Trakm8 Hldgs Regulatory News (TRAK)

21 Sep 2007 07:01

Trakm8 Holdings PLC21 September 2007 TrakM8 21 September 2007Embargoed until 7am TRAKM8 HOLDINGS PLC ("Trakm8" or "the Company") Preliminary Results Trakm8 today announces its preliminary results for the year ended 31 March 2007. Highlights * 22.2% increase in turnover * Increase in gross profit from 35.7% to 38.1% * Operating profit decreased due to Trakm8 SWIFT(R) launch costs, the restructuring of Interactive Projects post acquisition and certain ongoing operational cost increases * Completion of acquisition of Interactive Projects Limited * Launch of Trakm8 SWIFT(R) * Successful placing of £0.5m Year ended 31st March Year ended 31st 2007 March 2006 (restated) £000's £000's Turnover 6,370 5,213Gross Profit 2,430 1,863Gross Profit % 38.1% 35.7%Operating Profit 102 232Operating Profit % 1.6% 4.5%Profit on ordinary activities 78 211before taxationCash at bank and in hand 709 402Net Assets 1,426 985 Commenting on the results, Cary Knapton, CEO of Trakm8 said:"Our strategic transition to a fully integrated Telematics Service Provider("TSP") will take time to achieve. During this transition period we aim toincrease cash generation through service revenues and we are already seeingsuccess on this area. "We continue to identify exciting technology developments in the telematicsarena. These form the core of our product strategy and will enable the deliveryof price competitive enhanced products and services in the coming year. TheDirectors believe strongly that protection and expansion of our IntellectualProperty (IP) has helped mitigate against current competitive risks." For further information please contact: Trakm8 Holdings plcCary Knapton, Chief Executive 0870 380 0531OfficerTim Couling, Finance Director Tavistock Communications 020 7920 3150Simon HudsonPaul Youens 07843 260 623 Arbuthnot Securities 020 7012 2000Paul Vanstone Copies of the full report will be available either from the Company's offices oras a download from the Company's website from Friday 28 September 2007. Chairman's Statement Overview It is with pleasure that I report the Trakm8 Holdings PLC results for the yearended 31st March 2007 in my first report as Chairman of the Group. In the last 12 months the Group has embarked on a strategy to strengthen andgrow shareholder value by transitioning our business from pure telematicshardware design and manufacture to integrated telematics service provision. Thisstrategy commenced with the acquisition of Interactive Projects Limited (IPL) ina cash and shares deal which completed on 26th May 2006. The acquisition of IPL,a telematics research and development house, was designed to secure asignificant proportion of the Group's core Intellectual Property Rights (IPR)and allow the onward development of our product portfolio into the servicearena. The strategy has continued with the market testing and launch of Trakm8 SWIFT(R), the Group's first venture as a Telematics Service Provider (TSP). Trakm8 SWIFTR) sales were initially lower than expected however I am pleased to report thatsales are now growing with strong interest emerging from larger fleet buyers. Research and development of new products and services remains a core activity.It was this area of activity that in the past year enabled the Group to secure avaluable sales-led partnership with Motorola. The Group has also commenced thedesign of the next generation telematics platform, the hardware design of thisnew platform being shared with leading industry partners. This latter steprepresents a key point in the Group's transition strategy. Results Turnover in the period increased 22.2% to £6.37 million (2006: £5.21 million)generating a profit before tax of £78,185 (2006: £211,414). Operating profitdecreased due to Trakm8 SWIFT(R) launch costs, the restructuring of InteractiveProjects post acquisition and certain ongoing operational cost increases. Operations The Group's core activity over the last year has been the sales of itsproprietary Global Positioning System (GPS) hardware and software for thevehicle telematics market. During the period our hardware sales volumes grewsignificantly and we continued to supply our products to partners around theglobe. We have however experienced increased competition and subsequent productprice pressure and expect this to continue in the foreseeable future. Howeverthe Company is currently developing its next generation platform product,expected to be launched in the second half of this financial year, inconjunction with a blue chip supplier. This new platform will supersede existingproducts and will offer improved functionality at a more competitive price. Weare confident that this development will enable us to continue to