Annual report 2007 - Torotrak

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Chief Executive’s Review - continuedIn the sphere of new transmission technologies we areaware of other traction drive technologies from ourinvolvement in the automotive industry conferencecircuit. Whilst some of this is competitive to Torotrak,such as half-toroidal technology, all of thesedevelopments are adding to the overall credibility andacceptance of traction drive within the industry.Finally in the truck and bus market we have worked inmore detail through the year to understand thetransmission needs of this sector. It is becomingincreasingly clear that there are currently no knownalternative variable drive systems that can be configuredto handle the high powers and heavy duty performancelevels needed. In trucks we have begun to see evidenceof a highly compelling business case for IVT, which isbeing confirmed through the work we are carrying out tovalidate transmission costs in conjunction with ourEuropean truck customer. We already know from thisstudy that a full size truck IVT can be produced for lesscost than the currently available automatic transmissionswhich serve the market.The continued growth in our engineering services, ourstrong order book for the year ahead including theopportunity to secure licence down payments, the start ofproduction at Infinitrak and our reduced operating costbase, all underpin our expectation for continuedimprovement in operating performance and furtherprogress towards our goal that operating cash flow willturn positive during the financial year ending 31 March2009.OutlookIn the past 12 months, our provision of engineeringservices has contributed strongly to our full year revenuesand this is expected to be maintained in the short tomedium timescale. The recent addition of a fork lift truckprogramme, together with continuing projects inautomotive, agricultural vehicle and trucks provide astrong forward order book for this important revenuegenerating activity.We also have a number of customers with whom we arein various stages of negotiation regarding long-termaccess to our intellectual property. These negotiations areexpected, in turn, to lead to additional income streamsarising from lump-sum licence payments and, in thelonger-term, royalties as customers secure access to, andthen exploit, Torotrak’s toroidal drive know-how andpatent portfolio.10Annual Report and Financial Statement 2007
Financial ReviewOverviewTorotrak has made substantial progress during the year inincreasing both current year revenues and the strength ofour revenue base for the future as well as improvingefficiency within the business. As a result, operating cashconsumption continued to reduce during the year ended31 March 2007 (2007).Torotrak has moved closer to its goal of transitioning frombeing a research and development based organization,building valuable intellectual property (IP), to a cashgenerative enterprise exploiting that IP. A reducedoperating cost base is driving increasing revenues and ourexpectation is that the Group will achieve the point atwhich operating cash flows turn positive during the next24 months.The key performance indicators of the Group for 2007support this assessment of progress as follows:should reverse in the 2008 financial year, asexplained further below.Overall, loss after tax improved by £2,863k from £5,762kto £2,899k. However, the comparative year on yearperformance is complicated by the number of nonrecurringitems of income and expenditure, such as theloss on sale of our Leyland property last year and theincome received in both years in relation to a longstandingclaim dating back to de-merger. In addition,administrative expenses have included some nonrecurringitems which are explained further below and innote 5 to the Financial Information. Excluding theseitems, underlying operating performance improved by£1,696k and underlying improvement in loss after tax was£1,567k as shown below.Year ended31.03.07change overprior year£000• Revenues continue to build, from £2,054k in theyear ended 31 March 2006 (2006) to £2,691k in2007. Equally as important is the increased varietyof sources from which the revenues were earnedand the positive implications for future earningsgrowth. This is discussed further below• Operating costs reduced by £1,392k on a Groupbasis and by £1,137k excluding Infinitrak and nonrecurringcostsIncreased revenuesReduced development and recurringadministrative costsImprovement in year on yearunderlying operating performanceDecrease in tax credits and financeincomeImprovement in year on yearunderlying loss after taxReduction in non-recurring costs net ofnon-recurring incomeReduction in loss after tax after2,863• Engineering resources have been usednon-recurring itemseffectively; 55% of engineers’ and technicians’available time was spent on revenue generating Joint Venture Accountingprojects, with the balance focused on business andtechnical development. This higher application of We have adopted this year the proportionateour engineering time on customer projects isleading to more focused product developmentconsolidation basis of accounting for our joint venturewith MTD, Infinitrak. This method includes 50% of theactivity and greater success in securing Joint Venture’s results, assets and liabilities into each lineopportunities for commercialisation of our IPof the Consolidated Income Statement, Balance Sheetand Cash Flow statements. Proportionate consolidation• Operating cash consumption continues to has been introduced as a result of the start of pilotmaterially reduce by £754k to £3,515k in 2007,despite funding £895k of working capital thatproduction build in Infinitrak and the full commitment offunding to the Joint Venture. We believe that this formmmAnnual Report and Financial Statement 20076371,0591,696(129)1,5671,29611
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Page 5 and 6: ‘It is clear that our strategy, t
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Page 19 and 20: James BatchelorCommercial Director,
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Financial CalendarAnnual general me
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Annual report 2007 - Torotrak

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