424B4 1 d542709d424b4.htm 424B4 424B4
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Filed Pursuant to Rule 424(b)(4)
Registration No. 333-189799

 

PROSPECTUS

6,296,098 American Depositary Shares

 

LOGO

MiX TELEMATICS LIMITED

(incorporated in South Africa)

Representing 157,402,450 Ordinary Shares

 

 

This is the initial public offering of our American Depositary Shares, or “ADSs,” each of which represents 25 of our ordinary shares, no par value. The ADSs will be evidenced by American Depositary Receipts, or “ADRs.” Of the ADSs to be sold in the offering, we are selling 4,400,000 ADSs and the selling shareholders are selling 1,896,098 ADSs. We will not receive any of the proceeds from the ADSs being sold by the selling shareholders. The initial public offering price is $16.00 per ADS.

We are an “emerging growth company” under the federal securities laws.

Our ordinary shares are listed on the Johannesburg Stock Exchange (JSE Limited), or “JSE,” under the symbol “MIX.” On August 8, 2013, the closing price of our ordinary shares on the JSE was R6.00 per ordinary share, which is equivalent to $0.61 per ordinary share, based upon an exchange rate of R9.8878 to $1.00 on that date. The ADSs will trade, subject to notice of issuance, on The New York Stock Exchange, or “NYSE,” under the symbol “MIXT.”

Investing in the ADSs involves a high degree of risk. See “Risk Factors” beginning on page 13 of this prospectus for certain factors you should consider before investing in the ADSs.

 

 

 

     Per
ADS
     Total  

Initial public offering price

   $ 16.00      $ 100,737,568.00   

Underwriting discount

   $ 1.12      $ 7,051,629.76   

Proceeds to us (before expenses)

   $ 14.88      $ 65,472,000.00   

Proceeds to the selling shareholders (before expenses)

   $ 14.88      $ 28,213,938.24   

 

 

The selling shareholders have granted the underwriters an option for a period of 30 days to purchase from them up to 944,414 additional ADSs to cover over-allotments, if any.

Neither the Securities and Exchange Commission nor any state securities commission nor the South African Financial Services Board has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

Delivery of the ADSs will be made on or about August 14, 2013.

 

 

 

RAYMOND JAMES    WILLIAM BLAIR

 

CANACCORD GENUITY    OPPENHEIMER & CO.

Prospectus dated August 9, 2013


Table of Contents

LOGO


Table of Contents

TABLE OF CONTENTS

 

SUMMARY

     1   

RISK FACTORS

     13   

FORWARD-LOOKING STATEMENTS

     45   

USE OF PROCEEDS

     47   

DIVIDEND POLICY

     48   

PRICE RANGE OF OUR ORDINARY SHARES

     49   

EXCHANGE RATES

     50   

CAPITALIZATION

     51   

DILUTION

     52   

SELECTED FINANCIAL AND OPERATING DATA

     53   

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     56   

BUSINESS

     81   

GOVERNMENT REGULATION

     96   

MANAGEMENT

     98   

PRINCIPAL AND SELLING SHAREHOLDERS

     113   

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     117   

DESCRIPTION OF CAPITAL STOCK

     119   

DESCRIPTION OF AMERICAN DEPOSITARY SHARES

     129   

EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SHAREHOLDERS

     137   

SHARES ELIGIBLE FOR FUTURE SALE

     139   

TAXATION

     141   

UNDERWRITING

     153   

EXPENSES RELATING TO THIS OFFERING

     159   

LEGAL MATTERS

     160   

EXPERTS

     160   

ENFORCEMENT OF CIVIL LIABILITIES

     160   

WHERE YOU CAN FIND MORE INFORMATION

     162   

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

     F-1   

 

 

Until September 3, 2013 (25 days after the date of this prospectus), all dealers that buy, sell or trade in our ordinary shares in the form of ADSs, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealer’s obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

 

 

This offering is being made solely on the basis of the information contained in this prospectus. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus, regardless of the time of delivery of this prospectus or any sale of the ADSs. None of the selling shareholders, the underwriters or the Company has authorized anyone to provide any information other than that contained in this prospectus or in any free writing prospectus prepared by or on our behalf.

 

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SUMMARY

This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our ADSs. You should read this entire prospectus carefully, especially the “Risk Factors” section of this prospectus and our consolidated financial statements and related notes appearing elsewhere in this prospectus, before making an investment decision. In this prospectus, unless otherwise indicated, “MiX,” “we,” “us,” “our,” “our company” and “Group” mean MiX Telematics Limited and its consolidated subsidiaries. Unless otherwise indicated, the “Company” means MiX Telematics Limited. Our fiscal year ends on March 31 and references to “fiscal year 2011” are to the fiscal year ended March 31, 2011, references to “fiscal year 2012” are to the fiscal year ended March 31, 2012 and references to “fiscal year 2013” are to the fiscal year ended March 31, 2013. References to “R” are to South African rand and references to “U.S. dollars” and “$” are to United States dollars.

Overview

We are a leading global provider of fleet and mobile asset management solutions delivered as software-as-a-service, or SaaS. Our solutions deliver a measurable return by enabling our customers to manage, optimize and protect their investments in commercial fleets or personal vehicles. We generate actionable intelligence that enables a wide range of customers, from large enterprise fleets to small fleet operators and consumers, to reduce fuel and other operating costs, improve efficiency, enhance regulatory compliance, promote driver safety, manage risk and mitigate theft. Our solutions rely on our proprietary, highly scalable technology platform, which allows us to collect, analyze and deliver data from our customers’ vehicles. Using an intuitive, web-based interface, our fleet customers can access large volumes of historical and real-time data, monitor the location and status of their drivers and vehicles and view a wide selection of reports and key performance indicator dashboards.

We have a global presence with customers located in 112 countries across six continents. We currently serve a highly diverse customer base, including more than 4,000 fleet operators, which represented 64% of our subscription revenue for fiscal year 2013. We target sales of our enterprise fleet management solutions to customers who desire a premium solution, generally for large fleets, which we define as fleets of 100 or more vehicles. Large fleets accounted for approximately 74% of our fleet vehicles under subscription at March 31, 2013. We believe we have a satisfied customer base and, among our 224 large fleet operator customers, we experienced an annual customer retention rate in excess of 95% in fiscal year 2013. We have multinational enterprise fleet customer deployments with companies such as Baker Hughes, Bechtel Corporation, Chevron, Nestlé, PepsiCo, Rio Tinto and Schlumberger. We also offer a range of subscription-based fleet and vehicle management solutions to meet the needs and price points of small fleet operators and consumers. Our safety and security features, including driver performance and vehicle monitoring, are important attributes of our solutions for these customers.

We have consistently grown our customer base. As evidence of this growth, vehicles under subscription, one of our key operating metrics and a factor influencing our rate of subscription revenue growth, increased at a compound annual growth rate of 22.3% from April 1, 2011 to March 31, 2013 and as of March 31, 2013, we tracked and managed over 359,000 vehicles under subscription. As a further indicator of our scale, in fiscal year 2013, we collected data on an average of approximately 57 million trips per month representing as many as 3 billion vehicle locations per month. The monthly price charged per vehicle under subscription varies among our

 

 

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customers depending on services and features, hardware options, customer size and geographic location. Consequently, our rate of subscription revenue growth is influenced by not only the rate of growth in the number of vehicles under subscription but also by the evolving mix of our subscriber base. For fiscal year 2013, our subscription revenue was R686.7 million ($74.2 million), total revenue was R1,171.5 million ($126.6 million), Adjusted EBITDA was R290.8 million ($31.4 million) and profit for the year was R128.5 million ($13.9 million), representing 18.9%, 15.0%, 20.9% and 24.4% growth over the prior year, respectively. See “—Summary Financial and Operating Data—Adjusted EBITDA” for our definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to profit for the year.

Industry Background and Market Opportunity

Fleet managers operate in an increasingly competitive and highly regulated global environment. Timely and accurate decision-making enabled by solutions that provide real-time visibility into vehicle location and driver performance is critical to managing a safe, efficient fleet. In some developing areas of the world, ensuring driver and vehicle safety and security is also particularly challenging given high crime rates which have resulted in automotive insurance mandates and regulatory requirements for vehicle tracking. Consequently, fleet managers and consumers demand solutions that promote driver and passenger safety, mitigate theft, improve stolen vehicle recovery rates and reduce automotive insurance rates. The business environment for fleet managers is further complicated by the large number of transportation-related regulatory and compliance requirements worldwide, and the frequency with which rules and regulations change.

There have been substantial advances in the performance, reliability and affordability of technologies that can be used to collect and disseminate large amounts of vehicle data remotely. GPS positioning and advanced on-board systems generate valuable, objective real-time information, which provides the basis for driver and vehicle management solutions. Similarly, significant advances in the performance, reliability and affordability of fixed and wireless networks, computing power and data storage capabilities have supported the rise of cloud computing. These technological advances and market shifts have helped to foster demand for subscription-based fleet and mobile asset management solutions like ours.

We believe that the addressable market for our fleet management solutions is large, growing and underpenetrated. According to a report by ABI Research, there were more than 333 million commercial vehicles in operation globally at the end of 2012 and commercial telematics market penetration was approximately 4%. The report forecasts that the number of commercial vehicles utilizing commercial telematics will nearly triple by the end of 2017.

In addition to the growing market opportunity in commercial fleet vehicles, we believe there is a large and underpenetrated market to provide a tailored set of safety and security solutions to non-commercial passenger vehicles. We estimate that there are approximately 33 million non-commercial passenger vehicles in operation in South Africa and Brazil, our current geographic focus for passenger vehicle mobile asset management solutions.

 

 

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Our Solutions

Our subscription-based solutions enable our customers to manage, optimize and protect their investments in their commercial fleets and personal vehicles efficiently. The key attributes of our solutions include:

 

  Ÿ  

Highly scalable solutions. We have built our software solutions to scale and support geographically distributed fleets of any size. We currently provide services to more than 359,000 vehicles under subscription with customers ranging from small fleet operators and consumers to large enterprise fleets with more than 10,000 vehicles under subscription.

 

  Ÿ  

Robust portfolio of features addressing a full range of customer needs. We believe we offer one of the broadest ranges of features for fleet and mobile asset management available. For example, for fleet efficiency, we offer vehicle tracking and analysis, route optimization and enhanced dispatching; for regulatory compliance, we offer compliance monitoring, hours of service, or “HOS,” tracking and fuel tax reporting; for driver improvement, we offer in-vehicle video monitoring and real-time driver feedback; for risk management, we offer driver scoring and analysis; and for safety and security, we offer vehicle tracking, crash notifications and vehicle theft recovery.

 

  Ÿ  

Insightful business intelligence and reporting. Our fleet management software is designed to provide our customers with insightful, actionable business intelligence on demand.

