Wrap Text
CONDENSED REVIEWED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS 2019
Cartrack Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 2005/036316/06)
Share Code: CTK ISIN:ZAE000198305
("Cartrack" or "the group")
CONDENSED REVIEWED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS 2019
Commentary
GROUP PROFILE
Cartrack is a leading global provider of data analytic solutions for mobile asset management, asset recovery and workforce optimisation based on a proven Software-as-a-Service platform
("SaaS"). Fleet Management ("Fleet"), Stolen Vehicle Recovery ("SVR") and insurance telematics remain its primary offerings. The annuity-based model is underpinned by real-time actionable
business intelligence that is delivered as Software-as-a-Service. Cartrack is also renowned for developing innovative, first-to-market solutions that are aimed at further enhancing the
Cartrack customer experience.
Cartrack, with an active subscriber base of more than 849,772, ranks amongst of the largest telematics companies globally. The Group's impressive growth since its inception in 2004 has
resulted in the development of an extensive footprint in 24 countries across Africa, Europe, North America, Asia Pacific and the Middle East.
Cartrack's success is attributed to its status as a service-centric organisation that focuses on the in-house design, development, production and installation of telematics technology and
data analytics products.
The Group's technology is widely accepted by motor manufacturers and insurers. Cartrack's customer telematics web interface provides a comprehensive set of features, thereby ensuring the
optimisation of its customers' fleet and human resources. As an expansion of its integrated service offering, Cartrack also provides driver risk-assessment offerings in the insurance
telematics field.
Cartrack is a leader in the area of vehicle tracking and recovery, with an industry-leading audited recovery rate of 91% as of 28 February 2018, reflecting the superior quality of its
technology and services.
CARTRACK'S VISION AND MISSION
Cartrack's vision is to provide the global technology platform of choice for users seeking intelligent data.
Cartrack's mission is to understand its customers' and partners' needs for smart-transportation and to fulfil these needs through advanced data management and outstanding customer service.
NEW REPORTING STANDARDS
The HY19 results are the first set of interim results of the Group where the new IFRS 9 Financial Instruments, IFRS 15 Revenue from Contracts with Customers and IFRS 16 Leases will be
applied. Most significantly, the Group now treats cash sales in the same manner as rental sales by capitalising the cost of the unit and other incremental costs and therefore depreciate
these capitalised costs over a period of between 12 to 60 months. Similarly, revenue is recognised over a period of between 12 to 60 months, irrespective of whether it is a rental or a
cash sale. This is now in line with the expected life cycle of an active unit.
With the adoption of the new accounting standards, comparisons to HY18 are not entirely analogous. However, the new accounting standards better align the reporting of Cartrack's results to
its competitors and will allow for substantially improved year-on-year comparisons due to depreciation now aligning revenue over the life expectancy of the installation. The previous
accounting standards did not adequately align revenue with associated costs and depreciation and hence distorted year-on-year profit comparisons for high-growth companies like Cartrack.
GROUP PERFORMANCE
Cartrack delivered strong interim results with EPS increasing by 24% (FY18: 17% and HY18: 21%). These robust results were achieved due to strong subscriber and annuity revenue growth,
while maintaining industry-leading operating profit and EBITDA margins of 34% (FY18: 33% and HY18: 32%) and 50% (FY18: 49% and HY18: 47%), respectively.
The Group achieved subscriber growth of 28% (FY18: 25% and HY18: 21%), with the number of subscribers increasing from 666,422 to 849,772. The Group continues to maintain a strong order
book while focusing efforts on research and development, customer experience and distribution.
Annuity revenue now represents 93% of total revenue and increased by 27%.
Notwithstanding the substantial increase in investing for future growth, operating profit increased from R200,1 million to R263,4 million. Earnings Before Interest, Tax, Depreciation and
Amortisation ("EBITDA") increased by 29% from R297,1 million to R383,9 million.
Cartrack has strong predictable future annuity revenue as 73% of the subscriber base joined Cartrack in the past 36 months. This high percentage is primarily due to the increased
investment in distribution in order to meet demand. In terms of the old accounting standards, the accelerated growth negatively impacted on margins. However, this will largely be ironed
out by the adoption of the new accounting standards.
EPS increased by 24% to 57,9 cents (HY18: 21% to 46,6 cents). HEPS increased by 25% to 57,8 cents (HY18: 46,2 cents). Return on equity of 55% (HY18: 58%) and return on assets of 27% (HY18:
33%) indicate that capital was efficiently applied across the Group.
As the demand for telematics data continues to increase, there will be lucrative growth opportunities to market across all channels and in each operating region. As such, opportunities to
develop further vertically aligned revenue streams remain at the forefront of Cartrack management's short and medium-term strategy.
Segment overview
South Africa
The South Africa segment delivered particularly strong results, with annuity revenue increasing by 26% from R410,4 million to R518,8 million (HY18: 19%) and subscribers grew by 30% (HY18:
19%) over the same period. The primary contributors to this organic growth were the realisation of a strong sales pipeline, investment in operating capacity and an effective distribution
strategy.
In line with expectations, the sales mix in HY19 as in FY18 shifted to include significantly more rental sales than cash sales.
The South African market remains underpenetrated in both the corporate and consumer segments, despite South Africa having one of the highest telematic penetration rates in the world.
As the subscriber base continues to grow, Cartrack will continue to identify and exploit opportunities to realise economies of scale and operating efficiencies.
The South Africa segment is expected to deliver stronger bottom-line results in the next 18 months as it is currently deploying an upgraded proprietary customer-centric platform which
allows for improved efficiencies to deal with the current accelerated growth.
Africa
The Africa segment delivered a resilient performance, notwithstanding sluggish regional economic performance. It also continues to play a critical role in ensuring a high cross-border
stolen vehicle recovery rate and improved service to customers who engage in cross-border travel.