remaincompetitive in our sector whilst providing a degree of gross margin protection. In addition, the Group commenced delivery of Trakm8 SWIFT(R); our firstintegrated telematics service offering. Trakm8 SWIFT(R) is marketed as apackaged hardware/service product with customers purchasing the hardware unitand paying an annual license fee for the service and associated support. Thehardware revenue is recognised at the time of sale whilst the higher marginservice fees are recognised on a monthly basis. Although Trakm8 SWIFT(R) saleshave grown at a slower pace than planned, the Directors firmly believe that thisevolutionary change to our business model will deliver encouraging sales in thecoming year. During the latter half of the year the Group became concerned by certainperformance related issues which we experienced with a single externally sourcedcomponent of one of our hardware products. This issue affected a small number ofinstalled units and was reported in our trading update announcement on 2 April2007. I am pleased to report that this issue has now been rectified and afinancial remedy has been agreed with the supplier. Nevertheless this has nodoubt impacted our brand reputation and we have been working with customers torestore any lost confidence. Outlook Trakm8 has had another good year, although it has been dampened somewhat by theimpact of the external component issue, which reached further than the smallnumber of directly affected installed units. As noted above, the industry hasbecome increasingly competitive and the Board envisages that this will continue.The Trakm8 SWIFT(R) service revenue model also results in a lag between salesand revenue. However our order pipeline is promising and we are confident thatour next generation platform will help to insulate Trakm8 to a degree fromenvisaged price competition. The Group anticipates that its change in strategyto a fully integrated TSP will take time to deliver improved profitability. We will continue to develop our business and will examine expansion byacquisition or other means. The Executive team remain committed to delivery ofcontinued organic growth and I would like to close by thanking them for theircommitment and dedication to the Group over the last year. DAWSON BUCKCHAIRMAN Chief Executive Officer's Review Introduction Trakm8 has had another good year for growth with increases in both revenues andgross margins. However our operating profit was eroded by SWIFT(R) launch costs,the restructuring of Interactive Projects post acquisition and certain ongoingoperational cost increases as detailed below. The last year has seen the Group launch a new service based product; moving theGroup into on-line service provision for the first time. This, together with thesuccessful acquisition of IPL, has proved positive for the Group. The Group alsoachieved ISO 9000 status for our manufacturing and distribution operations andthis was instrumental in several large business wins, notably cementing ouremerging relationship with Motorola and other customers. Overall therefore I can report that Trakm8 is in good shape to grow and to meetthe challenges of the coming year. Operational Review Trakm8's products continue to be used around the globe and our distributors inthe Americas, Asia Pacific and Africa are showing increasing growth. In our coremarket of the UK, where the Group operates through both distributors and otherpartnerships, there has been significant revenue growth in the period. Elsewherethe Group's international relationships have continued to mature. Nevertheless, as noted in the Chairman's Statement and as shown in the financialsummary below, the increasing competitiveness and credibility of our productswas damaged when an externally sourced component in our hardware platforms wasfound to be faulty. Although the direct losses have been largely recovered fromthe supplier concerned the consequential brand impact will take some time torestore. Notwithstanding this issue the Group made its initial entry as a full TSP duringthe second half of the year with the launch of Trakm8 SWIFT(R). Trakm8 SWIFT(R)extends the Group's products and software services into both small vehiclefleets and also into major fleet customers. The soft launch in calendar Q4 of2006 enabled the Group to carefully assess these target markets and prove theoffering operationally, prior to a more structured roll-out. The major fleetcustomer segment was not initially targeted but the product has proved to beattractive to this sector with a surprising level of interest emerging. Withoutdoubt our presence at the Commercial Vehicle Show earlier this year raised theGroup profile in this area considerably. The Group therefore looks to build onthe Trakm8 