 

  Ÿ  

Easily accessible, intuitive applications. Our web-based solutions are accessible from fixed and mobile computing devices, including Android and iOS mobile devices, and our fleet management solutions can be readily integrated with third-party software systems.

 

  Ÿ  

Software-as-a-service powered by a proven, reliable infrastructure. Our use of a multi-tenant SaaS architecture allows us to deliver fleet management applications that are highly functional, flexible and fast while reducing the cost and complexity associated with customer adoption. We support our SaaS delivered solutions with a proven infrastructure of redundant servers and other hardware located in five secure third-party data centers. Over the last three years, we have consistently maintained overall system uptime of over 99.8%.

Key Competitive Strengths

The markets in which we operate are highly competitive and fragmented. We believe that the following attributes differentiate us from our competitors and are key factors to our success:

 

  Ÿ  

Globalized sales, distribution and support capabilities. We currently maintain a direct or indirect sales and support presence, with localized application support for 24 languages, in countries across Africa, Asia, Australia, Europe, the Middle East, North America and South America. We believe our global presence gives us an important advantage in competing for business from multinational enterprise fleet customers such as Baker Hughes, Bechtel Corporation, Chevron, Nestlé, PepsiCo, Rio Tinto and Schlumberger, who often prefer to consolidate disparate fleet management systems.

 

  Ÿ  

Solutions adaptable to multiple customer segments. We believe that by leveraging our common core technologies, personnel and systems, we can cost-effectively develop and sell a range of subscription-based fleet and mobile asset management solutions that are

 

 

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designed to meet the functionality and price needs of multiple customer segments, including fleet operators and consumers. Our fleet management solutions include targeted functionality to address the distinct needs of key industry segments.

 

  Ÿ  

Focus on safety and security. Most of our offerings incorporate safety and security features enabling our customers to enhance their drivers’ personal safety, encourage safe driving behavior and protect their investment in their vehicles. We also offer web-based driver training, proactive journey management and other related services to provide a turnkey safety and security solution. Our differentiated safety and security features have particularly strong appeal to customers in regulated industries, such as oil and gas, customers in industries exposed to liability concerns, such as bus and coach, and customers operating in high crime regions.

 

  Ÿ  

Track record of innovation. Since inception, we have made significant investments in product development, and we have routinely been among the first to market with innovative solutions and features that cater to the needs of our customers. For example, in September 2011, we introduced the Beam-e solution, which leverages our large network of vehicles under subscription as a crowdsourcing platform to locate vehicles without the expense of utilizing a traditional cellular network connection. In April 2013, we introduced MiX Vision, which provides customers with a premium subscription-based, in-vehicle video surveillance solution.

 

  Ÿ  

Longstanding, established market position. We have a 17-year history, a geographically diverse sales and marketing footprint, a large established network of distributors and dealers, and a large base of satisfied customers. Our robust and referenceable customer base, including numerous Forbes Global 2000 enterprises, is a critical selling point to both large enterprise fleets and smaller fleet operators and consumers.

Growth Strategy

We intend to expand our leadership in our market by:

 

  Ÿ  

Acquiring new customers and increasing sales to existing customers. We believe the market for fleet and mobile asset management solutions is large and growing, creating a significant opportunity for us to expand our customer base. Additionally, we believe we have the opportunity to expand our fleet management market share among our existing customer base by demonstrating our value proposition, growing with the customer, introducing new and innovative value-added solutions and displacing legacy fleet management solutions.

 

  Ÿ  

Expanding our geographic presence. We market and distribute our solutions directly and through a global network of more than 100 distribution partners outside of South Africa. We are expanding our penetration in attractive geographic regions, such as Brazil this year. We also continue to expand our network of strategic and sales distribution partners in other regions of the world.

 

  Ÿ  

Broadening our customer segment focus. We currently have customers across numerous industry segments, with the resources of our direct sales organization focused on premium customers in certain key segments, including oil and gas, transportation and logistics, government and municipal, bus and coach, and rental and leasing. In the future, we may increase our product development initiatives and sales and distribution efforts in other industry segments, such as service fleets, and in other customer segments, such as small business fleets. We regularly evaluate opportunities to expand our target customer focus.

 

 

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  Ÿ  

Continuing to introduce new, innovative solutions to address market demand. We intend to continue to invest in product development to expand our portfolio of fleet and mobile asset management solutions. We recently introduced MiX Vision, which offers a premium subscription-based, in-vehicle video surveillance solution. We are currently developing other extensions to our solutions portfolio based on our assessment of market demand. For example, following our recent acquisition of Intellichain, a supply chain management software business, we are currently developing elements of integrated transportation management software.

 

  Ÿ  

Pursuing strategic acquisitions. Our industry is highly fragmented and, since our inception, we have consummated four acquisitions worldwide. We intend to selectively evaluate acquisition opportunities in certain geographic regions and industry segments.

Risks Factors

You should carefully consider the risks described under “Risk Factors” beginning on page 13, and elsewhere in this prospectus. Some of these risks are:

 

  Ÿ  

our ability to maintain our subscription-based relationships with our existing customers;

 

  Ÿ  

our ability to adapt to rapid technological change in our industry;

 

  Ÿ  

our ability to compete effectively;

 

  Ÿ  

the loss of one or more of our key personnel or our failure to attract, train and retain other highly qualified personnel;

 

  Ÿ  

our ability to integrate businesses we acquire;

 

  Ÿ  

our ability to increase sales of our solutions;

 

  Ÿ  

our dependence on key suppliers and vendors to manufacture our hardware;

 

  Ÿ  

our dependence on our network of dealers and distributors to sell our solutions;

 

  Ÿ  

the failure of businesses to adopt fleet management solutions;

 

  Ÿ  

existing and potential new international operations;

 

  Ÿ  

the impact of laws and regulations relating to the Internet and data privacy;

 

  Ÿ  

our ability to protect our intellectual property and proprietary technologies and address any infringement claims;

 

  Ÿ  

significant disruption in service on, or security breaches of, our websites or computer systems;

 

  Ÿ  

our dependence on third-party technology, including cellular and GPS networks, and any disruption, failure or increase in costs;

 

  Ÿ  

fluctuations in the value of the South African rand;

 

 

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  Ÿ  

economic, social, political and other conditions and developments in South Africa and globally; and

 

  Ÿ  

our ability to issue securities and access the capital markets in the future.

These risks could materially and adversely impact our business, results of operations and financial condition, which could cause the trading price of the ADSs and our ordinary shares to decline and could result in a loss of your investment.

Emerging Growth Company Status

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act or the “JOBS Act.” Thus, we may take advantage of certain exemptions from various reporting requirements that are applicable to public companies generally. For example, we may elect not to have our independent registered public accounting firm provide an attestation report on the effectiveness of our internal control over financial reporting, as would otherwise be required by Section 404(b) of the Sarbanes-Oxley Act of 2002, as amended, or “SOX.”

We will cease to be an “emerging growth company” upon the earliest of:

 

  Ÿ  

the last day of the fiscal year in which the fifth anniversary of this offering occurs;

 

  Ÿ  

the last day of the fiscal year in which our annual gross revenues are $1 billion or more;

 

  Ÿ  

the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt securities; or

 

  Ÿ  

the last day of any fiscal year in which the market value of our ordinary shares held by non-affiliates exceeded $700 million at the end of the second quarter of that fiscal year.

Corporate Information

We were founded in South Africa in 1996. In November 2007, we successfully completed an initial public offering on the JSE. The address of our principal executive office is Howick Close, Waterfall Park, Midrand, South Africa 1686, and our telephone number is +(27) 11-654-8000. Our website address is www.mixtelematics.com. The reference to our website is intended to be an inactive textual reference and the information on, or accessible through, our website is not intended to be part of this prospectus.

 

 

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THE OFFERING

 

ADSs offered by us

4,400,000 ADSs.

 

ADSs offered by the selling shareholders

1,896,098 ADSs.

 

Offering price

The initial public offering price is $16.00 per ADS.

 

Ordinary shares outstanding immediately after this offering

770,212,500 ordinary shares will be outstanding immediately upon the completion of this offering.

 

ADSs outstanding immediately after this offering

6,296,098 ADSs

 

Over-allotment option

The selling shareholders have granted to the underwriters an option, which is exercisable within 30 days from the date of this prospectus, to purchase up to 944,414 additional ADSs.

 

The ADSs

Each ADS will represent 25 ordinary shares with no par value.

 

  The depositary will hold ordinary shares underlying the ADSs. You will have rights as provided in the deposit agreement.

 

  If we declare dividends on our ordinary shares, the depositary will pay you the cash dividends and other distributions it receives on our ordinary shares, after deducting its fees and expenses.

 

  You may turn in the ADSs to the depositary in exchange for ordinary shares. The depositary will charge you fees for any exchange.

 

  We may amend or terminate the deposit agreement without your consent. If you continue to hold the ADSs, you agree to be bound by the deposit agreement as amended.

 

  To better understand the terms of the ADSs, you should carefully read the “Description of American Depositary Shares” section of this prospectus. You should also read the deposit agreement, which is filed as an exhibit to the registration statement that includes this prospectus.

 

Use of proceeds

We intend to use the net proceeds from this offering to pursue future acquisitions and other strategic investments and for general corporate purposes. We have not yet identified any specific acquisitions or investments, and our

 

 

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management will have broad discretion over how to use the proceeds from this offering. Pending application of the net proceeds from this offering, we intend to invest the net proceeds of the offering in deposit accounts, money market funds, government-sponsored enterprise obligations and corporate obligations. See “Use of Proceeds” for additional information.

 

Lock-up Agreement

We, our directors, executive officers and certain shareholders have agreed with the underwriters, subject to certain exceptions not to sell, transfer or dispose of, directly or indirectly, any of the ADSs or ordinary shares owned by such persons prior to this offering or securities convertible into or exercisable or exchangeable for the ADSs or ordinary shares until after 180 days after the date of this prospectus. In addition, through a letter agreement, we will instruct The Bank of New York Mellon, as depositary, not to accept any deposit of any ordinary shares from such persons or deliver any ADSs to such persons until after 180 days following the date of this prospectus unless we consent to such deposit or issuance. This letter agreement applies to all of our ordinary shares, options, restricted shares and restricted share units, including shares held by our directors, executive officers and certain shareholders that are parties to the lock-up agreements. We will not provide such consent without the prior written consent of the representatives of the underwriters. The foregoing does not affect the right of ADS holders to cancel their ADSs and withdraw the underlying ordinary shares. See “Shares Eligible for Future Sale” and “Underwriting” for more information.

 

New York Stock Exchange symbol

The ADSs will trade, subject to notice of issuance, on the NYSE under the symbol “MIXT.”

