Quartix Holdings plc
Financial statements for the year ended 31 December 2018
Contents
Company information
Highlights
Chairman’s Statement
Strategic Report: Operational Review
Strategic Report: Financial Review
Corporate Governance Report
Directors’ Remuneration Report
Directors’ Report
Independent Auditor's Report to the Members of Quartix Holdings plc
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements
Parent Company Statement of Financial Position
Parent Company Statement of Changes in Equity
Notes to the Parent Company Financial Statements
Notice of Annual General Meeting
Notes to the Notice of Annual General Meeting
1
Page
2
3
4
6
11
15
27
29
33
40
41
42
43
44
71
72
73
80
82
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
2
Company Information
Company registration number:
06395159
Registered office:
Directors:
9 Dukes Court,
44~62 Newmarket Rd,
Cambridge
CB5 8DZ
Paul Boughton
Andrew Walters
Daniel Mendis
Jim Warwick
Company secretary:
Daniel Mendis
Bankers:
Solicitors:
Auditor:
Nominated advisor and joint broker:
Joint broker:
Barclays Bank PLC
Mortlock house,
Station Road,
Histon,
Cambridgeshire
CB24 9DE
Hewitsons LLP
Shakespeare House
42 Newmarket Road
Cambridge
CB5 8EP
Grant Thornton UK LLP
101 Cambridge Science Park
Milton Road
Cambridge
CB4 0FY
finnCap
60 New Broad Street
London
EC2M 1JJ
Cantor Fitzgerald
One Churchill Place, Level 20,
Canary Wharf,
London
E14 5RB
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
3
Highlights
Restatement of comparatives
All comparative monetary amounts for 2017 have been restated in line with the Group’s adoption of IFRS
15: ‘Revenue from Contracts with Customers’ and the related ‘Clarifications to IFRS 15 Revenue from
Contracts with Customers’ (See note 1).
Financial highlights
• Group revenue increased by 5% to £25.7m (2017: £24.5m)
o Fleet revenue grew by 10% to £18.8m (2017: £17.1m)
o
Insurance revenue declined by 7% to £7.0m (2017: £7.4m)
• Operating profit increased by 21% to £8.0m (2017: £6.6m)
• Adjusted EBITDA1 increased by 15% to £8.3m (2017: £7.2m)
• Profit before tax increased by 22% to £8.1m (2017: £6.6m)
• Diluted earnings per share increased by 16% to 14.19p (2017: 12.26p)
• Free cash flow2 reduced by 11% to £5.6m (2017: £6.3m)
• Cash generated from operations3 fell by 3% at £6.8m (2017: £7.0m)
• Net cash reduced to £6.8m (2017 net cash: £7.3m)
• Final dividend payment of 10.0p per share proposed (2017: 11.1p) including 6.2p for
supplementary dividend (2017: 6.8p) giving a total dividend for the year of 12.4p per share
1 Earnings before interest, tax, depreciation, amortisation and share based payment expense
2 Cash flow from operations after tax and investing activities
3 Cash inflow before tax
Operational highlights
• Strong progress in the main fleet business:
o 17% increase in subscription base to 123,157 units (2017: 105,314)
o 20% increase in customer base to 13,176 (2017: 10,961)
o Unit attrition increased to 11.9% (2017: 10.1%), due to higher attrition in the US, but
compares favourably with our estimate of the industry average of around 14-15 per cent
o 16% growth in new fleet installations
o Strong growth in France, ending the year with 2,474 customers (2017: 1,776) and 18,803
vehicles under subscription (2017: 13,131), an increase of 39% and 43% respectively.
o During its fourth full year of trading the USA grew its customer base to 2,007 (2017:
1,460), with 13,133 vehicles under subscription (2017: 8,973) an increase of 38% and 46%
respectively.
• As anticipated further decline in the lower margin insurance telematics business:
o 29% decline in insurance installations to 41,255 (2017: 57,826)
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
4
Chairman's Statement
Introduction
The past year has shown encouraging demand for the Group’s vehicle fleet telematics services in the UK,
USA and France.
Sales in the Company’s core fleet operations in the UK and Ireland grew by 5%, reaching £14.8m (2017:
£14.0m). This growth partially compensated for the planned decline in UK insurance revenues, which
decreased by £0.4m to £7.0m (2017: £7.4m).
The Group made good progress in France, where revenue increased by 27% to €2.8m (2017: €2.2m).
2018 was the Group’s fourth full year of operations in the USA, having launched its service and opened an
office there during 2014. We are pleased with progress and completed the year with 13,133 vehicles under
subscription (2017: 8,973) across 2,007 fleet customers (2017: 1,460). Revenue increased by 34% to $2.0m
in 2018 (2017: $1.5m) and the prospects for future business development remain encouraging.
Results
Group revenue for the year increased by 5% to £25.7m (2017: £24.5m).
Operating profit for the year increased by 21% to £8.0m (2017: £6.6m) and profit before tax was £8.1m
(2017: £6.6m).
Cash conversion was reduced, resulting in free cash flow, cash flow from operations after tax and investing
activities, of £5.6m (2017: £6.3m). Net cash reduced by £0.5m to £6.8m at 31 December 2018, following
the payment of £6.4m in dividends.
Earnings per share
Basic earnings per share increased by 17% to 14.38p (2017: 12.32p). Diluted earnings per share increased
to 14.19p (2017: 12.26p).
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.
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
5
Dividend
In the year ended 31 December 2018, the Board decided to pay an interim dividend of 2.4p per ordinary
share. This totalled £1.15m and was paid on 14 September 2018 to shareholders on the register as at 17
August 2018.
The Board is recommending a final ordinary dividend of 3.8p per share, together with a supplementary
dividend of 6.2p per share, giving a final pay out of 10.0p per share and a total dividend for the year of
12.4p per share.
The final and supplementary dividend amounts to approximately £4.8m in aggregate. Subject to the
approval at the forthcoming AGM, this dividend will be paid on 3 May 2019 to shareholders on the register
as at 5 April 2019.
Outlook
The Group has made a good start to the year, in line with our expectations. The high levels of recurring
revenue, a focus on growth in the core fleet markets in UK, France and the USA and targeting only those
insurance opportunities which offer satisfactory margins, underpin our confidence for the rest of the year
and beyond.
AGM
The Group’s AGM will be held at 11.00 a.m. on 26 March 2019 at the Group’s registered office at 9 Dukes
Court, 44~62 Newmarket Rd, Cambridge CB5 8DZ.
Paul Boughton
Chairman
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
6
Strategic Report: Operational Review
Principal activities
Quartix is one of Europe’s leading suppliers of vehicle telematics services. Whilst the origins of the Group’s
business are in the tracking of commercial vehicles in the UK, it has developed a significant market presence
in the fleet sector in France and the USA. Given the success of this internationalisation, the Group will
explore the potential for further expansion in Europe during 2019.
Strategy and business model
The Group’s main strategic objective is to grow its fleet business and develop the associated recurring
revenue by increasing the number of vehicles under subscription. This strategy is based on 5 key elements:
1. Market development: focusing on the fleet markets of the UK, France and USA, and exploring further
fleet opportunities throughout Europe.
2. Cost leadership: developing market-leading processes and efficiencies in all business areas from
customer acquisition through to service delivery and support.
3. Continuous enhancement of the Group’s core software and telematics services: offering a market-leading
platform which addresses the most common needs of SME customers in the service sector of each
of our target markets
4. Outstanding service: providing excellent support for customers and, increasingly, delivering that
service through automation and self-service features
5. Standardisation and centralisation: achieving economies of scale as we grow, and ensuring that we
maintain a common approach to all of our target markets, and tightly controlling the level of back-
office and other overhead costs.
Our fleet customers typically use the Group’s vehicle telematics services for many years, resulting in low
rates of attrition. Accordingly, the Group focuses its business model on the development of subscription
revenue based on minimal initial commitment from the customer, providing the best return to the Group
over the long term.
The value of recurring subscription revenue is the key measure of our performance in the fleet sector.
We also provide our telematics technology and services to insurers, who use the Group’s technology to
monitor the driving style and habits of higher-risk drivers, normally for a policy with a term of just 12
months. The level of attrition, in this industry for young driver policies, is relatively high.
Whilst the value of revenue has been the key measurement of our performance in the insurance sector, we
restrict our operations to those opportunities which provide an adequate return.
Given the degree of price competition in the insurance market, and the Group’s strategic focus on its fleet
operations, it is expected that both the proportion and absolute level of the Group’s revenues achieved in
the insurance sector will continue to decline.
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
7
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, where we
have a five-star rating.
We were, once again, included in the London Stock Exchange’s list of “1000 Companies to Inspire Britain”
and were delighted also to be awarded a Queen’s Award for Innovation during the year. The Queen’s Award
was for the development of our SafeSpeed Database, which provides both insurers and fleet managers with
feedback on driving safety which has already been shown to save lives and reduce accidents.
Each of these awards and nominations is a reflection of the commitment, teamwork, creativity and
dedication of our people. Our financial performance derives from the customer service we deliver, backed
by the technology we develop. I would like to register my personal thanks to every one of our employees
who made 2018 another great year for Quartix.
We are pleased to have been able to provide our employees with the ability to participate in the equity of
the Company under our EMI share option scheme for the sixth year in a row. Under this scheme each UK
employee (barring directors) receives shares in the company at zero cost and which are exercisable
approximately 18 months from grant. Employees with 5 years’ service at the first grant in 2013 would now
hold 3,925 shares in the company, less any disposals. Daniel Mendis, a Director of Quartix Holdings plc,
received share option grants in 2018, as disclosed in the remuneration report.
Operational performance
All of our business operations continued to perform at a high level in 2018. Gross margin increased to 67%
(2017: 61%), mainly due to a reduction in new insurance contracts and the associated initial contract costs.
Overheads increased by 11% and the return on sales before tax increased by 4 percentage points to 31%
(2017: 27%). Cash conversion was good with cash flow from operations after tax and investing activities
(free cash flow) representing 81% of profit for the year (2017: 108%). The reduction is due to the £1.3m
reduction in contract liabilities in 2018. We expense all research and development investment, tracking
system and installation costs as they are incurred unless development spend meets the criteria for
capitalisation.
Our accounts and operations teams continued to manage working capital well: trade debtors at the year-
end were 31 days of sales, and inventory levels remained comparable despite the sales growth. The reduction
in contract liabilities was due to the release of deferred contract revenue in the year arising from the
reduction in the number of new insurance installations.
Fleet
Our core fleet business, which accounted for 73% of Group revenue (2017: 70%), delivered good progress
in a further year of investment. Continued subscription base growth in the UK was combined with excellent
progress in France, where our business again made a positive contribution to the Group’s results, and in
the USA, where our fourth full year of trading saw us reach an installed base of more than 13,000 vehicles
under subscription.
During the course of the year we won 3,532 new fleet customers (2017: 2,779). Sales leads continued to be
generated through a broad range of media and channels. The efficiency improvements resulted largely from
investments made in marketing, technology, processes and training, adding automation wherever possible.
This investment will continue in 2019, and the knowledge and experience gained will be used across both
existing and new target markets.
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
8
Fleet UK (including Ireland)
Demand for vehicle telematics services in the UK continues to grow. We increased our vehicle subscription
base by 10% to 91,221 during the year, and our fleet customer base by 8,695. Despite these improvements,
however, we were disappointed in the number of new installations made in the first half, which were 14%
behind the equivalent period in 2017. Following the process and management changes made during H2, I
am pleased to report that we saw significant improvements towards the end of the year, with the deficit
compared to 2017 reduced to 6% (2018: 18,583, 2017: 19,714). The improved run-rate has continued into
2019. In total we won 1,654 new customers (2017: 1,700) and we increased the number of fleet clients with
50 vehicles or more. UK fleet revenue was £14.8m (2017: £14.0m). The strength of our brand, service
capability and reputation in the UK is leading to higher levels of enquiries from larger fleet prospects.
Our UK website continued to perform well in terms of search engine placement and enquiries, and we
continued to add new content to it.
We will continue to focus on telephone based sales capacity to support our fleet marketing initiatives, and
will look to find additional channels and partners to help us develop the market.
Fleet France
The number of new installations in the French market was 76% higher than the previous year (6,725 versus
3,819), and there was a 43% increase in the unit base, ending the year with 18,803 vehicles (2017: 13,131)
under subscription across 2,474 fleet customers (2017: 1,776). French fleet revenue increased by 27% to
€2.8m (2017: €2.2m), making a profitable contribution to the Group. We saw continued growth in new
customer acquisition throughout the year, and this was broadly spread across each of our channels. We will
make additional investments in this market in 2019, as we now benefit from growing awareness of our
brand and product.
Fleet USA
Our fourth full year of trading in the USA showed good progress: we concluded 2018 with 2,007 fleet
customers (2017: 1,460) having a total of 13,133 vehicles under subscription (2017: 8,973). USA fleet
revenue increased by 34% to $2.0m (2017: $1.5m). Losses incurred in the USA increased by £0.3m to
£0.6m (2017: £0.3m) due to the investment in marketing and unit installation costs.
We see significant potential for growth in the USA in the next five years, and have already recruited
additional sales staff in 2019, split between our Chicago and Newtown offices. The largest part of this
growth came from our direct telephone sales channel. This channel has significant potential for future
growth but we also intend to invest more in our price comparison team in Newtown, for which we have
recruited additional staff, and our distribution channel based in Chicago, for which we have now appointed
a dedicated sales executive.
Fleet revenues in France and the USA combined were £4.0m, representing 21% of total fleet revenue.
Fleet – Poland and Spain
In preparation for an initial launch of our telematics services to a broader European market we recruited 2
people for our Polish sales team in November 2018 and 2 more for a Spanish sales team in January 2019.
Both of these teams are based in Newtown, Powys. We do not anticipate the need for further recruitment
for these markets in the short term, and all back-office, accounting and systems support for these initiatives
will be provided by the same departments in Newtown dealing with our existing markets.
Our approach to these new markets will be based largely on user-install service options and we are delighted
to report that our Polish website, application and payment systems, went live at the start of February 2019
and that the Spanish site is expected to follow shortly. The new sites may be viewed at www.quartix.com/pl
and www.quartix.es.
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
9
Fleet – further market development
Beyond the two new markets described above our first priority is to be able to provide better support for
our Spanish-speaking clients in the USA and to offer our services in other European countries and
languages.
Insurance
We installed 41,255 new insurance tracking systems in 2018, a decrease of 29% on the prior period. This
trend was in keeping with the decision announced in July 2016 to focus on the core fleet market and on
only those insurance opportunities which offer satisfactory margins and which are closely aligned to the
fleet business.
In line with this strategy, the Group developed and launched an insurance platform in 2016 which appeals
to specialist insurance brokers. By the end of 2018 this proposition had been adopted and used by four
insurance broker clients. These projects are relatively small in volume, but the development of this platform
has offered an opportunity for Quartix to demonstrate the breadth of its capabilities in terms of technology,
data analysis and management services. A key part of this is the SafeSpeed Database, which is the result of
a 6-year development programme and which is also of particular appeal to medium and large commercial
vehicle fleets. As mentioned earlier, we were delighted to receive a Queen’s Award for Enterprise for this
innovation.
Research and development
The Group is committed to the continuous enhancement of its core software and telematics services, and
we aim to offer a market-leading platform which addresses the most common needs of SME customers in
the service sector of each of our target markets. We achieved some notable successes in 2018:
1. In October we released a significant update of our complete software application. This brought
the user interface into line with the branding and styling of our new website and promotional
materials. The new release was extremely well-received by customers and prospects alike, as it not
only provides a more modern-looking interface but also makes much better use of the screen and
available resources.
2. As part of the development described in (1) above we laid the groundwork for accommodating
new markets, languages and character sets, with the ultimate aim of providing the flexibility for
users in any location to be configured for use of the application in a broader range of languages
than the three previously supported.
3. Alongside these developments we embarked on a programme of creating options within our
application, website and mobile applications to simplify the introduction of our service in additional
languages and countries. The first two of these (Poland and Spain) went live in February 2019.
Developments in our commercial billing systems to support these additional markets will continue
during 2019.
4. Further development of our telematics hardware and firmware platforms was carried out during
the year, with new user-install options released for both the American and European markets. By
the end of the year these were accounting for more than 20% of new installations, and we expect
this trend to continue, particularly as a result of the new market initiatives described earlier.
All of our investment in research was fully expensed in the year. The total cost amounted to £1.1m,
which represents an increase of 3% compared to the prior year (2017: £1.1m).
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
10
Strategic priorities
We believe that the Company has significant opportunity for growth in its fleet business. We ended the
year with good growth in new installations and customer acquisition in all existing markets and have taken
the decision to make additional investments in business development and market expansion in 2019.
Within the insurance sector, following the strategic decision to move away from low margin insurance sales,
we will seek to target those opportunities which allow us to demonstrate and deliver the levels of service
quality and value for which we have become known.
Andrew Walters
Chief Executive Officer
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
11
Strategic Report: Financial Review
Key Performance Indicators (“KPIs”)
Year ended 31 December
Fleet installations (units)
Fleet subscription base (units)
Fleet customer base
Fleet attrition (annualised) (%) 1
Fleet invoiced recurring revenue2 (£’000)
Fleet revenue (£’000)
Insurance installations (units)
Insurance revenue (£’000)
2018
31,456
123,157
13,176
11.9
17,246
18,751
41,255
6,955
2017
27,227
105,314
10,961
10.1
15,605
17,079
57,826
7,438
% change
15.5
16.9
20.2
-
10.5
9.8
(28.7)
(6.5)
1 Attrition in the year is the number of units installed (excluding upgrades), less the increase in subscription base, expressed as a
percentage of the mean subscription base
2 Invoiced subscription charges before provision for deferred revenue
2018 was a year of good progress in our primary strategic objective of building our fleet subscription base.
We achieved over 31,000 fleet installations, an increase of 15.5% compared to 2017, and our fleet installed
base grew by 16.9% to 123,157 units, with growth in all three of our geographical markets.
Attrition during the period increased to 11.9%, partly due to higher attrition levels in the US.
Group invoiced recurring revenue (before adjusting for deferred revenue) grew by 10.5% to £17.3m (2017:
£15.6m).
The growth in fleet revenue at 9.8% was in line with the growth of our recurring revenue as our primary
focus is on growing subscription revenue.
Insurance unit installations were down 28.7% at 41,255, in keeping with the decision announced in July
2016 to focus on only those insurance opportunities which offer satisfactory margins and which are aligned
to our core fleet business.
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
12
Financial Overview
Year ended 31 December
£’000 (except where stated)
Revenue
Fleet
Insurance
Total
Gross profit
Gross margin
Operating profit
Operating margin
Adjusted EBITDA (note 5)
Profit for the year
Earnings per share
Cash generated from operations
Operating profit to operating cash flow conversion
Free cash flow
2018
18,751
6,955
25,706
17,163
67%
8,041
31%
8,334
6,860
14.38
6,825
85%
5,583
Restated
2017
% change
17,079
7,438
24,517
14,871
61%
6,622
27%
7,228
5,846
12.32
7,014
106%
6,285
9.8
(6.5)
4.8
15.4
21.4
15.3
17.3
16.7
(2.7)
(11.2)
Revenue
The Group has adopted IFRS 15 ‘Revenue from Contracts with Customers’ and the related ‘Clarifications
to IFRS 15 Revenue from Contracts with Customers’ (hereinafter referred to as ‘IFRS 15’) with effect from
1 January 2018 and applied the fully retrospective application, under which IFRS 15 has been applied to
the previous financial year with its results being restated. The net assets at 1 January 2017 were also restated
as disclosed in the Consolidated Statement of Changes in Equity. Details of the restatement are included in
note 30.
Revenue increased by 4.8% to £25.7m (2017: £24.5m). Fleet revenue, benefitting from past investment,
was 9.8% up at £18.8m (2017: £17.1m). Sales to insurance customers decreased by 6.5% to £7.0m (2017:
£7.4m). This is in-keeping the Group’s stated strategy of focussing on those areas of the market which
adequately reward the technology and service which it provides.
