Transense Regulatory News (TRT)

20 October 2020

Transense Technologies plc

("Transense", or "the Company")

Final results for the year ended 30 June 2020

Transense Technologies plc (AIM: TRT), the provider of specialist sensor systems, reports final results for the year ended 30 June 2020 and sets out strategic plans for future growth:

Commercial Highlights

· Transense complete licence agreement with Bridgestone Corporation for iTrack IP

· iTrack operating business transferred to Bridgestone and royalty income to commence in July 2020

· Breakthrough deal - reduces risk profile by moving Transense towards financial self-sufficiency

· US Army & GE Aviation Improved Turbine Engine Program ("ITEP"); three critical design reviews completed on schedule, with first engine to test due in third quarter 2021

· New TLGX Series of tyre inspection tools launched

· New leadership and management focus in both SAW and Translogik

Financial Highlights

· Transfer of iTrack operating business and assets to Bridgestone realises net cash of £1.04m (after repayment of loans, but before costs). Transaction eliminates future net trading losses on discontinued activities, which amounted to £1.45m in year ended 30 June 2020

· Revenues from continuing operations in line with prior year at £0.60m (2019: £0.60m)

· EBITDA loss from continuing operations reduced to £0.68m (2019: £0.70m)

· Net loss after taxation from continuing operations of £1.09m (2019: £0.84m) 

· Net loss after taxation for the year of £2.54m (2019: £1.47m)

· Cash and cash equivalents at year end of £1.19m (2019: £2.65m)

Post period end highlights

· iTrack royalty, SAW and Translogik probe all showing signs of growth

· Breakeven in unaudited Q1 FY21 profit before tax v £0.60m loss in Q1 FY20, future profitability now visible

· Formed Commercial Advisory Panel for SAW to provide sector insights

· Proposals to change capital structure at AGM to facilitate future distributions

Executive Chairman of Transense, Nigel Rogers, said:

"It has been an exciting year for Transense. The licensing of existing and future iTrack technology to ATMS Technology Limited, a subsidiary of Bridgestone Corporation Japan, was completed towards the end of the year and will achieve a transformation of the Company's future prospects. This transaction should put Transense in the unprecedented position of being financially self-sufficient and in turn enable management to increase their focus on the commercialisation of our Surface Acoustic Wave technology, and development of our tyre probe business, Translogik. 

We believe that our technical leadership offers an exceptional approach to problem solving for customers seeking improved performance, efficiency and safety. Our challenge now is to generate additional enquiries in order to derive the full benefit of these core strengths.

Trading in the first quarter of the current financial year was in line with expectations and reflects the substantial reduction in overheads. The unaudited pre-tax result in Q1 FY 21 shows the business trading around break-even level compared to a loss of £0.6m incurred in Q1 FY 20.

Early indications are that royalty income on iTrack deployment during the current financial year has significant growth potential, although caution is clearly applicable in view of the global risks associated with the broader economic and practical effects of the Covid-19 pandemic.

Meanwhile, with a fresh management grip on the commercial development of SAW, and a range of new products for Translogik we look forward with enhanced confidence."

For further information please visit www.transense.com or contact:

About Transense

Based in Oxfordshire, UK, Transense has developed patent-protected sensor systems and supporting technology for use in a variety of diverse high growth markets. The directors believe that Transense's Surface Acoustic Wave (SAW), wireless, battery-less, sensor systems offer significant advantages over legacy wireless sensor systems. Transense is targeting the torque, temperature and pressure sensing markets with its SAW technology. Translogik offers a range of tyre testing equipment aimed at fleet managers and tyre service providers.

Transense's shares are admitted to trading on AIM, a market operated by the London Stock Exchange (AIM: "TRT").

www.transense.com

The information communicated in this announcement is inside information for the purposes of Article 7 of Regulation 596/2014.

Chairman's statement 

I am very pleased to report the final results of the Company for the year ended 30 June 2020, following my appointment as Chairman in February 2020, and subsequently as Executive Chairman in June 2020.

