Torotrak PLC Regulatory News (TRK)

30 June 2015

Torotrak plc

("Torotrak", the "Company" or the "Group")

Preliminary Final Results for the Year Ended 31 March 2015 (unaudited)

Torotrak (LSE: TRK), a leading developer and supplier of emissions reduction and fuel efficiency technology for vehicles, announces its Preliminary unaudited Final Results for the year ended 31 March 2015.

Flybrid KERS - mechanical hybrids

· Milestones achieved:

o Commenced initial trials of a Wrightbus StreetLite vehicle fitted with Flybrid KERS on a public bus route with Arriva

o Fuel savings in StreetLite bus independently validated on a standard test cycle at Millbrook

o Accelerated flywheel durability testing successfully completed, verification of production-intent design underway

o JCB excavator KERS units successfully built, in-vehicle and rig testing underway

· Memorandum of Understanding entered into with a global Tier 1 manufacturer of commercial vehicle and passenger car drivelines ahead of delayed commercial launch in mid-2016

· Flybrid bus KERS wins prestigious Society of Motor Manufacturers & Traders (SMMT) Award for Automotive Innovation 2014

V-Charge - powering downsized engines

· Milestones achieved:

o Ford Motor Company announced as a participant in University of Bath evaluation project

o Simulation conducted by University of Bath in conjunction with Ford and Tier 1 confirms significant potential benefits from V-Charge technology in a downsized engine for the mass market, hardware build for in-vehicle testing underway

· Next generation prototype unit already installed in demonstrator vehicle

Variable traction drive transmissions

· Milestones achieved:

o Success-related £1 million deferred license fee received from Allison in November 2014

Financial Highlights

· Cash balance of £7.6 million as at 31 March 2015

After the period end

· Appointment of a new Chief Executive, Adam Robson

· Launched a Subscription, Firm Placing, Placing and Open Offer to raise approximately £13.8 million (before costs), subject to approval by Shareholders

· Restructured the terms of the Flybrid acquisition agreement, reducing the potential cash payable under the earn-out by £10 million and converting £1.8 million of the Vendor Loan Notes into a five year term loan, subject to approval by Shareholders

· Implemented a reorganisation, reducing cash operating costs and continuing to focus resources on commercialising the Group's technology

Adam Robson, Chief Executive, commented: "I am pleased that we have launched the fund raise, restructured the Flybrid acquisition agreement as, together with the implementation of the reorganisation, this will create a platform for financial stability and growth. The Executive management team is completely focused on commercialising the Group's technologies, building on the progress made in the last year on bus KERS and V-Charge in particular. We are working with our partners to deliver value to Torotrak Shareholders."

For more information, please visit www.torotrak.com or contact:

Chairman's Statement

During the last 12 months the Group has made progress across all of the three main technologies: KERS, V-Charge and Main Drive Transmissions. The Group has also largely completed the integration of the Flybrid business that was acquired in January 2014 and the two engineering teams are working together on a number of key customer programmes.

On 30 March 2015, the Group announced the appointment of Adam Robson as Chief Executive Officer (effective 13 April 2015), replacing Jeremy Deering, who had stated his intention to stand down in November 2014. Adam's track record in commercialising technology and his experience in the automotive sector will prove invaluable to Torotrak as it furthers discussions and negotiations with customers and partners directed at bringing products to market based on its world class technologies. Adam has announced that his focus is to commercialise the Group's technologies, delivering revenues and Shareholder value. The Board has announced a fund raise, a restructuring of the terms of the earn-out relating to the Flybrid acquisition and a re-organisation of the Group's resources. I report on these later in this statement.

The progress made in developing and productionising the bus and off-highway KERS products, developing V-Charge and delivering improved durability in main drive transmission core components provides an excellent platform on which to secure funded commercial engagements with Tier 1s and OEMs to take our technology through to commercial production. The Group, under Adam's leadership, will build on the significant achievements over the last year and drive long term value for Shareholders.

Performance of the Group

Our new Chief Executive Officer, Adam Robson, reports in detail on the last 12 months, the targets achieved and challenges faced by the Group. However, I set out below the key aspects of the Group's performance.

The financial performance of the Group has been disappointing. The normalised loss after tax (before amortisation of intangible asset (know-how), associated tax credit and exceptional items) increased to £6.7 million (2014: £3.4 million), reflecting lower licensing revenues, a full year's operating costs for Flybrid and the investment in developing and productionising the bus and off-highway KERS product. The Group closed the financial year with a cash balance of £7.6 million (2014: £14.9 million) and loan notes due to the vendors of Flybrid of £2.8 million (2014: £2.8 million). The net reduction in cash of £7.3 million arises from the operating loss for the year and the investment in capital expenditure, being plant, machinery and patents.

