Karooooo .(KARO) - 2023 Q4 - Annual Report

PART I Item 3. Key Information This section outlines significant risks across business operations, third-party reliance, growth, intellectual property, legal proceedings, emerging markets, and share ownership Risks Relating to Business and Operations Operational risks include customer retention, macroeconomic impacts, rapid technological change, intense competition, and reliance on lead generation - The company's growth depends on adding and retaining customers, influenced by SaaS platform demand, sales success, and economic conditions[57] - Macroeconomic events like pandemics, geopolitical tensions, supply chain issues, and inflation could adversely affect business operations[62] - The highly fragmented SaaS fleet management market faces intensifying competition from mobile service providers, global platforms, and OEMs, potentially reducing margins and market share[77][78][79] - Reliance on cellular (GSM/LTE) and GNSS networks means disruptions or cost increases could impede profitability and harm financial results[70] Risks Relating to Reliance on Third Parties Reliance on third parties for SVR operations and hardware components poses risks of reputational harm, legal liability, and production interruptions - Working with third-party security officers for SVR involves use of force, risking reputational harm or legal liability, with less than 0.05% of SVR operations resulting in injury or death since March 2018[96][98] - Dependence on key third-party hardware suppliers, like for GSM/LTE modules and semiconductors, means supply interruptions could impair production and increase costs[104][105] Risks Relating to Growth Strategy Growth strategy risks include managing rapid expansion, international challenges, uncertain SaaS platform investment returns, and maintaining brand and culture - Rapid growth, with employees increasing from 3,508 to 4,039 and subscribers from 1,525,972 to 1,717,077 (Feb 2022-2023), could strain resources if not managed effectively[111] - International expansion introduces risks such as localization challenges, foreign law compliance, currency fluctuations, and political or economic instability[114] - Loss of key management, especially CEO Isaias (Zak) Jose Calisto, or inability to attract and retain talent, could disrupt operations and harm growth[122] Risks Relating to IP, Data Privacy, and Cybersecurity Risks include evolving data privacy laws, cybersecurity breaches, service disruptions, and challenges in protecting intellectual property and defending against infringement claims - Evolving data privacy laws (GDPR, POPI Act, CCPA) may increase compliance costs and limit solution offerings[129][131][134] - SaaS platform disruptions or cybersecurity breaches could damage reputation, lead to customer loss, and incur liability, especially with third-party data center hosting[144][145] - Reliance on trademark, copyright, and trade secret laws for IP protection, without patents, may offer limited and inadequate defense against competitors[167][170] Risks Related to Legal Proceedings The company faces risks from product liability, warranty claims (up to ZAR 1.0 million), and service interruption lawsuits, with defense being costly - Exposure to product liability and warranty claims, including an asset recovery warranty of up to ZAR 1.0 million, could increase if recovery rates decline[175][176] Risks Relating to Operations in South Africa and Other Emerging Markets Operations in emerging markets, especially South Africa (78% of FY2023 revenue), face political, economic, and regulatory risks, including currency volatility and inflation - The company is subject to foreign exchange rate fluctuations, especially between the South African rand (reporting currency) and other operational currencies[179] - 78% of FY2023 revenue came from South Africa, exposing operations in emerging markets to political instability, high inflation, infrastructure failure, and crime[193][195] - Non-compliance with complex laws like U.S. FCPA, UK Bribery Act, and South Africa's PRECCA could lead to significant penalties and reputational harm[184][185][191] Risks Relating to Investments in Singapore Companies As a Singapore-incorporated company, shareholder rights and U.S. judgment enforcement differ, and Singapore's take-over laws could deter control changes - As a Singapore-incorporated company, shareholder rights may differ from U.S. corporations, potentially hindering shareholder interest protection[213] - Enforcing U.S. judgments against the company, directors, and officers may be difficult due to assets being outside the U.S. and no reciprocal enforcement treaty with Singapore[216][217] Risks Relating to Our Ordinary Shares Stock price volatility, dual listing, foreign private issuer exemptions, and CEO's substantial control pose risks to ordinary shares - Ordinary shares traded on Nasdaq (USD) and JSE (ZAR) may result in price variations between markets[233] - As a foreign private issuer and "controlled company," the company is exempt from certain Nasdaq corporate governance standards, including independent director majority[243][244] - CEO Isaias (Zak) Jose Calisto beneficially owns approximately 74.85% of shares, granting substantial control over shareholder