REG - Quartix Technologies - Final Results
04/03/2024 07:00
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RNS Number : 3518F Quartix Technologies PLC 04 March 2024
+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 revenue(1) grew by 10.6% to £29.5m (2022: £26.7m)
o Fleet revenue represented 98.8% of total revenue (2022: 97.0%)
o Insurance revenue(2) decreased by 55.7% to £0.4m (2022: £0.8m)
· Adjusted EBITDA(3) decreased by 10.8% to £5.4m (2022: £6.1m)
· Adjusted profit before tax(4) 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 share(5) fell by 2.14p to 8.74p (2022:
10.88p)
· Free cash flow(6) 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 subscriptions(1) (new units) 64,418 60,809 5.9
Fleet subscription base(2) (units) 266,568 235,510 13.2
Fleet customer base(3) 27,268 25,342 7.6
Fleet gross attrition(4) (%) 13.3 12.8
Annualised recurring revenue(5) (£'000) 29,083 27,282 8.0
Fleet invoiced recurring revenue(6) (£'000) 27,764 25,446 9.1
Fleet revenue(7) (£'000) 29,512 26,680 10.6
Average Price erosion(8) (%) 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) 01686 806 663
Andy Walters, Executive Chairman
Emily Rees, Chief Financial Officer
Cavendish Capital Markets Limited (Nominated Adviser and Broker) 020 7200 0500
Matt Goode / Seamus Fricker (Corporate Finance)
Sunila de Silva (Equity Capital Markets)
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 (http://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 After Adjustments Before Adjustments
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 4,337 (5,202) (865) 5,117 (242) 4,875
Technologies plc
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
*Restated
31 Dec 2023 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 1,291 3,790
(Free cash flow)
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.
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