Torotrak is asking investors to stump up £13.8
million. But will it be money down the drain?
In conjunction with the
fund raise, the earn-out agreement related to the acquisition of Flybrid Automotive
has been restructured and results in the elimination of £10 million of
additional cash consideration.
The net proceeds of the
Issue will also be used to settle the cash consideration due to the Flybrid
Vendors under the Flybrid Agreement and to provide the Group with additional
working capital.
Disappointing
The past year has been marked by the arrival
of Adam Robson who took over from Jeremy Deering as chief executive officer on
13 April 2015.
Robson admits the financial
performance of the Group has been disappointing.
The normalised loss after
tax (before amortisation of intangible asset (know-how), associated tax credit
and exceptional items) increased to £6.7 million (2014: £3.4 million),
reflecting lower licensing revenues, a full year's operating costs for Flybrid
and the investment in developing and productionising the bus and off-highway
KERS product.
The Group closed the
financial year with a cash balance of £7.6 million (2014: £14.9 million) and
loan notes due to the vendors of Flybrid Automotive of £2.8 million (2014: £2.8
million). The net reduction in cash of £7.3 million arises from the operating
loss for the year and the investment in capital expenditure, being plant,
machinery and patents.
Robson says he has spent
much of his time since starting at Torotrak “resetting the strategic focus” of
the Group to commercialise its technology and reorganise the Group's executive
management team, engineering and other resources to deliver on this commitment.
This will not be the first
time that Torotrak’s strategic focus has been reset.
Robson claims he is “excited”
to have joined Torotrak “at this important time” and looks forward to “helping
deliver the significant value embedded in the Group's different technologies”.
One-off settlement
Under the terms of his restructuring, Flybrid Vendors
receive a one-off settlement of 71,428,571 New Ordinary Shares and will
convert £1.8 million of loan notes into a five year term loan, secured on the
assets of Flybrid and repayable by the Group at any time during the five year
term and the remaining £1 million will be paid out of the proceeds of the fund
raise.
The company claims the cash
funding will enable the Group to commercialise its technologies and launch bus
KERS in the market in mid-2016.
In addition, restructuring
the earn-out agreement “removes a potential conflict and ensures that all
members of the Board and Executive management are fully aligned to maximise the
commercial opportunity for the KERS technology”.
As part of Robson’s
strategy “to reset the focus” of resources on commercialising the Group's
technology, a “reorganisation” will reduce on-going cash operating expenses by
20 per cent and align resources to deliver commercial success.
Robson claims that by “leveraging
the capabilities of the Group's current and future Tier 1 partners, such as
Univance”, in conjunction with the reorganisation “will help the Group deliver
shareholder value” through licensing and other product sales.
KERS for buses
The Group's primary focus since acquiring
Flybrid Automotive has been completing the design, development and testing of
the bus KERS product and commencing the in-service trials in a Wrightbus
StreetLite vehicle with Arriva. During the year the engineering team has
successfully completed the following programme activities:
Installed KERS units into two Wrightbus StreetLite vehicles,
successfully completed the necessary calibration and drivability tests to
maximise energy capture and fuel savings. The KERS-enabled vehicles have
undergone an extensive series of tests both on public roads and test tracks
such as Millbrook Proving Ground, Bedfordshire. The Vehicle Certification
Agency has confirmed the KERS-enabled bus has successfully passed the braking
performance tests necessary to operate on a public bus route;
Independent
testing completed at the Millbrook test track, confirms the bus KERS system can
deliver fuel savings and can give bus operators an attractive payback. With the
new £30 million incentive fund announced by the Government for Low Emission Bus
(LEB) procurement, Robson anticipates payback to bus operators could be
significantly faster with initial capital grants. The Group has also conducted
its own testing at the Millbrook test track which confirms the significant fuel
savings that are available to bus operators in real-world use;
In March
this year, Arriva commenced a public trial of a Flybrid KERS-enabled Wrightbus
StreetLite vehicle. The vehicle is in service with Arriva on a public bus route
in Gillingham, Kent. The Group, in conjunction with Arriva, will monitor the
in-service performance of the vehicle using on board telemetry. This is an
important validation of the KERS product that “will provide an excellent
opportunity to showcase the technology to potential customers including bus
operators and other bus OEMs”.
Extensive
accelerated flywheel assembly durability testing equivalent to more than 10
years of in-service operation has been completed successfully; this confirms the target design life of at least 1 million
kilometres. Robson claims this confirms an important benefit of the Group's
flywheel hybrid compared to battery hybrids which require a mid-life battery
pack replacement, increasing through-life costs and operating downtime.
Destructive testing to validate the flywheel functional safety has also been
successfully performed proving the patented safety features of the system.
In
parallel, the engineering team has completed the production-intent design for
the low cost industrialised bus KERS system, reducing weight, parts count and
estimated cost. The first units are currently being assembled at the Group's
facility in Leyland and will be used as part of a comprehensive design
verification test programme to validate the functional performance, reliability
and improved fuel efficiency of the KERS system.
Light commercial vehicle uses
Torotrak has been working in close
collaboration with a major global Tier 1 manufacturing and assembly partner
which is a technology leader in commercial vehicle and light vehicle driveline
systems.
Robson says the combined
engineering teams of Torotrak’s Tier 1 partner and the Group's development team
are focused on optimising the design for manufacture, reliability and cost and
building a supply chain to deliver the volumes required by bus operators and to
support a commercial market launch in mid-2016.
