+Quartix Technologies
plc
("Quartix", "the Group" or "the
Company")
Final Results
Renewed focus on organic
growth
Quartix Technologies plc (AIM:QTX), a leading
supplier of subscription-based vehicle tracking systems, analytical
software and services, is pleased to announce its audited results
for the year ended 31 December 2023.
Financial highlights:
·
Group revenue increased by 8.6% to £29.9m (2022:
£27.5m)
o Fleet
revenue1 grew by 10.6% to
£29.5m (2022: £26.7m)
o Fleet revenue
represented 98.8% of total revenue (2022: 97.0%)
o Insurance
revenue2 decreased by 55.7% to
£0.4m (2022: £0.8m)
·
Adjusted EBITDA3
decreased by 10.8% to £5.4m (2022: £6.1m)
·
Adjusted profit before tax4
decreased by 12.2% to £5.1m (2022: £5.8m)
·
Statutory (loss) for the year was (£0.9m) (2022: Profit
£5.0m)
o Stated after a
£3.8m non-cash provision relating to the replacement of all 2G
units with 4G units in France; and
o A £2.7m
non-cash impairment of the goodwill from the acquisition of Konetik
Deutschland GmbH ("Konetik")
·
Adjusted diluted earnings per
share5 fell by 2.14p to 8.74p
(2022: 10.88p)
·
Free cash flow6
decreased by 65.9% to £1.3m (2022: £3.8m). Free cashflow
excluding the acquisition of Konetik was £3.3m.
·
Final proposed dividend payment of 1.50p per share (2022:
6.30p) with no supplementary dividend (2022: 3.85p) giving a total
dividend for the year of 3.00p per share
1 Fleet revenue (see Strategic
Report: Financial Review, Financial Overview)
2 Insurance revenue (see
Strategic Report: Financial Review, Financial
Overview)
3 Earnings before interest,
tax, depreciation, amortisation, share based payments and
adjustments (see note 3)
4 Adjusted measure is
excluding the impairment of intangibles and the provision to
replace 2G units offset by the fair value gain of the future earn
out payments
5 Diluted earnings per share
before adjustments (see Strategic Report: Financial Review,
Financial Overview)
6 Cash flow from operations
after tax and investing activities
These audited results are consistent with the
Trading Statement released on 9 January 2024.
Principal activities and performance
measures
The Group's main strategic objective is to
profitably grow its fleet subscription base and develop the
associated annualised recurring revenue.
Annualised recurring revenue (see definition in
KPI table below), when measured in constant currency year on year,
is the most significant forward-looking key performance measure and
it grew by £2.2m to £29.1m at 31 December 2023.
The Key Performance Indicators used by the
Board to assess the performance of the business are listed below
and discussed in the Chairman's Statement and Strategic
Report.
Key Performance
Indicators ("KPIs")
Year ended 31
December
|
2023
|
2022
|
%
change
|
New Fleet
subscriptions1 (new
units)
|
64,418
|
60,809
|
5.9
|
Fleet subscription
base2 (units)
|
266,568
|
235,510
|
13.2
|
Fleet customer
base3
|
27,268
|
25,342
|
7.6
|
Fleet gross
attrition4 (%)
|
13.3
|
12.8
|
|
Annualised recurring
revenue5 (£'000)
|
29,083
|
27,282
|
8.0
|
Fleet invoiced recurring
revenue6 (£'000)
|
27,764
|
25,446
|
9.1
|
Fleet revenue7
(£'000)
|
29,512
|
26,680
|
10.6
|
Average Price
erosion8 (%)
|
4.6
|
4.7
|
|
|
|
|
|
|
|
|
| |
1 New
vehicle tracking unit subscriptions added to the subscription base
before gross attrition
2
The number of
vehicle tracking units subscribed to the Group's fleet tracking
services, including units waiting to be installed for which
subscription payments have started or are
committed
3
The number of
customers associated with the fleet subscription
base
4
The number of
new vehicle tracking unit subscriptions, less the increase in
subscription base, expressed as a percentage of the mean
subscription base
5
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, all measured in constant currency
6
Invoiced
subscription charges before provision for deferred
revenue
7
Total fleet
revenue (see Strategic Report: Financial Review, Financial
Overview)
8
The annual
decrease in average subscription price of the base expressed as a
percentage of the average subscription price at the start of the
year, all measured in constant currency
Andy
Walters, Executive Chairman of
Quartix, commented:
"Since I returned to the business our focus has
been on driving organic growth, by increasing the rate of customer
acquisition in each of our markets. Our telematics proposition,
which is sold as a subscription service, is competitively priced
and the service we provide is consistently ranked as excellent. It
is very pleasing to report that both the rate of new unit
subscriptions and the acquisition of new customers have made good
progress since the end of last year. We will remain focused on
organic growth and have commenced the process of winding down the
Konetik acquisition, in order to remove its financial burden on the
core subscription business.
We have started the new financial year
positively, with new installations in January approximately 10%
ahead of the same period in 2023. This, alongside the
opportunities for continued growth in all territories, and
particularly in Continental Europe, underpins our confidence for
2024 and beyond."
For
further information, please contact:
Quartix (www.quartix.net)
Andy Walters, Executive Chairman
Emily Rees, Chief Financial Officer
|
01686 806 663
|
Cavendish Capital Markets Limited (Nominated Adviser and
Broker)
Matt Goode / Seamus Fricker (Corporate Finance)
Sunila de Silva (Equity Capital
Markets)
|
020 7200 0500
|
Full
Financial Results Report
The Group's Financial Statements and results
presentations for the year ended 31 December 2023 are available in
the "Investors" section of our website at: www.quartix.com/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 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
Having returned to the business in September as
Chairman it is very disappointing to report that the Company
recorded a loss for the first time in its 23-year history due to
the recognition of an impairment charge against the acquisition of
Konetik in the year. Our entire focus, since my reappointment, has
been to return to profitable, organic growth via our core vehicle
telematics subscription service and it is a testament to the
strength of that underlying business that the Company has been able
to fund the issues that have arisen in 2023 from internally
generated cashflow. I am very sorry to have to report, however,
that dividend payments to shareholders have been substantially
reduced for 2023 and 2024 as a consequence.
The key metric of the business, the annualised
value of its recurring revenue, increased by £2.2m, at a constant
currency rate, to £29.1m at 31 December 2023. Group revenue
grew by 8.6% during the year, in line with the growth in the ARR of
the subscription base. A detailed review of performance by
territory is shown in the table below:
|
Subscription Base
|
New
subscriptions
|
Customers
|
New
Customers
|
|
|
|
|
|
United Kingdom
|
|
|
|
|
2023
|
146,679
|
26,411
|
11,305
|
1,215
|
2022
|
136,514
|
26,363
|
11,426
|
1,523
|
Change (%)
|
7.4
|
0.2
|
(1.1)
|
(20.2)
|
|
|
|
|
|
France
|
|
|
|
|
2023
|
67,895
|
22,151
|
8,230
|
2,275
|
2022
|
52,604
|
17,094
|
6,935
|
2,304
|
Change (%)
|
29.1
|
29.6
|
18.7
|
(1.3)
|
|
|
|
|
|
USA
|
|
|
|
|
2023
|
29,235
|
5,994
|
3,849
|
778
|
2022
|
30,800
|
9,088
|
4,038
|
1,213
|
Change (%)
|
(5.1)
|
(34.0)
|
(4.7)
|
(35.9)
|
|
|
|
|
|
Other European Territories
|
|
|
|
|
2023
|
22,759
|
9,862
|
3,884
|
1,491
|
2022
|
15,592
|
8,264
|
2,943
|
1,487
|
Change (%)
|
46.0
|
19.3
|
32.0
|
0.3
|
Fleet revenue in the UK increased by 1.3% to
£18.0m (2022: £17.8m).
