Torotrak PLC Regulatory News (TRK)

15 May 2007 07:03

Torotrak PLC15 May 2007 15 May 2007 Torotrak plc Preliminary Results Announcement For the Year Ended 31 March 2007 Financial Highlights: * 31% increase in revenues to £2.7m * Reduction in Group operating costs by £1.4m * Reduction in Group operating cash consumption by £0.8m to £3.5m outflow Business Highlights * Start of production of IVT transmissions at Infinitrak, with pilot builds commenced in March 2007 * Memorandum Of Understanding signed for licence with major Asian car and commercial vehicle manufacturer * Prototype programme confirmed with leading forklift truck manufacturer - bringing new customer and sector Dick Elsy, Chief Executive said: "Torotrak is developing real momentum. We have launched pilot production of ourfirst transmissions through our joint venture, Infinitrak, and have a growingorder book across a range of markets and applications. Income from engineeringservices continues to grow and has helped secure new customers who have theappetite and scale to accelerate the commercialisation of our technology. We have a very strong base on which to deliver continued growth. With increasingenvironmental pressures, as well as appetite from emerging economies to embracenew technology, we have considerable opportunities ahead. As confidence fromTorotrak's customers grows, so does our ambition." For further information contact: Torotrak:Dick Elsy, Chief Executive: 01772 9009938 or 020 7920 3150Jeremy Deering, Finance Director: Tavistock Communications:Simon Hudson 0207 920 3150 and 07966 477256Lulu Bridges 020 7920 3150 and 07831 170364 Chairman's Review Introduction I am pleased to report on a year of significant progress in thecommercialisation of Torotrak's technology, with advances in each of our keymarkets. Our strategy, to secure new customers across a range of markets and toapply a wider business model that extends beyond a simple royalty arrangement,is delivering increases in revenue and valuable opportunities for future growth. In March 2007, we achieved a major milestone in the start-up of the productionfacilities of our Infinitrak joint venture in the USA. Infinitrak was formedwith our partner MTD to establish Torotrak technology in the high volume outdoorpower equipment (OPE) market, a new market for Torotrak. The start of pilotproduction was delivered within 18 months from the formation of Infinitrak. Thisdemonstrates the substantial progress that Torotrak has made in its drive tocommercialise its full-toroidal traction drive technology. Results Revenues of £2.7m represent a 31% increase over 2006. It is particularlyencouraging that we closed the year with a strong order book of programme work,which continues to build as the benefits of our technology become increasinglyapparent to our growing list of customers. Our customers are some of theleading, global tier-1 transmission manufacturers and vehicle makers in ourtarget markets; their engagement is evidence of the strong technical andcommercial foundations that Torotrak has put in place to underpin our plans forfuture growth. The increase in revenue, together with the delivery of our previously committed£1.1m of recurring cost savings, demonstrates continued progress towardsachieving our target of operating cash flow turning positive during thefinancial year ending 31 March 2009. Market Progress Our revenues have been generated from activities in all of our four establishedmarkets of: * OPE * Off-highway * Automotive * Truck and Bus Across all of these markets, we have established an earnings cycle that startswith engineering and development fees, then moves to licence sales leading toproduction related income in the form of manufacturing royalties or jointventure income. Engineering consultancy work has focused on the application of our full-toroidaltechnology in customers' products covering all markets. In addition to ourexisting customers and licensees, we have secured new customers and confirmednew projects to add to our order book for the year ahead. This engineeringconsultancy activity is important not just in terms of immediate revenue, butbecause it is instrumental in helping our customers to progress throughprototype programmes into licence agreements and future manufacturingarrangements, where the real future value to Torotrak lies. Infinitrak illustrates this point powerfully, as we have now moved from asignificant engineering programme last year to the point where revenues from thesale of production IVT units are expected to impact the second half of thefinancial year ending 31 March 2008. As a further example, we expect to see royalty income beginning to flow in thefinancial year ending 31 March 2009 from manufacturing activities in theagricultural vehicle sector, as two of our licensees have indicated theirintentions to enter production within the next 18 - 24 months. Again, thisfollows significant engineering activity over the last two years. In the automotive market, which remains a principal target market for Torotrak,I can also report that we continue to make good progress. Our work to open upthe market for Torotrak technology in emerging economies has led to detailednegotiations on a potential licence deal with an Asian car and commercialvehicle manufacturer, on which we expect to report more fully in the first halfof the financial year ending 31 March 2008. Securing this foothold in the Asianautomotive market will be a major step forward for Torotrak and will open up anew source of revenues from engineering services, licensing and royalties, aswell as creating a springboard for other automotive opportunities. Whilst Torotrak's immediate future is no longer dependent upon securing aproduction commitment from the premium automotive sector, our continued workwith major tier-1 automotive transmission manufacturer Aisin AW, coupled withthe new pressures on the car makers to deliver fuel economy and C02 improvement,underline the continuing importance of this area to Torotrak. We have madefurther strong technical progress during the year and, whilst Torotraktechnology has to compete against the grip of incumbent technology, includingconventional six, seven and now eight speed automatic gearboxes, our technologyis still widely regarded as a logical successor to these current technologies.We believe that there is a very real window of opportunity for us to access thisvaluable market, to secure medium to long-term growth. Achievement of thisobjective is supported by the momentum that is developing in non-automotivemarkets which add credibility and commercial strength to the Torotrakproposition. People Our reputation as a dependable, professional and capable high-technologyengineering business continues to grow, underpinning our ability to secureengineering consultancy income from our customers as we help them deliver theirplans for using Torotrak's technology. The high calibre of our engineers isimportant in establishing credibility with the major international businesseswhich are our customers, and also determines the value that these customersplace on our consultant engineers as experts in their field of work. Rebecca Joyce resigned as a director in December 2006 following a prolongedperiod of ill-health. We were delighted to welcome to the Board Jeremy Deering,who took up the role of Finance Director and Company Secretary in December 2006following his interim assignment. I would like to thank all of our employees for their individual contributions toour progress during the past year. Summary It is clear that our strategy, to develop a broader market and productportfolio, is delivering results. Torotrak now has a range of high qualitycustomers across a spectrum of products and markets from ride-on lawnmowersthrough automotive applications, to full size haulage trucks. We are continuingto secure new business with new customers from new sectors, all of which adds toour order book and to our confidence in securing further licence agreements inthe future. Chief Executive's Review Introduction The last year has seen Torotrak continue to build commercial momentum with ourfull year revenues reflecting the increasing value which our customers, across awide range of markets, place on our technology. Our earnings model, which coversthe entire product life-cycle from initial interaction with a new customerthrough to production related income, is becoming more predictable andsustainable and is supported by activities in all of our markets. Outdoor Power Equipment (OPE) The global OPE market is dominated by the US with more than 90% of wheeledvehicle shipments being supplied by US companies. The OPE sector comprisesproducts and vehicles that are intended for use in the domestic environment forgardening, outdoor "housekeeping" and hobby farming, as well as more robustcommercial products which are