Torotrak plc 1 Aston Way, Leyland, Lancashire PR26 7UX United Kingdom Tel +44 (0)1772 900900 Fax +44 (0)1772 900929 www.torotrak.com 2007 2008 2009 2011 Flybrid founded Torotrak signs license agreement with Tata Motors for IVT in passenger cars and commercial vehicles Torotrak and ETBM partner sign IVT license agreement for on-highway commercial vehicles Torotrak signs worldwide IVT licensing agreement with Allison Transmission Inc. for commercial vehicles – Allison acquires 5% stake in Torotrak Flybrid wins Professional Motorsport World Expo award Flybrid wins Low Carbon Vehicle Partnership award for low carbon innovation Flybrid files patent for Clutch Flywheel Transmission (CFT) Volvo announces development of flywheel hybrid cars using Flybrid KERS and Torotrak CVT technology Torotrak and Flybrid collaborate with Jaguar and Ford to develop flywheel hybrid system for premium segment passenger car Flybrid car hybrid system rig testing completed with Jaguar and Ford – up to 20% fuel economy gains predicted First hybrid car to compete at Le Mans 24hr race uses Flybrid KERS with CFT transmission 2010 2012
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
– variable boosting; and Flybrid – KERS units), which will be developed
as distinct products for the passenger car and commercial vehicle
markets.
Our site in Leyland has changed from having predominantly an
R&D focus to being a specialist development site for manufacture
including long-term testing, component manufacture and lower-volume
assembly for high-value products. Our Silverstone site, previously
the base for Flybrid, is now the Group engineering centre for product
design and development.
I am also pleased to report that following the successful accelerated
testing of our discs and rollers, we have now commenced the next
phase of the production-intent IVT joint development programme
with Allison.
Four months after completing the acquisition of Flybrid, it is
encouraging to see how our broader range of technology platforms is
attracting more interest and engagement from vehicle and equipment
manufacturers. Customers working with us in one product area are
increasingly talking to us about our other technologies. For example,
engagement with our V-Charge/IVT has led to some very promising
opportunities for Flybrid KERS, and vice versa. This supports a key
strategic objective: to form long-term customer relationships that build
on the trust formed from the fi rst piece of work or product that we
deliver. Successful engineering and customer engagement starts with
a deep understanding of our customers’ real market requirements;
this is much easier when we are working closely together to design
products to meet their needs.
It is diffi cult to convey the change, and how it feels. Put simply, we are
busier than ever with enquiries coming in from around the world from
prospective customers. This refl ects changes in the market and the
regulations, the increased capability we have as a company, and the
relevance of the cost-effective technologies that we offer.
We have made it easier for customers to engage with us by offering a
variety of fuel-saving technologies – from enabling engine downsizing
and energy storage through to more fundamental powertrain
engineering with our IVT.
With four recent contract awards with part government funding from
the Technology Strategy Board and Advanced Propulsion Centre
(“APC”) covering relationships with other high-profi le UK entities such
as JCB, Lotus, and Tata Steel, Torotrak is increasingly where it should
be: at the centre of innovation and change in automotive engineering.
This makes it important for international manufacturers to invest their
time in building long-term relationships with us. It is fair to say that
the exposure and fi nancial support from these high-profi le awards,
and the parties with which we are working, refl ects the momentum
the Group has achieved this last year; this level of activity and funding
support has been a substantial boost and is ahead of our expectations
when planning last year.
232422 Torotrak pp01-pp23.indd 4 25/06/2014 15:14
Flybrid KERS successfully installed in Wrightbus StreetLite bus, meeting system integration and driveability targets
UK press drive event with Volvo Car Group held at Silverstone Circuit, demonstrating KERS Volvo S60
The Flybrid Kinetic Energy Recovery System (KERS) is a smart new breed of
mechanical hybrid that improves fuel effi ciency and boosts performance by
capturing and reusing energy that would otherwise be lost during braking events.
KERS combines a high-speed steel and carbon fi bre fl ywheel with either a
continuously variable transmission (CVT) or more conventional clutched transmission
(CFT) to create a compact, low-cost and power dense system suitable for applications
across all vehicle segments, from passenger cars to trucks and excavators.
Collaboration with Lotus to develop production-intent lower-cost Flybrid system integrated into manual gearbox of Lotus high-performance road car
Awarded Advanced Propulsion Centre funded project in collaboration with JCB to develop a production-ready application for Flybrid technology in excavators
Volvo confi rms interest to take Flybrid KERS product through to production and market launch
Low-volume in-house fl ywheel manufacturing and testing in Leyland facility
V2 industry debut at Dresden supercharging conference
V-Charge prototypes delivered to 2 major OEMs; detailed analysis of full system benefi ts when applied to an advanced engine underway with a major manufacturer Next generation
hardware V2.5 on test
Collaboration with a global passenger car OEM, a major Tier 1 supplier of engine boosting products and Bath University to optimise V-Charge for use in latest design of engine platforms
Working with a passenger car OEM to verify and validate V-Charge application as part of a multi-stage boosting system
Working with a key technology partner to deliver prototype hardware to commercial vehicle customers for evaluation
New component test rigs designed, built and commissioned enabling accelerated durability testing of disc and roller components
Collaboration with Univance and other supply chain partners developing new production-intent manufacturing processes for disc and roller core components
Torotrak-led consortium including Tata Steel wins £2.4 million funding for core technology manufacturing optimisation
Next stage funded engineering programme agreed with Allison
Successful completion of Allison durability milestone, achieving > 300% of target life enabling reductions in package size, weight and cost
Allison Transmission Inc. pays £3.0 million fi nal license fee for exclusivity in the on-highway commercial vehicle market
Torotrak’s main drive infi nitely variable transmissions (IVTs) combine our full toroidal traction
drive variator with other conventional transmission components to deliver improved fuel
economy and engine performance. By allowing the engine to operate under optimum
conditions at all times, our IVT ensures that power delivery to the wheels is never interrupted,
avoiding emissions spikes during gear shifts, maximising comfort for passengers and
minimising wear by removing shock loads to the driveline. Our IVTs can signifi cantly improve
the fuel economy of vehicles equipped with existing internal combustion engines as well as
KPIs are an integral part of how we set internal targets and manage
the business. These indicators are given below, with references to
where further narrative can be found in this Annual Report. “Red” or
“Orange” fl ags have brief notes below the table, red signifying not
achieved and orange signifying uncertainty over full achievement.
Financial Review continued
Commercial KPIs
Licensees demonstrate commitment through investment and
licence fees
GREEN
Refer to pages 12 and 16
Reduced reliance upon single customers or single routes to market GREEN (note 1)
Refer to pages 10 to 11
Visible milestones determine progress with our key commercial
programmes
GREEN
Refer to pages 14 to 15
Engineering resources provide both fi nancial contribution and
advance our opportunities for future royalties/recurring income
ORANGE (note 2)
Refer to pages 16 to 17
Note 1: in the current year Allison has remained material. However, going forward the Group has developed commercial relationships with a broad range of commercial partners particularly for
KERS and V-Charge.
Note 2: following the acquisition of Flybrid, the Group has decided to increase the investment in self-funded development programmes taking greater control over our routes to market.
Financial/quantitative KPIs
Maintain strong funding resilience GREEN
Refer to pages 16 to 17
Demonstrable value of addressable target markets GREEN
Refer to pages 4 to 15
Positive progression from: initial engagement with customer; to proof
of concept; to prototype; to production commitment
ORANGE (note 3)
Refer to pages 10 to 14
Progression to recurring cash infl ow from operations ORANGE (note 4)
Refer to pages 16 to 17
Growth in Shareholder return RED (note 5)
Refer to graph on page 37
Note 3: confi rmation of Tier 1 manufacturing partner for V-Charge pushed back following acquisition of Flybrid.
Note 4: operating cash fl ow has been generated principally from licensing and engineering income, with recurring royalty fl ow expected once licensees enter production.
Note 5: Shareholder return growth as measured by share price relative to the FTSE techMARK All-Share was negative for the year overall.
John Weston joined Torotrak as Chairman on 1 June 2011. He began his career at BAE as an undergraduate
engineering apprentice in 1970 and subsequently progressed through increasingly senior positions. During his
time at BAE, he held many major roles within the company, serving as Project Director for the transformational
£30 billion Al-Yamamah programme in the Middle East, Group Managing Director of BAE’s defence activities,
and ultimately as Group Chief Executive. John left BAE Systems in 2002 and since then he has been working
with private equity backers, holding board positions at a variety of companies. These currently include MB
Aerospace Holdings Limited, accesso Technology Group plc and Fibercore Ltd.
Jeremy Deering – Chief Executive Offi cer
Jeremy Deering joined Torotrak in 2006. Prior to being appointed Chief Executive Offi cer on 31 August 2012,
Jeremy was Finance and Commercial Director and played a key role in the Company’s licensing agreements
and diversifi cation strategy. He has held senior executive positions in FTSE 100 groups including Tomkins plc
and the United Utilities Group, where he was latterly a Director of its major energy division, Norweb plc and
then Managing Director of the “Your Communications” telecommunications company through its intended IPO.
He subsequently worked with companies in the small to mid-sized sectors including, in an interim director
capacity, System C Healthcare plc through its successful AIM fl otation in 2005.
Rex Vevers – Finance and Commercial Director
Rex Vevers joined Torotrak on 27 June 2013 from Ceres Power Holdings plc, where he was Group Finance
Director from 2006 until February 2013. Rex is a Corporate Treasurer and qualifi ed as a Chartered Accountant
with Arthur Andersen before moving into industry where he held a number of senior fi nance positions in
companies including OSI, Pechiney, and Avon Cosmetics. During his time with Ceres Power, Rex played a
lead role in securing major commercial contracts and raising funds from institutional and strategic investors to
fi nance the company’s growth strategy.
Jon Hilton – Product Development and Sales Director
Jon Hilton was appointed Product Development and Sales Director on 9 January 2014. Before joining the
Torotrak Board, Jon was Managing Director of Flybrid Automotive, which he co-founded with Doug Cross
in 2007. He started his career at Rolls Royce, where he designed gas turbine engines for helicopters, later
moving to Cosworth and becoming Chief Engineer of the Formula 1 programme. Following fi ve years at
TWR Arrows F1, he joined the Renault F1 team as Technical Director: Engine Division. He is a Trustee, Vice
President and Honorary Treasurer of the Institute of Mechanical Engineers.
Nick Barter – Non-Executive Director, Senior Independent Director, Chairman of the
Remuneration Committee
Nick Barter was appointed as a Director of Torotrak in November 2003. Prior to this, he was Director of
Product Development for Jaguar and Land Rover while it was part of Ford’s Premier Automotive Group. He
was responsible for all aspects of planning, design, development, sign-off and introduction of all Jaguar and
Land Rover vehicles, leading a team of around 5,000 engineers, designers and analysts. He serves on the
Technology Strategy Board’s Steering Group for the Low Carbon Vehicle Innovation Platform and is a Trustee of
The British Motor Industry Heritage Trust. He is Non-Executive Chairman of the joint venture Rotrak Limited.
John McLaren – Non-Executive Director, Chairman of the Audit CommitteeJohn McLaren joined Torotrak on 27 June 2013. He began his career as a diplomat, working both in the
Foreign Offi ce in London and in the British Embassy in Tokyo. Following a switch to investment banking,
he became a Director of Barings before moving into venture capital, where he was a General Partner with
Hambrecht and Quist Venture Partners in San Francisco. In his subsequent career, he was successively a
Director of Morgan Grenfell, Deutsche Bank, and Barchester Group, during which time he advised a wide range
of companies on major mergers and market acquisition transactions, including Daimler-Benz, BMW, Nissan,
BBA, and Siemens. John is currently Chairman of Barchester Group and a Non-Executive Director of four
The Directors have pleasure in presenting their Report on the results and affairs of the Group and Parent Company and on the audited Financial Statements for the year ended 31 March 2014.
Business activity, results, Corporate Governance and dividendsThe Torotrak Group’s activities focus on the design, development and commercialisation of a range of technologies that enable vehicle manufacturers to meet new regulations including improving fuel- effi ciency, reducing emissions and enhancing performance. Current and future planned earnings derive from engineering services, Intellectual Property ( IP) income (including licenses and royalties) and other activities relating to the commercial exploitation of Torotrak’s IP, including arrangements to manufacture and sell products incorporating the Group’s technology. During the year the Group acquired Flybrid Automotive Limited (“Flybrid”), which expands the Group’s core technology portfolio with high-speed fl ywheel -based KERS. There has been no change in the principal activity of the Group or Parent Company since 31 March 2014. The Parent Company’s registered number is 03580465.
The business is reviewed in the Chairman’s Letter on pages 2 to 3, the CEO’s Review on pages 4 to 15, and the Financ ial Review on pages 16 to 20. Information on the Group’s strategy and business model and likely future developments in the business is included in these reviews.
The Directors’ statements in relation to Corporate Governance, which form part of the Directors’ Report, are contained in the report on pages 28 to 3 1.
The Directors do not recommend the payment of a dividend (2013: £nil).
Key Performance Indicators (KPIs)The KPIs used by the Directors to assess performance against the Group’s strategic objectives, and progress against them, are described on page 19.
Directors and their interests in sharesThe names of the Directors in offi ce at the date the Financial Statements were approved are shown, with their biographical details, on page 21. Information on Directors’ remuneration, contracts and benefi cial interests in the shares of the Company is included in the Directors’ Remuneration Report on pages 32 to 44. There have been no changes in Directors’ interests in shares between the end of the fi nancial year and the date the Financial Statements were signed.
In accordance with the Company’s Articles of Association concerning the rotation of Directors, Jeremy Deering, Executive Director, retires from the Board and, being eligible, offers himself for re-election at the Annual General Meeting . John Weston, Non-Executive Chairman and Nick Barter, Non-Executive Director having retired from the Board and offered themselves up for re-election, and, having been re-elected by Shareholders in the last three years, are not required to present themselves for re-election in 2014. John McLaren, Non-Executive Director, Rex Vevers, Executive Director having been appointed as Directors with effect from 27 June 2013 and Jon Hilton, having been appointed as a Director with effect from 9 January 2014 and according to the Company’s Articles of Association, offer themselves for election at the Annual General Meeting, being the fi rst Annual General Meeting since their appointment to the Board.
The Group maintains insurance cover for Directors’ liabilities that may be incurred as a consequence of undertaking their duties as Directors or offi cers of the Parent Company or any of its subsidiaries or joint ventures.
Company ReportsThe half-year and A nnual R eports are available on the Torotrak website (www.torotrak.com) or, for those without internet access or who have specifi c requirements for the printed version, on request to the Company Secretary at the Company’s registered address.
Employees and health and safetyOur business depends upon the creativity, drive and goodwill of our employees. We seek to consult with all levels of employee, valuing their ideas and suggestions. Regular team briefi ng sessions and consultations and a performance assessment system, encourage open channels of communication and feedback.
Employee share ownership is encouraged and the Group has established schemes to incentivise, reward and motivate all employees, details of which are given in the Directors’ Remuneration Report on pages 32 to 44.
The Group has a strong demand for highly- qualifi ed staff and we strive for equal opportunity and a non-discriminatory work environment for our employees. Disability is not an inhibitor to employment or career development within the Group. We provide clean, healthy and safe working conditions and pride ourselves on providing an attractive working environment. We encourage proactive participation by all our employees in identifying and controlling hazards. The health and safety performance is monitored by the Board and we are pleased to report that we had no accidents to report under the Reporting of Injuries, Diseases and Dangerous Occurrences Regulations 1995 (RIDDOR).
DiversityThe Group benefi ts from a diverse workforce; our people come from different backgrounds and cultures. The Group employs 82 people. We employ 6 women, with 1 at a senior management level. None of the Board is female.
Political donationsNo political donations were made (2013 : £nil).
Research and development£4.6 million research and development costs were incurred during the year (2013: £3.8 million) in relation to the continuing creation of new IP as well as support for the commercialisation of the Group’s technology.
Signifi cant contractsThe Group has a number of signifi cant contracts as discussed on page 16. The most material trading contracts impacting the year under review relate to Allison Transmission Inc., which contributed the majority of this and the previous years’ revenues. In addition, during the year, the Group entered into an agreement with the owners of Flybrid to purchase the remaining 80 per cent. of the company that the Group did not own.
Corporate social responsibilityThe Group recognises that it has responsibilities to other stakeholders beyond its Shareholders, who include employees, customers, suppliers, and the local community. The Board accepts its responsibility to be accountable to all stakeholders.
The Group is dedicated to supplying high- quality technology products that meet the requirements of its customers in a manner consistent with high environmental and ethical standards.
Environment Torotrak’s activities are focused on the development of products that offer improved fuel economy and reduced emissions for commercial and passenger vehicles. Our premises are composed mainly of offi ces and test and manufacturing facilities. Our operations are therefore ‘low impact’ in environmental terms.
The Group does not provide c ompany cars. The provision of facilities for cyclists encourages greener commuting. Telephone and video conferencing are used extensively, providing alternatives to international travel. Wherever possible, the Group continues to adopt initiatives to lessen our environmental impact.
Greenhouse gas emissionsThe UK Government has introduced a requirement that UK L isted companies should report their global levels of Greenhouse Gas (“GHG”) Emissions in their Annual Report and Financial Statements. The mandatory requirement is to report scope 1 and scope 2 only (direct emissions, e.g. heating, cooling, transport fuel and indirect emissions, e.g. purchased from electricity) and only to the extent the emissions are the responsibility of the Group. The Group’s Greenhouse Gas Emissions are set out below:
Measure 2014
Scope 1 Direct emissions 602
Scope 2 Indirect emissions 4
Total GHG emissions (tCO2e) 606
Torotrak’s chosen intensity measurement GHG emissions per test rig hour (tCO2e/hour) 0.02
Methodology We have reported on all of the emission sources required under the Companies Act 2006 (Strategic Report and Directors’ Reports) Regulations 2013 for Scope 1 and Scope 2 emissions.
We have used emission factors from the UK Government’s GHG Conversion Factors for Company Reporting 2013.
Ethical business practicesTorotrak takes its legal and ethical responsibilities very seriously and is committed to following good and ethical practices.
The Group recognises its legal responsibilities to ensure the wellbeing, safety and welfare of its employees and to maintain a safe environment for visitors and any subcontractors while they are on the Group’s premises. All staff are instructed on the Group’s health and safety policy upon joining, and contractors are required to have personal liability insurance coverage, where appropriate.
Torotrak is committed to the principles of respect and equality in the workplace, and seeks to ensure employee satisfaction and motivation by providing class-leading benefi ts, including a competitive pension scheme, healthcare, life insurance, income protection, and holiday allowance. In addition to on-the-job training, we also encourage our people, particularly graduates, to work towards achieving professional vocational qualifi cations, including chartership with the IMechE.
Torotrak is committed to the principle of equal opportunity in employment and its internal procedures refl ect this. The principle is supported by the Group’s recruitment, disciplinary, and grievance procedures.
Human rightsThis Report does not contain information about any policies of the Group in relation to human rights issues since it is not considered necessary for an understanding of the development, performance or position of the Group’s business activities.
AuditorsThe Auditors, PricewaterhouseCoopers LLP, have indicated their willingness to continue in offi ce and a resolution to re appoint them will be proposed at the Annual General Meeting to be held on Thursday 31 July 2014.
Disclosure of information to AuditorsIn accordance with section 418 of the Companies Act 2006, the Directors who held offi ce at the date of approval of this Directors’ Report confi rm that, so far as they are each aware, there is no relevant audit information of which the Group’s A uditors are unaware; and each Director has taken all the steps that he ought to have taken as a Director of the Group to make himself aware of any relevant audit information and to establish that the Group’s A uditors are aware of that information.
Share capitalAs at 31 March 2014, the Group’s issued share capital consisted of 274,195,926 ordinary s hares of 10p each.
Rights and obligations attaching to sharesSubject to applicable statutes and other Shareholders’ rights, shares may be issued with such rights and restrictions as the Company may by ordinary resolution decide, or, if there is no such resolution or so far as it does not make specifi c provision, as the Board may decide.
Restrictions on votingUnless the Board decides otherwise, no member shall be entitled to vote at any meeting in respect of any shares held by that member if any call or other sum which is then payable by that member in respect of that share remains unpaid.
Powers of DirectorsSubject to the Company’s Memorandum and Articles of Association, the Companies Acts and any directions given by special resolution, the business of the Company will be managed by the Board who may exercise all the powers of the Company.
Purchase of own shares Pursuant to Shareholder approval given at the 2013 Annual General Meeting, the Company is authorised to make market purchases of its own ordinary shares. The Directors intend to seek renewal of this authority at future Annual General Meetings including the 2014 Annual General Meeting. No shares were purchased from 25 July 2013 to 28 May 2014 (other than the acquisitions undertaken by the Trustee (Torotrak Holdings Limited) of the Torotrak Share Incentive Plan (SIP) (see note 26)).
