Karooooo .(KARO) - 2021 Q4 - Annual Report

Introduction Corporate Reorganization and Listings This section outlines Karooooo Ltd.'s corporate reorganization, including its Nasdaq IPO and JSE secondary listing, and the acquisition of Cartrack Holdings Limited - Karooooo Ltd. became the parent of Cartrack Holdings Limited following a corporate reorganization where it acquired all minority shares of Cartrack, which was then delisted from the JSE[23][37][39] - The company completed its IPO on the Nasdaq Capital Market on April 1, 2021, under the symbol "KARO", raising USD 33.8 million for general corporate purposes, including the growth and expansion of Cartrack[32] - Following the reorganization, Karooooo completed an inward secondary listing on the JSE on April 21, 2021, with a total of 30,951,106 shares in issue across both the Nasdaq and JSE[34][35] - In connection with the reorganization, 99% of eligible Cartrack minority shareholders elected to reinvest their proceeds into Karooooo shares, highlighting strong investor confidence[33] PART I Item 3. Key Information This section presents key financial and operational data for fiscal years 2019-2021, alongside a comprehensive overview of business, operational, strategic, and market risks A. Selected Financial Data Consolidated Statement of Profit and Loss Data (in R thousands) | Indicator | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Revenue | 2,290,543 | 1,941,893 | 1,692,708 | | Gross profit | 1,620,020 | 1,367,123 | 1,208,008 | | Operating profit | 726,562 | 630,922 | 499,919 | | Profit for the year | 497,420 | 443,526 | 361,048 | | Profit attributable to owners | 318,183 | 289,882 | 236,930 | | Basic and diluted EPS (R) | 15.65 | 14.26 | 9.15 | Consolidated Statement of Financial Position Data (in R thousands) | Indicator | As at Feb 28/29, 2021 | As at Feb 28/29, 2020 | | :--- | :--- | :--- | | Total assets | 2,915,143 | 1,845,257 | | Total liabilities | 1,632,697 | 620,122 | | Total equity | 1,282,446 | 1,225,135 | Key Business and Financial Metrics (in R thousands, except Subscribers and EPS) | Metric | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Subscribers (end of period) | 1,306,000 | 1,126,515 | 960,798 | | Subscription Revenue | 2,209,017 | 1,887,717 | 1,520,540 | | Adjusted EBITDA | 1,127,700 | 937,485 | 738,434 | | Free cash flow | 459,815 | 512,501 | 50,197 | D. Risk Factors - The company's growth depends on its ability to add and retain subscribers, facing challenges from the COVID-19 pandemic, rapid technological changes, competition, and network dependencies[91][97][98][102] - Effective management of rapid growth is crucial, with international expansion posing challenges like localization, regulatory compliance, and currency fluctuations, alongside brand and culture risks[141][142][149] - The company faces risks from evolving data privacy laws (GDPR, POPI Act), service disruptions, cybersecurity breaches, and potential intellectual property infringement claims due to its software reliance[159][174][181] - A substantial portion of revenue, 73% in FY2021, is from South Africa, exposing the company to risks from ZAR exchange rate fluctuations, high inflation, political instability, and local regulations like B-BBEE compliance[210][225][232] - As a foreign private issuer and "controlled company" due to the CEO's majority ownership, Karooooo is exempt from certain Nasdaq governance standards, potentially offering less protection to minority shareholders due to concentrated control[270][271][274] Item 4. Information on the Company This section details the company's history, vertically integrated SaaS platform for smart transportation, organizational structure, and physical assets, serving over 1.3 million subscribers globally A. History and Development of the Company - The company was founded in 2001 in South Africa, initially focusing on Stolen Vehicle Recovery (SVR) services[280] - It has since grown into a global provider of smart transportation management and analytics, expanding its software applications, data management capabilities, and geographic footprint[281] - In 2020, the company moved its global headquarters to Singapore to access talent and capital for further technological and operational leadership[281] B. Business Overview - Karooooo is a global provider of a real-time mobility data analytics SaaS platform for smart transportation, serving over 1.3 million subscribers in 23 countries as of February 28, 2021[283][286] - The business is vertically integrated, controlling hardware design, platform innovation, software development, client acquisition, and customer service, allowing for rapid innovation and cost control[285][304] - The company's growth strategy focuses on increasing sales to existing customers, expanding its global customer base (with a focus on Asia), enhancing its platform with new features, and expanding its consumer services[312][317][318] - The platform offers a wide range of applications for both commercial clients (Fleet Management, LiveVision, Business Intelligence) and consumers (Protector, Asset Recovery, Crash Alert)[323][325] - The company is developing next-generation mobility solutions, including Carzuka (a vehicle buying/selling marketplace), an insurtech platform, and an on-demand rideshare application[331] C. Organizational Structure - Karooooo Ltd., a Singapore-incorporated company, held a 