used, for example, on golf courses and inmunicipal applications. Torotrak's entry to this significant market is through Infinitrak, our jointventure company with MTD Holdings, with whom we have specifically targetedride-on mowers as the ideal first application for Torotrak's technology. MTD isone of the leading OPE manufacturers in the USA with a substantial share of thetwo million units per annum ride-on mower sector. Infinitrak has been grantedexclusive rights to apply Torotrak's technology in this sector. In March this year we achieved a major milestone for Torotrak with thecommencement of pilot build of IVTs on the Infinitrak production facilities inLeitchfield, Kentucky. This build represents the first phase of production ofInfinitrak's initial product, the Twin Toroidal Transmission (TTT). The buildrate of TTTs in the Leitchfield production facility is currently at controlledlevels in relatively small batches, which are being produced to support MTD'srequirement for production vehicle testing and subsequent limited release tospecific markets. The transmission has been designed for application across a number of MTD'sproducts and, as such, the precise market roll-out and vehicle specificationwill be subject to their marketing and business plans, which are confidential toMTD. The build of lawn and garden vehicles, particularly ride-on mowers, is highlyseasonal. The work that Infinitrak is currently undertaking with the pilot buildunits is to prepare the way for a much higher build rate to support the 2008season's build for MTD. The Infinitrak plan remains in line with our originaltarget for the first year of production which is to build and sell 100,000single units (which equates to 50,000 TTTs), assuming successful acceptance forthe 2008 season. MTD's operations require a substantial proportion of thetransmissions for these high volume lawn mowers to be built in advance ofvehicle assembly and the financial impact of this for Infinitrak should be seenin the second half of the financial year ending 31 March 2008. The Infinitrak business plan continues to develop as we work with our jointventure partner on our plans to exploit the broader OPE sector. The plan focuseson high volume applications which can be used initially by MTD, providingInfinitrak with a predictable market and production plan. This approach obviatesthe need for significant marketing expense in the early stages of businessgrowth, as Infinitrak will be selling directly to MTD in volumes which aresufficiently high to build up the business and deliver the profitability thatwas agreed at the formation of the venture. This strategy will remain the priority at Infinitrak for the initial eighteenmonths to two years of production before sales of transmissions to third partiesbegin, by which time the TTT is expected to have gained recognition in the OPEmarket. The relatively standardised nature of the transmission technology inthis sector means that the task to configure Infinitrak product for third partysales is technically straightforward. Cost BreakthroughOur ability to compete in the OPE market with a highly cost competitive productis the result of a breakthrough in low-cost manufacturing technology forlow-power toroidal drives. Until now, we have not revealed any details of thisbreakthrough due to our requirement to secure patent protection. However, we cannow disclose that one of the key inventive elements in the TTT is the use ofpowder metallurgy in the production of several key components in thetransmission, including the crucial toroidal disc and roller components. Powder metallurgy is a well established, proven low-cost manufacturing processwhich is used extensively, for example, in the manufacture of low cost gears.Our inventive step is the development and application of this technology toproduce the key components at the heart of IVT. This breakthrough means that theTTT discs and rollers can be produced for a fraction of the cost ofconventionally machined components. There is no "trade off" in performance withthese powder metal discs and rollers; in fact, we have demonstrated that thesecomponents can outperform normal steel parts in the OPE applications. Having established this combination of cost and performance advantage for theTTT product through Infinitrak, Torotrak is now exploring the potential thatthis approach can offer us in other low power applications outside of OPE. Off-Highway The off-highway market is divided into: * the agricultural vehicle sector, which is currently our principal business focus * materials handling/ fork lift trucks, which is a sector we have targeted more recently * construction equipment, which is a sector for possible future business activity Agricultural vehicle sectorThe global agricultural vehicle sector is dominated by three major players (JohnDeere, Case New Holland and AGCO) which, together, account for approximately twothirds of all tractor applications sold worldwide. Around 80% of all agricultural transmissions are manufactured by the largervehicle manufacturers themselves. However, we expect this to change as thetier-1 transmission manufacturers (such as Carraro, ZF and Dana) introduce newtechnology into their own transmission products and entice the vehiclemanufacturers to look externally for innovation. The transmission element of a tractor represents a higher proportion of totalvehicle cost and "value added" than is the case in many of Torotrak's othermarkets. The off-highway market also has a strong appetite to embrace newtechnology and is characterised by shorter timescales to production than, forexample, the automotive market. Recognising these market dynamics, Torotrak's approach focuses on: * Targeting mid-sized companies who manufacture tractors andwho also have the capability to develop transmissions for their own production - we have two licensees already developing their own IVT equipped vehicles * Securing the engagement of the major tier-1 transmission manufacturers who supply the major companies in this sector - Torotrak has already secured a major transmission manufacturer as a licensee * Securing formal customer relationships with at least one major tractor manufacturer that is capable of delivering significant volume within the more established areas of the market - Torotrak is in early discussions with one such major player in this area. This initial focus is centred on the small to mid-sized tractor sector whichaccounts for a total market of around 450,000 vehicles per year. We havetargeted this sector as our 'bridgehead' into the wider agricultural marketbecause there is no other commercially viable variable drive transmissiontechnology currently available for these applications. Our three active off-highway licensees have all made progress with theirindividual plans this year. Two are currently developing prototype IVTs in theirmid-sized tractors and Torotrak is providing help and technical input. The thirdhas asked for Torotrak's support to design their proposed first productiontransmission, which is for a compact tractor. This engineering programme hasalready commenced and will be earning Torotrak valuable engineering consultancyrevenue in the first quarter of the new financial year. All three licenseescontinue to demonstrate their commitment to progress into production, with twomaintaining their ambition of being in production within 18 - 24 months. The development of a hydromechanical control system for use in tractor IVTs,which we first revealed in the annual report last year, has continued to be ofvalue to Torotrak through our established licensees and also with new prospectsin emerging markets. This development offers high levels of functionality at alow cost and is relatively simple to engineer and develop. As an example of theprogress we have made, one of our established licensees is considering adoptingthe hydromechanical control system for their production application in place ofa more complex electronically controlled route, which had been their previousplan. Materials Handling/ Fork Lift Trucks - a New SectorWe have continued to target other sectors within the off-highway market and, asa result, we are now active in the materials handling area. At the interim results in November last year we indicated that we were engagedin early discussions with manufacturers of fork lift trucks and I am pleased toconfirm that one of these, an industry leader in this sector, has committed to aprototype programme to prove the capability of IVT in one of their vehicles.This new programme adds further to our order book for the financial year ending31 March 2008. The fact that we have now progressed beyond business developmentin this sector, and have secured consultancy revenue, is a demonstration of thegreater predictability of our earnings model, based upon new customers askingTorotrak to