TIDMQTX
RNS Number : 8239D
Quartix Holdings PLC
24 February 2020
24 February 2020
Quartix Holdings plc
("Quartix" or "the Group")
Final Results
Continued Strong growth in fleet customer base
Quartix Holdings plc (AIM:QTX), a leading supplier of vehicle
telematics services to the fleet and insurance sectors, is pleased
to announce its audited results for the year ended 31 December
2019.
Restatement of comparatives:
All comparative monetary amounts for 2018 have been restated in
line with a change in policy in the recognition of commission costs
associated with contracts with customers under IFRS 15: 'Revenue
from Contracts with Customers' (See note 1: Basis of preparation).
There has been no restatement related to IFRS 16 'Leases'.
Financial highlights:
-- Group revenue decreased by 0.3% to GBP25.6m (2018: GBP25.7m)
o Fleet revenue grew by 11.0% to GBP20.8m (2018: GBP18.8m)
o Fleet revenue represented 81% of total revenue (2018: 73%)
o Insurance revenue decreased by 30.8% to GBP4.8m (2018: GBP7.0m)
-- Adjusted EBITDA decreased by 17.1% to GBP7.1m (2018: GBP8.5m)
o Fleet telematics services profits increased by 12.8% to
GBP16.5m (2018: GBP14.6m) (note 3)
o Fleet customer acquisition investment increased by 42.5% to GBP6.1m (2018: GBP4.3m)
o Insurance segment profit decreased by 50.5% to GBP1.6m (2018: GBP3.2m)
-- Operating profit decreased by 21.7% to GBP6.4m (2018: GBP8.2m)
-- Profit before tax decreased by 21.8% to GBP6.5m (2018: GBP8.3m)
-- Diluted earnings per share decreased by 22.4% to 11.25p (2018: 14.50p)
-- Free cash flow increased by 11.5% to GBP6.2m (2018: GBP5.6m)
-- Cash generated from operations increased by 6.4% at GBP7.3m (2018: GBP6.8m)
-- Net cash remained constant at GBP6.8m (2018: GBP6.8m)
-- Final dividend payment of 10.0p per share proposed (2018:
10.0p) including 5.8p for supplementary dividend (2018: 6.2p)
giving a total dividend for the year of 12.4p per share.
Operational highlights:
-- Strong progress in the core fleet business:
o 22.3% increase in subscription base to 150,640 units (2017: 123,157)
o Annualised recurring revenue [1] increased to GBP20.5m (2018: GBP18.8m)
o Growth in annualised recurring revenue (on a constant currency
basis) of GBP2.0m (2018: GBP1.7m)
o 24.4% increase in customer base to 16,394 (2018: 13,176)
o Unit attrition has remained constant at 11.9% (2018: 11.9%)
o 39.4% growth in new fleet subscriptions
o Strong growth in France, ending the year with 3,528 customers
(2018: 2,474) and 25,643 vehicles under subscription (2018:
18,803), an increase of 42.6% and 36.4% respectively.
o During its fifth full year of trading the USA grew its
customer base to 2,621 (2018: 2,007), with 18,050 vehicles under
subscription (2018: 13,133) an increase of 30.6% and 37.4%
respectively
o The European expansion in 2019 has seen the customer base grow
to 337 with 1,316 vehicles under subscription at the year end.
-- As anticipated further decline in the lower-margin insurance telematics business:
o 11.8% decline in insurance installations to 36,386 (2018: 41,255)
[1] Annualised data services revenue for the subscription base
at the year end, before deferred revenue, including revenue for
units waiting to be installed for which subscription payments have
started or are committed
Andy Walters, Chief Executive Officer of Quartix, commented:
"We are delighted with the progress made in 2019. New fleet
installations increased by 39% to 43,837 and the client base grew
by 24% to 16,394. Further investment has been made in the
development of the Group's fleet businesses in the United States
and France where the vehicle subscription bases increased by 37% to
18,050 and 36% to 25,643, respectively. In the UK the subscription
base increased by 16% to 105,631 vehicles.
We invested in significant enhancements to our web and mobile
applications to support the launch of our telematics subscription
platform in Poland, Spain, Italy and Germany. By the end of the
year we had developed a client base of 337 customers in those
countries, with a total of 1,316 vehicles."
"We achieved satisfactory margins in our insurance operations,
in keeping with the Group's stated strategy of focusing on only
those insurance opportunities which are closely aligned to the
Group's fleet business."
"Our manufacturing partner in China has resumed limited
operations following the New Year celebrations due to the
difficulties caused by the Coronavirus outbreak. At the time of
writing, management does not expect any material disruption to
supply, but it is monitoring the situation closely."
"The Group has made a strong start to the year in each of its
markets. The high levels of recurring revenues and opportunities to
grow the fleet business in the UK, USA, France and each of its new
territories underpin our confidence for the current financial
period and beyond."
For further information, please contact:
Quartix (www.quartix.net)
Andy Walters, Chief Executive Officer
Daniel Mendis, Chief Operating and
Financial Officer 01686 806 663
finnCap (Nominated Adviser and Broker)
Matt Goode /Scott Mathieson (Corporate
Finance)
Alice Lane (Corporate Broking) 020 7200 0500
Full Financial Results Report
The Group's Financial Statements for the year ended 31 December
2019 are available in the "Investors" section of our website at:
www.quartix.net/investors/
About Quartix
Founded in 2001, Quartix is a leading supplier of
subscription-based vehicle tracking systems, software and services.
The Group provides an integrated tracking and telematics data
analysis solution for fleets of commercial vehicles and "pay as you
drive" motor insurance providers that is designed to improve
productivity and lower costs by capturing, analysing and reporting
vehicle and driver data.
Quartix is based in the UK and is listed on the AIM market of
the London Stock Exchange (AIM:QTX).
Chairman's statement
Introduction
Our key focus for the past year was investing in the growth of
our core Fleet operations, both in the UK and overseas to drive an
increase in recurring revenues. This was achieved with the Group
experiencing strong growth in its Fleet tracking subscription
platform.
Sales in the Group's core fleet operations in the UK grew by
5.0%, reaching GBP15.5m (2018: GBP14.8m). This growth partially
compensated for the planned decline in UK insurance revenues, which
decreased to GBP4.8m (2018: GBP7.0m).
The Group made excellent progress in France, where revenue
increased by 32.4% to EUR3.7m (2018: EUR2.8m), ending the year with
25,643 vehicles under subscription (2018: 18,803) across 3,528
fleet customers (2018: 2,474).
2019 was the Group's fifth full year of operations in the USA,
having launched its service and opened an office there during 2014.
We are pleased with progress and completed the year with 18,050
vehicles under subscription (2018: 13,133) across 2,621 fleet
customers (2018: 2,007). Revenue increased by 27.9% to $2.6m in
2019 (2018: $2.0m) and the prospects for future business
development remain encouraging.
The Group made a very good start in a number of new markets in
Europe during the course of the year, ending the period with a
subscription base of 1,316 vehicles across 337 fleet customers.
Results
Group revenue for the year decreased marginally to GBP25.6m
(2018: GBP25.7m); however, the Group continues to replace insurance
revenue with higher quality fleet revenue. Total fleet revenue
increased by GBP2.0m and now represents 81% of total revenue (2018:
73%). Insurance revenue decreased by GBP2.1m.
