TPS Annual Report (April 09):TurboPowerAnRep07Awturbopowersystems.com/.../2014/03/2008-04-Annual-Report-2008.pdf · Annual Report & Accounts 2008 energy ... performance electrical

turbopowersystems

Annual Report & Accounts 2008

energy • industrial • transport • defence • energy • industrial • transport • defence • energy • industrial • transport • defence

TPS renewable energy technologies are suited

to various grid-connect and islanded applications,

often in rural and remote areas. With the market

expanding for many forms of renewable energy,

coupled with climate change concerns and

fluctuating oil prices, TPS is developing a strong

presence within these markets.

indexindex

Directors, officers and principal advisors 4

Chairman’s statement 5

Management’s discussion and analysis 6

Corporate governance 24

Directors’, officers’ and senior management biographies 30

Statement of management’s responsibilities in respect of the financial statements 32

Report of the auditors to the shareholders of Turbo Power Systems Inc. 33

Consolidated statements of operations and comprehensive loss 34

Consolidated balance sheets 36

Consolidated statement of changes in shareholders’ equity (deficit) 37

Consolidated statements of cash flows 38

Notes to the consolidated financial statements 39

Shareholder information 61

Directors G K Thornton (Non Executive Chairman)

P T Summers (Chief Executive Officer)

C B Besant (Non Executive Director)

D L Clark (Non Executive Director)

D G Hawksworth (Non Executive Director)

Company secretary S L Ruzicki

Registered office Suite 200-204 Lambert Street, Whitehorse, Yukon Y1A 3T2, Canada

Head office Unit 3, Heathrow Summit Centre, Skyport Drive, Hatch Lane, West Drayton, Middlesex UB7 0LJ

Stockbroker, nomad and KBC Peel Hunt, 111 Old Broad Street,.financial advisers London EC2N 1PH

Registrars Computershare Trust Company of Canada, 600, 530-8th Avenue SW, Calgary, Alberta T2P 3S8, Canada

Computershare Investor Services plc, 2nd Floor, Vintners Place, 68 Upper Thames Street, London EC4V 3BJ

Auditors BDO Dunwoody LLP, Suite 400, 60 Columbia Way,Markham, Ontario L3R 0C9, Canada

Financial public relations Kreab Gavin Anderson, 85 Strand,London WC2R 0DW

4 Directors, officers and principle advisors

The year 2008 has seen significant changes in the management and financial performance of

the business. In the middle of the year the Board brought in a new CEO and appointed a new

Finance Director, with the remit to conduct a broad-ranging review of business strategy and to

set the business on a path of profitable, sustainable growth towards profitability. The Company

now has a realistic 5-year Strategic Plan that focuses on markets we anticipate will provide top-

line growth, and that will change the mix of the business to improve the balance between new

product development, production and after market.

Progress towards the Plan objectives has been made in 2008, especially in the second half of

the year. Spending on new product development has been brought under control and the

agreed transfer of one of our aerospace programmes to our customer significantly reduced our

exposure in 2008 and beyond. We retain the ability to operate in the aerospace market, but in

our strategic review have concluded that other markets will take higher priority.

The Company arranged £3 million of Loan Note financing during the year that provided the

working capital necessary to fund the build up of new production lines for the energy and rail

transport markets. Careful cash management and alignment of our cost base with realistic sales

forecasts meant that the Company ended the year with significantly reduced overall cash

outflows, and was able to produce a modest cash generative operating cash flow during the last

quarter. The management of cash remains a top priority for the Board and the management

team going forward.

The year 2008 was also significant in that the Company secured its first defence order for a high-

performance electrical generator system from a prestigious USA prime contractor. Our

capabilities in power electronics and advanced electrical machines design have also attracted

the interest of several major UK defence contractors, demonstrating again the significant

technical capability the Company brings to these highly demanding markets.

In the rail transport and energy markets the delivery of production units started in 2008 and will

continue in 2009 and beyond, steadily building an installed base of product that will provide

long-term aftermarket business.

In summary, 2008 has been a year of turnaround in the financial performance and

management of the business. The operating result reflects a year of exceptional investment but

one where costs have been brought rapidly under control during the latter part of the year. The

Company now has a set of clear financial goals over the next 5 years, and a clear strategy to

achieve them. Our key customers continue to place orders with us, and the Company is making

inroads into the defence market where we have demonstrated excellent technical capabilities.

I expect the Company to continue to build on the successes of the past year, and to continue to

develop its order book.

turbopowersystems annual report and accounts 2008

Chairman’s statement 5

Graham Thornton non-executive chairman

TPS Heathrow

TPS Gateshead

DrivesConverters& Power

Electronics

Motors & Generators

High SpeedMotor and

Drive Package

High SpeedGeneratorSystems

For each of the markets/sectors the assessment took into account:

• current strengths of TPS,

• size of the market/sector TPS could address,

• levels of investment required to capture and execute orders

• probability of turning the identified opportunities into orders.

Management’s discussion and analysis

The following information should be read in conjunction with Turbo Power Systems Inc. auditedconsolidated statements for the year ended December 31, 2008 and related notes, which areprepared in accordance with Canadian Generally Accepted Accounting Principles ("GAAP"). Allamounts in the MD&A, financial statements and related notes are expressed in Sterling, unlessotherwise noted.

This MD&A contains forward-looking statements that are subject to risks and uncertaintiesbeyond management's control. Actual results could differ materially from those expressed here.Risk factors are discussed more fully in the Company's Annual Information Form.

This MD&A has been prepared as at 25 March 2009.

Definition of non-GAAP financial measures

EBITDA is calculated as the net loss for the period less financial interest income and charges,foreign exchange gains and losses, tax charges and receipts, depreciation, amortisation, andstock compensation charges. The Company believes that EBITDA is useful supplementalinformation as it provides an indication of the operational results generated by its businessactivities prior to taking into account how those activities are financed and taxed and also priorto taking into consideration asset amortisation. EBITDA is not a recognised measure under GAAPand, accordingly, should not be construed as an alternative to operating income or net lossdetermined in accordance with GAAP as an indicator of financial performance or of liquidity andcash flows. EBITDA does not take into account the impact of working capital changes, capitalexpenditures and other sources and uses of cash which are disclosed in the consolidatedstatement of cash flows. The Company’s method of calculating EBITDA may differ from otherissuers and may not be comparable to similar measures provided by other companies.

Business of the Company

Turbo Power Systems:

• designs and manufactures high-speed permanent magnet based motors and generators forindustrial, transport, power generation and military applications, where technical performance,energy efficiency and power density requirements cannot be met by conventional technology.

• designs and manufactures power electronics products which include variable frequency drivesand inverters, which combine with our electrical machines to create an integrated solution,and a range of rugged power conversion products for rail and industrial applications.

2008 Summary

Strategic Direction

During the latter part of 2008 the management team and main Board undertook acomprehensive review of the strategic direction of the business.

As part of this review we looked at our products and markets to determine where to focus ourresources. The activities of the business over previous years in positioning itself in a wide rangeof markets and sectors gave the management team the opportunity to be selective indetermining where to place the emphasis going forward.

6 Management’s discussion and analysis

The Gateshead facilities inNorth East England house thePower Electronics Division andwere opened in 2007.

The Electrical Machines Divisionat Heathrow TPS totalmanufacturing space exceeds65,000 sq.ft.

• Transport ■ Power Electronics for the Rail Industry

• Energy■ Grid Linked Inverters

■ Motors & Generators

• Industrial Equipment■ Motors & Generators

■ Power Supplies

• Defence■ Power Electronics

■ Motors & Generators

Current Operating Climate

The current economic climate is clearly a concern for many businesses, including TPS. However,so far, the majority of our customers and markets are proving to be resilient to the currenteconomic turmoil. Additionally the spread of markets provides some degree of resilience todownturns in any one sector.

Governments are continuing to grow their infrastructure and, indeed, see transport initiativessuch as new rail programmes as a way of helping to sustain their industries whilst providingnecessary public transportation and having a positive effect on the environment.

The defence spend in both the US & UK appears relatively stable and the future opportunitiesfor TPS technology appear favourable. We will be investigating this market more over the courseof this year and hope to see increased activity during the coming years.

As a result of the many Green Initiatives the energy sector is still seeing significant growth andwe will be looking to strengthen our position during the course of this year.

The industrial sector is the most vulnerable to the downturn but so far our customers arereporting minimal impact and are indicating continued activity throughout 2009. However,we are continuing to monitor the current environment so that we can adjust activitiesquickly if needed.

The weak pound is making TPS more competitive in its North American market and many of ourcurrent contracts are U.S. Dollar based. We are therefore benefiting from the recent exchangerate movements. The exposure to exchange rate fluctuations is something that the business isvery conscious of and management take measures in our contracting, purchasing and financialarrangements to mitigate against exchange rate risk.

Whilst the business will continue to service existing programmes in other areas (eg. aerospace andautomotive) it will behave in a reactive manner to these markets and only engage in newprogrammes that meet the requirements of the business in terms of risk, cash flow and profitability.

From this strategic review the vision for the business can be summarised as follows:

“Be a world class provider of specialist Power Electronics and Electrical Machines maximisingstakeholder benefit”

The business aims to achieve this through:

• Market leading technologies and programme delivery

• Long term partnerships with our customers

• Strong year on year organic growth

• A culture of continuous improvement of individual and business performance and capability

• Accelerating business growth by acquisitions

In terms of the development of the business this means we intend to :

• Structure the business to achieve the projected turnover without outside investment oracquisitions

• Develop technological advantage and customer partnerships in the following business sectors:■ Transport ■ Energy ■ Industrial ■ Defence

• Be a preferred supplier to a select group of key customers

• Balance business activities across development, production and after sales

From this assessment it was determined that we should place our primary focus on thefollowing markets:



High speed motors, invertersand power electronics for a variety of industrialapplications are manufacturedto suit particular requirementsof OEMs and integrators.

Current Programmes

Transport

• Rail

The major programmes (Chicago Transit Authority and Toronto) being undertaken during 2008were predominantly for Bombardier of Montreal. These have been slower to completedevelopment than was envisaged but are now in their production phases and will continueproduction over the next three years.

Other rail programmes have included converters and power supplies for both the European andNorth American markets.

• Aerospace

The Override Jettison Fuel Pump motor drives for Eaton Aerospace concluded their qualificationduring the year and production units are now being delivered. Whilst these are at lower levelsthan originally planned, the quantities are envisaged to increase in the later part of 2009 andinto 2010.

During the second half of 2008 the business determined that it was not in its best interests tocontinue with the RAM Fan motor drive contract with Hamilton Sundstrand and is in the processof completing the transition of this contract back to Hamilton Sundstrand.

Energy

• Oil

Contracted work in the energy sector has centred around the Artificial Lift Company (ALC) downhole pump motors. The units have been delivered and we are awaiting the outcome of the fieldtrials being undertaken by ALC in Q1 2009.

• Solar Energy

There has been continued European funded R&D work in this area relating to grid linkedinverters, the output of which is being used as the basis for our business development activitiesfor the future in the energy sector.

Industrial

• Laser Power Supplies

We have continued to deliver the product to our customer (PRC) and were successful in the firstfew weeks of 2009, being awarded a contract for the development and delivery of the nextgeneration of the product.

• Industrial Motors and Drives

The delivery of the initial 75 Industrial Motors and Drives for our major international CapitalEquipment Manufacturer have progressed well (as evidenced by their decision in early 2009 topurchase the designs for the products being delivered). Under the Design and ManufacturingRights Agreement concluded in early 2009 TPS will be manufacturing these products for afurther 5 years with an anticipated delivery of 500 units.

TPS also completed the delivery of several prototype and development units to other majorindustrial equipment providers such as a North American industrial and process gas company, aFar Eastern steel manufacturer and a European industrial research company. These customers arenow evaluating the products (and their own systems) with a view to developing their overallsystems into a commercial offering.

Defence

The contract awarded during 2008 for a 1MW high-speed generator by a US Defence Contractorhas now progressed into manufacture. The full system is scheduled to be trialled during thespring of 2009. Dependent on a successful outcome of these trials further orders are anticipatedin the second half of 2009.

TPS also conducted a small amount of funded R&D looking at the use of its rotor technology insubmarine propulsion. Further discussions are underway on other defence applications for TPStechnology.


TPS will be manufacturingindustrial motors anddrives for our majorinternational capitalequipment manufacturerfor a further 5 years.

The DC Traction Power ElectronicSystem supplied to NREC.

Major rail programmes such as those for Chicago TransitAuthority and Toronto continueto strengthen business in theUS and Europe.

Override Jettison Fuel PumpMotor Drives for EatonAerospace have reacheddelivery stage.

Imagecourtesyof Eaton

Aerospace

Financial Performance

Total revenues in the year of £7.78 million were 28% lower than in 2007 (2007: £11.00 million),primarily due to a reduction in production volume on existing rail programmes of £4.30 millionas several contracts completed. During the first half of the year our existing major rail productionprogrammes reached completion, but delays in final qualification on our current raildevelopment programmes resulted in a low production volume, particularly in the second andthird quarters. Development costs fell in Q3 and throughout Q4 as our major developmentprogrammes are now in final customer qualification stages, and our expenditure has reducedaccordingly. R&D tax credits received during the year totalled £0.57 million and further reducedour development outlay.

Administrative costs have decreased over the year as the impact of our cost review programmetook effect which offset the increased operating charges related to the new Gateshead facilitythat became operational during the second quarter of 2007.

The group’s loss before interest, tax, depreciation, amortisation and stock compensation for theyear increased to £8.4 million (2007: £4.9 million) as a result of reduced production volumesand one off impairment charges recorded in Quarter 4 to remove obsolete stock holdings andreduce the carried goodwill valuation which had arisen on the purchase of Intelligent PowerSystems in 2002.

Operating cash outflows before tax for the year were £6.2 million (2007: £6.2 million), but havefallen during Quarter 3 and Quarter 4 following the reduction in development and overheadspend. Operating cash outflow before tax in Quarter 4 was £0.38million, a decrease of 75% fromQ3 and earlier levels. After tax credit receipts, the Company experienced a net operational cashinflow of £0.15 million in the fourth quarter.

The Company finished the year with an unrestricted cash balance of £1.05 million and heldfurther cash of £1.35 million associated with performance bonds.

On 19 June 2008 the Company completed a potential £3,000,000 gross financing agreementwith institutional investors. The financing comprised secured Convertible Notes and Warrants.The Convertible Notes bear interest at 15% per annum and are convertible into an aggregate of75,000,000 of either Common Shares in Turbo Power Systems Inc. or A-Ordinary shares in TurboPower Systems Limited at an exercise price of £0.04 per share. The Convertible Notes areissuable upon drawdown of the loan, of which £1,500,000 were issued on 19 June 2008. Theloan is repayable over three years by way of regular quarterly repayments, commencing March2009. The Warrants have a term of ten years and are convertible into an aggregate of12,857,142 of either Common Shares in Turbo Power Systems Inc. or A-Ordinary shares in TurboPower Systems Limited at an exercise price of £0.035 per share.

On 15 August 2008 the Company amended the terms of the loan agreement in order tofacilitate a further drawdown of £1.5 million. The new terms provide that if at any time,including once the Loan Note has been fully repaid, there is a change in control of TPS, or itssubsidiaries or substantially all of its assets, the Loan Note Holders will be entitled to receive arisk premium, calculated according to the enterprise value ascribed to the Company under thetransaction before deducting any balance of the Loan Notes and/or interest outstanding. Thisrisk premium will be equal to an initial payment of £1.5m plus 75% of the next £6m ofenterprise value and 50% of the remainder.

