Enabling Heavy Duty Trucks to Run On Natural Gas
ANNUAL REPORT AND ACCOUNTSfor the year ended 31 December 2012
Stock code: CAP
Stock code: CAP
CLEAN AIR POWERAnnual Report and Accounts 2012 01
CLEAN AIR POWER HIGHLIGHTS
REASONS TO INVEST
CLEAN AIR POWERAnnual Report and Accounts 2012
www.cleanairpower.comwww.cleanairpower.com
Clean Air Power is at the forefront of the move towards natural gasbecoming the road transport fuel of choice for heavy goods vehicles. Dual-Fuel™ technology maintains diesel engine performance and efficiency whiledelivering significant fuel cost savings and reductions in carbon emissions.
• The adoption of natural gas as a road fuel is accelerating worldwide drivenby its growing availability, low cost and reductions in carbon emissions
• Natural gas is the only real alternative to diesel for heavy goods vehiclesdue to torque and power requirements
• In key target markets significant cost savings can be derived by operatingDual-Fuel™ vehicles due to the lower cost of gas relative to diesel
• Dual-Fuel™ technology enables engines to run on 100% diesel if gas is notavailable reducing any risk associated with gas availability
• Clean Air Power has clear first mover advantage and strong patentprotection for its technology which has already been proven in over 2,200vehicles
• Clean Air Power has already achieved significant traction in Europe wheresales of its Dual-Fuel™ system are increasing
• Clean Air Power has established an OEM agreement with a major Europeanvehicle manufacturer which has begun production of trucks incorporatingits Dual-Fuel™ technology
�<<� Front cover imageClean Air Power,
Poway, USA
FINANCIAL HIGHLIGHTS
DUAL-FUEL™ REVENUE
09 10
Clean Air Power, Leyland, UK
OPERATIONAL HIGHLIGHTS
POST PERIOD END
CORPORATE GOVERNANCE
17 Corporate Information
18 Board of Directors
20 Corporate Social Responsibility
21 Directors’ Report
23 Report on Directors’ Remuneration
26 Statement of Directors’ Responsibilities
27 Corporate Governance Statements
29 Independent Auditor’s Report to the Members
of Clean Air Power Limited
FINANCIALS
30 Consolidated Income Statement
31 Consolidated Statement of Comprehensive Income
32 Consolidated Statement of Financial Position
33 Company Statement of Financial Position
34 Consolidated Statement of Cash Flows
35 Company Statement of Cash Flows
36 Consolidated Statement of Changes In Equity
37 Company Statement of Changes in Equity
38 Notes to the Consolidated Financial Statements
BUSINESS REVIEW
12 Financial Review
14 KPIs
15 Risks and Uncertainties
OVERVIEW
01 Highlights
02 Group Overview
04 Dual-Fuel™ Technology
06 Market Overview
09 Chairman’s Statement
10 Chief Executive’s Operating Review
• Group revenue increased by 73% to £7.94m, (2011: £4.59m)
• Revenue from Dual-Fuel™ division increased by 101% to £6.64m,
(2011: £3.30m)
• Gross profit increased to £3.52m (2011: £2.56m), driven by Dual-Fuel™
systems and development revenue
• £3.20m in cash at 31 December 2012, (£2.42m as at 31 December 2011)
• £3.35m (before expenses) successfully raised through equity issue in
September 2012
• Increasing interest in our European products resulted in a total of 300 sales
of our Dual-Fuel™ systems (70 system sales in 2011)
• Major European Manufacturer commenced factory production of Heavy
Duty trucks incorporating Clean Air Power Dual-Fuel™ engine
management software
• Successful evaluation of Genesis-EDGE product for the North American
market
• Successful development and launch of Renault Magnum Genesis-EDGE
Dual-Fuel™ variant for the European market
• Order delivered for 49 Genesis-EDGE Dual-Fuel™ systems to Sainsbury’s
• Order delivered for 27 Genesis-EDGE Dual-Fuel™ systems for a major
logistics organisation in the UK
• Order received for 82 Genesis-EDGE Dual-Fuel™ systems for HAM
Criogénica
• Payment received from Navistar for $1.3m for work done in 2010 on the
Concept Ready Phase of a Dual-Fuel™ development project
• Euro 6 prototype R&D funding awarded by Niche Vehicle Network for after-
treatment packaging development in partnership with Eminox Limited
• Agreed two year funded research project in partnership with Brunel
University aimed at developing the next generation of advanced Dual-Fuel™
combustion systems using natural gas and diesel. The project will be carried
out at Brunel University’s Centre for Advanced Powertrains and Fuels
£1.8
1m
£2.7
1m
£3.3
0m
£6.6
4m
11 12
COMPANY BACKGROUNDDual-Fuel™ engines can run primarily on natural gas and this provides anumber of important cost and environmental benefits to an operatorwithout sacrificing the original diesel engine's characteristic efficiencyor reliability. Due to the lower cost of natural gas compared to diesel,Dual-Fuel™ engines can substantially reduce an operator’s fuel costs.Furthermore, by substituting diesel with up to 80% clean natural gas,greenhouse gas emissions produced by heavy goods and commercialvehicles are substantially reduced. The increasing abundance of naturalgas and the rollout of natural gas refuelling infrastructure in Europe andNorth America is further driving the growth of the Company.
The Boards of many major operators have set clear objectives to reducethe carbon produced by their road transport fleet but without increasingcosts. Clean Air Power’s technology provides a solution to these carbonreduction objectives, while still reducing their operating overheads.Governments throughout the world are faced with the need to reducecarbon emissionswhich will only beachieved by usingalternate fuels suchas natural gas.
Over £50m hasbeen invested inthe Company todevelop the enginemanagementsoftware since1991 with theresult that 69patents are currentlyheld or pending. The Company operates from facilities in the UK and USwith the holding Company of the Group based in Bermuda. The Groupwas admitted to the AIM market of the London Stock Exchange inFebruary 2006.
STRATEGYClean Air Power is established as a leader in the development and deliveryof Dual-Fuel™ engine management systems based on the experience,knowledge and patents held within the Company.
The Company’s technology is aimed at the heavy-duty vehicle marketwhich demands the power and torque characteristics offered by itsDual-Fuel™ system and where the fuel cost savings and carbon reductionbenefits are most significant.
Clean Air Power’s main objective is to enter into agreements withmanufacturers of heavy duty vehicles, whereby our technology is installedon their vehicles as an OEM (Interfaced) option and distributed throughtheir normal sales channels. This strategy is designed to provide widemarket access and the opportunity for rapid volume growth.
The Company has already established one such OEM agreement with amajor European vehicle manufacturer which began factory production ofheavy duty trucks incorporating Clean Air Power’s Dual-Fuel™ technologyin 2012. Clean Air Power Dual-Fuel™ technology is currently the only suchtechnology incorporated into an OEM production line in Europe.
In parallel, Clean Air Power continues to expand sales of its own brandGenesis-EDGE retrofit product after a successful 2012 which saw itsincreasing adoption by a number of major European fleet operators.A development program for a US Genesis-EDGE retrofit product is alsounderway. Genesis-EDGE gives Clean Air Power greater control overdevelopment, provides revenues and validates the technology to futureOEMs.
Sales of natural gas vehicles in Europe, North America and Brazil, Russia,India and China (BRIC) countries are projected to grow and this presents
a tremendous opportunityfor Clean Air Poweras well as for vehiclemanufacturersthemselves. Naturalgas is cheaper thandiesel in these targetmarkets and vehicleemissions are reducedwhen using natural gasas a road fuel. Together,these twin drivers createa compelling case for theadoption of Clean Air
Power’s Dual-Fuel™
technology by manufacturers and fleet operators as part of theirstrategies in these rapidly growing markets.
Having begun to gain traction in the European market, Clean Air Powernow intends to replicate this strategy in the important North Americanmarket which is particularly attractive due to abundant domestic naturalgas resources, together with powerful economic, environmental andenergy security drivers. These factors have encouraged gas providers tomake significant investments in the provision of gas refuellinginfrastructure and as a result the level of interest in and adoption ofnatural gas vehicles is growing rapidly.
Whilst the heavy duty vehicle markets in Europe, North America and BRICcountries remain the Company’s primary focus in the short to mediumterm, as volumes increase, sufficient economies of scale are expected tobe achieved to facilitate access to the market for medium and light dutyvehicles.
In the long-term further important opportunities also exist in othermarkets including industrial engines, locomotives, marine and mining.
02
GROUP OVERVIEW
CLEAN AIR POWERAnnual Report and Accounts 2012
www.cleanairpower.comwww.cleanairpower.com Stock code: CAP
CLEAN AIR POWERAnnual Report and Accounts 2012 03
Clean Air Power is a developer and Tier 1 supplier of Dual-Fuel™
engine management systems for heavy duty diesel engines.DUAL-FUEL™
Clean Air Power designs and delivers natural gas injectors and filters for the production of natural gas engines, as well as
innovative hydraulic valves. These components enable automotive and engine manufacturers to build low-emission natural gas
vehicles that meet worldwide emissions regulations.
ENTERING THE PRODUCTION PHASE
COMPONENTS
Dual-Fuel™: Clean Air Power’s patented Dual-Fuel™ system and management software enables heavy duty engines to operate
primarily on natural gas, delivering diesel engine performance, alongside fuel cost savings and low carbon emissions.
Clean Air Power’s patented Dual-Fuel™ system is available in Europe in two main variants; an interfaced OEM product and the
Company’s own branded Genesis-EDGE retrofit product. A proprietary engine management software platform is a central
component of Clean Air Power’s Dual-Fuel™ technology.
Pictured: Tractor unit showing Clean Air Power Dual-Fuel™ key components
PRODUCTS
Clean Air Power has two major commercial divisions; Dual-Fuel™ systems and Components
• First Dual-Fuel™ Patent held since 1995
• 69 Patents held or pending worldwide
• Strong patent protection covering
key systems
• Application know-how gained in
OEM applications
• 200 man years of Dual-Fuel™
know-how with the Company
Stock code: CAP
CLEAN AIR POWERAnnual Report and Accounts 2012 0504
DUAL-FUEL™ TECHNOLOGY
CLEAN AIR POWERAnnual Report and Accounts 2012
www.cleanairpower.comwww.cleanairpower.com
MÜLLER WISEMAN DAIRIES
During 2007, Wiseman validated and field tested 2 Genesis systems from CleanAir Power, this was followed up with an order for a further 20 Genesis systems
In 2013, Muller Wiseman Dairies ordered a further 40 dual-fuel trucks.
Sainsbury’s is one of the largest
Supermarkets in the UK, a
household name and leader
in logistic operations.
SAINSBURY’S
Sainsbury’s successful ‘Running on Rubbish’ trial saw 5 trucks run in its fleet fuelledby bio-methane gas which has been generated by landfill waste provided by Gasrec.
As a result of the successful trial, during which Sainsbury’s validated the system’semission reductions, fuel savings and operational acceptability, Sainsbury’s ordered afurther 49 Genesis-EDGE systems during 2012 and 4 Methane Diesel systems in 2013.
CASE STUDIES
DIFFERENT TECHNOLOGY
DUAL-FUEL™
Patent No. Description
5,450,829 Electronically Controlled
Pilot Fuel Injection of
Compression Ignition
Engines
5,673,673 Method and Apparatus
for the High Internal
Combustion Engine
6,598,584 Gas-Fueled, Compression
Ignition Engine with
Maximised Pilot Ignition
Intensity
6,694,242 Dual-Fuel Engine having
Multiple Dedicated
Controllers connected
by a Broadband
Communications Link
2004/0118116 Multi-Fuel Compression
Ignition Engine
DUAL-FUEL™ VEHICLE SYSTEMS:Clean Air Power’s flagship technology is its
patented Dual-Fuel™ system, which enables
heavy duty diesel engines to operate primarily
on natural gas, with diesel fuel acting as an
ignition source. The diesel engine is
basically unchanged and retains its high
performance and high efficiency 4-stroke
diesel cycle. By efficiently burning up to 80%
natural gas, in certain applications, customers
benefit from lower fuel costs and a lower
carbon footprint. Dual-Fuel™ can operate
normally on bio-methane and bio-diesel,
giving it the potential to be carbon-neutral.
If the natural gas supply runs out, the
Dual-Fuel™ system changes seamlessly to
operate on 100% diesel, giving complete
diesel operational back-up, a crucial feature
in attracting risk averse operators to a new
technology.
INTERFACED
• Diesel and Dual-Fuel™ control system
software is interfaced
• Ultimate performance 70-80%
methane and low emissions capability
• Requires OEM support
• Installed post production or on line
GENESIS
• Delivers greenhouse gas & fuel
cost savings
• No emissions certification
• Gas substitution up to 60%
• Installed on an after market basis
INTERFACED VEHICLE SYSTEM:
In this solution our technology is interfaced
with the manufacturer’s electronic engine
management system. This requires the
cooperation of the vehicle manufacturer to
integrate the Clean Air Power software with
the vehicle’s existing Electronic Control Unit.
This integration increases the flexibility with
which the engine fuelling can be managed
and, as a result, maximises the product
benefits in terms of carbon emissions and
fuel cost savings. Between approximately
70% and 80% of the diesel normally used by
the vehicle is substituted for natural gas in
our interfaced products.
‘GENESIS-EDGE’ AFTER MARKET VEHICLE
SYSTEM:
The ‘Genesis-EDGE’ system was developed
specifically to be an after market product which
can be installed without the need for formal
cooperation of the engine manufacturer. The
solution does not interface directly with the
vehicles own engine management system and up
to 60% of the diesel normally used by the vehicle
is substituted with natural gas. The emissions and
fuel savings are therefore lower than would be
expected on a fully interfaced system, but are still
commercially attractive in the target markets,
particularly with recent oil price increases.
Clean Air Power Dual-Fuel™ Direct Injection Natural Natural Gas (SparkGas + Diesel Ignited)
Diesel Replacement with 60-80% >90% 100%Natural Gas (NG)
Fuel Flexibility between Can operate on 100% diesel or Dedicated NG full operation Dedicated 100% NG Diesel & NG diesel-NG combination only. Limited “limp-home/ operation only
service-mode” on diesel
Technology acceptance Well established on Established in over Well established in manyover 2,200 systems 500 systems thousands of installations
NG infrastructure Independent of mature NG Dependent on mature Dependent on maturerequirements infrastructure & comprehensive NG & comprehensive NG
infrastructure infrastructure
Economics Lowest installation cost & High cost installation & High cost retro fit but ultimatelyattractive payback. less attractive payback. lowest cost option in volumeRetains diesel residual value. Uncertain/low residual value. production. Uncertain residual Most rapid route to market No retro-fit option. Higher value. Higher service & introduction via retro-fit service & maintenance costs maintenance costs
Engine Technology Requires no change to base engine. Requires major engine Requires major engineEnables full reversion to conversion or new-engine conversion or new-engine100% diesel design. Dedicated to NG only design. Dedicated to NG
permanently permanently
Performance and Efficiency Closely matches diesel power, Closely matches diesel power, Lower engine performance & torque and efficiency torque and efficiency efficiency. Increased fuel
consumption offsets NG cost saving
Durability Minimum change leads to Complex NG & diesel injection Not fully proven on high-mileageproven diesel-like durability system. Complex LNG & heavy-duty operation
containment/delivery
Gas Fuel used CNG or LNG LNG only CNG or LNG
Environmental attributes Low regulated emissions and Low regulated emissions and Very low regulated emissionsreduction in green-house gases reduction in green-house but potential increase in(GHGs) gases (GHGs) green-house gases (GHGs)
Government Grant Helps dual-fuelPartnership Drive Sustainability.
Stobart Group and BOC have beenselected by the Government toreceive funding to stimulate themarket for more environmentally-friendly dual-fuel trucks.
STOBART GROUP
Eddie Stobart's reputation for industry-leading innovation, combined with theworld-class experience of the BOC Group, will raise awareness of the industry'squest for low-carbon transport options, provide evidence and promote theopportunities to UK business and policymakers, to help accelerate the use ofsustainable vehicles and alternative fuel systems.
PATENT HIGHLIGHTS
INTELLECTUAL PROPERTYHIGHLIGHTS
Müller Wiseman Dairies is the
UK’s largest dairy supply and
distribution operation with a
fleet of over 1,500 heavy
commercial vehicles.
CLEAN AIR POWERAnnual Report and Accounts 2012
www.cleanairpower.comwww.cleanairpower.com
FORECAST INCREASED DIESEL V NATURAL GAS DELTA
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CLEAN AIR POWERAnnual Report and Accounts 2012 0706
MARKET OVERVIEW
1.7m Heavy Duty trucks over 16 tonnes were sold worldwide during2011. Powerful economic and environmental drivers are seeingNatural Gas (NG) replace Diesel in many applications.
The adoption of natural gas as a road fuel is accelerating worldwide,driven by cost savings, reductions in carbon emissions and theexpansion of refuelling infrastructure.