The Group signed a
Memorandum of Understanding with the Tier 1 earlier this year which is expected
to lead to a formal volume supply agreement. The initial agreement is that the
Tier 1 will supply KERS units (excluding flywheel assemblies) and Torotrak will
manufacture flywheel systems and assemble these into the complete KERS unit for
shipment to bus OEMs.
The Group is targeting
in-vehicle trials of the new production-ready KERS units later this year and,
following investment in tooling, the commercial launch of KERS is scheduled for
mid-2016.
This is 12 months later
than originally planned, however Robson believes that KERS can deliver the
required bus operator payback.
The recent announcement by
the UK Government's Office for Low Emission Vehicles of a £30 million fund for
(Ultra) Low Emission Bus procurement (LEB) is a welcome initiative to encourage
bus operators to procure new low carbon vehicles. Initial indications
suggest that a Flybrid KERS unit could be eligible for a capital grant of up to
75 per cent, which would enable KERS to offer bus operators a rapid payback.
The LEB programme is also
designed to stimulate the uptake of new low carbon technologies that offer
value for money and that help to reduce the need for government subsidy over
the period of the scheme and beyond. Torotrak is working with partner,
Wrightbus, to ensure the Flybrid KERS equipped StreetLite is eligible for grant
funding under this scheme.
KERS for
off-highway, cars
The collaboration with JCB, part-funded by the
UK-Government formed Advanced Propulsion Centre, to design, develop and
commercialise Flybrid flywheel systems for excavators is progressing well.
In-vehicle and rig tests of flywheel systems are encouraging.
Torotrak is looking at
other opportunities for its KERS systems in other off-highway applications.
Robson says Torotrak has recently completed feasibility studies for two major European-based OEMs. (It has worked closely in the past with Jaguar and Volvo.)
Whilst these studies are
early-stage feasibility studies, Robson claims these confirm the view that OEMs
are looking at mechanical-based energy recovery systems as a lower cost, more
effective solution than battery based hybrid solutions.
Torotrak is engaged also with
a number of other passenger car OEMs and Tier 1s in Europe, North America and
China, who are investigating the opportunities for KERS with potential
feasibility and demonstrator vehicle programmes.
Downsizing
In April this year, Torotrak announced it was
working with Ford Motor Company, a leader in efficient passenger car engines,
to evaluate the potential benefits of V-Charge technology in engine downsizing.
The project, funded by
Innovate UK, in collaboration with the University of Bath (a world recognised
centre of excellence in this field, according to Torotrak) and a global Tier 1
engine boosting supplier is developing a production orientated version of
V-Charge.
This work is focused on
exploiting the capability of V-Charge technology through optimisation of
multiple engine parameters demonstrating the emissions reduction and
performance improvement opportunities for the technology.
Robson says the technology
has the potential to reduce the complexity and cost of multi-stage boosting
systems that are necessary to achieve increased specific engine outputs.
Initial simulation results
from the University of Bath collaboration confirm V-Charge has the potential to
improve the performance of a modern downsized gasoline engine when compared to
competing advanced boosting technology, making it a potential enabler for more
aggressive engine downsizing, according to Torotrak.
Using current supercharger
compressor technology, V-Charge can provide improved low speed torque output,
and under full-load conditions is predicted to deliver improved fuel
consumption and CO2 emission reductions without the 'lag' associated with existing
boosting solutions.
The next stage will see
V-Charge hardware integrated into two passenger cars and the University of Bath
will independently validate the performance and fuel-efficiency benefits
delivered by V-Charge in real-world drive cycles.
Torotrak is working closely
with Univance (an existing licensee for the Group's continuously variable
transmission (CVT) technology), to explore the commercial opportunity to use
V-Charge CVT technology to improve fuel efficiency, with a focus on on-highway
commercial vehicle boosting applications.
Univance is working with
several Japanese OEMs interested in commencing demonstration programmes to
confirm the benefits of using Torotrak's CVT in conjunction with a turbocharger
over and above competitor technologies.
Main drive
transmissions
In November 2014, Allison Transmission paid the
final £1 million licence fee, deferred from earlier in the year; confirming the
step-change improvement in key component durability and lifetime. Robson says the
Group is working with Allison to determine the most appropriate product for the
Group's technology, taking into account the market opportunities and the key
drivers of fuel efficiency, packaging and cost.
Torotrak has been invited to participate in a
feasibility study for off-highway applications to be commissioned and completed
during 2015.
Univance has recently
secured a Japanese government grant to develop a family of variators for
off-highway and auxiliary drive applications using the Group's CVT technology
and has identified a number of lead customers for this product family.
On a recent to visit to
Japan, Torotrak agreed to support these programmes as part of the drive to
secure new commercial opportunities.
Manufacturing
During the year Torotrak has invested in low
volume manufacturing, test and build equipment at the Leyland facility.
Investments include:
Carbon
fibre filament winding and flywheel hub manufacturing capability to manufacture
complete flywheels in lower volumes up to a few thousand units per annum,
meeting the initial requirements for on and off-highway commercial vehicle
markets;
CNC
machining capability to manufacture multiple high-value components enabling
multiple engineering programmes to be delivered more quickly and
cost-effectively and to help capture valuable design-for-manufacture learnings
and IP.
In
addition, investment has also been made in 24-hour ('lights-out') accelerated
flywheel durability testing capability to further KERS development test
facilities in order to support product development programmes for the Torotrak’s
key KERS programmes including with Wrightbus.
Whether all of this activity with Robson at
the helm yields “shareholder value” remains to be seen. Investors have
certainly been waiting a long time for that “value” to materialise. If not, it will be back to square one.
Likewise, Robson appears to have set some targets; again
it remains to be seen if they can be met.
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