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Provisional audited financial statements for the year ended 30 June 2014
DIGICORE HOLDINGS LIMITED
Incorporated in the Republic of South Africa
(Registration number: 1998/012601/06)
Share Code: DGC
ISIN Number: ZAE000016945
("the company" or "the group")
PROVISIONAL SUMMARY AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014
PROFIT BEFORE TAX Up 114%
EPS Up 112%
NET CASH GENERATED FROM OPERATIONS Up 42%
SUMMARY AUDITED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
at 30 June 2014
30 Jun 14 30 Jun 13 01 Jul 12
R'000 Restated* Restated*
Notes (Audited) R'000 R'000
Assets
Non-current assets 473 974 452 879 526 636
Property, plant and equipment 4 137 619 162 239 173 039
Goodwill 5 178 332 158 780 220 584
Intangible assets 101 671 85 337 79 487
Investments in associates 11 002 7 939 7 110
Other financial assets – – 1 250
Deferred tax 45 350 38 584 45 166
Current assets 286 386 388 031 364 142
Inventories 77 716 89 521 94 769
Current tax receivable 6 883 6 400 2 426
Trade and other receivables 182 520 249 579 225 628
Cash and cash equivalents 19 267 42 531 41 319
Assets held for sale – – 28 606
Total assets 760 360 840 910 919 384
Equity and liabilities
Equity attributable to equity holders of parent 565 978 580 235 598 473
Share capital and premium 166 324 166 324 166 324
Foreign currency translation reserve 14 755 43 182 (524)
Share-based payment reserve 12 661 10 935 9 989
Retained income 372 238 359 794 422 684
Non-controlling interest (2 505) 15 757 (14 524)
Total equity 563 473 595 992 583 949
Non-current liabilities 26 466 55 712 48 994
Other financial liabilities 14 135 39 461 22 995
Finance lease obligation 7 990 14 481 7 810
Deferred income – 355 15 954
Deferred tax 4 341 1 415 2 235
Current liabilities 170 421 189 206 189 893
Other financial liabilities 18 235 46 614 10 183
Current tax payable 5 920 4 028 16 222
Finance lease obligation 9 837 5 668 7 111
Trade and other payables 83 332 61 669 66 277
Deferred income 355 13 350 13 686
Provisions 3 019 5 835 6 244
Bank overdraft 49 723 52 042 70 170
Liabilities held for sale – – 96 548
Total equity and liabilities 760 360 840 910 919 384
*Refer to the restatements note 3 to the condensed consolidated financial statements.
SUMMARY AUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
for the year ended 30 June 2014
30 Jun 14 30 Jun 13
R'000 Restated*
Notes (Audited) R'000
Revenue 891 943 878 578
Cost of sales (325 189) (296 176)
Gross profit 566 754 582 402
Other income 41 786 26 347
Operating expenses (510 050) (506 573)
Earnings before interest, impairments, taxation, depreciation and
amortisation 98 490 102 176
Depreciation and amortisation (77 878) (82 597)
Impairment of rental stock (4 315) (12 933)
Impairment of goodwill – (57 500)
Investment revenue 3 643 216
Income from equity accounted investments 3 064 2 131
Finance costs (14 345) (14 378)
Profit before taxation 8 659 (62 885)
Taxation (864) 3 535
Profit after tax 7 795 (59 350)
Other comprehensive income:
Exchange differences on translating foreign operations –
reclassifiable (28 427) 43 706
Total comprehensive income for the period (20 632) (15 644)
Profit attributable to:
Owners of the parent 7 036 (59 194)
Non-controlling interest 759 (156)
7 795 (59 350)
Total comprehensive income for the period
Attributable to:
Owners of the parent (21 391) (15 488)
Non-controlling interest 759 (156)
(20 632) (15 644)
Earnings per share 6
Earnings per share (cents) 2.94 (24.70)
Diluted earnings per share (cents) 2.83 (24.70)
* Refer to the Restatements Note, Note 3 to the Condensed consolidated financial statements.
