Torotrak PLC Regulatory News (TRK)

27 November 2014

Torotrak plc

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

Half Year Results for the six months ended 30 September 2014

Torotrak (LSE: TRK), a leading developer and supplier of emissions reduction and fuel efficiency technology for vehicles, today publishes its half year financial results for the six months ended 30 September 2014.

Flybrid KERS - mechanical hybrids

· Milestones achieved:

o Bus testing at Millbrook test track successfully completed in preparation for in-service trials with Arriva in December 2014

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

o Accelerated flywheel durability testing successfully completed, equivalent to 10 years in-service running

o JCB excavator production-intent design completed, procurement underway

· Validated fuel savings and low cost manufacture confirms Flybrid KERS operator unsubsidised payback within five years

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

V-Charge - powering downsized engines

· Milestone achieved:

o Initial results from analysis conducted by University of Bath in conjunction with global OEM and Tier 1 confirms significant potential benefits from Torotrak technology in a downsized engine for the mass market

· Next generation prototype unit already installed in demonstrator vehicle

Variable traction drive transmissions

· Milestone achieved:

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

· Engagement with two new international Off-Highway vehicle manufacturers, following independent assessments confirming Torotrak technology advantages

Financial Highlights

· Cash balance of £10.1 million at 30 September 2014, with £1 million deferred license fee received post balance sheet date

· Significant self-funded, operational investment in preparation for 2015 product sales & future licensing with specific OEMs and Tier 1 manufacturers

Management changes

· Nick Barter, with his significant automotive experience, appointed Chairman. Jeremy Deering intends to step-down as CEO in 2015 having established and executed the first phase of the Company's new strategy for future growth.

Jeremy Deering, Torotrak's Chief Executive said:  "Our focusduring the last six months has been on delivering the plan we presented to shareholders: to bring our Flybrid commercial vehicle KERS product to market in commercial volumes in the next financial year; to put in place skills and infrastructure for in-house, lower-volume and higher-value manufacturing; and to prepare our other technologies for market introduction in conjunction with Tier 1 and OEM licensees. 

"We are very excited about the progress made with our V-Charge technology. The independent confirmation of the benefits of our revolutionary variable boost system for downsized engines provides an excellent validation of the technology and we believe that the technology can become a global leader delivering significant fuel savings and CO2 emissions reductions.

"Two years ago I set out a new strategy for Torotrak - to take more control over bringing our technology to market, resulting in today: an installed manufacturing capability; Flybrid KERS being established as a market leading product, and; a step change in engagement with OEMs and Tier 1s reflecting our greater product reach and wider capability. Torotrak's three technologies are now at the top of agendas with worldwide automotive manufacturers at a time when technology and regulatory change is sweeping through the global automotive industry. 

"With this platform for future growth firmly in place, I intend to step down as CEO in the second quarter of 2015 as part of a transition to the next stage of the Group's development focusing on manufacturing. As the first stage of this orderly hand-over, I am delighted that Nick Barter, with his considerable automotive experience and passion for the business, will be leading the Board as Torotrak's new Chairman and that Steve Hughes, formerly Engineering Director at JCB Transmissions, has joined the Group as Chief Operating Officer."

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

Notes to Editors

Torotrak is a leading developer and supplier of variable drive transmission, engine boosting and energy recovery systems for vehicles. Our portfolio of technology solutions substantially improves fuel economy and reduces CO2 emissions in vehicles through harnessing the power of supercharging to enable engine downsizing, capturing and recycling energy that would otherwise be lost and managing the engine at the optimum point.

Chairman's statement

I have taken over as Chairman at a very exciting time for the business. We have made substantial progress during the period with independent confirmation that our bus KERS system can achieve our target fuel efficiency and manufactured cost, offering bus operators an unsubsidised payback of less than five years. This is the most cost-effective hybrid bus system available on the market. Investors will have the opportunity to experience the system when the first vehicle fitted with KERS goes into public service with Arriva next month. This is a very significant moment for the Company, marking the start of the transition from development into the operational delivery phase in preparation for market launch.

