Trakm8 skids as profits slide due to major investment

28th Nov 2016 11:20

(ShareCast News) - First-half profits from Trakm8 slumped 77% and cash flow almost dried up as the telematics group's increased revenue and normal seasonality was blotted by a weak pound and significant investment in sales, marketing and engineering.Shares in the AIM-listed company were down 29% to 132p by noon on Monday, having initially fallen to 117.5p, their lowest since May last year. Executive chairman John Watkins said the full year result would rely on more of a second-half weighting than previous years and the eventual outturn would depend on the "quantum and timing of contract wins".With its largest ever pipeline of new contracts in place, Trakm8 anticipates a "much stronger" second half and expects to benefit from the £1.5m of investment made in the first half in sales and marketing and new products.Announcing a fresh contract win on Monday with the Smart Drivers Club, Watkins said the company had "good visibility" to support its growth aspirations, adding to contracts recently won or extended with Scottish Power, BT, Shell and Allianz.He added: "Strong delivery of our near term pipeline would deliver revenues and profits in line with current expectations, although there is a downside risk that if contracts drift into the next financial year profits would be broadly in line with last year on higher revenues.""Subsequent years are expected to benefit from recent investments in growth initiatives and the growth of the telematics market."For the six months to 30 September, revenue rose 12% to £13.2m, of which £4.7m is recurring.Adjusted operating profits fell 61% to £0.59m and cash generated from operating activities slumped 90% to £0.13m due to the lower profitability and an ongoing move to software as a service (SaaS) financial model.Profit before tax fell 77% to £0.28m and adjusted earnings per share skidded 70% lower to 1.58p, while net debt doubled to £4.40m.House broker FinnCap noted that while the company is closing a couple of large high-margin software-related sales, should these fall outside the March year-end, profits are only likely to be in line with last year's £3.9m, albeit on a growing revenue base."Prudence dictates we assume a worst-case scenario in our forecasts so that surprise is only in the upside - if the deals close in the year, the company will meet those original revenue and profit expectations."