Torotrak PLC Regulatory News (TRK)

29 November 2016

Torotrak plc

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

Half Year Results for the six months ended 30 September 2016 (unaudited)

Torotrak (LSE: TRK), a leading developer and supplier of emissions reduction and fuel efficiency technology for internal combustion engine, hybrid and all electric powered vehicles, today publishes its half year results for the six months ended 30 September 2016.

Strategy

The Group's focus and strategic objective is the commercialisation and monetisation of its technology for the benefit of shareholders. Given the progress made in these areas over the last 12 months, the near term focus is on licensing V-Charge for passenger cars and Flybrid KERS for off-highway markets. 

V-Charge - delivering lower fuel consumption and lower emissions engines

· Technology has exceeded expectations in on-engine performance and responsiveness.

· Ford Focus demonstrator test drives with 12 OEMs and 6 Tier 1s successfully completed, generating strong interest in V-Charge.

· On track to complete second demonstrator vehicle, Ford S-MAX (with V-Charge enabled 1.0L 3 cylinder engine replacing a 1.5L 4 cylinder engine).

· Significant interest being shown by multiple global OEMs and Tier 1s in V-Charge technology.

Flybrid KERS - launch in off-highway machines

· Secured APC funded wheel loader programme in collaboration with Caterpillar Inc.

· On track to license KERS into the global off-highway market.

· High level of interest shown by multiple OEMs in hydraulically-connected energy recovery systems ('ERS') for excavators, wheel loaders and other off-highway machines.

Financial

· 26 per cent improvement in equity free cash outflow compared to previous period.

· Cash balance of £7.9 million in line with management's expectations for the half year.

Key Financial Results:

1Net decrease in cash and cash equivalents excluding proceeds from the issue of share capital and the repayment of borrowings.

Nick Barter, Chairman, commented: "I am pleased with the real progress we are making towards delivering on our strategic objectives in terms of commercial progress, cash management and organisational performance."

Adam Robson, Chief Executive, commented: "I believe we are on track to deliver the demonstrable monetisation of our technologies that we committed to in 2015. We are seeing real progress in the off-highway sector for KERS and the hydraulically-connected ERS product and V-Charge is exceeding our expectations in terms of in-vehicle performance, OEM interest and Tier 1 engagement."

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

About Torotrak

Torotrak is a leading developer and supplier of kinetic energy recovery systems, engine boosting and variable drive transmissions for internal combustion engine, hybrid and electric powered vehicles. Our portfolio of technology solutions substantially improves fuel economy and reduces CO2 and other emissions in vehicles through capturing and recycling energy that would otherwise be lost, harnessing the power of supercharging to improve engine performance, emissions and responsiveness.

CEO's Review

Introduction

As I set out in our 2016 Annual Report, the key focus of the Group is on licensing our V-Charge and Flybrid KERS technologies. During the last six months we have continued to engage extensively with commercial partners and potential licensees and we have developed meaningful commercial interest and market pull for both technology solutions. We have made good progress towards our goal of licensing KERS in the off-highway market and securing a global licence for V-Charge in passenger cars as well as growing our engineering services order book. In parallel, and in support of our licensing discussions, we have made progress with the in-house development of our low cost flywheel assembly manufacturing capability and new low cost manufacturing processes for the discs and rollers at the heart of V-Charge.

I am pleased with the progress we have made over the last six months which has created a strong platform for our licensing discussions. I report below in detail on the specific activities and the key technical and other achievements as well as on our progress in improving our cash performance.

Market backdrop and key trends

Passenger cars:

The automotive industry is focused on developing technologies that can help meet the upcoming regulatory fleet average emissions targets from 2020 onwards, as measured using the new World Harmonised Light Vehicles Test Procedure ('WLTP') and the new real-world driving emissions test ('RDE'). The combination of lower emissions targets and more representative 'real-world' test procedures, together with an increasing regulatory focus at national and city levels on air quality and hence reducing emissions of NOx and particulates, represents a significant challenge for the automotive industry. 

