Torotrak PLC Regulatory News (TRK)

2 December 2013

Torotrak plc

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

Interim Results for the six months ended 30 September 2013

Torotrak (LSE: TRK), a leading developer and supplier of emissions reduction and fuel efficiency technology for vehicles, today publishes its interim financial results for the six months ended 30 September 2013.

Operational Highlights

· Since acquiring 20% of Flybrid in March 2013, considerable increase in engagement with Tier 1 and OEM manufacturers, confirming significant commercialisation opportunities for M-KERS;

o Five lead OEM customers engaged and discussions on-going with four Tier 1 manufacturers regarding take up of M-KERS across commercial vehicle and car markets;

· Active engagement for four potential applications of V-Charge, including new prospect for commercial vehicle market;

o Engaged with Tier 1 manufacturer for V-Charge and investigating wider benefits in relation to new breed of downsized engines; and

· In advanced negotiations to complete acquisition of 80% of Flybrid.

Financial Highlights

· £1.4 million licence fee received from Allison in July 2013 (with the final £2.6 million licence fee due from Allison in March 2014); and

· £6.7 million period end cash balance.

Jeremy Deering, Torotrak's Chief Executive said: "I am delighted by the material step up in engagement with OEM and Tier 1 manufacturers. The market response to our new strategy, offering more technology choices and more options for customers to engage with us across multiple emissions reduction and fuel efficiency solutions has been encouraging. Completion of the full acquisition of Flybrid would give the Group a first to market, cost-effective, power dense mechanical hybrid product at a time when electric hybrid solutions are known to be too costly for mass adoption and over which there are real concerns about expensive mid-life battery replacement.

"I have no doubt that the new enterprise formed by the combination of Torotrak and Flybrid can be a catalyst for the adoption of our technologies in new car platforms post 2015 when mandatory CO2 reduction targets tighten worldwide. This, and our investment in low volume manufacturing to launch Flybrid's M-KERS in the UK bus market next year, gives us excellent opportunities for substantial value creation in the short, medium and long term."

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.

Chief Executive's Review

Prospects for the Group have strengthened since our Annual Report was published in May 2013 in terms of future market uptake of our technologies. The Group is experiencing high levels of engagement with multiple prospective licensees and customers in relation to M-KERS and V-Charge across a range of different markets, including passenger cars and on and off-highway commercial vehicles. These engagements confirm that there are opportunities for mass market uptake of the Group's technologies across multiple vehicle segments with the potential to continue to generate material up-front licence fees and engineering services revenue, well ahead of long term per-unit product royalties. Outcomes for the Group will remain influenced by the timing and quantum of up-front licence sales. Based on the current levels of engagement, the Directors expect to secure an agreement with at least one such manufacturer in the next twelve months for the passenger car market. 

After several years of generating substantial up-front revenue and cashflow covering the Group's product development expenditure, the Board has decided to invest over the next two years to take advantage of the opportunities that now exist to secure adoption of the Group's portfolio of technologies into vehicle platforms. The upcoming stringent emissions reduction regulations that come into force from 2015 onwards means that there is a near term window of opportunity that the Group must exploit. Engagement with multiple OEMs and Tier 1 manufacturers for the Group's products confirms that this is the most appropriate strategy.

We have commenced investment in low volume manufacturing capability to secure early market entry for what we see as M-KERS' ground breaking energy recovery solution which will be targeted initially at the UK bus market. We are on track to launch Flybrid's M-KERS into fleet trials on a public bus route in the UK next year to validate the technology and with the objective to confirm the advantages it brings to the stop/start environment of buses. The trials are expected to complete by the end of 2014 with the anticipation that this will lead to orders for primary fitment in buses from 2015 with adoption in more of the UK bus fleet thereafter.