Operating profit for the year decreased by 21.7% to GBP6.4m
(2018: GBP8.2m) and profit before tax was GBP6.5m (2018: GBP8.3m).
This reduction was almost entirely due to the GBP1.6m decrease in
profits from the Insurance segment, whose 2019 segmental profit was
GBP1.6m (2018: GBP3.2m).
Total Fleet Segment profit remained deliberately similar to the
prior year, at GBP9.7m (2018: GBP9.8m). The profitability of the
Group's fleet telematics services, which represents the core part
of the business associated with recurring revenues, grew by GBP1.9m
to GBP16.5m (2018: GBP14.6m). This growth was then entirely
reinvested, with an additional GBP2.0m being invested in acquiring
additional fleet customers for the future.
Further details for segmental profit are given in the Financial
Review and note 3.
Cash conversion increased, resulting in free cash flow, cash
flow from operations after tax and investing activities, of GBP6.2m
(2018: GBP5.6m). Net cash remained constant at GBP6.8m at 31
December 2019, following the payment of GBP5.9m in dividends.
Earnings per share
Basic earnings per share decreased by 23.2% to 11.29p (2018:
14.69p). Diluted earnings per share decreased to 11.25p (2018:
14.50p).
Dividend policy
Our ordinary dividend policy is to pay a dividend set at
approximately 50% of cash flow from operating activities, which is
calculated after taxation paid but before capital expenditure.
In addition to this the Board will distribute the excess of
gross cash balances over GBP2m on an annual basis by way of
supplementary dividends, subject to a 2p per share de minimis
level.
The surplus cash is calculated using the year end gross cash
balance and after deduction of the proposed ordinary dividend, and
is intended to be paid at the same time as the final dividend. The
policy will be subject to periodic review.
Dividend
In the year ended 31 December 2019, the Board decided to pay an
interim dividend of 2.4p per ordinary share. This totalled GBP1.15m
and was paid on 14 September 2019 to shareholders on the register
as at 16 August 2019.
The Board is recommending a final ordinary dividend of 4.2p per
share, together with a supplementary dividend of 5.8p per share,
giving a final pay out of 10.0p per share and a total dividend for
the year of 12.4p per share.
The final and supplementary dividend amounts to approximately
GBP4.8m in aggregate. Subject to the approval at the forthcoming
AGM, this aggregate dividend of 10.0p per share will be paid on 1
May 2020 to shareholders on the register as at 3 April 2020.
Outlook
The Group has made a strong start to the year, in line with our
expectations. The high levels of recurring revenue, a focus on
growth in the core fleet markets in UK, France and the USA and the
new European territories and targeting only those insurance
opportunities which offer satisfactory margins, underpin our
confidence for the rest of the year and beyond.
AGM
The Group's AGM will be held at 11.00 a.m. on 24 March 2020 at
the Group's registered office at 9 Dukes Court, 5462 Newmarket Rd,
Cambridge CB5 8DZ.
Paul Boughton
Chairman
Strategic Report: Operational Review
Principal activities
Quartix is one of Europe's leading suppliers of vehicle
telematics services. We achieved extremely strong growth in the
fleet sector in 2019, which now has a subscription platform
connecting more than 150,000 fleet vehicles. Whilst the origins of
the Group's business are in the UK, it has developed a significant
market presence in the fleet sector in France and the USA. The
Company built on this success and experience in establishing new
business in Poland, Spain, Italy and Germany during the course of
2019.
Strategy and business model
The Group's main strategic objective is to grow its fleet
subscription platform and develop the associated recurring revenue.
This strategy is based on 5 key elements, which were first
highlighted in last year's annual report. We are pleased to be able
to report significant progress in each area, as summarised
below:
1. Market development: new fleet subscriptions increased by 39%
and the subscription base by 22%, strong growth was achieved in
each of our existing territories as well as a presence in four new
European markets.
2. Cost leadership: improvements in back office efficiency have
been achieved and we have recently introduced improved sales
processes, training and measurement. We continue to review product
and overhead costs in order to identify further operational
efficiencies.
3. Continuous enhancement of the Group's core software and
telematics services: new versions of the Group's telematics
subscription platform were released in Polish, Spanish, Italian and
German. Dedicated versions of the application were also released
for Eire and the Hispanic market of the USA. New variants of the
Group's telematics systems were launched during the year.
4. Outstanding service: Quartix maintained its excellent
reputation with its fleet customers throughout the year,
consistently being rated as "excellent" by TrustPilot users. We
were also delighted to achieve Gold Status in our latest "Investors
in Customers" audit.
5. Standardisation and centralisation: over the past 18 months
we have reduced management costs by more than GBP0.5m on an
annualised basis. These savings have been reinvested in additional
direct sales resource backed by standardised marketing strategies
delivered from a single, centralised team.
Our fleet customers typically use the Group's vehicle telematics
services for many years, resulting in low rates of attrition.
Accordingly, the Group focuses its business model on the
development of subscription revenue based on minimal initial
commitment from the customer, providing the best return to the
Group over the long term.
The number of vehicles connected to our subscription platform
and the value of recurring subscription revenue derived from it are
the key measures of our performance in the fleet sector.
We also provide our telematics technology and services to
insurers, who use the Group's technology to monitor the driving
style and habits of higher-risk drivers, normally for a policy with
a term of just 12 months. The level of attrition, in this industry
for young driver policies, is relatively high.
Whilst the value of revenue has been the key measurement of our
performance in the insurance sector, we restrict our operations to
those opportunities which provide an adequate return.
The Group has focused over the past three years on growth in its
fleet operations and on restricting the amount of insurance revenue
derived from lower-margin applications. In 2019 81% of Group
revenue (GBP20.8m of GBP25.6m) derived from fleet applications,
which compares with 64% in 2016 (GBP14.9m of GBP23.3m).
People
We take pride in the level of service we provide, and it is
gratifying to see that fleet customers consistently provide us with
excellent reviews - both in person and on third-party sites such as
TrustPilot. We were also delighted in 2019 to have achieved the
Gold Award from Investors in Customers, an independent
accreditation body for customer service and satisfaction
levels.
These service achievements are a reflection of the teamwork,
creativity and dedication of our people and a testament to how
seriously we take our commitment to providing the best experience
for our customers. Our financial performance derives from the
customer service we deliver, backed by the technology we develop.
We would like to register our personal thanks to every one of our
employees who made 2019 another great year for Quartix.
We are pleased to have been able to provide our employees with
the ability to participate in the equity of the Company under our
EMI share option scheme for the seventh year in a row. Under this
scheme each UK employee (barring Directors) receives shares in the
company at zero cost, which are exercisable approximately 18 months
from grant. Employees with 5 years' service at the first grant in
2013 would now hold 4,075 shares in the company, less any
disposals. Daniel Mendis, a Director of Quartix Holdings plc,
received share option grants in 2019, as disclosed in the
remuneration report in the Financial Statements.
Operational performance
All of our business operations continued to perform at a high
level in 2019. Gross margin decreased marginally to 65% (2018:
67%), mainly due to the increase in new fleet units (resulting in
higher equipment, installation and carriage costs) and a reduction
in deferred revenue in insurance as existing policies reduce. With
investment in fleet increasing, overheads increased by 12% and the
return on sales before tax decreased by 7 percentage points to 25%
(2018: 32%). Cash conversion was very strong with cash flow from
operations after tax and investing activities (free cash flow)
representing 115% of profit for the year (2018: 80%). The increase
is due to a lower level of released deferred insurance revenue in
the current year (which is not cash generative) and the impact that
IFRS 16 'Leases' has on the cashflow in increasing the operating
cash flows by GBP0.3m in 2019 with a corresponding decrease in
financing activities. We expense all research and development
investment, tracking system and installation costs as they are
incurred unless development spend meets the criteria for
capitalisation.
