Karooooo .(KARO) - 2024 Q1 - Quarterly Report

Executive Summary Karooooo reported robust growth for both Q4 and the full fiscal year 2023, marked by significant increases in revenue, earnings per share, and free cash flow, while maintaining a strong balance sheet and declaring a record dividend Overall Performance Highlights Karooooo reported robust growth for both Q4 and the full fiscal year 2023, marked by significant increases in revenue, earnings per share, and free cash flow. The company demonstrated strong performance across its segments, particularly in subscription revenue, and maintained a healthy, unleveraged balance sheet, enabling a record dividend payment to shareholders. The growth was achieved despite challenging macroeconomic conditions, underscoring the effectiveness of its Operations Cloud platform in attracting and retaining a growing commercial customer base FY 2023 vs FY 2022 Key Financial Metrics | Metric | FY 2023 | FY 2022 | Change | | :--- | :--- | :--- | :--- | | Total Revenue | ZAR 3,507M | ZAR 2,746M | +28% | | Subscription Revenue | ZAR 3,010M | ZAR 2,568M | +17% | | Earnings Per Share (EPS) | ZAR 19.29 | ZAR 15.24 | +27% | | Free Cash Flow | ZAR 547M | ZAR 379M | +44% | | Net Cash & Equivalents | ZAR 966M | ZAR 718M | +35% | Q4 2023 vs Q4 2022 Key Financial Metrics | Metric | Q4 2023 | Q4 2022 | Change | | :--- | :--- | :--- | :--- | | Total Revenue | ZAR 916M | ZAR 742M | +24% | | Subscription Revenue | ZAR 794M | ZAR 671M | +18% | | Earnings Per Share (EPS) | ZAR 4.70 | ZAR 3.11 | +51% | - The company plans to pay a record cash dividend of USD 26.3 million (USD 0.85 per share) in July 2023, supported by strong earnings and free cash flow generation[7] - The commercial customer base grew to over 105,000 from over 88,000 in the prior year, with a 95% commercial customer retention rate[8] Fourth Quarter 2023 Financial Overview Karooooo's Q4 2023 performance was marked by strong revenue and profit growth, despite challenging South African trading conditions, driven by Cartrack and significant expansion in Carzuka and Karooooo Logistics Q4 2023 Key Metrics In Q4 2023, Karooooo's Cartrack subsidiary reached 1,717,077 subscribers, a 13% year-over-year increase. However, net subscriber additions slowed by 31% to 38,471, reflecting challenging trading conditions in South Africa. Despite this, total group revenue grew by 24% (22% in constant currency) Q4 2023 Key Performance Indicators | Metric | Q4 2023 | Q4 2022 | Change | | :--- | :--- | :--- | :--- | | Cartrack Subscribers | 1,717,077 | 1,525,972 | +13% | | Net Subscriber Additions | 38,471 | 55,587 | -31% | | Total Revenue | ZAR 916M | ZAR 742M | +24% | | Subscription Revenue | ZAR 794M | ZAR 671M | +18% | - Challenging trading conditions in South Africa, primarily due to unprecedented national power outages, impacted performance in Q4 2023[11] Q4 2023 Segment Performance In Q4 2023, Cartrack remained the primary revenue driver with 16% growth. Carzuka and Karooooo Logistics demonstrated significant expansion, with revenues growing 98% and 139% respectively. Cartrack maintained high profitability, while Carzuka's operating loss increased due to investment, and Karooooo Logistics turned an operating profit Q4 2023 Revenue by Segment (ZAR Thousands) | Segment | Q4 2023 Revenue | Q4 2022 Revenue | Growth | | :--- | :--- | :--- | :--- | | Cartrack | 796,356 | 685,907 | +16% | | Carzuka | 63,734 | 32,163 | +98% | | Karooooo Logistics | 56,265 | 23,579 | +139% | | Karooooo Consolidated | 916,355 | 741,649 | +24% | Q4 2023 Operating Profit/(Loss) by Segment (ZAR Thousands) | Segment | Q4 2023 | Q4 2022 | | :--- | :--- | :--- | | Cartrack | 247,615 | 154,231 | | Carzuka | (12,646) | (3,749) | | Karooooo Logistics | 2,196 | (1,881) | | Karooooo Consolidated | 237,165 | 148,601 | - Cartrack's subscription revenue of ZAR 793 million accounted for 99.5% of its total revenue[14] - The technology stack of Karooooo Logistics is being integrated into the Cartrack platform, which is expected to create a new subscription-based revenue stream[17] Q4 2023 Operating Expenses Consolidated operating expenses rose 15% to ZAR 355 million in Q4 2023, primarily driven by strategic investments. Cartrack's expenses increased 10%, with a notable 31% rise in sales and marketing to support customer acquisition. Investments in brand building and infrastructure for Carzuka and Karooooo Logistics also contributed to the overall increase Q4 2023 Operating Expenses by Segment (ZAR Thousands) | Segment | Q4 2023 | Q4 2022 | Change | | :--- | :--- | :--- | :--- | | Cartrack | 322,501 | 294,430 | +10% | | Carzuka | 18,738 | 7,376 | +154% | | Karooooo Logistics | 13,621 | 7,968 | +71% | | Karooooo Total | 354,860 | 309,774 | +15% | - Cartrack's sales and marketing expenses increased by 31% to ZAR 100 million, reflecting investment in long-term customer acquisition[20] - As a percentage of subscription revenue, Cartrack's G&A and R&D expenses decreased to 21% and 5% respectively, showing improved operational efficiency[23] Q4 2023 Profitability Karooooo's profitability significantly improved in Q4 2023, with operating profit surging 60% to ZAR 237 million and earnings per share up 51% to ZAR 4.70. This was driven by Cartrack's strong performance, which saw its operating profit grow 61% and its operating margin expand to 31%. Adjusted EBITDA for the group increased by 22% to ZAR 362 million Q4 2023 Profitability Metrics | Metric | Q4 2023 | Q4 2022 | Change | | :--- | :--- | :--- | :--- | | Operating Profit | ZAR 237M | ZAR 149M | +60% | | Earnings Per Share (EPS) | ZAR 4.70 | ZAR 3.11 | +51% | | Adjusted EBITDA | ZAR 362M | ZAR 298M | +22% | - Cartrack's operating profit margin expanded to 31% from 22% in Q4 2022, while its gross profit margin grew to 71% from 65%[25] - Carzuka's operating loss widened to ZAR 13 million due to investments in infrastructure and brand building[26] - Karooooo Logistics achieved an operating profit of ZAR 2 million, a turnaround from a ZAR 2 million loss in the prior year[26] Full Year 2023 Financial Overview Karooooo's full fiscal year 2023 saw strong revenue and profit growth, primarily driven by Cartrack's expanded subscriber base and significant contributions from Carzuka and Karooooo Logistics, despite some challenging market conditions FY 2023 Key Metrics For the full fiscal year 2023, Karooooo's total revenue grew 28% to ZAR 3,507 million, with subscription revenue up 17%. Cartrack's subscriber base increased by 13%, although net additions for the year were down 13% compared to FY 2022, reflecting challenging conditions in certain quarters FY 2023 Key Performance Indicators | Metric | FY 2023 | FY 2022 | Change | | :--- | :--- | :--- | :--- | | Cartrack Subscribers | 1,717,077 | 1,525,972 | +13% | | Net Subscriber Additions | 191,105 | 219,972 | -13% | | Total Revenue | ZAR 3,507M | ZAR 2,746M | +28% | | Subscription Revenue | ZAR 3,010M | ZAR 2,568M | +17% | - The company faced challenging trading conditions in South Africa during Q1 and Q4 of FY 2023[31] FY 2023 Segment Performance For the full year 2023, Cartrack's revenue grew 17%, with subscription revenue making up 98% of its total. Carzuka and Karooooo Logistics were significant growth drivers for the group, with revenues surging 273% and 327% respectively. Cartrack's operating profit increased 28%, while Karooooo Logistics became profitable for the year FY 2023 Revenue by Segment (ZAR Thousands) | Segment | FY 2023 Revenue | FY 2022 Revenue | Growth | | :--- | :--- | :--- | :--- | | Cartrack | 3,076,640 | 2,636,800 | +17% | | Carzuka | 250,845 | 67,310 | +273% | | Karooooo Logistics | 179,582 | 42,041 | +327% | | Karooooo Consolidated | 3,507,067 | 2,746,151 | +28% | FY 2023 Operating Profit/(Loss) by Segment (ZAR Thousands) | Segment | FY 2023 | FY 2022 | | :--- | :--- | :--- | | Cartrack | 914,981 | 715,336 | | Carzuka | (37,813) | (13,302) | | Karooooo Logistics | 4,747 | (2,909) | | Karooooo Consolidated | 881,915 | 699,125 | FY 2023 Operating Expenses Full-year operating expenses increased by 24% to ZAR 1,400 million, reflecting planned investments in growth. Cartrack's expenses rose 19%, with sales and marketing up 23% and G&A up 20%. Carzuka and Karooooo Logistics also saw significant expense increases due to investments in brand building and infrastructure FY 2023 Operating Expenses by Segment (ZAR Thousands) | Segment | FY 2023 | FY 2022 | Change | | :--- | :--- | :--- | :--- | | Cartrack | 1,296,147 | 1,091,090 | +19% | | Carzuka | 61,961 | 21,399 | +190% | | Karooooo Logistics | 42,200 | 13,817 | +205% | | Karooooo Total | 1,400,308 | 1,126,306 | +24% | - Cartrack's sales and marketing expenses increased 23% to ZAR 395 million, while G&A expenses rose 20% to ZAR 646 million, partly due to foreign exchange losses and salary increases[39][40] - Cartrack's provision for expected credit losses was stable at ZAR 87 million, representing a decrease as a percentage of revenue to 2.8% from 3.4% in FY 2022[41] FY 2023 Profitability For the full year, Karooooo's operating profit grew 26% to ZAR 882 