Gross margin
Gross margin increased to 67% in the year (2017: 61%), primarily as a result of the deferral of £1.2m of
insurance gross margin from the prior year under IFRS 15. This, together with fewer insurance units and
installation costs, as well as a higher proportion of fleet sales in the year, combined to increase the gross
margin rate. The deferral of £1.2m of insurance gross margin from the prior year has acted to reduce the
conversion of operating profit to operating cash flow, since cash is received in advance for insurance
contracts rather than on a subscription basis.
Operating profit and Adjusted EBITDA
We continued to invest in our product offering, in our sales structure and in marketing, which led to an
increase in overheads of 10.6%. The investment was offset by growth in gross margin and operating profit
grew at 21.4% to £8.0m. Adding back depreciation and share-based payment expense gives £8.3m of
adjusted EBITDA (2017: £7.2m).
Part of the aforementioned investment was in the USA where our customer base increased by 38% and
revenue, as disclosed in note 3, increased to £1.5m ($2.0m) (2017: £1.2m). Losses in the USA were around
£0.6m ($0.8m) (2017: losses of £0.3m).
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
13
Financial Overview (continued)
Profit for the year
Our effective tax rate benefits from the Group’s investment in research and patents in the UK business.
The effective rate increased from 11.9% in 2017 to 15.0% in 2018, reflecting higher losses in the US and
slightly lower qualifying R&D expenditure and patent box income.
Profit for the year grew by 17.3% to £6.9m (2017 £5.8m).
Earnings per share
Earnings per share increased to 14.38p (2017: 12.32p) and diluted earnings per share increased to 14.19p
(2017: 12.26p).
Statement of financial position
Property, plant and equipment, at £0.4m (2017: £0.2m), increased by £0.2m due to the replacement of
some of the Group’s servers in the year.
Contract liabilities represent customer payments received in advance of satisfying performance obligations,
which are expected to be recognised as revenue in 2019 (both fleet and insurance). These unwound to
£4.7m in 2018 (2017: £6.0m) and are described further in note 17. Deferred tax assets reduced to nil (2017:
£0.8m) as a result of the reduction in contract liabilities relating to 2017.
Trade and other receivables reduced to £2.9m in the year (2017: £3.0m), whilst trade and other payables
reduced to £2.8m (2017: £2.9m). Inventories increased to £0.8m (2017: £0.7m). Cash at the year-end was
£6.8m (2017: £7.3m).
Cash flow
Cash generated from operations before tax at £6.8m (2017: 7.0m) was 85% of operating profit. As
previously stated, the conversion of operating profit to operating cash flow was lower than in 2017 (106%)
due to deferred insurance revenue in the year under IFRS 15 ‘Revenue from Contracts with Customers’ for
which cash was received in advance.
Tax paid in 2018 was £0.9m (2017: £0.7m), so cash flow from operating activities after taxation but before
capital expenditure was £5.9m (2017: £6.3m).
Free cash flow, after £0.3m of capital expenditure and interest received, was £5.6m, a reduction of 11.2%
(2017: £6.3m).
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 management. 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.
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
14
Financial Overview (continued)
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.
Business disruption
Like any business the Group is subject to the risk of business disruption. This includes communications,
physical disruption to our sites and problems with our key suppliers. The impact of not mitigating this risk
is that the Group may not be able to service its customers. Quartix has a Business Continuity plan and
Business Interruption Insurance to cover certain events in order to help mitigate these risks.
The potential damage to the Group’s business as a result of the UK leaving the EU without a negotiated
agreement is uncertain but could be considerable. The Group acquires, manages and supports its customers
in the EU centrally, from its offices in the UK. Depending on the resulting trading and data adequacy
arrangements, it is possible that the Group would need to relocate some of its operations to within the EU.
In addition, any impact on the wider economic landscape would impact the Group’s trading indirectly
through the demand for its services.
Dependence on a key customer
During 2018 insurance revenue of £5.5m (2017: £7.0m) was derived via one insurance customer, a specialist
reseller for the insurance industry. Losing this key contract could have a significant negative impact on cash
flow in the short term as the Group has a high level of fixed overheads. The Group has taken the strategic
decision to move away from low margin insurance sales and widen its insurance customer base, including
dealing direct with some specialist insurers.
Cyber security
The Group needs to make sure its data is kept safe and that there is security of supply of date services to
customers. The reputational and commercial impact of a security breach would be significant. To combat
this, the Group has a security policy and prepares a monthly security report which is reviewed by the
Operations Board. This process includes the use of outside consultants for penetration testing and security
review.
Technology
Technology risks are perceived to arise from possible substitutes for the current Quartix product. Risks
cited include everything from smart mobile phones and their applications to driverless cars.
The Group strategy is to review all new technical developments with the aim of adopting any which will
provide a better channel for the information services which Quartix provides.
We believe we have the right strategy and service in place to deliver strong growth in sales over the medium
to long term and to deliver sustainable shareholder value.
Daniel Mendis
Chief 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 22 February 2019.
Andrew Walters
Chief Executive Officer
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
15
Corporate Governance Report
Chairman’s Corporate Governance Statement
All members of the Board believe strongly in the value and importance of good corporate governance and
in our accountability to all of Quartix’s stakeholders, including shareholders, staff, customers and suppliers.
In the statement below, we explain our approach to governance, and how the Board and its committees
operate.
The corporate governance framework which the Group operates, including board leadership and
effectiveness, board remuneration, and internal control is based upon practices which the Board believes
are appropriate for the size, risks, complexity and operations of the business and is reflective of the Group’s
values. Of the two widely recognised formal codes, we have therefore decided to adhere to the Quoted
Companies Alliance’s (QCA) Corporate Governance Code for small and mid-size quoted companies
(revised in April 2018 to meet the new requirements of AIM Rule 26).
The QCA Code is constructed around ten broad principles and a set of disclosures. The QCA has stated
what it considers to be appropriate arrangements for growing companies and asks companies to provide
an explanation about how they are meeting the principles through the prescribed disclosures. We have
considered how we apply each principle to the extent that the Board judges these to be appropriate in the
circumstances, and below we provide an explanation of the approach taken in relation to each. The Board
considers that it has complied with the principles of the QCA Code, with the one exception that we have
not yet carried out a formal Board evaluation exercise (albeit this is now in progress).
Roles and responsibilities of Chairman
Paul Boughton, the Non-Executive Chairman since November 2014, is responsible for running the Board
and ultimately for all corporate governance matters affecting the Group. He is a chartered accountant and
also chairs the Audit Committee. He is an experienced Executive and Non-Executive Director, having been
on the Boards of 5 public listed companies, including Quartix.
The Chairman is responsible for leadership of the Board, setting its agenda and monitoring its effectiveness.
He ensures effective communication with shareholders and that the Board is aware of the views of major
shareholders. He ensures that the Executive Directors develop a strategy which is supported by the Board
as a whole. The Executive Directors, through the Chief Executive Officer, are responsible for executing
the strategy once agreed by the Board.
Board composition and compliance
The QCA Code requires that the boards of AIM companies have an appropriate balance between Executive
and Non-Executive Directors of which at least two should be independent. During 2018 we satisfied this
requirement.
The Non-Executive Chairman and Independent Non-Executive Director bring wide and varied
commercial experience to the Board and Committee deliberations. They are appointed for an initial three-
year term, subject to election by shareholders at the first AGM after their appointment, after which their
appointment may be extended subject to mutual agreement and shareholder approval. A Non-Executive
Director is typically expected to serve two three-year terms but may be invited by the Board to serve for an
additional period. Any term renewal is subject to Board review and AGM re-election. The Company
remains committed to a Board which has a balanced representation of Executives and Non-Executives.
Board evaluation
We support the QCA Code’s principle to review regularly the effectiveness of the Board’s performance as
a unit, as well as that of its committees and individual directors, and have recently embarked on the first
review. We may consider the use of external facilitators in future board evaluations.
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
16
Shareholder engagement
We have made significant efforts to ensure effective engagement with both institutional and private
shareholders. In addition to the usual roadshows following the release of full year and interim results, each
of which was expanded to include a greater number of existing and potential new investors, we have opened
our AGM as a forum to present to and meet with shareholders.
The Board is aware that following the introduction of the Markets in Financial Instruments Directive II
(MiFID II) regulations at the start of 2018, private investor access to research on public companies has
been restricted. We have not yet commissioned any “paid for” research from third party analysts, and have
no current intention of doing so.
The Board has ultimate responsibility for reviewing and approving the Annual Report and Accounts and it
has considered and endorsed the arrangements for their preparation, under the guidance of its audit
committee. The Directors confirm that the Annual Report and Accounts, taken as a whole, is fair, balanced
and understandable and provides the information necessary for shareholders to assess the Group’s position
and performance, business model and strategy.
10 Principles of the QCA Code
Establish a strategy and business model which promote long-term value for
1
shareholders
Since 2001 Quartix has become one of Europe’s leading suppliers of vehicle telematics services operating
in the UK, France and the USA. The Group’s main strategic objective is to grow its fleet business and
develop the associated recurring revenue by increasing the number of vehicles under subscription. The
related insurance business helps to provide economies of scale in areas related to the provision of data
services, including development of both hardware and software, supply chain, production and installation.
Whilst the same technology is used for both commercial fleet tracking and insurance telematics, these
markets exhibit different characteristics and the Group has established proven business models for each of
them.
Fleet customers typically use the Group’s vehicle telematics services for many years, resulting in low rates of
attrition. Accordingly, the Group focuses its business model on the development of subscription revenue
based on minimal initial commitment from the customer, providing the best return to the Group over the
long term.
The value of recurring subscription revenue is the key measure of our performance in the fleet sector.
Insurance telematics customers use the Group’s technology to monitor the driving style and habits of higher-risk
drivers, normally for a policy with a term of just 12 months. Quartix therefore receives the cash in advance
from insurance customers. This is standard practice in the industry, as the level of attrition is relatively high.
Insurance revenue is recognised on a straight line basis over the contract term, since the customer benefits
from the Group’s services evenly throughout the contract term and receives the benefit of the services as
they are made available.
Whilst the value of revenue has been the key measurement of our performance in the insurance sector, we restrict our operations
to those opportunities which provide an adequate return.
The key risks and uncertainties we face are included under the Strategic Report: Financial Review.
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
17
2
Seek to understand and meet shareholder needs and expectations
Responsibility for investor relations rests with the CEO, supported by the CFO. During 2018 the following
activities were pursued to develop a good understanding of the needs and expectations of all constituents
of the Group’s shareholder base:
Date
Feb 18
Description
Preliminary results meeting CEO
Participants Comments
The CEO and CFO prepare and review
with the board detailed presentations
covering the Group’s activities over the
relevant period and takes guidance from
each of the joint brokers.
Feb 18
Feb 18
Presentations to
institutional investors and
analysts
Annual results video
Mar 18
Jul 18
Jul 18
AGM
Interim results presentations
to institutional investors and
analysts
Interim results video
CEO, CFO
CEO, CFO Presentations disseminated via website at
7.00 a.m. on morning of results release so
all information available publicly available
to all shareholders and potential investors.
These have been accredited as rating
highly for openness and transparency.
All shareholders invited to attend
Board
CEO, CFO
CEO, CFO Presentations disseminated via website
various
Potential investor meetings CEO
(see above)
Presentation to potential investors
Key: CEO: Chief Executive officer Andy Walters, CFO: Chief Financial Officer Dan Mendis
The Group is committed to communicating openly with its shareholders to ensure that its strategy and
performance are clearly understood. We communicate with shareholders through the Annual Report and
Accounts, full-year and half-year announcements, trading updates and the annual general meeting (AGM),
and we encourage shareholders’ participation in face-to-face meetings. A range of corporate information
(including all Quartix announcements) is also available to shareholders, investors and the public on our
website.
Private shareholders: The AGM is the principal forum for dialogue with private shareholders, and we
invite all shareholders to attend and participate. The Notice of Meeting is sent to shareholders at least 21
days before the meeting. The chairs of the Board and all committees, together with all other directors,
attend the AGM and are available to answer questions raised by shareholders. Shareholders vote on each
resolution and subsequently publish the outcomes on our website.
Institutional shareholders: The Directors actively seek to build a mutual understanding of objectives with
institutional shareholders. Our CEO and CFO make presentations to institutional shareholders and analysts
immediately following the release of the full-year and half-year results. We communicate with institutional
investors frequently through formal meetings. The majority of meetings with shareholders and potential
investors are arranged by the broking team within the Group’s nominated advisor and joint brokers.
Following meetings, the brokers provide anonymised feedback to the Board from all fund managers met,
from which sentiments, expectations and intentions may be gleaned.
In addition, we review analysts’ notes to achieve a wide understanding of investors’ views. This information
is considered by the Board.
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
18
Take into account wider stakeholder and social responsibilities and their
3
implications for long-term success
Staff – our ability to fulfil customer requirements and execute our strategy relies on having talented and
motivated staff.
Reason for engagement: Good two-way communication with staff is a key requirement for high levels of
engagement.
How we engage:
• Weekly update communication.
• Bi-annual staff briefings, with opportunity for staff to ask questions.
• Annual engagement survey.
These have provided insights that have led to enhancement of management practices and staff incentives.
Customers – our success and competitive advantage are dependent upon fulfilling customer requirements,
particularly in relation to quality of service and report reliability.
Reason for engagement: Longevity of customer relationships is a key part of our strategy.
Understanding current and emerging requirements of customers enables us to develop new and enhanced
services, together with software to support the fulfilment of those services.
How we engage:
• Seek feedback on services and software systems.
• Develop tools and reports to enable our customers to analyse driver behaviour.
• Obtain feedback to use in the development of future service.
Suppliers – We have a range of suppliers including those who provide us with hardware, communication
services, installation services and marketing support.
Reason for engagement: Good services from our suppliers are critical to us delivering the data services to
our customers.
How we engage:
• Co-ordinate and manage our network of installers to ensure on-time activation of tracking devices.
• Operate systems to ensure that supplier invoices are processed and paid on time.
Shareholders – as a public company we must provide transparent, easy-to-understand and balanced
information to ensure support and confidence.
Reason for engagement: Meeting regulatory requirements and understanding shareholder sentiments on the
business, its prospects and performance of management.
How we engage:
• Regulatory news releases.
• Keeping the investor relations section of the website up to date.
• Publish videos of investor presentations and interviews.
• Annual and half-year reports and presentations.
• AGM.
We believe we successfully engaged with our shareholders over the past 12 months.
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
19
Embed effective risk management, considering both opportunities and threats,
4
throughout the organisation
The Group has a risk register that identifies key risks and all members of the Board are provided with a
copy of the register. The register, including control mechanisms to mitigate risks, is reviewed bi-annually
by the Board and is updated following each such review.
The key risks and uncertainties are included in the Strategic Report: Financial Review.
Staff are reminded on appointment and bi-annual basis that they should seek approval from the CFO if
they, or their families, plan to trade in the Group’s equities.
The key risks and uncertainties are included in the Strategic Report: Financial Review.
5
Maintain the Board as a well-functioning, balanced team led by the chair
The members of the Board have a collective responsibility and legal obligation to promote the interests of
the Group and are collectively responsible for defining corporate governance arrangements. Ultimate
responsibility for the quality of, and approach to, corporate governance lies with the chair of the Board.
The Board consists of four directors of which two are executive and two are independent non-executives.
The Board is supported by three committees: audit, remuneration and nominations. The Board will
consider appointing additional non-executive directors as its business expands.
Non-executive Directors are required to attend 10-12 Board meetings per year (in Cambridge, Newtown
and London) and to be available at other times as required for face-to-face and telephone meetings with
the executive team and investors. In addition they attend Board committee meetings as required.
Meetings held during 2018 and the attendance of Directors is summarised below:
Board meetings
Audit Committee
Possible Attended
Possible Attended
Remuneration
Committee
Possible Attended
Executive Directors
Andy Walters
Ed Ralph (resigned 31
October 2018)
Dan Mendis (appointed 1
January 2018)
Non-Executive Directors
Paul Boughton
Jim Warwick
11
8
11
11
11
11
8
11
10
11
0
0
1
1
0
0
0
1
1
0
1
0
0
1
1
1
0
0
1
1
The Nominations Committee meets when required in relation to Board appointments.
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
20
Maintain the Board as a well-functioning, balanced team led by the chair
5
(continued)
The Board has a schedule of regular business, financial and operational matters, and each Board committee
has compiled a schedule of work to ensure that all areas for which the Board has responsibility are addressed
and reviewed during the course of the year. The Chairman is responsible for ensuring that, to inform
decision-making, Directors receive accurate, sufficient and timely information. The Company Secretary,
who is also the CFO, compiles the Board and committee papers which are circulated to Directors prior to
meetings. The Company Secretary provides minutes of each meeting and every Director is aware of the
right to have any concerns minuted and to seek independent advice at the Group’s expense where
appropriate.
Ensure that between them the Directors have the necessary up-to-date
6
experience, skills and capabilities
All four members of the Board bring relevant sector experience in software and business services. They
have an aggregate 47 years of public company directorship experience, and two members are chartered
accountants. The Board believes that its blend of relevant experience, skills and personal qualities and
capabilities is sufficient to enable it to successfully execute its strategy. Where relevant, Directors research
relevant information, including on line material, and occasionally attend seminars and trade events, to
ensure that their knowledge remains current. Currently all Board members are male but consideration of
new appointments complies with our equal opportunities and diversity policy taking into account the
relevant skills and experience of candidates.
Key to committees/roles: E: Executive, N: Nomination, A: Audit R: Remuneration, C Chair
Paul Boughton, Independent Chairman (CN, CA, R)
Background:
Paul is a chartered accountant who has worked at senior level in industry since 1981. His work was primarily
in business development and acquisitions, and involved extensive projects in the USA and mainland
Europe, which are the primary growth territories for Quartix. Sectors he was involved in were industrial
controls, instrumentation and analysers, mainly using a combination of hardware and software. As an
executive he served on the Boards of two fully listed companies.
With his only financial or commercial involvement with Quartix being his annual salary as Chairman, and
his publicly disclosed shareholding, he is considered independent and with no conflicts of interest with
Quartix employees or shareholders.
Current external appointments:
He is a Trustee and Treasurer of two charities, and for each he chairs their Finance and Resources
Committee. For one of the charities he also chairs three of their commercial subsidiaries
Skills and experience:
In previous Non-Executive roles he was a Board member of a fintech software and a navigation electronics
public company. For both entities he also served as chair of the audit committee, and for one he was also
the Senior Independent director. He therefore brings a wide range of relevant skills, commercial experience
and governance knowledge to Quartix. He has a BSc degree in Business Economics and is a Chartered
Accountant
Time commitment: 1-3 days per month.
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
21
Ensure that between them the Directors have the necessary up-to-date
6
experience, skills and capabilities (continued)
Jim Warwick, Independent Director (N, CR)
Background:
Jim was Technical Director of Analysys Ltd – a telecoms consultancy, involved primarily in financial
modelling of telecoms operators. In 2000 he joined Abcam plc as an Executive Director when it had around
7 staff, eventually becoming its COO during his 16 years there. At Abcam he initially headed the
development of its online ecommerce systems, and then oversaw its overall operations including
international expansion to be a world-wide leader in life-science reagents employing over 1000 staff.
Through this he was involved in Abcam’s IPO in 2005, as well as several acquisitions.
His only financial involvement with Quartix is his annual non-exec salary and his publicly declared
shareholding. He is considered independent with no conflicts of interest with Quartix employees or
shareholders.
Current external appointments:
He is currently a non-exec Director of two start-up companies around the Cambridge area, as well as
chairing an educational trust.
Skills and experience:
Jim has a MA in Computer Science from the University of Cambridge and has worked in hi-tech industries
since graduation in 1986. Jim brings considerable skills relating to IT and e-commerce systems as well as
overall experience with international expansion and organisational growth issues very relevant to Quartix.