SUMMARY AUDITED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
for the year ended 30 June 2014
30 Jun 14 30 Jun 13
R'000 Restated*
(Audited) R'000
Share capital and premium
Share capital and premium at the beginning of the period 166 324 166 324
Share capital and premium at the end of the period 166 324 166 324
Reserves
Foreign currency translation reserve
Balance at the beginning of the period 43 182 (524)
Other comprehesive income (28 427) 43 706
Balance at the end of the period 14 755 43 182
Equity settled share-based payment reserve
Balance at the beginning of the period 10 935 9 989
Share options cancelled – (1 859)
Share-based payment cost for the period 1 726 2 805
Balance at the end of the period 12 661 10 935
Reserves at the end of the period 27 416 54 117
Retained income
Retained Income at the beginning of the period 359 794 422 684
Profit/(Loss) for the period 7 036 (59 194)
Share options cancelled – 1 859
Ctrack Latin America S.A – non-controlling interest derecognised – 13
Buyback of shares in DigiCore Fleet Management SA (Proprietary) Limited 5 408 –
Acquistion of 27% in Ctrack (Proprietary) Limited from outside shareholders – (5 568)
Retained income at the end of the period 372 238 359 794
Non-controlling interest
Balance at the beginning of the period 15 757 (14 524)
Profit for the year 759 (156)
Buyback of shares in DigiCore Fleet Management SA (Proprietary) Limited (19 021) –
Acquistion of a further 25% in Alchemist House (Proprietary) Limited – (874)
Ctrack Latin America S.A – non-controlling interest derecognised – (13)
Sale of Worldmark SA (Proprietary) Limited – 32 636
Acquistion of 27% in Ctrack (Proprietary) Limited from outside shareholders – (1 312)
Balance at the end of the period (2 505) 15 757
SUMMARY AUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
for the year ended 30 June 2014
30 Jun 14 30 Jun 13
R'000 R'000
Cash flows from operating activities
Cash generated from operations 161 793 125 620
Interest income 3 643 216
Finance costs (14 345) (14 378)
Tax received/(paid) (2 125) (6 861)
Net cash from operating activities 148 966 104 597
Net cash from investing activities (92 345) (96 021)
Net cash from financing activities (80 099) 15 714
Total cash and cash equivalents movement for the period (23 478) 24 290
Cash and cash equivalents at the beginning of the period (9 511) (28 851)
Effect of exchange rate movement on cash balance 2 533 (4 950)
Total cash and cash equivalents at end of the period (30 456) (9 511)
AUDITED SUMMARY SEGMENTAL ANALYSIS
for the year ended 30 June 2014
30 Jun 13
30 Jun 14 Restated
R'000 R'000
Total segment revenue
SA distribution 488 673 521 710
External revenue 522 735 532 381
Internal segment revenue (34 062) (10 671)
Foreign distribution 297 063 271 815
External revenue 297 063 285 399
Internal segment revenue (13 584)
Product development and manufacturing (57 974) (100 801)
External revenue 65 698 53 026
Internal segment revenue (123 672) (153 827)
Group services (12 506) (15 292)
External revenue 6 447 7 772
Internal segment revenue (18 953) (23 064)
Total external revenue 891 943 878 578
Eliminations 176 687 201 146
1 068 630 1 079 724
Profit/(loss) before taxation
SA distribution (42 624) (8 209)
Foreign distribution 24 918 (60 310)
Product development and manufacturing 50 200 16 317
Group services (23 835) (10 683)
8 659 (62 885)
Segment assets
SA distribution 2 223 343 787 390
Foreign distribution 297 063 373 195
Product development and manufacturing 857 192 353 921
Group services 1 265 862 462 864
4 643 460 1 977 370
Eliminations (3 883 100) (1 136 460)
Total assets 760 360 840 910
Segment liabilities
SA distribution (1 850 175) (221 399)
Foreign distribution (285 038) (252 011)
Product development and manufacturing (620 977) (20 758)
Group services (980 728) (92 611)
(3 736 918) (586 779)
Eliminations 3 540 031 341 861
Total liabilities (196 887) (244 918)
NOTES TO THE SUMMARY AUDITED
CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of preparation and presentation of financial statements
The summary consolidated financial statements are prepared in accordance with
the framework concepts and the measurement and recognition requirements of
International Financial Reporting Standards (IFRS) and contain the information
required by IAS 34 Interim Financial Reporting as well as the SAICA Financial
Reporting Guides as issued by the Accounting Practices Committee, the JSE
Limited Listings Requirements, and the requirements of the Companies Act, 2008.
Except as described below, the accounting policies are in terms of IFRS and are
consistent with those of the consolidated Annual Financial Statements at 30 June
2014 as issued on 29 September 2014. The accounting policies are supported by
reasonable and prudent judgments and estimates.
The board has approved the financial statements which have been summarised
for purposes of this report. The financial statements were internally compiled by
Mr PJ Grové CA(SA), the Group Chief Financial Officer and Mr V Venkatkumar
CA(SA), the Group Financial Manager.
