Final Results

Trakm8 Holdings PLC 21 September 2007 TrakM8 21 September 2007 Embargoed 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 Â£0.5m Year ended 31st March Year ended 31st 2007 March 2006 (restated) Â£000's Â£000's Turnover 6,370 5,213 Gross Profit 2,430 1,863 Gross Profit % 38.1% 35.7% Operating Profit 102 232 Operating Profit % 1.6% 4.5% Profit on ordinary activities 78 211 before taxation Cash at bank and in hand 709 402 Net 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 to increase cash generation through service revenues and we are already seeing success on this area. "We continue to identify exciting technology developments in the telematics arena. These form the core of our product strategy and will enable the delivery of price competitive enhanced products and services in the coming year. The Directors believe strongly that protection and expansion of our Intellectual Property (IP) has helped mitigate against current competitive risks." For further information please contact: Trakm8 Holdings plc Cary Knapton, Chief Executive 0870 380 0531 Officer Tim Couling, Finance Director Tavistock Communications 020 7920 3150 Simon Hudson Paul Youens 07843 260 623 Arbuthnot Securities 020 7012 2000 Paul Vanstone Copies of the full report will be available either from the Company's offices or as 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 year ended 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 and grow shareholder value by transitioning our business from pure telematics hardware design and manufacture to integrated telematics service provision. This strategy commenced with the acquisition of Interactive Projects Limited (IPL) in a cash and shares deal which completed on 26th May 2006. The acquisition of IPL, a telematics research and development house, was designed to secure a significant proportion of the Group's core Intellectual Property Rights (IPR) and allow the onward development of our product portfolio into the service arena. 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 SWIFT R) sales were initially lower than expected however I am pleased to report that sales 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 a valuable sales-led partnership with Motorola. The Group has also commenced the design of the next generation telematics platform, the hardware design of this new platform being shared with leading industry partners. This latter step represents a key point in the Group's transition strategy. Results Turnover in the period increased 22.2% to Â£6.37 million (2006: Â£5.21 million) generating a profit before tax of Â£78,185 (2006: Â£211,414). Operating profit decreased due to Trakm8 SWIFT(R) launch costs, the restructuring of Interactive Projects post acquisition and certain ongoing operational cost increases. Operations The Group's core activity over the last year has been the sales of its proprietary Global Positioning System (GPS) hardware and software for the vehicle telematics market. During the period our hardware sales volumes grew significantly and we continued to supply our products to partners around the globe. We have however experienced increased competition and subsequent product price pressure and expect this to continue in the foreseeable future. However the Company is currently developing its next generation platform product, expected to be launched in the second half of this financial year, in conjunction with a blue chip supplier. This new platform will supersede existing products and will offer improved functionality at a more competitive price. We are confident that this development will enable us to continue to remain competitive in our sector whilst providing a degree of gross margin protection. In addition, the Group commenced delivery of Trakm8 SWIFT(R); our first integrated telematics service offering. Trakm8 SWIFT(R) is marketed as a packaged hardware/service product with customers purchasing the hardware unit and paying an annual license fee for the service and associated support. The hardware revenue is recognised at the time of sale whilst the higher margin service fees are recognised on a monthly basis. Although Trakm8 SWIFT(R) sales have grown at a slower pace than planned, the Directors firmly believe that this evolutionary change to our business model will deliver encouraging sales in the coming year. During the latter half of the year the Group became concerned by certain performance related issues which we experienced with a single externally sourced component of one of our hardware products. This issue affected a small number of installed units and was reported in our trading update announcement on 2 April 2007. I am pleased to report that this issue has now been rectified and a financial remedy has been agreed with the supplier. Nevertheless this has no doubt impacted our brand reputation and we have been working with customers to restore any lost confidence. Outlook Trakm8 has had another good year, although it has been dampened somewhat by the impact of the external component issue, which