On V-Charge, I am pleased to report that independent analysis, conducted by the University of Bath, a global automotive OEM and a major Tier 1 boosting supplier, confirms the potential for significant fuel savings to be achieved with a next generation downsized gasoline engine enabled with our V-Charge technology. This is a major validation of the mass market capability of the technology. We have invested a significant amount of time and money in developing the technology over the last four years and I am confident this will open the door for significant licensing opportunities over the next 12 months, as a precursor to mass market adoption of the technology into passenger cars.

The Company is moving into the next phase of its development, involving the commercialisation and operational delivery of the first of our products, KERS for buses, in 2015. Having established a new strategy for the Company, led the successful acquisition of Flybrid and the investment in lower-volume manufacturing capability, our Chief Executive, Jeremy Deering has announced his intention to step down next year allowing a smooth transition to be made.

On behalf of the Board, I would like to thank Jeremy for his leadership of the Company over the last three years and prior to that, for his role in securing the key licensing arrangements that funded the Company to get to where it is today. I am pleased to say that he will provide continuing support into next year in that regard. The Board has commenced a process to appoint a new Chief Executive and I look forward to updating shareholders on this in due course.

I am also pleased to report that Steve Hughes, formerly Engineering Director of JCB Transmissions, has joined the Group as Chief Operating Officer. Steve brings with him a wealth of experience in delivering engineering programmes and taking new transmission products into successful commercial production. These skills are crucial as we build the capability and prepare for commercial production of bus KERS and launch of the product into the market next year.

I would like to thank all of our staff for their hard work and diligence in moving the Company forward over the last six months. Finally, I would also like to thank John Weston for his successful Chairmanship of the Board over the last three years.

Nick Barter

Chairman

Chief Executive's Review

Introduction

I am pleased to report on the progress made across all of our technology product programmes during the last six months. To achieve a market launch of our Flybrid KERS product, into the bus market in commercial volumes next year, has required considerable internal-facing programme activity, as well as the installation of new manufacturing equipment, processes and test capability. In parallel, we have been focused on moving our V-Charge and variable traction drive transmission programmes to the next stages - requiring detailed engineering activity, in conjunction with the key licensees and potential partners, whose confidence and commitment is critical as we progress our technology to commercialisation. 

I believe firmly that this activity will prove to be fundamental to the reaping of rewards in terms of both external commitments and new customers which will become more evident as the current financial year progresses and into the following financial year.

I am pleased to report that the business development team has risen to the challenge in terms of a step change in the level of incoming enquiries, trade shows and exhibitions and we continue to support the requests for engineering services programmes that are an important part of our business plan and we are confident of entering 2015 with a strong order book. Importantly, these new programmes are predominantly targeted at delivering a commercial margin, having undertaken a high proportion of self or partially funded programmes in 2014 (in line with our product development plans). We are seeing the benefits of the combination of Flybrid and Torotrak in terms of the broader product offering and increased range of skills, which has noticeably improved our engagement with new OEMs and Tier 1s.

Whilst moving the product programmes forward, we have made two extensive business development visits to China which confirm the very strong opportunity in this region. China is in need of CO2 emissions reducing technology to cost-effectively address its well-known urban pollution and air quality challenges and there has been strong interest in all of our technology and product areas which is why we have chosen to open a representative office. The business model for China and issues relating to licensing and IP protection, of course requires careful consideration. However, our view is that there is a new and exciting business climate emerging, with an opportunity for Torotrak to work with some forward-looking enterprises and to take advantage of the considerable investment available in moving from second and third generation IP, to class-leading technology for the Chinese domestic economy.

Japan is also growing in importance in terms of our focus, and it is noticeable how Torotrak's technologies are now very much "on the radar", compared with this time last year. Our long-standing Tier 2 Licensee, Univance, enables us to offer our potential partners and licensees a well-established manufacturing route for key components in support of IVT and V-Charge.

In line with our December 2013 Prospectus, we are making considerable investment in preparation for market launch of KERS next year as well as prototyping , simulation and other quantitative analysis targeted at increasing our profile with OEMs and Tier 1s across our three key products. A significant proportion of the £3.4 million operating loss in the first half relates to the operational investment for future product sales and development of technology with specific OEMs and Tier 1s. 

