4 July 2016

TRAKM8 HOLDINGS PLC

 

('Trakm8' or 'the Group' or 'the Company')

 

Preliminary Results

for the year ended 31 March 2016

 

Trakm8, the AIM quoted telematics and data provider to the global market place, is pleased to announce its unaudited preliminary results for the year ended 31 March 2016.

 

Financial highlights:

	2016	2015	Change
Revenues	£25.65m	£17.85m	+44%
Operating Profit	£3.11m	£1.76m	+77%
Adjusted operating profit*	£3.92m	£1.88m	+109%
Cash generated from operations	£4.45m	£1.19m	+274%
Profit before tax	£3.00m	£1.70m	+76%
Adjusted earnings per share*	13.44p	6.24p	+115%
Basic earnings per share	11.15p	5.84p	+91%
Dividend per share (proposed)	2p	nil	n/a

 

·     Revenues up 44% year on year included:

o  Strong organic growth of 28%

o  First time contributions from the trade and assets of DCS Systems Ltd ("DCS") and Route Monkey  Holdings Ltd ("RML") which were acquired in the year

o  Recurring revenues up 49% to £8.31m

·     Orders received up 29% year on year (organic basis)

·    Net debt⁺ of £1.09m (2015: net cash £0.60m), following £10.4m acquisition cash spend, £6.0m equity placing and strong cash flow and conversion

·     Maiden final dividend of 2 pence per share to be proposed

Operating highlights: 

·     151,000 units now reporting to our servers (2015: 102,000)

·   Two acquisitions, DCS and RML completed in the year; integrations proceeding to plan.  Both are  profitable, cash generative and earnings enhancing

·      Substantial contract wins for both fleet and insurance customers:

o  during the year: with Iceland Foods, Kubota UK, and the AA

o  post year end: with Scottish Power, BT Fleet, Allianz and Shell

·     Significant investment in R&D and sales and marketing resources to drive growth

^* before exceptional costs and share based payments   ⁺ total borrowings less cash

 

 Outlook

·     Continuation of a strong order pipeline and increase in sales opportunities

·     Good visibility of revenue and cash flow due to recurring revenues and new contract wins

 

John Watkins, Executive Chairman said:

"This has been a rewarding year for the Group with revenues up by 44% and adjusted operating profit up by 109% despite a significant increase in overheads as we invested as planned in the future growth of the business. We have achieved strong organic growth, good first time contributions from acquisitions as well as robust cash flow and cash conversion. This strong financial performance is enabling the payment of a proposed maiden dividend.

 

The Group has had a successful start to the new financial year consistent with its expectations for the year as whole, notwithstanding the new uncertainties created due to the Brexit vote. The latest contract win with Allianz together with our strong pipeline of further opportunities provide additional visibility in our outlook for this year.  Therefore the Board remains optimistic of a positive outlook for the year as a whole." 

 

 

 

We expect to have our audited Annual Report and Financial Statements for the year ended 31 March 2016 available on our website on 11 July 2016.

 

A presentation for analysts is being hosted today (4 July 2016) at 9.15am for 9.30am at MHP's offices. For further information, please contact MHP Communications on trakm8@mhpc.com.

 

-ends-

 

For further information please contact:

 

Trakm8 Holdings plc	01747 858444
John Watkins, Executive Chairman
James Hedges, Finance Director
MHP Communications (Financial PR to Trakm8)	020 3128 8100
Reg Hoare / Jade Neal
finnCap (Nomad & Broker to Trakm8)	020 7220 0500
Ed Frisby / Simon Hicks - corporate finance Joanna Weaving - corporate broking
J.P. Morgan Cazenove (Financial Adviser)	020 7742 4000
Robert Constant
Wendy Hohmann

 

Notes to Editors

 

About Trakm8

 

Trakm8 Group is a UK based Big Data company utilising telematics as their primary enabler. Through IP owned technology, over two billion miles worth of data is collected annually through their fleet management solutions to create and fine tune algorithms used to score driver behaviour, monitor vehicle health and continuously improve the security and operational efficiencies of customers' vehicles.