Time commitment: 1-2 days a month
Andy Walters, Chief Executive Officer (E, N)
Background:
Andy Walters founded Quartix in 2001 with three colleagues. Prior to that he was Managing Director of a
subsidiary of Spectris plc for 6 years and had spent 15 years with Schlumberger in the UK and France,
where he was marketing director of the payphones and smart cards division.
Current external appointments:
Some voluntary business mentoring for The Prince’s Trust.
Skills and experience:
Andy holds an MA in electrical sciences from the University of Cambridge and developed the Company’s
UK patent, granted under the Patents Act 1977. He has many years’ experience of the vehicle tracking
market, having started the company in 2001 with three colleagues, and has been fully engaged in all aspects
of the business throughout this time.
Time commitment: Full time
Dan Mendis, Chief Financial Officer (E)
Background:
Dan Mendis joined Quartix in 2017. He was previously Head of Finance (Ruminant) at AB Agri Ltd, a
subsidiary of Associated British Foods plc, before which he spent four years with Domino Printing Sciences
plc in two different Group roles. He has several years’ experience of senior management positions and has
worked in financial and business roles for fourteen years. He holds an MEng in Engineering Science from
the University of Oxford and is a member of the Institute of Chartered Accountants.
Current external appointments:
None
Skills and experience:
Dan has a broad range of financial and business experience, covering areas such as corporate finance,
treasury, tax, process review and strategy development.
Time commitment: Full time
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
22
Evaluate board performance based on clear and relevant objectives, seeking
7
continuous improvement
A board evaluation process led by the Chairman is currently taking place. Directors have completed
questionnaires about the effectiveness of the Board and a self-assessment of their own contributions which
were returned to the Chairman. The Chairman has reviewed this information and will use it as the basis for
an individual discussion with each director, followed by a collective discussion with the Board.
The review is considering effectiveness in a number of areas including general supervision and oversight,
business risks and trends, succession and related matters, communications, ethics and compliance,
corporate governance and individual contribution.
We will consider the use of external facilitators in future board evaluations.
As the business expands, the Executive Directors will be challenged to identify potential internal candidates
who could potentially occupy Board positions and set out development plans for these individuals.
8
Promote a corporate culture that is based on ethical values and behaviours
At Quartix we believe the prosperity of our business and of the communities within which we operate
requires a commitment to ethical values and behaviours. We have therefore developed policies that enhance
all areas of our business in this regard.
Quartix cares about providing a customer experience that is remarkable. We want to keep our customers
happy, impressed and reassured. We want to create the positivity that leads to great reviews, repeat
purchases and customer referrals. To achieve that, our employees strive to make every interaction a great
one. We follow these principles:
Build meaningful connections.
Whilst dealing with any of our stakeholders, be they customers, partners, investors or employees, foremost
in our minds is building great, meaningful relationships. We are not a provider of arms-length transactional
services; we are here to listen, understand, support and deliver tangible benefits as best we can.
Keep things simple.
Whether it is our processes, communication, hardware or software, we strive to keep things simple. Fewer
moving parts make for clearer, more efficient and reliable operations. We don’t make our customers jump
through hoops to speak to us, nor do we make them study an article to understand its meaning. We get
straight to the incoming call, to the email in our inbox, to the point, and provide a fast, helpful and clear
response.
Treat everybody the same.
Whoever you talk to, whether internally or externally, their impression of the Quartix service should be the
same. We treat everyone equally, with respect, and remain transparent as a business.
Do the right thing
Quartix cares about doing what’s best for our customers and for each other. We own problems and solve
them, regardless of whether it’s our designated responsibility. With or without a corporate process, we will
strive to provide a satisfactory solution in every case.
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
23
Promote a corporate culture that is based on ethical values and behaviours
8
(continued)
Share your knowledge
Knowledge is valuable. Our customers, prospects and colleagues can all benefit from the knowledge that
we have to offer. Quartix and its staff have a whole host of skills, expertise and experience to share with
others and we are proud to do so.
The culture of the Group is characterised by these values which are communicated to staff through a
number of mechanisms.
The Board believes that a culture that is based on the five core values is a competitive advantage and
consistent with fulfilment of the Group’s execution of its strategy.
The culture is monitored through the use of a widely-used satisfaction and engagement survey that is
operated on an annual basis and to which all permanent staff are invited to contribute. The Operations
Board reviews the findings of the survey and determines whether any action is required.
Maintain governance structures and processes that are fit for purpose and
9
support good decision-making by the Board
The Board provides strategic leadership for the Group and operates within the scope of a robust corporate
governance framework. Its purpose is to ensure the delivery of long-term shareholder value, which involves
setting the culture, values and practices that operate throughout the business, and defining the strategic
goals that the Group implements in its business plans. The Board defines a series of matters reserved for
its decision and has delegated some of its responsibilities to Audit, Remuneration and Nominations
Committees. The chair of each committee reports to the Board on the activities of that committee.
The Audit Committee monitors the integrity of financial statements, oversees risk management and
control, monitors the effectiveness of internal controls and reviews external auditor independence.
Paul Boughton is Chairman of the Audit Committee which normally meets once a year. The Committee
exists to scrutinise and clarify any qualifications, recommendations and observations within the audited
accounts and report of the Company’s auditor. When satisfied, the Committee presents the audited
accounts and report to the Company’s Board and reviews the effectiveness of resultant corrective and
preventative measures.
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
24
Maintain governance structures and processes that are fit for purpose and
9
support good decision-making by the Board (continued)
In performing this function, the key duties of the Committee are to:
•
•
•
•
•
•
•
Monitor the integrity of the financial statements of the Group and any formal announcement relating
to its financial performance
With regards to financial reporting, review and challenge the consistency of accounting policies, the
use of accounting methods over alternatives, whether the Group has followed appropriate
accounting standards, the clarity of disclosure, and all material information relating to the audit and
risk management
Monitor the adequacy and effectiveness of the Group’s internal financial controls, including the
internal control and risk management systems. The Group’s Risk Register is reviewed at least twice
a year by the main Board. A list of Matters Reserved for the Board was adopted in January 2016
including ensuring a sound system of internal control and risk management. All systems issues or
unexpected outcomes are brought to the attention of the Board.
Ensure that the Group’s arrangements for its employees and contractors to confidentially raise
concerns about possible wrongdoing allow proportionate and independent investigation and
appropriate follow up action
Consider the need to implement an internal audit function
Make recommendations to the Board and the Company’s shareholders regarding the appointment,
re-appointment, and removal of the Company’s external auditor. It ensures that at least once every
ten years the audit services contract is put out to tender to enable the Committee to compare the
quality and effectiveness of the services provided by the incumbent auditor
Oversee the Company’s relationship with the external auditor
The Remuneration Committee sets and reviews the compensation of Executive Directors including the
setting of targets and performance frameworks for cash- and share-based awards.
Jim Warwick chairs the Remuneration Committee. It acts to ensure sound Corporate Governance with
respect to Director and senior management remuneration and meets at least twice a year. The Committee
functions with the objective of attracting, retaining and motivating the executive management of the
Company and ensuring they are rewarded in a fair and responsible manner for their contribution to the
success of the Group.
The role of the Committee is to determine and agree with the Board the framework or broad policy for the
remuneration of the Company’s Chairman and Executive Directors, including pension rights and
compensation payments. It also recommends and monitors the level and structure of remuneration for
senior management. When setting the remuneration policy, the Committee reviews and considers the pay
and employment conditions across the Group, especially when determining salary increases
The Nominations Committee
The Nominations Committee is chaired by Paul Boughton. The Committee reviews the structure, size and
composition of the Board to ensure the leadership of the Group is the most proficient to facilitate the
Group’s ability to effectively compete in the marketplace. It makes recommendations to the Board
regarding the continued suitability of any Director, the re-election by shareholders of any Director under
the ‘retirement by rotation’ provisions in the Company’s Articles of Association, and succession planning
for Directors and other Senior Executives. If necessary, the Committee will identify and nominate
candidates they believe suitable to fill Board vacancies.
The Operations Board, consisting of the Executive Directors and other key executives, and chaired by
the CEO, reviews operational matters and the performance of the business and is responsible for significant
management decisions whilst delegating other operational matters to individual managers within the
business.
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
25
Maintain governance structures and processes that are fit for purpose and
9
support good decision-making by the Board (continued)
The Chairman has overall responsibility for corporate governance and in promoting high standards
throughout the Group. He leads and chairs the Board, ensuring that committees are properly structured
and operate with appropriate terms of reference, ensures that performance of individual Directors, the
Board and its committees are reviewed on a regular basis, leads in the development of strategy and setting
objectives, and oversees communication between the Group and its shareholders.
The CEO provides coherent leadership and management of the Group and leads the development of
objectives, strategies and performance standards as agreed by the Board. He also monitors, reviews and
manages key risks and strategies with the Board, ensures that the assets of the Group are maintained and
safeguarded, leads on investor relations activities to ensure communications and the Group’s standing with
shareholders and financial institutions is maintained, and ensures that the Board is aware of the views and
opinions of employees on relevant matters.
The Executive Directors are responsible for implementing and delivering the strategy and operational
decisions agreed by the Board, making operational and financial decisions required in the day-to-day
operation of the Group, providing executive leadership to managers, championing the Group’s core values
and promoting talent management.
The Independent Non-Executive Directors contribute independent thinking and judgement through
the application of their external experience and knowledge, scrutinise the performance of management,
provide constructive challenge to the Executive Directors and ensure that the Group is operating within
the governance and risk framework approved by the Board.
The Company Secretary is responsible for providing clear and timely information flow to the Board and
its committees and supports the Board on matters of corporate governance and risk.
The key matters reserved for the Board are:
• Setting long-term objectives and commercial strategy.
• Approving annual budgets.
• Changing the share capital or corporate structure of the Group.
• Approving half-year and full-year results and reports.
• Approving dividend policy and the declaration of dividends.
• Ensuring a satisfactory dialogue with shareholders
• Approving major investments, disposals, capital projects or contracts.
• Approving resolutions to be put to general meetings of shareholders and the associated documents
or circulars.
• Approving changes to the Board structure.
The Board has approved the adoption of the QCA Code as its governance framework against which this
statement has been prepared and will monitor the suitability of this code on an annual basis and revise its
governance framework as appropriate as the Group evolves.
The Board will continue to monitor its governance structures as the Group grows and will take action as
appropriate to develop and enhance its governance functions.
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
26
Communicate how the Company is governed and is performing by maintaining a
10
dialogue with shareholders and other relevant stakeholders
In addition to the investor relations activities described previously, the following audit, remuneration and
nominations committee reports were provided during 2018:
Audit Committee Report
During 2018, the Audit Committee continued to focus on the effectiveness of the controls throughout the
Group. The Audit Committee is chaired by Paul Boughton. The committee met formally once, and had
other discussions (including with the auditors) as required, and the external auditor and CFO were invited
to attend the formal meeting.
Consideration was given to the auditor’s pre- and post-audit reports and these provide opportunities to
review the accounting policies, internal control and the financial information contained in the annual report.
Remuneration Committee Report
The remit of the Remuneration Committee is to determine the framework, policy and level of remuneration,
and to make recommendations to the Board on the remuneration of Executive Directors. In addition, the
committee oversees the creation and implementation of all-employee share plans. The Remuneration
Committee consists of Paul Boughton and Jim Warwick. The committee met once.
In setting remuneration packages the committee ensured that individual compensation levels, and total
board compensation, were comparable with those of other AIM-listed companies.
During 2018 the Remuneration Committee granted options over ordinary shares in the Company to
Executive Directors and employees of the Company.
In granting these options, the Remuneration Committee’s objective was to attract, motivate and retain key
staff over the long term, designed to incentivise delivery of the Company's growth objectives.
Nomination Committee Report
The remit of the Nomination committee is to evaluate potential Board appointments against the skills and
experience which the Board requires. It meets as required for this purpose.
The Nomination committee is chaired by Paul Boughton and also includes Jim Warwick and Andy Walters.
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
27
Directors’ Remuneration Report
During the year ended 31 December 2018 the Remuneration Committee consisted of both non-executive
directors and was chaired by Jim Warwick.
The Committee functions with the objective of attracting, retaining and motivating the executive
management of the Company and ensuring they are rewarded in a fair and responsible manner for their
contribution to the success of the Group.
Remuneration of Executive Directors
In 2018, the Directors’ remuneration packages comprised of a salary and the opportunity to enrol in the
Governments’ auto-enrolment pension scheme. The Remuneration Committee, at the Executive Directors’
request, concluded that no bonus or other benefits, with the exception of share option grants noted below,
would be paid in 2018. See below for a breakdown of the Directors’ remuneration packages during the year.
Non-Executive Directors
A Non-Executive Director is typically expected to serve two three-year terms but may be invited by the
Board to serve for an additional period. Any term renewal is subject to Board review and AGM re-election.
Paul Boughton
Jim Warwick
Chairman
Date of contract Unexpired period
at date of report
14 months
14 months
1 May 2017
1 May 2017
Directors’ detailed emoluments and compensation (audited)
2018 (£)
Salary Pension
-
87,182
2,781
153,228
1,750
97,692
72
5,923
4,603
344,025
Total
87,182
156,009
99,442
5,995
348,628
50,000
40,000
90,000
-
-
-
50,000
40,000
90,000
2017 (£)
Total
85,056
47,731
-
84,271
217,058
50,000
38,333
88,333
Executive Directors
Andrew Walters
Edward Ralph1
Daniel Mendis2
David Bridge3
Non-Executive
Directors
Paul Boughton
Jim Warwick
1 Highest paid director in 2018
2 Appointed on 1 January 2018
3 Resigned on 22 February 2018
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
28
Directors and their interests in shares
Year ended 31 December
Executive Directors
Andrew Walters1
Daniel Mendis
Edward Ralph
David Bridge
Non-Executive Directors
Paul Boughton
Jim Warwick
Ordinary shares £0.01 each
2018
17,855,986
-
n/a
n/a
17,855,986
53,889
73,333
17,983,208
2017
17,855,986
-
97,573
2,600,500
20,554,059
53,889
73,333
20,681,281
1 Includes shares held as family interests or by virtue of position as beneficiary or potential beneficiary of certain trusts
Directors and employees share options
On 13 August 2018, Edward Ralph exercised 86,956 options awarded in January 2017.
During the period under review the Remuneration Committee granted options over ordinary shares in the
company to Daniel Mendis and employees of the company, of which a proportion were to replace certain
options previously issued. In granting these options, the Remuneration Committee’s objective was to
attract, motivate and retain key staff over the long term, designed to incentivise delivery of the company’s
growth objectives.
Following the management changes announced by the Company on 4 October 2018, Daniel Mendis, Chief
Financial Officer, assumed additional responsibilities and in lieu of an increase in his base salary, to reflect
these additional responsibilities, the Remuneration Committee agreed to the rebasing of 92,592 of the
280,000 options over ordinary shares of 1 pence each (“Ordinary Shares”) granted to him on 1 December
2017. As a consequence, Mr Mendis has 187,408 options at the original exercise price of £3.60 which are
governed by the original terms announced at that time and 92,592 options at an exercise price of £2.70
(“New Options”), being the closing mid-market price of the Company’s Ordinary Shares on 4 December
2018. The New Options vest dependent on certain performance targets linked to the growth in the
Company’s fleet subscription base and the Company’s generation of free cash flow in each of 2019, 2020
and 2021. The New Options are exercisable in three annual tranches, the first of which will follow the
announcement of the Company’s 2019 final results (expected to be in late February or early March 2020),
and are subject to certain minimum holding periods.
The Company also granted 92,592 options over Ordinary Shares to Peter Brown, Systems Director of the
main trading subsidiary and Operations Board Director. The terms of these options are identical to those
of the New Options granted to Mr Mendis.
The Remuneration Committee also granted 372,592 options over Ordinary Shares to senior managers, to
replace 340,000 options granted between October 2016 and June 2018, plus a further 405,000 options to
managers, on identical terms to the New Options granted to Mr Mendis.
Jim Warwick
Chairman, Remuneration Committee
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
29
Directors' Report
The Directors present their annual report and the financial statements of the Company for the year ended
31 December 2018.
Principal activity
The principal activity of the Group during the year was the design, development, marketing and delivery of
vehicle telematics services. The Group has an overseas branch in France and an overseas subsidiary in the
USA. The Parent Company is incorporated and domiciled in the UK. The registered office is 9 Dukes
Court, 44~62 Newmarket Rd, Cambridge CB5 8DZ.
Research and development
Please see the Strategic Report on page 9 for further information about the Group’s approach to research
and development.
Future developments
The Company’s intentions regarding investment and business development can be found under Strategic
priorities on page 10.
Proposed dividend
In the year ending 31 December 2018, the Board decided to pay an interim dividend of 2.4p per ordinary
share. This totalled £1.14m and was paid on 14 September 2018 to shareholders on the register as at 18
August 2018.
The Board is recommending a final dividend of 3.8p per share, together with a supplementary dividend of
6.2p per share, giving a final payment of 10.0p per share, amounting to approximately £4.8m in aggregate
and giving a total dividend for the year equivalent to 12.4p per share. If this is approved at the forthcoming
AGM on 26 March 2019, the final dividend will be paid on 3 May 2019 to shareholders on the register as
at 5 April 2019.
Major interest in shares
On 22 February 2019, the Company had been notified that six parties had holdings of 3% or more in the
ordinary share capital of the Company. The number of ordinary shares and the percentage of the total
shares held by each party is outlined below.
Andrew Walters1
Liontrust Investment Partners LLP
Cat Rock Capital Master Fund LP
Andrew Kirk
William Hibbert
BlackRock, Inc.
Kenneth Giles
Number of £0.01 shares
17,855,986
5,135,447
4,100,485
4,009,853
2,663,000
2,425,244
1,871,800
% of total
37.3
10.7
8.6
8.4
5.6
5.1
3.9
1 Includes shares held as family interests or by virtue of position as beneficiary or potential beneficiary of certain trusts
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
30
Directors
The Non-Executive Directors who held office during the year are listed below:
• Paul Boughton (Chairman)
•
Jim Warwick
The Executive Directors who held office during the year are listed below:
• Andrew Walters
• Daniel Mendis
• Edward Ralph
• David Bridge
(appointed 1 January 2018)
(resigned 31 October 2018)
(resigned 11 January 2018)
All Executive Directors have service agreements with the Company terminable by either party upon the
minimum notice period being met. The minimum notice period is 12 months for Andrew Walters and 6
months for Daniel Mendis, who was appointed Chief Financial Officer on 1 January 2018.
The Company’s Articles of Association require all Directors to stand for re-election each year at the AGM.
The next AGM will take place on 26 March 2019.
Going concern
The Board takes all reasonable steps to review and consider any factors that may affect the ability of the
Group to continue as a going concern.
The Group’s forecasts and projections, taking account of reasonably possible changes in trading
performance, show that the Group is able to generate sufficient liquidity.
The Group enjoys a strong income stream from its fleet subscription base while current liabilities include
a substantial provision for deferred revenue which is a non cash item.
After assessing the forecasts and liquidity of the business for the next two calendar years and the longer
term strategic plans, the Directors have a reasonable expectation that the Group has adequate resources to
continue in operational existence for the foreseeable future. The Group therefore continues to adopt the
going concern basis in preparing consolidated financial statements.
Directors' responsibilities statements
The Directors are responsible for preparing the Strategic Report, Remuneration Report, Directors’ Report
and the financial statements in accordance with applicable law and regulations.
Company Law requires the Directors to prepare financial statements for each financial year. Under that law
the Directors have elected to prepare the consolidated financial statements in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the European Union and have elected to prepare the
Parent Company financial statements in accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards and applicable laws including FRS 101 Reduced
Disclosure Framework). Under Company Law the Directors must not approve the financial statements
unless they give a true and fair view of the state of affairs and profit or loss of the Company and Group for
that period.