Any reference to future financial performance included in this announcement,
the commentary within the Corporate Governance, Sustainability and Corporate
Profile headings and the financial and operation commentary have not been
audited by our auditors.
Audit opinion
The auditors, Mazars (Gauteng) Inc., have issued their unmodified opinion on the
Group's annual financial statements for the year ended 30 June 2014. A copy of
the auditor's report together with a copy of the audited financial statements are
available for inspection at the Company's registered office.
These summary audited consolidated financial statements have been derived
from the Group's annual financial statements .The contents of this announcement
are extracted from audited information, although the announcement is not itself
audited. The directors take full responsibility for the preparation of the provisional
report and the financial information has been correctly extracted from the
underlying annual financial statements.
The auditor's report does not necessarily report on all the information contained
in this announcement. Shareholders are therefore advised that, in order to obtain
a full understanding of the nature of the auditor's engagement, they should
obtain a copy of the auditor's report together with the accompanying financial
information from the Company's registered office.
2. Significant pronouncements adopted during the period
The Group adopted the new, revised or amended accounting pronouncements
as issued by the International Accounting Standards Board (IASB), which were
effective and applicable to the Group from 1 June 2013, none of which had any
material impact on the Group's financial results for the year.
IFRS 10 Consolidated Financial Statements
The objective of IFRS 10 is to establish principles for the presentation and
preparation of consolidated financial statements when an entity controls one
or more other entities. The Group has revised its accounting policies on the
consolidation of subsidiaries and concluded that the adoption of IFRS 10 did not
result in any material change in the consolidation of the Group.
IFRS 13: Fair value measurement
IFRS 13 aims to improve consistency and reduce complexity by providing a
precise definition of fair value and a single source of fair value measurement and
disclosure requirements for use across IFRS. IFRS 13 was adopted and applied
prospectively and it was assessed that the adoption did not result in any material
impact on the financial results of the Group.
IFRS 12, Disclosure of Interests in other entities
IFRS 12 requires an entity to disclose information that enables users of financial
statements to evaluate the nature of, and risks associated with, its interests in
subsidiaries, entities that are not fully consolidated, including joint arrangements,
associates and special purposes entities; and the effects of those interests on its
financial position, financial performance and cash flows. The effective date for
adoption of this standard is for periods commencing on or after 1 January 2013.
The adoption of IFRS 12 resulted in additional disclosures on interests in associates.
3. Restatement
The audit and risk committee and the board of directors of the group requested
that a detailed investigation be performed into the Groups systems and operations
as part of a comprehensive business review.
The review included a change of management, an understanding of the costing
of products and understanding the process of internal controls and accounting
for transactions.
As a result of a detailed operations and system review as requested by the audit
and risk committee and the board of directors, the following restatements were
identified:
Capitalisation of development cost as part of inventories and rental units
DigiCore provides a tracking solution to its customers through a tracking device
paired with tracking software. When revenue is recognised, the resulting cost of sale
should also be recognised for the tracking unit and the software used to provide
the solution.
This was previously done by the DigiCore owned factory by including a profit
margin that recovers all manufacturing and development cost when tracking
units were sold to other subsidiaries within the DigiCore group. The group therefore
carried these tracking units in inventory and rental assets at a value inclusive of
manufacturing cost and the allocated development cost.
Management have performed a detailed review of this process and concluded
that a more appropriate basis of capitalising these
development costs as part of inventories and rental units would be to capitalise the
amortisation of development costs as recognised in the financial period.
This change in the accounting policy changes the manner in which the cost is
allocated to inventories and rental units resulting in more relevant and reliable
information about the effects of the transactions.
Impairment of rental units
DigiCore rents a tracking solution to customers over a contract period. DigiCore will
receive rental income over the duration of the contract period and the unit should
be depreciated over the contract period.
The accounting system for the rental units was designed in such a manner that a
number of rental units that should have previously been impaired, but could not
be identified from the accounting system, as the economic benefit of these assets
had been depleted.
The rental units have been impaired using a recoverable amount based on the
estimated value in use. Controls have been implemented to improve the manner in
which information from the accounting system is obtained and recorded.
Connection incentive bonus
DigiCore previously received a fixed connection incentive bonus (CIB), from
the cellular network service providers on activation or renewal of a cellular line
contract. Previously this commission was recognised as revenue when received
by the group. The cellular providers have subsequently ceased to pay these
commissions and as a direct result have significantly reduced the monthly
subscription charge.
Due to the availability of this information, management decided to change the
accounting policy from recognising the CIB revenue upfront to deferring the
revenue over the contract period to reflect the true substance of the transaction.