reached further than the small number of directly affected installed units. As noted above, the industry has become increasingly competitive and the Board envisages that this will continue. The Trakm8 SWIFT(R) service revenue model also results in a lag between sales and revenue. However our order pipeline is promising and we are confident that our next generation platform will help to insulate Trakm8 to a degree from envisaged price competition. The Group anticipates that its change in strategy to a fully integrated TSP will take time to deliver improved profitability. We will continue to develop our business and will examine expansion by acquisition or other means. The Executive team remain committed to delivery of continued organic growth and I would like to close by thanking them for their commitment and dedication to the Group over the last year. DAWSON BUCK CHAIRMAN Chief Executive Officer's Review Introduction Trakm8 has had another good year for growth with increases in both revenues and gross margins. However our operating profit was eroded by SWIFT(R) launch costs, the restructuring of Interactive Projects post acquisition and certain ongoing operational cost increases as detailed below. The last year has seen the Group launch a new service based product; moving the Group into on-line service provision for the first time. This, together with the successful acquisition of IPL, has proved positive for the Group. The Group also achieved ISO 9000 status for our manufacturing and distribution operations and this was instrumental in several large business wins, notably cementing our emerging relationship with Motorola and other customers. Overall therefore I can report that Trakm8 is in good shape to grow and to meet the challenges of the coming year. Operational Review Trakm8's products continue to be used around the globe and our distributors in the Americas, Asia Pacific and Africa are showing increasing growth. In our core market of the UK, where the Group operates through both distributors and other partnerships, there has been significant revenue growth in the period. Elsewhere the Group's international relationships have continued to mature. Nevertheless, as noted in the Chairman's Statement and as shown in the financial summary below, the increasing competitiveness and credibility of our products was damaged when an externally sourced component in our hardware platforms was found to be faulty. Although the direct losses have been largely recovered from the supplier concerned the consequential brand impact will take some time to restore. Notwithstanding this issue the Group made its initial entry as a full TSP during the 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 vehicle fleets and also into major fleet customers. The soft launch in calendar Q4 of 2006 enabled the Group to carefully assess these target markets and prove the offering operationally, prior to a more structured roll-out. The major fleet customer segment was not initially targeted but the product has proved to be attractive to this sector with a surprising level of interest emerging. Without doubt our presence at the Commercial Vehicle Show earlier this year raised the Group profile in this area considerably. The Group therefore looks to build on the Trakm8 SWIFT(R) proposition in the future and anticipates significant revenues accruing from this source in the next full year. The Group continues to monitor the markets in which it operates and the placement of its products in these markets. This enables the Group to enhance existing offerings and to develop new products and services tailored to our customers needs. Strategy The Group remains fully committed to a strategic transition to a fully integrated Telematics Service Provider with service revenues providing an increased source of higher margin revenue in the future. Trakm8 SWIFT(R) will therefore continue to be developed to keep pace with the needs of our fast moving markets. Non-core manufacturing activities remain entirely outsourced but core activities are either retained wholly in-house or, where a clear competitive advantage exists, are migrated to a joint venture model with trusted partners. As an example future platform hardware development is now partnered with leading industry players whilst the software development element is retained wholly in-house. At the same time the Group has internally restructured the management of day to day activities. This was noted at the half year and I am pleased to report that this change has been successful. The Group has also conducted an efficiency review of its activities in the second half of the year. I am pleased to report that this exercise is now complete and cost savings have been achieved whilst maintaining a higher degree of customer service. Future product strategy will see several strands of hardware and services, not least of which will be an alignment of service and product offerings which will target both central and local government requirements. In this context the Group expects