SWIFT(R) proposition in the future and anticipates significantrevenues accruing from this source in the next full year. The Group continues to monitor the markets in which it operates and theplacement of its products in these markets. This enables the Group to enhanceexisting offerings and to develop new products and services tailored to ourcustomers needs. Strategy The Group remains fully committed to a strategic transition to a fullyintegrated Telematics Service Provider with service revenues providing anincreased source of higher margin revenue in the future. Trakm8 SWIFT(R) willtherefore continue to be developed to keep pace with the needs of our fastmoving markets. Non-core manufacturing activities remain entirely outsourced but core activitiesare either retained wholly in-house or, where a clear competitive advantageexists, are migrated to a joint venture model with trusted partners. As anexample future platform hardware development is now partnered with leadingindustry players whilst the software development element is retained whollyin-house. At the same time the Group has internally restructured the managementof day to day activities. This was noted at the half year and I am pleased toreport that this change has been successful. The Group has also conducted an efficiency review of its activities in thesecond half of the year. I am pleased to report that this exercise is nowcomplete and cost savings have been achieved whilst maintaining a higher degreeof customer service. Future product strategy will see several strands of hardware and services, notleast of which will be an alignment of service and product offerings which willtarget both central and local government requirements. In this context the Groupexpects to move into strategic national and regional projects in collaborationwith selected partners during the coming year. The Group envisages that this change in strategy, coupled with a transition tofully integrated TSP will take time to deliver improved profitability. Financial Review Turnover for the year ended 31 March 2007 was £6.37m (2006: £5.21m), an increaseof 22%. Gross profit increased to £2.43m (2006: £1.86m). Gross margins improvedto 38.1% (2006: 35.7%), a 2.4% improvement. Despite increased administrativeexpenses of £2.33m (2006: £1.63m), the Group is pleased to announce a profit onordinary activities before taxation for the period of £0.08m (2006: £0.21m). The Group's administration costs increased in the year due to one-offoperational costs associated with the Trakm8 SWIFT(R) launch coupled withrestructuring of IPL post acquisition. Ongoing costs also increased as a resultof the first full year of listing on AIM and increased staff numbers as theGroup expanded into service markets. Net cash increased during the year by £0.20m to £0.43m. This increase is after£0.17m for the purchase of Interactive Projects Limited and the proceeds of the£0.5m convertible note issued in January 2007. In accordance with the policy contained in the Admission Document dated 2005,the Board has not declared a dividend in respect of the year ended 31 March2007. Outlook The Group's strategic transition to a fully integrated TSP provider will taketime to achieve. In this transition period the Group aims to increase cashgeneration through service revenues, and this is being evidenced now. Followingthe transition period, the Directors firmly believe that the Group's highquality, predictable, revenue streams will increase, however the impact ofrevenue recognition in the short term will mean that the Group is in effectforgoing short term profitability in order to deliver its strategic ambitions.As identified in the Chairman's statement our market place is becomingincreasingly competitive, however we are confident that continued productdevelopment will, especially with the envisaged launch of our new hardwareplatform, help to ensure our products remain competitive whilst providing adegree of gross margin protection. I am pleased to report that Trakm8 has an encouraging sales pipeline moving intothe second half of the current financial year, including several largeopportunities for Trakm8 SWIFT(R). The Group is working on a number of largebids in the home markets as well as overseas, some in partnership with majorinternational customers and others in partnership with local and nationalgovernments. The Group continues to identify exciting technology developments in thetelematics arena. These form the centre point of the Group's product strategyand will enable the delivery of price competitive enhanced products and servicesin the coming year. The Directors believe strongly that protection and expansionof the Group's Intellectual Property (IP) has helped mitigate against currentcompetitive