support them with the application and configuration of our toroidaltechnology for their products. Automotive The automotive market remains a principal target for longer-term financialreturns and I am able to report that substantial progress has been made in thissector during the last six months. New sector - emerging economiesThis year we have carried out a prototype engineering programme with a majorAsian car and commercial vehicle manufacturer, to demonstrate the capability ofTorotrak technology in one of their entry-level vehicles. This programme hasbrought Torotrak valuable engineering revenue, but more importantly has secureda strong relationship with this significant vehicle manufacturer. I am pleased to report that we have progressed to the point where we have agreedthe principal terms of a licence agreement with this manufacturer. We have aMemorandum of Understanding in place which supports this agreement and we arecurrently working to finalise the commercial terms and the formal licence, whichwe expect to announce in the first half of the financial year ending 31 March2008. These licence negotiations have progressed to encompass a broad range ofvehicles produced by this manufacturer, and to cover the potential for asignificantly wider application of Torotrak's technology than the low-cost entrylevel vehicle which was the focus of the initial prototype programme. At this stage a firm target production date is yet to be declared and the firstapplication is yet to be fully defined. However, the vehicle manufacturer hasstated to us that their ambition is to be amongst the very first to launchproducts incorporating Torotrak's toroidal drive technology in the automotivemarket. This development and new relationship represents a significant breakthrough inour automotive market place. Unlike their developed market counterparts, carcompanies in emerging economies are not encumbered with legacy investment inconventional technology and they are keen to adopt new technologies to fueltheir ambitious growth plans. For Torotrak, this development will mean that wewill have a new customer hungry to exploit its investment in our technology andwhich is looking to proceed rapidly with a full engineering programme. This news also confirms our ability to compete strongly in emerging economymarkets and acts as a positive reminder to Torotrak's other automotive customersof the ambition and competitive drive that is emerging from Asia. Premium AutomotiveIn the developed car market, the installed manufacturing capacity of currenttechnology, including 6, 7 and now 8-speed automatic transmissions, represents acontinuing impediment to the early adoption of new technologies such as IVT. This year will see the production of around five million six, seven and eightspeed automatics with many transmission manufacturers reporting furtherincreases in output and sales. However, it is already clear that this lateststepped ratio technology is becoming a commodity technology and is being adoptedon a large scale for in-house manufacture by the global car makers. This leavesthe transmission manufacturers to look for the next premium technology to offerthe premium car sector. Although the inertia effect of sunk investment in conventional technology meansthat the prospect of revenues from royalties in the premium automotive sector isstill some years away, there remains continued commitment and ambition withinthe industry to develop our technology. This is exemplified by our continued programme of work with industry leader,Aisin AW. With Aisin, we have stretched the boundaries of our new EpicycloidalRoller Control ("ERC") transmission configuration and have now proven thecapability of the system, in hardware, through a regime of specific tests inconjunction with Aisin and the bearing manufacturer, JTEKT. This activity ispart of an overall programme of continued development work on applying IVT forthe premium car market which continues to bring consultancy-based revenues intoTorotrak. Our work with Aisin has, more recently, involved us in direct discussions withAisin's principal customer, a global vehicle manufacturer, as we have jointlyprogressed the development of the transmission for their target vehicle. The future of this programme of work is now centred around the ERC concept asthis is seen to deliver the best transmission configuration for premium carapplications. We await confirmation of the next step in this programme, which isto progress to a next generation of fully functioning prototype IVT featuringthe ERC variator. We continue to be encouraged by Aisin's long-standing supportand commitment to Torotrak technology. Legislative PressuresWhilst a long gestation period for a substantive new technology is not atypicalwithin the mainstream car industry, the sense of urgency for our existing andprospective automotive customers in the USA, Europe and Japan to adopt toroidaldrive technology could change radically if new proposed legislation isimplemented. As an example, the European Commission has indicated that it is planning toimplement legally defined limits for C02 emissions and fuel consumption levels.This is in response to the failure of the European car industry to achieve thevoluntary targets previously agreed (the ACEA commitment) in time for 2008production. Given this failure, the EU Commission is proposing mandatory targetsfor 2012. Similarly in the USA, Congress proposed a bill in March of this year (HR1506) tomandate a significant fuel economy improvement to be in place for US cars andlight trucks by 2012, with a further improvement required by 2018. The level ofimprovement that the bill recommends equates to around 4% improvement in averagefuel consumption, year on year, from now to 2018. If these proposed legislative changes become ratified they would intensify theindustry's requirement for accessible technologies which can deliver fueleconomy savings to meet the mandatory deadlines. Torotrak will be wellpositioned to capitalise on any such developments with its provenimplementation-ready technology. Truck and Bus The truck and bus market now represents a significant opportunity for ourtechnology. As part of our strategy of targeting broader applications, we haveaccelerated our development of this market. I am pleased to report that we arebeginning to see a positive contribution from our business developmentinitiatives in this market, through the earning of early-stage revenues. We have found that the product development processes in this market aregenerally of greater duration than is the case in other markets (around fiveyears from start of development to series production), but the industry is alsolooking for new technologies to help it address the challenge of maintaininggood fuel economy levels whilst also meeting the requirements of plannedemissions legislation. In particular, during the past year our relationship with a leading Europeantruck and bus manufacturer has strengthened and we have now completed a detailedcost study on a proposed main-drive transmission for one of their vehicles. Theresults of this study look very appealing and show that a Torotrak IVT, as amain transmission in a distribution truck, a heavy haulage truck, or a bus, canoffer significant technical and functional benefits at very attractive costlevels. This new information is a further major breakthrough for our businessand gives third party endorsement to our belief that Torotrak's IVT is acompelling commercial and technical proposition for both the truck and bussectors. We anticipate that these promising results will lead to a deeper workingrelationship with this vehicle manufacturer that will add to our future orderbook. In parallel to this development, we have continued our work in conjunction withanother European bus manufacturer, as previously reported in the interimresults. With further development of the transmission fitted to a prototype buswe have delivered a measured improvement of 20% in fuel consumption. We havealso calculated that, with an IVT specifically configured for this application,a further improvement in fuel economy would be possible. Although we have aclearly defined product proposition with measurable environmental benefits, thisparticular bus manufacturer is not large enough to support a stand-alonedevelopment programme for a series production transmission. We have thereforeagreed to look at ways in which we can work together to stimulate broaderinterest and support for this valuable opportunity for fuel economy improvement. Competitive landscape In the OPE market, our main competition is the existing hydrostatic variabledrive technology. We know from our work to take into production the TTT throughInfinitrak that we have a highly competitive product offering which is moreefficient, quieter and easier to control than the incumbent technology. We