The subscriber base in Africa decreased by 2%, while annuity revenue increased by 7% from R47,2 million to R50,5 million, primarily as a result of a weaker rand. If exchange rates had
remained unchanged, revenue would be flat.
Financial hardship experienced by consumers and commercial customers alike is the major factor contributing to the lacklustre sales levels. However, Cartrack has reason to believe that
sales will increase in the near future owing to the investment in local talent.
The segment remains profitable and generates strong positive cash flows.
Europe
The Europe segment delivered strong subscriber growth of 23% (HY18: 24%), largely as a result of an investment in distribution and operating capacity over the past two years. The annuity
revenue increased by 28% from R52,8 million to R67,3 million.
The continued investment in distribution and operating capacity for future growth led to a consistent year-on-year operating profit of R9,2 million.
Europe presents lucrative growth opportunities to provide telematics offerings and related value-added services and Cartrack is now well positioned to capitalise on these opportunities.
Asia Pacific
Asia Pacific is now the second largest segment in the Group based on revenue contribution, with the annuity revenue up 54% from R46,7 million to R71,7 million (HY18: 112%). These results
are due to an increase in subscribers of 43% (HY18: 122%).
The market in this segment remains considerably underpenetrated due to fragmented market participants delivering entry-level telematics offerings, thereby enabling Cartrack to exploit its
more sophisticated, reliable products and customer-centric services. Cartrack remains poised to exploit new opportunities while expanding cross-border relationships as it drives its robust
and proven offerings in this segment.
USA
The investment to date has largely been in research and development, which has been expensed in terms of the Group Policy.
Cartrack is experiencing delays in fully rolling out its services in the region primarily due to unforeseen delays in the development of the machine-to-machine devices that operate on the
USA 4G frequency spectrum.
The good news is that Cartrack has now completed the development of both the machine-to-machine devices and a sophisticated electronic logging device ("ELD"). Cartrack is now positioned to
roll out in the USA and to capitalise on the 3G sunset which is expected to occur in 2020. The vast majority of the existing competitors' subscribers are currently using 3G machine-to-
machine devices which will soon be obsolete.
Annuity revenue was R2,0 million from 1,400 subscribers in HY19.
MANAGING OUR BALANCE SHEET
Capital allocation and cash management are particularly important in a high-growth phase with accelerated investment in operating and distribution capacity. Prudent management in this
regard remains a key focus area which is monitored and managed on an ongoing basis.
The higher levels of rental sales and the corresponding increase in capitalised rental units, planned and continued investment in distribution and operating capacity of the Group, as
well as the increase in inventory levels to ensure the uninterrupted realisation of the sales pipeline, have resulted in the reinvestment of cash flows generated from operating
activities.
Cartrack has received a term sheet from a respected South African bank for a 5-year term facility of R600 million to finance the capitalisation of customer acquisition costs derived from
organic growth.
Notwithstanding the significant and continuing investment in customer acquisition costs, Cartrack remains highly cash generative with a strong cash flow forecast for the foreseeable future.
OUTLOOK2
SaaS, within the context of the Internet of Things ("IoT"), continues to rapidly expand as the digital age comes to the fore. Cartrack remains at the forefront of the related telematics
expansion and continues to drive innovation and application through its interaction with customers and strategic research and development activities.
Cartrack's commitment to an eco-system platform for connected-cars that is vehicle brand agnostic has been reconfirmed by its experimentation in smart-mobility in partnership with two
of the world's leading companies offering pay-as-a-service transportation. Cartrack views this development as a strengthening of telematics companies' value proposition, particularly those
companies with stable, proven and dynamic platforms that will be able to provide decision-useful information to customers in the future by leveraging both Original Equipment Manufacturer
and third-party telematics devices.
Increasingly, customers are relying on the telematics market to optimise business intelligence relating to assets and people on a global scale. Cartrack will continue to evolve as a more
integral part of its current and future customers' lives.
Achieving this aim will require a continued and deliberate investment in technology, information management, human resources and in the distribution and operating capacity of current and
new markets. Cartrack has in the past looked at possible market consolidation opportunities. In the past 18 months Cartrack decided to focus on growing the business organically, unless an
attractive opportunity comes along.
It should be noted that the South African market remains underpenetrated, with many opportunities available to provide customer-centric solutions to individuals, customers and fleets
alike.
Furthermore, the order book in Europe remains strong while new sales are being actively pursued. While subscriber growth and customer service remain the primary focus, cost rationalisation
strategies will be implemented to leverage subscriber growth in order to increase operating profit and margin.
BASIS OF ACCOUNTING
Grant Thornton, the Group's independent auditor, has reviewed the condensed consolidated interim financial information for the period ended 31 August 2018 and have expressed an unmodified
review conclusion thereon. A copy of the auditor's review report is available for inspection at the Company's registered office together with the financial information identified in the
auditor's report. The auditor's review report does not necessarily report on all the information contained in these financial results. 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 review report together with the accompanying financial information from
the Company's registered office.
The directors take full responsibility for the preparation of these financial results.
The condensed consolidated interim financial statements were prepared under the supervision of Morne Grundlingh CA(SA), ACA and present a summary of the complete set of reviewed
consolidated interim financial statements of Cartrack as approved on 30 October 2018. The complete set of reviewed consolidated financial statements is available at www.cartrack.com and at
Cartrack's registered office for inspection. The directors take full responsibility and confirm that the condensed information has been correctly extracted from the consolidated interim
financial statements.