The aggregate effect of the changes in accounting policy on the group financial
statements follows:
Summary Audited Consolidated Statement of Financial Position
30 Jun 13 Effect of restatements
Balance as Capitalisation Impairment
All figures in previously of development of rental CIB Balance
R'000 reported costs units revenue Restated
Property,
plant and
equipment 201 435 (25 033) (14 163) – 162 239
Deferred tax
asset 23 593 11 159 – 3 832 38 584
Inventories 104 347 (14 826) – – 89 521
Total 329 375 (28 700) (14 163) 3 832 290 344
Retained
income 412 532 (28 699) (14 163) (9 876) 359 794
Deferred
Income –
Long-term
portion – – – 355 355
Deferred
Income –
Short-term
portion – – – 13 350 13 350
01 Jul 12 Effect of restatements
Balance as Capitalisation Impairment
All figures in previously of development of rental CIB Balance
R'000 reported costs units revenue Restated
Property,
plant and
equipment 203 730 (25 826) (4 865) – 173 039
Deferred tax
asset 29 358 7 509 – 8 299 45 166
Inventories 95 763 (994) – – 94 769
Total 328 851 (19 311) (4 865) 8 299 312 974
Retained
income 468 199 (19 308) (4 865) (21 342) 422 684
Deferred
Income –
Long-term
portion – – – 15 954 15 954
Deferred
Income –
Short-term
portion – – – 13 686 13 686
Summary Audited Consolidated Statement of Comprehensive Income
Year ended
Effect of restatements
30 June 2013
Balance as Capitalisation Impairment
All figures in previously of development of rental CIB Balance
R'000 reported costs units Revenue Restated
Revenue 862 588 15 990 878 578
Cost of Sales (270 896) (25 280) – (296 176)
Depreciation
and
amortization (98 424) 12 232 3 595 (82 597)
Impairment of
rental stock – - (12 933) (12 933)
Profit before
taxation (56 489) (13 048) (9 338) 15 990 (62 885)
Taxation 4 362 3 650 – (4 477) 3 535
Profit/(loss) for
the period (52 127) (9 398) (9 338) 11 513 (59 350)
Earnings per
share
Indicator as Capitalisation Impairment
Year ended previously of development of rental CIB Indicator
30 June 2013 reported costs units Revenue Restated
Earnings per
share (cents) (21.69) (3.79) (3.87) 4.65 (24.70)
Diluted earnings
per share
(cents) (21.69) (3.79) (3.87) 4.65 (24.70)
Headline
Earnings per
share (cents) 3.29 (3.79) 1.24 4.65 5.39
Diluted headline
earnings per
share (cents) 3.29 (3.79) 1.24 4.65 5.39
4. Property, plant and equipment
The Group has invested R59.4 million into rental assets over the 12-month period
to 30 June 2014. R28.1 million worth of rental units that was previously capitalised
for the project with Discovery Insure Limited has also been derecognised and
sold to Discovery Insure under the revised terms and conditions of the project.
Depreciation for the year on rental units amounts to R41.1million (30 June 2013
Restated: R46.3 million)
5. Goodwill
The goodwill amount per the statement of financial position is reconciled as
follows:
R'000
Cost 216 280
Accumulated impairments (57 500)
Carrying value at 30 June 2013 158 780
Foreign exchange movements 19 552
Carrying value at 30 June 2014 178 332
Cost at 30 June 2014 235 832
Accumulated impairments at 30 June 2014 (57 500)
6. Earnings per share
Growth 30 Jun 13
Earnings per share % 30 Jun 14 Restated*
Earnings per share (cents) 112 2.94 (24.70)
Diluted earnings per share (cents) 111 2.83 (24.70)
Headline Earnings per share (cents) (3) 5.23 5.39
Diluted headline earnings per share (cents) (7) 5.04 5.39
Final Dividend per share (cents) – –
Earnings per share calculations
Number of ordinary shares in issue ('000) 247 669 247 669
Weighted average number of ordinary
shares in issue ('000) 239 607 239 607
Adjusted for: potentially dilutive impact of
share options 9 070 –
Weighted number of shares in issue to be
used in the calculation of diluted earnings
per share 248 677 239 607
Reconciliation of headline earnings
Basic and diluted earnings 7 036 (59 194)
Adjusted for:
Loss on sale of fixed assets 1 638 878
Impairment of fixed assets 4 315 12 933
Loss on sale of Worldmark SA (Proprietary)
Limited 1 047
Impairment of goodwill 57 500
12 989 13 164
Tax effect on adjustments (459) (246)
Non-controlling interest in adjustments – –
Basic and diluted headline earnings 12 530 12 918
7. Acquisition of non-controlling interest
DigiCore Fleet Management SA (Proprietary) Limited
On 31 March 2014 the Group bought back the 30% shareholding held by the non-
controlling shareholders of DigiCore Fleet Management SA (Proprietary) Limited.
