rail
industry, not only in the UK but across the world. This contract will involve
working closely with other rail equipment suppliers and provides the opportunity
to develop closer business relationships.
Marketing
The marketing strategy is to form agreements with strong international channel
partners with the capacity and resources to fully support both the sales and
service requirements for our products.
Turbo Genset has today announced a memorandum of understanding with TATA
International Limited to cover the development of innovative distributed
generation products and solutions for India, Sri Lanka, Bangladesh and
Sub-Saharan Africa.
In phase one, the market development in India, Sri Lanka and Bangladesh will be
based on the import of the TGC range of products from the UK. In phase two,
after the volumes have been sufficiently raised, the progressive transfer of
subsystems for manufacture in India will be considered.
TATA International operates as the international business gateway for all the
TATA operating companies, and has an extensive global network.
The Company is also announcing today that it has signed a similar Memorandum of
Understanding with the Tyree Group. The Tyree Group is a privately owned and
operated business that has emerged as one of Australia's leading manufacturers
and distributors of electrical products and services. It has manufacturing and
distribution resources strategically located across Australia, New Zealand and
the broader Asia Pacific Region.
These two agreements now bring the number of channel partners to four and
includes Cupola Limited, a Middle Eastern industrial group, which intends to
market Turbo Genset products throughout the region and the Kadoorie family which
have agreed to assist the Company in the marketing of its products in China and
the Far East.
Turbo Genset sees India, the Middle East, China and the Far East regions as
being strategically important, as its products are a good fit for the future
energy demands. Distributed Generation systems do not rely on expensive
infrastructure, such as transmission lines, and can be rapidly and inexpensively
installed.
Goals for 2003
At the time of the preliminary results in March 2003, the Company set a number
of key targets for 2003. They included;
* Developing additional sales for the 400kW generator system
* Achieving final agreement with an engine partner for the 1.2MW system
* Delivering the first AIMS generator to General Electric
* Achieving first sales of Variable Speed Generators
* Proceeding with the TurboStar joint venture
* Substantial expansion of the rail Power Electronics business
* Generating follow-on Power Electronics orders for high voltage
applications
Significant progress has been made on all of these and we hope to achieve most,
if not all, of them by the end of the year.
Financial Review
Change in reporting currency
The Company has, with effect from 1st January 2003, changed the Group's
reporting currency from Canadian Dollars to Sterling, to align with its'
functional currency. The majority of the Group's assets and liabilities are
denominated in Sterling and the Group's net expenditure is incurred in Sterling,
which is funded from Sterling cash balances.
Reporting in Canadian Dollars gives rise to exchange gains and losses on the
translation of Sterling cash balances on consolidation. These exchange gains and
losses are included in the consolidated income statement, which can result in
significant variations in the reported results depending on the movement in the
Sterling:Canadian Dollar exchange rate.
The change to reporting the Group's Financial Statements in Sterling will
eliminate these translation exchange differences, with a resultant improvement
in understanding the financial performance of the Company.
Nine months ended 30 September 2003 as compared with the
nine months ended 30 September 2002
Profit and loss
Revenue in the period was #1.07 million compared with #0.65 million in 2002 and
in both cases related substantially to power electronic systems.
Production costs in the period amounted to #1.38 million, resulting in a loss on
sales of #0.31 million. The loss is primarily due to the overheads attributable
to the generator system manufacturing operation, which is currently operating
below capacity. In 2002, production costs of #1.15 million resulted in a loss on
sales of #0.50 million.
Research and product development costs charged to earnings in the first half
period were #2.87 million compared with #2.92 million in 2002. Gross expenditure
decreased from #3.46 million to #2.95 million and in 2003 relates primarily to
the 400kW and 1.2 MW turbine system programmes, and the variable speed generator
project. Gross expenditure in the period includes #0.40 million pre commercial
revenue (2002 - #0.13 million) mainly from the sale of 400kW systems,
#0.14 million capitalised expenditure (#0.67 million in 2002) and #0.55 million
relating to the amortisation of deferred research and product development costs
(2002 #0.27).
General and administrative costs in 2003 were #2.29 million down from
#2.46 million in 2002, reflecting the savings resulting from the 2002
restructuring programme.
Lower interest rates and cash balance combine to explain the reduction in
interest income in 2003 - #0.29 million as compared with #0.44 million in 2002.