Our accounts and operations teams continued to manage working
capital well: trade debtors at the year-end were 34 days of sales,
and inventory levels increased by 14% compared to prior year levels
which is as a result of preparations to accommodate for a no deal
Brexit and an increase in the tracker unit model options
available.
Fleet
Our core fleet business, which accounted for 81% of Group
revenue (2018: 73%), delivered excellent progress in a further year
of investment. Strong subscription base growth in each of the UK,
France and the USA, coupled with our entry into four new European
markets, took the total subscription base to more than 150,000
vehicles.
During the course of the year we won 4,471 new fleet customers
(2018: 3,532). Sales leads continued to be generated through a
broad range of media and channels and investments have been made in
marketing, technology, processes and training, adding automation
wherever possible.
Total investment in fleet customer acquisition increased by
GBP1.8m to GBP6.1m in 2019 (2018: GBP4.3m). This investment will
increase further in 2020 as we continue to develop our business
across each of our markets, thereby increasing recurring
revenues.
Fleet UK
Demand for vehicle telematics services in the UK continues to
grow. New subscriptions to our fleet tracking services increased by
38% to 25,687. We believe this to be significantly faster than the
general growth in the market. We increased our vehicle subscription
base by 15.8% to 105,631 as a consequence, and our fleet customer
base rose to 9,908. In total we won 2,033 new customers in the UK
(2018: 1,654) and we increased the number of fleet clients with 50
vehicles or more. UK fleet revenue was GBP15.5m (2018: GBP14.8m).
The strength of our brand, service capability and reputation in the
UK is leading to higher levels of enquiries from larger fleet
prospects.
Our UK website continued to perform well in terms of enquiries,
and we continued to add new content to it.
We will continue to focus on telephone based sales capacity to
support our fleet marketing initiatives, and will look to find
additional channels and partners to help us develop the market.
Fleet France
The number of new subscriptions in the French market was 35%
higher than the previous year (9,054 versus 6,725), and there was a
36% increase in the unit base, ending the year with 25,643 vehicles
(2018: 18,803) under subscription across 3,528 fleet customers
(2018: 2,474). French fleet revenue increased by 32% to EUR3.7m
(2018: EUR2.8m), making a profitable contribution to the Group. We
saw continued growth in new customer acquisition throughout the
year, and this was broadly spread across each of our channels.
Towards the end of the year we significantly increased the size of
our French telephone sales team; this investment has been offset by
reduced management costs, referred to earlier. Initial performance
of the expanded team has been encouraging.
New European territories
We are delighted to report that our Polish website, application
and payment systems went live at the start of February 2019 and
that these were followed by launches in the Spanish, Italian and
German markets. A dedicated, Euro-based English-language version of
the platform was also released for the Republic of Ireland.
We achieved a total of 1,353 new subscriptions in the new
territories in 2019 and ended the year with 1,316 vehicles under
subscription. The revenue generated from the new European
territories was GBP0.05m, with the majority of these revenues
falling into the second half of the year.
Fleet USA
Our fifth full year of trading in the USA showed good progress:
we concluded 2019 with 2,621 fleet customers (2018: 2,007) having a
total of 18,050 vehicles under subscription (2018: 13,133). USA
fleet revenue increased by 28% to $2.5m (2018: $2.0m). Losses
incurred in the USA decreased by GBP0.2m to GBP0.4m (2018: GBP0.6m)
due to a reduction in management and administrative costs in our
Chicago office.
We see significant potential for growth in the USA in the next
five years and recruited additional sales staff in 2019 to
accommodate this growth. The largest part of this growth came from
our direct telephone sales channel. This channel has significant
potential for future growth but we also intend to invest more in
our price comparison and distribution teams.
Combined fleet revenues in non-UK territories, were GBP5.3m,
representing 25% of total fleet revenue.
Insurance
We installed 36,386 new insurance tracking systems in 2019, a
decrease of 11.8% on the prior period. This trend, which we expect
to continue, was in keeping with the decision announced in July
2016 to focus on the core fleet market and on only those insurance
opportunities which offer satisfactory margins and which are
closely aligned to the fleet business. The profitability of this
segment therefore fell from GBP3.2m in 2018 to GBP1.6m as a
consequence of this trend - see segmental note 3.
In the three years since this decision to focus on our fleet
operations they have grown to represent 81% of Group revenues
(GBP20.8m) in 2019 from 64% (GBP14.9m) in 2016. This trend is
expected to continue as the Company invests in the development of
each of its fleet markets.
Research and development
The Group is committed to the continuous enhancement of its core
software and telematics services, and we aim to offer a
market-leading platform which addresses the most common needs of
SME customers in the service sector of each of our target markets.
We achieved some notable successes in 2019:
1. In February we launched the first of 4 new language versions
of our application platform. This followed on from the significant
update of our user application in October the prior year. This
first launch, for Poland, was followed by Spain, Italy and Germany.
We also launched an optional Spanish-language site for our Hispanic
customers in the USA and a Euro-based English-language site for the
Republic of Ireland.
2. New software releases for all territories and languages were
issued for our customer base regularly throughout the year. These
updates provided enhancements to usability and self-service, and
were focused on features which we felt would be of benefit to the
large majority of our client base.
3. Further development of our telematics hardware and firmware
platforms was carried out during the year, with new user-install
options released for all markets. A particular success was the
introduction of a battery-mounted tracking system which can be
installed by the customer directly on top of the vehicle battery.
By the end of the year self-install options were accounting for
approximately 40% of new subscriptions; we expect this trend to
continue, particularly as a result of the new market initiatives
described earlier.
All of our investment in research was fully expensed in the
year. The total cost amounted to GBP0.7m, which represents an
decrease of 37% compared to the prior year (2018: GBP1.1m).
Capacity for future growth
We believe that the Company has significant opportunity for
growth in its fleet business in both new and existing markets. We
achieved excellent growth in our subscription platform in 2019 and
established encouraging positions in a range of new markets. Our
future growth will be based on our strategy of investing in direct
sales and marketing initiatives whilst restricting the need to
increase central overheads through improved efficiency in all of
our back-office and other operations. This strategy served the
Company well in 2019.
Newtown remains the focus of our business operations and we are
delighted to have plans in place to occupy larger leased, open-plan
single-storey premises in the centre of the town, adjacent to our
existing offices, with capacity for expansion of the workforce by a
further 30%, with minimal additional cost to the business. All
employees will move into the office in early March 2020.
We will make additional investments in the development of our
fleet business and in market expansion in 2020.