The holder of the A-Ordinary shares subscribed for £1,000,000 of this agreement, and isconsidered by the Company to be a related party. The transaction was recorded at exchangeamount.

Other than the debt financing detailed above, further details of which are provided in the notesto the financial statements, the Company has had no transactions with related parties and thereare no further proposed transactions to disclose.

The Critical Accounting Estimates included within these statements are assessed on anunchanged basis from the prior year and as disclosed in the Company’s Financial Statements forthe year ended 31 December 2008.



These consolidated financial statements have been prepared on the basis of Canadian GenerallyAccepted Accounting Principles (“Canadian GAAP”) applicable to a ‘going concern’, whichassume that the Company will continue in operation for the foreseeable future and will be ableto realize its assets and discharge its liabilities in the normal course of operations. As at 31December 2008 the Company had net cash outflows from operations therefore may requireadditional funding which, if not raised, may result in the curtailment of activities. The Companyhas incurred cumulative losses including a loss of £9.54 million in 2008 and has a cumulativedeficit of £72.24 million as at 31 December 2008. The Company’s ability to continue as a goingconcern depends on its ability to generate positive cash flow from operations or secureadditional debt or equity financing.

Management regularly reviews and considers the current and forecast activities of the Companyin order to satisfy itself as to the viability of operations. These ongoing reviews includeconsideration of current order book and future business opportunities, current development andproduction activities, customer and supplier exposure and forecast cash requirements andbalances. Based on these evaluations management consider that the Company is able tocontinue as a going concern.

There can be no assurances that the Company’s activities will be successful or sufficient andas a result there is doubt regarding the “going concern” assumption and, accordingly, the useof accounting principles applicable to a going concern. These consolidated financialstatements do not reflect adjustments that would be necessary if the “going concern”assumption were not appropriate. If the “going concern” assumption were not appropriate forthese consolidated financial statements, then adjustments to the carrying values of the assetsand liabilities, the reported expenses and the balance sheet classifications, which could bematerial, would be necessary.

Year ended 31 December 2008

Production Revenue

Production revenue in the year ended 31 December 2008 was £6.78 million compared with£9.83 million in 2007 and comprised

2008 2007

£’000 £’000

Power Electronics 6,112 9,581

Electrical Machines 669 244

6,781 9,825

The Power Electronics division has seen a reduction in production volume as contracts onBombardier Beijing, London Underground and Toronto Transit H6 rail programmes completed.Sales volumes on the NREC programme decreased significantly during 2008 as our customerreduced their bought-out product requirement by £3.23 million.

Deliveries to our Industrial Motor and Drive customer constituted the majority of the revenuesrecorded by the Electrical Machines division, as well as contributing to the output of the PowerElectronics division which produces the Drive assemblies.

Spares and service revenues within the Power Electronics division were £0.89 million for theyear (2007: £0.42 million).


Development income

Development income in the year was £1.00 million compared with £1.18 million in 2007 andwas primarily related to the high speed generator contract and the Bombardier rail developmentprogrammes.

2008 2007

£’000 £’000

Development income 1,003 1,176

Production costs

The cost of production revenues in the year amounted to £5.58 million (2007: £7.28 million).

2008 2007

£’000 £’000



5,577 7,279

Production costs include certain fixed facilities costs attributable to the manufacturing operation.

During the year the Company recognised that a significant volume of stock had becomeobsolete, related to contracts with no future revenue potential. As a result a charge of £0.65million, additional to the cost of production revenues, has been taken during 2008 (2007: £nil)

Included in production costs for the year are stock compensation charges on options awardedof £0.05 million (2007: £0.09 million).

Research and product development

Research and product development expenditure in the year was £5.27 million compared with£5.48 million in 2007, and comprised

2008 2007

£’000 £’000

Research and product development expenditure 5,766 5,509

Accrued R&D tax credits (501) (27)

Total expenditure 5,265 5,482

Research and product development expenditure in the first half of 2008 was greater than thatincurred in the first half of 2007 as a result of the commencement of the high speed generatordevelopment programme and higher investment into the Hamilton Sundstrand Ram FanController programme than in the previous year. However, following the agreement to transitionthe Ram Fan Controller programme back to Hamilton Sundstrand, and the reduction indevelopment activity on the Bombardier rail development programmes as they approachedcompletion in the second half of 2008, engineering headcount has been reduced and netdevelopment outlay in the second half of 2008 was 28% lower than for the first half of the year.



Included in research and product development expenditure for the year are stock compensationcharges on options awarded of £0.05 million (2007: £0.04 million).

General and administrative

General and administrative costs of £3.95 million (2007: £3.86 million) consist mainly of staffcosts and facilities costs, which have increased as a result of higher rental and facilities operatingcosts at the Gateshead operation following its move to larger facilities. Also included are stockcompensation charges on options awarded of £0.03 million (2007: £0.20 million).

Amortisation

Amortisation was £0.66 million compared with £0.86 million in 2007. The reduction reflects anumber of assets becoming fully amortised.

Interest income

Interest income for the year was £0.09 million compared with £0.37 million in 2007 reflectinga lower average cash balance.

Interest expense and finance charges

Interest expenses arise from the issue of convertible notes in July 2003, March 2005, June andAugust 2008 and comprise

2008 2007

£’000 £’000

Interest 320 188

Accretion of debt 137 60

457 248

Finance charges for the year were £0.02 million (2007: £0.07 million) and were principally theoperational charges for maintenance of the Company’s banking and performance bond facilities.

During 2007 the Company recorded a charge of £0.08 million within finance charges related tothe redemption of Convertible Loan Notes.

During the year the Company recorded a fair value adjustment charge of £0.03 million (2007:£0.01 million) against the investment in Altek Power Corporation, reducing the value of theinvestment to £nil, as a result of Altek informing the Company that it was unable to meet therepayment terms of the investment which fell due in Quarter 3 of 2008.

Cash flows for the year ended 31 December 2008

Cash outflow from operating activities

Operating cash outflow before movements in working capital was £7.52 million for the year(2007: £5.20 million), principally as a result of reduced production output in 2008.

Movements in stocks, work in progress and debtors and creditors resulted in a net cash inflowof £1.30 million during the year (2007: outflow of £0.95 million).

Tax credits

During the year the company received research and development tax credits of £0.57 million(2007: £0.31 million).

Investing activities

Purchases of long term tangible assets amounted to £0.17 million (2007: £0.58 million) andrelate to production equipment and leasehold property improvements.


Cash flow from financing activities

Cash inflow from financing in 2008 of £2.66 million during the year relates to gross funds of£1.50 million received from the issue of loan notes in June 2008 and a further £1.50 million inAugust 2008, when the Company completed a £3.00 million (gross) financing agreement withinstitutional investors. Cash outflow related to costs of financing amounting to £0.34 millionwas incurred. These costs are expensed to the statement of operations using the effectiveinterest method.

Cash inflow from financing in 2007 of £3.80 million during the year relates to net funds receivedfrom the issue of shares in June 2007, when the Company completed a £4.00 million (gross)financing agreement with institutional investors. The financing comprised placing of CommonShares in Turbo Power Systems Inc.

Overall cash outflow for the year

Overall the cash outflow for the year was £3.18 million. This compares with a cash outflow of£2.43 million in 2007. Cash outflow was significant due to the reduction in production volumesinvoiced and collected, increased software development costs on the Hamilton Sundstrandprogramme during the first half of 2008, and a reduction in the credit terms made available bysuppliers to the Company.

Summary of quarterly results

The following table sets forth selected quarterly consolidated financial information of theCompany for the last eight quarters;

Quarterly revenue decreased during 2008 reflecting the completion of several rail contracts andthe reduction in demand from National Rail Equipment Company (NREC), but increased in thefourth quarter as volumes increased on the Industrial Motor and Drive contract. Research anddevelopment expenditure has decreased during the year reflecting the reduction in requireddevelopment activities on the new Bombardier Chicago and Toronto rail programmes, togetherwith the reduced development requirement as a result of the transition agreement on theHamilton Sundstrand contract for the Boeing 787. General and administrative costs havedecreased during the year as a result of cost reduction initiatives, following an increase inquarterly costs during 2007 when the Gateshead facility relocated to larger premises.

The net loss recorded for Quarter 4 was adversely impacted by the charges incurred forrestructuring charges and reducing the carrying value of goodwill and obsolete stock at the yearend. Underlying net loss for Quarter 4 excluding these charges would have been £(1,463), animprovement of 21% on the previous quarter.

Diluted earnings per share figures have not been provided as the loss in each period would beanti-dilutive.

Research Net cash Net cash flowAll amounts and product General and Loss flow from from capitalin £’000 Revenue development administrative Net loss per share operating investment

March 2007 2,033 1,015 841 (1,403) (0.5) (805) (117)

June 2007 2,342 1,151 1,102 (1,768) (0.6) (1,632) (298)

September 2007 2,700 1,736 1,083 (1,666) (0.5) (2,024) (123)

December 2007 2,750 1,580 831 (1,578) (0.5) (1,379) (37)

March 2008 1,962 1,591 1,059 (2,287) (0.7) (1,844) (96)

June 2008 1,711 1,470 1,049 (2,276) (0.7) (2,479) (57)

September 2008 1,246 1,363 1,025 (1,849) (0.6) (1,527) (10)

December 2008 1,862 841 816 (3,151) (1.0) 195 (8)



Review of the quarter ended 31 December 2008

Production revenue

Production revenue in the quarter ended 31 December 2008 increased from the previousquarters and was £1.86 million compared with £2.75 million in 2007

2008 2007

£’000 £’000



1,862 2,750

Revenues from the Power Electronics division decreased compared with 2007 as productioncontracts on Bombardier Beijing, London Underground and Toronto Transit H6 rail programmeshad completed. Sales volumes on the NREC programme were lower during 2008 compared tothe same period in 2007.

Revenue in the Electrical Machines division relates primarily to the Industrial Motor and Drivecontract.

Development income

Development income in the quarter was £0.07 million compared with £0.16 million in 2007,and was principally related to the Bombardier rail development programmes.

2008 2007

£’000 £’000

Development income 71 159

Production costs

The cost of production revenues in the quarter amounted to £0.95 million (2007: £1.91 million).

2008 2007

£’000 £’000



1,596 1,959

Production costs include certain facilities costs attributable to the manufacturing operation.


Research and product development expenditure in the quarter was £0.84 million compared with£1.58 million in 2007, and comprised

2008 2007

£’000 £’000


Accrued R&D tax credits (407) (27)

Total expenditure 841 1,580


General and administrative

General and administrative costs in the quarter of £0.82 million (2007: £0.83 million) consistmainly of staff costs, facilities costs and the costs associated with the Company’s public listings.

Amortisation

Amortisation was £0.17 million compared with £0.20 million in 2007.

Interest income

Interest income in the quarter was £0.01 million compared with £0.10 million in 2007, as aresult of lower maintained cash balances.

Interest expense and finance charges

Interest expenses arise from the issue of convertible bonds in July 2003, March 2005 and Juneand August 2008 and comprise

2008 2007

£’000 £’000

Interest payable 103 101

Accretion of debt 92 (2)

195 99

Cash flows for the quarter ended 31 December 2008

Cash outflow from operating activities

Operating cash outflow before movements in working capital was £1.95 million for the quarter(2007: £1.46 million)

Movements in stocks, work in progress, and debtors and creditors produced a net cash inflowof £1.62 million during the quarter (2007: £0.47 million).

Tax credits

During the quarter the company received research and development tax credits of £0.53 million(2007: £nil).


Cash outflows from capital investments in the quarter were £0.01 million compared with £0.35million in 2007.

Cash flow from financing activities

Cash outflow from financing in 2008 of £0.34 million during the quarter relates to settlement ofexpenses related to the issue of loan notes in August 2008, when the Company completed a£3.00 million (gross) financing agreement with institutional investors.

Overall cash outflow for the period

Overall the cash outflow during the quarter was £0.02 million. This compares with an overallcash outflow of £1.34 million for the fourth quarter of 2007.



Balance sheet as at 31 December 2008

The Company ended the period with an unrestricted cash balance of £1.05 million comparedwith £4.24 million at 31 December 2007. Substantially all of the Company’s cash balances aredenominated in Sterling.

In addition the Company had restricted cash amounts of £1.35 million relating to performancebonds entered into as part of contracts with the Toronto Transit Commission and Bombardier(2007: £1.36 million).

Long term assets excluding restricted cash have decreased from £2.97 million at 31 December2007 to £1.64 million at 31 December 2008, after depreciation charges of £0.66 million andimpairment charges against goodwill of £0.82 million.

Long term liabilities have increased to £4.70 million at 31 December 2008 compared to £1.81million at 31 December 2007, reflecting the increase in Loan Notes following the loan financingcompleted in June and August 2008.

Net working capital at 31 December 2008, excluding restricted cash balances, was £0.94 million,compared with £5.86 million as at 31 December 2007.

As at 31 December 2008, the Company had 318,571,062 Common Shares issued andoutstanding and 115,000,000 A Ordinary Shares issued and outstanding. As at that date therewere 17,651,700 outstanding share options and 23,357,142 outstanding warrants.

Contractual Obligations

Shareholders’ equity

The movement in shareholders’ equity comprised

2008 2007

£’000 £’000

As at 1 January (4,905) 196

Loss for the year (9,563) (6,415)

Shares issued - 4,017

Conversion to shares - (3,130)

Financing cost adjustments 262 (272)

Stock compensation expense 123 699

As at 31 December (14,083) (4,905)

As at 25 March 2009 the Company had 318,571,062 Common Shares issued and outstanding.As at that date there were 17,606,300 outstanding share options and 23,357,142 outstandingwarrants.


Payments due by period £’000

Total 2009 2010 2011 2012 2013 2014 andthereafter

Trade and other payables 3,406 3,406 - - - - -

Convertible notes 6,284 116 1,818 4,350 - - -

Operating leases 3,643 470 478 481 478 244 1,492

13,333 3,992 2,296 4,831 478 244 1,492

Liquidity

Cash, cash equivalents and short-term investments at 31 December 2008 were £1.05 million,compared with £4.24 million at 31 December 2007.

Restricted cash at 31 December 2008 was £1.35 million, compared with £1.36 million at 31December 2007.

The Company incurred a loss in the year of £9.54 million and has a cumulative deficit of £72.24million. The Company’s ability to continue as a going concern depends on its ability to generatepositive cash flows from operations or secure additional debt or equity financing.

The Company has not changed its approach to Currency risk and Interest rate risk managementfrom that of the prior year and as disclosed in the annual statements at 31 December 2008.

Currency risk management

Principally all of the Company’s expenditure is denominated in Sterling, which is funded fromSterling cash balances. Exchange differences, which arise on consolidation of the Company’sCanadian operations, are included in exchange adjustments within the income statement. At31 December 2008 the Sterling equivalent of Canadian Dollar denominated net assetsamounted to £52,000 (2007: £60,000).

Interest rate risk management

The analysis of the Company’s financial assets and borrowings analysed between floating andfixed interest rates is shown below;

2008 2007

£’000 £’000

Floating rate financial assets 2,402 5,597

Fixed rate financial assets - 25

Floating rate borrowings - -

Fixed rate borrowings 2005 Bond (1,789) (1,789)

Fixed rate borrowings 2008 Bond (3,000) -

The fixed rate borrowings for the 2005 Bond are at 6.5% per annum, and for the 2008 Bondare at 15% per annum, and the fixed rate financial assets were at 6.0% per annum.

The Company invests surplus cash funds in short term money market deposits with financialinstitutions and cash funds which have at least a short term credit rating of F1. The maturity ofthe deposits is between one and three months.