Cash flow and liquidity
Cash outflow from operating activities was #5.85 million, compared with
#5.81 million in 2002 and is primarily due to higher working capital working
capital (#0.70 million), a lower operating loss (#0.31 million) and a higher
depreciation charge (#0.39 million).
Capital investment has significantly reduced to #0.46 million from #2.52 million
in 2002, primarily reflecting the near completion of the facilities investment
programme. 2003 expenditure includes capitalised development expenditure of
#0.14 million (2002 - #0.67 million) and capital expenditure of #0.32 million
(2002 - #1.85 million).
Cash flow from financing of #4.9 million comprises funds from a #5 million
convertible bond issue in July net of loan repayments which are at a similar
level to 2002.
Overall the cash outflow during the nine months of 2003 was #1.12 million
compared with #8.0 million in the nine months of 2002.
The interest expense on long-term debt of #0.1 million relates to the
convertible bond that was issued in July 2003.
Three months ended 30 September 2003 as compared with the three months ended 30
September 2002
Profit and loss
Revenue in the quarter was #0.58 million compared with #0.32 million in the
third quarter of 2002, and in both cases related substantially to power
electronic systems.
Production costs in the period amounted to #0.59 million, resulting in a loss on
sales of #0.01 million (2002 - #0.15 million). The loss is primarily due to the
overheads attributable to the generator system manufacturing operation, which is
currently operating below capacity.
Research and product development costs charged to earnings in the quarter were
#1.02 million compared with #1.23 million in 2002. Gross expenditure decreased
from #1.23 million to #0.70 million, and in 2003 relates primarily to the 400kW
and 1.2 MW turbine system programmes, and the variable speed generator project.
Gross expenditure in the quarter includes # nil (2002 - # nil) pre commercial
revenue arising from the delivery of 400kW generator systems, capitalised
research and product development expenditure of #nil (2002 - #0.27 million)
offset by amortisation of deferred research and product development expenditure
amounting to #0.40 million (2002 - #0.27).
General and administrative costs in the quarter were #0.75 million compared with
#0.62 million in 2002. The increase is due to cost savings from the 2002
restructuring programme being offset by higher expenditure in building,
advertising and marketing costs and a lower allocation of overheads to research
and product development.
Interest income in 2003 - #0.10 million is comparable with 2002. The interest
expense on long term debt of #0.1 million relates to the convertible bond that
was issued in July 2003.
Cash flow and liquidity
Cash outflow from operating activities was #2.42 million in the quarter,
compared with #1.20 million in third quarter 2002. The increase of #1.22 million
in cash outflow is primarily due to an increase of #1.70 million in working
capital and a #0.20 million decrease in the operating loss offset by a higher
depreciation charge of #0.18 million.
Capital investment has significantly reduced to #0.09 million from #0.5 million
in 2002, primarily reflecting the near completion of the facilities investment
programme. Expenditure in 2002 includes capitalised development expenditure of
#0.27 million.
Cash flow from financing of #4.99 million in the quarter comprises #5 million
from the convertible bond issue in July net of loan repayments which are at a
similar level to 2002.
Overall the cash inflow during the quarter was #2.58 million compared with an
outflow of #1.65 million in 2002.
Balance sheet as at 30 September 2003
The Company's balance sheet remains strong, with a cash balance of
#11.84 million as at 30 September 2003 compared with #12.96 million as at 31
December 2002. Substantially all of the Company's cash balances are denominated
in Sterling.
Long-term assets have reduced slightly from #10.2 million at 31 December 2002 to
#9.80 million at 30 September 2003, due to the amortisation charge of
#1.17 million partially offset by capital investment of #0.46 million and the
deferred finance costs of #0.34 million.
Net working capital at the quarter end, excluding cash balances, was #1.56
million, compared with #0.75 million as at 31 December 2002, with the increase
due to inventory build up of the 400KW generator system and power electronics
products, higher debtors and lower creditors due to lower capital expenditure.
Restructuring provision
In September 2002 the Company implemented a restructuring plan focused on
facility consolidations and productivity improvements in its UK operations. The
provision has reduced from #0.20 million as at 31 December 2002 to #0.09 million
as at 30 September 2003. With the redundancy programme completed during the
first quarter, including a #3,000 release to the profit and loss, the remaining
provision exclusively relates to property disposal.
Financing - Issue of convertible bond
On 11 July 2003, the Company completed a #5,000,000 (C$11,150,000) financing
agreement with Island Investment (Securities) Ltd. & Argun Investments Limited.