It has been an exciting year for Transense. The completion of the licensing of existing and future iTrack technology to ATMS Technology Limited ("ATMS"), a subsidiary of Bridgestone Corporation, Japan ("Bridgestone") towards the end of the year marked the delivery of a transformation in the Company's prospects. This will put Transense in the unprecedented position of being financially self-sufficient and will in turn facilitate increased management focus on the commercialisation of our Surface Acoustic Wave ("SAW") technology, and development of our tyre probe business, Translogik.

We are determined to take this opportunity to deliver further commercial success with SAW. We fully recognise the trend towards more highly automated machinery and robotics and the continuous need to improve the efficiency, diagnostics and control of equipment and vehicles and by doing so achieving global targets for emissions reduction.

We believe that our patented SAW sensor technology can help our customers to achieve these goals, through the accurate non-contact measurement of torque and other key parameters in their products and systems that has been rigorously tested in the most demanding of environments and applications.

Strategy

The business strategy of the Group continues to be the development of innovative sensing solutions across a range of applications, which are commercialised either through the launch of products and services to customers or by forming strategic alliances with partner organisations. Value is realised through a combination of commercial income, royalties, licensing income and capital gains on disposals.

In recent years, the Company has devoted significant time and financial resources into the development of the iTrack system, a comprehensive tyre monitoring system used by mine operators to help optimise operations for increased productivity and profitability. In August 2019, the Company entered into a Joint Collaboration Agreement with Bridgestone, to offer the iTrack system exclusively to its global customer base.

The success of this arrangement led in June 2020 to Transense granting a ten year worldwide exclusive licence over current and future iTrack technology to ATMS, a subsidiary of Bridgestone, in exchange for a royalty payment based on the number and classification of vehicles with iTrack fitted. At the end of the ten year period, ATMS will have an option to purchase the iTrack technology for a nominal sum. The operating business and net trading assets relating to iTrack were also transferred to ATMS for a gross consideration of US$3.26m facilitating the repayment of all Bridgestone's loans of $1.95m. At the year end outstanding consideration of $1.62m was due and loans of $1.2m were still outstanding. Both of these were settled in full by the end of September. The initial royalty receivable from ATMS in respect of vehicles using the iTrack system at completion was at a run rate of approximately £0.60m per annum.

Under these arrangements, the Company will continue to derive a significant and growing royalty income stream from the vastly enhanced commercial opportunities and resources contributed by Bridgestone/ATMS. Furthermore, our partnership eliminates the investment risk that would have been associated with continuing to build the sales & marketing, customer service and product development infrastructure that would have been required as an independent participant in a large and geographically diverse global market.

Consequently, we go forward with a significantly lower strategic risk profile from which to explore opportunities for our continuing technology interests, both in SAW and in Translogik tyre monitoring equipment.

SAW technology

Revenues from SAW technology (including grant income) were steady at £0.21m (2019: £0.21m), and this segment generated a trading loss of £0.58m (2019: £0.28m), which included increased amortisation and one-off impairment charges relating to intangible patent assets.

Transense aims to be the world's first choice provider of SAW sensor solutions. We will achieve this by continuing to identify innovative methods to apply our patented technology, and by the subsequent transfer of know-how to major corporate partners in carefully selected target industry sectors. We seek to strengthen the presence of our technology in a broader range of applications by actively marketing the provision of technical, engineering consultancy and proto-typing services. Our goal is to commercialise at scale by establishing licensees, joint ventures or other strategic alliances with the support of a secure supply chain.

The credentials of our SAW technology have been validated by its selection after rigorous testing by GE Aviation for use in the GE T901 Improved Turbine Engine Program ("ITEP"), under which the US Army will re-engine its Boeing AH-64 Apaches and Sikorsky UH-60 Black Hawk helicopters. Over a period of years, the US Army intends to replace more than 6,000 engines installed in their current fleet of these two aircraft. The wider market for the T901 engine includes replacement engines for these aircraft in military forces outside of the US, as well as other military and commercial medium sized vertical take-off aircraft globally. During 2020, the ITEP successfully completed each of three Critical Design Review events and is on schedule to execute the First Engine To Test assembly of all subcomponents in the second half of calendar year 2021. We have continued to work in close co-operation with GE's specified first tier system supply partners to support these activities.