Convertible bonds

Convertible notes are considered to be compound financial instruments, and the liabilitycomponent and the equity component must be presented separately, as determined at initialrecognition. The Company has valued the equity component of these notes using the residualvalue of equity component method, whereby the liability component is valued first using thecurrent market rate for comparable instruments, at the time of issuance. The difference betweenthe proceeds of the bonds issued and the fair value of the liability is assigned to the equitycomponent.

On 11 July 2003, the Company completed a £5,000,000 financing agreement with institutionalinvestors. The financing comprised convertible notes and warrants. The convertible notes hada term of five years, bearing an annual interest rate of 3.5% and were convertible, at the optionof the holders, into an aggregate of 25 million Common Shares of the Company at a conversionprice of £0.20 per share. The convertible notes could be converted from 11 July 2004. Thewarrants had a term of three years and were convertible into an aggregate of 3.5 millionCommon Shares of the Company at an exercise price of £0.15 per share. The convertible noteswere unsecured.



On 11 March 2005 the Company completed an £8,000,000 (gross) financing agreement withinstitutional investors. The financing comprised unsecured convertible notes and warrants. Theconvertible notes have a term of five years plus one day and bear interest at a rate of 6.5% perannum. They are convertible, at the option of the holder, into an aggregate of 66,666,667Common Shares in Turbo Power Systems Inc. at a conversion price of £0.12 per share. Thewarrants have a term of five years and are convertible into an aggregate of 7,000,000 CommonShares in Turbo Power Systems Inc. at an exercise price of £0.15 per share. The convertible notesare unsecured.

On 6 January 2007 £2,500,000 of the 2003 convertible notes and £2,000,000 of the 2005convertible notes were converted at a conversion price of £0.08. Immediately following theconversion on 6 January 2007 the remaining face value of 2003 and 2005 convertible noteswere £nil and £1,789,000 respectively.

The Company incorporated the guidance provided by the CICA’s Emerging Issue CommitteeAbstract 96 “Accounting for the Early Extinguishment of Convertible Securities Through (1) EarlyRedemption or Repurchase and (2) Induced Early Conversion” (EIC96) in accounting for the earlyredemption of the convertible notes. EIC96 provides guidance on the treatment of the fair valueof the conversion feature on the extinguishment of the convertible notes. Conversion of theconvertible notes resulted in a decrease in loss and comprehensive loss during 2007 of £47,000and an additional increase in deficit of £2,414,000.

On 19 June 2008 the Company completed a financing agreement with institutional investors forpotential financing of up to £3,000,000 (gross) comprised of secured convertible notes andwarrants. The convertible notes were issuable in £750,000 increments over a three year periodfrom the date of the agreement. The Company issued £1,500,000 of convertible notes underthe agreement on 19 June 2008. The financing comprised secured convertible notes andwarrants. The convertible notes bear interest at 15% per annum and are convertible into anaggregate of 75,000,000 of either Common Shares in Turbo Power Systems Inc. or A-Ordinaryshares in Turbo Power Systems Limited at an exercise price of £0.04 per share. The notesrequired quarterly interest and quarterly principal payments commencing March 2009.

On 15 August 2008 the Company amended the terms of the 19 June 2008 loan agreement andissued an additional £1,500,000 of convertible notes under the amended terms. The new termsresult in all interest and capital repayments being deferred until maturity on 19 June 2011, andprovide that if at any time, including once the convertible notes governed by the 19 June 2008agreement have been fully repaid, there is a change in control of the Company, or itssubsidiaries or substantially all of its assets, the holders of the convertible notes will be entitledto receive a risk premium, calculated according to the enterprise value ascribed to the Company,under the transaction after deducting any balance of the convertible notes and/or interestoutstanding. This risk premium will be equal to an initial payment of £1,500,000 plus 75% ofthe next £6,000,000 of enterprise value and 50% of the remainder. The amendment wastreated as a debt extinguishment and, as a result, the Company recorded a debt extinguishmentcharge of £115,000.

The holder of the A-Ordinary shares subscribed for £1,000,000 of the 2008 financing andis considered by the Company to be a related party. The transaction was recorded atexchange amount.


Financial instruments

There has been no change in the classifications adopted by the Company regarding its financialinstruments and full analysis is provided in the Company’s financial statements for the yearended 31 December 2008.

The Company’s financial assets and liabilities consist primarily of the cash and cash equivalents,restricted cash, trade receivables, investments, trade payables, convertible notes and currencyoption contracts.

(a) Classification and carrying amount

TotalHeld-for Loans and Other carrying

31 December 2008 £’000 trading receivables liabilities amount

Asset (liability)

Cash and cash equivalent 1,054 - - 1,054

Restricted cash 1,348 - - 1,348

Trade receivables - 1,255 - 1,255

Trade payables - - (3,406) (3,406)

Convertible notes - - (4,512) (4,512)

Total 2,402 1,255 (7,918) (4,261)



Asset (liability)




Investments 25 - - 25

Trade payables - - (3,700) (3,700)


Total 5,622 2,871 (5,361) 3,132

(b) Carrying value and fair market value

2008 2007£’000 £’000

Carrying Fair Carrying Fairamount value amount value

Asset (liability)

Cash and cash equivalent 1,054 1,054 4,235 4,235

Restricted cash 1,348 1,348 1,362 1,362

Trade receivables 1,255 1,255 2,871 2,871

Investments - - 25 25

Trade payables (3,406) (3,406) (3,700) (3,700)

Convertible notes (4,512) (4,512) (1,661) (1,661)

Total (4,261) (4,261) 3,132 3,132



Derivative financial instruments

During 2007 the company purchased U.S. dollar denominated currency contracts coveringexpected dollar income from programmes scheduled for 2008. The premium cost for theseoptions was £51,000 and has been charged to profit and loss in that year. No gain or loss wasrealised on these options during 2008. No contracts were entered into during 2008.

Selected Annual Information

£’000 2008 2007 2006

Turnover 6,781 9,825 5,482

Net loss 9,563 6,415 6,258

Loss per share-basic 3.0p 2.1p 3.3p

Loss per share-diluted 3.0p 2.1p 3.3p

Total assets 7,495 14,472 15,764

Long term financial liabilities 4,512 1,661 5,827

Related Party Transactions

The holder of the A-Ordinary shares subscribed for £1,000,000 of the 2008 financing, and is considered by the Company as a related party. The transaction was recorded atexchange amount.

Critical accounting estimates

The consolidated financial statements are prepared in accordance with Canadian GenerallyAccepted Accounting, which require estimates and assumptions to be made that affect theamounts reported in the consolidated financial statements.

The consolidated financial statements and this discussion and analysis have been recorded andreported in GBP Sterling.

The preparation of these financial statements requires estimates and assumptions to be madethat affect the reported amount of assets and liabilities, disclosure of contingent assets andliabilities at the date of the statements, and the reported amounts of revenue and expensesduring the reporting period. There can be no assurance that actual results will not differ fromthose estimates.

Research & Development tax credits receivable

The Group accrues for tax credits receivable relating to certain research and developmentexpenditure incurred by the Group. These amounts are based on determinations bymanagement of expenditures that qualify for the related tax credits. The nature and amount ofthese accruals are subject to measurement uncertainty and the effect on the consolidatedfinancial statements of resulting adjustments in future periods could be significant.Adjustments, if any, will be reflected in the period that the relevant taxation authorities assessthe tax claims. As at 31 December 2008, tax debtors recoverable included £144,000 (31 December 2007: £208,000) of accrued tax credits.

Warranty provision

In establishing the accrued warranty liability, estimates are made of the likelihood that productssold will experience warranty claims. The estimates are based on the number of units subjectto warranty, the likely failure rate and associated costs of replacement and the nature of thecontract. Should these estimates prove to be incorrect, the actual costs incurred may bedifferent from those provided for in the warranty provisions. As at 31 December 2008, provisionsfor warranty claims were £184,000 (31 December 2007: £151,000).


Review of the carrying value of long-term assets

The Group regularly reviews the carrying value of all of its long-term assets to determinewhether or not any write down is required for impairment in the carrying value of these assets.The carrying values are based on the higher of the asset’s net realisable value and the valuefrom utilisation of the asset in the ongoing operations of the Company. The determination ofthe net realisable value requires estimates to be made of future revenues. If future revenuesare significantly lower than these estimates, then the Company may be required to makeadditional impairment provisions in future periods.

Intangibles

Intangible assets including patent rights and designs and deferred development expendituresare considered to have a finite life and as such are amortised on a straight-line basis over theirestimated useful life. The carrying value is reviewed for impairment by applying a fair value testat least annually. In determining fair value the future cash flows, discounted at 12% per annum,expected to be generated resulting from the patent and deferred development assets over theexpected application life of those assets are compared with the carrying value of the assets. Ifthe carrying value exceeds the fair value an impairment is recognised.

Goodwill

Goodwill with an indefinite life is not subject to amortisation but is subject to at least an annualassessment for impairment. In completing this impairment test the future cash flows expectedto be generated from the Power Electronics division over the next 24 months have beendiscounted at 12% per annum and compared to the year end carrying value of the PowerElectronics division, including the goodwill assigned. The expected future income is insufficientto support the current carrying value and an impairment adjustment of £820,000 has beenmade to reduce the carrying value of the goodwill to £nil.

Stock-based compensation

Assumptions that affect the Group’s application of the fair value method to expense employeeoptions and warrants issued in connection with the debt offering include the determination ofvolatility factors and the life of the options issued.

Allowance for doubtful accounts

The Group reviews the status of its customer accounts at least monthly, and recognises aprovision against any balance which is considered to be doubtful. At 31 December 2008 aprovision of £39,000 was required (2007: £nil).

Implementation of new accounting policies

General standards of financial statement presentation – section 1400

This section was amended and now requires companies to assess and disclose an entity’s abilityto continue as a going concern.

Capital disclosures – section 1535

This new handbook section establishes disclosure requirements about an entity’s capital andhow it is managed. It requires the disclosure of information about an entity’s objectives, policiesand processes for managing capital.

Financial instruments – disclosures - section 3862 and financial instruments – presentationsection 3863 which replaces section 3861 financial instruments – disclosure and presentation

Section 3862 requires entities to provide disclosures in their financial statements that enableusers to evaluate the significance of financial instruments on the entity’s financial position andits performance and the nature and extent of risks arising from financial instruments to whichthe entity is exposed during the period and at the balance sheet date, and how the entitymanages those risks.



Section 3863 establishes standards for presentation of financial instruments and non-financialderivatives. It deals with the classification of financial instruments, from the perspective of theissuer, between liabilities and equities, the classification of related interest, dividends, lossesand gains, and circumstances in which financial assets and financial liabilities are offset. Thesenew sections place increased emphasis on disclosure about the nature and extent of risksarising from financial instruments and how the entity manages those risks. The adoption ofthese standards has resulted in increased note disclosures in the Company’s consolidatedfinancial statements.

Inventories - section 3031

These standards requires inventory to be measured at the lower of cost or net realisable valueand provides guidance on the methodology used to assign costs to inventory, it disallows theuse of the last-in first-out inventory costing methodology and requires that, when circumstanceswhich previously caused inventories to be written down below cost no longer exist, the amountof the write down is to be reversed. The adoption of this standard has not affected theCompany’s existing policies.

New accounting pronouncements – not yet adopted

New or updated CICA Handbook sections that have been issued but are not yet effective, andhave a potential implication for the Company, are as follows:

Section 1582 Business combinations

This section replaces Section 1581 Business Combinations and applies prospectively to businesscombinations for which the acquisition date is on or after the first annual reporting period of theCompany beginning on or after January 1, 2011. Section 1582 is not expected to have asignificant impact on the financial statements.

Section 3064 Goodwill and Intangible Assets

In February 2008 the CICA issued Handbook Section 3064 Goodwill and Intangible Assets,effective for interim and annual financial statements relating to fiscal years beginning on or afterOctober 1 2008. Section 3064, which replaces Section 3062 Goodwill and Other IntangibleAssets, and Section 3450 Research and Development Costs, establishes standards for therecognition, measurement and disclosure of goodwill and intangible assets. This new standardis effective for the Company’s fiscal year commencing January 1 2009. The Company is currentlyassessing the impact of the new standard.

Harmonizing of Canadian and International Financial Reporting Standards (IFRS)

In February 2008, the Accounting Standards Board of the CICA confirmed its strategic plan whichwill abandon Canadian GAAP and affect a complete convergence to the International FinancialReporting Standards. These new standards will be effective for the Company’s interim financialstatements commencing January 1, 2011. The Company is closely monitoring changes arisingfrom this convergence and is in the early stages of identifying the changes required to itsaccounting policies and the required adjustments to its financial statements with its externalfinancial advisors.


Risks and uncertainties

The development and commercialisation plans for the Group’s products presented in this AnnualReport and Management’s Discussion & Analysis are forward-looking statements and as suchare subject to a number of risks and uncertainties including those detailed below.

Our business entails risks and uncertainties that affect our outlook and eventual results of ourbusiness and commercialisation plans. The primary risks relate to meeting our productdevelopment and commercialisation milestones, which require that our products exhibit thefunctionality, cost, durability, and performance required in a commercial product.

There is a risk that the markets for certain of our products may never develop, or that marketacceptance might take longer to develop than anticipated. Our business planning processrecognises and, to the extent possible, attempts to manage these risks by pursuing diversemarkets for each of our products. Within these markets our commercialisation plan is focusedon products that we believe have a competitive advantage.

We develop both subsystems and complete systems across our high speed motors andgenerators and power electronics product ranges and these development programmes aresubject to risk. These risks include problems or delays due to technical difficulties and inabilityto meet design performance goals, including power output, life and reliability. We mitigatethese risks to the extent possible through detailed project management, formal design reviews,reviews by external experts, contingency plans which anticipate likely problems, safety reviews,training and testing programs related to the operation and maintenance of the products.

We seek to maintain our technology lead through our strong intellectual property position,which will act as a barrier against competitors, and by continuing to invest in technologydevelopment. However, there can be no assurance that our present or future issued patents willprotect our technology lead. We also rely upon know-how and trade secrets to maintain ourtechnology lead. However, there is no assurance that this information can be completelyprotected.

Another market driver for products is the development of government policy related to theenvironment. Unfavourable decisions related to environmental policies (such as noise andexhaust emission levels) could result in delays in the introduction of our distributed powergeneration products. We mitigate, to the extent possible, the effects of changes in governmentregulations by developing products for diverse geographic locations.

We cannot predict with certainty our future revenues or results from our operations. If weexperience significant cost overruns on any of our programs and we cannot obtain additionalfunds to cover such overruns or additional cash requirements, certain research and developmentactivities may be delayed, resulting in changes or delays to our commercialisation plans. Wemay be required to raise additional capital through the issuance of equity or debt. We seek tomitigate this risk by securing funding commitments from a variety of sources and throughadjustments to our development plans, by maintaining a substantial cash reserve, by beingfinancially conservative in our expenditures and by maintaining good communications withinvestors and investment bankers to assist us should we need to access the public or privatecapital markets.

We are also subject to normal operating risks such as credit risks and foreign currency risks.Foreign currency sales and purchases are made in Sterling, Euros, Canadian and US Dollars. Overtime, currency balances are matched, to the extent possible, to planned currency purchases.

Approved by BoardG K Thornton25 March 2009



The Company and its subsidiaries (“the Group”) are committed to high standards of corporategovernance. The Board is accountable to the Company’s shareholders for good corporategovernance. This statement describes how the principles of corporate governance are appliedto the Company.

In addition, the Company is required to disclose its corporate governance practices withreference to the Canadian guidelines pursuant to National Policy 58-201. The Company madethe necessary disclosures in its management information circular, prepared for its shareholders’meeting held on 29 May 2008 and will make similar disclosures in the managementinformation circular to be prepared for its next shareholders’ meeting.