The subscription base in the UK increased by 7%
during the year, and new subscriptions were broadly in line with
the prior year. New customer acquisition, particularly in the small
and medium size segments, weakened, resulting in a slight reduction
in the total customer base. Renewed emphasis will be placed on the
core business and the effectiveness of all channels to market in
the UK. Although this will take some time to restore, the Board
hope to see improvements by the end of 2024.
Performance in France was excellent, with
strong growth in the subscription base, new subscriptions and
customer base. The rate of new customer acquisition was comparable
with 2022. All channels to market delivered strong progress.
Revenue increased by 25.4% to €7.9m (2022: €6.3m).
Sales and marketing operations in the USA have
been subject to several changes in strategy over the past two
years, resulting in the loss of key sales resources. New
subscriptions, the customer base, the subscription base and
customer acquisition all fell as a consequence. These issues were
the most significant contributory factor in the slight increase in
gross attrition at Group level. It will take time to reverse these
trends but the Board hope to be able to show some improvement in
key metrics before the end of 2024. Revenue increased slightly by
2.5% to $4.1m in 2023 (2022: $4.0m).
Subscription base growth in Spain, Italy and
Germany was good; new customer acquisition was broadly in line with
2022. Recent progress has been very encouraging, however,
particularly in Spain and Italy. The rate of new customer
acquisition has started 2024 at almost double the rate of a year
ago. Resource and investment will be committed to all channels in
Spain and Italy, and the development of both direct and indirect
channels to market in Germany will be continued. The Company will
report progress in these countries on an individual basis starting
with the Interim Report. Revenue in these territories increased by
55.3% to €1.9m (2022: €1.2m).
Overall, Quartix's installed base grew by 13.2%
to 266,000 units, and the customer base reached 27,000 customers at
year end. Group gross attrition increased to 13.3% (2022: 12.8%).
Price erosion reduced to 4.6% (2022: 4.9% in constant currency),
and the introduction of RPI clauses into customer contracts at the
end of 2023 should see further improvement in this metric in
2024.
Results
Group revenue for the year increased by 8.6% to
£29.9m (2022: £27.5m). Total fleet revenue increased by £2.8m and
represented 98.8% of total revenue (2022: 97.0%).
In 2023, the Group delivered Adjusted EBITDA of
£5.4m (2022: £6.1m), slightly ahead of previous guidance, as the
core business traded profitably. However there was an
operating loss of £1.1m and loss before tax of £1.1m (2022:
operating profit £5.6m, profit before tax £5.5m). Part of the
expenses in 2023 were in funding the operational costs of Konetik
Deutschland GmbH ("Konetik"), a business acquired by the Company in
September 2023 and which accounted for £0.6m of the decrease in
profitability year-on-year; other significant parts of the
shortfall included two exceptional non-cash costs, namely the
impairment of the goodwill from the acquisition of Konetik (£2.7m)
and the recognition of the provision to replace all 2G units with
4G units in France (£3.8m) partially offset by the fair value gain
in re-estimating the future earn out payments (£0.3m) as a result
of the poorer performance in EVolve sales to expectations when
Konetik was acquired (see note 10). The table below presents
the underlying business performance of Quartix excluding
Konetik:
|
Core
Business
|
Konetik
|
Total
Business
|
|
|
£'000
|
£'000
|
£'000
|
Revenue
|
29,851
|
31
|
29,882
|
Business costs
|
(23,864)
|
(621)
|
(24,485)
|
Adjusted EBITDA
|
5,987
|
(590)
|
5,397
|
Cash conversion weakened following increased
corporation tax payments in 2023 (£0.7m), resulting in an adjusted
free cash flow (cash flow from operations after tax and investing
activities) excluding the investment into Konetik, of £3.3m (2022:
£3.8m), slightly ahead of previous guidance. Net cash decreased to
£2.4m at 31 December 2023 (2022: £5.1m), following the acquisition
of Konetik (€2.25m) in September from available cash
reserves.
By the end of 2023, the £1.6m provision raised
in 2020 for the sunsetting of the US 3G mobile network had
approximately £0.4m worth of unit replacements remaining. Meaning
that since the provision was raised in 2020, 73% of the total units
have been replaced, with approximately £0.1m worth being replaced
in 2023.
As stated in the trading statement on 9 January
2024 the Company expects the sunsetting of the 2G mobile network in
France to be finalised by the end of 2026. This necessitates the
replacement of a large proportion of the French installed base of
tracking systems by the end of 2026. The Company has taken the
decision, as it did for the US, to provide this service free of
charge to customers in order to minimise the chances of incremental
attrition and to further enhance the Company's reputation in the
French market. As a result the Company has identified a provision
with a cash cost of £4.0m and recognised a provision discounted for
the time value of money of £3.8m, defined outside of adjusted
EBITDA.
Additionally included as an exceptional item in
the income statement is the impairment of the goodwill on
consolidation after acquiring Konetik Deutschland GmbH offset by
the fair value gain in the re-estimate of the future earn out
payments payable under the share purchase agreement for
Konetik. Following internal review, it is considered that
Quartix would not be able to make a return on the investment in
this company in a reasonable time period. After 31 December 2023,
but before the approval of these financial statements it was
concluded that the Company should wind down Konetik to reduce
further losses and to remove the burden of this business. Under the
terms of the transaction Quartix took on legal entities in both
Germany and Hungary, together with their operational costs. There
will be further cost involved in winding these down.
The Company's EVolve product will also be
discontinued, as it has not yet resulted in the winning of any new
customers for Quartix, despite substantial resource investment in
its sales and marketing since May 2022.
Earnings per
share
Basic earnings per share decreased to a loss
per share of 1.88p (2022: profit of 10.42p per share). Diluted
earnings per share decreased to a loss of 1.88p per share (2022:
profit of 10.38p per share). The adjusted diluted earnings per
share, which in 2023 is calculated by adding back the cost of the
replacement of 2G units, the impairment of Konetik offset by the
fair gain on re-estimate of the future earn out payments, was 8.74p
(2022: 10.88p).
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 £2m 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 2023, the Board
decided to pay an interim dividend of 1.50p per ordinary share.
This totalled £0.7m and was paid on 6 October 2023 to shareholders
on the register as at 11 August 2023.
The Board is recommending a final ordinary
dividend of 1.50p per share, with no supplementary dividend, giving
a total dividend for the year of 3.00p per share, subject to
shareholder approval. The Board acknowledges the proposed final
ordinary dividend is not in line with the Company's dividend
policy, however as stated at the top of this report is necessary to
fund the replacement programme out of cash reserves in 2024. The
Board expects to return to declaring dividends in line with its
dividend policy in relation to the new financial year.
The final dividend amounts to approximately
£0.7m in aggregate. Subject to the approval at the forthcoming AGM,
this dividend of 1.50p per share will be paid on 29 April 2024 to
shareholders on the register as at 2 April 2024. The ex-dividend
date is therefore 28 March 2024.