The impact of these changes has been an accelerating trend towards increased electrification of vehicle powertrains which is leading to some significant changes in the focus of technology development by OEMs and Tier 1s. There is a growing consensus that in the long term electric vehicles (of some form) will eventually come to dominate the industry but that in the medium term hybrid vehicles will form the largest group. A report by the International Energy Agency in 2016 indicates that by 2050 nearly 60 per cent. of the global light duty vehicle stock will be non-electric vehicles. Consequently, there remains a strong requirement for OEMs to continue to make significant improvements in the efficiency of internal combustion engines. Indeed, a recent report published by BHP Billiton Limited forecasts that by 2030 the average light duty vehicle will become one third more efficient, through advances such as improved ICE thermal efficiency, engine downsizing / rightsizing, more transmission speeds and vehicle light-weighting; a number of which can be achieved with the Group's technologies.

OEMs require technologies that can meet the new real-world emissions regulations at the lowest possible cost, whilst preserving vehicle performance and driveability and importantly remaining affordable for the end customer. The Group's V-Charge technology offers OEMs the potential to re-size engines across the broadest possible range of vehicle platforms - pure ICE and hybrid - reducing fuel consumption and emissions at a highly attractive cost per gram of CO2 saved. Similarly, our KERS technology can offer OEMs a lower cost way to hybridise their vehicles when compared to other options, such as further vehicle electrification. Our traction drive and KERS technologies can also help improve performance, including acceleration and gradeability of full battery electric vehicles and fuel cell vehicles. In response to the trend towards further vehicle electrification, Torotrak is working with OEMs and Tier 1s to explore opportunities to use the Group's technologies cost-effectively across their BEV and PHEV platforms.

Commercial vehicles:

The bus and smaller commercial vehicle sector is influenced by many of the same trends as the passenger car sector, in particular with respect to urban pollution. But in the off-highway commercial vehicle sector the principal drivers remains reduced operator costs and payback times. With the continued low oil price and difficult global market conditions in the mining and resources sector, the uptake of new technologies remains challenging, but Torotrak's technologies remain highly relevant because of their cost competitiveness, controllability and robustness. The Group continues to focus its efforts on reducing the cost of its technology products and improving fuel efficiency to be able to offer end customers a rapid payback on the investment in new products. Both KERS and V-Charge offer the potential to downsize engines without compromising performance-critical factors such as low end torque and rapid transient response.

V-Charge

The Group has made very good progress during the last six months. We have delivered and exceeded the technical milestones in the independent study conducted by the University of Bath and we are now developing OEM / Tier 1 market pull and creating the platform to license the technology into the global passenger car market.

Technology validation:

During the period the Group announced the successful results of the on-engine V-Charge testing programme conducted by the University of Bath in collaboration with a global Tier 1 supplier of engine boosting systems and with the participation of the Ford Motor Company (the 'Bath Study'). The results of the independent testing programme confirm that the key performance targets were successfully achieved or exceeded and that V-Charge outperforms other advanced boosting solutions. The following key targets were achieved using V-Charge in conjunction with a re-matched turbocharger on a 1.0L 3 cylinder Ford EcoBoost engine:

· Torque of >145Nm at 1,000rpm,

· Torque of 240Nm from 1,400rpm upwards,

· Torque increase of >40% compared to the base engine with a single turbocharger,

· 31 Bar BMEP,

· Time to 90% of target torque (216Nm) ~1.0s at 1,400 rpm.

Importantly, the on-engine test results confirm that a V-Charge enabled 3 cylinder 1.0L EcoBoost engine matches the torque output of a 4 cylinder 1.5L EcoBoost engine. The Group has successfully demonstrated the increased performance of the V-Charge enabled 1.0L engine in a Ford Focus demonstrator vehicle and is on track to demonstrate the increased performance and driveability of a Ford S-MAX using the V-Charge enabled 3 cylinder 1.0L EcoBoost in place of the turbocharged 1.5L EcoBoost engine that is normally fitted to the S-MAX.

Re-sizing engines:

Engine rightsizing and engine downsizing are important strategies to help OEMs meet the upcoming regulatory emissions targets whilst simultaneously delivering lower emissions of NOx and particulates at an affordable cost. Both require improvements in engine air boosting, in particular by supercharging. V-Charge is a variable speed mechanical supercharger using the Group's unique traction drive technology. By supplying variable air on-demand, V-Charge delivers sustained high power and high torque at any engine speed with rapid response, avoiding the 'lag' of other boosting solutions. Other boosting technologies including turbochargers and other mechanical superchargers are unable to deliver exactly the required amount of air on-demand, thereby limiting the opportunity to reduce emissions through smaller engines (downsizing) or larger engines operating at optimum efficiency (rightsizing). Further, electric superchargers ("eboosters"), unlike V-Charge, are unable to sustain continuous boost, due to the lack of sufficient electrical storage on-board, which is a fundamental constraint on their applicability and adoption.

