In a recent podcast with our associates Investor’s Champion, Chris Boxall of Fundamental Asset Management discussed some of the problems with company reporting, notably with reference to UK banks, and and why clear, easy-to-read financial statements, with a minimum of adjustments, can be good for your investment portfolio. In this regard, full year results from AIM quoted Quartix (AIM:QTX) yet again set the benchmark for other AIM companies to follow.
The first thing one notices with the results announcement from Quartix is that these represent final ‘audited’ numbers and not the usual ‘preliminary’ accounts many listed companies tend to issue. With a financial year end of 31 December 2018, it’s highly commendable that Quartix can issue these prior to the end of February.
Founded in 2001, Quartix is a leading supplier of subscription-based vehicle tracking systems, software and services. The Group provides an integrated tracking and telematics data analysis solution for fleets of commercial vehicles and “pay as you drive” motor insurance providers that is designed to improve productivity and lower costs by capturing, analysing and reporting vehicle and driver data. Quartix is based in the UK but growing strongly in overseas markets, particularly in France and the United States.
While the financial highlights do mention ‘adjusted EBITDA’ the results are mercifully free of too many references to adjusted numbers and thankfully there is no mention of the dreaded ‘underlying’ anywhere. This is in stark contrast to the banks discussed in the podcast, who clearly have plenty of adjustments to make excuses for!
For a business of Quartix’ small size, which is making meaningful investments in research and development expenditure and supporting overseas growth, the absence of adjustments is all the more refreshing. Many small listed companies relish the opportunity to adjust or exclude certain costs from the ‘underlying’ result. Quartix financial results happily state that they ‘expense all research and development investment, tracking system and installation costs as they are incurred unless development spend meets the criteria for capitalisation.’
Operating margins of 31% and a return on equity touching 40%, reflected in excellent cash flow, highlights the quality of this small business. While a single customer dominates its insurance related activities, this part of the business is in planned decline as it focuses on growing its fleet operations, where no single customer dominates.
Our associates Investor’s Champion also interviewed Quartix founder and Chief Executive Andy Walters in a podcast here; it’s worth listening to.