FORECAST SALES OF VEHICLES OVER 16T
COST SAVINGS
• Lower operating cost than a diesel engine
• Better fuel economy than a dedicated natural
gas engine
• Average in-service gas substitution rates:
60-80%
• Favourable payback periods
• Can be converted back to dedicated diesel,
protecting its resale value
FORECAST DIESEL V FLEET LNG TRANSPORTATIONFUEL PRICES IN THE HD SECTOR 2010 -2035
2011 2015 2020 2025 2030 2035
1.7m
2.2m
2.5m
2.6m
2.7m
2.9m
GLOBAL HD TRUCKS
PROJECTED GROWTH OF NATURAL GAS VEHICLES
POTENTIAL FUEL SAVINGS
Energy supply
Business
Transport
Public
Residential
Agriculture
Industrial process
Waste Management
VALUE OF USA CRUDE OIL IMPORTS
Source: JD Power, Ricardo Analysis
Ideal
Application for
technology
Not suitable
for technology
Potential for
technology
Source: NGV Global
Source: AEA
Source: EIA
Source: EIA 2012
US Transportation
Energy Price
Forecast. Diesel V
Fleet LNG
ALTERNATIVES TO OIL IN ROAD TRANSPORT
CARBON DIOXIDE EMISSIONS
Long Haul
Regional delivery
Construction
Fuel
Salaries
Vehicle
Maintenance
Other
NG REDUCES CARBON EMISSIONS
• Transport accounts for 26% of the UKscarbon emissions
• Of these emissions 45% are associatedwith diesel fuelled long-haul vehicles
• Dual-Fuel engines can significantly reducethe carbon emitted by long-haul vehicles
• Increasing adoption of dual-fuel vehicleswill help the UK meet its carbonemissions reduction targets
NG REDUCES DEPENDENCE
ON OIL IMPORTS
• The value of oil imported by the US hasincreased significantly since 2000
• President Obama has vowed to reduce oilimports by one third over the next decade
• NG offers a clean alternative to oil forroad transport
• Increasing adoption of dual-fuel vehicleswill help to reduce the US’s oil import bill
·
• Oil usage in transport has increased
• Electric power and hybrid offers solutions for passenger
cars and light, medium duty vehicles
• HGVs typically consume over 11,000 imperial gallons of
diesel per year, equivalent to the capital cost of the truck
• No current alternatives to Diesel Performance in HD sector
• By using a dual-fuel system a HGV retains the power,
torque and range characteristics of a heavy-duty diesel
engine while achieving the cost savings and emissions
reductions of NG
A typical UK operator travelling 100,000 miles per
annum will spend around £55-60,000 on diesel fuel.
OPERATOR FLEET COSTS
($)
per
Die
sel G
allo
n E
qu
ival
ent
UK CO2 EMISSIONS BY SECTOR
Urban
Municipal
RANKING OF DUTY CYCLES BY
CO2 EMISSIONS SHARE
NG REDUCES FUEL COSTS
COMPARED TO DIESEL
• The price of LNG has been significantlylower than that of diesel
• Cost savings achieved using LNG aredriving adoption of dual-fuel vehicles
• The price of LNG is forecast to remainlower than diesel for at least the next20 years
Heavy Duty Trucks are Clean Air Power’s Initial Target Market
ELECTRIC
HYBRID
SPARK-IGNITED (NG)
DUAL-FUEL
CAR LIGHT DUTY URBAN
KEY
HD TRUCKS
08
CHAIRMAN’S STATEMENT
CLEAN AIR POWERAnnual Report and Accounts 2012
www.cleanairpower.comwww.cleanairpower.com
Clean Air Power is a supplier of market leadingtechnology that delivers proven reductions incarbon emissions, along with significant fuel costsavings to operators of trucks and other vehicles.
Having successfully entered the European
market with an OEM partnership and a Euro
5 emissions compliant Genesis-EDGE
product, the current priority is to access the
important North American market by
applying the same business model. North
America has abundant domestic natural gas
resources and powerful economic,
environmental and energy security drivers.
In August 2012 the Board approved an 18
month development program to bring a
Genesis-EDGE product to the North American
market. Significant progress has since been
made developing the Genesis-EDGE product
and the Company will exhibit the first
prototype vehicle at the Alternative Clean
Transportation (ACT) EXPO in June 2013.
Six months into the project, the Company
expects the project costs to be slightly higher
than first considered although the timing of
trial vehicle and product launch remains
broadly in line with the original plan. The
Company’s plans include a significant grant
that is anticipated to be received towards the
development activity and the fleet trials for
our US Genesis-EDGE program. The
Company has already received interest from a
number of major fleet customers and
anticipates that the first trial vehicles will be
on the road and undergoing validation by the
end of 2013, with production commencing in
early 2014.
2012 has been a year of strong progress for
Clean Air Power with Group revenues
increasing to £7.94 million and revenues
from sales of our Dual-Fuel™ systems
increasing to £6.64 million. Growing interest
in our European products resulted in a total
of 300 sales of our Dual-Fuel™ systems, a
combination of both our own Genesis-EDGE
product and sales to our European OEM
partner.
The year began with the achievement of a
key strategic milestone when, in January
2012, our major European vehicle
manufacturing partner began factory
production of heavy-duty trucks
incorporating our patented Dual-Fuel™
engine technology.
This OEM (Original Equipment Manufacturer)
product provides strong validation of Clean
Air Power’s Dual-Fuel™ engine management
system which underwent a process of
detailed testing and verification before being
accepted by one of the most quality
conscious manufacturers in the world.
We are also pleased with the progress made
with our Genesis-EDGE product in Europe
where increasing interest amongst fleet
operators has resulted in significant sales of
Genesis-EDGE to customers in the UK and
Spain during the year. Our Genesis-EDGE
product can be retrofitted directly onto
customers’ existing vehicles and whilst the
focus to progress with further OEM
relationships remains, Genesis-EDGE gives
the Company greater control over the time to
market and helps to validate the technology
to future OEMs.
While we are excited by the prospect of
addressing the North American demand with
our Genesis-EDGE product, our broader
strategy remains to establish OEM
partnerships in North America to integrate
our Dual-Fuel™ engine management system
on to their future engine platforms.
The equity fundraising in September of this
year, which raised a further £3.35m before
expenses, demonstrated continuing investor
confidence in our technology and commercial
progress.
Our momentum has continued into the start
of 2013 with customers having already
placed more than 150 new orders either with
Clean Air Power or our European OEM
partner for Dual-Fuel™ systems. Factory
production by our European OEM partner has
also increased and we have delivered 20 of
our Genesis-EDGE branded systems to a
customer in Spain.
The goal for 2013 will be to continue the
significant progress made in 2012 by growing
sales of our Dual-Fuel™ system in Europe and
other target markets and by completing the
development of our Genesis-EDGE product
for the North American market. At the same
time we will continue our discussions with
partners aimed at future OEM products.
In conclusion I would like to thank John
Pettitt and the team for making 2012 such a
successful year in terms of revenue growth
and building a platform for further growth in
2013 and beyond.
Rodney Westhead
Stock code: CAP
CLEAN AIR POWERAnnual Report and Accounts 2012 09
DEVELOPMENTS
US
Clean Energy
• Clean Energy installed 70 stations
during 2012
• Similar number planned for construction
in 2013
Shell
• Royal Dutch Shell to invest $300m
setting up LNG pumps at 100 locations
• Guarantee natural gas price to be
30% cheaper than diesel over the
life of the truck
UK & EUROPE
Gasrec
• Europe’s only producer of Liquefied
Biomethane (LBM), will open the first
public Bio-LNG facility at DIRFT, during
May 2013
• The facility will be the first of 7 planned
public stations situated at strategic
locations throughout the UK
• Each site will have the capacity to
fuel around 700 trucks per day
MARKET OVERVIEW CONTINUED
• The introduction of LNG filling stations will create a cheaper and cleaner wayfor long-distance freight transport along the main European transit routes
• The EU Commission proposes a maximum of 400km between LNG fillingstations by 2020
AMERICA’S NATURAL GAS HIGHWAY
EU LNG BLUE CORRIDOR PROJECT
Dual-Fuel trucks powered by cleaner and cheaper natural gas are travelling across
the country on America’s ‘Natural Gas Highway’
Blue Corridor Project will create networks of LNG refuelling stations for
heavy-duty vehicles between key strategic points across Europe
• America’s natural gas refuelling network spans from coast tocoast and is growing fast
• Demand for LNG and dual-fuel vehicles has led to companieslike Shell investing heavily in new LNG fuelling stations
The natural gas refuelling network is expanding rapidly to meet thegrowing demand for LNG and dual-fuel vehicles in the US and in Europe.
Impact
Existing LNG stations
Approx. 16 additional LNG stations
2009 2010 2011 2012
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Annual Report and Accounts 2012
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existing and potential customers in North
America. To this end, Genesis-EDGE trucks
are expected to be commercially available in
early 2014 and discussions with potential US
partners continue.
In Europe we are delighted to have made
such good progress with our OEM partner
and we continue to discuss cooperation
opportunities with other potential partners
in respect of future engine platforms in this
market.
We also intend to continue to grow sales of
our Genesis-EDGE product following the
success of 2012 and will be working to
maintain the increased momentum in
orders from our OEM partner.
In order to access the 2014 target markets
for our existing Euro 5 product, including
Russia and Eastern Europe, we also expect
to undertake some engineering activity to
develop our technology in line with
enhancements made to the manufacturer’s
base diesel truck, for both our
Genesis-EDGE and OEM products.
The progress made in 2012 has
demonstrated the strength of our business
model and demand for our products at a
time when there is exciting growth in the
markets for natural gas vehicles. We have a
proven product offering and a strong team
with excellent experience that ensures that
the Company is well placed to deliver the
North American Genesis-EDGE project and
capitalise on other opportunities for the
future.
John Pettitt
Chief Executive
COMPONENTS DIVISION
In 2012 sales remained steady at £1.30m
from £1.28m in 2011, which was in line with
expectations. 2013 has begun positively and
forward orders in hand already total
approximately £0.54m. Sales and operational
activities in relation to the former Emissions
Division have now been consolidated into our
Components Division following a relocation
of this business from Houston, Texas to our
US facility in Poway.
OUTLOOK
A key milestone in 2012 was the start of
OEM factory production and Clean Air Power
beginning to realise the benefits of a large
multinational manufacturer promoting and
distributing our Dual-Fuel™ engine
management software. Increased sales levels,
in many cases to important and influential
operators, have increased product awareness
in a number of markets and recognition of
the ability of our product to reduce emissions
and fuel costs for operators.
Clean Air Power’s primary goal for 2013 is
to begin to replicate our success in Europe
in the large and growing North American
market where the availability and relatively
low cost of natural gas is driving customer
demand for natural gas vehicles. Our ultimate
strategy is to develop an OEM product with a
US partner, as we have in Europe. However,
in the shorter term we are moving forwards
with our US Genesis-EDGE program which
will provide the Company with better control
over the development activity and timings of
a US product launch. This product will allow
Clean Air Power to meet demand from both
KEY OBJECTIVES FOR 2013
US Genesis-EDGE
The key objective for 2013 will be to
deliver a Genesis-EDGE product for the
US market
Secure OEM/Tier 1 Agreement
To enter a relationship with a second
OEM or Tier 1 supplier
Achieve revenue target
Revenue for sales of Dual-Fuel™
systems and from engineering
development activity are the key areas
of focus
Zero quality defects
Already ISO compliant, the Company
has increased focus on quality in order
to ensure continuous improvement
COMPANY OBJECTIVES
CHIEF EXECUTIVE’S OPERATING REVIEW
The start of production with our EuropeanOEM partner represents a major achievementfor the Company and demonstrates the successof the strategy to target supply agreementswith global truck manufacturers.
DUAL-FUEL™ DIVISION
There are four revenue streams derived from
this division: sales of Dual-Fuel™ systems
to a manufacturer for installation on their
production lines, complete conversions of
customer’s vehicles on a retrofit basis carried
out by Clean Air Power, Dual-Fuel™ system
kits sold direct to approved installation
partners and revenue from engineering
services provided to manufacturers or
third parties.
2012 was a successful year for the division as
revenues increased to £6.64m compared with
£3.30m in 2011. This represents a 101%
increase mainly due to revenue from our
European OEM partner and Genesis-EDGE
vehicle system sales. In addition to increasing
OEM volumes and orders from existing
customers including Sainsbury’s, we secured
new orders from a major logistics company
and a European logistics operator to supply
our Renault Magnum Genesis-EDGE variant
into Spain. Engineering development revenue
increased following receipt of $1.3m for
work completed during 2010.
The January 2012 European OEM production
commencement has seen Clean Air Power
become a tier one system supplier under a
Supply Agreement for an initial period up to
July 2015. This achievement has been
complemented by commercial success in
Europe with our Genesis-EDGE product,
including the delivery of 49 systems to
Sainsbury’s and further deliveries to other
major fleet operators in the UK and Spain.
The Dual-Fuel™ division’s sales increased by
101% during 2012, which was mainly
supported by revenue from sales of our
European OEM product and Genesis-EDGE
Dual-Fuel™ system sales which totalled 300
during the year. Strong margins have been
maintained despite a change in sales mix
during the year.
SALES REVIEW
Clean Air Power has two commercial
divisions: Dual-Fuel™ vehicle systems and
Components. Operations take place in the
US and UK.
SYSTEM SALES
300
702821
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GROSS PROFIT AND COST OF SALES
The gross profit margin for the Group for the
year reduced to 44% (2011: 56%) whilst
gross profit increased to £3.52m (2011:
£2.56m). This decrease in % margin was due
to the change in sales mix and increase in
Dual-Fuel™ system sales.
ADMINISTRATION COSTS
Administration costs increased to £5.71m
(2011: £4.67m). Depreciation and
amortisation represented £0.70m of this
increase, due to the amortisation of the OEM
Dual-Fuel™ product.
SHARE-BASED PAYMENTS
The share-based payments charges for the
Group were £0.03m (2011: £0.14m).
TOTAL OPERATING LOSS BEFORE
NON-CASH ITEMS
Operating loss before non-cash items
reduced to £1.06m (2011: £1.66m).
OPERATING LOSS
Operating losses for the year reduced to
£2.22m (2011: £2.24m).
TAXATION
Due to continued losses the Group reports no
tax charge for 2012 (2011: nil).
DIVIDEND
The Directors do not recommend a dividend in
respect of the current financial year (2011: nil)
and no interim dividend was paid (2011: nil).
STATEMENT OF FINANCIAL POSITION
AND LIQUIDITY
Explanations of the most significant items in
the Statement of Financial Position during the
year are as follows:
INTANGIBLE ASSETS
Intangible assets are carried at £3.66m
(2011: £3.84m). This reflects product
development costs capitalised in accordance
with IAS 38 ‘Intangible Assets’. Intangible
assets are tested annually for impairment and
at 31 December 2012, no impairments were
identified in 2012 (2011: £nil).
TRADE AND OTHER RECEIVABLES
The value of trade and other receivables
increased to £1.10m (2011: £0.82m),
principally due to increased revenues.
CASH FLOWS
Cash and cash equivalents was £3.20m
(2011: £2.42m). Further analysis of this
movement is included in the consolidated
cash flow statement on page 34.
TRADE AND OTHER PAYABLES
The value of trade and other payables was
£1.72m (2011: £1.03m).
TREASURY POLICY AND FINANCIAL RISK
The Group’s treasury operation is managed
within formally defined policies which are
reviewed by the Board. The Group finances
its activities with cash and overnight deposits.
Other financial assets and liabilities, such as
trade receivables and trade payables, arise
directly from the Group’s operating activities.
Surplus funds of the Group are invested
through the use of short-term deposits with
the objective of maximising fixed interest rate
returns whilst still providing the flexibility to
fund on-going operations when required.
It is not the Group’s policy to engage in
speculative activity or to use complex
financial instruments. Further analysis
can be found on pages 58 to 60.
FINANCING
In September 2012, the Company successfully
raised approximately £3.35m from a
combination of new and existing investors.
Further analysis can be found in note 29.
GROSS PROFIT
EBITDA
FINANCIAL REVIEW
The Company has benefited from a strongperformance from the flagship Dual-Fuel™
division during this financial year. Sales ofvehicle systems and revenue from productdevelopment increased by 101% to £6.64m.
The Group’s financial and non financial highlights of the year were as follows:
2012 2011 Change
£’000 £’000
Group Revenue 7,942 4,585 73%
Total Operating Loss before Non-Cash items for period* (1,062) (1,663) -36%
Loss for Period (2,220) (2,240) -1%
Shareholders’ Funds 7,131 6,223 15%
Cash and Cash Equivalents 3,204 2,422 32%
Net Current Assets 3,292 2,194 50%
Loss per Share 1.53p 2.13p -28%
Average no. of employees 60 57 5%
No. of System Installations 300 70 329%
*Non-cash items including depreciation £0.11m (2011: £0.12m), amortisation £1.02m (2011:
£0.31m) and share-based payments £0.03m (2011: £0.14m).
