Tracsis Regulatory News (TRCS)

Tracsis plc

('Tracsis', 'the Company' or 'the Group')

Unaudited Interim results for the six months ended 31 January 2020

Tracsis, a leading provider of software, hardware and services for the rail, traffic data and wider transport industries, is pleased to announce its unaudited interim results for the six months ended 31 January 2020.

Financial Highlights:

· Revenue increased 41% to £26.4m (2019: £18.8m)

· Adjusted EBITDA* of £5.6m (2019: £4.2m), after adoption of IFRS 16 in the current period

· Adjusted EBITDA* increased 23% to £5.2m (2019: £4.2m) on a like for like basis, excluding IFRS 16

· Operating profit before exceptional items increased 8% to £2.6m (2019: £2.4m)

· Cash balances of £26.0m (31 July 2019: £24.1m, 31 January 2019: £18.7m)

· Interim dividend deferred, pending a further review later in the year

Operational Highlights:

· Strong H1 performance from all parts of the Group especially our Traffic and Data division which had a strong start to the year

· Acquired businesses in 2019, Compass Informatics, CTM and Bellvedi all performed well with integration and synergy savings already being realised

· Continued investment in technology base across all areas of the business

· Several large tenders in the final stages of negotiation across our Rail Technology division

Post period end Highlights:

· Acquisition of iBlocks Limited in March 2020 which adds new capabilities and products to our Rail Technology product offering especially in the areas of smart ticketing

· Important initial contract win for OnTrac (our risk and safety management software business) which is expected to result later this year in a multi-year enterprise wide licence deployment

· Covid-19 has had an immediate impact on our Events and Traffic Data business units and as a result we have taken a series of immediate actions to mitigate the impact as much as possible

Chris Barnes, Chief Executive Officer, commented:

"We are pleased with the first half performance which was in line with expectations. All of the acquisitions from 2019 performed well, and we were also delighted in March to have completed the iBlocks acquisition which increases our rail technology product portfolio and takes us into exciting new areas of the rail industry. Despite the recent Covid-19 crisis, our Rail Technology & Services business currently remains resilient and we are in the final stages of negotiating several large multi-year software and hardware contract opportunities. Our Traffic & Data Services division is however being majorly impacted by Covid-19 and as a result we have taken a series of actions to mitigate the impact on the business as much as possible, with the full year outcome currently under review. The Group continues to have substantial cash balances and strong cash flow."

* EBITDA full definition and reconciliation is presented at note 9. Reconciliation of the impact of IFRS 16 is included in note 3

Enquiries:

Tracsis plc Tel: 0845 125 9162

Chris Barnes, CEO / Max Cawthra, CFO

finnCap Ltd Tel: 020 7220 0500

Christopher Raggett / Charlie Beeson, Corporate Finance

Andrew Burdis, Corporate Broking

The information communicated in this announcement is inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No. 596/2014. 

Chairman & Chief Executive Officer's Report

Introduction

The Group has reported a further period of growth, with a strong performance across both divisions which is in line with expectations, and provides a good platform for delivery of full year results.

The Group adopted IFRS 16 for the first time this period, and the impact of this on the Income Statement is summarised below. The impact on the Balance Sheet as at 31 January 2020 was to recognise a 'Right of Use Asset' of £1.0m, and a 'Lease Liability' of £1.1m.

Trading Progress and Prospects

A summary of performance in the period is as follows:

Rail Technology & Services

Summary segment results:

Revenue £11.9m (H1 2019: £9.9m)

EBITDA £4.1m (H1 2019: £3.5m)

Profit before Tax £3.9m (H1 2019: £3.5m)

Software & Consultancy

Total revenues from the Group's rail software, hosting and consulting offerings were £9.6m (2019: £7.9m) taking account of all of the various revenue streams. The revenue contribution from Bellvedi was £0.7m, and therefore like for like revenues were £8.9m giving organic growth of some 13% on the previous period. Software sales again benefited from high renewal rates for existing products, and also income from multi-year contract wins from previous years which we are currently implementing for our clients. Bellvedi has performed well since acquisition and remains a key part of our TRACS Enterprise offering.

