Torotrak PLC Regulatory News (TRK)

15 May 2006 07:02

Torotrak PLC15 May 2006 Monday 15 May 2006 TOROTRAK PLC PRELIMINARY RESULTS Torotrak plc today announces its preliminary results for the year ended 31 March2006. Financial Highlights • Revenues increased fourfold from £0.5m to £2.1m. • Reduction in operating loss to £5.4m (2005: £6.5m). • Restructuring achieves £1.1m annual cost savings (benefiting year ending March 07 onwards). • £5.3m non-operating cash receipts boost financial capacity • Net cash at year end £7.5m (2005: £7.3m). Operational Highlights • Engineering services revenue from eight customers actively pursuing IVT opportunities from concept design studies to prototype hardware testing. • Formation of Infinitrak joint venture with leading outdoor power equipment manufacturer creates significant future opportunities. • Development of low-cost IVT solutions opens up new automotive opportunities in emerging markets. Dick Elsy, Chief Executive said: "These results signal a very different looking Torotrak. The increased revenueswe have achieved reflect a high level of utilisation of our skills as we supportexisting customers and also develop opportunities in new markets. With increased revenues and continued control of costs, the board is confidentthat we are making good progress towards our medium-term target to achievepositive operating cash flow". For further information, contact:John Grant +44 (0) 7768 465042ChairmanDick Elsy +44 (0) 7786 545303Chief Executive Media enquiriesPeter Curtain / Astrid Josephson +44 (0) 20 7307 5330astrid.josephson@capitalmsl.com Revenues of £2.1m represent a fourfold increase over the previous year andconfirm that our strategy to exploit Torotrak's Infinitely Variable Transmission(IVT) technology across a broad range of markets is starting to deliver hardbusiness results. This growth in revenues reflects a year of focused commercialexploitation with customers who identify IVT technology as giving themcompetitive advantage. At a time when many suppliers are suffering from their sole dependency on thechallenging automotive market, Torotrak has continued to develop new markets forIVT, in the last financial year adding Outdoor Power Equipment (OPE) tooff-highway. We are now generating revenues from customers, as we support themwith their development of IVT technology, in each of the following strategicmarkets: • Outdoor power equipment - covering a range of products from ride-on lawnmowers to compact tractors; • off-highway - predominantly large agricultural equipment; • automotive; • trucks and buses. A key factor in addressing these increasingly diverse applications has been ourrecent success in engineering lower-cost IVT solutions. This breakthrough willenable customers across all of our target markets to consider entry level IVTapplications in addition to our more sophisticated top-end products. Our work onentry level products includes a simple mechanical version developed for OPEapplications, a hydro-mechanical transmission for the tractor market and anevaluation transmission for a low-cost automotive application requested by a newcustomer from Asia. To support this broader market base, we have developed our commercial strategyto accommodate the differing needs of these customers by offering: • a conventional licensing and royalty model which supports those customers who have the full engineering capability to develop IVT themselves; • a contract manufacturing solution, in cooperation with a preferred manufacturing partner, for customers who simply wish to buy variable drive technology from an independent supply source; • a joint venture approach suited to those customers who require our continued support with engineering development and are therefore seeking a more defined partnership model. The first example of this is our US-based joint venture company, Infinitrak, which is developing and planning to manufacture IVT's for the OPE market. The Infinitrak business model, based on the licensing of our patents and know-how, provides Torotrak with short-term revenue from engineering consultancy as well as a 50% share of a growing, potentially high-volume manufacturing business. Cash Position During the past year, as we have been developing new markets and applicationsfor our technology, we have also strengthened our cash position, primarilythrough the sale and lease back of our headquarters building in Leyland. Thisenabled us to achieve a net increase in cash reserves despite maintainingsignificant business and product development activity. The restructuring of the business completed in the last quarter of the yearresulted in a £1.1million reduction in our annual operating costs that willbenefit the year ending March 2007. The combination of reduced costs andincreasing revenues coming from each one of our strategic markets keeps us ontrack to achieve the important medium-term milestone of breaking even inoperating cash terms. The encouraging progress we have made in the last year with off-highwaycustomers, the announcement in November of the Infinitrak joint venture and thenew opportunity for low-cost automotive applications in emerging markets, signala different looking Torotrak. We have extended beyond our principal targetmarket of the established automotive sector and have developed