Thursday, 19 December 2013

This is not the Bus you were thinking of - December 2013

The moments passed in silence. Against the tap tap tapping of the keyboard he watched the on line news feeds anxiously awaiting the latest updates and news from the TRK half year reports as he stood at the bustop, waiting patiently.

The reports were delayed and this wasn't a good sign, or was it ? The interactive timing sign went dead over a year ago, and hadn't really flickered since.
The indication at the AGM that Flybrid was going to be bought outright by the 20th of December but needed a Shareholder General Meeting, and administrative deadlines to be met was approaching fast. It was all drifting into the last possible minutes for a deal to be done and the Half Yearly Results to be published within the right timeframes - we have been here before, so there was no panic, just solemn waiting.

But then, at the last possible opportunity, on the 2nd of December, the Half Yearly Results were published and there was


No announcement, no material progress, no mention of ETBM, no new licensees, no new trials, and no new innovation announcements. And no sales, and no production. And nothing about Flybrid either.

The new news headlines were (in a summarised form, ignoring projects that were continuing on target in the same way as they had at the AGM)

  1. Allison paid some more license fee (£1.4m of £2.6m left) 
  2. There was 6.7 million in the bank
  3. at a cashburn of too much to last much more than a year
  4. We're delighted to be talking to lots of people about... but he never said who about what - just "I am delighted by the material step up in engagement with OEM and Tier 1 manufacturers"
  5. We are in advanced talks to acquire the last 80% of flybrid, and err, the potential customers like that.
  6. Basically Dragons Den would have given them a big "I'm out" at this point.

Shocked and stunned the social chat boards descended into dismay, the share price which had started to drop from 28pence in November pretty rapidly finished the day at 20p, and just as everyone was getting themselves used to a status-quo of "we need more time to get the deal done" with a recovery to 24pence, the prospective deal and share issue was announced at 18p and an additional 54% of the company - sending the shares back down to a low of 18.5p

As it turns out it was around November when TRK were starting to ask about for the Institutions to support this Placing of new shares, so with a Half Year report

The Acquisition of Flybrid must have started before Dick Elsey left. His confident and accurate quote that by April 2013 we would be looking at a very different company - came true after all - firstly with the 20% acquisition and this all followed in behind the systemisation and manufacturing strategy that Dick himself initiated.

So, why does it feel like this latest placement and share offer is actually Flybrid taking over Torotrak ?

Flybrid - the only game in town

It is almost as if in the months leading up to the 2012 half year reports that Flybrid with its CFT (clutch based transmission) driving the flywheel had gone onto a PR exercise of the like that TRK couldn't match. At one point it seemed that Flybrid were doing everything they could to promote their solution over and above Torotraks CVT, and were getting the high profile race cars fitted out with it.

Torotrak's only answer to maintain a semblance of a product offering had to be the rather Machiavellian purchase of Flybrid - to remove the competition of the CFT. Even in technical meetings and briefings with professional engineers - "there's nothing in it really" seems to still be the considered view.

So what else could TRK have done (in hindsight) to have allayed this position ? Getting competitive is in the background of F1 engineers, but is it in the background of technical research and IP licensing experts ?
"Just build a better wheel" - is often a teaser in business - in this case - why didn't they just build a better flywheel ?

Making high speed rotating machines with Carbon Fibre drums is nothing new - hell I was making them in the mid 1990's rotating at up to 100,000rpm in a vacuum - the expertise is out there if you know where to look, but I don't think TRK did.

Torotrak, faced with an Allison project that is still years away, yet the license deal funding has all but dried up, a EBTM that has gone even more silent, a V-charge mk2 that has been designed but is only just onto a test rig, and off highway busy trundling around farms in Italy, the Flybrid acquisition was the only game in town - nobody was going to stump up the millions needed to keep TRK afloat over the next four years (until Allison start manufacture - 2017 - my estimate), and Flybrid it seemed had all the commercial interest from the likes of Volvo and Wrightbus. The TRK CVT was becoming a sideshow to the OEMs.

Meanwhile, all the manufacturers are starting to look at the legal timetable of European emissions regulations - starting to pincer in on the car industry like the beginning credits to Dads Army. 2017, and 2020 are two years looming in the distance already and they really do need a magic bullet to solve their problems and fight it off. The electric shock treatment hasn't worked - they need something more robust.