The condensed consolidated interim financial statements have been prepared in accordance with the requirements of the JSE Listings Requirements, and the requirements of the Companies Act,
71 of 2008, applicable to summary financial statements. The Listings Requirements require interim reports to be prepared in accordance with the framework concepts as a minimum and
the measurement and recognition requirements of IFRS, IAS 34 Interim Financial Reporting, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial
Pronouncements as issued by the Financial Reporting Standards Council.
The condensed consolidated interim financial statements do not include all the information and disclosures as required in the consolidated annual financial statements and should be read in
conjunction with the Group's annual consolidated financial statements as at 28 February 2018.
2 Any forecast information included in this section has not been reviewed and reported on by Cartrack’s auditor in
accordance with 8.40(a) of the JSE Listing Requirements. The directors take sole responsibility for the statements.
DIVIDEND DECLARATION
Ordinary shareholders are advised that the Board of directors has declared an interim gross cash dividend of 18 cents (HY18: 18 cents) per ordinary share (14,4 cents net of dividend
withholding tax) for the six months ended 31 August 2018 (the cash dividend). The cash dividend will be paid out of profits of the Company.
Share code CTK
ISIN ZAE000198305
Company registration number 2005/036316/06
Company tax reference number 9108121162
Dividend number 9
Gross cash dividend per share 18 cents
Issued share capital as at declaration date 300 000 000
Declaration date Wednesday, 31 October, 2018
Last date to trade cum dividend Tuesday, 4 December 2018
Shares commence trading ex-dividend Wednesday, 5 December 2018
Record date Friday, 7 December 2018
Dividend payment date Monday, 10 December 2018
Share certificates may not be dematerialised or rematerialised between Wednesday, 5 December, 2018, and Friday, 7 December, 2018, both days inclusive.
TAX IMPLICATIONS
The cash dividend is likely to have tax implications for both resident and non-resident shareholders. Shareholders are therefore encouraged to consult their professional tax advisers
should they be in any doubt as to the appropriate action to take.
In terms of the Income Tax Act, the cash dividend will, unless exempt, be subject to dividend withholding tax ("DWT"). South African resident shareholders that are liable for DWT, will be
subject to DWT at a rate of 20% of the cash dividend and this amount will be withheld from the cash dividend. Non-resident shareholders may be subject to DWT at a rate of less than 20%
depending on their country of residence and the applicability of any double tax treaty between South Africa and their country of residence.
On behalf of the Board
David Brown Zak Calisto
Chairman Global Chief Executive Officer
Johannesburg
31 October 2018
Sponsor
The Standard Bank of South Africa Limited
Condensed reviewed Consolidated interim statement of financial position
As at 31 August 2018
Figures in rand thousands Notes Reviewed Unaudited Audited
six months six months 12 months
ended ended ended
31 August 31 August 28 February
2018 2017 2018
ASSETS
Non-current assets
Property, plant and equipment 4 1 006 431 405 052 516 045
Contract asset 5 92 793 - -
Goodwill 6 132 904 117 467 107 597
Deferred tax 61 137 50 347 49 488
1 293 265 572 866 673 130
Current assets
Inventories 188 927 160 348 173 680
Loans to related parties 1 063 1 823 2 272
Trade and other receivables 7 201 140 164 494 154 952
Current tax receivable 7 253 3 320 4 143
Cash and cash equivalents 51 983 42 121 69 573
450 366 372 106 404 620
Total assets 1 743 631 944 972 1 077 750
EQUITY AND LIABILITIES
Equity
Share capital 42 488 42 488 42 488
Treasury shares (12 105) (12 105) (12 105)
Reserves 17 617 (20 657) (41 311)
Retained earnings 729 632 495 287 601 224
Equity attributable to equity holders of the parent 777 632 505 013 590 296
Non-controlling interest 6 353 12 871 10 125
783 985 517 884 600 421
Liabilities
Non-current liabilities
Contract liability 175 130 - -
Lease obligation 91 964 23 015 28 635
Amounts received in advance - - 5 253
Deferred tax 35 887 2 512 2 316
302 981 25 527 36 204
Current liabilities
Loans from related parties 9 154 4 693 5 486
Contract liability 67 122 - -
Lease obligation 57 224 18 518 27 637
Current tax payable 51 138 46 475 55 911
Trade and other payables 124 089 95 478 111 722
Provision for warranties 8 627 5 928 6 482
Share-based payment liability - 7 022 -
Amounts received in advance 82 681 83 325 68 860
Bank overdraft 256 630 140 122 165 027
656 665 401 561 441 125
Total liabilities 959 646 427 088 477 329
Total equity and liabilities 1 743 631 944 972 1 077 750
Condensed reviewed Consolidated interim statement of profit or loss and other comprehensive income
As at 31 August 2018
Figures in rand thousands Notes Reviewed Unaudited Audited
six months six months 12 months
ended ended ended
31 August 31 August 28 February
2018 2017 2018
Revenue 8 765 751 629 866 1 324 245
Cost of sales (153 831) (141 270) (304 063)
Gross profit 611 920 488 596 1 020 182
Other income 1 436 3 782 9 091
Operating expenses 9 (349 938) (292 306) (594 977)
Operating profit 263 418 200 072 434 296
Finance income 1 748 1 982 3 641
Finance costs (12 595) (5 965) (15 729)
Profit before tax 252 571 196 089 422 208
Tax (74 276) (52 137) (111 726)
Profit for the six months 178 295 143 952 310 482
OTHER COMPREHENSIVE INCOME
Items that may be reclassified to profit or loss in future periods:
Exchange differences on translating foreign operations 60 430 19 756 (2 795)
Other comprehensive income for the six months net of tax 60 430 19 756 (2 795)
Total comprehensive income for the six months 238 725 163 708 307 687
Profit attributable to:
Owners of the parent 172 856 139 190 300 146
Non-controlling interest 5 439 4 762 10 336