Board of Directors

On 25 April 2008 S P Sadler resigned from the Board.

On 29 May 2008 N O Brigstocke resigned from the Board

On 29 May 2008 W M E McLeod resigned from the Board

On 29 May 2008 D L Clark was appointed to the Board.

On 31 May 2008 M J Hunt resigned from the Board.

On 1 June 2008 P T Summers was appointed to the Board as Chief Executive Officer.

The Board currently comprises the non executive chairman, the chief executive officer and threenon executive directors, and holds meetings at least eight times during the year. It is responsiblefor business and commercial strategy, monitoring commercial progress, the approval of majortransactions, and the approval of financial statements.

One of the non executive directors, C B Besant, served as chief executive officer prior to August2002 and then during the period August 2003 to 1 July 2004. C B Besant thereafter held theposition of executive chairman until 23 June 2005 at which time he became a non executivechairman. On 8 November 2007 he stood down as non executive chairman to become a nonexecutive director. The remaining three non executive directors are independent of the Company.

The Board has delegated certain responsibilities to the following committees:

Corporate Governance Committee

The Corporate Governance Committee comprises four directors, D Hawksworth (committeechairman), G K Thornton, C B Besant and D L Clark. It has responsibility for developing andmonitoring the Group’s overall approach to corporate governance issues.

Audit Committee

The Audit Committee comprises four directors, D L Clark (committee chairman), C B Besant, G KThornton, and D Hawksworth. It examines and reviews, on behalf of the Board, internal financialcontrols, financial and accounting policies and practices, the form and content of financial reportsand statements, and the work of the external auditors. The finance director attends meetings ofthe Audit Committee by invitation.

Remuneration Committee

The Remuneration Committee comprises four directors, G K Thornton (committee chairman), D L Clark, C B Besant, and D Hawksworth. It makes recommendations to the Board on the policyfor executive remuneration. It determines the individual remuneration packages on behalf of theBoard for the executive directors and makes recommendations to the Board on the individualremuneration packages for the senior management of the Group. The committee has access toprofessional advice, both inside and outside the Company, in the furtherance of its duties.

Nomination Committee

The role of the Nomination Committee is to assist the Board in the effective discharge of itsresponsibility for ensuring that the Board comprises individuals who are best able to dischargethe responsibilities of directors, having regard to the Company’s specialised industry and stageof growth, the law and the highest standards of governance. The Nomination committeecomprises C B Besant (committee chairman), G K Thornton, D Hawksworth, and D L Clark. TheNomination Committee meets as needed. The chairman of the committee presents theproposals of the Nomination Committee to the Board. The tasks and responsibilities of theNomination Committee are defined in its charter, which is approved by the Board.

24 Corporate Governance

Internal Control

The Board of Directors has overall responsibility for the accounting policies and ensuring that theGroup maintains an adequate system of internal financial control to provide them withreasonable assurance that assets are safeguarded and of the reliability of financial informationused for the business and for publication. There are inherent limitations in any system of internalfinancial control and, accordingly, even the most effective system can provide only reasonable,and not absolute, assurance with respect to the preparation of financial information and thesafeguarding of assets.

Management, under the supervision and with the participation of the chief executive officer andthe finance director, is also responsible for establishing and maintaining adequate internalcontrols over financial reporting within the Company. Management have designed andevaluated the effectiveness of the Company’s Internal Controls over Financial Reporting toprovide reasonable assurance that the financial reporting is reliable and that the consolidatedfinancial statements are prepared in accordance with Canadian GAAP. Based on the latestevaluation, management has concluded that the following potential weaknesses existed as at31 December 2008, but that they are sufficiently mitigated through appropriately designedcontrols. Management has determined that these controls are effective and provide reasonableassurance that the financial reporting is reliable and in accordance with Canadian GAAP.

Limited resources

Given the Company’s size, we have limited resources within the finance department. Thisimpacts on our ability to provide comprehensive knowledge in certain areas of financialaccounting, as detailed below. The Company is highly reliant on the knowledge of a limitednumber of employees and on the performance of mitigating procedures during its financial closeand consolidation process to ensure that the consolidated financial statements are presentedfairly and in all material respects. The Company will continue to recruit resources and enhanceits current knowledge-base, as necessary, to further strengthen the internal controls overfinancial reporting.

Income taxes

Income tax law is a highly technical area that requires an in-depth understanding of national,international, federal and provincial tax laws and the Company’s accounting staff has only a fairand reasonable knowledge of the rules related to income tax accounting and reporting. Althoughthis represents a weakness in the Company’s control environment the Company retains and willcontinue to retain the services of external experts to provide advice and guidance on income taxaccounting and disclosures. The Company does not consider that this weakness in controlenvironment has resulted in any material misstatements of the financial statements.

Complex and non-routine transactions

At times the Company records complex and non-routine transactions which are extremelytechnical in nature and require an in-depth understanding of GAAP. The Company’s accountingstaff has a fair and reasonable knowledge of the rules related to GAAP. There is potential thatthese transactions could be recorded incorrectly resulting in potential material misstatement ofthe financial statements of the Company. Where the Company identifies a transaction aspotentially complex or non-routine it will utilize the services of external experts to provideguidance and advice.

Disclosure controls

Our management has evaluated, under the supervision and with the participation of the chiefexecutive officer and the finance director, the design and effectiveness of the Company’sdisclosure controls and procedures during the year ended 31 December 2008. Management hasconcluded that these controls, as defined in Multilateral Instrument 52-109 – Certification ofDisclosure in Issuers’ Annual and Interim Filings are effective and that material informationrelating to the Company was made known to them and was recorded, processed and reportedwithin the applicable time periods.

Going concern

After making enquiries, the directors have a reasonable expectation that the Company andthe Group have adequate resources to continue in operational existence for the foreseeablefuture. For this reason, they continue to adopt the going concern basis in preparing thefinancial statements.


Corporate Governance 25

Relations with shareholders

The Board attaches a high importance to maintaining good relationships with all shareholdersand ensures that shareholders are kept informed of significant Group developments. The Boardregards the shareholders’ annual general meeting as an opportunity to communicate directlywith investors. The chairman, executive directors and chairmen of the Audit and RemunerationCommittees attend the shareholders’ annual general meeting and are available to answerquestions from shareholders present. Proxy votes are counted and results announced to themeeting. Meetings are arranged with analysts and institutional shareholders to review theCompany’s interim and year-end results and at other times throughout the year as necessary.

Directors’ and officers’ remuneration and interests

Emoluments

The emoluments of the executive directors and officers are determined by the RemunerationCommittee. The analysis of directors’ and officers’ remuneration is as follows:

(a) On 31 May 2008 M J Hunt stepped down as chief executive officer and resigned from the Board.

(b) On 25 April 2008 S P Sadler resigned.

(c) On 1 June 2008 P T Summers was appointed to the Board as chief executive officer.

(d) On 8 November 2007 C B Besant stepped down as non executive chairman.

(e) On 29 May 2008 N O Brigstocke resigned .

(f) On 29 May 2008 D L Clark was appointed to the Board.

(g) On 29 May 2008 W M E McLeod resigned.

(h) On 7 June 2007 G K Thornton was appointed to the Board, and on 8 November 2007 was appointed as non executive chairman.

(i) On 3 May 2007 M Webber resigned.


StockBasic Benefits Total Pension compensationsalary Bonus in kind Fees emoluments contributions expense

Year Year Year Year Year Yearended ended ended ended ended ended

December December December December December December2008 2007 2008 2007 2008 2007

£ £ £ £ £ £ £ £ £ £

Executive directors

M J Hunt a 169,804 - 2,107 - 171,911 136,484 9,693 13,459 - 80,460

S P Sadler b 39,447 - 1,022 - 40,469 118,195 3,815 11,388 - 77,514

P T Summers c 87,967 - 998 - 88,965 - - - 10,015 -

Non-executive directors

C B Besant d - - - 30,833 30,833 44,805 - - - -

N O Brigstocke e - - - 8,333 8,333 20,000 - - - -

D L Clark f - - - 15,156 15,156 - - - - -

D G Hawksworth - - - 20,000 20,000 20,000 - - - -

W M E McLeod g - - - 8,298 8,298 20,000 - - - -

G K Thornton h - - - 73,567 73,567 11,385 - - - -

M Webber i - - - - - 6,667 - - - -

297,218 - 4,127 156,187 457,532 377,536 13,508 24,847 10,015 157,974

Directors’ share options and warrants

Details of the options and warrants held by directors at 31 December 2008 are as follows:

On 9 July 2008 the Company awarded G K Thornton 3,000,000 Options and P T Summers1,600,000 Options, with an exercise price of £0.034 and a term of 10 years. These options maynot be exercised until the share price has remained not below £0.12 for the seven consecutivetrading days prior to notice of exercise.

Directors’ & officers interests in shares

The interests of the directors and officers in the shares of the Company as at 31 December 2008were as follows:

Remuneration Committee

The principal function of the Remuneration Committee is to determine, on behalf of the Board,an overall package for the executive directors and senior management of the Group. TheRemuneration Committee is aware that it must both attract and retain individuals of the highestcalibre by offering remuneration competitive with comparable publicly listed companies, andfairly and responsibly reward individuals for their contribution to the success of the Group. Thepackage consists of salary, benefits, pension contributions, possible bonus payments and shareoptions.

Basic salaries

The basic salary of each executive director is reviewed annually and is determined by taking intoaccount the individual’s performance, responsibilities and the achievement of personalobjectives. The Board determines fees paid to the non-executive directors.

Bonus

The Group operates a bonus scheme for the executive directors and senior managers. Bonusawards are decided by the Board.

Pensions

The Group pays up to 10% of basic salary to individual pension schemes on behalf of P TSummers. Individual contributions are required to be made at the rate of half of theCompany contribution.

1 January 2008or on appointment Share awards Purchases Disposals 31 December 2008

C B Besant 15,687,500 - - - 15,687,500

D L Clark - - - -

D G Hawksworth 87,500 - - - 87,500

P T Summers - - - - -

G K Thornton 252,000 - 1,000,000 - 1,252,000


Corporate Governance 27

At At1 January 31 December Exercise Date from

2008 Granted Cancelled Exercised 2008 price which ExpiryNumber Number Number Number Number £ exercisable date

P T Summers - 1,600,000 - - 1,600,000 0.04 9/7/2009 8/7/2018

- 1,600,000 - - 1,600,000

G K Thornton - 3,000,000 - - 3,000,000 0.04 9/7/2009 8/7/2018

- 3,000,000 - - 3,000,000

- 4,600,000 - - 4,600,000

Other benefits

Other benefits made available to executive directors comprise private health insurance and lifeand permanent health insurance.

Share options

All executive directors and senior management are entitled to participate in the Company’sshare option schemes. The Remuneration Committee recommends the grant of options forboard approval. It is the policy of the Company to grant share options to employees andexecutive directors as a means of encouraging ownership and providing incentives forperformance.

Terms of appointment

Executive directors’ appointments are terminable by 12 months’ written notice. Non executivedirectors have contracts with the Company effective for a maximum of 15 months or until thenext annual general meeting of the shareholders of the Company. Non executive directors’appointments are terminable by 1 month’s written notice.

These entitlement provisions are considered necessary, as part of an overall remunerationpackage to attract, retain and motivate the executive directors and senior managers.


29

Directors’, officers’ and senior management biographies:

Graham Thornton

Independent, non executive chairman, aged 60. He is a chartered physicist and charteredmechanical engineer, a fellow of the Royal Aeronautical Society, a fellow of the RSA and acouncil member of the Society of British Aerospace Companies. He has over 17 years experiencein the aerospace sector working for market leading companies such as Northrop Grumman UK,TRW Aeronautical Systems and The Smiths Group plc. He has also worked as an independentconsultant to a number of the world’s most prestigious defence and high technology companies.Graham Thornton has been a director since June 2007.

Paul Summers

Chief executive officer, aged 46. Previously he was managing director of Ultra ElectronicsCommand & Control Systems, having originally joined Ultra Electronics in 1996 as businessmanager responsible for their Airport Systems business. Prior to joining Ultra Electronics he heldmanagement positions at Easams GmbH in Munich and Easams UK Ltd. He is a qualifiedengineer with over 20 years experience in high-tech and electronic systems companies. PaulSummers has been a director since June 2008.

Colin Besant

Non executive director, aged 72. Since 1989, he has been Professor of ManufacturingEngineering at Imperial College where he has led a large research section in the field ofAdvanced Manufacturing Technology. He has worked closely with multinational companies,such as GEC Marconi, Rolls Royce, Alcatel, Daimler Chrysler, Siemens and Alstom. ProfessorBesant has been involved in the establishment of a number of high technology companies inthe fields of computer-aided design, numerical control and robotics. Professor Besant has beena director since 1994.

Doug Clark

Independent, non executive director, aged 66. He is currently a management consultant at D.L Clark & Associates. He was previously president of the Sensors and Components Division ofSmiths Industries plc based in Florida and has held senior positions at Smiths Industries in theUSA and UK from 1983 to 2002. Mr Clark, a US citizen, has 42 years in the technology andengineering sectors, has a MSc in Electrical Engineering and an MBA in Finance. Doug Clark hasbeen a director since June 2008.

30 Directors’, officers’ and senior management biographies


Directors’, officers’ and senior management biographies 31

David Hawksworth

Independent, non executive director, aged 56. He holds a PhD in Materials Science and anhonours degree in Physics. He has spent the last 25 years in a variety of senior technical andmanagerial roles in the electromagnetic instruments industry. From 1995 to 2003 he wasmanaging director of Oxford Magnet Technology, a joint venture between Oxford Instrument andSiemens, which manufactures magnets and associated electronics for MRI body scanners. He iscurrently chief executive officer of Oxford Biosensors. David Hawksworth has been a directorsince May 2006.

Richard Bayliss

Finance director, aged 39. He is a chartered accountant, having qualified with Grant Thornton in1995. He joined the Company as financial controller in 2005 and was appointed as financedirector in July 2008. Previously he worked for a privately held multi-national engineeringsoftware group as international accounting manager with responsibility for subsidiary financialoperations and group financial policies and systems.

Alan Baird

Sales and marketing director, aged 44. He joined the Company in 2006 from the electricalmachines and drives division of ABB where he held the position of sales manager, engineereddrives. Prior to joining ABB in 2001, he was global product marketing manager with ControlTechniques. He studied electrical and electronic engineering at Dundee Institute of Technology,marketing with the Chartered Institute of Marketing and has over 20 years experience inengineering, sales and marketing of electrical automation, products and systems.

Justin Hall

Technical director, responsible for mechanical systems, aged 39. He is responsible for high speedelectrical machine product development. He is a mechanical engineering graduate fromImperial College, where he also worked for a number of years as a researcher specialising indetailed mechanical design of high speed machinery.

The accompanying consolidated financial statements of Turbo Power Systems Inc. wereprepared by management in accordance with Canadian Generally Accepted AccountingPrinciples (Canadian GAAP). The significant accounting policies, which management believes areappropriate for the Company, are described in notes 1, 2 and 3 to the consolidated financialstatements. The financial and operating information presented in this statutory report isconsistent with that shown in the consolidated financial statements.

Management is responsible for the integrity and objectivity of the consolidated financialstatements. Estimates are necessary in the preparation of these statements and, based oncareful judgements, have been properly reflected in the consolidated financial statements.Actual results could differ from those estimates. Management has established systems ofinternal control, which are designed to provide reasonable assurance that the Company’s assetsare safeguarded from loss or unauthorised use and to produce reliable accounting records forthe preparation of financial information.

