Considering the severe downturn in the global economy, the board is relatively satisfied with the group’s overall performance.
Following the strong performance of the first six months, our expectations of a performance in line with the previous financial year in the last six months of the review period simply did not materialise as the economies and business in our United Kingdom, European and South African markets recorded a severe slowdown. This was mainly due to external factors such as the strengthening of the Rand, the tender process in South Africa coming to a halt before and after the elections, and the banks’ severe tightening of credit supply for system financing, particularly in the small and medium enterprises (SME) sector.
The executive team is, however, confident that the balanced approach we maintained during the period between short-term profit and future growth will pay off when the economic recession abates. All DigiCore divisions were profitable and we did not retrench skilled and scarce staff members.
Although cost cutting and preserving cash were part of our focus, we rolled out two more C-track fitment centres.
On the international front, we continued our expansion strategy, establishing and enlarging our subsidiaries in France, Germany and Belgium to create a bigger self-owned distribution network in Europe.
The reduction in turnover for the year from R685 million to R576 million (16%) contributed to a negative effect of 45%
on operating profit, reducing it from R204 million to R113 million. As illustrated in previous periods, a marginal increase in
sales has a substantial impact on operating profit and the 2009 financial year saw DigiCore experience the reverse of this: a relatively small reduction in sales had a disproportionate effect on operating profit, given the mostly fixed overhead structure. Our annuity income stream from the South African operations constituted 61% of revenue for the year and we are actively pursuing the growth of this part of our revenue stream. Despite the tough economic climate, gross margins for the group remained stable. Particularly pleasing has been the performance of C-track SA, comprising mainly the stolen vehicle recovery (SVR) business in South Africa where we saw sales and net profit increase 22% and 359%, respectively. The volatility of the Rand during the financial year resulted in an unrealised foreign exchange profit in the first six months of R4,8 million and an unrealised foreign exchange loss for the second six months of R9,8 million, with a full-year unrealised loss of R5,0 million.
Earnings per share declined by 47% from 68,7 cents to 36,1 cents in 2009.
Cash and cash equivalents decreased from R108,4 million (2008) to R47,9 million at the end of June 2009, mainly as a result of working capital requirements rising by R35 million as we built stock for postponed orders while settling creditors on agreed terms. Secure unit rentals financed internally to the amount of R23 million during the year (property, plant and equipment) also consumed some cash.
Trade debtors reduced by 14% and, due to new control and collection methods introduced, should continue to reduce in the short term.
The increase in R&D capacity has already resulted in the release of a number of unique products.
We are also very excited by the release of our next generation C-track software which has already been released as a beta version to our distributors for internal evaluation, before the commercial release in November 2009. C-track Online is a zero footprint web client that can be used on locked-down desktops, ie no program is downloaded to the operator’s PC.
A state-of-the-art integrated fare collection system for mini-bus taxis, fully compliant to requirements set by the NDOT and EMVCo for wireless smart card payments in these taxis, is due for roll out before the end of this calendar year. DigiCore partnered with major players in the banking and payment industry to develop a complete end-to-end system. On the C-track fleet management side, a touch-screen driver terminal is undergoing final testing and an insurance-focused driver-rating module is ready to upgrade our SVR products to rate drivers based on their average driving styles.
Collectively, this technology, product partnership and new ventures position DigiCore at the forefront of the industry and will ensure we provide a C-track product range that caters for the general public, right up to sophisticated enterprise solutions for the likes of SAPS, Royal Mail (UK), eThekwini Metro, GMT, etc.
The fleet management business suffered most when government spending virtually came to a halt in the second half of the year and credit facilities for commercial business
were difficult to access. This situation is improving and tender opportunities are increasing again. We have completed some core enterprise-level software development in June that will give us more flexibility with our dashboard type of reporting and integration with third-party software used by our customers.
The SVR division recorded some growth in the second half as a result of good relationship building, competitive pricing and quality value-added services. We have continued the roll out of our C-track ‘Lifestyle’ fitment centres in strategic locations, resulting in greater visibility and ease of access for our growing customer base. These centres, supplemented by our more than 30 third-party authorised installers nationwide, are well positioned to support our new marketing campaigns.
Despite a significantly worse global economic climate than expected at the beginning of the financial year, DigiCore International has continued its strategy of investing in its subsidiary operations to drive organic growth.
Firstly, we have successfully concluded the purchase of the final 50% shareholding in DigiCore Deutschland, which now becomes a wholly owned subsidiary. The German market is poised for excellent growth. Secondly, we opened our Belgium office which made a profit after its first year of operations and, finally, the opening of DigiCore France in Paris, to focus on this key European market.
These strategic decisions were based on the experience that new DigiCore International operations and management teams take 12 to 18 months to be optimised and will therefore position us well when markets start to improve in 2010.
Reflecting the importance of the strategies adopted in geographical, market and product diversification, we recorded pleasing unit export results in Malaysia, Australia and Indonesia.
Although many SMEs are looking inward to manage market challenges, many larger organisations, utilities and corporates are actively looking for solutions from DigiCore to support operational cost reductions and productivity improvements.
The 2009 and 2010 calendar years are expected to be difficult years for businesses worldwide. DigiCore operates globally and intends to continue growing its international presence, supported by the introduction of a new product set that should be available globally this year.
The executive team is confident that, with our portfolio of new world-class products and software packages now available, we will be well positioned to accelerate sales as soon as global and local markets improve.
Finally, I want to thank our loyal customers and shareholders for their support, as well as our board, management teams and staff globally, for the hard work during this period and I believe the results will come again, based on the work done in these difficult times.