AIM-listed firm has "substantially" reduced its expectations for the full-year
Companies: Trakm8 Holdings PLC
Shares in Trakm8 Holdings dropped 32% early on Tuesday after the AIM-listed telematics and data insight provider told investors it has had to "substantially reduce" expectations for the full year despite a strong order pipeline.
In a trading update for the period to 31 January, the AIM-listed firm said revenues were now expected to be "only modestly ahead" of FY2016, with adj operating profit "significantly" lower than the previous year.
The fall in revenues was primarily caused by new revenues being booked later in the current financial year or delayed into FY2018, by the ongoing move to a SaaS and rental revenue business:
"... [resulting] in short term revenues, cash generation and profitability being suppressed to the benefit.... the longer term".
Another factor driving the fall was the deliberate reduction of contract manufacturing for third parties, which led to a reduction of £2.5m in revenues this year.
Order book & business model
Trakm8 blamed the profit warning on the timing of new orders, which it says is particularly annoying considering the strength of its order book. In the 10 months to 31 January, £24.2m of orders were placed for current and future financial years. This represents a 24% increase on the prior year, and is greater than Trakm8's current market cap of £23m.
The firm added that its evolving business model had caused the "short-term" impact to financial performance:
"The Group's annual results are now more dependent on the mix of orders secured than in the past. The Board reiterates (as stated at the half year results in November 2016) that the Group's business model continues to evolve in line with industry trends which have resulted in a short term impact to financial performance."
On a more positive note, customer reaction to the Group's latest products has been "excellent", despite taking longer to bring to market. These include a new line of integrated 4G cameras, the latest generation micro telematics device, and the latest generation server architecture with fully integrated optimisation.
Trakm8 said the increase in its pipeline of new potential orders followed increased investment in sales and marketing, with orders being won in all of its chosen core markets.
"The Group has invested heavily in R&D to support the sales team meeting a number of customer opportunities and in the development of several core new products and solutions. This investment of c.£4m (expensed and capitalised combined) is considerably above the 10% of revenues that is our disclosed long-term objective (and compares to £2.8m incurred last year)."
Executive Chairman John Watkins said he remained positive for the future despite the "very disappointing" year:
Over the last four years, we have grown our installed base of units reporting to Trakm8 servers from 20,000 to over 190,000 today. The future remains very positive and we believe that this year, whilst very disappointing, should prove to have been a hiatus in our continuing long-term growth."
