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25 July 2013
("Torotrak" or the "Company")
Annual General Meeting and Interim Management Statement
for the period from 1 April 2013 to 25 July 2013
Torotrak today publishes its Interim Management Statement for the period from 1 April 2013 to 25 July 2013, which includes the trading update to be delivered today at the Company's Annual General Meeting.
The business continues to make progress in line with the strategy set out in the 2013 Annual Report sent to shareholders. There are encouraging developments in all of our three main technology product platforms as the Company builds on the progress we have made over the last twelve months.
The search by vehicle manufacturers for practical, cost-effective solutions to deliver improvements in fuel economy and meet the upcoming CO2 emissions reductions targets, offers significant global opportunities for Torotrak's technologies. As a result, we are seeing, and expect to continue to see, an increased level of engagement with OEMs and Tier 1 manufacturers. These companies are seeking to deploy technologies such as Torotrak's to meet the fuel economy and emissions targets and avoid the financial penalties imposed by legislation on the automotive sector. Torotrak is well positioned to benefit from these legislative and regulatory drivers.
Main Drive Transmissions
On 1 July 2013, Allison Transmission Inc. ("Allison") paid £1.4 million as the second tranche of the final licence payment agreement of £6 million, concluded in March this year, for continued exclusivity to manufacture and sell the Company's main drive transmission technology in the commercial vehicle market. The final payment of £2.6 million is due by 31 March 2014.
Torotrak has focused a significant proportion of its engineering resources on supporting Allison's production-intent hardware development programme. A key element of this stage of the programme is proving durability on representative variator components from production suppliers. New test rigs have been commissioned that allow multiple durability tests to be carried out simultaneously and hence accelerate the test programme for the key disc and roller components. Successful completion of this stage will enable Allison to move to the next generation prototype transmission incorporating size, weight and efficiency improvements and is linked to payment of £2 million of the remaining licence fee.
We are seeing positive engagement by OEMs in our business development activities for main drive transmissions for the construction equipment sector, and, whilst our core team's work with Allison remains our priority, we will explore these opportunities further. We will update shareholders later in the year on the development of these potential business opportunities in the Off Highway sector.
The successful demonstration of our M-KERS/Flybrid flywheel energy recovery system in a Volvo S60 prototype test vehicle programme delivered fuel savings of up to 25 per cent. We are currently in early-stage discussions with a number of potential partners to exploit Flybrid's market-leading technology in passenger cars. As set out in the 2013 Annual Report, engaging with a Tier 1 manufacturing partner as part of a vehicle development programme is an important next step in our route to commercialisation of this market-leading technology.
The programme to install M-KERS in a Wrightbus vehicle, scheduled to take place later this year, and the commencement of in-service trials by Arriva from March 2014, remain on track. Following our investment of £3 million into Flybrid as part of our arrangements announced in March 2013, Flybrid has commenced an investment programme to expand its test rig capability and develop low volume flywheel manufacturing capacity. The threefold expansion of test rigs will enable the company to test its flywheel technology including key components, sub-systems and complete systems over accelerated durability cycles. The company is also investing in key flywheel manufacturing equipment to enable it to deliver pre-commercial production systems in 2014 (to validate the technology and for use in customer trials) and full-commercial production systems in 2015. Flybrid has been awarded more than £0.8 million in grants through the Advanced Manufacturing Supply Chain Initiative ("AMSCI") to support this investment in UK manufacturing.
Flybrid has also joined the Proving Factory consortium, backed by AMSCI and Tata Steel. The consortium will invest more than £20 million in developing component manufacturing and system assembly factories in the UK. Both Flybrid and Torotrak will have access to this manufacturing capability to enable low volume manufacture in advance of full Tier 1 engagement for larger mass market volumes.
Following the acquisition of 20 per cent of Flybrid in March this year, the two companies are already working closely together, with the engineering teams collaborating in a wide range of areas.
Our priority remains the implementation of some significant new design features to improve overall system performance from the V1 design. The next step is to successfully complete the V2 rig testing, which will be followed by installation of the V2 unit into prototype demonstrator vehicles during Q4 2013. Sub-system verification of the new design features is proceeding well.
We have also commenced additional investment in parallel development activities, looking at next generation technology applicable to the boosting market. We believe that having a technology route map that extends the breadth and capability of V-Charge is an important element of business strategy, and one that could ultimately help define the commercialisation achievable for this technology.
A number of OEMs have successfully completed simulation studies of our V-Charge technology and we have opened some important doors in terms of specific platform interest from international OEMs.
We continue to believe that V-Charge has mass market potential as an enabling technology in the trend towards engine downsizing to improve vehicle emissions profiles. The engine boosting systems market is forecast to nearly double by 2017, and represents a substantial opportunity for Torotrak's attractive V-Charge technology.
Discussions continue with Tier 1 and Tier 2 potential partners. The conclusion of these discussions remains a priority, although we must balance earlier engagement with longer term opportunities as our technology development advances.
New Board Appointments
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 and financing growth strategies.
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.
Jeremy Deering, Torotrak's Chief Executive said: "Torotrak's ambitions are high but we have our feet firmly on the ground in terms of our priorities. I am delighted with the new string to our bow with the investment in Flybrid, and equally pleased with how naturally and effectively the two organisations are working together. The validation of the technology by customers such as Volvo is a tremendous boost.
"With Flybrid as our main M-KERS channel to market, we have been able to increase resources focused on our V-Charge and main drive transmission programmes, helping accelerate activity in these important areas of our business."
For more information, please visit www.torotrak.com or contact:
Jeremy Deering, Chief Executive
Rex Vevers, Finance Director
Charles Stanley Securities
Tel: +44 1772 900931
Tel: +44 20 7920 3150
Tel: +44 20 7149 6000
Notes to Editors
Torotrak is the leading global developer of gearless traction drive technologies, focussing on applications that increase efficiency and reduce CO2 emissions in vehicles. These include the V-Charge variable-drive supercharger, engine auxiliary drives, IVT and CVT main drive transmissions and a variable speed transmission that enables efficient energy recovery using a mechanically-driven flywheel (M-KERS). The company's engineering team works with proven, global tier one technology partners to provide a validated route from prototypes to production. Customers include major vehicle manufacturers and their suppliers in the light duty, heavy duty and off-highway sectors.
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