risks. The Group therefore looks forward to the future with enthusiasm and I amconfident we will continue to successfully deliver our innovative products tothe market. These factors, coupled with the increase in brand awareness affordedby our Trakm8 SWIFT(R) TSP offering, give the Directors considerable optimismfor the future. CARY KNAPTONCHIEF EXECUTIVE OFFICER CONSOLIDATED PROFIT AND LOSS ACCOUNTfor the year ended 31st March 2007 Notes 2007 2006 restated £ £ TURNOVER 6,370,007 5,212,847Cost of sales (3,940,105) (3,349,363) ----------- -----------Gross profit 2,429,902 1,863,484 Administrative expenses (2,327,468) (1,631,920) ----------- -----------OPERATING PROFIT 102,434 231,564 Interest receivable 15,052 4,699 ----------- ----------- 117,486 236,263 Interest payable and similar charges (39,301) (24,849) ----------- -----------PROFIT ON ORDINARY ACTIVITIES BEFORETAXATION 78,185 211,414 Taxation 18,146 (43,506) ----------- -----------PROFIT ON ORDINARY ACTIVITIES AFTERTAXATION 96,331 167,908 =========== ============EARNINGS PER ORDINARY SHARE (PENCE)Basic EPS 2 0.9 1.5 Diluted EPS 2 0.8 1.5 =========== ============ All results relate wholly to continuing activities. CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSESfor the year ended 31 March 2007 2007 2006 £ £Profit After Tax 96,331 175,250Prior year adjustment (7,342) - ----------- -----------Total recognised gains and losses recognisedsince the last annual report 88,989 175,250 =========== =========== The prior year adjustment relates to FRS20treatment of share based payments. See note 1. CONSOLIDATED BALANCE SHEETAs at 31st March 2007 Notes 2007 2006 restated £ £FIXED ASSETSIntangible fixed assets 809,857 -Tangible assets 446,143 393,110 ----------- ----------- 1,256,000 393,110CURRENT ASSETSStocks 332,522 398,306Debtors 1,273,089 1,070,984Cash at bank 708,588 402,454 ----------- ----------- 2,314,199 1,871,744CREDITORS: Amounts falling due withinone year (1,306,259) (1,026,765) ----------- -----------NET CURRENT ASSETS 1,007,940 844,979 ----------- -----------TOTAL ASSETS LESS CURRENT LIABILITIES 2,263,940 1,238,089 ----------- -----------CREDITORS: Amounts falling due after more than one year (837,718) (253,136) ----------- -----------NET ASSETS 1,426,222 984,953 =========== ===========CAPITAL AND RESERVESCalled up share capital 114,724 110,260Share premium 754,279 435,087Merger Reserve 509,837 509,837Share based payment reserve 28,624 7,342Profit and loss account 18,758 (77,573) ----------- -----------SHAREHOLDERS' FUNDS 1,426,222 984,953 =========== =========== CONSOLIDATED CASH FLOW STATEMENTfor the year ended 31st March 2007 Notes 2007 2006 restated £ £NET CASH INFLOW / (OUTFLOW) FROM OPERATING ACTIVITIES 186,214 (264,490) RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Interest received 15,052 4,699Interest paid (39,301) (24,849) ----------- -----------NET CASH OUTFLOW FROM RETURNS ON INVESMENTS (24,249) (20,150)AND SERVICING OF FINANCE TAXATIONResearch & Development Tax Credit 43,237 - CAPITAL EXPENDITURE AND FINANCIAL INVESTMENTPurchase of tangible fixed assets (71,203) (32,215)Sale of assets 999 - ----------- -----------NET CASH INFLOW / (OUTFLOW) BEFORE TAXATION 134,998 (316,855) ACQUISITIONPurchase of Interative Projects Limited (170,742) -Net overdraft acquired (18,733) - ----------- -----------NET CASH OUTFLOW AFTER ACQUISITION (54,477) (316,855)Proceeds from the issue of shares - 914,000Expenses paid in connection with share issue - (469,773)Repayment of loans (244,565) (7,613)Issue of Loan Stock 500,000 - ----------- -----------INCREASE IN CASH IN YEAR 200,958 119,759 =========== =========== RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS Notes 2007 2006 restated £ £Increase in cash in year 200,958 119,759Cash outflow from loan repayments 244,565 7,613 ----------- ----------- 445,523 127,372Loans and Finance leases acquired with subsidiary (193,278) - Issue of Loan Stock (500,000) - ----------- -----------Movement in net debt in period (247,755) 127,372Opening net debt (212,066) (339,438) ----------- -----------CLOSING NET DEBT (459,821) (212,066) =========== =========== NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31st March 2007 1 ACCOUNTING POLICIES BASIS OF ACCOUNTING The consolidated financial information comprises the financial information ofTrakm8 Holdings PLC and all of its subsidiary undertakings for the year. Thefinancial statements have been prepared under the historical cost convention inaccordance with the applicable accounting standards. The consolidated financial statements merge the financial statements of Trakm8Limited and Trakm8 Holdings Plc as if they had always so been owned.Accordingly, in those years when mergers take place, the whole of the