As highlighted previously, the Group continues to invest heavily in our technology base, and continues to make good progress developing the next generation of products for the transport industry. We remain focused on the following key areas:

· Operational performance software - TRACS Enterprise and a range of standalone product solutions

· Safety and Risk Management Software - Rail Hub and VR on demand capability

· RCM data acquisition software - Centrix

· Activity Based Ticketing software - smartTIS

· Automated Delay Repay software - One Click and smartREPAY

During the Covid-19 crisis, we currently continue to work remotely on a business as usual basis with all of our rail clients. We continue to see good levels of interest in our software solutions and we are in the final stages of negotiating several large multi-year software licencing contracts which we expect to close over the coming weeks. We do though expect an impact in our delay repay businesses where revenues will be impacted by the significant decline in rail passenger numbers.

Remote Condition Monitoring

Revenues of £2.3m were ahead of the previous year (2019: £2.0m), which represents very good trading in the core UK market and organic growth of 15% on the previous period. As we entered the new Network Rail Control period, past experience would suggest a sharp reduction in revenues in the first year, but this has not materialised as yet. Our Remote Condition Monitoring business benefited from an extremely strong second half performance in 2019 and this is unlikely to repeat in 2020 given the buying patterns of the business' key customer, but nonetheless current trading remains solid and in line with expectations.

We are expecting imminent product type approval of a new RCM product which is designed to support Network Rail and others in their implementation of a risk-based maintenance approach linked to broader condition monitoring.

Our key concern with regards Covid-19 is whether we will be impacted by the closure of partner production facilities in the UK due to the future tightening of government lockdown restrictions, and we continue to monitor this situation.

Traffic & Data Services (T&DS)

Summary segment results:

Revenue £14.5m (H1 2019: £8.9m)

EBITDA £1.5m (H1 2019: £0.7m)

Profit before Tax £0.9m (H1 2019: £0.2m)

Our Traffic & Data Services division has historically been highly second-half weighted given the timing of our events work and also the timing of other traffic surveys. However, H1 performance was good and ahead of expectations, with organic growth of 6%. There was also a very strong contribution from the acquired businesses CTM and Compass Informatics, where integration is progressing well. These businesses contributed around £5.1m of additional revenue versus the same period last year which was ahead of expectations.

Our Traffic Data business performed well in H1 with an increasing focus on data analytics and the utilisation of the technology solutions developed in partnership with Vivacity Labs. The business secured a large multi-year contract in Ireland and continues to win work across a wide UK transport client base.

Compass Informatics has performed well in the period, working on a combination of long term projects with its Irish client base, and also exciting projects for UK based utility companies. We have also invested in a business development team to pursue opportunities in the UK which seeks to exploit cross selling opportunities with our existing UK traffic and transport client base.

Our events businesses SEP and CTM both performed well in H1, in particular CTM which has delivered a very strong first half performance supported by multi-year client contracts at fixed venues and also some other positive trading.

We have also been investing in our technology base with a focus in three areas:

· Automated rail passenger counts software - PCDS

· Event traffic monitoring and management - Tracsis Live Technology (TLT)

· Traffic insights / path tracing - Felicity portal

Covid-19 has had an immediate impact on our events and traffic data business units, which will have a major impact on H2 performance. A number of large UK events have now been cancelled or postponed to the Autumn and this trend is continuing. We are also seeing significant disruption to our Traffic Data collection and Passenger Analytics activities that were scheduled to take place over the coming weeks, given road traffic and rail passenger activity will be heavily reduced and hence not representative. As a result, we have taken a series of immediate actions to mitigate the impact as much as possible through a reduction in casual labour costs, the redeployment of staff, reducing all discretionary spend, and taking advantage of the Government's Job Retention scheme. We continue to look at a range of medium to long term structures for this Division depending on the full impact of the Covid-19 crisis.