Outlook
We have started 2024 well, with new
installations in January approximately 10% ahead of the same period
in 2023.
The effects of the Konetik acquisition will,
unfortunately, continue to have an impact on the Group's financial
performance and management time in 2024 which the Board will seek
to minimise. Current expectations of further cash expenditure
(including operating, administrative and transaction costs) are of
the order of €0.7m, which have been budgeted.
The Board has been considerably strengthened by
the appointment of Alison Seekings and Ian Spence as non-executive
directors since my return to the Company: their input and advice
will be invaluable in strategic decision making, corporate
governance and control.
Looking beyond the resolution of the Konetik
acquisition, the Board is confident that a return to the Company's
focus on its core telematics business will ensure its return to
profitable growth.
The Board believes there are significant
opportunities for business development in each of the markets in
which Quartix operates. The Board and I will strive to
maximise efficiency and improve the Company's growth potential in
2024 and, having had a positive start to the new financial year,
are confident of achieving market expectations for 2024.
The Company
believes that market expectations for 2024 are as follows: revenue:
£32.1m ; free cash flow*: £3.4m ; adjusted EBITDA:
£5.4m
* Note
excludes expected cash expenditure of £2.5m on 4G upgrade programme
during the year.
AGM
The Group's AGM will be held at 11.30 a.m. on
27 March 2024 at the Company's registered address No.9 Journey
Campus, Castle Park, Cambridge, CB3 0AX.
Andy
Walters
Executive Chairman
Strategic Report: Operational
Review
Strategy and
business model
The Group's main strategic objective is to grow
its fleet subscription platform profitably and develop the
associated recurring revenue. This strategy is based on 5 key
elements, which were first highlighted in the 2018 Annual Report.
We are pleased to be able to report progress in each area, as
summarised below:
1. Market development: Quartix will
continue to focus on fleet markets, exploring further opportunities
within its six existing markets. Investment and focus on France and
the other European territories delivered the majority of Quartix's
growth for 2023.
2. Cost leadership: We continue to seek
improvements in the efficiency of the sales cycle and to review
product and overhead costs in order to identify further operational
efficiencies. The Group recognises that, in recent years, its
overhead structure has grown at a faster rate than revenues, and
attention will be brough to bear on this during 2024.
3. Continuous enhancement of the Group's core
software and telematics services: Quartix has an ongoing
modernisation program of its core software and telematics code,
both from a technology and user experience perspective. These
enhancements help improve the customer experience as well as
increase the efficiency of its support operation. As part of this
program, we are adding new features to our product suite and
launching a new interface for our core product Fleet
Tracking.
4. Outstanding service: Quartix
maintained its excellent reputation with its fleet customers
throughout the year, consistently being rated as "excellent" by
TrustPilot users. Quartix achieved a Gold in the 2022 Investors in
Customers survey, which recognises truly excellent
service.
5. Standardisation centralisation: the
expansion into European markets has been achieved by staff
operating under the existing operational structures in place in the
UK, with some sales staff being located in France. Support and
service functions continued to be performed from the
UK.
Our fleet customers typically use the Group's
vehicle telematics services for many years following an initial
contract. Accordingly, the Group focuses its business model on the
development of subscription revenue, with a low rate of gross
attrition, 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. As noted in the Principal activities and
performance measures section, the annualised recurring revenue
increased by £2.2m, at a constant currency rate, to £29.1m at 31
December 2023.
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. Whilst the Group's
gross attrition increased to 13.3%, the Group believes this is
still below the industry average.
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. Following the 2022 Investors in
Customers survey, Quartix received a Gold Award, which is a
testimony to our excellent customer service. Our financial
performance in our core business derives from the customer service
we deliver, backed by the technology we develop. The Board would
like to register its personal thanks to every one of our employees
who worked hard to continue our growth in 2023.
Operational
performance
Gross margin excluding the provision for the
replacement of 2G units decreased to 69.4% (2022: 71.9%). Higher
unit manufacturing cost of the new 4G product in the first half led
to higher costs throughout the year as this cash cost was amortised
against profit. The second generation 4G product was introduced
early in the second half and the benefit in amortisation will begin
to appear as we progress through 2024. A further evolution of the
4G product is now underway, with the objective of reducing our unit
manufacturing cost to its lowest level yet. This should be in
production in the second half. In addition there were higher
administrative expenses, which increased by 20.3%. The main drivers
behind these were the post-acquisition operational costs of Konetik
of £0.6m, IT costs following the final physical service migration
to the cloud of £0.2m and higher payroll costs following
inflationary pay reviews.
Cash generated from operations after tax and
investing activities (free cash flow) is substantially higher than
the reported result due to the non-cash impairments and provision
for the upgrade of 2G units in France. The year on year free cash
flow also includes increased tax payments in the year following the
IFRS 15 change in policy in the prior year and its impact on the
2022 tax charge.
Working capital management improved in the year
despite the trade debtors at the year-end increasing to the
equivalent of 42 days of sales (2022: 38), this is in part driven
by the increase in the larger fleet customers which dictate 45-60
day payment terms. Inventory levels decreased by 29.1% compared to
prior year levels, as a result of management's decision to reduce
component stock held in the business as the component shortage
started to improve in the wider market.
Fleet
Our core fleet business delivered good
progress, with particularly strong growth in the subscription base
for France and the new European territories, such that the
installed base is now 266,000 units.
During the course of the year, the Group won
5,759 new fleet customers (2022: 6,527). Sales leads continued to
be generated and converted through a broad range of media and
channels and investments have been made in marketing, technology,
processes and training, adding automation wherever
possible.
Sales & Marketing expenses, being
essentially the total investment in fleet customer acquisition, has
remained flat with the prior year at £6.4m. A key focus of
the management group is ensuring effective investment in customer
acquisition costs in order to maximise returns.
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.
Key developments included:
1. The Company initiated an
update to its 4G telematics hardware to achieve reductions in
manufacturing cost which had its first unit launched in August
2023. The Group continues to seek avenues to manage manufacturing
costs.
2. The Company has developed
a connected 4G dashcam solution which provides a fully integrated,
cost optimized feature within our core Fleet Tracking application.
This new solution is being launched in Q1 and offers our UK
customers the ability to receive notification alerts when important
video footage, from collision events, has been automatically
uploaded to our server. This online service includes easy
access to both event videos and historical video footage directly
from the Dashcam footage menu. Connected dashcams give our
customers an easy upgrade path within our fleet management service,
providing rapid assessment of vehicle incidents and helping to
reduce their fleet insurance costs. The service will be
expanded to other geographical markets later in 2024.
3. The Company has delivered
the US road speed database to provide speed limits for the US
market. This is also the basis for completing the provision of
speed limits on our products in all markets.
All of our investment in research and
development was fully expensed in the year with a total cost of
£1.1m in 2023 (2022: £0.8m).