In the second half of the current financial year, we will be increasing our focus on KERS marketing for commercial vehicles. It was important to have the validated fuel economy results, and manufacturing cost position, to achieve this. We have a number of interested parties and developed relationships that are being actively engaged.

Looking forwards, our strategic objectives are clear:

· Achieve a successful market launch of Flybrid KERS in commercial vehicles, beginning with buses;

· Build growing product revenues supported by higher-value, lower-volume in-house manufacturing;

· Showcase our technology through feasibility and demonstration programmes that help fund product development for future licensing or product sales; and

· Establish Tier 1, licensed manufacturing partnerships for mass market uptake of our products in the critical 2017-2019 window for next generation vehicle platforms.

I report below, in the Operating review, on the highlights over the last six months.

Operating review

Bus KERS

The key focus during the period has been on completing the development, calibration and testing of the KERS systems that have been installed in Wrightbus StreetLite vehicles; this is in preparation for commencing public bus trials with Arriva in December. In parallel, the engineering team has been completing the second generation bus KERS production-intent design; a lighter, more efficient and lower cost configuration.

Flybrid bus KERS systems have been built and installed in two Wrightbus StreetLite vehicles. Both buses have undergone an extensive period of calibration and testing on public roads and on the Millbrook test track. We have worked closely with Wrightbus and the drivetrain manufacturers to optimise the energy capture, maximise the fuel savings and deliver excellent driveability across a wide range of real-world drive cycles.

The StreetLite buses have completed multiple fuel measurement test cycles to validate the fuel savings achievable over a wide range of typical bus duty cycles operated in the UK. The independent Millbrook tests confirm that the current bus KERS system delivers substantial fuel savings giving bus operators an unsubsidised payback of 5 years or less. The StreetLite vehicles on which these tests were conducted are efficient vehicles fitted with modern Euro 5 engines. Importantly, by installing a retrofit Flybrid KERS system to the existing bus fleet, the majority of which uses the less efficient Euro 3 engine, the potential payback is significantly improved given the increased fuel savings that the Flybrid KERS system can deliver from these less efficient vehicles.

The next stage in the programme is to complete the final handover of the KERS-enabled StreetLite bus to Arriva in December 2014 in order to commence in-service trials on a public bus route in Kent. This is later than we had predicted earlier in the year but it incorporates the latest productionised design and has not impacted our planned commercial launch for the end of 2015. This latest design is lower cost and more efficient, using 25% fewer components and achieving an overall weight reduction. Importantly, this design incorporates input from our supply chain partners including a global Tier 1 supplier to the commercial vehicle market where discussions are well advanced to enable the Group to supply complete bus KERS systems at a cost that will offer bus operators an unsubsidised payback of less than five years. The Group has access to a well-established, volume-capable supply chain, incorporating best-practice design for manufacture from the outset and confirming our low cost bill of materials.

In parallel with the in-vehicle testing, we have completed extensive accelerated flywheel assembly durability testing equivalent to more than 10 years of in-service operation; this confirms the target design life of at least 1 million kilometres. Compared to battery hybrids, which require a mid-life battery pack replacement, this is a significant benefit to the business case for bus operators, avoiding expensive battery replacements and operating downtime. Extensive destructive testing to validate the flywheel functional safety has also been successfully performed, proving the patented safety features of the system. The Vehicle Certification Agency has confirmed that the bus to be delivered to Arriva has successfully passed the brake stability tests necessary to operate on a public bus route.

There is significant potential for the technology in other commercial vehicles, and we are starting to investigate other potential on-highway commercial vehicle applications.

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 and develop production-intent flywheel systems for excavators is progressing well and is on track. This programme, announced in April this year, followed the initial prototype testing conducted at the end of last year. The design phase is complete and we have worked closely with the JCB engineering team to optimise the design to meet the challenging requirements of low cost, high efficiency and long lifetime. The multi-discipline project team including engineering procurement has ensured that design for manufacture and assembly has been incorporated from the outset to achieve a low cost bill of materials. This is critical as off-highway applications demand rapid payback and extended operations in harsh environments.