havealso demonstrated that we have been able to deliver the transmission at a costadvantage to an established technology which has had the benefit of some 40years of work on cost efficiency in product and manufacturing. The fact that weare competitive at our first launch makes a compelling commercial proposition. Competitive advantage and market share in OPE is driven through productinnovation. Our Joint Venture partner, MTD, sees the benefit that IVT can bringto its brand development and to lawn tractor sales. In the off-highway market, our work with partners and industry-leadingbusinesses continues to demonstrate that there is a gap in the market for avariable drive which delivers performance, robustness and controllability at anaffordable price. Small and compact tractors are available with hydrostatic drives in simple,inexpensive but inefficient forms. These crude hydrostatics have been successfulbecause expectations for the performance and refinement of low-cost vehicleshave been low. In the small and compact tractor sector, our product designsoffer superior performance, efficiency, refinement and control at comparable orlower cost. In the high-volume medium sized tractor sector, our technology provides anaffordable variable drive with the performance, features and functionality of atypical large, expensive hydrostatic tractor. There is currently no variabledrive technology available for this sector, other than Torotrak technology,which satisfies the cost and functionality requirements for high-volume, mediumsized tractors. Large tractors are also available with hydrostatic drives but these areexpensive and complex. In the longer-term, once Torotrak's technology has becomeestablished in compact and medium-sized tractor applications, then the largetractor sector will also be targeted. In our new sector of materials handling, we are able to offer a full variabledrive for fork lift trucks which is capable of providing the functionalcapability of a hydrostatic drive but more efficiently and for lower unit cost,establishing a good basis for future business prospects. In the automotive market, the car manufacturers continue to pursue a number offuel economy improvement technologies. Many are active with hybrid programmes,but these remain a significant commercial and technical challenge for widespreadapplication and therefore sales volumes remain low. There are also divided viewsamongst the car manufacturers about the longer term application and best type ofhybrid which, in turn, has created a level of uncertainty over the future trendsin this technology. There is agreement across the industry, however, thattransmission technology is the most cost effective route to deliveringimprovements in fuel economy. Our technology has shown improvements in fuel economy of 20% on typical NorthAmerican vehicles and gains of 14% for typical premium sector European orJapanese vehicles. These gains in fuel economy can be achieved at comparableunit cost to today's incumbent technology and without the need for substantialchanges to conventional car platforms. Additional benefits can be targeted at specific automotive sectors orapplications since our transmission technology can be configured as either anInfinitely Variable Transmission ("IVT") or as a Continuously VariableTransmission ("CVT"): * For luxury cars, our technology delivers excellent fueleconomy and mechanical refinement and can be used in either IVT or CVT configurations to suit both front-drive and rear-drive vehicle layouts. * In 4x4 vehicles, the IVT can provide full off-road capability without the need for a conventional ratio-reduction transfer box and can provide a wide range of commercially valuable features. These include the ability to shuttle the vehicle seamlessly from forwards to reverse, and to provide an "off-road cruise control" to hold the vehicle at a given speed through changes in terrain and incline or to hold the vehicle stationary on gradients or slopes. * In mainstream and small cars, our technology in a CVT format can provide cost effective and highly compact transmissions that are ideally suited to front wheel drive installations. * Finally, in low cost automotive, our technology can be configured as either low cost IVT or CVT transmissions which offer better fuel economy, refinement and ease of control than competing technology. The most significant competitors for Torotrak in the automotive market are thecurrently invested technologies, such as fixed ratio automatic (typically thesix, seven and now eight speed automatic transmissions), dual clutchtransmissions (which make use of existing manual gearbox manufacturingfacilities in Europe) and the belt and pulley CVTs favoured predominantly inJapan. In the sphere of new transmission technologies we are aware of other tractiondrive technologies from our involvement in the automotive industry conferencecircuit. Whilst some of this is competitive to Torotrak, such as half-toroidaltechnology, all of these developments are adding to the overall credibility andacceptance of traction drive within the industry. Finally in the truck and bus market we have worked in more detail through theyear to understand the transmission needs of this sector. It is becomingincreasingly clear that there are currently no known alternative variable drivesystems that can be configured to handle the high powers and heavy dutyperformance levels needed. In trucks we have begun to see evidence of a highlycompelling business case for IVT, which is being confirmed through the work weare carrying out to validate transmission costs in conjunction with our Europeantruck customer. We already know from this study that a full size truck IVT canbe produced for less cost than the currently available automatic transmissionswhich serve the market. Outlook In the past 12 months, our provision of engineering services has contributedstrongly to our full year revenues and this is expected to be maintained in theshort to medium timescale. The recent addition of a fork lift truck programme,together with continuing projects in automotive, agricultural vehicle and trucksprovide a strong forward order book for this important revenue generatingactivity. We also have a number of customers with whom we are in various stages ofnegotiation regarding long-term access to our intellectual property. Thesenegotiations are expected, in turn, to lead to additional income streams arisingfrom lump-sum licence payments and, in the longer-term, royalties as customerssecure access to, and then exploit, Torotrak's toroidal drive know-how andpatent portfolio. The continued growth in our engineering services, our strong order book for theyear ahead including the opportunity to secure licence downpayments, the startof production at Infinitrak and our reduced operating cost base, all underpinour expectation for continued improvement in operating performance and furtherprogress towards our goal that operating cashflow will turn positive during thefinancial year ending 31 March 2009. Financial Review Overview Torotrak has made substantial progress during the year in increasing bothcurrent year revenues and the strength of our revenue base for the future aswell as improving efficiency within the business. As a result, operating cashconsumption continued to reduce during the year ended 31 March 2007 ("2007"). Torotrak has moved closer to its goal of transitioning from being a research anddevelopment based organisation, building valuable intellectual property ("IP"),to a cash generative enterprise exploiting that IP. A reduced operating costbase is driving increasing revenues and our expectation is that the Group willachieve the point at which operating cash flows turn positive during the next 24months. The key performance indicators of the Group for 2007 support this assessment ofprogress as follows: * Revenues continue to build, from £2,054k in the year ended 31 March 2006 ("2006") to £2,691k in 2007. Equally as important is the increased variety of sources from which the revenues were earned and the positive implications for future earnings growth. This is discussed further below. * Operating costs reduced by £1,392k on a Group basis and by £1,137k excluding Infinitrak and non-recurring costs. * Engineering resources have been used effectively; 55% of engineers'and technicians' available time was spent on revenue generating projects, with the balance focused on business and technical development. This higher application of our engineering time on customer projects is leading to more focused product development activity and greater success in securing opportunities for commercialisation of our IP. * Operating cash consumption continues to materially reduce by £754k to £3,515k in 2007, despite funding £895k of working capital that should reverse in the 2008 financial year, as explained