Our sensors are also installed on drive input shafts supplied to the NTT IndyCar series by McLaren, to provide encrypted torque data used to regulate the power rating permitted to individual race teams. There are further opportunities to expand the use of this technique into alternative race formats.

There is now a clear focus on the need to expand the commercial reach of this technology. Towards the end of the financial year Nick Hopkins was appointed to lead our SAW team as Managing Director, reporting to the Board. Nick has previously worked with Anthony and Bryan Lonsdale who were instrumental in developing the SAW applications used by Transense and will be supported by Chief Technology Officer, Victor Kalinin. Since his appointment, the Board has approved plans to further develop the business. Our short term aim is to generate additional commercial and grant support income to ensure that SAW makes a positive contribution to the Company's financial results.

Beyond this relatively modest ambition, we have formulated plans to develop our network in carefully selected market sectors in which we anticipate growth opportunities, including all forms of transport, both on- and off-road, to include the leisure, commercial and domestic markets, avionics, industrial turbines and green energy. We have made significant progress in forming a Commercial Advisory Panel (CAP); a group of senior industrialists with knowledge, experience and insight into these key sectors. It is now our intention to implement plans to increase our market engagement, including direct referrals, as well as enhanced website(s), social media presence and participation in technical webinars and symposiums.

We believe that our technical leadership offers an exceptional approach to problem solving for customers seeking improved performance, efficiency and safety. Our challenge now is to generate additional commercial opportunities in order to derive the full benefit of these core strengths.

Translogik tyre inspection probes

Revenues from Translogik probes increased by 7% to £0.51m (2019: £0.48m), and this segment generated a trading profit of £0.12m (2019: £0.19m), primarily as a consequence of increased marketing and product development expenditure.

Our product range comprises accurate and reliable inspection gauges for car and commercial truck and bus tyres, allowing effortless and rapid reading of tread depth, tyre pressure, radio frequency identification ("RFID") and tyre pressure monitoring system ("TPMS") data. This data can be transferred via Bluetooth to a smart device and stored and displayed on the customers' tyre management software system. Translogik probes are specified for use in the Goodyear Tire Optix system, the Bridgestone 'Toolbox' and 'Total Tyre Care' systems, and the Continental 'Fleetfox' system, underpinning our belief that they represent an industry standard.

During the year, product development was underway to support the recent market launch of the new TLGX Series, a modular range of four new gauges offering a broad variety of features at competitive prices. These have been developed primarily for system integrators and fleet management software providers, and early indications of interest are encouraging.

Capital Structure

The Board considers it important that the Company has the flexibility to pay dividends and make other returns of capital to shareholders when appropriate and desirable to do so. This will, however, require certain actions relating to the current capital structure of the Company. Accordingly, the Board will bring forward proposals at the forthcoming Annual General Meeting to cancel all outstanding deferred shares, and the amount standing to the credit of the share premium account.

Financial results and condition

Revenues for the year from continuing operations were steady at £0.60m (2019: £0.60m). Subscription revenues generated from users of the iTrack system were accounted for as part of discontinued activities and increased by 50% to £1.47m (2019: £0.98m). In the current and subsequent financial years, royalty income from iTrack will be accounted for as part of continuing operations and will commence at the rate of £0.60m per annum, increasing in line with the growth in the installed base.

Gross margin was 55.1% of revenues from continuing operations (2019: 63.1%).

Administrative expenses were slightly increased at £1.70m (2019: £1.58m), mainly as a result of increased amortisation and one-off impairment charges relating to intangible SAW patent assets. The net loss before taxation from continuing operations was £1.27m (2019: £1.12m).

The total comprehensive loss for the year was £2.54m (2019: £1.47m), reflecting the loss on discontinued activities of £1.45m (2019: £0.62m) and an R&D tax credit of £0.18m (2019: £0.28m).