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
31
Directors' responsibilities statements (continued)
In preparing these financial statements, the Directors are required to:
• Select suitable accounting policies and apply them consistently
• Make judgements and estimates that are reasonable and prudent
• State whether applicable IFRSs have been followed, subject to any material departures disclosed
and explained in the consolidated financial statements
• Prepare the financial statements on the going concern basis unless it is inappropriate to presume
that the Group will continue in business
• State whether applicable UK Accounting Standards have been followed, subject to any material
departures disclosed and explained in the Company financial statements
The Directors are responsible for keeping adequate accounting records that are sufficient to show and
explain the Group’s transactions and disclose with reasonable accuracy at any time the financial position of
the Group and enable them to ensure that the financial statements comply with the Companies Act 2006.
They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps
for the prevention and detection of fraud and other irregularities.
The directors confirm that:
•
•
so far as each director is aware, there is no relevant audit information of which the company’s auditor
is unaware; and
the directors have taken all the steps that they ought to have taken as directors in order to make
themselves aware of any relevant audit information and to establish that the company’s auditor is
aware of that information.
The directors are responsible for the maintenance and integrity of the corporate and financial information
included on the company’s website. Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation in other jurisdictions.
Financial risk management policies and objectives
The Group manages its key financial risks as follows. Further details are provided in note 26.
Credit risk
The principal credit risk relates to trade receivables and is mitigated, where possible, by third party credit
clearance for new customers and collection by direct debit, or similar. The Group seeks to manage credit
risk associated with cash deposits by using banks with high credit ratings assigned by international credit
rating agencies.
Currency risk
This is managed by seeking to match currency inflows and outflows.
Directors' and officers' liability insurance
The Company maintains insurance cover for the Directors and key personnel against liabilities which may
be incurred by them while carrying out their duties.
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
32
Auditors
The Directors have individually pursued all steps that they ought to have taken in their roles as Directors
to ensure they are aware of any relevant audit information and that such information has been relayed to
the Company’s auditors. The Directors each confirm that there is no relevant information of which the
Company’s Auditors are unaware.
The Auditor, Grant Thornton UK LLP, will be proposed for reappointment in accordance with section
485 of the Companies Act 2006.
Approved by the Board of Directors and signed on behalf of the Board on 22 February 2019.
Andrew Walters
Chief Executive Officer
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
33
Independent Auditor's Report to the Members of Quartix
Holdings plc
Opinion
Our opinion on the financial statements is unmodified
We have audited the financial statements of Quartix Holdings plc (the ‘parent company’) and its
subsidiaries (the ‘Group’) for the year ended 31 December 2018, which comprise the Consolidated
Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the
Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows, the Parent
Company Statement of Financial Position, the Parent Company Statement of Changes in Equity and
notes to the financial statements, including a summary of significant accounting policies. The financial
reporting framework that has been applied in the preparation of the group financial statements is
applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European
Union. The financial reporting framework that has been applied in the preparation of the parent
company financial statements is applicable law and United Kingdom Accounting Standards, including
Financial Reporting Standard 101 ‘Reduced Disclosures Framework’ (United Kingdom Generally
Accepted Accounting Practice).
In our opinion:
•
the financial statements give a true and fair view of the state of the Group’s and of the parent
company’s affairs as at 31 December 2018 and of the Group’s profit for the year then ended;
the group financial statements have been properly prepared in accordance with IFRSs as adopted
by the European Union;
the parent company financial statements have been properly prepared in accordance with United
Kingdom Generally Accepted Accounting Practice; and
the financial statements have been prepared in accordance with the requirements of the Companies
Act 2006.
•
•
•
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and
applicable law. Our responsibilities under those standards are further described in the ‘Auditor’s
responsibilities for the audit of the financial statements’ section of our report. We are independent of the
Group and the parent company in accordance with the ethical requirements that are relevant to our audit
of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and
we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that
the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require
us to report to you where:
•
•
the directors’ use of the going concern basis of accounting in the preparation of the financial
statements is not appropriate; or
the directors have not disclosed in the financial statements any identified material uncertainties that
may cast significant doubt about the Group’s or the parent company’s ability to continue to adopt
the going concern basis of accounting for a period of at least twelve months from the date when
the financial statements are authorised for issue.
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
34
Overview of our audit approach
• Overall Group materiality: £405,000, which represents 5% of the
Group’s pre-audit profit before taxation
• Key audit matters were identified as revenue recognition and deferred
revenue
• We performed full scope audit procedures on the financial statements
of Quartix Holdings Plc and on the financial information of Quartix
Limited. We performed targeted audit procedures on the financial
information of Quartix Inc. There were no changes in scope from the
prior year.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the financial statements of the current period and include the most significant assessed risks of
material misstatement (whether or not due to fraud) that we identified. These matters included those that
had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing
the efforts of the engagement team. These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate
opinion on these matters.
Key Audit Matter – Group
Revenue recognition
How the matter was addressed in
the audit – Group
Under International Standard on Auditing
(UK) 240 ‘The Auditor’s Responsibilities
Relating to Fraud in an Audit of Financial
Statements’, there is a rebuttable presumed
risk that revenue may be misstated due to the
improper recognition of revenue.
The Group’s principal revenue stream
relates to the provision of telematics vehicle
tracking services, including data services, to
customers.
The Group has two types of customers, fleet
and insurance and revenue is recognised
over the period that services are provided.
Revenue
requires accurate
capturing of the number of units installed
for each customer.
recognition
During the period the Group adopted IFRS
15. Under IAS 18, the Group recognised
revenue from hardware and installation
services upon installation of a unit, or
dispatch if self-installed by the customer.
Under IFRS 15, the Group’s activities of
supplying telematics units and installing
the
telematics services,
provision of data services, are considered to
single performance obligation.
be
together with
a
Our audit work on revenue separately
addressed the two types of customers, fleet
and insurance.
A combination of analytical procedures and
substantive testing was performed on each
class of customers revenue documented
below:
• Assessing whether revenue recorded in
the period was consistent with the
Group’s accounting policy and whether
that was compliant with IFRS 15; and
Identifying
then
revenue
classifying them by type and testing them
as appropriate depending on their nature
and associated risk.
journals
•
Fleet customer revenue
We performed the following tests on fleet
customer revenues:
• For a sample of signed contracts we
to
contract data
agreed
customer, price and units had been
accurately included in the marketing
database.
relating
• We tested the accuracy of sales invoicing
by agreeing a sample of sales invoices to
the customer data maintained in the
marketing database; and
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
Key Audit Matter – Group
35
How the matter was addressed in
the audit – Group
• For a sample of sales invoices raised we
agreed the units and price to the
marketing database and to subsequent
receipts of cash from customers to
evidence the occurrence of revenue.
Insurance customer revenue
• We performed a
‘proof-in-total’ of
revenue for the Group’s significant
insurance customers. We verified the
inputs to our calculation through a
combination of (i) obtaining third party
confirmations directly
those
insurance customers to confirm the
installed and (ii)
number of units
inspecting
with
customers as to the price to be paid per
unit. This corroborated the number of
units installed and their associated unit
prices against
the underlying sales
invoices.
correspondence
from
Key observations
Based on our audit work we consider the
Group’s
to be
appropriate and in accordance with IFRS 15.
recognition
revenue
the Group no
Consequently,
longer
recognises revenue separately for these
goods and services but recognises this
revenue together with the provision of
vehicle telematics services.
is
Key to the appropriate recognition of this
revenue
the capture of customers
contractual information in the marketing
database. The Group operates a control
whereby a signed contract is obtained for
every customer before customer contractual
information (number of units, price per unit)
is entered into the marketing database.
Revenue is a material figure in the financial
statements (2018 £25,706,000; 2017 restated
£24,517,000). Fleet customers account for
73% (2017 70%) of revenue and Insurance
customers account for 27% (2017 30%) of
revenue.
We therefore identified revenue occurrence
as a significant risk, which was one of the
most significant assessed risks of material
misstatement.
The Group's accounting policy on revenue
recognition is set out in note 1 to the
financial statements and related disclosures
are included in note 3
Deferred revenue
The Group invoices in advance and classifies
deferred revenue as contract liabilities (2018
£4,655,000; 2017: £5,972,000).
Our audit work on deferred revenue
addressed
types of
two
customers, fleet and insurance.
the Group’s
Under IAS 18, the Group recognised
revenue from hardware and installation
services upon installation of a unit, or
dispatch if self-installed by a customer.
Under IFRS 15 the Group’s sales of
telematic units and services are considered
to be a single performance obligation, which
is satisfied over the contractual period of one
year. The deferred revenue balance is driven
by the contract terms and number of units
and presents a risk of material misstatement
if the data is not captured appropriately.
Together with our work on revenue
occurrence, the deferred revenue element
requires significant auditor attention.
sales
Our audit work included, but was not
restricted to:
• For a
sample of
invoices,
recalculating the appropriate portion of
revenue to defer and comparing that to
the actual amount deferred.
and
insurance
customers deferred revenue balances
based on contractual terms from the
month of installation.
• Recalculating
fleet
• Recalculating the year end deferred
revenue balance based on invoicing in
the final quarter; and
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
Key Audit Matter – Group
36
We therefore identified deferred revenue as
a significant risk, which was one of the most
significant assessed
risks of material
misstatement.
The Group's accounting policy on revenue
recognition is set out in note 1 to the
financial statements.
How the matter was addressed in
the audit – Group
• Undertaking an assessment of
the
impact of the adoption of IFRS 15 and
the resulting change in timing of revenue
insurance
for units purchased by
revenue
customers,
recalculating
recognised and deferred over
the
contractual period for the provision of
vehicle telematics services.
Key observations
Based on our audit work we consider the
Group’s revenue recognition and deferral to
be appropriate and in accordance with IFRS
15.
Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable
that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We
use materiality in determining the nature, timing and extent of our audit work and in evaluating the results
of that work.
Materiality was determined as follows:
Materiality measure Group
Financial statements
as a whole
£405,000, which represents 5%
of the Group’s expected profit
before
This
taxation.
benchmark is considered the
most appropriate because the
Group
commercially
a
focused organisation and profit
before taxation is a key financial
measure for the directors and
the shareholders.
is
Materiality for the current year is
higher than the level that we
determined for the year ended
31 December 2017 to reflect the
increase in the Group’s profit
before taxation.
Parent
£209,000, which is 1% of the
parent company’s total assets.
This benchmark is considered
the most appropriate because
is a non-trading
the entity
holding company.
Materiality for the current year is
higher than the level that we
determined for the year ended
31 December 2017 reflecting
the increase in the company’s
total assets.
Performance
materiality used
to
drive the extent of our
testing
Specific materiality
75% of
materiality.
financial statement
75% of
materiality.
financial statement
Directors’
remuneration and
transactions with related parties
have a specific materiality of
£20,000 as the nature of these
and disclosures
transactions
Directors’
remuneration and
transactions with related parties
have a specific materiality of
£10,000 as the nature of these
and disclosures
transactions
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
37
Communication
of
misstatements to the
audit committee
have a lower tolerance of errors
as reflected by this rate.
£20,000
and misstatements
below that threshold that, in our
reporting on
view, warrant
qualitative grounds.
have a lower tolerance of errors
as reflected by this rate.
£10,000
and misstatements
below that threshold that, in our
reporting on
view, warrant
qualitative grounds.
An overview of the scope of our audit
Our audit approach was a risk-based approach founded on a thorough understanding of the Group's
business, its environment and risk profile. We considered the size and risk profile of each entity, any
changes in the business and other factors when determining the level of work to be performed on the
financial information of each entity, which, in particular included:
• Assessing the risk of material misstatement to the Group financial statements. We considered the
transactions undertaken by each entity and therefore where the focus of our work was required.
• Full scope audit procedures were completed for the main trading subsidiary, Quartix Limited, which
provides services to customers based in the UK, France and the Republic of Ireland. Full scope audit
procedures were performed for the parent, Quartix Holdings Plc, which is a non-trading holding
company. Targeted audit procedures were performed for Quartix Inc which provides services to US
based customers.
• The total percentage coverage of full scope procedures over the Group’s total revenues was 100% and
total assets was 99%.
• All accounting is centralised, and we completed our onsite audit work at the Group’s main operating
location with all audit work undertaken by the Cambridge based group audit team.
• The audit risks identified for each trading component are the same audit risks identified for the Group
as a whole.
• Our audit approach in the current year included a combination of controls testing and substantive
testing compared to a purely substantive audit approach for the year ended 31 December 2017.
Other information
The directors are responsible for the other information. The other information comprises the information
included in the annual report, other than the financial statements and our auditor’s report thereon. Our
opinion on the financial statements does not cover the other information and, except to the extent
otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we
identify such material inconsistencies or apparent material misstatements, we are required to determine
whether there is a material misstatement in the financial statements or a material misstatement of the other
information. If, based on the work we have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact.
We have nothing to report in this regard.
Our opinion on other matters prescribed by the Companies Act 2006 is unmodified
In our opinion, based on the work undertaken in the course of the audit:
•
the information given in the strategic report and the directors’ report for the financial year for which
the financial statements are prepared is consistent with the financial statements; and
the strategic report and the directors’ report have been prepared in accordance with applicable legal
requirements.
•
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
38
Matters on which we are required to report under the Companies Act 2006
In the light of the knowledge and understanding of the Group and the parent company and its environment
obtained in the course of the audit, we have not identified material misstatements in the strategic report or
the directors’ report.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006
requires us to report to you if, in our opinion:
• adequate accounting records have not been kept by the parent company, or returns adequate for our
•
audit have not been received from branches not visited by us; or
the parent company financial statements are not in agreement with the accounting records and returns;
or
• certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Responsibilities of directors for the financial statements
As explained more fully in the directors’ responsibilities statement set out on page 30, the directors are
responsible for the preparation of the financial statements and for being satisfied that they give a true and
fair view, and for such internal control as the directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s and the parent
company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern
and using the going concern basis of accounting unless the directors either intend to liquidate the Group
or the parent company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes
our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted
in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can
arise from fraud or error and are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of the financial statements is located on the
Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms
part of our auditor’s report.
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
39
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16
of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s
members those matters we are required to state to them in an auditor’s report and for no other purpose.
To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the
company and the company’s members as a body, for our audit work, for this report, or for the opinions we
have formed
Adrian Bennett
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
Cambridge
22 February 2019
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
40
Consolidated Statement of Comprehensive Income
Year ended 31 December
Revenue
Cost of sales
Gross profit
Administrative expenses
Operating profit
Finance income receivable
Profit for the year before taxation
Tax expense
Profit for the year
Other Comprehensive (expense)/income:
Items that may be reclassified subsequently to profit or loss:
Exchange difference on translating foreign operations
Tax benefit (expense)
Other comprehensive income for the year, net of tax
Total comprehensive income attributable to the equity
shareholders of Quartix Holdings plc
Earnings per ordinary share (pence)
Basic
Diluted
Notes
3,4
8
5
9
10
Restated
2017
£’000
2018
£’000
25,706
(8,543)
24,517
(9,646)
17,163
14,871
(9,122)
(8,249)
8,041
6,622
29
17
8,070
6,639
(1,210)
(793)
6,860
5,846
(158)
-
(158)
201
-
201
6,702
6,047
14.38
14.19
12.32
12.26
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
41
Consolidated Statement of Financial Position
Company registration number: 06395159
31 December
2018
Notes
£'000
31 December
2017
Restated
£'000
1 January
2017
Restated
£'000
Assets
Non-current assets
Goodwill
Property, plant and equipment
Deferred tax assets
Total non-current assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Trade and other payables
Contract liabilities
Current tax liabilities
Total liabilities
Net assets
Equity
Called up share capital
Share premium account
Equity reserve
Capital redemption reserve
Translation reserve
Retained earnings
Total equity attributable to equity
shareholders of Quartix Holdings plc
11
12
18
13
14
15
16
17
19
19
14,029
433
9
14,471
771
2,937
6,779
10,487
24,958
2,814
4,655
99
7,568
7,568
14,029
234
768
15,031
703
3,009
7,312
11,024
14,029
360
765
15,154
680
2,591
6,249
9,520
26,055
24,674
2,853
5,972
423
9,248
9,248
2,892
5,884
238
9,014
9,014
17,390
16,807
15,660
478
5,196
390
4,663
(261)
6,924
476
4,869
529
4,663
(103)
6,373
474
4,702
281
4,663
(304)
5,844
28
17,390
16,807
15,660
Approved by the Board of Directors, authorised for issue and signed on behalf of the Board on 22 February
2019.
Andrew Walters
Chief Executive Officer
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
42
Consolidated Statement of Changes in Equity
Share
premiu
m
account
£,000
Share
capital
£’000
Capital
redemption
reserve
Equity
reserve
£’000 £’000
Translation
reserve
£’000
Retained
earnings
Total
equity
£’000 £’000
474
4,702
4,663
281
(304)
8,513 18,329
-
474
2
-
4,702
167
-
4,663
-
-
-
-
-
2
-
-
-
-
-
-
-
167
-
-
-
-
-
-
-
-
-
-
-
-
281
-
420
(104)
(68)
-
248
-
-
-
-
(2,669)
(2,669)
(304)
-
5,844
-
15,660
169
-
-
-
-
-
-
420
104
-
-
(68)
(5,421) (5,421)
(5,317) (4,900)
201
-
201
-
5,846
5,846
201
5,846
6,047
476
2
4,869
327
4,663
-
529
-
(103)
-
6,373
-
16,807
329
-
-
-
-
2
-
-
-
-
-
-
-
327
-
-
-
-
-
-
-
-
-
-
-
108
(133)
(114)
-
(139)
-
-
-
-
-
-
-
-
-
108
133
-
-
(114)
(6,442) (6,442)
(6,309) (6,119)
(158)
-
-
6,860
(158)
6,860
(158)
6,860
6,702
478
5,196
4,663
390
(261)
6,924
17,390
Balance at 31
December 2016
IFRS 15 adjustment
(note 30)
Restated balance at
31 December 2016
Shares issued
Increase in equity
reserve in relation to
options issued
Adjustment for
exercised options
Deferred tax on share
Options
Dividend paid
Transactions with
owners
Foreign currency
translation differences
Restated profit for the
year
Total
comprehensive
income
Restated balance at
31 December 2017
Shares issued
Increase in equity
reserve in relation to
options issued
Adjustment for
exercised options
Deferred tax on share
Options
Dividend paid
Transactions with
owners
Foreign currency
translation differences
(note 26)
Profit for the year
Total
comprehensive
income
Balance at 31
December 2018
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
43
Consolidated Statement of Cash Flows
Cash generated from operations
Taxes paid
Cash flow from operating activities
Investing activities
Additions to property, plant and equipment
Interest received
Cash flow used in investing activities
Cash flow utilised in operating activities
after investing activities (free cash flow)
Financing activities
Proceeds from share issues
Dividend paid
Cash flow from financing activities
Net changes in cash and cash equivalents
Cash and cash equivalents, beginning of year
Exchange differences on cash and cash equivalents
Cash and cash equivalents, end of year
26
15
Notes
21
12
8
2018
£'000
6,825
(889)
5,936
(382)
29
(353)
Restated
2017
£'000
7,014
(679)
6,335
(67)
17
(50)
5,583
6,285
329
(6,442)
(6,113)
(530)
7,312
(3)
6,779
169
(5,421)
(5,252)
1,033
6,249
30
7,312
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
Notes to the Consolidated Financial Statements
44
1
Summary of significant accounting policies
Basis of accounting
These financial statements are consolidated financial statements for the Group consisting of Quartix
Holdings plc, a company registered in the UK, and all its subsidiaries. These consolidated financial
statements are for the year ended 31 December 2018 and are prepared in Sterling and are rounded to the
nearest thousand pounds (£’000). They have been prepared in accordance with IFRS as adopted by the
European Union (EU) (‘IFRS’) and in accordance with those parts of the Companies Act 2006 that are
relevant to companies which report under IFRS.
These financial statements have been prepared under the historical cost convention.