Engine downsizing using existing boosting solutions often results in worse fuel economy in real-world driving and higher emissions at full load. Current boosting solutions are unable to deliver sustained high torque at low engine speeds. In an attempt to remedy this problem a smaller turbocharger may be used to provide quicker response and enhanced low speed torque, however this increases exhaust back pressure reducing the combustion efficiency of the engine, as well as increasing NOx output due to increased combustion temperatures. As a consequence of high specific powers and enriched fuelling, downsized turbocharged gasoline engines require expensive gas particulate filters, whilst downsized turbocharged diesel engines require expensive de-NOx after treatment systems to mitigate the emissions from smaller engines operating at high loads. In contrast, V-Charge delivers instant and sustained torque at lower engine speeds allowing the turbocharger to be sized so that the engine operates more efficiently at higher engine speeds, reducing the need for expensive after treatment systems. V-Charge offers OEMs the opportunity to continue to use engine downsizing to reduce emissions and remain fuel efficient in real-world driving.

OEMs are increasing the use of alternative combustion cycles such as Miller to increase engine efficiency. However, these alternative combustion cycles cannot generate the same engine power, requiring the engine to be 'rightsized', resulting in increased emissions due to greater friction, compared to smaller engines. V-Charge addresses this problem enabling more extensive use of the Miller combustion cycle even at high torque and low engine speed, further reducing the emissions penalty of rightsized larger engines.

By delivering sustained high torque and enabling high power, V-Charge offers OEMs the opportunity to fully exploit the combination of engine downsizing and, where appropriate, engine rightsizing to maximise the improvements in fuel economy and lower emissions.

Diesel engines:

With an increased focus on improving air quality, there is a growing requirement to eliminate the problems of soot, NOx and particulates on all engines. This is a particular problem with diesel engines which require expensive after treatment systems to reduce the noxious emissions.

V-Charge can help reduce NOx and particulates emissions produced by diesel engines, particularly during transient events, thereby reducing the need for expensive after treatment systems. This is an important benefit, enabling OEMs to continue to maintain diesel engine powered vehicles as a significant part of their fleet, thereby avoiding the additional CO2 emissions penalty that would result from moving to more gasoline engine powered vehicles.

Global market opportunity:

The Group has recently completed an in-depth market study identifying the potential sales opportunities for V-Charge. Using detailed engine data supplied by IHS Markit Ltd, and following discussions with a range of OEMs and Tier 1 suppliers, we believe that V-Charge is applicable to a substantial proportion of both single-stage and twin-stage boosted engines, offering fuel economy and emissions benefits which other boosting technologies such as variable geometry turbochargers and eboosters cannot deliver. The results of the study, which have been shared with our potential OEM / Tier 1 partners, show that there is a market opportunity in 2020 of around 25m engines per annum that could be addressed with V-Charge, rising to around 45m engines per annum in 2025.

Demonstrator vehicle test drives:

The Group has recently completed an extended pan-European tour visiting the main global automotive OEMS and Tier 1s (including those headquartered outside Europe). The visits included test drives of the V-Charge enabled Ford Focus demonstrator car, sharing of the results of the Group's market study and a detailed presentation of V-Charge, including the technical results from the independent Bath Study. The meetings and the test drives have generated a significant level of interest in V-Charge and the feedback to date has been extremely positive, with all participants commenting on the impressive torque response at low engine speeds delivered by V-Charge in the demonstrator vehicle. We are currently involved in follow-on meetings with a number of interested parties who have expressed an interest in understanding the full capability of V-Charge and conducting further technical and commercial evaluation.

In parallel with following up on the interest generated from the pan-European Focus car test drive programme, as noted above, the engineering team is completing the installation of the V-Charge enabled 1.0L 3 cylinder Ford EcoBoost engine in the S-MAX, replacing the incumbent 1.5L 4 cylinder engine. This larger vehicle will be used to demonstrate the performance, driveability and improved fuel economy and emissions of the downsized engine when installed in a vehicle usually equipped with a 1.5L engine as the smallest displacement engine. The programme is on track to be completed next month.