The financing comprised Convertible Notes and Warrants. The Convertible Notes
have a term of five years, bear an annual interest rate of 3.5% and are
convertible into an aggregate of 25 million Common Shares of Turbo Genset Inc.
at a conversion price of #0.20 (C$0.446) per share. The Warrants have a term of
three years and are convertible into an aggregate of 3.5 million Common Shares
of Turbo Genset Inc. at an exercise price of #0.15 (C$0.335) per share. No
commissions are payable pursuant to this financing.
The funds will be used to continue the development of products in the three key
areas of Turbine based systems above 175kW output, Variable Speed Generator
systems below 175kW output and Power Electronics, and provide working capital.
TURBO GENSET INC
UNAUDITED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED 30 SEPTEMBER 2003
TURBO GENSET INC.
CONSOLIDATED PROFIT AND LOSS ACCOUNT - PART 1 OF 2
Notes Nine months ended Nine months ended
30 September 2003 30 September 2002
#'000 C$'000 #'000 C$'000
Revenue
Sales 1,068 2,470 651 1,516
Expenses
Production costs 1,378 3,187 1,150 2,678
Research and product 4 2,865 6,628 2,924 6,808
development
General and administrative 2,288 5,290 2,462 5,733
Amortisation 625 1,446 514 1,197
-------- -------- -------- --------
7,156 16,551 7,050 16,416
-------- -------- -------- --------
Operating loss (6,088) (14,081) (6,399) (14,900)
Other income and expense
Interest income net of other 287 664 444 1,034
interest expense and charges
Interest expense and charges (106) (245) - -
on long term debt
Restructuring provision 10 3 7 (783) (1,823)
(charge)/release
Foreign exchange gains/(losses) (11) (25) - -
-------- ------- -------- -------
173 401 (339) (789)
-------- ------- -------- -------
Loss for the period 1 (5,915) (13,680) (6,738) (15,689)
======== ======= ======== =======
Loss per share (3.4) p (7.8) c (3.8) p (8.9) c
-------- ------- -------- -------
Weighted average number 175,251,346 175,228,544
of shares outstanding
TURBO GENSET INC.
CONSOLIDATED PROFIT AND LOSS ACCOUNT - PART 2 OF 2
Notes Three months ended Three months ended
30 September 2003 30 September 2002
#'000 C$'000 #'000 C$'000
Revenue
Sales 584 1,351 317 738
Expenses
Production costs 586 1,355 474 1,103
Research and product
development 4 1,015 2,347 1,228 2,859
General and administrative 745 1,723 618 1,439
Amortisation 212 490 175 407
-------- -------- -------- --------
2,558 5,915 2,495 5,808
-------- -------- -------- --------
Operating loss (1,974) (4,564) (2,178) (5,070)
Other income and expense
Interest income net of other
interest expense and charges 102 236 96 223
Interest expense and charges
on long term debt (106) (245) - -
Restructuring provision
(charge)/release 10 - - (783) (1,823)
Foreign exchange gains /
(losses) 4 9 3 7
-------- ------- -------- -------
- - (684) (1,593)
-------- ------- -------- -------
Loss for the period 1 (1,974) (4,564) (2,862) (6,663)
======== ======= ======== =======
Loss per share (1.1) p (2.6) c (1.6) p (3.8) c
-------- ------- ------- -------
Weighted average number 175,251,346 175,247,107
of shares outstanding
TURBO GENSET INC.
CONSOLIDATED BALANCE SHEET
Notes As at As at
30 September 2003 31 December 2002
#'000 C$'000 #'000 C$'000
Assets:
Current assets:
Cash and short-term
deposits 11,839 26,703 12,961 32,780
Debtors 2,298 5,183 1,644 4,158
Stock and work in
progress 1,122 2,531 726 1,836
-------- -------- -------- --------
15,259 34,417 15,331 38,774
-------- -------- -------- --------
Long term assets:
Investments 300 677 300 759
Intangible assets 4,9 4,600 10,375 4,494 11,366
Tangible assets 9 4,890 11,029 5,404 13,667
-------- -------- -------- --------
9,790 22,081 10,198 25,792
-------- -------- -------- --------
25,049 56,498 25,529 64,566
======== ======== ======== ========
Liabilities and
Shareholders' Equity:
Creditors: amounts
falling due within
one year 1,861 4,198 1,615 4,085
-------- ------- -------- -------
Creditors: amounts
falling due after
more than one year 7 4,571 10,310 406 1,027
-------- ------- -------- -------
Capital and reserves
Equity instruments 1,8 43,884 98,980 42,847 108,364
Exchange adjustments 1 (70) (158) (57) (144)
Profit and loss
account deficit 1 (25,197) (56,832) (19,282) (48,766)
-------- -------- -------- --------
Shareholders' funds 18,617 41,990 23,508 59,454
-------- -------- ------- --------
25,049 56,498 25,529 64,566
======== ======== ======= ========
TURBO GENSET INC.
