Last checked at 7 Apr 2009 07:00
Transense Technologies PLC
7 April 2009
Preliminary Results - Transense making positive progress
Management Review
Chairman's Statement
The process of transforming Transense into a sustainable, cash generative business, which the new management team began in late 2007, has continued throughout 2008. The turnover reported amounted to £204,000 (2007: £145,000), and the pre-tax loss for the year amounted to £1,085,000 (2007: £2,570,000 loss). However, these numbers disguise the true level of commercial progress achieved during 2008, the benefit of which should become more apparent during 2009.
We started 2008 with a largely new team, and were delighted to welcome Norman Smith onto the Board as Chief Executive in June. Norman's wealth of commercial experience allowed us to finalise our strategic review process and set us on our way with a new sense of purpose. Key to our new strategy was identifying opportunities for generating revenues in the short to medium term, until such time as royalty income from our major licensees began to flow. It was clear a year ago that there was little likelihood of Transense receiving a meaningful stream of royalties from existing licensees within three years, and this was borne out as the year progressed. It was therefore essential for Transense to develop its technology and expertise into a broader range of products for differing applications and markets, and to secure recurring revenues at the earliest opportunity.
We have already had some successes with this new strategy. Income from motor racing interests in the first quarter of 2009 exceeded the total turnover of Transense for 2008. We signed an extended license with Stack that provides the Company with a minimum level of annual royalties, a first for Transense. Additionally, we entered into a licence agreement with SenGenuity, an industry leader in the manufacture and marketing of sensor product solutions with wide ranging applications. Together with our licensees we are currently in ongoing discussions with several major international companies, a successful conclusion to any of which could result in a meaningful increase in revenue.
Overall, we believe this new chapter for Transense that began some eighteen months ago has set the Company on the right track. We now have an environment that allows us to continue working closely with our major licensees on the longer term development projects, whilst developing new projects that offer opportunities in the medium term. With robust finances, a keen eye on overheads and cash outflows, a highly skilled and motivated staff, and gathering commercial momentum, we look forward to the future with a cautious but growing optimism.
David Kleeman
Chief Executive's Report
2008 has seen the implementation of the new business strategy for Transense. As we indicated in our Interim Results in September 2008, we have implemented the following measures:
Strengthened our technical team through additional resource
Begun to work much more closely with our licensees to market our technology
Aggressively targeted high margin market segments
Extracted additional income by supplying product rather than just Intellectual Property (IP)
Entered the non-automotive market
The Company is focusing on supplying product as well as intellectual property. Both the Torque and T&P (Temperature and Pressure) products have been commercialised and, in some cases, are being supplied directly by Transense to its end users.
The management team is now working very closely with its licensees and this has resulted in a significant increase in the total number of active projects, now exceeding twenty. Of these, Transense has identified six key projects to produce revenues for 2009 and 2010. Two of these projects, in the area of professional motorsport, have already started to produce revenues for the Company in 2009. Transense, through its increased level of direct involvement is now starting to have greater influence and control over the timings of these revenues. The sensitive commercial nature of these supply agreements prevents us from giving any further detail at this stage, however when we receive authority from our customers, we will update our shareholders with further information on the nature of these projects.
The other four key projects are providing solutions for EPAS (Electric Power Assisted Steering) and T&P applications. Revenue from these projects is unlikely to occur prior to 2010.
An example of our transition to being a supplier of products is our collaborative development of a TPMS (Tyre Pressure Monitoring System) product, targeted at the OTR (Off the Road) market. This is a significant departure from the traditional licensing model in a market where our hermetically sealed sensor gives us a unique advantage over competing systems, due to our sensor package being able to survive within the tyre, as many OTR tyres have fluids within the carcass simply to provide ballast and lower the centre of gravity or as an anti corrosive agent or sealant in the event of punctures. We are hopeful this product will launch in the first quarter of 2010.
Transense has in the past been focused almost entirely on the automotive industry, in fact until last year the company had never seen a non-automotive opportunity develop much further than the initial enquiry stage. In addition to expanding our markets in the automotive industry and in line with our search for opportunities in markets where development times are shorter and less cost sensitive, Transense in conjunction with our licensees, is now actively pursuing several industrial projects as diverse as power generation, oil and gas drilling rigs, wind turbines and marine powertrain.
Finally, our granting of a license to Vectron, whereby they can use our patented electronics to read their own SAW sensors is hugely significant as it considerably widens the net in terms of potential revenue generating opportunities where our technology is applicable, in that we are no longer limited to applications suited to our own sensors.