Net cash used in operations increased to £1.86m (2019: £0.43m), which includes the cash resources absorbed by iTrack operating activities during the year of £1.33m up to the date of the transfer of the business to ATMS on 24 June 2020 (2019: £0.33m). The Company closed the year with net cash and cash equivalents of £1.19m (2019: £2.65m). The completion balance sheet relating to the iTrack business was agreed between the Company and ATMS after the end of the financial year on 10 September 2020, at which time the balance of the consideration monies was settled. Including the Bridgestone loan repayment and payment of related fees, there was no significant net effect on post year end cash.

Board and advisor changes

It is clear that the business has changed over the course of the year under review, and particularly as a consequence of the transactions with ATMS/Bridgestone. As a key part of these arrangements, David Ford and Graham Storey-Macintosh (formerly Chairman and Chief Executive respectively) left the Transense board and transferred to lead ATMS as Chief Executive and Director of Global Sales respectively. On behalf of the board and shareholders, I would like to take this opportunity to express our gratitude for their major contribution to the development of the Group's businesses over several years. I also wish them a bright future, not least because of our continuing financial interest in the success of their new venture.

It has been a very enjoyable challenge to Chair the Board since February and lead the negotiations with Bridgestone. On completion, I was also happy to commit additional time capacity to the Company by accepting the role as Executive Chairman. I have been very ably supported throughout by Melvyn Segal as Chief Financial Officer and Rodney Westhead, our Senior Independent Non-Executive Director. We are mindful that it may be beneficial to add to the board in due course, however we are currently satisfied that we have the requisite knowledge and experience to fully discharge the responsibilities of the Board.

We have also taken the opportunity afforded by this major change in the structure of the Company's business to review our advisory and compliance support arrangements. Accordingly, we have appointed Cooper Parry as Auditors, and Allenby Capital as Nominated Advisor and Broker. We consider that these new arrangements provide the correct blend of scale and skills to meet the needs of the Company and its shareholders at the current time, and for the foreseeable future.

Current trading and prospects

Trading in the first quarter of the current financial year is in line with expectations and reflects the substantial reduction in overhead. Revenues from SAW and Probes have increased compared to the same period last year and early indications are that royalty income on iTrack deployment during the year has significant growth potential, although caution is clearly applicable in view of the global risks associated with the broader economic and practical effects of the Covid-19 pandemic. The unaudited pre-tax result in Q1 FY 21 shows the business trading around break-even level compared to the loss of £0.6m incurred in Q1 FY 20.

The iTrack licence deal has both simplified and de-risked the business going forward, and moves Transense closer to the original model of developing and licensing technology. We now have a reasonable expectation that the Company will be financially self-sufficient for the foreseeable future.

Meanwhile, we have a fresh management grip on the commercial development of SAW, and a range of new products for Translogik. Accordingly, we look forward with renewed confidence.

Nigel Rogers

Executive Chairman

20 October 2020

Strategic Report

Financial Review

Results for the year

Revenues for the year from continuing operations were steady at £0.60m (2019: £0.60m).Subscription revenues generated from users of the iTracksystem were accounted for as part of discontinued activities and increased by 50% to £1.47m (2019: £0.98m). In the current and subsequent financial years, royalty income from iTrack will be accounted for as part of continuing operations and will commence at the rate of £0.60m per annum, increasing in line with the growth in the installed base.

Gross margin was 55.1% of revenues from continuing operations (2019: 63.1%).

Administrative expenses were slightly increased at £1.70m (2019: £1.58m), mainly as a result of increased amortisation and one-off impairment charges relating to intangible SAW patent assets. The net loss before taxation from continuing operations was £1.27m (2019: £1.12m).

The total comprehensive loss for the year was £2.54m (2019: £1.47m), reflecting the loss on discontinued activities of £1.45m (2019: £0.62m) and an R&D tax credit of £0.18m (2019: £0.28m).

The Earnings per share (EPS) are set out below (in Pence):

Taxation

The Company has UK tax losses available to carry forward at 30 June 2020 of approximately £23m, subject to HMRC agreement.