CONSOLIDATED CASH FLOW STATEMENT - PART 1 OF 2
Notes Nine months Nine months
ended 30 September ended 30 September
2003 2002
#'000 C$'000 #'000 C$'000
Cash outflow from
operating activities 2 (5,847) (13,521) (5,814) (13,537)
Returns on investments
and servicing of finance
Net interest received 285 661 469 1,092
--------- --------- --------- ---------
Net cash outflow from
operating activities (5,562) (12,860) (5,345) (12,445)
Capital investment (455) (1,052) (2,518) (5,863)
--------- --------- --------- ----------
Net cash outflow
before financing (6,017) (13,912) (7,863) (18,308)
Cash flow from financing
Proceeds from share - - 3 7
issues
Net proceeds from
debt issue 5,000 11,563 - -
Loan repayment (105) (243) (135) (314)
--------- --------- --------- ---------
Cash flow from 4,895 11,320 (132) (307)
financing
--------- --------- --------- ---------
Decrease in cash (1,122) (2,592) (7,995) (18,615)
========= ========= =========
Cash, beginning of
the period 12,961 21,520
--------- ---------
Cash, end of the 11,839 13,525
period
========= =========
TURBO GENSET INC.
CONSOLIDATED CASH FLOW STATEMENT - PART 2 OF 2
Notes Three months Three months
ended ended
30 September 30 September
2003 2002
#'000 C$'000 #'000 C$'000
Cash outflow from
operating activities 2 (2,424) (5,606) (1,201) (2,796)
Returns on investments
and servicing of finance
Net interest received 101 234 96 223
--------- --------- --------- ---------
Net cash outflow from
operating activities (2,323) (5,372) (1,105) (2,573)
Capital investment (87) (201) (499) (1,162)
--------- --------- --------- ----------
Net cash outflow
before financing (2,410) (5,573) (1,604) (3,735)
Cash flow from financing
Proceeds from share
issues - - - -
Net proceeds from
debt issue 5,000 11,563 - -
Loan repayment (10) (23) (45) (105)
--------- --------- --------- ---------
Cash flow from financing 4,990 11,540 (45) (105)
--------- --------- --------- ---------
Increase/(decrease) 2,580 5,967 (1,649) (3,840)
in cash
========= ========= =========
Cash, beginning of
the period 9,259 15,174
---------- ----------
Cash, end of the 11,839 13,525
period
========== ==========
TURBO GENSET INC.
FINANCIAL NOTES TO THE ACCOUNTS - PART 1 OF 7
1 Movements in shareholders' funds
Nine months ended 30 September
2003 2002
Equity Exchange Profit Equity Exchange Profit
Instruments adjustments and loss struments adjustments and loss
#'000 #'000 #'000 #'000 #'000 #'000
Balance at 1 42,847 (57) (19,282) 42,794 - (11,095)
January
Loss for the (5,915) (6,738)
period
Exchange (13) (5)
(loss)/gain
Contributed 5 28
surplus
Exercise of 3
share options
Equity component 910
of financial
instruments
Warrants issued 122
-------- -------- -------- -------- -------- --------
Balance at 43,884 (70) (25,197) 42,825 (5) (17,833)
30 September
======== ======== ======== ======== ======== ========
2 Reconciliation of operating loss to net cash outflow from operating
activities
Nine months ended Three months ended
30 September 30 September
2003 2002 2003 2002
#'000 #'000 #'000 #'000
Operating loss for the (6,088) (6,399) (1,974) (2,178)
period
Movements in working
capital balances
Decrease / (increase) (654) (363) (647) (102)
in debtors
Increase / (decrease) 244 281 (176) 730
in creditors
Decrease / (increase) (396) (23) (55) 190
in stocks and work
in progress
Restructuring payments (105) (116) (26) (116)
Adjustment for 1,173 783 449 267
amortisation (a)
Stock compensation 5 28 2 10
expense
Foreign exchange (26) (5) 3 (2)
(losses)/gains
--------- --------- --------- ---------
Cash outflow from (5,847) (5,814) (2,424) (1,201)
operating activities
--------- --------- --------- ---------
(a) The total amortisation for the six months ended 30 September 2003 and
30 September 2002, and for the three months ended 30 September 2003 and
30 September 2002 includes #548,000, #269,000, #237,000 and #92,000,
respectively which is included in research and product development
expenditure in the profit and loss account.