SUMMARY OF FINANCIAL REVIEW• Strong growth from OEM revenues and Genesis-EDGE Dual-Fuel™ sales
• Strong gross margins despite change in sales mix
• Operating loss before non-cash items reduced to £1.06m, representing a £0.60mimprovement
• Revenue substantially increased for the Group during the period. Dual-Fuel™
Vehicle Systems division’s revenue increased by 101% to £6.64 in 2012, mainly as aresult of systems sold increasing by 230 systems to 300 system sales
• The Components division revenue increased by 2% to £1.30m, compared with£1.28m in 2011, incorporating revenue for Emissions Reduction
• Total operating loss before non-cash items for the period decreased by 36% to£1.06m from £1.66m, following the growth from Dual-Fuel™ sales
• Total net loss reduced to £2.22m from £2.24m
• Shareholders’ funds increased in 2012 due to the Company issuing new sharecapital during the period
• Net current assets at 31 December 2012 were £3.29m (2011: Net current assets£2.19m), mainly due to higher cash balances following equity raise in September2012
• Loss per share reduced to 1.53p (2011: 2.13p), following the issue of new capital
• The average number of employees increased to 60 (2011: 57)
DUAL-FUEL™ REVENUE
COMPONENTS REVENUE
2011 2012
£6.6
4m
£3.3
0m
2011 2012
£3.5
2m
£2.5
6m
2011 2012
£1.0
6m
£1.6
6m
2011 2012
£1.3
0m
£1.2
8m
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RISK AND UNCERTAINTIES
CLEAN AIR POWERAnnual Report and Accounts 2012
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STRATEGIC RISK MITIGATION
Additional Capital requirements
The Directors believe that based on the current level of cash, further funding in thefuture may be required to commercialise the engine management software with futureOEM agreements or other product development activity.
The Group is seeking to maximise theextent to which development activitywith OEM partners fund developmentprograms and are exploring debtfinance solutions.
Manufacturer Cooperation
The Directors anticipate that the Supply Agreement with OEMs will lead to productsbeing sold in 2013. Any instances where the production or demand was adverselyaffected would seriously damage the Group’s ability to generate revenues.
The Group ensure that adequateresources are in place so that productsare reliable and comply withspecification.
Fuel Volatility
The degree of financial saving that is generated by the product depends on thedifference between the price of diesel and gas. Indications are that the natural gas priceswill remain lower than that of diesel. If the delta between the two fuels becomes tooclose, then the financial incentive to use Dual-Fuel™ will become less attractive.
The Group actively monitors itsexposure to this risk and has beenworking with Gas providers tounderstand the long term pricingstrategy. Ultimately the risk is outsidethe control of the Company Directors.
In-House Product Development
The Group has worked to develop in-house ‘Genesis-EDGE’ solutions which can be retro-fitted to Euro 5 vehicles. The product has met emissions and compliance regulations.There is a risk that the product will have to meet regulations in each territory that theGroup may pursue. There is also a risk that operators will wait for a manufacturer backedproduct, or that a manufacturer could discourage adoption by customers, therefore theability to earn revenue from this would be impaired.
The Group is working with local dealersand directly with customers to builddemand and to ensure the product canbe marketed successfully.
Engine Management Software / Product Development The Group’s current Genesisdevelopment is targeted towards theproduction of a US2010 compliantproduct and the Company is indiscussions with manufacturers withregard to a Euro 6 development projectand initial discussions have commencedregarding a US 2013 OEM product.
Gas Supply
The natural gas infrastructure across the world is much less developed than for existingroad fuels. The Company is aware of a number of potential suppliers prepared to enterthe market. The Company also anticipates, from discussions with such suppliers, that thesuppliers will be prepared to provide capital to install gas refuellers and recover the costover time via a levy in the fuel price. The Company may consider undertaking partneringarrangements with such suppliers. Should either the gas or the capital not be available,the ability to grow sales will be affected.
The Group has been working closelywith Gas providers to support thesales process.
The Group has to maintain a product range that complies with the prevailing emissionsstandards in the target markets. With Euro 5 compliant products addressing the currentEuropean market until the end of 2013/early 2014 and potentially other markets untilaround 2020, the group will require a Euro 6 compliant product to address the Europeanmarket from 2014. Additionally a product compliant with the US2010 emissionsrequirements will be required to access the US retro fit market and compliance withUS2013 for the US market, where the Company does not have a current product. Withoutsuch products, the Company’s ability to generate revenue would be significantly impeded.
KEY PERFORMANCE INDICATORS
FINANCIAL
The Group uses the following primary measures to assess its performance and propositions.
The following factors may affect the Group’s operating results, financial condition and/or the trading price of the Company’s shares. The risk
factors below are those the Directors believe are potentially significant, but this should not be regarded as a complete and comprehensive
statement of all potential risks and uncertainties related to an investment in the Group.KPI TARGET FOR 2013
Dual-Fuel™ Revenue Revenue and revenue growth derived from the Group’s core Dual-Fuel™ enginemanagement software are used for internal performance analysis and byinvestors to assess progress against projections in the market.
Operating Result BeforeNon-Cash items*
Operating result and profitability trends are used for internal performanceanalysis and by investors to assess progress against projections in the market.The measure used excludes non-cash items including depreciation (£0.11m),amortisation (£1.02m) and share-based payments (£0.03m).
Gross Margin Gross profit and revenue as reported in the consolidated income statement inthe financial statements used for internal performance analysis and by investorsto assess progress against projections in the market.
EPS Cash and cash equivalent balances are used for internal performance analysisand by investors to assess progress against projections in the market.
Number of vehicle Systems The Group’s development of its customer base with a view to installing itsequipment on customer vehicles is a key objective. The number of systems andassociated trends, is therefore a very important measure of progress.
Personnel Clean Air Power values its staff very highly and recognises that the success ofthe Group is largely due to the dedication and knowledge of its employees.Personal development is important and there is a HR strategy in place.
OEM Cooperation The Group’s main objective remains to enter into agreements withmanufacturers, whereby our engine management software is installed on theirvehicles as an OEM (Interfaced) option and distributed through their normalsales channels.
NON-FINANCIAL
16 CLEAN AIR POWERAnnual Report and Accounts 2012
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CLEAN AIR POWERAnnual Report and Accounts 2012 17
RISK AND UNCERTAINTIES CONTINUED
STRATEGIC RISK MITIGATION
Regulatory Framework
The Group’s products fall within a number of heavily regulated areas. In order to prosper,the Group’s technological solutions must keep pace with the increasingly stringentemissions legislation in order to be allowed into the market. Depending on the route tomarket, in some cases the product may require homologation or approval. Failure to meetsuch regulations could lead to an adverse effect on demand for the product.
The Group takes advice to ensureadherence to compliance guidelines andhas increased its in-house resources tofocus on quality and process.
Competition / Intellectual Property
Employees
The relatively small size of the Group, an average of 60 employees during 2012 createsthe risk that key knowledge of certain aspects of the business is concentrated in arelatively small number of employees.
Competitive compensation packages forkey staff, including long-term incentiveschemes are in place to retain theirservices. Recruitment and training plansare in place to mitigate this risk.
Trading and Economic Risks
The trading performance of the Group could be affected by a number of factors outside itscontrol, including currency risk. A significant proportion of the Group’s activities will takeplace in the USA, Europe and Australia and there is the potential for exchange rate variancesto impact on the profitability of the Group. The potential economic turmoil in Europe couldaffect the Company’s activities and results in a number of areas including credit risk.
Financial controls are in place to ensurethat exposures are adequatelymanaged.
Sales to the Company’s European OEMpartner are made in sterling.
Adaptation of the Core Engine Management Software
While the core engine management software has now been fitted on more than 2,200vehicles across the world, a number of new product variants are in the process ofdevelopment. Each new variant requires the adaptation of the core technology to eachspecific engine platform and emissions compliance dictates that engine platforms areconstantly developing. If such adaptations are not able to be completed in line with thetiming anticipated in Group plans, then the ability to meet sales expectations will beadversely affected.The Company’s OEM partner plans to update certain elements of the base truck uponwhich the majority of sales are made. In order to continue to sell its Dual-Fuel™ systemon Euro 5 vehicles from 2014, the Company and the OEM will need to complete anengineering project to update both the truck and Dual-Fuel™ system software.Any delays or inability to complete this activity would affect expected sales levels.
The Group has an experiencedengineering team whose knowledgebase continues to grow. Developmentprojects are only undertaken followingtechnical due diligence and feasibilitystudies designed to assess their likelysuccess.
The OEM partner plans to assess thework required and prepare a projectplan. The Company’s engineers areaccustomed to working closely with theOEM.
The Group is making endeavours to stayahead of the technology and uses itspatents to help maintain barriers toentry. It also carries out ongoing reviewsof competitive activity with regard topotential infringements on the coretechnology.
In the majority of markets the Group has historically experienced relatively low levels ofcompetition mainly due to the degree of technological development and patents that applyto the Group’s engine management software. The demand to reduce fuel costs and carbonemissions has attracted new competitors to the market. Competition has been increasingwith some competitors making progress. Should they succeed in entering these marketsand gaining commercial traction, with or without infringing the Company’s patents, thensuch competitive pressure could significantly affect the ability of the Group to achieve salesand satisfactory margins.
CORPORATE INFORMATIONCORPORATE INFORMATION
DIRECTORS
Non-Executive Chairman – Rodney Westhead “#
Non-Executive Deputy Chairman – Bernard Lord “*+#
President & Chief Executive – John Pettitt
Group Financial Director – Peter Rowse
Non-Executive Director – Prof Dr. Karl Victor Schaller *+#
Non-Executive Director – Dr. Ulrich Wöhr “*+#
SECRETARY
Codan Services Limited
REGISTERED OFFICE
Clarendon House
2 Church Street
Hamilton HM11
Bermuda
AUDITORS
Ernst & Young LLP
100 Barbirolli Square
Manchester
M2 3EY
SOLICITORS
Pillsbury Winthrop Shaw Pittman LLP
Tower 42, Level 23
25 Old Broad Street
London
EC2N 1HQ
NOMINATED ADVISOR AND
JOINT BROKER
Cantor Fitzgerald Europe
One America Square
17 Crosswall
EC3N 2LS
JOINT BROKER
Peat & Co
11-12 St James Square
London
SW1Y 4LB
REGISTRARS AND TRANSFER OFFICE
Capita IRG (Offshore) Limited
Victoria Chambers, Liberation Square
1/3 The Esplanade
St Helier
Jersey
PRINCIPAL BANKER
HSBC Bank Plc
1 Forest Green Road
Off Caxton Road
Fulwood
Preston
PR2 9LJ
FINANCIAL PUBLIC RELATIONS
Citigate Dewe Rogerson
3 London Wall Buildings
London Wall
London EC2M 5SY
* Member of the Audit Committee
+ Member of the Remuneration Committee
# Member of the Nomination Committee
“ Independent
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BOARD OF DIRECTORS
BERNARD LORDNON-EXECUTIVE DEPUTY CHAIRMAN,CHAIRMAN OF THE REMUNERATIONCOMMITTEE
JOINEDJuly 2007
CURRENT ROLESBernard Lord is a solicitor and lives inMoncton, New Brunswick, Canada. Sincecompleting his second term as Premier ofthe Province of New Brunswick inOctober 2006, he is currently Presidentand CEO of the Canadian WirelessTelecommunication Association.
BACKGROUNDPrior to his role with the CanadianWireless Telecommunication Association,Bernard was with the leading Canadianlaw firm McCarthy Tétrault LLP as SeniorCounsel. His interest in transportation wasevident during his tenure as Premier,during which time major investment ininfrastructure of the road network of NewBrunswick was made. His commitment tothe environment was demonstrated bythe creation of Efficiency New Brunswick,an agency dedicated to the reduction ofenergy consumption and costs, andimproving the environment.He holds a bachelor’s degree in socialscience with a major in Economics, abachelor’s degree in common law fromthe Université de Moncton, an honorarydoctorate of laws from the University ofNew Brunswick and honorary doctoratedegrees from the Université de Monctonand St. Thomas University. He was electedfour times as the MLA for Moncton East.
DR. ULRICH WÖHRNON-EXECUTIVE DIRECTOR,CHAIRMAN OF THE AUDIT COMMITTEE
JOINEDJanuary 2006
CURRENT ROLESChairman of the Supervisory Board ofBorgWarner BERU Systems GmbH inLudwigsburg, Germany, DeputyChairman of the Supervisory Board ofEAN European AvionicsNavigationssysteme GmbH & Co. KG,Weilderstadt, Germany and advisor toseveral large and medium sized nonlisted and privately held companies, aswell as shareholder and partner in thefamily owned Otto Wöhr GmbH,Friolzheim, a leading and worldwidesupplier of mechanical and automatic carparking devices.
BACKGROUNDOver 20 years in the German industry, heserved for almost 20 years as CEO/CFO ofVDO Adolf Schindling AG, an importantworldwide operating partner of theautomotive industry.Thereafter he was CFO of the thentroubled Metallgesellschaft AG, Frankfurtam Main, followed by the CEO functionin GEA AG Bochum, a company acquiredby Metallgesellschaft AG in 1999. Heretired in the year 2000 and from 2002to 2004 he was responsible for therestructuring of Bundesdruckerei GmbH,Berlin, a former privatised Germangovernment printing body.
PROF. DR. KARL VIKTOR SCHALLERNON-EXECUTIVE DIRECTOR
JOINEDOctober 2010
CURRENT ROLESViktor is an advisor and lives in Munich,Germany. He is the Chairman of theBoard of Hofer AG in Oberboihingen,Germany, and a Non-Executive Directorat Vicura AB of Trollhättan, Sweden. Healso consults Tier 1 suppliers, OEM andanalysts in the field of commercialvehicles with his firm KVS Consulting.
BACKGROUNDBetween 1990 and 2009 Viktor workedat MAN Commercial Vehicles AG, oneof Europe's leading industrial players intransport related engineering, headingvarious departments including thoseresponsible for development ofalternative drive systems (batteries,various hybrids, natural gas, hydrogen incombustion engines and fuel cells) andheavy trucks. In 2006 became a fullboard member of MAN CommercialVehicles AG at that time responsible forproduct development, purchasing andplanning. He holds a diploma and adoctorate in mechanical engineeringfrom the Technical University of Munich.In 2006 he was awarded honoraryprofessor at this university for his lecture‘commercial vehicles’.
RODNEY WESTHEADCHAIRMAN
JOINEDJanuary 2006
CURRENT ROLESSenior Independent Directorand a Non-Executive Director ofTransens Technology plc.Non-Executive Director of ACTA plc.Member of Council at Brunel University,appointed in August 2011
BACKGROUNDDuring his career in the Britishautomotive industry, Rodney served asthe Group Chief Executive of Ricardoplc, where he was responsible formanaging a global range of companiesengaged in automotive strategic andtechnology consulting. Rodney led theGroup in strategic acquisitions ofcompanies in the UK and Europe andestablished offices throughout theworld. Ricardo is the largest automotiveconsultancy company in Europe withapproximately ₤200million in annualturnover. Prior to serving as ChiefExecutive, Rodney served as the GroupFinance Director. Rodney Westhead wasa partner in Grant Thornton and hadserved as Managing Partner of theLondon office.
JOHN PETTITTPRESIDENT AND CHIEF EXECUTIVE
JOINEDAugust 2005
CURRENT ROLESPresident and Chief Executive
BACKGROUNDJohn has over twenty five years seniorlevel experience in GeneralManagement, Sales & Marketing withinthe business-to-business services sector.A successful track record of businessdevelopment has been built onrecruiting and developing strongmanagement teams at all levels andproviding clear direction and leadership.His career started with Thomson YellowPages and Thomson Directories reachingthe position of Sales Controller with astaff of 350. Leaving Thomson after 13years, he joined Lex Service plc as SalesDirector of Lex Vehicle Leasing andhelped that company grow from 15,000to 50,000 vehicles in five years,becoming the UK’s leading vehicleleasing company. He left to becomeManaging Director of Fraikin Limited,the UK division of Europe’s largestindependent truck leasing business.After roles with TLS Truck Rental andIveco-Ford Truck Limited, he rejoined LexService and remained there for five yearsbefore joining Clean Air Power. His lastrole was managing Lex Transfleet AirsideSolutions, a company employing over400 staff and maintaining 6,500 piecesof equipment and vehicles for BritishAirways at four UK airports.