 

With its headquarters in Dorset and a manufacturing facility in the West Midlands, the Group supplies a number of well-known customers in the fleet management and insurance sectors across the UK and further afield including customers such as the AA, Saint Gobain, EON, Direct Line Group and Young Marmalade.

 

The Group's portfolio offers complete telematics solutions, which since the acquisition of the assets of DCS Systems, includes dashboard cameras that enable customers to record driving incidents and mitigate the risk from "crash to cash" accidents. This is complemented through a comprehensive hardware range, which includes a self-install unit that is one of the smallest available on the global market.

 

Recently, the Group acquired Route Monkey, significantly enhancing the Group's Logistics solution which offers both route scheduling and optimisation, including routing for Electric Vehicles. 

 

Trakm8 has been listed on the AIM market of the London Stock Exchange since 2005.

 

www.trakm8.com / @Trakm8

 

 

Trakm8 Holdings PLC

EXECUTIVE CHAIRMAN'S STATEMENT

 

Introduction

 

I am very pleased to present our results for the year ended 31 March 2016.  This has been a rewarding year for the Group with revenues up by 44% to £25.65m and adjusted operating profit up by 109% to £3.92m despite a significant increase in overhead costs as we invested as planned in the future growth of the business.  Our profit before tax increased to £3.00m (2015: £1.70m).

 

Our sales of new fleet management solutions and insurance products have culminated in growth in all areas and provide us with a solid base of recurring revenues from which we can continue to expand.  Furthermore the range and breadth of the data we are now able to provide gives us an overwhelming proposition for all the business sectors we touch.

 

The revenue growth of 44% was made up of organic growth of 28% with the addition of first time contributions from the acquisitions we made during the year. Orders received are also up by 29% like for like. 

 

Trakm8's business model is strongly cash generative now that it is a profitable business and given the robust core of recurring revenues, although this tends to be substantially skewed to the second half due to the timing of contract renewals.  This year we have reported cash generation from operating activities of £4.45m (2015: £1.19m), with significantly improved free cashflow conversion^*, after capex and capitalised development costs, of 51% (2015: -1%). The improved cash conversion is expected to continue as revenues increase and development spending as a percentage of revenues reduces.

^{* Free cashflow conversion being net cash from operating activities / adjusted operating profit}

 

Acquisitions

 

During the financial year we completed two acquisitions. We acquired the trade and assets of DCS Systems Ltd ("DCS") in June 2015 giving us vital knowledge and experience of digital camera systems and included the Dogcam, RoadHawk and Lawmate brands.  The purchase consideration was £3.28 million.

 

In December 2015 we acquired the Route Monkey Group ("RML") which provides routing and scheduling optimisation solutions.  The purchase consideration was for a value of £5.04m, together with further contingent consideration of up to a £2.0m maximum.  However, despite an earnings enhancing performance and encouraging prospects, it is unlikely that RML will achieve its target to trigger the payment of the contingent consideration (which has therefore not been provided for).

 

These two acquisitions complement our vehicle telematics solutions and are enabling us to develop the more integrated solutions that our customers are demanding, providing richer and more refined data.  The integration of both of these acquisitions is on track and they have been earnings enhancing and cash generative since their acquisition dates.

 

Solutions

 

Solutions sales are the core of our telematics offerings and comprise revenues from customers where they pay for service fees in addition to the cost of the hardware, installation and other bespoke services.  Sales increased by 57% to £17.21m (2015: £10.98m) and more importantly within this growth our recurring revenues grew by 49% to £8.31m (2015: £5.58m).  Growing these service revenues is a key focus as it provides increasing confidence and predictability to future periods.  In total we had 151,000 units (2015: 102,000) reporting to our servers at the year end.