Certain elements of development expenditure undertaken by the Company are eligible for enhanced research and development tax relief which generally relates to salary costs of technical staff. The accounting treatment adopted is to recognise the R&D tax credits on a cash basis due to the uncertain nature of the claim. Following the year end, the Company received R&D tax credits amounting to £0.18m in respect of the year ended 30 June 2019.

Cash flow and financial position

Net cash used in operations increased to £1.86m (2019: £0.43m), which includes the cash resources absorbed by iTrack operating activities during the year of £1.33m up to the date of the transfer of the business to ATMS on 24 June 2020 (2019: £0.33m). During the year, the Company received the benefit of interest-free working capital loans from Bridgestone of £1.59m, £0.61m of which was repaid in June on completion of the transfer, and the remaining balance was settled after the year end out of the consideration monies.

The Company closed the year with net cash and cash equivalents of £1.19m (2019: £2.65m). The completion balance sheet relating to the iTrack business was agreed between the Company and ATMS after the end of the financial year on 10 September 2020, at which time the balance of the consideration monies was settled. Including the Bridgestone loan repayment and payment of related fees, there was no significant net effect on post year end cash.

The forward looking cash flow forecasts based on the anticipated level of activity indicates that the Group should have sufficient funds available for the foreseeable future.

Going Concern

The financial statements have been prepared on the going concern basis.

The Group meets its day to day working capital requirements through existing cash reserves and does not currently have an overdraft facility. The Directors have prepared cash flow forecasts for the period to 30 June 2023. These forecasts indicate that the Group should continue to be able to operate within its current cash resources for this period.

Melvyn Segal

Finance Director

20 October 2020

Consolidated Statement of Comprehensive Income

For the year ended 30 June 2020

The comparative Statement of Comprehensive Income has been restated in order to present the results of continuing operations and discontinued operations separately with no change in the overall loss for the year.

Consolidated Balance Sheet

at 30 June 2020

Consolidated Statement of Changes in Equity

Consolidated Cash Flow Statement

For the year ended 30 June 2020

NOTES RELATING TO THE GROUP FINANCIAL STATEMENTS

BASIS OF PREPARATION

The group financial statements have been prepared and approved by the Directors in accordance with the International Financial Reporting Standards (IFRS) as adopted by the EU and with those parts of the Companies Act 2006 applicable to companies reporting under adopted IFRS.

IFRS and IFRIC are issued by the International Accounting Standards Board (the IASB) and must be adopted into European Union law, referred to as endorsement, before they become mandatory under the IAS Regulation.

1 SEGMENT INFORMATION

The Group had two reportable segments being the unique trading divisions, SAWSense and Translogik, which make use of technology developed by the Group to measure and record temperature, pressure and torque. In prior year financial statement disclosures, the Translogik segment included the material iTrack results. A decision was made to sell the iTrack trade to Bridgestone and enter into a licence agreement to receive future royalties. As a consequence of the focus on the impact of this, Translogik now includes only continuing activity and the discontinued iTrack activity has been shown as a separate segment.

The revenues include royalties, engineering support and sale of product in relation to this technology.

Information regarding the Group's segments is included in the notes to the financial statements. Revenue and EBITDA are the Group's key focus and in turn is the main performance measure adopted by management.

The tables below set out the Group's revenue split and operating segments. These disclose information for continuing operations and in view of their relative size, information for discontinued operations. The disposal of iTrack operations will result in future royalty income replacing direct sales income and costs.

Revenue

Segments

During the year ended 30 June 2020 there were 2 (2019: 1) customers whose turnover accounted for more than 10% of the Group's total continuing revenue as follows:

Discontinued revenue includes Bridgestone as a customer, who have now acquired the iTrack business and which is expected through royalties to contribute in excess of 10% of future revenues.

2 FINANCIAL INCOME AND EXPENSE

Recognised in the statement of comprehensive income

3 TAXATION

Recognised in the statement of comprehensive income in respect of continuing operations

Reconciliation of effective tax rate

The applicable UK corporation tax rate is 19% throughout the reporting period.