178 295 143 952 310 482
Total comprehensive income attributable to:
Owners of the parent 230 950 163 084 303 386
Non-controlling interest 7 775 624 4 301
238 725 163 708 307 687
EARNINGS PER SHARE
Per share information
Basic earnings per share (cents) 11 57,9 46,6 100,5
Condensed reviewed consolidated interim statement of changes in equity
For the period ended 31 August 2018
Figures in rand thousands Notes Share Foreign Treasury Total Retained Total Non- Total
capital currency shares reserves earnings attributable controlling equity
translation to equity interest
reserve holders of
the Group
Balance at 28 February 2018 (audited) 42 488 (41 311) (12 105) (53 416) 601 224 590 296 10 125 600 421
Adjustment on initial application of IFRS 15 (net of tax) 2.1 - - - - 42 399 42 399 (1 115) 41 284
Adjustment on initial application of IFRS 16 (net of tax) 2.3 - - - - (3 201) (3 201) (116) (3 317)
Other comprehensive income on initial application of IFRS 15 2.1 - 668 - 668 - 668 366 1 034
Other comprehensive income on initial application of IFRS 16 2.3 - 166 - 166 - 166 92 258
Total adjustment on initial application of IFRS15 and IFRS16 - 834 - 834 39 198 40 032 (773) 39 259
Balance at 1 March 2018 (restated) 42 488 (40 477) (12 105) (52 582) 640 422 630 328 9 352 639 680
Profit 1 March 2018 to 31 August 2018 - - - - 172 856 172 856 5 439 178 295
Other comprehensive income 1 March 2018 to 31 August 2018 - 58 094 - 58 094 - 58 094 2 336 60 430
Total comprehensive income for the six months: 1 March to 31 August 2018 - 58 094 - 58 094 172 856 230 950 7 775 238 725
Dividends 1 March 2018 to 31 August 2018 - - - - (83 646) (83 646) (10 774) (94 420)
Total contributions by and distribution to owners of Company recognised directly in equity - - - - (83 646) (83 646) (10 774) (94 420)
Balance at 31 August 2018 42 488 17 617 (12 105) 5 512 729 632 777 632 6 353 783 985
Condensed reviewed consolidated interim statement of cash flows
For the period ended 31 August 2018
Figures in rand thousands Notes Reviewed Unaudited Audited
six months six months 12 months
ended ended ended
31 August 31 August 28 February
2018 2017 2018
Cash flows from operating activities:
Cash generated from operations 339 896 242 623 589 073
Finance income 1 748 1 982 3 641
Finance costs (7 980) (4 658) (11 819)
Tax paid (71 463) (61 748) (113 082)
Net cash from operating activities 262 201 178 199 467 813
Cash flows from investing activities:
Purchase of property, plant and equipment (292 007) (185 152) (420 067)
Sale of property, plant and equipment 720 2 279 3 432
Acquisition of subsidiaries, net of cash acquired 270 (5) (2 176)
Net cash from investing activities (291 017) (182 878) (418 811)
Cash flows from financing activities:
Increase in loans from related parties 267 915 2 011
Decrease in loans to related parties 1 209 2 765 2 354
Finance lease receipts 17 625 9 643 21 779
Lease payments per IFRS16 (15 726) - -
Dividends paid (94 420) (105 233) (166 041)
Increase in holding of subsidiary - (192) (826)
Net cash from financing activities (91 045) (92 102) (140 723)
Total cash movements for six months (119 861) (96 781) (91 721)
Cash at the beginning of the period (95 454) (2 227) (2 227)
Effect of exchange rate movements on cash balances 10 668 1 007 (1 506)
Total cash at the end of the six months (204 647) (98 001) (95 454)
Accounting policies
1. Presentation of Group financial statements
Statement of compliance
The condensed consolidated interim financial statements have been prepared in accordance with the requirements of the JSE Listings Requirements, and the requirements of the Companies Act,
71 of 2008, applicable to summary financial statements. The Listings Requirements require interim reports to be prepared in accordance with the framework concepts as a minimum and
the measurement and recognition requirements of IFRS, IAS 34: Interim Financial Reporting, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and
Financial Pronouncements as issued by the Financial Reporting Standards Council.
The condensed consolidated interim financial statements do not include all the information and disclosures as required in the consolidated annual financial statements and should be read
in conjunction with the Group's annual consolidated financial statements as at 28 February 2018.
New accounting standards, interpretations and amendments adopted by the Group
The accounting policies adopted in the preparation of the condensed consolidated interim financial statements are consistent with those followed in the preparation of the Group's annual
consolidated financial statements for the year ended 28 February 2018, except for the adoption of the new accounting standards effective as of 1 January 2018.
The Group adopted for the first time IFRS 9 Financial Instruments, IFRS 15 Revenue from Contracts with Customers and early adopted IFRS 16 Leases. As required by IAS 34, the nature and the
effect of these changes are disclosed in note 2.
The Group implemented a change in accounting policy for the costs capitalised as detailed in note 2.1.4 and a change in accounting estimate in relation to the average expected useful life
of capital rental units as detailed in note 2.4.
Basis of measurement
The condensed consolidated interim financial statements have been prepared on the historical cost basis.
Functional and presentation currency
These condensed consolidated interim financial statements are presented in South African Rand ("ZAR"), which is the Company's functional currency. All financial information presented has
been rounded off to the nearest thousand ZAR, unless otherwise indicated.
Going concern
The condensed consolidated interim financial statements are prepared on the going concern basis as the directors believe that funds will be available to finance future operations and that
the realisation of assets and settlement of liabilities, contingent obligations and commitments will occur in the ordinary course of business.