votes and company direction[249][537] - As an Emerging Growth Company, Karooooo is exempt from independent auditor's attestation on internal control over financial reporting[252] Item 4. Information on the Company This section details Karooooo's history, vertically integrated business model, platform offerings, growth strategy, and competitive landscape across 25 countries History and Development Founded in South Africa in 2001, the company expanded globally, relocating its headquarters to Singapore in 2020 for talent and capital access - Founded in 2001 in South Africa, the company initially focused on SVR services and has since expanded globally[256] - Global headquarters relocated to Singapore in 2020 to leverage talent and capital markets[257] Business Overview Karooooo offers a vertically integrated smart mobility SaaS platform, serving over 1.7 million subscribers across 25 countries with real-time data analytics - Karooooo provides a real-time mobility data analytics SaaS platform, serving over 1.7 million subscribers in 25 countries as of February 28, 2023[259][263] - The vertically integrated business controls hardware, software, client acquisition, and customer service, enabling rapid innovation and cost control[262] - Growth strategy focuses on increasing sales to existing customers, expanding customer base and geographic presence, and developing consumer platforms and services[285][286][287] - Key competitors include Verizon Connect, WebFleet by Bridgestone, MiX Telematics, and Geotab in a competitive and fragmented market[324] Organizational Structure Karooooo Ltd., a Singapore-based parent, wholly owns key subsidiaries like Cartrack Holdings and Carzuka, operating globally through a network of entities Key Subsidiaries and Holdings (as of 2023) | Company Name | Held by | Country of incorporation | % holding 2023 | | :--- | :--- | :--- | :--- | | Cartrack Holdings Proprietary Limited | Karooooo Ltd | South Africa | 100.0% | | Carzuka.com Pte Ltd | Karooooo Ltd | Singapore | 100.0% | | Karooooo Management Company Pte. Ltd. | Karooooo Ltd | Singapore | 100.0% | | Karooooo Logistics Pty Ltd ("Picup") | Cartrack Holdings Proprietary Limited | South Africa | 70.1% | Property, Plant and Equipment The company leases its Singapore office, is building a new Johannesburg office, and uses six third-party data centers globally for its SaaS platform - Principal executive office leased in Singapore; new central office under construction in Johannesburg, South Africa[337] - Operates six data center sites in Netherlands, UAE (Dubai), Singapore, France, and two in South Africa[339] Item 5. Operating and Financial Review and Prospects This section analyzes Karooooo's FY2023 financial condition and operating results, covering business segments, key metrics, liquidity, and critical accounting estimates Operating Results FY2023 saw total revenue grow 28% to ZAR 3,507.1 million, subscription revenue up 17%, and profit up 28%, despite new investments Karooooo Consolidated Financial Highlights (Year Ended Feb 28) | Metric | 2023 (ZAR millions) | 2022 (ZAR millions) | Y-o-Y % Change | | :--- | :--- | :--- | :--- | | Total Revenue | 3,507.1 | 2,746.2 | 28% | | Subscription Revenue | 3,010.1 | 2,568.2 | 17% | | Gross Profit | 2,272.4 | 1,823.6 | 25% | | Operating Profit | 881.9 | 699.1 | 26% | | Profit for the year | 608.8 | 476.6 | 28% | | Adjusted EBITDA | 1,426.8 | 1,211.8 | 18% | Key Business Metrics (as of Feb 28) | Metric | 2023 | 2022 | Y-o-Y % Change | | :--- | :--- | :--- | :--- | | Subscribers | 1,717,077 | 1,525,972 | 13% | | SaaS ARR (ZAR millions) | 3,235.2 | 2,727.6 | 19% | | ARPU (ZAR) | 155 | 151 | 3% | - The company operates three segments: Cartrack (SaaS), Carzuka (vehicle marketplace), and Karooooo Logistics (last-mile delivery)[346][347] Liquidity and Capital Resources Primary liquidity sources are cash from operations, cash on hand (ZAR 965.8 million), and a ZAR 925.0 million revolving credit facility Consolidated Statement of Cash Flows Summary (Year Ended Feb 28, in ZAR millions) | Cash Flow Activity | 2023 | 2022 | Y-o-Y % Change | | :--- | :--- | :--- | :--- | | Net cash from operating activities | 1,126.7 | 931.7 | 21% | | Net cash utilized by investing activities | (622.2) | (658.2) | (5)% | | Net cash (utilized by)/generated from financing activities | (420.0) | 335.0 | (225)% | - As of February 28, 2023, cash and cash equivalents totaled ZAR 965.8 million[458] - A ZAR 925.0 million revolving credit facility with Standard Bank was unutilized as of February 28, 2023[474] Critical Accounting Estimates Critical accounting estimates include useful life of capitalized devices and commission assets (60 months), and annual goodwill impairment testing - The estimated average useful life of a subscriber contract for depreciating capitalized telematics devices and amortizing commission assets is 60 months[492] - Goodwill is annually tested for impairment using value-in-use calculations, relying on discount rates and future financial performance estimates[493] Item 6. Directors, Senior Management and Employees This section details the board of directors (five members, three independent), executive officers, and employee numbers (4,039 full-time employees) - The board comprises five