Acquisition of
Konetik
On 15 September 2023, the Group acquired 100%
of the share capital in Konetik Deutschland GmbH (Konetik), a
company incorporated in Germany, for a consideration payable in
cash. Konetik provides the core technology used within the EVolve
product, a tool that assists fleet managers with planning their
migration to electric vehicles, including an evaluation of costs,
potential savings and environmental benefits (see note
10)
Post acquisition, a detailed review of the
potential of the Evolve product and of Konetik's software
technology was completed and it was concluded that the ability to
increase the customer base and scale the business would be
substantially more challenging than had been envisaged at the time
of the acquisition due to:
o demand for
Evolve, particularly in the private sector, had been adversely
impacted by delays to EV transition deadlines with the UK
government's decision to postpone the ban on the sale of petrol and
diesel vehicles to 2035.
o the ability to
generate substantial increases in the volume of license sales was
expected to require much higher investment in the software
infrastructure due to limitations in the scalability and design of
the existing Konetik product.
o the customer
acquisition cost and implementation support were expected to be
much higher than previously anticipated.
o the customer
lifetime was expected to be significantly shorter than previously
anticipated, with virtually all customers using the product just
once, with considerable involvement and support needed from Quartix
personnel.
In addition, the Board considered that the
Evolve product was not an effective tool for the acquisition of new
vehicle tracking customers and the anticipated resource
requirements for the development, sale, support and maintenance of
Evolve meant that such investment was not anticipated to achieve an
appropriate return.
Despite significant management, technical,
marketing and sales involvement in the development, launch and
promotion of Evolve in 2022 and 2023, no new customers were
acquired using the product, and a non-cash impairment in the
goodwill arising from the Konetik acquisition (£2.5 million) has
been included in the financial statements (see note 5).
Sustainability
and Environmental, Social, and Governance ("ESG")
matters
The Board is aware that investors are
increasingly applying non-financial factors, such as ESG matters,
as part of their analysis process to identify material risks and
growth opportunities. Being part of an ethical, purpose driven
business increasingly matters more to our people, our shareholders
and our business partners.
Software companies such as Quartix have a
central role in the transition to a low carbon economy and a more
sustainable future. The Group is essentially a non-emitting and
limited-consuming business and the Board believes the Group's
limited use of carbon energy is largely offset by the savings that
we achieve for our customers in reduced fuel consumption and other
efficiencies in vehicle fleet management.
In 2022 Quartix was granted the London Stock
Exchange's "Green Economy Mark", which champions pioneering
London-listed companies driving growth in the global green economy.
To qualify, companies must generate at least 50% of their total
annual revenue from products and services that significantly
contribute towards the transition to a low carbon economy. The Mark
was received due to analytics from an external consultancy firm and
evidence from our customers, that fleet vehicle tracking and
analytics changes driver behaviour and results in a reduction of
between 10~25% in fuel consumption.
The ESG Committee conducted a sustainability
review in 2023, in order to better understand Quartix's
environmental impact and to prioritise areas for action. In
addition, the ESG Committee continue to assess Quartix's
performance in Social and Governance matters, where it believes
that the Group already conforms to current best practice in most
areas.
Capacity for
future growth
The Group has significant opportunity for
profitable growth in its fleet business. Quartix intends to make
further additional investments in sales channels during 2024 and
beyond. The Group believes that large parts of its existing
addressable markets are still unpenetrated, and it will continue to
pursue these alongside the winning of new customers from its
competitors in more established markets.
The Group will continue to implement
data-driven optimisation across the sales and marketing funnel and
execute automation and simplification across business processes in
order to drive growth.
The Group anticipates that these investments in
sales channels will enable both new fleet units installed and the
associated value of the annualised subscription base to increase in
2024.
Andy
Walters
Emily Rees
Executive
Chairman
Chief Financial Officer
Strategic Report: Financial
Review
Financial
Overview
Year ended 31
December
|
|
|
|
£'000 (except
where stated)
|
2023
|
2022
|
% change
|
Revenue
|
|
|
|
Fleet
|
29,511
|
26,680
|
10.6
|
Insurance
|
371
|
837
|
(55.7)
|
Total
|
29,882
|
27,517
|
8.6
|
|
|
|
|
Gross profit before 3G swap out
provision
|
20,737
|
19,793
|
4.8
|
Gross margin before 3G swap out
provision
|
69.4%
|
71.9%
|
|
|
|
|
|
Gross profit
|
16,978
|
19,702
|
(13.8)
|
Gross margin
|
56.8%
|
71.6%
|
|
|
|
|
|
Operating (loss)/profit
|
(1,056)
|
5,553
|
(119.0)
|
Operating margin
|
(3.5%)
|
20.2%
|
|
|
|
|
|
Adjusted operating profit
|
5,086
|
5,795
|
(12.2)
|
Adjusted operating margin
|
17.0%
|
21.1%
|
|
|
|
|
|
Adjusted EBITDA (note 3)
|
5,397
|
6,051
|
(10.8)
|
|
|
|
|
(Loss)/Profit for the year
|
(912)
|
5,041
|
(120.9)
|
|
|
|
|
Earnings per share
|
(1.88)
|
10.42
|
(118.0)
|
Adjusted diluted earnings per share
|
8.74
|
10.88
|
(19.7)
|
|
|
|
|
Cash generated from operations
|
4,465
|
4,170
|
7.1
|
Adjusted operating profit to operating cash
flow conversion
|
64.4%
|
65.4%
|
|
|
|
|
|
Free cash flow (excluding
acquisition)
|
3,277
|
3,790
|
(13.5)
|
Revenue
Revenue increased by 8.6% to £29.9m (2022:
£27.5m).
Gross
margin
Gross margin before the recognition of the
provision to replace the French 2G units decreased to 69.4% in the
year (2022: 71.9%) due to the more expensive new generation 4G
model being utilised for the first half of 2023 after its release
in July 2022. In August 2023 the new generation 4G model was
released. Given the IFRS 15 policy of spreading the costs incurred
over the expected contract period, this saving is not reflected in
the margin until the more expensive costs per unit deferred have
completely unwound.
Adjusted
EBITDA
Adjusted EBITDA, fell to £5.4m (2022: £6.1m)
driven by the increase in administrative expenses of £1.7m. The
main drivers behind this increase were the post-acquisition
operational costs of Konetik of £0.6m, IT costs following the final
physical service migration to the cloud costing an additional £0.2m
and payroll costs after Management awarded all staff with a 5% pay
rise effective in 2023 of approximately £0.5m.
Overheads
The sales & marketing investment remained
flat with the prior year at £6.4m. Administrative expenses
increased by 20.2%, excluding the Konetik operational and
acquisition costs the underlying increase was approximately 12.9%.
Part of this increase in administrative overheads was from the
migration from physical services to cloud based services, the 2023
annual salary increase, which was approximately 5%, and the
introduction of an annual bonus scheme for the operation board,
which is based on and aligned with key strategic objectives of the
business.
Taxation
In 2023 our effective tax rate increased as a
result of the available loss relief in the US being reduced, the
patent relief no longer being available following the expiration of
our patent in February 2022 and an increase in the applicable tax
rate in the UK from 19% to 25% in April 2023 and finally
recognising a deferred tax asset of c.£1.0m on recognising the
French 2G unit replacement provision. As a result the
effective rate of tax has increased from 8.8% in 2022 to 15.7% in
2023.
Statement of
financial position
Property, plant and equipment, remained flat at
£0.7m (2022: £0.8m).