Entry of M-KERS into the commercial vehicles provides product sales from 2015 onwards and is an important opportunity to "showcase" the capability of the technology. We will at the same time focus investment over the next eighteen to twenty four months to drive selection of our technologies in new car platform launches post 2015. We have already developed important relationships with car manufacturers accounting for over 30% of the total cars sold in the world in 2012. The results in the first half of the year reflect increased investment on commercialising our technology and engagement with manufacturers. Our strategy is to focus engineering resources on accelerating evaluation and technology development with our major OEM prospects, which may this and next financial year result in lower engineering fee earning activities. We believe this decision will prepare us for more valuable licensing agreements which can then be obtained as we move closer to the 2015 implementation date for reduced CO2 emissions in car fleets.

The Group's technologies are ideally placed to meet vehicle manufacturers' regulatory requirements to achieve CO2 reduction, whilst maintaining or improving vehicle performance. Our technologies enable (i) engine downsizing (V-Charge); (ii) recovering kinetic energy efficiently that would otherwise be wasted (Flybrid M-KERS); and (iii) transmissions that manage engines, especially the new breed of engines, at a tighter operating range so as to reduce fuel consumption (IVT). Whilst IVT technology is currently focused on the commercial vehicle market, V-Charge and Flybrid M-KERS address the mass light vehicle markets as well as medium and heavy duty commercial vehicles.

We confirm today that we are in advanced negotiations with the founder shareholders of Flybrid and expect to be announcing the acquisition of the remaining 80% of Flybrid during the course of this month. This acquisition would be conditional upon, amongst other things, shareholder approval. The combination of Torotrak's variable drive technology and Flybrid's leading high-speed flywheel technology and alternative clutch based drive system ("CFT"), gives the Group a first to market, cost-effective and power dense mechanical hybrid product. Discussions with leading vehicle and equipment manufacturers since the initial acquisition of 20% of Flybrid earlier this calendar year confirms our view that a lower cost, mechanical energy recovery device is needed to satisfy a material demand worldwide to increase the efficiency of the internal combustion engine, which will continue to be the dominant powertrain for the foreseeable future. We therefore believe that we have an excellent opportunity to launch the M-KERS product in both passenger car and commercial vehicle markets. Given automotive development lead times, our focus is on engagement with manufacturers over the next two years and ensuring earliest releases in new car platforms after 2015.

Regulatory backdrop

The vehicle industry, from cars to buses, trucks and construction equipment, is looking to new technologies to meet the challenging new CO2 emissions reduction and fuel efficiency regulations. These worldwide regulations, with severe financial penalties attached, are driving a technology revolution as vehicle manufacturers try to meet these new demanding targets at an affordable cost. Independent analysis by Ricardo plc confirms that regulation of CO2 emissions and fuel economy is now the most dominant technology driver in the light duty vehicle markets.

Internal Combustion Engines ("ICE") are likely to remain the dominant light duty vehicle propulsion technology beyond 2030 and the main reduction in CO2 emissions will be achieved by making the ICE more efficient. This can be helped considerably through: engine downsizing; engine down-speeding; energy conservation, storage and release; and by making existing technology work better with vehicles being lighter and having less drag. Small scale incremental improvements to existing engine technology will not enable vehicle manufacturers to meet the required emissions standards. With electric developments lagging considerably behind where the industry expected when making forward technology plans five years ago, the Group's products are ideally placed to meet vehicle manufacturers' requirements in relation to improving ICE performance, reducing fuel consumption and enabling fuel-saving smaller engines to become driveable.

In passenger car markets, the Group's V-Charge and M-KERS technologies have the potential to deliver the required reduction in emissions at an affordable cost and can be easily integrated with current and future car platforms. Both technologies have the potential to enable engine downsizing whilst delivering the required performance and driveability that consumers demand. Independent analysis by E4tech (UK) Ltd confirms that a successful launch of M-KERS in the 2015 - 2020 timeframe has the potential to deliver a significant addressable market and secure mass market uptake from 2020 onwards. Beyond 2020, M-KERS has the potential to take further significant market share, in response to the growing demand for cost-effective energy storage to reduce CO2 reductions. M-KERS is suitable for mass market adoption offering major advantages over electric systems including power, cost, package and no mid-life battery replacement. Our view is that electric hybrids will increasingly focus on the more niche markets of plug in electric hybrid vehicles, suitable for urban environments where air quality is the key regulatory determinant, but where range will continue to be a constraining factor for wider use.