The Group has adopted IFRS 15: Revenue from Contracts with Customers, and Clarifications to IFRS 15
– Revenue from contracts with customers (hereinafter referred to as ‘IFRS 15’) and IFRS 9: Financial
Instruments.
The adoption of IFRS 15, as at 1 January 2018, has had a significant impact on the Group’s financial
position and cash flow. Consequently, it has been adopted retrospectively so that the comparative figures
for the year ended 31 December 2017 have been restated on a consistent basis (see note 1 Revenue
recognition and 30).
The Group has adopted IFRS 9 and applied it as at 1 January 2018. It has not, as permitted by IFRS 9,
restated prior period and has not made a prior year adjustment in respect of the carry value of financial
assets at 1 January 2018 since the impact of the implementation of IFRS 9 was not significant (see note 1
Financial assets and 31).
The standards and interpretations in issue but not effective for accounting periods commencing on 1
January 2019 that may impact on Quartix Holdings plc going forward are listed below. Quartix Holdings
plc has not adopted these early.
Outlook for adoptions of future standards (new and amended)
At the date of authorisation of the consolidated financial information, the following standards and
interpretations which have not yet been applied in the consolidated financial information were in issue but
not yet effective (and in some cases had not yet been adopted by the EU):
Number
IFRS 16
Annual Improvements
Title
Leases
2015-2017 Cycle
Effective
1 January 2019
1 January 2019
IFRS 16 ‘Leases’ will replace IAS 17 ‘Leases’, under which leases will be recorded in the statement of
financial position in the form of a right-of-use asset and a lease lability. It is effective for accounting periods
beginning on or after 1 January 2019.
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
45
1
Summary of significant accounting policies (continued)
The Group has completed an initial assessment of the impact of the standard and is in the process of:
• Performing a full review of all agreements to identify contracts that will become lease contracts
under IFRS 16’s new definitions. The main agreements will relate to the Group’s commercial
property leases in the UK and USA.
• Confirming which transitional provisions to adopt
• Determining which optional accounting simplifications are available and whether to apply them
• Assessing the additional disclosures that will be required
The initial conclusions are that for transition, the Group will use the practical expedient available to not
reassess whether a contract is, or contains, a lease at the date of initial application. Instead, as permitted, it
will apply IFRS 16 retrospectively with the cumulative effect of initially applying the Standard recognised
at the date of initial application and will not restate comparative information. Instead, the Group shall
recognise the cumulative effect as an adjustment to the opening net assets.
Consequently, the Group will:
•
recognise a lease liability at the date of initial application, for leases previously classified as an
operating lease under IAS17, at the present value of the remaining lease payments, discounted
using the Group’s estimated incremental borrowing rate at the date of initial application.
• Recognise a right of use asset at the date of initial application, for leases previously classified as an
operating lease under IAS17, at an amount equal to the lease liability, adjusted by the amount of
any prepaid or accrued lease payments relating to that lease recognised in the statement of financial
position immediately before the date of initial application
The Group will elect not to apply the requirements of IFRS 16 to either short-term leases or leases for
which the underlying asset is of low value. The Group will recognise the lease payments associated with
those leases as an expense on a straight line basis.
The Group has not completed its assessment but the financial impact of the adoption of IFRS 16, is
estimated to result in a reduction in the Group’s annual operating expenses of £0.2~0.3m and additional
depreciation costs of £0.2m and finance costs payable of £0.02m. Right to use assets capitalised are
estimated to be £0.5m, with a corresponding obligations to pay rentals estimated at £0.5~0.6m.
Basis of consolidation
The financial statements of subsidiaries are included in the consolidated financial statements from the date
that control commences until the date that control ceases. Control is achieved where the Company has
the power over an investee entity, currently obtained through ownership of the share capital, so as to
obtain benefits from its activities. The results of subsidiaries acquired or disposed of during the year are
included in the consolidated income statement from the effective date of acquisition or up to the effective
date of disposal, as appropriate. Intra-group balances and any unrealised gains and losses or income and
expenses arising from intra-group transactions are eliminated in preparing the consolidated financial
statements. A list of subsidiaries is included note 29.
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
46
1
Summary of significant accounting policies (continued)
Going concern
The Group’s forecasts and projections, taking account of reasonably possible changes in trading
performance, show that the Group is able to generate sufficient liquidity.
The Group enjoys a strong income stream from its fleet subscription base while current liabilities include
a substantial provision for deferred revenue which is a non cash item.
After assessing the forecasts and liquidity of the business for the next two calendar years and the longer
term strategic plans, the Directors have a reasonable expectation that the Group has adequate resources to
continue in operational existence for the foreseeable future. The Group therefore continues to adopt the
going concern basis in preparing consolidated financial statements.
Segmental reporting
The Group has concluded that it operates only one segment as defined by IFRS 8. The information used
by the Group’s chief operating decision makers, who are considered to be the Operations Board, to make
decisions about the allocation of resources and assessing performance is presented in a format consistent
with that repeated in the financial statements. Assets are not directly attributable to any separate activity.
Revenue recognition
Revenue is the amount receivable for goods and services, excluding sales taxes, rebates, and trade discounts.
Revenue comprises the provision of telematics-based fleet and vehicle management solutions. Revenue is
recognised either at a point in time or over time, when (or as) the Group satisfies performance obligations
by transferring the promised goods or services to its customers.
As noted in Basis of Accounting above, the Group has adopted IFRS 15 with effect from 1 January 2018
and applied the fully retrospective application, under which IFRS 15 has been applied to the previous
financial year with its results being restated.
Under IFRS 15, the Group must evaluate the separability of the promised goods or services based on
whether they are ‘distinct’. A promised good or service is ‘distinct’ if both:
•
•
the customer benefits from the item either on its own or together with other readily available
resources; and
it is ‘separately’ identifiable (i.e. the Group does not provide a significant service integrating,
modifying or customising it).
Previously, revenue from hardware sales, including insurance telematics contracts, was recognised upon
installation of the unit or despatch of the unit if the customer did their own installation. Revenue from
installation was recognised upon installation and revenue from the provision of telematics-based fleet and
vehicle management solutions was recognised over the period in which the service was provided.
The Group completed a detailed assessment of its sources of revenue and assessed whether the components
of hardware, installation of hard-wired units by an engineer (not required for self-install unit) and data
services are distinct under the new definitions of IFRS 15.
The tracker hardware can’t be utilised by a competitor and neither can it be sourced from an alternative
supplier. The tracking services can’t be delivered until a unit is successfully installed, which in the case of
a hardwired device normally requires an engineer. Therefore, the Group concluded that the Group’s
activities of supplying telematics units and installing telematics units are not distinct and are activities the
Group undertakes to provide its telematics services and are supplied as part of a contract with the customer.
This means that the Group considers these goods and services as one single performance obligation.
Consequently, the Group no longer recognises revenue separately for these goods and services; rather, it
recognises this revenue together as the provision of vehicle telematics services.
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
47
1
Summary of significant accounting policies (continued)
Revenue recognition (continued)
The Group recognises contract liabilities for consideration received in respect of unsatisfied performance
obligations and reports these amounts as contract liabilities in the statement of financial position (see note
17).
If the Group satisfies a performance obligation before it received the consideration, the Group recognises
a receivable in its statement of financial position. The Group does not presently have any contract assets.
In relation to costs, the hard-wired unit and associated installation costs are recognised when the Group
relinquishes control of the unit since, once installed, the unit relates to both unsatisfied performance
obligations and to satisfied performance obligations (or partially satisfied performance obligations). The
Group outsources the installation of hard-wired units to its large base of skilled engineers. In the case of
‘self-install’ units, which customers are able to physically install into their vehicles themselves, the Group’s
judgement is that it still has obligations in relation to the technical set-up of these units (including
connectivity). Self-install units currently form a small part of the Group’s sales; however, the Group will
keep this judgement under review.
Whilst not all of the commissions that the Group pays are wholly directed at obtaining specific contracts,
it is possible to separate out the commissions which are directed in this way. The large majority of contracts
which the Group enters into with customers are 12 months in length and the Group therefore chooses to
use the practical expedient under IFRS15 to expense these commissions as an expense when incurred. This
policy will, however, be kept under review to see if it needs to be updated if the nature of the Group’s sales
changes.
Further information on the impact of the new policy is disclosed in note 30.
Insurance telematic services
For insurance telematic services, the customer commits to purchase data services for 12 months. Quartix
raises a single invoice upon installation of the unit, payable in the following month, with revenue recognised
over the 12 month period on a straight line basis, since the customer benefits from the Group’s services
evenly throughout the contract term and receives the benefit of the services as they are made available. The
contract price, which is subject to periodic review, is set for each insurance customer, depending on the
level of services provided.
If the driver’s policy is extended, then Quartix will raise further charges, these are invoiced either as a one-
off annual fee or as monthly fees, depending upon the contractual arrangements, which are payable within
30 days.
Fleet telematic services
Fleet customers enter into contracts typically with a commitment to purchase data services for 12 months.
The price is fixed for the contract term. Generally invoices are raised quarterly in advance, with payment
due within 30 days. Quartix satisfies its performance obligations over time as services are rendered.
If promotional offers include any free months, then total revenue is allocated on a straight line basis over
the whole period of data services in accordance with the performance obligations, since the customer
benefits from the Group’s services evenly throughout the contract term and receives the benefit of the
services as they are made available.
Support Services
Quartix performs additional services, such as removing, upgrading or transferring units to alternative
vehicles, and theft tracking. These are considered to be separate performance obligations for which a
separate charge and invoice is raised. Revenue is recognised once the additional service obligation has been
delivered to the customer.
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
48
1
Summary of significant accounting policies (continued)
Intangible assets
Goodwill arising on consolidation represents the excess of the consideration transferred and the amount
of any non-controlling interest in the acquiree over the fair value of the identifiable assets and liabilities
(including intangible assets) of the acquired entity at the date of the acquisition. Goodwill is recognised as
an asset and assessed for impairment annually or as triggering events occur. Any impairment is recognised
immediately in profit or loss.
Property, plant and equipment
Property, plant and equipment is stated at cost, net of depreciation and any provision for impairment.
Depreciation
Depreciation is charged so as to write off the cost of assets over their estimated useful lives, using the
straight-line method, on the following bases:
• Tools and equipment
• Office equipment
• Leasehold improvements The life of the lease
25% straight line
25% straight line
Research and development
Expenditure on research activities is recognised as an expense in the period in which it is incurred. In the
event that an internally generated intangible asset arises from the Group’s development activities then it
will be recognised only if all of the following conditions are met:
• Technical feasibility of completing the intangible asset
• The ability to use the asset.
• An asset is created that can be identified (such as software and new processes)
•
It is probable that the asset created will generate future economic benefits
• The development cost of the asset can be measured reliably
Where no internally-generated intangible asset can be recognised, development expenditure is recognised
as an expense in the period in which it is incurred.
Impairment testing of intangible assets and property, plant and equipment
An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its
recoverable amount, which is the higher of fair value less costs of disposal and value-in-use. To determine
the value-in-use, management estimates expected future cash flows and determines a suitable interest rate
in order to calculate the present value of those cash flows. The data used for impairment testing procedures
are directly linked to the Group’s latest approved budget. Discount factors are determined individually for
each cash-generating unit and reflect management’s assessment of respective risk profiles, such as market
and asset-specific risks factors. The cash-generating units are the separate legal entities within the Group
as there is no segmentation in the subsidiaries.
Property, plant and equipment are tested for impairment if events or changes in circumstances (assessed at
each reporting date) indicate that the carrying amount may not be recoverable.
If a cash-generating unit is impaired, provision is made to reduce the carrying amount of the related assets
to their estimated recoverable amount. Impairment losses are allocated firstly against goodwill, and secondly
on a pro rata basis against intangible and other assets.
Operating lease agreements
Payments made under operating leases are charged to profit or loss on a straight line basis over the lease
term. Lease incentives are spread over the term of the lease.
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
49
1
Summary of significant accounting policies (continued)
Inventories
Components held for manufacture of vehicle tracking units and units not yet deployed to customers are
classified as inventory. Inventories are stated at cost less provision for obsolete, slow moving or defective
items. Cost is based on the cost of purchase on a first in first out basis. Provision against inventories is
recognised as an expense in the period in which the write-down or loss occurs.
Taxation
Current tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have
been enacted or substantively enacted at the Statement of Financial Position date.
Deferred income taxes are calculated using the liability method on temporary differences. Deferred tax is
generally provided on the difference between the carrying amounts of assets and liabilities and their tax
bases. However, deferred tax is not provided on the initial recognition of goodwill, nor on the initial
recognition of an asset or liability unless the related transaction is a business combination or affects tax or
accounting profit. Tax losses available to be carried forward as well as other income tax credits to the Group
are assessed for recognition as deferred tax assets and are recognised to the extent that it is regarded as
more likely than not that they will be recovered from future trading profits.
Deferred tax liabilities are provided in full, with no discounting. Current and deferred tax assets and
liabilities are calculated at tax rates that are expected to apply to their respective period of realisation,
provided they are enacted or substantively enacted at the Statement of Financial Position date.
Changes in deferred tax assets or liabilities are recognised as a component of tax expense in profit or loss,
other comprehensive income or equity as appropriate.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, together with other short-term,
highly liquid investments that are readily convertible into known amounts of cash and which are subject to
an insignificant risk of changes in value.
Financial assets
The new Standard for financial instruments, IFRS 9, replaces IAS 39 ‘financial Instruments: Recognition
and Measurement’ and makes changes to the classification and measurement of financial assets and
introduces an ‘expected credit loss’ model for impairment of financial assets.
The Group has reviewed its business model for its financial assets, which comprise only basic loans and
receivables, and concluded that they are held for collecting contractual associated cash flows. Therefore,
under the new guidance, loans and receivables, are initially recognised at fair value and will subsequently be
measured at amortised cost.
As required by IFRS 9, the Group will apply the impairment requirements and recognise a loss allowance
for expected credit losses on its financial assets. At each reporting date, it will always measure the loss
allowance at an amount equal to the lifetime expected credit losses.
The Group will recognise in profit or loss, as an impairment gain or loss, the amount of expected credit
losses (or reversal) that is required to adjust the loss allowance at the reporting date to the amount that is
required to be recognised in accordance with IFRS 9.
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
50
1
Summary of significant accounting policies (continued)
Financial liabilities
Financial liabilities are obligations to pay cash or other financial assets and are recognised when the Group
becomes a party to the contractual provisions of the instrument.
Financial liabilities are recorded initially at fair value and subsequently at amortised cost using the effective
interest method, with interest-related charges recognised as an expense in finance cost in the profit and
loss.
A financial liability is derecognised when the obligation is extinguished.
Equity
Equity comprises the following:
•
•
"Called Up Share capital" represents the nominal value of equity shares
"Share premium account" represents the excess over nominal value of the fair value of
consideration received for equity shares, net of expenses of the share issue
• “Capital redemption reserve” represents the amount by which the Company's issued share capital
is diminished when shares are redeemed or purchased wholly out of the Company's profits
• “Equity reserve” is used to reflect the expenses associated with granting share options to employees
and the issue of warrants
• “Translation reserve” represents the exchange difference arising on the consolidation of foreign
operations.
"Retained earnings" represents retained profits
•
Foreign currencies
The Parent Company's functional currency is Sterling; the French branch’s is Euros, with its results
translated for inclusion in Quartix Limited’s Sterling accounts. Quartix Inc has a functional currency of US
Dollars.
The consolidated financial statements are presented in Sterling, which is the Group’s presentation currency.
Transactions in foreign currencies are translated into the respective currencies of Group companies at the
exchange rate ruling at the date of the transaction. Monetary assets and liabilities in foreign currencies are
translated at the rates of exchange ruling at the Statement of Financial Position date. Foreign exchange
differences arising on translation of monetary assets and liabilities are recognised in the Consolidated
Statement of Comprehensive Income. Non-monetary assets and liabilities that are measured at historical
costs in a foreign currency are translated using the exchange rates at the dates for the transactions.
Income and expenses for all the Group entities that have a functional currency other than Sterling are
translated at the average rate prevailing in the month of the transaction. The assets and liabilities are
retranslated at the closing exchange rate at the reporting date.
On consolidation, exchange differences arising from the translation of the net investment in foreign entities
are recognised in the translation reserve, as a separate component of equity.
Employee benefits
The only pension provision is participation in the UK Government’s NEST pension scheme, which is a
defined contribution scheme. Contributions to defined contribution pension schemes are recognised as an
employee benefit expense within personnel expenses in the income statement, as incurred. Other employee
benefits including holiday pay, company sick pay and a range of tailored incentive schemes, some of which
include the grant of share options, are recognised in the period that related employee services are received.
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
51
1
Summary of significant accounting policies (continued)
Dividends
Dividends attributable to the equity holders of the Company approved for payment during the year are
recognised directly in equity.
Employee benefits: share based payments
The Group operates a number of employee share schemes under which it makes equity-settled share-based
payments to certain employees.
Where employees are rewarded using share-based payments, the fair values of employees' services are
determined indirectly by reference to the fair value of the instrument granted to the employee. This fair
value is assessed at the grant date, using the Black-Scholes method, and excludes the impact of non-market
vesting conditions.
The expense is allocated over the vesting period, based on the best available estimate of the number of
share options expected to vest. Estimates are subsequently revised if there is any indication that the number
of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to
vesting is recognised in the current period. No adjustment is made to any expense recognised in prior
periods if share options ultimately exercised are different to that estimated on vesting.
During the year ended 3 December 2018 share-based payment arrangements were modified as explained
in note 20.
2
Key judgements and estimates
The Group make estimates and assumptions regarding the future. Actual results may differ from these
estimates. The estimates and assumptions that have a significant risk of causing a material adjustment to
the carrying amount of assets and liabilities within the next financial year are addressed below.
Key judgement: capitalisation of development costs
The point at which development costs meet the criteria for capitalisation is critically dependent on
management’s judgment of the point at which development projects become technically and commercially
feasible. No development expenditure was capitalised in the year ended 31 December 2018. The research
and development expenditure primarily related to the on-going research work on the Group’s existing
vehicle telematics services to ensure that the functionality is maintained. The research work undertaken
may successfully come to fruition in the development of a marketable service or technology but this
development work cannot be identified or separated from the research work and therefore the entire
expenditure has been expensed in the year. See the Strategic Report on page 9 for further information about
the Group’s approach to research and development
Key judgement: timing of revenue and cost recognition
The adoption of IFRS 15, see note 1, required the Group to identify its performance obligations, determine
the transaction price and allocate this to the performance obligations and to recognise revenue when/as
performance obligations are satisfied, which are the subject of key judgements. The Group’s judgement is
that supplying telematics units, installing telematics units and the provision of data services are a single
performance obligation, under contracts with customers, impacts the timing of revenue recognition.
The performance obligation is satisfied over time, since the Group has the obligation to deliver the data
services for the contract term. Customers simultaneously receive and consume the benefits of the tracking
services as Quartix delivers its performance obligation.
Where customer contracts are structured so that tracking units and installations are separately identified,
the Group recognises this revenue as part of the single performance obligation of delivering tracking
services, and assumes a typical contract period of 12 months.
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
52
2
Key Judgments and estimates (continued)
Key judgement: timing of revenue and cost recognition (continued)
As described in note 1, it is the Group’s judgement that, once installed, the hard-wired units relate to both
unsatisfied performance obligations and to satisfied performance obligations (or partially satisfied
performance obligations). In the case of ‘self-install’ units, which customers are able to physically install
into their vehicles themselves, the Group’s judgement is that it still has obligations in relation to the
technical set-up of these units (including connectivity). Self-install units currently form a small part of the
Group’s sales; however, the Group will keep this judgement under review.
Whilst not all of the commissions that the Group pays are wholly directed at obtaining specific contracts,
it is possible to separate out the commissions which are directed in this way. The large majority of
contracts which the Group enters into with customers are 12 months in length and the Group therefore
chooses to use the practical expedient under IFRS15 to expense these commissions as an expense when
incurred. This policy will, however, be kept under review to see if it needs to be updated if the nature of
the Group’s sales changes.