Andrew Walters
Chief Executive Officer
Strategic Report: Financial Review
Key performance indicators ("KPIs")
Year ended 31 December 2019 2018 % change
-------- -------- ---------
Fleet subscriptions (units) 43,837 31,456 39.4
Fleet subscription base (units)(1) 150,640 123,157 22.3
Fleet customer base 16,394 13,176 24.4
Fleet attrition (annualised) (2) (%) 11.9 11.9 -
Annualised recurring revenue (GBP'000)(3) 20,534 18,795 9.3
Fleet invoiced recurring revenue (4) (GBP'000) 19,297 17,246 11.9
Fleet revenue (GBP'000) 20,808 18,751 11.0
Insurance installations (units) 36,386 41,255 (11.8)
Insurance revenue (GBP'000) 4,813 6,955 (30.8)
(1) Includes units waiting to be installed, for which
subscription payments have started or are committed
(2) Attrition in the year is the number of units installed
(excluding upgrades), less the increase in subscription base,
expressed as a percentage of the mean subscription base
(3) Annualised data services revenue for the subscription base
at the year end, before deferred revenue, including revenue for
units waiting to be installed for which subscription payments have
started or are committed
(4) Invoiced subscription charges before provision for deferred
revenue
2019 was a year of good progress in our primary strategic
objective of building our fleet subscription base.
We achieved over 43,000 new fleet subscriptions, an increase of
39.4% compared to 2018, and our fleet subscription base grew by
22.3% to 150,640 units, with growth in all four of our geographical
markets.
Attrition during the period remained at 11.9%.
Annualised recurring revenue increased by 9.3% to GBP20.5m.
Group invoiced recurring revenue (before adjusting for deferred
revenue) grew by 11.9% to GBP19.3m (2018: GBP17.2m). The growth in
fleet revenue at 11.0% was similar to the growth of our recurring
revenue as our primary focus is on growing subscription
revenue.
Insurance unit installations were down 11.8% at 36,386, in
keeping with the decision announced in July 2016 to focus on only
those insurance opportunities which offer satisfactory margins and
which are aligned to our core fleet business.
Financial Overview
Year ended 31 December Restated
GBP'000 (except where stated) 2019 2018 % change
------- --------- ---------
Revenue
Fleet 20,808 18,751 11.0
Insurance 4,813 6,955 (30.8)
------- --------- ---------
Total 25,621 25,706 (0.3)
------- --------- ---------
Gross profit 16,626 17,312 (4.0)
Gross margin 65% 67%
Operating profit 6,438 8,223 (21.7)
Operating margin 25% 32%
Adjusted EBITDA 7,062 8,516 (17.1)
Profit for the year 5,410 7,010 (22.8)
------- --------- ---------
Earnings per share 11.29 14.69 (23.1)
Cash generated from operations 7,263 6,825 6.4
Operating profit to operating cash conversion 113% 83%
Free cash flow 6,223 5,583 11.5
----------------------------------------------- ------- --------- ---------
Revenue
Revenue decreased marginally to GBP25.6m (2018: GBP25.7m);
however, the Group continues to replace insurance with higher
quality fleet revenue. Fleet revenue, benefitting from past
investment and expansion into new European territories, increased
by GBP2.0m to GBP20.8m (2018: GBP18.8m). Sales to insurance
customers decreased by GBP2.1m and now represents less than 20% of
Group revenue (2018: 27%). This is in-keeping with the Group's
stated strategy of focussing on those areas of the market which
adequately reward the technology and service which it provides.
Gross margin
Gross margin decreased marginally to 65% in the year (2018:
67%), primarily as a result of the increase in new fleet units
(resulting in higher equipment, installation and carriage costs)
and a reduction in releases of insurance deferred revenue as
existing policies reduce.
Adjusted EBITDA and Segmental Analysis
Adjusted EBITDA has reduced in the year to GBP7.1m (2018:
GBP8.5m), entirely due to the reduction in insurance profitability,
which has decreased to GBP1.6m (2018: GBP3.2m). The GBP1.4m
reduction is net of GBP0.2m right of use asset depreciation arising
from the adoption of IFRS 16 'Leases' (see note 4).
A summary of the Group's segmental analysis is set out below
(see note 3 for an explanation of categorisations and
assumptions).
Total Fleet Segment profit remained deliberately similar to the
prior year, at GBP9.7m (2018: GBP9.8m). The profitability of the
Group's fleet telematics services, which represents the core part
of the business associated with recurring revenues, grew by GBP1.9m
to GBP16.5m (2018: GBP14.6m). This growth was then entirely
reinvested, with an additional GBP2.0m being invested in acquiring
additional fleet customers for the future.
Segmental analysis
2019
Fleet
Customer Telematics
Acquisition Services Total Fleet Insurance Total Business
GBP'000 GBP'000 GBP'000 GBP'000 GBP,000
------------- ------------ ------------ ---------- ---------------
Revenue 338 20,470 20,808 4,813 25,621
Segmental Costs (6,398) (3,973) (10,371) (3,212) (13,583)
Profit before central
fleet costs (6,060) 16,497 10,437 1,601 12,038
Central fleet costs (747) - (747)
------------ ---------- ---------------
Segmental profit 9,690 1,601 11,291
Central Costs (4,229)
Adjusted EBITDA (see note
4) 7,062
Segmental analysis
2018
Fleet
Customer Telematics
Acquisition Services Total Fleet Insurance Total Business
GBP'000 GBP'000 GBP'000 GBP'000 GBP,000
------------- ------------ ------------ ---------- ---------------
Revenue 335 18,416 18,751 6,955 25,706
Segmental Costs (4,587) (3,786) (8,373) (3,722) (12,095)
Profit before central
fleet costs (4,252) 14,630 10,378 3,233 13,611
Central fleet costs (575) - (575)
------------ ---------- ---------------
Segmental profit 9,803 3,233 13,036
Central Costs (4,520)
Adjusted EBITDA (see note
4) 8,516
Overheads
We continued to invest in our product offering, in our sales
structure and in marketing, which led to an increase in overheads
of 12%.
Part of the aforementioned investment was in the USA where our
subscription unit base has increased by 37.4% and revenue, as
disclosed in note 2, increased to GBP2.0m ($2.6m) (2018: GBP1.5m).
Losses in the USA were around GBP0.4m ($0.5m) (2018: losses of
GBP0.6m). Additionally, the expansion into the new European
territories contributed GBP0.05m toward revenue in the year, with a
fleet base at the year end of 1,316 units.
Taxation
Our effective tax rate benefits from the Group's investment in
research and patents in the UK business. The effective rate
increased from 15.1% in 2018 to 16.1% in 2019, as a result of prior
year adjustments and lower research and development tax
credits.
Earnings per share
Earnings per share decreased to 11.29p (2018: 14.69p) and
diluted earnings per share decreased to 11.25p (2018: 14.50p).
Statement of financial position
Property, plant and equipment, at GBP0.8m (2018: GBP0.4m),
increased by GBP0.4m due to the adoption of IFRS 16 retrospectively
from 1 January 2019, but the Group has not restated comparatives
for the 2018 reporting period, as permitted under the specific
transitional provisions in the standard. The reclassification and
the adjustments introducing a 'right of use' asset on the balance
sheet is therefore recognised in the opening balance sheet at 1
January 2019 (see note 10). There is a corresponding lease
liability equivalent to GBP0.4m at 31 December 2019, of which
GBP0.2m is falling due within one year.
Inventories increased to GBP0.9m (2018: GBP0.8m). Cash at the
year-end was GBP6.8m (2018: GBP6.8m). Trade and other receivables
increased to GBP3.9m in the year (2018: GBP3.6m). This includes
GBP0.8m (2018: GBP0.6m) of commissions incurred in winning
contracts with customers, which the Group now capitalises and
amortises under IFRS 15 'Revenue from Contracts with Customers',
following previously cited reviews of its accounting policy and
commission structures (see notes 1 and 9 for further details). The
impact on profits in the year was a credit of GBP0.3m (2018:
GBP0.2m). Trade and other payables increased to GBP3.3m (2018:
GBP2.8m).