 

Payment and settlement

The underwriters expect to deliver the ADSs against payment therefor through the facilities of The Depository Trust Company on August 14, 2013.

 

Depositary

The Bank of New York Mellon.

 

Risk factors

See “Risk Factors” and other information included in this prospectus for a discussion of risks that you should carefully consider before investing in the ADSs.

 

Selling restrictions

This offering of ADSs is being made in the United States and elsewhere outside South Africa solely in jurisdictions where such offering is permitted. This prospectus does not constitute an offer or sale of ADSs to the public in South Africa and no offer made in terms of this prospectus may be accepted by, nor any sale in terms of this prospectus made

 

 

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to, persons in South Africa. Offers and sales of ADSs to the public of South Africa may only be made in accordance with the requirements of South African laws and regulations. This prospectus will not be registered with any authority in South Africa.

The number of ordinary shares that will be outstanding immediately after this offering is based on 660,212,500 ordinary shares outstanding at August 8, 2013 and excludes 63,425,000 ordinary shares issuable upon the exercise of options outstanding at August 8, 2013, at a weighted average exercise price of R1.38 (or approximately $0.15) per share.

Our executive officers, directors, current 5% or greater shareholders and entities affiliated with them beneficially owned approximately 65% of our ordinary shares outstanding at August 8, 2013 and, upon the completion of this offering and assuming that the over-allotment option has been exercised in full, will beneficially own approximately 50% of our ordinary shares.

 

 

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SUMMARY FINANCIAL AND OPERATING DATA

The following tables set forth summary financial and operating data at and for the fiscal years ended March 31, 2013, 2012 and 2011. The summary financial data set forth below at and for the fiscal years ended March 31, 2013 and 2012 have been derived from our audited consolidated financial statements for fiscal years 2013 and 2012 and the accompanying notes included in this prospectus and should be read together with such financial statements and with “Selected Financial and Operating Data.” The summary financial data at and for the fiscal year ended March 31, 2011 has been derived from consolidated financial statements which are not included in this prospectus. The results of operations for the periods presented below are not necessarily indicative of the results to be expected for any future period.

Our fiscal 2012 audited consolidated statements of financial position and statement of cash flows have been restated to correct the classification of in-vehicle devices (installed and uninstalled) and record such devices as property, plant, and equipment. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Restatement of 2012 Financial Statements” and Note 42 to our audited consolidated financial statements for the years ended March 31, 2013 and March 31, 2012.

We prepare our consolidated financial statements in accordance with International Financial Reporting Standards, or “IFRS,” as issued by the International Accounting Standards Board, or the “IASB,” which differ in certain significant respects from Generally Accepted Accounting Principles in the United States, or “GAAP.”

Consolidated Income Statement Data

 

     For the Year Ended March 31,  
     2013 (*)     2013     2012     2011
(Unaudited)
 
     (In thousands)  

Revenue

   $  126,618      R  1,171,480      R  1,018,482      R 886,604   

Cost of sales

     (45,886     (424,545     (390,926     (340,168
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     80,731        746,935        627,556        546,436   

Sales and marketing

     (14,359     (132,849     (97,312     (82,805

Administration and other charges (1)

     (46,788     (432,890     (383,856     (346,451
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit

     19,584        181,196        146,388        117,180   

Finance income/(costs)—net

     (144     (1,330     (2,873     (11,432
  

 

 

   

 

 

   

 

 

   

 

 

 

Profit before taxation

     19,441        179,866        143,515        105,748   

Taxation

     (5,555     (51,400     (40,275     (34,247
  

 

 

   

 

 

   

 

 

   

 

 

 

Profit for the year

   $ 13,885      R 128,466      R 103,240      R 71,501   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(*) We have translated U.S. dollar amounts from South African rand at the exchange rate of R9.2521 per $1.00, which was the R/$ exchange rate reported by the South African Reserve Bank for March 31, 2013.
(1) Includes other income/(expenses)—net.

 

 

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Other Financial and Operating Data

 

     For the Year Ended March 31,  
     2013 (*)      2013      2012      2011
(Unaudited)
 
     (In thousands, except vehicle data)  

Subscription revenue

   $ 74,223       R  686,720       R  577,330       R  503,429   

Adjusted EBITDA (1)

     31,433         290,821         240,622         201,833   

Vehicles under subscription

     359,643         359,643         272,935         240,279   

 

(*) We have translated U.S. dollar amounts from South African rand at the exchange rate of R9.2521 per $1.00, which was the R/$ exchange rate reported by the South African Reserve Bank for March 31, 2013.
(1) See “—Adjusted EBITDA” below for our definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to profit for the year, the most directly comparable financial measure presented in accordance with IFRS.

Consolidated Statement of Financial Position Data

 

     At March 31,  
     2013 (*)      2013      2012      2011
(Unaudited)
 
     (In thousands)  

Cash and cash equivalents

   $ 15,964       R 147,702       R 118,695       R   110,007   

Total assets

     124,597         1,152,788         1,068,416         994,208   

Working capital

     12,349         114,252         56,347         8,914   

Total indebtedness (1)

     6,428         59,477         73,106         103,546   

Total shareholders’ equity (2)

     93,803         867,879         772,090         682,935   

 

(*) We have translated U.S. dollar amounts from South African rand at the exchange rate of R9.2521 per $1.00, which was the R/$ exchange rate reported by the South African Reserve Bank for March 31, 2013.
(1) Total indebtedness includes amounts outstanding at March 31, 2013 for bank overdraft and borrowings. All of our indebtedness is secured and none of our debt is guaranteed.
(2) Excludes non-controlling interest.

Adjusted EBITDA

To provide investors with additional information regarding our financial results, we have disclosed within this prospectus Adjusted EBITDA, which is a non-IFRS, non-GAAP, financial measure. We define Adjusted EBITDA as the profit for the year before income taxes, net interest income/(expense), depreciation of property, plant and equipment including capitalized customer in-vehicle-devices, amortization of intangible assets including capitalized in-house development costs, share-based compensation costs, transaction costs arising from the acquisition of a business, restructuring costs, profits/(losses) on the disposal or impairments of assets, and unrealized foreign exchange profits/(losses). We present below a reconciliation of Adjusted EBITDA to profit for the year, the most directly comparable financial measure presented in accordance with IFRS.

We have included Adjusted EBITDA in this prospectus because it is a key measure that our management and Board of Directors intends to use instead of EBITDA to understand and evaluate our core operating performance and trends; to prepare and approve our annual budget; and to develop short- and long-term operational plans. In particular, the exclusion of certain expenses in calculating Adjusted EBITDA can provide a useful measure for period-to-period comparisons of our core business. Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results.

 

 

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Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider this performance measure in isolation from, or as a substitute for, analysis of our results as reported under IFRS. Some of these limitations are:

 

  Ÿ  

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;

 

  Ÿ  

Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

 

  Ÿ  

Adjusted EBITDA does not consider the potentially dilutive impact of equity-based compensation;

 

  Ÿ  

Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us;

 

  Ÿ  

Adjusted EBITDA does not reflect the interest expense or the cash requirements necessary to service interest payments on our debt or any losses on the extinguishment of our debt;

 

  Ÿ  

Adjusted EBITDA does not include unrealized foreign currency transaction gains and losses; and

 

  Ÿ  

other companies, including companies in our industry, may calculate Adjusted EBITDA differently, which reduces its usefulness as a comparative measure.

Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including operating profit, profit for the year and our other results.

Reconciliation of Adjusted EBITDA to Profit for the Year

 

     For the Year Ended March 31,  
     2013 (*)      2013      2012      2011
(Unaudited)
 
     (In thousands)  

Adjusted EBITDA

   31,433       290,821       240,622       201,833   

Add:

           

Finance income

     218         2,018         2,392         2,193   

Less:

           

Depreciation and amortization (1)

     10,612         98,186         89,832         79,831   

Taxation

     5,555         51,400         40,275         34,247   

Impairment (2)

     557         5,158         1,332         3,132   

Finance costs

     362         3,348         5,265         13,625   

Share-based payment costs

     341         3,151         2,001         1,048   

Foreign exchange—unrealized

     326         3,012         639         581   

Non-recurring items (3)

     13         118         430         61   
  

 

 

    

 

 

    

 

 

    

 

 

 

Profit for the year

   $ 13,885       128,466       103,240       71,501   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(*) We have translated U.S. dollar amounts from South African rand at the exchange rate of R9.2521 per $1.00, which was the R/$ exchange rate reported by the South African Reserve Bank for March 31, 2013.
(1) Includes depreciation of property, plant and equipment (including in-vehicle devices) and amortization of intangible assets.
(2) Includes impairment of intangibles and impairment of available-for-sale financial assets.
(3) Includes loss on disposal of subsidiary, loss on sale of intangibles, transaction costs arising from acquisition of a business, restructuring costs and (profit)/loss on sale of property, plant and equipment.

 

 

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RISK FACTORS

Our business, results of operations and financial condition could be materially and adversely affected if any of the risks described below occurs. As a result, the market price of the ADSs could decline, and you could lose all or part of your investment. We may face additional risks and uncertainties that are not currently known to us, or that we currently deem immaterial, which may also impair our business. You should carefully consider all of the risk factors set forth below before making an investment decision regarding the ADSs.

Risks Relating to Our Business

We may be unable to maintain our relationships with our existing customers, which could result in a loss of subscription revenue.

We provide our solutions principally on a subscription basis, typically with an initial subscription term of three years and renewal terms of either three years or successive one-year periods, or, for certain of our consumer customers, on a month-to-month basis. However, our customers have no obligation to renew their subscriptions after the initial term or any renewal term expires. We may be unable to retain existing customers and, as a result, our revenue would be adversely affected. Customers may choose not to renew their subscriptions for many reasons, including:

 

  Ÿ  

the belief that our solutions are not required for their needs or are not cost-effective;

 

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a desire to reduce discretionary spending;

 

  Ÿ  

a belief that our competitors’ solutions provide a better value;

 

  Ÿ  

changes in our customers’ business or in regulations impacting our customers’ business that may decrease the need for our fleet and mobile asset management solutions; or

 

  Ÿ  

because of a reduction in discounts offered by insurers to vehicle owners who have installed our products.

Our enterprise fleet management customers may also not renew for reasons entirely out of their control, such as the dissolution of their business. Enterprise customers may also decrease the number of vehicles covered by subscription contracts if their fleet sizes decrease.

Our subscription contracts generally do not provide our customers with an early termination option. However, if customers do not honor their subscriptions for the full term, our remedies may be limited to re-negotiation of contract terms or legal recourse through the courts, which may not be successful or cost-effective, and we may not be able to recoup all of our costs.

A significant failure to maintain our customer relationships could result in a loss of subscription revenue.

Our inability to adapt to rapid technological change in our industry could impair our ability to remain competitive and result in a decline in market acceptance of our products.