significantadditional opportunities to create value from new applications for our IVTtechnology. People We have been successful in realising growth in income through the provision ofspecialist consultancy support as more customers demand this. Many customers,however, are happy to undertake their own routine engineering development workon IVT. Consequently, as we announced in November, we were able to reduce thenumber of personnel in areas such as prototype build, workshop andadministration. Our thanks are extended to the engineers and technicians, wholeft the business at this time, for their important contribution to thedevelopment of Torotrak's technology. David Price, our Chief Technical Officer, stood down from the board at the endof December on completion of his objective to develop IVT technology to marketreadiness. The board would like to thank David for his outstanding leadership ofthe engineering team. Rebecca Joyce, our Finance Director, has been absent through illness sinceJanuary. In March we appointed a highly qualified, interim Finance Director,Jeremy Deering, to provide cover for this absence. Although Jeremy is not astatutory board director of the Company, he will be ensuring that Torotrak'sfinances are appropriately managed whilst we await Rebecca's return to work. Operations review Outdoor Power Equipment Last year, I reported our success in the off-highway market as part of ourstrategy to broaden our product and market portfolio. This year, I am pleased toreport the continued success of this strategy with Torotrak's entry into a newmarket sector, that of outdoor power equipment. In November 2005 we formed ajoint venture company, Infinitrak, with MTD Holdings, one of the largest globalmanufacturers of OPE. Infinitrak is currently based in Cleveland, Ohio, andbrings together Torotrak's world-leading engineering capability in IVTtechnology with MTD's world-class manufacturing processes to develop and producelow cost IVT's. The engineering development and test of the first Infinitrak transmission unitsare taking place in parallel with the manufacturing process development. Thesetest IVT's are already demonstrating clear signs of competitive advantage overexisting transmission solutions when installed in the intended vehicles. The production tooling commitment for these transmissions is underway, withorders being placed for the long-lead production equipment. These are the toolswhich take longest to make and, whilst production orders are not yet committed,reflect the level of confidence within the joint venture. The exact start datefor production is dependent upon completion of the engineering test programme,which is a joint activity between Infinitrak and the vehicle teams within MTD. The Infinitrak management board has six members, made up of three officers eachfrom Torotrak and MTD, reflecting the expertise brought together in this jointventure. Torotrak is contracted to provide engineering services to Infinitrakand, in turn, MTD is providing manufacturing process development as well as arange of commercial and business services covering purchasing, logistics andpersonnel. Manufacturing of Infinitrak transmissions is planned using existingMTD facilities in the USA. Initially, the Joint Venture is planning for these transmissions to be suppliedexclusively to MTD, giving Infinitrak access to the OPE market at minimal salescost. The value of the partnership should result in a high degree of opennessabout the sales forecasts for the transmissions. This relatively predictabledemand for product should in turn enable a structured approach to theprogressive release of investment in support of increased manufacturing output. Torotrak's initial capital requirements are being funded through the sale to theJoint Venture of licence rights with MTD contributing the equivalent amount inactual cash terms. The Infinitrak joint venture not only provides Torotrak with entry into a newmarket segment but also demonstrates how we are securing new ways to realise thevalue of our intellectual property and our engineering skills. It gives Torotrakimmediate revenue benefits through the provision of engineering support to theventure, and finances Torotrak's initial equity in the company through the saleof intellectual property rights. Off-Highway The visibility of IVT technology in the OPE market has led to an increase in ourbusiness activity in off-highway. Many of the global off-highway manufacturershave interests in the OPE sector in addition to full-size agriculture andconstruction vehicles. Knowledge of our joint venture partnership with MTD todevelop IVT technology has helped to increase the confidence levels of theseother global manufacturers. They recognise from this development that IVT is nowemerging as a cost-effective technology, suitable for mass production. As aresult, our revenues have increased as we have helped a number of newoff-highway customers to evaluate and develop the technology. Some of our customers in off-highway are looking to Torotrak to offeralternative sources of supply of variable drive units. To provide this, we aredeveloping plans with a specialist transmission manufacturer to supply variabledrive units engineered by Torotrak in a range of standard configurations. Torotrak has continued to take