29 June 2021

TRAKM8 HOLDINGS PLC

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

Final Results

Trakm8 Holdings plc (AIM: TRAK), the global telematics and data insight provider, announces its final results for the year ended 31 March 2021 (FY-2021).

FINANCIAL SUMMARY:

¹ Recurring revenues are generated from ongoing service and maintenance fees

² Before exceptional costs and share based payments

³ Total borrowings less cash and cash equivalents. FY-2021 net debt excludes £1.9m IFRS 16 lease liability.

OPERATIONAL OVERVIEW

·      3 periods of lockdown impacted revenues significantly by an estimated £4m.

·      Strong continued reduction in direct and indirect costs.

·      4% increase to over 254,000 connected units in operation (FY-2020: 245,000).

·      New contract wins with four new Insurance companies.

·      Contract awards with the Parts Alliance and a major UK retailer.

·      A second significant European road side assistance company launched in volume during the year.

·      R&D spend down 28%, however still £2.9m invested.

·      Successfully navigated a large number of supply chain challenges.

·      Renewed Banking facilities for 2 years through to 31 October 2023, including delayed capital repayments.

·      Recurring revenues continue to be significant although slightly down from £9.8m to £9.4m.

OUTLOOK

·      Revenues in the current financial year from insurance clients increasing following the resumption of driving tests with recent device shipments 16% ahead of last year resulting in revenues to end of May being 28% ahead of last year.  However the recovery from lockdown is slower than the corresponding period last year.

·      Fleet sales showing good progress with revenues in current financial year to end of May 24% ahead of last year.

·      Group revenues in current financial year to end of May 26% ahead of last year.

·      Assuming no further lockdowns or unmanageable supply chain issues the Company expects to return to pre-Covid-19 revenues and deliver a profit.

- Ends -

For further information:

Notes to Editors

Trakm8 is a UK based technology leader in fleet management, insurance telematics, connected car, and optimisation. Through IP owned technology, the Group analyses data collected by its installed base of telematics units to fine tune the algorithms that are used to produce its' solutions; these monitor driver behaviour, identify crash events and monitor vehicle health to provide actionable insights to continuously improve the security and operational efficiency of both company fleets and private drivers.

 The Group's product portfolio includes the latest data analytics and reporting portal (Trakm8 Insight), integrated telematics/cameras/optimisation, self-installed telematics units and one of the widest ranges of installed telematics devices. Trakm8 has over 254,000 connections.

Headquartered in Coleshill near Birmingham alongside its manufacturing facility, the Group supplies to the Fleet, Optimisation, Insurance and Automotive sectors to many well-known customers in the UK and internationally including the AA, Saint Gobain, EON, Iceland Foods, The Parts Alliance Group, Direct Line Group, LexisNexis and Ingenie.

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

www.trakm8.com / @Trakm8

The information communicated in this announcement is inside information for the purposes of Article 7 of Regulation 596/2014.

EXECUTIVE CHAIRMAN'S STATEMENT

Results

FY 2021 was a year like no other in our memories. The impact of Covid-19 on our personal and business lives has been huge.  Trakm8 has been affected like so many others from its exposure to the motor insurance industry; almost 6 months of no driving tests and higher levels of vehicles registered off the road (SORN) resulted in a much reduced pool of drivers buying new policies.  However the high level of recurring revenue (over 50% in FY-2021) mitigated the impact of Covid-19 on the financial performance of the Group.

The first quarter of the year saw a significant reduction in Fleet connections with high levels of attrition from small customers and reductions in fleet size from some larger customers.  Thereafter, the level of Fleet connections stabilised with new sales matching a return to a more normal level of losses from the existing base.

The problems with the supply chain of electronic components have been widely reported. The major IT suppliers had first grab of chip manufacturing capacity and the car companies have had a battle to get their demand met.  As a result we, too, have had to fight our corner.  The benefit of a vertically integrated business is that our engineers and purchasing teams can solve these challenges quickly. As a result, the year's revenues were not impacted by these issues.

The revenues of the business fell by 18% but the Group, with lower direct and indirect costs posted a broadly similar adjusted loss before tax of £0.3m (FY-2020: £0.2m).  Connections grew by 4% to 254,000. The total number of fleet management connections decreased by 9% over the year to 70,000 (FY-2020: 77,000).  Telematics for insurance/automotive connections increased by 10%.  At the year-end we had 184,000 insurance/automotive connections (FY-2020: 168,000).  Recurring service revenues reduced by 3.8% to £9.4m (FY-2020: £9.8 m).

It was pleasing to maintain the strong cash generation of the business with a cash flow from operations of £4.7m (FY-2020: £4.1m).  This resulted in a free cash flow of £2.1m (FY-2020: £0.9m) and net debt reduced by £0.7m at £4.9m (pre-IFRS 16).  The Group had £2.4m cash on hand and an undrawn overdraft facility of £0.5m. It was satisfying to see the vigorous actions taken reduced the inventory in the business by £0.6m. The Company also benefitted from £1.8m of HMRC deferred payments on VAT/PAYE/NI, which is scheduled for repayment over the next two financial years almost equally.