These assessments are judgements and, were these costs to be capitalised, the impact on profit or loss
could be material and would likely be determined by the volume of contracts entered into in the year in
question (with growth in the volume of relevant contracts against the prior year being associated with a
credit to profit or loss and vice versa).
Key estimate: impairment testing of goodwill
The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation
of the value in use of the cash-generating units to which the goodwill is allocated (Quartix Limited).
Estimating the value in use requires the Group to make an estimate of the expected future cash flows from
the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value
of those cash flows. Further details are given in note 11.
3
Revenue
The Group’s revenue disaggregated by customer base is as follows:
By customer base
Fleet
Insurance
2018
£’000
18,751
6,955
25,706
Restated
2017
£’000
17,079
7,438
24,517
During 2018 revenue of £5.5m (2017: £7.0m) was derived from one insurance customer.
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
53
3
Revenue (continued)
The Group’s revenue disaggregated by primary geographical markets is as follows:
Geographical analysis by destination
United Kingdom
France
Republic of Ireland
United States of America
2018
£’000
21,709
2,471
13
1,513
25,706
Restated
2017
£’000
21,427
1,917
10
1,163
24,517
There are no material non-current assets based outside the UK.
The Group’s revenue disaggregated by pattern of revenue recognition is as follows:
Recurring revenue
One off revenue
2018
£’000
24,630
1,076
25,706
Restated
2017
£’000
23,499
1,018
24,517
Goods and services transferred over time represent 96% of total revenue (2017: 96%).
For 2018, revenue includes £5,871,000 (2017: £5,713,000) included in the contract liability balance at the
beginning of the period. Changes to the Group’s contract liabilities (i.e. deferred revenue) are attributable
solely to the satisfaction of performance obligations.
The aggregated amounts of transaction prices relating to performance obligations from existing contacts
that are unsatisfied or partially unsatisfied as at 31 December 2018 are all expected to be recognised in 2019.
4
Segmental analysis
The Group has concluded that it operates only one operating segment as defined by IFRS 8, being the
provision and marketing of vehicle telematics services. The information used by the Group’s chief operating
decision makers to make decisions about the allocation of resources and assessing performance is presented
on a consolidated Group basis. All revenue, costs, assets and liabilities relate to the single activity; and
accordingly no segmental analysis is presented.
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
5
Profit for the year before taxation
The profit for the year for the Group is stated after charging:
Research and development expenses
Rentals under operating leases:
Other operating leases
Land and buildings
Depreciation on property, plant and equipment, owned
Share-based payment expense
Foreign exchange (gains)/losses
Expected credit loss charge
Audit services:
Fees paid to Company auditor for the audit of the Company and
consolidated financial statements
The audit of the Company’s subsidiary pursuant to legislation
Other services
Earnings before interest, tax, depreciation and amortisation (EBITDA):
Operating profit
Depreciation
EBITDA
Share-based payment expense
Adjusted EBITDA
6
Employee remuneration
Expenses recognised for employee benefits is analysed below for the Group.
Staff costs, including Directors, during the year were as follows:
Wages and salaries
Social security costs
Contributions to defined contribution pension plan
Share-based payment
2018
£’000
1,131
12
266
185
108
(121)
28
22
31
4
2018
£’000
8,041
185
8,226
108
8,334
2018
£’000
4,403
454
57
108
5,022
The average number of employees, including all Directors, during the year was as follows:
Administration
Operations
Sales
Customer service
Research and development
2018
19
30
38
18
31
136
54
Restated
2017
£’000
1,099
14
175
186
420
200
42
21
24
3
2017
£’000
6,622
186
6,808
420
7,228
2017
£’000
4,060
413
28
420
4,921
2017
19
31
36
14
28
128
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
55
7
Key management remuneration and directors’ remuneration
Key management personnel are those persons having authority and responsibility for planning, directing,
and controlling the activities of the entity, directly or indirectly, including any Directors (whether Executive
or otherwise) of the entity. For 2018, the Group identified ten such individuals: three Executive Directors,
two Non-Executive Directors, and five members of Senior Management, being managers on the
Operations Board of Quartix Limited. In 2017, the Group identified twelve such individuals: three
Executive Directors, two Non-Executive Directors, and seven members of Senior Management.
Wages and salaries
Social security costs
Contributions to defined contribution pension plan
Share-based payment
Total employee benefits
2018
£’000
811
100
9
(13)
907
2017
£’000
765
91
4
279
1,139
Key management had 567,184 share options outstanding at 31 December 2018 (2017: 1,179,311). Key
management held 20,861,208 shares at 31 December 2018 (2017: 23,469,281) on which dividends were paid
in the year.
Details of Directors’ remuneration and the highest paid director is disclosed on page 27.
The Group introduced the NEST pension arrangements in 2015 for all employees. Three directors joined
the scheme. No Director was a member of any other pension scheme or other post-employment benefit
to which the Group contributed in either the current or the prior years. There were no termination
payments and no bonuses for Directors. At 31 December 2018 the directors held 280,000 share options
(2017: 586,956) and no share options were exercised in the year.
8
Finance income receivable
Bank interest
9
Tax expense
Analysis of tax charge in the year
Current tax
UK corporation tax charge on profit for the year
Adjustments in respect of prior periods
Total corporation tax
Deferred tax
Origination and reversal of temporary differences
Adjustments in respect of prior periods
Total deferred tax
Tax on profit of ordinary activities
2018
£’000
29
2017
£’000
17
2018
£’000
556
9
565
652
(7)
645
1,210
Restated
2017
£’000
823
41
864
(71)
-
(71)
793
The relationship between the expected tax expense based on an effective tax rate of the Group of 19.00%
(2017: 19.25%), being the UK rate of corporation tax for the year, and the tax expense actually recognised
in profit or loss can be reconciled as follows:
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
56
9
Tax expense (continued)
Result for the year before taxation
Tax rate (%)
Expected tax expense
Adjustments to tax charge in respect of prior periods
Expenses not deductible for tax purposes
Losses in the USA not provided
Research and development tax credit
Patent box credit
Remeasurement of deferred tax
Tax adjustment on exercise of options
Tax on profit on ordinary activities
2018
£’000
8,070
19.00
1,533
2
5
108
(225)
(173)
56
(96)
1,210
Restated
2017
£’000
6,639
19.25
1,278
41
1
62
(255)
(227)
(60)
(47)
793
Effective rate of tax
Effective rate of tax ignoring adjustments in respect of prior years’
15.0%
15.0%
11.9%
11.3%
10
Earnings per share and dividends
Earnings per share
The calculation of the basic earnings per share is based on the profits attributable to the shareholders of
Quartix Holdings plc divided by the weighted average number of shares in issue during the year. All earnings
per share calculations relate to continuing operations of the Group.
Profits
attributable
to
shareholders
£’000
Weighted
average
number of
shares
Basic
profit per
share
amount
in pence
Fully
diluted
weighted
average
number of
shares
Diluted
profit per
share
amount in
pence
Earnings per ordinary share
Year ended 31 December 2018
Year ended 31 December 2017
restated
6,860 47,713,566
14.38
48,354,756
5,846 47,459,712
12.32
47,667,194
14.19
12.26
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.
Dividends
During the year ended 31 December 2018, the Group paid interim dividends of £1.1m (2017: £1.1m),
equivalent to 2.4p per ordinary share (2017: 2.4p).
The Board is recommending total dividends of £4.8m (2017: £5.3m) comprising a final ordinary dividend
of 3.8p per share, together with a supplementary dividend of 6.2p per share, giving a final pay out of 10.0p
per share and a total dividend for the year of 12.4p per share. As the distribution of dividends required
approval at the Annual General Meeting, no liability in this respect is recognised in the 2018 Group
consolidated financial statements.
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
57
11
Goodwill and other intangible assets
Goodwill
Cost and net book value
At 1 January and 31 December 2017 and 2018
Goodwill on
consolidation
£’000
14,029
Goodwill arose on the consolidation of the Group following the acquisition of Quartix Limited in 2008.
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 (see note 2).
The Group considers its subsidiary Quartix Limited to be the sole cash-generating unit (CGU) for the
assessment of goodwill and as such, it is reviewed annually for impairment. 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 2% which
is in line with the long-term GDP forecasts. The discount rate used is 8.45% 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.
Management’s key assumptions are based on past experience and the current trading performance of
Quartix Limited. These value in use calculations have not identified any requirement for impairment of the
Goodwill stated above. Management is not aware of any probable changes that would necessitate changes
in key estimates that indicate any impairment sensitivity.
12
Property, plant and equipment
Leasehold
improvements
£’000
Tools and
equipment
£’000
Office
equipment
£’000
Cost:
At 1 January 2017
Additions
Foreign exchange
At 31 December 2017
Additions
Foreign exchange
At 31 December 2018
17
-
-
17
24
-
41
12
-
-
12
-
-
12
Total
£’000
886
67
(12)
941
382
8
857
67
(12)
912
358
8
1,278
1,331
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
58
12
Property, plant and equipment (continued)
Leasehold
improvements
£’000
Tools and
equipment
£’000
Office
equipment
£’000
Total
£’000
Depreciation:
At 1 January 2017
Provided in the year
Foreign exchange
At 31 December 2017
Provided in the year
Foreign exchange
At 31 December 2018
Net book amount:
At 31 December 2018
At 31 December 2017
At 1 January 2017
6
3
-
9
3
1
13
28
8
11
12
-
-
12
-
-
12
-
-
-
508
183
(5)
686
182
5
873
405
226
349
526
186
(5)
707
185
6
898
433
234
360
13
Inventories
Components held for manufacture of vehicle tracking units and units not yet deployed to customers:
Raw materials
Work in progress
Finished goods and goods for resale
2018
£’000
476
103
192
771
2017
£’000
406
60
237
703
Included in the analysis above are impairment provisions against inventory amounting to £61,000 (2017:
£77,000). The cost of vehicle tracking units are recognised as an expense and included in “cost of sales”
amounted to £3.0m (2017: £3.1m).
14
Trade and other receivables
Trade receivables
Other receivables
Prepayments and accrued income
2018
£’000
2,583
38
316
2,937
2017
£,000
2,647
27
335
3,009
All the amounts are due within in year. Trade receivables are measured initially at fair value and subsequently
at amortised cost. At each period end, there is an assessment of the expected credit loss in accordance with
IFRS 9 with any increase or reduction in the credit loss provision charged or released to administration
costs in the statement of comprehensive income. IFRS 9 was adopted as at 1 January 2018 and as permitted
the prior year comparatives have not been restated.
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
59
14
Trade and other receivables (continued)
The loss allowance for expected credit losses has been recorded as follows.
Loss allowance at 1 January
Increase in loss allowance
Foreign exchange
Loss allowance at 31 December
2018
£’000
88
28
2
118
2017
£’000
47
42
(1)
88
As explained in note 26, the Group’s trade receivables arise from transactions that do not contain a
significant financing component, therefore the loss allowance is always measure at an amount equal to
lifetime expected credit losses.
In addition, some of the unimpaired trade receivables are past due as at the reporting date. The age of
financial assets past due but not impaired is as follows:
Not more than 1 month
More than one month but not more than 3 months
More than 3 months but not more than 6 months
15
Cash and cash equivalents
Cash and cash equivalents include the following components:
Cash at bank and in hand
2018
£’000
300
28
-
328
2017
£’000
188
54
-
242
2018
£'000
6,779
2017
£’000
7,312
Quartix Limited uses Barclay’s Business Premium account to aggregate Sterling instant access balances and
earn interest, which is currently at 0.65%. Since September 2016, the Group has placed deposits with
Investec Bank plc on 95 day or 32 day notices with interest currently at 0.85% and 0.55% respectively. At
31 December 2018, Investec deposits were £1.5m.
16
Trade and other payables
Amounts falling due within one year:
Trade payables
Social security and other taxes
Other payables
Accruals
2018
£'000
1,252
594
101
867
2,814
2017
£’000
1,385
724
153
591
2,853
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
60
17
Contract liabilities
Deferred insurance tracking data services income
Deferred fleet tracking data services income
2018
£'000
2,038
2,617
4,655
Restated
2017
£’000
3,487
2,485
5,972
Deferred tracking data services income represents customer payments received in advance of
performance (contract liabilities) that are expected to be recognised as revenue in 2019, as described in
note 1
• Under insurance contracts, the customer commits to purchase data services for 12 months.
Quartix raises a single invoice upon installation and recognises revenue over 12 months on a
straight-line basis, since the customer benefits from the Group’s services evenly throughout the
contract term and receives the benefit of the services as they are made available.
• Fleet customers enter into contracts typically with a commitment to purchase data services for
12 months and are generally invoiced quarterly in advance and recognises revenue over the
period covered by the invoice, as the performance obligations are satisfied.
The amounts recognised as contract liability will generally be utilised within the next reporting period.
Changes to the Group’s contract liabilities (i.e. deferred revenue) are attributable solely to the satisfaction
of performance obligations. The reduction in contract liabilities was due to the release of deferred
contract revenue in the year arising from the reduction in the number of new insurance installations.
Contract liabilities at 1 January
Contract liabilities released to revenue in the period
Contract revenue deferred in the period, net of releases in the period
Contract liabilities at 31 December
2018
£'000
5,972
(5,871)
4,554
4,655
Restated
2017
£’000
5,864
(5,713)
5,820
5,972
18
Deferred tax
Deferred tax assets recognised by the Group at 31 December 2018 and 31 December 2017 are as follows:
Provision for deferred tax
Accelerated Capital Allowances
Short term temporary differences
Equity settled share options
(Credit)/charge to profit and loss
Accelerated Capital Allowances
Short term temporary differences
Equity settled share options
2018
£’000
(38)
21
26
9
2018
£’000
13
605
27
645
2017
£’000
(25)
626
167
768
2017
£’000
(17)
5
(59)
(71)
There are unprovided tax losses related to the USA business of $917,000 (2017: $1,093,000).
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
61
19
Equity
Allotted, called up and fully paid
At 1 January 2018
Shares issued
At 31 December 2018
Number of
ordinary
shares of
£0.01 each
47,568,354
278,206
47,846,560
Share
capital
£’000
Share
premium
£’000
476
2
478
4,869
327
5,196
All the shares issued in the year to 31 December 2018 related to the exercise of share options.
20
Share-based payment
The Company has share option schemes for certain employees. Share options are exercisable at prices
determined at the date of grant. The vesting periods for the share options range between 12 and 63 months.
Options are forfeited if the employee leaves the Company before the options vest.
In December 2018, share based payment arrangements were modified for a number of option agreements,
previously granted where the exercise price was above the share price. The total number cancelled was
620,000, of which 280,000 related to Daniel Mendis. The original exercise prices ranged from £3.375 to
£3.80. With the exception of 187,408 for Daniel Mendis, which were reissued at the original exercise price
of £3.60, replacement options of 465,184 were issued at an exercise price of £2.70. All replacement option
agreements included performance criteria, linked to both performance and service conditions.
The incremental fair value granted, as a result of the modifications, was £101,129. This was measured by
comparing the fair value of the instrument immediately before and immediately after the modification using
the Black-Scholes method, since the performance conditions did not relate to market conditions.
This incremental fair value will be included in the measurement of the amount recognised for services
received over the period from the modification date until the date when the modified equity instruments
vest. The amount based on the grant date fair value of the original equity instruments continues to be
recognised over the remainder of the original vesting period.
.
Movements in the number of share options outstanding and their related weighted average exercise prices
are as follows:
2018
2017
Weighted
average
exercise price
per share
in pence
269.3
287.6
355.6
292.2
118.4
267.6
Weighted
average
exercise price
per share
in pence
170.2
308.6
-
199.5
76.4
269.3
Options
number
1,607,651
1,270,534
(620,000)
(614,425)
(278,206)
1,365,554
Options
number
916,812
1,024,251
-
(112,012)
(221,400)
1,607,651
Outstanding at 1 January
Granted
Cancelled
Lapsed
Exercised
Outstanding at 31 December
Exercisable at 31 December
178.9
148,000
167.1
244,355
The weighted average fair value of options issued during the year ended 31 December 2018 was 38.25p
(2017: 71.70p). Included in the options granted in 2018 were 1,062,776 (2017: 10,355) granted to staff with
performance conditions relating to the Group for each of the three years ended 31 December 2021 and
subsequent service conditions. The remaining options granted during the year have only service conditions.
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
62
20
Share based payments (continued)
The weighted average share price at the date of exercise of options during the year ended 31 December
2018 was 338.16p (2017: 375.16p).
At 31 December 2018 Quartix Holdings plc had the following outstanding options and exercise prices:
2018
Expiry dates
Period when exercisable
Starting from November 2014 1 November 2019
28 October 2023
Starting from October 2017
06 December 2022
March 2019
31 March 2025
Starting from March 2019
31 March 2024
Starting from March 2020
31 March 2026
Starting from March 2020
06 December 2023
March 2020
2017
Expiry dates
Period when exercisable
Starting from November 2014 1 November 2019
28 October 2023
Starting from October 2017
06 December 2021
March 2018
31 December 2018
March 2018
31 March 2024
Starting from March 2018
13 April 2024
Starting from April 2018
27 July 2024
Starting from July 2018
31 March 2025
Starting from March 2019
06 December 2022
March 2019
Average
exercise price
per share
in pence
44.0
337.5
1.0
360.0
270.0
270.0
1.0
267.6
Average
exercise price
per share
in pence
44.0
337.5
1.0
1.0
287.5
357.5
360.0
360.0
1.0
269.3
Weighted
average
remaining
contractual
life
in months
11
58
47
75
63
87
59
58
Weighted
average
remaining
contractual
life
in months
23
70
47
12
75
75
79
87
59
67
Options
number
80,000
102,000
13,020
187,408
870,184
92,592
20,350
1,365,554
Options
number
260,000
312,000
11,400
10,355
586,956
100,000
30,000
280,000
16,940
1,607,651
The fair value of share based payments have been calculated using the Black-Scholes option pricing model.
Expected volatility was determined based on the historic volatility of the Group’s share price. The expected
life is the expected period from grant to exercise based on management’s best estimate. The risk free return
is based on UK Government gilt yields at the time of the grant.
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
63
Share based payments (continued)
20
The following assumptions were used in the model for options granted during the year ended 31 December
2018:
Number granted
Grant date
Share price at
grant date (pence)
Exercise price
(pence)
Fair value per
option (pence)
Expected life in
years
Expected
volatility (%)
Risk-free interest
rate (%)
Dividend yield
(%)
2017:
Number granted
Grant date
Share price at
grant date (pence)
Exercise price
(pence)
Fair value per
option (pence)
Expected life in
years
Expected
volatility (%)
Risk-free interest
rate (%)
Dividend yield (%)
100,000 187,408
5 Dec
22 Jun
277,776
5 Dec
280,000
6 Dec
405,000
7 Dec
20,350
6 Dec
2018
380.0
360.0
270.0
270.0
270.0
270.0
380.0
360.0
270.0
270.0
270.0
1.0
34.4
61.0
29.7
29.7
29.7
250.1
3.0
18.0
5.25
28.5
3.25
3.25
3.25
27.1
27.1
27.1
0.76
0.70
0.77
0.77
0.77
2.8
3.5
5.8
5.8
5.8
1.25
27.1
0.74
5.8
5,200 5,155
1 Jan 2 Feb
586,956
19 Jan
100,000 30,000
27 Jul
13 Apr
280,000
1 Dec
16,940
6 Dec
2017
340.0
293.0
287.5
357.5
360.0
360.0
360.0
1.0
1.0
287.5
357.5
360.0
360.0
1.0
329.3
283.1
65.9
67.7
64.2
61.0
343.6
1.0
1.0
5.17
3.0
3.0
5.25
1.25
34.3
34.3
34.5
34.8
34.3
28.5
28.5
0.19
2.9
0.19
2.9
0.67
2.9
0.19
2.9
0.31
3.5
0.70
3.5
0.44
3.5
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
21
Notes to the cash flow statement
Cash flow adjustments and changes in working capital
Profit before tax
Foreign exchange
Depreciation
Interest income
Share based payment expense
Operating cash flow before movement in working capital
Decrease/(increase) in trade and other receivables
(Increase) in inventories
(Decrease) in trade and other payables
(Decrease)/increase in contract liabilities
Cash generated from operations
Notes
12
8
5
2018
£’000
8,070
(153)
185
(29)
108
8,181
83
(67)
(42)
(1,330)
6,825
64
2017
£’000
6,639
151
186
(17)
420
7,379
(424)
(24)
(19)
102
7,014
22
Leases
The Group’s future aggregate minimum lease payments under non-cancellable operating leases are as
follows:
No later than one year
Later than one year and no later than four years
Later than five years
Land & buildings
2017
£’000
154
154
-
308
2018
£’000
200
267
38
505
Other
2018
£’000
10
3
-
13
2017
£’000
12
12
-
24
Lease payments recognised as an expense during the year amount to £278,000 (2017: £189,000).