PETER ROWSEGROUP FINANCE DIRECTOR
JOINEDJanuary 2006
CURRENT ROLESGroup Finance Director
BACKGROUNDPreviously he served as Chief FinancialOfficer of DeLonghi America, Inc., theUSA subsidiary of the Italian appliancecompany, where he was responsible forfinance, IT management anddevelopment, human resource functionsand logistics. Peter was integrallyinvolved in all commercial areas andstrategic planning and was instrumentalin the company’s turnaround. Peter ledseveral initiatives at DeLonghi to improveinternal controls and played an activerole in managing relationships withCanadian and Mexican operations. Peteralso served as Controller, and later,Finance Director of DeLonghi Limited inthe UK. During his tenure, the companygrew revenue from £5 million to £50million GBP. Prior to DeLonghi, he heldfinancial and management accountingroles at Alexon Group plc and TNTExpress Europe (UK) Limited. Peter isFCMA qualified.
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DIRECTORS’ REPORT
CLEAN AIR POWERAnnual Report and Accounts 2012
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RESULTS AND DIVIDENDS
The results of the Group are set out on page
30. The retained loss for the year is £2.22m
(2011: £2.24m).
The Directors do not recommend the
payment of a dividend in respect of the
current financial year (2011: nil) and no
interim dividend was paid (2011: nil).
EMPLOYMENT
The Group recognises and places
considerable value on the contribution made
by all employees to the development of the
Group and the achievement of its goals. The
Group seeks to keep all its employees
informed on matters affecting them as
employees and affecting the Group as a
whole. We seek to consult with all levels of
employee, regular team meetings, Group
staff forums and a performance assessment
system, encourage open communication and
feedback at all levels.
FINANCIAL STATEMENTS
The Directors present their Annual Report
and Group financial statements for the year
ended 31 December 2012.
PRINCIPAL ACTIVITIES AND
REVIEW OF THE BUSINESS
Clean Air Power continues to develop and
market Dual-Fuel™ solutions to power heavy
goods vehicles. In addition, the Group sells
specialised components used in the
automotive industry.
The Group results are set out in the
Consolidated Income Statement on page 30
and are explained in the Financial Review on
pages 12 to 16. A review of the Group’s
business and future development is
contained in the Chairman’s Statement on
page 9 and the Chief Executive’s Review on
pages 10 to 11.
Applications for employment by disabled
persons are always given a full and fair
consideration. In the event of members of
staff becoming disabled, every effort is made
to ensure that their employment within the
Group continues and that appropriate
training is arranged. It is the policy of the
Group that the training, career development
and promotion of disabled persons should, as
far as possible, be identical with that of other
employees.
SUBSTANTIAL SHAREHOLDERS
On 31 December 2012 the following
persons had reported an interest of 3%
or more in the issued ordinary share capital
of the Group.
No. of Percentage of issued
shares ordinary share capital
CSFB Strategic Partners Holdings II, L.P. 25,841,989 14.60%
FIL Investments International 12,316,749 6.96%
Legal & General Investment Management 11,750,000 6.64%
Hargreave Hale Ltd 8,000,000 4.52%
Emerson Family 7,736,693 4.37%
Joseph Henry and family 7,652,500 4.32%
Enertech Capital Partners 7,387,546 4.17%
Royal Bank of Canada Capital Partners 5,980,743 3.38%
No other person has reported an interest of 3% or more in the issued ordinary share capital.
CORPORATE SOCIAL RESPONSIBILITY
SOCIALLY RESPONSIBLE GOALS
Clean Air Power aims to make a major contribution towards the
challenge of addressing climate change by enabling the use of more
efficient utilisation of natural resources and to contribute to the
creation of a low-carbon economy by providing cleaner, more
efficient solutions for the transport industry.
EMPLOYEES
We continue to create high-skill employment, aiming to recruit the
best talent and acting as an equal opportunities employer at all
times, by valuing the diversity of our workforce and ensuring that
people remain safe from discrimination and harassment in the
workplace. Clean Air Power conducts regular surveys of our
employees to monitor satisfaction and to encourage feedback. We
have in-house personnel resource in both the UK and USA to ensure
high standards of employment practice while developing and
retaining our most critical asset – our people.
SAFETY FIRST
Clean Air Power remains committed to achieving high standards in
Health and Safety practice. We invest in Health and Safety training
and work positively to ensure that an open culture towards safety is
maintained. We commission regular reviews of our Health and
Safety arrangements by external experts, to ensure that we benefit
from external developments in this specialism and secure continuous
improvement in this vital area.
Health & Safety is a standard agenda item at all Main Board
Meetings.
ENVIRONMENTAL AWARENESS
We aim to operate while minimising our use of resources and
environmental impact in terms of waste. We seek to recycle in all
areas – from office supplies to production waste.
In 2010 the UK facility achieved ISO 14001: 2004 status, with the
US facility achieving the same status in 2011 and these have been
subsequently maintained successfully.
ETHICAL STANDARDS
Clean Air Power actively strives to achieve high ethical standards in
all activities. We seek to ensure that all our business partners apply
similarly high standards, including our supply chain partners and
customers.
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REPORT ON DIRECTORS’ REMUNERATION
CLEAN AIR POWERAnnual Report and Accounts 2012
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INTRODUCTION
The members of the Group’s remuneration
Committee are Bernard Lord, Dr. Karl Victor
Schaller and Ulrich Wöhr.
The Remuneration Committee is responsible
for considering and making
recommendations to the Board on:
• The Company’s general policy on executive
and senior management remuneration;
• The specific remuneration packages for
Executive Directors of the Company,
including basic salary, performance-based
incentives, pensions and other benefits;
and
• The design and operation of the
Company’s share schemes.
The remuneration of each Executive Director
is determined on behalf of the Board by the
Remuneration Committee. The remuneration
of the Non-Executive Directors is determined
by the Executive Directors.
REMUNERATION POLICY
Remuneration packages aim to attract, retain
and motivate high calibre managers and
reward individual performance. On
appointment and periodically thereafter, the
Committee benchmarks the executive
remuneration packages against appropriate
comparators. The reward structure comprises
the following elements:
Basic Salary and Benefits
In accordance with the remuneration policy
outlined, the salaries of the Executive
Directors are reviewed annually.
Consideration is also taken of an Executive
Director’s experience, responsibilities and
performance. Performance is assessed both
from an individual and business perspective.
Benefits in kind comprise of private medical
insurance benefits and a fully expensed
motor vehicle for Peter Rowse. John Pettitt
received benefit in respect of rental of a
property as part of a relocation package and
an expensed motor vehicle.
Pensions
The Company does not have a contributory
pension scheme. All pension payments are
paid directly into the Directors’ personal
pension plans.
Fees
The fees of the Non-Executive Directors are
determined by the Executive Directors.
Performance Related Bonus
This is based on a fixed formula which is
determined at the beginning of each financial
year by the Remuneration Committee.
The formula measures specified personal
objectives and measures the Group’s
performance to specified targets principally
relating to earnings before interest and tax.
The amount of bonus is dependent on the
level of performance achieved.
Share Option Schemes
Clean Air Power Limited has operated Share
Option Schemes since February 2006 under
which Executive Directors, managers and
staff of the Company are granted options
over shares in Clean Air Power Limited at
prevailing market prices at the date of the
grant.
Under the Executive Share Option Schemes,
options are granted to Executive Directors
and employees at the discretion of the
Remuneration Committee and on the basis
of their performance. Options are granted
at the full market value of the Company’s
shares at the time of the grant and are
exercisable between one year and ten years
from the date of the grant.
Further information on the options issued to
the Executive Directors is detailed below.
At 31 December 2012, the price of the
Company’s shares quoted on the AIM of the
London Stock Exchange was 7.00p and the
highest and lowest prices during the year
ended 31 December 2012 were 20.13p
and 6.50p respectively.
The Group has long-term relationships with a
number of customers and suppliers in
different countries and industries which
provide an element of comfort to support the
prospects for different areas of the business.
However, it is acknowledged that, in the
current economic climate, it is difficult to
predict the timing and extent of future
revenues with certainty for a Company at this
stage of potentially rapid growth.
After making enquiries and preparing
forecasts of trading results which consider
the potential effect on cash of reasonably
foreseeable sales variances, the Directors
have a reasonable expectation that the
Company and the Group have adequate
resources to continue in operational existence
for the foreseeable future. Accordingly, they
continue to adopt the going concern basis in
preparing the annual report and financial
statements.
FUTURE DEVELOPMENTS
The Directors aim to maintain the
management policies which have resulted in
the Group becoming a tier 1 system supplier
to a European OEM. They consider the best
possibilities for growth in 2013 to be from
sales of the Dual-Fuel™ engine management
software and from income from product
development activity.
RESEARCH AND DEVELOPMENT
The Company continues to undertake
research and development to ensure a supply
of future products, where possible, new
technology is patented.
CORPORATE GOVERNANCE
The Company’s statement on Corporate
Governance can be found in the Corporate
Governance Report on pages 27 to 29 to
these Financial Statements. The Corporate
Governance Report forms part of the
Director’s Report and is incorporated into it
by cross reference.
DIRECTORS AND DIRECTORS’ INTERESTS
The names and brief biographical details of
Directors at the date of this report are set out
on page 18 & 19.
CREDITOR PAYMENT POLICY
It is the Group’s policy to settle terms of
payment with suppliers when agreeing the
terms of the transaction, to ensure suppliers
are aware of these and abide by them.
Normally, suppliers will be advised as soon as
practicable of a dispute and payment will be
made of that part of the invoice not in dispute
unless good reason exists. Total creditor days
for the period ending 31 December 2012
were 50 days (2011: 37 days).
DONATIONS
The Group made charitable donations in the
year of £nil (2011: £nil).
GOING CONCERN
The Group’s business activities, together with
the factors likely to affect its future
development, performance and position are
set out in the Chief Executive’s Review on
page 10 to 11 and the risks and uncertainties
which are described on pages 15 to 16. The
financial position of the Group, its cash flows
and financing are described on page 12 to 16.
Note 24 to the financial statements includes a
description of the Group’s policies and
objectives for managing capital and financial
risk, details of financial instruments and its
exposures to credit risk and liquidity risk.
In September 2012, the Company
successfully raised approximately £3.35m
from a combination of new and existing
investors. Further analysis can be found in
note 29.
FINANCIAL INSTRUMENTS
The Group’s objectives and policies in respect
of financial instruments are disclosed in Note
24 in the financial statements.
DISCLOSURE OF INFORMATION TO THE
AUDITORS
So far as each person who was a Director at
the date of approving this report is aware,
there is no relevant audit information, being
information needed by the auditor in
connection with preparing its report, of
which the auditor is unaware. Having made
enquiries of fellow Directors and the Group’s
auditor, each Director has taken all the steps
that he is obliged to take as a Director in
order to made himself aware of any relevant
audit information and to establish that the
auditor is aware of that information.
AUDITORS
A resolution proposing the re-appointment
of Ernst & Young LLP as auditors of the
Company will be put to the forthcoming
Annual General Meeting.
Signed on behalf of the Board of Directors
Peter Rowse
Director
3 April 2013
DIRECTORS’ REPORT CONTINUED
Stock code: CAP
CLEAN AIR POWERAnnual Report and Accounts 2012 2524 CLEAN AIR POWER
Annual Report and Accounts 2012
www.cleanairpower.comwww.cleanairpower.com
DIRECTORS’ INTERESTS
Set out below are the beneficial interests of the Directors and their families in the share capital of the Company at the beginning and end
of the year.
DIRECTORS’ INTERESTS IN THE GROUP’S SHARE OPTION SCHEMES
Set out below are the beneficial interests of the Directors and their families in the share capital of the Company at the beginning and end of the
year. At 1 Granted Surrendered At 31
January during during the December Date of Exercise Date first Expiry
2012 the year year 2012 grant price exercisable date
Director:
John Pettitt 1,620,000 - - 1,620,000 6 Dec 2011 6p 6 Dec 2014 6 Dec 2021
John Pettitt 1,080,000 - - 1,080,000 6 Dec 2011 8.5p 6 Dec 2014 6 Dec 2021
Peter Rowse 300,000 - - 300,000 6 Dec 2011 6p 6 Dec 2014 6 Dec 2021
Peter Rowse 200,000 - - 200,000 6 Dec 2011 8.5p 6 Dec 2014 6 Dec 2021
On behalf of the Board
Peter Rowse
3 April 2013
Number of ordinary shares
Shares Options
31.12.2012 01.01.2012 31.12.2012 01.01.2012
or later or later
appointment appointment
John Pettitt 2,376,567 1,880,067 2,700,000 2,700,000
Peter Rowse 298,908 255,158 500,000 500,000
Rodney Westhead 360,609 298,109 - -
Bernard Lord 571,897 446,897 - -
Dr Ulrich Wöhr 367,359 304,859 - -
Prof. Dr. Karl Viktor Schaller 68,381 49,631 - -
SERVICE CONTRACTS
The service contracts and letters of appointment of the Directors include the following terms:
Unexpired term Notice
Date of (months) or period
contract rolling contract (months)
Non-Executive Directors
John Pettitt 01.08.05 Rolling 12
Peter Rowse 01.01.06 Rolling 6
Non-Executive Directors*
Rodney Westhead 11.01.06 * -
Bernard Lord 04.07.07 * -
Dr.Ulrich Wöhr 14.09.06 * -
Prof. Dr. Karl Viktor Schaller 19.10.10 * -
* Contracts for service initially for three years with an annual review thereafter.
There are no special provisions for compensation in the event of loss of office.
DIRECTORS’ REMUNERATION
Salary/ Annual Total Total Pension Pension
Fees Consultancy Bonus Benefits 2012 2011 2011 2011
£ £ £ £ £ £ £ £
Executive Directors:
John Pettitt 254,295 - - 61,295 315,590 283,921 - -
Peter Rowse 118,832 - - 12,726 131,558 125,218 7,050 6,600
Non-Executive Directors:
Rodney Westhead 39,375 - - - 39,375 37,800 - -
Bernard Lord 19,077 - - - 19,077 19,541 - -
Dr Ulrich Wöhr 19,023 - - - 19,023 19,541 - -
Prof. Dr Karl Viktor Schaller 20,376 4,022 - - 24,398 30,274 - -
Total 470,978 4,022 - 74,021 549,021 516,295 7,050 6,600
REPORT ON DIRECTORS’ REMUNERATION CONTINUED
Stock code: CAP
CLEAN AIR POWERAnnual Report and Accounts 2012 2726
CORPORATE GOVERNANCE STATEMENTS
CLEAN AIR POWERAnnual Report and Accounts 2012
www.cleanairpower.comwww.cleanairpower.com
Corporate governance, in general terms, is
the way in which a Company is controlled
and directed and in particular, is concerned
with the role of the Board of Directors, how
the Board and Committees of the Board
operate, and accountability within a
Company.
The Company’s shares are listed on the
Alternative Investment Market (‘AIM’) of the
London Stock Exchange. The Company is
subject to the AIM Admission Rules of the
London Stock Exchange and is consequently
not required to comply with best practice
corporate governance provisions contained
within Section 1 of the revised UK Corporate
Governance Code which applies to
accounting periods beginning on or after 29
June 2010 (‘the New Code’) appending to
the Listing Rules of the Financial Services
Authority. However, the Directors believe
good corporate governance is essential.
Having considered the provisions of the New
Code, the Directors set out below the
principles of the New Code and how the
Company has applied those principles. The
current size of the Company means that full
compliance with the provisions of the New
Code is not practical or cost effective.
However, in areas where the Board of
Directors believe that the provisions set out in
the New Code are paramount to corporate
governance, procedures for compliance have
been established.
THE BOARD
The Board of Directors is usually structured
such that it includes a balance of Executive
and Non-Executive Directors. As at 31
December 2012, the Board compromised
one Non–Executive Chairman, one
Non–Executive Deputy Chairman, two
Non-Executive Directors and two Executive
Directors including the Chief Executive
Officer. The Executive Directors and the
Non-Executive Directors bring a wide range
of business expertise to the Board’s
discussions and decision making. The Board
of Directors has put in place an
organisational structure with clearly defined
responsibilities and delegation of authority.
Biographical details of all the Directors are set
out on page 18 and 19.
The Board considers that the Non-Executive
Chairman and two of the Non-Executives are
independent of management. One of the
Non-Executive Directors provides consultancy
services relating to corporate development
for which he is rewarded on a time spent
basis.
The full Board meets formally at least three
times each year to consider all matters of
significance for the Company as they arise, as
well as matters reserved specifically for their
consideration. These matters include
development of business strategy and policy,
the review and approval of operating
budgets and monitoring business
performance against objectives, the approval
of significant financing and capital
expenditure programmes, the approval of
interim and annual financial statements and
consideration of matters relating to internal
control. The Board is supplied in a timely
manner with all relevant information to assist
in the discharge of its duties.
All the Directors have access to the advice
and services of the Company Secretary who
is responsible to the Board for ensuring that
Board procedures are followed and that
applicable rules and regulations are complied
with.