Contract cost assets increased to £5.4m (2022:
£4.3m). Inventories decreased to £1.4m (2022: £2.0m) due to
utilisation of component stockholding. Cash at the year-end
was £2.4m (2022: £5.1m), after funding the acquisition of Konetik
(€2.25m) during the year and the increased corporation tax payments
in 2023. Trade and other receivables increased to £4.2m (2022:
£3.7m), due to trade receivables collection period increasing from
38 days to 42 days, one of the key drivers of this being field
sales teams' agreements with customers of larger size typically
leading to a longer payment term dictated by the customer. Trade
and other payables increased to £4.0m (2022: £3.6m) which includes
the deferred consideration for the acquisition of Konetik of £0.3m,
and provisions increased from £0.5m to £4.2m due to the recognition
of the France 2G unit replacement provision.
Contract liabilities represent customer income
invoiced in advance of satisfying performance obligations, which
are expected to be recognised as revenue in future years.
These increased to £3.7m in 2023 (2022: £3.5m).
Cash
flow
Cash generated from operations before tax at
£4.5m was 87.8% of adjusted operating profit (2022: £4.2m, 72.0% of
operating profit). Tax paid in 2023 was higher at £1.2m (2022:
£0.3m). As a result, cash flow from operating activities after
taxation but before capital expenditure was £3.3m (2022:
£3.8m).
Free cash flow, after capital expenditure and
interest received but excluding cash expended on the acquisition of
Konetik, was £3.3m, a decrease of 13.5% (2022: £3.8m). 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 and the introduction of an annual bonus
scheme for the operating board leadership team.
Reliance on
Mobile To Mobile ("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 believes that, at some point between
2025 and 2030, most UK and European network operators will finalise
the sunsetting of their 2G networks. EE have announced the
sunsetting in France, and as a result Quartix began its proactive
2G unit replacement programme in France in January 2024. The
Company continues to monitor the announcements regarding the UK
sunsetting of the 2G network, and 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. Management continue to review the situation for
network migration in the UK. Currently all new systems installed
are either 4G compatible or make use of a roaming sim card which
can use a range of 2G networks, as the Group believe that some of
these will continue to be operational beyond 2028.
As described in the 2020 Financial Statements,
Management anticipated the sunsetting of the 3G mobile network in
the US to be finalised in 2022. This necessitated the replacement
of a large proportion of the US installed base of tracking systems.
By the end of 2023, Quartix had completed approximately 73% of the
total units to be replaced, with the last replacements now
focussing on Quartix's smallest customers.
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 to
help mitigate these risks.
The Group acquires, manages and supports its
customers in the EU centrally, from its offices in the UK. The
BREXIT trading and data adequacy arrangements have not made it
necessary for a relocation of some of its operations to within the
EU. However, the existing French business is instrumental in
the logistics of moving the goods between France and customers in
the EU.
The war in Ukraine, with its impact on energy
prices and other inflationary pressures, has impacted the growth of
the global economy and continues to present a risk that there may
be an impact on the Group's subscription base and its ability to
collect cash from its customers. The Group engaged with a debt
collector that covers the European and French territories in an
effort to increase the probability of collection of debt following
after the 45 days overdue period has passed. The Group continues to
review its collection process and credit control efforts to
mitigate the risk.
Quartix had considered changing its method of
unit shipment from its manufacturing facility in China to the stock
assembly house in Cambridge via marine shipment for environmental
reasons, following the ESG review, however this has not been
implemented and will not be in light of recent events effecting all
shipments passing through the Suez Canal. This will be monitored
and the supply chain logistics will be reviewed once these risks
have fallen away.
Cyber
security
The Group needs to make sure its data is kept
safe and that there is security of supply of data 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 security report which is reviewed by
members of 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.
Emily
Rees
Chief Financial Officer
The Strategic Report, comprising the
Operational Review and Financial Review, was approved by the Board
of Directors and signed on behalf of the Board on 1 March
2024.
Andy
Walters
Chief Executive Officer
Consolidated Statement of
Comprehensive Income
Year
ended 31 December
|
|
2023
|
2023
|
2023
|
*Restated
2022
|
2022
|
*Restated
2022
|
|
Notes
|
Before
Adjustments
|
Adjustments
|
After
Adjustments
|
Before
Adjustments
|
Adjustments
|
After
Adjustments
|
|
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Revenue
|
2
|
29,882
|
-
|
29,882
|
27,517
|
-
|
27,517
|
Cost of sales
|
|
(9,145)
|
(3,759)
|
(12,904)
|
(7,724)
|
(91)
|
(7,815)
|
Gross profit
|
|
20,737
|
(3,759)
|
16,978
|
19,793
|
(91)
|
19,702
|
Sales & Marketing
expenses
|
|
(6,366)
|
-
|
(6,366)
|
(6,358)
|
(71)
|
(6,429)
|
Administrative expenses
|
|
(9,285)
|
-
|
(9,285)
|
(7,640)
|
(80)
|
(7,720)
|
Impairment
|
5
|
-
|
(2,695)
|
(2,695)
|
-
|
-
|
-
|
Fair value gain
|
10
|
-
|
312
|
312
|
-
|
-
|
-
|
Operating (loss)/ profit
|
|
5,086
|
(6,142)
|
(1,056)
|
5,795
|
(242)
|
5,553
|
Finance income receivable
|
|
10
|
-
|
10
|
8
|
-
|
8
|
Finance costs payable
|
|
(31)
|
-
|
(31)
|
(31)
|
-
|
(31)
|
(Loss)/Profit for the year before taxation
|
|
5,065
|
(6,142)
|
(1,077)
|
5,772
|
(242)
|
5,530
|
Tax expense
|
|
(771)
|
940
|
169
|
(486)
|
-
|
(486)
|
(Loss)/Profit for the year
|
|
4,294
|
(5,202)
|
(908)
|
5,286
|
(242)
|
5,044
|
Exchange difference on translating
foreign operations
|
|
43
|
-
|
43
|
(169)
|
-
|
(169)
|
Other comprehensive income for the year, net of
tax
|
|
43
|
-
|
43
|
(169)
|
-
|
(169)
|
Total comprehensive income attributable to the equity
shareholders of Quartix Technologies plc
|
|
4,337
|
(5,202)
|
(865)
|
5,117
|
(242)
|
4,875
|
Adjusted EBITDA
|
3
|
|
|
5,397
|
|
|
6,051
|
Earnings per ordinary share (pence)
|
4
|
|
|
|
|
|
|
Basic
|
|
|
|
(1.88)
|
|
|
10.42
|
Diluted
|
|
|
|
(1.88)
|
|
|
10.38
|
*Restatement arises from the adoption of
'Deferred Tax related to Assets and Liabilities arising from a
Single Transaction' (Amendments to IAS 12) requiring recognition of
deferred tax on leases on initial recognition.
