Karooooo Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 9, 2023

There are 3 speakers on the call.

Operator

Welcome and

Speaker 1

thank you for joining Kourou's Q4 and full year FY 'twenty three results webinar. I'm Hanan, the Group Chief Strategy and Marketing Officer. Together with Hu Shen, our Group Chief Financial Officer, will be taking into our performance, growth and future plans. Our team, our CEO and Founder, Zach, is committed to delivering on our strategic goals and creating long term value for all of our stakeholders. All shareholders and investors are advised to read this disclaimer.

Speaker 1

We will be reviewing all 3 of Kourou's business units in today's webinar, namely Kartrak, Kazuka and Kourou Logistics. Karoo is not just embracing the future of operations, we are helping define it. We understand that mobility is core to all operations and give the large value in not just connected vehicles and equipment, but connected teams and data driven decision making. By leading the way with innovative solutions and bold new practices, We are on a mission to be the leading operations cloud. We envision a world where operational frictions are eliminated and businesses can operate in a seamless, efficient and safe way that enables them to achieve more with less.

Speaker 1

But achieving this is becoming significantly more difficult for operators. They're running 24 hour operations. Their customers' expectations are increasingly leading to more complicated jobs that span multiple teams and apartments. Their employee expectations are also increasing. Everything needs to be in real time, new regulations keep popping up, costs are skyrocketing.

Speaker 1

There's new technology emerging daily. Teams are using more tools than they can remember. There's an overwhelming amount of data available, little of which is leading to actionable real tangible insights. Things have become complex and they are unmanageable without a simple, but not simplistic solution like ours. Throughout our 17 years in the industry, we have a strong track record of identifying trends early and understanding how we can build a solution that will benefit customers.

Speaker 1

We serve a large amount of independent as well as interconnected challenges for customers from fleet and equipment management to maintenance to delivery operations and field work management, From risk management and compliance to resource sharing and vehicle procurement, by digitally transforming operations and offering tools to help guide our customers and navigate their challenges, we add strong values to their daily operations. Peru plays a massive, interconnected and largely untappedable markets. According to analyst estimates, operations account for over 40% of global GDP with a huge runway ahead of us. Businesses are becoming more aware that IoT data is critical to improving their operations and operations are increasingly more cross functional, meaning the interdependencies between the problems we solve by expanding along with the opportunity ahead of us. We are only at the start of a large long term growth opportunity.

Speaker 1

Globally, Geru saw a 19% increase in the number of commercial customers using this cloud platform. As of Q4 FY 'twenty three, we helped over 105,000 small to large businesses across diverse industries optimize our operations, and we continue to see no customer or industry concentration risk. Customers have adopted our solution in varying ways, but all rely on our platform for their operations. The vast diversity in geographies, customers and applications of our platform speak to our strong ability to create a key solution and localize market needs in a scalable manner. Our strong track record of profitably growing at scale is best explained through an understanding of our fundamental business culture and principles that ZAC took to market in 2004.

Speaker 1

Firstly, we are fully vertically integrated from sales to handling solutions, R and D to customer care, we do it all ourselves. This has given us in-depth tangible knowledge of the day to day operational challenges our customers face. This means that we have been building operational software that links different business units and solves complex since we were founded. We also know that not all data is useful, and it's the ability to link data from different sources and managing to communicate that in a simple to understand Execute way that makes a difference. Most importantly, we ensure our technology is setting our business up for success today, tomorrow and all days ahead.

Speaker 1

Our technology does not just focus on detecting problems and rending the damages. It also focuses on tackling the root cause of challenges to prevent it from occurring in the first place. Secondly, we build scalable solutions. We went to market with a solution that solved 80% of all customers' problems and did not focus on developing a niche product for a specific industry or customer. This has helped us because building for scale rather than customizing forced us to learn how to distribute successfully at scale across different regions and through different macroeconomic environments.

Speaker 1

We've also learned that customers need to have everything in one place and understand that alone, we are unlikely to provide all the data needed to fully contextualize the business. So we've ensured our platform has open APIs and have built an ecosystem that truly addresses the needs of the business. This increases our platform stickiness and future proofs our solution as customers' needs evolve. And finally, we focus on delivering a world class customer experience. When we launched our fleet management solution, we went straight to cloud and we were the 1st to market allowing customers the convenience of choosing a location and time for their IoT installations.

Speaker 1

This customer centricity has helped build strong foundations for our business. Today, we consistently invest in and improve on our proprietary internal systems and tools that empower us to to see our customers' expectations. We see many companies beginning to struggle once they reach a certain scale as they cannot efficiently manage so many moving parts. Our proprietary internal systems allow us to remain extremely streamlined in servicing our customers as we grow at scale, ensuring we maintain our strong customer centricity and efficiencies. Content innovation is our status quo.