Restrictions on the transfer of securitiesThere are no restrictions on the transfer of securities in the Company except:
– That certain restrictions may from time to time be imposed by laws and regulations (for example, insider trading); and
– Pursuant to the Listing Rules of the Financial Conduct Authority whereby certain employees of the Company require the approval of the Company to deal in the Company’s ordinary shares.
Allotment of new o rdinary s haresDuring the year, the allotment of new ordinary shares was as follows:
Shares issued under the SIP scheme 474,424
Shares issued as a result of LTPSP vesting 2,037,602
Shares issued to Allison Transmission Inc. 12,706,064
Shares issued as a result of the open offer and share placing 76,182,824
Shares issued as a result of the Flybrid Automotive Limited a cquisition 7,836,990
Substantial shareholdingsAt 28 May 2014 and 31 March 2014, the Company had been notifi ed, or was otherwise aware, of the following major interests of 3 per cent. or more in its o rdinary s hares to which voting rights are attached:
As at the date referred to above, the Company was not aware of any person or entity that, directly or indirectly, jointly or severally, would or could exercise control of the Company.
Going concernAfter making all necessary enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future, given the cash resources available to the Group. Accordingly, the Directors believe that it is appropriate for the Financial Statements to continue to be prepared on the going concern basis.
The Company’s statement on C orporate G overnance can be found in the Corporate Governance Report on pages 28 to 3 1 of these Financial Statements. The Corporate Governance Report forms part of the Directors’ Report and is incorporated into it by cross-reference.
Annual General MeetingThe Annual General Meeting of the Company will be held at 11.00am on 31 July 2014 at Hall 5, Silverstone Wing, Silverstone Circuit, Towcester, Silverstone, Northamptonshire, NN12 8GX. The Notice of the Annual General Meeting is contained in this Annual Report on pages 76 to 81.
By order of the Board:
Rex Vevers 1 Aston WayCompany Secretary Leyland, Lancashire 28 May 2014 PR26 7UX
The Directors, at the date of signing, are included in the biographies on page 21.
We are committed to high standards of Corporate Governance, which we consider are critical to business integrity and to maintaining investors’ trust in us.
The UK Corporate Governance Code (the “Code”) issued by the Financial Reporting Council (the “FRC”) in September 2012 was applicable to the Company throughout the fi nancial year ended 31 March 2014. (A copy of this edition is publicly available on the website of the FRC at www.frc.org.uk).
The FRC confi rmed that the recent changes to the Code together with changes to the UK Stewardship Code are intended to increase D irector accountability and encourage greater stakeholder engagement, whilst promoting the interest of S hareholders. Through the reports on the work of the Board and its C ommittees, the changes provide investors with greater insight into the activities of Listed companies.
This Report sets out how the Company has applied the m ain p rinciples of the Code throughout the year ended 31 March 2014 and as at the date of this R eport.
Torotrak is a small cap technology company with a modest, but stable, resource base. The Company has a clear mandate to optimise the allocation of these limited resources to support its development and commercialisation plans. As such, it strives to maintain a balance between conserving these resources and maintaining robust Corporate Governance practices. As the Company evolves, the Board is committed to enhancing its Corporate Governance policies and practices, in line with what is deemed appropriate for the size and maturity of the organisation.
The Board considers that it has complied throughout the year under review with the main principles of the Code, with the following exceptions:
Exception Explanation
Chairman was a member of, and chaired, the Audit Committee for the period up to 27 June 2013 (Provision C.3.1).
Following the appointment of John McLaren as Non-Executive Director and Chairman of the Audit Committee on 27 June 2013, the Company now complies with the principles of the Code.
On appointment as Chairman on 1 June 2011, John Weston was granted options over shares to a maximum value of £140,000 at the date of grant. The option terms have no formal restrictions regarding retention of shares following exercise (Provision A.3.1).
The share scheme was specifi cally put to Shareholders at an Annual General Meeting as a special resolution and was approved in July 2011. John Weston purchased 300,000 shares in the Company on becoming Chairman to ensure alignment with Shareholders’ interests. The share options are a one-off grant and have no relationship to the Long -Term Performance Share Plan, which provides for annual grants of shares to Executives only.
In addition to the above, it should be noted that Company Secretarial advice is provided by Squire Sanders (UK) LLP and in the Board’s view it would not be cost-effective to separate the role of Company Secretary to a dedicated expert.
The Board and its compositionBrief biographies of the present Board members are given on page 21. Following the changes to the Board set out in this Annual Report, as from 9 January 2014 the Board comprises a Non-Executive Chairman, a Senior Non-Executive Director, a Non-Executive Director and three Executive Directors.
The Non-Executive Chairman, the Senior Non-Executive Director and the Non-Executive Director are considered by the Board to be independent in character and judgement and to be free from any business or other relationship or circumstance that could impact on such independence. The Company’s Articles of Association require that all Directors be subject to election by the Shareholders at the fi rst Annual General Meeting after appointment and thereafter at least once every three years.
The Board structure creates a balance such that no individual or small group of individuals can dominate decision-making. The roles of Chairman and Chief Executive are clearly separated and have defi ned responsibilities. The Chairman sets the agenda for Board meetings and directs the running of the Board. The Board is supplied in advance of its meetings with appropriate fi nancial, operational and other information to enable the meetings to be effective. The Chief Executive’s responsibilities focus on managing the Group and implementing the Board’s strategy and policies. During the year, the Non-Executive Directors have particular responsibility for the scrutiny of management performance, the review of fi nancial information and the constructive challenge and development of strategy; in addition, the Non-Executive Directors have particular responsibility for the Board C ommittees described below.
The Chairman is responsible for the process to ensure that Directors keep their skills and knowledge up to date and to encourage their professional development. The Company ensures that adequate time and fi nancial resources are made available for Directors to attend appropriate training, and that newly -appointed Directors receive a tailored induction programme appropriate to their needs. The Directors have direct access to the Company Secretary or, if required, independent professional advice at the Company’s expense to be informed on all governance and other matters of importance to their Board responsibilities.
The Board has reserved specifi c responsibilities to itself including: setting strategy and approving annual budgets; reviewing fi nancial and operational performance; approving policies for controls and risk management; approving major capital expenditure, disposals, acquisitions and major business development; reviewing the health and safety policy and performance of the Group; approving patent abandonment; approving appointments to the Board and the position of Company Secretary; approving policies relating to Directors’ remuneration and the severance of Directors’ contracts; and the processes to ensure that an appropriate and constructive dialogue takes place with Shareholders.
Decisions are delegated to individual Executive Directors and senior management by reference to areas of specifi c responsibility and fi nancial limits that relate to annually -approved budgets, fi nancial forecasts and the approved business plan.
Appointment of Directors and Articles of AssociationThe Articles of Association permit the Directors to appoint any person to be a Director, either to fi ll a vacancy or as an additional Director, but so that the total number of Directors shall not be less than three at any time. Any Director appointed in this way is required to be reappointed at the Annual General Meeting following appointment.
The Articles of Association provide a number of circumstances whereby a Director may be removed from offi ce, including being dismissed from Executive offi ce or by way of resignation.
The Articles of Association or amendments thereto are approved by special resolution at the Annual General Meeting unless otherwise amended through the operation of law.
Board CommitteesThe Board has delegated specifi c responsibilities to three C ommittees. Each C ommittee operates within defi ned terms of reference set by the Board, which are available on request from the Company Secretary. Membership of the C ommittees is shown on page s 29 and 30.
Audit Committee and Auditors’ independenceJohn McLaren has chaired the Audit Committee since his appointment on 27 June 2013. Prior to that, the Company Chairman John Weston chaired the Audit Committee. The Audit Committee meets at least twice a year prior to the publication of the half- year and full- year results and at other times, as the Chairman of the Committee shall require. The Committee considers all matters relating to fi nancial controls and reporting, internal and external audits, risk management policy and procedures, the scope and results of the audits, the independence and objectivity of the Auditors and the consideration paid to them. The Committee is also responsible for the selection of Auditors, subject to their re appointment at Annual General Meetings.
The Group does not normally award consulting work to the fi rm of Auditors other than in the area of tax consulting and compliance, where they are best suited to carry out such work. However, the Group considers awarding other advisory services to the fi rm of Auditors in circumstances where there is demonstrable independence from their role of Auditors and where best value for the Group can be obtained. During the year the Auditors were appointed Reporting Accountants in relation to the acquisition of Flybrid Automotive Limited; a Partner other than the Audit Partner led this assignment. Assignments with a value of £50,000 or more must be submitted to the Committee and activities which may be perceived to be in confl ict with the role of the external Auditor must be submitted to the Committee for approval prior to engagement, regardless of the amounts involved. All assignments are monitored by the Committee. Details of the amounts paid to the external A uditor during the year for audit and other services are set out in note 4 to the F inancial S tatements. The Committee has discussed with the external Auditors their independence and is satisfi ed that there are no circumstances where the Auditors’ objectivity and independence is compromised.
The Chief Executive and other Executives are invited to attend the Audit Committee meetings as required, as do the external Auditors who meet with the Audit Committee at least twice every year. The external Auditors also have the opportunity to meet with the Audit Committee at least twice every year without the Executive Directors being present.
The Audit Committee is responsible for overseeing the evaluation of Auditors’ performance and independence, and the frequency and process for seeking rotation of the Audit Partner and for alternative audit tenders. Various factors are taken into account by the Committee in assessing whether to recommend the Auditor for reappointment. These include the quality of the reports provided to the Audit Committee and the Board and the level of understanding demonstrated of the Group’s business. The Audit Partner is required to rotate at least every fi ve years. The Audit Committee does not establish a fi xed period for audit tenders, although performance and suitability is kept under review on an annual basis. The Audit Committee is satisfi ed that the relationship with the external Auditors is effective, and remains satisfi ed with their performance.
There have been a number of regulatory changes during 2014 that reinforced the role of the Audit Committee, on behalf of the Board, in ensuring that the Annual Report, taken as a whole, is fair, balanced and understandable.
In the year ended 31 March 2014, the Audit Committee discharged its responsibilities by:
• Reviewing the Group’s draft Financial Statements, preliminary announcements and interim results statement prior to Board approval and reviewing the external Auditors’ reports thereon;
• Reviewing the external Auditors’ plan for the audit of the Group Financial Statements, confi rmations of A uditor independence and proposed audit fee and approving terms of engagement for the audit;
• Reviewing the external Auditors’ internal control recommendations;
• Reviewing the Group’s whistle-blowing procedures to ensure that employees are able to raise concerns, in confi dence, about possible wrong-doing;
• Reviewing the risk management programme; and
• Monitoring of and reporting and follow up of items reported on the employee hotline established in line with the Code of Ethics.
The Committee considered the 2014 Annual Report and Financial Statements in the context of whether they were fair, balanced and understandable and were able to report to the Board that the 2014 Annual Report and Financial Statements when taken as a whole were fair, balanced and understandable.
Signifi cant issues considered by the Audit CommitteeWith the support of the external A uditor the Committee assessed whether suitable accounting policies had been adopted, whether management had made appropriate estimates and judgements and whether disclosures were balanced and fair. The main areas of focus that were specifi cally considered for the year ended 31 March 2014 are set out below:
• The accounting for the acquisition of Flybrid Automotive Limited during the year, including the determination of the fair value and useful lives of all assets and liabilities acquired and any goodwill recognised. The Committee was satisfi ed that accounting and disclosures were appropriate;
• The Committee considered the carrying value of intangible assets and potential impairments, including the intangible assets acquired as part of the acquisition of Flybrid Automotive Limited and was satisfi ed that no provisions were required and the disclosures reasonable and appropriate;
• The accounting for exceptional costs related to the fund raise, the acquisition of Flybrid Automotive Limited and the restructuring of the Group. The Committee was satisfi ed with the treatment and disclosures relating to these exceptional costs;
• The recognition of revenue relating to license fees and other contracts. The Committee was satisfi ed with the accounting and related disclosures;
• The Company’s business is developing and licensing intellectual property and manufacturing lower- volume products to enable vehicle manufacturers to meet fuel- effi ciency and emissions reduction regulations. The Group seeks to fi nance the costs of developing its technology through a combination of equity and license fees, collaboration with commercial partners in engineering services and government grant programmes and the sale of manufactured products. Revenues from developing and exploiting its technology are diffi cult to predict in terms of timing and size, frequently arising at irregular intervals. For the current fi nancial year, before taking into account the acquisition and related fund raise, the Group was not cash generative. Based on the budget for the next 12 months and the Group’s long-term business plan, the Group may not achieve positive cash fl ow from operations. The Committee has reviewed the Group’s fi nancial plans for the next 12 months and business plan, and taking into account the commercial opportunities available to the Group, the Committee is satisfi ed that management’s recommendation to prepare the Financial Statements on a going concern basis was appropriate.
Remuneration CommitteeThe Remuneration Committee is chaired by Nick Barter. The Committee determines the policy for remuneration for the Executive Directors and makes recommendations to the Board, having taken independent advice where required and having obtained the relevant data in order to undertake meaningful comparator analysis. The Board’s Executive Directors review the remuneration of Non-Executive Directors with guidance from the Chairman, except in relation to the Chairman’s own remuneration. The Directors’ Remuneration Report, on pages 32 to 44, gives further details on the remuneration of Directors.
Nominations CommitteeThe Nominations Committee is chaired by John Weston and reviews proposals for the appointment of Executive and Non-Executive Directors, or the extension of existing appointments, and makes recommendations for approval by the Board.
The terms and conditions of appointment of Directors are available for inspection at the Company’s registered offi ce and will be available at the Annual General Meeting to be held on 31 July 2014.
Board effectivenessThe Board’s evaluation of the individual performance of its Directors, as well as the effectiveness of the Board as a whole, follows a process of confi dential questionnaires to be completed by each of the Directors. In addition, the Chairman conducts individual meetings in which results and development actions may be discussed. The results are fed back individually and to the Board or Nominations Committee as appropriate. In addition, the performance of Executive Directors is appraised according to agreed objectives and performance in relation to annual budgets and the business plan. The Chief Executive’s performance is appraised by the Chairman and Remuneration Committee, and other Executives are appraised by the Chief Executive.
The Board met 18 times during the year with attendance at the main Board meetings and Committees as follows:
Audit Remuneration Nominations
Board Committee Committee Committee
John Weston 18/18 3/3 6/6 –
Jeremy Deering (i) 18/18 3/3 n/a –
Rex Vevers (i) (ii) 16/16 3/3 n/a –
Jon Hilton (iv) 4/4 n/a n/a –
Garry Wilson (v) 15/15 2/2 n/a –
Nick Barter 18/18 3/3 6/6 –
John McLaren (iii) 16/16 3/3 5/5 –
Notes(i) Jeremy Deering and Rex Vevers were present at the Audit Committee meetings in an attendance capacity only. Jeremy Deering and Rex Vevers attended the Remuneration Committee meetings only in part. (ii) Rex Vevers was appointed to the Board on 27 June 2013. (iii) John McLaren was appointed to the Board on 27 June 2013.(iv) Jon Hilton was appointed to the Board on 9 January 2014.(v) Garry Wilson stepped down from the Board on 9 January 2014.
Risk management and internal controlThe Board is ultimately responsible for the Group’s system of internal control and reviews the effectiveness of such controls at the time of business planning and in the context of the Audit Committee’s meetings twice a year. The control systems are designed to manage, rather than eliminate, various risks of failure to achieve the Company and Group’s objectives and therefore are only able to provide reasonable, and not absolute, assurance against material misstatement or loss.
There is a comprehensive system of fi nancial reporting with monthly performance reports presented to the Board. The annual budget and the business plan, upon which the budget is based, is reviewed and approved by the Board.
The Board is of the view that there is an on going process for identifying, evaluating and managing the Group’s signifi cant risks, that it has been in place for the year ended 31 March 2014 and up to the date of the Annual Report and Financial Statements, that it is regularly reviewed by the Board and that it accords with the Turnbull guidance for Directors on the Code. Risk management and opportunity cost mitigation is a central part of regular Board review and assessment.
Major commercial, technological and fi nancial risks are formally assessed during the annual business planning process, which normally takes place in the last quarter of the fi nancial year. The Board monitors exposure to key business risks and progress towards achieving strategic aims.
Executive Directors and senior management meet regularly to monitor and control operations. Business performance is reviewed, risks and opportunities identifi ed, fi nancial and other implications assessed and corrective actions agreed as necessary.
Given the Group’s scale of operations and centralisation of activities, the Board does not consider it necessary to have a dedicated internal audit function. Instead, it has chosen to contract out such additional activities as may be appropriate from time to time. The internal controls extend to the fi nancial reporting process and the preparation of consolidated Financial Statements.
Confl icts of interestThe Group has in place procedures for the disclosure and review of any confl icts or potential confl icts of interest which the Directors may have and for the authorisation of such confl icts by the Board. During the year there were no such confl icts of interest.
Strategy and business modelInformation on the Torotrak plc business model and strategy for generating and preserving long- term growth and delivering on the Company’s stated objectives is set out on page 1 of the Annual Report and Financial Statements.
Relations with ShareholdersThe Chief Executive is the principal point of contact for Shareholders. The Chairman or the Senior Non-Executive Director is available to Shareholders where normal channels of communication may not be appropriate or where the Executive Directors have not resolved the matter.
The Company gives high priority to communications with Shareholders and has an active and rolling investor relations programme, which includes regular meetings with institutions, private investor intermediaries, and the Torotrak Private Shareholders’ Association. A section of the Company’s website is dedicated to investors.
The Board is made aware of the views of major and other Shareholders through reports and feedback made available at Board meetings following meetings with investors and through the Company’s b rokers and fi nancial PR advisers. The Board also reviews and seeks to understand the reasons for any substantial movements in the Shareholder register, through appropriate analysis supplied at Board meetings.
All Shareholders are welcomed at the Company’s Annual General Meeting, which the Board considers to be an important forum for investor communication. Notice of the Annual General Meeting is contained within this Annual Report on pages 76 to 81. In particular, the meeting provides an opportunity for investors to meet with the Board and Chairmen of the Board Committees.
Joint v entureThe statements below refer to Torotrak plc and the subsidiaries under its control.
The Group’s interest in a joint venture company is managed via a separate Board that consists of an equal number of Torotrak appointed Directors to the Directors appointed by Torotrak’s joint venture partner. The Group seeks to implement, through this separate Board, appropriate risk management and controls, including the approval and setting of budgets and business plans, authority limits and regular fi nancial reporting. Key decisions that would, if the joint venture company were a 100 per cent. subsidiary, require Torotrak plc Board approval, are referred to the Torotrak Board for approval prior to commitments being agreed at joint venture Board meetings. During the year, the Company had a joint venture interest in Rotrak Ltd (following its formation on 19 April 2010), although there have been no trading transactions during the year.
Share capital and take-over directive requirementsThe share capital of the Company represents o rdinary s hares only, carrying equal rights to dividend and carrying one vote per share. Ordinary s hares are classifi ed in equity. No shares carry restrictions or special rights and no dividends have been waived by any Shareholders.
Authority to purchase shares At the Annual General Meeting held on 25 July 2013, the Shareholders passed a resolution authorising the purchase by the Company of its own shares to a maximum of 17,671 ,349 o rdinary s hares of 10 pence each. That authority has not been used and remains in force until the conclusion of the Annual General Meeting to be held on 31 July 2014.
Directors’ Remuneration Report (Information not subject to audit)
Annual Statement by the Chairman of the Remuneration CommitteeAt Torotrak’s current stage of development, as a technology company with production-based profi tability still in the future, the balance of our Directors’ remuneration packages is likely to differ from companies in other sectors, or those with more mature operational earnings.
Our remuneration strategy is linked integrally to our business strategy, and is designed to reward performance and behaviours that deliver against our Group’s plan. Our current business strategy, as detailed in the Strategic Report on pages 1 to 20, is focused on a medium to long-term plan for growth in Shareholder value, and so our remuneration strategy is designed to reward delivery over this same, longer-term, timescale. The aim of this is to attract, and most importantly to retain, high-calibre, high-performing Directors and senior management, who are committed to and deliver growth in this way and to ensure that Directors’ pay is fair and reasonable relative to other employees.
In order to achieve this strategy, the fi rst priority of the remuneration policy is to attribute a greater proportion of remuneration opportunity linked to performance, and to reduce base salary as a percentage of overall compensation. This means that Directors and senior management are more directly accountable to the Board and to Shareholders for delivering against objectives.
Longer-term performance is rewarded through a long-term incentive plan, which in recent years has focused heavily on ensuring strong liquidity and cash generation to fund research and product development, whilst also diversifying the business and building conditions for future growth. Without this strength of underlying cash generation and resulting cash availability, the Company’s future business growth plans could be at risk. Looking forward, the focus of the business will increasingly move to commercialising our technologies through licensing and lower -volume manufacture and product sales. Longer -term performance targets will thus progressively move to refl ect this focus.
