Home FleetWatch 2019 Cartrack’s robust growth highlights a local skills shortage

Cartrack’s robust growth highlights a local skills shortage

Zak Calisto, Global CEO of Cartrack: “Our international business is growing faster than our South African business but despite South Africa facing significant challenges, it is still a country with many untapped opportunities.”
Zak Calisto, Global CEO of Cartrack: “Our international business is growing faster than our South African business but despite South Africa facing significant challenges, it is still a country with many untapped opportunities.”

When Cartrack Holdings Limited (Cartrack) presented its results for the six months period ending August 31, 2019 in Johannesburg last week, a good news story of solid growth and sound financial results was told. However, there was one negative which FleetWatch editor Patrick O’Leary picked up on. This ‘negative’ is not of Cartrack’s making but is worth highlighting as it stands as an urgent wake-up call for South Africa as we head towards the 4th Industrial Revolution. But first the good news….

In reporting the results, it soon became evident that Cartrack continues to soar with Global CEO Zak Calisto reporting a 22% increase in subscriber growth over a one year period from 849 772 to 1 038 970 subscribers and a subscription revenue growth of 26% to R897-million. And check these other highlights:

Total revenue up 19% to R938-million; EBITDA of R480-million – up 28%; Cash generated from operating activities of R446-million – up 70%; Operating profit of R316-million – up 24%; Basic earnings per share (‘EPS’) of 72.3 cents – up 28%; Headline EPS (‘HEPS’) of 72.2 cents – up 28%; and an interim dividend per share of 20 cents – an increase of 11%.

Illustrating the true global nature of the business, Calisto said that for the first time in the history of this South African home-grown business, the international operations were growing faster than the South African business with regions outside of SA now accounting for 27% of the group’s revenue.

The Asia Pacific region is particularly robust with subscription revenue up 46% to R105-million after an increase of 39% in subscribers. The European segment delivered subscriber growth of 16% and subscription revenue growth of 20% to reach R80-million.

South Africa, however, remains a strong market as evidenced by a 23% increase in subscribers and strong subscription revenue growth of 26%. %. This was partially offset by hardware revenue decreasing by 56%, resulting in total revenue growth of 16% to R682-million. Despite SA facing significant economic challenges, Calisto still sees it as a country with many untapped opportunities which the company intends capitalising on.

The African segment – excluding South Africa – delivered an improved performance after a restructuring process that led to increased operational efficiencies and an improvement in the costs of acquiring subscribers. The subscriber base in Africa increased by 9% and subscription revenue grew by 7%, while total revenue increased by 10% to R59-million.

Now for the bad news
So it’s all good news on the performance front. Now for the bad news mentioned above. It relates to the shortage of engineering skills in South Africa – and specifically in the IT arena – which has, in part, forced Cartrack to establish its R& D centre in Singapore rather than in South Africa.

Admittedly, there are two sides to this. Cartrack originally started its operations in South Africa but has developed over the years into a true global player operating in 23 countries across Africa, Europe, North America, Asia Pacific and the Middle East. Given this, one could argue that it therefore makes sense to have Singapore as its global R&D centre.

However, that is not the sole reason. It also relates to a lack of available skills in South Africa which, in my opinion, acts as a poor reflection on the education system in South Africa. It is this that needs to be taken very seriously in the wider context of South Africa’s desire to move into the Internet of Things and the 4th Industrial Revolution (4IR) space.

In short, the 4IR is a global trend in which new technologies such as the Internet of Things, robotics, virtual reality and artificial intelligence are changing the way people live and work. As a global player within the telematics sector, Cartrack has, in fact, been operating in this space since its inception back in 1994 when it was already experimenting with GPS devices to pinpoint vehicle locations and transmit them back to a computer. So it is not new to either Cartrack or the telematics sector as a whole – but it is gaining pace rapidly.

That South Africa wants to – and needs to – move dynamically into the 4IR space was given credence by President Cyril Ramaphosa in his address to the 4th Industrial Revolution SA Digital Economy Summit held in Midrand this past July.

 “Given what we know today about the potential beneficial impacts of the 4th Industrial Revolution, we must embrace this historic confluence of human insights and engagement, artificial intelligence and technology, to rise to the challenges of poverty, unemployment and inequality,” he said in his keynote address.