to move into strategic national and regional projects in collaboration with selected partners during the coming year. The Group envisages that this change in strategy, coupled with a transition to fully integrated TSP will take time to deliver improved profitability. Financial Review Turnover for the year ended 31 March 2007 was Â£6.37m (2006: Â£5.21m), an increase of 22%. Gross profit increased to Â£2.43m (2006: Â£1.86m). Gross margins improved to 38.1% (2006: 35.7%), a 2.4% improvement. Despite increased administrative expenses of Â£2.33m (2006: Â£1.63m), the Group is pleased to announce a profit on ordinary activities before taxation for the period of Â£0.08m (2006: Â£0.21m). The Group's administration costs increased in the year due to one-off operational costs associated with the Trakm8 SWIFT(R) launch coupled with restructuring of IPL post acquisition. Ongoing costs also increased as a result of the first full year of listing on AIM and increased staff numbers as the Group expanded into service markets. Net cash increased during the year by Â£0.20m to Â£0.43m. This increase is after Â£0.17m for the purchase of Interactive Projects Limited and the proceeds of the Â£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 March 2007. Outlook The Group's strategic transition to a fully integrated TSP provider will take time to achieve. In this transition period the Group aims to increase cash generation through service revenues, and this is being evidenced now. Following the transition period, the Directors firmly believe that the Group's high quality, predictable, revenue streams will increase, however the impact of revenue recognition in the short term will mean that the Group is in effect forgoing short term profitability in order to deliver its strategic ambitions. As identified in the Chairman's statement our market place is becoming increasingly competitive, however we are confident that continued product development will, especially with the envisaged launch of our new hardware platform, help to ensure our products remain competitive whilst providing a degree of gross margin protection. I am pleased to report that Trakm8 has an encouraging sales pipeline moving into the second half of the current financial year, including several large opportunities for Trakm8 SWIFT(R). The Group is working on a number of large bids in the home markets as well as overseas, some in partnership with major international customers and others in partnership with local and national governments. The Group continues to identify exciting technology developments in the telematics arena. These form the centre point of the Group's product strategy and will enable the delivery of price competitive enhanced products and services in the coming year. The Directors believe strongly that protection and expansion of the Group's Intellectual Property (IP) has helped mitigate against current competitive risks. The Group therefore looks forward to the future with enthusiasm and I am confident we will continue to successfully deliver our innovative products to the market. These factors, coupled with the increase in brand awareness afforded by our Trakm8 SWIFT(R) TSP offering, give the Directors considerable optimism for the future. CARY KNAPTON CHIEF EXECUTIVE OFFICER CONSOLIDATED PROFIT AND LOSS ACCOUNT for the year ended 31st March 2007 Notes 2007 2006 restated Â£ Â£ TURNOVER 6,370,007 5,212,847 Cost 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 BEFORE TAXATION 78,185 211,414 Taxation 18,146 (43,506) ----------- ----------- PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION 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 LOSSES for the year ended 31 March 2007 2007 2006 Â£ Â£ Profit After Tax 96,331 175,250 Prior year adjustment (7,342) - ----------- ----------- Total recognised gains and losses recognised since the last annual report 88,989 175,250 =========== =========== The prior year adjustment relates to FRS20 treatment of share based payments. See note 1. CONSOLIDATED BALANCE SHEET As at 31st March 2007 Notes 2007 2006 restated Â£ Â£ FIXED ASSETS Intangible fixed assets 809,857 - Tangible assets 446,143 393,110 ----------- ----------- 1,256,000 393,110 CURRENT ASSETS Stocks 332,522 398,306 Debtors 1,273,089 1,070,984 Cash at bank 708,588 402,454 ----------- ----------- 2,314,199 1,871,744 CREDITORS: Amounts falling due within one 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 RESERVES Called up share capital 114,724 110,260 Share premium 754,279 435,087 Merger Reserve 509,837 509,837 Share based payment reserve 28,624 7,342 Profit and loss account 18,758 (77,573) ----------- ----------- SHAREHOLDERS' FUNDS 1,426,222 984,953 =========== =========== CONSOLIDATED CASH FLOW STATEMENT for the year ended 31st March 2007 Notes 2007 2006 restated Â£ Â£ NET CASH INFLOW / (OUTFLOW) FROM OPERATING ACTIVITIES 186,214 (264,490) RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Interest received 15,052 4,699 Interest paid (39,301) (24,849) ----------- ----------- NET CASH OUTFLOW FROM