cost out of the IVT technology, which has led tofurther inventive steps relevant to this off-highway market. An example of thisis a new, simplified hydro-mechanically controlled tractor transmission whichhas been developed on behalf of a new customer. The first vehicle with thisapplication has exceeded the customer's expectations in the way it performs andis demonstrating the way in which IVT technology can compete in the high-volumecommodity tractor market. Acceptance in this market is further helped by thesimplicity of driver experience: a single lever controls speed and direction ina highly intuitive way. The lower cost of this hydro-mechanical system has opened up the potential forIVT to compete across a wider range of tractors in off-highway and particularlyfor entry-level tractors with power ratings of up to 50kw. This widerapplicability has attracted new off-highway interest, particularly from Asianvehicle manufacturers. The off-highway licensee we announced in May 2005 has continued to apply ourtechnology to the development of their off-highway transmissions; they have nowbuilt their own prototype transmissions using the engineering skills they havegained through the technology transfer process. The thoroughness of this processalong with the quality of our design tools and mathematical models has deliveredprototypes which perform as expected. This licensee is now testing theseprototypes and, in parallel, is promoting the IVT technology to its customers,the major off-highway vehicle manufacturers. The increase in prototype testing over the last financial year is a sign of thedepth of commitment to exploit IVT in the off-highway market. This expansion ofprototype test activity, and the resultant growth of Torotrak revenues fromengineering consultancy and intellectual property, is starting to realise thevalue that we sought from market diversification. Automotive Success with our strategy to broaden our applications has led to newdevelopments in the automotive sector. We have developed a number of lower-costconfigurations of our IVT technology which have the capability to compete atentry level in the automotive market. This has attracted new interest and a newcar company customer. We are now working with this customer to develop alow-cost IVT to prove the concept of our technology in a new prototype vehiclewhich they have designed for the Asian market. If this trial is successful weexpect to progress to a full prototype programme. The growing Asian market is creating fresh and ambitious thinking amongst itsindigenous car companies, with a readiness to invest in new technology. IVT inthis context is considered as "leapfrog" technology, unhindered by currentinvestment in conventional transmission technology, as is the case with theestablished global manufacturers. The entry level nature of low-cost configurations developed over the last yearhas allowed us to develop a complementary strategy to the more normal "top-down"technology cascade model. Whereas new technology is often introduced in high-endpremium vehicles, with these low-cost configurations we have the ability toprovide competitive transmissions suitable for entry level vehicles. Alongside the development of low-cost transmissions, we continue our drive torefine and simplify our product at the premium end of our automotive productoffering. I am pleased to report a notable success in the realisation of a newvariable drive layout known as Epicycloidal Roller Control (ERC). ERC hassimplified the control of the central component in IVT, the variator, and hasled to a 30% reduction in the number of variator parts with a consequent savingin cost. Over the last six months, we have presented ERC to tier-1 transmissionmanufacturers and to car companies through our established network of seniormanagement contacts and also via the transmission industry conference circuit.Response has been excellent with universal recognition of the contribution toparts reduction, simplification and lower unit costs. We have secured protection of ERC through a number of new patents and our workis now centred around the testing and validation of this new design. It has been well reported in the media that 2005 has been a challenging year formany parts of the automotive industry, with a number of the global playersfacing significant structural and profitability challenges. There is no doubtthat this has provided a distraction for their decision makers and businessleaders. It has also had the effect of a general slow down of productdevelopment decisions. Against this backdrop, we have been encouraged by the continued commitment ofEquos and Koyo to further develop and calibrate the compact IVT which forms thebasis of our joint project. The target customer for this transmission has nowevaluated the vehicle and development work continues. This programme ofcustomer-focused development is planned to run until the end of the 2006calendar year with a series of milestone check points which include the customeralong the way. During this period, Torotrak will earn further revenues fromengineering consultancy. At the half-year we reported the decision of another car company to seek apartner to share investment and to increase the volume base in premium vehicleapplication of the IVT. Over the last six months, we