The fair value purchase consideration was set at R13 612 239.
The total consideration was settled in cash and this took the Group's shareholding
in the Company from 70% to 100%. The Group recognised a decrease in non-
controlling interest of R19 019 618 and the difference between the non-controlling
interest has been recognised in equity.
Fair value of assets acquired and liabilities assumed
R'000
Non-controlling interest derecognised 19 020
Excess of consideration paid over non-controlling interest recognised
in retained earnings (5 408)
13 612
Acquisition date fair value of consideration paid
Cash 13 612
Non-controlling interest is measured at the non-controlling interest's proportionate
share of the acquiree's identifiable net assets.
8. Disposal of subsidiary
During the 2013 financial period, the Group sold its shareholding in Worldmark SA
(Proprietary) Limited T/A Motor One. Please refer to the results announcement for
the year ended 30 June 2013 for further details. In order to reflect the results of the
continued operations, the results of the Group for the year ended 30 June 2013
are provided before and after the results for Worldmark SA (Proprietary) Limited
as follows:
30 Jun 14 30 Jun 13
Growth
DigiCore
All figures in DigiCore Operations DigiCore Worldmark Balance
R'000 Operations 2014 v 2013 Operations SA (Pty) Ltd Restated
Revenue 891 943 6% 844 212 34 366 878 578
Cost of sales (325 189) (281 452) (14 724) (296 176)
Gross profit 566 754 1% 562 760 19 642 582 402
Other income 41 786 22 339 4 008 26 347
Operating
expenses (510 050) (485 509) (21 064) (506 573)
EBITDA 98 490 (1%) 99 590 2 586 102 176
Depreciation
and
amortisation (77 878) (82 597) – (82 597)
Impairment of
rental stock (4 315) (12 933) – (12 933)
Impairment of
Goodwill – (57 500) – (57 500)
Investment
Revenue 3 643 216 – 216
(Loss)/Income
from equity
accounted
investments 3 064 2 131 – 2 131
Finance costs (14 345) (14 179) (199) (14 378)
Profit before
taxation 8 659 113% (65 272) 2 387 (62 885)
Taxation (864) 3 535 – 3 535
Profit after tax 7 795 113% (61 737) 2 387 (59 350)
DIVIDEND DECLARATION
No final dividend will be declared and paid to the shareholders. The board agreed
to retain cash for future growth. (30 June 2013: nill).
CHANGES TO THE BOARD OF DIRECTORS
Mr D du Rand and Mr MD Rousseau have stepped down as members of the board
with effect from 22 May 2014 in order to apply the recommendations set out in King
Code of Governance Principles ("King III"), they will continue in their roles as Chief
Technology Officer and Chief Operating Officer respectively.
RELATED PARTIES
During the year, certain subsidiaries, in the ordinary course of business entered into
loans and transactions with related parties under terms that are no less favourable
than those arranged with third parties.
CORPORATE GOVERNANCE
The board of directors aspires to conduct the Group's business with responsibility,
accountability, fairness and transparency and strives to be a good corporate
citizen.
The directors agree with the spirit and principles of corporate governance set out
in the King Report on Governance in South Africa (2009) (King III). The board is
committed to applying appropriate corporate governance policies and practices
in each Company in the Group.
SUSTAINABILITY
Sustainability forms the cornerstone of our values and is part of our board's
mandate.The Group understands that its business is part of the greater environment
in which we live, so our actions are shaped by national and international trends in
sustainable development. DigiCore is a long-term business and this determines our
actions as the Group strive to be a responsible corporate citizen and respect the
society and environment in which we operate.
The focus of the Group going forward is to balance financial growth with our focus
on people, especially staff satisfaction, while ensuring we remain committed to
equal opportunity employment and stakeholder satisfaction. It underpins our
approach to attracting, retaining and developing our people. It guides our actions
in the contribution we make to preserving our environment. It drives our continued
cost-effective growth.