Consolidated Statement of Financial
Position
|
|
31 Dec 2023
|
*Restated
31 Dec
2022
|
|
Notes
|
£'000
|
£'000
|
|
|
|
|
Non-current
assets
|
|
|
|
Goodwill
|
5
|
14,029
|
14,029
|
Property, plant and equipment
|
|
684
|
845
|
Deferred tax assets
|
|
1,144
|
210
|
Contract cost assets
|
|
894
|
752
|
Total
non-current assets
|
|
16,751
|
15,836
|
Current
assets
|
|
|
|
Inventories
|
|
1,411
|
1,989
|
Contract cost assets
|
|
4,550
|
3,536
|
Trade and other receivables
|
|
4,186
|
3,692
|
Cash and cash equivalents
|
|
2,380
|
5,063
|
Total current
assets
|
|
12,527
|
14,280
|
Total
assets
|
|
29,278
|
30,116
|
Current
liabilities
|
|
|
|
Trade and other payables
|
|
3,955
|
3,650
|
Provisions
|
8
|
2,775
|
543
|
Contract liabilities
|
|
3,679
|
3,499
|
Current tax liabilities
|
|
557
|
896
|
|
|
10,966
|
8,588
|
Non-current
liabilities
|
|
|
|
Lease liabilities
|
|
520
|
617
|
Non-current provisions
|
|
1,443
|
-
|
|
|
1,963
|
617
|
Total
liabilities
|
|
12,929
|
9,205
|
Net
assets
|
|
16,349
|
20,911
|
|
|
|
|
Equity
|
|
|
|
Share capital
|
7
|
484
|
484
|
Share premium account
|
7
|
6,332
|
6,332
|
Equity reserve
|
|
392
|
342
|
Capital redemption reserve
|
|
4,663
|
4,663
|
Translation reserve
|
|
(295)
|
(338)
|
Retained earnings
|
|
4,773
|
9,428
|
Total equity
attributable to equity shareholders of Quartix Technologies
plc
|
|
16,349
|
20,911
|
Consolidated Statement of Changes in
Equity
|
Share
capital
|
Share premium
account
|
Capital redemption
reserve
|
Equity
reserve
|
Translation
reserve
|
Retained
earnings
|
Total
equity
|
|
£'000
|
£,000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Balance at 31 December 2021
|
484
|
6,332
|
4,663
|
380
|
(169)
|
8,355
|
20,045
|
Prior year restatement
|
-
|
-
|
-
|
-
|
-
|
10
|
10
|
Restated balance at 31 December 2021
|
484
|
6,332
|
4,663
|
380
|
(169)
|
8,365
|
10,055
|
Shares issued
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Increase in equity reserve in
relation to options issued
|
-
|
-
|
-
|
93
|
-
|
-
|
93
|
Adjustment for settled
options
|
-
|
-
|
-
|
(85)
|
-
|
-
|
(85)
|
Recycle of equity reserve to P&L
reserve
|
-
|
-
|
-
|
(46)
|
-
|
46
|
-
|
Dividend paid
|
-
|
-
|
-
|
-
|
-
|
(4,112)
|
(4,112)
|
Transactions with owners
|
-
|
-
|
-
|
(38)
|
-
|
(3,981)
|
(4,019)
|
Foreign currency translation
differences
|
-
|
-
|
-
|
-
|
(169)
|
-
|
(169)
|
Profit for the year
|
-
|
-
|
-
|
-
|
-
|
5,044
|
5,044
|
Total comprehensive
income
|
-
|
-
|
-
|
-
|
(169)
|
5,044
|
4,875
|
Restated Balance at 31 December 2022
|
484
|
6,332
|
4,663
|
342
|
(338)
|
9,428
|
20,911
|
Shares issued
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Increase in equity reserve in
relation to options issued
|
-
|
-
|
-
|
78
|
-
|
-
|
78
|
Recycle of equity reserve to P&L
reserve
|
-
|
-
|
-
|
(28)
|
-
|
28
|
-
|
Dividend paid
|
-
|
-
|
-
|
-
|
-
|
(3,775)
|
(3,775)
|
Transactions with owners
|
-
|
-
|
-
|
50
|
-
|
(3,747)
|
(3,697)
|
Foreign currency translation
differences
|
-
|
-
|
-
|
-
|
43
|
-
|
43
|
Profit for the year
|
-
|
-
|
-
|
-
|
-
|
(908)
|
(908)
|
Total comprehensive income
|
-
|
-
|
-
|
-
|
43
|
(908)
|
(865)
|
Balance at 31 December 2023
|
484
|
6,332
|
4,663
|
392
|
(295)
|
4,773
|
16,349
|
Consolidated Statement of Cash
Flows
|
Note
|
2023
|
2022
|
|
|
£'000
|
£'000
|
|
|
|
|
Cash generated
from operations
|
6
|
4,465
|
4,170
|
Taxes paid
|
|
(1,181)
|
(320)
|
Cash flow from operating activities
|
|
3,284
|
3,850
|
Investing
activities
|
|
|
|
Additions to property, plant and
equipment
|
|
(17)
|
(68)
|
Interest received
|
|
10
|
8
|
Acquisition of subsidiary, net of cash
acquired
|
|
(1,986)
|
-
|
Cash flow utilised in investing
activities
|
|
(1,993)
|
(60)
|
Cash flow from operating activities after
investing activities
(Free cash flow)
|
|
1,291
|
3,790
|
Financing
activities
|
|
|
|
Repayment of lease liabilities
|
|
(172)
|
(151)
|
Proceeds from share issues
|
|
-
|
-
|
Dividend paid
|
|
(3,775)
|
(4,112)
|
Cash flow used in financing
activities
|
|
(3,947)
|
(4,263)
|
|
|
|
|
Net changes in cash and cash
equivalents
|
|
(2,656)
|
(473)
|
Cash and cash equivalents, beginning of
year
|
|
5,063
|
5,414
|
Exchange differences on cash and cash
equivalents
|
|
(27)
|
122
|
Cash and cash equivalents, end of
year
|
|
2,380
|
5,063
|
Notes to the Accounts
1
Basis of preparation
The results have been extracted from the
audited financial statements of the Group for the year ended 31
December 2023. The results do not constitute statutory accounts
within the meaning of Section 434 of the Companies Act 2006. Whilst
the financial information included in this announcement has been
computed in accordance with International accounting standards in
conformity with the requirements of the Companies Act 2006
(UK-adopted IAS), IFRIC interpretations and Companies Act 2006 that
applies to companies reporting under UK-adopted IAS, this
announcement does not of itself contain sufficient information to
comply with UK-adopted IAS. The Group will publish full financial
statements that comply with UK-adopted IAS. The audited financial
statements incorporate an unqualified audit report.
Statutory accounts for the year ended 31
December 2022, which incorporated an unqualified auditor's report,
have been filed with the Registrar of Companies. The Auditor's
report on these accounts did not draw attention to any matters by
way of emphasis and did not contain statements under S498(2) or (3)
Companies Act 2006. With the exception of recognising deferred tax
on right of use assets and lease liabilities as a result of the IAS
12: Income tax accounting standard amendment the accounting
policies applied are consistent with those described in the Annual
Report & Accounts for the year ended 31 December
2022.
The basis of preparation and summary of
significant accounting policies applicable to the consolidated
financial statements of Quartix Technologies plc can be found in
note 1 of the Annual Report and Financial Statements, available
from the Group's website.
2
Revenue
The Group's revenue disaggregated by primary
geographical market is as follows:
|
2023
|
2022
|
|
£'000
|
£'000
|
United Kingdom
|
17,997
|
17,760
|
France
|
6,882
|
5,410
|
Other European Territories
|
1,674
|
1,060
|
United States of America
|
3,329
|
3,287
|
|
29,882
|
27,517
|
There are no material non-current assets based
outside the UK.
The Group's revenue disaggregated by pattern of
revenue recognition is as follows:
|
2023
|
2022
|
|
£'000
|
£'000
|
Goods and services transferred over
time
|
28,674
|
26,505
|
Revenue recognised at a point in
time
|
1,208
|
1,012
|
|
29,882
|
27,517
|
Goods and services transferred over time
represent 96.0% of total revenue (2022: 96.2%).