 

Our solutions sales cover both the fleet management and insurance market sectors.  The total fleet management units only increased marginally over the year to 58,522 (2015: 57,763) due to the loss of circa 5,000 units from our South African distributor who struggled with the weakness of the rand.  Telematics for insurance is a newer market and is currently experiencing high levels of growth.  At the year end we had 92,025 insurance solution units reporting to our servers (2015: 44,468). Market forecasts are predicting growth rates in excess of 42% and we have certainly seen an increased level of interest from established insurance businesses.  As a result the lifetime cost of an installed unit has dropped significantly over the last couple of years with a growing appetite from customers for richer data. 

 

We have invested in our First Notification of Loss ("FNOL") algorithms and are now able to identify the majority of crashes - particularly at speeds below 40 mph which are notoriously difficult to detect.  According to the US National Highway Traffic Safety Administration in excess 90% of insurance claims are due to driver error and the ability to offer black box data in conjunction with video footage of events leading up to an accident is proving to be a powerful driver to enable insurance companies to reduce the cost and management of policyholder's claims.

 

We have accelerated the development of our Fleet management solutions and believe we offer one of the widest ranges of solutions available in addition to camera and optimisation capabilities.  We are now able to download and report on vehicle diagnostic data from in excess of 95% of all vehicles since 2006 and this is providing valuable information in particular for fleet managers and our road side assistance customers.  New contracts won during the year included Bibby Distribution and Kubota together with the contract extension we announced last December with the AA whereby our telematics solutions will be offered to the AA business customers.  We were also delighted that Route Monkey secured a three year contract extension with Iceland for their optimisation software.

 

In addition since the year end we have announced a new contract with Scottish Power to provide our telematics solution with driver feedback devices to 1,600 vehicles and a contract with BT Fleet to market our telematics solutions to their business customers.  We have also secured a 12 month contract extension from Shell, which has been Route Monkey's largest customer in recent years. Furthermore, we have been awarded two initial contracts by Allianz, the global insurance company, to supply devices with specifically developed software to Allianz's Global Telematics business. The initial supply contract comes with a launch order of 5,000 devices to start the pipe filling for Allianz Insurance telematics in China.

 

 

Products

 

Product sales are the sales of our hardware mainly to other telematics service providers and integrators.  In addition the sales of the DCS camera products are now included together with the revenues from our contract electronic manufacturing facility in Coleshill, Birmingham.  Total product revenues increased by 23% to £8.44m (2015: £6.87m) with £1.85m of this growth being accounted for by sales of camera products. Organic product sales reduced by £0.3m as we continue to focus on solutions sales to our own customers rather than lower margin product sales to third parties. 

 

Reflecting this strategy, during the year our manufacturing facility made in excess of 138,000 telematics units and it is anticipated this growth will continue.  Manufacturing our own telematics units gives the Group a lower overall unit cost together with a much shorter time to market for introducing new products.  For example after only two years of marketing the smallest self fit telematics device, we are now developing our 4^th version as we continue to refine the product and enhance the insights that can be gained from the richness of the data.

 

Research and Development

 

We operate in a competitive market where hardware costs are reducing, along with the costs of sending data over the mobile networks.  At the same time customers are becoming increasingly aware of the variety and volumes of data that can be made available from telematics solutions and this is driving the market towards providing "more for less".  We also exist in a fragmented market where there are many competitors with few barriers to entry.  Trakm8 has always focussed on owning the intellectual property ("IP") we use in our products and solutions and we see this as one of our key competitive advantages.  Telematics systems are complex but because we own all the elements that encompass a solution (with the exception of the mobile networks) we have the ability to understand and resolve problems more easily than our competitors.

 

The Group has invested in a 44% increase in the average number of Engineers in our research & development teams to 59 (2015: 41) during the year.  We have rolled out our battery health monitoring algorithm and submitted an associated patent application.  Our self fit telematics device continues to be the smallest on the market and is now auto-configurable when plugged into a new vehicle.  We have also reduced the time our installers require to fit our fixed wired devices.  Our hosting architecture has also been developed so that we can now manage much larger quantities of devices using Amazon Web Services.