further below. Overall, loss after tax improved by £2,863k from £5,762k to £2,899k. However,the comparative year on year performance is complicated by the number ofnon-recurring items of income and expenditure, such as the loss on sale of ourLeyland property last year and the income received in both years in relation toa long-standing claim dating back to de-merger. In addition, administrativeexpenses have included some non-recurring items which are explained furtherbelow and in note 5 to the Financial Statements. Excluding these items,underlying operating performance improved by £1,696k and underlying improvementin loss after tax was £1,567k as shown below. -------------------------------------------------------------------------------- Year ended 31.03.07 change over prior year £000--------------------------------------------------------------------------------Increased revenues 637Reduced development and recurring administrative costs 1,059--------------------------------------------------------------------------------Improvement in year on year underlying operating performance 1,696 Decrease in tax credits and finance income (129) --------------------------------------------------------------------------------Improvement in year on year underlying loss after tax 1,567 Reduction in non-recurring costs net of non-recurring income 1,296 --------------------------------------------------------------------------------Reduction in loss after tax after non-recurring items 2,863 -------------------------------------------------------------------------------- Joint Venture Accounting We have adopted this year the proportionate consolidation basis of accountingfor our joint venture with MTD, Infinitrak. This method includes 50% of theJoint Venture's results, assets and liabilities into each line of theConsolidated Income Statement, Balance Sheet and Cashflow statements.Proportionate consolidation has been introduced as a result of the start ofpilot production build in Infinitrak and the full commitment of funding to theJoint Venture. We believe that this form of accounting, in line with thepreferred method under International Financial Reporting Standards, is moreappropriate in terms of giving more visibility of the financial impact of theJoint Venture on Group performance as well as better reflecting the economicsubstance of the enterprise. The directors consider that the revised policyprovides more relevant and reliable information for investors and other users ofthe financial statements. The change of accounting policy has no impact this year on revenues. The impacton disclosed operating costs, cash flow and fixed assets is discussed in theparagraphs below with further explanation in note 2 to the FinancialInformation. Revenue Year ended Year ended 31.3.07 31.3.06 £000 £000--------------------------------------------------------------------------------Engineering services 1,757 1,254Licence and option fees 147 240Sale of IP rights to Infinitrak 787 560--------------------------------------------------------------------------------Total 2,691 2,054-------------------------------------------------------------------------------- The revenue increase of £637k is driven by £503k additional revenues earned fromengineering services and a net increase of £134k in licence, option and IP fees. Engineering servicesThe increase in engineering services is encouraging not just in terms of therevenue contribution to the current year, but as an important indicator as towhere Torotrak is building future revenue growth opportunities. Activity onengineering programmes is an important precursor to potentially valuablecustomer agreements and to opening up opportunities in new sectors. In 2006, our major engineering programme related to Infinitrak within the newmarket of OPE. The level of fees relating to this reduced in 2007 as theprototype programme completed, with start of pilot production being announced inMarch 2007. In 2007, the substantial engineering services undertaken related to theprototype programme with a major Asian manufacturer in the automotive market. Inaddition, we undertook significant work in the premium automotive sector. Bothautomotive programmes offer real opportunities for future customer developmentand potential licence agreements. Elsewhere, we continued to provide support toour major off-highway licensees as they prepare for volume production, whilstopening up a potentially valuable new customer in the truck and bus market whichwe expect to take forward into the current financial year ending 31 March 2008with a more substantial programme. The current order book position is very encouraging, both in terms of themonetary value of the programmes as well as the quality of the customers andmarket opportunities that they address. Several contracts are currently in theprocess of final negotiation and we expect to announce further progress in thefirst half of the year ending 31 March 2008. The timing of the programmes in theyear ending 31 March 2008 is expected to impact revenues in the second half morematerially, reversing the pattern experienced in the year ended 31 March 2007. Sale of licence rights to InfinitrakAs announced at the half year, completion of the prototype programme withInfinitrak led to the sale of licence rights to Infinitrak worth £787k, inaddition to the £560k achieved 2006. The cumulative revenue of £1,347k reflectsthe realised profit on the sale of the global licence rights in the 0 - 25kWpower range together with exclusive North American rights in the 25 - 45kW powerrange for compact tractors. The sale of licence rights is included in the Consolidated Income Statementafter eliminating the unrealised element of revenue that relates to our 50%share in the Joint Venture (see note 4 to the Financial Information). Thecumulative total value of the sale before the accounting elimination was£2,694k; this satisfied Torotrak's equity contribution to the Joint Venture,matching the equivalent cash contribution (US$5m) by our partners MTD. Expenditure Charged to the Consolidated Income Statement Our development and administrative costs are analysed below: Restated Year ended Year ended 31.3.07 31.3.06 £000 £000--------------------------------------------------------------------------------Recurring development and administrative costs before share of Infinitrak 5,780 6,917--------------------------------------------------------------------------------Patent write-off costs 122 29Infinitrak's operating costs - 50% share 337 352--------------------------------------------------------------------------------Operating costs before non-recurring items 6,239 7,298 -------------------------------------------------------------------------------- Non-recurring operating costs (see note 5 to the Financial Information) 176 509-------------------------------------------------------------------------------- Total administrative and development costs 6,415 7,807-------------------------------------------------------------------------------- Overall operating costs including our share of Infinitrak's costs reduced by£1,392k to £6,415k and by £1,059k to £6,239k before non-recurring costs. Excluding Infinitrak, Torotrak's underlying costs excluding the non-cash relatedpatent write-off costs discussed below, reduced by £1,137k to £5,780k reflectingthe restructuring measures implemented in the second half of 2006. Patent costsOur patent portfolio is continually reviewed, with new patent expenditureassessed for appropriateness in line with Board agreed policy. Patents areabandoned where no longer of commercial or territorial significance. As a resultof a comprehensive review undertaken during the year, £122k of patentabandonment costs were incurred, being a non-cash charge in the financialstatements. This represents the write-off of the associated capital costsincurred when the patents were established net of the cumulative amortisationthat has been charged to the Consolidated Income Statement. Other costsWe were very pleased during the year to have finally settled a claim dating backto contractual arrangements at the time of the Stock Exchange listing in 1998.