Innovation at the heart of Cartrack's business
Cartrack Holdings Limited released its abridged audited consolidated annual financial statements 2017.
- Subscriber growth of 19% to 600 610
- Subscriber revenue up 16%
- Total revenue up 13% to R1 141 million
- Continued strong investment in operating capacity
- EBITDA of R523 million, up 13%
- EBITDA margin of 46%
- Normalised EPS (NEPS)1 of 85 cents, up 12%
- Basic earnings per share (EPS) of 86 cents, up 8%
- Headline EPS (HEPS) of 85 cents, up 6%
- Return on equity of 55%
- Final dividend per share of 35 cents
- Cash generated from operating activities of R387 million, up 48%
- Currency fluctuations had a R27 million negative impact on 2017 operating profit
The South African segment has continued to produce strong results. The investment in FY16 in distribution capacity has resulted in record sales for the year and a consequent subscriber growth of 17%. The market for telematics and stolen vehicle recovery has shown both resilience and signs of increased demand. Cartrack has been able to increase its penetration through certain channels to market and fully meet its sales growth expectations. Revenue grew by 15% to R861 million, reflecting a 2% reduction in ARPU to R1 801 (FY16: R1 840). This marginally lower ARPU is attributable to an increased weighting of sales through somewhat lower priced channels as well as the application of new business models for customer acquisition.
Profit margins remain largely protected by the growing subscriber base as well as strong annuity-based revenue, combined with a lower increase in operating cost structures as predicted for the second half year.
Operating expenses were closely managed, whilst maintaining the requisite high service quality standards, resulting in an increase of only 8% year-on- year. As a result, operating profit grew by 13%. Gross profit margin decreased by 2 basis points to 79%, but remains high largely as a result of the vertically integrated business model which generates a margin by 'owning' the full cycle of operational activities from production through to fitment, service and vehicle recovery. The operating profit margin for the segment was 36%, while EBITDA increased by 18%.
Cartrack continues to believe that there remains considerable untapped depth to the telematics market, particularly in the lower vehicle value SVR and the small to medium enterprise (SME) Fleet markets and related services. A recently published research report (reference Berg Insight: Fleet Management in South Africa) estimates that the market penetration on the population of non-privately owned fleet vehicles used by businesses was 24% in 2016. The Fleet base now exceeds the pure vehicle recovery base by 34%. Subscribers continue to move towards Fleet products bundled with SVR, as opposed to pure SVR products, as their understanding of the benefits of diverse telematics data increases. However, SVR remains a critical service given the increasing incidence of theft evidenced on the Cartrack base over the past year. The vast telematics data accumulated to date is an inherently valuable asset for analytical and marketing purposes, and represents a significant future revenue opportunity.
The European segment showed solid subscriber growth of 26% and revenue growth of 14% in rand terms. The region has tough competition and is experiencing some market consolidation. These results bear testament to Cartrack's strong telematics value proposition and can be attributed largely to the investment in distribution capacity in the region during this financial year.
Currency movements on consolidation, investment in operating- and distribution capacity, and deprecation of rental acquisition costs had a significant impact on the segment results, causing a 19% decrease in operating profit. On an EBITDA basis, however, an increase of 21% year-on-year is reflected, given that depreciation on the high level of capitalised rentals was a significant factor. Currently, the European operations sell primarily rental contracts resulting in an increase in the capitalisation of hardware and acquisition cost, and the subsequent amortisation thereof over the contract period.
The European market is becoming more discerning in its search for value from telematics, while embracing technological development. This, together with ever increasing regulatory requirements, contributes positively to Cartrack's product development pipeline which also benefits countries outside of Europe in a meaningful way.
The coming of age of the digital era puts the Internet of Things (IoT) and SaaS firmly in the spotlight. As a result, the telematics industry is experiencing an explosion of innovation - something that is at the heart of Cartrack's business and vital to the success thereof.
Current and future customers require ever-increasing information about their assets and people to more effectively achieve their goals. In this context, Cartrack will become a more integral part of their lives, moving away from a service provider relationship to become business partners.
This will require a continued and significant investment in technology and intellectual property, and a further expansion of Cartrack's distribution and operating capacity. Cartrack's current and expected internal cash flow generation will fund the majority of these investments, although inexpensive funding opportunities are easily accessible.
The global telematics industry is showing signs of further consolidation. Cartrack will remain vigilant to such industry developments. Opportunities that may arise to provide economies of scale as well as improved subscriber value will be considered on their merits.
In accordance with 8.40(b) of the JSE Listing Requirements, any forecast information included in this section has not been reviewed and reported on by Cartrack's auditor. The directors take sole responsibility for the statements.
The South African market remains under-penetrated. Opportunities to enter the lower LSM market and to expand the product offering in the fleet-, asset- and people tracking markets will increase sales and revenues. The order book in Europe is strong while new sales are being actively pursued. Asia Pacific is now gaining operational mass as a region, with a strong sales pipeline and many cross-border opportunities which are ready to be exploited. The Africa-Other operations will be closely monitored and managed in anticipation of a more favourable economic environment.
With all of this in mind, notwithstanding global economic and foreign exchange volatility, Cartrack expects to continue double digit subscriber- and revenue growth in the foreseeable future.