In KERS, we have successfully completed the development and testing of the bus KERS product and secured independent validation of the fuel and CO2 savings achieved in a KERS-equipped Wrightbus StreetLite vehicle on a standard test cycle at the Millbrook test track. In March this year we commenced a bus trial on a public bus route in Kent in collaboration with Wrightbus and Arriva which is intended to demonstrate the effectiveness of the technology under real-world conditions. In parallel, the Group has completed the next generation production-intent design in collaboration with a global Tier 1 supplier in preparation for commercial launch in mid-2016. The KERS programme with JCB is progressing well with encouraging results from in-vehicle and rig testing.

In V-Charge, we have been pleased to announce that we are working with Ford and a global Tier 1 engine boosting company on the development and demonstration of our variable supercharging technology as an enabler for engine downsizing. The results from simulations conducted by the University of Bath confirm the potential of V-Charge to deliver performance and/or fuel efficiency benefits. Based on these successful results, the final stage of the programme is underway to demonstrate the results from in-vehicle testing using the Group's latest V-Charge hardware.

In main drive transmission technology, we successfully demonstrated further improvements in core component durability and based on these results the Group received the final £1 million licence payment from our major shareholder and commercial partner Allison. The next steps are to work with Allison to determine how the increased core component life can be used to develop a smaller, lighter, lower cost transmission and to identify the optimum target product.

Fund raise and reorganisation

The Group has today launched a Subscription, Firm Placing, Placing and Open Offer to raise approximately £13.8 million (before costs) and announced a restructuring of the terms of the Flybrid acquisition, both of which are subject to approval by Shareholders at a General Meeting to be held on 22 July 2015.

The restructuring of the terms of the Flybrid acquisition agreement reduces the potential cash consideration payable under the earn-out arrangements by £10 million and the Vendors will receive 71,428,571 New Ordinary Shares in the Company in lieu of any future earn-out payments. In addition, £1.8 million of the £2.8 million loan notes arising from the initial cash consideration for the acquisition in January 2014 is to be converted into a 5 year term loan secured on the assets of Flybrid that can be repaid by the Group at any time during the five years and the remaining £1 million will be paid out of the proceeds of the fund raise. The loan will be used to help fund the commercialisation of KERS in the passenger car and commercial vehicle markets. The restructuring and cancellation of the earn-out arrangements will ensure that the Group continues to focus on commercialising the technology in the best interests of all Shareholders.

As part of the strategy to re-focus activities, the Group has commenced an internal reorganisation to reduce costs and to realign resources with the key commercial drivers for the Group. The effect of this will be to reduce operating costs and focus the Group's resources on securing nearer term commercial opportunities such as licensing and lower volume product sales.

The reorganisation will also complete the integration of Flybrid into the Group, bringing together the best aspects of both businesses. Jonathan Hilton will step down from his executive role and will be appointed Non-Executive Deputy Chairman, working with Adam Robson to identify and develop new opportunities to commercialise the Group's technologies. Doug Cross will remain in a full-time executive role as Chief Technology Officer, working alongside Steve Hughes as Chief Operating Officer.

As part of the reorganisation, the Board intends to submit a proposed restructuring of Executive management's and all other employees' remuneration for Shareholder approval at the next AGM of the Company to be held in September 2015. This restructuring will involve a reduction in cash remuneration (including the elimination of cash bonuses), and a restructuring of the LTPSP scheme to more closely align the interests of executives/employees and Shareholders whilst at the same time helping to retain key employees.

Regulatory environment and market drivers

The laws and regulations covering vehicle fuel efficiency and emissions continue to tighten with OEMs facing significant challenges to identify cost-effective technologies that can help them meet regulatory obligations. In the EU, the new passenger car emissions regulations were enacted requiring a 27 per cent. reduction in CO2 emissions by 2021, with a proposed further 18 - 28 per cent. reduction planned by 2025. In North America and Asia, similar regulations are being implemented which will drive OEMs' need for new low cost solutions.

In addition to tougher emissions regulations, a new vehicle test cycle is planned for introduction from 2017/18 onwards. The World Harmonised Light Duty Test Procedure (WLTP) is expected to result in higher CO2 emissions compared with those measured under the current EU type-approval (NEDC) test protocol. As a result, it will become even more challenging for vehicle manufacturers to satisfy the CO2 emissions requirements.

The Board believes that the combination of tighter emissions regulations and the new vehicle test procedure will cause OEMs to accelerate the adoption of new low cost technologies, such as those offered by the Group.

People

During the year, there have been a number of changes at Board level. In November last year I took over as Chairman from John Weston who remains on the Board as a Non-Executive Director. John joined the Group in June 2011 and the Board would like to thank him for his stewardship of the Group over this period.

Also in November, Jeremy Deering announced his intention to step down as Chief Executive Officer. Jeremy joined the Group as Finance Director in June 2006, becoming Chief Executive Officer in August 2012 and he stepped down from the Board in April this year. On behalf of the Board and his colleagues I would like to thank him for his contribution to the Group and wish him well for the future.

The Group has an excellent team which has worked tirelessly during the past year to deliver the strong technical progress that we have reported on today. I would like to thank them for their hard work and support over the last 12 months.