Senior Management meet on a regular basis
and discuss all major issues affecting the
Company which do not require Board
discussion or approval by other Board
Committees. It is the Company’s policy to
appoint Non-Executive Directors for specified
terms, subject to re-election. All Directors are
subject to re-election by shareholders at the
first opportunity after their initial
appointment, and to re-election thereafter in
accordance with the Company’s By-laws.
REMUNERATION COMMITTEE
The Remuneration Committee seeks to
ensure that its policies on remuneration are
such that the Company is able to attract and
retain high calibre executives, and those
executives are rewarded in a way consistent
with the interest of shareholders.
Remuneration and incentive packages are
awarded according to the individual’s
performance, experience and responsibility.
The Remuneration Committee comprises
three Non-Executive Directors and is chaired
by Mr Bernard Lord. The Executive Directors
attend meetings of the Committee by
invitation. The Committee meets at least
annually and is responsible for making
recommendations to the Board on the
remuneration policy of the Executive
Directors and senior staff, and for
determining salaries, incentive payments and
longer term incentives in the form of share
options. Shareholders would be invited to
approve any new long-term incentive
schemes which might give rise to a significant
dilution in their equity. The Remuneration of
the Non-Executive Directors is set by the
Executive Directors ensuring that no Director
is responsible for the determination of his
own remuneration.
In determining the level of remuneration,
individual performance and competitiveness
within the sector is considered when setting
or reviewing the remuneration package of
Executive Directors. Details of the Directors’
emoluments are disclosed at Note 9 to the
financial statements and in the Report on
Directors’ Remuneration.
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The Directors are responsible for preparing
the Annual Report, the Group and Company
financial statements in accordance with
International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
The Directors are required to prepare Group
financial statements for each financial year
which present fairly the financial position of
the Group and the financial performance and
cash flows of the Group for that period. In
preparing those Group financial statements,
the Directors are required to:
• select suitable accounting policies in
accordance with IAS 8: ‘Accounting
Policies, Changes in Accounting Estimates
and Errors’ and then apply them
consistently;
• present information, including accounting
policies, in a manner that provides
relevant, reliable, comparable and
understandable information;
• provide additional disclosures when
compliance with the specific requirements
in IFRSs is insufficient to enable users to
understand the impact of particular
transactions, other events and conditions
on the Group’s financial position and
financial performance; and
• state that the Group has complied with
IFRSs, subject to any material departures
disclosed and explained in the financial
statements
The Directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the Group’s
and Company’s transactions and disclose
with reasonable accuracy at any time the
financial position of the Group and Company.
They are also responsible for safeguarding
the assets of the Group and hence for taking
reasonable steps for the prevention and
detection of fraud and other irregularities.
The Directors are responsible for the
maintenance and integrity of the corporate
and financial information included on the
Group's website. Legislation in the United
Kingdom governing the preparation and
dissemination of financial statements may
differ from legislation in other jurisdictions.
Stock code: CAP
CLEAN AIR POWERAnnual Report and Accounts 2012 2928
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERSOF CLEAN AIR POWER LIMITED
CLEAN AIR POWERAnnual Report and Accounts 2012
www.cleanairpower.comwww.cleanairpower.com
We have audited the financial statements of
Clean Air Power Limited for the year ended
31 December 2012 which comprise the
Consolidated Income Statement, the
Consolidated Statement of Comprehensive
Income, the Consolidated and Company
Statements of Financial Position, the
Consolidated and Company Statements of
Cash Flow and the Consolidated and
Company Statements of Changes in Equity
and the related notes 1 to 29. The financial
reporting framework that has been applied in
their preparation is International Financial
Reporting Standards (IFRSs) as adopted by
the European Union.
This report is made solely to the company’s
members, as a body, in accordance with our
engagement letter dated 6 September 2011.
Our audit work has been undertaken so that
we might state to the company’s members
those matters we are required to state to
them in an auditor’s report and for no other
purpose. To the fullest extent permitted by
law, we do not accept or assume
responsibility to anyone other than the
company and the company’s members as a
body, for our audit work, for this report, or
for the opinions we have formed.
RESPECTIVE RESPONSIBILITIES OF
DIRECTORS AND AUDITOR
As explained more fully in the Directors’
Responsibilities Statement set out on page
26, the directors are responsible for the
preparation of the financial statements and
for being satisfied that they give a true and
fair view.
Our responsibility is to audit and express an
opinion on the financial statements in
accordance with International Standards on
Auditing (UK and Ireland). Those standards
require us to comply with the Auditing
Practices Board’s Ethical Standards for
Auditors.
SCOPE OF THE AUDIT OF THE FINANCIAL
STATEMENTS
An audit involves obtaining evidence about
the amounts and disclosures in the financial
statements sufficient to give reasonable
assurance that the financial statements are
free from material misstatement, whether
caused by fraud or error. This includes an
assessment of: whether the accounting
policies are appropriate to the company’s
circumstances and have been consistently
applied and adequately disclosed; the
reasonableness of significant accounting
estimates made by the directors; and the
overall presentation of the financial
statements. In addition, we read all the
financial and non-financial information in the
Highlights, Chairman’s Statement, Chief
Executive’s Operating Review, Financial
Review, Board of Directors, Corporate Social
Responsibility, Directors’ Report, Report on
Director’s Remuneration and Corporate
Governance Statements to identify material
inconsistencies with the audited financial
statements. If we become aware of any
apparent material misstatements or
inconsistencies we consider the implications
for our report.
OPINION ON FINANCIAL STATEMENTS
In our opinion the financial statements:
• give a true and fair view of the state of
the Group and Company’s affairs as at
31 December 2012 and of the Group’s
loss for the year then ended; and
• have been properly prepared in
accordance with International Financial
Reporting Standards (IFRSs) as adopted
by the European Union
Ernst & Young LLP
Manchester
3 April 2013
NOMINATION COMMITTEE
The Nomination Committee comprises three
Non-Executive Directors and is chaired by Mr
Rodney Westhead. Its role is to ensure that
appropriate procedures are in place for the
nomination and selection of candidates for
appointment to the Board, having regard for
the balance and the structure of the Board. In
appropriate cases, recruitment consultants
are used to assist the process. The
Committee also makes recommendations to
the Board regarding the re-election of
Directors, succession planning and Board
composition.
ACCOUNTABILITY
All the Directors are equally accountable
under the law for the proper stewardship of
the Company’s affairs. The Board acts in a
way which allows all Directors to bring their
independent judgement to bear on issues of
strategy, performance, resources, including
key appointments and standard of conduct.
AUDIT COMMITTEE
The Audit Committee comprises three Non-
Executive Directors and is chaired by Dr.
Ulrich Wöhr. The Committee will review the
Company’s interim and annual financial
statements before submission to the Board
for approval. The Committee will also review
regular reports from management and the
external auditors on accounting and internal
control matters. Where appropriate, the
committee will monitor the progress of
action taken in relation to such matters. The
Audit Committee will also recommend the
appointment of and review the fees of the
external auditors.
INTERNAL CONTROL
The Board of Directors is responsible for
ensuring that the Company maintains an
adequate system of risk management and
internal control. Due to the relatively small
size of the Company, the processes it has
employed to identify, evaluate and manage
significant business risks have been informal,
and have depended upon close business
involvement of Senior Management,
including the Executive Directors in all aspects
of the Company’s operations.
The Company maintains an adequate system
of risk management and internal control, and
an internal control environment which, in the
opinion of the Directors, is appropriate for
the Company’s size and complexity. These
controls include a budgeting process with an
annual operating budget approved by the
Board of Directors, a comprehensive financial
reporting system, comparing actual results to
budget (with variations to budget being
thoroughly investigated with corrective action
taken by the Directors as appropriate), the
provision of monthly management accounts,
annual budgets and forecasts, and
operational limits on the delegation of
financial authority.
Full management accounts are normally
issued within twelve working days following
the month end. Full financial forecast
updates are produced bi-annually and the
Company reports to shareholders bi-annually.
The Company does not currently have an
internal audit function. The Board believes
that this is appropriate given the current size
of the Company.
RELATIONS WITH SHAREHOLDERS
The Company seeks to maintain and enhance
its good relationship with it’s shareholders.
This is achieved through the provision of
interim and annual reports; through meeting
with shareholders and presentations to
them in general meetings and after major
Company announcements; by responses
to individual enquiries; and through the
Company’s website, www.cleanairpower.com.
The Annual General Meeting is the primary
opportunity to meet individual shareholders,
to make presentations to them, to encourage
their participation through questions and to
talk informally to them after the formal
proceedings. Separate resolutions are
proposed at the Annual General Meeting on
each substantially separate issue. The Board is
always ready, where practicable, to enter into
dialogue with institutional and individual
shareholders based on mutual understanding
of objectives.
CORPORATE GOVERNANCE STATEMENTS CONTINUED
Stock code: CAP
CLEAN AIR POWERAnnual Report and Accounts 2012 3130
CONSOLIDATED INCOME STATEMENT CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
CLEAN AIR POWERAnnual Report and Accounts 2012
www.cleanairpower.comwww.cleanairpower.com
Year ended Year ended
31 December 31 December
2012 2011
Notes £’000 £’000
Revenue 3 7,942 4,585
Cost of sales (4,424) (2,022)
Gross profit 3,518 2,563
Administrative expenses (5,710) (4,668)
Share-based payments charge 26 (29) (140)
Operating loss 4 (2,221) (2,245)
Loss on ordinary activities before finance revenue, finance costs and taxation (2,221) (2,245)
Finance revenue 6 2 5
Finance costs 7 (1) -
Loss on ordinary activities before taxation (2,220) (2,240)
Tax expense 10 - -
Loss for the year attributable to Equity holders of the parent (2,220) (2,240)
Basic and diluted loss per share 11 (1.53p) (2.13p)
All items dealt with in arriving at operating loss above relate to continuing operations.
Year ended Year ended
31 December 31 December
2012 2011
Notes £’000 £’000
Loss for the year 3 (2,220) (2,240)
Exchange differences on translation of foreign operations (113) (9)
Other comprehensive loss for the year (113) (9)
Total comprehensive loss for the year (2,333) (2,249)
Attributable to:
Equity holders of the parent (2,333) (2,249)
Stock code: CAP
CLEAN AIR POWERAnnual Report and Accounts 2012 3332
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
CLEAN AIR POWERAnnual Report and Accounts 2012
www.cleanairpower.comwww.cleanairpower.com
Year ended Year ended
31 December 31 December
2012 2011
Notes £’000 £’000
Assets
Non-current assets
Plant and equipment 12 235 190
Intangible assets 13 3,658 3,839
3,893 4,029
Current assets
Inventories 16 1,208 670
Trade and other receivables 17 1,102 816
Cash and cash equivalents 18 3,204 2,422
5,514 3,908
TOTAL ASSETS 9,407 7,937
Equity and liabilities
Equity attributable to equity holders of the parent
Ordinary share capital 19 109 83
Share premium 28 22,346 19,160
Translation reserve 28 962 1,075
Other reserves 28 33,504 33,504
Accumulated loss (49,790) (47,599)
TOTAL EQUITY 7,131 6,223
Non current liabilities
Trade and other payables 23 11 -
Provisions 21 43 -
54 -
Current liabilities
Trade and other payables 20 1,715 1,027
Provisions 21 425 393
Deferred revenue 22 82 294
2,222 1,714
TOTAL LIABILITIES 2,276 1,714
TOTAL EQUITY AND LIABILITIES 9,407 7,937
The financial statements were approved by the Board of Directors on 3 April 2013 and were signed on its behalf by:
Peter Rowse
Director
3 April 2013
Year ended Year ended
31 December 31 December
2012 2011
Notes £’000 £’000
Assets
Non-current assets
Investments 14 1,801 1,772
Other financial assets 15 21,958 18,815
23,759 20,587
TOTAL ASSETS 23,759 20,587
Equity and liabilities
Equity attributable to equity holders of the parent
Ordinary share capital 19 109 83
Share premium 28 22,346 19,160
Accumulated profit 1,304 1,344
TOTAL EQUITY 23,759 20,587
TOTAL LIABILITIES - -
TOTAL EQUITY AND LIABILITIES 23,759 20,587
The financial statements were approved by the Board of Directors on 3 April 2013 and were signed on its behalf by:
Peter Rowse
Director
3 April 2013
COMPANY STATEMENT OF FINANCIAL POSITION
Stock code: CAP
CLEAN AIR POWERAnnual Report and Accounts 2012 3534
CONSOLIDATED STATEMENT OF CASH FLOWS
CLEAN AIR POWERAnnual Report and Accounts 2012
www.cleanairpower.comwww.cleanairpower.com
COMPANY STATEMENT OF CASH FLOWS
Year ended Year ended
31 December 31 December
2012 2011
Notes £’000 £’000
Cash flows from operating activities
Loss on ordinary activities before taxation (2,220) (2,240)
Adjustments for:
Net finance revenue (1) (5)
Depreciation of plant and equipment 12 111 119
Amortisation of intangibles 13 1,019 311
Share-based payments 26 29 140
(Increase)/decrease in trade and other receivables (286) 526
Increase/(decrease) in trade and other payables 665 (105)
(Increase)/decrease in inventories (538) 169
Increase/(decrease) in provisions 75 (67)
(Decrease)/increase in deferred revenue (212) 137
Other non-cash movements 14 4
Net cash outflow (1,344) (1,011)
Investing activities
Interest received 6 2 5
Payments to acquire plant and equipment 12 (141) (49)
Sale of plant and equipment 12 (6) 4
Payments to acquire intangible assets 13 (954) (1,915)
Net cash outflow (1,099) (1,955)
Financing activities
Interest expense (1) -
Proceeds from the issue of ordinary share capital 29 3,357 3,129
Share issue costs 29 (145) (149)
Net increase 3,211 2,980
Net increase in cash and cash equivalents 768 14
Net foreign exchange differences 14 (2)
Cash and cash equivalents at 1 January 2,422 2,410
Cash and cash equivalents at 31 December 18 3,204 2,422
Year ended Year ended
31 December 31 December
2012 2011
Notes £’000 £’000
Cash flows from operating activities
Loss before taxation (69) (83)
Net cash outflow (69) (83)
Investing activities
Increase in funding loans to subsidiary undertakings (3,143) (2,897)
Net cash outflow (3,143) (2,897)
Financing activities
Proceeds from the issue of ordinary share capital 29 3,357 3,129
Share issue costs 29 (145) (149)
Net cash inflow 3,212 2,980
Net increase in cash and cash equivalents - -
Cash and cash equivalents at 1 January - -
Cash and cash equivalents at 31 December - -
For the year ended 31 December 2012 For the year ended 31 December 2012
Stock code: CAP
CLEAN AIR POWERAnnual Report and Accounts 2012 3736
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
CLEAN AIR POWERAnnual Report and Accounts 2012
www.cleanairpower.comwww.cleanairpower.com
COMPANY STATEMENT OF CHANGES IN EQUITY
Ordinary Share Translation Other Accumulated Total
share capital premium reserve reserves loss equity
£’000 £’000 £’000 £’000 £’000 £’000
Balance at 1 January 2011 44 16,219 1,084 33,504 (45,499) 5,352
Comprehensive income
Loss for the year - - - - (2,240) (2,240)
Other comprehensive income
Exchange differences on retranslation - - (9) - - (9)
of overseas operations
Total comprehensive loss for the year - - (9) - (2,240) (2,249)
Share-based payments - - - - 140 140
On issue of new shares 39 3,090 - - - 3,129
Share issuance costs - (149) - - - (149)
Balance at 31 December 2011 83 19,160 1,075 33,504 (47,599) 6,223
Comprehensive income
Loss for the year - - - - (2,220) (2,220)
Other comprehensive income
Exchange differences on retranslation - - (113) - - (113)
of overseas operations
Total comprehensive loss for the year - - (113) - (2,220) (2,333)
Share-based payments - - - - 29 29
On issue of new shares 26 3,331 - - - 3,357
Share issuance costs - (145) - - - (145)
Balance at 31 December 2012 109 22,346 962 33,504 (49,790) 7,131
For the year ended 31 December 2012 For the year ended 31 December 2012
Ordinary Share Accumulated Total
share capital premium loss equity
£’000 £’000 £’000 £’000
Balance at 1 January 2011 44 16,219 1,330 17,593
Comprehensive income
Loss for the year - - (83) (83)
Total comprehensive loss for the year - - (83) (83)
Share-based payments - - 97 97
On issue of new shares 39 3,090 - 3,129
Share issuance costs - (149) - (149)
Balance at 31 December 2011 83 19,160 1,344 20,587
Comprehensive income
Loss for the year - - (69) (69)
Total comprehensive loss for the year - - (69) (69)
Share-based payments - - 29 29
On issue of new shares 26 3,331 - 3,357
Share issuance costs - (145) - (145)
Balance at 31 December 2012 109 22,346 1,304 23,759
Stock code: CAP
CLEAN AIR POWERAnnual Report and Accounts 2012 3938
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CLEAN AIR POWERAnnual Report and Accounts 2012
www.cleanairpower.comwww.cleanairpower.com
1. AUTHORISATION OF FINANCIAL STATEMENTS AND STATEMENT OF COMPLIANCE WITH IFRSs
The Group and Company financial statements of Clean Air Power Limited for the year ended 31 December 2012 were authorised for issue by
the Board of Directors on 3 April 2013 and the Statements of Financial Position were signed on the Board’s behalf by Peter Rowse. Clean Air
Power Limited is a public limited Company incorporated in Bermuda whose shares are publicly traded on the AIM market of London.
