CAP.L Regulatory News (CAP)

29 Mar 2007 07:02

Clean Air Power Limited29 March 2007 For immediate release 29th March 2007 Clean Air Power Limited ("Clean Air Power" or "the Company") Preliminary Results for the year ended 31st December 2006 Clean Air Power Limited (AIM:CAP) the developer of Dual-FuelTM combustiontechnology for heavy-duty diesel engines today announces its results for the 12month period ended 31 December 2006. Highlights • 22% increase in annual sales to £4.07m, up from £3.33m in 2005. • Gross margin increased substantially from 29% to 43%. • Net loss narrowed by £1.04m (22%), to £3.73m from £4.77m in 2005. • Successful admission to the AIM Market of the London Stock Exchange ("AIM"), raising gross proceeds of £10.60m. • Launch of Genesis, a new retrofit product range for the UK and Europe in May 2006. Available on the DAF CF85 and Mercedes Axor engines, the first system was sold to Warburtons Bakery in June 2006. The system was trialled by Tesco plc during the last four months of the year. • The Group continues to develop new intellectual property and during the year two additional patents were granted in key commercial areas. • Demand continues to grow in the Australian market for the original C15 integrated system. 36 units sold in final quarter of 2006 and an order worth £1.50m was received in December 2006 for 50 units for delivery during 2007. • Revenues in the Components division grew 45% with strong gross margins aided by the increased global demand for CNG buses. • The USA based Emissions Reduction division delivered a major project in Louisiana, worth £0.66m on time and on budget. • The Group continues to pursue its strategy towards incorporating its technology into the products of major international truck engine manufacturers. Results Year Ended Year Ended 31 December 2006 31 December 2005 £'000 £'000 Group Turnover 4,072 3,331 Operating Loss (pre exceptional items) (3,690) (3,979)Loss after tax (3,729) (4,767) Basic and diluted loss per share (14.8p) (29.2p) Commenting on Clean Air Power's full year results, John Pettitt, CEO said: "In 2006 Clean Air Power increased revenues by 22% and gross profit by 85% andsimultaneously undertook a considerable restructuring of the Group to benefitthe long term growth prospects. Clean Air Power's technology delivers provenreductions in carbon emissions along with very significant fuel cost savings totruck operators. As such Clean Air Power is perfectly positioned to assist majorcorporations and governments to deliver on their environmental commitments whileat the same time reducing transport overheads." For further details please contact Clean Air Power Tel: +44 (0)1494 527 110John Pettitt, Chief ExecutivePeter Rowse, Finance Director Buchanan Communications Tel: +44 (0)20 7466 5000Charles Ryland Ben Willey Canaccord Adams Limited Tel: +44 (0) 20 7050 6500Robert FindlayErin Needra Chairman's Statement This year has seen tremendous change in the operations and structure of CleanAir Power. Following the recruitment of a new UK-based executive management teamin 2005 the process of the restructuring and refocusing of the business began.The year has seen the launch of our new Genesis product in the UK market and anincrease in demand for our Dual-FuelTM products in Australia. Along with its main Dual-FuelTM business Clean Air Power increasingly derivesincome from two other trading divisions based in the USA. Both of thesedivisions, Components sales and Emissions Reduction solutions, producedsignificant growth compared with the previous year and contributed cash to theGroup. However, the main focus of our Research and Development and commercial activityremains the Dual-FuelTM product range and our primary objective is to reach anagreement with a truck manufacturer whereby the technology is incorporated ontheir vehicles as a standard option. Clean Air Power continues to make progressin its discussions with a number of such organisations although thesediscussions are considered to be in their early stages. Financial Results Turnover increased by 22% for the year ended 31 December 2006 reaching £4.07mfrom £3.33m the previous year. The growth was driven by sales from the EmissionsReduction division which grew 222% from £0.28m to £0.90m and from the Componentsdivision, where sales increased 45% from £0.98m to £1.43m. Vehicles sales fellby 16% from £2.07m in 2005 to £1.74m in 2006 mainly due to the ending of theproduct life cycle of the previous Dual-FuelTM product in the UK. Gross profit for the year was £1.76m compared to £0.95m in the prior year. Thegross margin for the year was 43% (2005: 29%). The results for the year ended 31 December 2006 include reorganisation expensesof £0.20m (2005: £0.25m). The Group's reorganisation is now complete;consequently no further charges are expected. Operating losses for the year were down to £3.69m (2005: £3.98m). The retained