£557k was received in 2006 and a further £225k final negotiated amount wasreceived in 2007. Both amounts are included as exceptional items in theConsolidated Income Statement. Taxation The tax credit of £328k (2006: £434k) reflects mainly the claim to be made forresearch and development tax credits net of overseas withholding taxes. Cash and Treasury Restated Year Year Year Year ended ended ended ended 31.3.07 31.3.07 31.3.06 31.3.06 Group Excluding Group Excluding JV JV-----------------------------------------------------------------------Cash flows from operating activities (3,515) (3,250) (4,269) (3,715)-----------------------------------------------------------------------Net cash used in investing activities (422) (128) 3,314 3,314-----------------------------------------------------------------------Cash flows from financing activities 805 - 1,110 550-----------------------------------------------------------------------Foreign exchange loss (34) (16) - ------------------------------------------------------------------------Cash and cash equivalents at start of year 7,473 7,467 7,318 7,318-----------------------------------------------------------------------Cash and cash equivalents at end of year 4,307 4,073 7,473 7,467----------------------------------------------------------------------- Year end Group cash balances include our 50% share of amounts held in theInfinitrak joint venture. Excluding the impact of Infinitrak, cash balancesreduced by £3,394k during the year to a closing cash position of £4,073k. Thenet cash outflow was slightly higher than planned due to the impact of an £895kreceivable for engineering services being delayed until after the year end. The Group cash resources at the year end provide the Group, in the directors'opinion, with an acceptable level of working capital in terms of our 18 monthforward working capital review from 31 March 2007. Beyond that period, ourtarget is to achieve positive operating cash flow to fund future working capitalrequirements. However, we continue to monitor the future funding requirement ofthe business very carefully, keeping all options under consideration andmaintaining a careful review of cash headroom and resilience. In particular, anymaterial investment opportunities within the next three years to secure greatervalue from the commercialisation of Torotrak IP, or significant further productdevelopment via an existing or future joint venture, would require furtherfunding. The treasury function does not operate as a profit centre. Credit risk ismanaged by limiting exposures to authorised banks with credit ratings that areapproved by the Board. The Company's exposure to foreign exchange rate riskmainly arises from non-UK sterling denominated receipts in relation to licenceand engineering service agreements as well as the impact of foreign exchangetranslation of our share of Infinitrak's US dollar denominated results. We donot currently actively hedge against these currency exposures although thispolicy will be kept under review. Exposure to interest rate risk is low and theCompany currently does not undertake any form of interest rate hedging. TheCompany deposits and invests cash with a combination of both fixed and floatingrates. The cash balances at year-end were invested in a combination ofmarket-managed funds and bank deposits. Intangible and Tangible Assets Capital expenditure during the year was as follows: Restated Year ended Year ended 31.3.07 31.3.06--------------------------------------------------------------------------------Excluding share of Infinitrak: Property, plant and equipment 169 80Patent expenditure 220 317--------------------------------------------------------------------------------Sub total - excluding Infinitrak 389 397-------------------------------------------------------------------------------- Property, plant and equipment - Infinitrak tooling 300 ---------------------------------------------------------------------------------Total 689 397-------------------------------------------------------------------------------- We successfully completed on 8 November 2006 the sub-let of part of our premisesat Leyland, achieving a £105k per annum net rental and an additional reductionin associated operating costs. £90k was incurred in relation to leaseholdimprovement in order to sub-divide and improve the rental market value of theproperty. During the year, £220k was incurred in establishing new patents, whichare capitalised as intangible fixed assets (2006: £317k). Within Infinitrak, £300k (Torotrak's 50% share) was incurred in relation toproduction tooling for the start of production of the TTT units. This tooling isowned by the Joint Venture. Initial manufacturing is sub contracted to MTD forthe first year of operation, thereafter being subject to review. Share Capital and Share Options No shares were allotted during the year (2006: 2,615,073 shares allotted tosatisfy employee share options following maturity of the 2002 Sharesave scheme).Hence, the ordinary share capital of the Company remained at 119.9 millionshares of 10p each throughout the year. This included at 31 March 2007 142,309shares held in the Torotrak Employee Share Trust (2006: 849,301 shares). Awards over 2,210,947 shares were made during the year under the terms of theTorotrak Long Term Performance Share Plan which are subject to performanceconditions. No other options or awards over shares were granted during the yearother than the discretionary share bonus awards utilising shares in the TorotrakEmployee Share Trust. Whilst noting that the majority of share options from old schemes that have notbeen exercised are currently 'underwater' (i.e. the exercise price is higherthan the current share price) as well as the performance conditions notcurrently being met, the theoretical dilution from all live options orcontingent awards over shares is 4.72%, being 5,661,784 shares subject to optionor award agreements compared to the current number of ordinary shares of119,900,820 as at 31 March 2007. Financial Information 2007 Consolidated Income Statement ------------------------------------------------------------------------------------------------------------------For the year ended 31 March 2007 Group Notes Group Restated 2007 2006 £000 £000-------------------------------------------------------------------------------------Revenue 4 2,691 2,054 Development expenses (4,453) (5,504) Administrative expenses 5 (1,962) (2,303)-------------------------------------------------------------------------------------Operating loss 5 (3,724) (5,753) De-merger costs refund claim 225 557Loss on sale of property - (1,295)Finance income 272 295------------------------------------------------------------------------------------- Loss before taxation (3,227) (6,196)Taxation 6 328 434-------------------------------------------------------------------------------------Loss for the year (2,899) (5,762)------------------------------------------------------------------------------------- Basic and diluted loss per share (pence) 7 (2.43) (4.91)------------------------------------------------------------------------------------- The results above derive from continuing operations. Consolidated Statement of Recognised Income and Expense ------------------------------------------------------------------------------------- Group Group Restated 2007 2006 £000 £000-------------------------------------------------------------------------------------Currency translation differences 16 --------------------------------------------------------------------------------------Net income recognised in equity 16 - Loss for the year (2,899) (5,762)-------------------------------------------------------------------------------------Total recognised expenses for the year (2,883) (5,762)------------------------------------------------------------------------------------- Balance Sheets --------------- -------------------------------------------------------------------------------------As at 31 March 2007 Group Notes Group Restated 2007 2006 £000 £000------------------------------------------------------------------------------------- Non Current Assets Intangible assets 1,027 1,083Property, plant and equipment 1,087 785-------------------------------------------------------------------------------------Total Non Current Assets 2,114 1,868-------------------------------------------------------------------------------------Current Assets Inventories 46 -Trade and other receivables 1,326 976Current tax 268 449Cash and cash equivalents 4,307 7,473-------------------------------------------------------------------------------------Total Current Assets 5,947 8,898-------------------------------------------------------------------------------------Total Assets 8,061 10,766-------------------------------------------------------------------------------------Current Liabilities Trade and other payables (755) (934)-------------------------------------------------------------------------------------Total Current Liabilities (755) (934)-------------------------------------------------------------------------------------Net Assets 7,306 9,832-------------------------------------------------------------------------------------Capital and Reserves Issued share capital 8 11,990 11,990Share premium 48,298 48,298Other reserves (262) (1,567)Retained earnings (52,720) (48,889)-------------------------------------------------------------------------------------Total equity attributable to equity holders of the parent 7,306 9,832------------------------------------------------------------------------------------- Cashflow Statements -------------------- -------------------------------------------------------------------------------------For the year ended 31 March 2007 Group Group Restated 2007 2006 £000 £000-------------------------------------------------------------------------------------Cash flows from operating activities Loss for the year (2,899) (5,762) Adjustments for: Sale of licence rights to Infinitrak (787) (560)Depreciation 166 254Amortisation 154 194Finance income receivable (272) (295)Profit on disposal of plant and equipment (15) (11)Loss on disposal of intangible assets 122 29Taxation (328) (434)Loss on sale of property - 1,295Increase in inventories (46) -Increase in trade and other receivables (524) (575)Decrease /(increase) in trade and other payables (104) 362Cost of equity settled employee share schemes and bonuses 389 485-------------------------------------------------------------------------------------Cash used in operations before tax (4,144) (5,018)Taxation received 629 749-------------------------------------------------------------------------------------Net cash used in operating activities (3,515) (4,269) Cash flows from investing activities Acquisition of property, plant and equipment (469) (144)Proceeds from sale of plant and equipment 16 11Proceeds from sale of property - 3,440Acquisition of patents (235) (297)Finance income received 266 304-------------------------------------------------------------------------------------Net cash used in investing activities (422) 3,314------------------------------------------------------------------------------------- Cash flows from financing activities Proceeds from the issue of share capital - 550Issue of share capital by Infinitrak 805 560-------------------------------------------------------------------------------------Net cash generated in financing activities 805 1,110 Net decrease/(increase) in cash and cash equivalents (3,132) 155Cash and cash equivalents at start of period 7,473 7,318------------------------------------------------------------------------------------- Exchange loss on currency translation (34) -Cash and cash equivalents at end of period 4,307 7,473-------------------------------------------------------------------------------------Cash and cash equivalents held in the JV not under direct control of the Group 234 6------------------------------------------------------------------------------------- Notes to the Financial Information----------------------------------- 1. Financial information and basis of preparation The financial information set out above does not constitute the Company'sstatutory accounts for the years ended 31 March 2007 or 31 March 2006 within themeaning of Section 240 of the Companies Act 1985, but is derived from thoseaccounts, subject to the adjustments to the 2006 Financial Statements in respect of the change in accounting policy described in note 2 below. The auditors have reported under section 235 of the Companies Act 1985, on theGroup's statutory accounts for the year ended 31 March 2007, the auditors' reportdoes not contain statements under sections 237 (2) or (3) of the Companies Act1985 and is unqualified. The prior auditors (KPMG Audit plc) have reported under section 235 of theCompanies Act 1985 on the Group's statutory accounts for the year ended 31 March2006; the auditors' report does not contain statements under sections 237 (2) or(3) of the Companies Act 1985 and is unqualified. The statutory accounts for 2006 have been delivered to the Registrar ofCompanies and the statutory accounts for 2007 will be filed with the Registrarin due course. Copies of the Annual Report and Accounts will be posted toshareholders in June 2007. 2. Change in accounting policy relating to Infinitrak The Group has changed its policy on its jointly controlled entity ("jointventure") from equity accounting to proportionate consolidation. The Group'sshare of assets, liabilities, income, expenses and cash flows of the JointVenture are combined with the equivalent items in the results on a line-by-linebasis. As the joint venture, Infinitrak, moves into a greater degree ofcommercialisation, it is considered that proportionate consolidation betterreflects the economic substance of the interest in Infinitrak and its impact onGroup results and therefore provides more relevant and reliable information tothe readers of the accounts. The impact of the change in accounting policy on the 2006 and 2007 financialstatements is detailed below. The net impact of the change in accounting policyon reserves and net assets is £nil. Consolidated Income StatementFor the year ended 31 March 2007 Equity Accounting Proportionate Equity Accounting Proportionate Accounting Changes Consolidation Accounting Changes Consolidation 2007 2007 2007 2006 2006 2006 £000 £000 £000 £000 £000 £000--------------------------------------------------------------------------------------------Revenue 2,691 - 2,691 2,054 - 2,054 Developmentexpenses (4,196) (257) (4,453) (5,212) (292) (5,504) Administrative expenses (1,882) (80) (1,962) (2,243) (60) (2,303)--------------------------------------------------------------------------------------------Operating loss (3,387) (337) (3,724) (5,401) (352) (5,753) De-merger refund 225 - 225 557 - 557Loss on sale of property - - - (1,295) - (1,295)Finance income receivable 266 6 272 295 - 295Share of Joint Venture loss (331) (i) 331 - (352) (i) 352 ---------------------------------------------------------------------------------------------Loss before taxation (3,227) - (3,227) (6,196) - (6,196)Taxation 328 - 328 434 - 434--------------------------------------------------------------------------------------------Loss after taxation attributable to equity holders of the parent (2,899) - (2,899) (5,762) - (5,762)--------------------------------------------------------------------------------------------Basic and diluted loss per share (pence) (2.43) - (2.43) (4.91) - (4.91)-------------------------------------------------------------------------------------------- (i) This eliminates the previous equity accounting for the interest in the JointVenture. Balance Sheets --------------------------------------------------------------------------------------------as at 31 March 2007 Equity Accounting Proportionate Equity Accounting Proportionate Accounting Changes Consolidation Accounting Changes Consolidation 2007 2007 2007 2006 2006 2006 £000 £000 £000 £000 £000 £000--------------------------------------------------------------------------------------------Assets Non Current Assets Intangible assets 1,027 - 1,027 1,083 - 1,083Property, plant andequipment 787 300 1,087 785 - 785Share of net assets of Joint Venture 434 (i) (434) - 6 (i) (6) ---------------------------------------------------------------------------------------------Total Non Current Assets 2,248 (134) 2,114 1,874 (6) 1,868--------------------------------------------------------------------------------------------Current Assets Inventories 46 - 46 - - -Trade and other receivables 1,326 - 1,326 779 197 976Current Tax 268 - 268 449 - 449Cash and cash equivalents 4,073 234 4,307 7,467 6 7,473--------------------------------------------------------------------------------------------Total Current Assets 5,713 234 5,947 8,695 203 8,898--------------------------------------------------------------------------------------------Total Assets 7,961 100 8,061 10,569 197 10,766--------------------------------------------------------------------------------------------Current Liabilities Trade and other payables (655) (100) (755) (737) (197) (934)--------------------------------------------------------------------------------------------Total Current Liabilities (655) (100) (755) (737) (197) (934)--------------------------------------------------------------------------------------------Net Assets 7,306 - 7,306 9,832 - 9,832--------------------------------------------------------------------------------------------Capital and Reserves Issued share capital 11,990 - 11,990 11,990 - 11,990Share premium 48,298 - 48,298 48,298 - 48,298Other reserves (262) - (262) (1,567) - (1,567)Retained earnings (52,720) - (52,720) (48,889) - (48,889)--------------------------------------------------------------------------------------------Total equity attributable to equity holders of the parent 7,306 - 7,306 9,832 - 9,832-------------------------------------------------------------------------------------------- Notes: (i) This eliminates the previous equity accounting for the interest inthe Joint Venture. Cashflow Statements -----------------------------------------------------------------------------------------------for the year ended 31 March 2007 Equity Accounting Proportionate Equity Accounting Proportionate