23
24
Related party transactions and controlling related party
The Group’s related parties comprise its Board of Directors and its key management (see note 7). There
were no related party transactions with Directors to disclose other than dividends received based on
shareholdings disclosed in the Directors’ Remuneration Report on page 27 and note 7.
The Directors consider the Board and shareholding structure to mean there is no directly identifiable
controlling party.
Purchase commitments
Quartix Limited has signed agreements with suppliers which commit the Group to purchase inventory to
the value of £521,000 (2017: £455,000). In August 2017, the Group entered into an agreement for the
provision of vehicle telematics services which included a contractual obligation to pay a minimum of
£40,000 per month, until 31 March 2019. There were no other financial commitments or contingent
liabilities as at 31 December 2018 or 31 December 2017.
25
Capital commitments
The Group had capital commitments of nil at 31 December 2018 (2017: 42,000).
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
65
26
Risk management objectives and policies
Financial instruments
The Group uses various financial instruments; these include cash deposits and bank loans and various items
such as trade receivables and trade payables that arise directly from its operations. The main purpose of
these financial instruments is to raise finance for the Group's operations and manage working capital.
The main risks arising from the Group's financial instruments are credit risk and currency risk. The Board
reviews and agrees policies for managing each of these risks and they are summarised below.
Credit risk
The Group's exposure to credit risk is limited to the carrying amount of financial assets recognised at the
Statement of Financial Position date, as summarised below:
Loans and receivables
Cash and cash equivalents
Trade receivables and other receivables
2018
£’000
6,779
2,621
9,400
2017
£’000
7,312
2,674
9,986
The Group's principal financial assets are cash deposits and trade receivables. Risks associated with cash
deposits are limited as the banks used have high credit ratings assigned by international credit rating
agencies.
The principal credit risk relates to trade receivables and is mitigated, where possible, by third party credit
clearance for new customers and collection by direct debit, or similar. The Group has one large customer
whose debts have been as much as £0.7m and the credit risk on this balance is carefully monitored. The
Group has established credit control procedures to undertake various tasks at different stages as invoices
move further from their issue date. At 45 days past due date, the credit risk is believed to have increased
substantially and customers are included in the loss allowance assessment.
The Group uses the practical expedient in the calculation of the expected credit losses on all its trade
receivables using a provision matrix, to estimate the lifetime expected credit losses, with fixed provision
rates, based on its historical credit loss experience adjusted where possible for current observable data. The
Group uses such data to make reasonable forward looking estimates of recoverability.
The Group continues to work with customers to recover trade receivables and may take legal action or use
third-party collection specialists where necessary. Only after these steps have been completed and there is
no reasonable expectation of recovery, would the receivable be written off.
Currency risk
The Group is exposed to transaction foreign exchange risk as a consequence of procuring tracking unit
components in both euros and dollars. The risk with the Euro has been mitigated by trading in France
which generates enough Euros to cover the Group’s needs. Whilst the Group also trades in the US, in 2018,
the Group purchased about $2.8m, primarily to purchase components for the vehicle tracking units (2017:
$3.5m).
Transaction exposures, including those associated with forecast transactions, are managed through the use
of bank accounts held in foreign currencies.
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
66
26
Risk management objectives and policies (continued)
Currency risk (continued)
It is estimated that a 5% strengthening of Pound Sterling to the US dollar would have reduced purchase
costs by £100,000 and vice versa (2017: £126,000). (This is assuming that Dollar denominated prices do
not adjust for currency movements.)
It is estimated that a 5% strengthening of Pound Sterling to the Euro would have reduced net profit by
£58,000 and vice versa (2017: £54,000).
The Group’s financial instruments dominated in currencies were:
Cash and cash equivalents
Trade receivables
Trade payables
2018
2017
£’000
US$
291
-
(207)
84
£’000
€
314
314
(216)
412
£’000
US$
260
-
(189)
71
£’000
€
207
224
(141)
290
As set out in the accounting policies (note 1), the assets and liabilities of Group entities that have a
functional currency other than Sterling are translated at the closing exchange rate at the reporting date. The
US dollar exchange rate fell by 5.5% from 31 December 2017 to 31 December 2018 (2017: rose by 9%).
The total translation reserve movement for the year reported in the Consolidated Statement of Changes in
Equity was a charge of £158,000 (2017: credit £201,000). The majority of this movement related to the
retranslation of Quartix Inc’s opening net liabilities as at 1 January 2018.
Quartix Inc’s net liabilities mainly relate to amounts owed to other Group entities. The foreign exchange
differences arising on translation of these monetary liabilities are recognised in the Consolidated Income
Statement and was the main reason for the foreign exchange gain in 2018 (see note 5). The retranslation of
the amounts owed to Group entities by Quartix Inc at 31 December 2018 amounted to £136,000 (2017:
£(175,000)).
It is estimated that a 5% weakening of Pound Sterling to the US dollar would give an exchange gain of
around £160,000 from the retranslation of amounts owed by Quartix Inc and vice versa (2017: £122,000).
Interest rate risk
The Group has no debt so it is not exposed to fluctuations in interest rates.
Liquidity risk
The Group seeks to manage financial risk by ensuring sufficient liquidity is available to meet foreseeable
needs. Cash flow is forecast and monitored as are working capital requirements. The Group generates funds
from operational activities in excess of its operational requirements and has substantial cash balances
available for its current investment activities. Consequently, liquidity is not seen as a key risk.
27
Summary of financial assets and liabilities by category
The carrying amounts of the assets and liabilities as recognised at the Statement of Financial Position date
of the years under review may also be categorised as follows:
Loans and receivables
Trade and other receivables
Cash and cash equivalents
Financial liabilities measured at amortised cost
Trade and other payables
2018
£’000
2,621
6,779
9,400
2,119
2017
£’000
2,674
7,312
9,986
1,976
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
67
28
Capital management policies and procedures
The Group's capital management objectives are to ensure the Group's ability to continue as a going concern
and to provide an adequate return to shareholders, by balancing its trading performance with continuing
investment in research and development.
The Group monitors capital on the basis of the carrying amount of equity less cash and cash equivalents as
presented on the face of the Statement of Financial Position.
The Group makes adjustments to its capital in the light of changes in economic conditions and the risk
characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group may
adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell
assets. Capital for the reporting years under review is summarised as follows:
Capital
Total equity
Less cash and cash equivalents
Overall financing
Total equity
Capital-to-overall financing ratio (%)
2018
£’000
17,390
(6,779)
10,611
Restated
2017
£’000
16,807
(7,312)
9,495
17,390
16,807
61
56
29
Subsidiaries
As at the 31 December 2018 the subsidiaries of the Group were:
Subsidiary
Country of registration
Registered office
Quartix Ltd
England & Wales
Quartix inc
USA
Chapel Offices, Park
Street, Newtown Powys
SY16 1EE
901 2nd Street,
Springfield, Sangamon IL
62704-7909
Class of share capital held
Ordinary shares
Common shares
Proportion held by the Company
100%
100%
Nature of the business
Vehicle Tracking
Vehicle Tracking
30
Explanation of transition to IFRS 15 Revenue from Contracts with Customers
As highlighted in note 1, Significant accounting policies under revenue recognition, the Group has
adopted fully retrospective application of IFRS 15. The Group has not applied any of the practical
expedients available for companies selecting fully retrospective application. Consequently, the
comparative figures for the year ended 31 December 2017 in these financial statements have been
restated.
As described in note 1, under IAS 18 the Group recognised revenue from hardware and installation
services upon installation of a unit, or despatch if self-installed by the customer. Following the
evaluation for IFRS 15, the Group’s activities of supplying telematics units and installing telematics units
are supplied as part of a contract with the customer for the provision of its telematics services and will
be considered as one single performance obligation. Consequently, the Group will no longer recognise
revenue separately for these goods and services; rather, it will recognise this revenue together as the
provision of vehicle telematics services.
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
68
30
Explanation of transition to IFRS 15 Revenue from Contracts with Customers
(continued)
The principal impact of this change relates to the timing of revenue for units purchased by insurance
customers, with the total contractual revenue sum being recognised over the contractual period for the
provision of data services, which is one year.
As at 1 January 2017, the restatement of the Group’s net assets was a reduction of £2,669,000 to
£15,660,000 from the inclusion of additional contract liabilities of £3,293,000 under IFRS 15, being
previously recognised revenue now being recognised over the contractual period for the provision of
data services, net of a deferred tax asset of £624,000.
The impact of adoption of IFRS 15 on the financial statements:
A
Consolidated Statement of Financial Position
1 January 2017
Deferred tax assets
Other
Total assets
Contract liabilities
Other
Total liabilities
Retained earnings
Other
Total Equity
31 December 2017
Deferred tax assets
Other
Total assets
Contract liabilities
Other
Total liabilities
Retained earnings
Other
Total Equity
As
previously
reported Adjustments As Restated
£’000
£000
624
765
23,909
-
24,674
624
(5,884)
(3,293)
(3,130)
-
(9,014)
(3,293)
5,844
(2,669)
9,816
-
15,660
(2,669)
£’000
141
23,909
24,050
(2,591)
(3,130)
(5,721)
8,513
9,816
18,329
As
previously
reported Adjustments As Restated
£’000
£000
619
768
25,287
-
26,055
619
(5,972)
(3,264)
(3,276)
-
(9,248)
(3,264)
6,373
(2,645)
10,434
-
16,807
(2,645)
£’000
149
25,287
25,436
(2,708)
(3,276)
(5,984)
9,018
10,434
19,452
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
69
30
Explanation of transition to IFRS 15 Revenue from Contracts with Customers
(continued)
The impact of adoption of IFRS 15 on the financial statements (continued):
B
Consolidated Statement of Comprehensive Income
For the year ended 1 December 2017
Revenue
Other
Income tax expense
Net profit
Total Comprehensive income
Earnings per ordinary share (pence)
Diluted earnings per ordinary share (pence)
C
Consolidated Statement of Cash Flows
For the year ended 1 December 2017
Profit
Adjusted for:
- Tax expense
Profit before tax
Changes in contract liabilities
Other
Cash generated from operations
As
previously
reported Adjustments
£000
£’000
24,488
(17,878)
(788)
5,822
6,023
12.27
12.21
29
-
(5)
24
24
0.05
0.05
As
Restated
£’000
24,517
(17,878)
(793)
5,846
6,047
12.32
12.26
As
previously
reported Adjustments
£000
£’000
As
Restated
£’000
5,822
788
6,610
131
273
7,014
24
5,846
5
29
(29)
-
-
793
6,639
102
273
7,014
31
Explanation of transition to IFRS 9 Financial Instruments
As highlighted in note 1, Significant accounting policies under Financial Assets, the Group has adopted
IFRS 9 and applied it as at 1 January 2018. It has not, as permitted by IFRS 9, restated prior periods
and has not made a prior year adjustment in respect of the carrying value of financial assets at 1 January
2018 since the impact was not significant.
The Group has reviewed its business model for its financial assets, which comprise only basic loans and
receivables, and concluded that they are held for collecting contractual associated cash flows. Therefore,
under the new guidance, loans and receivables, are initially recognised at fair value and will subsequently
be measured at amortised cost.
It’s financial assets are trade receivables which do not have a significant financing component, therefore
it will adopt the simplified approach of measuring lifetime expected credit losses. The Group will also
adopt the practical expedient for the calculation of expected credit losses for trade receivables using a
provision matrix.
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
70
31
Explanation of transition to IFRS 9 Financial Instruments (continued)
At each reporting date, the Group will measure the loss allowance at an amount equal to the lifetime
expected credit losses.
The Group will recognise in profit or loss, as an impairment gain or loss, the amount of expected credit
losses (or reversal) that is required to adjust the loss allowance at the reporting date to the amount that
is required to be recognised in accordance with IFRS 9.
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
71
Parent Company Statement of Financial Position
Company registration number 06395159
Fixed assets
Investments
Current assets
Debtors
Current tax asset
Cash at bank and in hand
Total current assets
Creditors – amounts falling due within one year
Net current assets
Total assets less current liabilities
Net assets
Capital and reserves
Called up share capital
Share premium account
Equity reserve
Capital redemption reserve
Retained earnings
Total equity attributable to equity shareholders of Quartix
Holdings plc
Notes
2018
£’000
2017
£'000
4
5
6
7
19,263
19,155
1,450
26
165
1,641
(3,437)
3,985
54
426
4,465
(38)
(1,796)
4,427
17,467
23,582
17,467
23,582
478
5,196
426
4,663
6,704
476
4,869
451
4,663
13,123
17,467
23,582
Profit for the year and total comprehensive income attributable to the equity shareholders of Quartix
Holdings plc was £110,000 (2017: £6,238,000)
Approved by the Board of Directors, authorised for issue and signed on behalf of the Board on 22 February
2019.
Andrew Walters
Chief Executive Officer
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
72
Parent Company Statement of Changes in Equity
Balance at 31 December 2016
Shares issued
Increase in equity reserve in
relation to options issued
Adjustment for exercised options
Dividend paid
Transactions with owners
Profit for the year and total
comprehensive income
Balance at 31 December 2017
Shares issued
Increase in equity reserve in
relation to options issued
Adjustment for exercised options
Dividend paid
Transactions with owners
Profit for the year and total
comprehensive income
Balance at 31 December 2018
Share
capital
£’000
474
2
Share
premium
account
£,000
4,702
167
Capital
redemption
reserve
Equity
reserve
£’000 £’000
135
4,663
-
-
Retained
earnings
Total
equity
£’000 £’000
12,202 22,176
169
-
-
-
-
2
-
476
2
-
-
-
2
-
-
-
167
-
4,869
327
-
-
-
327
-
-
-
-
-
4,663
-
-
-
-
-
-
478
-
5,196
-
4,663
420
(104)
-
316
-
451
-
108
(133)
-
(25)
-
426
-
104
420
-
(5,421) (5,421)
(5,317) (4,832)
6,238
6,238
13,123 23,582
329
-
-
133
108
-
(6,442) (6,442)
(6,309) (6,005)
(110)
6,704
(110)
17,467
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
73
Notes to the Parent Company Financial Statements
1
Summary of significant accounting policies
Accounting convention
These financial statements were prepared in accordance with Financial Reporting Standard 101 Reduced
Disclosure Framework (FRS 101). The financial statements are prepared under the historical cost
convention.
No profit and loss account is presented by the Company as permitted by Section 408 of the Companies
Act 2006.
The financial statements are prepared in Sterling and are rounded to the nearest thousand pounds (£000).
Basis of preparation
The Company transitioned to FRS 101 in 2016. The accounting policies which follow were those applied
in preparing the financial statements for the year ended 31 December 2018 and the year ended 31 December
2017. The Company has taken advantage of the following disclosure exemptions under FRS 101:
a) Share-based Payment disclosure, as Quartix Holdings plc is the ultimate parent, the share-based
payment arrangement concerns its own equity instruments and its separate financial statements are
presented alongside the consolidated financial statements of the Group.
b) Financial Instruments disclosures, given that equivalent disclosures are included in the consolidated
financial statements of the Group in which the entity is consolidated.
c) Fair Value Measurement disclosures.
d) Certain disclosures required by IAS 1 Presentation of Financial Statements, including certain
comparative information in respect of share capital movements.
e) Statement of Cash Flows and related notes.
f) Related Party Disclosures relating to key management personnel compensation.
g) Disclosure of related party transactions entered into between two or more members of a group,
given that any subsidiary which is a party to the transaction is wholly owned by such a member.
h) Capital management disclosures.
i) The requirement to produce a balance sheet at the beginning of the earliest comparative period.
The Company is not impacted by IFRS 15: Revenue from Contracts with Customers since it does not
have any contracts with customers. The impact of the implementation of IFRS 9: Financial Instruments
was not significant as its financial assets and liabilities relate only to intergroup loans.
Going concern
As a holding company, its main source of income is dividends receivable from its trading subsidiaries and
in particular Quartix Limited. After assessing the forecasts and liquidity of the Group for the next two
calendar years and the longer term strategic plans, the Directors have a reasonable expectation that the
Company will continue to receive dividends for the foreseeable further. The Company therefore continues
to adopt the going concern basis in preparing its individual entity accounts.
Investment in subsidiaries
The Company’s interests in investments presently comprise only interest in wholly owned subsidiary
undertakings. Investments are recognised initially at cost. Subsequent to initial recognition the financial
statements include the adjustments in respect of Share Based Payments or provision for impairment.
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
74
1
Summary of significant accounting policies (continued)
Impairment of assets
The Company assesses at each reporting date whether there is any indication that an asset may be impaired.
If any such indication exists, the Company estimates the recoverable amount of the asset, being the higher
of an asset’s or cash generating unit’s fair value less costs to sell and its value in use. To determine the value-
in-use, management estimates expected future cash flows and determines a suitable interest rate in order to
calculate the present value of those cash flows. The data used for impairment testing procedures are directly
linked to the Group’s latest approved budget. Discount factors are determined individually for each cash-
generating unit and reflect management’s assessment of respective risk profiles, such as market and asset-
specific risks factors.
A reversal of an impairment loss for an asset shall be recognised immediately in profit or loss, unless the
asset is carried at revalued amount. Any reversal of an impairment loss of a revalued asset shall be treated
as a revaluation increase.
Taxation
Current tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have
been enacted or substantively enacted by the Statement of Financial Position date.
Deferred income taxes are calculated using the liability method on temporary differences. Deferred tax is
generally provided on the difference between the carrying amounts of assets and liabilities and their tax
bases. However, deferred tax is not provided on the initial recognition of goodwill, nor on the initial
recognition of an asset or liability unless the related transaction is a business combination or affects tax or
accounting profit. Tax losses available to be carried forward as well as other income tax credits to the Group
are assessed for recognition as deferred tax assets and are recognised to the extent that it is regarded as
more likely than not that they will be recovered from future trading profits.
Deferred tax liabilities are provided in full, with no discounting. Current and deferred tax assets and
liabilities are calculated at tax rates that are expected to apply to their respective period of realisation,
provided they are enacted or substantively enacted at the Statement of Financial Position date.
Changes in deferred tax assets or liabilities are recognised as a component of tax expense in profit or loss,
other comprehensive income or equity as appropriate.
Dividends
Dividends attributable to the equity holders of the Company approved for payment during the year are
recognised directly in equity.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, together with other short-term,
highly liquid investments that are readily convertible into known amounts of cash and which are subject to
an insignificant risk of changes in value.
Financial assets
As highlighted in note 1, Significant accounting policies under Financial Assets in the Consolidated
Financial Statements, the Group has adopted IFRS 9 and applied it as at 1 January 2018. It has not, as
permitted by IFRS 9, restated prior periods and has not made a prior year adjustment in respect of the
carrying value of financial assets at 1 January 2018 since the impact was not significant.
As required by IFRS 9, the Company will apply the impairment requirements and recognise a loss allowance
for expected credit losses on its financial assets. At each reporting date, it will measure the loss allowance
at an amount equal if the credit risk on financial instruments has increased significantly since initial
recognition.