For 2023, revenue includes £3.5m (2021: £3.1m)
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
Adjusted earnings before interest, tax, depreciation and
amortisation (EBITDA)
|
|
|
|
2023
|
2022
|
|
£'000
|
£'000
|
Operating profit
|
(1,056)
|
5,553
|
Depreciation on property, plant and equipment,
owned
|
76
|
124
|
Depreciation on property, plant and equipment,
right of use
|
157
|
133
|
EBITDA
|
(823)
|
5,810
|
Share-based payment expense (incl.
cash-settled)
|
78
|
(1)
|
Cost of living payments
|
-
|
151
|
Impairment of intangible asset:
goodwill
|
2,464
|
-
|
Impairment of intangible asset:
software
|
231
|
-
|
Fair value gain on re-estimate of future earn
out payments
|
(312)
|
-
|
Exceptional provision for France/USA
replacement of units
|
3,759
|
91
|
Adjusted EBITDA
|
5,397
|
6,051
|
4
Earnings per share
The calculation of the basic
earnings per share is based on the profits attributable to the
shareholders of Quartix Technologies 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.
Earnings per
ordinary share
|
Profits attributable to shareholders
£'000
|
Weighted average number of
shares
|
Basic earnings per share amount in
pence
|
Fully diluted weighted average number of
shares
|
Diluted earnings per share amount in
pence
|
Year ended 31
Dec 2023
|
(908)
|
48,392,178
|
(1.88)
|
49,088,054
|
(1.88)
|
Restated year ended 31 Dec 2022
|
5,044
|
48,387,354
|
10.42
|
48,599,519
|
10.38
|
Adjusted
earnings per share
|
|
|
|
|
|
Year ended 31
Dec 2023
|
4,294
|
48,392,178
|
8.87
|
49,088,054
|
8.74
|
Restated year ended 31 Dec 2022
|
5,287
|
48,387,354
|
10.92
|
48,599,519
|
10.88
|
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. There is no impact of
dilution on earnings per share in 2023 since a loss has been
incurred.
To illustrate the underlying earnings for the
year, the table above includes adjusted earnings per ordinary
share, which for 2022 exclude the £0.1m re-estimate of the US 3G
replacement unit provision and the £0.2m cost of living payments
considered to be a one off and for 2023 excludes the £3.8m France
2G replacement unit provision recognised in the year with its
associated tax impact and the impairment on the goodwill and other
intangibles recognised on acquisition of Konetik of £2.7m offset by
the fair value gain on the re-estimate of the future earn-out
payments due under the share purchase agreement for the purchase of
Konetik.
5
Goodwill
|
Goodwill on
consolidation
|
|
£'000
|
Cost and net book value
|
|
At 1 January and 31 December
2022
|
14,029
|
Goodwill recognised on acquisition
(note 10)
|
2,464
|
Impairment on goodwill
|
(2,464)
|
At 31 December 2023
|
14,029
|
Goodwill arose on the consolidation of the
Group following the acquisition of Quartix Limited in 2008 and on
the acquisition of Konetik Deutschland GmbH in 2023.
Goodwill is recognised as an asset and assessed
for impairment annually or where there is indication of impairment.
Any impairment is recognised immediately in profit or
loss.
The Group considers the fleet business of
Quartix Limited to be the sole cash-generating unit (CGU) for the
assessment of goodwill recognised on acquisition of Quartix Limited
and considers Konetik/EVolve to be the CGU for the assessment of
goodwill recognised on acquisition of Konetik. The Group has
determined its recoverable amount based on value in use
calculations. The value in use was derived from discounted
management cash flow forecasts for the business, using the budgets
and strategic plans based on past performance and expectations for
the market development of the CGU, incorporating an appropriate
business risk. The key assumptions for the value in use
calculations are those regarding the discount rates, growth rates
and expected changes to selling prices and direct costs during the
period based on industry sector forecasts.
These budgets and strategic plans cover a
four-year period. The growth rate in years one and two were based
on detailed management expectations. The growth rate used for the
third and fourth year is 5.0%. The discount rate used is 7.22%
based on the Group's weighted average cost of capital. Sensitivity
analysis is carried out on all budgets, strategic plans and
discount rates used in the calculations. The estimate of the
recoverable amount for the cash generating unit is not particularly
sensitive to the discount rate.
Management's key assumptions are based on past
experience and the current trading performance of the CGU. These
value in use calculations, including sensitivity analysis, have not
identified any requirement for impairment of the goodwill
associated with the acquisition of Quartix Limited by Quartix
Technologies plc. Management was not aware of any probable
changes that would necessitate changes in key estimates that
indicate any impairment sensitivity on the assessment of goodwill
associated with the fleet business of Quartix. The goodwill
recognised on the acquisition of Quartix Limited will continue to
be reviewed annually for impairment.
There were however impairment indicators for
the goodwill recognised on acquisition of Konetik by Quartix
Limited. The indicators present at year end were:
· The
value in use calculation derived from discounted management
cashflow forecasts presented negative earnings for the next 4
years, and beyond;
·
Some of the customers of Quartix who had purchased contracts
for EVolve in 2023, had either cancelled their contracts or
expressed intention not to renew by the end of 2023;
· The
software as currently released requires significant manual support
and is not scalable without significant new investment;
·
Management shift in focus on commercial strategy to promote
the core fleet tracking product to prevent distractions provided by
the focus on promoting the EVolve product to customers;
and
·
Management had started discussions pre-year end on what the
future of the Konetik business looked like, given the anticipated
losses for the foreseeable future and the lack of demand observed
in the market to date for the EVolve product.
As a result of the indicators present above,
management considered it necessary to impair the goodwill
recognised on acquisition of Konetik down to nil.
6
Notes to the cash flow statement
Cash flow adjustments and changes in working
capital
|
|
|
|
2023
|
2022
|
|
£'000
|
£'000
|
Profit before
tax
|
(1,077)
|
5,530
|
Foreign exchange
|
25
|
(256)
|
Depreciation
|
233
|
257
|
Loss on disposal of fixed asset
|
-
|
29
|
Interest income
|
(10)
|
(8)
|
Lease interest expense
|
31
|
31
|
Share based payment expense
|
78
|
92
|
Impairment
|
2,695
|
-
|
Operating cash
flow before movement in working capital
|
1,975
|
5,675
|
Decrease/(increase) in trade and other
receivables
|
(599)
|
(516)
|
(Increase)/decrease in contract cost
assets
|
(1,157)
|
(524)
|
(Increase) in inventories
|
579
|
(659)
|
(Decrease) in trade and other
payables
|
3,504
|
(99)
|
(Decrease)/increase in contract
liabilities
|
163
|
293
|
Cash generated
from operations
|
4,465
|
4,170
|
7
Equity
|
|
|
Number of
ordinary shares of £0.01 each
|
Share
capital £'000
|
Share
premium £'000
|
Allotted,
called up and fully paid
|
|
|
|
|
|
At 1 January 2023
|
|
|
48,392,178
|
484
|
6,332
|
Shares issued
|
|
|
-
|
-
|
-
|
At 31 December
2023
|
|
|
48,392,178
|
484
|
6,332
|
There were no shares issued in the
year to 31 December 2023.