Overseas

The acquisition of Compass Informatics during the previous year, has increased our Ireland presence significantly. Slow progress continues to be made in other geographic areas where we operate, though we continue to be fully occupied servicing our core UK market in the short term.

Acquisitions

On 10 March we completed the acquisition of iBlocks Limited, a UK based software company that specialises in the provision of smart ticketing solutions, automated delay repay and the development of mission critical back office systems that are used by the Rail Delivery Group, the wider community of train operating companies (TOCs) and the rail supply chain. This acquisition strategically aligns with our objective of strengthening our rail product portfolio in areas where we can offer a unique market proposition, gain access to strategically important partnerships and leverage the cross-selling opportunities that exist across our Rail Technology division.

Dividend

The Board has decided to defer the payment of the interim dividend in view of the current Covid-19 crisis, and this decision will be reviewed later in the year once the Group has more clarity about the ongoing effects of the pandemic on the business. The Board will consider what actions are in the best interests of shareholders, and this could result in the combination of an interim and full year dividend for the year ended 31 July 2020, or the retention of cash in the business to invest in future growth opportunities. The interim dividend would have had a cash cost of around £0.3m had it been paid, which has therefore been retained in the business.

Income statement

A summary of the Group's results is set out below.

1 The results for the six month period ended 31 January 2020 are not directly comparable with the prior year due to the adoption of IFRS 16 leases. Further details are provided in note 3 to the financial statements, which sets out the impact of the adoption of IFRS 16 on the primary statements.

Sales revenue is analysed further below:

Balance sheet

The Group continues to have significant levels of cash and remains debt free. Cash balances at 31 January were £26.0m (31 January 2019: £18.7m, 31 July 2019: £24.1m). Cash generation was good, though was naturally impacted by the unwinding of the positive year end working capital movements from the previous year end where cash generation was extremely strong, which were fully anticipated, and related to larger than previous VAT payments given the increased seasonal event work, revenue in advance and also staff bonuses. A summary of cash flows is set out below:

Outlook

The Board was pleased with the first half performance. We have secured a number of new contract wins which will help to secure future organic growth, and we are pleased to have secured the recent iBlocks acquisition, which adds an exciting new product range to our portfolio and enhances our overall Rail Technology & Services offering which is well aligned to our future growth strategy. Covid-19 clearly presents us with some significant challenges to H2 performance and therefore full year outturn, in particular within our Traffic & Data Services Division where the impact has been most felt, though our Rail Technology & Services Division currently remains resilient. The Group has substantial cash balances and strong cash flow, and the Board remain confident in the long term prospects for the business post Covid-19, in view of the positive growth drivers in the transport markets that the Group currently serves. Our key priority during these unprecedented times is the health and wellbeing of our employees, our clients and their families.

Tracsis plc

Condensed consolidated interim income statement for the six months ended 31 January 2020

* Earnings before finance income, tax, depreciation, amortisation, exceptional items, other operating income, and share-based payment charges and share of result of equity accounted investees - see note 9

** Earnings before finance income, tax, amortisation, exceptional items, other operating income, share-based payment charges, and share of result of equity accounted investees. - see note 9Tracsis plc

Condensed consolidated interim balance sheet as at 31 January 2020

Tracsis plc - Consolidated statement of changes in equity

For the six months ended 31 January 2020

Tracsis plc - Consolidated statement of changes in equity (continued)

For the six months ended 31 January 2020

Tracsis plc

Condensed consolidated interim statement of cash flows for the six months to 31 January 2020

Notes to the consolidated interim report

For the six months ended 31 January 2020

1 Basis of preparation

Tracsis plc (the 'Company') is a company domiciled in England. The condensed consolidated interim financial report of the Company as at and for the six months ended 31 January 2020 comprises the Company and its subsidiaries (together referred to as the 'Group'). The principal activities of the Group are the provision of software, services and technology for the rail industry ('Rail Technology & Services'), along with traffic surveys, event planning and traffic management, and data analytics including software development ('Traffic Data & Services') (see note 4).