The focus in the coming months is to build on the significant interest shown in V-Charge and to convert this interest into market pull from OEM and Tier 1 parties.

KERS

Off-highway:

In April 2016, the Group was awarded a fully-funded programme to design, develop and demonstrate a high-power KERS for integration in the main drivetrain of a large mining truck. The programme is being conducted in collaboration with one of the largest global manufacturers of off-highway construction and mining equipment and within the Energy Technologies Institute's ('ETI') Heavy Duty Vehicle Efficiency programme. The programme is progressing well. The detailed design work is largely complete with procurement of long lead time components underway. In parallel, we are in discussions with the ETI about opportunities to demonstrate the KERS design in an on-highway commercial vehicle application such as an articulated truck. The programme is on track and we are confident that all the technical requirements of this demanding application will be delivered by the KERS design, demonstrating the scalability and high power density of the low cost KERS technology.

The Group recently announced it had been awarded an Advanced Propulsion Centre ('APC') funded project in collaboration with Turner Powertrain Systems (a wholly-owned subsidiary of Caterpillar Inc.). The purpose of the project is to design and develop a low cost production-intent energy storage and recovery system using the Group's core flywheel technology for installation in a range of Caterpillar off-highway machines. The initial target application is wheel loaders where the KERS technology will be integrated with Caterpillar's leading edge hydrostatic continuously variable transmission, delivering significant reductions in fuel consumption and CO2 emissions and enabling engine downsizing. Work on the 42 month project is due to commence shortly.

The engineering team has recently completed the cost-down design iteration of the hydraulically-connected flywheel-based energy recovery system ('ERS') developed in collaboration with JCB, and funded by the APC. The improved design has been released to the Group's supply chain partners who are conducting a detailed costing exercise, validating the target production-intent system cost. The next stage in the programme is investment by the Group and its supply chain partners in production tooling to enable production-intent ERS units and sub-systems to commence full validation testing from mid-2017, in preparation for market launch in mid-2018. The Group has recently completed a detailed market study which confirms the significant market opportunity for ERS, offering operator paybacks of less than two years in a range of off-highway machines including excavators, wheel loaders and materials handling equipment. In parallel, discussions have been held with the main global Tier 1s and OEMs about trialling the production-intent ERS product on a range of machines starting in the second half of calendar year 2017. These discussions are ongoing, with a number of OEMs interested in the ERS product. 

We are continuing discussions to licence our KERS technology into the global off-highway sector.

On-highway:

We continue to explore opportunities for the Bus KERS product in on-highway bus and truck applications outside the UK. Discussions with potential customers and partners are at an early stage and we will update shareholders with any significant progress in these applications.

Passenger cars:

The passenger car market remains an important target for the Group's KERS technology. The key driver for adoption onto vehicle platforms from 2020 onwards is a competitive cost per gram of CO2 saved compared to alternative hybridisation options, such as electric solutions. The Group is conducting initial feasibility studies with several OEMs looking at KERS on both hybrid and full battery electric vehicles, where the KERS technology offers superior cost per gram of CO2 saved.

We are discussing the Group's participation in an EU-funded consortium including vehicle OEMs and Tier 1s about the use of our KERS technology in conjunction with an electric motor offering an alternative electro-mechanical hybridisation solution for hybrid electric vehicles. The project would leverage the Group's low cost KERS technology and would be evaluated in a demonstrator vehicle against other hybrid solutions.

IVT/CVT

Our main focus in the last six months has been to build on the progress made earlier in the year in the development and validation of new low cost mass manufacturing methods for discs and rollers for use in V-Charge and other applications. The work, being conducted in collaboration with the Advanced Forming Research Centre and the Manufacturing Technology Centre, underpins the Group's confidence in achieving the target, and highly competitive, bill of materials cost for V-Charge.

We have received a number of enquiries from automotive Tier 1s and OEMs about the potential opportunity to use the Group's core variator technology in the drivetrain for battery electric vehicles ('BEV'). Whilst these enquiries are at an early stage, it appears that drivetrains using our core CVT technology have the potential to offer BEVs a cost effective improvement in performance, including acceleration and gradeability, whilst maintaining the feel of 'liquid power'. A number of auxiliary power applications using the core CVT technology are also in the early stages of evaluation.