Speaker 1

We always ask, is there a fair way to do this? We do not believe that because it was the right way to do things 2 years ago, it's still the right way of doing things today. And finally, we work with our customers to guarantee our solution fits into their business and is easy to implement across all stakeholders. This ensures strong uptake and long term stickiness as customers very quickly feel the strong ROI of our solution. Fundamentally, our foundation have allowed us to successfully differentiate ourselves for strong execution, and we consistently build for the future.

Speaker 1

We are forward looking and are building a sustainable business that will benefit stakeholders for the generations to come. In summary, we win for the following reasons. We have unique go to market strategies. We challenge the status quo and focus on solving problems. We place full focus on providing a great customer experience.

Speaker 1

Customers know they can rely on our solution as a backbone of their operations. Our culture is entrepreneurial. Our teams take ownership, are innovative and remain agile to adapt to different market conditions. We have a user friendly end to end operations cloud. It's easy for customers to derive huge value from our platform.

Speaker 1

We have strong distribution channels. We can reach small to large customers across varying industries and geographies, regardless of where they are in their digitalization journey. We're proprietary internal management systems. Our teams and business units speak to each other to ensure we can continue to successfully scale at large. Our business is also vertically integrated.

Speaker 1

All components of our operation are aligned towards the same goal. Fundamentally, we deliver a high ROI for customers and customers rely on our platform to run their month to month, day to day, hour to hour operations. For many, the uptime of our platform is more important than the of any other software their business is using. Whilst there is a lot of noise in the world, there are 3 key trends that have been strong sustained momentum and are driving huge need and adoption for our Platform. Firstly, digitalization.

Speaker 1

Companies of all sizes and across all industries are looking for ways in which they can reinvent their business with technology. They understand that to remain competitive, they need full visibility of their operations. They know that they need to leverage data and contextualize insights to meet the speed and quick decision making required in today's world. Then ESG, companies and consumers are looking to do better and companies are looking to go far beyond just reducing the company emissions. They're looking at increasing vehicle lifespans, switching to electric vehicles, increasing their community impact with better service delivery.

Speaker 1

Customers are asking us to show them how to use our solution bridge the historical divide between drivers, teams and managers to boost morale and safety within their business. And lastly, compliance. Businesses and regulators looking for increased transparency and compliance is spreading across all operations teams and industries. Governments are implementing and enforcing more laws around work times and other safety or well-being metrics, penalties for non compliance legislation are increasing. We have seen these shifts intensify over the years globally, and now we see that companies are embracing change and determined to be greater than.

Speaker 1

Asia is full of rapidly growing emerging markets, making the opportunity for Peru huge. Each market remains largely with no single large nor comprehensive provider. Populations in these markets are digitally savvy and technology is widespread even in small remote towns. Whilst the opportunity is large, it is important to note that Asia is full of strong cultures that vary dramatically between markets. It's a place where it is critical to have hands on the ground to understand all local nuances and localize effectively.

Speaker 1

We believe by positioning our global headquarters in Singapore, we are positioned well for success. Companies are also looking for partners they can rely on for their business and they are learning weekly to think about return rather than just focusing on cost. We see many large and small businesses come to us for our reliable, easy to use platform as well as our strong customer centricity and support. Our advanced cloud platform and robust service delivery sets us up well to compete favorably in Asia. Whilst there is a portion of the market that is only beginning their digitalization journey, there is also a large portion of the market paving the way to sophisticated means.

Speaker 1

Companies understand the value our platform provides and rely on our analytics to deliver on their missions. These companies are doing much more than just looking at GPS. Companies care about their service delivery. A tourism company uses our solution to ensure their passengers are transported safely on time and also receive the full trip they were sold. Sophisticated reporting allows managers and drivers deviate from their prescribed routes, leads tourism sites too quickly or make any unexpected stops.

Speaker 1

With our platform, they've brought down their speeding event significantly and ensured all trips run according to schedule. They understand that our solution is a core product to their reputation, Risk Management and Brand. Businesses are also forward thinking. A short term rental company has fully adopted EV and uses our solutions to optimize these charging schedules, our advanced engine diagnostics and other telemetry data to establish effective maintenance schedules that need for overshoot or undershoot services, leading the huge reduction in overall maintenance costs, whilst extending vehicle lifespans. With vehicle productivity metrics, they know how to house each vehicle and are better able to predict demand for their business, Planning and Vehicle Purchasing.

Speaker 1

They were able to effectively launch the vehicle delivery solution with our in field service tools, giving them a game changing differentiator, and they've redefined what customers expect from Rental Companies. Businesses are also data driven. AFMCG Business doing over 10,000 daily deliveries, a stand for value of data and contextualizing it across different business units. Using our platform, all teams now have full and unified visibility of the entire business process. Real time analytics and communication has enabled them to slash the number of steps in a delivery process, saving up thousands of hours across their fleet daily.