TURBO GENSET INC.
FINANCIAL NOTES TO THE ACCOUNTS - PART 2 OF 7
3 Basis of preparation
The financial statements of the Company have been prepared by management
in accordance with International Accounting Standards and generally
accepted accounting principles in Canada for interim financial statements.
The financial statements have, in management's opinion, been properly
prepared using judgement within reasonable limits of materiality. These
financial statements do not include all the note disclosures required for
annual financial statements and therefore they should be read in
conjunction with the Company's audited consolidated financial statements
for the year ended 31 December 2002. The significant accounting policies
are consistent with prior years', except as noted below;
Change in reporting currency and foreign currencies
Most of the Company's operations are conducted by its United Kingdom
subsidiaries in Sterling. As only limited operations are conducted in
Canadian Dollars, in the first quarter of 2003, the Company adopted
Sterling as its reporting currency. Accordingly, the financial statements
have been prepared on that basis. Comparative figures for the prior
periods have been restated to reflect the change in reporting currency.
All numbers reported in these financial statements are stated in Sterling
unless otherwise denoted. A translation of convenience to Canadian dollars
has been included for information purposes. (Note 12).
In addition, the Group has adopted the Current Rate method to account for
the transactions of Group companies. Under this method, the income
statement and the cash flow statement items for each year, or period, are
translated into Sterling using the average rate for the year, or period,
and assets and liabilities are translated using the exchange rate at the
end of that year or period. All resulting exchange differences are
reported as a separate component of shareholders' equity. The Current Rate
method has been used to re-present the financial statements in respect of
the comparative prior periods and years.
Debt instruments
On issue of convertible debt instruments, the cost of the liability
portion is initially calculated using the market interest rate for an
equivalent non-convertible instrument. The remainder of the net proceeds
is allocated to the equity conversion option, which is reported in equity.
The liability element is subsequently reported at amortised cost.
Amortisation of the debt discount is recognised in the income statement
over the duration of the debt instrument. The value of the equity
conversion option is not changed in future periods.
Deferred financing costs
Financing costs relating to the issue of the convertible bond, including
the fair value of the attached warrants (Note 7) have been deferred and
are being amortised over the five year term of the convertible bond. The
related amortisation charges have been included in interest and other
charges on long term debt. The deferred costs are included in intangible
assets.
4 Research and product development expenditure
The research and product development expenditures incurred during the
period comprise;
Nine months ended 30 September
2003 2002
#'000 #'000
Research and product development 2,949 3,458
expenditure
Accrued tax credits (100) -
Sales of prototype and pre commercial (396) (133)
units
-------- --------
Total expenditure 2,453 3,325
Net amounts deferred during the period (136) (670)
Amortisation 548 269
-------- --------
Net expenditure charged to profit and 2,865 2,924
loss account
======== ========
TURBO GENSET INC.
FINANCIAL NOTES TO THE ACCOUNTS - PART 3 OF 7
4 Research and product development expenditure - cont'd
Deferred development expenditure, net of accrued tax credits and
amortisation, at 30 September 2003 amounted to #3,142,000 (30 September
2002 - #3,140,000). Total accrued tax credits receivable at 30 September
2003, including those credited against deferred development expenditure,
amounted to #605,000 (30 September 2002 - #1,355,000). Capitalised
development costs comprise materials, labour and allocated overheads.
5 Segmental analysis
The Group's three reportable segments are power electronics, which is
involved in the development and manufacture of electrical power supply and
control systems, generator systems which is involved in the development and
commercialisation of electrical machines and related power electronics, and
the corporate segment, which is responsible for the financing of the Group
and other related corporate activities. The power electronics and generator
systems segments operate in the United Kingdom and corporate segment
operates in Canada.