Contract liabilities represent customer payments received in
advance of satisfying performance obligations, which are expected
to be recognised as revenue in 2020 (both fleet and insurance).
These unwound to GBP4.8m in 2019 (2018: GBP4.7m).
Cash flow
Cash generated from operations before tax at GBP7.3m was 113% of
operating profit (2018: GBP6.8m, 83% of operating profit). As
previously stated, the year on year improvement in cash conversion
is due to a lower level of released insurance revenue in the
current year, which is not cash generative, in addition to the
impact of IFRS 16 'Leases', which increased the operating cash
flows by GBP0.3m in 2019 with a corresponding decrease in financing
activities.
Tax paid in 2019 was GBP0.9m (2018: GBP0.9m), so cash flow from
operating activities after taxation but before capital expenditure
was GBP6.4m (2018: GBP5.9m).
Free cash flow, after GBP0.2m of capital expenditure and
interest received, was GBP6.2m, an increase of 11.5% (2018:
GBP5.6m).
The translation of cash flow into dividends is covered in the
Chairman's Statement.
Risk management policies
The principal risks and uncertainties of the Group are as
follows:
Attracting and retaining the right number of good quality
staff
The Group believes that in order to safeguard the future of the
business it needs to recruit, develop and retain the next
generation of staff. The impact of not mitigating this risk is that
the Group ceases to be innovative and provide customers with the
vehicle telematics services they require. Considerable focus has
been given to recruitment, development and retention. The Group has
a range of tailored incentive schemes to help recruit, motivate and
retain top quality staff, which include the use of share
options.
Reliance on M2M network
The Group's service delivery is dependent on a functioning M2M
network covering both the internet and mobile data. The impact of
not mitigating this risk is that the Group is exposed to an M2M
outage. Quartix has dual site redundancy to cover a localised
internet problem and we are constantly working on improving the
reliability of our systems architecture.
Management believe that, at some point between 2025 and 2030,
most UK and European network operators will finalise the sunsetting
of their 2G networks. Depending on the actual timetable and the
commercial climate, there may be a cost at that time associated
with the upgrading of customers' technology, which the Group is
seeking to minimise through various technological and commercial
means. A similar sunsetting process will occur for the 3G network
in the US and management believe this will likely be finalised in
2022.
Business disruption
Like any business the Group is subject to the risk of business
disruption. This includes communications, physical disruption to
our sites and problems with our key suppliers. The impact of not
mitigating this risk is that the Group may not be able to service
its customers. Quartix has a Business Continuity plan and Business
Interruption Insurance to cover certain events in order to help
mitigate these risks.
The potential damage to the Group's business as a result of the
UK leaving the EU is uncertain. The Group acquires, manages and
supports its customers in the EU centrally, from its offices in the
UK. Depending on the resulting trading and data adequacy
arrangements, it is possible that the Group would need to relocate
some of its operations to within the EU. In addition, any impact on
the wider economic landscape would impact the Group's trading
indirectly through the demand for its services.
Our manufacturing partner in China has resumed limited
operations following the New Year celebrations due to the
difficulties caused by the Coronavirus outbreak. At the time of
writing, management does not expect any material disruption to
supply, but it is monitoring the situation closely.
Dependence on a key customer
During 2019 insurance revenue of GBP4.2m (2017: GBP5.5m) was
derived via one insurance customer, a specialist reseller for the
insurance industry. Losing this key contract could have a
significant negative impact on cash flow in the short term. Total
insurance revenue, including that generated from other customers,
was GBP4.8m (2018: 7.0m) and total insurance segment profit was
GBP1.6m (2018: GBP3.2m).
Cyber security
The Group needs to make sure its data is kept safe and that
there is security of supply of date services to customers. The
reputational and commercial impact of a security breach would be
significant. To combat this, the Group has a security policy and
prepares a monthly security report which is reviewed by the
Operations Board. This process includes the use of outside
consultants for penetration testing and security review.
Technology
Technology risks are perceived to arise from possible
substitutes for the current Quartix product. Risks cited include
everything from smart mobile phones and their applications to
driverless cars. The Group strategy is to review all new technical
developments with the aim of adopting any which will provide a
better channel for the information services which Quartix
provides.
We believe we have the right strategy and service in place to
deliver strong growth in sales over the medium to long term and to
deliver sustainable shareholder value.
Daniel Mendis
Chief Operating and Financial Officer
Consolidated Statement of Comprehensive Income
Year ended 31 December 2019 Restated2018
Notes GBP'000 GBP'000
========= =============
Revenue 2, 3 25,621 25,706
Cost of sales (8,995) (8,394)
Gross profit 16,626 17,312
Administrative expenses (10,188) (9,089)
Adjusted EBITDA 4 7,062 8,516
Depreciation and share based payments (624) (293)
Operating profit 6,438 8,223
Finance income receivable 34 29
Finance costs payable (21) -
Profit for the year before taxation 6,451 8,252
Tax expense (1,041) (1,242)
--------- -------------
Profit for the year 5,410 7,010
Other Comprehensive income:
Items that may be reclassified subsequently to profit or loss:
Exchange difference on translating foreign operations 93 (158)
Other comprehensive (expense)/income for the year, net of tax 93 (158)
Total comprehensive income attributable to the equity shareholders of Quartix
Holdings plc 5,503 6,852
========= =============
Earnings per ordinary share (pence) 5
========= =============
Basic 11.29 14.69
Diluted 11.25 14.50
========= =============
Consolidated Statement of Financial Position
31 Dec 2019 31 Dec 2018 Restated 1 Jan 2018 Restatedd
Notes GBP'000 GBP'000 GBP'000
============ ===================== =====================
Assets
Non-current assets
Goodwill 14,029 14,029 14,029
Property, plant and equipment 845 433 234
Deferred tax assets 2 - 641
Contract cost assets 304 228 186
------------ --------------------- ---------------------
Total non-current assets 15,180 14,690 15,090
------------ --------------------- ---------------------
Current assets
Inventories 877 771 703
Trade and other receivables 3,907 3,581 3,513
Cash and cash equivalents 6,789 6,779 7,312
------------ --------------------- ---------------------
Total current assets 11,573 11,131 11,528
Total assets 26,753 25,821 26,618
Current liabilities
Trade and other payables 3,311 2,814 2,853
Contract liabilities 4,843 4,655 5,972
Current tax liabilities 377 99 423
------------ --------------------- ---------------------
8,531 7,568 9,248
Non-current liabilities
Lease liabilities 241 - -
Deferred tax liabilities - 150 -
241 150 -
Total liabilities 8,772 7,718 9,248
Net assets 17,981 18,103 17,370
============ ===================== =====================
Equity
Called up share capital 7 479 478 476
Share premium account 7 5,230 5,196 4,869
Equity reserve 616 390 529
Capital redemption reserve 4,663 4,663 4,663
Translation reserve (168) (261) (103)
Retained earnings 7,161 7,637 6,936
============ ===================== =====================
Total equity attributable to equity shareholders
of Quartix Holdings plc 17,981 18,103 17,370
============ ===================== =====================
Consolidated Statement of Changes in Equity
Share Capital
Share premium redemption Equity Translation Retained
capital account reserve reserve reserve earnings Total equity
GBP'000 GBP,000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------- ------------ ------------ ------------- ------------- ------------- -------------
