Karooooo delivers strong FY results; dividend $0.85/share

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SIMON BROWN: I’m chatting now with Karooooo CEO Zak Calisto. Results came out last night for year-end February and quarter-end February. [Full year] revenue is up 28%, annual earnings per share up 27%, and a dividend of $0.85/share.

Zak, I appreciate the time this morning. Let’s start locally. How much of an impact is load shedding? In one sense obviously cars carry on working, no problem, but you’ve got control rooms and the like. Is load shedding a big challenge for you?

ZAK CALISTO: Good morning, Simon. I think load shedding is a big thing for everybody, irrespective of whether you’re an individual or a company. And I think the biggest impact obviously for us is the traffic lights being off, which obviously slows down our ability to get to customers. Sometimes it can become a bit inconsistent as well [for] our sales people out seeing customers face to face. So that’s the one impact.

And then obviously not all cellphone towers have got backup batteries, and the quality of the cellphone towers can also have a little impact on [our operations] as a business. Clearly we are not an island, and I think this impacts all South Africans.

SIMON BROWN: I get you. It’s very much an operational issue, perhaps more than [with] diesel, which often is the case.

Sales and marketing expenses as a percentage of subscriptions were up 13%. What is your customer retention like? Do they tend to stay? My experience of a tracker is I put it [in] my car and I kind of forget about it and the debit order goes off every month until I sell the car.

ZAK CALISTO: Well, I like to break down customer retention into, one, commercial customers, and our commercial customer retention is 95%, which is very high. With South Africa having a lot of young and new entrepreneurs, given the way the dynamics of our economy work, not all of them make it. So you do see quite a few entrepreneurs not making it. Hence we lose about 5% of our customers.

On the consumer side obviously South Africa has been quite difficult in the last few years, and our customer-retention rate is about 98% if you measure it year to year; and if you measure it over a two-year period it’s also 95%.

So what we do see is customers selling their vehicles, not having a vehicle, and then two years later buying a vehicle again and coming back. So we’ve a very high customer-retention rate, I think.

We have very little business from the big insurance companies, and we normally find people who install tracking devices and get insurance it’s a grudge purchase. So we are very much focused on getting our own customers and getting customers who are not coming to us because it’s a grudge purchase. It’s rather because of the way we deliver our service and [their being] happy with our service.

SIMON BROWN: Certainly in the rest of the world, where you’re operating very much your commercial operations, you’re seeing strong growth, and you make the point in the results [that] this is a largely untapped market. Ten years ago, data as a service I suppose existed, but it certainly wasn’t large and it certainly wasn’t in fleet management.

ZAK CALISTO: I think it’s increasing [and] I think there are a lot of barriers. When I started out in the industry I thought within 10 years the industry was going to grow much faster. But the reality, despite us being a software company, is there are still a lot of operational elements to it. And clearly it has been a long path to continue to grow. It’s not always easy to continue to scale in businesses. We’ve developed a lot of internal systems that allow us to continue to scale.

We haven’t really got any customer-concentration risk, and we don’t get our business from one specific source. Because of that obviously we’ve got a quite a large distribution network that we continue to invest in.

SIMON BROWN: Two of your smaller more recent areas are both loss making, but they’re still scaling up – Logistics and Carzuka. You make a point in the results that you consider Carzuka an asset-light investment, given the returns you expect once Carzuka exceeds R300 million in quarterly revenues. You essentially are looking to ultimately get this to a R1 billion-plus/year business. What sort of timeline for that?

ZAK CALISTO: Well, we hope that we can get a get there by FY 25. We’re growing the business organically. Like any business that’s a startup, you’ve got all your teething problems that you go through. We’ve developed the tech; it’s a process and I think we’ll continue building it. We’ll continue making mistakes and improving on the areas [where] we are not strong. But we certainly believe that we are fine-tuning our processes and we’ll be able to scale the business.

SIMON BROWN: And that’s the key part. It’s a startup sitting within the larger Karooooo.

We’ll leave it there. Zal Calisto, CEO of Karooooo, I appreciate the time this morning.

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