In support of the vision and strategy on sustainability, the Group has adopted the
Global Reporting Initiative Framework for which a report has been prepared in
accordance with GRI G3.1 guidelines. With the release of the integrated annual
report 2013 in October 2013, DigiCore followed the combined assurance model
and believes the report meets the requirements of level C. Please refer to the
website for further information on sustainability within the Group.
CORPORATE PROFILE
DigiCore is a JSE-listed Group specialising in vehicle tracking, fleet management
solutions and insurance telematics for an international client base. With over 28
years of innovation, technical and implementation experience, DigiCore is is a
provider of advanced machine-to-machine communication and telematics
solutions that add value to its global base of customers with mobile assets.
DigiCore's end-to-end research, design, development, manufacture, sales and
support of tailored solutions for customers is serviced by a global network of staff
and team members in more than 50 countries. The Company's technology and
electronic division designs and develops a range of asset management and
monitoring systems using GPS satellite positioning, GSM cellular communication
systems and other advanced communication and sensory technologies.The result
is products and solutions ranging from basic track-and-trace with stolen vehicle
response services for the consumer market to complete integrated enterprise-level
solutions for large fleet owners such as the Royal Mail (UK), the South African Police
Service, eThekwini Metro, BHP Billiton (global) and many others under the Ctrack
brand.
Operations span six continents with over 1,000 employees and close to 800,000
systems sold.
COMMENTARY
The 12 months to June 2014 were challenging but rewarding in the progress we
made in various spheres of our business.
In the second half of the year, the new management team continued to optimise
our business, launched new products, rebuilt and created new relationships with
clients which all bodes well for future growth.
As part of this process, we have changed our policies on defining obsolete stock
and arrears debtors accounts, as well as providing for and writing off bad debt.
At the same time we put measures in place to prevent similar losses in future.
Several new product developments were initiated for the fleet and consumer/
insurance markets, some already launched and others to be launched early in the
new year. We believe the investment in research and development R&D will position
us well to win more contracts in the coming year.
After restructuring and repositioning the management team, we have recorded a
significant improvement in customer service from our call centre, sales, technical
and finance divisions.
The sales model, in terms of cash or externally funded deals, is now bedded down
and part of our normal sales process into the fleet market. This strategy allowed us
to improve our cash flow and settle finance facilities of R80 million last year.
Development of the interactive business intelligence and bureau-reporting
environment has been completed.This system enables Ctrack customers to receive
automated reports as well as dynamic key performance indicator reporting on
drivers and vehicles respectively.This allows business decisions to optimise fleet size
and performance, and improve behaviour for safety and lower maintenance costs.
The international operations have been reviewed in order to concentrate on those
markets offering most potential. As a result, certain markets have been exited.
Management is confident that, going forward, the international businesses will
contribute positively.
Purchasing decisions were delayed as a result of the election and strikes in South
Africa which impacted business in our second half.
FINANCIAL OVERVIEW
The audit and risk committee and board of directors of the Group requested
a detailed investigation of the Group's systems and operations as part of a
comprehensive business review. This review included a change of management,
an understanding of costing products and familiarisation with the process of
internal controls and accounting for transactions.
Following this review, these results include a restatement of the prior-period
financial statements. Management believes this restatement will set a base line for
more reliable and relevant information on DigiCore's performance and financial
position. For a detailed analysis of the restatement, refer to note 3.
Profit/loss after tax for the Group turned from a loss of R59,3 million to a profit of
R7,8 million for the financial period. This result, however, includes adjustments that
management expects to be non-recurring in future. These adjustments cover an
additional provision for bad debts of R56,6 million, impaired deposits of R8,8 million
and impaired stock of R33,1 million. A positive currency adjustment of R35,3 million
was raised due to the conversion of pound- and euro-exposed loans to rand.
The nature of these loans was changed subsequent to the end of the financial
period which eliminates any foreign currency exposure in profit and loss on these
loans. In total, the results include non-recurring adverse adjustments totalling
R63,2 million that is not necessarily expected to recur in future.
Cash from operating activities of R148,9 million was generated and used to fund
investment activities of R92,3 million. The cash generated was used to repay loan
and overdraft facilities previously used to finance the Group.
TECHNOLOGY REVIEW
Ctrack's new-generation iS platform has received very positive feedback from both
distributors and end-users and is a significant development for our sales teams
and clients.
Ctrack On-the-Road, a touch-screen terminal based on smartphone technology,
has been well received in the market. The product is manufactured in China.
The latest upgrade includes a forward-looking video camera for driver behaviour
and accident investigations, fully integrated into the Ctrack Maxx reporting
environment and allowing remote access to the video. Adding high-volume
video data to Ctrack's cloud-based environment required tripling our storage
capacity.