have continued to supportthis process, which is now centred upon IVT incorporating the ERC variator,ideally configured for premium vehicles. At the same time, our most recent work on entry level automotive applicationshas not gone unnoticed by this car company. In parallel with the premium vehicleERC transmission, we are currently reviewing an entry level transmissionopportunity with them. A third global car company has concluded their extensive evaluation of IVT andTorotrak has completed the various packages of work for them to consider. Theyare now evaluating their overall transmission strategy and we await next steps. Our collaborative project with Cranfield University and electrical machinemanufacturer Newage to develop a parallel hybrid IVT has now moved onto thestage of in-vehicle verification of the results that we have jointly modelled.The vehicle is now built and undergoing tests. We continue to feed the resultsof this work through to our automotive customers. These customers are stilluncertain over the future of hybrids and the degree of penetration they willachieve in the global car market. Most are seeking solutions which allow for aflexible "modular" approach where a mechanical transmission layout can be usedon its own or be hybridised, allowing the manufacturer complete flexibility torespond to what appears to be mixed market demand. Our parallel hybrid IVT isone such modular solution. Truck & Bus We have been working with a European truck manufacturer for over a year tosupport them in achieving fuel economy and reduced emissions. Initial evaluationhas progressed to a concept design study where our services have been engaged ona consultancy basis. Early indications look promising although the full resultswill not be complete until later this year. Our project with a European bus manufacturer has led to the build of anIVT-equipped bus. We are currently in a programme of further development andcalibration which is targeted at optimising fuel economy and driveability. Thefirst drives of this vehicle have shown a very smooth and comfortable experiencefor the passengers and indicate that our fuel economy targets should beachievable. Competition In OPE, our main competition is the hydrostatic drive technology which featureson most of the premium vehicles in this market. Our goal, working with ourpartners in Infinitrak, has been to develop a cost effective, IVT-basedequivalent, which is more efficient, quieter and much easier to control. Theprototype units we are currently testing indicate that this goal can be achievedin our production transmissions. In off-highway, there are still no signs of a commercially viable technology, tosupport the variable drive need of the medium-sized vehicle sector other thanour IVT. Work with our partners to develop wider applications has broadened ourcompetitive range to cover both entry-level products as well as the premium endin this medium-sized sector. In automotive, car companies and transmission manufacturers are beginning todeclare their research work on traction drive technology. Traction drivetechnology is being developed in both full and half toroidal forms forapplication in CVT's and IVT's. It is clear from presentations made on theindustry conference circuit that traction drive technology remains under seriousconsideration for automotive application as a logical successor to the highlydeveloped and continuously improved, six, seven and even eight-speed automatictransmissions of today. This set of conventional transmission technologies isnow widening to include dual clutch transmissions which are essentiallyautomatically shifted manual gearboxes. The cost advantage of full toroidal IVT over half toroidal transmissions hasbeen recognised by those in the industry who are working on traction drives. OurERC layout has given us further cost, weight and efficiency advantages to widenthe competitive gap to this other form of traction drive. The results of ourcontinued drive for lower cost have been an important factor in maintainingTorotrak's competitive edge. With regard to hybrids, the automotive industry has yet to decide how to proceedwith this technology, but most car companies have hybrid engineering programmesrunning to protect their ability to compete in this area. Torotrak has its ownhybrid programme which is showing highly competitive results. The commonexternal pressure which Torotrak faces is competition for engineering resourceswhich are currently being deployed by the car companies on each of these varioustechnologies. Finally, in truck and bus we find a sector that is just beginning to considervariable drive technologies such as IVT. Torotrak is already working with one ofthe most technically advanced truck manufacturers. They have made it clear thatthey see no alternative infinitely variable drive technology that can handle therequirements of their very powerful trucks. Outlook The restructuring of our UK operations has reshaped the Torotrak business tofocus strongly on our key engineering skills. Our engineers are utilising theirunique IVT know-how and experience to service our internal need to invent anddevelop our technology whilst also supporting a growing and diverse customerbase with their work to develop IVT for production applications. The increasedrevenues