Notes to the condensed reviewed interim financial statements
2. Change in accounting policies
The Group has adopted the following new accounting pronouncements as issued by the IASB, which were effective for the Group from 1 January 2018:
- IFRS 15 Revenue from Contracts with Customers ("IFRS 15")
- IFRS 9 Financial Instruments ("IFRS 9")
- IFRS 16 Leases (early adopted) ("IFRS 16")
The Group implemented a change in accounting policy for the costs capitalised as detailed in note 2.1.4 and a change in accounting estimate in relation to the average expected useful life
of capital rental units as detailed in note 2.4.
2.1 Adoption of IFRS 15
The Group principally generates revenue from providing Fleet management ("Fleet"), Stolen Vehicle Recovery ("SVR") and insurance telematics services. It provides fleet, mobile asset and
workforce management solutions, underpinned by real-time actionable business intelligence, delivered as Software-as-a-Service ("SaaS"), as well as the tracking and recovery of stolen
vehicles.
The Group assessed the delivery of the telematics services and installation of a unit to be complimentary and therefore accounts for only one performance obligation over a period of 12 to
60 months. This is now in line with the expected life cycle of an active unit. Revenue is measured based on the consideration specified in terms of contracts with customers.
The following summarises the impact, net of tax, of transition to IFRS 15 on retained earnings and non-controlling interest ("NCI") at 1 March 2018.
Figures in rand thousands Notes Impact of
adopting
IFRS 15 at
1 March 2018
Retained earnings
Deferred revenue on cash sales recognised over time 2.1.1 (215 536)
Capitalisation of incremental acquisition cost on cash sales 2.1.2 386 227
Depreciation of incremental acquisition cost on cash sales 2.1.3 (114 349)
Related deferred tax (13 943)
Impact at 1 March 2018 42 399
Non-controlling interests
Deferred revenue on cash sales recognised over time 5 666
Capitalisation of incremental acquisition cost on cash sales (10 153)
Depreciation of incremental acquisition costs on cash sales 3 006
Related deferred tax 366
Impact at 1 March 2018 (1 115)
Foreign currency translation reserve
Other comprehensive income
Owners of the parent 668
Non-controlling interest 366
Impact at 1 March 2018 1 034
The nature of the changes in the accounting policies were as follows:
Type of product/service Nature, timing and recognition - under the old accounting standard (IAS 18) Nature of change in accounting policy -
under the new accounting standard (IFRS15) Impact
2.1.1 Revenue in relation to The Group recognised revenue from the sale
installed units sold for cash of hardware and installations when significant risks and The Group will now defer the revenue over a period Revenue recognised for the
rewards of ownership were of between 12 to 60 months*. period decreased. A contract
transferred to the customer upon installation. liability has been recognised on
the deferral of revenue and will unwind
over a period of 12 to 60 months.
2.1.2 Capitalisation of related incremental All related incremental acquisition costs for cash units The costs to obtain and fulfil a contract The change has resulted in an increase of
acquisition cost on cash units were expensed when the units were installed. is capitalised and depreciated over a period capital rental units, recognised in
of between 12 to 60 months*. property, plant and equipment, and the
recognition of new assets (contract assets)
for capitalised incremental costs to obtain a contract.
2.1.3 Depreciation of related acquisition No depreciation was recognised for cash The Group previously did not anticipate This change led to an increase of the depreciation
cost on cash sales units as these were expensed. to obtain any further economic benefit from for the period.
the hardware unit upon installation thereof.
The unit will now be capitalised as detailed
in note 2.1.2 and depreciated over a period of
between 12 to 60 months*.
* This is now in line with the expected life cycle of an active unit.
2.1.4 Capitalisation of directly attributable sales staff base salaries and related motor vehicle costs
IFRS 15 introduced specific guidance on accounting for incremental costs of obtaining contracts with customers.
In assessing all aspects and requirements of IFRS 15 the Group reviewed all incremental costs for obtaining and renewing contracts and concluded that directly attributable sales staff base
salaries and related motor vehicle costs no longer meet the requirements. Under IAS 18, the Group capitalised sales staff base salaries and motor vehicle costs incurred on inception of the
contract, but under IFRS 15 these costs will now be expensed.
The impact of this change is not significant and therefore was disclosed together with the impact of IFRS 15. Comparative information is not required to be restated under the transition
provisions of IFRS 15.
2.1.5 Transition to IFRS 15
In accordance with the transition provisions in IFRS 15, the Group adopted the standard prospectively under the cumulative effective method and comparative numbers for the 2018 financial
year have not been restated. The Group applied practical expedients in the adoption of IFRS 15 and therefore:
- applied the portfolio approach in the application of the five-step model of revenue recognition; and
- the Group did not restate comparatives for contracts that were completed on 1 March 2018.
2.1.6 Presentation and disclosure requirements
Revenue recognised from contracts with customers has been dissagregated according to the nature of the revenue streams - for details of this refer to note 8. For the revenue disaggregated
per segment, refer to note 3.
2.2 Adoption of IFRS 9
2.2.1 Classification, initial recognition and subsequent measurement
IFRS 9 largely retains the existing requirements in IAS 39 for the classification and measurement of financial liabilities. However, it eliminates the previous IAS 39 categories for
financial assets of loans and receivables. The adoption of IFRS 9 has not had a significant effect on the Group's accounting policies related to financial liabilities. The impact of IFRS 9
on the classification and measurement of financial assets is set out below.
Initial recognition
Under IFRS 9, on initial recognition, a financial asset is classified as measured at amortised cost.
The classification of financial assets under IFRS 9 is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics.
A financial asset is measured at amortised cost when:
- it is held within a business model whose objective is to hold assets to collect contractual cash flows; and
- its contractual terms give rise on specified dates to cash flows that are solely payments of capital and interest on the capital amount outstanding.