The board of directors is responsible for ensuring that management fulfils its responsibilities forfinancial reporting and internal control and exercises this responsibility through the AuditCommittee. The Audit Committee is comprised of non executive directors and meets regularlywith management and the independent auditors to discuss the Company’s financial reportingpractices and procedures, its systems of internal controls and the findings of the examinationsby the independent auditors. It also reviews the Company’s consolidated financial statementsand annual report and recommends them to the Board of Directors for approval.

The Company’s independent auditors conduct an independent examination on behalf of theshareholders, in accordance with Canadian Generally Accepted Auditing Standards and expresstheir opinion on the consolidated financial statements. Their report outlines the scope of theirexamination and their opinion on the consolidated financial statements of the Company. Theindependent auditors have free access to the Audit Committee of the Board.

P T Summers

Chief executive officer

R A Bayliss

Finance director

25 March 2009

32 Statement of management’s responsibilitiesin respect of the financial statements

To the Shareholders of Turbo Power Systems Inc.

We have audited the consolidated balance sheets of Turbo Power Systems Inc. as at December31, 2008 and 2007 and the consolidated statements of loss, comprehensive loss, changes inshareholders’ equity (deficit) and cash flows for the years then ended. These financialstatements are the responsibility of the Company's management. Our responsibility is to expressan opinion on these financial statements based on our audits.

We conducted our audits in accordance with Canadian Generally Accepted AuditingStandards. Those standards require that we plan and perform an audit to obtain reasonableassurance whether the financial statements are free of material misstatement. An auditincludes examining, on a test basis, evidence supporting the amounts and disclosures in thefinancial statements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overall financialstatement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, thefinancial position of the Company as at December 31, 2008 and 2007 and the results of itsoperations and its cash flows for the years then ended, in accordance with Canadian GenerallyAccepted Accounting Principles.

BDO DUNWOODY

Chartered Accountants, Licenced Public Accountants

Toronto, Ontario

March 25, 2009


Report of the auditors to the shareholdersof Turbo Power Systems Inc. 33

Financial statements


Consolidated statements of operationsand comprehensive loss 35

Year ended 31 December 2008 2007

Notes £’000 £’000

Revenue 2,5,6 6,781 9,825

Development income 2,5,6 1,003 1,176

7,784 11,001

Expenses

Production costs 5,577 7,279

Research and product development 7 5,265 5,482

General and administrative 3,949 3,857

Amortisation 662 858

Goodwill impairment 13 820 -

Inventory impairment 16 652 -

16,925 17,476

Loss before interest, restructuring, finance charges and foreign exchange (9,141) (6,475)

Restructuring charges (101) -

Debt extinguishment expense (115) -

Interest income 9 95 367

Interest expense 10 (457) (248)

Finance income/(charge) (20) (66)

Foreign exchange gain 176 7

(422) 60

Net loss and Comprehensive loss (9,563) (6,415)

Loss per share - basic 11 (3.0) p (2.1) p

Loss per share - diluted 11 (3.0) p (2.1) p

Weighted average number of shares outstanding 318,571,062 310,387,089

The notes on pages 39 to 60 form an integral part of these consolidated financial statements

36 Consolidated balance sheets

As at 31 December As at 31 December2008 2007

Notes £’000 £’000(restatedNote 24)

Current assets

Cash and cash equivalents 1,054 4,235

Restricted cash 20 552 -

Trade and other receivables 20 1,255 2,871

Stock and work in progress 16 1,685 2,376

Investments 12 - 25

Prepayments 372 422

R&D tax credits receivable 7 144 208

5,062 10,137

Long-term assets

Restricted cash 20 796 1,362

Intangible assets 14 13 47

Goodwill 13 - 820

Property, plant and equipment 15 1,624 2,106

7,495 14,472

Liabilities and shareholders’ equity

Creditors: amounts falling due within one year

Trade and other payables 20 3,406 3,700

Deferred income 166 555

3,572 4,255

Creditors: amounts falling due after more than one year

Warranty provision 17 184 151

Convertible notes 18 4,512 1,661

4,696 1,812

Non controlling interest

A Ordinary share capital 24 13,310 13,310

Capital and reserves

Common share capital 23 55,804 55,804

Contributed surplus 2,349 1,964

Deficit (72,236) (62,673)

Shareholders’ funds (14,083) (4,905)

7,495 14,472

Approved by the Board:G Thornton, Chairman25 March 2009



Consolidated statement of changes in shareholders’ equity (deficit) 37


Common Contributed Deficit TotalShare capital surplus Equity

£’000 £’000 £’000 £’000(restated)(note 24)

Balance at 1 January 2007 51,919 1,981 (53,704) 196

Net loss (6,415) (6,415)

Stock compensation 699 699

Conversion to shares (716) (2,414) (3,130)

Issue of shares 4,017 4,017

Share issue costs (132) (132)

Transitional adjustment upon adoption of financial instruments (140) (140)

Balance at 31 December 2007 55,804 1,964 (62,673) (4,905)

Net loss (9,563) (9,563)

Stock compensation 123 123

Equity portion on issue of convertible notes 262 262

Balance at 31 December 2008 55,804 2,349 (72,236) (14,083)

38 Consolidated statements of cash flows

Year ended 31 December 2008 2007

Notes £’000 £’000Operating activities

Net loss 2,5 (9,563) (6,415)

Amortisation 662 858

Accretion of debt 10 137 60

Adjustment to fair value of investment 12 25 6

Goodwill impairment 13 820 -

Stock compensation charges 25 123 699

Foreign currency option loss - 35

Unrealised foreign exchange gains (114) (7)

Movement in net interest accrual 276 (440)

Debt extinguishment expense 115 -

Cash outflow before movements in working capital (7,519) (5,204)

Decrease/(increase) in accounts receivable 1,730 (820)

Decrease/(increase) in stock and work in progress 691 (1,146)

Increase/(decrease) in accounts payable (1,122) 1,018

Net cash outflow from operating activities before tax (6,220) (6,152)

R&D tax credits 7 565 312

Net cash outflow from operating activities (5,655) (5,840)


Purchase of property, plant and equipment 15 (171) (569)

Purchase of intangible assets 14 - (6)

Grant income 8 - 100

Movement in restricted funds 20 (14) 134

Financial instruments – net option costs - (52)

Net cash outflow from investing activities (185) (393)

Financing activities

Net proceeds from issuance of convertible notes 18 2,659 -

Net proceeds from equity placing - 3,799

Net cash inflow from financing activities 2,659 3,799

Increase/(decrease) in cash and cash equivalents for the year (3,181) (2,434)

Cash and cash equivalents:

Beginning of year 4,235 6,669

End of year 1,054 4,235

Supplemental cash flow information

Cash paid for interest (47) (340)

Cash received as interest 95 382

Non cash financing activities

Issue of shares on conversion of convertible notes - 4,057

Reduction in convertible notes on conversion - (4,131)




1 Nature of operations and going concern

The Company is subsisting pursuant to the Business Corporations Act (Yukon Territory) and conducts operations through itswholly owned subsidiary company, Turbo Power Systems Limited (“TPSL”), based in the UK. TPSL has initiatedcommercialisation of its technology in relation to high speed permanent-magnet machine systems for power generationand industrial motor applications at its London location, whilst its operation based in North East England is an establishedprovider of advanced power electronics.

Going concern

These consolidated financial statements have been prepared on the basis of Canadian Generally Accepted AccountingPrinciples (“Canadian GAAP”) applicable to a ‘going concern’, which assume that the Company will continue in operationfor the foreseeable future and will be able to realise its assets and discharge its liabilities in the normal course of operations.As at 31 December 2008 the Company had net cash outflows from operations therefore may require additional fundingwhich, if not raised, may result in the curtailment of activities. The Company has incurred cumulative losses including aloss of £9.54 million in 2008 and has a cumulative deficit of £72.24 million as at 31 December 2008. The Company’s abilityto continue as a going concern depends on its ability to generate positive cash flow from operations or secure additionaldebt or equity financing.

Management regularly reviews and considers the current and forecast activities of the Company in order to satisfy itselfas to the viability of operations. These ongoing reviews include consideration of current order book and future businessopportunities, current development and production activities, customer and supplier exposure and forecast cashrequirements and balances. Based on these evaluations management consider that the Company is able to continue as agoing concern.

There can be no assurances that the Company’s activities will be successful or sufficient and as a result there is doubtregarding the ‘going concern’ assumption and, accordingly, the use of accounting principles applicable to a going concern.These consolidated financial statements do not reflect adjustments that would be necessary if the ‘going concern’assumption were not appropriate. If the ‘going concern’ assumption were not appropriate for these consolidated financialstatements, then adjustments to the carrying values of the assets and liabilities, the reported revenues and expenses andthe balance sheet classifications, which could be material, would be necessary.

2 Significant accounting policies

Basis of consolidation

The consolidated financial statements of the Company have been prepared by management in accordance with CanadianGenerally Accepted Accounting Principles.

The consolidated financial statements include the accounts of Turbo Power Systems Inc., and the accounts of its whollyowned subsidiary company TPSL. The consolidated financial statements have been adjusted for all significant intercompanybalances and transactions.

Reporting foreign currencies

The Company’s functional and reporting currency is Pound Sterling.

Monetary assets and liabilities of foreign operations are translated into Sterling at the closing rate. The exchange gain orloss that arises is reflected in the statement of operations. Non-monetary assets and liabilities are translated at thehistorical rate.

Measurement of uncertainty

The Company has conducted a study of its internal policies with respect to the basis of cost sharing for common overheadswithin the consolidated group. The consolidated income tax disclosures provided herein have been based onmanagement’s best estimate based on a cost sharing formula that is a fair and representative method of allocating costsincurred on the consolidated level to the entities in the consolidated group. This basis of cost sharing is subject toassessment by taxation authorities. Until the time frame for reassessment has been statute barred or the taxationauthorities have reviewed and not objected to the tax filings, there is a possibility that a reassessment can occur.

The Company follows the cost reduction method of accounting for tax credits. Tax credits related to current expendituresare included in the determination of net income for the current year. These claims are subject to audit by the UK HMRevenue and Customs. Any revisions resulting from such audits are to be charged back to the related cost on aprospective basis.

40 Notes to the consolidated financial statements

Convertible notes

On issue of convertible notes, the cost of the liability portion is initially calculated using the market interest rate for anequivalent non-convertible instrument. The remainder of the net proceeds is allocated to the equity conversion option andwarrants, if applicable, which is reported in equity. The liability element is subsequently reported at amortised cost.Accretion of the debt discount is recognised in the income statement over the duration of the notes using the effectiveinterest method. The value of the equity conversion option is not changed in future periods.

Revenue

The Company recognises revenue from product sales, less value added tax or local tax, upon the delivery of the productand transfer of title to the customer provided the price is fixed and determinable and collection is reasonably assured.

Long term contracts

Where the outcome of long term contracts can be estimated reliably, revenue and costs are recognised by reference to thestage of completion of the contract activity at the balance sheet date based on costs incurred compared with totalestimated costs.

Revenue and costs are reviewed periodically based on contractual terms and conditions. When it is probable that totalcontract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately.

Development Income

The Company recognises revenue from development programmes, less value added tax or local tax, upon the completionof contractual milestones provided the price is fixed and determinable and collection is reasonably assured.

Grant Income

Income received from government and public bodies as grant funding is recorded as deferred income until the criteriarelating to the specific grant funding has been achieved. Grant income related to job creation activities is offset againstemployment charges within the profit and loss account. Grant income related to capital investment within the operationis recorded as a deferred revenue and amortised to the statement of operations in the same manner as the amortisationof the related capitalised assets.

Production costs

Production costs include the direct costs of goods sold together with attributed production overheads. Direct costs includematerial costs, direct labour and direct expenses.

Warranty provision

Estimated warranty costs are recognised at the time the Company sells its products, and are included in cost of sales.Warranty liability represents the Company's best estimate of warranty costs expected to be incurred during the warrantyperiod. The Company uses historical failure rates and costs of repair of defective products together with information onknown product issues to estimate the warranty liability. The ultimate amount payable by the Company and the timing willdepend on actual failure rates and cost to repair failures of its products. Since many of the Company's products are relativelynew in the market, historical data may not necessarily reflect actual costs to be incurred and exposes the Company to thepotential for significant fluctuations in the warranty liability.

Property, plant and equipment

Property, plant and equipment are recorded at cost and amortised over their useful lives on a straight line basis as follows:

Leasehold improvement costs are amortised over 10 years or the remaining period of the lease, whichever is lower.

Plant and equipment is amortised over a period of between four and seven years.

Intangible assets

Patent rights and designs are amortised on a straight-line basis over the lower of 15 years or the remaining usefuleconomic life of the patent.

Impairment of long lived assets

Long lived assets are comprised of property, plant and equipment, and intangible assets subject to amortisation. TheCompany regularly reviews the carrying value of all of these items for potential impairment when events or changes incircumstances exist that indicate the carrying value may not be recoverable. If required, the Company will assessrecoverability using estimated undiscounted future operating cash flows generated from the asset. The fair value of theasset is estimated by the sum of undiscounted cash flows expected to result from its use and eventual disposition. If thecarrying value of an asset exceeds its fair value then an impairment loss is recognised. The Company recognises anyimpairment loss in the year it is identified.



Goodwill

Goodwill is the residual amount that results when the purchase price of an acquired business exceeds the sum of theamounts allocated to the identifiable net assets acquired, based on their fair values.

Goodwill is not amortised but is tested for impairment annually or more frequently if events or changes in circumstancesindicate the asset might be impaired. The Company has chosen December 31 as the date for its annual impairment test.The impairment test is carried out in two steps. In the first step, the carrying amount of the reporting unit is compared withits fair value. When the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit isconsidered not to be impaired and the second step of the impairment test is unnecessary.

The second step is carried out when the carrying amount of a reporting unit exceeds its fair value, in which case the impliedfair value of the reporting unit’s goodwill is compared with its carrying amount to measure the amount of the impairmentloss, if any. The implied fair value of goodwill is determined in the same manner as the value of goodwill is determinedin a business combination described in the preceding paragraph, using the fair value of the reporting unit as if it was thepurchase price. When the carrying amount of the reporting unit goodwill exceeds the implied fair value of the goodwill,an impairment provision equal to the excess is recognised in the statement of operations.

Stock and work in progress

Stock and work in progress are carried at the lower of cost (calculated on a first-in, first-out basis) and net realisable value.Cost includes costs of direct material, labour and attributable overhead. Net realisable value is based on estimated sellingprice less additional costs to complete and sell.


Expenditure on pure and applied research is charged to the statement of operations in the period in which it is incurred.Product development costs, which comprise direct expenditure including salary expenses and attributed overheads, arealso charged to the profit and loss account in the period of expenditure, unless individual projects satisfy all of the followingcriteria:

• the project is clearly defined and related expenditure is separately identifiable;

• the project is technically feasible and commercially viable;

• current and future costs are expected to be exceeded by future sales; and

• adequate resources exist for the project to be completed.

Tax credits in respect of research and product development activities are netted against the related expenditure. See note 7.

Taxation

Future income taxes are calculated using the asset and liability method of accounting for temporary differences. Under thismethod, current income taxes are recognised for the estimated income taxes payable for the current period. Future incometax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets andliabilities and on unclaimed losses carried forward and are measured using the substantively enacted tax rates that will bein effect when the differences are expected to reverse or losses are expected to be utilised. A valuation allowance isrecognised to the extent that the recoverability of future income tax assets is not considered more likely than not.