Our policy aims to deliver an increase in total Shareholder return, as refl ected in the share price relative to other stocks on the FTSE techMARK index. However, we strongly believe that the policy should not be entirely focused on share price, as shorter-term share price movements can be volatile and do not necessarily refl ect successful creation of long-term value, especially in current market conditions. We consider it to be more important that Directors strive towards delivering robust, sustainable, longer-term Shareholder value.
Shorter-term performance is rewarded through base salary, benefi ts and through the annual bonus scheme, which is paid currently in cash rather than shares so as not to increase share dilution.
Nick BarterChairman of the Remuneration Committee28 May 2014
This Report sets out the information required by the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 and the Listing Rules of the Financial Conduct Authority. This Report is unaudited unless otherwise stated. An ordinary resolution to approve this Report will be put to the Annual General Meeting on 31 July 2014.
Remuneration governanceThe Remuneration Committee is responsible for determining, within agreed terms of reference approved by Shareholders, the policy for the remuneration of the Chairman, the Executive Directors of Torotrak plc and the senior management team. The Committee is also responsible for determining the individual remuneration packages for Executive Directors including base salary and annual bonuses, the level and terms of grants of options and awards, and the terms of any performance conditions that apply to the exercise of such options and awards, pension rights and other benefi ts. Where the Remuneration Committee considers it appropriate, the Committee will also make recommendations in relation to the remuneration of senior management.
The Remuneration Committee consists exclusively of independent Non-Executive Directors. The Chairman of the Committee is Nick Barter and the other members are John Weston and John McLaren. Given their diverse experience, the independent Non-Executive Directors are able to offer a balanced view with respect to remuneration issues of the Group. The Committee has access to professional, independent advice from external advisers who do not have any other connection with the Company or Group. The Committee has taken advice during the year from Squire Sanders (UK) LLP (in relation to operation of the Long- Term Performance Share Plan). The Committee consults with the Chief Executive on the remuneration of the other Executive Directors and senior management. The Chief Executive normally attends part of the Remuneration Committee meetings. No Director or senior manager is involved in deciding his or her own remuneration.
Remuneration policyThe Company’s policy for the remuneration of Executive Directors aims to achieve the above strategic objectives and includes:
• Decreasing the value of non-performance related pay as a percentage of total opportunity and aligning pay more substantially with performance;
• Setting variable pay such that maximum achievement is highly stretching;
• Making variable pay work to maximum effect by ensuring that targets are reported and reviewed on a regular basis; and
• Setting top achievement compensation, including variable pay, at upper quartile levels in the market and bottom end achievement at lower quartile levels.
New regulations came into force on 1 October 2013, which require the Company to offer Shareholders a binding vote on the Company’s forward-looking D irectors’ remuneration policy at least every three years. Once the policy is approved, the Company will not be able to make a remuneration payment to a current or prospective D irector or a payment for loss of offi ce to a current or a past D irector, unless that payment is consistent with the policy or has been approved by a resolution of the members of the Company.
Shareholders are being asked to approve the remuneration policy as set out below, such policy to take effect from the date on which the resolution is passed.
Elements of remunerationRemuneration for Executive Directors comprises both fi xed and variable elements. The primary component of the fi xed element is a base salary, which is set at an appropriate level taking into account a number of factors including: the opportunity value of the Company capable of being created; the complexity and variety of skill sets required; and the international nature and scale of customers being addressed. These factors are considered in order to attract and retain the quality of the management to deliver the Company’s strategy and to pitch remuneration packages as competitive but not excessive. The base salary is reviewed annually.
The variable element of the remuneration is designed to incentivise and motivate Executive Directors to meet annual performance targets and reward performance. The variable element consists of a performance-related bonus paid in cash or shares or a combination and participation in a share -based long- term incentive plan.
No claw back or recovery provisions apply to any of the elements of remuneration.
The fi xed and variable elements are set out on pages 34 and 35 .
Element and purpose Policy and opportunity Operation and performance measures
Implementation of policy in year
Base salary:
This is the basic element of pay and takes into account the person’s role, position and responsibility adjusted to refl ect their experience and personal contribution.
Reviewed annually, although the policy is not to automatically award an infl ationary increase.
Base salaries are set in the context of salaries paid in organisations of similar size, complexity and type in order to attract and retain Executive Directors. The Committee applies its judgement in this regards.
Base salary is paid monthly in arrears.
Base salaries are reviewed annually.
For the year ended 31 March 2014, no salary increases were awarded to any Executive Director.
The maximum salary increase will normally be in line with the market. However, larger increases may be awarded in certain circumstances.
Benefi ts in kind:
To provide other benefi ts to assist in attracting and retaining Executive Directors.
Benefi ts include:
Car allowance and fuel allowance paid in cash,
Private medical insurance for the E xecutive and family,
Life assurance of 4 times base salary,
Income protection insurance and living allowance.
All Executive Directors receive (or are entitled to receive) all of these benefi ts, with the exception of a living allowance that was paid to Garry Wilson only.
Non-Executive Directors are entitled to receive a mileage allowance.
No changes were made during the year ended 31 March 2014 and none are expected in future years.
Pension:
To provide pension provision to remain competitive in the market.
All Directors have the option of a contribution of up to 15 per cent. of base salary paid into a Company sponsored defi ned contribution scheme or payable into a personal pension scheme. From April 2014, employer contributions can be paid as a taxable cash allowance on a cost neutral basis to the Company.
All Executive Directors are entitled to receive this benefi t.
No changes were made in the current fi nancial year.
Post 5 April 2014, Jeremy Deering and Rex Vevers have elected to receive an amount of 15 per cent. of base salary as a taxable cash allowance in lieu of further contributions into their personal pension schemes.
Variable components
Element and purpose Policy and opportunity Operation and performance measures
Implementation of policy in year
Annual bonus:
Performance-related bonus designed to motivate and incentivise delivery of annual performance targets.
The maximum bonus potential is 100 per cent. of base salary and is payable in cash, shares or a combination of both.
The Company retains the ability to adjust or set different performance measures if events occur which cause it to determine that the original conditions are no longer appropriate and that an amendment is required so that the amendments achieve their original purpose. Any use of this ability would, where relevant, be explained in the Annual Report and may, as appropriate, be subject to consultation with the Company’s major Shareholders.
Bonus levels and appropriate performance measures are reviewed annually.
Bonus levels are based on a range of KPIs set at the beginning of each fi nancial year. These are linked to the Company’s future business growth linked to commercialising the technologies through licensing and lower -volume manufacture and generating cash.
Targets for the annual bonus are set at the beginning of each fi nancial year based on items that are key to progressing the business strategy.
Bonuses are paid annually usually in May/June.
Bonuses awarded in respect of the year ended 31 March 2014 were:
Jeremy Deering £203k (90 per cent. of base salary) .
Rex Vevers £102k (85 per cent. of base salary, pro rata for the period from the date of joining). It was agreed that Rex Vevers would also be awarded a payment of 50 per cent. of salary to be made in lieu of a special LTPSP grant that should have been awarded as a condition of his employment.
Garry Wilson £30k (20 per cent. of base salary).
See the list of targets set out in the table later in this Report.
Element and purpose Policy and opportunity Operation and performance measures
Implementation of policy in year
Long -Term P erformance S hare P lan
(“LTPSP”):
To link a proportion of the Executive’s remuneration to the Company’s long- term performance and to align the interests of the Executives with those of the Company’s Shareholders.
To strengthen the ability of the Company to attract and retain key Executives.
The maximum value of shares granted shall be 100 per cent. of base salary in any fi nancial year , subject to any greater percentage being approved by Shareholders from time to time . This amount shall be increased to take into account secondary Class 1 National Insurance contributions to be borne by the Executives.
Awards give Executives the right to receive a specifi ed number of shares at the end of a period of three years subject to satisfaction of performance-related conditions.
Performance conditions attaching to the LTPSP awards are designed to be challenging and relate to both market and non-market performance conditions measured over a three-year period.
See the table A below for the performance conditions.
There were no long- term incentive awards made in the year.
Share Incentive Plan (“SIP”) :
To encourage share ownership and align the interest of employees with those of the Company’s Shareholders.
Shares can be obtained through the award of Free Shares, Partnership Shares, Matching Shares and/or Dividend Shares , up to the HMRC limits prevailing at the date of the award.
Free Shares are awarded up to the HMRC maximum value , currently £3,600 in each tax year. There are no performance conditions. The shares on exercise must be held for three years.
Employees may apply pre-tax salary to purchase Partnership Shares up to the HMRC maximum limit , currently £1,800 each year.
The Company awards two free Matching Shares to an employee who purchased Partnership Shares, which are forfeited on a sliding scale basis if not held for three years.
Executive Directors did not participate in this scheme in the year ended 31 March 2014 and have elected not to participate in prior years.
Savings-Related Share Option
Scheme (“Sharesave”) :
To encourage share ownership and align the interest of employees with those of the Company’s Shareholders.
In accordance with HMRC rules, all employees of the Group including Executive Directors can save up to a nominated fi gure not exceeding the HMRC limit (currently £500 per month) into a sharesave account and purchase shares after three years at the prevailing share price at the start of the scheme less a 20 per cent. discount.
All employees are entitled to participate in the scheme.
A new sharesave scheme was launched in March 2014.
Shareholding guidelines: Executives are encouraged to have a shareholding in the Company. Whilst not contractual, this position is an important sign of personal commitment to the success of the Group.
During the year, the Executives participated in the fi rm p lacing and o pen o ffer, amounting to £100k.
The performance measures for the LTPSP awards that have not yet vested are as follows:
Table A
Market conditions – up to 50 per cent. of the shares subject to performance conditions
Non-market conditions – up to 50 per cent. of the shares subject to performance conditions
Requires the achievement of a measure of TSR against the TSR of the FTSE techMARK All-Share Index (“Comparator Group”). A quarter of the shares in this part of the award would be received if Torotrak’s TSR was ranked at a required percentage constituent within the Comparator Group (“Required Percentage”).
The maximum number of shares in this part of the award would vest if Torotrak’s TSR was at or above a defi ned upper percentage (“Stretch Percentage”) of the Comparator Group. A sliding scale operates between the two levels of award. No shares in this part of the award would be received if at the vesting date Torotrak’s TSR was not at or above the Required Percentage.
Requires the achievement of a measure of operating performance (“Operating Performance Measure”) for the three-year period commencing at the beginning of the fi nancial year in which the award is granted. A quarter of the shares in this part of the award would be received if that operating performance met a required target (“Required Target”).
The maximum number of shares in this part of the award would be received if the Required Target was exceeded by a predetermined margin (“Stretch Target”). A sliding scale will operate between the two levels of award. No shares would be received for this part of the award if the Required Target was not achieved or exceeded.
Table B
Awards under LTPSP Market conditions – up to 50 per cent. of the shares subject to performance conditions
Required and Stretch Percentages
Non-market conditions – up to 50 per cent. of the shares subject to performance conditions
Operating Performance Measure
Year ended 31 March 2011 Required Percentage: 40 per cent. ranking from the top of the Comparator Group.
Stretch Percentage: 25 per cent. ranking from the top of the Comparator Group.
Cumulative n et c ash fl ow set by reference to the b usiness p lan.
Year ended 31 March 2012, 2013
Required Percentage: 40 per cent. ranking from the top of the Comparator Group.
Stretch Percentage: 25 per cent. ranking from the top of the Comparator Group.
Closing cash balance set by reference to the b usiness p lan. For 2013, a minimum s hare p rice increase was also required as a pre-requisite for this part of the award being granted.
The LTPSP awards that have been determined in the years to 31 March 2014 and 2013 are analysed below. The business performance measures relate to the three years to 31 March prior to the determination of the awards. The TSR measures relate to the three- year period leading up to the determination of the awards.
Gross operating Percentage of Percentage of cash infl ow and award granted in Ranking in award granted working capital relation to cash techMARK TSR over in relation over 3 years fl ow measure three years, if within to TSR measure Date of determination of award £m % qualifying range %
Oct-12
(Award Sept-09) 20.5 30 N/a 0
Feb-14
(Award Dec-10) 17.2 44 N/a 0
The basis behind the business performance measure is designed to achieve cash resilience after funding of development and capital expenditure in the period prior to production royalties or other recurring revenues. The Committee also makes adjustments to take into account the timing or exceptional nature of payments and receipts (including acquisitions and fund raisings), either positive or negative to the fi nal result. A further analysis of the cash -based award is as follows:
Percentage Gross operating Development coverage of Adjusted cash infl ow and working and capital development and net cash outfl ow capital over 3 years expenditure capital costs over 3 yearsDate of determination of award £m £m % £m
Recruitment remuneration policyThe Company’s recruitment remuneration policy aims to secure the appointment and promotion of high-calibre executives to strengthen the management team and secure the appropriate skills to deliver the Company’s strategic objectives.
• The starting point is the general remuneration policy for Executive Directors as set out above and structure a package in accordance with that policy;
• For external candidates, the Committee reserves the right to make payments outside of this policy, but only if the Committee felt it was necessary and in the best interest of the Company. Any use of this discretion would be disclosed to Shareholders;
• For certain candidates, the Committee may agree that it is appropriate to offer relocation and legal expenses as it considers appropriate. Any assistance given will be subject to a clawback for service of less than 24 months; and
• Where necessary the Committee may pay a recruitment-related pay award to secure an exceptional candidate.
Statement of voting at General MeetingAt the Annual General Meeting held on 25 July 2013, the Directors’ Remuneration Report received the following votes from Shareholders:
For 98.97%
Against 1.03%
Performance chartThe FTSE techMARK All-Share Index is the index used by the Committee for measurement of relative performance in relation to total Shareholder return (TSR). The chart below compares the total cumulative Shareholder return of Torotrak plc with the performance of the FTSE techMARK All-Share Index over the last fi ve years. The Committee is of the view that this index constitutes a relevant broad equity market index .
TRK vs FTSE techMARK All-Share – 5 years
0
50
100
150
200
250
300
350
Apr 2
009
Jul 2
009
Oct 2
009
Jan
2010
Apr 2
010
Jul 2
010
Oct 2
010
Jan
2011
Apr 2
011
Jul 2
011
Oct 2
011
Jan
2012
Apr 2
012
Jul 2
012
Oct 2
012
Jan
2013
Apr 2
013
Jul 2
013
Oct 2
013
Jan
2014
Apr 2
014
reba
sed
to 1
00
TRK Techmark All Share
Shareholder return growth as measured by share price relative to the FTSE techMARK All-Share was negative in the year.
Change in Chief Executive’s remuneration The table below shows the change in the Chief Executive’s remuneration over the last 5 years :
Notes (i) Dick Elsy left the c ompany on 28 September 2012 and Jeremy Deering took over as Chief Executive on 31 August 2012. The amount included for Jeremy Deering is calculated from the date of appointment as Chief
Executive.(ii) The amounts included in the above fi gures for the LTPSP awards that have vested have been based on the mid-market closing price at the end of the fi nancial year for 2010, 2011 and 2012. For 2013 and 2014 the
awards have been calculated based on the average share price for the last quarter of the fi nancial year.
Percentage change in remuneration of Chief Executive Offi cer and employeesThe table below shows the percentage change in remuneration of the Chief Executive and the Group’s employees as a whole between 2014 and 2013.
Average based on Chief Executive all employees
Salary 0% 2%
Benefi ts 10% 11%
Annual bonus 13% 11%
As the Company has not paid a dividend no table is provided showing the relative importance of spend on pay relative to dividends.
The Group’s actual spend on pay for all employees is shown in note 22 to the Financial Statements.
Estimates of total future remuneration The charts below provide estimates of the potential future remuneration for each Executive Director in respect of the remuneration package available under the policy set out in this Report.
Remuneration charts – value of overall package (£ 000)
Remuneration charts – composition of overall package (%)
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Base
Jeremy Deering - composition of overall package (%)
Salary
Benefits
Pensions
Bonus
LTPSP
On Target
Maximum
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Base
Rex Vevers - composition of overall package (%)
Salary
Benefits
Pensions
Bonus
On Target
Maximum
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Base
Jon Hilton - composition of overall package (%)
Salary
Benefits
Pensions
Bonus
On Target
Maximum
Notes(i) Salary, benefi ts and pension are based on the amounts received in 2014.(ii) LTPSP is based on the amount that could potentially vest in the next fi nancial year valued at the share price at the end of March 2014. Rex Vevers and Jon Hilton have no LTPSP awards that could vest in the next
fi nancial year.(iii) Maximum annual award is defi ned as the maximum amount achievable in the year, for LTPSP this is the maximum amount that could vest in the period.(iv) On target award is defi ned as a performance that would expect to achieve a 50% bonus payment and a 50% LTPSP vesting position. (v) Base is defi ned as being below the threshold for performance related awards; only the fi xed elements of the total reward are appropriate and hence bonus or LTPSP vesting would not be achieved. (vi) The above charts exclude any potential earn-out receivable by Jon Hilton.
Remuneration implementationThe Executive Directors’ employment contracts are continuing contracts subject to termination on twelve months’ written notice by the Company. There are no provisions for compensation on early termination in any of the Executive Directors’ employment contracts. Jeremy Deering, Rex Vevers and Jon Hilton have service agreements with start dates of 22 December 2006, 27 June 2013 and 9 January 2014, respectively. Jeremy Deering’s service contract terms were updated to refl ect latest best practice upon becoming Chief Executive in September 2012; there were no special incentives or relaxations in any targets that were agreed.
As part of the terms of the acquisition of Flybrid, Jon Hilton is eligible to receive potential earn-out consideration up to a maximum of £10.5 million subject to Flybrid achieving certain performance targets during the period from completion up to and including 31 March 2021. These performance targets are linked to the successful development and commercialisation of Flybrid’s technology including meeting minimum revenue targets and gross margins from the sale of KERS units, licensing, royalties and engineering services. In accordance with the requirements of IFRS 3, ‘Business Combinations’, the Group is obliged to include any earn-out consideration relating to the acquisition of Flybrid received by Jon Hilton as part of his remuneration for the purposes of inclusion in the Annual Report and Remuneration Report. The award of earn-out consideration is not at the discretion of the Remuneration Committee and does not fall within the scope of the Company’s Strategy and Policy on remunerating Executive Directors; this is subject solely to contractual arrangements entered into between the Company and Jon Hilton on the acquisition of Flybrid. However, the Remuneration Committee, as part of its role in setting Executive Director remuneration, will satisfy itself that such earn-out consideration meets the contractual requirements in order to be paid.
The Non-Executive Directors do not have service contracts. However, each of them has a letter of appointment that contains a notice period of three months. Nick Barter’s letter of appointment is dated 27 June 2013 (revised from 30 June 2006), John Weston’s letter of appointment is dated 3 May 2011 and John McLaren’s letter of appointment is dated 27 June 2013. The letters of appointment set out the expected time commitment; any other signifi cant time commitments of the Non-Executive Directors are disclosed to the Board and substantial changes brought to the Board’s attention. Non-Executive Directors are not appointed for specifi c terms but are subject to re-election by Shareholders every three years or earlier, subject to the Articles of Association. The remuneration of the Non-Executive Directors is established by the Board within the limits set out in the Articles of Association. Non-Executive Directors do not participate in the Company’s employee share option schemes or the LTPSP, are not eligible for bonuses, and do not receive any other benefi ts or pension rights under the pension scheme.
Upon his appointment as a Director on 1 June 2011, John Weston was made a conditional one-off grant of share options, which was approved by Shareholders at the Company’s Annual General Meeting on 29 July 2011. The exercise price was set at 48.25p, being the average closing mid-market share price of the Company for the fi ve days following the Company’s Preliminary Announcement on 25 May 2011. Options over shares were conditionally granted up to a maximum of £140,000 in value and matched shares also personally acquired. Options vest between three and ten years after grant as to 50 per cent. if the share price increases by at least 33 per cent., and as to 100 per cent. if the share price increases by at least 67 per cent. over a defi ned period. These share options were a one-off grant and have no relationship to the Long -Term Performance Share Plan, which provides for annual grants of shares to Executives only.
The Executive Director’s’ service contracts and Non-Executive Directors’ letters of appointment are available for inspection at the Company’s registered offi ce.
Policy on payment for loss of offi ceExecutive Directors are eligible to receive compensation for any remuneration and benefi ts on termination of employment that follows an assessment of their contractual rights. The Company may consider pro rata payment of any accrued bonus entitlement within the remuneration policy. In addition to any contractual rights to a payment for loss of offi ce, all employees (including Executive Directors) will have legal rights under law to certain additional payments e.g. redundancy situation.
During the year £116k was paid to Garry Wilson for loss of offi ce (as shown in the table on page 42 ). The payment for loss of offi ce was determined in accordance with the terms of the employment contract and the employee’s legal rights. The Committee exercised its discretion to permit unvested LTPSP awards, pro rated to the date of leaving, to be retained.