results,assets, liabilities and shareholders' funds of the merged companies areconsolidated, regardless of the actual merger date, and corresponding figuresfor previous years are re-stated. Interactive Projects Limited ("IPL") was acquired by the Company on 26 May 2006and has been consolidated using the acquisition method. The results areincorporated from the date that control passes. The difference between the costof acquisition of shares in subsidiaries and the fair value of the separable netassets acquired is capitalised and written off on a straight line basis over itsestimated economic life. Provision is made for impairment. All financialstatements are made up to 31 March 2007. CHANGE IN ACCOUNTING POLICY During the year, the Group adopted FRS 20, 'Share based payment'. The adoptionof FRS 20 is a change in accounting policy which results in a prior yearadjustment. The effect on the comparative figures is the recognition of a shareoption reserve of £7,342 as at 31 March 2006. There is no change to the netassets of the Group at 31 March 2006. The Group previously charged the intrinsic value of share options, (thedifference between the market price of the shares at the grant date and theexercise price), to the profit and loss account over the performance period.Following the adoption of FRS 20, the fair value at grant date is expensed overthe vesting period. SHARE-BASED PAYMENTS The Group has applied the requirements of FRS 20 Share-based Payments. Inaccordance with the transitional provisions, FRS 20 has been applied to allgrants of equity instruments after 7 November 2002 that were unvested as of 1January 2006. The note above explains the impact of this new policy. The Group issues equity-settled share-based payments to certain employees.Equity-settled share-based payments are measured at fair value at the date ofgrant. The fair value determined at the grant date of equity-settled share-basedpayments is expensed on a straight-line basis over the vesting period, based onthe Group's estimate of shares that will eventually vest. The fair value is measured by use of the Black-Scholes option pricing model. Theexpected life used in the model has been adjusted, based on management's bestestimate, for the effect of non-transferability, exercise restrictions, andbehavioural considerations. No expense is recognised for awards that do notultimately vest. 2 EARNINGS PER ORDINARY SHARE The earnings per ordinary share has been calculated using the profit for theyear and the weighted average number of ordinary shares in issue during the yearas follows: 2007 2006 restated Profit for the year after taxation £96,331 £167,908 ========== ========== No. No.Number of ordinary shares of 1p each 11,472,423 11,026,000 Number of ordinary shares of 1p each (diluted) 12,596,941 11,474,860 Basic weighted average number of ordinary shares of 1p each 11,175,215 11,026,000 Basic weighted average number of ordinary shares of 1p each (diluted) 11,760,871 11,155,435 =========== ===========Basic earnings (pence per share) 0.9p 1.5p Diluted earnings (pence per share) 0.8p 1.5p =========== =========== 3 ACQUISITION OF INTERACTIVE PROJECTS LIMITED ("IPL") On 26 May 2006 the Company acquired the entire issued share capital of IPL. Theconsideration was £100,000 in cash paid to the vendors on 26 May 2006 and446,423 Ordinary shares were allotted and issued to the vendors on 29 November2006 at a market price of 72.5 pence per share. The transaction has beenaccounted for by the acquisition method of accounting as detailed in FRS6(Acquisitions and Mergers). The following assets and liabilities were acquired at the date of acquisition: Book Fair Value as Value as at May at May 2006 2006 £ £ Intangible Assets 200,000 600,000Tangible Assets 37,860 37,860Stocks 41,633 41,633Debtors 43,140 43,140Bank overdraft (18,733) (18,733)Loan & trading (48,101) (48,101)balance with Trakm8Trade Creditors (46,410) (46,410)Other Creditors (24,165) (24,165)Finance Leases (25,123) (25,123)DTi Loans (168,155) (168,155) -------- -------- (8,054) 391,946 -------- Goodwill 102,453Total Consideration -------- 494,399 ========Satisfied by: Cash 100,000Costs of acquisition 70,742Fair value of shares 323,657issued -------- 494,399 ======== The results of IPL have been consolidated in the Profit & Loss account for theGroup for the ten months from the date of acquisition to 31st March 2007. Intangible assets represent Intellectual Property owned by IPL. The Directorshave reviewed the fair value of these assets and revalued them at the date ofacquisition. The valuation has been based on the expected licence fee income tobe received over the next 10 years. This information is provided by RNS The company news service from the London Stock Exchange