The next phase of the programme is hardware procurement and building a number of systems for functional/performance testing commencing in Q2 2015.

Passenger Car KERS

We are engaged with multiple passenger car manufacturers investigating the opportunities for KERS with feasibility and demonstrator vehicle programmes. We are also in early stage discussions with potential Tier 1s who are looking very closely at the opportunity for KERS to help deliver the challenging emissions reductions targets for 2020 onwards.

Meanwhile, we have completed a significant design exercise on a demonstrator 'large KERS and small engine' vehicle and are currently building early hardware units for our test programme. Our lead customer is at this stage confidential. The success of this programme could materially influence worldwide car manufacturer engagement with KERS and act as a stimulus for market entry via premium car segments into the mainstream passenger car markets. We anticipate being able to report to shareholders on this in the next six months.

V-Charge

One of the main activities in the last six months has been on work to optimise the V-Charge product as a key enabler for more efficient, downsized engines. We have worked with the University of Bath (a world recognised centre of excellence in this field) in conjunction with a Tier 1 engine boosting supplier and a passenger car OEM that is a class leader in more efficient passenger car engines. This work is focussed 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 confirms that V-Charge has the potential to significantly improve the performance or fuel economy of a modern downsized gasoline engine, when compared to competing advanced boosting technologies. Using current supercharger compressor technology, V-Charge can provide improved low speed torque output, and under part-load conditions is predicted to deliver significantly improved fuel consumption and CO2 emissions reduction without the 'lag' associated with existing boosting solutions. Time to torque, a measure of engine response and vehicle drivability, matches the best available boosting products. Configured with next generation compressor technology that fully exploits the characteristics of V-Charge, further benefits are expected. These results are achieved with simplified hardware integration and superior noise vibration and harshness characteristics compared to the competition.

These initial results confirm the opportunities for V-Charge as a key enabler of fundamental engine downsizing - providing the performance needed but in a simpler, more cost-effective manner than traditional technologies.

We continue to work closely with another passenger car manufacturer conducting simulation and trials of V-Charge hardware on next generation engine platforms. This work is progressing well with the simulation results demonstrating performance and emissions reduction benefits over the incumbent boosting solutions. The next stage of the programme is to deliver hardware for on-vehicle testing.

The opportunity to use V-Charge continuously variable transmission ("CVT") technology to improve fuel efficiency in an on-highway commercial vehicle boosting application remains of interest to us, and a number of OEMs. The work completed to date appears to confirm the benefits of Torotrak's CVT in this type of application over and above competitor technologies.

Main drive transmissions

In November 2014, Allison paid the final £1.0 million license fee, deferred from earlier in the year; confirming the step-change improvement in key component durability and lifetime. During the period, the Group has worked closely with Allison to understand the key drivers of component lifetime and the potential impact of these improvements on transmission design. This detailed development work and the associated testing continues and is an important element of the combined engineering and product development programme.

We are seeing a notable increase in interest in Torotrak's IVT/CVT transmission technology for commercial vehicle applications. Two international OEMs are considering our technology, with the potential to progress in 2015 into production-intent programmes. This builds on the significant testing and development experience gained during the last few years enabling the Group's technology to meet the demanding challenges of durability, lifetime and cost that are required in the off-highway markets.

Manufacturing

To support the Group's strategy to take more control of its routes to market, during the period we have made a number of investments in manufacturing and test and build equipment at the Leyland facility. Investment in carbon fibre filament winding, in conjunction with the flywheel hub manufacturing capacity installed earlier this year, means that we now have the capability to manufacture complete flywheels in lower volumes of thousands of flywheel assemblies meeting the requirements for on and off-highway commercial vehicle markets.

We have invested in additional CNC machining capability enabling the Group to manufacture multiple high-value components across the Group's different technologies. This capability makes an important financial contribution to the Group and also enables the multiple engineering programmes to be delivered more quickly and cost-effectively and capture valuable design-for-manufacture learnings and IP.