Bonus scheme
For the year ended 31 March 2014, targets were set, at the beginning of the fi nancial year, which refl ected a mix of business development targets, licensing achievements, strategic review and execution and cash fl ow measures, as follows:
Main bonus measures Percentage of bonus opportunity
Securing new funding and completing the acquisition of Flybrid 40%see page 16
Delivering a successful outcome from accelerated testing of discs and rollers and securing the next stage programme with Allison
25%see page 12
Developing KERS and V-Charge business further 20% see page 10 and 11
Securing new business prospects for future revenue generation 10% see pages 10 to 12
Other 5%
Progress in relation to the business areas relating to the elements of bonus are described on the pages referenced in the table and on page 14.
Long-Term Performance Share Plans (“LTPSP”) Awards under the LTPSP are intended to be made to Executive Directors, senior management and key employees of Torotrak plc and its subsidiaries. The maximum value of shares determined at the grant date for any individual shall in any fi nancial year be 100 per cent. of basic salary in the case of an Executive Director of the Company, or 60 per cent. of basic salary for other employees. These limits shall be increased to take into account secondary Class 1 National Insurance contributions that are to be borne by participants. Awards under the LTPSP and any other employee share scheme granted at that time or during the previous ten-year period shall not exceed 12.5 per cent. of the issued share capital of the Company at that time. Shares held in trust under the Torotrak Share Incentive Plan (SIP) and granted under the scheme (described below) do not count towards this limit.
Awards give participants the right to receive a specifi ed number of shares at the end of a period of at least three years, subject to the satisfaction of performance-related conditions. The Remuneration Committee sets these conditions in accordance with the rules of the LTPSP, which require that an award be subject to an objective condition or conditions relating to the performance of the Group over a given period.
If a participant ceases to be employed in the Group because of death, injury, disability or retirement upon reaching the age when the participant becomes bound to retire under his or her employment contract, an award will not lapse due to that cessation. However, the number of shares to which the award relates will be pro rated down to refl ect the proportion of the usual three-year period that has elapsed at the time of cessation of employment. The Remuneration Committee would determine the basis on which the performance conditions would apply in these circumstances. If a participant ceases to be employed for any other reason, awards will lapse unless the Remuneration Committee in its discretion permits otherwise. In the event of a change in control of the Company (other than as a result of a re-organisation), participants will normally be entitled to receive the shares in respect of which an award has been made, subject to the application of a modifi ed version of the performance condition that applies to the award. Benefi ts under the LTPSP are not pensionable.
There were no LTPSP awards granted during the year (2013: 2,058,438).
The performance conditions attaching to the LTPSP awarded are designed to be challenging, and relate to both market and non-market performance conditions measured over a three-year period.
The business-related targets have in recent years been set consistently so as to achieve what has been publicly stated as a critical objective – namely, whilst progressing business and technical development ensure cash is generated from operations ahead of commercialisation to substantially fund development investment.
The Torotrak Savings-Related Share Option Scheme (“Sharesave Scheme”)In addition to the above long-term incentive scheme, the Company operates an HMRC-approved savings-related share option scheme, details of which are given in note 26.
The Share Incentive Plan (“SIP Scheme”)The SIP is constituted under the rules of the Torotrak Share Incentive Plan. The SIP has been approved by HMRC under schedule 2 to the Income Tax (Earnings and Pensions) Act 2003.
Eligibility
All full-time and part-time employees and Executive Directors of the Company are eligible to join the scheme.
Non-Executive Directors of the Company are not eligible to participate in the SIP.
Trustee
The SIP is operated through a UK-resident trust, the trustee is Torotrak (Holdings) Limited (the “Trustee”).
The structure of the SIP allows the Trustee to subscribe for, or purchase, ordinary shares in the Company. The money to acquire these shares is provided to the Trustee either by the Company (or the relevant employing company) or, in the case of Partnership Shares (see below), by deduction from the participant’s pre-tax salary.
Awards of Shares
The SIP provides up to four ways for eligible employees to obtain shares through the award of Free Shares, Partnership Shares, Matching Shares and/or Dividend Shares, the principal features of which are set out below. The Company can, at its discretion, offer any or all of these awards to eligible employees. All SIP shares are initially acquired on behalf of participants and held for them by the Trustee.
Free Shares
Free Shares have been awarded to each eligible employee up to a maximum market value of £3,000 in each tax year. Free Shares have been awarded on a similar basis to all employees, being 3 per cent. of salary. There were no performance conditions.
A holding period of three years from date of award applies to Free Shares, during which time the participant may not withdraw the Free Shares from the SIP unless he or she leaves employment. The Company may determine that the employee may forfeit all or part of his or her Free Share award if the shares are removed from the SIP within a period of up to three years from the date of award. Forfeiture will not apply in the event that the employee ceases employment because of death, injury, disability, redundancy, sale of the employing business or Company, or retirement on or after reaching the age of 65.
Partnership Shares
The Company has allowed employees to apply pre-tax salary to purchase Partnership Shares up to the permitted limit of £1,500 per tax year.
Matching Shares
The Company has offered two Matching Shares free to an employee who purchased Partnership Shares. All awards of Matching Shares have been made on the same basis to all employees and are subject to a holding period in order to receive all of the Matching Shares. The Company has specifi ed that some or all of the Matching Shares would be forfeited if employees withdrew their Partnership Shares or left employment other than because of death, injury, disability, redundancy, sale of the employing business or Company, or retirement on or after reaching the age of 65 within a period of up to three years from the date of award, on a sliding scale basis in accordance with the scheme rules.
The scheme sets out the rights and obligations for each Free and Partnership Share agreement in respect of dividends paid on the plan shares should this become applicable in the future.
The Executive Directors have not participated in this scheme.
The Non-Executive Directors were not entitled to participate in the scheme.
The number of shares held by the Trustee under the scheme is as follows:
Free S hares 371,804
Partnership S hares 344,558
Matching S hares 689,116
Forfeited/unallocated S hares 12,911
Total S hares 1,418,389
Directors’ remuneration 2014 (audited information) Payments connected to Total Salary and Benefi ts in Annual termination Total LTPSP Company reward fees kind (i) b onus as a Director emoluments v ested (vi) pension 2014 £000 £000 £000 £000 £000 £000 £000 £000
Notes (i) Benefi ts in kind include car allowance, living allowance, fuel, death in service and income protection cover plus medical insurance, for Executive Directors. Non-Executive Directors are entitled to receive a mileage
allowance.(ii) From date of appointment 27.6.14. The 2013-14 bonus for Rex Vevers was set at 85% of salary, pro rated from the date of appointment. In addition, a payment of 50% of salary was awarded to Rex Vevers in lieu of a
special LTPSP grant that should have been awarded as a condition of his employment. (iii) From date of appointment 9.1.14.(iv) To date of resignation 9.1.14. The salary included in the table above excludes a salary sacrifi ce arrangement. Under this agreement Garry Wilson has sacrifi ced £14k and instead received an employer contribution into
his Aviva pension plan. An additional contribution of £2k was made by the Company and represents the saving in employer National Insurance contributions.(v) From date of appointment 27.6.14. (vi) The amount included for the LTPSP award that has vested has been valued at the average share price for the last quarter of the fi nancial year.
Directors’ remuneration 2013 (audited information) Total Salary and Benefi ts in Annual Total LTPSP Company reward fees kind (i) b onus emoluments vested (iv) pension 2013 £000 £000 £000 £000 £000 £000 £000
Executive Directors
Jeremy Deering 204 21 180 405 47 31 483
Dick Elsy (ii) 107 11 – 118 – 16 134
Garry Wilson (iii) 50 11 70 131 – 8 139
Non-Executive Directors
John Weston 50 1 – 51 – – 51
Nick Barter 25 1 – 26 – – 26
Total Directors’ emoluments 436 45 250 731 47 55 833
Notes (i) Benefi ts in kind include car allowance, living allowance, fuel, death in service and income protection cover plus medical insurance, for Executive Directors. Non-Executive Directors are entitled to receive a mileage allowance.(ii) To date of leaving 28.9.12.(iii) From date of appointment 28.11.12. The bonus payment refl ects the services provided for the full fi nancial year. The award made to Garry Wilson up to his date of appointment to the Board was £49k (including pension
of £7k and £5k of benefi ts in kind). The salary included in the table above excludes a salary sacrifi ce arrangement. Under this agreement Garry Wilson sacrifi ced £6k and instead received an employer contribution into his Aviva pension plan. An additional contribution of £1k was made by the Company and represents the saving in employer National Insurance contributions.
(iv) The amount included for the LTPSP award that has vested has been valued at the average share price for the last quarter of the fi nancial year.
Directors’ interests in share capital (audited information)The interests of the Directors (including benefi cial interests) in the share capital of the Company at 31 March 2014 and 31 March 2013 were as follows:
31 March 2014 31 March 2013 Number of shares Number of shares
Jeremy Deering 1,093,034 434,208
Nick Barter 205,929 67,041
John Weston 633,333 300,000
Rex Vevers 277,777 –
Jon Hilton 5,485,893 –
John McLaren 166,666 –
Between 31 March 2014 and the date of this Report there have been no dealings in shares by any of the Directors.
Directors’ interests in share options and awards over shares under the LTPSP (audited information) Options and Awards over Options awards over shares granted Exercised Lapsed and awards shares at during during during over shares at Exercise Earliest 1 April 201 3 the year the year the year 31 March 2014 price exercise Number Number Number Number Number £ date (ii)
Jeremy Deering
LTPSP 442,058 – (442,058) – – (i) Aug 2011
LTPSP 175,493 – (175,493) – – (i) Sept 2012
LTPSP 774,077 – – (431,471) 342,606 (i)(iii) Dec 2013
LTPSP 445,722 – – – 445,722 (i) Nov 2014
LTPSP 677,017 – – – 677,017 (i) Sept 2015
Garry Wilson
LTPSP 451,344 – – (184,642) 266,702 (i) Sept 2015
John Weston
Unapproved 290,155 – – – 290,155 0.4825 Jul 2011
Notes: (i) These awards were granted under the LTPSP scheme and each award of shares is satisfi ed by the exercise of an option for the sum of £1. No awards were granted during the year.(ii) The unapproved option issued to John Weston in June 2011 expires ten years after grant. In the case of LTPSP schemes, awards normally have to be exercised within one year of the expiry date. The Remuneration Committee
have the right to extend this period if prohibited dealing periods prevent exercise. (iii) These options have vested but remain unexercised. The performance conditions have been satisfi ed.
Aggregate gains on the LTPSP scheme during the yearThe LTPSP awards issued in August 2008 and September 2009 which have been exercised during the year ended 31 March 2014 resulted in a gain of £167k, calculated as the difference between the exercise price of the awards and the market value of the shares on the date of exercise.
The mid-market price of the ordinary shares on 31 March 2014 was £0.2050. During the year, the highest mid-market price was £0.3111 and the lowest was £0.1850. The average price was £0.2535.
Approved by the Board and signed on its behalf by:
The Directors are responsible for preparing the Annual Report, the Directors’ Remuneration Report and the Financial Statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare Financial Statements for each fi nancial year. Under that law the Directors have prepared the Group and Parent Company Financial Statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under Company law the Directors must not approve the Financial Statements unless they are satisfi ed that they give a true and fair view of the state of affairs of the Group and the Parent Company and of the profi t or loss of the Group for that period. In preparing these Financial Statements, the Directors are required to:
• Select suitable accounting policies and then apply them consistently;
• Make judgements and accounting estimates that are reasonable and prudent;
• State whether applicable IFRSs as adopted by the European Union have been followed, subject to any material departures disclosed and explained in the Financial Statements; and
• Prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business.
The Directors are responsible for keeping adequate accounting records that are suffi cient to show and explain the Group’s transactions and disclose with reasonable accuracy at any time the fi nancial position of the Parent Company and the Group and enable them to ensure that the Financial Statements and the Directors’ Remuneration Report comply with the Companies Act 2006 and, as regards the Group Financial Statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Parent Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the Group’s website. Legislation in the United Kingdom governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions.
The Directors consider that the A nnual R eport and Financial Statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for Shareholders to assess the Group’s and Parent Company’s performance, business model and strategy.
Each of the Directors, whose names and functions are listed on page 21 confi rm that, to the best of their knowledge:
• The Group Financial Statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, fi nancial position and loss of the Group; and
• The Directors’ Report contained in the Annual Report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.
Independent Auditors’ Report to the members of Torotrak plc
Report on the Financial Statements
Our opinionIn our opinion:
• The Financial Statements, defi ned below, give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 March 2014 and of the Group’s loss and the Group’s and the Parent Company’s cash fl ows for the year then ended;
• The Group Financial Statements have been properly prepared in accordance with International Financial Reporting Standards ( IFRSs) as adopted by the European Union;
• The Parent Company Financial Statements have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and
• The Financial Statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group Financial Statements, Article 4 of the IAS Regulation.
This opinion is to be read in the context of what we say in the remainder of this Report.
What we have auditedThe Group Financial Statements and Parent Company Financial Statements (the “ Financial Statements”), which are prepared by Torotrak plc, comprise:
• The Group and Parent Company B alance S heets as at 31 March 2014;
• The Group Income Statement for the year then ended;
• The Group and Parent Company Statements of Cash Flows for the year then ended;
• The Group and Parent Company Statements of Changes in Equity for the year then ended; and
• The notes to the Financial Statements, which include a summary of signifi cant accounting policies and other explanatory information.
The fi nancial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the European Union and, as regards the Parent Company Financial Statements, as applied in accordance with the provisions of the Companies Act 2006.
Certain disclosures required by the fi nancial reporting framework have been presented elsewhere in the Annual Report, rather than in the notes to the Financial Statements. These are cross-referenced from the Financial Statements and are identifi ed as audited.
What an audit of Financial Statements involvesWe conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”). An audit involves obtaining evidence about the amounts and disclosures in the Financial Statements suffi cient to give reasonable assurance that the Financial Statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of:
• Whether the accounting policies are appropriate to the Group’s and the Parent Company’s circumstances and have been consistently applied and adequately disclosed;
• The reasonableness of signifi cant accounting estimates made by the Directors; and
• The overall presentation of the Financial Statements.
In addition, we read all the fi nancial and non-fi nancial information in the Annual Report to identify material inconsistencies with the audited Financial Statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our Report.
Overview of our audit approach(a) Materiality
We set certain thresholds for materiality. These helped us to determine the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and on the Financial Statements as a whole.
Based on our professional judgement, we determined materiality for the Group Financial Statements as a whole to be £236 ,000. This represents approximately 5% of loss before tax. We have regard to loss before tax as we believe this is the most appropriate measure of Group performance.
We agreed with the Audit Committee that we would report to them misstatements identifi ed during our audit above £15,000 as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
(b) Overview of the scope of the audit
The Group Financial Statements are a consolidation of: two trading entities both of which are located in the United Kingdom, being Torotrak Developments Limited and Flybrid Automotive Limited; the Parent Company, Torotrak plc; and fi ve non-trading entities (individually and together the “reporting units”).
In establishing the overall approach to the Group audit, we determined the nature and extent of work that needed to be performed at each reporting unit to enable us to conclude whether suffi cient appropriate audit evidence had been obtained as a basis for our opinion on the Group Financial Statements as a whole. All work was performed directly by the Group engagement team.
Three reporting units were deemed to require an audit of their complete fi nancial information, due to their fi nancial signifi cance to the Group, being Torotrak (Development ) Limited, Flybrid Automotive Limited and Torotrak plc, which in total comprised in excess of 95 per cent. of the consolidated Group’s revenue and loss before tax.
Independent Auditors’ Report to the members of Torotrak plc continued(c) Areas of particular audit focus
In preparing the Financial Statements, the Directors made a number of subjective judgements, for example in respect of signifi cant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. We primarily focused our work in these areas by assessing the Directors’ judgements against available evidence, forming our own judgements, and evaluating the disclosures in the Financial Statements.
In our audit, we tested and examined information, using sampling and other auditing techniques, to the extent we considered necessary to provide a reasonable basis for us to draw conclusions. We obtained audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both.
We considered the following areas to be those that required particular focus in the current year. This is not a complete list of all risks or areas of focus identifi ed by our audit. We discussed these areas of focus with the Audit Committee. Their Report on those matters that they considered to be signifi cant issues in relation to the Financial Statements is set out on page 29.
Area of focus How the scope of our audit addressed the area of focus
Goodwill and intangible asset impairment assessment
We focused on this area because the determination of whether or not an impairment charge in relation to the goodwill and /or intangible assets, which arose on the acquisition of Flybrid Automotive Limited in the year, involved signifi cant judgements and assumptions about the future results of Flybrid Automotive Limited and whether indicators of impairment existed.
No impairment charge has been recognised by the Directors in the year. Our audit procedures were directed at obtaining evidence over whether the carrying value of goodwill and intangible assets was supportable. Changes in assumptions and forecasts can have a material impact on the assessed value of the assets and conclusions regarding whether any impairment triggers exist.
Refer also to note 9 of the Financial Statements.
We evaluated the Directors’ cash fl ow forecasts, and the process by which they were drawn up, including comparing them to the latest Board approved budgets, and testing the underlying calculations. We challenged:
• The Directors’ revenue and cost forecasts through agreement to third party contracts, where available, and where not available, understood the current status of product commercialisation and ongoing negotiations with key customers of Flybrid Automotive Limited ;
• The Directors’ key assumptions for long -term growth rates in the forecasts by comparing them to historical results, and economic and industry forecasts; and
• The discount rate by assessing the cost of capital for the Group against comparable organisations.
We also performed sensitivity analysis around the key drivers of the cash fl ow forecasts, being primarily forecast revenue generation. Having ascertained the extent of change in those assumptions that either individually or collectively would be required for the goodwill or intangible assets to be impaired, we considered the likelihood of such a movement in those key assumptions arising.
Accounting for the acquisition of Flybrid Automotive Limited
On 9 January 2014 Torotrak plc completed the acquisition of Flybrid Automotive Limited for consideration of £11.0m.
We focused on this area because the accounting for the acquisition was complex and involved management making judgements and estimates that have a material impact on the amounts recognised in the Group Financial Statements, including:
• The fair value of know how which management has determined to be £11.5m ;
• The useful economic life of know how set at 15 years ;
• The recognition of goodwill and determination of what goodwill relates to ; and
• The presentation and disclosure requirements related to the acquisition and specifi cally the disclosures required as the transaction was accounted for as a stepped acquisition.
Refer also to note 29 of the Financial Statements.
Our testing of the Directors’ acquisition accounting included:
• Agreeing the consideration of £11.0m to the sale and purchase agreement and testing management’s assessment of the fair value of contingent consideration of £1.8m;
• Procedures to evaluate management’s process for identifying, and valuing, separately identifi able assets and liabilities which included evaluating key judgements and assumptions used by management in valuing intellectual property and know how;
• Testing the determination of useful economic lives attributed to all assets, by reference to contractual patent terms; and
• Evaluating the disclosures included within the Group Financial Statements to determine whether they were compliant with IFRS 3 ‘Business Combinations ’.
Fraud in revenue recognition
ISAs (UK & Ireland) presume there is a risk of fraud in revenue recognition.
Given the contractual nature of the Group’s revenue arrangements, we focus ed on management’s judgements in assessing the stage of completion and forecast profi tability of contracts and therefore the revenue to be recognised.
Refer also to note 1 of the Financial Statements.
We tested revenue transactions by evaluating whether a service had been provided or a sale had occurred and focused on determining whether cash had been received and whether evidence existed to support the completion of the service or sale the company had agreed to provide.
For revenue relating to longer term contractual arrangements we:
• Agreed revenue recognised back to third party contractual arrangements;
• Tested management’s calculations of stage of completion, through reference to time sheets and other cost information and evaluating compliance with the Group’s accounting policy as set out in note 1 to the Financial Statements ; and
• Reviewing and testing management’s contract profi tability forecasts, through reference to budgets and future forecasts to determine whether any potentially loss making contracts had been provided for in full once a loss has been forecast.
Independent Auditors’ Report to the members of Torotrak plc continued
Area of focus How the scope of our audit addressed the area of focus
Risk of management override of internal controls
ISAs (UK & Ireland) require that we consider this.
We assessed the overall control environment of the Group, including the arrangements for staff to “whistle-blow” inappropriate actions, and interviewed senior management. We examined the signifi cant accounting estimates and judgements relevant to the Financial Statements for evidence of bias by the Directors, which may represent a risk of material misstatement due to fraud. We also tested journal entries to determine the rationale for manual adjustments.
Going concernUnder the Listing Rules we are required to review the Directors’ statement, set out on page 26, in relation to going concern. We have nothing to report having performed our review.
As noted in the Directors’ statement, the Directors have concluded that it is appropriate to prepare the Financial Statements using the going concern basis of accounting. The going concern basis presumes that the Group and Parent Company have adequate resources to remain in operation, and that the Directors intend them to do so, for at least one year from the date the Financial Statements were signed. As part of our audit we have concluded that the Directors’ use of the going concern basis is appropriate.
However, because not all future events or conditions can be predicted, these statements are not a guarantee as to the Group’s and Parent Company’s ability to continue as a going concern.
Opinions on other matters prescribed by the Companies Act 2006In our opinion:
• The information given in the Strategic Report and the Directors’ Report for the fi nancial year for which the Financial Statements are prepared is consistent with the Financial Statements; and
• The part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006.