The industries in which we compete are characterized by rapid technological change, frequent introductions of new products and evolving industry standards. In addition to the mobile asset management industry, we are subject to changes in the automotive, mobile handset, GPS navigation device, information technology, telecommunications and work flow software

 

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industries. As the technology used in each of these industries evolves, we will face new integration and competition challenges. For example, as truck and automobile manufacturers continue to develop in-vehicle technology, GPS-based tracking solutions may become standard equipment and result in new sources of competition. If we are unable to adapt to rapid technological change, it could impair our ability to remain competitive and result in a decline in market acceptance of our products.

The development of new or improved products, systems or technologies that compete with our products may render our products less competitive and we may not be able to enhance our technology in a timely manner. In addition to the competition resulting from new products, systems or technologies, our future product enhancements may not adequately meet the requirements of the marketplace and may not achieve the broad market acceptance necessary to generate significant revenues. Any of the foregoing could materially and adversely affect our business, results of operations and financial condition.

Industry consolidation may give our competitors advantages over us, which could result in a loss of customers and/or a reduction in revenue.

Some of our competitors have made or may make acquisitions or enter into partnerships or other strategic relationships to offer more comprehensive services or achieve greater economies of scale. In addition, new entrants not currently considered competitors may enter our market through acquisitions, partnerships or strategic relationships. For example, Danaher Corporation, a Fortune 250 science and technology company, recently announced the acquisition of Navman Wireless, which offers fleet tracking services. We expect these trends to continue as companies attempt to strengthen or maintain their market positions. Many potential entrants may have competitive advantages over us, such as greater name recognition, longer operating histories, more varied services and larger marketing budgets, as well as greater financial, technical and other resources. Industry consolidation may result in competitors with more compelling service offerings or greater pricing flexibility than we have or business practices that make it more difficult for us to compete effectively, including on the basis of price, sales and marketing programs, technology or service functionality. These pressures could result in a loss of subscribers and/or a reduction in revenue.

The loss of one or more of our key personnel, or our failure to attract, train and retain other highly qualified personnel, could prevent us from executing our growth plan.

We depend on the continued service and performance of our key personnel. The loss of one or more key members of our senior management team could prevent us from executing our growth plan. In addition, the loss of other key marketing, sales, product development or technology personnel could disrupt our operations and have a materially adverse effect on our ability to grow our business.

To execute our growth plan, we must continue to attract and retain highly qualified personnel. Competition for these employees is intense, and we may not be successful in attracting and retaining qualified personnel. We may experience difficulty in hiring and retaining highly skilled employees with appropriate qualifications. Our failure to attract and train new personnel, or our failure to retain, focus and motivate our current personnel, could materially and adversely affect our business, results of operations and financial condition.

 

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We may expand by acquiring or investing in other companies, which may divert our management’s attention, result in dilution to our shareholders and consume resources that are necessary to sustain our business.

We may in the future acquire complementary products, services, technologies or businesses. We also may enter into relationships with other businesses to expand our portfolio of solutions or to expand our ability to provide our solutions in foreign jurisdictions. Negotiating these transactions can be time-consuming, difficult and expensive, and our ability to complete these transactions may be subject to conditions or approvals that are beyond our control, including anti-takeover and antitrust laws in various jurisdictions. We may seek to acquire other companies or businesses using our shares as consideration. Under the South African Companies Act, 2008, or the “Companies Act,” we are prohibited from issuing shares representing 30% or more of our outstanding equity in connection with an acquisition without stockholder approval by way of special resolution. In terms of JSE listings requirements, an acquisition or disposal constituting 25% or more of the market capitalization of the acquiring entity, will require stockholder approval. Consequently, these transactions, even if undertaken and announced, may not close.

An acquisition, investment or new business relationship may result in unforeseen operating difficulties and expenditures. In particular, we may encounter difficulties assimilating or integrating the businesses, technologies, products, personnel or operations of acquired companies, particularly if the key personnel of the acquired company choose not to work for us, the acquired company’s technology is not easily compatible with ours or we have difficulty retaining the customers of any acquired business due to changes in management or otherwise. Acquisitions may also disrupt our business, divert our resources and require significant management attention that would otherwise be available for the development of our business. Moreover, the anticipated benefits of any acquisition, investment or business relationship may not be realized or we may be exposed to unknown liabilities, including litigation against the companies we may acquire. For one or more of those transactions, we may:

 

  Ÿ  

issue additional equity securities that would dilute our shareholders;

 

  Ÿ  

use cash that we may need in the future to operate our business;

 

  Ÿ  

incur debt on terms unfavorable to us or that we are unable to repay or that may place burdensome restrictions on our operations;

 

  Ÿ  

incur large charges or substantial liabilities; or

 

  Ÿ  

become subject to adverse tax consequences, or substantial depreciation or amortization, deferred compensation or other acquisition-related accounting charges.

Any of these risks could materially and adversely affect our business, results of operations and financial condition.

We may not be able to increase sales of our solutions, which could materially and adversely affect our ability to grow our business and increase revenue.

We intend to increase sales of our solutions by increasing penetration in our existing markets and by entering new markets that represent a large potential source of demand for these solutions. Our success in increasing sales may be tied to a wide variety of factors, including demand for our services, price and service competition, our relationships with third party distributors and dealers, the rate of new vehicle sales, general economic conditions and, in the case of our safety and security solutions, the perceived threat of vehicle theft and discounts offered by insurers.

 

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Additionally, some car and truck manufacturers have begun installing substitute products and services, such as certain GPS-based products, in new vehicles prior to their initial sale, which may preclude us from increasing sales to subscribers purchasing such vehicles. Our inability to market and sell our solutions to new customers could materially and adversely affect our ability to grow our business and increase revenue.

We depend on certain key suppliers and vendors to manufacture our hardware and an interruption in the supply of our hardware could impair our production capacity.

We currently purchase key GSM (Global System for Mobile communications) module components of our hardware from two key suppliers. These modules and many of the other components used in the manufacture of our products have extended lead times on orders. We do not have volume commitments to or from these suppliers, and therefore cannot require them to deliver components to us. Interruption in the supply of components from suppliers would significantly impact our operations and require us to identify and integrate our manufacturing and supply logistics with an alternate supplier or use a substitute component, which could materially and adversely affect our business, results of operations and financial condition.

In addition, we currently depend principally on three vendors in South Africa to manufacture our hardware on a contract basis. Each of these contracts is terminable on 12 months’ written notice. We have no financial control over and limited operational influence on these suppliers and the conduct of their businesses. These suppliers could, among other things, extend delivery times, raise prices and limit supply due to their own shortages and business requirements. Our three contract manufacturers produce different products for us and production capacities at these facilities are not interchangeable in the short term. If the facilities of one of our contract manufacturers were to suffer a major casualty event, it could take as much as three to five months or longer to replace production capacity. Interruption in the supply of hardware from our contract manufacturers could impair our production capacity and materially and adversely affect our business, results of operations and financial condition.

We depend on our network of dealers and distributors to sell our solutions and adverse changes in our relationships with significant dealers and distributors could cause a decline in sales.

We currently distribute our products to small fleet operators and consumers through various distribution channels, including automobile dealers, aftermarket automotive parts and service suppliers, and automobile insurers and retailers, which we collectively refer to as “distributors.”

We distribute our products to enterprise fleet customers both directly and through third parties who are assigned specific geographic territories in which they can sell, which we refer to as “dealers.”

We sell our solutions both directly and through our global network of independent dealers and distributors. We are dependent on our dealers and distributors, who account for a substantial percentage of our total sales. One group of distributors under common ownership accounts for a substantial portion of our sales in the Africa consumer segment. Additionally, the terms of our agreements with our dealers do not usually include minimum purchase obligations, are specific to a geographic territory and are nonexclusive. Our dealer agreements generally have a fixed initial term, after which they continue indefinitely, subject to the right of either party to terminate on specified notice generally ranging from 90 days to one year, or for breach. Similarly, our distributor agreements do not include minimum purchase obligations and consist principally of a commission agreement applicable to sales generated by the distributor. If our relationships with

 

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our dealers and distributors deteriorate, or if a dealer or distributor or group of related dealers and distributors accounting for a material portion of our sales elects not to do business with us in the future, our sales could decline materially.

We depend on our cellular network providers for the transmission of data from installed in-vehicle devices to our data centers and we would incur significant costs if the services of these network providers became unavailable to us.

We contract with cellular network providers in each of our markets to provide cellular network services. These cellular networks transmit data from our customers’ in-vehicle devices to our data centers, where it is managed for the benefit of our customers. Each installed in-vehicle device contains a SIM card that is compatible with a specific cellular network provider. If a cellular network provider in one of our markets were to refuse to continue contracting with us for any reason or were to go out of business, we could incur significant costs related to the replacement of SIM cards for our customers and could suffer damage to our reputation and customer relationships. Any of the foregoing could materially and adversely affect our business, results of operations and financial condition.

The markets in which we participate are highly fragmented and competitive, with relatively low barriers to entry, and such competition could result in reduced operating margins, increased sales and marketing expenses and the loss of market share.

The market for our solutions is highly fragmented, consisting of a significant number of vendors, with relatively low barriers to entry. Competition in our market is based primarily on:

 

  Ÿ  

functionality and reliability;

 

  Ÿ  

total cost of ownership;

 

  Ÿ  

breadth and depth of application functionality for fleet deployments;

 

  Ÿ  

product performance;

 

  Ÿ  

interoperability;

 

  Ÿ  

brand and reputation;

 

  Ÿ  

customer service;

 

  Ÿ  

distribution channels;

 

  Ÿ  

regional geographic expertise, including localized language support, support for applicable government regulations and the ability to comply with local internet and data privacy regulations;

 

  Ÿ  

size of customer base and reference accounts within key industry segments;

 

  Ÿ  

ability to deliver ongoing value and return on investment;

 

  Ÿ  

ease of deployment and use;

 

  Ÿ  

relevant industry domain expertise and functionality; and

 

  Ÿ  

the financial resources of the vendor.

 

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We compete with a number of companies in each of the geographic markets in which we operate. Such competition could result in reduced operating margins, increased sales and marketing expenses and the loss of market share, any of which would harm our operating results. We expect competition to intensify in the future with the introduction of new technologies and market entrants.

The market for safety and security solutions is highly competitive. We compete in the safety and security solutions market primarily on the basis of the technological innovation, value-added services offered, brand recognition, rate of successful recoveries of mobile assets, quality and price of our products and services. Our most competitive market is the vehicle and mobile asset tracking and recovery solutions market, due to the existence of a wide variety of competing products and services and alternative technologies that offer various levels of protection and tracking capabilities. Some of these competing products and services, such as certain GPS-based products, are installed in new cars by vehicle manufacturers prior to their initial sale, which may make it more difficult to compete for such subscribers. Furthermore, providers of competing services or products may extend their offerings to the locations in which we operate or new competitors may enter the safety and security solutions market.