Outlook

The next 12 months will see the Group commence commercial production and sales of its bus KERS product in the UK bus market in collaboration with Wrightbus and our new Tier 1 partner. The Group is also targeting securing licensing arrangements of KERS and/or V-Charge into the passenger car or commercial vehicle markets. Both technologies offer OEMs cost-effective ways to help address the vehicle fuel-efficiency and emissions challenges from 2020/21 onwards using mechanical-based solutions. I look forward to reporting to Shareholders on the progress achieved.

N Barter

Chairman

29 June 2015

Chief Executive's Review

A platform for growth

Introduction

Since taking over as Chief Executive Officer on 13 Aril 2015, I have spent much of my time resetting the strategic focus of the Group to commercialise its technology and reorganising the Group's Executive management team, engineering and other resources to deliver on this commitment. I have met with our major institutional Shareholders and commercial partners and set out my priorities for the Group. I am excited to have joined Torotrak at this important time and I look forward to helping deliver the significant value embedded in the Group's different technologies.

Fund raise, Flybrid agreement restructuring and reorganisation

We have today launched a Subscription, Firm Placing, Placing and Open Offer to raise approximately £13.8 million (before costs) to finance the launch of the bus KERS product, the development and licensing of KERS and V-Charge in the passenger and commercial vehicle markets and on-going support to our two key Tier 1 licensees of our toroidal traction drive technology (Allison and Univance). In conjunction with the fund raise, the earn-out agreement related to the acquisition of Flybrid has been restructured resulting in the elimination of up to £10 million of additional cash consideration. Under the terms of the restructure, the Flybrid Vendors will receive a one-off settlement of 71,428,571 New Ordinary Shares and will convert £1.8 million of loan notes into a five year term loan, secured on the assets of Flybrid and repayable by the Group at any time during the five year term and the remaining £1 million will be paid out of the proceeds of the fund raise.

The combination of the fund raise and the restructuring of the Flybrid agreement, both of which are conditional on shareholder approval, will secure additional cash funding to enable the Group to commercialise its technologies and launch bus KERS in the market in mid-2016. In addition, restructuring the earn-out agreement removes a potential conflict and ensures that all members of the Board and Executive management are fully aligned to maximise the commercial opportunity for the KERS technology.

As part of the strategy to reset the focus of the Group's resources on commercialising the Group's technology, we have announced a reorganisation that will reduce on-going cash operating expenses by approximately 20 per cent. on an annualised basis and align resources to deliver commercial success. The Group's engineering resources have been allocated under Steve Hughes and Doug Cross with combined commercial, project management and technical teams focusing on the nearer term key commercial opportunities.

Leveraging the capabilities of the Group's current and future Tier 1 partners, such as Univance, in conjunction with the reorganisation will help the Group deliver Shareholder value through licensing and other product sales.

Operating Review

Bus KERS

The Group's primary focus since acquiring Flybrid has been completing the design, development and testing of the bus KERS product and commencing the in-service trials in a Wrightbus StreetLite vehicle with Arriva. During the year the engineering team has successfully completed the following programme activities:

· Installed KERS units into two Wrightbus StreetLite vehicles, successfully completing the necessary calibration and drivability tests to maximise energy capture and fuel savings. The KERS-enabled vehicles have undergone an extensive series of tests both on public roads and test tracks such as Millbrook. The Vehicle Certification Agency has confirmed the KERS-enabled bus has successfully passed the braking performance tests necessary to operate on a public bus route;

· Independent testing completed at the Millbrook test track, confirming that the bus KERS system can deliver fuel savings and can give bus operators an attractive payback. With the new £30 million incentive fund announced by the Government for Low Emission Bus (LEB) procurement, we anticipate that the payback to bus operators could be significantly faster with initial capital grants. The Group has also conducted its own testing at the Millbrook test track which confirms the significant fuel savings that are available to bus operators in real-world use;

· In March this year, Arriva commenced a public trial of a Flybrid KERS-enabled Wrightbus StreetLite vehicle. The vehicle is in service with Arriva on a public bus route in Gillingham, Kent. The Group, in conjunction with Arriva, will monitor the in-service performance of the vehicle using on board telemetry. This is an important validation of the KERS product and will provide an excellent opportunity to showcase the technology to potential customers including bus operators and other bus OEMs;

· Extensive accelerated flywheel assembly durability testing equivalent to more than 10 years of in-service operation has been successfully completed; this confirms the target design life of at least 1 million kilometres. This also confirms an important benefit of the Group's flywheel hybrid compared to battery hybrids which require a mid-life battery pack replacement, increasing through-life costs and operating downtime. Destructive testing to validate the flywheel functional safety has also been successfully performed proving the patented safety features of the system.

In parallel, the engineering team has completed the production-intent design for the low cost industrialised bus KERS system, reducing weight, parts count and estimated cost. The first units are currently being assembled at the Group's facility in Leyland and will be used as part of a comprehensive design verification test programme to validate the functional performance, reliability and improved fuel efficiency of the KERS system.