Other matters on which we are required to report by exception
Adequacy of accounting records and information and explanations receivedUnder the Companies Act 2006 we are required to report to you if, in our opinion:
• We have not received all the information and explanations we require for our audit; or
• Adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or
• The Parent Company Financial Statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Directors’ remunerationUnder the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of Directors’ remuneration specifi ed by law are not made. We have no exceptions to report arising from this responsibility.
Corporate Governance statementUnder the Listing Rules we are required to review the part of the Corporate Governance Statement relating to the Parent Company’s compliance with nine provisions of the UK Corporate Governance Code (“the Code”). We have nothing to report having performed our review.
On page 45 of the Annual Report, as required by the Code Provision C.1.1, the Directors state that they consider the Annual Report taken as a whole to be fair, balanced and understandable and provides the information necessary for members to assess the Group’s and Parent Company’s performance, business model and strategy. On page 29, as required by C.3.8 of the Code, the Audit Committee has set out the signifi cant issues that it considered in relation to the Financial Statements, and how they were addressed. Under ISAs (UK & Ireland) we are required to report to you if, in our opinion:
• The statement given by the Directors is materially inconsistent with our knowledge of the Group and Parent Company acquired in the course of performing our audit; or
• The section of the Annual Report describing the work of the Audit Committee does not appropriately address matters communicated by us to the Audit Committee.
We have no exceptions to report arising from this responsibility.
Other information in the Annual ReportUnder ISAs (UK & Ireland) we are required to report to you if, in our opinion, information in the Annual Report is:
• Materially inconsistent with the information in the audited Financial Statements; or
• Apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group and Parent Company acquired in the course of performing our audit; or
• Is otherwise misleading.
We have no exceptions to report arising from this responsibility.
Independent Auditors’ Report to the members of Torotrak plc continued
Responsibilities for the Financial Statements and the audit
Our responsibilities and those of the DirectorsAs explained more fully in the Statement of Directors’ Responsibilities, the Directors are responsible for the preparation of the Financial Statements and for being satisfi ed that they give a true and fair view.
Our responsibility is to audit and express an opinion on the Financial Statements in accordance with applicable law and ISAs (UK & Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
This Report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this Report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
Nicholas Gower (Senior Statutory Auditor)for and on behalf of PricewaterhouseCoopers LLPChartered Accountants and Statutory AuditorsManchester28 May 2014
Total equity attributable to equity holders of the Parent Company 26,341 13,319 36,818 20,734
The accounting policies and notes on pages 54 to 7 4 form part of these Financial Statements. The Financial Statements on pages 50 to 7 4 were approved by the Board of Directors on 28 May 2014 and signed on its behalf by:
Group and Group and Parent Group and Parent Company Parent Parent Company share Company Group Company share premium other accumulated accumulated capital account reserves loss Total equity profi t/(loss) £000 £000 £000 £000 £000 £000
Balance at 1 April 2012 16,493 53,726 (82) (59,977) 10,160 5,421
Comprehensive income
Profi t/(loss) for the period – – – 33 33 (57,950)
Total comprehensive expense – – – 33 33 (57,950)
Transactions with owners
Transfer of shares under share incentive plan – – 6 – 6 –
Issue of shares to Allison Transmission Inc. 825 1,671 – – 2,496 –
Share -based payment charge – – – 443 443 443
Issue of shares under share incentive plan 24 – (24) – – –
Issue of shares from exercise of LTPSP 73 – – (73) – (73)
Issue of shares under SAYE scheme 81 100 – – 181 –
Total transactions with owners 1,003 1,771 (18) 370 3,126 370
Balance at 31 March 2013 17,496 55,497 (100) (59,574) 13,319 (52,159)
Comprehensive income
Loss for the period – – – (4,224) (4,224) (1,366)
Total comprehensive expense – – – (4,224) (4,224) (1,366)
Transactions with owners
Transfer of shares under share incentive plan – – 6 (4) 2 (4)
Issue of shares to Allison Transmission Inc. 1,271 1,016 – – 2,287 –
Issue of shares as consideration for Flybrid acquisition 784 1,216 – – 2,000 –
Issue of shares as a result of the open offer and fi rm placing (net of costs) 7,618 5,090 – – 12,708 –
Share -based payment charge – – – 249 249 249
Issue of shares under share incentive plan 47 – (47) – – –
Issue of shares from exercise of LTPSP 204 – – (204) – –
Total transaction with owners 9,924 (46,404) (41) 53,767 17,246 53,971
Balance at 31 March 2014 27,420 9,093 (141) (10,031) 26,341 446
The Group and Parent Company other reserves at 31 March 2014 represents 1,418,389 ordinary shares of 10p each issued to Torotrak (Holdings) Limited, which have been charged against reserves. These shares represent the shares issued under the share incentive plan. The total equity of the Parent Company at 31 March 2014 was £36.8 million (2013: £20.7 million).
Parent Parent Group Group Company Company 2014 2013 2014 2013 Notes £000 £000 £000 £000
Cash fl ows from operating activities
(Loss)/profi t for the year (4,224) 33 (1,366) (57,950)
Adjustments for:
Depreciation 10 404 314 99 89
Amortisation 9 290 146 – –
Finance income receivable 5 (36) (73) (37) (74)
Loss on disposal of plant and equipment 4 – 23 – –
Profi t on disposal of intangible assets 4 (15) – – –
Taxation 6 (509) (424) – –
(Increase)/decrease in inventories (42) 33 – –
Decrease/(increase) in trade and other receivables 273 726 (4,775) 55,816
Increase/(decrease) in trade and other payables 48 (2,283) 1,040 270
(Decrease)/increase in provisions (750) 651 – –
Charge for equity-settled employee share schemes and bonuses 26 249 443 – 443
Cash used in operations (4,312) (411) (5,039) (1,406)
Tax received/(paid) 273 (63) – –
Net cash used in operating activities (4,039) (474) (5,039) (1,406)
Cash fl ows from investing activities
Acquisition of property, plant and equipment (774) (230) (185) (19)
Acquisition of patents (386) (377) – –
Acquisition of investment in Motorsport Components Limited – (230) – –
Acquisition of investment in Flybrid Automotive Limited (net of cash acquired) (3,883) (3,000) (4,200) (3,000)
Increase of investment in Rotrex A/s (17) – (17) –
Finance income received 39 75 40 76
Net cash used in investing activities (5,021) (3,762) (4,362) (2,943)
Cash fl ows from fi nancing activities
Proceeds from the issue of share capital 16,003 2,677 16,207 2,677
Expenses of share placing (1,006) – (1,006) –
Hire purchase repayments (20) – – –
Net cash generated from fi nancing activities 14,977 2,677 15,201 2,677
Net increase/(decrease) in cash and cash equivalents 5,917 (1,559) 5,800 (1,672)
Cash and cash equivalents at start of year 8,945 10,504 8,606 10,278
Cash and cash equivalents at end of year 16 14,862 8,945 14,406 8,606
Share of cash and cash equivalents held in joint venture (included above) 3 3 – –
The accounting policies and notes on pages 54 to 74 form part of these Financial Statements, which was approved by the Board of Directors on 28 May 2014.
1. Signifi cant accounting policies Torotrak plc (the “Company” or “Parent Company”) (Registered number: 03580465) is a publicly -traded company incorporated and domiciled in the UK and is listed on the Main Market of the London stock exchange. The address for the registered offi ce is shown on page 82.
The principal accounting policies applied in the preparation of the Group and Parent Company Financial Statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.
Basis of preparation The Group and Parent Company Financial Statements of Torotrak plc have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ( IFRSs as adopted by the EU), IFRS Interpretations Committee and the Companies Act 2006 applicable to Companies reporting under IFRS. The Group and Parent Company Financial Statements have been prepared under the historical cost convention and on a going concern basis, as the Directors confi rm that they have a reasonable expectation that the Group and Parent Company have adequate resources to continue in operational existence for the foreseeable future.
The preparation of Financial Statements in conformity with IFRS requires the use of certain critical accounting policies and estimates. It also requires management to exercise its judgement in the process of applying the Group’s and Parent Company’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are signifi cant to the Group and Parent Company Financial Statements are disclosed below.
Changes in accounting policies and disclosures
(a) New and amended standards adopted by the Group and/or Company
The following standards have been adopted by the Group for the fi rst time for the fi nancial year beginning on 1 April 2013 and have an impact on the Group:
IAS 1, ‘Financial Statement presentation’
The amendments to this standard are regarding other comprehensive income. The main change resulting from these amendments is a requirement for entities to group items presented in ‘other comprehensive income’ on the basis of whether they are potentially reclassifi able to profi t or loss subsequently (reclassifi cation adjustments).
IFRS 13, ‘Fair value measurement
This standard aims to improve consistency and reduce complexity by providing a precise defi nition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements, which are largely aligned between IFRSs and U K GAAP, do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRSs.
The following standards have been adopted by the Group for the fi rst time for the fi nancial year beginning on 1 April 2013 but have no material impact on the Group:
• Amendment to IAS 12 ’Income Taxes’ on deferred tax (effective 1 January 2012) (endorsed 1 January 2013)
• Amendments to IFRS 7 on fi nancial instruments asset and liability offsetting (effective 1 January 2013)
• Annual improvements 2011 (effective 1 January 2013)
• IAS 19, ‘Employee benefi ts’ (effective 1 January 2013)
(b) Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group and/or Company.
The following standards have been published and are mandatory for accounting periods beginning after 1 April 2014 but have not been early adopted by the Group or Company:
• IFRS 10, ‘Consolidated Financial Statements’ (effective 1 January 2013) (endorsed 1 January 2014)
• IFRS 12, ‘Disclosures of Interests in Other Entities’ (effective 1 January 2013) (endorsed 1 January 2014)
• IAS 27 (revised 2011) ‘Separate Financial Statements’ (effective 1 January 2013) (endorsed 1 January 2014)
• Amendments to IFRS 10,11 and 12 on transition guidance (effective 1 January 2013) (endorsed 1 January 2014)
• Amendments to IAS 32 on fi nancial instruments asset and liability offsetting (effective 1 January 2014)
• Amendment to IAS 36 ‘Impairment of Assets’ on recoverable amount disclosures (effective 1 January 2014)
• Amendment to IAS 39 ‘Financial Instruments: Recognition and Measurement’ on novation of derivatives and hedge accounting (effective 1 January 2014)
• Annual improvements 2012 (effective 1 July 2014)
Basis of consolidationSubsidiaries are entities controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the fi nancial and operating policies of an entity so as to obtain benefi ts from its activities. In assessing control, potential voting rights that are currently exercisable or convertible are taken into account. The Financial Statements of subsidiaries are included in the Group Financial Statements from the date that control commences until the date that control ceases.
Transactions, balances and unrealised gains on transactions between Group companies have been eliminated on consolidation. Unrealised gains have also been eliminated to the extent that they do not represent an impairment of a transferred asset. Subsidiaries’ accounting policies have been changed where necessary to ensure consistency with the policies adopted by the Group.
Jointly controlled entities ( joint ventures) are those entities over whose activities the Group has joint control, established by contractual agreement. The Group Financial Statements include the Group’s share of each line of the Income Statement, Balance Sheet, Statement of Cash Flows and related notes to the Financial Statements on a proportionate consolidation basis, from the date that joint control commences until the date that joint control ceases.
Business combinationsBusiness combinations are accounted for using the acquisition accounting method. The results of subsidiaries acquired are included in the I ncome S tatement from the date on which control is transferred to the Group. Assets and liabilities existing at the date of acquisition are recorded at their fair values refl ecting their condition at that date.
Amounts payable to vendors in future periods under earn-out agreements are either recorded as part of consideration or as an expense in the Income Statement dependant on the specifi c terms of the agreements entered.
Where earn-out agreements include conditions that require the vendors to provide services to the Group in the period post- acquisition the costs are treated as remuneration for post-acquisition services and are expensed to the Income Statement as the conditions precedent in the agreement are achieved.
Transaction costs are expensed as incurred, other than those incurred in relation to the issues of equity securities.
Foreign currencyThe Company’s functional currency is pounds sterling. Transactions in foreign currencies are translated into pounds sterling at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the Balance Sheet date are translated at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the Income Statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated at foreign exchange rates ruling at the dates the fair value was determined.
InvestmentsIn the Company’s Financial Statements, investments in joint ventures and subsidiaries are carried at cost less impairment.
Intangible assets
a) Patents
Patents are stated at cost less accumulated amortisation and impairment losses. Cost includes the cost of obtaining patent protection for intellectual property rights ( IPR) on technologies arising from inventive ideas. Income from patents is derived through licensing and other agreements.
Such expenditure is amortised in a manner calculated to write off the cost, in equal annual proportions, over the effective life of the underlying patent up to a maximum of twenty years. In the event that a patent is abandoned or is considered to have suffered a full impairment in value i.e. having no commercial or technological value, at any time before the expiry of its granted life, the balance of unamortised expenditure is charged to the Income Statement in the year in which the abandonment or other impairment in value takes place.
b) Knowhow and other intellectual property rights
Knowhow and other intellectual property rights acquired as part of a business combination are recorded at their fair value at the date of acquisition. Amortisation is calculated so as to write off the cost of the assets, which are adjusted (if appropriate) at each Balance Sheet date, on a straight-line basis over the expected useful lives of fi fteen years.
c) Goodwill
Goodwill is measured at the acquisition date and represents the excess of fair value of the consideration paid over the fair value of the assets, including any intangible assets identifi ed, and liabilities acquired. In determining the fair value of consideration, the fair value of any previously held equity interest less the net recognised amount (which is generally fair value) of the identifi able assets and liabilities acquired is taken into account and the fair value of contingent consideration is based upon whether the Directors believe any performance conditions will be met and thus any further consideration will be payable.
Goodwill is not amortised but is measured at cost less impairment losses.
Property, plant and equipmentProperty, plant, and equipment are stated at historical cost less accumulated depreciation and impairment losses. Historical cost includes expenditure that is attributable to the acquisition of the assets.
Where parts of an item of property, plant, and equipment have different useful lives, they are accounted for as separate items of property, plant, and equipment.
The assets’ residual values and useful lives are reviewed and adjusted if appropriate at each Balance Sheet date. In the event that an asset is considered to have suffered a full impairment in value i.e. having no commercial or technological value, at any time before the expiry of its asset life, the balance of depreciation still to be charged is charged to the Income Statement in the year in which the impairment in value takes place.
The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the Income Statement for the period.
DepreciationOnce items of property, plant, and equipment have been commissioned for use, depreciation is charged to the Income Statement to allocate their cost less their residual values over the estimated useful lives of each part of an item of property, plant, and equipment. The depreciation rates applied are as follows:
%
Plant, machinery, and equipment 25 Straight-line
Computer equipment 33 Straight-line
Offi ce furniture and fi ttings 20 Straight-line
Test vehicles 50 Straight-line
Leasehold improvements 10 Straight-line
Manufacturing equipment 10 Straight-line
Trade and other receivablesTrade and other receivables are initially recognised at fair value and subsequently held at amortised cost. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Signifi cant fi nancial diffi culty of the debtor is considered an indicator that the trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the expected realisable value. The impairment is charged to the Income Statement.
ProvisionsProvisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation. Provisions are measured at the Directors’ best estimate of the expenditure required to settle the obligation at the Balance Sheet date. Provisions for restructuring costs are recognised when the Group has a detailed formal plan for the restructuring that has been communicated to affected parties.
Cash and cash equivalentsCash and cash equivalents comprise cash balances and call deposits with an original maturity of three months or less. Bank deposits with a maturity over three months, but to which the Group has readily available access subject to forfeiture of interest and possible penalties, are also classifi ed as cash.
ImpairmentThe carrying amounts of the Group’s assets are reviewed annually to determine whether there is any indicator of impairment. If any such indicator exists, the asset’s recoverable amount is estimated. The recoverable amount is the higher of an asset’s fair value less costs to sell or its value in use.
An impairment loss is recognised whenever the carrying amount of an asset or its Cash- Generating Unit exceeds its recoverable amount. Impairment losses are recognised in the Income Statement.
Impairment losses recognised in respect of Cash- Generating Units are allocated fi rst to reduce the carrying amount of any intangible asset allocated to Cash- Generating Units and then to reduce the carrying amount of the other assets in the unit on a pro rata basis. A Cash- Generating Unit is the smallest identifi able group of assets that generates cash infl ows that are largely independent of the cash infl ows from other assets or groups of assets.
An impairment loss is reversed when there is an indication that the impairment may no longer exist and there has been a change in the estimates used to determine the recoverable amount.
An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
Trade payablesTrade payables are initially recognised at fair value and subsequently held at amortised cost.
Pension costsThe pension scheme operated by the Group is a workplace contract- based scheme and pension costs are charged to the Income Statement as incurred.
Research and developmentExpenditure on research activities is recognised in the Income Statement as an expense as incurred.
Expenditure on development activities is capitalised if it relates to an identifi ed and profi table project with commercial exploitation that carries production targets and start dates. No development expenditure has been capitalised to date.
LeasesThe Group leases certain property, plant and equipment. Leases of property, plant and equipment where the Group holds substantially all the risks and rewards of ownership are classifi ed as fi nances leases. Finance leases are capitalised at the lease’s commencement at the lower of the fair value of the leased property, plant and equipment and the present value of the minimum lease payments.
Each lease payment is allocated between the liability and fi nance charges. The corresponding rental obligations, net of fi nance charges, are included in payables. The interest element of the fi nance cost is charged to the Income Statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under fi nance leases are depreciated over the shorter of the useful life of the asset and the lease term.
Operating lease rentals are charged to the Income Statement on a straight-line basis over the period of the lease. Any benefi ts arising as a result of a lease incentive have been deferred and spread over the life of the lease commitment.
Operating lease income is credited to the Income Statement on a straight-line basis over the period of the lease. Any benefi ts arising as a result of a lease incentive have been deferred and spread over the life of the lease commitment.
RevenueRevenue is measured at the fair value of the consideration received or receivable net of Value Added Tax.
a) Engineering services or development agreements
Revenue from projects relating to engineering services or development agreements is recognised when the outcome of a project can be estimated reliably and the associated economic benefi ts will fl ow to the Group. Revenue and costs are recognised by reference to the stage of completion of the project at the Balance Sheet date. Stage of completion is assessed by reference to the proportion of labour time incurred relative to the estimated total labour time of the project at the Balance Sheet date and taking account of any specifi c contractual conditions that may be appropriate. Where it is probable that total contract costs will exceed the revenue realisable under the entire agreement, then the expected loss is recognised as an expense immediately in the Income Statement.
Where licence agreements incorporate separable fair value attributable to engineering services or development activities, then the fair value of those activities is separately accounted for on the same basis as for an engineering services or development agreement.
b) Licence and royalty agreements
Revenue from licence and royalty agreements is only recognised to the extent that the economic benefi ts are likely to fl ow to the Group. Revenue from the assignment of intellectual property rights is recognised when the risks and rewards of the rights have been transferred to the licensee. The risks and rewards of the rights are considered to be transferred when all of the following conditions have been satisfi ed: the rights have been transferred under a non-cancellable contract; the licensee has received delivery or has been given access to the rights; the licensee is permitted to use the rights freely according to the scope of the agreement; and the Group has no remaining obligations under the agreement. Licence income that is conditional on an event outside the direct control of the Group is credited to the Income Statement when the conditionality ceases according to the achievement of contract specifi c conditions or where the customer or the Group either executes or refrains from the execution of rights under that agreement. Royalties due under licence agreements are recognised on an accruals basis when they are earned, in accordance with the relevant agreement and royalty period.
1. Signifi cant accounting policies (continued) Government grants
A government grant is recognised only when there is reasonable assurance that (a) the entity will comply with any conditions attached to the grant and (b) the grant will be received.
Grants are recognised over the period necessary to match them with the related costs for which they are intended to compensate, and with reference to the stage of completion of the project. The income received is deducted from the costs incurred.
Grants relating to assets are deducted from the carrying value of the original asset.
Operating segments‘IFRS 8’, requires additional information regarding operating segments. Operating segments are those areas of the business whose fi nancial results are currently material and which form an important part of our planning and assessment of performance. These are currently:
• Income generated from licence agreements
• Engineering services
• Development activities, including research and the creation of new intellectual property
Operating segments are identifi ed in line with the internal management information reported to the chief operating decision maker. The Directors consider the chief operating decision maker to be the Board collectively and as such have adopted the reporting as included in monthly Board meetings papers for the purpose of reporting operating segments.
InterestInterest income and expenditure is recognised on a time accrued basis at the rate of interest according to the agreements governing the amount that is deposited or borrowed.
InventoriesInventory is valued at the lower of cost and net realisable value. Cost is determined using the fi rst-in, fi rst-out (“FIFO”) method. Inventory has been reviewed on a project by project basis and provided for where it is not considered that further income will be generated to cover the costs of the inventory.