In the on and off-highway commercial vehicle markets, the key drivers of new technology adoption are end-user demand for increased fuel efficiency and tightening air quality and CO2 emissions regulations. The Group's main drive transmission, V-Charge and M-KERS technologies can all offer attractive fuel savings at a significantly lower cost than electric hybrid solutions

M-KERS/Flybrid

Since the acquisition of a 20% stake in Flybrid in March 2013, we have together made significant progress in developing M-KERS hybrid technology and securing widespread interest from multiple Tier 1 and OEMs across all sectors including passenger cars, buses and off-highway commercial vehicles. The development programme in partnership with Wrightbus is progressing well and is on track to commence bus trials on a public route in a Wrightbus StreetLite bus operated by Arriva in the second quarter of 2014. These trials will be an important real world validation of the fuel savings potential of the M-KERS technology leading to commercial sales from 2015 onwards. 

M-KERS has an excellent opportunity to be introduced into the commercial vehicle market as a cost-effective hybrid energy recovery device, capable of delivering significant fuel savings, especially on shorter haul drive cycles such as urban buses, delivery trucks, refuse trucks and light trucks and vans.

Analysis conducted by the Company and supported by independent analysis by E4tech (UK) Ltd indicates that the cost of manufacture for a M-KERS system has the potential to deliver a low unit cost, capable of volume manufacture. Following extensive simulation, the Directors believe that M-KERS fuel savings can deliver an unsubsidised bus operator payback of five years or less over an operating life of at least 10 years, together with an attractive gross margin in line with new technology products for the Group. The Directors believe that M-KERS can be sold at significantly lower cost than non-subsidised equivalent power electric hybrid platforms and comparable systems. This is an important driver for market uptake, offering bus manufacturers and operators a commercially attractive fuel efficiency and emissions reduction technology, and near term product sales and earnings opportunities for the Enlarged Group from 2015 onward

The Group's market entry strategy therefore is to launch Flybrid's M-KERS product initially into the UK bus segment with Wrightbus from 2015 onwards, following the anticipated successful completion of fleet trials in early 2014 with Arriva. Initial volumes of up to 1,700 flywheel units per annum can be supplied using planned assembly and manufacturing facilities operated by the Company, in conjunction with identified and qualified partner suppliers such as The Proving Factory. The Proving Factory initiative is backed by the UK Government and is operated in partnership with Jaguar Land Rover, Tata Steel and the Schaeffler Group. This will enable the Group to scale-up manufacturing to serve the UK and EU bus markets. Recent engagement with bus operators confirms that there also is a significant opportunity in the retrofit market. With bus operating life typically in excess of fifteen years, the opportunity to create reduced CO2 fleets targeted at older vehicles already in the standing parc, is of major interest to bus operators and of course helps considerably with the creation of cleaner public transport.

In the passenger car market, following the successful demonstration of fuel savings in a Volvo and a Jaguar using Flybrid's flywheel technology, the Directors consider that a key opportunity is to target passenger car programmes for introduction from 2017, as manufacturers respond to the more onerous 2017 test regimes and prepare for the 2020 CO2 targets. In April 2013, Volvo announced that an S60 fitted with Flybrid's M-KERS has demonstrated increased acceleration and an additional 80 horse power when fitted as a performance device. When compared with a downsized engine Volvo has stated that the M-KERS may achieve fuel savings of up to 25% whilst achieving similar performance. Discussions are on-going with a number of international Tier 1 partners as potential manufacturers and suppliers into vehicle manufacturers. These discussions are the first stages of potential licensing interest and have been prompted both by the Company and Flybrid's business development and also by direct interest from car manufacturers.

Stand-alone Flybrid M-KERS units connected to the rear wheels of a front wheel drive car (such as demonstrated by Volvo) or integrated with the rear differential (such as demonstrated by Jaguar) offer the opportunity to package the device without major modification of the existing vehicle platform. This is the most likely scenario for early adopters of the technology.