Balance at 31
December 2017 476 4,869 4,663 529 (103) 6,373 16,807
IFRS 15
adjustment
(note 9) - - - - - 563 563
============= ============ ============ ============= ============= ============= =============
Restated
balance at 31
December 2017 476 4,869 4,663 529 (103) 6,936 17,370
============= ============ ============ ============= ============= ============= =============
Shares issued 2 327 - - - - 329
Increase in
equity
reserve in
relation to
options
issued - - - 108 - - 108
Adjustment for
exercised
options - - - (133) - 133 -
Deferred tax
on share
Options - - - (114) - - (114)
Dividend paid - - - - - (6,442) (6,442)
============= ============ ============ ============= ============= ============= =============
Transactions
with owners 2 327 - (139) - (6,309) (6,119)
------------- ------------ ------------ ------------- ------------- ------------- -------------
Foreign
currency
translation
differences - - - - (158) - (158)
Profit for the
year - - - - - 7,010 7,010
============= ============ ============ ============= ============= ============= =============
Total
comprehensive
income - - - - (158) 7,010 6,852
Restated
balance at 31
December 2018 478 5,196 4,663 390 (261) 7,637 18,103
============= ============ ============ ============= ============= ============= =============
Shares issued 1 34 - - - - 35
Increase in
equity
reserve in
relation to
options
issued - - - 249 - - 249
Adjustment for
exercised
options - - - (58) - 58 -
Deferred tax
on share
Options - - - 35 - - 35
Dividend paid - - - - - (5,944) (5,944)
============= ============ ============ ============= ============= ============= =============
Transactions
with owners 1 34 - 226 - (5,886) (5,625)
------------- ------------ ------------ ------------- ------------- ------------- -------------
Foreign
currency
translation
differences - - - - 93 - 93
Profit for the
year - - - - - 5,410 5,410
============= ============ ============ ============= ============= ============= =============
Total
comprehensive
income - - - - 93 5,410 5,503
============= ============ ============ ============= ============= ============= =============
Balance at 31
December 2019 479 5,230 4,663 616 (168) 7,161 17,981
============= ============ ============ ============= ============= ============= =============
Consolidated Statement of Cash Flows
Restated
Note 2019 2018
GBP'000 GBP'000
======== =========
Cash generated from operations 6 7,263 6,825
Taxes paid (880) (889)
======== =========
Cash flow from operating activities 6,383 5,936
Investing activities
Additions to property, plant and equipment (194) (382)
Interest received 34 29
======== =========
Cash flow utilised in investing activities (160) (353)
-------- ---------
Cash flow from operating activities after investing activities
(Free cash flow) 6,223 5,583
Financing activities
Lease interest paid (21) -
Repayment of lease liabilities (236) -
Proceeds from share issues 35 329
Dividend paid (5,944) (6,442)
======== =========
Cash flow used in financing activities (6,166) (6,113)
Net changes in cash and cash equivalents 57 (530)
Cash and cash equivalents, beginning of year 6,779 7,312
Exchange differences on cash and cash equivalents (47) (3)
======== =========
Cash and cash equivalents, end of year 6,789 6,779
======== =========
Notes to the Accounts
1 Basis of preparation
The basis of preparation and summary of significant accounting
policies applicable to the consolidated financial statements of
Quartix Holdings plc can be found in note 1 of the Annual Report
and Financial Statements, available from the Group's website. The
consolidated financial statements of Quartix Holdings plc have been
prepared in accordance with IFRS as adopted by the European Union
(EU) ('IFRS') and in accordance with those parts of the Companies
Act 2006 that are relevant to companies which report under
IFRS.
IFRS 16 Leases
The Group has adopted IFRS 16 'Leases' (hereinafter referred to
as 'IFRS 16') with effect from 1 January 2019, the adoption of this
new Standard has resulted in the Group recognising a right of use
asset and related lease liability in connection with all former
operating leases except for those identified as low-value or having
a short life of less than 12 months from the date of initial
application.
The new Standard has been applied using the modified
retrospective approach, with the cumulative effect of adopting IFRS
16 being recognised as an adjustment to the opening balance of
property, plant and equipment and lease liabilities for the current
period. Prior periods are not required to be restated. Further
information on the impact of the new policy is disclosed in note
10.
IFRS 15 Incremental costs of obtaining a contract
The Group has also decided to change its accounting policy in
relation to costs in obtaining customer contracts. Previously under
IFRS 15 the Group adopted the practical expedient option to expense
incremental costs in obtaining customer contracts for contracts
with a duration of 12 months or less. The Group will no longer
apply this expedient. As a consequence of this policy change, the
financial statements have been restated to 1 January 2018. Further
information on the impact of the change in policy is disclosed in
note 9.
IFRS 8 Segmental Reporting
Following a change in the way the Group monitors and assesses
the business it has adopted, segmental reporting in these financial
statements. Historically, the information used by the Group's chief
operating decision maker was presented on a consolidated Group
basis. All revenue, costs, assets and liabilities related to a
single activity, being the design, development and marketing of
vehicle tracking devices and the provision of related data
services, and the Group concluded that it operated only one
operating segment as defined by IFRS 8.
Whilst information is still largely presented on a consolidated
basis, and the telematics services are very similar, the Group's
chief operating decision maker has been provided with additional
information to make decisions about the allocation of resources and
assessing performance.
The Group has therefore included segmental financial information
for its insurance and fleet operations. These two segments have
been identified as they are managed separately, with different
marketing approaches for the discrete market sectors, for which the
Group has different strategies. Their reported revenue each meet
the quantitative thresholds of IFRS 8.
The Group has aggregated fleet operations for all geographical
markets. However, to increase transparency, the Group has decided
to include an additional voluntary disclosure, separating the fleet
segment into two sub-categories in order to highlight the different
costs structures within the business:
-- Customer acquisition, for new customer contracts; and
-- Fleet telematics services for recurring revenue and repeat
contracts with existing customers.
The information in this news release does not constitute
statutory accounts within the meaning of section 434 of the
Companies Act 2006 ('the Act'). The statutory accounts for the year
ended 31 December 2019 will be delivered to the Registrar of
Companies in England and Wales in accordance with Section 441 of
the Act. The auditor has reported on those accounts. Its report was
unqualified and did not contain a statement under Section 498(2) or
(3) of the Act.
2 Revenue
The Group's revenue disaggregated by customer base is as
follows:
2019 2018
GBP'000 GBP'000
======= =======
Fleet 20,808 18,751
Insurance 4,813 6,955
======= =======
25,621 25,706
======= =======
During 2019 revenue of GBP4.2m (2018: GBP5.5m) was derived from
one insurance customer.
The Group's revenue disaggregated by primary geographical
markets is as follows:
2019 2018
GBP'000 GBP'000
======= =======
United Kingdom 20,317 21,709
France 3,236 2,471
Other European territories 53 13
United States of America 2,015 1,513
======= =======
25,621 25,706
======= =======
Other European territories revenue for the year ended 31
December 2018 related entirely to Ireland to which the new
territories Poland, Spain, Italy and Germany have been added for
the year ended 31 December 2019.
There are no material non-current assets based outside the
UK.