68.1% controlling interest in Cartrack Holdings Limited as of February 28, 2021[363] Key Corporate Actions in FY2021 | Action | Details | | :--- | :--- | | Disposal | Disposed of its interest in Found Proprietary Limited | | Acquisition | Acquired an additional 40% stake in Cartrack Tanzania Limited, increasing ownership to 100% | | Acquisition | Acquired an additional 15% stake in Retriever Limited, increasing ownership to 100% | D. Property, Plant and Equipment - The company's principal executive office is located in Singapore, with significant office space also leased in Johannesburg, South Africa[367] - It hosts its SaaS platform using five secure third-party data centers located in the Netherlands, United Arab Emirates, Singapore, and two in South Africa[368] Item 5. Operating and Financial Review and Prospects This section provides management's analysis of financial condition and results for fiscal years 2019-2021, covering performance drivers, liquidity, capital resources, and critical accounting policies A. Operating Results FY2021 vs. FY2020 Performance Highlights (in R thousands, except Subscribers) | Metric | FY2021 | FY2020 | YoY Growth | | :--- | :--- | :--- | :--- | | Subscription Revenue | 2,209,000 | 1,887,700 | 17% | | Total Revenue | 2,290,500 | 1,941,900 | 18% | | Operating Profit | 726,600 | 630,900 | 15% | | Profit for the year | 497,400 | 443,500 | 12% | | Subscribers | 1,306,000 | 1,126,515 | 16% | - Subscriber growth was a key driver of performance, with a net increase of 179,485 subscribers in FY2021, showing strong recovery in the second half after COVID-19 subdued the first half[381][382][405] - Operating expenses increased by 19% in FY2021, driven by a 34% rise in Sales and Marketing and a 123% increase in Research and Development, reflecting strategic investments for future growth[454][455][465] Segment Revenue Growth (FY2021 vs. FY2020) (in R thousands) | Segment | FY2021 Revenue | YoY Growth | | :--- | :--- | :--- | | South Africa | 1,681,928 | 19% | | Africa-Other | 105,895 | -9% | | Europe | 219,866 | 27% | | Asia-Pacific, Middle East & USA | 282,854 | 20% | B. Liquidity and Capital Resources - The company's principal sources of liquidity are cash from operations and available credit facilities, with cash and cash equivalents totaling R104.9 million as of February 28, 2021[534] Cash Flow Summary (in R thousands) | Cash Flow | FY2021 | FY2020 | FY2019 | | :--- | :--- | :--- | :--- | | From Operating Activities | 937,851 | 901,224 | 472,258 | | Utilized by Investing Activities | (517,691) | (427,436) | (429,215) | | (Utilized by)/From Financing Activities | (486,012) | (368,230) | 83,406 | - In February 2021, the company secured a new R925 million revolving credit facility with Standard Bank and a R75 million overdraft facility with Mercantile Bank to support operations and growth[549][554] - A loan of USD 58.5 million was received from a related party in December 2020 to facilitate the acquisition of Cartrack Holdings Limited and was fully repaid in April 2021[545][1016] Item 6. Directors, Senior Management and Employees This section outlines the company's leadership, including biographical information for directors and executive officers, compensation details, board practices, and employee statistics - The Board of Directors is composed of six members, including CEO Isaias (Zak) Jose Calisto and CFO Morné Grundlingh, with four of the six directors being independent[566][584] Aggregate Compensation for FY2021 (in R thousands) | Recipient Group | Salary & Allowances | Performance Bonuses | Director Fees | Total | | :--- | :--- | :--- | :--- | :--- | | Executive Directors (2) | 6,260 | 1,676 | - | 8,230 | | Key Management Personnel (12) | 14,881 | 1,467 | 2,983 | 20,135 | | Total | 21,141 | 3,143 | 2,983 | 28,365 | - The board is divided into three staggered classes, a structure that may delay or prevent changes in control, and includes an Audit Committee and a Compensation and Nomination Committee[584][587][589] - As of February 28, 2021, the company had 2,999 full-time employees, with the majority (2,048) located in South Africa, and none are represented by a labor union[595] Item 7. Major Shareholders and Related Party Transactions This section details the company's ownership structure, with CEO Isaias (Zak) Jose Calisto as the controlling shareholder, and outlines significant related party transactions Major Shareholders (as of May 6, 2021) | Shareholder | Number of Shares | Percentage | | :--- | :--- | :--- | | Isaias (Zak) Jose Calisto (CEO) | 20,419,294 | 66.0% | | Juan Marais (CSO) | 3,550,000 | 11.5% | | Gobi Capital LLC | 2,050,557 | 6.6% | - The company leases its main Johannesburg offices from Purple Rain Properties, an entity in which CEO Isaias (Zak) Jose Calisto owns an 85% stake, with lease payments totaling R12.4 million in FY2021[606] - A loan of USD 58.5 million was received from Orient Victoria Pte Ltd, a related party, to facilitate the acquisition of Cartrack Holdings Limited, and was fully repaid on April 22, 2021[610] Item 8. Financial Information This section confirms the inclusion of consolidated financial statements, reports no material legal proceedings, and details the company's dividend policy and payments - The company is not currently a party to any legal proceedings that would have a material adverse effect on its financial condition[614] - The Group paid dividends