He also pointed to the fact that the seriousness of intent was evidenced by his appointment of the Presidential Commission on the Fourth Industrial Revolution earlier this year, whose Deputy Chairperson is Prof Tshilidzi Marwala, an internationally acclaimed researcher in the discipline of Artificial Intelligence.

“The Commission will explore and advise on infrastructure and resources, research, technology and innovation, economic and social impact, human capital and future of work among others,” said Ramaphosa.

He added that “the Commission consists of 30 members from all spheres of society to ensure that all sectors of society contribute to and benefit from this transformative shift in our development. The Commission is expected to deliver a blueprint and plan to deal with the 4IR and determine areas of development in the short, medium and long-term.

“This plan comes with the embedded ambition of positioning South Africa not just as an adopter but a leader of 4IR in the world,’ he said, adding that the country needs to identify strategic 4IR niches “where we can leverage our potential and translate it into tangible economic dividends such as the much needed jobs.”

Develop skills to match market needs
If FleetWatch could make a suggestion to the Commission, it would be this. The talk of good intentions is all well and good but the reality on the ground is quite severe and specifically in the human capital arena. As such, a strong focus of the Commission should be to develop the human capital required to match the market needs of the 4IR. We don’t need more BAs in Ancient Greek philosophy. We need youngsters who have the knowledge to develop systems that will align South Africa with global technological advances.

It saddened me to read a report – quite soon after the Cartrack presentation – featured in BusinessTech which published new statistics focussing on the Multiple Examination Opportunity (MEO) matric exams. The statistics were put forward by Minister of Basic Education Angie Motshekga in response to a parliamentary Q&A session. For those who are not aware of it, the MEO was introduced in 2016 as a way of allowing struggling matric students to complete their examinations over two years.

According to the Minister, data for the 2018/2019 exams showed that of the 88 828 students who opted to write the MEO matric, only 6 354 – or 7,1% – passed. Of equal concern is that a large number of students (9 007) simply did not pitch to write the exams. Here’s another worrying fact – of the 6 354 who passed, a total of 353 MEO candidates achieved a pass in mathematics.

Yes, I know this is the MEO system allowing for ‘struggling’ students to achieve better results but it still gives a frightening picture and shows just how far South Africa has to go in assuring a future qualified workforce is being nurtured to meet to needs of the 4th Industrial Revolution.

Let’s hold thumbs that the 2019 matric results from students who have not opted for the MEO system will provide us with better news in terms of matching education standards to the needs of the market.

The point is that, according to Calisto, the demand for IT jobs in South Africa is growing exponentially and it is unfortunate that we are not pushing through the type of skills needed.

“Three years ago we struggled to find the right skills in South Africa for our Research & Development activities whereas in Singapore, it is much easier to get these skills,” he said, adding that he anticipates more than 150 skilled staff manning the R&D centre in the foreseeable future. That’s jobs guy. Jobs.

Harry Louw, CEO of the South Africa operations of Cartrack, concurs saying that he finds it sad that they struggle to find the right quality of engineering skills in South Africa for the business – which is an IT business.

“The developers we need are more readily available in Asia than they are in South Africa so it made sense to locate our R& D operation in Singapore. We retain a core set of skills in South Africa writing firmware and software as well as other areas of design but the bulk of it happens in Singapore and that office has to grow to keep Cartrack in the front of global technology development in the IoT space,” says Louw. (Watch the accompanying video).

I recall reading an article many years ago where Japan, which places huge emphasis on aligning educational qualifications to market needs was, at one stage, producing many thousands of qualified mechanical engineers every year. With the advancement of IT technology as a driving force in capturing global markets, the number of computer science engineers started to overtake the mechanical engineers. It’s all about skilling up to win. And if you’re operating in the global arena – as Cartrack is – you’re up against fierce competition from many different countries. If you can’t win using local skills, you have to go outside the borders to source those skills. That’s the reality South Africa needs to wake up to.

In the accompanying video, FleetWatch editor Patrick O’Leary talks to Harry Louw, CEO of Cartrack’s South African operations about some pertinent issues raised during the results presentation. Note the reference to another significant milestone for the company – the expectation of getting close to – if not surpassing – 40 000 new installations globally in October – an all-time monthly record for the company.

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