Current and deferred income taxTax on the profi t or loss for the year comprises current and deferred tax and is recognised in the Income Statement. Current tax is the expected tax payable on the taxable income for the year and/or tax credit receivable under the r esearch and d evelopment scheme, using tax rates enacted or substantively enacted at the Balance Sheet date, and any adjustment to tax payable in respect of previous years.
Current tax assets are calculated in accordance with existing legislation. The Company qualifi es as a Small and Medium Enterprise (“SME”) as defi ned in the legislation and claims a tax refund in respect of qualifying research and development costs. It also claims allowance under the large scheme rules for research and development costs that do not comply with SME legislation but are in accordance with large company scheme rules.
Deferred tax is provided on temporary differences using the liability method between the carrying amounts of assets and liabilities for fi nancial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of assets or liabilities that affect neither accounting nor taxable profi t other than in a business combination; and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the Balance Sheet date.
A deferred tax liability is recognised on business combinations where intangible assets arise on the preparation of consolidated Financial Statements and the assets do not have a tax base and no tax deduction will be available for the amortisation of the intangible assets. The amount of deferred tax liability provided is based on the expected amortisation of the carrying value of the intangible assets, using tax rates enacted at the Balance Sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profi ts will be available against which the asset can be utilised.
Deferred tax assets and liabilities within the same tax jurisdiction are offset where there is a legally enforceable right to offset current tax assets against current tax liabilities and where there is an intention to settle these balances on a net basis.
Share capitalOrdinary shares are classifi ed as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds within share premium.
Share-based paymentsThe Group share option programmes allow Group employees to acquire shares of the Company. The fair value of share options granted is recognised as an employee expense with a corresponding increase in equity. Equity- settled share- based payments are measured at fair value at grant date, using an appropriate pricing model taking into account the terms and conditions upon which the options were granted, and is spread over the period during which the employees become unconditionally entitled to exercise the options. The amount recognised as an expense is adjusted to refl ect the actual number of share options that vest, except where forfeiture is only due to performance conditions not achieving the threshold for vesting. Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. At each Balance Sheet date, the Group revises its estimates of the number of options that are expected to vest. The Group recognises the impact of the revision to the original estimates, if any, in the Income Statement, with a corresponding adjustment to equity. Options will be equity- settled. The Group’s National Insurance contributions that arise on the profi t on exercising an option are met by the employee.
Own shares held by Employee Benefi t TrustOwn shares acquired, to meet future obligations under employee share options, are held in an independent Trust. These are funded by the Company and purchases of shares by the Trust are charged directly to equity.
Administration expenses of the Trust are charged to the Company’s Income Statement as incurred.
Exceptional itemsItems that are material in size and non-operating or non-recurring in nature are presented as exceptional items in the Income Statement, within the relevant account heading. The Directors are of the opinion that the separate recording of exceptional items provides helpful information about the Group’s underlying business performance.
Critical accounting estimates and assumptionsThe preparation of Financial Statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are signifi cant to the consolidated Financial Statements are as follows:
a) Intangible assets
The carrying value of intangible assets including patents, knowhow and other intellectual property rights and goodwill arising on business combinations, are subject to an annual review to determine if there has been any permanent impairment or change in the estimate of the useful lives or the expected future income generation of the assets concerned. Estimates of future business performance and cash generation, discount rates and long-term growth rates supporting the net book amount of these assets at the Balance Sheet date (refer to note 9). If the actual results should differ, or changes in expectations arise, impairment charges may be required which would adversely impact operating results.
b) Revenue recognition
The Group recognises revenue from licence agreements on the basis that the risks and rewards of the rights to the intellectual property have been transferred to the licensee and the Group has no remaining obligations under the contract. The Group uses the percentage of completion method in accounting for fi xed price engineering service contracts. The costs to complete are assessed based on the latest fi nancial information. Estimating costs to complete and contract profi tability requires the use of estimates and judgements. If the actual results should differ, or changes in expectations arise this could impact the amount of revenue recognised by the Group.
c) Share- based payments
Share -based payment charges are calculated using the Black-Scholes option pricing model incorporating assumptions for each set of share options issued to Group employees, including the likelihood of options vesting and employees remaining within the business during the performance period. The determination of the fair value of options and expecting vesting rates are subject to estimates and assumptions, changes in which could impact the reported results of the Group.
d) Provisions
Provisions are recognised when the Group has a present obligation as a result of a past event. The likelihood of occurrence of provisions and contingencies is considered within the assumptions used in determining the required level of provision. Estimates and judgement are applied in determining the level of provision required and should actual results should differ, or changes in expectations arise, this could impact the level of provision required to be recognised.
2. Segmental analysisYear ended 31 March 2014
Income from Engineering licence Development services agreements activities Total £000 £000 £000 £000
Revenue (by technology)
IVT 172 3,000 – 3,172
KERS 165 – – 165
V-C harge and other 183 – – 183
520 3,000 – 3,520
Direct costs (494) – – (494)
Gross profi t 26 3,000 – 3,026
Other operating costs – – (4,564) (4,564)
Segmental profi t/(loss) 26 3,000 (4,564) (1,538)
Other operating costs not allocated to segments (3,231)
Operating loss (4,769)
Note: Development activities include research and the creation of intellectual property. Some technology information has been combined where the values are deemed immaterial.
Exceptional items to the value of £672k and the amortisation of the intangible asset created as a result of the Flybrid acquisition to the value of £127k have been included in other operating costs not allocated to segments.
2. Segmental analysis (continued)Year ended 31 March 2013
Income from Engineering licence Development services agreements activities Total £000 £000 £000 £000
Revenue (by technology)
IVT 1,461 5,950 – 7,411
V-C harge and other 68 – – 68
1,529 5,950 – 7,479
Direct costs (1,408) (65) – (1,473)
Gross profi t 121 5,885 – 6,006
Other operating costs – – (3,750) (3,750)
Segmental profi t/(loss) 121 5,885 (3,750) 2,256
Other operating costs not allocated to segments (2,720)
Operating loss (464)
Note: Development activities include research and the creation of intellectual property. Some technology information has been combined where the values are deemed immaterial.
Exceptional items to the value of £400k have been included in other operating costs not allocated to segments.
Signifi cant customersThe following revenues are attributable to signifi cant customers:
Group Group 31 March 31 March 2014 2013 £000 £000
Allison Transmission Inc. 3,151 7,339
Note: The revenue from Allison Transmission Inc. has been generated from engineering services and licence agreements.
3. Exceptional items Group Group 2014 2013 £000 £000
Re-organisation costs 117 108
One-off legal and other costs 555 292
Total exceptional items 672 400
The re-organisation costs relate to redundancy, severance and associated expenses in relation to a reduction in employees undertaken as part of a restructuring process.
In 2013 the one-off costs relate to the acquisition of a 20% stake in Flybrid Automotive Limited and the 5% subscription taken by Allison Transmission Inc. In 2014 the one-off costs relate to the acquisition of the remaining 80% stake in Flybrid Automotive Limited.
(i) a further £44k was paid to the Group’s Auditors for services provided as part of the equity raised in the year. These costs have been recognised within equity.
Expenses by nature Parent Parent Group Group Company Company 2014 2013 2014 2013 Note £000 £000 £000 £000
Employee costs 22 4,310 3,201 117 83
Depreciation and amortisation 694 460 99 89
Operating lease payments 295 291 – –
Other development costs 322 353 – –
Forgiveness of inter- company loans – – – 57,091
Other administrative expenses before exceptional items 1,502 1,765 632 762
Exceptional items 672 400 555 –
Other administrative expenses 2,174 2,165 1,187 762
Total of development and administrative expenses 7,795 6,470 1,403 58,025
5. Finance income Group Group 2014 2013 £000 £000
Bank interest receivable 36 73
6. Income tax credit Group Group 2014 2013 £000 £000
UK Corporation Tax
Current tax for the year 392 156
Prior year tax 92 268
Deferred tax 25 –
Total UK Corporation Tax 509 424
Factors affecting the tax credit for the current period: The Finance Act 2000 introduced the research and development tax credit, which allows companies with qualifying expenditure to surrender their tax losses for cash. The effective tax rate for these credits is 24.75% compared to the current UK corporation tax rate of 23%.
6. Income tax credit (continued)The total tax credit for the period is lower (2013: higher) than the standard rate of Corporation Tax in the UK of 23% (2013: 24%). The differences are as follows:
Group Group 2014 2013 £000 £000
Loss before taxation (4,733) (391)
Expected current tax credit at 23% (2013: 24%) 1,089 94
Non-tax deductible expenses (720) (88)
Differences in tax rates on research and development -related credits 28 88
Movement in unrecognised net deferred tax asset 25 62
Prior year adjustment 92 268
Effect of change in tax rates (5) –
Total tax credit 509 424
Factors that may affect future tax credits/(charges): Future tax credits/(charges) will depend on the continued availability of the tax credit in respect of research and development expenditure. In addition, the Group has approximately £40 million (2013: £38 million) of tax losses and approximately £6.2 million (2013: £6.4 million) of unclaimed capital allowances that may be offset against future taxable profi ts. If the tax credit in respect of research and development expenditure for 2013/14 is not claimed the tax losses available for offset against future taxable profi ts would be increased.
Changes to the main rate of UK corporation tax were announced in the March 2013 UK Budget Statement. Legislation to reduce the main rate of corporation tax to 21% from 1 April 2014 and to 20% from 1 April 2015 has been substantively enacted by the Balance Sheet date.
All deferred tax liabilities have been measured at 20% and therefore no future impact of the changes in rates is currently expected.
7. Parent Company loss for the fi nancial periodNo Income Statement or Statement of Other Comprehensive Income are presented for the Parent Company as permitted by section 408 of the Companies Act 2006. The Parent Company’s loss for the year was £1.4 million (2013: loss of £58 million which included a forgiveness of inter-c ompany loans amounting to £57 million).
8. (Loss)/earnings per shareBasic (loss)/earnings per share is calculated by dividing the (loss)/profi t attributable to equity holders of the Parent Company for the period by the weighted average number of ordinary shares in issue during the period, excluding those held in trust (note 26). For diluted (loss)/earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume issue of all dilutive potential ordinary shares, being those share options with a non market-based performance condition granted to employees where the exercise price is less than the average market price of the ordinary shares during the year, and those shares with a market-based performance condition based on the current estimate of the number of shares that will vest under the performance criteria.
For the year ended 31 March 2014 potential share options were antidilutive, as their inclusion in the diluted loss per share calculation would have reduced the loss, and hence have been excluded.
Basic Diluted Diluted loss loss Basic earnings earnings per Loss per share per share Profi t per share share 2014 2014 2014 2013 2013 2013 £000 pence pence £000 pence pence
(Loss)/profi t attributable to owners of the Parent Company (4,224) (2.14) (2.14) 33 0.02 0.02
31 March 31 March 2014 2013 Number Number
Weighted average number of shares 196,967,091 165,441,375
Dilutive effect of share options 6,516,385 9,024,360
Diluted weighted average number of shares 203,483,476 174,465,735
Assets acquired through acquisition (note 29) 168 11,499 2,300 13,967
Disposals in year (706) – – (706)
At 31 March 2014 2,758 11,499 2,300 16,557
Accumulated amortisation
At 1 April 2012 1,084 – – 1,084
Charge for the year 146 – – 146
At 31 March 2013 1,230 – – 1,230
Charge for the year 163 127 – 290
Disposals in year (682) – – (682)
At 31 March 2014 711 127 – 838
Asset impairment provision
At 1 April 2013 (39) – – (39)
Utilisation in year 39 – – 39
At 31 March 2014 – – – –
Net book value
At 31 March 2014 2,047 11,372 2,300 15,719
At 31 March 2013 1,650 – – 1,650
At 1 April 2012 1,389 – – 1,389
The Parent Company holds no intangible assets.
The carrying value of intangible patent assets and knowhow, and their potential impairment, is reviewed annually on a case by case basis, having regard to the commercial classifi cation of a patent and its commercial applicability by market and territory. Expenditure relating to patent cases which do not meet defi ned criteria as approved by the Board of Directors, is subsequently abandoned and the resulting costs charged to the Income Statement.
The average remaining life of the assets is 13 years (2013: 13 years).
Impairment review – goodwillIn accordance with International Financial Reporting Standards, goodwill is not amortised, but instead is tested annually for impairment and carried at cost less accumulated impairment losses.
The goodwill recognised by the Group all relates to the Flybrid Cash - Generating Unit (“CGU”) which was acquired in the year.
The recoverable amount of a CGU is determined based on value-in-use calculations. These calculations use pre-tax cash fl ow projections based on fi nancial plans for product commercialisation which cover up to the next 8 years. No growth has been assumed thereafter.
Cashfl ows have been discounted at a pre -tax rate of 20% which is based upon an estimate of the weighted average cost of capital refl ecting the specifi c principal risks and uncertainties applicable to the CGU.
Having completed the 2014 annual impairment review, the Group has recognised no impairment (2013: £nil). The level of impairment recognised is predominantly dependent upon judgements used in arriving at future growth rates and the discount rate applied to cash fl ow projections. Key drivers to future growth rates are the ability of the Group to successfully commercialise the CGU’s technology as well as effectively managing operating costs. The level of headroom may change if different growth rate assumptions or a different pre-tax discount rate were used in the cash fl ow projections. Where the value-in-use calculations suggest impairment, the Board would consider alternative use values prior to realising any impairment. Alternative use values may include, inter alia, net proceeds from an outright sale.
Management have performed a sensitivity analysis around the base assumptions with the conclusion that no reasonable possible change in the assumptions would result in the value -in -use being less than the carrying value of the CGU.
10. Property, plant, and equipment Group Note (a) Group offi ce Group plant, Group Leasehold manufacturing furniture machinery computer Group test improvements equipment and fi ttings and equipment equipment vehicles Total £000 £000 £000 £000 £000 £000 £000
At 31 March 2014 1,235 447 167 4,003 1,551 91 7,494
Depreciation
At 1 April 2012 642 – 121 3,433 1,011 105 5,312
Charge in year 89 – 7 67 150 1 314
Disposals in year – – – (256) (6) (16) (278)
At 31 March 2013 731 – 128 3,244 1,155 90 5,348
Charge in year 99 5 8 142 149 1 404
At 31 March 2014 830 5 136 3,386 1,304 91 5,752
Net book value
At 31 March 2014 405 442 31 617 247 – 1,742
At 31 March 2013 319 – 28 327 180 1 855
At 1 April 2012 386 – 28 158 237 2 811
Note (a) all leasehold improvements are held by the Parent Company upon work completion. The Parent Company holds no other property, plant or equipment.
The net book value of plant and machinery held under fi nance leases was £279k (2013: £nil). The accumulated depreciation on these assets and the depreciation charged for the year was £7k (2013: £nil). The rights over fi nances leased assets are effectively security for lease liabilities. These rights revert to the lessor in the event of default.
11. Investments
Investments in subsidiary undertakings Parent Parent Company Company 31 March 31 March 2014 2013 £000 £000
Cost and net book value
At beginning of year 8,713 8,713
Addition 8,000 –
Transferred from investment in associates 3,000 –
At end of year 19,713 8,713
The Group acquired Flybrid Automotive Limited in January 2014 (see note 29). Details of subsidiary undertakings are set out in note 27.
Other investments Parent Parent Group Group Company Company 31 March 31 March 31 March 31 March 2014 2013 2014 2013 £000 £000 £000 £000
Cost and net book value
At beginning of year 253 253 263 263
Addition 17 – 17 –
At end of year 270 253 280 263
In order to maintain its 15% stake, the Group subscribed for its pro rata share of the new shares issued by Rotrex A/S at a cost of £17k. At 31 March 2014 the Group held an investment of £270k in Rotrex A/S and the Board is of the opinion that this carrying value is supported by the net assets of Rotrex A/S.
The Parent Company also held an investment of £10k in the joint venture, Rotrak Limited.
Investments in associatesAt 31 March 2013 the Group held a £3 million investment in Flybrid Automotive Limited. In January 2014 the Group completed the purchase of the remaining 80 per cent. of Flybrid Automotive Limited as detailed in note 29 and therefore the £3 million has been transferred to investments in subsidiary undertakings.
Total investments Parent Parent Group Group Company Company 31 March 31 March 31 March 31 March 2014 2013 2014 2013 £000 £000 £000 £000
Cost and net book value
At beginning of year 3,253 253 11,976 8,976
Addition 17 3,000 8,017 3,000
Transferred to investment in subsidiary undertakings (3,000) – – –
At end of year 270 3,253 19,993 11,976
12. Inventories Group Group 31 March 31 March 2014 2013 £000 £000
Raw materials 155 83
Work-in-progress 50 –
At end of year 205 83
Inventory charged to direct costs in the Consolidated Income Statement is £40k (2013: £20k).
13. Trade and other receivables Parent Parent Group Group Company Company 31 March 31 March 31 March 31 March 2014 2013 2014 2013 £000 £000 £000 £000
Non-current assets
Loan to the joint venture 14 13 28 27
Loan to Rotrex A/S 147 147 147 147
Amounts owed by subsidiary undertakings – – 2,186 –
Total non-current assets 161 160 2,361 174
Current assets
Trade receivables 64 33 – –
Accrued income 6 166 – –
Other receivables 236 79 23 40
Prepayments 437 310 128 86
Redeemable shares acquired – – 2,800 –
Total current assets 743 588 2,951 126
Amounts owed by subsidiary undertakings are recoverable on demand but are expected to be recovered after more than one year. No interest is charged on this receivable and no security is held. Amounts owed by subsidiary undertakings were forgiven in the prior year.
There is no provision for impairment for receivables at 31 March 2014 (2013: £nil). £2k of trade receivables were overdue at 31 March 2014 (2013: £nil). These relate to a number of independent customers for whom there is no recent history of default. All amounts overdue but not impaired are less than 3 months overdue.
The other classes of trade and other receivables do not contain impaired assets.
All trade and other receivables are denominated in UK pounds (2013: All UK pounds).
The fair value of trade and other receivables has been considered to be consistent with the book value due to the short-term nature of trade and other receivables.
The redeemable shares totalling £2.8m have been presented within trade and other receivables of the Parent Company as the shares can be redeemed solely at the discretion of Torotrak plc and therefore the redeemable shares meet the criteria to be recognised as a fi nancial asset. The redeemable shares have been presented within current trade and other receivables as it is expected that they will be redeemed in full within the next 12 months.
14. Tax receivable Group Group 31 March 31 March 2014 2013 £000 £000
Research and development tax credits 604 378
There is no taxation receivable in respect of the Parent Company.
15. Deferred tax Group Group 31 March 31 March 2014 2013 £000 £000
Deferred tax liability 2,275 –
The deferred tax liability relates solely to the intangible assets recognised on the acquisition of Flybrid Automotive Limited and is based on 20 per cent. of the intangible asset value. The deferred tax liability will be amortised through the Income Statement to match the amortisation of the underlying intangible asset, being over 15 years.
Deferred tax assets have not been recognised relating to tax losses or unclaimed capital allowances as the Group is not forecast to generate suffi cient future taxable profi ts against which the losses could be utilised. The Group also has unrecognised deferred tax assets relating to potential future deductions on the exercise of share options issued to Group employees.
16. Cash and cash equivalentsDetails of the Group’s treasury objectives and policies can be found in note 30.
The Group’s main fi nancial assets comprise short- term bank deposits, cash, and cash equivalents which are shown below:
Parent Parent Group Group Company Company 31 March 31 March 31 March 31 March 2014 2013 2014 2013 £000 £000 £000 £000
Cash 7 6 – –
Sterling cash deposits 14,836 8,917 14,406 8,587
Foreign currency cash deposits 16 19 – 19
Cash held in Joint Venture 3 3 – –
Total 14,862 8,945 14,406 8,606
The Sterling cash deposits comprise money market deposits at call and terms up to three months. The weighted average interest rate on the deposits is 0.44% (2013: 0.77%) and the weighted average time for which the rate is fi xed is 1 month (2013: 1.05 months). The Sterling cash deposits include an amount of £1.6 million which was in transit as at 31 March 2014.
The Group’s only other fi nancial assets/liabilities are trade receivables/trade payables arising from the Group’s activities. The Group had no fi nancial liabilities within the scope of IAS 39 as at 31 March 2014 (2013: £nil), apart from trade payables. The fair value of the Group’s fi nancial assets/liabilities are not materially different from their carrying values.
In respect of interest-earning fi nancial assets the following table indicates their effective interest rates at the Balance Sheet date.
17. Trade and other payables Parent Parent Group Group Company Company 31 March 31 March 31 March 31 March 2014 2013 2014 2013 £000 £000 £000 £000
Non-current liabilities
Finance lease obligations 243 – – –
Share of loan to the joint venture 14 13 – –
Deferred tax 2,275 – – –
Total non-current liabilities 2,532 13 – –
Current liabilities
Trade payables 550 267 66 84
Pension 39 25 – –
Accruals 1,765 1,200 404 344
Social security 99 70 – –
Finance lease obligations 72 – – –
Vendor loan notes 2,800 – 2,800 –
Deferred income 108 268 25 27
Total current liabilities 5,433 1,830 3,295 455
Amounts owed to the joint venture are repayable on demand but are expected to be paid after more than one year. Interest is charged on this payable. No security is given.