Subsequent measurement
The following accounting policies apply to the subsequent measurement of financial assets:
Financial assets at amortised cost
These assets are subsequently measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses. Interest income, foreign exchange gains
and losses and impairment are recognised in profit or loss. Any gain or loss on derecognition is recognised in profit or loss.
The effects of adopting IFRS 9 on the carrying amounts of financial assets at 1 March 2018 relate solely to the impairment requirements. The table below explains the original measurement
categories under IAS 39 and the new measurement categories under IFRS 9 for each class of the Group's financial assets as at 1 March 2018.
Financial assets Carrying Carrying
Figures in rand thousands Classification Classification amount amount
under IAS 39 under IFRS 9 under IAS 39 under IFRS 9
Loans and
Trade receivables receivables Amortised cost 200 149 200 149
Loans and
Loans to related parties receivables Amortised cost 1 063 1 063
Impairment of financial assets
IFRS 9 replaces the 'incurred loss' model in IAS 39 with an 'expected credit loss' ("ECL") model. The new impairment model applies to financial assets measured at amortised cost and
contract assets. Financial assets at amortised cost consist of trade receivables and cash and cash equivalents.
Under IFRS 9, loss allowances are measured on either of the following bases:
- 12-month ECLs: these are ECLs that result from possible default events within the 12 months after the reporting date; and
- lifetime ECLs: these are ECLs that result from all possible default events over the expected life of a financial instrument.
The Group measures loss allowances at an amount equal to the lifetime ECLs, except for bank balances for which credit risk (i.e. the risk of default occurring over the expected life of the
financial instrument) has not increased significantly since initial recognition. The loss allowance for trade receivables is measured at an amount equal to the lifetime ECL.
When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Group considers reasonable and supportable
information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group's historical
experience and informed credit assessment and includes forward-looking information. Current period loss allowance adjustments are not considered to be material.
2.3 Adoption of IFRS 16
IFRS 16 applies to annual reporting periods beginning on or after 1 January 2019, but was early adopted by the Group from 1 March 2018.
The following summarises the impact, net of tax, of transition to IFRS 16 on retained earnings and NCI at 1 March 2018:
Figures in rand thousands Notes Impact of
adopting
IFRS 16 at
1 March 2018
Retained earnings
Reversal of lease payments recognised under IAS 17 2.3.1 64 004
Depreciation of right-of-use assets 2.3.2 (57 849)
Unwinding of finance cost element recognised in capitalised lease liability 2.3.1 (11 019)
Related deferred tax 1 663
Impact at 1 March 2018 (3 201)
Non-controlling interests
Reversal of lease payments recognised under IAS 17 2 327
Depreciation of right-of-use assets (2 103)
Unwinding of finance cost element recognised in capitalised lease liability (401)
Related deferred tax 61
Impact at 1 March 2018 (116)
Foreign currency translation reserve
Other comprehensive income
Owners of the parent 166
Non-controlling interest 92
258
Type Nature, timing and recognition - Nature of change in accounting policy - Impact
under the old accounting standard IAS 17 under the new accounting standard IFRS 16
2.3.1 Lease payment The Group recognised payments made in The Group will now recognise right-of-use assets An increase in property plant
terms of operating leases as an expense and related lease obligations for all leases accounted and equipment with the value
immediately in the consolidated statement of for previously as operating leases. On transition, lease of the right-of-use assets and
profit or loss. liabilities were measured at the present value of remaining a related increase in the lease obligation.
lease payments discounted using an incremental The unwinding of the lease obligation will
borrowing rate. increase finance costs recognised.
2.3.2 Depreciation of right-of-use assets The Group under the old standard recognised Due to the recognition of right-of-use assets the Group An increase in depreciation recognised
lease expenses immediately as described above. will now depreciate these assets over the term of the lease. in the consolidated statement of financial position.
2.3.3 Transition to IFRS 16
The Group chose to apply the modified retrospective approach on adoption of IFRS 16. It includes certain relief in terms of the measurement of the right-of-use asset and the lease
liability at 1 March 2018. The modified retrospective approach does not require a restatement of comparatives.
The Group has applied the following practical expedients on the adoption of IFRS 16 and therefore will:
- Apply the portfolio approach in the recognition and measurement of leases from the perspective of the lessee;
- Not reassess the open arrangements in terms of the new definition of a lease under IFRS 16;
- Account for all arrangements that have non-lease components as a lease only. Expense all short-term leases and not apply lease accounting;
- Expense all leases where the underlying assets are of low value;
- Exclude all initial direct costs incurred in the past from the measurement of the right-of-use assets;
- Take into account hindsight when determining the non-cancellable period of a lease in terms of the options to extend and/or terminate.
2.4 Change in accounting estimate in relation to expected useful life of capital rental units
The Group now treats cash sales in the same manner as rental sales by capitalising the cost of the unit and other incremental costs and depreciating these capitalised costs over a period
of between 12 to 60 months. This is in line with the expected life cycle of an active unit.
This change will only be reported on prospectively. It does not affect any of the historical depreciation expense or net book values.
Figures in rand thousands Impact of
change for
the six months
ended
31 August 2018
Statement of profit or loss and other comprehensive income
Recognition of depreciation over a period of 12 to 60 months (65 829)
Reversal of depreciation recognised over 36 months 135 350
Reported impact 69 520
Statement of financial position
Increase in net book value of property, plant and equipment 69 520
Reported impact 69 520
2.5 Restatement of comparative disclosures
2.5.1 Restatement of cost of sales and operating expenses
The incremental acquisition costs comprising commission, motor vehicle costs and technician salaries were depreciated as part of operating expenses. The Group believes that these costs
relate directly to the cost of sales and therefore the depreciation of these costs has been reclassified. The restatement had no impact on profits, cash flows or the financial position,
it only affected operating expenses and cost of sales as detailed below:
Figures in rand thousands Impact of Impact of Impact of
reclassification reclassification reclassification
for the for the for the
six months six months 12 months
ended ended ended
31 August 31 August 28 February
2018 2017 2018
Restated Restated
Statement of profit or loss and other comprehensive income
Operating expenses - depreciation 68 564 29 015 70 114
Cost of sales - depreciation (68 564) (29 015) (70 114)
Reported impact - - -
2.6 Impact on financial statements
The following tables show the restatements recognised for each individual line item. Line items that were not affected by the changes have not been included.