We could be exposed to product liability claims, which could result in significant damage to our reputation and material economic loss.

Our products and the batteries that many of them contain could malfunction and cause damage to our customers’ property. In particular, the rechargeable batteries in our in-vehicle devices may be prone to leaking due to environmental factors such as unusual heat or overuse. Leaks in these batteries could damage our customers’ in-vehicle devices and vehicles. Our safety and security solutions may be disabled or prove to be ineffective as a result of techniques employed by car thieves or the discovery of technological weaknesses by such persons. If there were a systematic failure of any of our products, we could suffer significant damage to our reputation and any product liability insurance we maintain might not be sufficient to prevent us from suffering a material economic loss.

Failure of businesses to adopt fleet management solutions could reduce the demand for our solutions.

We derive, and expect to continue to derive, substantial revenue from the sale of subscriptions for fleet management solutions to commercial customers. Widespread acceptance and use of fleet management solutions is critical to our future revenue growth and success. If the market for fleet management solutions fails to grow or grows more slowly than we currently anticipate, demand for our solutions would be negatively affected.

The market for fleet management solutions is subject to changing customer demand and trends in preferences. Some of the potential factors that could affect interest in and demand for fleet management solutions include:

 

  Ÿ  

the effectiveness and reliability of solutions;

 

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fluctuations in fuel and vehicle maintenance costs, which are significant drivers of customer demand for fleet management solutions;

 

  Ÿ  

assumptions regarding general mobile workforce inefficiency and the extent to which efficiency can be improved through fleet management solutions;

 

  Ÿ  

the level of governmental and regulatory burdens on the fields of transportation and occupational health and safety;

 

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  Ÿ  

the price, performance, features and availability of products and services that compete with ours;

 

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our ability to maintain high levels of customer satisfaction; and

 

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the rate of acceptance of web-based solutions generally.

Failure of businesses to adopt fleet management solutions could materially and adversely affect our business, results of operations and financial condition.

A decline in vehicle sales in our markets could result in reduced demand for our solutions, which could materially and adversely affect our revenue.

A reduction in sales of new vehicles could reduce our addressable market for solutions. New vehicle sales may decline for various reasons, including adverse changes in the general economic environment, a reduction in our customers’ discretionary spending or an increase in new vehicle tariffs, taxes or gas prices. A decline in vehicle production levels or labor disputes affecting the automobile industry in the markets where we operate may also impact the volume of new vehicle sales. A decline in sales of new vehicles in the markets in which we provide our solutions would result in reduced demand for such products and services.

Demand for our fleet management solutions decreases when prices for crude oil and natural gas decrease, which could materially and adversely affect our revenue.

Demand for our fleet management solutions can fluctuate with the prices for crude oil and natural gas, which impacts the attractiveness of our services and also directly affects our customers in the oil and gas industry, from whom we derive a significant portion of our revenues. Generally, lower oil and gas prices reduce the return on investment for many of our customers. Gains in fuel efficiency, including from the use of our solutions, may lead to a relative decrease in the return on investment of our solutions perceived by our customers. The oil and gas industry is complex, and numerous geopolitical, economic, environmental and other factors affect pricing. Expectations for future crude oil and natural gas prices may affect our customers’ spending habits. Prolonged or substantial declines in crude oil and/or natural gas prices, or the perception that such prices will decrease in the future, could materially and adversely affect our business, results of operations and financial condition.

Changes in practices of insurance companies in the markets in which we provide our solutions could materially and adversely affect demand for our products and services.

We depend in part on the practices of insurance companies in some of our markets to support demand for our products and services. For example, in South Africa, which is currently the largest market for our products and services, insurance companies either mandate the installation of tracking devices as a prerequisite for providing insurance coverage to owners of certain vehicles, or provide insurance premium discounts to encourage vehicle owners to subscribe to vehicle tracking and mobile asset recovery solutions such as ours. We benefit from insurance companies’ continued practice in the South African and certain other markets of:

 

  Ÿ  

accepting mobile asset location technologies such as ours as a preferred security product;

 

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providing premium discounts for using location and recovery products and services such as ours; and

 

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mandating the use of our products and services, or similar products and services, for certain vehicles.

 

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If any of these policies or practices change, revenues from sale of our products and services could decline, which would materially and adversely affect our business, results of operations and financial condition.

We face many risks associated with our existing and potential new international operations, which could prevent us from successfully expanding into new geographic markets or operating successfully in existing geographic markets.

We are a global company with substantial assets located in a number of countries. We provide our services in 112 countries with 12 offices in seven countries. In some international markets, customer preferences and buying behaviors may be different, and we may use business or pricing models that are different from our traditional subscription model to provide fleet management solutions to customers in those markets or we may be unsuccessful in implementing the appropriate business model. Our revenue from new foreign markets may not exceed the costs of establishing, marketing, and maintaining our international offerings.

In addition, expanding international operations into new territories may subject us to risks with which we have limited experience. These risks include:

 

  Ÿ  

lack of familiarity with local markets;

 

  Ÿ  

difficulties in finding and maintaining, or potentially replacing, local dealers and distributors;

 

  Ÿ  

established local competitors;

 

  Ÿ  

laws favoring local competitors;

 

  Ÿ  

the cost and burden of complying with, lack of familiarity with, and unexpected changes in, legal and regulatory requirements in new territories, including those relating to the Internet and data privacy and security;

 

  Ÿ  

fluctuations in currency exchange rates or restrictions on currency exchange;

 

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potentially adverse tax consequences, including the complexities of transfer pricing, value added or other tax systems, double taxation and restrictions and/or taxes on the repatriation of earnings;

 

  Ÿ  

dependence on third parties, including some commercial partners with whom we do not have extensive experience;

 

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increased financial accounting and reporting burdens and complexities;

 

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political, social, and economic instability, terrorist attacks, and security concerns in general;

 

  Ÿ  

reduced or varied protection for intellectual property rights in some countries; and

 

  Ÿ  

increased vulnerability to claims that we have infringed on the intellectual property of third parties.

Operating in international markets requires significant management attention and financial resources. The investment and additional resources required to establish operations and manage growth in additional territories may not produce desired levels of revenue or profitability.

 

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If we are unable to detect and prevent unauthorized use of customer bank account numbers, we could be subject to financial liability, our reputation could be harmed and customers may be reluctant to use our solutions.

We rely on third-party encryption and authentication technology to provide secure transmission of confidential information over the Internet, including customer bank account numbers. Advances in technological capabilities, new discoveries in the field of cryptography or other events or developments could result in a compromise or breach of the technology we use to protect sensitive transaction data. If any such compromise of our security, or the security of our customers, were to occur, it could result in misappropriation of proprietary information or interruptions in operations and have an adverse impact on our reputation or the reputation of our customers. If we are unable to detect and prevent unauthorized use of bank account numbers, our business, results of operations and financial condition could be materially and adversely affected.

Our operating results may be harmed due to liabilities, penalties and an inability to compete for future sales if we are required to collect sales, use, services or other related taxes for our solutions in jurisdictions where we have not historically done so.

We do not believe that we are required to collect sales, use, services or other similar taxes from our customers in certain jurisdictions. However, one or more countries or states may seek to impose sales, use, services, or other tax collection obligations on us, including for past sales. A successful assertion by one or more jurisdictions that we should collect sales or other taxes on the sale of our solutions could result in substantial tax liabilities, including interest and penalty charges for past sales and decrease our ability to compete for future sales. We review applicable rules and regulations periodically and, when we believe sales and use taxes apply in a particular jurisdiction, we voluntarily engage tax authorities in order to determine how to comply with their rules and regulations. We cannot assure you that we will not be subject to sales and use taxes or related penalties for past sales in jurisdictions where we presently believe sales and use taxes are not due. Furthermore, we cannot be certain that we have made sufficient reserves on our financial statements to cover taxes.

Although our client contracts provide that our clients must pay all applicable sales and similar taxes, they may be reluctant to pay back taxes and may refuse responsibility for interest or penalties associated with those taxes. If we are unable to collect and pay back taxes and the associated interest and penalties, we will have incurred unplanned expenses that may be substantial.

An actual or perceived reduction in vehicle theft and crime rates may adversely impact demand for certain of our solutions, which could result in a loss of customers and a decline in growth.

Demand for our vehicle tracking and asset recovery solutions is influenced by prevailing or expected vehicle theft rates. Vehicle theft rates may decline as a result of various factors, such as the availability of improved security systems, implementation of improved or more effective law enforcement measures and improved economic or political conditions in markets that have high theft rates. If vehicle theft rates in our markets decline significantly, or if vehicle owners or insurance companies believe that vehicle theft rates have declined or are expected to decline, demand for some of our products and services may decline, which could result in a loss of customers and a decline in growth.

 

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We are subject to U.S. and other anti-corruption laws, trade controls, economic sanctions and similar laws and regulations, including those in the jurisdictions where we operate. Our failure to comply with these laws and regulations could subject us to civil, criminal and administrative penalties and harm our reputation.

Doing business on a worldwide basis requires us to comply with the laws and regulations of various foreign jurisdictions. These laws and regulations place restrictions on our operations, trade practices, partners and investment decisions. In particular, our operations are subject to U.S. and foreign anti-corruption and trade control laws and regulations, such as the Foreign Corrupt Practices Act, or the “FCPA,” export controls and economic sanctions programs, including those administered by the U.S. Treasury Department’s Office of Foreign Assets Control, or the “OFAC.” As a result of doing business in foreign countries and with foreign partners, we are exposed to a heightened risk of violating anti-corruption and trade control laws and sanctions regulations.

The FCPA prohibits us from providing anything of value to foreign officials for the purposes of obtaining or retaining business or securing any improper business advantage. It also requires us to keep books and records that accurately and fairly reflect our transactions. As part of our business, we may deal with state-owned business enterprises, the employees of which are considered foreign officials for purposes of the FCPA. In addition, the United Kingdom Bribery Act, or the “Bribery Act,” has been enacted and came into effect on July 1, 2011. The provisions of the Bribery Act extend beyond bribery of foreign public officials and also apply to transactions with individuals not employed by a government. The provisions of the Bribery Act are also more onerous than the FCPA in a number of other respects, including jurisdiction, non-exemption of facilitation payments and penalties. Some of the international locations in which we operate lack a developed legal system and have higher than normal levels of corruption.

Economic sanctions programs restrict our business dealings with certain sanctioned countries, persons and entities. In addition, because we act through dealers and distributors, we face the risk that our dealers and distributors and customers might further distribute our products to a sanctioned person or entity, or an ultimate end-user in a sanctioned country, which might subject us to an investigation concerning compliance with OFAC or other sanctions regulations.