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
75
1
Summary of significant accounting policies (continued)
Financial assets (continued)
The Company will recognise in profit or loss, as an impairment gain or loss, the amount of expected credit
losses (or reversal) that is required to adjust the loss allowance at the reporting date to the amount that is
required to be recognised in accordance with IFRS 9.
Financial liabilities
Financial liabilities are obligations to pay cash or other financial assets and are recognised when the
Company becomes a party to the contractual provisions of the instrument.
Financial liabilities are recorded initially at fair value and subsequently at amortised cost using the effective
interest method, with interest-related charges recognised as an expense in finance cost in the profit and
loss.
A financial liability is derecognised only when the obligation is extinguished. The Company does not enter
into derivative contracts for hedging or speculative purposes.
Foreign currencies
Transactions in foreign currencies are translated into Sterling at the exchange rate ruling at the date of the
transaction. Monetary assets and liabilities in foreign currencies are translated at the rates of exchange ruling
at the Statement of Financial Position date.
Any exchange differences arising on the settlement of monetary items or on translating monetary items at
rates different from those at which they were initially recorded are recognised in profit or loss in the period
in which they arise.
Employee benefits: Share-based payments
The Company operates a number of employee share schemes under which it makes equity-settled share
based payments to employees of its UK trading subsidiary. The fair value of the employee services received
in exchange for the grant of the options is recognised as an increase in the investment in the subsidiary,
with a corresponding increase in equity, over the period that the employees unconditionally become entitled
to the awards.
The fair values of employees' services are determined indirectly by reference to the fair value of the
instrument granted to the employee. This fair value is assessed at the grant date, using the Black-Scholes
method, and excludes the impact of non-market vesting conditions.
The expense is allocated over the vesting period, based on the best available estimate of the number of
share options expected to vest. Estimates are subsequently revised if there is any indication that the number
of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to
vesting is recognised in the current period. No adjustment is made to any expense recognised in prior
periods if share options ultimately exercised are different to that estimated on vesting.
Upon exercise of the share options the proceeds received are allocated to share capital and share premium.
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
76
1
Summary of significant accounting policies (continued)
Share capital and reserves
Share capital and reserves comprises the following:
•
•
"Called up share capital" represents the nominal value of equity shares
"Share premium account" represents the excess over nominal value of the fair value of
consideration received for equity shares, net of expenses of the share issue
• “Capital redemption reserve” represents the amount by which the Company's issued share capital
is diminished when shares are redeemed or purchased wholly out of the Company's profits
• “Equity reserve” is used to reflect the expenses associated with granting share options to employees
and the issue of warrants
"Retained earnings" represents retained profits
•
2
Profit and loss account
No Statement of profit and loss is presented for Quartix Holdings plc as provided by section 408 of the
Companies Act 2006. The Company’s profit for the financial year was £0.10m (2017: £6.24m).
Auditors' remuneration attributable to the Company is as follows:
Audit fees – statutory audit
Other services
Details of Directors’ emoluments are set out on page 27.
3
Directors and employees
Staff costs, including directors, comprised the following:
Wages and salaries
Social security costs
2018
£’000
22
1
23
2018
£’000
90
10
100
2017
£’000
21
1
22
2017
£’000
88
10
98
The average number of employees for the company, being the non-executive directors only, during the
year was 2 (2017: 2).
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
77
4
Investments – non current
The amounts recognised in the Company’s Statement of Financial Position relate to the following:
Cost:
At 1 January 2017
Increase due to granting of share options to subsidiary employees:
New investments
At 1 January 2018
Increase due to granting of share options to subsidiary employees:
New investments
Net book amount at 31 December 2018
There is no provision for impairment for the investment in subsidiaries.
Subsidiary
undertakings
£’000
18,735
420
19,155
108
19,263
Subsidiary
Quartix Limited
Quartix Inc
Country of
registration
England & Wales Ordinary shares
Common shares
USA
Class of share
capital held
Proportion held
by the Company
100%
100%
Nature of
business
Vehicle Tracking
Vehicle Tracking
5
Debtors
Social security and other taxes
Prepayments
Amounts owed by subsidiary undertakings
2018
£’000
6
6
1,438
1,450
2017
£’000
4
6
3,975
3,985
All receivables fall due within one year of the Statement of Financial Position date.
The amount owed by subsidiary undertakings includes a US dollar loan to Quartix Inc of £1.4m (2017:
£1.2m) which is repayable on or before 31 December 2019 but can be extended by mutual agreement.
Interest is charged quarterly at 1% per quarter on the quarter end balance. The remainder of amounts
owed by subsidiary undertakings at 31 December 2017, relates to a current account to Quartix Limited.
6
Creditors: amounts falling due within one year
Social security and other taxes
Accruals and deferred income
Amounts owed to subsidiary undertakings
2018
£’000
4
38
3,395
3,437
2017
£’000
4
34
-
38
The amount owed to subsidiary undertakings relates to the current account with Quartix Limited. It is a
current account that will be cleared by dividends payable in 2019.
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
78
7
Called up share capital
Allotted, called up and fully paid
47,846,560 (2017: 47,568,354) ordinary shares of £0.01 each
2018
£’000
2017
£’000
478
476
Details of movements in share options and those outstanding at 31 December 2018 are disclosed in note
20 of the Group accounts.
Related party transactions and ultimate controlling party
The Company has taken advantage of the exemption not to disclose transactions with wholly owned
subsidiaries. Details of Directors’ remuneration and interests in shares are disclosed in the Directors’
Remuneration Report (see page 27) and key management remuneration in note 7 of the Group accounts.
Contingent liabilities
There are no material contingent liabilities subsisting at 31 December 2018 or 31 December 2017.
Financial commitments
The Company had no financial commitments at 31 December 2018 or 31 December 2017.
Risk management objectives and policies
8
9
10
11
Financial Instruments
The Company uses various financial instruments; these include cash deposits and bank loans and various
items such as group receivables and group payables that arise directly from its operations. The main purpose
of these financial instruments is to manage working capital.
The main risks arising from the Company’s financial instruments are credit risk and currency risk. The
Board reviews and agrees policies for managing each of these risks and they are summarised below.
Credit risk
The Company’s exposure to credit risk is limited to the carrying amount of financial assets recognised at
the Statement of Financial Position date, as summarised below:
Loans and receivables
Cash and cash equivalents
Amounts owed by subsidiary undertakings
2018
£’000
165
1,438
1,603
2017
£’000
426
3,975
4,401
Credit risk
Risks associated with cash deposits are limited as the banks used have high credit ratings assigned by
international credit rating agencies. The amount owed by subsidiary undertakings includes a US dollar loan
to Quartix Inc of £1.4m (2017: £1.2m) which is repayable on or before 31 December 2019 but can be
extended by mutual agreement. Interest is charged quarterly at 1% per quarter on the quarter end balance.
The remainder of amounts owed by subsidiary undertakings at 31 December 2017 relates to a current
account to Quartix Limited. (see below and note 5).
Quartix Holdings plc
Financial statements for the year ended 31 December 2018
79
11
Risk management objectives and policies (continued)
Currency risk
The Company is exposed to transaction foreign exchange risk. The Group mitigates its risk to the US Dollar
by trading in the USA; however the Company is exposed to exchange movements on its US Dollar loan to
Quartix Inc to fund its start-up losses and working capital requirements.
The Company’s financial assets denominated in currencies (all US dollars) were:
Loan and receivables
Cash at bank
Amounts owed by subsidiary undertakings
2018
£’000
40
1,438
1,478
2017
£’000
38
1,233
1,271
The Company’s net profit would not be materially impacted by 5% strengthening of Pound Sterling to the
US dollar or Euro.
80
Notice of Annual General Meeting
Notice is hereby given that the fifth Annual General Meeting (the “Meeting”) of Quartix Holdings plc will
be held at 9 Dukes Court, 44~62 Newmarket Rd, Cambridge CB5 8DZ on Tuesday 26 March 2019
at 11.00 am for the following purposes:
To consider, and if deemed fit, to pass the following as ordinary resolutions:
1.
2.
3.
4.
5.
6.
7.
8.
9.
To receive and adopt the audited annual accounts for the year ended 31 December 2018.
To approve and declare a final dividend for the year ended 31 December 2018 of 3.8p per ordinary
share and supplementary dividend of 6.2p per ordinary share, a total final dividend of 10.0p per
share. This will be paid on 3 May 2019 to shareholders on the register as at the close of business
on 5 April 2019.
To re-elect Andrew Walters as a Director who, in accordance with the Company’s Articles of
Association, retires as a Director and is eligible for re-election.
To re-elect Daniel Mendis as a Director who, in accordance with the Company’s Articles of
Association, retires as a Director and is eligible for re-election.
To re-elect Paul Boughton as a Director who, in accordance with the Company’s Articles of
Association, retires as a Director and is eligible for re-election.
To re-elect Jim Warwick as a Director who, in accordance with the Company’s Articles of
Association, retires as a Director and is eligible for re-election.
To re-appoint Grant Thornton UK LLP as the auditors of the Company until the end of the next
Annual General Meeting.
To authorise the Directors to determine the remuneration of the auditors.
To give the Directors general and unconditional authorisation for the purposes of section 551 of
the Companies Act 2006 (the “Act”) to exercise all powers of the Company to allot shares in the
Company or to grant rights to subscribe for or to convert any security into shares in the Company
up to a maximum nominal value of £159,489 (representing approximately 33% of the issued share
capital of the Company as at 22 February 2019) to such persons at such times and on such terms
they deem proper provided that this authority shall expire at the conclusion of the next Annual
General Meeting of the Company or 30 June 2020, whichever is earlier, save that the Company
may, before such expiry, make an offer or agreement which would or might require equity securities
(as defined in section 560 of the Act) to be allotted after such expiry and the Directors may allot
such securities in pursuance of such offer or agreement as if the authority conferred hereby had
not expired; and all prior authorities to allot securities (to the extent unutilised) be revoked, but
without prejudice to the allotment of any shares or securities already made or to be made pursuant
to such prior authorisation.
To consider, and if deemed fit, to pass the following as special resolutions:
10.
That the Directors be and are empowered, pursuant to section 570 of the Companies Act 2006
(the “Act”), to allot equity securities (as defined in section 560 of the Act) for cash pursuant to the
authority conferred upon them by resolution 9 above and to allot equity securities (as defined in
section 560(3) of the Act (sale of treasury shares)) for cash in each case as if section 561 of the Act did
not apply to any such allotment provided, however, that the power conferred by this resolution
shall be limited to:
a.
The allotment of equity securities in connection with a rights issue, open offer or any other
offer of, or invitation to apply for, equity securities in favour of holders of ordinary shares
in the Company on the register of members at such record dates as the Directors may
determine and other persons entitled to participate therein where the equity securities
respectively attributable to the interests of the ordinary shareholders are proportionate (as
nearly as may be) to the respective number of ordinary shares in the Company held or
deemed to be held by them on any such record dates, subject to such exclusions or other
81
arrangements as the Directors may consider necessary or expedient to deal with fractional
entitlements, treasury shares, record dates, or legal or practical problems arising or
resulting from the application of the laws of any overseas territory or the requirements of
any other recognised regulatory body or stock exchange in any territory or by virtue of
shares being represented by depository receipts or any other matter whatever; and
The allotment, other than pursuant to sub-paragraph ‘a’ above, to any person or persons
of equity securities up to an aggregate nominal value not exceeding £23,923, representing
approximately 5% of the ordinary share capital in issue as at 22 February 2019.
b.
This power shall expire at the conclusion of the next Annual General Meeting of the Company or
30 June 2020, whichever is the earlier, unless previously varied, revoked or renewed by the
Company in general meeting provided that the Company may, before such expiry, make any offer
or agreement which would or might require securities to be allotted, or treasury shares sold, after
such expiry and the Directors may allot securities or sell treasury shares pursuant to any such offer
or agreement as if the power conferred had not expired; and all prior powers granted under section
570 of the Act shall be revoked provided that such revocation shall not have retrospective effect.
11.
That the Directors be generally and unconditionally authorised, for the purposes of section 701 of
the Companies Act 2006 (the “Act”), to make market purchases, as defined in section 693(4) of
the Act, of ordinary shares of £0.01 each in the Company on such terms and in such manner as
the Directors shall determine, provided that:
a.
b.
c.
d.
The maximum aggregate number of ordinary shares which may be purchased is 2,392,000
(representing approximately 5% of the ordinary share capital in issue as at 22 February
2019);
The minimum price that may be paid for an ordinary share is its nominal value (£0.01);
The maximum price, exclusive of any expenses, which may be paid for an ordinary share
shall be the higher of:
i. an amount equal to 105% of the average middle market quotations for the
ordinary shares of the Company as derived from the AIM appendix to the
London Stock Exchange Daily Official List for the five business days immediately
preceding the day on which the ordinary share is purchased; and
ii. an amount equal to the higher of the price quoted for the last independent trade
of an ordinary share and the highest current independent bid for an ordinary share
on the trading venue where the purchase is carried out.
This authority shall expire, unless previously renewed, revoked or varied, on the date of
the next Annual General Meeting or 30 June 2020, whichever is earlier, save that the
Company may enter into a contract for the purchase of ordinary shares under this
authority which would or might be completed, wholly or partly, after this authority expires.
By order of the Board on 22 February 2019.
Daniel Mendis
Company Secretary
82
Notes to the Notice of Annual General Meeting
The following notes explain your general rights as a shareholder and your right to attend and vote at this
Meeting or to appoint someone else to vote on your behalf.
To be entitled to attend and vote at the Meeting (and for the purpose of the determination by the Company
of the number of votes they may cast), shareholders must be registered in the Register of Members of the
Company at close of trading on 22 March 2019. Changes to the Register of Members after the relevant
deadline shall be disregarded in determining the rights of any person to attend and vote at the Meeting.
Shareholders, or their proxies, intending to attend the Meeting in person are requested, if possible, to arrive
at the Meeting venue at least 20 minutes prior to the commencement of the Meeting at 11.00 am (UK time)
on 26 March 2019 so that their shareholding may be checked against the Company’s Register of Members
and attendances recorded.
Shareholders are entitled to appoint another person as a proxy to exercise all or part of their rights to attend
and to speak and vote on their behalf at the Meeting. A shareholder may appoint more than one proxy in
relation to the Meeting provided that each proxy is appointed to exercise the rights attached to a different
ordinary share or ordinary shares held by that shareholder. A proxy need not be a shareholder of the
Company.
In the case of joint holders, where more than one of the joint holders purports to appoint a proxy, only the
appointment submitted by the most senior holder will be accepted. Seniority is determined by the order in
which the names of the joint holders appear in the Company’s Register of Members in respect of the joint
holding (the first named being the most senior).
A vote withheld is not a vote in law, which means that the vote will not be counted in the calculation of
votes for or against the resolution. If no voting indication is given, your proxy will vote or abstain from
voting at his or her discretion. Your proxy will vote (or abstain from voting) as he or she thinks fit in
relation to any other matter which is put before the Meeting..
In order for a proxy appointment to be valid, a form of proxy must be completed. You can appoint a proxy
and indicate how you would like your proxy to vote at the Meeting or any adjournment by using any of the
following methods:
• by logging on to www.signalshares.com and following the instructions, ensuring that your
•
•
submission is completed before 11.00 am on 22 March 2019;
•by completing and returning a hard copy proxy form to Link Asset Services at 34 Beckenham
Road, Beckenham, Kent, BR3 4ZF to be received by 11.00 am on 22 March 2019; or
•in the case of CREST members, by utilising the CREST electronic proxy appointment service in
accordance with the procedures set out below, transmitting the instructions so as to be received by
11.00 am on 22 March 2019.
You may request a hard copy form of proxy directly from the registrars, Link Asset Services (previously
called Capita), on Tel: 0371 664 0300. Calls cost 12p per minute plus your phone company’s access charge.
Calls outside the United Kingdom will be charged at the applicable international rate. Lines are open
between 09:00 – 17:30, Monday to Friday excluding public holidays in England and Wales.
If you return more than one proxy appointment, either by paper or electronic communication, the
appointment received last by the Registrar before the latest time for the receipt of proxies will take
precedence. You are advised to read the terms and conditions of use carefully. Electronic communication
facilities are open to all shareholders and those who use them will not be disadvantaged.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
83
The return of a completed form of proxy, electronic filing or any CREST Proxy Instruction (as described
in note 10 below) will not prevent a shareholder from attending the Meeting and voting in person if he/she
wishes to do so.
CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy
appointment service may do so for the Meeting (and any adjournment of the Meeting) by using the
procedures described in the CREST Manual (available from www.euroclear.com/site/public/EUI).
CREST Personal Members or other CREST sponsored members, and those CREST members who have
appointed a service provider(s), should refer to their CREST sponsor or voting service provider(s), who
will be able to take the appropriate action on their behalf.
In order for a proxy appointment or instruction made by means of CREST to be valid, the appropriate
CREST message (a ‘CREST Proxy Instruction’) must be properly authenticated in accordance with
Euroclear UK & Ireland Limited’s specifications and must contain the information required for such
instructions, as described in the CREST Manual. The message must be transmitted so as to be received by
the issuer’s agent (ID RA10) by 11.00 am on 22 March 2019. For this purpose, the time of receipt will be
taken to mean the time (as determined by the timestamp applied to the message by the CREST application
host) from which the issuer’s agent is able to retrieve the message by enquiry to CREST in the manner
prescribed by CREST. After this time, any change of instructions to proxies appointed through CREST
should be communicated to the appointee through other means.
CREST members and, where applicable, their CREST sponsors or voting service providers should note
that Euroclear UK & Ireland Limited does not make available special procedures in CREST for any
particular message. Normal system timings and limitations will, therefore, apply in relation to the input of
CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the
CREST member is a CREST personal member, or sponsored member, or has appointed a voting service
provider(s), to procure that his CREST sponsor or voting service provider(s) take(s)) such action as shall
be necessary to ensure that a message is transmitted by means of the CREST system by any particular time.
In this connection, CREST members and, where applicable, their CREST sponsors or voting system
providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations
of the CREST system and timings. The Company may treat as invalid a CREST Proxy Instruction in the
circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001.
Any corporation which is a shareholder can appoint one or more corporate representatives who may
exercise on its behalf all of its powers as a shareholder provided that no more than one corporate
representative exercises powers in relation to the same shares.
As at 22 February 2019 (being the latest practicable business day prior to the publication of this Notice),
the Company’s ordinary issued share capital consists of 47,846,560 ordinary shares, carrying one vote each.
Therefore, the total voting rights in the Company as at 22 February 2019 are 47,846,560.
Any shareholder attending the Meeting has the right to ask questions. The Company must cause to be
answered any such question relating to the business being dealt with at the Meeting but no such answer
need be given if: (a) to do so would interfere unduly with the preparation for the Meeting or involve the
disclosure of confidential information; (b) the answer has already been given on a website in the form of
an answer to a question; or (c) it is undesirable in the interests of the Company or the good order of the
Meeting that the question be answered.
The following documents are available for inspection during normal business hours at the registered
office of the Company on any business day from the date of this Notice until the time of the Meeting and
may also be inspected at the Meeting venue, as specified in this Notice, from 10.45 am on the day of the
Meeting until the conclusion of the Meeting:
•
copies of the Directors’ letters of appointment or service contracts.
16
You may not use any electronic address (within the meaning of Section 333(4) of the Companies Act
2006) which is provided in either this Notice or any related documents (including the form of proxy) to
communicate with the Company for any purposes other than those expressly stated.
A copy of this Notice, and other information required by Section 311A of the Companies Act 2006, can
be found on the Company’s website at www.quartix.net
Any general queries by members about the Annual General Meeting should be addressed to the Company
Secretary by letter or email at Quartix Holdings plc, 9 Dukes Court, 44~62 Newmarket Rd, Cambridge
CB5 8DZ or dan.mendis@quartix.net
84