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Cartrack delivers double-digit earnings increase

The group hasn’t focused on growing its business in Africa in this period, but it has high hopes for the US in the near future, notes CEO Zak Calisto.

NOMPU SIZIBA: Data-analytics and vehicle-tracking recovery company Cartrack released its interim results today. It reported operating profit up 34% at R263.4 million, while earnings before interest, tax depreciation and amortisation [Ebitda] increased by 29% to R383.9 million.

The company says that its total group subscriber base grew by 28% to 849 772. The company has operations here, in the rest of Africa, in Europe and in the United States.

Well, to tell us more about the numbers and what’s going on generally in the company, I’m joined on the line by Zak Calisto, the CEO at Cartrack. Thanks very much for joining us, Zak. Your metrics are looking great indeed. Your headline earnings per share are up 25%, your return on equity 55%, return on assets 27% and your Ebitda rising by 29%. What’s behind these numbers?

ZAK CALISTO: Good evening. Thanks very much for having me on the show. Quite frankly, it’s doing basically some of things relatively consistently with what we’ve been doing in the past, despite in the past 18 months having had stronger growth. That is because we’ve improved our distribution channels and our ability to meet demand.

We’ve grown organically at these type of rates for many years, so it was nothing really out of the ordinary in this reporting period.

NOMPU SIZIBA: That’s very nice, isn’t it? Your subscriber base number grew by 28% to just shy of 850 000. Have you gained some market share in the various territories that you operate in, as a result?

ZAK CALISTO: All the markets that we operate in are under-penetrated, and the penetration continues to grow year-on-year. I don’t think that’s necessarily successfully taking any significant customers away from competitors. I just think that the markets are getting bigger and we are getting a bigger share of the growth market.

NOMPU SIZIBA: It’s interesting that you say that there is under-penetration in the South African corporate and consumer divisions in terms of the services that you provide. So do you see potential for your subscriber number to rise at the 30% level that you saw in South Africa – which you’ve now reported on a cumulative basis – going forward?

ZAK CALISTO: Well, we can’t say, but we feel very comfortable that we’ll have double-digit growth in the foreseeable future. Whether that will be 10%, or 35%, we certainly believe we’ll keep the momentum going.

NOMPU SIZIBA: I hear you. In your rest of Africa operations you saw a decrease in subscribers, although your revenue rose 7% to about R50.5 million. How do you see your rest-of-Africa operations and the potential for growth there?

ZAK CALISTO: I think the market in Africa for the past two to four years, since the collapse of the commodity prices and also more political uncertainty in most of these African countries — that has led to a more depressed market in Africa. We haven’t been able to really grow our business in Africa. Admittedly we haven’t put a huge focus into it either, to grow our distribution. Given the current economic conditions, I don’t think it’s conducive to invest in distribution. Nevertheless, we are putting efforts at this point in time into increasing our distribution, and we believe we will get single-digit growth going forward.

NOMPU SIZIBA: How hectic are the levels of cross-border vehicle theft, and how successful have your interventions been in recovery?

ZAK CALISTO: Outside South Africa we’ve had a recovery rate of 99%. In South Africa we’ve had a recovery rate of 91%. I can’t think of one vehicle at this point in time – maybe there are one or two vehicles – but I would say that, of South African vehicles that get stolen and leave to neighbouring countries, we’ve recovered over 99%. Not one vehicle comes to mind. There might be a few vehicles, but the figure is not meaningful. It might be a handful that we haven’t recovered.

NOMPU SIZIBA: That’s a good job. What’s happening in the US market? You are poised to roll out services there, but you are not quite there yet. Presumably with so many cars and a currently booming economy there, once you get going that should be quite a boon for you.

ZAK CALISTO: Well, we went to America about two years ago, and we thought that within three months we’d have got our technology right and our hardware. We underestimated the complexity. A lot of their infrastructure is still very old. I think that’s because America … is still living with a lot of historical and old network. It’s quite complex, and we underestimated that.

But by 2020 they are rolling out [of] all the faulty networks and they are going to have state-of-the-art technology. And our new product that we’ve developed … has been tested in the United States. We are happy with the tests, and we are ready to roll out. So we believe that in the first quarter of next year we will start rolling out in the US, but we’ll do it very prudently. The US is a big country, it’s easy to lose a lot of money. It’s very difficult to build a distribution anywhere in world, and we will start in one state and slowly roll out from that state. We don’t have to be the biggest and greatest in America, but we believe it’s important to be in America.

NOMPU SIZIBA: I hear you. By your reckoning, demand for telematics data is set to increase, so where do you anticipate the growth to come from, and how are you investing in anticipation of that growth?

ZAK CALISTO: We will invest a considerable amount of money in research and development. Our platforms have substantially improved in the past two years, and we are releasing our new platform in the first quarter of next year. We already have it in some countries. There is a lot of uptake with the new platform, and we are releasing it in South Africa in the first quarter of next year. So we’ve invested in the technology in terms of platforms.

We have also invested quite a lot in our devices. Our new-generation devices will come to the market in the first quarter of next year. So we’ve invested in technology, distribution and parent systems – and we continue to do this. If you want to become and stay relevant you have to have growth.

NOMPU SIZIBA: Absolutely. I want to come back to the South African market. Like you say, you expect comfortable growth and things like that. Do you consider your offering, your technology, to be quite a defensive type of operation that you have insofar as, if we are in recession or we’ve got lacklustre growth, that doesn’t really affect you because people still need to invest in security?

ZAK CALISTO: Yes, there’s a part truth to that. I think one needs to understand that what we charge customers is really not a lot of money – R150 – and the value you get is substantial. So it’s a real value-for-money proposition. We do find that our customers want to pay for our services and I believe they will default on other services before they default on us.

NOMPU SIZIBA: That’s a lot of confidence there.

ZAK CALISTO: But I must add that we are seeing a tougher economic environment. In the past two years we’ve seen the default rate increasing, and the environment is tough out there. We haven’t got confidence that it’s not going to get any tougher. It might get tougher, but I think we are positioned – and we’ve packed it into our pricing – to be able to weather a possible increase in bad debt.

NOMPU SIZIBA: I see that your annuity revenue represents 93% of your total revenue. Going forward, are you looking at diversifying your income streams?

ZAK CALISTO: Our intention is – and I believe we’ll get – 100% of our revenue from annuities. Our business is an annuity-based business. I think it’s just a question of time and it will be 100% year-to-date.

NOMPU SIZIBA: As long as your business keeps growing, that’s all that matters.

ZAK CALISTO: That’s our business model, being an annuity-based business. So we don’t want to move away from annuity-based business. We believe in the annuity-based model.

NOMPU SIZIBA: Super. Thank you very much, Zak for your time.

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