The Group has tax losses, subject to agreement by HM Revenue and Customs, in the sum of £23.2m (2019: £20.7m), which are available for offset against future profits of the same trade. There is no expiry date for tax losses. An appropriate asset will be recognised when the Group can demonstrate a reasonable expectation of sufficient taxable profits to utilise the temporary differences.

The Finance Act 2020 maintained the rate of UK Corporation Tax at 19%.

The effective tax rate used to calculate the current tax for the year ended 30 June 2020 was 19.00% (2019: 19.00%). Unrecognised deferred tax balances at 30 June 2020 have been calculated using a rate of 19% (2019: 17%) as this is now the enacted rate for future periods.

4 EARNINGS PER SHARE

Basic loss per share is calculated by dividing the loss by the weighted average number of ordinary shares in issue during the year of 16,307,282 (2019: 13,184,581). Unexercised options over the ordinary shares are not included in the calculation of diluted loss per share as they are anti-dilutive.

There are 1,544,085 share options and 226,850 warrants in place at 30 June 2020 (2019: 804,085) that are not included within diluted earnings per share because they are anti-dilutive.

5 CASH AND CASH EQUIVALENTS

6 DISPOSAL OF SUBSIDIARIES, TRADE AND ASSETS OF ITRACK BUSINESS

On 24 June 2020, the Company granted an exclusive worldwide licence (the "Licence") to ATMS Technology Limited ("ATMS"), a newly-formed wholly owned subsidiary of Bridgestone, covering all current and future iTrack technology for a period of ten years. In order to capitalise fully on the market potential of the use of the technology, the operational business and trading assetsrelating to the iTrack system, including the shareholdings in the Company's subsidiaries in Chile and South Africa, have been transferred to ATMS at a fair value which largely equated to the net asset value. Approximately 50 % of the consideration was received at completion by the Company with the remaining £1.24m included in other receivables and all received in August and September 2020. The Company also repaid $0.75m of the loan previously advanced by Bridgestone in June 2020 with the remaining $1.2m repaid post year end in August 2020.

The assets and liabilities disposed of were as follows:

The cash flows from the discontinued operations were:

7 OPERATING LEASES AND TRANSITION TO IFRS 16

The operating lease relates to the lease of premises which is used by the Group and Company. Following the adoption of IFRS16 these commitments are now included in lease liabilities at 30 June 2020.

On transition to IFRS 16 at 1 July 2019, the Group has adopted the modified approach whereby the net present value of the remaining property lease payments at this date of £287,000 are recognised as the opening liability with an equal right-of-use-asset of £272,000 as adjusted for prepaid rent and unamortised lease incentives depreciated over the remaining lease period. This represents the remaining 54 months of the lease amounting to £329,000 discounted by £42,000 at the assessed incremental borrowing rate of 6% (compared to the minimum contractual commitment at 30 June 2019 of £73,000 with the benefit of a potential break option which was not exercised). Depreciation of £57,000 has been charged in respect of the asset for the year and finance charges of £16,000 compared with £67,000 of rent that would have been charged under the previous basis, an increase of £6,000 in the total charges included in the Statement of Comprehensive Income. The comparatives for the year ended 30 June 2019 have not been adjusted and are prepared in accordance with IAS17.

8 STATUTORY ACCOUNTS

The Financial information set out in this preliminary announcement does not constitute the Company's Consolidated Financial Statements for the financial years ended 30 June 2020 or 30 June 2019 but are derived from those Financial Statements. Statutory Financial Statements for 2019 have been delivered to the Registrar of Companies and those for 2020 will be delivered following the Company's AGM. The auditors Cooper Parry Group Limited have reported on the 2020 financial statements and Grant Thornton LLP on the 2019 financial statements. Their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under Section 498(2) or (3) of the Companies Act 2006 in respect of the Financial Statements for 2020 or 2019.

The Statutory accounts are available on the Company's website and will be posted to shareholders who have requested a copy and thereafter by request to the Company's registered office.