The Group continues to support its strategic partner Univance in looking at opportunities for the Group's CVT technology in off-highway applications. Univance offers licensees of Torotrak's variator technology the opportunity to source low cost discs, rollers and complete variators from an established volume Tier 2 supplier of transmissions and transmission components for lower volume passenger cars and off-highway applications.

Flywheel assembly manufacturing

During the last six months, the Group has been working to validate the design for lower cost flywheels in conjunction with the Group's strategic supply chain partners. Flywheels manufactured using a low cost forging process have successfully completed the full life durability testing programme, exceeding the target life requirements for the off-highway market. The next step in the development programme is to validate further cost-down opportunities using lower cost materials and further improvements to the current design. This work is important to delivering the step-change reduction in the cost of the hydraulically-connected ERS product and meeting the challenging cost targets in passenger car applications.

We have completed the set-up of the Group's low-volume flywheel assembly manufacturing cell facility in Leyland. This facility includes some initial automation with processes managed to automotive quality controlled standards. This is a significant step forward in building the in-house capability to assemble complete flywheels in volumes of up to 10,000 units p.a.

Financial

Revenue in the period was £0.9 million (2015: £1.2 million) reflecting the focus on business development activities related to licensing V-Charge and KERS and customer funded development programmes commencing part way through the period. The reduction in gross profit of £0.2 million in the period is due to lower engineering services revenues and a lack of licensing revenues in the period (2015: £0.1m licence revenue). Revenue is targeted to increase in the second half of the year.

The operating loss before intangible asset amortisation (know-how) and exceptional items for the period was £3.3 million, in line with the same period last year. The reduction in gross profit of £0.2 million and higher non-cash expenses, being depreciation and share-based payments, of £0.2 million were offset by an 11 per cent. reduction in net cash operating expenses of £0.4 million. The loss for the period was £3.5 million, a reduction of £5.9 million over the previous period due to the exceptional costs in the previous period of £6.0 million relating to the restructure of the Flybrid acquisition agreement, write down of the Group's investment in, and loan to, Rotrex A/S and other restructuring costs.

During the period the equity free cash outflow (EFCF1) was £3.4 million (2015: £4.6 million); an improvement of 26 per cent. This has largely been achieved through the successful reduction in net cash operating costs as previously reported, a £0.4 million receipt of research and development tax credits and is despite a £0.1 million increase in capital expenditure, mainly as a result of the investment in the flywheel assembly facility.

1Net decrease in cash and cash equivalents, excluding proceeds from the issue of share capital and the repayment of borrowings.

The closing cash balance of £7.9 million (2015: £14.4 million) is in line with management's expectations. Our focus during the period has been on business development to secure licence revenues and to deliver increased engineering services revenue in the second half of the current financial year and beyond. Accordingly we expect our cash usage to further improve during the second half of this financial year.

Outlook

The first six months of the year have seen an increase in the level of engagement from potential parties interested in the Group's technologies. With a focus on our strategic objective of commercialising and monetising our technologies, the Group's immediate priorities for the next 6 months are:

· Completing demonstrations of the Ford S-MAX,

· Licensing V-Charge into the global passenger car market,

· Licensing KERS into the global off-highway market,

· Developing commercial interest in the Group's hydraulically-connected ERS product underpinning the commercial uptake in excavators and/or wheel loaders from 2018 onwards,

· Commencing the production of low cost flywheel assemblies for use in the ERS validation programme.

I look forward to reporting progress on our delivery against these key priorities.

Adam Robson

Chief Executive Officer

29 November 2016

Condensed consolidated income statement

for the six months ended 30 September 2016

The results above derive from continuing operations.

The notes on pages below form an integral part of these condensed consolidated half yearly financial statements.

Condensed consolidated balance sheet

The notes below form an integral part of these condensed consolidated half yearly financial statements.

Condensed consolidated statement of changes in equity

for the six months ended 30 September 2016

Note (i) The amount shown in share premium includes costs of £1,433k in relation to the fund raise in July 2015.