We have therefore established a much broader base to our business by supplementing our existing projects with a range of new ones that fulfil the criteria of being both quicker to market and in markets which are less price sensitive and hence offer greater margins . Efficient use of development resources and complimentary development programmes has allowed us to develop these new projects in parallel with our existing longer term projects.
Engineering activities and their associated marketing programmes have been modified to support both short and medium term revenue generation. The engineering team has been strengthened by the recruitment of an additional Electro-Mechanical Technician and will shortly be strengthened further by the addition of an Electronics Engineer.
Ray Lohr, Technical Director, recently decided to retire from the board, and I would like to take this opportunity on behalf of Transense to thank him for his important contribution in both developing our technology, and assisting the new members of the board during the transitional period early last year. Ray will continue to support the motorsport development programme in his new role as a Technical Consultant.
The management team has been encouraged by the progress made to date and by the confidence that our customers have demonstrated in the commercialisation of Transense technology. We are increasingly confident about the future and appreciate the support of all the staff at Transense in implementing the new business strategy.
Financial Directors Report
Balance Sheet
Intangibles
We have carried out a review of both Development and Patent costs which have been capitalised in the past. Development costs are separated into two categories - Torque and Pressure. It is the Company's belief that an income flow will be derived from each of these technologies and they are being amortised accordingly.
A more detailed review of Patent costs is currently ongoing, having reviewed nineteen of the eighty plus patents filed by Transense. Of the patents reviewed, we have identified annual savings of over £20K by removing certain unnecessary territories which in turn required us to write off the costs relating to those patents. The estimated total write off based on the review is £105K and this has been provided for in these accounts.
Whilst the Company does encourage new ideas to be patented the Board have put in place a more stringent regime to ensure that only patents that have real value to Transense are filed in future.
Inventory
Following the change in strategy, the accounts include the acquisition of inventory for resale and materials for manufacture.
Income Statement
Turnover
Invoiced Income for 2008 was only marginally higher than in 2007. It was boosted by the inclusion of a non returnable advance from Michelin following the latter's effective cancellation of the "Etire 2" project in September 2007.
Costs
Staff costs have risen in comparative terms following the appointment of the new Board. Last year's figures were inflated by the compensation paid to Jim Perry, Howard Pearl & Graham Eves. Staffing levels remained constant throughout 2008, and in 2009 a new member of staff joined the engineering department.
Overhead costs have been reviewed thoroughly and some good savings have been achieved in Travel & Entertainment with costs dropping to £31K from £93K in 2007. Additionally we have reduced costs relating to Printing & Stationery, Insurance and general administrative expenses.
During the year new EMI share options were issued to the staff and their existing options were cancelled. The effect of this was to accelerate the annual charge re staff share options on the old scheme and to include a further charge for the new options.
In addition to the above, three Directors resigned who were previously members of the Company's share option schemes and as a consequence the previous year's charges were reversed out of the income statement.
The summarised charges are as below:
| Employee new scheme charge | £5,000 |
| Employee old scheme charge | £246,000 |
| Directors Charge | £ 11,000 |
| Total Charge | £262,000 |
| Credit regarding retired board members | £453,000 |
| Total IFRS 2 Credit | £191,000 |
Cash flow and the future
Whilst the aborted deal costs and board compensation payments were accounted for in the 2007 figures the actual cash outflow of £850,000 was incurred in 2008 .The funds resulting from the share placing were also received in 2008 and these totalled £3,951,000 net of costs.
We had £2,300,000 cash on deposit as at the end of March 2009 and constantly monitor the business cash flow. Based on our cash flows projections current cash resources should take us through into 2011.