RETURNS ON INVESMENTS (24,249) (20,150) AND SERVICING OF FINANCE TAXATION Research & Development Tax Credit 43,237 - CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT Purchase of tangible fixed assets (71,203) (32,215) Sale of assets 999 - ----------- ----------- NET CASH INFLOW / (OUTFLOW) BEFORE TAXATION 134,998 (316,855) ACQUISITION Purchase 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 - 914,000 Expenses 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 Â£ Â£ Increase in cash in year 200,958 119,759 Cash outflow from loan repayments 244,565 7,613 ----------- ----------- 445,523 127,372 Loans and Finance leases acquired with subsidiary (193,278) - Issue of Loan Stock (500,000) - ----------- ----------- Movement in net debt in period (247,755) 127,372 Opening net debt (212,066) (339,438) ----------- ----------- CLOSING NET DEBT (459,821) (212,066) =========== =========== NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2007 1 ACCOUNTING POLICIES BASIS OF ACCOUNTING The consolidated financial information comprises the financial information of Trakm8 Holdings PLC and all of its subsidiary undertakings for the year. The financial statements have been prepared under the historical cost convention in accordance with the applicable accounting standards. The consolidated financial statements merge the financial statements of Trakm8 Limited 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 are consolidated, regardless of the actual merger date, and corresponding figures for previous years are re-stated. Interactive Projects Limited ("IPL") was acquired by the Company on 26 May 2006 and has been consolidated using the acquisition method. The results are incorporated from the date that control passes. The difference between the cost of acquisition of shares in subsidiaries and the fair value of the separable net assets acquired is capitalised and written off on a straight line basis over its estimated economic life. Provision is made for impairment. All financial statements are made up to 31 March 2007. CHANGE IN ACCOUNTING POLICY During the year, the Group adopted FRS 20, 'Share based payment'. The adoption of FRS 20 is a change in accounting policy which results in a prior year adjustment. The effect on the comparative figures is the recognition of a share option reserve of Â£7,342 as at 31 March 2006. There is no change to the net assets of the Group at 31 March 2006. The Group previously charged the intrinsic value of share options, (the difference between the market price of the shares at the grant date and the exercise 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 over the vesting period. SHARE-BASED PAYMENTS The Group has applied the requirements of FRS 20 Share-based Payments. In accordance with the transitional provisions, FRS 20 has been applied to all grants of equity instruments after 7 November 2002 that were unvested as of 1 January 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 of grant. The fair value determined at the grant date of equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of shares that will eventually vest. The fair value is measured by use of the Black-Scholes option pricing model. The expected life used in the model has been adjusted, based on management's best estimate, for the effect of non-transferability, exercise restrictions, and behavioural considerations. No expense is recognised for awards that do not ultimately vest. 2 EARNINGS PER ORDINARY SHARE The earnings per ordinary share has been calculated using the profit for the year and the weighted average number of ordinary shares in issue during the year as follows: 2007 2006 restated Profit for the year after taxation Â£96,331 Â£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. The consideration was Â£100,000 in cash paid to the vendors on 26 May 2006 and 446,423 Ordinary shares were allotted and issued to the vendors on 29 November 2006 at a market price of 72.5 pence per share. The transaction has been accounted 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 Â£ Â£ Intangible Assets 200,000 600,000 Tangible Assets 37,860 37,860 Stocks 41,633 41,633 Debtors 43,140 43,140 Bank overdraft (18,733) (18,733) Loan & trading (48,101) (48,101) balance with Trakm8 Trade 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 102,453 Total Consideration -------- 494,399 ======== Satisfied by: Cash 100,000 Costs of acquisition 70,742 Fair value of shares 323,657 issued -------- 494,399 ======== The results of IPL have been consolidated in the Profit & Loss account for the Group for the ten months from the date of acquisition to 31st March 2007. Intangible assets represent Intellectual Property owned by IPL. The Directors have reviewed the fair value of these assets and revalued them at the date of acquisition. The valuation has been based on the expected licence fee income to be received over the next 10 years. This information is provided by RNS The company news service from the London Stock Exchange

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