Figures in rand thousands As reported Impact in Impact in Impact in Amounts
relation to relation to relation without
IFRS 15 IFRS 16 to other adoption
changes of IFRS
and other
changes
Consolidated Statement of Financial Position
Non-current assets
Property, plant and equipment 1 006 431 (184 813) (72 925) (69 520) 679 173
Contract asset 92 793 (92 793) - - -
Equity
Reserves 18 734 (441) 616 - 18 909
Retained earnings 729 632 (24 352) 3 450 (51 743) 656 987
Non-controlling interest 5 236 562 441 1 042 7 281
Liabilities
Non-current liabilities
Contract liability 175 130 (175 130) - - -
Lease obligation 91 964 - (51 511) - 40 453
Deferred tax 35 887 (11 123) 952 (18 819) 6 897
Current liabilities
Contract liability 67 122 (67 122) - - -
Lease obligation 57 224 - (26 843) - 30 381
Figures in rand thousands As reported Impact in Impact in Impact in Amounts
relation to relation to relation without
IFRS 15 IFRS 16 to other adoption
changes of IFRS
and other
changes
Consolidated Statement of Profit or Loss and Other Comprehensive Income
Revenue 765 751 22 587 - - 788 338
Cost of sales* (153 831) (7 639) - (956) (162 426)
Operating expenses* (349 938) 6 006 (1 816) (68 564) (414 312)
Financing cost (12 595) - 2 210 - (10 385)
Profit before tax for the six months 252 571 20 954 394 (69 520) 204 399
Tax (74 277) (4 541) (101) 18 819 (60 100)
* In the current year a reclassification of acquisition-related costs was effected from operating expenses to cost of sales as detailed in note 2.5.1.
3. Segment reporting
The Group is organised into geographical business units and has five reportable segments. The Group monitors the operating results of its business units separately for the purpose of
making decisions about resource allocation and performance assessment. Segment information is evaluated based on revenue and earnings before interest, tax, depreciation and amortisation
("EBITDA") and is measured consistently with the condensed consolidated interim financial statements.
Figures in rand thousands South Africa Africa - Other Europe Asia Pacific USA Total
and
Middle East
Segment report - 31 August 2018 (Reviewed)
Revenue 566 881 55 681 67 641 73 550 1 998 765 751
EBITDA 316 238 23 110 26 427 20 890 (2 762) 383 903
Total tangible assets 1 124 895 145 000 173 085 160 215 7 532 1 610 727
Total liabilities 673 193 109 681 84 779 91 909 84 959 646
Goodwill 132 904
Total equity 783 985
Segment report - 31 August 2017 (Unaudited)
Revenue 469 932 53 013 54 559 52 129 233 629 866
EBITDA 243 067 19 122 29 819 8 920 (3 782) 297 146
Total tangible assets 502 820 88 373 120 949 107 673 7 690 827 505
Total liabilities 289 471 40 602 51 096 44 889 1 030 427 088
Goodwill 117 467
Total equity 517 884
Reconciliation of EBITDA to profit before tax for the year
Figures in rand thousands Segment report Segment report
31 August 2018 31 August 2017
EBITDA 383 903 297 146
Depreciation (120 485) (97 074)
Operating profit 263 418 200 072
Finance income 1 748 1 982
Finance costs (12 595) (5 965)
Profit before taxation 252 571 196 089
31 August 2018 28 February 2018
Figures in rand thousands Cost Accumulated Carrying Cost Accumulated Carrying
depreciation value depreciation value
4. Property, plant and equipment
Buildings 4 401 (1 902) 2 499 6 592 (2 305) 4 287
Capital rental units 1 301 458 (487 604) 813 854 761 803 (334 430) 427 373
Computer software 7 893 (2 721) 5 172 5 939 (1 419) 4 520
Furniture and fixtures 9 454 (5 323) 4 131 7 314 (4 381) 2 933
IT equipment 36 828 (22 738) 14 090 35 865 (22 413) 13 452
Leasehold improvements 12 938 (7 929) 5 009 5 333 (4 208) 1 125
Motor vehicles 124 642 (37 947) 86 695 91 964 (31 103) 60 861
Office equipment 5 079 (4 148) 931 3 667 (3 169) 498
Plant and machinery 2 783 (2 218) 565 2 166 (1 469) 697
Right-of-use assets 147 953 (75 029) 72 924 - - -
Security equipment 1 024 (463) 561 805 (506) 299
Total 1 654 453 (648 022) 1 006 431 921 448 (405 403) 516 045
31 August 2018 28 February 2018
Figures in rand thousands Cost Accumulated Carrying Cost Accumulated Carrying
amortisation value amortisation value
5. Contract assets
Costs to obtain a contract - commissions 136 597 (43 804) 92 793 - - -
Total 136 597 (43 804) 92 793 - - -
31 August 2018 28 February 2018
Figures in rand thousands Cost Accumulated Carrying Cost Accumulated Carrying
amortisation value amortisation value
6. Goodwill
Goodwill 132 904 - 132 904 107 597 - 107 597
Reconciliation of movement in Goodwill
Figures in rand thousands South Africa Africa Europe Asia Total
Balance 1 March 2018 1 656 55 980 5 876 44 085 107 597
Revaluation - 15 627 8 700 730 25 057
Additions 250 - - - 250
Closing balance at 31 August 2018 1 906 71 607 14 576 44 815 132 904
Reviewed Audited
six months 12 months
ended ended
31 August 28 February
Figures in rand thousands 2018 2018
7. Trade receivables
Trade receivables 204 929 151 959
Allowance for expected credit losses (43 560) (30 382)
161 369 121 577
Prepayments 21 236 20 233
Deposits 3 983 2 912
Sundry debtors 13 561 8 984
Value added taxation receivables 991 1 246
201 140 154 952
Figures in rand thousands Reviewed Unaudited
six months six months
ended ended
31 August 31 August
2018 2017
8. Revenue
Disaggregation of revenue
Annuity revenue 710 433 557 238
Sale of hardware - 64 562
Deferred revenue on cash sales 32 266 -
Sundry sales 23 052 8 066
765 751 629 866
The nature and effect of initially applying IFRS 15 on the Group's interim financial statements are disclosed in note 2. Refer to note 3 for
the disaggregation of revenue by primary geographical markets.