Speaker 1

Sophisticated APIs into their ERP and other tools, they have connected their entire operation. The carrying downtime of the vehicle as a result of inefficient warehousing strategies has been minimized, driver wages are now accurately calculated, safety has skyrocketed through gamified safe driving plans, idling and unproductive fuel usage has been conquered. The business has seen dramatic savings from the increased productivity across our fleet and warehouses as well as peace of mind knowing that drivers are representing the company in a strong professional light. Karoo is a large untapped network effect opportunity generated from its Platform, with over 125,000,000,000 valuable data points generated monthly. In South Africa alone, we have around 10% of all vehicles on the road, giving us a huge runway for adding increased benefits for our customers.

Speaker 1

Customers are benefiting as we are personalizing their experiences and providing them with tools to improve decision making and increase their efficiencies. For example, a company can now benchmark their operations against others in their industries. Predicted analytics of historical data are not only leading to improved customer loyalty, but allow us to develop new products and services to expand our platform. To summarize, we believe our strong management, entrepreneurial culture Inverted, the integrated business model have led to our proven track record of growth and profitability in varying macroeconomic headwinds across regions. We innovate through an entrepreneurial approach that prioritizes customer needs, utilizing our hands on experience and skills and being adaptable in both planning and execution.

Speaker 1

We offer a strong value proposition that is easy to group to customers. Our customer churn remains low as customers see we are consistently delivering on new value enhancing solutions whilst maintaining a stable ARPU. They trust us. We are able to pass on the benefits of economies of scale to our customers as we successfully execute while maintaining prudent capital allocation. Karoo has a strong financial foundation.

Speaker 1

The ability to control prices and maintain high operating profit margins, solid unit economics and a history of sustained growth at scale has resulted in a robust balance sheet and resilient business model. We have ample runway for growth. I will now pass it over to Vu Shen, who will take us through our financial performance. Thank you.

Operator

I will now talk to Karim's financial performance for quarter 4 FY 'twenty three. Please note that all comparisons are against Q4 FY 'twenty two unless otherwise stated. The performance of quarter 4 has been strong and our cash generation continued to bolster from our profitable asset business model. As expected, after Essential investment for future growth in all segments, operating profits and earnings per share for the quarter rose by 60% and 51%, respectively. Year to date operating profit increased by 26 percent to RMB882 1,000,000 and earnings per share increased by 27 percent to RMB19.29.

Operator

This is a result of our prudent and strategic investment growth strategy. Free cash flow up by 54% in this quarter and 44% on a year to date basis. This result was achieved despite the group's strategic investment in expansion, brand building and customer acquisition for long term growth. Considering the strong earnings and free cash flow, clean and unleveraged balance sheet, we are pleased to declare a record dividend of US0.05 dollars per share. The dividend will be paid to the shareholders in July 2023.

Operator

We are confident that this will not impact our growth. We view our and report our performance in 3 segments, namely Kartrak, Hazuka and Karoo Logistics. Our total revenue increased by 24% to RMB960 1,000,000 at the end of Q4 and RMB3507 1,000,000 on a year to date basis. Kartrak Group's Revenue by 16% to RMB796 1,000,000 at the end of Q4 and 17% to RMB376 1,000,000 on a year to date basis. Operating profit for the year increased by 28% to RMB915 1,000,000 and operating profit margin stood at 30%.

Operator

Cartrack's year to date EBITDA margin at Tasulpa's steady expansion continued to justify our belief in the sustainability of its agile, data enhanced and highly scalable business model. It is also a testament of Peru's customer centric innovation in solving unique mobility needs. Hazuka delivered RMB4 1,000,000 in revenue at the end of Q4 and RMB251 million to date. While it is at an operating loss as we continue to invest in the infrastructure and brand building, We will also focus in refining our internal processes to improvise the efficacy and being pragmatic in our spending. Once the revenue is more than $300,000,000 per quarter, We believe the business will be profitable.

Operator

Cover Logistics delivered significant growth, generating RMB56 1,000,000 in revenue at the end of Q4 and RMB180 1,000,000 on a year to date basis. Travel Logistics showed an encouraging operating profit of RMB5 1,000,000 and an operating profit margin of 3% for a year. Its focus on delivery as a service has gained momentum while it continued to integrate into Kartrak platform to expand its customer base. All segments are seeing strong traction with the benefit of our strategic investment beginning to show. Our profitable continue to bolster our cash flow generation ability with net cash on hand up by 35% at the end of the year at R96 1,000,000.

Operator

During the year, RMB72 1,000,000 are invested in the development of South African Central Office and RMB50 1,000,000 are invested in the working capital of Kansuka. In Q3, cash dividend of $18,600,000 was paid to the shareholders. Capital turnover days continue to show improvement to 31 days alongside with prudent visioning to weather off strong economic headwinds in some of the markets we are operating. We have strong unit economics, robust operating margins, a strong balance sheet and cash position and have consistently beaten the rule of 40. We remain confident that our track record of success, especially our ability to generate healthy cash flow, is sustainable.