The Group and Company’s financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as
adopted by the EU as they apply to the financial statements of the Group for the year ended 31 December 2012.
All of the revenue and profits and operating assets relate to the Group’s principal business activities, being vehicle conversion sales, sales of
components and an emissions reduction business. Revenue is stated net of value added tax. For further analysis please refer to the Directors’
Report on pages 21 to 22.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PREPARATION
The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards
(‘IFRS’) as adopted by the European Union. The consolidated financial statements have been prepared under the historical cost convention
except where indicated below. The preparation of financial information in conformity with IFRS requires the use of certain critical accounting
estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas
involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial
information are disclosed in the critical accounting estimates and judgements section.
The accounting policies that follow set out those policies that apply in preparing the financial statements for the year ended 31 December
2012. The Company and the Group have applied the same policies throughout the current and proceeding year.
Under the Bermuda Companies Act 1981 the Company is able to waive the presentation of the financial statements of the Company subject
to the agreement in writing (or at a general meeting) of all the shareholders and Directors of the Company. Accordingly, the Company has
not presented its own income statement as part of these financial statements. The Company made a loss for the year after taxation and
before dividends of £69K (2011: £83K).
The Group and Company financial statements are presented in sterling and all values are rounded to the nearest thousand pounds (£’000)
except where otherwise indicated.
GOING CONCERN
The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the
Chief Executive’s Review on page 10 and the risks and uncertainties which are described on pages 15 to 16. The financial position of the
Group, its cash flows and financing are described on page 12 to 13. Note 24 to the financial statements includes a description of the Group’s
policies and objectives for managing capital and financial risk, details of financial instruments and its exposures to credit risk and liquidity risk.
In September 2012, the Company successfully raised £3.35m from a combination of new and existing investors. Further analysis can be found
in note 29.
The Group has long-term relationships with a number of customers and suppliers in different countries and industries which provide an
element of comfort to support the prospects for different areas of the business. However, it is acknowledged that, in the current economic
climate, it is difficult to predict the timing and extent of future revenues with certainty for a company at this stage of potentially rapid growth.
After making enquiries and preparing cash flow projections taking account of reasonably expected changes in trading results, for the
foreseeable future the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in
operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the annual report
and financial statements.
BASIS OF CONSOLIDATION
The Group financial statements consolidate the financial statements of Clean Air Power Limited and its subsidiary undertakings drawn up to
31 December each year.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group, and deconsolidated from the date that control
ceases. The financial statements of subsidiaries used in the preparation of the consolidated financial statements are prepared for the same
reporting period of the parent Company and are based on consistent accounting policies. Intragroup transactions, balances and unrealised
gains on transactions between Group companies are eliminated, including unrealised profits or losses.
The following new and amended IFRS and IFRIC interpretations as of 1 January 2012 did not have any impact on the accounting policies,
financial position or performance of the Group.
IAS 1 Presentation of Items of other Comprehensive Income – Amendment to IAS 1 (Early adopted from effective date 1 July 2012)
IAS 12 Income Taxes (Amendment) – Deferred Taxes: Recovery of Underlying Assets
NEW STANDARDS AND INTERPRETATIONS NOT APPLIED
IASB and IFRIC have issued the following standards and interpretations with an effective date after the date of these financial statements.
International Accounting Standards (IAS/IFRS) Effective date
IFRS 1 Government Loans – Amendments to IFRS 1 1 January 2013
IFRS 7 Disclosures – Offsetting Financial Assets and Financial Liabilities 1 January 2013
IFRS 9 Financial Instruments Classification and Measurement 1 January 2015
IFRS 10 Consolidated Financial Statements, IAS 27 Separate Financial Statements 1 January 2013
IFRS 11 Joint Arrangements 1 January 2013
IFRS 12 Disclosures of Interest in Other Entities 1 January 2013
IFRS 13 Fair Value Measurement 1 January 2013
IAS 19 Employee Benefits (Revised) 1 January 2013
IAS 32 Offsetting Financial Assets and Financial Liabilities - Amendment 1 January 2014
IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine 1 January 2013
IFRS 1 ‘Government Loans – Amendment to IFRS 1’ give first time adopters the same relief that existing preparers of IFRS financial statements
had on the first-time application of IAS 20. There will be no impact on the Group.
IFRS 7 Disclosures – Offsetting Financial assets and Financial Liabilities’ require an entity to disclose information about rights of set-off and
related arrangements. The information would provide users the information to evaluate the effect of any netting arrangements.
Amendments are to be applied retrospectively but are not expected to impact the Group.
IFRS 9 ‘Financial Instruments: Classification and Measurement’ reflects the first phase of the IASBs work on replacement of IAS 39 and applies
to classification and measurement of financial assets as defined in IAS 39. In subsequent phases, the IASB will address classification and
measurement of financial liabilities, hedge accounting and derecognition. The adoption of the first phase of IFRS 9 will have an effect on the
classification and measurement of the Group’s financial assets. The Group will quantify the effect in conjunction with the other phases, when
issued, to present a comprehensive picture.
IFRS 10 ‘Consolidated Financial Statements’ IFRS 10 replaces the guidance of control and consolidation in IAS 27. The core principle that a
consolidated entity presents a parent and its subsidiaries as if they were single entity remains unchanged, as do the mechanics of the
consolidation.
IFRS 11 ‘Joint Arrangements’ requires joint arrangements to be accounted for as a joint venture depending on the rights and obligations of
each party to the arrangement. Proportionate consolidation for joint ventures will be eliminated and equity accounting will be mandatory.
IFRS 12 ‘Disclosure of Interest in Other Entities’ requires enhanced disclosures of the nature, risks and financial effects associated with the
group’s interests in subsidiaries, associates, joint arrangements and unconsolidated structured entities.
Stock code: CAP
CLEAN AIR POWERAnnual Report and Accounts 2012 4140 CLEAN AIR POWER
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
IFRS 13 ‘Fair Value Measurement’ explains how to measure fair value and aims to enhance fair value disclosures. The standard does not
change the measurement of fair value but codifies in one place.
IAS 19 ‘Employee Benefits’ changes a number of disclosure requirements for post employment arrangements and restricts the options
currently available on how to account for defined benefit pension plans. There will be no impact on the Group.
IAS 32 ‘Offsetting Financial Assets and Financial Liabilities – Amendments to IAS 32’ entities will need to review legal documentation and
settlement procedures, only when an entity has a legal enforceable right to set off the recognised amounts and must not be contingent on a
future event. There will be no impact on the Group.
IFRIC 20 ‘Stripping Costs in the Production Phase of a Surface Mine’ applies to waste removal incurred in surface mining activity, during
production phase. There will be no impact on the Group.
The effective dates stated above are those given in the original IASB/IFRIC standards and interpretations. As the Group prepares its financial
statements in accordance with IFRS as adopted by the European Union (EU), the application of new standards and interpretations will be
subject to their having been endorsed for use in the EU via the EU Endorsement mechanism. In the majority of cases this will result in an
effective date consistent with that given in the original standard or interpretation but the need for endorsement restricts the Group’s
discretion to early adopt standards.
The Directors do not anticipate that the adoption of these standards and interpretations will have a material impact on the Group’s financial
statements in the period of initial application.
PLANT AND EQUIPMENT
Plant and equipment is stated at cost less accumulated depreciation and any impairment in value. Depreciation is calculated on a straight-line
basis over the expected useful life of the asset using the following rates:
• Plant and equipment – 3 to 5 years
The carrying values of plant and equipment are reviewed for impairment either annually, or when events or changes in circumstances indicate
the carrying value may not be recoverable (whichever is earlier). If any such indication exists and where the carrying values exceed the
estimated recoverable amount, the assets are written down to their recoverable amount.
An item of plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the
continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal
proceeds and the carrying amount of the item) is included in the income statement in the year the item is derecognised.
Residual values and estimated remaining lives are reviewed annually.
INVENTORIES
Inventories are stated at the lower of cost and net realisable value. Cost includes all costs incurred in bringing each product to its present
location and condition on a moving weighted average cost basis. Net realisable value is the estimated selling price in the ordinary course of
business, less any further costs expected to be incurred to completion and disposal.
WORK IN PROGRESS
Work in progress is the cost of direct materials and labour.
LEASES
Leases are classified as finance lease whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the
Group. All other leases are classified as operating leases.
Assets held under finance lease are recognised as assets of the Group at their fair value or, if lower, at the present value of the minimum
lease payments, each determined at the inception of the lease. The corresponding liability is to be included in the statement of financial
position as a finance lease obligation. The interest element of leasing payments represents a constant proportion of the capital balance
outstanding and is charged to the income statement over the period of the lease.
Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease. Benefits received
and receivable as an incentive to enter into an operating lease are also spread on a straight line basis over the lease term.
FOREIGN CURRENCY
The Group’s consolidated financial statements are presented in sterling, which is also the parent Company’s functional currency. Each entity
in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that
functional currency. Transactions in foreign currencies are initially recorded in the functional currency by applying the spot exchange rate at
the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate
of exchange ruling at the balance sheet date. All differences are taken to the income statement, except for differences on monetary assets
and liabilities that form part of the Group’s net investment in a foreign operation. These are taken directly to equity until the disposal of the
net investment, at which time they are recognised in profit or loss.
The assets and liabilities of foreign operations are translated into sterling at the rate of exchange ruling at the balance sheet date. Income
and expenses are translated at weighted average exchange rates for the year. The resulting exchange differences are taken directly to a
separate component of equity. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular
foreign operation is recognised in the income statement.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates
of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the
date when the fair value was determined.
INTANGIBLE ASSETS
RESEARCH AND DEVELOPMENT COSTS
Research costs are expensed as incurred. An intangible asset arising from development expenditure on an individual project is recognised only
when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its
intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the ability of resources to
complete and the availability to measure reliably the expenditure during the development. Following the initial recognition of the
development expenditure as an asset, the cost model is applied requiring the asset to be carried at cost less any accumulated amortisation
and accumulated impairment losses. During the period of development, the asset is tested annually for impairment. Amortisation of the asset
begins when development is complete and the asset is available for use. It is amortised evenly over the period of expected future benefit
estimated as follows:
• Development expenditure – 18 months to 5 years.
COMPUTER SOFTWARE
Computer software is carried at cost less accumulated amortisation. Computer software has a finite life with no residual value and is
amortised on a straight line basis over the expected useful life as follows:
• Computer software – 3 years.
The carrying value of intangible assets is reviewed for impairment whenever events or changes in circumstances indicate the carrying value
may not be recoverable. In addition, the carrying value of capitalised development expenditure is reviewed for impairment annually before
being brought into use.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED
Stock code: CAP
CLEAN AIR POWERAnnual Report and Accounts 2012 4342 CLEAN AIR POWER
Annual Report and Accounts 2012
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
CASH AND CASH EQUIVALENTS
Cash and cash equivalents in the statement of financial position comprise cash at bank and in hand and short-term deposits with an original
maturity date of three months or less.
INVESTMENTS
Investments in subsidiary undertakings are stated at cost less any provision for any impairment that the Directors consider necessary.
PROVISIONS
Provisions are recognised when the Group has a present legal or constructive obligation and it is probable that an outflow of economic
benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect of the time
value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the
liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.
DEFERRED INCOME TAXES
Deferred income tax is provided using the liability method on temporary differences at the balance sheet date between the tax bases of
assets and liabilities and their carrying amounts for financial reporting purposes.
Deferred income tax liabilities are recognised for all taxable temporary differences, except:
• where the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a
business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
• in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where the
timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in
the foreseeable future
Deferred income tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses,
to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward
of unused tax credits and unused tax losses can be utilised except:
The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.
Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become
probable that future taxable profit will allow the deferred tax asset to be recovered.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the
liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.
Deferred income tax relating to items recognised directly in equity is recognised in equity and not in profit or loss.
PENSIONS
The Group contributes on behalf of its employees to individual personal defined contribution plans. The contributions made by the Group are
recognised as an expense in the period they fall due.
SHARE-BASED PAYMENT TRANSACTIONS
The cost of equity settled transactions with employees is measured by reference to the fair value at the date on which they are granted. The
fair value is determined by an external valuer using an appropriate pricing model. In valuing equity-settled transactions, no account is taken
of any performance conditions, other than conditions linked to the price of the shares of the Company (‘market conditions’), if applicable.
No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition,
which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance conditions
are satisfied.
At each balance sheet date before vesting, the cumulative expense is calculated, representing the extent to which the vesting period has
expired and management’s best estimate of the achievement or otherwise of non-market conditions number of equity instruments that will
ultimately vest or in the case of an instrument subject to a market condition, be treated as vesting as described above. The movement in
cumulative expense since the previous balance sheet date is recognised in the income statement, with a corresponding entry in equity.
Where the terms of an equity-settled award are modified or a new award is designated as replacing a cancelled or settled award, the cost
based on the original award terms continues to be recognised over the original vesting period. In addition, an expense is recognised over the
remainder of the new vesting period for the incremental fair value of any modification, based on the difference between the fair value of the
original award and the fair value of the modified award, both as measured on the date of the modification. No reduction is recognised if this
difference is negative.
Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any cost not yet recognised in the
income statement for the award is expensed immediately. Any compensation paid up to the fair value of the award at the cancellation or
settlement date is deducted from equity, with any excess over fair value being treated as an expense in the income statement.
The cost of share options granted by the Company for the benefit of employees of its subsidiaries is recorded as an increase in the cost of the
Company’s investment in the shares of its subsidiary. A corresponding credit is recorded in equity.
ORDINARY SHARE CAPITAL
Ordinary share capital is held in US$ and translated at spot rate when shares are issued.
TRADE AND OTHER RECEIVABLES
Trade receivables, which generally have 30 day terms, are recognised and carried at original invoice amount less an allowance for any
uncollectible amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable, bad debts are
written off when identified.
TRADE PAYABLES
Trade payables are not interest bearing and are stated at their nominal value.
FINANCIAL LIABILITIES AND EQUITY INSTRUMENTS
Financial liabilities and equity instruments are all instruments that are issued by the Group as a means of raising finance, including shares,
loan notes, debentures, debt instruments and options and warrants that give the holder the right to subscribe for or obtain financial liabilities
and equity instruments. An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of
its liabilities. All equity instruments are included in shareholders’ funds. The finance costs incurred in respect of an equity instrument are
charged directly to the income statement. Other instruments are classified as financial liabilities if they contain a contractual obligation to
transfer economic benefits.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED
Stock code: CAP
CLEAN AIR POWERAnnual Report and Accounts 2012 4544 CLEAN AIR POWER
Annual Report and Accounts 2012
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
REVENUE RECOGNITION
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably
measured. Revenue is measured at the fair value of the consideration received, excluding discounts, rebates, VAT and other sales taxes or
duty. The following criteria must also be met before revenue is recognised.
SALE OF GOODS
Revenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer,
usually on despatch of the goods.
RENDERING OF SERVICES
Revenues from development programmes are recognised as development work is performed during the contractual term, as measured by
performance milestones. Revenue is not recognised where there is uncertainty regarding the achievement of milestones.
INTEREST INCOME
Revenue is recognised as interest accrues using the effective interest method. The effective interest rate is the rate that exactly discounts
estimated future cash receipts through the expected life of the financial instrument to its net carrying amount.
CRITICAL ACCOUNTING POLICIES, JUDGEMENTS AND ESTIMATES
The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported for
assets and liabilities as at the balance sheet date and the amounts reported for revenues and expenses during the year. The nature of
estimation means that actual outcomes could differ from those estimates. Key sources of estimation, uncertainty and critical accounting
judgements are as follows:
DEFERRED TAXATION
In the preparation of the financial statements, the Group estimates the income taxes in each of the taxing jurisdictions in which the Group
operates as well as any deferred taxes based on temporary differences. Deferred tax assets relating to tax loss carry-forwards and temporary
differences are recognised in those cases when future taxable income is expected to permit the recovery of those tax assets. Changes in
assumptions in the projections of future taxable income, as well as changes in tax rates could result in significant differences in the valuation
of deferred taxes.