Pension costs

The Company operates and contributes to a number of defined contribution pension plans. The assets of the plans areheld separately from those of the Company in independently administered funds. The contributions payable to the pensionplans for the period have been charged to the statement of operations.

Earnings per share (EPS)

EPS is calculated based on the weighted average number of Common Shares issued and outstanding during the year.Diluted per share amounts are calculated using the treasury stock method whereby proceeds deemed to be received onthe exercise of options and warrants in the per share calculation are assumed to be used to acquire Common Shares. Theeffect of potential issuances of shares under options and warrants would be anti-dilutive, and accordingly basic and dilutedEPS are the same.

Cash and cash equivalents

Cash and cash equivalents consist of cash on hand, deposits held at banks and short term deposits which have originalmaturities of three months or less and investments in money market funds. At 31 December 2008 the company held cashdeposits at major Canadian, United Kingdom and Irish financial institutions.


Restricted cash

Cash held under guarantee and performance bonds are those funds subject to restrictions regarding their release.

Stock options

When stock or stock options are issued, compensation expense is recognised based on the fair value of the stock orstock options issued and is credited to common share capital or contributed surplus as appropriate. When options areexercised, the proceeds together with the amount originally credited to contributed surplus are credited to share capital.When the terms of issued stock options are amended, any incremental fair value of the amended option will berecorded as an expense.

Comparative figures

Certain amounts for 2007 have been, where necessary, reclassified for consistency with the current year’s presentation.

Use of estimates

The preparation of consolidated financial statements requires management to make estimates and assumptions that affectthe reported amounts in the consolidated financial statements. Due to the inherent uncertainty in making such estimatesand the current economic environment, actual results could differ from these estimates.

Estimates include provisions for accounts receivable, inventory obsolescence, warranty, estimated useful lives of capitalassets, investment tax credits and intangibles. The Black-Scholes fair value calculations for stock options and warrants alsocontain estimates for volatility.

Changes in accounting policy – 1 January 2007:

Financial instruments

On 1 January 2007, the Company adopted six new accounting standards: CICA Handbook section 1506, Accounting Changes;CICA Handbook section 1530, Comprehensive Income; CICA Handbook section 3855, Financial Instruments – Recognitionand Measurement; CICA Handbook section 3861, Financial Instruments - Disclosure and Presentation; CICA Handbooksection 3865, Hedges; and CICA Handbook section 3251, Equity.

Certain of the standards adopted 1 January 2007 required the Company to classify all financial instruments resulting incertain financial instruments being valued at fair value on the balance sheet. The impact of this change in accounting policyis presented as a transitional adjustment in opening retained earnings. In compliance with the standard, prior periods werenot restated.

Comprehensive income and 3251 equity

Sections 1530 and 3251 describe standards for reporting and disclosing comprehensive income, its components and relatedchanges in equity. Comprehensive income includes net income as well as changes in equity during a period fromtransactions and events from non-owner sources, such as unrealised gains or losses on available-for-sale financialinstruments. As a result of adopting this standard, comprehensive income is disclosed in the consolidated financialstatements. Other comprehensive income refers to items that are recognised in comprehensive income but excluded fromnet income calculated in accordance with generally accepted accounting principles until such time as it is consideredappropriate to recognise them in net income. The Company had no “other comprehensive income or loss” transactionsduring the years ended 31 December 2008 and 31 December 2007 and there were no opening or closing balances ofaccumulated other comprehensive income or loss.

Financial instruments – recognition and measurement

Section 3855 prescribes when financial assets and financial liabilities are initially recognised at fair value and theirsubsequent measurement is dependent on their classification as described below. Their classification depends on thepurpose for which the financial instruments were acquired or issued, their characteristics and the Company’s designationof such instruments. The standards require that all financial assets be classified either as held for trading (“HFT”), availablefor sale (“AFS”), held to maturity (“HTM”), or loans and receivables. The standards require that all financial assets, includingall derivatives, be measured at fair value with the exception of loans and receivables, debt securities classified as HTM, andAFS financial assets that do not have quoted market prices in an active market. Settlement date accounting continues tobe used for all financial assets.



Classification of financial instruments

The following is a summary of the accounting model the Company has elected to apply to each of its significant categoriesof financial instruments

Financial instrument Classification Measurement Method

Cash and cash equivalents Held for trading Fair value

Restricted cash Held for trading Fair value

Trade receivables Loans and receivables Amortised cost

Investments Held for trading Fair value

Trade payables Other financial liabilities Amortised cost

Convertible notes Other financial liabilities Amortised cost

Currency option contracts Held for trading Fair value

Transaction costs

Transaction costs related to HFT financial assets are expensed to interest expense as incurred. Transaction costs related toall other financial assets, loans and receivables are netted against the carrying value of the asset or liability and are thenamortised over the expected life of the instrument using the effective interest method.

Effective interest method

The Company uses the effective interest method of amortisation for transaction costs or fees, premiums or discountsearned or incurred for financial instruments.

Determination of fair value

The fair value of a financial instrument is the amount of consideration that would be agreed upon in an arm’s lengthtransaction between knowledgeable, willing parties who are under no compulsion to act. The fair value of a financialinstrument on initial recognition is the transaction price, which is the fair value of the consideration given or received.Subsequent to initial recognition, the fair values of financial instruments that are quoted in active markets are based onbid prices for financial assets held and offer prices for financial liabilities. When independent prices are not available, fairvalues are determined by using valuation techniques which refer to observable market data. These include comparisonswith similar instruments where market observable prices exist, discounted cash flow analysis, option pricing models andother valuation techniques commonly used by market participants. For certain derivatives, fair values may be determinedin whole or in part from valuation techniques using non-observable market data or transaction prices. A number of factorssuch as bid-offer spread, credit profile and model uncertainty are taken into account, as appropriate, when values arecalculated using valuation techniques.

The fair value of short term financial assets and liabilities, including cash and cash equivalents, restricted cash, trade andother receivables, prepayments and trade and other payables as presented in the consolidated balance sheets approximatetheir carrying value due to the short term period to maturity of these financial instruments.

Hedges

Section 3865 specifies the criteria that must be satisfied in order for hedge accounting to be applied and the accountingfor each of the permitted hedging strategies: fair value hedges and cash flow hedges. Hedge accounting is discontinuedprospectively when the derivative no longer qualifies as an effective hedge, or the derivative is terminated or sold, or uponthe sale or early termination of the hedged item. While the Company does use derivative financial instruments in themanagement of its foreign currency exposures, the Company does not apply hedge accounting. The Company does notuse derivative financial instruments for trading or speculative purposes.


3 Change in accounting policies – 1 January 2008

General standards of financial statement presentation – section 1400

This section was amended and now requires companies to assess and disclose an entity’s ability to continue as a going concern(Note 1).

Capital disclosures – section 1535

This new handbook section establishes disclosure requirements about an entity’s capital and how it is managed. It requiresthe disclosure of information about an entity’s objectives, policies and processes for managing capital.

Financial instruments – disclosures - section 3862 and financial instruments – presentation section 3863 which replacessection 3861 financial instruments – disclosure and presentation

Section 3862 requires entities to provide disclosures in their financial statements that enable users to evaluate thesignificance of financial instruments on the entity’s financial position and its performance and the nature and extent of risksarising from financial instruments to which the entity is exposed during the period and at the balance sheet date, and howthe entity manages those risks. Section 3863 establishes standards for presentation of financial instruments and non-financial derivatives. It deals with the classification of financial instruments, from the perspective of the issuer, betweenliabilities and equities, the classification of related interest, dividends, losses and gains, and circumstances in which financialassets and financial liabilities are offset. These new sections place increased emphasis on disclosure about the nature andextent of risks arising from financial instruments and how the entity manages those risks. The adoption of these standardshas resulted in increased note disclosures in the Company’s consolidated financial statements.

Inventories - section 3031

These standards requires inventory to be measured at the lower of cost or net realisable value and provides guidance onthe methodology used to assign costs to inventory, it disallows the use of the last-in first-out inventory costingmethodology and requires that, when circumstances which previously caused inventories to be written down below costno longer exist, the amount of the write down is to be reversed. The adoption of this standard has not affected theCompany’s existing policies.

4 New accounting pronouncements – not yet adopted

New or updated CICA Handbook sections that have been issued but are not yet effective, and have a potential implicationfor the Company, are as follows:

Section 1582 Business Combinations

This section replaces Section 1581 Business Combinations and applies prospectively to business combinations for whichthe acquisition date is on or after the first annual reporting period of the Company beginning on or after 1 January 2011.Section 1582 is not expected to have a significant impact on the financial statements.

Section 3064 Goodwill and Intangible Assets

In February 2008 the CICA issued Handbook Section 3064 Goodwill and Intangible Assets, effective for interim and annualfinancial statements relating to fiscal years beginning on or after 1 October 2008. Section 3064, which replaces Section3062 Goodwill and Other Intangible Assets, and Section 3450 Research and Development Costs, establishes standards forthe recognition, measurement and disclosure of goodwill and intangible assets. This new standard is effective for theCompany’s fiscal year commencing January 1 2009. The Company is currently assessing the impact of the new standard.

Harmonising of Canadian and International Financial Reporting Standards (IFRS)

In February 2008, the Accounting Standards Board of the CICA confirmed its strategic plan which will abandon CanadianGAAP and affect a complete convergence to the International Financial Reporting Standards. These new standards will beeffective for the Company’s interim financial statements commencing 1 January 2011. The Company is closely monitoringchanges arising from this convergence.



5 Segmental analysis

The Company’s two reportable segments are the power electronics segment, which is involved in the development andmanufacture of electrical power supply and control systems and the electrical machines segment, which is involved in thedevelopment and commercialisation of high speed electrical machines.

Corporate charges relating to the financing of the Company and other related management activities are allocated betweenthe two reportable segments.

The power electronics and electrical machines systems segments both operate in the United Kingdom. Except forthe Investments held by the Company which are located in Canada, all of the Company’s assets are located in theUnited Kingdom.

Power Electronics Electrical Machines Total2008 2007 2008 2007 2008 2007

£’000 £’000 £’000 £’000 £’000 £’000

Year ended 31 December

Revenue 6,112 9,581 669 244 6,781 9,825

Development income 375 1,176 628 - 1,003 1,176

Amortisation (174) (143) (488) (715) (662) (858)

Interest income 47 183 48 184 95 367

Interest expense (228) (99) (229) (149) (457) (248)

Loss for the period (5,945) (2,352) (3,618) (4,063) (9,563) (6,415)

Capital expenditure 134 525 37 50 171 575

Power Electronics Electrical Machines Total2008 2007 2008 2007 2008 2007

£’000 £’000 £’000 £’000 £’000 £’000

As at 31 December

Total assets 4,624 6,800 2,871 7,672 7,495 14,472

Capital assets 532 597 1,105 2,376 1,637 2,973

Total liabilities 4,596 3,523 3,672 2,544 8,268 6,067

Total income2008 2007

£’000 £’000

UK 750 1,980

USA 5,243 6,314

Canada 1,496 2,465

Rest of world 295 242

7,784 11,001


6 Significant customers

In the year ended 31 December 2008, 48% of the Company’s sales were derived from three customers (31 December2007: 67% from three customers)

Total revenue Year endaccounts receivable

2008 2007 2008 2007£’000 £’000 £’000 £’000

Company 1 1,642 4,874 115 717

Company 2 1,075 1,301 77 110

Company 3 1,018 1,131 74 168

Others 4,049 3,695 756 1,465

7,784 11,001 1,022 2,460

7 Research and product development

2008 2007£’000 £’000

Sales of prototypes and development contributions 1,003 1,176


Total tax credits (501) (27)

Total expenditure 5,265 5,482

In accordance with the Company’s accounting policy, tax credits for research and development expenditures are nettedagainst the related expenditure. At 31 December 2008 the Company had accrued tax credits amounting to £144,000 (2007:£208,000). These amounts are based on determinations by management of expenditures that qualify for the related taxcredits. The nature and amount of these accruals are subject to measurement uncertainty and the effect on theconsolidated financial statements of resulting adjustments in future periods could be significant. Adjustments, if any, willbe reflected in the period that these are assessed by the relevant taxation authorities.

8 Grant income

In 2007 the Company received government grant income of £250,000 in support of the relocation, enhancement andincreased employment at its Gateshead location. The grant provided a contribution towards a requirement to invest£400,000 in capital assets, and the creation of 40 new employment positions. On the attainment of these targets the grantfunds were made available to the Company, and have been credited on the following basis.

Following the investment in the new Gateshead facilities, £100,000 was allocated to offset capital improvements. Therelated assets are depreciated on a straight line basis over four years, and the grant income has been recorded as deferredincome on the balance sheet, with £25,000 being released to the statement of operations to offset amortisation charges(2007: £25,000), and the remaining £50,000 due to be released over the next two years.

As a result of creating 40 new employment positions, £150,000 was credited to offset employment costs within thestatement of operations for 2007.



9 Interest income

2008 2007£’000 £’000

Term deposits and cash funds 79 352

Investment in convertible bonds 16 15

95 367

10 Interest expense

2008 2007£’000 £’000

Interest 320 188

Accretion of debt (note 18) 137 60

457 248

11 Loss per share

Loss per common share has been calculated using the weighted average number of shares in issue during the relevantfinancial periods. The treasury stock method was used in determining the weighted average number of shares outstandingfor each period.

2008 2007Numerator for basic EPS calculation:Net loss £9,563,000 £6,415,000

Denominator:For basic net loss – weighted average shares outstanding 318,571,062 310,387,089

As the Company experienced a loss in both years all potential Common Shares outstanding from dilutive securities areconsidered anti-dilutive and are excluded from the calculation of loss per share.

Details of anti-dilutive potential securities outstanding not included in EPS calculations at December 31 are as follows:

2008 2007Common Shares potentially issuable:

- pursuant to warrants (note 23) 23,357,142 10,500,000

- under stock options (note 23) 17,651,700 30,847,250

- pursuant to loan note conversions (note 18) 89,908,333 14,908,333

- pursuant to A Ordinary stock conversion (note 23) 115,000,000 115,000,000

245,917,175 171,255,583


12 Investments

Total£’000

At 1 January 2007 31

Exchange adjustment 4

Fair value adjustment (10)

At 31 December 2007 25

Exchange adjustment 2

Fair value adjustment (27)

At 31 December 2008 -

In October 2003, the Company invested CDN $1,000,000 (£444,400) in a 6% Convertible Debenture issued by Altek PowerCorporation. The debenture is convertible, at the option of the Company, over two years into an aggregate of 1,785,715Units at a conversion price of $0.56 (£0.249) per Unit, with each Unit consisting of one common share of Altek and onehalf of a share purchase warrant. Each warrant entitles the Company to purchase, at a price of $0.63 (£0.28) per share,up to 892,857 additional Common Shares in Altek for a two year period from the date the warrants are issued. Thedebenture is secured against certain design rights.

On 9 March 2005 the Company restructured its investment in Altek Power Corporation to release both Altek and theCompany from the Memorandum of Understanding entered into. As part of the restructuring, the Company converted CDN$500,000 of the loan receivable from Altek into 892,857 shares of Altek and subsequently disposed of those shares in theopen market during 2005. The term of the remaining CDN $500,000 convertible notes was extended to become due onOctober 9, 2008.

On 9 October 2008 the Company was advised that Altek Power Corporation would be unable to meet its repaymentobligation, and accordingly, the fair value of the debt has been reduced to £nil.