Violations of anti-corruption and trade control laws and sanctions regulations are punishable by civil penalties, including fines, denial of export privileges, injunctions, asset seizures, debarment from government contracts and revocations or restrictions of licenses, as well as criminal fines and imprisonment. We have established policies and procedures designed to assist our compliance with applicable U.S. and international anti-corruption and trade control laws and regulations, including the FCPA, the Bribery Act and trade controls and sanctions programs administered by OFAC, and have trained our employees to comply with these laws and regulations. However, there can be no assurance that all of our employees, consultants, agents or other associated persons will not take actions in violation of our policies and these laws and regulations, and that our policies and procedures will effectively prevent us from violating these regulations in every transaction in which we may engage or provide a defense to any alleged violation. In particular, we may be held liable for the actions that our local, strategic or joint venture partners take inside or outside of the United States, even though our partners may not be subject to these laws. Such a violation, even if our policies prohibit it, could materially and adversely affect our reputation, business, results of operations and financial condition. Our continued international expansion, including in developing countries, and our development of new partnerships and joint venture relationships worldwide, could increase the risk of FCPA, OFAC or Bribery Act violations in the future.

 

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Operating in emerging markets subjects us to greater political, economic and market risks than those we would face if we only operated in more developed markets, which could increase our operating costs.

Emerging markets, including Africa, eastern Europe, the Middle East and South America, are subject to greater risks than more developed markets. The political, economic and market conditions in many emerging markets present risks that could make it more difficult to operate our business successfully. These risks include:

 

  Ÿ  

political and economic instability, including higher rates of inflation and currency fluctuations;

 

  Ÿ  

higher levels of corruption, including bribery of public officials;

 

  Ÿ  

loss due to civil strife, acts of war or terrorism, guerrilla activities and insurrection;

 

  Ÿ  

a lack of well-developed legal systems which could make it difficult for us to enforce our intellectual property and contractual rights;

 

  Ÿ  

logistical and communications challenges;

 

  Ÿ  

potential adverse changes in laws and regulatory practices, including import and export license requirements and restrictions, tariffs, legal structures and tax laws;

 

  Ÿ  

difficulties in staffing and managing operations and ensuring the safety of our employees;

 

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restrictions on the right to convert or repatriate currency or export assets;

 

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greater risk of uncollectible accounts and longer collection cycles; and

 

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introduction or changes to indigenization and empowerment programs.

Laws and regulations relating to the Internet and data privacy in the markets in which we operate are complex and continuously evolving, and compliance costs are high. As these laws and regulations continue to evolve, we may be required to increase our compliance-related expenditures or limit the manner in which collect information, the types of information that we collect, or the solutions we offer, which may impede our ability to provide our solutions or reduce our profit margins in specific geographic regions.

Various laws and regulations associated with the Internet and data privacy are complex and increase our cost of doing business. Furthermore, these laws and regulations expose us to fines and penalties if we fail to comply with them as well as costs associated with privacy compliance audits. We have not completed a legal review to determine our compliance with data privacy and data security laws. We are conducting a data privacy and data security compliance review in our major markets. There can be no assurance that the policies and procedures we implement as a result of this review will be sufficient to prevent a regulatory agency or private party from asserting a claim based on data privacy or security laws or regulations. Furthermore, there can be no assurance that our employees, contractors and agents will not take actions in violation of the policies we have established or may establish in the future regarding data privacy and data security, particularly as we expand our operations through organic growth and acquisitions. Any violations could subject us to civil or criminal penalties, including substantial fines or prohibitions on our ability to offer our products in one or more countries, and could also materially damage our reputation, our brand, our international expansion efforts, our business, results of operations and financial condition.

 

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Additionally, as cloud computing continues to evolve, increased regulation by federal, state or foreign agencies becomes more likely, particularly in the areas of data privacy and data security. In addition, taxation of services provided over the Internet or other charges imposed by government agencies or by private organizations for accessing the Internet may be imposed. Any regulation imposing greater fees for Internet use or restricting information exchange over the Internet could result in a decline in the use of the Internet and the viability of Internet-based services, which could harm our business.

Our solutions and products enable us to collect, manage and store a wide range of data related to fleet management such as mobile asset location and fuel usage, speed and mileage. We obtain our data from a variety of sources, including our customers and third-party providers. The United States and various state governments have adopted or proposed limitations on the collection, distribution and use of personal information, as well as requirements that must be followed if a breach of such personal information occurs. The European Union and the United Kingdom have adopted legislation (including directives, national laws and regulations) that increase or change the requirements governing data collection, use, storage and disclosure of personal information in these jurisdictions. Currently, South Africa has proposed legislation that would require us to adhere to certain privacy measures, including with respect to customer confidential information. We are also subject to privacy and data security measures in other countries where we operate.

We may also be subject to costly notification and remediation requirements if we or a third party determines that we have been the subject of a data breach involving personal information of individuals. Data breach notification regulations vary among the countries where we conduct business, and also vary among the states of the United States, and any breach of personal information could be subject to any number of these requirements.

We have sought to implement international best practices regarding data privacy and data security. We updated our website privacy policy in 2013 and we are currently in the process of becoming ISO 27001 certified. If our privacy or data security measures fail to comply, or are perceived to fail to comply, with current or future laws and regulations, we may be subject to litigation, regulatory investigations or other liabilities. Moreover, if future laws and regulations limit our clients’ ability to use and share this data or our ability to store, process and share data with our clients over the Internet, demand for our solution could decrease and our costs could increase. We might also have to limit the manner in which collect information, the types of information that we collect, or the solutions we offer. Any of these would materially and adversely affect our business, results of operations and financial.

A governmental challenge to our transfer pricing policies could impose significant costs on us.

Transfer pricing policies are a significant component of the management of our operations across international boundaries. Many countries routinely examine transfer pricing policies of taxpayers subject to their jurisdiction, challenge transfer pricing policies aggressively where there is potential noncompliance and impose significant interest charges and penalties where noncompliance is determined. Although the documentation of and support for our transfer pricing policies have not been the subject of a governmental proceeding beyond examination to date, there can be no assurance that a governmental authority will not challenge these policies more aggressively in the future or, if challenged, that we will prevail. We could suffer significant costs related to one or more challenges to our transfer pricing.

 

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Reduction in regulation in certain markets may adversely impact demand for certain of our solutions by reducing the necessity for or desirability of our solutions.

Regulatory compliance and reporting is driven by legislation and requirements, which are often subject to change, from regulatory authorities in nearly every jurisdiction globally. For example, in the United States, fleet operators can face numerous complex regulatory requirements, including mandatory Compliance, Safety and Accountability driver safety scoring, hours of service, compliance and fuel tax reporting. The reduction in regulation in certain markets may adversely impact demand for certain of our solutions, which could materially and adversely affect our business, financial condition and results of operations.

A breach of any of the covenants or other provisions contained in our credit facilities could result in an event of default, which could result in amounts outstanding under our credit facilities becoming immediately due and payable as well as foreclosure by our lenders upon our critical assets.

Our credit facilities with Standard Bank Limited, Investec Bank Limited and Nedbank Limited contain certain covenants, including without limitation, those limiting our and our guarantor subsidiaries’, as applicable, ability to, among other things, incur indebtedness, incur liens, or sell or acquire assets or businesses. Our obligations under our credit facility with Standard Bank Limited are secured by a pledge of accounts receivable by us and one of our significant subsidiaries, and our obligations under our credit agreement with Investec Bank Limited are secured by a lien on the customer contracts of one of our significant subsidiaries and a pledge of the shares of another of our subsidiaries.

A breach of any of these covenants or other provisions of our credit facilities could result in an event of default, which if not cured or waived, could result in amounts outstanding under our credit facilities becoming immediately due and payable. In the event that some or all of the amounts outstanding under our credit facilities are accelerated and become immediately due and payable, we may not have the funds to repay, or the ability to refinance, such outstanding amounts under our credit facilities, or our lenders could foreclose upon critical assets, which could materially and adversely affect our business, results of operations and financial condition.

The cost of healthcare services may increase in the future, which could materially increase our employee healthcare-related costs and/or require a reduction in benefits that are important to employee retention.

Healthcare services are available to our employees through a variety of plans in different jurisdictions. There is a risk that the cost of providing such services could increase in the future depending on changes in the nature of underlying legislation and the profile of our employees, particularly in South Africa. It is possible that future healthcare reform initiatives could significantly increase our employee healthcare-related costs. These increased costs, should they transpire, are currently indeterminate. We have embarked on a number of interventions focused on improving the quality of life of our work force, however, there can be no guarantee that such initiatives will not be adversely affected by increased costs.

 

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Risks Relating to Intellectual Property

We have not traditionally relied on patents to protect our intellectual property, and we rely on trade secret laws, confidentiality agreements, confidentiality procedures and contractual restrictions to establish and protect our intellectual property rights, which provide only limited protection and may subject us to litigation.

Our future success and competitive position depend in part on our ability to protect our intellectual property and proprietary technologies. We rely primarily on trade secret laws, confidentiality agreements, confidentiality procedures and contractual restrictions to establish and protect our intellectual property rights, all of which provide only limited protection and may not currently or in the future provide us with a competitive advantage. Our confidentiality agreements with our employees, licensees, independent contractors and other advisors may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover our trade secrets or develop similar technologies and processes, and, in either event we would not be able to assert trade secret rights. We also rely to a limited extent on patent, trademark and copyright law.

While there are patent applications covering certain aspects of our Beam-e product pending in South Africa and Brazil, and we have an additional patent application pending in South Africa covering a method for driver verification, we have traditionally not sought patent protection over our intellectual property. As a result, we may not be able to successfully defend our intellectual property from third-party infringement.

We cannot assure you that any future trademark registrations will be issued for pending or future applications, or that any registered trademarks will be enforceable or provide adequate protection of our proprietary rights, or that any such trademarks will not be challenged, invalidated, or circumvented.

Effective patent, trademark, copyright, and trade secret protection may not be available in every country in which our solutions are available or where we have employees or independent contractors. In addition, the legal standards relating to the validity, enforceability, and scope of protection of intellectual property rights in Internet-related industries are uncertain and still evolving. The steps we have taken and will take may not prevent unauthorized use, reverse engineering, or misappropriation of our technologies and we may not be able to detect any of the foregoing. Any of the foregoing events could materially and adversely affect our business, results of operations and financial condition.

An assertion by a third party that we are infringing its intellectual property could subject us to costly and time-consuming litigation or expensive licenses.

The fleet management, mobile asset management and technology industries are characterized by the existence of a large number of patents, copyrights, trademarks and trade secrets and by frequent litigation based on allegations of infringement or other violations of intellectual property rights. Much of this litigation involves patent holding companies or other adverse patent owners who have no relevant product revenues of their own, and against whom our own limited patent portfolio may provide little or no deterrence. We have been subject to such claims in the past and may be in the future.