The vendor loan notes relate to the acquisition of Flybrid Automotive Limited. The loan notes are unsecured and non-interest bearing and are repayable from 7 July 2014 until 31 March 2017, subject to Flybrid achieving certain revenue performance criteria (see note 29).
18. Provisions Opening balance Amounts Closing balance 1 April 2013 utilised 31 March 2014 £000 £000 £000
Core component testing for Allison Transmission Inc. 750 (750) –
Total provisions 750 (750) –
The provision for core component testing related to the costs expected to be incurred in relation to the testing and supply of fully -conformed discs and rollers for Allison Transmission Inc. The provision was booked against direct costs in the year ended 31 March 2013.
19. Issued share capitalGroup and Parent Company 31 March 31 March 2014 2013 Number £000 Number £000
Authorised
Ordinary shares of 10 pence each 450,000,000 45,000 250,000,000 25,000
Allotted and fully paid
Ordinary shares of 10 pence each 274,195,926 27,420 174,958,022 17,496
Group and Parent Company 31 March 31 March 2014 2013 Number £000 Number £000
Ordinary shares of 10 pence each
At beginning of year 174,958,022 17,496 164,932,780 16,493
Shares issued under the SIP scheme 474,424 47 236,617 24
Shares issued under the LTPSP scheme 2,037,602 204 726,166 73
Shares issued to Allison Transmission Inc. 12,706,064 1,271 8,248,434 825
Shares issued under the 2008 share option scheme – – 591 –
Shares issued as a result of the open offer and fi rm placing 76,182,824 7,618 – –
Shares issued as equity consideration as part of the Flybrid Automotive Limited acquisition 7,836,990 784 – –
Shares issued under the SAYE scheme – – 813,434 81
At end of year 274,195,926 27,420 174,958,022 17,496
The increase in the authorised share capital of the Company to 450,000,000 shares was approved by Shareholders at a General Meeting held on 8 January 2014.
Shares issued as part of the open offer and fi rm placing and approved by Shareholders at a General Meeting held on 8 January 2014 are reported net of expenses, totalling £1.0 million. The expenses are shown within share premium.
Details of ordinary shares under option under the Company’s employee share schemes are given in note 26.
20. Share premiumAt the Annual General Meeting held on 26 July 2012, a special resolution was passed approving the cancellation of an amount of £53,725,966 previously held in the share premium account. Following the approval of the Court and the subsequent registration of the Court Order, the balance has now been transferred to the Company’s retained earnings.
21. Directors’ remuneration Group Group 2014 2013 £000 £000
Directors’ emoluments 1,251 731
Directors’ share- based payment charge 45 134
Company contributions to pension schemes 82 55
Social security costs 135 59
Total 1,513 979
The Group does not consider it has any key management personnel that have authority and responsibility for planning, directing and controlling the activities of the Group other than the Executive and Non-Executive Directors.
More detailed information concerning Directors’ remuneration, shareholdings, options and pension benefi ts is shown in the parts of the Directors’ Remuneration Report on pages 32 to 44, which are shown as Audited.
22. Employee costs and numbersThe aggregated payroll costs (including Directors’ emoluments) were as follows:
Group Group 2014 2013 Note £000 £000
Short-term employment benefi ts 3,826 2,580
Pension costs 235 178
Share-based payment charge 26 249 443
Total 4,310 3,201
The average monthly number of persons employed (including Executive and Non-Executive Directors) by the Group during the year is analysed by category below.
Group Group 2014 2013 Number Number
Directors – Parent Company 6 4
– subsidiaries 3 3
Engineers 50 23
Administrative 17 9
Total 76 39
23. Company pension schemeSince 1 September 2012 Torotrak (Development) Limited has operated a workplace contract -based pension scheme with Aviva. The personal pension contract on this scheme is between Aviva and the employee. Torotrak has no contractual role with Aviva. The minimum contribution rates as a percentage of basic earnings are 7.5% by Torotrak and 3.5% by the relevant employee (excluding Executive Directors). Prior to this the Group operated a defi ned contribution money purchase scheme with Standard Life as Trustee.
In April 2012 Flybrid Automotive Limited introduced a Group Personal Pension with Aegon. Each member has their own personal plan. The pension plan takes the form of a defi ned contribution pension scheme. The minimum contribution rates as a percentage of basic earnings are 2.5% by Flybrid Automotive Limited and 2.5% by the relevant employee. The Directors are not members of this pension scheme.
Pension charges are charged to the Income Statement in respect of the period to which they relate. The charge to the Income Statement for both plans was £210k (2013: £157k). The schemes are available to all employees (excluding Non-Executive Directors) and currently have approximately 64 active members (2013: 37 active members). There was £39k due at the year -end (2013: £25k).
Executive Directors, Directors of subsidiaries and certain employees are entitled to have pension contributions payable by the Group paid into a personal pension scheme. Of the total charge to the Income Statement of £235k (2013: £178k) the charge in respect of personal schemes was £25k (2013: £21k).
25. Obligations under fi nance leasesAmounts payable under fi nance leases:
Plant and Machinery 31 March 31 March 2014 2013 £000 £000
Not later than one year 72 –
Later than one year but not later than fi ve years 243 –
Total 315 –
26. Employee benefi tsAt 31 March 2014 the total number of shares over which non-cancelled options have been granted to Directors and employees under all share schemes was 6,903,531 (2013: 8,181,288) representing 2.52 % (2013: 4.68%) of the issued share capital of the Parent Company.
The total number of options which could be exercised at 31 March 2014 was 1,162,671 (2013: 2,200,936).
The Sharesave SchemeThe HMRC -approved savings-related share option scheme (“the Sharesave Scheme”) is open to all employees, including Executive Directors, who enter into an approved savings contract for a period of three years. HMRC rules limit the maximum amount that may be saved for schemes. For schemes commencing in the tax year to 5 April 2014 the maximum amount was £250 per month. Options are granted and then a savings contract is commenced in order to acquire the number of shares that the total savings will buy when the savings contract expires.
Sharesave Scheme rules were approved in July 2008 and the fi rst issue was in June 2009. Options were granted in March 2014. Details of which are as follows:
Granted Exercised At 1 April during during At 31 March Grant Number of 2013 the year the year 2014 Exercise Exercise date employees Number Number Number Number date price
March 2014 63 – 2,224,033 – 2,224,033 May 2017 £0.177
Share option schemesAt 31 March 2014, employees held approved and unapproved options to acquire 660,571 shares under the share option schemes, (2013: 681,571) some subject to performance conditions, representing 0.24% (2013: 0.39%) of the issued share capital as follows:
Lapsed or Granted Exercised cancelled At 1 April during during during At 31 March Exercise Grant Number of 2013 the year the year the year 2014 price Expirydate employees Number Number Number Number Number £ date
Unapproved Scheme
Jun 2005 1 207,082 – – – 207,082 0.625 Jun 2015
Jul 2008 1 39,456 – – – 39,456 0.205 Jul 2018
Jun 2011 1 290,155 – – – 290,155 0.483 Jun 2021
Total unapproved options 536,693 – – – 536,693
Lapsed or Granted Exercised cancelled At 1 April during during during At 31 March Exercise Grant Number of 2013 the year the year the year 2014 price Expirydate employees Number Number Number Number Number £ date
Approved Scheme
Jun 2003 – 21,000 – – (21,000) – 0.270 Jun 2013
Jul 2008 6 123,878 – – – 123,878 0.205 Jul 2018
Total approved options 144,878 – – (21,000) 123,878
The Torotrak Employee Share Trust (EST) The EST was replaced in 2010 by the ‘Torotrak Share Incentive Plan’ and the Torotrak Employee Benefi ts Trust (EBT). Shares placed in a SIP under the now dissolved EST are held in trust by the trustee, Torotrak (Holdings) Limited as trustee of the ‘Torotrak Share Incentive Plan’ established in 2010. Awards made under the plan enjoy tax-favoured treatment and encourage long -term employee share ownership. All shares have now been transferred to employees.
Shares Number of At 1 April transferred At 31 March employees 2013 to employee 2014
Shares in trust – 15,584 (15,584) –
Long -Term Performance Share Plan (LTPSP)The Company has established a long -term incentive plan for the benefi t of UK and non-UK resident Directors and employees. No awards were made during the year (2013: awards totalling shares of 2,058,438 were made subject to performance conditions, representing 1.18% of the allotted share capital of the Parent Company at 31 March 2013). The Torotrak Employee Benefi ts Trust (EBT) was established in order to satisfy awards made under the LTPSP. Torotrak (Holdings) Limited is the trustee of the EBT.
Granted Exercised Lapsed or At 1 April during during cancelled during At 31 March Grant Number of 2013 the year the year the year 2014 Exercise date employees Number Number Number Number Number price
Aug 2008 – 1,439,997 – (1,439,997) – – (i)
Sep 2009 – 597,605 – (597,605) – – (i)
Dec 2010 11 2,257,883 – – (1,258,546) 999,337 (i)
Nov 2011 8 1,145,794 – – – 1,145,794 (i)
Sep 2012 11 2,058,438 – – (184,642) 1,873,796 (i)
Total LTPSP options 7,499,717 – (2,037,602) (1,443,188) 4,018,927
Note (i) each award over shares under the LTPSP is satisfi ed by the exercise of an option for the sum of £1.00.
The Torotrak Share Incentive Plan (SIP)The trustee of the Torotrak Share Incentive Plan is Torotrak (Holdings) Limited. The trust was established in 2010 in order to provide Free Shares, Partnership Shares and Matching Shares for employees.
During the year Free Shares were offered to all employees at a rate of 3% of salary at a share price of 29.65p. There is a holding period of three years. There are no other performance conditions.
Staff could purchase Partnership Shares up to the legal maximum of £1,500 at a price of 29.65p. For each Partnership Share purchased, the Company awarded two Matching Shares. Under the partnership agreement, there is a holding period of three years. There are no other performance conditions.
Shares Shares Number of At 1 April transferred Shares awarded/ At 31 March employees 2013 to employee forfeited acquired 2014
Fair value of share options grantedThe fair value of services received in return for share options granted is measured by reference to the fair value of options granted. The estimate of the fair value of the services received is based upon the Black Scholes model. The contractual life of the option is used as an input into this model.
Fair value at Share measurement price at Exercise Expected Option Expected Risk free date date of grant price volatility life dividend rate Scheme £ £ £ % Years % %
Note (i) each award over shares under the LTPSP is satisfi ed by the exercise of an option for the sum of £1.00.
Note (ii) The estimated fair value of the share incentive scheme is taken as being the closing market value of the shares at the date of the award (2013: 29.65p, 2012: 38.95p), discounted for leavers at between 15 and 25 per cent. and spread over the expected vesting period.
The forecast future volatility is based upon fi ve-year historical volatility.
The costs charged to the Income Statement relating to share options and awards over shares granted were as follows:
31 March 31 March 2014 2013 £000 £000
Share options granted in fi nancial year ending 31 March 2009 – (3)
Share options granted in fi nancial year ending 31 March 2010 – 35
Share options granted in fi nancial year ending 31 March 2011 118 229
Share options granted in fi nancial year ending 31 March 2012 (12) 134
Share options granted in fi nancial year ending 31 March 2013 97 48
Share options granted in fi nancial year ending 31 March 2014 46 –
27. Subsidiary undertakings and joint ventureThe Parent Company had the following subsidiary undertakings and joint venture as at 31 March 2014:
Country of Class of Ownership Incorporation capital Principal activity 2014 2013
Torotrak Group Limited UK Ordinary Dormant 100% 100%
Torotrak (Holdings) Limited UK Ordinary Intermediate holding Company and licensing
administration 100% 100%
Torotrak (Development) Limited UK Ordinary Commercialisation and research and
development in relation to variable drive technology 100% 100%
Rotrak Limited UK Ordinary Development of variable supercharger drives 50% 50%
Motorsport Components Limited UK Ordinary Holding Company to secure the trading name 100% 100%
Flybrid Automotive Limited UK Ordinary Design and development of innovative hybrid
vehicle technology 100% 20%
Flybrid Systems LLP UK N/A Dormant 100% 0%
Motios Limited UK Ordinary Dormant 100% 0%
The investment in Torotrak (Development) Limited is held by Torotrak (Holdings) Limited. The investment in Motorsport Components Limited is held by Torotrak (Development) Limited. All other investments are held by the Parent Company .
Motios Limited and Motorsport Components Limited are exempt from the requirements to prepare individual accounts under section 394A, or to fi le individual accounts under 448A of the Companies Act 2006.
28. Related party transactionsThe Parent Company’s transactions with and balances due (to)/from wholly -owned subsidiaries and other related parties are analysed below. The Parent Company has the right of offset over its subsidiaries’ balances. In the fi nancial year ended 31 March 2013 all balances between the Parent Company and Torotrak (Development) Limited, Torotrak (Holdings) Limited and Torotrak Group Limited were forgiven.
Balance due Expenses Balance due (to)/from Working capital charged by (to)/from at at 1 April 2013 loans/ Torotrak plc 31 March 2014Related party £000 (repayments) £000 £000
Net amounts owed by subsidiary undertakings – 2,370 (184) 2,186
Rotrak Limited 27 – 1 28
Rotrex A/S 147 – – 147
The current and prior year emoluments of the Executive and Non-Executive Directors, who for these purposes may be viewed as related parties, are shown in note 21 and in the Directors’ Remuneration Report on pages 32 to 44.
There was an amount due to Jon Hilton of £1,960k as loan notes in relation to the acquisition of Flybrid Automotive Limited which is shown in note 17 and an amount due from Jeremy Deering of £20k for tax and national insurance in relation to the exercise of an LTPSP award which is shown as other receivables. No other amounts were due (to)/from these personnel at the start or end of the year. The Company does not consider it has any key management personnel other than the Executive and Non-Executive Directors.
Mr Jo n Hilton is a designated member of Perdu Puzzles LLP. At 31 March 2014 there was an amount due from Perdu Puzzles LLP of £2k.
29. Business combinationsOn 9 January 2014 the Group completed the purchase of the remaining 80 per cent. of Flybrid Automotive Limited . This acquisition provides the Group with the leading commercially -viable fl ywheel technology in the market, offering low -cost, high -performance hybrid systems for mass -market adoption in passenger cars and commercial vehicles.
The consideration for the acquisition of the remaining 80 per cent. was £6.0 million in cash and £2.0 million in the Company’s new ordinary shares valued at the average of the closing middle market share price for 30 days prior to the date of the sale and purchase agreement. Of the £6.0 million cash consideration due, £4.2 million was paid to the vendors on completion with a further £1.8 million satisfi ed by the issuance of loan notes payable no earlier than 7 July 2014 and subject to Flybrid Automotive Limited meeting certain revenue performance criteria.
In addition, up to a further £15 million could be payable to the vendors subject to the satisfaction of certain revenue and gross margin targets linked to the successful development and commercialisation of the fl ywheel technology up to the period ending 31 March 2021. The fair value of assets and liabilities recognised on the acquisition of Flybrid was £11 million. The intangible assets of Flybrid are intellectual property and knowhow. The analysis of the fair value of assets acquired is as follows:
Fair value of assets acquired £000
Intangible assets (patents and knowhow) 11,667
Property, plant and equipment 495
Net current assets 92
Amount owed to vendors (1,000)
Other long -term liabilities (254)
Deferred tax liability (2,300)
Goodwill 2,300
Total 11,000
Consideration paid in March 2013 for 20% holding 3,000
Consideration paid in cash January 2014 for remaining 80% holding 4,200
Consideration satisfi ed by the issue of shares for remaining 80% holding 2,000
Contingent consideration 1,800
Total consideration 11,000
Total acquisition-related costs incurred to date for Flybrid are £0.6 million which have been recorded in the Income Statement for the year ended 31 March 2014. These acquisition costs are presented in administration expenses and as exceptional costs.
Since acquisition, Flybrid has contributed £0.2 million to Group revenue and £0.3 million to Group operating loss. If the acquisition had taken place at the beginning of the year, Group revenue would have been higher by £0.8 million and Group operating loss would have been higher by £0.8 million.
The contingent consideration arrangement requires the Group to pay, in cash, to the former owners of Flybrid Automotive Limited up to £1.8m upon Flybrid securing new commercial arrangements.
The potential undiscounted amount of all future payments that the Group could be required to make under this arrangement is between nil and £1.8m.
The fair value of the contingent consideration recognised was estimated based on the Group Directors’ expectations of such commercial arrangement being achieved. The contingent consideration has not been discounted as the full amount is expected to be settled within 1 year and as such the effect of discounting would not be signifi cant.
As part of the acquisition the Group assessed the fair value of its 20 per cent. equity stake in Flybrid Automotive Limited held before the business combination. No change in fair value was identifi ed and therefore no gain or loss has been recognised.
30. Group Treasury
Overall approach and complex instrumentsThe Group takes a prudent approach to overall risk management and does not take material risks or use complex fi nancial instruments. The treasury and fi nance function, which is principally responsible for managing fi nancial risk, does not act as a profi t centre and hence risk management is not infl uenced by profi t targets. Key policies relating to risk management are approved by the Board of Directors.
Diversifi cation of treasury deposits Up to 50 per cent. of the gross total cash balances, at the time of depositing, may be invested with one institution (with a minimum long -term rating of AA), subject to a cap of £7 million per institution. Up to 25 per cent. of the total cash balances at the time of depositing may be invested with one institution (rated in accordance with the counterparty risk policy), subject to a cap of £3 million. However, up to 100 per cent. may be invested with the Company’s current clearing bank on a short -term basis (whilst investment decisions and authorisations are being obtained). The aim of this approach is to diversify risk, subject to restrictions on the credit rating of counterparties.
Counterparty and credit riskIn all cases where cash is deposited and at risk with a third party, other than in the normal course of trading with suppliers and customers, the counterparty must be A -rated on a long -term basis (regardless of whether the transaction is short -term in nature), and A-1/ P-1 on a short -term basis, as defi ned by Standard & Poor’s (S&P) and Moody’s. This rating applies to the underlying credit risk of the legal entity with which Torotrak is doing business. In addition, the Board has approved Royal Bank of Scotland as an exception, as an acceptable counterparty, despite their long-term rating being A-.
30. Group Treasury (continued) This policy gives a high degree of security for funds invested, although the cost of such security is a reduction in interest rates in comparison to those offered by lower-rated counterparties. Security of the Group’s fi nancial assets is the primary objective. Deposits at year-end were held as follows:
S&P rating 31 March 2014 31 March 2013Counterparty (Long -term / short -term) £000 £000
Barclays Bank plc A/A-1 12,528 6,402
Svenska Handelsbanken AB (publ) AA-/A-1+ 1,067 2,055
Royal Bank of Scotland plc A-/A-2 885 479
Share of joint venture cash – 3 3
Lloyds Bank A/A-1 372 –
Cash in hand – 7 6
Total 14,862 8,945
Foreign exchange riskThe Group’s trading exposure to foreign exchange rate risk is relatively low and mainly arises from non-UK sterling denominated receipts relating to licence and engineering service agreements. At the year-end, there were negligible trade balances subject to foreign exchange exposures.
Price riskThe Group is not materially exposed to commodity price risk.
Cash fl ow and fair value interest rate riskThe Group deposits and invests cash with a combination of both fl oating rates and at rates fi xed for less than a year. In the year to 31 March 2014, the Group’s bank interest receivable was £36k (2013: £73k). Had interest rates increased / decreased by half of a percentage point, then interest receivable would have increased / decreased by £41k.
Liquidity riskThe Group maintains suffi cient cash for its short-term needs and maintains regular cash forecasts to make this assessment.
Capital risk managementThe Group considers capital to be total equity plus cash and cash equivalents. Total equity comprises issued share capital, other reserves and the accumulated defi cit as shown in the consolidated Balance Sheet. Cash and cash equivalents comprise cash on hand and short -term deposits (note 16). The Group manages its capital in such a way as to preserve liquidity and safeguard the medium to long -term funding requirements of the business.
31. CommitmentsCapital expenditure contracted for at the Balance Sheet date but not yet incurred was £76k (2013: £3k).
Notice is hereby given that the 2014 Annual General Meeting of the Company will be held at Hall 5, Silverstone Wing, Silverstone Circuit, Towcester, Northamptonshire, NN12 8TN on Thursday 31 July 2014 at 11.00am for the following purposes:
Resolutions 1 to 11 are each proposed as an ordinary resolution.
Resolution 1 To receive and adopt the Financial Statements and the reports of the Directors and Auditors for the year ended 31 March 2014.
Resolution 2 To approve the Directors’ remuneration policy set out within the Directors’ Remuneration Report on pages 32 to 44 of the Annual Report.
Resolution 3 To approve the Directors’ Remuneration Report for the year ended 31 March 2014, set out on pages 32 to 44 of the Annual Report, excluding the Directors’ remuneration policy.