loss for the year after interest and taxation was £3.73m (2005:£4.77m). The basic and diluted loss per share was 14.8 pence (2005: 29.2 pence). Cash on hand at 31 December 2006 was £5.62m demonstrating lower than expectedcash burn for the year. The net assets of the Group at the year end totalled £6.47m (2005: netliabilities £6.70m). Net current assets at the year end amounted to £5.93m(2005: net current liabilities £3.30m) of which £5.62m relates to cash balances(2005: £1.16m). Business Review The Group is ideally placed to take advantage of two significant and highprofile global issues: increasing fossil fuel cost and growing concern overharmful emissions and CO2. The Clean Air Power technology delivers a markedimprovement in both of these areas and has been already proven on over 1,600trucks worldwide. Clean Air Power has 3 commercial divisions; Dual-FuelTM vehicles systems,Components and Emissions Reduction systems. Dual-FuelTM vehicles systems The core technology of the Group gives rise to Clean Air Power's patentedDual-FuelTM system which allows a heavy duty diesel truck engine to run on acombination of both diesel and natural gas, thereby generating significantreductions in NOx, particulate and CO2 emissions as well as generating costsavings for the operator. The technology is currently available in two main variants; the integratedproduct currently marketed in Australia and the Genesis product marketed inEurope. Integrated vehicle system In this solution Clean Air Power's technology is integrated with themanufacturer's electronic engine management system. It requires the cooperationof the manufacturer and maximises the benefits in terms of carbon emissions andfuel cost savings. This engine is certified to EPA 02 which is the currentstandard in the Australian market. Demand for this system is growing driven bythe desire to reduce greenhouse emissions and the fuel cost savings available tothe operators. The Australian system is being developed further with the aid ofa grant from the Australian Greenhouse Office.In the last quarter of 2006 36 units were sold. Also late in 2006 an order for50 units with a value of £1.50m was received for delivery during 2007. Genesis vehicle system The 'Genesis' system has been specifically developed to be an after-marketretro-fitted product which can be installed without the need for formalcooperation of the engine manufacturers. The original application of the dualfuel technology in trucks was carried out in partnership with a single enginemanufacturer. This route to market provided certain engineering benefits butmeant that Clean Air Power was commercially restricted to the markets andoperators where these engines continue to be certified. The 'Genesis' product was designed to address this commercial restriction. It isdesigned to be generic and is ultimately adaptable to fit any Euro III enginethereby rendering a much wider market accessible to the Group. In May of 2006the first 'Genesis' model was completed. Warburtons, the national bakerycompany, who have a large fleet of heavy duty trucks, took delivery of the'Genesis' truck in the first week of June 2006. Clean Air Power has now developed the Genesis solution for both DAF and MercedesEuro III vehicles and is actively marketing it using a fleet of 5 demonstrationvehicles to allow potential customers to gain first hand experience of aDual-FuelTM truck. Clean Air Power is targeting major supermarkets, logisticscompanies, parcel carriers and local authorities for its 'Genesis' product. Webelieve these types of organisation will appreciate the financial benefits ofconverting their vehicles to gas whilst also understanding that they will bemaking a positive environmental impact. At present three major logisticsoperators are trialling our technology in the UK. We also believe that there are opportunities in Europe where certain marketshave more mature natural gas infrastructures or a more beneficial natural gasversus diesel price differential. Our target markets include Germany, Italy andthe Netherlands. A very important achievement for the Group was the successful conversion of aMercedes Axor truck for Tesco plc in the UK. This conversion project enjoyed thesupport and cooperation of both Tesco and Mercedes. On completion of theconversion Tesco began a trial of the vehicle which ran from mid-July until theend of November. All parties agreed that the Clean Air Power Dual-FuelTM vehiclemet with all of Tesco's objectives, which include driver acceptability andachieving certain operational performance benchmarks. Additionally, the trialunit has achieved an annualised CO2 emission reduction equivalent to around 10tonnes whilst reducing their fuel cost by more than 15%. The vehicle continuesto run in the Tesco fleet, based from the Harlow depot, operating mainly inLondon. To date, Tesco have not ordered any further Dual-FuelTM