 

We have continued to enhance our algorithms for the risk scoring of drivers for insurance companies so that their premiums can be more accurately calculated to match the level of risk.  Our acquisition of the DCS assets in June 2015 has given us a valuable insight into dash cams and later this year we will be launching an integrated telematics and camera product.  This will enable users to receive an instant summary of events leading up to a crash incident including visual data from the camera and vehicle data from our telematics unit. 

 

During the year the Group initiated a data security audit by a third party to understand the strengths and weaknesses in our system for collecting, transferring, storing and presenting the growing volumes of data we are now managing.  Data security is very important to us and to all of our customers and we were pleased to gain accreditation with ISO 27001 - the standard for Information Security Management. 

 

Board Changes

 

During the year we made significant changes to our Board reflecting the need to strengthen and focus it as a result of our strong growth. First, Bill Duffy joined as an independent Non-Executive Director. Bill has considerable commercial experience having been CEO of Andrew Page, Halfords Autocentres and a number of other leading automotive aftermarket companies.  He has also been a consultant to the Board over the past 12 months.

 

In addition Trakm8 appointed two of its executives to be Directors of the Group: Sean Morris, as Group Engineering Director and Mark Watkins as Group Operations Director. Sean joined the Group following senior engineering positions at Continental UK, RAC and Aston Martin. Mark joined the Group following a successful career in IT and operations at Continental UK and Ford Motor Co.

 

Paul Wilson resigned from the Board in December but remains a senior executive of the Group and we wish to thank him for his contribution over the past six years. He is now concentrating his efforts on supporting the AA Fleet Intelligence reseller opportunity.

 

 

Advisors

 

We were pleased to announce in April 2016 the appointment of JP Morgan Cazenove as financial adviser to the Company.  finnCap remain the Company's Broker and Nominated Adviser.  This appointment reflected the Board's belief that it is appropriate to broaden its advisory relationships given the evolution of the business and the telematics industry as a whole and to help us take the next steps in the Company's development.

 

Dividend

 

In April 2016 we announced that the Board had considered the payment of a dividend in light of the Group's strong financial performance and its confidence in Trakm8's prospects. As a consequence the Board is proposing to pay a maiden dividend of 2 pence per share subject to shareholder approval at our Annual General Meeting in September 2016.  The dividend timetable will be confirmed in due course.

 

People

 

The number of people we employ has grown rapidly as we have continued to invest strongly in our customer service, sales and marketing and engineering teams.  In total our organic staff numbers have grown by 24% over the year and in addition we have welcomed 24 new colleagues from the DCS and Route Monkey acquisitions.  It has been a demanding year as the Group has experienced rapid growth and I would like to thank everyone for their hard work, dedication and contribution to the ongoing success of the business

 

 

Outlook

 

The Group has had a successful start to the new financial year consistent with its expectations for the year as whole. The first two months have continued with the strong organic growth of previous years with orders received 57% greater than the corresponding period last year (organic 44%). Following the high level of investment in the business last year, we anticipate costs growing more slowly this year.  We will also benefit from full year contributions from our two recent acquisitions.

 

The referendum decision to leave the European Union will inevitably lead to uncertainty both politically and commercially for some time.  Uncertainty is always unwelcome and may lead to potential customers choosing to delay their investment decisions until the outlook becomes clearer.  In addition recent currency movements may lead to additional costs for many of our components which are not priced in sterling but equally our solutions will become more attractive to overseas customers.    

 

We have also recently announced two contracts with Allianz, the global insurance company to provide the next generation of our self fit telematics device together with the development of specific software to meet their requirements.  These important contracts together with our strong pipeline of further opportunities provide additional visibility in our outlook for this year.

 

Therefore the Board remains optimistic of a positive outlook for the year as a whole. 