| For the year ended 31 December, 2008 | ||||||
| INCOME STATEMENT | ||||||
| Note | 2008 | 2007 | ||||
| £000's | £000's | |||||
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| Continuing Operations |
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| Revenue | 204 | 145 | ||||
| Cost of sales | (38) | (45) | ||||
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| Gross Profit | 166 | 100 | ||||
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| Administrative expenses | (2,086) | (2,854) | ||||
| Share based payments cancellation adjustment | 453 | 0 | ||||
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| Operating Loss | (1,467) | (2,754) | ||||
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| Financial Income | 178 | 71 | ||||
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| Loss before taxation | (1,289) | (2,683) | ||||
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| Taxation | 204 | 113 | ||||
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| Loss from continuing operations | (1,085) | (2,570) | ||||
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| Basic loss per share (pence) | (1.4) | (4.5) | ||||
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| Fully diluted loss per share (pence) | (1.4) | (4.5) | ||||
| As at 31 December 2008 | ||||||
| BALANCE SHEET | ||||||
| Note | 2008 | 2007 | ||||
| £000's | £000's | |||||
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| Non Current Assets |
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| Property ,Plant & Equipment | 24 | 14 | ||||
| Intangible Assets | 1,446 | 1,519 | ||||
| Available for sale assets | 65 | 65 | ||||
| Loans receivable | 25 | 25 | ||||
| 1,560 | 1,623 | |||||
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| Current Assets |
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| Stock | 18 | 0 | ||||
| Corporation Tax | 99 | 0 | ||||
| Trade and other receivables | 75 | 235 | ||||
| Cash and cash equivalents | 2,695 | 901 | ||||
| 2,887 | 1,136 | |||||
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| Total Assets | 4,447 | 2,759 | ||||
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| Current Liabilities |
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| Trade and other payables | (204) | (1,199) | ||||
| Current tax liabilities | (30) | (22) | ||||
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| Total Liabilities | (234) | (1,221) | ||||
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| Net Assets | 4,213 | 1,538 | ||||
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| Equity |
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| Called-up equity share capital | 7,580 | 5,791 | ||||
| Share premium account | 7,830 | 5,668 | ||||
| Accumulated loss | (11,197) | (9,921) | ||||
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| Total Equity | 4,213 | 1,538 | ||||
| For the year ended 31 December, 2008 | ||||||
| CASH FLOW STATEMENT | ||||||
| Note | 2008 | 2007 | ||||
| £000's | £000's | |||||
| Loss before taxation | (1,289) | (2,683) | ||||
| Adjustments for : | ||||||
| Financial Income | (178) | (71) | ||||
| Depreciation | 11 | 12 | ||||
| Loss on disposal of intangible assets | 54 | 0 | ||||
| Amortisation of intangible assets | 159 | 0 | ||||
| Impairment of intangible assets | 50 | 186 | ||||
| Share based payment | (191) | 250 | ||||
| Operating cash flows before movements | ||||||
| in working capital | (1,384) | (2,306) | ||||
| Decrease in receivables | 160 | 404 | ||||
| (Decrease)/increase in payables | (987) | 933 | ||||
| (Increase) in stock | (18) | 0 | ||||
| Cash used in operations | (2,229) | (969) | ||||
| Taxation recovered | 105 | 113 | ||||
| Net cash used in operations | (2,124) | (856) | ||||
| Investing activities | ||||||
| Interest received | 178 | 71 | ||||
| Acquisitions of property, plant and equipment | (21) | (3) | ||||
| Acquisitions of intangible assets | (190) | (138) | ||||
| Net cash used in investing activities | (33) | (70) | ||||
| Financing activities | ||||||
| Proceeds from issue of equity share capital | 1,789 | 145 | ||||
| Share premium on issue of equity share capital | 2,162 | 292 | ||||
| Net cash from financing activities | 3,951 | 437 | ||||
| Net increase/(decrease) in cash and cash equivalents | 1,794 | (489) | ||||
| Cash and equivalents at the beginning of year | 901 | 1,390 | ||||
| Cash and equivalents at end of year | 2,695 | 901 | ||||
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Notes to the Preliminary results for the year 2008
1. The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2008 or 2007. Statutory accounts for 2007, which were prepared in accordance with Adopted IFRS as adopted by the EU, have been delivered to the Registrar of Companies. The auditors have reported on the 2007 accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 237(2) or (3) of the Companies Act 1985.
The statutory accounts for 2008, which are being prepared under the same standards as above will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies in due course.
2. Administrative expenses in 2007 included a charge of £836,000 for costs incurred in an aborted acquisition. There was also in 2007 a £150,000 provision to cover termination benefits for directors resigning during 2008. No charges arose in this respect during 2008.
3. Basic loss per share is calculated by dividing the loss after taxation of £1,085,000 (2007: £2,570,000) by the weighted average number of ordinary shares in issue during the year of 75,408,000 (2007: 56,835,624). Options over 2,650,000 ordinary shares (2007: 2,828,850) are not included in the calculation of diluted loss per share as their effect is anti-dilutive.
4. The amortization charge of £185,000 (2007 £186,000) includes £26,000 being first time amortisation of torque development costs recognizing that this technology has been commercialised during the year.
5. On 4 January 2008 the Company raised £3.9 million cash, net of expenses, under a Subscription Agreement approved by shareholders.
6. No deferred tax asset is recognised in these financial statements in respect of trading losses to date.
7. The Annual Report and Accounts will be posted to shareholders on the 13 April and the Annual General Meeting will be held on 7 May 2009. A copy of the Company's results is available on the Company website www.transense.co.uk .
Contacts:
Transense Technologies plc
Melvyn Segal 01869 238380
Norman Smith
Brewin Dolphin Investment Banking
Neil Baldwin 0113 241 0126
ENDS