The Group's revenue disaggregated by pattern of revenue
recognition is as follows:
2019 2018
GBP'000 GBP'000
======= =======
Goods and services transferred over time 24,461 24,630
One off revenue 1,160 1,076
======= =======
25,621 25,706
======= =======
Goods and services transferred over time represent 95% of total
revenue (2018: 96%).
For 2019, revenue includes GBP4,578,000 (2018: GBP5,871,000)
included in the contract liability balance at the beginning of the
period. Changes to the Group's contract liabilities (i.e. deferred
revenue) are attributable solely to the satisfaction of performance
obligations.
3 Segmental analysis
As highlighted in note 1, Basis of preparation, the Group has
adopted segmental analysis. The Group has identified two operating
segments (see below) which are now monitored by the Group's chief
operating decision maker and strategic decisions are made on the
basis of adjusted segment operating results. The main sources of
revenue for all segments is from the provision of vehicle
telematics services.
The information used by the Group's chief operating decision
maker with regard to the Group's assets and liabilities is
presented on a consolidated Group basis and accordingly no
segmental analysis is presented for these.
The Group has two reportable segments: Total Fleet and
Insurance. The Total Fleet segment has been sub-divided into two
further categories. This has been done to give clarity as to the
level of upfront investment the Group is making in acquiring new
customers, as well as the associated impact on recurring revenue.
The two sub-categories are:
-- Customer Acquisition: This is the sales and marketing cost of
acquiring new fleet customers and the cost associated with units
installed for those customers. Recurring subscription revenue is
not recognised in this sub-category, only equipment and
installation income attributed to new fleet customers.
-- Fleet Telematics Services: This is the recurring revenue
associated with the Group's active subscription base and the cost
of servicing that subscription base. The costs in this sub-category
include the cost of installing additional units for existing
customers, as well as the associated marketing costs.
These two elements, together with central fleet costs, make up
the Total Fleet segment.
Estimated allocations of cost have been made between the
segments and within the Total Fleet segment, particularly in
relation to equipment and installations. These allocations have
been performed by reviewing the products sold to each segment,
their associated cost of manufacture or installation and whether
those products were installed by the customer. These costs are then
applied to each segment as appropriate.
Segmental analysis Customer Fleet Total Fleet Insurance Total
Acquisition Telematics Business
Services
------------- ------------ ------------ ---------- ----------
Year ended 31 December
2019
------------- ------------ ------------ ---------- ----------
GBP'000 GBP'000 GBP'000 GBP'000 GBP,000
------------- ------------ ------------ ---------- ----------
Recurring revenue - 19,297 19,297 - 19,297
Other sales 338 1,173 1,511 4,813 6,324
Total Revenue 338 20,470 20,808 4,813 25,621
Sales and Marketing
Costs (4,429) (740) (5,169) - (5,169)
Equipment, Installation,
Carriage (1,969) (1,194) (3,163) (2,837) (6,000)
Cost of service - (2,039) (2,039) (375) (2,414)
Profit before central
fleet costs (6,060) 16,497 10,437 1,601 12,038
------------- ------------ ------------ ---------- ----------
Central fleet costs (747) - (747)
Segmental profit 9,690 1,601 11,291
Central Costs (4,229)
Adjusted EBITDA (see
note 4) 7,062
Segmental analysis Customer Fleet Total Insurance Total Business
Acquisition Telematics Fleet
Services
Year ended 31 December
2018 restated
GBP'000 GBP'000 GBP'000 GBP'000 GBP,000
------------- ------------ -------- ---------- ---------------
Recurring revenue - 17,246 17,246 - 17,246
Other sales 335 1,170 1,505 6,955 8,460
Total Revenue 335 18,416 18,751 6,955 25,706
Sales and Marketing
Costs (3,214) (711) (3,925) - (3,925)
Equipment, Installation,
Carriage (1,373) (1,092) (2,465) (3,154) (5,619)
Cost of service - (1,983) (1,983) (568) (2,551)
Profit before central
fleet costs (4,252) 14,630 10,378 3,233 13,611
Central fleet costs (575) - (575)
Segmental profit 9,803 3,233 13,036
Central Costs (4,520)
Adjusted EBITDA (see
note 4) 8,516
Revenue note 2 discloses the geographical analysis by
destination and revenue generated from our major customer.
4 Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA)
Restated
2019 2018
GBP'000 GBP'000
======= ========
Operating profit 6,438 8,223
Depreciation on property, plant and equipment, owned 171 185
Depreciation on property, plant and equipment, right of use 199 -
======= ========
EBITDA 6,808 8,408
Share-based payment expense (incl. cash-settled) 254 108
------- --------
Adjusted EBITDA 7,062 8,516
======= ========
5 Earnings per share
The calculation of the basic earnings per share is based on the
profits attributable to the shareholders of Quartix Holdings plc
divided by the weighted average number of shares in issue during
the year. All earnings per share calculations relate to continuing
operations of the Group.
Fully Diluted
Basic diluted profit
Profits profit weighted per
attributable per share average share
Earnings per ordinary to shareholders Weighted average amount number amount
share GBP'000 number of shares in pence of shares in pence
Year ended 31 December
2019 5,410 47,916,951 11.29 48,095,333 11.25
Year ended 31 December
2018 7,010 47,713,566 14.69 48,354,756 14.50
For diluted earnings per share, the weighted average number of
ordinary shares is adjusted to assume the conversion of all
dilutive potential ordinary shares. Dilutive potential ordinary
shares are those share options where the exercise price is less
than the average market price of the Company's ordinary shares
during that year.
6 Notes to the cash flow statement
Cash flow adjustments and changes in working capital
2019 2018
GBP'000 GBP'000
======= =======
Profit before tax 6,451 8,252
Foreign exchange 156 (153)
Depreciation 370 185
Interest income (34) (29)
Lease interest expense 21 -
Share based payment expense 250 108
------- -------
Operating cash flow before movement in working capital 7,214 8,363
Decrease/(increase) in trade and other receivables (453) (99)
(Increase) in inventories (106) (67)
(Decrease) in trade and other payables 410 (42)
(Decrease)/increase in contract liabilities 198 (1,330)
------- -------
Cash generated from operations 7,263 6,825
======= =======
7 Equity
Number of ordinary shares of
GBP0.01 each Share capital GBP'000 Share premium GBP'000
=============================== ===================== =====================
Allotted, called up and fully
paid
At 1 January 2019 47,846,560 478 5,196
Shares issued 91,760 1 34
At 31 December 2019 47,938,320 479 5,230
=============================== ===================== =====================
All the shares issued in the year to 31 December 2019 related to
the exercise of share options.
8 Share based payments
The Company has share option schemes for certain employees.
Share options are exercisable at prices determined at the date of
grant. The vesting periods for the share options range between 12
and 63 months. Options are forfeited if the employee leaves the
Company before the options vest.
In December 2019 cash-settled options were issued to Daniel
Mendis to facilitate the exercise of existing equity-settled share
options. These cash-settled share options are linked to both
service and market performance conditions. The options have a
contractual term commencing on the grant date 10 December 2019 and
maturing on 5 April 2024, there are four vesting dates commencing
on 1 August 2020, where a number of shares depending on the
performance of the share price will be eligible for exercise at the
share price less the exercise price of 322 pence.