million, and earnings per share increased 27% to ZAR 19.29. Cartrack was the main driver, with a 28% increase in operating profit and margin expansion to 30%. The group's Adjusted EBITDA rose 18% to ZAR 1,427 million FY 2023 Profitability Metrics | Metric | FY 2023 | FY 2022 | Change | | :--- | :--- | :--- | :--- | | Operating Profit | ZAR 882M | ZAR 699M | +26% | | Earnings Per Share (EPS) | ZAR 19.29 | ZAR 15.24 | +27% | | Adjusted EBITDA | ZAR 1,427M | ZAR 1,212M | +18% | - Cartrack's operating profit margin expanded to 30% (FY 2022: 27%) and its gross profit margin increased to 72% (FY 2022: 68%)[43] - Earnings per share were negatively impacted by ZAR 27 million in dividend withholding taxes from subsidiary dividend payments[42] Business Outlook Karooooo provided its FY 2024 guidance, focusing on Cartrack's continued subscriber and revenue growth, and strong operating profit margins, reflecting confidence in sustainable cash flows and robust results FY 2024 Guidance Karooooo provided its financial guidance for fiscal year 2024, focusing exclusively on its main subsidiary, Cartrack. The company anticipates continued growth in its subscriber base and subscription revenue, while maintaining strong operating profit margins. The guidance reflects confidence in the business model's ability to generate sustainable cash flows and robust results Cartrack FY 2024 Guidance | Metric | Guidance Range | | :--- | :--- | | Number of Subscribers | 1,900,000 - 2,100,000 | | Subscription Revenue | ZAR 3,400M - ZAR 3,600M | | Operating Profit Margin | 28% - 31% | - The company has opted to provide operating profit guidance instead of Adjusted EBITDA guidance due to a change in the proportion of subscriber acquisition costs being expensed versus capitalized[51] - Management is confident in the company's position for growth, citing a large, underpenetrated market and strong demand from diverse industries[47][48] Financial Position and Cash Flow Karooooo maintained a strong, unleveraged balance sheet with increased net cash and improved debtor collection, while generating record free cash flow in FY 2023, supporting strategic investments and growth initiatives Balance Sheet and Liquidity As of February 28, 2023, Karooooo maintained a strong and unleveraged balance sheet. Net cash and cash equivalents increased by 35% to ZAR 966 million. The company also improved its debtor collection days and adopted a policy to hold excess cash reserves in US Dollars - Net cash and cash equivalents stood at ZAR 966 million, up from ZAR 718 million the previous year[56] - Property, plant and equipment increased, primarily due to ZAR 105 million in capitalized telematic devices and ZAR 72 million for the development of a new central office in South Africa[54] - Debtor's collection days improved to 31 days from 34 days in the prior year[55] - The group has available bank facilities totaling ZAR 1 billion for growth initiatives[56] Cash Flow Performance The company generated record cash flow in FY 2023. Cash from operating activities reached ZAR 1,127 million, and free cash flow (a non-IFRS measure) increased by 44% to ZAR 547 million, even after strategic investments in expansion and customer acquisition FY 2023 Cash Flow Metrics (ZAR Millions) | Metric | FY 2023 | FY 2022 | Change | | :--- | :--- | :--- | :--- | | Cash from Operating Activities | 1,127 | 932 | +21% | | Free Cash Flow | 547 | 379 | +44% | Geographical Overview for Cartrack Cartrack's Q4 2023 performance showed growth across all major regions, with Asia Pacific, Middle East, and US leading in subscriber and revenue growth, while South Africa, Europe, and the rest of Africa also posted solid gains Regional Performance Cartrack's Q4 2023 performance showed growth across all major regions. The Asia Pacific, Middle East, and US region led with a 28% increase in subscribers and 40% subscription revenue growth. South Africa, the largest market, grew subscribers by 11% despite economic challenges. Europe and the rest of Africa also posted solid subscriber and revenue gains Q4 2023 Cartrack Subscriber Growth by Region | Region | Subscribers (Feb 28, 2023) | Y-o-Y Growth | | :--- | :--- | :--- | | South Africa | 1,314,902 | +11% | | Asia Pacific, Middle East & US | 185,147 | +28% | | Europe | 143,878 | +13% | | Africa (excl. SA) | 73,150 | +8% | Q4 2023 Cartrack Subscription Revenue Growth by Region | Region | Reported Growth | Constant Currency Growth | | :--- | :--- | :--- | | South Africa | +15% | N/A | | Asia Pacific, Middle East & US | +40% | +28% | | Europe | +16% | +12% | | Africa (excl. SA) | +37% | +23% | - Southeast Asia is identified as the group's most compelling growth opportunity in the medium to long term[66] - In Europe, new partnerships with OEMs like BMW and Mercedes-Benz are expected to contribute to results in the medium term[70] Corporate and Shareholder Information Karooooo's corporate activities include a strategic acquisition in Swaziland and the declaration of a significant interim dividend, reflecting strong financial performance and a commitment to shareholder returns Subsequent Events Following the end of the fourth quarter, Karooooo acquired a 76% stake in Cartrack Swaziland (Proprietary) Limited from its existing franchisees for ZAR 9.1 million in March 2023. This strategic acquisition is expected to contribute over ZAR 2 million in earnings for FY 2024 - In March 2023, the group acquired 76% of Cartrack Swaziland for ZAR 9.1 million[73] - The acquired entity is expected to generate over ZAR 2 million in earnings for FY 2024[73] Dividend Declaration The Board of Directors declared an interim dividend of 85 U.S. cents per ordinary share for the first quarter of FY 2024. The dividend will be paid on July 3, 2023, to shareholders of record as of June 23, 2023. This decision reflects the company's strong earnings and free cash flow performance Dividend Details | Item | Detail | | :--- | :--- | | Dividend per Share | USD 0.85 | | Record Date | June 23, 2023 | | Payment Date | July 3, 2023 | - The dividend policy prioritizes investment for growth but allows for distributions as determined by the Board, considering factors like earnings, cash flow, and capital requirements[74][75] Appendix: Financial Statements and Reconciliations This appendix provides comprehensive unaudited consolidated financial statements for Q4 and FY 2023, alongside detailed reconciliations of non-IFRS measures to their IFRS equivalents, ensuring transparency and clarity in financial reporting Consolidated Financial Statements This section contains the unaudited consolidated financial statements for the three months and year ended February 28, 2023, including the Statement of Profit and Loss, Statement of Financial Position, and Statement of Cash Flows - Consolidated Statement of Profit and Loss for Q4 and FY 2023[92][93] - Consolidated Statement of Financial Position as of February 28, 2023[96][97] - Condensed Consolidated Statement of Cash Flows for Q4 and FY 2023[99][100] Reconciliations of Non-IFRS Measures This section provides detailed reconciliations of non-IFRS financial measures to their most directly comparable IFRS measures. It includes reconciliations for Adjusted Profit, Free Cash Flow, Adjusted EBITDA, Adjusted EPS, Headline EPS, and constant currency revenue figures - Reconciliation of Profit to Adjusted Profit[95] - Reconciliation of Free Cash Flow[101][102] - Reconciliation of Profit to Adjusted EBITDA[104] - Reconciliation of Basic and Diluted Earnings to Adjusted and Headline Earnings Per Share[105][108] - Reconciliation of reported revenue to constant currency revenue[109][111][112] Appendix: Definitions and Disclaimers This appendix provides essential definitions for key non-IFRS financial measures and business metrics, along with a standard disclaimer regarding forward-looking statements, emphasizing the inherent risks and uncertainties Definitions This section provides definitions for key non-IFRS financial measures and business metrics used throughout the report, such as Adjusted EBITDA, Free Cash Flow, Annualized Recurring Revenue (SaaS ARR), and Average Revenue per Subscriber per month (ARPU) - Defines Adjusted EBITDA as profit adjusted for finance income/costs, taxes, D&A, and certain non-recurring items like IPO costs[117] - Defines Free Cash Flow as net cash from operating activities less purchases of property, plant, and equipment[122] - Defines SaaS ARR as the monthly subscription revenue for all customers multiplied by twelve[119] Forward-Looking Statements This section contains a standard safe harbor statement, cautioning readers that forward-looking statements, including the business outlook, are subject to risks and uncertainties and are not guarantees of future performance. It advises against placing undue reliance on these statements - Warns that forward-looking statements involve risks and uncertainties and actual results may differ materially[130][131] - Disclaims any duty to update forward-looking statements to reflect events or circumstances after the date of the announcement[133]