All amounts in Power electronics Generator systems Corporate Total
#'000's
Nine months to
30 September 2003 2002 2003 2002 2003 2002 2003 2002
Revenue 976 651 92 - - - 1,068 651
Net interest - (14) (37) 253 218 205 181 444
income
Amortisation 189 68 436 446 - - 625 514
Loss for the
period (897) (454) (4,335) (5,724) (683) (560) (5,915) (6,738)
Three months to
30 September 2003 2002 2003 2002 2003 2002 2003 2002
Revenue 514 317 70 - - - 584 317
Net interest
income - (16) (67) 54 63 58 (4) 96
Amortisation 65 22 147 153 - - 212 175
Loss for the
period (189) (85) (1,521) (2,570) (264) (207) (1,974) (2,862)
As at September December September December September December September December
2003 2002 2003 2002 2003 2002 2003 2002
Total assets 4,517 3,739 12,477 10,384 8,055 11,407 25,049 25,529
6 Stock options, warrants and compensation expense
The number of options and warrants outstanding as at 30 September 2003 and
the movement during the nine month period then ended are as follows:
Options Warrants
Number Number
Outstanding at 1 January 2003 30,221,428 2,217,187
Cancelled (875,221) -
Lapsed (101,600) (1,108,594)
Granted 363,850 3,500,000
--------- ---------
Outstanding at 30 September 2003 29,608,457 4,608,593
========= =========
The weighted average fair values of the Company's stock options and
warrants, calculated using the Black-Scholes option-pricing model, granted
during the nine months ended 30 September 2003 was #0.03 per share.
TURBO GENSET INC.
FINANCIAL NOTES TO THE ACCOUNTS - PART 4 OF 7
6 Stock options, warrants and compensation expense - cont'd
Options
During the three months ended 30 September 2003, no option stock options
were granted. The Company does not record compensation expense when stock
options are granted to employees, as disclosed in the Company's audited
consolidated financial statements for the year ended 31 December 2002. Had
compensation expense been determined based on the fair value at the grant
dates, the net loss and loss per share would have been reduced to the pro
forma amounts indicated below:
Nine months ended Nine months ended
30 September 30 September
2003 2002
Net loss for the period (#'000)
as reported (5,915) (6,738)
proforma (6,012) (7,587)
Loss per share - basic and diluted (in UK pence)
as reported (3.4) (3.8)
proforma (3.4) (4.3)
The fair value of stock options used to compute pro forma net loss and
loss per common share disclosures is the estimated fair value at grant
date using the Black-Scholes option-pricing model. The Black-Scholes
option-pricing model was developed for use in estimating the fair value of
traded options that have no vesting restrictions and are fully
transferable. In addition, option-pricing models require the input of
highly subjective assumptions including the expected price volatility. The
Company uses expected volatility rates, which are based on historical
volatility rates trended into future years. Changes in the subjective
input assumptions can materially affect the fair value estimate, and
therefore the existing models do not necessarily provide a reliable single
measure of the fair value of the Company's stock options.
Warrants
In July 2003, 3,500,000 warrants were issued in connection with the issue
of a convertible bond. Refer Note 7. The warrants have a term of three
years and are convertible into an aggregate of 3.5 million common shares
of the Company at an exercise price of #0.15 per share.
The estimated fair value of the warrants at grant date was derived using
the Black-Scholes option-pricing model with the following assumptions:
Dividend yield Nil
Expected volatility 40%
Risk-free interest rate 4.5%
Expected warrant life 3 years
TURBO GENSET INC.
FINANCIAL NOTES TO THE ACCOUNTS - PART 5 OF 7
7 Convertible Bond
On 11 July 2003, the Company completed a #5,000,000 financing agreement with
Island Investment (Securities) Ltd. & Argun Investments Limited. The
financing comprised convertible notes and warrants. The convertible notes
have a term of five years, bear an annual interest rate of 3.5% and are
convertible into an aggregate of 25 million common shares of the Company at
a conversion price of #0.20 per share. The warrants have a term of three
years and are convertible into an aggregate of 3.5 million common shares of
the Company at an exercise price of #0.15 per share. No commissions were
payable pursuant to this financing.
The funds will be used to continue the development of products in the three
key areas of Turbine based systems above 175kW output, Variable Speed
Generator systems below 175kW output and Power Electronics, and provide
working capital.