Ctrack released its new multi-communications module allowing seamless and
cost-effective Ctrack operations in and outside GSM areas, switching automatically
to satellite communication when necessary. This innovative module allows
combinations of wifi, satellite communications and even high-security private
digital radio networks such as TETRA. Ctrack's least-cost and message priority
algorithms allow the client full control, per vehicle, over wireless communication
costs.
Ctrack signed two global agreements. The first is a mapping agreement that gives
Ctrack global direct access to up-to-date, cloud-based map databases providing
clients with maps, satellite images and real-time traffic data. Secondly, we signed
a technology partnership agreement with a USA Company to strengthen Ctrack's
OBD-II plug-and-play technology.
OPERATIONAL REVIEW
South Africa
Ctrack
Sales skills have been expanded through a mixture of training and recruitment to
meet the challenges of a more demanding marketplace. Much emphasis was
placed on developing our human capital/sales staff.
We have launched our Fleet Protector product that provides a range of cover for
fleet owners, drivers and users of Company vehicles. The product is underwritten by
Hollard and will be sold into the fleet base in the next financial year.
The launch of Ctrack On-the-Road has generated interest among transporters
wanting to optimise their fleet productivity and efficiencies. A continued strategic
partnership with VSC Solutions is assisting in selling a total fleet solution to our
customers in the logistics sector and will continue to increase our market share. Our
Fleet Connect software continues to be improved and pulls information from third
parties such as financial institutions and includes fuel data, toll and maintenance
costs to assist customers with decision-making via our bureau services. New fleet
business intelligence tools have been introduced to give our customers convenient
and easy-to-use systems to access their own accurate, relevant information/data.
The successful deployment of Ctrack's Mobile Resource Management (MRM)
solution has improved customer service as well as productivity at the installation
stage. Currently there is a concerted effort to automate various other processes in
our business value chain and we have started to see the financial benefits of this
technology in our own environment, along with convenience and speed from a
customer perspective.
The retention team remains focused on retaining the existing customer base and
our sales channel strategy, ie third-party call centres etc, is contributing to new
business acquisition in the consumer market. An agreement with International-
SOS (Digicall) is providing the opportunity to sell value-added services, such as
medical support and roadside assistance (Advanced Protector), to the consumer
customer base.
Discovery Insure installations have increased to around 5,000 Ctrack insurance
telematics systems per month with a total of 77,000 installations to date. The
concept of rewarding better and safer driving habits is being accelerated and
complemented by other technologies entering the market.
In supporting the Action for Response system of the South African Police Service
(SAPS), we rolled out the call-taking and dispatch system in conjunction with
Aurecon to over 20 response centres nationally. Published figures from SAPS show
that both operational turnaround time to incidents logged on 10111 and fleet
operating costs have substantially reduced. Ctrack's current agreement with SAPS
has been extended until December 2014.
Tap-i-Fare
Tap-i-Fare continues to work closely with the South African taxi industry as well as
public transport owners in neighbouring countries. We are currently engaged in
a proof-of-concept phase for both telematics and fare collection which runs until
the end of 2014.
Ctrack Mzansi
Ctrack Mzansi is in its third year of operation and moved from a level 4 to level
1 BBBEE (broad-based black economic empowerment) contributor in 2013.
The Department of Labour, Aveng Trident Steel and Barloworld Equipment were
significant contract wins in the period and we await the outcome of other fleet
tenders submitted.
INTERNATIONAL
Europe and UK
The economic climate in Europe improved in the second half of this year, which
had a positive impact on results in the final quarter. The restructuring has been
embedded in the various operations; this has improved efficiency and kept costs
well under control.
The insurance telematics market is progressing in Europe and the UK and
improved results are expected in the new year. The UK fleet business performed
very well in the third and fourth quarters, winning a number of council tenders. The
Netherlands operation has remained under gross profit pressures, but good results
have been realised. Our distributors in Europe have improved their support of the
Ctrack products, recording good growth in those countries.
Management remains confident about the growth prospects of this region.
Africa
There are currently 18 distributors in Africa, representing as many countries.
Growth has been slower than expected, but the final quarter showed some
improvement. The mining sector in Africa was under pressure during the year,
including the continual pressures of the health and safety environment critical to
these companies. We have concluded a memorandum of understanding with
a global, multinational Company to further our footprint and service offering on
the continent and build a more sustainable business model; this will eventually
represent us in 27 African countries.