Operator

Our earnings per share increased by 51 percent to R0.4 $7 in Q4 and 26% to R0.19 0.29 on a year to date basis. The increase is the result of positive revenue growth and improved profitability during the year despite the impact from the dividend reporting tax of RMB27 1,000,000. We will now focus on Kartrak, the underlying asset to Karoo's success. Kartrak's continued to prove its ability to scale in varying macroeconomic conditions. Overall, subscriber grew at scale by 13% to RMB 1,777,077.

Operator

And in this quarter, subscription revenue grew to RMB 793,000,000 And operating profit rose to RMB248 1,000,000. Our track records of strong annual compounding growth and financial discipline can be seen in our performance. On a year to date basis, Kartrak subscription revenue grew 17% to RMB304 1,000,000 and our operating profit grew 28% to a record RMB950 1,000,000. Our operating profit and operating profit margin were negatively impacted this financial year as we expense upfront a bigger portion of our cost of acquiring a subscriber in our cloud than in previous year. With mentioning, our SaaS ARR for the year grew by 19%.

Operator

As Kartrak continued with strong sense revenue growth, Kartrak's total revenue grew 17% to RMB37 1,000,000. Kartrak's total subscription revenue represent 98% of total revenue, in line with our SaaS business model. The strong performance of Kartrak was largely supported by demand of small to large enterprise to improve compliance functions and will digitally transform their business to become more efficient and competitive. As Cars Direct continues to have great visibility of future revenue, our realization of economies of scale continue to demonstrate our ability to extend our margin. Gross profit for Q4 up by 27 percent to RMB568 1,000,000 and gross profit margin improved from 65.4% to 71.4% compared to Q4 last year.

Operator

On a year to date basis, gross profit up by 22% to RMB2222 million and gross profit margin improved from 68.4% to 71.6% compared to last year. Operating profit For Q4, up by 61 percent to RMB248 1,000,000 and operating profit margin improved from 22.5% to 31.1% compared to the same quarter last year. On a year to date basis, operating profit up by 28% to RMB 950 1,000,000 and operating profit margin improved from 27.1 percent to 29.7% compared to last year. Adjusted EBITDA by 23% to RMB371 1,000,000 and adjusted EBITDA margin improved from 34.2 percent to 46.6 Same compared to Q4 last year. On a year to date basis, adjusted EBITDA up by 19% to RMB1456 million and adjusted EBITDA margin improved from 46.6 percent to 47.3%.

Operator

Cars track low cost of acquiring a customer, High customer lifetime value and retention rate as well as strong benefits from economy of scale resulted in our leading unit economics. Our LTV to pack is overnight. We have strong profit margins with our gross profit margin on subscription revenue is 73% and our operating profit margin is 30%. While we will remain prudent with our capital allocation, we are well positioned to continue to scale our business. Over the years, Kartrak has maintained a steady ARPU and average cost of acquiring a ARPU for the year was RMB 155.

Operator

Kartrak's average lifetime revenue per subscriber increased to RMB9323 this year. The average cost of adding a subscriber to our cloud in this year was RMB 2,264 and in Q4, it was RMB 2,148. Taking RMB9323 and subtracting RMB2264 gives us a headroom of RMB7059 per subscriber. From the RMB7,059, we incurred the cost to service a subscriber over 60 months, which allowed us to drive a very strong operating profit margin, but headroom has remained steady. Contract continued to expand in all geographic.

Operator

In South Africa, despite challenging trading conditions due to national power outage, Subscriber grew by 11% as we see strong customer demand for our value proposition. In Asia, the Middle East and U. S. A, Subscriber grew by 28% as the pace of Kartrak's expansion into Southeast Asia moves ahead of historical growth rates. Considering that Southeast Asian economies only began to open up towards the end of We are pleased with the traction gain in this region.

Operator

As the 2nd largest contributor to the group revenue, Southeast Asia presents the group's most compelling growth opportunity in medium to long term. Europe saw a healthy growth of 13% and remain efficient, we aim to allocate more resources in order to drive more rapid growth. Africa Others maintained its momentum with 8% increase in subscribers. On a year to date basis, our ARR increased 19% to RMB 3,230 RMB5 1,000,000, which is at a good trending as we continue to grow our subscriber base and ARR. Car tracks continue to have robust Operating margins and our trends are in line with the long term financial goals set up on our listing in 2021.

Operator

Research and development as a percentage of subscription revenue are 6%, In line with our long term target of 4% to 6%, we will be increasing capital allocation into sales and marketing to drive growth, whereby we expect sales and marketing as a percentage of subscription revenue to increase from the current 13% to be within our long term target of 17% to 19%. We also expect general and admin as a percentage of Subscription revenue to drop from 22% as we experienced increased economy of scale, whereby it will fall in line with targets of 12% to 16%. Our adjusted EBITDA as a percentage of subscription revenue at 48% will continue to improve to be in line with our targets of 50% to 55 We have met our 2023 outlook with number of subscribers stood at 1,700,000,000 Kartrak subscription revenue recorded at RMB304 1,000,000 and adjusted EBITDA margin of 47%. We are happy with the progress we have made for the year. Our guidance for cash check outlook for year 2024 are number of subscribers between 1,900,000 to 2,100,000 the widening because of the volatility and macroeconomic environment.