The notes below form an integral part of these condensed consolidated half yearly financial statements.

Condensed consolidated statement of cash flows

for the six months ended 30 September 2016

The notes below form an integral part of these condensed consolidated half yearly financial statements.

Notes to the half year financial information

1. General information

Torotrak plc (the Company) is a public limited 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 London Stock Exchange under the trading symbol TRK. These condensed consolidated interim financial statements were approved for issue on 28 November 2016.

The Group's activities focus on the design, development and commercialisation of a range of technologies that enable vehicle manufacturers to meet new regulations as well as improving fuel-efficiency, reducing emissions and enhancing performance.

The interim financial statements for the period ended 30 September 2016 do not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006.

The financial information set out in this interim statement relating to the year ended 31 March 2016 does not constitute statutory accounts for that period. Full statutory accounts of the Group in respect of that financial year were approved by the Board of Directors on 26 July 2016 and have been delivered to the Registrar of Companies. The report of the Auditors on these accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain a statement under section 498 of the Companies Act 2006.

1.1 Going concern basis

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Chief Executive Officer's Review ('CEO's Review'). The financial position of the Group and liquidity position are described within the CEO's Review.

After making all necessary enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for a period of at least twelve months from the date that these interim Financial Statements were approved, given the cash resources available to the Group and the future cash flow forecast. Accordingly, the Directors believe that it is appropriate for the Financial Statements to continue to be prepared on the going concern basis.

2. Basis of preparation

These condensed consolidated interim financial statements for the six months ended 30 September 2016, have neither been reviewed or audited, have been prepared in accordance with the Disclosure and Transparency Rules (DTR) of the Financial Conduct Authority and in accordance with IAS 34, 'Interim financial reporting' as adopted by the European Union (EU). The condensed consolidated interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 March 2016 which have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU.

3. Accounting policies

The accounting policies adopted in preparation of the condensed consolidated interim financial statements as at, and for the six months to, 30 September 2016 are consistent with the policies applied by the Group in its consolidated financial statements as at, and for the year to, 31 March 2016, except as described below:

- Taxes on income in the interim periods are accrued using the effective tax rate that would be applicable to expected total annual profit or loss.

There are no new standards or amendments to standards that are mandatory for the first time in the financial year beginning 1 April 2016 that have an impact on the Group financial statements.

4. Critical accounting estimates and assumptions

In applying the accounting policies, appropriate estimates have been made in many areas. The key areas of estimation uncertainty, where assumptions and estimates are significant in terms of impact upon the financial statements, are the same as those that are described in the annual financial statements for the year ended 31 March 2016.

5. Operating segments

Operating segmental analysis for the six months ended 30 September 2016

Operating segmental analysis for the six months ended 30 September 2015

Note (i) Development activities include research and the creation of intellectual property.

Significant customers

The following revenues are attributable to significant customers:

6. Property, plant and equipment and intangible assets

7. Exceptional items

The severance related restructuring costs relate to redundancy, severance and associated expenses in relation to a reduction in employees.

In the financial year ended 31 March 2016 the Group received Shareholder approval to restructure the acquisition agreement with the vendors of Flybrid Automotive Limited and as such a one-off settlement was agreed with the vendors by way of issuing new ordinary shares in the Group to the value of £5m. The vendors of Flybrid Automotive Limited, Jon Hilton (Non-Executive Director) and Doug Cross (Chief Technology Officer), received shares to the value of £3.5m and £1.5m respectively as part of the settlement. The £5m was treated as an exceptional item.

The investment in Rotrex A/S and the loan due from Rotrex A/S were written down in the financial year ended 31 March 2016 due to the uncertainty of the value of the net assets of Rotrex A/S and also the recoverability of the loan.

The one-off legal and other costs relate to the restructuring of the Flybrid acquisition agreement.

8. Taxation

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 credit for research and development tax credits for the period is based on the estimated effective tax rate of 33.35% (2015: 33.35%).

Changes to the UK corporation tax rates were announced on 8 July 2015. These changes were substantively enacted as part of the Finance Bill 2015 on 26 October 2015 and include reductions to the main rate to 19% from 1 April 2017 and to 18% from 1 April 2020. On 16 March 2016 further changes to the UK corporation tax rate were announced including a further reduction in the UK corporation tax rate to 17% from 2020, which supersedes the change enacted on 26 October 2015, and which was substantively enacted as part of the Finance Bill 2016 on 15 September 2016.