The fair value at grant date of the cash-settled options has
been calculated using a binomial option pricing model. The average
share price of 326 pence, exercise price of 322 pence, a risk free
rate of 0.49%, a volatility rate of 27% and a time to maturity of 4
years has generated a fair value of 71 pence per share option with
the estimated number of shares to ultimately vest being 170,000
cash-settled share options. The volatility of the share price over
the previous 12 months from the grant date and the risk-free rate
on the market were used to build in probabilities of the share
price performance over the contractual term
Movements in the number of share options and warrants
outstanding and their related weighted average exercise prices are
as follows:
2019 2018
Weighted average exercise price Weighted average exercise price
per share Options per share Options
in pence number in pence number
================================ ========= ================================ =========
Outstanding at 1 January 267.6 1,365,554 269.3 1,607,651
Granted 180.2 46,600 287.6 1,270,534
Cancelled - - 355.6 (620,000)
Lapsed 313.8 (126,925) 292.2 (614,425)
Exercised 38.5 (91,760) 118.4 (278,206)
================================ ========= ================================ =========
Outstanding at 31 December 276.9 1,193,469 267.6 1,365,554
================================ ========= ================================ =========
Exercisable at 31 December 360 37,482 178.9 148,000
================================ ========= ================================ =========
The weighted average fair value of options issued during the
year ended 31 December 2019 was 175.49p (2018: 38.25p). Included in
the options granted in 2019 none (2018: 1,062,776) were granted to
staff with performance conditions.
The weighted average share price at the date of exercise of
options during the year ended 31 December 2019 was 265.00p (2018:
338.16p).
Further details of share-based payments are given in the Group's
audited accounts, which are available at
www.quartix.net/investors/
9 Explanation of change in accounting policy relating to IFRS 15
As highlighted in note 1, Basis of preparation, the Group has
chosen to change its accounting policy for the treatment of
incremental costs of obtaining a contract with a duration of 12
months or less, by disapplying the practical expedient in IFRS 15
'Revenue from Contracts with Customers'. The Group now capitalises
and amortises incremental commission costs of obtaining a contract
regardless of length.
The principal impact of this change relates to the timing of
commissions incurred being released into the income statement, with
the total commissions incurred at the inception of the customer
contract being capitalised and only being recognised in the income
statement over the contractual period.
As at 1 January 2018, the restatement of the Group's net assets
was an increase of GBP563,000 to GBP17,370,000 from the inclusion
of a contract cost asset of GBP690,000 under IFRS 15, being
previously recognised as commissions incurred at the inception of
the customer contract and now being recognised over the contractual
period, net of a deferred tax liability of GBP127,000.
The impact of capitalising incremental costs as per IFRS 15 on
the financial statements:
Consolidated Statement of Financial Position
1 January 2018 As previously reported Adjustments As Restated
GBP'000 GBP000 GBP'000
---------------------- ----------- -----------
Deferred tax assets 768 (127) 641
Contract cost assets - 690 690
Other 25,287 - 25,287
---------------------- ----------- -----------
Total assets 26,055 563 26,618
---------------------- ----------- -----------
Total liabilities (9,248) - (9,248)
---------------------- ----------- -----------
Retained earnings 6,373 563 6,936
Other 10,434 - 10,434
---------------------- ----------- -----------
Total Equity 16,807 563 17,370
---------------------- ----------- -----------
31 December 2018 As previously reported Adjustments As Restated
GBP'000 GBP000 GBP'000
---------------------- ----------- -----------
Deferred tax assets 9 (9) -
Contract cost assets - 872 872
Other 24,949 - 24,949
---------------------- ----------- -----------
Total assets 24,958 863 25,821
---------------------- ----------- -----------
Deferred tax liabilities - (150) (150)
Other (7,568) - (7,568)
---------------------- ----------- -----------
Total liabilities (7,568) (150)) (7,718)
---------------------- ----------- -----------
Retained earnings 6,924 713 7,637
Other 10,466 - 10,466
---------------------- ----------- -----------
Total Equity 17,390 713 18,103
---------------------- ----------- -----------
Consolidated Statement of Comprehensive Income
For the year ended 1 December 2018 As previously reported Adjustments As Restated
GBP'000 GBP000 GBP'000
---------------------- ----------- -----------
Revenue 25,706 - 25,706
Cost of sales (8,543) 149 (8,394)
Administrative expenses (9,122) 33 (9,089)
Other 29 - 29
Income tax expense (1,210) (32) (1,242)
---------------------- ----------- -----------
Net profit 6,860 150 7,010
Total Comprehensive income 6,702 150 6,852
---------------------- ----------- -----------
Earnings per ordinary share (pence) 14.38 0.31 14.69
Diluted earnings per ordinary share (pence) 14.19 0.31 14.50
---------------------- ----------- -----------
Consolidated Statement of Cash Flows
For the year ended 1 December 2018 As previously reported Adjustments As Restated
GBP'000 GBP000 GBP'000
Profit 6,860 150 7,010
Adjusted for:
* Tax expense 1,210 32 1,242
---------------------- ----------- ------------
Profit before tax 8,070 182 8,252
Changes in trade and other receivables 83 (182) (99)
Other (1,328) - (1,328)
====================== =========== ============
Cash generated from operations 6,825 - 6,825
10 Impact of adopting IFRS 16 "Leases"
On adoption of IFRS 16, the Group recognised a lease liability
at the date of initial application, for leases previously
classified as an operating lease under IAS17, at the present value
of the remaining lease payments, discounted using the Group's
estimated incremental borrowing rate as of 1 January 2019. The
weighted average lessee's incremental borrowing rate applied to the
lease liabilities on 1 January 2019 was 4.3%.
As permitted under the Standard, the Group has adopted the
practical expedients of applying a single discount rate to its
property leases and elected not to apply the requirements of IFRS
16 to leases for which the lease term ends within 12 months. The
Group will recognise the lease payments associated with those
leases as an expense on a straight-line basis.
The following is a reconciliation of total operating lease
commitments at 31 December 2018 to the lease liabilities recognised
at 1 January 2019:
GBP'000 GBP'000
Total operating lease commitments disclosed at 31 December 2018 518
Recognition exemptions:
Leases with remaining lease term of less than 12 months (29)
Variance lease payments not recognised 93
Other minor adjustments relating to commitment disclosures 39
-------
103
-------
Operating lease liabilities before discounting 621
Discounting using incremental borrowing rate (48)
-------
Total lease liabilities recognised under IFRS 16 at 1 January 2019 573
-------
The Group has elected not to include initial direct costs in the
measurement of the right-of-use asset for operating leases in
existence at the date of initial application of IFRS 16, being 1
January 2019. At this date, the Group has also elected to measure
the right of use asset, for leases previously classified as an
operating lease under IAS17, at an amount equal to the lease
liability, adjusted by the amount of any prepaid or accrued lease
payments relating to that lease recognised in the statement of
financial position immediately before the date of initial
application.
There were no onerous lease contracts that would have required
an adjustment to the right-of-use assets at the date of initial
application.
The recognised right-of-use assets relate to the following types
of assets:
1 January 2019
GBP'000
Properties 490
Motor vehicles 12
--------------
Total right-of-use assets 502
--------------
The change in accounting policy affected the following items in
the balance sheet on 1 January 2019:
GBP'000
Right-of use assets - increase 502
Prepayments - decrease (23)
Accruals - decrease 94
Lease liability - increase (573)
There was no impact on retained earnings on 1 January 2019.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR SEFFUDESSEIE
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February 24, 2020 02:00 ET (07:00 GMT)
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