Operator

As you may be aware, we published our subscriber numbers on our website. And as at the end of April, we have reported the subscriber to be over 1,750,000. Subscription revenue outlook for 2024 is between RMB 3,400 million to RMB 3,600 million and operating profit margin between 28% to 31%. Kazuka and Karoo Lawistic continue to scale and bolster Karoo's revenue growth. Both segments show good progress with strong year to date revenue growth of 2 In combination with its intuitive e commerce platform, Kasuga has made significant progress expanded its physical showroom, adding steady strategic hubs across South Africa and building its brand.

Operator

Karoo Logistics will continue to integrate into Kartrak's platform, enabling Kartrak I would like to thank everybody for joining us today and will now open the floor to Q and A with our Group CEO and Founder, Mr. Zack Callisto.

Speaker 1

This meeting is being recorded.

Speaker 2

Good evening or good morning wherever you are. It's Zack sitting here over here. And I'm just going to read out the questions. So the first question I've got is from William Blair. Can you discuss the importance of the OEM partnerships that have been in the series And on the last line.

Speaker 2

And I've seen many occasions before that, eventually, their own, they will have their own telematics solutions and develop their own platforms. The platforms will be very much about the diagnostics of the vehicle and the safety of the vehicle. And our platform is really about helping customers With the operations and with things outside the diagnostics, but clearly we also do the diagnostics. And this is just an example Where we now get the data from the OEM devices and that data then gets into our platform. Are there any update in the pipeline?

Speaker 2

We are talking to all the other European motor manufacturers. We are in final testing with some. And I believe by the end of Q2, we are probably adding about another 5 OEM brands onto the portfolio. And would you see that the go to market strategy with this only really adding value to us by FY 2025 as We currently bring the integrations into the above in the series, but then we've also got to get the distribution right. And this obviously is a long term project and a long term Another question from Kiran at Rimbey.

Speaker 2

What are your expectations for Asia region in FY 'twenty four? It's clearly we've got 2 months into the region. Clearly, Asia in March and April has any of the other regions in terms of percentage growth. And we clearly are employing people and building our distribution capacity. And that is our focus at this point in time.

Speaker 2

It's just holding that capacity to distribute and launch everything. It's not always easy To build that capacity takes a lot of energy, a lot of trial and error, and we're very busy with that and we're quite confident with the traction we've seen. Next question from Miles Fourie. What is Kalu's current staff complement? And what percentage do you expect to increase in FY 'twenty four As at the end of February 2023, our staff was over 4,000 staff, And we probably intend finishing off the year with about 4,800 staff members.

Speaker 2

Your next question also from Maas Priy. Are you having any difficulties improving staff vacancies in Southeast Asia and Europe? The reality is putting staff vacancies It's never easy. If you do find somebody that finds it easy, please let them in, let them come and teach us what the rest is. But it's always difficult, especially if you want to do it In the way we've traditionally grown up the business, which is very much financial discipline, making sure that the staff are trained, that you build up the staff.

Speaker 2

And it's never easy, but that's what we've been doing for many years now. The next question from Park Lane. Zack, how are you thinking about the seasonality of net subscriber additions throughout the coming year? When you consider the change that you've seen start So if we look at the first 2 months of Q1, it's very much in keeping with our expectations. We've added about over 40,000 net So I think we're having a relatively good quarter in Q1.

Speaker 2

And typically, over a decade plus of history, What we normally find is Q1 is traditionally a difficult quarter and Q4 is a difficult quarter. And that's predominantly because of all the public holidays that you get At the end of the year, in that you get in April, you either have the Christian holidays or the Jewish holidays or the Muslim holidays. There's a tremendous amount of holidays and festivities in Q1. So it's normally a weak quarter and hopefully we'll have a better Q2 and a Q3 quarter. Next question from Histro Georgiuk.

Speaker 2

Can you give us more details of the partnership with BMW and Sigismir? What value prop what Australia proposition does CarCheck do for both OEMs given that they've got to provide the telematics service? I think the question has been partially answered when on Kiran's question. Our better proposition is really that We, for instance, as part in Europe, there's compliance now where every single vehicle, sedan vehicle that is owned by a company. They're going to have to have a tactile graph holding to it.

Speaker 2

The purpose of that is that The covenants do not want to see any company vehicle being driven by more than 4 hours by 1 person. And that It was supposed to come into play in Q4 of last year. It's now been postponed to Q2 of this year. We're the only company in Europe that's actually been approved, and that's why they've postponed it because I want to get more of our competitors to have The technology approved. And clearly, there will be 20 sedans, which will Acquired this technology because a lot of these standards do belong to companies.