INTANGIBLE ASSETS
Development costs are capitalised in accordance with the accounting policy. Initial capitalisation of costs is based on management’s
judgement that technology and economical feasibility is confirmed, usually when project development has reached a defined milestone. In
determining the amounts to be capitalised, management makes assumptions regarding the expected future cash generation of the assets,
discount rates to be applied and the expected period of benefits over which to amortise the costs. These assumptions are reviewed on a
periodic basis to determine whether the asset has become impaired.
PROVISIONS
The Group recognises a provision for liabilities associated with vehicle and parts warranty. The Group has made assumptions in relation to
historical claims and the expected cost of claims. In relation to future claims, the Group has made assumptions based on the warranty expiry
dates and the history of previous claims.
SHARE-BASED PAYMENTS
The estimation of share-based payment costs requires the selection of an appropriate valuation model, consideration as to the inputs
necessary for the valuation chosen and the estimation of the number of awards that will ultimately vest, inputs which arise from judgements
relating to the continuing participation of employees.
3. SEGMENT INFORMATION
REVENUE BY BUSINESS SEGMENT
For management purposes the Group is organised into business units based on their products and services, and has two reportable operating
segments as follows:
The Vehicle systems (Dual-Fuel™) segment allows a standard diesel engine to operate on natural gas without any major changes to
the engine.
The Components segment designs and delivers innovative Hydraulic Valves and Natural Gas Injector Components for natural gas engines
that enable automotive and truck manufactures’ to build low-emission gasoline, natural gas and diesel vehicles that meet worldwide
emissions regulations.
Transfer prices between operating segments are on an arm’s length basis in a manner similar to transactions with third parties.
Year ended 31 December 2012 £’000
Dual-Fuel™ Components (9) Adjustments and Total
eliminations
Revenue
Third party sale of goods (1)(8) 5,400 1,305 - 6,705
Third party rendering of services (1)(8) 1,237 - - 1,237
Inter-segment (2) 918 - (918) -
Total revenue 7,555 1,305 (918) 7,942
Depreciation and amortisation (3) (1,125) (24) 19 (1,130)
Operating loss (4) (2,381) 196 (36) (2,221)
Net finance income 1
Loss for the year (2,220)
Assets
Operating assets (5) 5,329 234 (49) 5,514
Provisions (6) 400 75 (7) 468
Operating liabilities including provisions (6) 1,988 284 (7) 2,265
Other disclosures
Capital expenditure (7) 1,087 31 - 1,118
1. Dual-Fuel™ conversion segment includes revenue arising from development activity
2. Inter-segment revenues are eliminated on consolidation (£918,000)
3. Depreciation eliminated (£19,446) following transfer of intangible assets to Clean Air Power Inc.
4. Elimination of intragroup management charges (£63,759) and intragroup foreign exchange gains and losses (£22,094)
5. Adjustment to profit in inventory (£48,536)
6. Adjustment to provisions (£7,210)
7. Capital expenditure consists of additions to plant and equipment and intangible assets
8. Revenue from one customer amounted to £2,265,108 arising from sales related to the Dual-Fuel™ and Components segment
9. During the year the Emissions Reduction segment merged with the Components segment
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED
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4. OPERATING LOSS
3. SEGMENT INFORMATION CONTINUED
Year ended 31 December 2011 £’000
Dual-Fuel™ Components (9) Adjustments and Total
eliminations
Revenue
Third party sale of goods (1)(8) 2,474 1,281 - 3,755
Third party rendering of services (1)(8) 830 - - 830
Inter-segment (2) 516 - (516) -
Total revenue 3,820 1,281 (516) 4,585
Depreciation and amortisation (3) (399) (37) 6 (430)
Operating loss (4) (1,717) (394) (134) (2,245)
Net finance income 5
Loss for the year (2,240)
Assets
Operating assets (5) 2,306 1,645 (43) 3,908
Provisions (6) 216 186 (9) 393
Operating liabilities including provisions (6) 1,256 467 (9) 1,714
Other disclosures
Capital expenditure (7) 1,939 25 - 1,964
1. Dual-Fuel™ conversion segment includes revenue arising from development activity
2. Inter-segment revenues are eliminated on consolidation (£516,000)
3. Depreciation eliminated (£6,367) following transfer of intangible assets to Clean Air Power Inc.
4. Elimination of intragroup management charges (£77,000) and intragroup foreign exchange gains and losses (£53,027)
5. Adjustment to profit in inventory (£42,602)
6. Adjustment to provisions (£9,244)
7. Capital expenditure consists of additions to plant and machinery and intangibles
8. Revenue from one customer amounted to £1,843, 953 arising from sales related to the Dual-Fuel™ and Components segment
9. In 2012 the Emissions Reduction segment merged with the Components segment. All prior year results have been restated within the
Components segment
GEOGRAPHICAL INFORMATION
2012 2011
£’000 £’000
Revenues from external customers:
UK 2,115 385
USA 1,969 965
Australia 103 1,072
Rest of Europe 3,749 1,996
Rest of World 6 167
7,942 4,585
The revenue information is based on the location of the customer.
NON-CURRENT ASSETS Year ended Year ended
31 December 31 December
2012 2011
£’000 £’000
Revenues from external customers:
UK 1,633 1,338
USA 2,257 2,685
Australia 3 6
3,893 4,029
Non-current assets for this purpose consist of plant and equipment and intangible assets.
Loss on ordinary activities before taxation is stated after charging:
2012 2011
£’000 £’000
Inventory expensed in the year 4,032 1,899
Depreciation of plant and equipment 111 119
Amortisation of capitalised development and software expenditure 1,019 311
Foreign exchange differences 12 (2)
Operating lease rentals
- Other 73 188
- Land and buildings 402 376
Research and development expensed to income statement 974 534
5. AUDITORS’ REMUNERATION
2012 2011
£’000 £’000
Group audit fees 51 49
Other services – interim review fees 11 11
62 60
In 2012 there were no other fees (2011: £nil).
Stock code: CAP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED
Year ended Year ended
31 December 31 December
2012 2011
£’000 £’000
Analysis of charge in the year
Corporation tax at 24.5% / 26.5% - -
Deferred tax - -
- -
Stock code: CAP
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6. FINANCE INCOME
2012 2011
£’000 £’000
Bank interest receivable 2 5
7. FINANCE COSTS
2012 2011
£’000 £’000
Interest on obligations under finance lease 1 -
8. STAFF COSTS
The average monthly number of employees of the Group during the year, including Executive Directors, was as follows:
2012 2011
Number Number
Operational 34 37
Administrative 26 20
60 57
Staff costs for all employees, including Executive Directors, consist of:
2012 2011
£’000 £’000
Wages and salaries 2,959 2,791
Social security costs 254 229
Other pension costs 53 95
Expense of share-based payments 29 140
3,295 3,255
The Group operates money purchase (defined contribution) pension schemes. The assets of these schemes are held separately from those
of the Group in independently administered funds. The pension cost for the year represents contributions payable by the Group to these
funds and amounted to £52,636 (31 December 2011: £94,585). Unpaid pension costs at the year end amounted to £19,370 (2011:
£19,732).
Year ended Year ended
31 December 31 December
2012 2011
£’000 £’000
Emoluments:
Remuneration for management/non-executive services 545 507
Consultancy paid to Non-Executive Director 4 9
Defined contribution pension payments 7 7
556 523
At the year end, there were £1,080 unpaid pension contributions (2011: £990).
Pension contributions were made to personal plans of one of the Executive Directors (2011: one).
9. DIRECTORS’ EMOLUMENTS
Year ended Year ended
31 December 31 December
2012 2011
£’000 £’000
Highest paid Director:
Emoluments 316 284
Defined contribution pension payments - -
316 284
Disclosure of Directors’ renumeration, share options and pension contributions are on pages 23 to 25 within the renumeration report.
10. TAXATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED
Year ended Year ended
31 December 31 December
2012 2011
£’000 £’000
Deferred tax asset/(liability)
Plant and equipment (549) (912)
Short term temporary differences 320 577
Tax losses 229 335
- -
At the balance sheet date the Group has a deferred tax asset measured at rates of tax between 23% and 34% in relation to unused tax
losses of £15.6m (2011: £15.8m) available to offset against future profits. The amount recognised as a deferred tax asset is £229k (2011:
£335k). Remaining tax losses have not been recognised as an asset due to the unpredictability of future profit streams.
As at the balance sheet date, the main rate of UK corporation tax substantively enacted from 1 April 2013 was 23% and therefore
deferred tax has been provided for at this rate. A further reduction to the main rate was also proposed to reduce it by 2% per annum to
21% by 1 April 2014 and to 20% from 1 April 2015. These further changes had not been substantively enacted at the balance sheet date
and, therefore, are not included in these financial statements. To the extent that the deferred tax reverses more quickly than this the
impact on the net deferred tax asset will be reduced.
The proposed rate change will also impact the amount of future cash tax payments to be made by the Company. The effect of the proposed
changes to the UK tax system will be reflected in the financial statements of the Company in future years as appropriate, once the proposal
has been substantively enacted. For every 1% reduction in tax rate the unrecognised UK deferred tax asset will reduce by £32k.
Stock code: CAP
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Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2012 2012 2011 2011
£’000 % £’000 %
Reconciliation of tax charge
Loss on ordinary activities before tax (2,220) 100 (2,240) 100
Tax at 24.5% / 26.5% (544) 24.5 (594) 26.5
Tax effect of expenses that are not deductible 12 (0.5) 26 (1)
in determining taxable profit
Losses arising in the year not recognised in deferred tax 530 (24) 616 (28)
Movement in temporary differences in the year 96 (4) (78) 3.5
not recognised in deferred tax
Tax losses utilised (4) - - -
Effect of different tax rates of group companies (90) 4 30 (1)
operating in other jurisdictions
Tax for the year - - - -
Deferred tax
The deferred tax asset/(liability) recognised/(provided) at 31 December is as follows:
Unrecognised tax losses carried forward against certain future UK and overseas corporation tax liabilities have the following expiration dates:
2012 2011
£’000 £’000
2012 - -
2013 21 -
2014 4,957 5,184
2015 1,892 1,979
2016 and later 46,609 47,376
Available indefinitely 14,666 13,932
Tax losses available to carry forward 68,145 68,471
Amount of tax losses recognised in the deferred tax asset 587 859
Total gross tax losses available to carry forward 68,732 69,330
At the balance sheet date Clean Air Power Limited (Bermuda) had unused tax losses of £23k (2011: £28k) available to offset against
future profits.
BASIC
Basic loss per share is calculated by dividing net loss for the year attributable to equity holders of the parent by the weighted average number
of Common Shares in issue during the year.
Year ended Year ended
31 December 31 December
2012 2011
£’000 £’000
Loss for the year (2,220) (2,240)
Weighted average number of shares 145,321,900 104,983,416
Basic and diluted loss per share (1.53p) (2.13p)
The loss for the year and the weighted average number of ordinary shares for calculating the diluted earnings per share for the year to 31
December 2012 are identical to those used for the basic earnings per share. This is because the outstanding share options (note 26) would
have the effect of reducing the loss per ordinary share and would therefore not be dilutive.
11. LOSS PER SHARE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED
10. TAXATION CONTINUED
Stock code: CAP
CLEAN AIR POWERAnnual Report and Accounts 2012 5352 CLEAN AIR POWER
Annual Report and Accounts 2012
www.cleanairpower.comwww.cleanairpower.com
Plant and
equipment Total
£’000 £’000
Cost
At 1 January 2011 1,258 1,258
Additions 49 49
Disposals (23) (23)
Exchange differences 1 1
At 31 December 2011 1,285 1,285
Additions 164 164
Disposals (59) (59)
Exchange differences (50) (50)
At 31 December 2012 1,340 1,340
Depreciation
At 1 January 2011 989 989
Depreciation charge for the year 119 119
Disposals (19) (19)
Exchange differences 6 6
At 31 December 2011 1,095 1,095
Charge for the year 111 111
Disposals (56) (56)
Exchange differences (45) (45)
At 31 December 2012 1,105 1,105
Net book value
At 31 December 2012 235 235
At 31 December 2011 190 190
At 1 January 2011 269 269
The carrying value of plant and equipment held under finance leases and hire purchase contracts at 31 December 2012 was £24,007
(2011: £1,110).
12. PLANT AND EQUIPMENT – GROUP
Capitalised
development
expenditure Software Total
£’000 £’000 £’000
Cost
At 1 January 2011 3,840 202 4,042
Additions – Internal development 1,867 48 1,915
Exchange differences 4 - 4
At 31 December 2011 5,711 250 5,961
Additions – Internal development 888 66 954
Impairment (17) - (17)
Exchange differences (194) (9) (203)
At 31 December 2012 6,388 307 6,695
Amortisation
At 1 January 2011 1,622 179 1,801
Charge for the year 289 22 311
Exchange differences 9 1 10
At 31 December 2011 1,920 202 2,122
Charge for the year 984 35 1,019
Exchange differences (96) (8) (104)
At 31 December 2012 2,808 229 3,037
Net book value
At 31 December 2012 3,580 78 3,658
At 31 December 2011 3,791 48 3,839
At 1 January 2011 2,218 23 2,241
Capitalised development expenditure mostly relates to the Group’s Dual-Fuel™ products, which is amortised over periods between 18
months and 5 years.
The largest 2012 addition of £335,928 relates to the European OEM, the carrying value at the end of the year was £511,001. The project
will be completed in March 2013 at the start of European OEM production. Expenditure will be amortised over a period of 2.5 years.
Amortisation expenses are charged through administration expenses in the consolidated income statement.
13. INTANGIBLE ASSETS – GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED
Stock code: CAP
CLEAN AIR POWERAnnual Report and Accounts 2012 5554 CLEAN AIR POWER
Annual Report and Accounts 2012
www.cleanairpower.comwww.cleanairpower.com
Total
£’000
At 1 January 2011 1,649
Increase in respect of share based payments 123
At 31 December 2011 1,772
Increase in respect of share based payments 29
At 31 December 2012 1,801
The cost of share options granted by the Company for the benefit of employees of its subsidiaries has been recorded as an increase in the
cost of the Company’s investment in the shares of its subsidiary.
The following unlisted subsidiary undertakings at the end of the period have all been included in the consolidated accounts.
Proportion of voting rights
Name Country of registration and ordinary share capital Nature of business
Clean Air Power Limited England and Wales 100% Vehicle Conversions and
Product Support
Clean Air Power Inc USA 100% Vehicle Conversion, Components
and Product Support
Clean Air Power Pty Ltd Australia 100% Vehicle Conversions and
Product Support
14. INVESTMENTS – COMPANY
Year ended Year ended
31 December 31 December
2012 2011
£’000 £’000
Amounts owed by subsidiary undertakings 21,958 18,815
Amounts due from 1 January 2014 with an option to extend this deadline. 21,958 18,815
The amounts are not interest bearing. Amounts due from subsidiary undertaking are recorded at amortised cost.
15. OTHER FINANCIAL ASSETS (NON-CURRENT) – COMPANY
Year ended Year ended
31 December 31 December
2012 2011
£’000 £’000
Raw materials 1,087 598
Work in progress 75 20
Finished goods 46 52
1,208 670
There is no significant difference between the replacement value of stock and the amount at which it is stated in the financial statements.
During 2012 the amount of inventories write back is £18,887 which has been credited to cost of sales, following sales of legacy products
during the year. In 2011 £31,850 was written down and expensed to cost of sales.
16. INVENTORIES – GROUP
2012 2011
Group Company Group Company
£’000 £’000 £’000 £’000
Trade receivables 717 - 565 -
Prepayments and accrued income 325 - 234 -
VAT receivables 60 - 17 -
1,102 - 816 -
Trade receivables are non-interest bearing and are generally on 30-day terms, apart from vehicle conversions which are settled on
collection of the vehicle conversion. The credit quality of trade receivables that are neither past due nor impaired is assessed on an
individual customer basis by the Group’s credit control procedures.
As at 31 December 2012, trade receivables at nominal value of £nil (2011: £10,407).
Movements in the provision for impairment of receivables were as follows:
Total
£’000
At 1 January 2012 10
Additional provision in year -
Utilised during the year (10)
At 31 December 2012 -
As at 31 December, the ageing analysis of trade receivables that were past due but not impaired is as follows:
Neither past
due nor impaired
Total <30 days 30 – 60 days 61 – 90 days 91 – 120 days >120 days
£’000 £’000 £’000 £’000 £’000 £’000
2012 717 296 75 319 27 -
2011 565 505 24 36 - -
17. TRADE AND OTHER RECEIVABLES (CURRENT) – GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
Group Company Group Company
2012 2012 2011 2011
£’000 £’000 £’000 £’000
Trade payables 783 - 296 -
Taxation and social security 3 - 18 -
Other payables 174 - 91 -
Accruals 745 - 622 -
Obligations under finance lease 10 - - -
1,715 - 1,027 -
Terms and conditions of the above financial liabilities:
• Trade payables are non-interest bearing and are normally settled on 30-day terms.