13 Goodwill

Cost Impairment Book Value Book Value2008 2007

£’000 £’000 £’000 £’000

December 31, 2008 863 863 - 820

Goodwill resulted from the acquisition of Intelligent Power Systems Limited, which forms a part of the operations of thePower Electronics segment. During the year the Company revised its expectations and business model for the PowerElectronics segment, resulting in a lower attributed fair value for the elements of the business arising from the purchaseof Intelligent Power Systems Limited. Accordingly the goodwill has been written down to £nil to reflect the reduced impliedfair value of the purchased assets. This charge of £820,000 has been taken to the statement of operations.

14 Intangible assets

AccumulatedCost Amortisation Book Value Book Value

2008 2007£’000 £’000 £’000 £’000

Patent rights and designs 767 754 13 47

Included in cost of patent rights and design for the year ended 31 December 2008 are additions of £nil (2007: £5,000).The Company incurred amortisation charges of £34,000 (2007: £34,000).



15 Property, plant and equipment

December 31, 2008

AccumulatedCost Amortisation Book Value

£’000 £’000 £’000

Leasehold improvements 3,835 2,774 1,061

Property and office equipment 5,118 4,555 563

8,953 7,329 1,624

December 31, 2007

AccumulatedCost Amortisation Book Value

£’000 £’000 £’000

Leasehold improvements 3,835 2,409 1,426

Property and office equipment 4,947 4,267 680

8,782 6,676 2,106

Included in cost of property and office equipment for the year ended 31 December 2008 are additions of £171,000 (2007:£569,000). The Company incurred amortisation charges of £365,000 (2007: £383,000) and £288,000 (2007: £441,000) forleasehold improvements and property and office equipment during the year, net of grant income of £25,000 (2007:£25,000) (see note 8).

16 Stock and work in progress

2008 2007£’000 £’000

Raw materials 1,139 1,281

Work in progress and finished goods 546 1,095

1,685 2,376

An impairment provision of £652,000 (2007: £nil) has been made by the Company during the year in relation to stock andwork in progress related to a number of contracts which have stopped during the year, resulting in the materials heldbecoming obsolete.

17 Warranty provision

2008 2007£’000 £’000

Balance at 1 January 151 303

Provided during the year 115 63

Released during the year (82) (215)

Balance at 31 December 184 151


18 Convertible notes and warrants

Convertible notes are considered to be compound financial instruments, and the liability component and the equitycomponent must be presented separately, as determined at initial recognition. The Company has valued the equitycomponent of these notes using the residual value of equity component method, whereby the liability component isvalued first using the current market rate for comparable instruments, at the time of issuance. The difference between theproceeds of the bonds issued and the fair value of the liability is assigned to the equity component.

On 11 July 2003, the Company completed a £5,000,000 financing agreement with institutional investors. The financingcomprised convertible notes and warrants. The convertible notes had a term of five years, bearing an annual interest rateof 3.5% and were convertible, at the option of the holders, into an aggregate of 25 million Common Shares of the Companyat a conversion price of £0.20 per share. The convertible notes could be converted from 11 July 2004. The warrants hada term of three years and were convertible into an aggregate of 3.5 million Common Shares of the Company at an exerciseprice of £0.15 per share. The convertible notes were unsecured.

On 11 March 2005 the Company completed an £8,000,000 (gross) financing agreement with institutional investors. Thefinancing comprised unsecured convertible notes and warrants. The convertible notes have a term of five years plus oneday and bear interest at a rate of 6.5% per annum. They are convertible, at the option of the holder, into an aggregate of66,666,667 Common Shares in Turbo Power Systems Inc. at a conversion price of £0.12 per share. The warrants have aterm of five years and are convertible into an aggregate of 7,000,000 Common Shares in Turbo Power Systems Inc. at anexercise price of £0.15 per share. The convertible notes are unsecured.

On 6 January 2007 £2,500,000 of the 2003 convertible notes and £2,000,000 of the 2005 convertible notes were convertedat a conversion price of £0.08. Immediately following the conversion on 6 January 2007 the remaining face value of 2003and 2005 convertible notes were £nil and £1,789,000 respectively.

The Company incorporated the guidance provided by the CICA’s Emerging Issue Committee Abstract 96 “Accounting for theEarly Extinguishment of Convertible Securities Through (1) Early Redemption or Repurchase and (2) Induced EarlyConversion” (EIC96) in accounting for the early redemption of the convertible notes. EIC96 provides guidance on thetreatment of the fair value of the conversion feature on the extinguishment of the convertible notes. Conversion of theconvertible notes resulted in a decrease in loss and comprehensive loss during 2007 of £47,000 and an additional increasein deficit of £2,414,000.

On 19 June 2008 the Company completed a financing agreement with institutional investors for potential financing of upto £3,000,000 (gross) comprised of secured convertible notes and warrants. The convertible notes were issuable in£750,000 increments over a three year period from the date of the agreement. The Company issued £1,500,000 ofconvertible notes under the agreement on 19 June 2008. The financing comprised secured convertible notes and warrants.The convertible notes bear interest at 15% per annum and are convertible into an aggregate of 75,000,000 of eitherCommon Shares in Turbo Power Systems Inc. or A-Ordinary shares in Turbo Power Systems Limited at an exercise price of£0.04 per share. The notes required quarterly interest and quarterly principal payments commencing March 2009.

On 15 August 2008 the Company amended the terms of the 19 June 2008 loan agreement and issued an additional£1,500,000 of convertible notes under the amended terms. The new terms result in all interest and principal repaymentsbeing deferred until maturity on 19 June 2011, and provide that if at any time, including once the convertible notesgoverned by the 19 June 2008 agreement have been fully repaid, there is a change in control of the Company, or itssubsidiaries or substantially all of its assets, the holders of the convertible notes will be entitled to receive a risk premium,calculated according to the enterprise value ascribed to the Company, under the transaction after deducting any balanceof the convertible notes and/or interest outstanding. This risk premium will be equal to an initial payment of £1,500,000plus 75% of the next £6,000,000 of enterprise value and 50% of the remainder. The amendment was treated as a debtextinguishment and, as a result, the Company recorded a debt extinguishment charge of £115,000.



2008 2007£’000 £’000

Balance at 1 January included in creditors due after more than one year 1,661 5,828

Add: issued during the year 2,397 -

Less: converted during the year - (4,131)

4,058 1,697

Add: accretion of debt component during the period 137 60

Add: debt extinguishment 115 -

Less: interest charges during the period - (96)

Balance at 31 December due after more than one year 4,310 1,661

Add: interest payable at term accrued during the period 202 -

Balance at 31 December included in creditors due after more than one year 4,512 1,661

19 Financial instruments

The Company’s financial assets and liabilities consist primarily of the cash and cash equivalents, restricted cash, tradereceivables, investments, trade payables, convertible notes and currency option contracts.

Classification and carrying amount



Asset (liability)




Trade payables - - (3,406) (3,406)


Total 2,402 1,255 (7,918) (4,261)



Asset (liability)




Investments 25 - - 25

Trade payables - - (3,700) (3,700)


Total 5,622 2,871 (5,361) 3,132


Carrying value and fair market value

2008 2007£’000 £’000

Carrying Carryingamount Fair value amount Fair value

Asset (liability)

Cash and cash equivalent 1,054 1,054 4,235 4,235

Restricted cash 1,348 1,348 1,362 1,362

Trade receivables 1,255 1,255 2,871 2,871

Investments - - 25 25

Trade payables (3,406) (3,406) (3,700) (3,700)

Convertible notes (4,512) (4,512) (1,661) (1,661)

Total (4,261) (4,261) 3,132 3,132

20 Financial Risk Management

The Company has exposure to counterparty credit risk, liquidity risk and market risk associated with its financial assets andliabilities. The Board of Directors has overall responsibility for the establishment and oversight of the Company’s riskmanagement framework. The Board of Directors has established the Audit Committee which is responsible for developingand monitoring the Company’s compliance with risk management policies and procedures. The Audit Committee regularlyreports to the Board of Directors on its activities.

The Company’s risk management program seeks to minimise potential adverse effects on the Company’s financialperformance and ultimately shareholder value. The Company manages its risks and risk exposures through a combinationof insurance, sound business practices and derivative financial instruments.

The Company’s financial instruments and the nature of the risks which they may be subject to are set out in the followingtable.

Foreign InterestCredit Liquidity Exchange Rate

Risk Risk Risk Risk

Cash and cash equivalents Yes Yes Yes

Restricted cash Yes Yes Yes

Trade receivables Yes Yes

Trade payables Yes Yes

Convertible notes Yes

Currency option contracts Yes Yes Yes

(a) Credit Risk

Credit risk arises from cash held with banks and credit exposure to customers, including outstanding accounts receivables.The maximum exposure to credit risk is equal to the carrying value (net of allowances) of the financial assets. The objectiveof managing counterparty credit risk is to prevent losses on financial assets. The Company assesses the credit quality ofcounterparties, taking into account their financial position, past experience and other factors.



Cash and cash equivalents

Cash and cash equivalents consist of bank balances and short-term investments with terms of less than three months orless. Credit risk associated with cash and cash equivalents is minimised substantially by ensuring that these financial assetsare investment in debt instruments of highly rated financial institutions. As at 31 December 2008 the Company had cashand cash equivalents consisting of cash on hand and deposits with banks of £1,054,000 (2007: £2,224,000) and investmentin securities with financial institutions with terms to maturity of less than three months of £nil (2007: £2,011,000). As at31 December 2008, the Company does not expect any counterparties to fail to meet their obligations.

Restricted cash

In 2004 the Company committed cash bonds in support of contracts placed by the Toronto Transit Commission for the CLRVand H6 programmes. The associated contracts required the bonds to remain in place until two years after all equipmentwas delivered. According to the current contract schedule that would result in the cash related to the H6 programme of£475,000 being under the performance bond restriction until 2010.

During March 2007 the Company committed cash bonds totalling USD$800,000 in support of contracts placed byBombardier Transportation for the CTA and TTC programmes. The associated contracts require the bonds to remain in placeuntil after development and the prototype equipment is delivered.

The Company has also provided a property lease guarantee bond which is held in escrow and totals £320,000.

At 31 December 2008 cash subject to restrictions totalled £1,348,000 (December 2007: £1,362,000).

Trade receivables

Trade receivables consist primarily of trade accounts receivable from billings of product sales and development income. TheCompany’s credit risk arises from the possibility that a counterparty which owes the Company money is unable or unwillingto meet its obligations in accordance with the terms and conditions in the contracts with the Company, which would resultin a financial loss for the Company. This risk is mitigated through established credit management techniques, includingmonitoring counterparty’ creditworthiness, setting exposure limits and monitoring exposure against these customer creditlimits. However, due to the limited number of potential customers in each market this is not always possible. In these casesthe Company reduces its exposure by obtaining up-front payments from the end customer prior to delivery of goods.

The carrying amount of accounts receivable are reduced through the use of an allowance for doubtful accounts and theamount of the loss is recognised in the statement of operations in other expenses. When a receivable balance is considereduncollectable, it is written off against the allowance for accounts receivable. Subsequent recoveries of amounts previouslywritten off reduce other expenses in the statement of operations.

Significant debtors at 31 December 2008 comprised £505,000 due from three customers, representing 49% of theoutstanding balance (2007: £1,255,000 due from three customers, representing 51% of the outstanding balance).Consequently, the Company has concentrations of credit risk with respect to its accounts receivable.

2008 2007Balance % Balance %

£’000 £’000

Customer 1 225 22 717 29

Customer 2 155 15 285 12

Customer 3 125 12 253 10

Other 517 51 1,205 49

Total 1,022 100 2,460 100


The following table outlines the details of the aging of the Company’s receivables and related allowance for doubtfulaccounts as at December 31, 2008 and 2007:

2008 2007£’000 £’000

Trade 1,022 2,460

Other miscellaneous receivables 233 411

1,255 2,871

Not past due 730 1,517

Past due for over one day but not more than 30 days 187 454

Past due for over 30 days but not more than 60 days 98 114

Past due for over 60 days 46 375

Less: allowance for doubtful account (39) -

Total accounts receivable, net 1,022 2,460

2008 2007£’000 £’000

Allowance for doubtful accounts

Balance, beginning of year - -

Increase in provision for doubtful accounts (39) -

Effect of foreign currency exchange rate changes - -

Balance, end of year (39) -

(b) Liquidity Risk

Liquidity risk is the risk that the Company will not be able to meets its financial obligations as they fall due. The Companymanages exposure to liquidity risk by close monitoring of supplier and other liabilities and by focusing on debtor collectionand conversion of working capital held in stock balances. When considered necessary the Company has obtained equityand long term debt investment to provide short term liquid working capital in order to meet its obligations.

The following tables details the Company’s contractual maturities for its financial liabilities, including interest payments andoperating lease commitments, as at 31 December 2008:

Payments due by periodTotal 2009 2010 2011 2012 2013 2014 and

thereafter

Trade and other payables 3,406 3,406 - - - - -

Convertible notes 6,284 116 1,818 4,350 - - -

Operating leases 3,643 470 478 481 478 244 1,492

13,333 3,992 2,296 4,831 478 244 1,492

(c) Market Risk

Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will affect the fairvalue of recognised assets and liabilities or future cash flows or the Company’s results of operation.



Foreign exchange

Certain of the Company’s business transactions occur in currencies other than Sterling. The Company entered into foreignexchange average rate option contracts during the twelve months ended 31 December 2007 to reduce exposure tofluctuations in foreign exchange rates on remittances from customers denominated in U.S. Dollars.

During 2007 the Company purchased an average rate option over $4.200 million US Dollars at a strike rate of $2.09 U.S.Dollars, which expired between 26 March 2008 and 24 December 2008.

During the year a purchase cost of £nil (2007: £51,000) was recognised and a loss of £nil (2007: loss of £35,000) wasrealised on these options.

As at 31 December 2008 the unrealised gain from the contracts, included within other receivables at the year end, wasan amount of £nil (2007: £8,000) due following settlement of options. The Company records unrealised gains or lossesarising from these contracts in the statement of operations.

The Company's currency exposure, being those exposures arising from transactions, the net currency gains and losses fromwhich will be recognised in the profit and loss account, is shown below.

US dollar Canadian dollardenominated denominated

£’000 £’000

Cash 597 8

Accounts receivable 641 78

Accounts payable 311 34

Included in net loss for the year ended 31 December 2008 is approximately £142,000 of foreign exchange gain resultingfrom the translation of the financial statements of Turbo Power Systems Inc. (2007: loss of £51,000). The rates used totranslate the assets and liabilities as at 31 December 2008 was USD $1.448:£1 and CDN $1.770:£1 (31 December 2007USD $1.996:£1 and CDN $1.961:£1).

Sensitivity analysis

A summary of the Company’s estimates of the impact of a 10% change in exchange rates, on its revenues and monetaryassets and liabilities is presented below:

Effect of a +/- 10% change in theforeign currency exchange rate £’000 USD CDN Total

Revenue 400 160 560

Cash 60 1 61

Accounts receivable 70 8 78

Accounts payable 30 3 33

The analysis assumes that the volume and quantity of foreign transactions is unaffected by the change in foreignexchange rate.

Interest rate

Floating rate financial assets of £2,413,000 at 31 December 2008 (2007: £5,597,000) comprised Sterling interest bearingbank accounts, money market deposits and cash funds including restricted cash.

Fixed rate financial assets at 31 December 2008 amounted to £nil (2007: £25,000) and comprised an investment in aconvertible debenture (see note 12).

At 31 December 2008, the increase or decrease in net earnings for each 1% change in interest rates on net financial assetswas approximately £24,000 per annum (2007: £55,000).

As at 31 December 2008 the Company does not have any variable rate financial liabilities and is not exposed to interestrate risk on its fixed rate convertible notes. The Company may be exposed to interest rate risk in the future as the fixedrate convertible notes mature.