 

John Watkins

EXECUTIVE CHAIRMAN

 

1 July 2016

 

 

Trakm8 Holdings PLC

 

FINANCIAL REVIEW

 

Trading Results

 

Revenues for the year were up by 44% at £25.65m (2015: £17.85m). Organic growth was 28% and this was supplemented by a £1.85m contribution from our acquisition of the DCS assets in June 2015 and a further £0.86m from the acquisition of Route Monkey at the end of December 2015.  Sales of digital cameras have performed broadly in line with our expectations and Route Monkey revenues benefited from the contract renewal with Iceland in January 2016.  Particularly pleasing was the 49% increase in our recurring revenues to £8.31m (2015: £5.58m). Our recurring revenues are reported as fees from service and data feeds only and do not include any amortised hardware costs for contracts which have been offered at a fixed monthly fee for a specific term.

 

Our gross margin percentage increased by 3.1% to 48.3% (2015: 45.2%). We would anticipate our gross margin percentage to increase in future years as the proportion of our recurring revenues increases and as we concentrate our manufacturing facility on making a more focussed range of products. This however will be tempered by the increasing price pressure that exists in the telematics market towards lower cost hardware and richer data. Trakm8 is strongly placed to manage these demands through owning all of the intellectual property in its telematics solutions.

 

Adjusted Operating Profit

 

One of our key performance indicators is Adjusted Operating Profit (Operating Profit before exceptional costs and share based payments). The growth in our Adjusted Operating Profit was 109% to £3.92m (2015: £1.88m).

 

Overheads

 

Our overheads before exceptional costs increased by 39% to £8.76m (2015: £6.30m) reflecting a significant ramp up in expensed research and development, customer service, sales and marketing activities during the year.  This led to a substantial increase in our average staff numbers over the year from 157 in 2014/15 to 224 in 2015/16.  In total 24 staff members joined us as a result of the acquisitions of DCS and RML.  The increase in our investment in new products and research and development over the year resulted in the capitalisation of development costs of £1.85m (2015: £0.86m) and the expensing of £1.00m (2015: £0.35m) in line with the accounting standards. 

 

Profit before tax

 

Profit before tax has increased by 76% to £3.00m (2015: £1.70m).  The tax credit for the year is £0.34m (2015: tax charge £0.0m). Profit before tax includes exceptional costs of £0.61m (2015: nil) which were incurred in relation to the acquisition and integration costs of the trade and assets of DCS and RML. 

 

The Group has tax losses of £6.3m to utilise in future periods.

 

Earnings per share

 

Basic earnings per share increased by 91% to 11.15 pence (2015: 5.84 pence).  Our adjusted earnings per share which is before exceptional costs and share based payments, increased by 115% to 13.44 pence (2015: 6.24 pence).

 

Balance Sheet, Financing and Cash Flow

 

Our intangible non current assets grew by £10.34m as a result of the two acquisitions we completed during the year together with our increased investment in development costs.  Goodwill arising from the DCS acquisition was £2.18m with a further £0.32m intangibles relating to acquired development costs.  The acquisition of Route Monkey created £5.59m of goodwill and in addition we acquired £0.98m of algorithms and related software.

 

A new five year bank facility was taken out with HSBC in December to replace existing facilities and to complete the acquisition of Route Monkey.  In addition a new £5m revolving credit facility was granted by HSBC and this facility has yet to be drawn down. 

 

In addition to this facility, to fund the Route Monkey acquisition 1,801,802 new ordinary shares were placed with institutional investors at a price of 333 pence, to raise £6m.  184,441 new ordinary shares were also issued as part of the consideration to the senior management shareholders of Route Monkey.

 

Total cash generated from operations during the year was an excellent £4.45m (2015: £1.19m) representing 114% of adjusted operating profit (2015: 63%).  Free cashflow conversion, after capex and capitalised development costs, was 51% (2015: -1%).  As a result we ended the year with total cash of £3.87m set against total borrowings of £4.96m, giving overall a net debt of £1.09m (2015: net cash £0.60m).

 

 

James Hedges

Finance Director

1 July 2016