• For terms and conditions relating to related parties, refer to Note 27.
Stock code: CAP
CLEAN AIR POWERAnnual Report and Accounts 2012 5756 CLEAN AIR POWER
Annual Report and Accounts 2012
www.cleanairpower.comwww.cleanairpower.com
18. CASH AND CASH EQUIVALENTS Year ended Year ended
31 December 31 December
2012 2011
£’000 £’000
Cash at bank and on hand
Sterling 3,089 1,884
US Dollar 98 446
Australian Dollar 17 92
3,204 2,422
Cash at bank and in hand earns interest at floating rates based on daily bank deposit rates.
19. SHARE CAPITAL Year ended Year ended
31 December 31 December
2012 2011
£’000 £’000
Authorised
200,000,000 (31 December 2011: 150,000,000 Common Shares of US$0.001)
Common Shares of US$0.001 each 125 94
Issued and paid up
177,053,469 (31 December 2011: 135,089,619 Common Shares of US$0.001)
Common Shares of US$0.001 each 109 83
For details of shares issued, refer to note 29.
20. TRADE AND OTHER PAYABLES (CURRENT) – GROUP AND COMPANY
Engine
maintenance
Dilapidations provisions Total
£’000 £’000 £’000
At 1 January 2012 - 393 393
Additional provisions in year 43 388 431
Utilisation of provisions - (151) (151)
Unused amounts reversed - (193) (193)
Exchange differences - (12) (12)
At 31 December 2012 43 425 468
Dilapidations provisions relate to property and will be utilised during the lease period.
Engine maintenance provisions relate to warranties given by the Group in respect of products sold. The warranty period in most cases is 12
months or 250,000 miles, whichever comes first. In certain cases, the customer may negotiate a period longer than 12 months. This
expenditure arises over different times over the life of the product and is expected to be fully utilised within one year.
The Group has made assumptions in relation to historical warranty claims and the expected cost of settling such claims. In relation to
future claims, the Group has made assumptions based on warranty expiry dates and the history of previous claims.
Engine
maintenance
Dilapidations provisions Total
£’000 £’000 £’000
Non-current (greater than 1 year) 43 - 43
Current (less than 1 year) - 425 425
At 31 December 2012 43 425 468
21. PROVISIONS – GROUP
22. DEFERRED REVENUE – GROUPYear ended Year ended
31 December 31 December
2012 2011
£’000 £’000
Deferred revenue 82 294
The deferred revenue refers to development revenue that has been invoiced but not completed at 31 December 2012.
23. OTHER PAYABLES (NON CURRENT) – GROUP
Year ended Year ended
31 December 31 December
2012 2011
£’000 £’000
Obligations under finance lease 11 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED
Stock code: CAP
CLEAN AIR POWERAnnual Report and Accounts 2012 5958 CLEAN AIR POWER
Annual Report and Accounts 2012
www.cleanairpower.comwww.cleanairpower.com
24. FINANCIAL INSTRUMENTS
In the normal course of business, the Group uses certain financial instruments including cash, equity rights and various items such as trade
debtors and trade creditors that arise directly from its operations. The main purpose of these instruments is to provide finance for the Group’s
operations.
All financial assets are classified as ‘loans and receivables’ under IAS 39 and all financial liabilities are carried at amortised cost.
CAPITAL RISK MANAGEMENT
The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in
order to support its business and maximise shareholder value. Capital represents share capital, share premium and other reserves. The Group
manages its capital structure and makes adjustments to it, in light of changes in economic conditions and the Group’s resource requirements.
To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders or issue new shares. No changes
were made in the objectives, policies or processes during the years ended 31 December 2012 and 31 December 2011.
The main risks arising from the Group’s financial instruments are market price risk, liquidity risk, foreign currency risk and interest rate risk.
The Group’s policies and objectives in each of these areas are noted below.
Treasury Policies and Financial Risk
Surplus funds are intended to support the Group and Company’s short-term working capital requirements. These funds are invested through
the use of overnight deposits and the policy is to maximise fixed interest returns as well as provide the flexibility required to fund on-going
operations. It is not the Group’s policy to invest in financial derivatives.
Market price risk
The Group’s main exposure to market risk is currency risk due to the different countries it operates in. It constantly monitors these risks by
analysing interest rates and exchange rates in the different markets.
Liquidity risk
The Group had no borrowing facilities at 31 December 2012 (2011: £nil).
As described on page 22, the Directors believe that the delivery of additional equity funds in September 2012 has ensured that the Group
has adequate resources to continue in operational existence for the foreseeable future.
The Group seeks to manage financial risk, and in particular liquidity risk, ensuring that sufficient liquidity is available to meet foreseeable
requirements and to invest surplus cash in low risk overnight deposits with reputable institutions.
Foreign currency risk
Foreign currency is mitigated wherever possible by matching the currency that purchases are made with receipts from debtors denominated
in that currency. The Group hedges its foreign currency position by operating non-sterling currency bank accounts. This policy is regularly
reviewed.
The table below shows the Group’s net foreign currency monetary assets which give rise to net currency gains and losses recognised in
the group income statement. At 31 December 2012, these currency exposures, excluding the net assets of foreign operations were as
follows:
Net foreign currency monetary assets
AUS Dollar US Dollar Euro Total
£’000 £’000 £’000 £’000
2012
Sterling 12 7 7 26
Total 12 7 7 26
2011
Sterling 29 6 - 35
Total 29 6 - 35
The sensitivity to a possible change in the pound against the AUS Dollar, US Dollar and Euro, with all variables held constant, of the
Group’s profit before tax due to foreign exchange translation of these monetary assets and liabilities is not material. The Group’s equity is
not sensitive to such changes as there are no forward currency hedges or net investment hedges.
Interest rate risk
The Group finances its operations through cash reserves and issuance of shares. The interest rate policy depends on economic and market
conditions. Surplus cash deposits are held on overnight deposit with a view to maximising the return on surplus funds.
The following table demonstrates the sensitivity to a possible change in the interest rate with all variables held constant, of the Group’s
profit before tax and the Group’s equity:
Increase/decrease Effect on Effect on
in interest rate profit before tax equity
£’000 £’000
2012
Increase in base rate of interest 1% 27 27
Decrease in base rate of interest -1% (5) (5)
2011
Increase in base rate of interest 1% 22 22
Decrease in base rate of interest -1% (5) (5)
Credit risk
There are no significant concentrations of credit risk within the Group unless otherwise disclosed. The maximum credit risk exposure
relating to financial assets is represented by carrying value as at the balance sheet date.
The Group has established procedures to minimise the risk of default by trade debtors including detailed credit checks undertaken before
a customer is accepted. Historically, these procedures have proved effective in minimising the level of impaired and past due debtors.
Borrowing facilities
The Group has no borrowing facilities available to it at 31 December 2012 (2011: nil).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED
Year ended Year ended
31 December 31 December
2012 2011
£’000 £’000
Land and buildings - Less than 1 year 331 260
- After 1 year but no more than 5 years 754 667
- More than 5 years - 93
1,085 1,020
Plant and Machinery - Less than 1 year 59 34
- After 1 year but no more than 5 years 104 29
163 63
Vehicles - Less than 1 year 25 15
- After 1 year but no more than 5 years 16 -
41 15
Stock code: CAP
CLEAN AIR POWERAnnual Report and Accounts 2012 6160 CLEAN AIR POWER
Annual Report and Accounts 2012
www.cleanairpower.comwww.cleanairpower.com
Floating rate
financial assets
£’000
2012
Sterling 3,089
US Dollar 98
AUS Dollar 17
3,204
2011
Sterling 1,884
US Dollar 446
AUS Dollar 92
2,422
Fair values of financial instruments
In the opinion of the Directors, the book value of the financial instruments is not materially different from their fair values. The book value ofthe financial assets is considered equal to their fair value because of the short maturity period.
All financial liabilities are expected to be settled at their carrying amount within the next 12 months, except for certain obligations underfinance leases which are detailed in note 23.
24. FINANCIAL INSTRUMENTS CONTINUED
Interest rate risk profile of financial assets
The interest rate profile of the interest bearing financial assets (only cash and cash equivalents) of the Group at 31 December 2012 is as follows:
No operating leases have any escalation clauses or purchase options attached to the leases.
FINANCE LEASE AND HIRE PURCHASE COMMITMENTS
The Group has entered into a hire purchase contract for one item of equipment. Future minimum lease payments under hire purchase
contracts together with the present value of the net minimum lease payments are as follows:
2012 2011
Minimum Present value Minimum Present value
payments of payments payments of payments
£’000 £’000 £’000 £’000
Within one year 10 10 - -
After one year but no more than five years 12 12 - -
Total minimum lease payments 22 22 - -
Less amounts representing finance charges (1) - - -
Present value of minimum lease payments 21 22 - -
26. SHARE–BASED PAYMENTS
The Group operates an Incentive Plan under which employees of the Group are granted options to subscribe for new ordinary shares of the
Company. Options are exercisable at a price equal to the average quoted market price of the Company’s shares at the date of the grant.
Options are forfeited if the employee leaves the Group before the options vest. The contractual life of each option granted is ten years and
the vesting conditions relate to the service periods of employees (non-market related) and performance conditions relating to the number of
systems sold and future cooperation agreements. The vesting period is three years. There are no market related performance conditions
attached to the options.
On 10 April 2012, 30,000 share options were granted. These options were subject to service periods of employees (non-market related) and
performance conditions relating to the number of systems sold and future cooperation agreements. The vesting period is three years. There
are no market related performance conditions attached to the options.
The Group recognised total expenses of £29,464 (2011: £139,610) related to equity-settled share-based payments transactions during the
year, of which £21,549 (2011: £126,418) has been expensed in Clean Air Power Limited UK, £7,915 (2011: £13,192) has been expensed in
Clean Air Power Inc and £nil (2011: £nil) has been expensed in Clean Air Power Pty Ltd.
The fair value of the options is estimated at the grant date using Black-Scholes pricing model, taking into account the terms and conditions
upon which the instruments were granted.
Movements in share options granted post 28 February 2006 and outstanding at the balance sheet date, together with weighted average
exercise price were as follows:
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED
25. COMMITMENTS AND CONTINGENCIES
OPERATING LEASE COMMITMENTS – GROUP AS LESSEE
The Group had entered into commercial leases on certain properties, motor vehicles and items of equipment.
The leases have an average life of between 3 and 5 years. There are no restrictions on the Group by entering into these leases.
OPERATING LEASES
The future minimum rentals payable under non-cancellable operating leases at 31 December 2012 are as follows:
Stock code: CAP
CLEAN AIR POWERAnnual Report and Accounts 2012 6362 CLEAN AIR POWER
Annual Report and Accounts 2012
www.cleanairpower.comwww.cleanairpower.com
26. SHARE–BASED PAYMENTS CONTINUED
2012 2011
Weighted Weighted
Number of average exercise Number of average exercise
shares price £ shares price £
Outstanding at the beginning of the year 6,057,238 0.07 6,354,662 0.41
Granted during the year 30,000 0.18 5,961,119 0.07
Surrendered during the year - - (5,968,244) 0.40
Forfeited during the year (20,000) 0.07 (290,299) 0.45
Exercised during the year - - - -
Outstanding at the end of the year 6,067,238 0.085 6,057,238 0.07
Exercisable at the end of the year - - - -
The estimated fair value of the options granted is as follows:
£’000
6 December 2011 73,918
10 April 2012 4,038
77,956
The weighted average remaining contractual life for the share options outstanding as at 31 December 2012 is 8.92 years
(2011: 9.92 years).
The weighted average fair value of options granted during the year was £0.18 (2011: £0.07).
The range of exercise prices for options outstanding at the year end was £0.06-£0.22 (2011: £0.06-£0.085).
The following table lists inputs to the model used for the years ended 31 December 2012 and 31 December 2011.
2012 2011
Expected volatility (%) 93.41% 68.54%
Expected life (months) 36 36
Risk free rate (%) 0.54% 0.58%
Expected dividends Nil Nil
Model used Black-Scholes Black-Scholes
27. RELATED PARTY DISCLOSURES
The financial statements include the financial statements of Clean Air Power Limited (Bermuda) and the subsidiaries in the following table:
% equity % equity
Country of interest interest
Name incorporation 2012 2011
Clean Air Power Inc. United States 100 100
Clean Air Power Limited England & Wales 100 100
Clean Air Pty Ltd Australia 100 100
Clean Air Power Limited (Bermuda) is the ultimate parent of the Group. Transactions and balances made on an arms’ length basis with
Group entities are eliminated in the consolidated financial statements.
During the year Clean Air Power Inc. sold £907,670 (2011: £263,771) of vehicle components to Clean Air Power Limited (UK).
During the year Clean Air Power Inc. sold £341 (2011: £98,990) of vehicle components to Clean Air Power Pty Ltd.
During the year Clean Air Power Ltd (UK) sold £12,264 (2011: £2,855) of vehicle components to Clean Air Power Inc.
During the year Clean Air Power Ltd (UK) sold £1,940 (2011: £150,697) of vehicle components to Clean Air Power Pty Ltd.
The following table provides the total balances, which have been entered into with related parties for the relevant financial year.
Amounts owed to related parties 2012 £’000
Clean Air Power Clean Air Power Clean Air Clean Air
Limited (Bermuda) Limited Power Inc. Power Pty Ltd Total
Amounts owed by related parties
Clean Air Power Limited (Bermuda) - 21,870 42 46 21,958
Clean Air Power Limited (21,870) - 863 594 (20,413)
Clean Air Power Inc. (42) (863) - 707 (198)
Clean Air Power Pty Ltd (46) (594) (707) - (1,347)
Total (21,958) 20,413 198 1,347 -
The terms relating to amounts owed by Clean Air Power Limited to Clean Air Power Limited (Bermuda) are described in note 15. Other
intragroup balances are expected to be settled in a normal trading cycle.
Amounts owed to related parties 2011 £’000
Clean Air Power Clean Air Power Clean Air Clean Air
Limited (Bermuda) Limited Power Inc. Power Pty Ltd Total
Amounts owed by related parties
Clean Air Power Limited (Bermuda) - 18,747 36 32 18,815
Clean Air Power Limited (18,747) - 1,010 498 (17,239)
Clean Air Power Inc. (36) (1,010) - 778 (268)
Clean Air Power Pty Ltd (32) (498) (778) - (1,308)
Total (18,815) 17,239 268 1,308 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED
Expected volatility was found by using a historical volatility calculator applied to the Company’s Share Price over 12 months and assumes that
historical volatility is indicative of future trends. The expected life used in the model is a weighted average based on the vesting period of the
options.
Stock code: CAP
CLEAN AIR POWERAnnual Report and Accounts 2012 6564 CLEAN AIR POWER
Annual Report and Accounts 2012
www.cleanairpower.comwww.cleanairpower.com
Year ended Year ended
31 December 31 December
2012 2011
COMPENSATION OF KEY MANAGEMENT PERSONNEL £’000 £’000
Short-term employee benefits 645 598
Post-employment benefits 18 17
Share-based payments 17 115
680 730
Details of the directors’ interests are included in the Directors’ Remuneration Report on pages 23 to 25.
TRANSACTIONS WITH RELATED PARTIES
The Group receives consultancy services from Prof. Dr. Karl Victor Schaller, Non-Executive Director of Clean Air Power Limited (Bermuda)
and Gary Ireson, the Director of Clean Air Power Pty Ltd.
The following table provides the total amount of transactions, which have been entered into on an arms length basis with related parties
for the relevant financial year.
28. DESCRIPTION OF RESERVES
Issued Capital
The balance classified as share capital includes the total net proceeds on issue of the Company’s equity share capital, comprising of $0.001
ordinary shares.
Share Premium
The balance on the share premium reserve represents the fair value of the consideration given in excess of the nominal value of the ordinary
shares issued in an acquisition made by the issue of shares.
Translation Reserve
The translation reserve contains all foreign exchange differences arising from the translation of the Group’s net investment in overseas subsidiaries.
Other Reserves
Other reserves mainly relates to the additional paid in capital following the reorganisation of the Group in 2006. This amount is the excess of par
paid by the original investors of Clean Air Power Inc.
2012 2011
£’000 £’000
Gary Ireson
Services received from related parties 20 19
Amounts owed to related parties 3 -
2012 2011
£’000 £’000
Prof Dr. Karl Victor Schaller
Services received from related parties 5 9
Amounts owed to related parties - -
29. FINANCING
In September 2012, the Company successfully raised approximately £3.35m from a combination of new and existing investors; this increased
the ordinary share capital to £108,765 by the creation of an additional 41,963,850 Ordinary Shares with a nominal value of $US0.001 each
and a market price of 8.00 pence per share.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED
27. RELATED PARTY DISCLOSURES CONTINUED
Aston Way
Leyland
Lancashire
PR26 7UX
United KIngdom
www.cleanairpower.com