The Group has been working in close collaboration with a major global Tier 1 manufacturing and assembly partner that is a technology leader in commercial vehicle and light vehicle driveline systems. The combined engineering teams of our Tier 1 partner and the Group's development team are focused on optimising the design for manufacture, reliability and cost and building a supply chain to deliver the volumes required by bus operators and to support a commercial market launch in mid-2016. The Group signed a Memorandum of Understanding with the Tier 1 earlier this year which is expected to lead to a formal volume supply agreement. The initial agreement is that the Tier 1 will supply KERS units (excluding flywheel assemblies) and the Group will manufacture flywheel systems and assemble these into the complete KERS unit for shipment to bus OEMs.

The Group is targeting in-vehicle trials of the new production-ready KERS units later this year and, following investment in tooling, the commercial launch of KERS is scheduled for mid-2016. Whilst this is approximately 12 months later than originally planned, the Group believes that KERS can deliver the required bus operator payback.

The recent announcement by the UK Government's Office for Low Emission Vehicles of a £30 million fund for (Ultra) Low Emission Bus procurement (LEB) is a welcome initiative to encourage bus operators to procure new low carbon vehicles. Initial indications suggest that a Flybrid KERS unit could be eligible for a capital grant of up to 75 per cent., which would enable the KERS unit to offer bus operators a rapid payback. The LEB programme is also designed to stimulate the uptake of new low carbon technologies that offer value for money and that help to reduce the need for government subsidy over the period of the scheme and beyond. We are working with our partner, Wrightbus, to ensure that the Flybrid KERS equipped StreetLite is eligible for grant funding under this scheme.

We were also delighted that Flybrid was the 2014 winner of the prestigious Society of Motor Manufacturers and Traders (SMMT) Award for Automotive Innovation (AAI) for KERS for buses and commercial vehicles. The AAI recognises new UK-developed low carbon vehicle technologies which will make a lasting impression on the motor industry for years to come.

Off-highway KERS

The collaboration with JCB, part-funded by the UK-Government formed Advanced Propulsion Centre, to design, develop and commercialise Flybrid flywheel systems for excavators is progressing well. In-vehicle and rig tests of flywheel systems are encouraging.

The Group is looking at other opportunities for its KERS systems in other off-highway applications.

Passenger Car KERS

The Group has recently completed feasibility studies for two major European-based OEMs. Whilst these studies are early-stage feasibility studies, it confirms the Group's view that OEMs are looking at mechanical-based energy recovery systems as a lower cost, more effective solution than battery based hybrid solutions. The Group is engaged with a number of other passenger car OEMs and Tier 1s in Europe, North America and China, who are investigating the opportunities for KERS with potential feasibility and demonstrator vehicle programmes.

V-Charge

In April this year, we announced that the Group was working with Ford Motor Company, a class leader in efficient passenger car engines, to evaluate the potential benefits of V-Charge technology in engine downsizing. The project, funded by Innovate UK, in collaboration with the University of Bath (a world recognised centre of excellence in this field) and a global Tier 1 engine boosting supplier is developing a production orientated version of V-Charge. This work is focused on fully exploiting the capability of V-Charge technology through optimisation of multiple engine parameters demonstrating the emissions reduction and performance improvement opportunities for the technology. The technology has the potential to reduce the complexity and cost of multi-stage boosting systems that are necessary to achieve increased specific engine outputs.

The initial simulation results from the University of Bath collaboration confirm that V-Charge has the potential to improve the performance of a modern downsized gasoline engine when compared to competing advanced boosting technology, making it a potential enabler for more aggressive engine downsizing. Using current supercharger compressor technology, V-Charge can provide improved low speed torque output, and under full-load conditions is predicted to deliver improved fuel consumption and CO2 emission reductions without the 'lag' associated with existing boosting solutions. Time to torque, a measure of engine response and vehicle drivability, matches and in some cases improves upon competing advanced boosting products. Configured with next generation compressor technology that fully exploits the characteristics of V-Charge, further benefits are expected. The Directors believe that these results are achieved with simplified hardware integration and superior noise vibration and harshness characteristics compared to the competition.

The next stage of the programme will see the Group's V-Charge hardware integrated into two passenger cars and the University of Bath will independently validate the performance and fuel-efficiency benefits delivered by V-Charge in real-world drive cycles. We expect to be able to report the results of in-vehicle testing later this financial year.

The Group is working closely with Univance (an existing licensee for the Group's continuously variable transmission (CVT) technology), to explore the commercial opportunity to use V-Charge CVT technology to improve fuel efficiency, with a focus on on-highway commercial vehicle boosting applications. Univance is working with several Japanese OEMs who are interested in commencing demonstration programmes to confirm the benefits of using Torotrak's CVT in conjunction with a turbocharger over and above competitor technologies. We hope to be able to report further progress in this area over the next six months.

Main drive transmissions

In November 2014, Allison paid the final £1 million licence fee, deferred from earlier in the year; confirming the step-change improvement in key component durability and lifetime. The Group is working with Allison to determine the most appropriate product for the Group's technology, taking into account the market opportunities and the key drivers of fuel efficiency, packaging and cost.

As reported at the Group's interim results, the Group has been invited to participate in a feasibility study for off-highway applications to be commissioned and completed during 2015.

