TIDMQTX
RNS Number : 8835K
Quartix Holdings PLC
27 April 2020
The information communicated in this announcement is inside
information for the purposes of Article 7 of Regulation
596/2014.
Quartix Holdings plc
("Quartix" or the "Company")
Trading Statement
Quartix Holdings plc, one of Europe's leading suppliers of
subscription-based vehicle tracking systems, software and services,
issues a further update and trading statement, as promised in its
statement of 24 March.
Q1 Trading
The Board reports that trading for the first three-month period
to 31 March 2020 was strong, and consistent with meeting market
expectations for the year.
Fleet tracking
As noted in the Company's AGM trading statement of 24 March,
growth in new installations was particularly strong in the first
two months of the year but slowed considerably during March, with
the effect most marked in the UK. Total new installations for the
Group during Q1 grew by 11% to 11,744, versus 10,593 in 2019. New
installations in the UK reduced by 2% to 6,409, in France they grew
by 19% to 2231 and the USA by 11% to 2,403. New territories (Italy,
Spain, Poland and Germany) accounted for 701 installations.
Since the start of April the Company has seen a large slowdown
in orders in all regions, most notably in the UK, where some orders
initially expected to be installed in March have been postponed
indefinitely. Several significant orders have, however, been won in
March and April and there continues to be a significant level of
activity with larger prospects. Despite this the impact of
Coronavirus on our broader target market - particularly in the SME
sector - is likely to result in orders for new installation in
April being at least 60% lower than for the same period in 2019
(2019: 4,200).
Insurance telematics
Following the introduction of the lockdown arrangements in the
UK, which started on 23 March, Quartix experienced an 80% reduction
in installation capacity as many sub-contractors decided to stay at
home. Underwriters therefore took the decision to stop writing new
business for installed telematics products. New installations in Q1
were 7,885 (2019: 8,356). Installations in April are expected to be
approximately 700 units. Installation capacity has since increased
to about 75% of normal levels and some insurance business is
expected to restart in May, but at a modest level. The Company has
defined new health and safety-related guidance for its installers
to adhere to and has been able to provide them with masks and
gloves, which were sourced through its manufacturing partner in
China. Additional PPE which the Company was able to source in this
way has been donated to NHS and other care organisations local to
the Company's offices.
Likely impact of Coronavirus on the outlook for 2020 and
2021
As previously announced, Quartix took very early action to move
to remote working to protect its employees and is pleased to note
that this is working efficiently. The Board's recommendation that
shareholders reject the resolution for the payment of a dividend at
the AGM was supported and the Company therefore has continued to
build its cash reserves. Net cash at 31 March was GBP8.5m.
The Company's revenue is underpinned by its subscription base of
more than 150,000 commercial vehicles, meaning a significant
proportion of Group sales are recurring revenues. In each case the
value of the subscription paid to Quartix is a tiny fraction of the
overall cost to the customer of the vehicle, manpower and
associated overheads. The initial impact of the COVID-19 pandemic
on the Company's profitability has therefore been very limited,
given the recurring nature of these subscriptions. This is likely
to continue to be the case for several months.
Although there has been a slight increase in attrition rates and
direct debit failures, coupled with some loss of revenue from the
insurance sector, as noted above, these effects are currently being
overcome by the reduction in costs associated with the installation
of new tracking systems, which are normally expensed in the month
of installation.
The Board therefore believes that the COVID-19 pandemic is
unlikely to have a material impact on profit and cashflow in the
first half of 2020, although there is likely to be some reduction
in revenue compared to its previous expectations.
Given the extreme uncertainty regarding the economic impact of
the pandemic, the Board is unable to provide guidance with regard
to expected financial performance in the second half of 2020 or for
2021. It has, however, concluded a financial risk assessment to
measure the potential impact of Coronavirus on its business in H2
2020 and 2021. This was considered by the Board to be a pessimistic
outlook and was used for planning purposes. It should not be
considered to be a forecast or to provide guidance on likely
performance. Under this scenario, the Board has assumed the
following:
-- Levels of new fleet installations will remain significantly
below those of 2019 or Q1 2020 until the end of September 2020.
After an initial improvement the Board has then assumed a gradual,
but slow, recovery in the market which could take 18 months or
more.
-- Some SME customers will not have the cash reserves or ability
to continue trading through to the end of this year. This, in turn,
is assumed to lead to attrition rates rising to 30% on an
annualised basis by year end, and then moderating to a level of
approximately 20% in 2021. Under such a scenario, customer debt
defaults would be expected to rise significantly and price erosion
would also be expected to increase.
-- Quartix would likely continue to invest in marketing, sales
and product development throughout this difficult period, with the
goal of returning to 2019 levels of new installations during the
latter half of 2021.
On the basis of the above scenario, the Company believes that it
is unlikely that it will need to draw upon the substantial cash
reserves it has on the balance sheet (subject to the usual monthly
fluctuations), demonstrating the Company's resilience even in the
current unique economic circumstances. Nonetheless it intends
maintaining its cash balances at least at current levels for
contingency purposes unless it becomes apparent that this is no
longer necessary.
It is clearly possible that a more optimistic scenario may
occur, if, for example, an effective vaccine or treatment for
COVID-19 becomes universally available within the next 12 months,
or the measures taken by Government lead to a quicker recovery from
the impact of COVID-19 on our customers than we have assumed above.
In such circumstances, the Company's performance would be less
impacted than in the case of the scenario the Board has based its
plans upon.
Quartix will provide a further update for shareholders at the
end of May.
Footnote:
* The Board believes that consensus market expectations for 2020
(based upon forecasts from finnCap and Shore Capital) prior to this
announcement, were as follows: Revenue: GBP26.0m; Adjusted EBITDA
GBP6.7m; Free Cash Flow: GBP5.3m.
Quartix (www.quartix.com)
Andy Walters, Chief Executive Officer
Daniel Mendis, Chief Financial Officer 01686 806 663
finnCap (Nominated Adviser and Broker)
Matt Goode /Hannah Boros (Corporate
Finance)
Alice Lane (Corporate Broking) 020 7220 0500
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END
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April 27, 2020 02:00 ET (06:00 GMT)
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