21 Capital management

The Company defines capital that it manages as the aggregate of convertible notes and equity comprising share capital,contributed surplus and deficit. Its objectives when managing capital are to ensure that the Company will continue as agoing concern, so that it can provide services to its customers and returns to its shareholders.

The Company manages its capital structure and makes adjustments to it in light of economic conditions. The Company,upon approval from its Board of Directors, will make changes to its capital structure as deemed appropriate under thespecific circumstances.

The Company is not subject to any externally imposed capital requirements and the Company’s overall strategy withrespect to management of capital remains unchanged from the year ended 31 December 2007.

22 Corporation taxation and provision for future taxation

2008 2007

Income tax recovery at statutory rates (3,203,605) (2,317,098)

Expenses (revenue) deducted (included) in the accounts that have no corresponding deduction (inclusion) for income taxes 86,805 421

Difference due to effective tax rates in subsidiary 350,370 308,760

Capital loss not recognised - (86,327)

Change in foreign exchange rates 327,100 (409,729)

Change in valuation allowances and other 2,439,330 2,470,403

Surrender of tax losses for research and development refund - 33,570

Tax recovery - -

2008 2007

Excess of net book value over underdepreciated capital cost (116,951) (138,545)

Non-capital tax losses carried forward 18,985,531 16,761,449

Unrealised foreign exchange gain/(loss) 570,384 287,560

Financing fees 96,084 146,423

Unrealised loss on investment 90,395 82,834

Other timing differences 405,231 209,855

Valuation allowance (20,030,674) (17,349,576)

Future income tax asset - -

The Company has losses subject to expiry in Canada as follows:

2009 1,335,000

2010 1,250,000

2014 2,000,000

2015 1,265,000

2026 2,030,000

2027 2,150,000

2028 1,585,000

11,615,000

The Company’s subsidiaries have UK tax losses which are not subject to expiry in the amount of £53,500,000.



23 Share capital, options and warrants

Authorised

At 31 December 2008 and 31 December 2007, the authorised share capital of the Company comprised an unlimitednumber of Common Shares and an unlimited number of Preferred Shares, issuable in series, without nominal or par value.

Issued

CommonNumber £’000

At 1 January 2007 273,944,592 51,919

Share based compensation 176,470 17

Shares issued, net of share issue costs 44,450,000 3,868

At 31 December 2007 318,571,062 55,804

At 31 December 2008 318,571,062 55,804

Common Shares

On 7 June 2007 the Company completed a £4,000,000 placing agreement with institutional investors for 44,450,000Common Shares of no par value in Turbo Power Systems Inc, at a price of £0.09 per share.

2002 Stock Option Plan

The 2002 Stock Option Plan, as modified, allows up to 14 per cent of the issued share capital of the Company to be issuedto directors, officers, employees and consultants of the Group. The maximum number of share options that can be grantedto an individual is limited to 5 per cent of the total number of shares then outstanding.

The exercise price of the share options shall be not less than the market price at the date of grant of the share options.Share options are not transferable.

Subject to applicable regulatory approval, the Board may, at any time, suspend or terminate the 2002 Stock Option Planand may also at any time amend or revise the terms of the 2002 Stock Option Plan, provided that no such amendmentor revision shall alter the terms of any options theretofore granted under the 2002 Stock Option Plan.

Under the terms of the 2002 Stock Options Plan, the Board has the authority to create and adopt share option schemes,which terms and conditions are within the scope of the provisions of the 2002 Stock Option Plan. There is one current suchscheme.

The Approved Share Option Scheme (the “Scheme”)

The Scheme is open to all UK employees of the Company, including executive directors. The grant of options is at thediscretion of the directors upon recommendation by the Remuneration Committee of the Board. Grants of options arelimited to £30,000 worth of shares per employee. An option will normally be exercisable no earlier than three years andno more than ten years following its grant, provided that performance conditions subject to which it has been grantedhave been satisfied. The exercise price will not be less than its market value at the time of grant. The Scheme is approvedby UK Revenue and Customs.

The exercise price for certain share options is stated in both Canadian Dollars and Sterling. The exercise prices shown inthe following tables are the applicable Sterling exercise prices or, if no Sterling prices were specified, the Canadian Dollarexercise price converted into Sterling at the year end exchange rate.


The movements in the outstanding stock options granted under the 2002 Stock Option Plan are as follows:

Number of Option price per Weightedoptions share range average exercise

price£ £

Outstanding, 1 January 2007 21,567,281 0.10 –0.80 0.15

Cancelled (1,737,000) 0.09-0.34 0.12

Lapsed (593,031) 0.34-0.80 0.71

Exercised - - -

Issued 11,610,000 0.09-0.10 0.10

Outstanding, 31 December 2007 30,847,250 0.09-0.34 0.12

Cancelled (270,000) 0.09-0.34 0.11

Forfeited (17,525,550) 0.09-0.34 0.11

Exercised - - -

Issued 4,600,000 0.04 0.04

Outstanding, 31 December 2008 17,651,700 0.04-0.34 0.11

The following table summarises the outstanding options granted under the 2002 Stock Option Plan at 31 December 2008:

Weighted Weighted averageaverage Number of exercise price of options

Options Option price remaining options currently currently exercisableoutstanding £ contractual life exercisable £

264,900 0.100 0.3 264,900 0.100

726,800 0.335 0.5 726,800 0.335

3,050,000 0.128 7.0 3,050,000 0.128

4,850,000 0.140 7.3 - -

1,600,000 0.099 8.1 - -

2,560,000 0.093 8.5 - -

4,600,000 0.038 9.5 - -

17,651,700 4,041,700 0.163

The following table summarises the outstanding options granted under the 2002 Stock Option Plan at 31 December 2007:

Weighted Weighted averageaverage Number of exercise price of options

Options Option price remaining options currently currently exercisableoutstanding £ contractual life exercisable £

363,850 0.100 1.3 363,850 0.100

1,001,400 0.335 1.5 1,001,400 0.335

7,500,000 0.106 7.3 7,500,000 0.106

6,050,000 0.128 8.0 6,050,000 0.128

5,672,000 0.140 8.3 - -

7,400,000 0.099 9.1 - -

2,860,000 0.093 9.5 - -

30,847,250 14,915,250 0.130



Warrants

On 6 January 2007, 3,500,000 warrants were issued in connection with the financing agreement with institutional investors(see note 18). The warrants have a term of three years and are convertible into an aggregate of 3,500,000 Common Sharesof the Company at an exercise price of £0.15 per share.

On 19 June 2008, 12,857,142 warrants were issued in connection with the financing agreement with institutional investors(see note 18). The warrants have a term of ten years and are convertible into an aggregate of 12,857,142 Common Sharesof the Company at an exercise price of £0.035 per share.

Number of Number of Weighted averagewarrants warrants currently exercise price of warrants

outstanding exercisable currently exercisable£

Outstanding, 1 January 2007 7,000,000 - -

Issued 3,500,000

Outstanding 31 December 2007 10,500,000 10,500,000 0.15

Issued 12,857,142

Outstanding 31 December 2008 23,357,142 23,357,142 0.09

The estimated fair value of the warrants at the grant date was derived using the Black-Scholes option-pricing model withthe following assumptions:

2007 2008

Dividend yield Nil Nil

Expected volatility 65% 75%

Risk-free interest rate 5.0% 5.0%

Expected option life 5 years 3 years

24 A Ordinary equity

Number £’000

At 1 January 2007 56,250,000 6,123

Redemption of convertible notes 58,750,000 7,187

At 31 December 2007 115,000,000 13,310

At 31 December 2008 115,000,000 13,310

On 28 December 2006 the Group issued 56,250,000 A Ordinary Shares of £0.08 in Turbo Power Systems Limited, as partof an institutional placing.

On 6 January 2007 the Group issued a further 58,750,000 A Ordinary Shares of £0.08 in Turbo Power Systems Limited inconnection with the conversion of convertible notes.

Holders of A Ordinary Shares of Turbo Power Systems Limited carry no voting rights, cannot attend any shareholdermeetings and, in the event of winding-up of the Limited Company are entitled to a maximum distribution of £500,000 inaggregate, to rank before the Common Shares. The A Ordinary Shares are convertible into an equal number of CommonShares of Turbo Power Systems Inc. on request by the holder, having given 61 days notice. Under certain take over orchange in control events, the Ordinary Shares are exchangeable under "super exchange" rights, converting for 3 CommonShares of Turbo Power Systems Inc. for every Ordinary Share held.


During the preparation of the consolidated financial statements for the year ended 31 December 2008, the Companydetermined that the Ordinary Shares, previously presented as a separate component of equity in the Company’s balancesheet, should be recognised as non-controlling interests. The reclassification resulted in a decrease in Class A Ordinary sharecapital presented as part of capital and reserves, an increase in the total shareholders’ (deficit) and an increase in non-controlling interests of £13,310,000 as at December 31, 2007. The Company has accounted for the change in accountingpolicy on a retroactive basis. As the A Ordinary Shares are non-participating interests in Turbo Power Systems Limited andare non-voting, no current year or cumulative net losses has been allocated to the A Ordinary Shares.

25 Stock compensation expense

The Company has recorded £123,000 in stock compensation expense in the year ended 31 December 2008 (2007:£699,000).

The fair value of the stock options is the estimated fair value at grant date. The fair value is calculated using the Black-Scholes option-pricing model. The following weighted average assumptions were used to calculate the fair values of theoptions granted during the years ended 31 December:

2007 2008

Dividend yield Nil Nil

Expected volatility 65%-75% 75%

Risk-free interest rate 5.0% 5.0%

Expected option life 5 years 5 years

The weighted average fair value of the Company’s stock options, calculated using the Black-Scholes option-pricing model,granted during the year ended 31 December 2007 were £0.06 per share, and granted during the year ended 31 December2008 were £0.02 per share.

The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have novesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjectiveassumptions including the expected price volatility. The Company uses expected volatility rates, which are based onhistorical volatility rates trended into future years. Changes in the subjective input assumptions can materially affect thefair value estimate, and therefore the existing models do not necessarily provide a reliable single measure of the fair valueof the Company’s stock options.

26 Pensions

The Company operates and contributes to a number of defined contribution pension schemes. The Company’s contributionsto employee schemes, which are on a matched basis, range from 3% to 5% of basic salary. The Company’s contributionsto Directors’ schemes provide an additional unmatched 5% of basic salary. The assets of the plans are held separatelyfrom those of the Company in independently administered funds. The contributions payable to the pension plans havebeen charged to the profit and loss account. The pension charge for the year ended 31 December 2008 representscontributions payable by the Company to the plans and amounted to £100,000 (2007: £130,000).

27 Related party transactions

On 19 June 2008 the Company completed a £3,000,000 (gross) financing agreement with institutional investors (note 18).The holder of the A-Ordinary Shares subscribed for £1,000,000 of this agreement. The transaction was recorded atexchange amount.

28 Subsequent event

On 19 June 2008 the Company completed a £3,000,000 (gross) financing agreement with institutional investors (note 18)which was amended on 15 August 2008. A key original term of the loan notes, which was amended on 15 August 2008was that if at any point during the time at which the loan notes are in issue the unrestricted cash balance of the Companyfalls below £750,000, the loan notes are repayable on demand at the request of the majority of the loan note holders.

On 24 March 2009 the Company agreed with the loan holders that for a three month period, commencing 25 March2009, the loan note holders will not demand that the loan notes are repayable unless the unrestricted cash balance fallsbelow £300,000.


Shareholder information 61

Staff costs and employees

Staff costs for all employees, including executive directors, consist of:

2008 2007£’000 £’000

Wages and salaries 5,458 5,352

Social security costs 488 510

Pension costs 100 130

Stock compensation adjustment 123 699

6,169 6,691

Selected historical financial data

The selected historical financial data, in Sterling, for each of the financial periods ended, and as at, 31 December 2008,2007, 2006, 2005 and 2004, have been derived from the audited consolidated financial statements.

The Sterling amounts have been converted into Canadian Dollar for convenience purposes using either the average or theperiod end exchange rates shown below.

All amounts in £’000 December December December December Decemberunless stated otherwise 2004 2005 2006 2007 2008

Turnover 1,464 2,636 5,482 9,825 6,781

Expenses, excluding impairment provision 10,441 8,985 11,756 17,476 15,453

Impairment provision 577 - - - 1,472

Loss on ordinary activities before taxation 9,456 6,453 6,258 6,475 9,141

Loss per share - pence 5.4 3.5 3.3 2.1 3.0

Capital assets 6,007 4,537 3,434 2,973 1,637

Cash and short-term deposits 2,067 6,525 6,669 4,235 1,054

Net current assets 2,376 5,975 8,030 5,882 1,490

Shareholders' funds 5,616 2,051 6,319 8,405 (773)

All amounts in C$’000 December December December December Decemberunless stated otherwise 2004 2005 2006 2007 2008

Turnover 3,482 5,807 11,408 21,134 13,318

Expenses, excluding impairment provision 24,830 19,794 24,464 37,591 30,350

Impairment provision 1,372 - - - 2,891

Loss on ordinary activities before taxation 22,487 14,216 13,023 13,927 17,953

Loss per share - cents 12.8 7.6 6.9 4.3 5.9

Capital assets 13,940 9,106 7,836 5,830 2,897

Cash and short-term deposits 4,797 13,096 15,219 8,305 1,866

Net current assets 5,514 11,992 18,324 11,534 2,637

Shareholders' funds 13,032 4,116 14,420 16,482 (1,368)

C$:£ exchange rates

Average rate 2.378 2.206 2.081 2.151 1.964

Closing 2.321 2.007 2.282 1.961 1.770

62 Shareholder information

Selected quarterly information

The following table sets forth selected quarterly consolidated financial information of the Company for the last two years:

All amounts Revenue Research General and Net loss Loss per Net cash Net cashin £’000 and product administrative share flow from flow from

development operating capitalinvestment

March 2007 2,033 1,015 841 (1,403) (0.5) (805) (117)

June 2007 2,342 1,151 1,102 (1,768) (0.6) (1,632) (298)

September 2007 2,700 1,736 1,083 (1,666) (0.5) (2,024) (123)

December 2007 2,750 1,580 831 (1,578) (0.5) (1,379) (37)

March 2008 1,962 1,591 1,059 (2,287) (0.7) (1,844) (96)

June 2008 1,711 1,470 1,049 (2,276) (0.7) (2,479) (57)

September 2008 1,246 1,363 1,025 (1,849) (0.6) (1,527) (10)

December 2008 1,862 841 816 (3,151) (1.0) 195 (8)

Financial calendar

Announcement of results for the quarter ended March 2009 May 2009

Annual General Meeting June 2009

Announcement of results for the quarter ended June 2009 August 2009

Announcement of results for the quarter ended September 2009 November 2009

Announcement of results for the year ended December 2009 March 2010

Announcement of results for the quarter ended March 2010 May 2010

TPS continues to demonstrate major

technical capability in rail and

transportation markets building an

installed base of products that will

provide substantial, long-term

aftermarket business.

Image courtesy of Bombardier Transportation

Turbo Power SystemsElectrical Machines DivisionUnit 3, Heathrow Summit CentreSkyport Drive, Hatch LaneWest DraytonMiddlesex UB7 0LJUnited Kingdom

Turbo Power SystemsPower Electronics Division1 Queens Park, Queensway NorthTeam Valley Trading EstateGateshead NE11 0NXUnited Kingdom

Tel: +44 (0)208 564 4460Fax: +44 (0)208 564 4461

[email protected]

TPS Annual Report (April 09):TurboPowerAnRep07Awturbopowersystems.com/.../2014/03/2008-04-Annual-Report-2008.pdf · Annual Report & Accounts 2008 energy ... performance electrical

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