Been here before ?
The first question is - are we going to see the drift in Euro regulations as we did in the US over CAFE regulations about 8 years ago ? The lobbyists in the US successfully managed to move the goalposts to destroy the demand for the product that TRK was targetting (SUVs) and we can be sure that the lobbyists in Europe are trying their hardest to move the deadlines and prices again.

Assuming that the men of Brussels have more administrative tightropes than those in America, we can but hope that things don't change that way - but do keep your eyes open and ready !

With the hope that the Euro legislation stays in place - then there will continue to be a need for devices that conserve momentum. (Conservation of momentum is implied by Newtons third Law of motion and it would be nice to be able to come up with a catchy brand name derived from this somehow...)

Electrical devices so far seem to be limited as they look to store energy, and simply can't pack enough of it into the spaces they have. Give it 5 years I'm sure that super-capacitors made with a highly folded Graphine surface will have massive power density capabilities and be ideal for the job - but that will miss the European emission regulations and the current tranche of vehicle platforms that are being finalised right now.

So what's the latest timetable ? I mean we could write a Gantt chart to show it all, but you can work it out from this lot:

Was: ETA for V-Charge mk2 demonstrators is Q4 2013 
Now: mk2 demonstrators on first testing.

"The Group has delivered a number of the milestones and is on track to deliver the remaining targets in the current financial year. The Group has successfully installed the V2 next generation prototype into the Renault Clio demonstrator vehicle and is engaged in V2 testing with multiple customer applications, including a partner vehicle manufacturer for a special vehicle operation."

So - Still No ETA for V-Charge production

Was: Buses ETA for first Buses on trial - Q2 2014
Now: Target 5 Trials in 2014 with Arriva (in Milton Keynes), more trial buses on 4 different companies (5 trials each)
First sold bus products scheduled for 2015 

Cars Production ETA guess Q4 2016 given the new platform schedule from Volvo - some preproduction demos before. Euro legislation deadline 2017
The watchword is still "Retrofit"

Main IVT (large vehicles)
No clear ETA for Allison, but guess at Q4 2016 
No ETA for ETBMNo news from Off Highway - although there are Carraro trials going on in the fields near them.

So, in summary:

Flybrid played a good game and got the win, is it a win-win, or a win-lose for shareholders we don't know. With a massive 54% additional shares being issued to the institutions, with directors themselves investing at the 18p price floor and Allison maintaining their ~1/8th holding in the company, there seems a lot of support.
Private shareholders were apparently given the 1 for 8 uptake offer at the behest of Torotrak, without which we would actually have had no chance to acquire any part of the placing at this very clear discount. It's better to have something than nothing, but it does indicate how tight the investment houses have played this hand.

So in the interim, people are selling a little high and buying back in with their uptake volume - this will of course drive the share price down in the short term to the 18p+trading costs price.

Is the company in a stronger place now? - yes.
Has it happened as smoothly as we would have liked ? probably not. Someone somewhere was waiting for a deal to happen and they ran out of time.
Hopefully the Flybrid entrepreneurship and flair for PR will be brought to TRK and we will start to see some more colourful and interesting newsflow and opportunities breaking through.

Am I frustrated at the dilution of my holding ? Yes and No. I would have liked a better uptake offer (nearer 54% would have been good), but have I sold my shares? nope. I still have the same amount - and until I sell them they have no tangible value. 18p represents the probable cash value of the new combined company, so the uptake offer still seems like worthwhile if you have the money as we can see the future value being brought to the business.

Basically - if you think there is a chance to market, Torotrak have decided to throw the kitchen sink at it to make sure they hit the 2017 window of legislation opportunity. The other plan was to sit back, downsize and wait for Allison to get some buses fitted with main transmissions and wait for royalties. Basically I'm pleased they have decided to go for it, and it should make for a bigger company, but I do hope they don't take their eyes off the ball and lose momentum with Vcharge2 in the meantime.

My guess is that you should brace yourselves for another round of fundraising in 2017 to fund an up-scale in production facilities - either for M-KERS or V-Charge. Fingers crossed - it will be both. Dividends - prediction is 2020 - I will have been invested for 23 years by then.

In the meantime, we say to JD as he gets on the Great Escape Flybrid bus that has just pulled up: Good Luck !
(and lets hope he doesn't get caught.)

Now, can someone please put an MKERS, IVT and a VCharge on the same vehicle and really show what they can all do together as a massive combined demo opportunity...

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