Resolution 4 To appoint John McLaren, who was appointed as a Director since the last Annual General Meeting and who, being eligible, offers himself for election as a Director in accordance with the Articles of Association.
Resolution 5 To appoint Rex Vevers, who was appointed as a Director since the last Annual General Meeting and who, being eligible, offers himself for election as a Director in accordance with the Articles of Association.
Resolution 6 To appoint Jon Hilton, who was appointed as a Director since the last Annual General Meeting and who, being eligible, offers himself for election as a Director in accordance with the Articles of Association.
Resolution 7 To re-appoint Jeremy Deering, who retires as a Director in accordance with the Company’s Articles of Association and who, being eligible, offers himself for re-election as a Director.
Resolution 8 To re-appoint PricewaterhouseCoopers LLP as Auditors of the Company until the conclusion of the next Annual General Meeting.
Resolution 9 To authorise the Directors to agree PricewaterhouseCoopers LLP’s remuneration.
Resolution 10 That the Directors be and they are hereby generally and unconditionally authorised to exercise powers of the Company pursuant to section 551 of the Companies Act 2006 (the “Act”) to allot, grant options over, offer or otherwise deal with or dispose of shares in the Company (such shares and rights together being referred to as “Relevant Securities”) up to an amount equal to 33 per cent. of the aggregate nominal value of the Company’s ordinary shares in issue at 30 June 2014, being £ 9,049,486, provided that:
a) this authority shall expire on the earlier of the close of the next Annual General Meeting of the Company after passing of this resolution or 15 months from the date of the resolution unless previously renewed, varied or revoked by the Company in general meeting save that before such expiry the Company may make any offer or agreement which would or might require Relevant Securities of the Company to be allotted after such expiry and the Directors may allot Relevant Securities in pursuance of such offer or agreement as if the authority conferred by this resolution had not expired; and
b) the authority conferred by this resolution shall be in substitution for all existing powers conferred on the Directors pursuant to section 80 of the Companies Act 1985 and section 551 of the Act.
Resolution 11 That the following wording be added to the end of rule 4.1 of the Torotrak Long -Term Performance Share Plan:
“except that, in respect of fi nancial year ending on 31 March 2015, the maximum aggregate V alue of S hares over which an E ligible P erson may obtain an Award under the Plan in any fi nancial year shall be 200 per cent. of the Eligible Person’s Basic Salary (in the case of a Director of the Company) and 120 per cent. of the Eligible Person’s Basic Salary (in any other case) subject to a similar adjustment where the Participant will be responsible for reimbursing secondary Class 1 National Insurance contributions.”
Resolutions 12 and 13 are each proposed as a special resolution:
Resolution 12 That, subject to the passing of Resolution 10, the Directors be and they are hereby empowered to allot equity securities (within the meaning of section 560 of the Act) for cash pursuant to the authority conferred by Resolution 10 as if section 561(1) of the Act did not apply to any such allotment provided that this power shall be limited:
a) to the allotment of equity securities in connection with an issue in favour of holders of ordinary shares in the capital of the Company in proportion as close as possible to existing holdings of ordinary shares in the Company, but subject to such exclusions or other arrangements as the Directors may deem necessary or desirable to deal with fractional entitlement or legal or practical problems under the laws of, or the requirements of any recognised regulatory body or any stock exchange in, any territory; and
b) to the allotment (otherwise than pursuant to sub-paragraph (a) above) of equity securities up to an amount equal to 5 per cent. of the aggregate nominal value of the ordinary shares in issue at 30 June 2014, being £ 1,371,134; and this authority shall expire on the earlier of the close of the next Annual General Meeting of the Company after passing of this resolution or 15 months from
Notice of Annual General Meeting 2014 continuedthe date of this resolution save that the Company may before such expiry make an offer or agreement which would or might require equity securities to be allotted after such expiry and the Directors may allot equity securities in pursuant of such an offer or agreement as if the power conferred hereby had not expired.
Resolution 13 That, in accordance with article 53(4) of the Articles of Association, a general authority is hereby unconditionally given for the purposes of section 701 of the Act for market purchases (as defi ned in section 693(4) of the Act) by the Company of any of its ordinary shares subject to the following restrictions but otherwise unconditionally:
a) the maximum aggregate number of ordinary shares to be so acquired shall not exceed 27,422,686 ordinary shares of 10 pence each representing 10 per cent. of the ordinary shares in issue at 30 June 2014; and
b) ordinary shares may only be purchased at a price per share (exclusive of expenses) no higher than 5 per cent. above the average of the middle market quotations of the ordinary shares in the capital of the Company, as derived from the London Stock Exchange Daily Offi cial List, for the fi ve business days preceding the date of purchase but the minimum price that may be paid for such shares shall be the nominal value of 10 pence per share (exclusive of expenses) .
Such authority to expire at the earlier of the conclusion of the next Annual General Meeting of the Company after the passing of this resolution or 15 months from the date of this resolution, save that the Company may before such expiry enter into contracts for such purposes which would or might be completed or executed wholly or partly after such expiry and the Company may purchase ordinary shares in pursuance of such a contract as if the authority conferred hereby had not expired.
Recommendation and further information
The Directors of the Company consider that the resolutions to be proposed at the Annual General Meeting are in the best interests of the Company and will promote the success of the Company for the benefi t of its Shareholders as a whole. The Directors recommend that you vote in favour of the resolutions set out above, as the Directors intend to do in respect of their own shareholdings.
Further information on each of the resolutions, and on the arrangements and conduct for the meeting, is provided in the notes that follow this Notice.
Important note
If you are in any doubt as to any aspect of the proposals referred to above or as to the action you should take, you should seek your own advice from a stockbroker, accountant, solicitor or other professional adviser.
If you have sold or otherwise transferred all of your shares, please forward this document together with the accompanying documents as soon as possible to the transferee or to the person who arranged the sale or transfer so they can pass these documents on to the current Shareholder. If you have sold or otherwise transferred some, but not all, of your shares you should retain this document and the accompanying documents.
By order of the Board:
Rex Vevers 1 Aston WayCompany Secretary Leyland, Lancashire 1 July 2014 PR26 7UX
Notes relating to the Notice of the 2014 Torotrak Annual General Meeting1. Your entitlement to vote, proxy voting, and conduct of meeting
a) Only registered holders of fully paid shares or their duly appointed representatives are entitled to attend and vote at the Annual General Meeting. On a vote by show of hands every member who is present has one vote and every proxy present who has been duly appointed by a registered holder entitled to vote has one vote. On a poll vote every member who is present in person or by proxy has one vote for every ordinary share for which he or she is the holder. Those Shareholders entered on the register of members of the Company (‘the Register’) as at 11.00 am on 29 July 2014 shall be entitled to attend and vote at the meeting in respect of the number of shares registered in their name at the time. Changes to entries on the Register after that time shall be disregarded in determining the rights of any person to attend and vote at the meeting.
If the meeting is adjourned to a time not more than 48 hours after the specifi ed time applicable to the original meeting then 11.00 am on 29 July 2014 will also apply for the purpose of determining the entitlement of Shareholders to attend and vote (and for determining the number of votes they may cast) at the adjourned meeting. If, however, the meeting is adjourned for a longer period then, to be so entitled, Shareholders must be entered on the Register at the time which is 48 hours before the time fi xed for the adjourned meeting, or if the Company gives the notice of the adjourned meeting, at the time specifi ed in that notice.
Any corporation which is a member can appoint one or more corporate representatives who may exercise on its behalf all of its powers as a member provided that they do not do so in relation to the same shares.
Any member entitled to attend and vote at the Annual General Meeting may appoint one or more proxies to attend and to vote instead of the member provided that each proxy is appointed to exercise the rights attached to a different share or shares held by that Shareholder. A proxy need not be a member of the Company. To be effective, the instrument appointing a proxy (and the power of attorney or other authority (if any) under which it is signed or a notarially certifi ed or offi ce copy thereof) must be deposited at the Company’s registrars, Capita Asset Services, PXS, 34 Beckenham Road, Beckenham, Kent, BR3 4TU, not less than 48 hours before the time of holding the meeting or adjourned meeting. Should you wish to appoint more than one proxy then please photocopy the Form of Proxy.
Shareholders may also lodge their proxy online at www.capitashareportal.com. Completion and return of one or more Forms of Proxy will not preclude Shareholders from attending the Annual General Meeting and voting in person if they wish to do so.
In order to revoke a proxy appointment, a member must sign and date a notice clearly stating his intention to revoke his proxy appointment and deposit it at the offi ces of the Company’s registrars, Capita Asset Services, PXS, 34 Beckenham Road, Beckenham, Kent, BR3 4TU, not less than 48 hours before the time of holding the meeting or adjourned meeting.
b) The following principles shall apply in relation to the appointment of multiple proxies:
(i) If the Company receives multiple proxy instructions from the sole holder of shares then the instructions received last (i.e. closest to the date of the Annual General Meeting) will be used.
(ii) If confl icting proxies are received at the same time in respect of (or deemed to be in respect of) an entire holding then none of them shall be treated as valid.
(iii) Where the aggregate number of shares in respect of which proxies are appointed exceeds a member’s entire holding and it is not possible to determine the order in which they were received (or they were all received at the same time) then the number of votes attributed to each proxy will be reduced pro rata.
(iv) Where the application of paragraph (iii) above gives rise to fractions of shares, such fractions will be rounded down.
(v) In the case of joint holders of shares, where more than one of the joint holders purports to appoint a proxy, only the appointment submitted by the most senior Shareholder will be accepted and, for this purpose, seniority will be determined by the order in which the names stand in the Register in respect of such shares.
c) If a member appoints a proxy or proxies and then decides to attend the Annual General Meeting in person and vote, then the vote in person will override the proxy vote(s).
d) In accordance with section 325 of the Act, the right to appoint proxies does not apply to persons nominated to receive information rights under section 146 of the Act. Persons nominated to receive information rights under section 146 of the Act who have been sent a copy of this Notice of Meeting may have a right under an agreement with the registered member by whom they were nominated to be appointed, or to have someone else appointed, as a proxy for this meeting. If they have no such right, or do not wish to exercise it, they may have a right under such an agreement to give instructions to the member as to the exercise of voting rights. Nominated persons should contact the registered member by whom they were nominated in respect of these arrangements.
e) Under section 338A of the Act, Shareholders may request the Company to include in the business to be dealt with at Annual General Meetings any matter (other than a proposed resolution) which may be properly included in the business, provided that it is not defamatory, vexatious or frivolous. The Company will include such matter if suffi cient requests have been received in accordance with section 338A(3) of the Act and the request is submitted in the manner detailed in section 338A of the Act.
2. Statements on Company website
Members should note that it is possible that, pursuant to requests made by Shareholders of the Company under section 527 of the Act, the Company may be required to publish on a website a statement setting out any matter relating to the audit of the Company’s Financial Statements (including the Auditors’ Report and the conduct of the audit) that are to be laid before the Annual General Meeting. The Company may not require the members requesting any such website publication to pay its expenses in complying with sections 527 or 528 of the Act. Where the Company is required to place a statement on a website under section 527 of the Act, it must forward the statement to the Company’s Auditor not later than the time when it makes the statement available on the website. The business which may be dealt with at the Annual General Meeting includes the statement that the Company has been required under section 527 of the Act to publish on a website.
Notice of Annual General Meeting 201 4 continued3. CREST members
CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so for the Annual General Meeting to be held on 31 July 201 4 and any adjournment(s) thereof by using the procedures described in the CREST Manual. CREST personal members or other CREST sponsored members, and those CREST members who have appointed a voting service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf.
In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a “CREST Proxy Instruction”) must be properly authenticated in accordance with Euroclear UK & Ireland Limited’s specifi cations and must obtain the information required for such instructions, as described in the CREST Manual. The message, regardless of whether it constitutes the appointment of a proxy or an amendment to the instruction given to a previously appointed proxy must, in order to be valid, be transmitted so as to be received by the issuer’s agent ( ID RA10) by the latest time(s) for receipt of proxy appointments specifi ed in the notice of meeting. For this purpose, the time of receipt will be taken to be the time (as determined by the time stamp applied to the message by the CREST Application Host) from which the issuer’s agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time any change of instructions to proxies appointed through CREST should be communicated to the appointee through other means.
CREST members and, where applicable, their CREST sponsors or voting service providers should note that Euroclear UK & Ireland Limited does not make available special procedures in CREST for any particular messages. Normal system timings and limitations will therefore apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member or sponsored member or has appointed a voting service provider(s) to procure that his CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting service providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings.
The company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertifi cated Securities Regulations 2001.
4. Voting rights
As at close of business on 30 June 2014, being the last business day prior to publication of this Notice, the Company’s issued share capital comprised 274,226,860 ordinary shares carrying one vote each. Therefore, the total number of voting rights in the Company as at 30 June 2014 was 274,226,860.
5. Documents available for inspection
There will be available for inspection copies of all Directors’ service contracts or letters of appointment and a copy of the Company’s current Articles of Association at the registered offi ce of the Company during normal business hours of any weekday, Saturdays and Sundays excepted, from the date of this Notice until the conclusion of the Annual General Meeting and at the place of the meeting from 15 minutes prior to the opening of the meeting until the close of the meeting.
6. Directors
It is intended that the Chairmen of the Audit, Remuneration and Nomination Committees will be available to answer questions at the meeting, as will all other Board Directors.
Biographical details of the Directors proposed for appointment and re-election in accordance with Resolutions 4, 5,6 and 7 are set out in the Annual Report on page 21.
7. Right to ask questions
Under section 319A of the Act, a member attending the meeting has the right to ask questions in relation to the business of the meeting. The Company must cause to be answered any such question relating to the business being dealt with at the meeting but no such answer need be given if (a) to do so would interfere unduly with the preparation for the meeting or involve the disclosure of confi dential information, (b) the answer has already been given on a website in the form of an answer to a question, or (c) it is undesirable in the interests of the Company or the good order of the meeting that the question be answered.
8. Copy of notice on website
A copy of this Notice, and other information required by section 311A of the Act, can be found at www.torotrak.com.
9. Results of voting
The results of voting at the Annual General Meeting will be announced via a Regulatory Information Service and will appear at www.torotrak.com within 14 days of the date of the Annual General Meeting.
Approval of the Report and Accounts (Resolution 1)
This resolution deals with the receipt and adoption of the Financial Statements of the Company and the Directors’ Report and Auditors’ Report for the year ended 31 March 2014 (the “Annual Report”), which the Directors are required to lay before the Shareholders in general meeting.
Approval of the Directors’ Remuneration Policy and Remuneration Report (Resolutions 2 and 3)
Shareholders are invited to approve the Directors’ remuneration policy and Remuneration Report for the year ended 31 March 2014, as set out on pages 32 to 44 of the Annual Report.
If approved, the Directors’ remuneration policy will take effect immediately after the end of the Annual General Meeting and will be valid for up to three years without further Shareholder approval (albeit the Company is likely to put the remuneration policy to the Shareholders at the next Annual General Meeting) .
Appointment of Directors (Resolutions 4, 5 and 6)
The Board appointed John McLaren, Rex Vevers and Jon Hilton to act as a Director of the Company with effect from 27 June 2013, 27 June 2013 and 9 January 2014 respectively. Having been appointed during the year, under article 105 of the Articles of Association of the Company John McLaren, Rex Vevers and Jon Hilton are required to stand for appointment at the Annual General Meeting.
Biographical details of John McLaren, Rex Vevers and Jon Hilton can be found on page 2 1 of the Annual Report.
Re-election of Director (Resolution 7)
In accordance with the UK Corporate Governance Code and article 99 of the Company’s Articles of Association, which requires one third of the Directors (not including those appointed during the year) to retire by rotation and offer themselves for re-appointment at the Annual General Meeting every year, Jeremy Deering is retiring as a Director by rotation and, being eligible, is offering himself for re-election to the Board. Having reviewed the recommendations of the Nominations Committee, the Board is satisfi ed that Jeremy Deering continues to show the necessary commitment and is an effective member of the Board due to his skills, expertise and business acumen.
Biographical details of Jeremy Deering can be found on page 2 1 of the Annual Report.
Re-appointment of the Auditors and agreement of their remuneration (Resolution 8 and 9)
The auditors of a company must be re-appointed at each general meeting at which the company’s accounts are presented. Resolution 8 deals with the re-appointment of PricewaterhouseCoopers LLP as the Auditors of the Company until the conclusion of the next Annual General Meeting. In line with current best practice, Resolution 9 is a separate resolution which authorises the Directors to fi x the Auditors’ remuneration.
Directors’ authority to allot shares (Resolution 10)
This resolution, proposed as an ordinary resolution, renews the Directors’ authority to allot un-issued shares in the Company in accordance with section 551 of the Act. The resolution authorises the Directors to allot shares up to an aggregate nominal amount of £ 9,049,486 (being approximately 33 per cent. of the issued ordinary share capital of the Company at 1 July 2014 (the date of this Notice). The authority will expire at the conclusion of the next Annual General Meeting of the Company or on the day 15 months from the date of the passing of this resolution (whichever is the earlier). The Directors have no immediate intention to exercise this authority other than in connection with the Group’s employee share schemes.
Increase in share plan limit (Resolution 11)
A priority for the Group is to promote the retention of key personnel in the business through awards made under the Torotrak Long -Term Performance Share Plan (“LTPSP”). No awards were made under the LTPSP during the 2013/2014 fi nancial year because of the prolonged periods during which the Company was prevented from making awards, due to the Flybrid Automotive transaction . Therefore, Shareholders are being asked to approve a change to the limits in the rules of the LTPSP to allow ‘catch-up ’ awards to be made to individuals over twice the usual value of shares, but only during the 2014/2015 fi nancial year.
Disapplication of pre-emption rights (Resolution 12)
Under section 561(1) of the Act, equity securities in the Company may not be allotted for cash (otherwise than in respect of an employee share scheme) without fi rst being offered pro rata to existing Shareholders, unless the prior approval of the Shareholders is given in a general meeting. The Directors consider that it is in the best interests of the Company to renew the relevant authority given at the Annual General Meeting in 2013. Accordingly, a special resolution to this effect is proposed as Resolution 12 in the Notice of the Annual General Meeting. The proposed authority will expire at the conclusion of the next Annual General Meeting of the Company or on the day 15 months from the date of the passing of this resolution (whichever is the earlier) and permits the Directors during this period to issue equity securities up to an aggregate nominal amount of £ 1,371,134 (representing approximately 5 per cent. of the issued share capital at 30 June 2014) without fi rst offering them to existing Shareholders.
In accordance with the Pre-emption Group’s Statement of Principles, the Board confi rms its intention that no more than 7.5 per cent. of the issued share capital (excluding treasury shares) will be issued for cash on a non pre-emptive basis within any rolling 3-year period.
The pricing at which the equity would be raised would be greater or equal to the middle of the best bid and offer prices for the Company’s shares immediately prior to the announcement of an issue or proposed issue.
Power to repurchase own shares (Resolution 13)
Under the terms of section 701 of the Act and article 53(4) of its Articles of Association, the Company has power to purchase its own shares provided that this power has fi rst been sanctioned by Shareholders. Resolution 13, proposed as a special resolution, authorises the Company to make purchases of up to 27,422,686 ordinary shares (representing approximately 10 per cent. of the issued ordinary share capital of the Company as at the date of this N otice) at a minimum price of 10 pence and a maximum price (exclusive of expenses) of not more than 5 per cent. above the average of the middle market quotations for the ordinary shares of the Company as derived from the London Stock Exchange Daily Offi cial List for the fi ve business days prior to the purchase.
The authority will expire at the conclusion of the next Annual General Meeting of the Company or on the day 15 months from the date of the passing of this resolution (whichever is the earlier). As at 30 June 2014 options to subscribe for 6,872,597 ordinary shares in the Company pursuant to the Share Option Schemes were outstanding. If exercised as at the date of this document, those options would represent 2.51 per cent. of the issued share capital of the Company. If the full authority to buy back shares being sought is used, the same options would represent 2.78 per cent. of the issued share capital of the Company.
The fact that the Directors are seeking this authority should not be taken as an indication that the Company will purchase its own shares at any particular price or indeed at all and the Directors would only consider making purchases if they believed that such purchases would be in the best interests of Shareholders generally, having regard to the effect on earnings per share. The Directors have no immediate intention to exercise the proposed authority to purchase shares.
Formerly, shares purchased by a company were automatically cancelled. If the Company were to purchase any of its own shares pursuant to the authority conferred by Resolution 1 3, the Company would consider at that time whether to hold those shares as treasury shares unless there were some exceptional and unforeseen reasons at the time of purchase which meant that it were not in the interests of the Company to do so. The Act permits a company to hold its own shares as treasury shares, to transfer them for the purposes of employee share schemes, or to cancel those shares. No dividends would be paid on and no voting rights would attach to any shares whilst held in treasury. The Company does not currently hold any treasury shares as defi ned by the Act.