Additional investments have also been made in flywheel test rigs. We now have the capability of 24-hour ('lights-out') accelerated flywheel durability testing in addition to further KERS development test facilities. This new capability has the potential to generate financial returns and speed up product development cycles. This capability is critical as we move through the productionisation phase towards commercial product launch with our key KERS partners including Wrightbus and JCB.

Financial review

The financial results of the Group for the six months ended 30 September 2014 show revenue of £1.6 million (2013: £1.7 million). The main drivers are the final £1.0 million license fee from Allison (the cash being received post period end) and £0.6 million of engineering services revenue across all three of the Group's technologies. The gross profit of £1.3 million (2013: £1.5 million) represents license fees and engineering services after deduction of bought-in materials and services. In addition, recorded on the balance sheet is £2.5 million of deferred income. This represents work in progress at the period end.

The operating loss before intangible amortisation (knowhow) and exceptional items for the period was £3.4 million, which compares to a loss in the six months ended 30 September 2013 of £1.4 million. The current period loss is driven by a £1.6 million increase in development expenses and a £0.5 million increase in administrative expenses. The increase in development expenses primarily relates to the inclusion of a full six months' operating costs of Flybrid and the costs relating to the bus KERS programme. During the period the Group incurred exceptional costs of £0.1 million (2013: £0.1 million) relating to a re-organisation and non-cash costs relating to the amortisation of intangible assets (knowhow) arising on the acquisition of Flybrid of £0.4 million (2013: £nil). Loss for the period was £3.7 million (2013: £1.5 million).

Net cash used in operating activities of £4.0 million (2013: £1.8 million) arises from the operating loss for the period and an increased net working capital outflow of £1.3 million (2013: £0.9 million) mainly relating to the accrued license fee that was received from Allison post period end. During the period the Group spent £0.6 million (2013: £0.4 million) acquiring property, plant and equipment (being mainly manufacturing and test equipment) and £0.3 million (2013: £0.2 million) filing new patents. The cash balance at 30 September 2014 was £10.1 million (March 2014: £14.9 million), reflecting the operating loss and investment in capital expenditure during the period.

Management Changes

Following my appointment as Chief Executive in 2012, I announced a new strategic direction for the Company focused on taking greater control over getting our products to market. Since then we have acquired Flybrid, installed lower-volume manufacturing capability and achieved a step change in engagement with OEMs and Tier 1s. Having established this platform for the future, I am announcing my intention to step down as CEO during the second quarter of 2015 as part of an orderly hand-over ahead of the next stage of the Group's development. As the first stage of this process, I am delighted that Nick Barter, with his considerable experience of the passenger car market and passion for the business, will be leading the Board as Torotrak's new Chairman. I am also pleased that Steve Hughes has joined the Group as Chief Operating Officer with responsibility for delivery of the Group's commercial engineering programmes, manufacturing and test operations. Steve has extensive experience in the engineering of transmissions and drivelines and in taking programmes through into volume production in automotive and commercial vehicles. Steve joins from JCB where he held the post of Engineering Director Transmissions for the last four years having previously worked for Ricardo.

Outlook

Our key objectives for the next six months are as follows:

· Complete the initial trials of a Wrightbus StreetLite vehicle fitted with Flybrid KERS operating on a public bus route with Arriva;

· Announce our manufacturing strategy and partners for the commercial launch of bus KERS;

· Commence design verification testing of the new lower cost industrialised bus KERS system;

· Build a pipeline of sales prospects for bus KERS supporting the start of commercial production for end calendar year 2015;

· Complete the build of the production-intent JCB excavator flywheel system and commence the testing programme in conjunction with JCB;

· Supply next generation V-Charge hardware for trials on a multi-stage premium automotive application; and

· Develop Tier 1 licensing opportunities for KERS and V-Charge in passenger cars.

We enter the second half of the financial year having successfully completed a number of important milestones. We have made significant progress in all the key areas of the business and I would like to thank all our staff for their hard work and effort.

Jeremy Deering

Chief Executive

Condensed consolidated income statement

for the six months ended 30 September 2014

The results above derive from continuing operations.

The notes on page 14 to 20 form an integral part of these condensed consolidated half-yearly financial statements.