Univance, the Group's existing Tier 2 manufacturing licensee, has recently secured a Japanese government grant to develop a family of variators for off-highway and auxiliary drive applications using the Group's CVT technology and has identified a number of lead customers for this product family. On a recent to visit to Japan, the Group has agreed to support these programmes as part of the drive to secure new commercial opportunities.

Manufacturing

During the year the Group has invested in low volume manufacturing, test and build equipment at the Leyland facility. Investments include:

· Carbon fibre filament winding and flywheel hub manufacturing capability to manufacture complete flywheels in lower volumes up to a few thousand units per annum, meeting the initial requirements for on and off-highway commercial vehicle markets;

· CNC machining capability to manufacture multiple high-value components enabling multiple engineering programmes to be delivered more quickly and cost-effectively and to help capture valuable design-for-manufacture learnings and IP.

In addition, investment has also been made in 24-hour ('lights-out') accelerated flywheel durability testing capability to further KERS development test facilities in order to support product development programmes for the Group's key KERS programmes including with Wrightbus.

Delivery against the Group's targets

The following is a summary of the progress achieved against the targets the Group set itself in last year's Annual Report.

IVT

KERS

V-Charge

Automotive application of V-Charge and KERS

Financial

Revenue in the current financial year was £3.8 million, slightly higher than the previous year (2014: £3.5 million). Licensing revenue was £1.0 million (2014: £3.0 million), all of which arose from the final licence payment from Allison, previously deferred pending satisfactory completion of durability testing. Engineering services revenue was £2.8 million (2014: £0.5 million) reflecting the main KERS programmes that were active during the year. Gross profit for the year was £2.0 million (2014: £3.0 million) reflecting the change from high margin licence revenue in 2014 to lower margin engineering services revenue during the year.

Total operating costs for the Group, excluding intangible asset amortisation (know-how) and exceptional items, increased by £2.2 million to £9.2 million during the year, largely relating to the acquisition of Flybrid and the additional engineering resources taken on to deliver the bus KERS and other engineering programmes.

The adjusted operating loss (before intangible asset amortisation (know-how) and exceptional items) for the current financial year was £7.2 million (2014: £4.0 million). The increase is attributable to a £1.0 million reduction in gross profit, largely due to the reduction in high margin licence income, and a £2.2 million increase in operating costs, as discussed above. After deducting intangible asset amortisation (know-how) charges of £0.8 million (2014: £0.1 million) and exceptional charges of £0.4 million (2014: £0.7 million) the operating loss for the year was £8.4 million (2014: £4.8 million). The increase in intangible asset amortisation (know-how) charges of £0.7 million reflects a full year charge for the amortisation of the intangible asset amortisation (know-how) arising from the acquisition of Flybrid. The exceptional charge of £0.4 million relates to the departure of a senior employee at the beginning of the financial year and the departure of Jeremy Deering. The exceptional charge of £0.7 million in the previous financial year included £0.6 million relating to professional and other fees incurred during the acquisition of Flybrid.

Net finance income of £0.04 million was in line with the previous year and the income tax credit of £0.6 million (2014: £0.5 million) largely relates to research and development tax credits. Normalised loss for the year after tax (before intangible asset amortisation (know-how), associated tax credit and exceptional charges) attributable to Shareholders increased to £6.7 million (2014: £3.4 million) due to lower licensing revenues and higher operating costs including a full year's costs for Flybrid. Including intangible asset amortisation (know-how), associated tax credit and exceptional costs, the loss attributable to Shareholders was £7.8 million (2014: £4.2 million).

Net cash used in operating activities was £6.2 million (2014: £4.0 million). The increase of £2.2 million was driven by lower licensing revenues (a decrease of £2.0 million), increased operating costs (an increase of £1.6 million in cash terms), offset by increased engineering services gross profit (an increase of £1.0 million), and increased tax receipts (an increase of £0.4 million). Net cash used in investing activities decreased to £1.1 million from £5.0 million in the previous year; a decrease of £3.9 million which largely relates to the acquisition of Flybrid in the previous financial year. Capital expenditure on property, plant and equipment and patents was in line with the previous year at £1.2 million. Cash flow from financing activities was £14.9 million lower due the fund raise completed last year to acquire Flybrid. The closing cash balance was £7.6 million (2014: £14.9 million) excluding £2.8 million of loan notes due to the Vendors of Flybrid (2014: £2.8 million).

The carrying value of the Group's intangible assets decreased by £0.5 million to £15.2 million as a result of a £0.8 million amortisation charge relating to the know-how acquired upon the acquisition of Flybrid offset by a net increase of £0.3 million in the value of patents.

Summary

The Group has made considerable progress against a number of the targets set out in last year's Annual Report. In particular; completion of testing of bus KERS at Millbrook test track; commencement of trials on a public bus route operated by Arriva; successful completion of IVT durability testing leading to the receipt of the final £1 million license fee from Allison; and confirmation of V-Charge performance/fuel-efficiency benefits in conjunction with Ford and the University of Bath. However, in a number of areas progress has been slower than we had hoped resulting in the commercial production of bus KERS being delayed into mid-2016 and a funded Tier 1 automotive application for KERS or V-Charge not yet secured. Nevertheless, the Group is in a strong position to build on the technical progress made and the focus is now to convert this into tangible commercial success.