We have not conducted comprehensive prior art searches to determine whether our solutions infringe the patent rights of third parties in our current markets or those we may enter in the

 

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future. Third parties may assert that we are infringing patents of which we are currently unaware and that would be disclosed by prior art searches. Our status as a newly public company in the United States will raise our visibility and may invite holders of patents who have not previously sought to enforce them against us to bring or threaten claims for infringement or seek to negotiate royalty or other payments from us. The fact that we have relatively few patents associated with our intellectual property means that we may not be able to successfully defend our intellectual property from third-party infringement. Any of the foregoing could materially and adversely affect our business, results of operations and financial condition.

We cannot assure you that we will prevail in any future intellectual property infringement litigation given the complex technical issues and inherent uncertainties in such litigation. Defending such claims, regardless of their merit, could be time-consuming and distracting to management, result in costly litigation or settlement, cause development delays, or require us to enter into royalty or licensing agreements. In addition, we are obligated to indemnify some of our customers and other contract counterparties against third parties’ claims of intellectual property infringement based on our solutions. If our solutions violate any third-party intellectual property rights, we could be required to withdraw those solutions from the market, re-develop those solutions or seek to obtain licenses from third parties, which might not be available on reasonable terms or at all. Any efforts to redevelop our solutions, obtain licenses from third parties on favorable terms or license a substitute technology might not be successful and, in any case, might substantially increase our costs and harm our business, financial condition and operating results. Withdrawal of any of our solutions from the market could harm our business, financial condition and operating results.

Our software may contain undetected defects or software errors, which could result in damage to our reputation or market rejection of our products.

We must update our solutions quickly to keep pace with the rapidly changing market including the third-party software and devices with which our solutions integrate, and we have a history of frequently introducing new versions. Our solutions could contain undetected errors or defects, especially when first introduced or when new versions are released. Our software may not be free from errors or defects, which could result in damage to our reputation or harm to our operating results.

We warrant that our hardware will be free of defects for various periods of time. The operation of the hardware is controlled by the firmware loaded on the hardware. We generally provide firmware updates to our fleet customers by “over-the-air” wireless communication of the updated firmware directly to our customers’ in-vehicle devices. If the firmware does not function as expected and it prevents the uploading of updated firmware, then the problem could not be corrected by an the over-the-air update and would require direct servicing of the installed on-board computer by trained personnel, which imposes a very significant cost on us. Variations among communications protocols in the markets in which we operate enhance the risk of error in the remote installation of firmware. Although we attempt to manage this risk by introducing firmware updates in stages so that the success of deployment to a small number of in-vehicle devices can be assessed before the installment risk is expanded to a larger customer base, there can be no assurance that we will be successful in detecting firmware operation and integration problems or otherwise in managing our exposure to remediation expense related to the deployment of firmware updates.

 

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Our “over-the-air” transmission of firmware updates could permit a third party to disable our customers’ in-vehicle devices or introduce malware into our customers’ in-vehicle devices, which could expose us to customer claims.

“Over-the-air” transmission of our firmware updates potentially provides the opportunity for a third party to modify or disable our customers’ operating systems or introduce malware into our customers’ operating systems. No such incidents have occurred to date but there can be no assurance that they will not occur in the future. For example, a third party could attempt to introduce software modifications providing incorrect location data and functionality or the deletion of data. Damage to our customers’ in-vehicle devices as a result of such incidents could only be remedied through direct servicing of their installed in-vehicle devices by trained personnel, which would impose a very significant cost on us, particularly if the incidents were widespread. Moreover, such incidents could expose us to claims by our customers under various theories of liability, the outcome of which would be uncertain. Third party interference with our over-the-air transmission of firmware or with our customers’ in-vehicle devices during such process could materially and adversely affect our business, financial condition and results of operations.

Any significant disruption in service on, or security breaches of, our websites or computer systems could compromise our information, damage our reputation and result in a loss of customers.

Our brand, reputation, and ability to attract, retain, and serve our customers depend upon the reliable performance of our service and our customers’ ability to access our solutions at all times. Our customers rely on our solutions to make operating decisions related to their fleet, as well as to measure, store and analyze valuable data regarding their businesses. We collect and store sensitive data, including data transmitted from our customers’ in-vehicle devices concerning the location of their mobile assets as well as personally identifiable information concerning our customers and employees. Our solutions are vulnerable to interruption and our data centers are vulnerable to damage or interruption from human error, intentional bad acts, computer viruses or hackers, earthquakes, hurricanes, floods, fires, war, terrorist attacks, power losses, hardware failures, systems failures, telecommunications failures and similar events, any of which could limit our customers’ ability to access our solutions. Prolonged delays or unforeseen difficulties in connection with adding capacity or upgrading our network architecture may cause our service quality to suffer. Any event that significantly disrupts our service or exposes our data to misuse could damage our reputation and harm our business and operating results, including causing us to issue credits to customers, subjecting us to potential liability, reducing our customer retention rates, or increasing our cost of acquiring new customers, any of which would have the effect of reducing our revenue and could materially and adversely affect our business, results of operations and financial condition.

Any breach of our data or system security could result in our customer data being accessed, publicly disclosed, lost or stolen, our business and operations being interrupted, a loss of confidence in our products and services and other negative consequences such as civil liability, including under laws that protect the privacy of personal information, and regulatory penalties, any or all of which could materially and adversely affect our business, financial condition and results of operations.

In addition, we store data, host our solutions and serve all of our customers from our network servers, which are located at third-party data center facilities in Amsterdam, Cape Town, Johannesburg, London and Miami. While we control and have access to our servers and all of the components of our network that are located in our external data centers, we do not control the

 

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operation of these facilities. Problems faced by our third-party data center locations, with the telecommunications network providers with whom we or they contract, or with the systems by which our telecommunications providers allocate capacity among their customers, including us, could adversely affect the experience of our customers. Third-party operators of our data center could decide to close their facilities without adequate notice. In addition, any financial difficulties, such as bankruptcy, faced by our secure third-party data center operators or any of the service providers with whom we or they contract may have negative effects on our business, the nature and extent of which are difficult to predict.

Certain of our customer agreements currently, and may in the future, provide minimum service level commitments regarding items such as uptime, functionality or performance. If we are unable to meet the stated service level commitments for these customers or suffer extended periods of service unavailability, we are or may be contractually obligated to provide these customers with credits for future subscriptions, provide services at no cost or pay other penalties, which could adversely impact our revenue. Additionally, if our data centers are unable to keep up with our growing needs for capacity, this could have an adverse effect on our business. Our disaster recovery systems are located at our third-party hosting facilities. We use a redundant architecture and are increasing capacity. However, our systems have not been tested under actual disaster conditions and may not have sufficient capacity to recover all data and services in the event of an outage. In the event of a disaster in which our disaster recovery systems are irreparably damaged or destroyed, we would experience interruptions in access to our services. Any changes in third-party service levels at our data centers or any errors, defects, disruptions, or other performance problems with our solutions could harm our reputation and may damage our data. Interruptions in our services could materially and adversely affect our business, results of operations and financial condition, cause us to issue refunds to customers, subject us to potential liability, or adversely affect our subscriber retention rates.

Our solutions rely on third-party software and any inability to license such software from third-parties could render our solutions inoperable.

We rely on software and other intellectual property licensed from third parties, including mapping software and data from MapIt and Google, to develop and provide solutions to our customers. In addition, we may need to obtain future licenses from third parties to use software or other intellectual property associated with our solutions. We cannot assure you that these licenses will be available to us on acceptable terms, without significant price increases or at all. Any loss of the right or inability to obtain the right to use any such software or other intellectual property required for the development and maintenance of our solutions could result in interruptions in the provision of our solutions until equivalent technology is either developed by us, or, if available from others, is identified, obtained, and integrated, which could harm our business.

In addition, we incorporate open source software into our platform. The terms of many open source licenses to which we are subject have not been interpreted by U.S. or courts of other jurisdictions, and there is a risk that those licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to commercialize our solutions. In that event, we could be required to seek licenses from third parties in order to continue offering our solutions, to re-develop our solutions, to discontinue sales of our solutions, or to release our proprietary software source code under the terms of an open source license, any of which could adversely affect our business.

 

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We depend on third-party technology, including cellular and GPS networks, and any disruption, failure or increase in costs could impede the functionality of our solutions.

Two critical links in our current solutions are between in-vehicle devices and GPS satellites and between in-vehicle devices and cellular networks, which allow us to obtain location data and transmit it to our system. Increases in the fees charged by cellular carriers for data transmission or changes in the cellular networks, such as a cellular carrier discontinuing support of the network currently used by our in-vehicle devices, requiring retrofitting of our in-vehicle devices, could increase our costs and impact our profitability. We have initiated activities to migrate new installations to the next generation of cellular network compatibility in order to maximize expected useful life of our in-vehicle devices. However, cellular carriers could in the future discontinue support for our currently utilized cellular technologies. Also, while we have included the ability to store GPS data in our in-vehicle devices in case of temporary cellular network connectivity failure, widespread disruptions or extended failures of the cellular networks would adversely affect our solutions’ functionality and utility and harm our financial results.

GPS is a satellite-based navigation and positioning system consisting of a network of orbiting satellites. These satellites and their ground support systems are complex electronic systems subject to electronic and mechanical failures and possible sabotage and it is not certain that the U.S. government will remain committed to the operation and maintenance of GPS satellites in the future. In addition, technologies that rely on GPS depend on the use of radio frequency bands and any modification of the permitted uses of these bands may adversely affect the functionality of GPS and, in turn, our solutions. The satellites and their ground control and monitoring stations are maintained and operated by the U.S. Department of Defense, which does not currently charge users for access to the satellite signals, but we cannot assure you that it will not do so in the future.

Our solutions integrate with third-party technologies and if our solutions become incompatible with these technologies, our solutions would lose functionality and our customer acquisition and retention could be adversely affected.

Our solutions integrate with third-party software and devices to allow our solutions to perform key functions. Although to date this integration has been accomplished using open software interfaces and simple physical linkages, we cannot guarantee that this ease of integration will continue or that we will be able to integrate with other products at all or without additional cost. Additionally, errors, viruses or bugs may also be present in third-party software that our customers use in conjunction with our solutions. Changes to third-party software that our customers use in conjunction with our solutions could also render our solutions inoperable. Customers may conclude that our software is the cause of these errors, bugs or viruses and terminate their subscriptions. The inability to easily integrate with, or any defects in, any third-party software could result in increased costs, or in delays in software releases or updates to our products until such issues have been resolved, which could damage our reputation and materially and adversely affect our business, results of operations and financial condition.