Condensed consolidated balance sheet

as at 30 September 2014

The notes on pages 14 to 20 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 2014

The notes on pages 14 to 20 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 2014

The notes on pages 14 to 20 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 half-year financial statements were approved for issue on 27 November 2014 and the information contained therein is unaudited.

The interim financial statements for the period ended 30 September 2014 do not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006.

The financial information set out in this statement relating to the year ended 31 March 2014 does not constitute statutory accounts for that period. Full statutory accounts of the Group in respect of that financial period were approved by the Board of Directors on 28 May 2014 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 Operational Review. The financial position of the Group and liquidity position are described within the Financial Review.

After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Interim Statement.

2. Basis of preparation

These condensed consolidated interim Financial Statements for the six months ended 30 September 2014, have been reviewed but not 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 2014 which have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted for use in the EU.

3. Accounting policies

The accounting policies are consistent with those of the annual financial statements for the year ended 31 March 2014, except as described below:

· Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual earnings.

(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

The following new standards, which have been issued but are not yet effective, have not been early adopted by the Group:

· IFRS 9, 'Financial Instruments' Effective date not set

· IFRS 15, 'Revenue from contracts with customers' Effective 1 January 2017

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 2014.

5. Operating segmental analysis

Operating segmental analysis for the six months ended 30 September 2014

Operating segmental analysis for the six months ended 30 September 2013

Note 1: Development activities include research and the creation of intellectual property.

Significant customers

The following revenues are attributable to significant customers:

6. Loss per share

The basic and diluted loss per share are based on a loss after tax of £3,672,000 (2013: £1,455,000). The weighted average number of shares was 273.1 million shares (2013: 175.1 million) and the diluted weighted average number of shares was 281.3 million (2013: 182.1 million).

For the six months ended 30 September 2014 and 2013 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 1,638,355 (2013: 1,057,906).

7. Fixed assets

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 year is based on the estimated effective tax rate of 24.75% (2013: 24.75%).

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 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.

9. Investments

At 30 September 2013 the Group held a £2.9 million investment in Flybrid Automotive Limited (£3 million net of the loss for the 6 months to 30 September 2013). In January 2014 the Group completed the purchase of the remaining 80% and therefore this investment is now removed upon consolidation.

For the year ended 31 March 2014 in order to maintain its 15% stake, the Group subscribed for its pro rata share of the new shares issued by Rotrex A/S at a cost of £17k. No further investment has been made in the current period.

10. Trade and other receivables

11. Cash and cash equivalents

12. Trade and other payables

13. Related party transactions

There was a loan outstanding of £28,000 to Rotrak at 30 September 2014 (2013: £28,000). There was a long term loan outstanding to Rotrex of £147,000 (2013: £147,000).

There was an amount due to Jon Hilton of £1,960,000 (2013: Nil) as loan notes as shown in note 12 in relation to the acquisition of Flybrid Automotive Limited and an amount due from Jeremy Deering of £33,000 (2013: Nil) for tax and national insurance in relation to the exercise of an LTPSP award which is shown as other receivables. No other amounts were due (to)/from these personnel at 30 September 2014.

14. Exceptional items

The re-organisation costs relate to redundancy, severance and associated expenses.

The one-off legal and other costs relate to the acquisition of Flybrid Automotive Limited.

15. Commitments

Capital expenditure contracted for at the balance sheet date but not yet incurred was £14,000 (2013: £27,000).

16. Financial Risk Management

The Group's activities expose it to a variety of financial risks: 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 2014. There have been no changes in any risk management policies

since the year end.

17. 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, this condensed consolidated set of half-year financial statements has been prepared in accordance with IAS 34, as adopted by the European Union. The half-year management report includes a fair review of the information required by 4.2.7 and 4.2.8 of the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority, namely:

· an indication of the important events that have occurred during the first six months of the financial year ending 31 March 2015 and their impact on the condensed consolidated set of half-year financial statements and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

· disclosure of material related party transactions in the first six months of the financial year 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 2014. A list of current Directors is maintained on the Torotrak plc website: www.torotrak.com.

By order of the Board

Jeremy Deering

Chief Executive

-ends-