A broadly similar adjusted loss to the previous year on revenues 18% lower was achieved through the Group's continued focus on improving efficiency of our operations and engineering activities. Significant reductions in direct and indirect costs were delivered during the year.  The Company benefitted from the Job Retention Support Scheme with £0.9m in cash received from the government. The investment in engineering resources, whilst some £1.2m less (£0.8m less if the cost of engineering resources on furlough are included) than the previous year, has continued to deliver market-leading software and hardware solutions.  Trakm8's Insight platform provides superb customer experience and data, enabling vehicle operators to make significant improvements to operational efficiencies and to reduce risk.

Renewed Banking facilities were agreed with HSBC for over two years.  The new agreements comprise a Term Loan of £5.3m and a £0.5m overdraft facility.  Capital repayments commence in September 2021, with appropriate 'carve out' in covenants to cover the Covid-19 impacted financial year.  These facilities are in place until October 2023.  In addition, the capital repayment holiday of our loan with Maven (£1.4m outstanding) has been extended, such that repayments will now re-commence in September 2021.  Interest on the loans continues to be paid monthly.

Research and development ('R&D')

Trakm8 has maintained a significant level of investment in R&D for another year although below the level of the previous year.  The Board believes that this level of investment is necessary to retain a portfolio of market-leading technology.  Trakm8 continues to focus on owning the intellectual property ('IP') we use in our solutions, and we see this as one of our key competitive advantages.  Telematics systems are complex; but because we own all the elements that encompass a solution (with the exception of the mobile networks) we have the ability to understand and resolve problems more easily than our competitors.

The R&D investment has concentrated on the development of self-fit devices, additional improvements to camera solutions, development of the feature set in Insight, and further development of our Insurance Broker platform.  As identified in previous years, the requirement to do more for less cost remains a key strategy as this widens the opportunity to expand the rate of growth as the return on their investment for our customers improves.

Trakm8 was pleased to be granted another patent in the year, bringing the total number of patents to four that Trakm8 holds to protect its market leading IP in its software and hardware solutions.

Governance

The Group has adopted the Quoted Companies Alliance's (QCA) Corporate Governance Code for small and mid-size quoted companies, which the Board considers the most appropriate for the size and structure of the Group.  More information can be found in the Governance Report section of this report and our website.

Please see https://www.trakm8.com/investor-relations/corporate-governance for our full compliance statement.

Dividend

The Group does not propose to recommend a dividend for the year at the forthcoming AGM.  However, the Board will continue to review its dividend policy in light of future results and investment requirements.

People

The number of people Trakm8 employs has reduced further during FY-2021 with reductions across the business.  In total our staff numbers have reduced by 10% over the year.

Working successfully in the Covid-19 remote working world has been a credit to our colleagues.  We have an exceptional team and I would like to thank everyone for their hard work, dedication and contribution to the ongoing success of the business.

Outlook

We start the new financial year assuming that the worst of the impact of Covid-19 is behind us.

With April still in lockdown our Insurance deliveries continued to be 55% lower than the peak of September/October 2020, however May and June have started a growth phase, but at a slower rate than the corresponding period last year.  Currently Insurance devices supplied amount to 16% more than the corresponding period last year.

Fleet deliveries have been reasonably good with new unit shipments 116% greater than the corresponding period last year.  More importantly the attrition during the period has been more normal.

April and May revenues were 26% higher than the corresponding period of the previous year.  

We expect that this year will benefit from improved direct and indirect costs as a result of actions taken last year.  We do not envisage utilising the Job Retention Scheme as much this year.

Based on no more lockdowns or unsurmountable supply chains challenges we expect the revenues to return to pre-Covid-19 levels and as a result return the group to profitability.

John Watkins

EXECUTIVE CHAIRMAN

28 June 2021

FINANCIAL REVIEW

TRADING RESULTS

¹ Before exceptional costs and share based payments

Revenue

Group revenue decreased by 18% to £16.0m (FY-2020: £19.6m) due to the impact of Covid-19.  Fleet revenues decreased by 21% to £9.5m and Insurance and Automotive revenues decreased by 14% to £6.4m.  Despite the last lockdown, revenues in H2 were 18% higher than H1 due to recovery in trading after the first lock down.  The last lock down did impact trading, but not to the same extent as the first lock down.  The growth in H2 was driven by more normal level of new business sales in Fleet and Optimisation, and by the onboarding of new insurance customers and launch of the Automotive connected car solution.  Recurring revenue generated from service and maintenance fees decreased by 4% to £9.4m (FY-2020: £9.8m) due to the reduction in Fleet connections in H1 as a result of Covid-19.  This resulted in higher than normal levels of attrition from small customers and some reduction in fleets in larger customers. 