My focus as Chief Executive Officer is to commercialise the Group's technology, delivering value to Shareholders on the significant investments made. In particular, commence commercial production and sales of our bus KERS product in the UK in mid-2016; successfully demonstrate the benefits of V-Charge on two in-vehicle applications with Ford and use this as a platform to secure a Tier 1 license in passenger cars; and convert the first of the on-going KERS discussions with Tier 1s and OEMs into a licence for KERS in passenger cars. Whilst it is difficult to forecast the precise timing of licensing deals, I am confident that our technologies offer OEMs a number of cost-effective ways to help address the regulatory challenges they face across their vehicle fleets from 2020/21 onwards. Our technologies offer OEMs mechanical-based, proven, mass-market capable solutions.

I would like to thank all our staff for all their hard work and dedication during the last year that has enabled us to make tangible progress and build a platform for growth going forward.

A Robson

Chief Executive

Financial Statements 2015

Consolidated Income Statement

For the year ended 31 March 2015

There is no other comprehensive income in the year and therefore no separate Statement of Other Comprehensive Income is required (2014: £nil).

Consolidated Balance Sheet

As at 31 March

Statements of Changes in Equity

Consolidated Statement of Cash Flows

Notes to the Financial Statements

1. General information

Torotrak plc (the "Company" or "Parent Company") is a publicly traded company incorporated and domiciled in the UK. The address of its registered office is 1 Aston Way, Leyland, Lancashire PR26 7UX. The Company is listed on the Main Market of the London Stock Exchange.

The Annual Report and Financial Statements for the year ended 31 March 2014 have been delivered to the Registrar of Companies and are available on Torotrak's website www.torotrak.com and the Annual Report and Financial Statements for the year ended 31 March 2015 will be posted to Shareholders and made available on Torotrak's website in July 2015.

The preliminary final results for the year ended 31 March 2015 are unaudited.

2. Basis of preparation

This announcement was approved by the Board of Directors on 29 June 2015. The financial information in this announcement does not constitute the Group's statutory accounts for the years ended 31 March 2015 or 31 March 2014 but it is derived from those accounts. Statutory accounts for 31 March 2014 have been delivered to the Registrar of Companies, and those for 31 March 2015 will be delivered after the Annual General Meeting. The auditors have reported on the accounts for the year ended 31 March 2014; their report was unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

The unaudited consolidated financial statements from which these results are extracted have been prepared under the historical cost convention in accordance with IFRS (International Financial Reporting Standards), as adopted by the EU, IFRS IC interpretations and those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The standards used are those published by the International Accounting Standards Board (IASB) and endorsed by the EU and effective at the time of preparing these financial statements (June 2015).

The Directors have continued to adopt the going concern basis in preparing these unaudited preliminary results. In concluding that the going concern basis of preparation remains appropriate, the Directors have taken into consideration the £13.8 million fundraising launched on 30 June 2015, which requires the approval of the Shareholders at a General Meeting to be held on 22 July 2015.

As at the date of approving these unaudited preliminary results, the fundraising has not been approved by the Group's Shareholders. Accordingly, a material uncertainty exists which may cast significant doubt about the Group's ability to continue as a going concern.

If the fundraising does not proceed, the Group would have a very limited period of time in which to take remedial measures available to address its cash flow requirements. Should the fundraising not proceed, the Directors would severely reduce discretionary spend and would immediately endeavour to conserve cash and raise further funds. In addition, the Directors would have to consider whether they could find a purchaser for the Group as a whole, or any of the individual entities therein, within the limited timeframe available.

Although these measures are potentially available to the Group, the outcome of such measures lie outside of the full control of the Group and, as a result, the Directors cannot be certain that they will be successful. In addition, the Company would have a very limited period of time in which to effect such recourses. If the Issue does not proceed and alternative immediate funding is not obtained, it would have a material adverse impact on the Group's prospects and its financial condition and the Directors would need to consider whether it is appropriate for the Group to cease trading and enter into a liquidation process.

These unaudited preliminary results therefore do not include the adjustments that would result if the Group were unable to continue as a going concern including, for example, the reduction in carrying value of assets and the recognition of additional liabilities.

3. Accounting policies

The accounting policies adopted in the preparation of this unaudited financial information are consistent with those adopted for the year ended 31 March 2014, as included in the published financial statements, other than in relation to new and amended standards, as set out below, which have been adopted for the first time in the year:

(a) New and amended standards adopted by the Group:

The following new standards and amendments to standards are mandatory for the first time for the financial year beginning 1 April 2014 and have an impact on the Group:

· IFRS 11, 'Joint Arrangements'. Prior to the adoption of IFRS 11, the Group accounted for its investments in joint ventures by applying the proportional consolidation method. Under IFRS 11, proportional consolidation is no longer an accepted accounting treatment and therefore the Group's investments in joint ventures are now accounted for using the equity method. The impact of this change in accounting policy has been to reduce loans due to and from joint ventures and cash and cash equivalents with an offsetting entry being made within non-current assets to 'net investments in joint ventures'. As required by IAS 1, the change in accounting policy has been applied retrospectively and the prior year Financial Statements have been restated to reflect the impact of the change in policy as described above. The change in accounting policy has had no impact on the net assets of the Group or its loss for the current and prior periods.