Speaker 2

And over and above that, there's other services that we can supply that the OEMs are not Next question from Rudy Van Nieker. What threats, Challenges and opportunities as the shift to electric vehicles pose for Kajak. We've been fortunate, Ruby, that we are, At the moment, we are in Singapore. So Singapore is probably in the top Five leading countries with electric vehicles, and we're very close to the infrastructure of electric vehicles, and we are developing technology to deal with this. This will give us the advantage that once it takes bigger momentum in Europe, specifically in South Africa, we will have the technology that today we really give into the Singaporean customers, we will be able to scale that technology into other regions.

Speaker 2

Next question from Alex. Can you talk about our subscriber growth tender in March, April relative to Q4 out of the book on a geographic basis? So I think, Alex, all the questions partially been answered. On a geographic basis, clearly, Asia continues to be our strongest region Great. But what's encouraging is we saw a strong recovery in South Africa, predominantly as we We geared ourselves to operate in a more difficult environment and predominantly that's been caused by the power outages, the traffic lights that don't function, The delays and so it's encouraging what we're seeing in Q1.

Speaker 2

The next question from Matthew at Confluence Impact Fund. Please can you comment on ARPU for Cartrack by region? We've had a very steady ARPU if you take Europe, South Africa, The rest of Africa, very steady. Asia's ARPU is significantly higher than in any other region. But the reason for that is that we've got a huge base of customers in Singapore, where doing business in Singapore is also And much more expensive than in other regions.

Speaker 2

So as Indonesia, Philippines, Thailand, Malaysia gets bigger, Those ARPUs will trend to be very similar to South Africa and the other region we operate in. The next question from Alex. How are you thinking about sales and marketing hiring in FY 'twenty four Within the context of your outlook, clearly, this is a focus area. It's hiring. It's the training.

Speaker 2

It's the retention. It's what we've been doing, and it hasn't been easy. I think what we saw In FY 'twenty three, it was post COVID, it was like the world had been reshuffled in terms of talent, With its R and D talent, whether it's sales staff, whether it's administrative staff, so that's all starting to settle quite nicely. And hopefully, we will be able to find our feet and be able to expedite the hiring and the training and get stronger year by year. The next question is from.

Speaker 2

In relation to the unit occurrence where last Revenue less cost of acquisition of this trial allows you roughly 7,000 excess of acquisition. What is the current lifetime cost to service the customer as I've distributed between administration and sales and marketing to resell filling of the customers. So Richard, I'm not going to read your question twice or three times. I'm just going to speak because sometimes you're going to read these questions a few times To fully understand what you're asking, fundamentally, if we look at the unit economics of a subscriber, what we've got to ARPU, We've got the average life cycle expectancy, which is 16 months. You multiply those 2 and you get the revenue that you envisage or estimate You get from one vehicle on your platform.

Speaker 2

From there, you deduct your cost of getting that vehicle onto the cloud, and that gives you the ZAR7000. Then we've got what we call the average cost of service at customer, which is in the region of about ZAR60, Which gives you ZAR60 times ZAR60. It's another ZAR3,600. And that gives you an estimated And numbers to give you in that will lead you then to your operating profit. Obviously, with that, there's also the technical operating profit is the amount of money that You are investing in the expansion of your distribution.

Speaker 2

Fundamentally, that is the unit economics, and that's one of The tools that we use in measuring unit economics per subscriber per beer to get on the platform. The next question from Abdul Akim. You have commented once that you achieve Cielo Kazutta quarterly Revenue will be able to achieve breakeven. When do you expect to achieve this? Could you provide us a time line?

Speaker 2

Abdul, The reality is that we developed the technology, but we are still facing quite a lot of Keeping problems, operational problems and just the normal problems that most businesses have as start ups. So while I would like to I feel that we will get to that ZAR300 1,000,000 relatively quickly in the biggest scheme of things over the next 4 to 6 or 7 quarters. It could be earlier. It's very difficult for me to give you a time line at this stage. Cars and Caribbean dropped 11% In Q4, what were the reasons behind this?

Speaker 2

The reasons behind those is the long holidays, increase in interest rates, So affordability did drop, but I think fundamentally, our real issue there was us just Slowing down the amount of staff, fixing our mistakes and to get ready to rebuild in Q1 that we're currently doing. So it's a little bit of growing, fixing, growing, fixing. It's just a part and parcel of the way we've organically always built our businesses. The next question from Mohammed. What is the real impact from power outages to the difference?

Speaker 2

I think fundamentally, we're not an island, so we rely heavily on the telecom infrastructure. And as all South Africans know, telecoms, the quality of telecoms has slipped because of the outages, Traffic lights becoming also a very big part and problems not only for us but for our customers. We've got just in South Africa, we've got Approximately 2,000 people on the roads between salespeople and technical people, and all of that really impacts our operations. And obviously, we've got The diesel that we use on a monthly basis because we're not getting electricity from Eskom, In our new building, that is going to be totally environmentally friendly. We're going to be running it on solar and on gas.