Loss before tax

The Group reported a loss before tax of £1.9m (FY-2020: £1.7m).  The loss remained broadly similar to the prior year despite the reduction in revenue resulting in £2.2m less Gross Margin.  This was achieved by a £2.3m reduction in total administrative costs offset by £0.2m reduction in Grant Income.  Total administrative costs reduced by £2.3m of which £0.9m was due to income received under the Coronavirus Job Retention Scheme, £0.9m reduction in one off exceptional integration and restructuring and new product component refit costs, £0.3m due to lower headcount and £0.1m reduction in depreciation and amortisation. 

Adjusted Loss before tax

Despite the £3.6m reduction in revenue, the Group reported an adjusted loss of £0.3m, only £0.1m higher than the prior year.  The £2.2m of reduction in Gross margin that resulted from the revenue reduction was offset by £1.3m lower headcount costs, of which £1.0m were reclassified to exceptional costs as they related to the cost of employees whilst on furlough, and £0.3m due to lower headcount.  In addition other overheads (excluding exceptional items and depreciation and amortisation) reduced by £0.9m from lower marketing spend and other costs due to Covid-19, grant income was £0.2m lower and depreciation and amortisation was £0.1m lower.

Exceptional Costs

Exceptional costs total £1.3m (FY-2020: £1.3m) and primarily include £2.1m of one-off costs relating to Covid-19.  These include costs of employees whilst on furlough of £1.6m, costs relating to the cancellation of internal and external projects totaling £0.5m and some costs relating to cancelled marketing events and bad debts.  These costs were offset by £0.9m received under the Coronavirus Job Retention Scheme.  Additionally £0.2m of restructuring costs relating to initiatives to streamline and rationalise the operations of the business were incurred. 

Balance Sheet

Net Assets decreased by £1.1m to £20.1m (FY-2020: £21.2m) reflecting the loss for the year, after adding back the IFRS2 Share based payments charge. 

Non-current assets decreased by £0.2m to £25.6m (FY-2020: £25.8m).  This is due to £0.5m reduction in right of use assets due to depreciation offset by a £0.2m increase in Intangible assets and £0.2m increase in Property, plant and equipment.  Intangible assets increased due to the continued investment in development in both software and hardware with capitalised development costs in the year totaling £2.3m (FY-2020: £3.2m), offset by amortisation of £1.7m (FY-2020: £1.8m).  Additionally £0.2m was written off to exceptional costs relating to capitalised software costs, due to Covid-19 resulting in an internal software project being cancelled.     

Cash Flow

¹ Cash generated from operating activities less cash used in investing activities (excluding cash flows related to acquisitions)

² Total borrowings less cash and cash equivalents. FY-2021 net debt excludes £1.9m IFRS 16 lease liability. 

Cash from operating activities improved by £0.6m during this year to £4.7m (FY-2020: £4.1m), which included R&D tax credit cash receipts of £0.9m (FY-2020: £1.0m).  The R&D tax credit cash receipt reflects the Group's investment in development.  The operational cash flow improvement is due to £0.6m improvement year on year from improved working capital management.  This improvement in working capital includes £1.8m of HMRC deferred payments for VAT, PAYE & NI.  The Group has a Time to Pay agreement with HMRC to repay this almost equally over the next two financial years.

Free cash inflow of £2.1m (FY-2020: £0.9m) is due to the Net Cash generated from operating activities as detailed above offset by cash outflows from investing activities which decreased by £0.5m to £2.7m (FY-2020: £3.2m).

Financing activities was an outflow of £1.4m (FY-2020: £0.5m).  The increased cash outflow is due to the previous year including the receipt of the new £1.5m growth capital loan from MEIF WM Debt LP, and lower loan capital repayments in the current year due to deferment of capital repayments from 30 June 2020.  The current year also includes the refinance of the HSBC facilities that resulted in a new £5.3m term loan repaying £4.5m outstanding under the old HSBC credit facility and £0.7m under the old term loan.

Net Debt 

Net debt excluding IFRS 16 lease liability of £1.9m (FY-2020 £2.3m) reduced by £0.7m to £4.9m (FY-2020: £5.6m).  Cash balances total £2.4m (FY-2020: £1.7m) and total borrowings including IFRS16 lease liability of £1.9m totals £9.1m (FY-2020: £9.6m).  Borrowing comprise £5.3m (FY-2020: £0.9m) term loan with HSBC, £1.4m (FY-2020: £1.5m) term loan with MEIF WM Debt LP, nil (FY-2020: £4.5m) amounts drawn under the old £5m revolving credit facility with HSBC and £2.4m (FY-2020: £2.8m) of obligations under Right-to-use lease liabilities.  In addition at the year end the Group has a £0.5m unused overdraft facility with HSBC.

Notes to the Consolidated Financial Statements