There is substantial opportunity for cost, weight and parts count reduction if the M-KERS unit is integrated with the vehicle main drive transmission, for example by using the existing gears in the vehicle final drive for connection of the M-KERS to the wheels and also the possibility to use the same hydraulic pump, filter and fluids as the main transmission. This is the more likely longer term scenario as sales volumes increase and the device becomes standard fitment across a wider range of vehicles.

V-Charge

Significant progress has been made by the Group in moving the V-Charge product towards a commercialisation programme. The Group is actively engaged with multiple Tier 1 and OEM prospective customers who are currently evaluating the V-Charge prototype hardware for incorporation in passenger car platforms. We are engaged with three different car applications from a single device that would combine with the new breed of downsized engines through to a low end, improved performance device as part of a multi-stage boost system for a premium car.

The Group has successfully installed the V2 next generation prototype in the Renault Clio demonstrator vehicle and is engaged in V2 testing with multiple customer applications, including a partner vehicle manufacturer for a special vehicle operation.

The Group is also collaborating with a commercial partner to explore the opportunity to use the V-Charge technology to improve fuel efficiency in on-highway commercial vehicles.

The Group has the opportunity to take V-Charge into production for specific vehicle applications in partnership with the government-funded 'The Proving Factory' initiative. This provides us with a reliable route to manufacture higher volumes of up to 20,000 units per annum, either to underpin a vehicle manufacturer or supplier programme, or to increase our own volumes to customers.

Main drive transmissions

The Group has allocated a significant amount of engineering resource to achieving the next key milestone on the Allison commercial vehicle programme. Allison is due to pay the Group £2.6 million by 31 March 2014 which is the final tranche of the £6.0 million licence fee announced in March 2013 for Allison to maintain exclusivity to manufacture and sell Torotrak main drive transmissions in commercial vehicle market segments. £2.0 million of the £2.6 million licence payment is contingent upon the Group successfully completing disc and roller durability testing using representative-sized components. The Group has been focused on achieving this milestone, including building six new component test rigs, conducting multiple tests of different components and working with Univance and other supply chain partners to develop new manufacturing processes for the supply of disc and roller components suitable for volume production. Based on the work to date, the Group has established a high level of understanding of the factors affecting lifetime and performance of the disc and roller components and the test programme is continuing.

Engineering services

The Group's focus in the first half of the current financial year has been on product and business development and the disc and roller support activities relating to its major licensee, Allison. The Group has built its engineering services capability and during the period, the staff and machinery of Motorsport Components Limited were successfully relocated to the Group's premises in Leyland with minimal disruption to customer programmes. The Group has seen the benefit of the new specialist precision machining and manufacturing capabilities arising from switching production of prototype components in-house. In addition, the Group has successfully designed and built six new durability test rigs to support the Allison commercial vehicle and other customer development programmes.

Financial review

The financial results of the Group for the six months ended 30 September 2013 show revenue of £1.7 million (2012: £4.7 million). As in previous years, the Group's revenue continues to be dominated by the timing and quantum of up-front licence payments from major customers. Following the decision by Allison earlier this year to exercise its rights to continue exclusivity in the commercial vehicle market, £1.4 million was received in July 2013 and the final licence payment of £2.6 million is due to be paid by March 2014, subject to a successful outcome of the component testing of discs and rollers. The operating loss for the period was £1.5 million, which compares to a profit in the six months ended 30 September 2012 of £1.4 million. The current period loss is driven by lower licensing revenues and a £0.4 million increase in development expenses, partly offset by a £0.3 million decrease in administrative expenses. Exceptional costs incurred in the period were £0.1 million (2012: £0.1 million). Loss for the period of £1.5 million (2012: £1.6 million, profit) includes a charge of £0.1 million, being the Group's proportionate share of the net loss of Flybrid for the six month period ending 30 September 2013.

Net operating cash outflow of £1.8 million (2012: £0.4 million inflow) arises from the operating loss for the period and a lower net working capital outflow of £0.9 million (2012: £1.4 million). The cash balance at 30 September 2013 was £6.7 million (March 2013: £8.9 million), the reduction reflects the on-going operating costs and capital expenditure of £0.5 million (2012: £0.3 million) during the period.