Speaker 2

And our waters are also going to be from Boals. So hopefully, we're going to be more self sufficient in the next building. Next question from Sebastian. As the business pivots to ex South African markets, will you try to maintain the ARPU in U. S.

Speaker 2

Dollar terms? Would you be targeting the ZAR 150 price points? I don't think we necessarily intentionally target any price point. The way we really price ourselves is really about unit economics. So the ZAR150 that we talk about in 2023 It's a very different ZAR150 that we spoke about in 2,005.

Speaker 2

And so fundamentally, it's all really is how do we And our business to have great operating profit margins without being too greedy. And I think our current operating profit margin range is very healthy. And if we can get those that continuously at ZAR150, then so be it. So we run our Business model really about operating profit given our unit economics and given our LTV to tech. Those are 2 of our fundamental Next question from Rudy Faneke.

Speaker 2

Regarding Kozhuka, in Q4 Was there any prior quarters? Was it deliberate? I think that's been answered really. So I think really Question has been answered. I'll move over to David Everard.

Speaker 2

Could you give us a sense of the Q4 2023 balance sheet investment in Kazuko, inventory PP obligations, what do you expect us to go and get this scale? So at Kazuko, we're putting during the whole financial year, we're putting ZAR50 1,000,000 And it's predominantly working capital, which obviously includes in Benjieren. We believe that once we get KAL and Even if we have invested ZAR1 1,000,000,000 into it, we've got 2 things we can easily get financed, banks to finance us, Which all banks are willing to do, but we've decided to use our own cash. And we believe that given the ability for us to trade the vehicles at the Steve, we can take the math in. The gross profit margins will have a great return on investment for all for the shareholders.

Speaker 2

The lease obligations, we obviously will do that in a very prudent manner. And as we scale, we'll analyze each lease obligations. But I think fundamentally, we've been mindful of our investment And I'm being mindful of our investment and the return on investment for our shareholders. The next question from Gregory. Is growth through acquisition to both network and network effect possible and something you would entertain?

Speaker 2

Clearly, we would entertain anything that makes sense. So if there was something that we could purchase or acquire to build on to our business or bolt on to our business, we would do it. But we're also very conscious that our strength is to be to grow through organic growth. And we are also very cautious A lot of opportunities do lay out on our table, which we've turned down because the effort to get the culture right in that A target company could actually derail us and make us lose focus for many months or even years to get integration right. So We have to end down quite a few opportunities.

Speaker 2

The next question is from Dan Bullis. How impactful were Power up to just in SAQ in Q1, please. Okay. And then, will you focus on dividends rather than another acquisition? So I think part of that question gains the answers.

Speaker 2

Will we focus rather on dividends or acquisition? I think At this point in time, if it was actually up to me, we'd actually the best way to deliver value to our shareholders is actually to do share buybacks. But given our low liquidity, it doesn't make sense. So and given our balance sheet and given that we are still able to grow, we're generating A substantial amount of free cash flow on a monthly basis, we thought it was just prudent to return to shareholders The next question from Khan Ho. Do you see the impact of challenging macroeconomic conditions on your additions of subscribers?

Speaker 2

The number of new additions in South Africa in Q3 is only 25 ks. Is it sustainable additions going forward? And will the additions in South Africa start to ramp up? So as I've mentioned before, we've had the big 2 months. In the first few months, we've gone over additional 40,000 just in the 1st 2 months.

Speaker 2

We've seen good growth Also in South Africa and Southeast Asia and Europe. And clearly, all these macroeconomic conditions do affect us. And a lot of the time, it's really just about us adapting to the new challenges. And while we are agile and we're quite fast, Sometimes it does take a bit longer than what we expected. So I see as we've given guidance for FY 'twenty four, I feel very comfortable that even conditions that we should be able to meet those guidance that are given.

Speaker 2

Next question, Chris. Would South Africa continue as soon as you see the car test How are you managing the load shedding challenges? I think I'll address that. And next question, Miles for you. What one of your most subscribers do you expect to reduce your NAC to 16%.

Speaker 2

Well, I think most of the answer that is we cut our G and A relatively quickly. The reality is we continue to Builds on our back office to be able to deal with future growth. So it's not going to happen just yet. But as we get to more and more market penetration, then I believe it will be very quickly that we are from current levels down to 12 That can easily happen at the period of 4 to 5 years, and it happens relatively quickly. But at this stage, we are more focused And then I've got a question from Cornelius.

Speaker 2

Your return on capital has been declining over the past 5 years, COVID-nineteen, the part. What's management's ongoing return on capital? Well, it depends how you measure this, Cornelius. So we take all the cash that we've got on our balance You can pay it all out as a dividend, and then all of a sudden, our return on equity will be extremely high. So it really is We could easily pay a much higher dividend and get a better return.