8
Provisions
All provisions are considered current. The
carrying amounts and the movements in the provision account are as
follows:
|
Replacement
|
Other
|
Total
|
|
£'000
|
£'000
|
£'000
|
Carrying amount at 1 January
2022
|
823
|
130
|
953
|
Amount utilised
|
(554)
|
(36)
|
(590)
|
Increase in provision on
re-estimate
|
91
|
-
|
91
|
Foreign exchange
|
89
|
-
|
89
|
Carrying amount at 31 December
2022
|
449
|
94
|
543
|
Amount utilised
|
(50)
|
(10)
|
(60)
|
Amount charged
|
3,759
|
-
|
3,759
|
Foreign exchange
|
(24)
|
-
|
(24)
|
Carrying amount at 31 December 2023
|
4,134
|
84
|
4,218
|
The provision increased by £3.8m
following the recognition of the provision to replace the 2G units
free of charge in France. The calculation takes into account the
cost of the hardware, installation, carriage and staff hired to
complete the replacement programme. Based on internal calculations,
£2.3m is considered to be current, and the balance considered to be
non-current provision. The provision to replace the 3G units in the
USA is considered to be current.
The Group makes full provision for
the future cost of replacements on a discounted basis at the end of
a reporting period following the Groups network provider
announcement of the sunsetting of the network that the tracking
units are compatible with. The provision for the replacement of the
units in France, recognised in 2023, represents the present value
of the replacement costs which are expected to be incurred over the
next two to three years, as the expected shut down communicated by
the network provider for units in France is December 2026. The
provisions have been created based on the Company's internal
estimates. Assumptions based on the current economic environment
have been made, which management believe are a reasonable basis
upon which to estimate the future liability. These estimates are
reviewed regularly to take into account any material changes to the
assumptions. The discount rate used to calculate the present value
of the provision to replace the 2G units in France is 3.54% which
is the risk free rate used by the Group in calculating its weighted
cost of capital. A deferred tax asset was raised at 31
December 2023 at 25% of the provision raised for the replacement
units in France.
The majority of the other provision
relates to standard or extended warranties for which customers are
covered for the cost of repairs or replacement units as
appropriate.
9
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.
Movements in the number of equity-settled share
options outstanding and their related weighted average exercise
prices are as follows:
|
|
2023
|
|
2022
|
|
Weighted
average exercise price per share
|
Options
|
Weighted
average exercise price per share
|
Options
|
|
in
pence
|
number
|
in
pence
|
number
|
Outstanding at 1 January
|
212.6
|
805,063
|
306.8
|
737,930
|
Granted
|
-
|
-
|
1.0
|
212,000
|
Settled
|
-
|
-
|
451.3
|
(110,783)
|
Lapsed
|
59.7
|
(133,747)
|
247.3
|
(21,940)
|
Exercised
|
-
|
-
|
1.0
|
(12,144)
|
Outstanding at 31
December
|
243.0
|
671,316
|
212.6
|
805,063
|
|
|
|
|
|
Exercisable at 31
December
|
288.4
|
565,317
|
282.4
|
529,982
|
There were no options granted in the year, the
weighted average fair value of equity-settled options issued in the
prior year was 275.3p.
There no options exercised in the year ended 31
December 2023, the weighted average share price at the date of
exercise of options during the year ended 31 December 2022 was
335.0p.
At 31 December 2023 Quartix Technologies plc
had no outstanding cash-settled options.
Further details of share-based payments are
given in the Group's audited accounts, which are available at
www.quartix.net/investors/
10
Acquisition note
On 15 September 2023, the Group acquired 100% of
the share capital in Konetik Deutschland GmbH (Konetik), a company
incorporated and registered in Germany, for a consideration payable
in cash.
The assets and liabilities that were acquired
were as follows:
|
|
Fair Value
£'000
|
Purchase consideration:
|
|
|
Cash on completion date
|
|
1,933
|
Deferred consideration
|
|
617
|
Fair
Value of total purchase consideration
|
|
2,550
|
|
|
|
Acquired tangible net assets
|
|
|
Fixed Assets
|
3
|
|
Working capital
|
(62)
|
|
Net (debt)/cash
|
(17)
|
|
|
(76)
|
|
Excess consideration for allocation
|
|
2,626
|
|
|
|
Identified intangible asset
|
|
|
Technology IP
|
231
|
|
Deferred tax on technology
IP
|
(69)
|
|
|
162
|
|
|
|
|
Residual goodwill
|
|
2,464
|
Konetik contributed £31k of revenue and
approximately £500k operating loss to the Group's loss before tax
for the period between the date of acquisition and the balance
sheet date. If the acquisition had been completed on the
first day of the financial year, the impact on group revenues would
have been £140k and loss of £370k, before any additional
amortisation expense recognised on consolidation of the intangible
software asset acquired.
Included in the post-acquisition period were
payroll costs associated with 3 former shareholders of the business
including sign-on bonuses for each staff member. These payroll
costs have been included in admin expenses and account for £400k of
the post-acquisition business costs of the Konetik/EVolve
business.
Total acquisition related costs incurred were
approximately £100k of legal fees, these have been included in
admin expenses and recognised as an expense in the period in
Quartix Limited and included as a Konetik cost in the financial
review table in the Chairmans statement.
The goodwill of £2.5m arising from the
acquisition relates to the assembled workforce and to expected
future profitability, potential synergies and growth expectations
that were considered reasonable at the time of
acquisition.
A third-party expert performed a detailed
review of the acquired intangible assets and acquired customer
relationships. The customer relationships intangible asset was
considered to be negligible given the negative margins associated
with the customer relationships as the business is loss making and
is considered to be for the foreseeable future. The key assumptions
in the valuation of the intangible assets acquired and the
workforce are the growth rate which was 10% following the financial
year 2025 and a discount rate of 13.2%. Both considered to be
reasonable assumptions.
The deferred tax liability recognised on
consolidation as a result of the software asset acquired has been
calculated using the current applicable tax rate of 25%. However
referring to note 5, following internal reviews conducted in 2023
there were impairment indicators on the valuation of both the
goodwill recognised on consolidation and the software asset, as a
result these have both been written down in full and the related
deferred tax liability recognised on consolidation has been charged
to the profit and loss in the year.
Deferred Consideration
The deferred consideration is made up of two
elements, a hold back amount of £0.2m which is due and payable
twelve months after the acquisition date. And 4 earn out payments
totalling £0.4m paid in six month intervals to the three staff
members, who were former shareholders of the business. This is
considered to be additional consideration as staying in the employ
of the business is not a condition for payment of the earn out. The
earn out payments are calculated as 100 EUR for all EVolve licences
sold by Quartix in a six month period, and this total amount is
then split proportionally between the three former
shareholders.
At acquisition date the fair value of the earn
out payments were considered to be approximately £428k however
prior to the year end, after the shift in focus in the sales team
and the poorer performance than expected with EVolve sales, the
fair value of the future earn out payments were re-estimated,
resulting in a fair value gain of £312k. Total deferred
consideration measured at the end of the year is therefore a
holdback amount of £0.2m and the fair value of the earn out
payments £0.1m, totalling £0.3m of which £0.2m is due to be paid in
the next 12 months and the balance of £0.1m is due to be paid in
2025.
The financial year for Konetik coincides with
the financial year of the Group, therefore the current financial
year for Konetik's own 2023 financial statements will also be from
1 January 2023 to 31 December 2023.