we have seen this year reflect a high level of utilisation of theseskills; we plan to maintain utilisation around these levels as we continue bothto support existing customers and also develop new opportunities. With increasing revenues and continuing control of our costs, the boardcontinues to be confident that we are making good progress towards ourmedium-term target of achieving positive operating cash flow. Financial review Overview This year's results reflect progress in three key areas: • Underlying operating performance has improved by £1,231k principally through a step increase in revenues partly offset by start up costs in Infinitrak. • The organisational restructuring has reduced future operating costs by circa £1.1m per annum to improve profit and cash flow in the year ending 31 March 2007. • The Group secured £5,296k additional cash that bolstered cash reserves to a higher level than the start of the year. The presentation of the key operating performance achievements is complicated bya number of one-off items during the year (such as the £1,295k non-cash loss onthe sale and lease back of our Leyland property) as well as a different lookingprofit and loss account which reflects the accounting for our new InfinitrakJoint Venture. The loss after tax for the year of £5,762k (2005: £5,271k),which is an increase of £491k on 2005, is therefore not indicative of underlyingand continuing performance. Excluding non recurring items, the Group's performance this year has improved by£1,231k in operating terms and by £756k post tax after taking into account lowertax credits and less interest receipts as explained below: 2006 Change over 2005 £000Increased revenues 1,520Reduced development and normal administrative costs 63Share of JV loss (start up costs) (352) ____ Improvement in operating performance 1,231Reduction in R&D tax credit and interest receivable (475) _____ Improvement in loss after tax before non recurring items 756 Non recurring items: restructuring costs, JV set up costs and loss on sale of property (1,247) ______ Increased loss after tax after non recurring items (491) Revenue Y/e 31.3.06 Y/e 31.3.05 £000 £000Engineering services 1,254 484Licence & option fees 240 50Sale of IP rights to Infinitrak 560 -Total 2,054 534 The increase of £1,520k in revenues, which has exceeded our targets, isextremely encouraging as it illustrates the progress of the Torotrak businessplan. In Engineering services, during the year we have worked with eight activecustomers across our four strategic markets with services ranging from testingto prototype and development programmes. Whilst we work closely incollaboration with our customers, we retain our core intellectual propertyrights for future licence based income; all licence agreements are specificallyand separately negotiated. Of the £1,254k earned in relation to engineeringservices, £753k related to the substantial programme with MTD through the jointventure, Infinitrak. The current agreement with Infinitrak is for Torotrak todeliver engineering services at the rate of some $2m per annum, although thiswill be reviewed going forward according to the requirements of the JointVenture. Revenue contribution from engineering is limited by the number of employeescapable of being billed out and the demand for the key skills of these engineersby our customers. This year's contribution from engineering consultancy istowards the upper end of our business plan target, although we keep the balanceof resources between internal development and externally billable projects underconstant review. Licence fee income materially increased during the year, with the sale of IPrights to Infinitrak worth £560k during the year further increasing overalllicence related revenues. This sale provides Infinitrak with global rights inthe 0 - 25 kW power range together with exclusive North American rights in the25 - 45kW power range for compact tractors with further potential revenue to berealised in the year ending 31 March 2007. The collaboration with MTD through the Infinitrak joint venture has thereforeplayed an important part this year in terms of the contribution of £1,313k ofnet revenue (2005: £108k re engineering services to MTD). This contribution isafter eliminating the unrealised element of the revenue corresponding to our own50% share in the joint venture (see note 3) and reflects the level of cashcurrently committed under the joint venture agreement. Expenditure charged to the profit and loss account Whilst our development and normal administrative costs of £6,946k (2005:£7,009k) were marginally lower than last year, the restructuring completed inthe last quarter of the year ended 31 March 2006 will reduce costs significantlyby around £1.1m going forward. This has resulted in a reduction in employeenumbers to 62 people at April 2006 compared to the 86 full year equivalentnumber of employees whose costs were borne during the year ended 31 March 2006. Development costs of £5,212k (2005: £5,201k) are a fundamental feature ofkeeping the technology refreshed and relevant to the needs of our customers aswell as to anticipate market & competitor developments. The programmes beingundertaken to develop low cost IVT in the automotive sector as well as thedevelopments in OPE are good examples of