The deferred tax liability relates solely to the intangible assets recognised on the acquisition of Flybrid Automotive Limited. The deferred tax liability will be amortised through the Income Statement to match the amortisation of the underlying intangible asset, being over 15 years.

9. Loss per share

The basic and diluted loss per share are based on a loss after tax of £3,509,000 (2015: £9,426,000). The weighted average number of shares was 543.4 million shares (2015: 376.8 million) and the diluted weighted average number of shares was 621.3 million (2015: 390.7 million).

For the six months ended 30 September 2016 and 2015 potential share options are antidilutive, as their inclusion in the diluted loss per share calculation would reduce the loss per share, and hence have been excluded.

In accordance with IAS33 'Earnings per Share' the number of shares used in the calculation excludes the weighted average number of shares held by the Employee Benefits Trust of 4,925,535 (2015: 2,369,723).

10. Investments

The Group also holds an investment in Rotrex A/S. This investment is no longer supported by the net assets of Rotrex A/S and as such an impairment provision was created in the financial year ended 31 March 2016 in accordance with the Group's accounting policy. This investment has a net book value of £nil (2015: £nil).

11. Trade and other receivables

At 30 September 2016 the Group had a loan outstanding of £147k with Rotrex A/S. In the financial year ended 31 March 2016 a provision was created against the value of this loan due to the uncertainty of recoverability. This loan has a net book value of £nil (2015: £nil).

The net trade receivables includes a provision for impairment of £51k in relation to a potentially unrecoverable debt in accordance with the Group's accounting policy.

12. Cash and cash equivalents

13. Trade and other payables

(i) The borrowings represent a five year term loan from the vendors of Flybrid Automotive Limited as detailed in note 15. The loan is secured on the tangible and intangible assets of Flybrid Automotive Limited and can be repaid by the Company at any time during the five years. The loan carries a fixed annual interest rate of 7 per cent.

14. Issued Share Capital

15. Related party transactions

There was a loan outstanding of £30,000 to Rotrak Limited at 30 September 2016 (2015: £29,000).

There was a long term loan outstanding to Rotrex A/S of £147,000 (2015: £147,000), against which a provision has been created due to the uncertainty of recovery, as explained in note 11.

There was a loan amount due to Jon Hilton of £1,260,000 (2015: £1,260,000) and Doug Cross of £540,000 (2015: £540,000) as explained in note 13 in relation to the acquisition of Flybrid Automotive Limited.

In the period to 30 September 2016 there was an amount of £44,466 paid to Jon Hilton and an amount of £19,057 paid to Doug Cross in respect of loan interest. £7,250 was due to Jon Hilton and £3,107 due to Doug Cross in respect of loan interest at 30 September 2016; these amounts were paid on 1 October 2016.

Jon Hilton is a Director of Celeratis Limited. In the period to 30 September 2016 there was an amount of £40,165 paid to Celeratis Limited for consultancy services. There was an amount due to Celeratis Limited of £2,478 at 30 September 2016.

16. Commitments

Capital expenditure contracted for at the balance sheet date but not yet incurred was £nil (2015: £6,000).

17. Financial Risk Management

The Group's activities expose it to a variety of financial risks including currency risk, credit risk, liquidity risk and interest rate risk.

The condensed consolidated interim financial statements do not include all financial risk management information and disclosures required in the annual financial statements; they should be read in conjunction with the Group's annual financial statements as at 31 March 2016. There have been no changes in any risk management policies or financial risks since the year end.

18. Seasonality

The Group's results and activities are not affected by seasonality.

Statement of Directors' responsibilities

The Directors confirm that, to the best of their knowledge, these condensed consolidated interim financial statements have been prepared in accordance with IAS 34 'interim financial reporting' as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

· an indication of the important events that have occurred during the first six months and their impact on the condensed consolidated interim financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

· material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.

The Directors of Torotrak plc are listed in the Torotrak plc Annual Report for the year ended 31 March 2016. A list of current Directors is maintained on the Torotrak plc website: www.torotrak.com.

By order of the Board on 28 November 2016

Adam Robson

Chief Executive

-ends-