Australia and New Zealand
Ctrack has recorded good growth in this region during the year, especially in
the fleet industry. Australia is a highly regulated environment, which posed a few
challenges; Ctrack has successfully met these challenges with approvals received
for all our products. We look forward to a buoyant year ahead by accessing this
market to a greater degree. The trial for insurance telematics with an international
vehicle insurance underwriter has progressed to the next generation of the
technology. We expect to launch this service in the third quarter of 2015. Australia
remained profitable during the year.
Asia
We have closed our own office and partnered with a Malaysian Company, Mega
Fortris Ctrack Solutions, which has opened offices in Malaysia, China, Thailand,
Singapore and Indonesia. We have therefore consolidated our Malaysian
operation into this partnership. The Asian market has a keen interest in the software
capability of Ctrack solutions and we are recording sales with international clients
such as Tyco and TNT. We are now ready to support all the requirements of the
Transported Asset Protection Association (TAPA). First-level support will be provided
from our Australian office's sales and technical departments.
Middle East
Our partnership established in Dubai has grown progressively in the region. We
are securing a growing number of contracts, supported by new legislation
being formalised by the Roads & Transport Authority (RTA), which is responsible
for transport planning, in preparation for the World Expo in Dubai in 2020 when
25 million visitors are expected over the six-month period. Complementary to this
opportunity, there are a number of good prospects with municipal business and
the oil and gas industry.
Pakistan
Unit sales to Pakistan were disappointing, although TPL Trakker was profitable for the
year and contributed R3,1 million to this year's profit. Our share in TPL Trakker is still
held for sale with a market value of around R49 million.
INDUSTRY COMMENTS
DigiCore has progressed well with the requirement from medium to large fleet
operators for a more information-based services and subscription model, allowing
third-party information such as routing and scheduling, fuel card transactions, etc
to be incorporated in our reporting software. The integration with other systems
gives operators, at a glance, the full status of their operation on one report.
With the launch of cMe, a track-and-trace unit, we are able to fulfil the needs of
most consumers at a very attractive price in a competitive market. The fact that
cMe provides more information, features and benefits to consumers should allow
us to improve our market share over time in this segment.
The strategic and special projects division continues to identify and define
innovative application and future telematics trends. As a result, DigiCore maintains
its leadership in insurance telematics and today operates over 80,000 driver
behaviour-based insurance telematics systems. Under the Ctrack brand, DigiCore
was ranked as best telematics technology provider and telematics service provider
in Asia, Latin America and other continents, including Africa and Australasia, in the
2013 Insurance Telematics Supplier Ranking Study by Ptolemeus Consulting Group
which helps insurers select their partners.
Working on a number of other telematics initiatives outside the traditional vehicle
and fleet management areas is a key part of DigiCore's strategy to be a leader
in reshaping the telematics industry. As example, our integrated RFID despatch
and monitoring solution with Mega Fortris, a global security seal manufacturing
Company, and our Thripp Container research strategy won the Department of
Trade and Industry's technology prize, and is now being rolled out worldwide.
Electronic fare collection on taxis and public transport is imminent in South Africa,
but probably not before next year. New opportunities in Africa seem more viable to
us than the South African market for now. With our products and software already
upgraded, no further R&D spend is required until firm orders are received.
OUTLOOK
We are excited to start the new year with a proverbial clean slate after optimising
our business in the second half of the year.
Systems, controls and strategies to manage stock, debtors and cash flow more
effectively are in place, allowing the management team to focus externally on
relationships, sales and marketing and to identify new opportunities for growth.
We are cautiously optimistic that financial results will continue to improve.
For and on behalf of the board
N H Vlok P J Grove
Chief executive officer Chief financial officer
29 September 2014
Centurion
Registered office
DigiCore Building, Regency Office Park, 9 Regency Drive
Route 21 Corporate Park, Irene Ext 30, Centurion, South Africa
PO Box 68270, Highveld Park, 0169, Tel: +27 (0)12 450 2222
Fax: +27 (0)12 450 2497
Transfer secretaries
Computershare Investor Services (Proprietary) Limited
70 Marshall Street, Johannesburg, 2001
PO Box 61051, Marshalltown, 2107
Auditors
Mazars (Gauteng) Incorporated
Executives
NH Vlok (Chief Executive Officer),
PJ Grové (Chief Financial Officer)
Non-executives
G Pretorius (Chairman), B Marx, SS Ntsaluba, JD Wiese
Company secretary
N Bofilatos
Centurion
29 September 2014
Sponsor
PSG Capital Proprietary Limited
www.digicore.com www.ctrack.co.za
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