this. This long term commitment to thedevelopment of IVT technology is central to our business proposition and alsounderpins the revenue earning life of our licences. One off items of expenditure during the year, which will not impact our netcosts going forward, included £330k costs of restructuring (principallyseverance costs), the set up costs for the Infinitrak joint venture of £179k anda £1,295k (non cash) loss on the sale of our Leyland property, which we nowoccupy on the basis of an operating lease. Set against those items was asuccessful claim of £557k for a refund of costs relating to contractualarrangements going back before the Stock Exchange listing in 1998. Share of joint venture loss As part of the start up of Infinitrak, we have incurred a 50% share in the startup costs amounting to a £352k charge to the profit and loss account. This lossin the early stages reflects the initial engineering and administrative costswhich are principally incurred and charged to the Joint Venture by the JointVenture partners, MTD and Torotrak. The accounting is explained further below('basis of consolidation'). It should be noted that overall, taking into accountthe share of start up costs, the contribution relating to Infinitrak is stronglypositive in both cash and operating profit terms. Interest receivable Interest receivable of £295k for the year (2005: £418k) is reduced compared to2005 mainly due to lower average cash balances, with the higher net cashposition at 31 March 2006 being mainly impacted by cash inflows occurringtowards the end of the year. Taxation The tax credit of £434k (2005: £786k) reflects mainly the claim to be made forresearch and development tax credits, the cash impact of which should benefitthe year ending 31 March 2007. Cash and treasury Some material non operating cash contributions (see below), together with astrong sales contribution, have helped increase net cash to £7,467k at 31 March2006 (2005: £7,318k). Consumption of cash going forward is on an improvingtrend, with increased revenues and a reduction in operating costs following therestructuring. Supported by the strong year end cash resources, this places theGroup in a robust position to pursue its business plan. The non operational cash contributions during the year were as follows: £000Sale of property 3,440Demerger costs refund claim 557R&D tax credit 749Share option proceeds 550Cash received 5,296 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 currency exchange rate risk mainly arises fromthe US dollar denominated value of engineering services provided intoInfinitrak, together with the impact of foreign exchange translation of ourshare of Infinitrak's US dollar denominated results. We do not currentlyactively hedge against these exposures although will keep this policy underreview. Exposure to interest rate risk is low and the Company currently does notundertake any form of hedging. The Company deposits and invests cash with acombination of both fixed and floating rates. The cash balances at year endwere invested in a combination of money market managed funds and bank deposits. Intangible and tangible assets Capital expenditure during the year remains mainly in relation to patents,amounting to £317k during the year (2005: £220k) £122k was charged to the profitand loss account for accelerated amortisation and costs in relation to patentabandonment, which follows a review of the benefits compared with the costs ofmaintaining 'live' patents having graded the cases concerned in terms ofterritory and the likely returns on commercial exploitation. As reported in our interim announcement, in November 2005 we completed the saleof the freehold land and buildings at the Leyland headquarters and at the sametime entered into an open market operating lease at a cost of £280k per annum.The sale has resulted in a loss on disposal of £1,295k reflecting the differencebetween the carrying value in the accounts at the time and the £3,440k net cashreceived. Tangible fixed assets have therefore reduced to £785k at 31 March2005 (2005: £5,731k). Share Capital 2,615,073 shares were allotted during the year to satisfy options exercised by78 employees following the maturity of the 2002 Sharesave scheme. The Companyreceived £550k in respect of these allotments. The nominal value of the sharesallotted was £261k, leading to an increase in ordinary share capital from£11,729k at 1 April 2005 to £11,990k at 31 March 2006. Adoption of International Financial Reporting Standards (IFRS) This is the first year of reporting under IFRS. The results previously reportedto 31 March 2005 have been restated following adoption of IFRS in place of UKGenerally Accepted Accounting Practices (UK GAAP) used previously. The principal difference relates to the treatment of share-based incentiveschemes. The results are not materially impacted by the transition to IFRS. Preliminary announcementConsolidated income statement for the year ended 31 March 2006 Notes Group Group 2006 2005 £000 £000Revenue 3 2,054 534 Development expenses (5,212) (5,201) Administrative expenses - normal (1,734) (1,808)Administrative expenses - Restructuring activities (330) -Administrative expenses - Joint Venture set up costs (179) -Administrative expenses (2,243) (1,808) Operating loss (5,401) (6,475) De-merger