During the period, the Company received Court approval to cancel an amount of £53.7 million being held in the share premium account. Further details are set out in Note 17 to the half year financial information.

Board Changes

In June 2013, we strengthened the Board with the appointment of two new Directors. Rex Vevers joined as Finance Director and John McLaren joined as a Non-Executive Director and Chairman of the Audit Committee.

Rex was previously Group Finance Director of Ceres Power Holdings plc and he brings considerable depth of commercial and operational experience in the introduction of new technologies.

John has worked extensively in corporate finance and investment banking at Barings, Morgan Grenfell and Deutsche Bank. He brings a wide range of experience in Europe, Asia and the US across many areas of technology including automotive.

Outlook

The key focus of the Group over the next year is to:

· Complete the acquisition of Flybrid and integrate the two operations effectively;

· Focus business and technical development and support on car OEMs take up of Flybrid M-KERS and V-Charge for inclusion in new car platform releases in the period 2015 to 2020;

· Successfully complete the M-KERS bus trial on a public highway with Arriva, starting in Q2 2014,

· Secure an extended 25 unit M-KERS trial with multiple bus operators in the UK from Q4 onwards;

· Expand the flywheel manufacturing capability ahead of commercial launch in buses in 2015;

· Increased business development engagement in support of strategy;

· Secure licence arrangements with at least one Tier 1 manufacturer for M-KERS or V-Charge; and

· Successfully complete the component testing milestone on the Allison programme in order to secure £2 million of the final £2.6 million licence payment and move the programme onto the next stage of development.

The Group is well positioned to take advantage of the opportunity to offer Tier 1s and/or OEMs efficient, cost-effective hybrid products to meet their emissions reductions targets whilst maintaining performance and driveability.

Jeremy Deering

Chief Executive

Consolidated income statement

for the six months ended 30 September 2013

The Group recognised no other Comprehensive income in the period (2012: Nil).

The results above derive from continuing operations.

The notes below form an integral part of this condensed consolidated half-yearly financial information.

Consolidated balance sheet

The notes below form an integral part of this condensed consolidated half-yearly financial information.

Consolidated statement of changes in equity (unaudited)

The notes below form an integral part of this condensed consolidated half-yearly financial information.

Consolidated statement of cash flows

for the six months ended 30 September 2013

The notes below form an integral part of this condensed consolidated half-yearly financial information.

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 1 December 2013 and the information contained therein has not been reviewed or audited.

The interim financial statements for the period ended 30 September 2013 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 2013 does not constitute statutory accounts for that period. Full audited accounts of the Group in respect of that financial period were approved by the Board of Directors on 29 May 2013 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's Review. The financial position of the Group and liquidity position are also described within the Financial Position section of that 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 Financial Statements.

2. Basis of preparation

These condensed consolidated interim financial statements for the six months ended 30 September 2013 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 2013 which have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted for use in the EU, including International Accounting Standards (IAS) and interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC).

3. Accounting policies

The accounting policies are consistent with those of the annual financial statements for the year ended 31 March 2013, 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 2013:

IFRS 13, 'Fair value measurement' (effective 1 January 2013)

IAS 19 (revised 2011), 'Employee benefits' (effective 1 January 2013)

Amendment to IAS 1, 'Presentation of Financial Statements' on other comprehensive income (effective 1 July 2012)

Amendment to IFRS 7, 'Financial Instruments - Disclosures' on offsetting financial assets and liabilities (effective 1 January 2013)

The impact of the adoption of the above new standards has not had a material impact on the Consolidated interim financial statements.

