Annual report 2007 - Torotrak

Chief Executive’s Review - continuedOur three active off-highway licensees have all madeprogress with their individual plans this year. Two arecurrently developing prototype IVTs in their mid-sizedtractors and Torotrak is providing help and technicalinput. The third has asked for Torotrak’s support todesign their proposed first production transmission, whichis for a compact tractor. This engineering programme hasalready commenced and will be earning Torotrak valuableengineering consultancy revenue in the first quarter ofthe new financial year. All three licensees continue todemonstrate their commitment to progress intoproduction, with two maintaining their ambition of beingin production within 18-24 months.The development of a hydromechanical control systemfor use in tractor IVTs, which we first revealed in theannual report last year, has continued to be of value toTorotrak through our established licensees and also withnew prospects in emerging markets. This developmentoffers high levels of functionality at a low cost and isrelatively simple to engineer and develop. As an exampleof the progress we have made, one of our establishedlicensees is considering adopting the hydromechnicalcontrol system for their production application in place ofa more complex electronically controlled route, which hadbeen their previous plan.Materials handling / fork lift trucks – a new sectorWe have continued to target other sectors within the offhighwaymarket and, as a result, we are now active in thematerials handling area.At the interim results in November last year we indicatedthat we were engaged in early discussions withmanufacturers of fork lift trucks and I am pleased toconfirm that one of these, an industry leader in thissector, has committed to a prototype programme toprove the capability of IVT in one of their vehicles. Thisnew programme adds further to our order book for thefinancial year ending 31 March 2008. The fact that wehave now progressed beyond business development inthis sector, and have secured consultancy revenue, is ademonstration of the greater predictability of ourearnings model, based upon new customers askingTorotrak to support them with the application andconfiguration of our toroidal technology for theirproducts.AutomotiveThe automotive market remains a principal target forlonger-term financial returns and I am able to report thatsubstantial progress has been made in this sector duringthe last six months.New sector – emerging economiesThis year we have carried out a prototype engineeringprogramme with a major Asian car and commercialvehicle manufacturer, to demonstrate the capability ofTorotrak technology in one of their entry-level vehicles.This programme has brought Torotrak valuableengineering revenue, but more importantly has secured astrong relationship with this significant vehiclemanufacturer.I am pleased to report that we have progressed to thepoint where we have agreed the principal terms of alicence agreement with this manufacturer. We have aMemorandum of Understanding in place which supportsthis agreement and we are currently working to finalisethe commercial terms and the formal licence, which weexpect to announce in the first half of the financial yearending 31 March 2008.These licence negotiations have progressed to encompassa broad range of vehicles produced by this manufacturer,and to cover the potential for a significantly widerapplication of Torotrak’s technology than the low-costentry level vehicle which was the focus of the initialprototype programme.At this stage a firm target production date is yet to bedeclared and the first application is yet to be fully defined.However, the vehicle manufacturer has stated to us thattheir ambition is to be amongst the very first to launchproducts incorporating Torotrak’s toroidal drivetechnology in the automotive market.This development and new relationship represents asignificant breakthrough in our automotive market place.6Annual Report and Financial Statement 2007