As the convertible bonds are considered to be compound financial
instruments, the liability component and the equity component must be
presented separately, as determined at initial recognition. The Company has
valued the equity component of these bonds using the residual value of
equity component method, whereby the liability component is valued first
using current market rate for comparable instruments, at the time of
issuance. The difference between the proceeds of the bonds issued and the
fair value of the liability is assigned to the equity component. The
resulting liability and equity values determined using this method were
based on an 8% interest rate as follows:
#'000
Balance at 1 January 2003 -
Issued during the year 5,000
Less: equity component (910)
--------
4,090
Add: accretion of debt component 45
during the period
--------
4,135
Less: current portion -
--------
Balance at 30 September 2003 included 4,135
in creditors due after more than one
year
========
8 Share capital - issued common shares
Number
In issue at 1 January 2003 and 175,251,346
30 September 2003
===========
9 Long - term assets - cumulative amortisation
The cumulative amortisation by category of long-term assets were as follows;
30 September 31 December
2003 2002
#'000 #'000
Tangible assets 2,871 2,104
Intangible assets 697 274
TURBO GENSET INC.
FINANCIAL NOTES TO THE ACCOUNTS - PART 6 OF 7
10 Restructuring charges
During the quarter ended 30 September 2002, the Company commenced a
restructuring programme in response to delays in the commercialisation of
the 400kW generator system and a decision not to pursue further development
or commercialisation of products based on the 50 kW alternator. The
restructuring plan focused on facility consolidation, productivity
improvements in the UK operations, which resulted in a 20% reduction in the
UK workforce, and other cost reduction measures.
The movements in the restructuring provisions are as follows:
Redundancy Property Total
costs disposal costs
#'000 #'000 #'000
Provision at 31 December 2002 44 154 198
Cash payments (41) (63) (104)
Release to profit and loss (3) - (3)
--------- --------- ---------
Provision at 30 September 2003 - 91 91
========= ========= =========
The redundancy programme was completed by 31 March 2003. The property
disposal provision relates to a property, which is no longer required
following the rationalisation of group's facilities.
11 Selected quarterly information
The following table sets forth selected consolidated financial information
of the Company for the eight most recently completed quarters
Revenue Net loss Earnings per share
#'000 #'000 UK pence
December 2001(two months) 72 (826) (0.5)
March 2002 129 (1,803) (1.0)
June 2002 205 (2,073) (1.2)
September 2002 317 (2,862) (1.6)
December 2002 76 (1,449) (0.8)
March 2003 207 (1,717) (1.0)
June 2003 277 (2,224) (1.3)
September 2003 584 (1,974) (1.1)
12 Exchange rates
The Sterling amounts have been converted into Canadian Dollars for
convenience purposes using the average and period end exchange rates
as follows:
Nine and three months ended 30 September 2003 2.313
Nine and three months ended 30 September 2002 2.328
As at 30 September 2003 2.256
As at 31 December 2002 2.529
13 Bank guarantees
The Company has provided bank guarantees, which are secured by a charge
over its cash balances, amounting to #344,000.
TURBO GENSET INC.
FINANCIAL NOTES TO THE ACCOUNTS - PART 7 OF 7
14 Post balance sheet event
In October 2003 the Company signed an agreement with Magellan Aerospace
Corporation ("Magellan") of Ontario, Canada and Altek Power Corporation
("Altek") of British Columbia, Canada for the conversion of an industrial
standard turbine engine, which can be coupled directly to Turbo Genset's
1.2MW high speed generator. Magellan is currently upgrading this turbine
engine, under contract to Altek, to meet industrial standards for ground
based power generation. The agreement provides the basis for an ongoing
business relationship with Magellan and Altek for the assembly of a
complete 1.2 MW Turbogenerator System, which will be marketed, in agreed
geographical regions, by Turbo Genset and Altek.
In addition, the Company has invested C$1,000,000 (#444,400) in Altek
through the issue of a two year Convertible Debenture bearing an interest
rate of 6% per annum. The Debenture is convertible over two years into an
aggregate of 1,785,715 Units at a conversion price of $0.56 (#0.249) per
Unit, with each Unit consisting of one common share of Altek and one half
of a share purchase warrant. These warrants entitle Turbo Genset to
purchase, at a price of $0.63 (#0.28) per share, up to 892,857 additional
common shares in Altek for a two year period from the date the warrants are
issued.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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