JSE-listed software and data analytics company Karooooo says although there are expansion opportunities across 23 countries, its biggest growth potential lies in the Asia-Pacific (Apac) market.
“We have a lot of competitors in Asia. Most of them are local competitors that don’t have much of a sophisticated offering yet,” said CEO Zak Calisto at Karooooo’s results presentation on Thursday.
Reporting its 2023 first quarter (Q1) results, it said its Internet of Things (IoT) subsidiary Cartrack accelerated investment in its operations in the region, as Covid-19 disruptions eased.
“This included talent attraction and brand strengthening, which translated into commercial customer wins in Southeast Asia,” it added in a statement issued on Thursday.
Karooooo noted that the number of commercial subscribers in Southeast Asia grew by 25% to 156 322 by the end of the quarter in comparison to Q1 2022 when it recorded 124 617 subscribers. This, it said, translated to 19% growth in subscription revenue.
It noted that while the Asia Pacific, Middle East and United States segment is its second-largest revenue contributor, Southeast Asia presents the greatest opportunity in the medium to long term.
“As the pace of Cartrack’s expansion into Southeast Asia (beyond Singapore) moves ahead of historical growth rates, we expect average revenue per subscriber per month in Asia to tend closer to that in South Africa.”
In Europe, it recorded 15% subscriber growth contributing 14% subscription revenue growth on a constant currency basis. By the end of the quarter, it had 132 544 subscribers in the region (Q1 2022: 114 767).
“We plan to increase the pace of our investment in growth in this region in 2023. This will entail reordering teams and growing our presence to position us for expansion into new European markets in six to 12 months.”
In South Africa, Karooooo’s biggest market, subscription revenue increased by 17% in Q1 2023 in comparison with the previous comparative period. It recorded 11% growth in subscribers to 1 184 000.
“The lower-than-expected increase was attributable to the weak macroeconomic environment in South Africa and the KwaZulu-Natal floods.
“The sudden significant increases in inflation in many markets globally and flooding in the KwaZulu-Natal province from April 2022 initially dampened sales in South Africa with customers exercising more caution amidst looming inflationary pressures,” it said.
This translated into higher-than-normal customer payment defaults.
However, the company says trading conditions in the country appear to have normalised due to the strong demand for Cartrack’s platform and its total net subscriber additions for June exceeding 18 000.
Excluding South Africa, the company reported an 11% growth in subscribers in Africa, to 69 906, which translated into 23% growth in subscription revenue on a constant currency basis. It expects new partnerships with original equipment manfucturers (OEMs) – including Toyota-Connect and Hino-Connect – to support growth on the continent.
Overall, Karooooo’s subscription revenue increased by 17% to R709 million compared with Q1 2022. Its total revenue grew by 28% to R801 million in the quarter.
It says Cartrack’s revenue and subscription revenue accounted for 90.3% and 99.8% of Karooooo’s revenue and subscription revenue in the period respectively.
Karooooo’s revenue growth together with ongoing operating efficiencies resulted in a 44% increase in profit for the period to R156 million and earnings per share up 42% (R4.96).
“Strong free cash flow generation bolstered our robust cash position, notwithstanding our investment in future growth.”
Reporting a net cash and cash equivalents balance of R854 million at the end of the quarter, it said its “profitability, inherently cash-generative business model and our strong balance sheet” supported declaring an interim dividend of 60 US cents per ordinary share.
Its Carzuka and Karooooo Logistics segments generated revenue of R50 million (Q1 2021: R32 million) and R27.7 million (Q1 2021: R24 million) respectively, also bolstering revenue growth.
However, both segments incurred an operating loss: Carzuka of R4 million (Q1 2022: R3 million), and Karooooo Logistics of R93 000 (Q1 2022: Nil). Karooooo expects both to become profitable by 2024.
Karooooo has left its outlook for subscriber growth in 2023 unchanged.
“Looking ahead, we believe we have multiple levers for expansion and are well positioned to capitalise on a large and growing market opportunity,” says Calisto.
“Our ability to create compelling value from the billions of data points we collect continues to improve, differentiating our offering to enterprise customers.”
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Nondumiso Lehutso is a Moneyweb intern.