Figures in rand thousands Reviewed Unaudited
six months six months
ended ended
31 August 31 August
2018 2017
9. Operating expenses
Depreciation* 33 213 16 596
Employee costs 184 483 143 097
Marketing 27 278 13 378
Bad debts 13 837 15 677
Net operating foreign exchange (gain)/loss (2 704) 1 548
Other operating expenses 59 693 73 781
Research and development 34 138 28 229
349 938 292 306
* Refer to note 2.5.1 for additional information around reclassification of depreciation at incremental acquisition costs.
Operating (gains)/forex losses result from transactions in the normal course of business.
These exchange losses are disclosed as part of operating expenses in the consolidated statement of profit or loss.
10. Financial instruments - Fair values and risk management
Financial assets and liabilities are materially short term in nature and settled in the ordinary course of business with the exception of lease agreements. The fair values of these
short-term financial instruments approximate in all material respects the carrying amounts of the instruments as disclosed in the statement of financial position. Lease agreements are
variable rate instruments which mature over a period of approximately 60 months. It is estimated that the fair value of these agreements materially approximates the carrying amounts of the
instruments as disclosed in the statement of financial position.
Figures in rand thousands Reviewed six months ended 31 August Unaudited six months ended 31 August
2018 2017
11. Earnings per share
Basic earnings per share
Basic earnings per share (cents) 57,9 46,6
Weighted average number of ordinary shares ('000) (basic) 300 000 300 000
Effect of treasury shares held (1 234) (1 234)
298 766 298 766
Basic earnings
Profit attributable to ordinary shareholders 172 856 139 190
Headline earnings per share
Headline earnings per share (cents) 57,8 46,2
Reconciliation between basic earnings and headline earnings
Basic earnings 172 856 139 190
Adjusted for:
Gain on disposal of assets net of tax (88) (1 131)
172 768 138 059
12. Commitments
Mercantile Bank Limited has provided a facility of R70,0 million to Cartrack (Pty) Ltd. At the end of the period the amount utilised was Rnil (HY18: R55,0 million).
Mercantile Bank Limited has provided a facility of R80,0 million to Cartrack Manufacturing (Pty) Ltd. Cartrack (Pty) Ltd has provided limited suretyship in favour of Mercantile Bank
Limited for this facility. At the end of the period, the amount utilised was R49,9 million (HY18: R80,0 million).
Nedbank Limited has provided a facility of R5,0 million (HY18: R5,0 million) to Plexique (Pty) Ltd. Cartrack (Pty) Ltd has provided a limited guarantee for the facility in favour of
Nedbank Limited. At the end of the period, the amount utilised was R3,0 million (HY18: R3,0 million).
Rand Merchant Bank Limited has provided a facility of R200,0 million to Cartrack (Pty) Ltd and Cartrack Manufacturing (Pty) Ltd. At the end of the period the amount was fully utilised.
Cartrack Investments UK Limited has provided Cartrack Espana, S.L. with a loan in the amount of EUR1,4 million (HY18: EUR1,4 million) ("the Loan"). Cartrack Technologies Asia Pte.
Limited has provided Cartrack Investments UK Limited with a guarantee for repayment of the loan.
The Group has signed subordination agreements with all insolvent subsidiaries amounting to the value of R51,2 million in HY19.
13. Acquisitions
Acquisitions occurring during the six months ended 31 August 2018: Drive and Save (Pty) Ltd
In March 2018, the Group acquired 100% interest in Drive and Save (Pty) Ltd (previously Advancor (Pty) Ltd) for a cash consideration of R0,3 million from J Marais
(related party). The Group acquired this company in order to achieve economies of scale, standardisation, integration and operational simplification in order to stimulate future growth.
CORPORATE INFORMATION
Registered office
Cartrack Corner
11 Keyes Road
Rosebank
Johannesburg
2196
(PO Box 4709, Rivonia, 2128)
Directors
Independent non-executive directors
David Brown (independent chairman)
Thebe Ikalafeng
Sharoda Rapeti
Kim White
Executive directors
Isaias Jose Calisto (global chief executive officer)
Morne Grundlingh (global chief financial officer)
Company Secretary
Anname de Villiers
Cartrack Corner
11 Keyes Road
Rosebank
Johannesburg
2196
(PO Box 4709, Rivonia, 2128)
Sponsor
The Standard Bank of South Africa Limited
30 Baker Street
Rosebank
2109
(PO Box 61344, Marshalltown, 2107)
Transfer Secretary
Computershare Investor Services Proprietary Limited
Rosebank Towers
15 Biermann Avenue
Rosebank
2001
(PO Box 61051, Marshalltown, 2107)
31 October 2018
Date: 31/10/2018 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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