(b) The following new standards, new interpretations and amendments to standards and interpretations have been issued but are not effective for the financial year beginning 1 April 2013 and have not been early adopted:

IFRS 9, 'Financial instruments' (effective 1 January 2015)*

IFRS 10, 'Consolidated Financial Statements' (effective 1 January 2013) (endorsed 1 January 2014)

IFRS 12, 'Disclosures of interests in other entities' (effective 1 January 2013) (endorsed 1 January 2014)

IAS 27 (revised 2011), 'Separate Financial Statements' (effective 1 January 2013) (endorsed 1 January 2014)

IAS 28 (revised 2011) 'Associates and joint ventures' (effective 1 January 2013) (endorsed 1 January 2014)

Amendments to IFRS 10, 12 and IAS 27 on consolidation for investment entities (effective 1 January 2014)

Amendment to IAS 32, 'Financial Instruments - Presentation' on offsetting financial assets and liabilities (effective 1 January 2014)

Amendment to IAS 36, 'Impairment of assets' on recoverable amount disclosures (effective 1 January 2014*

* Not EU endorsed

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 2013.

5. Analysis by operating segment

Segmental operating analysis for the six months ended 30 September 2013

Segmental operating analysis for the six months ended 30 September 2012

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

Significant customers

The following revenues are attributable to significant customers

Operating segment balance sheets

6. (Loss)/ Earnings per share

The basic and diluted (loss)/earnings per share are based on a loss after tax of £1,455,000 (2012: profit after tax of £1,586,000). The weighted average number of shares was 175.1 million shares (2012: 164.4 million) and the diluted weighted average number of shares was 182.1 million (2012: 174.8 million).

For the six months ended September 2013 potential share options are antidilutive, as their inclusion in the diluted (loss)/earnings per share calculation would reduce the loss after tax, 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 (formerly the Employee Share Trust) of 1,057,906 (2012: 931,774).

7. Fixed assets

8. Taxation

The credit for taxation is based on the estimated effective rate for the year of 24.75% as a whole, adjusted for taxation losses brought forward and reflects research and development tax credits. 

9. Investments

The group acquired a 20% holding in Flybrid Automotive Limited on 18 March 2013 for a cost of £3 million with an exclusive option to acquire the remaining 80% by 20 December 2013.

This investment value was reduced by a £69,000 loss, representing a 20% share of the loss for the 6 month to 30 September 2013 of Flybrid Automotive Limited.

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 2013 (2012: £26,000), 50% of which was eliminated on consolidation. There was a long term loan outstanding to Rotrex of £147,000 (2012: £147,000). 

In the 6 months to 30 September 2013 goods to the value of £6,000 where purchased from Flybrid Automotive Limited, there were no outstanding balances owed at 30 September 2013.

14. Exceptional items

The re-organisation costs relate to redundancy, severance and associated expenses in relation to a reduction in employees undertaken as part of a restructuring process in the prior period.

The legal costs relate to a 20% stake in Flybrid Automotive Ltd and the option to acquire the remaining 80%. For the period to 31 March 2013 the legal costs also reflected the costs incurred in relation to the 5% subscription taken by Allison Transmission Inc.

15. Commitments

Capital expenditure contracted for at the balance sheet date but not yet incurred was £27,000 (2012: nil).

16. Provisions

The amounts utilised represent the costs incurred in the 6 months to 30 September 2013 in relation to the testing of discs and rollers for Allison Transmission Inc. The additional charge represents an increase in the provision to cover the remaining costs expected to be incurred in relation to the testing and supply of fully conformed discs and rollers

17. Share Premium

On 9 July 2013 the Company received Court approval to cancel an amount of £53,725,966 being held in the share premium account. A special resolution had previously been passed at the Annual General Meeting held on 26 July 2012 to approve this cancellation, subject to Court approval.

This amount has now been transferred to the Company's accumulated loss within Capital and Reserves. 

18. 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 2013. There have been no changes in any risk management policies since the year end.

19. Seasonality

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

20. Contingent Liability

£2 million of the £8.5 million that was agreed with Allison as being the final licence payment is contingent upon a successful outcome from the testing of new sized discs and rollers.

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 2014 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 2013. Rex Vevers and John McLaren joined the Board on the 28th June 2013. A list of current Directors is maintained on the Torotrak plc website: www.torotrak.com.

By order of the Board

Rex Vevers - Company Secretary

-ends-