of R418 million for the year ended February 28, 2021, a substantial increase from R92 million in the prior year[616] - Future dividend payments are at the discretion of the board of directors and depend on financial condition, results, capital requirements, and other factors[615][617] Item 10. Additional Information This section provides supplementary corporate information, including references to the company's constitution, material contracts, and detailed tax considerations for investors E. Taxation - As a Singapore tax resident, dividends paid by the company are tax-exempt for shareholders, and Singapore generally does not impose tax on capital gains, though exceptions apply[642][643][644] - South African resident shareholders holding JSE shares are subject to a 20% dividend tax, with non-residents generally exempt, and the company is not currently considered a Controlled Foreign Company (CFC)[660][663][667] - For U.S. Holders, distributions are generally treated as dividends, and the company believes it was not a Passive Foreign Investment Company (PFIC) for the taxable year ended February 28, 2021, though this status can change annually[676][683] Item 11. Quantitative and Qualitative Disclosures about Market Risk This section details the company's primary market risks, including foreign currency exposure, interest rate fluctuations from variable-rate debt, and credit risk management strategies - The company is exposed to foreign currency risk due to multinational operations and ZAR reporting currency, and currently does not hedge this risk[698][699] - Interest rate risk arises from variable-rate loan obligations; a 100 basis point increase in interest rates as of February 28, 2021, would have resulted in R0.16 million in additional interest income[700][701] - Credit risk is managed through established policies and procedures, with a significant portion of customers on direct debit, and no significant exposure to any single customer[703][705] PART II Item 15. Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of February 28, 2021, with no management report on internal control required for this newly public company - The company's CEO and CFO concluded that disclosure controls and procedures were effective as of February 28, 2021[717] - The annual report does not include a management assessment of internal control over financial reporting, as permitted for newly public companies under an SEC transition period[718] - No material changes to internal control over financial reporting were identified during the fiscal year ended February 28, 2021[720] Item 16. Corporate Governance and Other Information This section covers corporate governance, including audit committee composition, code of ethics, accountant changes, and reliance on foreign private issuer exemptions from Nasdaq standards - The Audit Committee consists of four independent directors, with Brett Nagle qualifying as an "audit committee financial expert"[723] - The company has adopted a code of business conduct and ethics applicable to all employees, officers, and directors[724] - In preparation for its IPO, the company changed its independent registered public accounting firm from Deloitte & Touche to KPMG LLP for the audit of its FY2021 financial statements[729] - As a foreign private issuer, the company follows certain home country (Singapore) governance practices in lieu of Nasdaq requirements, particularly regarding nominations and compensation committee composition[732] PART III Item 18. Financial Statements This section presents the company's audited consolidated financial statements for fiscal years 2019-2021, prepared under IFRS, reflecting retrospective recasting for the Cartrack acquisition and a key accounting policy change Consolidated Financial Position (in R thousands) | As of | Feb 28, 2021 | Feb 29, 2020 | | :--- | :--- | :--- | | Total non-current assets | 1,588,204 | 1,277,779 | | Total current assets | 1,326,939 | 567,478 | | Total assets | 2,915,143 | 1,845,257 | | Total equity | 1,282,446 | 1,225,135 | | Total non-current liabilities | 198,430 | 213,172 | | Total current liabilities | 1,434,267 | 406,950 | | Total liabilities | 1,632,697 | 620,122 | Consolidated Profit and Loss (in R thousands) | For the year ended | Feb 28, 2021 | Feb 29, 2020 | Feb 28, 2019 | | :--- | :--- | :--- | :--- | | Revenue | 2,290,543 | 1,941,893 | 1,692,708 | | Gross profit | 1,620,020 | 1,367,123 | 1,208,008 | | Operating profit | 726,562 | 630,922 | 499,919 | | Profit for the year | 497,420 | 443,526 | 361,048 | Consolidated Cash Flows (in R thousands) | For the year ended | Feb 28, 2021 | Feb 29, 2020 | Feb 28, 2019 | | :--- | :--- | :--- | :--- | | Net cash from operating activities | 937,851 | 901,224 | 472,258 | | Net cash utilized by investing activities | (517,691) | (427,436) | (429,215) | | Net cash (utilized by)/from financing activities | (486,012) | (368,230) | 83,406 | - The financial statements have been retrospectively recast using the "pooling of interests" method to account for the common control transaction where Karooooo acquired Cartrack, treating the combination as if it had occurred at the beginning of the earliest period presented[777] - A significant accounting policy change reclassified telematic devices designated for installation from inventory to property, plant, and equipment, with this change corrected prospectively[852][920]