The condensed consolidated interim financial information should be read in conjunction with the annual financial statements for the year ended 31 July 2019, which have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union.

The interim financial information for each of the six month periods ended 31 January 2020 and 31 January 2019 has not been audited and does not constitute statutory accounts within the meaning of section 435 of the Companies Act 2006. The information for the year ended 31 July 2019 does not constitute statutory accounts within the meaning of section 435 of the Companies Act 2006, but is based on the statutory accounts for that year, on which the Group's auditors issued an unqualified report and which have been filed with the Registrar of Companies.

The principal risks and uncertainties are largely unchanged from the previous year end with the exception of the Covid-19 threat which is new in the current year. These risks and uncertainties are expected to be unchanged for the remainder of the financial year, Further details are provided on pages 9 to 12 of the Annual Report & Accounts for the year ended 31 July 2019. The Board considers risks on a periodic basis and has maintained the key risks as follows, on a Group wide basis:

· Covid-19 - short term disruption to the T&DS Division and potentially the wider Group, and the potential for future economic slowdown in the medium term

· Impact of EU Referendum

· Rail industry structure changes

· Reduced government spending

· Reliance on certain key customers

· Competition

· Attraction and retention of key employees

· Technological changes

· Customer pricing pressure

· Project delivery

· Health & Safety

· Brand reputation

· Integration risk

The condensed consolidated interim financial information was approved for issue on 2 April 2020.

2 Accounting Policies

The accounting policies applied by the Group in these interim financial statements are the same as those applied by the Group in its audited consolidated financial statements for the year ended 31 July 2019 and which will form the basis of the 2020 Annual Report except as described below. The basis of consolidation is set out in the Group's accounting policies in those financial statements.

The preparation of the interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Estimates and judgements are continually evaluated and are based on historical experience and other factors, such as expectations of future events and are believed to be reasonable under the circumstances. Actual results may differ from these estimates. In preparing these interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those applied to the audited consolidated financial statements for the year ended 31 July 2019. 

3 Changes in accounting policies

The following amendments to financial reporting standards were adopted from 1 August 2019, the start of the new financial year. None of them have had a significant impact on the Group other than IFRS 16 which is detailed in further below:

· IFRS 16 Leases

· IFRIC 23 Uncertainty over Income Tax Treatments

IFRS 16 Leases

The Group has adopted IFRS 16 "Leases" from 1 August 2019. It has brought most leases on to the balance sheet, eliminating the distinction between operating leases and finance leases, and recognising a right-of-use asset and a corresponding lease liability. Rentals on operating leases which were previously charged to the income statement, have been replaced by depreciation charge on the asset and interest expense on the lease liability. The Group has adopted IFRS 16 using the modified retrospective approach with the cumulative effect of initially adopting IFRS 16 recognised as an adjustment to retained earnings at 1 August 2019 with no restatement of comparative information. The group has applied the practical expedient to grandfather the definition of a lease on transaction. This means that it has applied IFRS 16 to all contracts entered into before 1 August 2019 and identified as leases in accordance with IAS 17 and IFRIC 4. 

3 Changes in accounting policies (continued)

Impact on Retained Earnings at 1 August 2019

Impact on the condensed consolidated interim income statement for the six months ended 31 January 2020:

3 Changes in accounting policies (continued)

Impact on the condensed consolidated interim balance sheet as at 31 January 2020:

4 Revenue and Segmental analysis

a) Revenue

Sales revenue is summarised below:

A geographical analysis of revenue is provided below:

b) Segmental Analysis

The Group has divided its results into two segments being 'Rail Technology and Services' and 'Traffic & Data Services'. The Group has a wide range of products and services and products and services for the rail industry, such as software, hosting services, consultancy and remote condition monitoring, and these have been included within the Rail Technology & Services segment as they have similar customer bases (such as Train Operating Companies and Infrastructure Providers), whereas traffic data collection and event planning & traffic management have similar economic characteristics and distribution methods and so have been included within the Traffic & Data Services segment.