members, including CEO Isaias (Zak) Jose Calisto and three independent directors[497][518] Aggregate Director and Executive Officer Compensation | Year Ended February 28 | 2023 (ZAR thousands) | 2022 (ZAR thousands) | | :--- | :--- | :--- | | Short-term employee benefits | 16,557 | 13,109 | | Post-employment benefits | 378 | 276 | | Total | 16,935 | 13,385 | - As of February 28, 2023, the company had 4,039 full-time employees, with 2,816 in South Africa[531] Item 7. Major Shareholders and Related Party Transactions This section discloses major shareholders, with CEO Isaias (Zak) Jose Calisto controlling approximately 74.85%, and significant related party transactions Major Share Ownership (as of May 19, 2023) | Name of Owner | Number of Shares | Percent | | :--- | :--- | :--- | | Isaias (Zak) Jose Calisto (CEO) | 20,028,811 | 64.71% | | Juan Marais (CSO) | 3,140,000 | 10.14% | | Gobi Capital LLC | 2,177,218 | 7.03% | | All executive officers and directors as a group | 23,168,999 | 74.85% | - CEO Isaias (Zak) Jose Calisto beneficially owns 74.85% of shares due to a voting agreement with One Spire (Pty) Ltd[537] - Significant related party transactions include a ZAR 25.8 million loan to Bumbene House and acquisitions of Karooooo Logistics and Purple Rain Properties, involving CEO interests[550][552][555] Item 8. Financial Information This section confirms consolidated financial statements, notes no material legal proceedings, and details interim dividends declared for FY2023 and FY2024 - The company is not currently a party to any material legal proceedings[562] - An interim dividend of 60 U.S. cents per share for Q1 FY2023 was paid on September 12, 2022[566] - The board declared an interim dividend of 85 U.S. cents per share for Q1 FY2024, payable on July 3, 2023[567] Item 10. Additional Information This section covers the company's constitution, material contracts, and detailed tax considerations for investors in Singapore, South Africa, and the U.S - The company has not entered into any material contracts outside the ordinary course of business[579] - The report summarizes tax considerations for holding shares in Singapore, South Africa (e.g., 20% dividend tax), and the U.S. (e.g., PFIC rules)[581][607][623] Item 11. Quantitative and Qualitative Disclosures about Market Risk Primary market risks include foreign currency fluctuations (ZAR), interest rate risk on variable loans, and credit risk from customer receivables - Exposed to foreign currency risk across multiple functional currencies (ZAR, USD, EUR, SGD), with no current hedging strategy[653][654] - Interest rate risk from variable loan obligations; a 100 basis point increase would yield ZAR 0.6 million additional interest income (Feb 28, 2023)[655][656] - Credit risk from customer receivables is managed via policies, including direct debit for individual customers and ongoing credit quality evaluation[658][659] PART II Item 15. Controls and Procedures Management concluded that disclosure controls and internal financial reporting controls were effective as of February 28, 2023, with no material changes - Management concluded disclosure controls and procedures were effective as of February 28, 2023[674] - Internal control over financial reporting assessed as effective (Feb 28, 2023) using COSO "Internal Control—Integrated Framework (2013)"[678] - As an Emerging Growth Company, Karooooo is exempt from independent auditor's attestation on internal control over financial reporting[680] Item 16. Corporate Governance and Other Matters This section covers audit committee financial expert, code of ethics, principal accountant fees, and Nasdaq listing standard exemptions for foreign private issuers - Siew Koon Lim qualifies as an "audit committee financial expert"[684] - A code of business conduct and ethics has been adopted and is available on the company website[685] Principal Accountant Fees (Ernst & Young LLP) | Fee Category | FY 2023 (ZAR thousands) | FY 2022 (KPMG LLP, ZAR thousands) | | :--- | :--- | :--- | | Audit fees | 14,307 | 12,364 | | Tax fees | - | - | | All other fees | - | - | | Total | 14,307 | 12,364 | - As a foreign private issuer, the company follows Singapore corporate governance practices instead of certain Nasdaq requirements[693] PART III Item 18. Financial Statements This section includes audited consolidated financial statements for FY2021-2023, featuring statements of financial position, profit or loss, comprehensive income, equity, and cash flows Consolidated Statement of Financial Position (as of Feb 28, in ZAR thousands) | | 2023 | 2022 | | :--- | :--- | :--- | | Total Assets | 3,751,580 | 3,089,601 | | Total Non-current assets | 2,288,813 | 1,974,475 | | Total Current assets | 1,462,767 | 1,115,126 | | Total Equity and Liabilities | 3,751,580 | 3,089,601 | | Total Equity | 2,691,875 | 2,174,181 | | Total Liabilities | 1,059,705 | 915,420 | Consolidated Statement of Profit and Loss (Year ended Feb 28, in ZAR thousands) | | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Revenue | 3,507,067 | 2,746,151 | 2,290,543 | | Gross profit | 2,272,395 | 1,823,590 | 1,620,020 | | Operating profit | 881,915 | 699,125 | 726,562 | | Profit for the year | 608,806 | 476,607 | 497,420 | | Basic and diluted EPS (ZAR) | 19.29 | 15.24 | 15.65 |