NOMPU SIZIBA: Cartrack Holdings released its annual results today [Tuesday] for the 12 months ended February 2019. The company reported an increase in subscriber numbers of 28% to over 960 000, and it says that 90% of its total revenue comes from its subscriber business. Subscription revenue was up 30% – to over R1.5 billion. The company reported headline earnings per share up 16% at 116 cents. Shareholders are set to get a dividend of 12 cents/share.
To tell us the story behind the numbers, I’m joined on the line by Zak Calisto, the founder and global CEO of Cartrack. Thanks very much for joining us, Zak. There are more numbers that I could have reeled off – for example, that your operating margin now stands at 30% and you saw operating profit up 15% at R500 million. The numbers are really looking good at the moment – to what do you attribute all of this?
ZAK CALISTO: Hi, Nompu. Thanks very much for having me on the show. I think fundamentally there is a huge demand for our type of services, both from the commercial side, where [customers] are looking to optimise their vehicles, optimise their drivers and reduce costs. So for our services the demand is growing. Basically you are at a disadvantage if you haven’t got our technology. So it really is an equaliser.
And on the consumer side, we have brought in quite a lot of services, where we now have ambulance services in case you are in an accident, and we continue with our recovery services for security purposes. Crime is on the increase and there is a substantial amount of demand for our services – not only in South Africa, but globally.
NOMPU SIZIBA: We’ll come to the global picture in just a moment. In the South African market you recorded subscription revenue growth of 31% to R1.1 billion. That’s quite amazing growth in a poor economic market environment, and also at a time when vehicle sales, both new and used, have suffered somewhat.
ZAK CALISTO: Yes, that is a fact, but we are very conscious of the strain on the economy. We also feel it. We’ve felt it in the bad debt this year. So the demand is there, but the affordability is definitely on the decline. We are very conscious of that, and the risks that come with that sort of environment.
NOMPU SIZIBA: The bad debt – how bad was it?
ZAK CALISTO: Well, it wasn’t substantially bad but, for the group, bad debt went up – I haven’t got the exact numbers in front of me – but it went up substantially from in the region of R20-something million to, if I’m not incorrect, about R43 million. Most of that comes from South Africa.
NOMPU SIZIBA: You touched on crime. You are boasting that your stolen-car recovery rates are around 92%, but in the year under review what were your observations around car theft and hijackings? Are these incidents on the rise or going down?
ZAK CALISTO: Our recovery rate this year was again 92%. Unfortunately the incidents are increasing per vehicle on the street, so that’s quite negative for South Africa in the bigger picture. And I think that’s also driving demand for our services on the consumer side.
NOMPU SIZIBA: You are playing in about 23 countries, across a number of continents. Just touch on your key markets very quickly, how you are doing, how your services are being received and where you see potential growth.
ZAK CALISTO: We see growth in all the markets that we are in. We’ve basically got five segments – South Africa, being one of them, the biggest segment at this point in time. Our second-biggest segment if South East Asia. We see huge growth coming from South East Asia, and we believe that this coming year it is going to be substantially better. This year in Asia we saw 50% growth – that’s subscribers, and revenue subscription growth. In Europe we saw 28% subscription growth. So we see growth in all the segments that we are in.
Africa, excluding South Africa, has been very flat for the last three or four years. But this year, especially in the last six months, we are seeing a recovery of that, so we’ve seen our Ebitda go up by 20%, and we saw a modest 4 to 5% increase in our subscribers. We believe that next year we’ll see an improvement again in Africa, excluding South Africa.
On the American front we’ve got our [telematics] ready at this point in time, and we just haven’t got enough hands to get to it now. So hopefully in this financial year we’ll start putting resources towards America. It continues to be a strategic investment. We don’t believe we are going to conquer America, but it’s very strategic to be there.
NOMPU SIZIBA: Do you have much in the way of competition there?
ZAK CALISTO: We’ve got competition everywhere. We have very strong competition in South Africa, we’ve got competition in Europe and Asia. I don’t think there is anywhere where we haven’t got strong competition, and we are competing with the best. Even in South Africa I think our competitors give us a run for our money. They are solid companies. We’ve got solid competition everywhere.
ZAK CALISTO: You indicate in your report that you work very closely with your insurance partners, the guys who tell us it’s a very good idea for you to get a tracker in your car. What sort of data do you share with insurance partners that enables them to better mitigate their risk?
ZAK CALISTO: Well, we believe our customers own the data, and the data that we submit to the insurance companies is with the consent of the subscriber. On that we basically do the analytics of the [telematics] and we’ve got complex algorithms that look at that data. And it’s all to our benefit to be able to identify the driver and the change in the behaviour of each individual driver. So, if one person drives in a certain way, when they change [to another] that’s when the risk occurs, as opposed to somebody that drives fast.
So it’s quite complex analytics that we do to be able to get the best pricing for the subscriber.
NOMPU SIZIBA: I notice that you stress the point that it’s with the consumer’s consent, but what happens in a scenario where there is an accident and the various insurance companies want an analysis of what has taken place? You would not give that to them unless you received the consent of your subscribers – is that what you are saying?
ZAK CALISTO: If a subscriber has come through the insurance, and the consent has been given to the insurance company, then we will provide it. Otherwise we will only provide it through the legal process. We are obliged to hand it to the authorities. But the information is proprietary to the subscriber.
NOMPU SIZIBA: You mentioned that you are investing a lot, you talked about the American market, for example, and administratively you talk about investing in your back office in order to manage credit risk, and basically trying to bring down that bad debt that you were talking about. What tools are you using for that?
ZAK CALISTO: It’s all in-house developments, and efficiency. So we’ve probably, at this point in time, got a very sophisticated back-office to collect money, and it’s getting more and more sophisticated. There is a lot of room for improvement, but these are certainly tools that we didn’t have 12 months ago. Without these tools it’s very difficult to control debt, especially when you are having so much pressure in the economy.
NOMPU SIZIBA: Zak, it does help that you are diversified geographically but, just broadly, what’s your outlook for the business going forward?
ZAK CALISTO: I’m very positive about it. I still believe all the markets we operate in continue to be heavily under-penetrated. There is huge growth potential and I believe we will continue growing with double-digit numbers.
NOMPU SIZIBA: Super. All the best to you, Zak, Thank you very much for your time, sir.