Karooooo Ltd. — FY2022 Form 20-F
Reporting period: Fiscal year ended February 28, 2022; filed June 9, 2022. Although the request references 2021 Q4, this is an annual report and includes unaudited quarterly data, including the quarter ended February 28, 2022. Financial statements use IFRS and are presented in South African rand (ZAR).
Business context and reporting period
Karooooo provides a mobility-data and fleet-management SaaS platform through Cartrack. During FY2022 it also reported Carzuka, a vehicle marketplace, and Karooooo Logistics, a last-mile delivery platform acquired through the purchase of 70.1% of Picup. The company completed its Nasdaq listing and acquired the remaining Cartrack minority interest, bringing its ownership to 100%.
Financial and operating metrics
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Revenue | ZAR 2,746.2m | ZAR 2,290.5m | +20% |
| Subscription revenue | ZAR 2,568.2m | ZAR 2,209.0m | +16% |
| Gross profit / margin | ZAR 1,823.6m / 66% | ZAR 1,620.0m / 71% | Profit +13% |
| Operating profit / margin | ZAR 699.1m / 25% | ZAR 726.6m / 32% | -4% |
| Profit for the year / net margin | ZAR 476.6m / 17% | ZAR 497.4m / 22% | -4% |
| Profit attributable to parent shareholders | ZAR 450.0m | ZAR 318.2m | +41% |
| Adjusted EBITDA (non-IFRS) / margin | ZAR 1,211.8m / 44% | ZAR 1,125.4m / 49% | +8% |
| Net cash from operating activities | ZAR 931.7m | ZAR 937.9m | -1% |
| Free cash flow (non-IFRS) | ZAR 379.1m | ZAR 459.8m | -18% |
Capital expenditure was ZAR 552.6m, up 16%, primarily for telematics devices and infrastructure. Cash and cash equivalents were ZAR 731.7m at year-end; the cash-flow statement reports ZAR 718.0m after deducting the bank overdraft. Total assets were ZAR 3,089.6m and equity ZAR 2,174.2m. Term loans were ZAR 89.4m, lease liabilities ZAR 112.1m and bank overdraft ZAR 13.7m. The Standard Bank revolving facility had ZAR 20.0m drawn from ZAR 925.0m available, of which ZAR 75.0m was committed and ZAR 850.0m uncommitted.
Subscribers reached 1,525,972, up 17% year over year; net additions were 219,972, up 23%, while gross churn rose 26% to 228,188. Average revenue per subscriber was ZAR 151, down 2%. South Africa generated 77% of revenue. FY2022 basic and diluted EPS was ZAR 15.24 versus ZAR 15.65.
In the quarter ended February 28, 2022, revenue was ZAR 741.6m and profit was ZAR 97.2m, compared with ZAR 615.7m and ZAR 102.6m, respectively, in the comparable quarter. Quarterly operating profit was ZAR 148.6m. The quarter included a ZAR 15.3m write-off of capitalized commission assets.
Material changes versus the prior comparable period
- Revenue growth reflected subscriber expansion and new revenue from Carzuka and Karooooo Logistics. Carzuka reported ZAR 67.3m revenue and a ZAR 13.3m operating loss; Logistics reported ZAR 42.0m revenue and a ZAR 2.9m operating loss.
- Higher costs and investment reduced operating profitability: cost of sales increased 38%, operating expenses 26%, sales and marketing 40%, and research and development 49%. Management attributed spending increases to growth investment, hiring and expansion.
- FY2022 total profit declined 4%, while parent-attributable profit increased 41%, principally reflecting the acquisition of Cartrack’s remaining 31.9% minority interest in April 2021.
- Operating cash flow was broadly flat, but higher capital investment reduced free cash flow by 18%. Cash rose from ZAR 104.9m at the prior year-end, including proceeds from the IPO and repayment of a related-party loan.
- Adjusted EBITDA and its margin are non-IFRS measures; the filing adds back IPO costs and the commission-asset write-off. Investors should consider the IFRS results alongside these adjusted figures.
Outlook, commentary, risks and unusual items
- Outlook: The filing gives no specific numerical revenue or earnings guidance. Management said it expected COVID-19’s lagging effects to normalize, with minimal impact anticipated by Q3 FY2023, and described plans to increase sales and marketing investment to support growth. Asia-Pacific, Middle East and Europe are identified as growth priorities.
- Dividend: No dividend was paid in FY2022. Subsequent to year-end, the board declared an interim dividend of US$0.60 per share for FY2023, payable September 12, 2022 to shareholders of record September 2, 2022.
- Unusual item and controls: Management reported collusion involving certain insurance brokers and staff, leading to the ZAR 15.3m commission-asset write-off. It said mitigation measures were introduced, criminal charges were laid with South African police and relevant staff were dismissed. Management reported effective internal control over financial reporting as of year-end; the auditor did not attest to it because the company qualified for the emerging-growth-company exemption.
- Auditor change: KPMG said it would not stand for re-election. The company reported no disagreements or reportable events with KPMG; Ernst & Young was approved by the board for the FY2023 audit, subject to shareholder approval.
- Key risks: South African concentration and rand exposure; pandemic-related customer churn and credit losses; component and semiconductor supply constraints; competition and vehicle-maker embedded telematics; cybersecurity, service continuity and privacy regulation; and political, infrastructure and power-supply risks. Management reported no current legal proceeding expected to materially affect financial condition, results or liquidity.
- Related-party and project items: A ZAR 19.4m interest-free loan to a related party remained outstanding. The filing describes the Johannesburg office redevelopment at inconsistent estimated total costs: ZAR 346.9m in one section and ZAR 236.9m in another.
Important facts for investors to verify
- Reconcile the stated office redevelopment cost discrepancy (ZAR 346.9m versus ZAR 236.9m) and assess the project’s funding and execution risks.
- Review subscriber churn, customer collections and the expected-credit-loss allowance, which reached ZAR 161.7m against gross trade receivables of ZAR 448.2m.
- Assess whether margin and free-cash-flow pressure eases as sales, R&D, device and infrastructure investment continues.
- Confirm the status and consequences of the reported broker/staff collusion, remediation, police charges and commission-asset write-off.
- Check debt-facility availability and covenants, the repayment of the ZAR 20.0m Standard Bank draw and the post-year-end repayment of ZAR 10.3m in ZAR-denominated borrowing.
- Consider the concentration of control: the CEO beneficially owned 64.71% of shares as of May 20, 2022; the filing also describes voting arrangements that may affect beneficial ownership.