Accounting Changes Consolidation Accounting Changes Consolidation 2007 2007 2007 2006 2006 2006 £000 £000 £000 £000 £000 £000-----------------------------------------------------------------------------------------------Cash flows from operating activities Loss for the year (2,899) - (2,899) (5,762) - (5,762) Adjustments for: Sale of IP to Infinitrak - (787) (787) - (560) (560)Depreciation 166 - 166 254 - 254Amortisation 154 - 154 194 - 194Finance income receivable (266) (6) (272) (295) - (295)Profit on disposal of plant and equipment (15) - (15) (11) - (11)Loss on disposal of intangible assets 122 - 122 29 - 29 Taxation (328) - (328) (434) - (434)Loss on sale of property - - - 1,295 - 1,295Increase in inventories (46) - (46) - - -Increase in trade and other receivables (721) 197 (524) (378) (197) (575)Increase in net assets of Joint Venture (427) 427 - (6) 6 -(Increase)/decrease in trade and other payables (8) (96) (104) 165 197 362Cost of equity settles employee share schemes and bonuses 389 - 389 485 - 485 -----------------------------------------------------------------------------------------------Cash used in operations before tax (3,879) (265) (4,144) (4,464) (554) (5,018)-----------------------------------------------------------------------------------------------Taxation received 629 - 629 749 - 749-----------------------------------------------------------------------------------------------Net cash used in operating activities after tax (3,250) (265) (3,515) (3,715) (554) (4,269)-----------------------------------------------------------------------------------------------Cash flows from investing activities Acquisition of property, plant and equipment (169) (300) (469) (144) - (144)Proceeds from sale of plant and equipment 16 - 16 11 - 11Net proceeds from sale of property - - - 3,440 - 3,440Acquisition of patents (235) - (235) (297) - (297)Finance income received 260 6 266 304 - 304-----------------------------------------------------------------------------------------------Net cash used in investing activities (128) (294) (422) 3,314 - 3,314-----------------------------------------------------------------------------------------------Cash flows from financing activities Proceeds from the issue of share capital - - - 550 - 550Issue of share capital by Infinitrak - 805 805 - 560 560-----------------------------------------------------------------------------------------------Net cash used in financing activities - 805 805 550 560 1,110-----------------------------------------------------------------------------------------------Net (decrease)/ increase in cash and cash equivalents (3,378) 246 (3,132) 149 6 155Cash and cash equivalents at start of period 7,467 6 7,473 7,318 - 7,318-----------------------------------------------------------------------------------------------Exchange loss on currency translation (16) (18) (34) - - -Cash and cash equivalents at end of period 4,073 234 4,307 7,467 6 7,473----------------------------------------------------------------------------------------------- 3. Segmental Analysis In the opinion of the directors, the Group operates in one primary segment beingthe business of the design and development of traction drive Infinitely VariableTransmission (IVT) systems. In the opinion of the directors, and given the earlystage of commercialisation of the Group's intellectual property, the Group doesnot currently operate in markets or geographical segments that are materiallydistinguishable in terms of risks and returns. 4. Revenue The Group has eliminated unrealised profits on sales made to its joint ventureagainst gross revenues. Revenue 31 March 2007 31 March 2006 £000 £000-------------------------------------------------------------------------------Gross revenue 3,508 2,816Elimination of unrealised profit on licence sales to the Joint Venture (787) (560)Elimination of unrealised profit on services for the Joint Venture (30) (202)-------------------------------------------------------------------------------Revenue per the income statement 2,691 2,054------------------------------------------------------------------------------- 5. Operating Loss Operating loss is stated after charging the following: 31 March 2007 31 March 2006 £000 £000-------------------------------------------------------------------------------Amortisation and impairment loss 154 194Abandonment of patents 122 29Profit and disposal of plant and equipment 15 11Depreciation 166 254Operating lease payments - land and buildings 280 118 - office equipment 12 12Research and development costs expensed as incurred 4,453 5,504Auditors' remuneration - audit (Group) 38 36 - audit (Company) 5 11 - fees payable to the auditors for tax services 8 19 ------------------------------------------------------------------------------- Administrative expenses Group Group Restated 2007 2006-------------------------------------------------------------------------------Administrative expenses - Normal (1,786) (1,794)-------------------------------------------------------------------------------Non-recurring administrative expenses: Interim Finance Director (i) (176) -Restructuring activities - (330)Joint Venture set up costs - (179)-------------------------------------------------------------------------------Total administrative expenses (1,962) (2,303)-------------------------------------------------------------------------------(i) Additional employment costs during the absence of previous Finance Directordue to illness. 6. Taxation on Loss on Ordinary Activities 31 March 2007 31 March 2006 £000 £000-------------------------------------------------------------------------------UK corporation tax Current tax for the year 363 461Prior year tax 75 (12)-------------------------------------------------------------------------------Total UK Corporation tax 438 449Overseas tax Current tax for the year (110) (15)-------------------------------------------------------------------------------Total tax 328 434------------------------------------------------------------------------------- 7. Loss per Ordinary Share Basic loss per share is based on the loss after tax of £2,899,000 (2006:£5,762,000) and 119.3 million ordinary shares (2006: 117.5 million) being theweighted average number of shares in issue during the year. 31 March 2007 31 March 2006 Number Number-------------------------------------------------------------------------------Shares issued and used in calculating basic and diluted loss per share 119,299,841 117,461,791------------------------------------------------------------------------------- In accordance with IAS 33 the average number of shares used in the calculation excludes shares held by the Employee Share Trust of 600,979 (2006: 1,247,988). 8. Share Capital 31 March 2007 31 March 2006 Number £000 £000-------------------------------------------------------------------------------Authorised Ordinary shares of 10p each 200,000,000 20,000 20,000Allotted and fully paid Ordinary shares of 10p each 119,900,820 11,990 11,990------------------------------------------------------------------------------- 9. Financial record For the years ended 31 March 2007 2006 (iii) 2005 (ii) 2004 (i) 2003 (i) £000 £000 £000 £000 £000-------------------------------------------------------------------------------------------Revenue 2,691 2,054 534 244 145Loss on ordinary activities before taxation (3,227) (6,196) (6,057) (7,025) (6,380)-------------------------------------------------------------------------------------------Loss on ordinary activities after taxation retained for the financial year (2,899) (5,762) (5,271) (6,166) (5,580)-------------------------------------------------------------------------------------------Basic and diluted loss per share (2.43p) (4.91p) (4.55p) (5.36p) (4.88p)-------------------------------------------------------------------------------------------Total assets less current liabilities 7,306 9,832 14,560 19,358 25,360 -------------------------------------------------------------------------------------------Equity shareholders' funds 7,306 9,832 14,560 19,358 25,360-------------------------------------------------------------------------------------------Net cash outflow from operating activities (3,515) (4,269) (4,645) (6,795) (6,270) -------------------------------------------------------------------------------------------Management of liquid resources (2,586) 229 4,381 5,248 5,221 -------------------------------------------------------------------------------------------(Decrease)/increase in cash each year (808) (80) (30) 658 823 -------------------------------------------------------------------------------------------Notes: (i) presented under UK GAAP (ii) as restated under IFRS (iii) as restated for proportionate consolidation of Infinitrak. 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