The following new standards and amendments to standards are mandatory for the first time for the financial year beginning 1 April 2014 and have no impact on the Group:

· IFRS 10, 'Consolidated Financial Statements'

· IFRS 12, 'Disclosures of Interests in Other Entities'

· IAS 27 (revised 2011) 'Separate Financial Statements'

· Amendments to IFRS 10,11 and 12 on transition guidance

· Amendments to IAS 32 on financial instruments asset and liability offsetting

· Amendment to IAS 36 'Impairment of Assets' on recoverable amount disclosures

· Amendment to IAS 39 'Financial Instruments: Recognition and Measurement' on novation of derivatives and hedge accounting

4. Statement of Directors' Responsibilities

Each of the Directors confirms that, to the best of their knowledge:

· the Financial Statements within the full Annual Report and Accounts from which the financial information within this Final Results announcement has been extracted, have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Company and the undertakings included in the consolidation taken as a whole; and

· the Strategic Report, which includes the Strategic Review, the Chairman's Letter, the CEO's Review, and the Principal Risks and Uncertainties (note 17) include a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that it faces.

5. Segmental analysis

Year ended 31 March 2015 (unaudited)

Note: Development activities include research and the creation of intellectual property. Some technology information has been combined where the values are deemed immaterial.

Exceptional items of £431k and the amortisation of the intangible asset (know-how), created as a result of the Flybrid acquisition, of £765k have been included in other operating costs not allocated to segments.

Year ended 31 March 2014

Note: Development activities include research and the creation of intellectual property. Some technology information has been combined where the values are deemed immaterial.

Exceptional items of £672k and the amortisation of the intangible asset (know-how), created as a result of the Flybrid acquisition, of £127k have been included in other operating costs not allocated to segments.

Significant customers

The following revenues are attributable to significant customers:

Note:

(i) The revenue from Allison Transmission Inc. has been generated from engineering services and licence agreements.

(ii) The revenue from the undisclosed customer has been generated from engineering services.

6. Exceptional items

The re-organisation costs relate to severance and associated expenses in relation to a reduction in employees and costs connected to the termination of a Director. In 2014, the one-off legal and other costs relate to the acquisition of the remaining 80% stake in Flybrid Automotive Limited.

7. Intangible assets

The carrying value of intangible patent assets, know-how and goodwill, and their potential impairment, is reviewed annually on a case by case basis, having regard to the commercial classification of a patent and its commercial applicability by market and territory. Expenditure relating to patent cases which do not meet defined criteria as approved by the Board of Directors, is subsequently abandoned and the resulting costs charged to the Income Statement. Having completed the 2015 annual impairment review, the Group has recognised no impairment (2014: £nil).

The average remaining life of the assets is 14 years (2014: 13 years).

A fixed and floating charge has been granted to the Vendors of Flybrid Automotive Limited over all patents, know-how, trademarks and other intangible assets owned by Flybrid Automotive Limited, or in which it may have an interest. The fixed and floating charge can be called in the event that the Group does not satisfy, as they fall due, any amounts owed to the Vendors under the terms of the earn-out agreement entered into at the time of the acquisition of Flybrid in January 2014.

It is proposed at the General Meeting to be held on 22 July 2015 that the Flybrid acquisition agreement be restructured. Therefore, the existing charge over the assets of Flybrid will, as a consequence, be cancelled and replaced by a new fixed and floating charge over all patents, know-how, trademarks and other intangible assets owned by Flybrid Automotive Limited, or in which it may have an interest, in relation to a £1.8 million loan (see note 15).

8. Income tax credit

The Finance Act 2000 introduced the research and development tax credit, which allows companies with qualifying expenditure to surrender their tax losses for cash. The effective tax rate for these credits is 32.63 per cent. (2014: 24.75 per cent.) compared to the current UK corporation tax rate of 21 per cent. (2014: 23 per cent.).

9. Deferred tax

The deferred tax liability relates solely to the intangible assets recognised on the acquisition of Flybrid Automotive Limited and is based on 20 per cent. of the intangible asset (know-how) value. The deferred tax liability will be amortised through the Income Statement to match the amortisation of the underlying intangible asset, being over 15 years.

Deferred tax assets have not been recognised relating to tax losses or unclaimed capital allowances as the Group is not forecast to generate sufficient future taxable profits against which the losses could be utilised. The Group also has unrecognised deferred tax assets relating to potential future deductions on the exercise of share options issued to Group employees.