In accordance with IFRS 8 'Operating Segments', the Group has made the following considerations to arrive at the disclosure made in these financial statements. IFRS 8 requires consideration of the Chief Operating Decision Maker ("CODM") within the Group. In line with the Group's internal reporting framework and management structure, the key strategic and operating decisions are made by the Board of Directors, who review internal monthly management reports, budgets and forecast information as part of this. Accordingly, the Board of Directors are deemed to be the CODM.

Operating segments have then been identified based on the internal reporting information and management structures within the Group. From such information it has been noted that the CODM reviews the business as two operating segments, receiving internal information on that basis. The management structure and allocation of key resources, such as operational and administrative resources, are arranged on a centralised basis.

Reconciliations of reportable segment revenues, profit or loss, assets and liabilities and other material items

Information regarding the results of the reportable segment is included below. Performance is measured based on segment profit before income tax, as included in the internal management reports that are reviewed by the Board of Directors. Segment profit is used to measure performance. There are no material inter-segment transactions, however, when they do occur, pricing between segments is determined on an arm's length basis. Revenues disclosed below materially represent revenues to external customers.

5 Earnings per share

Basic earnings per share

The calculation of basic earnings per share for the Half Year to 31 January 2020 was based on the profit attributable to ordinary shareholders of £1,947,000 (Half Year to 31 January 2019: £1,697,000, Year ended 31 July 2019: £5,071,000) and a weighted average number of ordinary shares in issue of 28,795,000 (Half Year to 31 January 2019: 28,406,000, Year ended 31 July 2019: 28,521,000), calculated as follows:

Weighted average number of ordinary shares 

In thousands of shares

Diluted earnings per share

The calculation of basic earnings per share for the Half Year to 31 January 2020 was based on the profit attributable to ordinary shareholders of £1,947,000 (Half Year to 31 January 2019: £1,697,000, Year ended 31 July 2019: £5,071,000) and a weighted average number of ordinary shares in issue after adjustment for the effects of all dilutive potential ordinary shares of 29,665,000 (Half Year to 31 January 2019: 29,359,000, Year ended 31 July 2019: 29,387,000).

Adjusted EPS 

In addition, Adjusted Profit EPS is shown below on the grounds that it is a common metric used by the market in monitoring similar businesses. A reconciliation of this figure is provided below:

6 Seasonality

The Group offers a wide range of products and services within its overall suite, meaning that revenues can fluctuate depending on the status and timing of certain sales. Some of these are exposed to high levels of seasonality for example:

· The Group's Traffic & Data Services division derives significant amounts of revenue from work taking place at certain times of the year and is highly exposed to seasonality, in particular for SEP and CTM which has a very high level of seasonality based on the timing of events, but also Traffic Data where work typically takes place when the weather conditions are more predictable;

· Ontrac and Compass Informatics both perform some significant software development projects and the specific timing of these can vary depending on the commercial terms;

· Revenues from remote condition monitoring are also driven by the size and timing of significant orders received from major customers;

· Finally, the timing of certain software licence renewals, new sales, and also major project implementations along with consultancy offerings can also impact on when work is performed, revenues are delivered and therefore recognised.

As such, the overall Group continues to be exposed to a high degree of seasonality throughout the year and reporting period. The impact of Covid-19 will have a significant impact on the second half of the financial year, in particular the Traffic & Data Services Division.

7 Dividends

The Board has decided to defer the payment of the interim dividend in view of the current Covid-19 crisis, and this decision will be reviewed later in the year once the Group has more clarity about the ongoing effects of the pandemic on the business. The Board will consider what actions are in the best interests of shareholders, and this could result in the combination of an interim and full year dividend for the year ended 31 July 2020, or the retention of cash in the business to invest in future growth opportunities. The interim dividend would have had a cash cost of around £0.3m had it been paid, which has therefore been retained in the business.  

The cash cost of the dividend payments made is shown below:

The dividends paid or proposed in respect of each financial year ended 31 July is as follows: