Audited results for the year ended 31 July 2017

RNS Number : 8298V

Tracsis PLC

08 November 2017

 

Tracsis plc

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

Audited results for the year ended 31 July 2017

Tracsis plc (AIM: TRCS), a leading provider of software and services for the traffic data and transportation industry, is pleased to announce its audited results for the year ended 31 July 2017.

Financial Highlights:

·      A further period of good trading across the Group

·      Revenue increased 6% to £34.5m (2016: £32.6m)

·      Adjusted EBITDA* increased 11% to £8.5m (2016: £7.6m)

·      Statutory Pre-tax Profit increased 14% to £4.6m (2016: £4.0m)

·      Fully diluted adjusted Earnings Per Share increased 4% to 23.29p (2016: 22.37p)

·      Cash balances at 31 July of £15.4m (2016: £11.4m)

·      Final dividend of 0.8p per share proposed (2016: 0.7p).  Full year dividend increased 17% to 1.4p per share (2016: 1.2p)

·      Tracsis continues to trade well and remains highly cash generative with significant balance sheet strength. The Group remains debt free

Strategic and Operational Highlights:

·      Significant multi-million pound contract win secured for TRACS Enterprise Software - largest software contract secured to date

·      Recently-acquired businesses On-Trac and SEP trading well and above expectation

·      Successful delivery of a North American contract for the Group's RCM technology

·      Structural changes completed within Traffic & Data Services Division, which should be beneficial to margins

·      Strategic investment in Vivacity Labs Limited, a machine learning software business operating in the field of transport and traffic analytics

John McArthur, Chief Executive Officer, commented: 

"This was a further year of progress, consolidation and continued growth for Tracsis following the acquisitions of SEP and Ontrac, which have substantially increased the Group's product depth, breadth and client base.  The Group has adapted well to the needs of our customers and we have made significant progress in product innovation whilst also building our team.

Revenue and profit were both ahead of the previous year and the Group continues to benefit from a strong balance sheet as a result of excellent cash generation and sizeable reserves.

The Group continues to hold a great position within our respective markets. Our financial strength coupled with favourable market conditions and good customer momentum provides a good platform for growth in the year to come."

^* Calculation unchanged from previous years and in line with broker forecasts and research coverage on Tracsis.  Full definition and reconciliation in Note 6.

Enquiries:

Tracsis plc
John McArthur / Max Cawthra	Tel: [phone]
Investec Bank plc
Corporate Finance: Andrew Pinder / Sebastian Lawrence Corporate Broking: Matt Lewis	Tel: [phone]

Chairman & Chief Executive Officer's Report

A welcome from Chris Cole, Non-Executive Chairman

Tracsis has performed well over the past 12 months and delivered a good financial result set against a backdrop of substantial industry change within the rail sector and renewed impetus into 'intelligent' technology and solutions across the entire traffic and transport sector.  The Group continues to evolve, diversify and professionalise its offering and I am pleased with the significant progress that was made over the past year that will form the foundations on which Tracsis will continue to grow.  On behalf of the Board, I wish to thank everyone for their hard work and dedication and remain excited about our future prospects.

Introduction

The financial year ended 31 July 2017 was a year of further growth and Group wide consolidation given it included the first full year of trading for Ontrac and SEP (acquired 2015/16), and also excludes Tracsis Traffic Data Pty Australia (disposed of Dec '15).  The new businesses have added significant strength and depth to our market offering and have created synergies within the Group. These synergies have been realised primarily in the form of technology, process and people improvements which has put the business on an excellent footing as it enters the new financial year.  These changes also contributed to a further period of growth in revenue and profitability and Tracsis remains in excellent financial health.

Business overview

Tracsis specialises in providing software, hosting services, consultancy services and bespoke technology solutions to high value, mission critical challenges within the transport and traffic sector.  The Group's market offering can be broadly categorised into two distinct offerings:

·      Rail Technology & Services:  Application software development and licensing, remote condition monitoring technology (RCM), and associated operational and strategic consulting services.

The Group has a long pedigree in developing industrial strength application software that covers a variety of resource/asset optimisation that removes extraneous cost, increase network uptime and robustness and improves overall service delivery.  Our software offering is complemented by the Group's RCM offering (hardware and software) that allows for real-time reporting on the status of critical infrastructure assets, to identify problems and aid with preventative maintenance.  Utilizing our expertise in the sector, the Group's professional services division provides consultancy and specialist advice across the operational and strategic planning horizons and play a key role in advising owning Groups, operators and a range of regulatory bodies.

·      Traffic & Data Services:  Data capture, analysis and interpretation of traffic and pedestrian movement and demand volumes to aid with the planning, investment into, and ultimate operations of a transport environment.
 

Over a number of years, the Group has developed what is now the largest traffic and transport data capture and analytics business in the UK, and this was bolstered through the most recent acquisition of SEP Events and the investment made into Vivacity Labs.  With the acquisition of SEP this division has expanded its addressable markets from rail, roads and highways to include the pedestrian rich environments of the events industry which is a significant and growing market within the UK. 

The Group's mission is to help our clients solve complex, high value, data driven problems for which there is typically very little by way of an alternative offering.  Tracsis chooses to operate within the traffic and transport markets due to the abundance of complex problems where our expertise and software have clear and demonstrable benefits.  These markets also exhibit several attractive traits for the Group - high barriers to entry due to domain knowledge, large and disparate data sets, and well informed customers that understand the inherent value that can be released through the provision of a good solution or service.  In short, Tracsis focuses on solving problems that are well understood by its customers but for which there is poor provision from traditional technology providers due to the niche nature of these problems. 

The Directors believe that the traffic, transport and pedestrian rich environments (such as events and the built space), are particularly well positioned for further, long term, growth and the Group will capitalise on this via an expanding portfolio of products and services that have a common theme of 'smart' planning and 'intelligent' mobility.

Financial summary

The Group delivered revenues of £34.5m which was an increase of 6% on the previous year (2016: £32.6m).  This was a good performance given the level of consolidation within the Group, and as it was set against a difficult comparator in 2016 when Tracsis achieved revenue growth of 29%. 

Adjusted EBITDA* of £8.5m was an increase of 11% on the previous year (2016: £7.6m), with Adjusted Profit** of £7.7m being 12% higher than the previous year (2016: £6.9m).  The impact of acquisitions was a key contributor to the increased profit in the year and through further consolidation and integration of these business in future years Tracsis should be able to continue to leverage enhanced margins.  Statutory Profit before Tax was also higher than the previous year at £4.6m (2016: £4.0m), with an increased charge being taken in respect of amortisation of acquired intangible assets and an increased share based payment charge.

At 31 July 2017, the Group's cash balances had grown to £15.4m (2016: £11.4m), and cash generation continues to be strong. Overall cash balances increased by £4.0m in the financial year, after paying contingent consideration of £1.1m (in respect of Ontrac and SEP year one earn outs) and also making a strategic investment in Vivacity Labs of £0.4m. The business therefore generated net cash of c. £5.5m which demonstrates excellent conversion of profits to cash.  The Group continues to be debt free. Contingent consideration in respect of Ontrac and SEP year two earn outs is expected to be finalised and paid in due course, once the Group has clarity on a major sales opportunity that is being negotiated.

* 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 6 for reconciliation
** 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 6 for reconciliation

Trading Progress and Prospects

Rail Technology & Services

Summary segment results:

Revenue                  £16.0m (2016: £14.1m)
EBITDA                   £6.5m   (2016: £5.3m)
Profit before Tax       £6.3m   (2016: £5.1m)

Software

Software sales, excluding Ontrac, were £6.4m (2016: £6.6m) with the vast majority of this revenue being made up by software licences, which are typically long term customer relationships and recurring in nature each year.  All aspects of the software portfolio continued to perform well, with renewal rates for the TRACS, Compass and Retail & Operations product suites remaining very high.  The Group continued its strategy of upselling and cross selling existing and new products to its customer base and was pleased to secure an additional sale of DayOne which should pave the way for broader market uptake of this new product. The lack of franchise bid work in the period under review impacted slightly on anticipated performance although a quiet year within rail franchising is often followed by a busy one.

Most significantly, in July 2017, the Group was delighted to announce a major, multiyear contract with one of the largest Train Operating Companies in the UK for its TRACS Enterprise solution. The value of this contract runs to several million pounds, and will be delivered over the next four years.  This win was highly significant for the Group as once successfully implemented, it should lead to follow-on reference sales with other operators.  We look forward to delivering this contract on time and to the satisfaction of our client and have already bolstered our software delivery team in Leeds and Manchester to accommodate the work planned in the year ahead.   Elsewhere, a good contract win for our Compass product was secured in New Zealand, which builds upon our long standing relationship with this customer.

Remote Condition Monitoring (RCM)

Revenues of £2.6m were higher than the previous year (2016: £2.2m), largely due to successful delivery of a major order from a North American Class 1 railroad operator that was announced previously. This marked the Group's first major contract outside of the UK and the Group continues to target further sales to this operator and the broader class 1 freight operators alongside the Transit/Metro industry within North America.  As noted previously, whilst the specific timing of new sales within a new geography will always be hard to predict, management remains confident that the US is the largest potential market for our goods and services and expect to growth our footprint in the near and medium term.  To this end, Tracsis now has an agreement in place with a trusted reseller and channel partner who, alongside promoting our RCM offering, is also tasked with marketing our full range of resource planning software to the US rail industry.

In the UK, RCM trading remained buoyant, and was comparable with the previous year.  The Group was delighted to have completed product development for busbar monitoring technology and delivered the first units as part of a pilot with its major UK customer. If successful, there is significant opportunity for this product, and our customer has indicated the viable addressable market demand would be a requirement is some 20,000 units for the UK network alone.

The Group continues to target alternative applications for its RCM technology and during the year, delivered its first revenue generating projects in respect of distributed power generation monitoring.  This market remains viable and Tracsis continue to retain dedicated resources to grow this, and other, applications outside of rail.

Consultancy and Professional Services

Due to changes made by the DfT to the timetable of rail franchise competitions, revenue in the year was lower than originally anticipated.  Consultancy and professional services revenue was £1.7m (2016: £2.1m) which was a good result given the circumstances where a high number of planning and performance related projects were successfully won and delivered to replace the revenue that would otherwise have been delivered via bid support to owning Groups. Tracsis acknowledged some time ago that it needed to be more resilient to unforeseen changes to the franchise bid timetable (which are not uncommon). This acknowledgement has created a far more robust business, not only in terms of service offering, but also in relation to staff competency and client reach. 

In 2017-18, we anticipate supporting bidders for the Southeastern and West Coast franchise competitions which should lead to a significantly better consultancy performance.

Ontrac

Ontrac, performed well in the period and contributed revenue of £5.3m (2016: £3.2m) in its first full year as part of the Tracsis Group.  Revenue was delivered from a combination of software licences, hosting services, and bespoke software development work along with related consultancy services.  The business continues to work extensively with Network Rail and a wide variety of engineering and construction companies within the railway supply chain who use Ontrac's Connect, Rail Hub and National Hazard Directory products.

Ontrac continues to work on the next iteration of its 'Rail Hub' product suite and in particular the eTrac product which allows for geospatial visualisation of railway networks and asset mapping.  There has been significant interest for this innovation from key customers and the Ontrac team have high confidence that a significant sale of eTrac will be delivered in the coming financial year.  Looking ahead, with the contractual earn-out period relating to Ontrac coming to an end in 2017, further consideration will be given to how Ontrac can be integrated more fully into the rest of the Tracsis Group and how skills and resources can be leveraged for mutual benefit.

 

Traffic & Data Services

Summary segment results:

Revenue                £18.5m (2016: £18.5m)
EBITDA                 £2.0m   (2016: £2.3m)
Profit before Tax     £1.4m   (2016: £1.3m)

Traffic Data and Passenger Counts

Traffic Data and Passenger Counts has historically been the fastest growing division in terms of pure organic growth.  Revenues of £12.8m were delivered in the year (2016: £14.4m), reflecting the disposal of the non-core Australian business in 2015, and also taking account of the challenging market conditions that were announced in February 2017 (2016: £13.2m excluding Australia).

In response to the trading environment and challenges posed within this part of the business, the Group undertook and completed significant restructuring from October 2016 through to February 2017, which should result in savings of c.£0.6m on an annualised basis, with the full effects being realised during the current financial year ending 31 July 2018.

The Group continues to have a strong position and enjoys a favourable market share. Tracsis is excited by the opportunity that the Vivacity technology presents in terms of the potential to improve gross margins by reducing analysis costs significantly, and looks forward to adopting this in due course.  The strategy for this part of our business remains unchanged - to transition what was historically a 'project led services business' to a 'product led technology business'. In doing so the Group believes it can achieve enhanced operational efficiencies via increased use of technology and process improvements to improve both gross and net margin.

SEP

SEP achieved revenues of £5.7m (2016: £4.1m) in its first full year as part of the enlarged Group which was a fantastic achievement and significantly ahead of any previous year as an independent entity.  Along with delivering a large number of prominent events to a retained blue chip client base, the team was successful in growing its market share and winning several new customers on a retained basis.  SEP continues to target the stadium and fixed venue event market and sees Premier League football clubs as a major opportunity.  The Group continues to work closely with one of the largest clubs in the English Premiership and looks forward to replicating our success within this market in the year ahead.

The year also saw the launch of Tracsis Live Traffic (TLT) which provides event operators with a real time insight into traffic and pedestrian dynamics that comprises ANPR technology, together with application software developed internally by the Group's technical development team.  Use of this technology means the Group can differentiate itself from the competitors, and also provide incremental, high value services as part and parcel of an engagement. Early signs for the adoption of this system have been positive, with good revenues being achieved in the year. The opportunity continues to exist to roll out to other existing and potential new clients.

Dividends

In February 2012, the Board implemented a progressive dividend policy and the Group intends to maintain this going forwards.  An interim dividend of 0.6p per share for FY 2016/17 was paid in April 2017.  A final dividend of 0.8p per share in respect of FY 2016/17 is proposed, to take the full year dividend to 1.4p.  This represents a 17% increase on the previous year's dividend of 1.2p per share. 

The dividends remain well covered by the Group's profitability and cash position, which supports its primary focus on growth via acquisition and through further development of new products and services.  The Board is committed to maintaining the progressive dividend policy as the business continues to trade profitably and in line with its expectations.

The dividend will be paid on 16 February 2018 to shareholders on the register on 2 February 2018.

Acquisitions

The Group did not make any acquisitions in the year under review, but assessed multiple opportunities in line with our stated strategy.  Although no transaction was completed in the period, Tracsis' appetite for continued aggregation in selected traffic and transport markets remains unchanged and so too does the standard by which we critique potential acquisition targets.  Looking ahead, the pipeline of opportunities remains strong and Tracsis has never been in a stronger position to make further acquisitions.

Investments

The Group was pleased to announce that it had made a strategic investment of up to £1.3m into Vivacity Labs Limited ("Vivacity"), a provider of smart, hyperlocal data for smart cities and intelligent transport systems, in return for a 28.1% equity stake.

Vivacity has developed novel Machine Learning software and sensor technology which can be applied across a wide range of traffic and transport issues, most specifically for the automatic counting and classification of pedestrian and vehicle flows in a variety of environments.  The business has secured a number of client wins and pilot projects with local governments, infrastructure owners and transport providers. In March 2017 the Group was successful in winning a significant Smart Cities grant with a value of £1.7m.

Adoption of the Vivacity technology has the potential for the Group to significantly reduce its existing costs for processing video footage within the Traffic & Data Services Division whilst also leading to improvements in operational performance such as increased accuracy of traffic counts and the reduction of turnaround times for clients.

As part of a broader investment round for Vivacity, the Group agreed to invest up to £1.0m via a tranched equity funding in return for 23.3% of the enlarged share capital of Vivacity.  The first investment of £0.4m was made in the year, with the balance of £0.6m expected to be made in the year ending 31 July 2018, subject to performance milestones being fulfilled. In addition, Tracsis holds a warrant to subscribe for a further 4.8% of the enlarged share capital for an additional £0.3m.

Tracsis is entitled to a seat on the Board of Directors of Vivacity (currently filed by John McArthur - Group CEO) to help monitor our investment and promote the Vivacity offering to the Tracsis customer base.  The investment round also included Downing Ventures EIS Fund and the London Co-Investment Fund with Tracsis being lead investor. 

Summary and Outlook

FY 2016-17 was another year of significant progress, consolidation and continued growth for Tracsis following the acquisitions of SEP and Ontrac, which substantially increased the Group's product reach and client base.  The Group has demonstrated maturity and resilience to dynamic market conditions and continues to take the initiative to innovate and evolve in new areas that should provide for significant margin improvement and competitive advantages in the years ahead.

Revenue, adjusted EBITDA and adjusted profit were once again all well ahead of the previous year and the Group continues to benefit from a strong balance sheet that benefits from the business' excellent cash generation and sizeable reserves.

The Group believes that the significant Software contract win, investment in Vivacity Labs, restructuring of its Traffic Data business and North American success all provide a good platform for growth in 2017-18.

Tracsis' growth strategy remains unchanged: to deliver shareholder value both organically and through acquisition of complementary businesses, and by developing products and services that solve well recognised, high value problems that are poorly served by existing technology.  The Group's business model continues to focus on markets that generally have high barriers to entry, with contracts that are sold on a recurring/repeat basis, and to a retained customer base that is predominantly blue chip in nature.  This strategy has worked well in the past to generate good growth and significant returns for shareholders and the Group believes it will continue to work well in the future especially given the pace of change within its target markets.

As always, our thanks go to our numerous customers and partners who support our growth plans, and most importantly our talented and dedicated staff across the whole Group.

Chris Cole, Chairman

John McArthur, Chief Executive Officer

8 November 2017

Consolidated Statement of Comprehensive Income for the year ended 31 July 2017

		2017	2016
		Continuing operations	Continuing operations	Discontinued operations	Total
	Notes	£000	£000	£000	£000
Revenue	3	34,486	31,403	1,238	32,641
Cost of sales		(15,279)	(12,559)	(715)	(13,274)
Gross profit		19,207	18,844	523	19,367
Administrative costs		(14,491)	(14,745)	(662)	(15,407)
Adjusted EBITDA*	3,6	8,494	7,444	201	7,645
Depreciation		(799)	(744)	(29)	(773)
Adjusted profit **	6	7,695	6,700	172	6,872
Amortisation of intangible assets		(1,674)	(1,378)	-	(1,378)
Exceptional items		(139)	(136)	(311)	(447)
Other operating income		134	-	-	-
Share-based payment charges		(1,300)	(1,087)	-	(1,087)
Operating profit / (loss)		4,716	4,099	(139)	3,960
Finance income		15	36	-	36
Finance expense		(38)	(37)	(4)	(41)
Share of result of equity accounted investees		(77)	-	-	-
Profit / (loss) before tax		4,616	4,098	(143)	3,955
Taxation		(901)	(372)	(50)	(422)
Profit / (loss) after tax		3,715	3,726	(193)	3,533
Other comprehensive income:
Items that are or may be reclassified subsequently to profit or loss
Foreign currency translation differences - foreign operations		-	-	189	189
Total recognised income for the year		3,715	3,726	(4)	3,722
Earnings per ordinary share
Basic	4	13.36p	13.40p	(0.69p)	12.71p
Diluted	4	12.93p	12.93p	(0.67p)	12.26p

* 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 6. 

** 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 6.

Consolidated Balance Sheet as at 31 July 2017 

		2017	2016
		£000	£000
Non-current assets
Property, plant and equipment		2,461	2,608
Intangible assets		24,458	26,132
Investments - loan notes receivable		-	125
Investments - equity		675	375
Loans due from associated undertakings		187	125
Investments in equity accounted investees		111	125
Deferred consideration receivable		-	167
Deferred tax assets		457	573
		28,349	30,230
Current assets
Inventories		239	271
Trade and other receivables		8,480	6,166
Deferred consideration receivable		-	133
Cash and cash equivalents		15,350	11,385
		24,069	17,955
Total assets		52,418	48,185
Non-current liabilities
Hire-purchase contracts		230	296
Contingent & Deferred consideration payable		-	4,485
Deferred tax liabilities		3,718	4,284
		3,948	9,065
Current liabilities
Hire-purchase contracts		320	368
Trade and other payables		8,842	8,354
Contingent & Deferred consideration payable		5,041	1,665
Current tax liabilities		620	67
		14,823	10,454
Total liabilities		18,771	19,519
Net assets		33,647	28,666
Equity attributable to equity holders of the company
Called up share capital		112	110
Share premium reserve		5,948	5,622
Merger reserve		3,010	3,010
Retained earnings		24,577	19,924
Total equity		33,647	28,666

Consolidated Statement of Changes in Equity

	Share Capital £'000		Share Premium £'000		Merger reserve £'000		Retained Earnings £'000		Translation reserve £'000		Total £'000
At 1 August 2015	106		4,776		1,846		15,838		(189)		22,377
Profit for the year	-		-		-		3,533		-		3,533
Other comprehensive income	-		-		-		-		22		22
Reclassification on disposal	-		-		-		-		167		167
Total comprehensive income	-		-		-		3,533		189		3,722
Transactions with owners:
Dividends	-		-		-		(301)		-		(301)
Share based payment charges	-		-		-		1,087		-		1,087
Tax movements in equity	-		-		-		(233)		-		(233)
Exercise of share options	3		846		-		-		-		849
Shares issued as consideration	1		-		1,164		-		-		1,165
At 31 July 2016	110		5,622		3,010		19,924		-		28,666

At 1 August 2016	110	5,622	3,010	19,924	-	28,666
Profit for the year	-	-	-	3,715	-	3,715
Total comprehensive income	-	-	-	3,715	-	3,715
Transactions with owners:
Dividends	-	-	-	(362)	-	(362)
Share based payment charges	-	-	-	1,300	-	1,300
Exercise of share options	2	326	-	-	-	328
At 31 July 2017	112	5,948	3,010	24,577	-	33,647

Consolidated Cash Flow Statement

		2017	2016
	Notes	£000	£000
Operating activities
Profit for the year		3,715	3,533
Finance income		(15)	(36)
Finance expense		38	41
Depreciation		799	773
Loss on disposal of plant and equipment		12	2
Loss on disposal of business		-	272
Exceptional items		139	-
Other operating income		(134)	-
Amortisation of intangible assets		1,674	1,378
Share of result of equity accounted investees		77	-
Income tax charge		901	422
Share based payment charges		1,300	1,087
Operating cash inflow before changes in working capital		8,506	7,472
Movement in inventories		32	3
Movement in trade and other receivables		(2,314)	(506)
Movement in trade and other payables		488	(17)
Cash generated from operations		6,712	6,952
Finance income		15	36
Finance expense		(38)	(41)
Income tax paid		(664)	(1,081)
Net cash flow from operating activities		6,025	5,866
Investing activities
Purchase of plant and equipment		(558)	(795)
Proceeds from disposal of plant and equipment		56	83
Acquisition of subsidiaries		-	(6,761)
Proceeds from disposal of subsidiaries		-	166
Equity investments and loans to investments		(550)	(750)
Repayment of loans from investments		111	-
Receipt of deferred consideration		300	74
Payment of contingent & deferred consideration		(1,109)	(30)
Net cash flow used in investing activities		(1,750)	(8,013)
Financing activities
Dividends paid	5	(362)	(301)
Proceeds from exercise of share options		328	849
Hire purchase repayments		(276)	(369)
Net cash flow from / (used in) financing activities		(310)	179
Net increase / (decrease) in cash and cash equivalents		3,965	(1,968)
Effect of exchange fluctuations		-	12
Cash and cash equivalents at the beginning of the year		11,385	13,341
Cash and cash equivalents at the end of the year		15,350	11,385

Notes to the Consolidated Financial Statements

1          Financial information

The financial information set out above does not constitute the company's statutory accounts for the years ended 31 July 2017 or 2016 but is derived from those accounts. Statutory accounts for 2016 have been delivered to the registrar of companies, and those for 2017 will be delivered in due course. The auditors have reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

2          Basis of preparation

(a)        Statement of compliance

The Group consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the EU and applicable law. The Company has elected to prepare its parent company financial statements in accordance with FRS 101.  These parent company statements appear after the notes to the consolidated financial statements

 (b)       Basis of measurement

The Accounts have been prepared under the historical cost convention.

(c)        Functional and presentation currency

These consolidated financial statements are presented in sterling, which is the Group and Company's functional currency.  All financial information presented in sterling has been rounded to the nearest thousand.

(d)        Use of estimates and judgements

The preparation of financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses.  The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an on-going basis.  Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision only affects that period, or in the period of the revision and future periods, if the revision affects both current and future periods.

 (e)       Accounting Developments

The Group and Company financial statements have been prepared and approved by the directors in accordance with International Financial Reporting Standards as adopted by the EU ("Adopted IFRSs"). The accounting policies have been applied consistently to all periods presented in the consolidated financial statements, unless otherwise stated.

Certain new standards, amendments and interpretations to existing standards have been published that are mandatory for the Group's accounting period beginning on or after 1 August 2016. The following new standards and amendments to standards are mandatory and have been adopted for the first time for the financial year beginning 1 August 2016:

·      Accounting for Acquisitions of Interests in Joint Operations (Amendments to IFRS 11)

·      Investment Entities: Applying the Consolidation Exception (Amendments to IFRS 10, IFRS 12 and IAS 28)

·      Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to IAS 16 and IAS 38)

·      Equity Method in Separate Financial Statements (Amendments to IAS 27)

·      Disclosure Initiative (Amendments to IAS 1)

·      Annual Improvements to IFRSs 2012-2014 Cycle - various standards

These standards have not had a material impact on the Consolidated Financial Statements.

The following new or revised standards and interpretations issued by the International Accounting Standards Board (IASB) have not been applied in preparing these accounts as their effective dates fall in periods beginning on or after 1 August 2017.

Effective for the year ending 31 July 2018

·      IAS 7 'Statement of cash flows' - amendments relating to the IASB's disclosure initiative intended to provide information to help investors better understand changes in a company's debt

·      IAS 12 'Income taxes' - amendments relating to the accounting for deferred tax assets for unrealised losses on debt instruments measured at fair value.

Effective for the year ending 31 July 2019

·      IFRS 2 'Share-based payment' - amendments clarifying how to account for certain types of share-based payment transactions

·      IFRS 9 'Financial instruments' - introduces new requirements for classification and measurement of financial assets and financial liabilities, impairment methodology and hedge accounting.

·      IFRS 15 'Revenue from contracts with customers' - provides a single model for measuring and recognising revenue arising from contracts with customers, unless the contracts are in the scope of other standards, such as IAS 17. It supersedes all existing revenue requirements in IFRS.

Effective for the year ending 31 July 2020

·      IFRS 16 'Leases' - provides a single lessee accounting model, specifying how leases are recognised, measured, presented and disclosed

(f)         Going concern

The Group is debt free and has substantial cash resources.  The Board has prepared cash flow forecasts for the forthcoming year based upon assumptions for trading and the requirements for cash resources.

Based upon this analysis, the Board has concluded that the Group has adequate working capital resources and that it is appropriate to use the going concern basis for the preparation of the consolidated financial statements.

3          Segmental analysis

The Group has divided its results into two segments being 'Rail Technology and Services' and 'Traffic & Data Services'. 'Rail Technology and Services' includes the Group's Software, Consultancy and Remote Condition Monitoring technology and also includes Ontrac which was acquired in the previous period. Traffic & Data Services includes SEP which was acquired in the previous period.

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 a single operating segment, 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.

Sales revenue is summarised below

	2017	2016
	£000	£000
Rail Technology & Services	15,964	14,066
Traffic & Data Services - continuing	18,522	17,337
Total revenue from continuing operations	34,486	31,403
Discontinued operations	-	1,238
Total revenue	34,486	32,641

Revenue can also be analysed as follows:

	2017	2016
	£000	£000
Software and related services	11,711	9,817
Other	22,775	22,824
Total	34,486	32,641

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.

	2017
	Rail Technology & Services	Traffic & Data Services	Unallocated	Total
	£000	£000	£000	£000
Revenues
Total revenue for reportable segments	15,964	18,522	-	34,486
Consolidated revenue	15,964	18,522	-	34,486
Profit or loss
EBITDA for reportable segments	6,451	2,043	-	8,494
Amortisation of intangible assets	-	-	(1,674)	(1,674)
Depreciation	(124)	(675)	-	(799)
Exceptional items	-	-	(139)	(139)
Other operating income			134	134
Share-based payment charges	-	-	(1,300)	(1,300)
Interest receivable/payable(net)	-	-	(23)	(23)
Share of result of equity accounted investees	-	-	(77)	(77)
Consolidated profit before tax	6,327	1,368	(3,079)	4,616

2016 Rail Technology & Services Traffic & Data Services Unallocated Total £000  £000  £000  £000  Revenues Total revenue for reportable segments 14,066 18,575 - 32,641 Consolidated revenue 14,066 18,575 - 32,641 Profit or loss EBITDA for reportable segments 5,346 2,299 - 7,645    Amortisation of intangible assets - - (1,378) (1,378)    Depreciation (111) (662) - (773)    Exceptional items (79) (368) - (447)    Share-based payment charges - - (1,087) (1,087)    Interest receivable/payable(net) - - (5) (5) Consolidated profit before tax 5,156 1,269 (2,470) 3,955

	2017
	Rail Technology & Services	Traffic & Data Services	Unallocated	Total
	£'000	£000	£000	£000
Assets
Total assets for reportable segments (exc. cash)	3,581	7,599	-	11,180
Intangible assets and investments	-	-	25,431	25,431
Deferred tax assets	-	-	457	457
Cash and cash equivalents	3,784	1,844	9,722	15,350
Consolidated total assets	7,365	9,443	35,610	52,418
Liabilities
Total liabilities for reportable segments	(6,142)	(3,870)	-	(10,012)
Deferred tax	-	-	(3,718)	(3,718)
Contingent & deferred consideration	-	-	(5,041)	(5,041)
Consolidated total liabilities	(6,142)	(3,870)	(8,759)	(18,771)

	2016
	Rail Technology & Services	Traffic & Data Services	Unallocated	Total
	£'000	£000	£000	£000
Assets
Total assets for reportable segments (exc. cash)	2,401	6,944	-	9,345
Intangible assets and investments	-	-	26,882	26,882
Deferred tax assets	-	-	573	573
Cash and cash equivalents	4,365	1,507	5,513	11,385
Consolidated total assets	6,766	8,451	32,968	48,185
Liabilities
Total liabilities for reportable segments	(5,004)	(4,081)	-	(9,085)
Deferred tax	-	-	(4,284)	(4,284)
Contingent & deferred consideration	-	-	(6,150)	(6,150)
Consolidated total liabilities	(5,004)	(4,081)	(10,434)	(19,519)

Major customers

Transactions with the Group's largest customer represent 16% of the Group's total revenues (2016: 14%).

Geographic split of revenue

A geographical analysis of revenue is provided below:	2017	2016
	£000	£000
United Kingdom	33,224	30,798
North America	437	32
Australia	-	1,238
Rest of the World	825	573
Total	34,486	32,641

4          Earnings per share

Basic earnings per share

The calculation of basic earnings per share at 31 July 2017 was based on the profit attributable to ordinary shareholders of £3,715,000 (2016: £3,533,000) and a weighted average number of ordinary shares in issue of 27,804,000 (2016: 27,807,000), calculated as follows:

Weighted average number of ordinary shares

In thousands of shares

	2017	2016
Issued ordinary shares at 1 August	27,546	26,564
Effect of shares issued related to business combinations	-	360
Effect of shares issued for cash	258	883
Weighted average number of shares at 31 July	27,804	27,807

Diluted earnings per share

The calculation of diluted earnings per share at 31 July 2017 was based on profit attributable to ordinary shareholders of £3,715,000 (2016: £3,533,000) and a weighted average number of ordinary shares in issue after adjustment for the effects of all dilutive potential ordinary shares of 28,738,000 (2016: 28,811,000):

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:

	2017	2016
	£'000	£'000
Profit attributable to ordinary shareholders	3,715	3,533
Amortisation of intangible assets	1,674	1,378
Share-based payment charges	1,300	1,087
Exceptional items	139	447
Other operating income	(134)	-
Adjusted profit for EPS purposes	6,694	6,445
Weighted average number of ordinary shares In thousands of shares
For the purposes of calculating Basic earnings per share	27,804	27,807
Adjustment for the effects of all dilutive potential ordinary shares	28,738	28,811
Basic adjusted earnings per share	24.08p	23.18p
Diluted adjusted earnings per share	23.29p	22.37p

5          Dividends

The Group introduced a progressive dividend policy during previous years. The cash cost of the dividend payments is shown below:

		2017	2016
		£000	£000
Final dividend for 2014/15 of 0.60p per share paid		-	164
Interim dividend for 2015/16 of 0.50p per share paid		-	137
Final dividend for 2015/16 of 0.70p per share paid		195	-
Interim dividend for 2016/17 of 0.60p per share paid		167	-
Total dividends paid		362	301

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

	2017	2016	2015	2014	2013	2012
	£'000	£000	£000	£000	£000	£000
Interim dividend for 2011/12 of 0.20p per share paid	-	-	-	-	-	48
Final dividend for 2011/12 of 0.35p per share paid	-	-	-	-	-	87
Interim dividend for 2012/13 of 0.30p per share paid	-	-	-	-	75	-
Final dividend for 2012/13 of 0.40p per share paid	-	-	-	-	102	-
Interim dividend for 2013/14 of 0.35p per share paid	-	-	-	89	-	-
Final dividend for 2013/14 of 0.45p per share paid	-	-	-	119	-	-
Interim dividend for 2014/15 of 0.40p per share paid	-	-	106	-	-	-
Final dividend for 2014/15 of 0.60p per share paid	-	-	164	-	-	-
Interim dividend for 2015/16 of 0.50p per share paid	-	137	-	-	-	-
Final dividend for 2015/16 of 0.70p per share proposed	-	195	-	-	-	-
Interim dividend for 2016/17 of 0.60p per share paid	167	-	-	-	-	-
Final dividend for 2016/17 of 0.80p per share proposed	222	-	-	-	-	-

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

	2017	2016	2015	2014	2013	2012
Total dividends paid per share	1.4p	1.2p	1.0p	0.8p	0.7p	0.55p

The dividend will be payable on 16 February 2018 to shareholders on the Register at 2 February 2018.

6          Reconciliation of adjusted profit metrics

In addition to the statutory profit measures of Operating profit and profit before tax, the Group quotes Adjusted EBITDA and Adjusted profit.

Adjusted EBITDA is defined as 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.

Adjusted EBITDA can be reconciled to statutory profit before tax as set out below:

		2017	2016
		£000	£000
Profit before tax		4,616	3,955
Finance income / (expense) - net		23	5
Share-based payment charges		1,300	1,087
Exceptional items		139	447
Other operating income		(134)	-
Amortisation of intangible assets		1,674	1,378
Depreciation		799	773
Share of result of equity accounted investees		77	-
Adjusted EBITDA		8,494	7,645

Adjusted profit is defined as Earnings before finance income, tax, amortisation, exceptional items, other operating income, share-based payment charges, and share of result of equity accounted investees.

Adjusted profit can be reconciled to statutory profit before tax as set out below:

		2017	2016
		£000	£000
Profit before tax		4,616	3,955
Finance income / (expense) - net		23	5
Share-based payment charges		1,300	1,087
Exceptional items		139	447
Other operating income		(134)	-
Amortisation of intangible assets		1,674	1,378
Share of result of equity accounted investees		77	-
Adjusted profit		7,695	6,872

Adjusted EBITDA reconciles to adjusted profit as set out below:

		2017	2016
		£000	£000
Adjusted EBITDA		8,494	7,645
Depreciation		(799)	(773)
Adjusted profit		7,695	6,872

7          Annual Report and Annual General Meeting

The Company anticipates dispatching a copy of its annual report and accounts to all shareholders on or around 29 November 2017. A copy will also be available on the Company's website www.tracsis.com.

The Annual General Meeting of the Company will be held at Leeds Innovation Centre, 103 Clarendon Road, Leeds, LS2 9DF on Wednesday 24 January 2018 at 1pm.

 

END

 

 

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