vehicles. Tescohave recognised the environmental benefits of Clean Air Power's Dual-FuelTMtechnology and have expressed a willingness to support Clean Air Power withtheir discussions with manufacturers. These discussions relate to looking tosecure the incorporation of Dual-FuelTM technology on Euro IV and Euro Vemission standard compliant trucks. Genesis is a transitional product for the Group. Its objective is to bring thebenefits of Dual-FuelTM to operators in a current market situation where none ofthe major truck manufacturers offer a dual fuel solution. Once the operatorsbegin to enjoy the financial and environmental benefits of running vehicles onDual-FuelTM the Clean Air Power strategy foresees two outcomes: an increaseddemand for further Dual-FuelTM trucks from operators, and a demonstration ofreal market demand to assist Clean Air Power in its negotiations with truckmanufacturers. OEM Developments Our longer term strategic goal is to work with truck manufacturers whereby theDual-FuelTM technology is incorporated on their vehicles as a standard optionand developed further with their full cooperation. In this way the benefits ofour technology can be maximised. The Group is actively pursuing this route tomarket with a number of such organisations although we recognise that we are inthe early stages of this process. The strategy involves encouraging the engine manufacturers to adopt ourtechnology in partnership with a combination of interested parties. Truckoperators, environmental bodies and governments would all benefit from thewidespread adoption of our Dual-FuelTM technology. By demonstrating the benefitsof our technology to these parties we expect to enlist their support therebybuilding a compelling proposition for the manufacturers. Some of these Dual-FuelTM vehicles have run for more than seven years and othershave completed more than a million kilometres running on systems. The ultimate goal of the Group is to enter into an agreement whereby ourtechnology is incorporated as a standard option on a manufacturer's vehicles andthese plans can be described as being in their early stages. Components Division Clean Air Power manufactures a number of the components that are used in theGroup's Dual-FuelTM Technology. The Group also sells these components for sparkignited gas engines and certain other applications. Global demand for theseengines is increasing as part of the overall shift towards alternative fuels.With sales mainly in Europe and the USA, strong margins and a customer baseincluding international OEMs, this is an important supplement to the overallClean Air Power business. We expect to strengthen our sales and marketingefforts in order to develop further opportunities for this area of our business. Emissions Reduction Division This area of our business provides solutions to very large stationary dieselengines such as those used in pumping stations. Our current market is mainly inthe USA and we provide a solution whereby the emissions from large stationarydiesel engines are reduced, using Selective Catalytic Reduction technology anddiesel particulate filtering, usually in response to the requirements of locallegislation. The business is mainly project based with a few large scale contracts generatingthe majority of the revenue. In 2006 the Group increased its marketing effortsin this area by adding a team of sales agents to its in-house sales resource. Outlook Overall, 2006 has been an exciting year for Clean Air Power Limited. Sinceadmission to AIM in February, the Group's plans for increased commercialisationof its technology are continuing to progress. Clean Air Power increased salesand gross profits compared with 2005 and further progress is expected during2007 as the Group plans to build on the growth achieved in 2006. As throughout 2006 the demand for our components remains strong, with growth ofspark ignited gas engines a main driver. The cash burn rate to 31 December 2006 was slightly lower than expected and theprojected cash balance for the end of 2007 is projected to remain broadly inline with the board's expectations. The beginning of 2007 has seen the establishment of a new Clean Air Powercompany in Australia. The Group is recruiting management, sales and technicalstaff in order to support the Group's growth plans in this exciting market. Inthe UK a number of major national and international organisations are triallingthe Genesis product although we would like to see further progress. The primary objective of the Group is to implement the Dual-FuelTM technology asa standard option with a truck or engine manufacturer. Clean Air Power continuesto make progress in its discussions with a number of such organisations althoughthese discussions are considered to be in their early stages. About Clean Air Power----------------------- Clean Air Power is pioneering the move towards using natural gas to power heavygoods vehicles by developing patented Dual-FuelTM technologies. Thesetechnologies allow an existing diesel engine to operate on a combination ofdiesel and natural gas with minimal change required to the base engine. Thesolutions provided by Clean Air Power maintain diesel engine performance andefficiency while delivering significant fuel cost savings along with a markedreduction in carbon emissions. The Clean Air Power Dual-FuelTM technology isproven in that around 1,600 vehicles have already been fitted with theDual-FuelTM products worldwide. Some of these vehicles have completed more thana million kilometres and some have been running for more than seven years. Clean Air Power's technology delivers proven reductions in carbon emissionsalong with very significant fuel cost savings to truck operators. As such CleanAir Power is perfectly positioned to assist major corporations and governmentsto deliver on their environmental commitments while at the same time reducingoperator's transport overheads. The holding Company of the Group is now based in Bermuda and there aresubsidiaries in the UK and the USA. The Group reorganisation began in October2005 with the establishment of a Bermudan based Company, Clean Air Power Limited(the "Company"). At that time the Group consisted of a USA based parent Company,Clean Air Power Inc. and a UK registered subsidiary, Clean Air Power Limited.The Group reorganisation concluded on 27 February 2006 when the Bermuda basedCompany acquired 100% of the share capital of both Clean Air Power Inc. andClean Air Power Limited (UK registered). The resultant Group structure has CleanAir Power Limited, the Bermudan based parent, and its two wholly-ownedsubsidiaries; Clean Air Power Limited (UK registered) and Clean Air Power Inc. Initially founded in the USA in 1991, around £28m has been invested indeveloping the technology with the result that 56 patents are currently held orpending. A new executive management team was recruited in 2005 and the effectivecommercial re-launch of Clean Air Power was completed on 28 February 2006 withits admission to AIM raising gross proceeds of £10.6m. The first objective forthe new team has been to adapt the technology in order that it may be applied toa larger range of heavy duty vehicles thereby increasing the potential market. Clean Air Power is actively selling its technology in the UK and Australia. TheGroup plans to develop significantly its sales volumes and potential marketsfurther by entering into an agreement whereby its technology is adopted by anengine or truck manufacturer. This is the single most important objective of theGroup. In addition to its core Dual-FuelTM products the Group has two other valuablebusiness divisions contributing both sales and gross margin: -The Components division which sells specialised automotive components tovehicle manufacturers, mainly for spark ignited natural gas engines. Globaldemand for these engines is increasing as part of the overall shift towardsalternative fuels. -The Emissions reduction division provides solutions to manage emissions fromvery large stationary diesel engines such as those used in pumping stations. Ourcurrent market is mainly in the USA and we provide a solution whereby theemissions from large stationary diesel engines are reduced, using SelectiveCatalytic Reduction technology and diesel particulate filtering, usually inresponse to the requirements of local legislation. In the UK the Group has an administration centre in High Wycombe and anengineering and production facility in Leyland. In the USA Clean Air Power hasan R&D and production facility in San Diego, California along with an EmissionsReduction facility in Houston, Texas. CONSOLIDATED PROFIT & LOSS ACCOUNT Consolidated Profit & Loss Account for the Year Ended 31 December 2006 Year ended Year ended Note 31 December 31 December 2006 2005----------------------------------- ---------- ---------- £000's £000's Turnover 5 4,072 3,331 Cost of Sales (2,314) (2,379) ---------- ----------Gross profit 1,758 952 Administrative expenses (4,689) (4,931)Share-based payment charge (759) - ---------- ----------Group operating loss (3,690) (3,979) Reorganisation expenses (196) (249) ---------- ----------Loss on ordinary activitiesbefore interest and taxation (3,886) (4,228) Interest receivable 274 22Interest payable (117) (561) ---------- ----------Loss on ordinary activitiesbefore taxation (3,729) (4,767) Taxation - - ---------- ----------Loss on ordinary activities aftertaxation (3,729) (4,767) ---------- ----------Loss for the financial period 6 (3,729) (4,767) ---------- ---------- Basic and diluted loss per share 9 14.8p 29.2p ---------- ---------- All items dealt with in arriving at operating loss above relate to continuingoperations Consolidated Statement of Total Recognised Gains and Losses for the Year Ended31 December 2006 Year ended Year ended 31 December 31 December 2006 2005----------------------------------- ---------- ----------Loss for the period (3,729) (4,767) Currency translation differences on retranslationof subsidiary undertakings 476 36 ---------- ----------Total losses recognised for the period (3,253) (4,731) ---------- ---------- CONSOLIDATED BALANCE SHEET Consolidated Balance Sheet at 31 December 2006 ----------------------------------- ---------- ---------- Note 31 December 31 December 2006 2005----------------------------------- ---------- ---------- £000's £000'sFixed assets Intangible assets 408 -Tangible assets 134 241 ---------- ---------- 542 241Current assets Stocks 1,090 998Debtors 1,159 663Cash at bank and in hand 5,617 1,163 ---------- ---------- 7,866 2,824 Creditors: amounts falling duewithin one year (1,130) (5,272)Provisions for liabilities andcharges (807) (852) ---------- ----------Net current assets /(liabilities) 5,929 (3,300) ---------- ---------- Total assets less currentliabilities 6,471 (3,059) Creditors: amounts falling dueafter more than one year - (3,642) ---------- ----------Net assets / (liabilities) 6,471 (6,701) ---------- ---------- Capital and reserves Called up share capital 15 7Share premium account 6 8,982 -Other reserves 6 33,886 26,734Profit and loss account 6 (36,412) (33, 442) ---------- ----------Shareholders' funds / (deficit) 6,471 (6,701) ---------- ---------- CONSOLIDATED CASH FLOW STATEMENT Consolidated Cash Flow Statement for the Year Ended 31 December 2006 Year ended Year endedConsolidated cash flow statement Note 31 December 31 December------------------------------- ----- 2006 2005 ---------- ---------- £'000 £'000 ---------- ----------Net cash outflow from operatingactivities 7 (3,725) (3,022) ---------- ---------- Return on investments and servicing offinance Interest received 274 22Interest paid (78) (294) ---------- ----------Net cash outflow from returns oninvestment and servicing offinance 196 (272) ---------- ---------- Capital Expenditure Purchase of intangible fixedassets (516) -Purchase of tangible fixed assets (113) (24)Sale of tangible fixed assets 2 13 ---------- ----------Net cash outflow on capitalexpenditure (627) (11) ---------- ---------- Acquisitions and disposals ---------- ----------Group reorganisation costs (196) (256) ---------- ---------- ---------- ----------Net cash outflow before financing (4,352) (3,561) ---------- ---------- FinancingIssue of ordinary shares 10,587 -Issue of preference shares - 1,162Share issue costs (1,599) -Proceeds on notes payable - 2,686Payments on notes payable (182) (182) - ---------- ----------Net cash inflow from financing 8,806 3,666 ---------- ---------- ---------- ----------Increase in cash 4,454 105 ---------- ---------- 1. Group Reorganisation Under a Group reorganisation on 27 February 2006, the Company, Clean Air PowerLimited (Bermuda) acquired the whole of the share capital of Clean Air PowerInc. and Clean Air Power Limited.(UK registered) in exchange for shares. Thereorganisation has been accounted for in accordance with the principles ofmerger accounting set out in Financial Reporting Standard 6 'Acquisitions andmergers' (FRS 6). The preliminary results have been prepared as if Clean AirPower Inc. and Clean Air Power Limited (UK registered) had been owned andcontrolled by the Company throughout the periods ended 31 December 2005 and 31December 2006. 2. Basis of Preparation and Consolidation The preliminary results of Clean Air Power Limited are prepared under thehistorical cost convention, and in accordance with United Kingdom GenerallyAccepted Accounting Practice (UK GAAP). In preparing the preliminary results for the current year, the Group has adoptedFinancial Reporting Standard 20 'Share-based payments' (FRS 20). The adoption ofFRS 20 has resulted in a change in accounting policy for share-based paymenttransactions. FRS 20 requires the fair value of options and share awards whichultimately vest to be charged to the profit and loss account over the vestingperiod or performance period. For equity-settled transactions the fair value isdetermined at the date of the grant using an appropriate pricing model. As therewas no share based payment plan in place during 2005, the adoption of thestandard has not resulted in the re-statement of the comparative figures. 3. US to UK GAAP Conversion The Clean Air Power Inc. 2005 financial information was originally prepared in$US and in accordance with United States Generally Accepted Accounting Practice(US GAAP). However since Clean Air Power Limited publishes results in sterlingand in accordance with UK GAAP the information has been translated forconsistency and ease of comparison. The 2006 information has been translated at an average $US to £ rate of 1.84295(2005: 1.82069) for the Profit and Loss Account and Cash Flow Statement and aclosing $US to £ rate of 1.95910 (2005: 1.72080) for the Balance Sheet. The mainadjustment to the Clean Air Power Inc. financial information is due to theapplication of the requirements of Financial Reporting Standard 25 'Financialinstruments' (FRS 25) to the convertible promissory notes previously issued byClean Air Power Inc. 4. Accounting Policies Turnover Turnover represents the amounts derived from the supply of goods and serviceswhich fall within the Group's activities, and is stated net of value added taxand excludes inter-company sales. Turnover is recognised when the significantrisks and rewards of ownership of the goods have passed to the buyer, usually ondispatch of the goods. Depreciation Depreciation is provided to write off the cost, less estimated residual values,of all tangible fixed assets over their expected useful lives. It is calculatedusing the following rates: Short leasehold improvements 20 - 33% per annumPlant and equipment 20% per annumFixtures and fittings 20 - 33% per annum Stocks and work in progress Stocks and work in progress are valued at the lower of cost and net realisablevalue. Cost includes all costs incurred in bringing each product to its presentlocation and condition as follows: Raw materials, consumables and goods for resale - valued on an average costsbasis Work in progress and finished goods - cost of direct raw materials and labour Net realisable value is based on estimated selling price less any further costsexpected to be incurred to completion and disposal. Leasing and Hire Purchase Commitments Rentals payable under operating leases are charged in the profit and lossaccount on a straight line basis over the lease term. Lease incentives arerecognised over the shorter of the lease term and the date of the next rentreview. Foreign currency Foreign currency transactions of individual companies are translated at therates ruling when they occurred. Foreign currency monetary assets andliabilities are translated at the rates ruling at the balance sheet date. Anydifferences are taken to the profit & loss account with the exception ofinter-company transactions which are taken directly to reserves. The financial statements of overseas subsidiary undertakings are translated atthe rates of exchange ruling at the balance sheet date. The exchange differencesarising on the retranslation of opening net assets/liabilities are takendirectly to the reserves. All other translation differences are taken to theprofit & loss account. Intangible Assets Intangible assets are carried at cost less accumulated amortisation andaccumulated impairment losses. Intangible assets acquired separately from a business are carried initially atcost. Expenditure on internally developed intangible assets, excludingdevelopment costs, is taken to the income statement in the year in which it isincurred. Development expenditure is recognised as an intangible asset onlyafter its technical feasibility and commercial viability can be demonstrated. Intangible assets with a finite life are amortised on a straight line basis overtheir expected useful lives, as follows: Development expenditure - 2 to 3 years The carrying value of the intangible assets is reviewed for impairment wheneverevents or changes in circumstances indicate the carrying value may not berecoverable. In addition, the carrying value of capitalised developmentexpenditure is reviewed for impairment annually before being brought into use. Investments Investments in subsidiary undertakings are stated at cost less any provision forany impairment that the directors consider necessary. Deferred Tax Deferred tax is recognised in respect of all timing differences that haveoriginated but not reversed at the balance sheet date where transactions orevents have occurred at that date that will result in an obligation to pay more,or a right to pay less or to receive more, tax, with the following exceptions: • provision is made for tax on gains arising from the revaluation (and similar fair value adjustments) of fixed assets, and gains on disposal of fixed assets that have been rolled over into replacement assets, only to the extent that, at the balance sheet date, there is a binding agreement to dispose of the assets concerned. However, no provision is made where, on the basis of all available evidence at the balance sheet date, it is more likely than not that the taxable gain will be rolled over into replacement assets and charged to tax only where the replacement assets are sold; • provision is made for deferred tax that would arise on remittance of the retained earnings of overseas subsidiaries, associates and joint ventures only to the extent that, at the balance sheet date, dividends have been accrued as receivable; • deferred tax assets are recognised only to the extent that the directors consider that it is more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted. Deferred tax is measured on an undiscounted basis at the tax rates that areexpected to apply in the periods in which timing differences reverse, based ontax rates and laws enacted or substantively enacted at the balance sheet date.Financial Assets and LiabilitiesInterest bearing loans and borrowingsAll loans and borrowings are initially recorded at fair value net of issue costsassociated with the borrowing. Interest bearing bank loans and overdrafts are recorded at the proceedsreceived, net of direct issue costs. Finance charges, including premiums payableon settlement or redemption and direct issue costs, are accounted for on anamortised cost basis and charged to the Profit and Loss Account using theeffective interest method and are added to the carrying amount of the instrumentto the extent that they are not settled during the period in which they arise. Capital instrumentsCapital instruments issued by the company are recorded at the proceeds received,net of direct issue costs. Capital instruments are all instruments that are issued by the company as ameans to raising finance, including shares, debentures, debt instruments andoptions and warrants that give the holder the right to subscribe for or toobtain capital instruments. An equity instrument is any contract that evidencesa residual interest in the assets of an entity after deducting all of itsliabilities. All equity instruments are included in shareholders funds. Otherinstruments are classified as financial liabilities if they contain acontractual obligation to transfer economic benefits. The finance costs incurredin respect of a capital instrument, other than equity shares, are charged to theProfit and Loss Account over the term of the instrument at a constant percentagerate to the carrying value. Preference Shares have been classified as liabilities in accordance with FRS 25. Share-based paymentsEquity settled transactions The cost of equity-settled transactions with employees is measured by referenceto the fair value at the date at which they are granted and is recognised as anexpense over the vesting period, which ends on the date on which the relevantemployees become fully entitled to the award. Fair value is determined by usingan appropriate pricing model. In valuing equity-settled transactions, no accountis taken of any vesting conditions, other than conditions linked to the price ofthe shares of the company (market conditions). No expense is recognised for awards that do not ultimately vest, except forawards where vesting is conditional upon a market condition, which are treatedas vesting irrespective of whether or not the market condition is satisfied,provided that all other performance conditions are satisfied. Share-based paymentsEquity settled transactions At each balance sheet date before vesting, the cumulative expense is calculated,representing the extent to which the vesting period has expired and management'sbest estimate of the achievement or otherwise of non-market conditions number ofequity instruments that will ultimately vest or in the case of an instrumentsubject to a market condition, be treated as vesting as described above. Themovement in cumulative expense since the previous balance sheet date isrecognised in the income statement, with a corresponding entry in equity. Where the terms of an equity-settled award are modified or a new award isdesignated as replacing a cancelled or settled award, the cost based on theoriginal award terms continues to be recognised over the original vestingperiod. In addition, an expense is recognised over the remainder of the newvesting period for the incremental fair value of any modification, based on thedifference between the fair value of the original award and the fair value ofthe modified award, both as measured on the date of the modification. Noreduction is recognised if this difference is negative. Where an equity-settled award is cancelled, it is treated as if it had vested onthe date of cancellation, and any cost not yet recognised in the incomestatement for the award is expensed immediately. Any compensation paid up to thefair value of the award at the cancellation or settlement date is deducted fromequity, with any excess over fair value being treated as an expense in theincome statement. 5. Segmental analysis Turnover by business segment: The Board believes the Group has three distinct business classes, VehicleConversions, Components and Emissions Reduction. Year ended 31 December 2006 £'000------------------ ----------------------------------- Vehicle Conversions Components Emissions Reduction Total------------------ ------------ ---------- --------- ---------Turnover 1,744 1,427 901 4,072 Year ended 31 December 2005 £'000------------------ ----------------------------------- Vehicle Conversions Components Emissions Reduction Total------------------ ------------ ---------- --------- ---------Turnover 2,067 984 280 3,331 Turnover by geographical segment: Year ended Year ended 31 December 31 December 2006 2005 £'000 £'000------------------------------------ --------- ---------Turnover by geographical sales destination: UK 537 1,412USA 2,323 1,695Australia 674 224Rest of Europe 529 -Rest of World 9 - --------- --------- 4,072 3,331 --------- --------- Turnover by geographical segment: Year ended 31 December 2006 £'000 UK USA Total---------------------------- ---------- ---------- ---------Turnover 561 3,597 4,158Inter-segment sales - (86) (86) ---------- ---------- --------- 561 3,511 4,072 ---------- ---------- --------- Year ended 31 December 2005 £'000 UK USA TotalTurnover 1,412 2,134 3,546Inter-segment sales - (215) (215) ---------- ---------- --------- 1,412 1,919 3,331 ---------- ---------- --------- Segmental analysis does not include profit or loss or net assets by segment asthe information could not be accurately determined. 6. Reconciliation of movement in reserves - Group Other reserves Share premium Profit and loss Total account account £000 £000 £000 £000At 1 January 2006 26,734 - (33,442) (6,708)On cancellation of shares andloan notes 6,997 - - 6,997On issue of new shares (321) 10,581 - 10,260Share issuance costs - (1,599) - (1,599)Share based payments - - 759 759Loss for the year - - (3,729) (3,729)Translation movements 476 - - 476---------------------------- --------- --------- -------- ------At 31 December 2006 33,886 8,982 (36,412) 6,456---------------------------- --------- --------- -------- ------ 7. Reconciliation of operating (loss) to operating cash flows 2006 2005 £000 £000Operating (loss) (3,690) (3,979)Depreciation 193 253Amortisation of capitalised development expenditure 108 -Share based payment charge 759 -(Increase)/decrease in stock (95) 783(Increase) in debtors (496) (104)(Decrease)/increase in creditors (465) 83(Decrease) in provisions (45) -Non cash movements 6 (58)------------------------------------ --------- ---------Net cash (outflow) from operating activities (3,725) (3,022)------------------------------------ --------- --------- Reconciliation of net cash flow to movement in net debt 2006 2005 £000 £000Increase in cash during the period 4,454 105Issued debt - (2,686)Payments on notes payable 182 182------------------------------------ --------- ---------Changes in net debt resulting from cash flows 4,636 (2,399)Foreign exchange translation differences 43 (118)Conversion of debt to equity 3,238 98Net (debt)/ funds at the beginning of the year (2,300) 119------------------------------------ --------- ---------Net funds/(debt) at 31 December 2006 5,617 (2,300)------------------------------------ --------- --------- The above schedule excludes from debt convertible preference shares valued at£21.8m and £3.5m at 31 December 2004 and 31 December 2005 respectively. Nopreference shares remain at 31 December 2006. 8. Commitments and guarantees At the year end the Group had contacted Ricardo plc, an engineering consultancycompany, to develop an engine management system to be used on its futureDual-FuelTM products. The total cost of the project is expected to be around£270,000, of which £121,638 has been spent to date. The project will becompleted during 2007. 9. Loss per Share Basic loss per share is calculated by dividing net loss for the yearattributable to ordinary equity holders of the parent by the weighted averagenumber of Common shares outstanding during the year. Year ended Year ended 31 December 31 December 2006 2005Loss for the period (£000) (3,729) (4,767)Weighted average number of shares 25,134,312 16,318,479Basic and diluted loss per share (14.8p) (29.2p) The weighted average number of shares at 31 December 2005 16,318,479 is theweighted average number of shares attributable to the ordinary equity holdersprior to the merger and admission to AIM. The basic and diluted loss per share are the same because losses have beenincurred which result in all potentially dilutive shares being treated asanti-dilutive. There have been no other transactions involving Common shares or potentialCommon shares between the reporting date and the date of completion of thesefinancial statements. 10. Dividend Policy In accordance with the Company's policy as set out in its admission document theCompany does not propose to declare a dividend. 11. Registered Office Copies of this statement are available at the registered office of Clean AirPower Limited at;Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda. The preliminary results for the year ended 31 December 2006 have been approvedby the Directors. Our auditors have issued an unqualified audit report on theresults for the year ended 31 December 2006. The financial information set outabove does not constitute statutory accounts within the meaning of section 240of the Companies Act 1985. This information is provided by RNS The company news service from the London Stock Exchange