costs refund claim 557 -Loss on sale of property (1,295) -Interest receivable 295 418Share of joint venture loss 4 (352) - Loss before taxation (6,196) (6,057)Taxation 2 434 786 Loss after taxation (5,762) (5,271) Loss per share 5 (4.91p) (4.55p) Diluted loss per share 5 (4.91p) (4.55p) All of the results derive from continuing operations during the current andprevious year. There were no recognised gains and losses in the current and previous year otherthan those reported above. Preliminary announcementConsolidated balance sheets as at 31 March 2006 Group Group Notes 2006 2005 £000 £000 ASSETSNON CURRENT ASSETSIntangible assets 1,083 989Property, plant and equipment 785 5,731Share of net assets of Joint Venture 4 6 - Total non current assets 1,874 6,720 CURRENT ASSETSTrade and other receivables 779 358Current tax 2 449 801Cash and cash equivalents 7,467 7,318 Total current assets 8,695 8,477 Total assets 10,569 15,197 CURRENT LIABILITIESTrade and other payables (737) (637)Total current liabilities (737) (637) Net assets 9,832 14,560 CAPITAL AND RESERVESIssued share capital 6 11,990 11,729Share premium 6 48,298 48,009Other reserves 6 (1,567) (2,705)Retained earnings 6 (48,889) (42,473) Total equity attributable to equity holders ofthe parent 9,832 14,560 Preliminary announcementConsolidated cashflow statement for the year ended 31 March 2006 Notes Group Group 2006 2005 £000 £000Cash flows from operating activitiesNet Loss (5,762) (5,271) Adjustments for:Depreciation 254 372Amortisation 194 86Net interest received (295) (418)(Profit)/loss on disposal of plant and equipment (11) 23Loss on disposal of intangible assets 29 -Research tax credit (449) (786)Research tax credit received 749 876Loss on sale of property 1,295 -Increase in trade and other receivables (378) (89)Increase in net assets of Joint Venture 4 (6) -Increase in trade and other payables 180 112Cost of equity settled employee share schemes and bonuses 485 450 Cash flows from operating activities (3,715) (4,645) Cash flows from Investing activitiesAcquisition of property, plant and equipment (144) (56)Proceeds from sale of plant and equipment 11 -Net proceeds from sale of property 3,440 -Acquisition of patents (297) (220)Interest received 304 487 Net cash used in investing activities 3,314 211 Cash flows from financing activitiesProceeds from the issue of share capital 550 23 Net increase/(decrease) in cash and cash equivalents 149 (4,411) Cash and cash equivalents at start of period 7,318 11,729 Cash and cash equivalents at end of period 7,467 7,318 Notes 1. The financial information set out above does not constitute the Group'sstatutory accounts for the year ended 31 March 2006 within the meaning ofSection 240 of the Companies Act 1985. The comparative figures for the yearended 31 March 2005 do not constitute the Group's consolidated financialstatements for that financial period. Those 2005 financial statements, whichwere prepared under UK GAAP, have been reported on by the Group's auditors anddelivered to the Registrar of Companies. The report of the auditors wasunqualified within the meaning of Section 235 of the Companies Act 1985 and didnot contain statements under Section 237(2) or (3) of the Companies Act 1985.These accounts were delivered to the Registrar of Companies following the AnnualGeneral Meeting. The statutory accounts for 2006, which are being preparedunder accounting standards adopted by the EU will be finalised on the basis ofthe financial information presented by the directors in this preliminaryannouncement and will be delivered to the Registrar of Companies in due course. 2. Taxation 31 March 31 March 2006 2005 £'000 £'000UK Corporation tax Current tax credit for the year 449 801Withholding tax (15) (15) 434 786 3. Revenue 31 March 31 March 2006 2005 £'000 £'000Gross revenue 2,816 534Elimination of unrealised profit (762) -Revenue 2,054 534 4. Equity accounted joint venture 31 March 31 March 2006 2005 £'000 £'000Capital contribution (non cash) 1,120 -Share of results after tax (352) -Elimination of unrealised profit (762) -Share of net assets 6 - 5. Loss per ordinary share Basic loss per share is based on the loss after tax of £5,762,000 (2005:£5,271,000) and 117.5 million ordinary shares (2005:115.6 million) being theweighted average number of shares in issue during the year. 31 March 31 March 2006 2005 Number Number Weighted average number of share used in calculating basic and 117,461,791 115,577,949diluted loss per share 6. Reconciliation of movement in capital and reserves as at 31 March 2006 Share Share Other Retained Total capital premium reserves earnings £000 £000 £000 £000 £000Balance at 1 April 2005 11,729 48,009 (2,705) (42,473) 14,560 Loss for the period - - - (5,762) (5,762) Employee Share Benefits - - 1,138 (654) 484 Shares issued in the year 261 289 - - 550 Balance at 31 March 2006 11,990 48,298 (1,567) (48,889) 9,832 7. Other information Copies of the annual report and financial statements will be posted in duecourse to shareholders on the register approximately 1 week prior to the noticeof the annual general meeting and will be available from the company at 1 AstonWay, Leyland, Lancashire, PR26 7UX or via our website: www.torotrak.com. This information is provided by RNS The company news service from the London Stock Exchange