Speaker 2

I think the ROE that we've got currently is extremely healthy, and we're very conscious of it. In terms of Having no cash on our balance sheet, which is traditionally what we did there when we only earned the JSE, we used to give out all the cash, Then our returns would be very much in line with those days. Next question from Prashant. How do you view our ecosystem shifting with the huge investment line to go into AI in the next few years? Will the existence become more favorable or less For us, Felisa, at the moment, AI is a big buzzword and AI will continue to grow in leaps and bounds.

Speaker 2

We will be well we have got quite a lot of machine learning in our algorithms that we do with our data. We have got AI as well. Clearly, the AI we're seeing at the moment is really good, and it's very impressive. And obviously, over time, A lot of this AI will filter into companies like ourselves, and we certainly have provided a road map for it. But we're also not rushing into it Because we want to understand it a bit better so that our investment in AI is done correctly.

Speaker 2

So I think we will speed up or invest further into AI. We just need to discuss the scale. And I think in the next half to 24 months, we'll be evaluating how we will use Some of the AI that's in the market in our own business intelligence reports. So we are discussing it, and I don't believe it will be a difficult thing to incorporate on our platform. The next question from Kano.

Speaker 2

Can you discuss more about the economics of logistics business pickup? What's the market size for the competitive and what's the long term goal in profitability margin? So at the same time, we saw a profitability margin of about We believe that can come up to 5%, 6%. But I think the real play is actually to the To get the logistics platform or to add the logistics stack on their platform, where our customers Can do all the long distance and the last miles to using one single platform. And that's what we're working on.

Speaker 2

And that is what I believe is really scalable and really profitable because that takes us into a SaaS environment as opposed to a delivery as a service environment. So at the later stage, our customers won't necessarily use pickup. They can use any of these cloud sourced delivery platforms. We're not very We're more about looking after our customers so that they can leverage on all these other technologies to help them Next question from David Everard. What are you going to do with cash?

Speaker 2

Is it the time to do buybacks? I think I've answered that. Buybacks aren't really for us at this point in time, given how low We haven't got a high liquidity, so it doesn't make sense. Next question coming from Patrick O'Reilly. What is your opinion on South Africa as a viable investment destination given the many adverse challenges the country is facing?

Speaker 2

So Patrick, my view, I was I'm South African. I was brought up in South Africa. Since the child, I've always seen headwinds. I've always seen South Africa in turmoil. I mean, nothing we see today is that different to when I was a child, 14 years old.

Speaker 2

I think the problems are different, but there's still problems. We dealt with other events. These are other events, but I think we've got a resilient economy. I will strongly recommend that anybody that understands South Africa and wants to invest in South Africa, it's a good destination to invest. Clearly, South Africa has got a lot of nuances and it's best suited for people Like ourselves, South Africans, to deal with these headwinds.

Speaker 2

But certainly, strong governance, corporate governance, a strong economy Next question from Sandhili. Can you maintain the current payout ratio into 2024? Well, if we Sandeep, our free cash flow conversion to earnings per share conversion is extremely high. The fact of that is predominantly how fast we grow. The guidance we've given for FY 'twenty four was based that we are expecting macroeconomic Hi, Edwin.

Speaker 2

And given that, it's still very much guidance that will still grow at double digit numbers, which is very healthy. And Our SIT will believe that our payout ratio could be maintained at 2024. But clearly, I don't make a decision that is a board decision whether we pay dividends or not. But in my mind, we certainly believe we will have the cash to do it. The The next question from Sandeepi, at which point can we expect investment in growth to cease?

Speaker 2

Sandeepi, given our large opportunity and given all it's really sometimes I get up in the morning, and I feel that we really are just a start up. There's so much opportunity. There's so much to do. I really cannot answer that question at this point in time. I think that was the final question.

Speaker 2

I want to thank everybody for joining us. There's a question that just came through Chotso. How did you manage to keep CapEx relatively low While growing at this rate, we've got quite a strong history of looking at our Capital allocation in a very disciplined way. And I think it's sometimes, it's we are so disciplined that we could be growing much faster, Had we not been so disciplined and we've thrown more money at sales and marketing and just grown a bit more wildly. So it really is our discipline.

Speaker 2

It's our organic way of growing that's allowed us the CapEx Having said that, what we also saw in FY 'twenty three is that which obviously affected our operating profit Negatively was that in the bundled sales, a bigger portion than we had seen in prior years was actually expensed upfront Unless capitalized, in other words, the shareholders will get the benefit in over the next 4 years, and they took a bigger punch In operating expenses this year, despite that, we still got 50% operating profit, and we still did the hard track ZAR 950 1,000,000 in operating profit. I think that's the last question. I want to thank the audience

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Earnings Conference Call
Karooooo Q4 2023
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