10. Trade and other receivables

There is no provision for impairment for trade receivables at 31 March 2015 (2014: £nil). No trade receivables were overdue at 31 March 2015 (2014: £2k). In 2014 these related to a number of independent customers for whom there was no recent history of default. All amounts overdue but not impaired are less than 3 months overdue.

11. Trade and other payables

The £2.8 million vendor loan notes relate to the acquisition of Flybrid Automotive Limited. It is proposed at the General Meeting to be held on 22 July 2015 that the Flybrid Acquisition Agreement be restructured as follows; redemption of £1.0 million of loan notes to be paid in cash to the Flybrid Vendors; redemption of £1.8 million of loan notes settled through the issue of a new £1.8 million interest bearing loan, secured on the assets of Flybrid and repayable 5 years from the date of the General Meeting, or earlier at the Group's option (see Note 15).

12. Issued share capital

Shares issued as part of the open offer and firm placing and approved by Shareholders at a General Meeting held on 8 January 2014 are reported net of the expenses relating to the issue, totalling £1.0 million. The expenses are reported within share premium.

It is proposed at a General Meeting to be held 22 July 2015 that the Group issue New Ordinary Shares under a Subscription, Firm Placing, Placing and Open Offer (see note 15).

13. Loss per share

Basic loss per share is calculated by dividing the loss attributable to equity holders of the Parent Company for the period by the weighted average number of ordinary shares in issue during the period, excluding those held in trust. For diluted loss per share, the weighted average number of ordinary shares in issue is adjusted to assume issue of all dilutive potential ordinary shares, being those share options with a non market-based performance condition granted to employees where the exercise price is less than the average market price of the ordinary shares during the year, and those shares with a market based performance condition based on the current estimate of the number of shares that will vest under the performance criteria.

For the year ended 31 March 2015 potential share options were antidilutive, as their inclusion in the diluted loss per share calculation would have reduced the loss, and hence have been excluded.

14. Business combinations

On 9 January 2014 the Group completed the purchase of the remaining 80 per cent. of Flybrid Automotive Limited ("Flybrid").

The consideration for the acquisition of the remaining 80 per cent. was £6.0 million in cash and £2.0 million in the Company's new ordinary shares. Of the £6.0 million cash consideration due, £4.2 million was paid to the Vendors on completion with a further £1.8 million satisfied by the issuance of loan notes payable no earlier than 7 July 2014 and subject to Flybrid Automotive Limited meeting certain revenue performance criteria.

No changes have been made to the acquisition accounting in the current period.

15. Post Balance Sheet date events

The Group has at the date of this announcement launched a Subscription, Firm Placing, Placing and Open Offer to raise £13.8 million (before costs) and announced a restructuring of the terms of the Flybrid acquisition agreement, both of which are subject to approval by Shareholders at a General Meeting to be held on 22 July 2015.

The restructuring of the terms of the Flybrid acquisition agreement reduces the potential cash consideration payable under the earn-out arrangements by £10 million with the Vendors receiving £5 million of New Ordinary Shares in the Company in lieu of any future earn-out payments. In addition, £1.8 million of the £2.8 million loan notes arising from the initial cash consideration for the acquisition in January 2014 is to be converted into a 5 year term loan secured on the assets of Flybrid that can be repaid by the Group at any time during the five years. The loan carries a fixed annual interest rate of 7 per cent. payable in cash, monthly in arrears (the existing loan notes do not attract any interest).

In order to undertake the Subscription, Firm Placing, Placing and Open Offer, it will be necessary for the Company to first reduce the nominal value of the Ordinary Shares (English company law prohibits the issue of new shares by an English company at a price below their nominal value). Pursuant to the Reorganisation of Share Capital and prior to the issue of the New Ordinary Shares, the Company intends to sub-divide and convert the 276,286,047 existing Ordinary Shares of 10 pence each into 276,286,047 existing Ordinary Shares of 1 pence each and 276,286,047 Deferred Shares of 9 pence each. The Reorganisation of Share Capital is also conditional on Shareholder approval.

16. Forward looking statements

Certain statements in this Preliminary Announcement are forward-looking. The terms 'expect', 'should be', 'will be' and similar expressions identify forward looking statements. Although the Board believes that the expectations reflected in these forward looking statements are reasonable, such statements are subject to a number risks and uncertainties and actual results and events could differ materially from those expressed or implied by these forward looking statements.

17. Principal risks and uncertainties

The principal risks and uncertainties which the business faces are: maintaining sufficient cash to meet the on-going working capital requirements, commercialisation of products and technology, creation or acquisition of technical solutions and intellectual property protection, competition and technical advances, senior management and skilled personnel, quality of supply, product liability claims, economic drivers and environmental legislation. A full description of these risks and the mitigating actions taken by the Group will appear in the 2015 Annual Report and Accounts.

18. Approval

The Preliminary Announcement was approved by the Board of Directors on 29 June 2015.

Date and Venue of AGM

The Annual General Meeting of the Company will be held at Coventry Transport Museum, Millennium Place, Hales Street, Coventry, CV1 1JD on 4 September 2015.

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