Risks Relating to South Africa

Fluctuations in the value of the South African rand have had, and will continue to have, a significant impact on our results of operations, which may make it difficult to evaluate our business performance between reporting periods and may also adversely affect the price of the ADSs.

The South African rand is the primary operating and financial reporting currency for our business operations. Depreciation in the South African rand may negatively impact the prices at

 

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which the ADSs trade. The U.S. dollar/South African rand, euro/South African rand, Australian dollar/South African rand and British pound/South African rand exchange rates have historically been volatile and we expect this volatility to continue. We provide detailed information about historical U.S. dollar/South African rand exchange rates in “Exchange Rates.”

Due to the significant fluctuation in the value of the South African rand and its impact on our results, you may find it difficult to compare our results of operations between financial reporting periods. This difficulty may have a negative impact on the price of the ADSs and/or increase their volatility.

We also operate internationally and are exposed to foreign exchange risk arising from various currency exposure, primarily with respect to the U.S. dollar, the euro, the Australian dollar and the British pound. These exposures may change over time as business practices evolve and could have a material adverse impact on our financial results and cash flows. Fluctuation in currency exchange rates impacts our operating results. We have implemented a foreign currency hedging policy to reduce our net exposure to fluctuations in foreign currencies which is primarily based on economic hedging principles, as opposed to using derivative financial instruments, to protect against fluctuation in cash flow. We do not attempt to hedge currency translation risk. Our future attempts to hedge against foreign currency risk could be unsuccessful and expose us to losses.

If we do not achieve applicable black economic empowerment objectives in our South African businesses, we risk early termination of two of our contracts which service South African quasi-governmental customers and the loss of the corresponding revenue.

The South African government, through the Broad-Based Black Economic Empowerment Act, 2003, the codes of good practice and industry charters published pursuant thereto, collectively “BBBEE,” has established a legislative framework for the promotion of broad-based black economic empowerment. Achievement of BBBEE objectives is measured by a scorecard which establishes a weighting for the various components of BBBEE. This scorecard is in the process of being revised and the changes, which have not yet been finalized, could have a material impact on our business.

One component of BBBEE scoring is based on achieving a certain percentage of share ownership by black South Africans in South African businesses. This shareholding component carries the highest BBBEE scorecard weighting. Other components include procuring goods and services from black-owned businesses (or from businesses that have earned good BBBEE scores) and achieving certain levels of black South African employment and management participation. Compliance with the BBBEE is not enforced through civil or criminal sanction, but compliance does affect the ability of a company to secure contracts in the public and private sectors. We do not have any significant contracts requiring us to maintain a BBBEE rating level as measured under a BBBEE scorecard, but are required to meet certain specific BBBEE targets for two contracts with South African quasi-governmental customers. One of these agreements has a 36-month term and requires us to meet agreed targets, which we have not yet met, prior to July 2015. Failure to meet the targets by that time will allow the client to cancel the agreement before the end of the term. The other contract has passed its initial term and is operating on a month-to-month basis, allowing the client to cancel the contract on a 30 days’ notice. We have met the agreed BBBEE target but failure to maintain the agreed BBBEE target may increase the likelihood of cancellation. The combined value of these contracts was 6.7% of our total revenue for fiscal year 2013.

It will be important for us to achieve applicable BBBEE objectives. We have taken a number of actions as a company to increase empowerment of black South Africans, including in the areas of equity ownership, employment equity, preferential procurement from businesses with significant black ownership, training and corporate social development. However, it is possible that these

 

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actions may not be sufficient to enable us to achieve applicable BBBEE objectives under the new scorecard when it is promulgated. Failing to achieve applicable BBBEE objectives could jeopardize our ability to maintain existing business or to secure future business from corporate customers, which could materially and adversely affect our business, financial condition and results of operations.

We face the risk of disruption from labor disputes and changes to South African labor laws, which could result in significant additional operating costs or alter our relationship with our employees.

Our operations may be materially affected by changes to labor laws. South African laws relating to labor regulate work time, provide for mandatory compensation in the event of termination of employment for operational reasons, and impose monetary penalties for non-compliance with administrative and reporting requirements in respect of affirmative action policies, could result in significant costs. In addition, future changes to South African legislation and regulations relating to labor may increase our costs or alter our relationship with our employees. Resulting disruptions could materially and adversely affect our business, results of operations and financial condition.

Socio-economic inequality in South Africa or regionally may subject us to political and economic risks which may affect the ownership or operation of our business.

We are incorporated and own significant operations in South Africa. As a result, we are subject to political and economic risks relating to South Africa, which could affect your investment in us. South Africa was transformed into a democracy in 1994, with successful rounds of democratic elections held during 1994, 1999, 2004 and 2009. We fully support government policies aimed at redressing the disadvantages suffered by the majority of citizens under previous governments and recognize that in order to implement these policies, our operations and profits may be impacted. In addition to political issues, South Africa faces many challenges in overcoming substantial differences in levels of economic and social development among its people. While South Africa features highly developed and sophisticated business sectors and financial and legal infrastructure at the core of its economy, large parts of the population, particularly in rural areas, do not have access to adequate education, health care, housing and other services, including water and electricity. In addition, South Africa also has higher levels of crime and unemployment than the United States.

The South African government has committed itself to creating a stable, democratic, free market economy, which it has achieved to a great extent in the 19 years since the first democratic elections in 1994. It remains difficult however, to predict the future political, social and economic direction of South Africa or the manner in which government will attempt to address the country’s inequalities. It is also difficult to predict the impact of addressing these inequalities on our business. Furthermore, there has been regional political and economic instability in countries neighboring South Africa, which could materially and adversely affect our business, results of operations and financial condition.

Although political conditions in South Africa are generally stable, changes may occur in its political, fiscal and legal systems which might affect the ownership or operation of our business, which may, in turn, materially and adversely affect our financial position. These risks may include changes in legislation, arbitrary interference with private ownership of contract rights, and changes to exchange controls, taxation and other laws or policies affecting foreign trade or investment. Any changes in investment regulations and policies or a shift in political attitudes in South Africa are beyond our control and could materially and adversely affect our business, financial condition and results of operations.

 

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The economy of South Africa is exposed to high inflation and interest rates which could increase our operating costs and thereby reduce our profitability.

The economy of South Africa in the past has been, and in the future may continue to be, characterized by rates of inflation and interest rates that are substantially higher than those prevailing in the United States and other highly developed economies. High rates of inflation could increase our South African-based costs and decrease our operating margins.

Although higher interest rates would increase the amount of income we earn on our cash balances, they would also adversely affect our ability to obtain cost-effective debt financing in South Africa.

Our financial flexibility could be constrained by South African currency restrictions, which, in turn, could hinder our normal corporate functioning.

South African companies are subject to exchange control limitations, which could hinder our normal corporate functioning, particularly given our significant expansion outside of South Africa in recent years. While exchange controls have been relaxed in recent years and may continue to be relaxed, South African companies remain subject to restrictions on their ability to raise and deploy capital outside of the Southern African Common Monetary Area, which includes South Africa, Lesotho and Swaziland. These restrictions have affected the manner in which we have financed our acquisitions outside South Africa and the geographic distribution of our debt. These restrictions or any adverse changes to these restrictions could materially and adversely affect our business, results of operations and financial condition.

Risks Relating to the Offering

The price of the ADSs may be volatile, and the market price of the ADSs after this offering may drop below the price you pay which could cause you to fail to realize any return on your investment and to lose some or all of your investment.

Market prices for securities of companies that are newly public in the United States have historically been particularly volatile in response to various factors, some of which are beyond our control. As a result of this volatility, you may not be able to sell the ADSs at or above the public offering price in this offering. Some of the factors that may cause the market price for the ADSs to fluctuate include:

 

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actual or anticipated fluctuations in our financial results or the financial results of our competitors;

 

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loss of existing customers or inability to attract new customers;

 

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actual or anticipated changes in our growth rate;

 

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our announcement of results for a financial reporting period that are lower than expected, whether caused by our results of operations or by currency fluctuations;

 

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changes in estimates of our financial results or recommendations by securities analysts;

 

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failure of any of our solutions to achieve or maintain market acceptance;

 

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changes in market valuations of similar companies;

 

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changes in our capital structure, including issuances or repurchases of securities or the incurrence of debt;

 

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announcements by us or our competitors of significant products, technologies, services, contracts, acquisitions, or strategic alliances;

 

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success of competitive products or services;

 

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regulatory developments in South Africa, the U.S. or other countries;

 

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actual or threatened litigation involving us or our industry;

 

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additions or departures of key personnel;

 

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general perception of the future of the fleet and mobile asset management market or our solutions;

 

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sales of ADSs or ordinary shares by our shareholders;

 

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ADS price and volume fluctuations attributable to inconsistent trading volume levels of the ADSs; and

 

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changes in general economic, industry, and market conditions.

Following the closing of the offering, we intend to issue quarterly press releases or other disclosure of our financial results. The semiannual operating results we have released historically have fluctuated and our quarterly operating results will fluctuate in the future as a result of a variety of factors, including, but not limited to, our ability to accurately forecast revenue and appropriately plan our expenses, long sales cycles for our enterprise fleet management solutions, service outages or security breaches and any related occurrences which could impact our reputation and fluctuations in currency exchange rates. If our quarterly operating results or guidance fall below the expectations of research analysts or investors, the price of our ordinary shares and the ADSs could decline substantially.

In addition, the stock market in general, and the market for technology companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. These fluctuations may be even more pronounced in the trading market for the ADSs shortly following this offering. If the market price of the ADSs after this offering does not exceed the offering price, you may not realize any return on your investment in us and may lose some or all of your investment. Securities class action litigation has often been instituted against companies following periods of volatility in the overall market and in the market price of a company’s securities. This litigation, if instituted against us, could result in very substantial costs, divert our management’s attention and resources, and harm our business, operating results, and financial condition.

Exchange rate volatility may adversely affect the market price of the ADSs and the dividends payable to ADS holders.

As discussed above and further discussed below, there have been significant fluctuations in the exchange rate between the South African rand and the U.S. dollar. Unforeseen events in international markets, fluctuations in interest rates, changes in capital flows, political developments or inflation rates may cause exchange rate instability that could, in turn, depress the value of the South African rand, thereby decreasing the U.S. dollar value of the ADSs and any dividends or distributions paid on the ordinary shares underlying the ADSs.

 

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There has been no prior public market in the United States for our ordinary shares or the ADSs, and an active trading market for the ADSs in the United States may not develop, which may impair your ability to sell ADSs at any given time.

Prior to this offering, there has been no public market in the U.S. for our ordinary shares or the ADSs. An active trading market for the ADSs in the United States may not develop following completion of this offering or, if developed, may not be sustained. The lack of an active market may impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market may also reduce the fair market value of your shares. An inactive market may also impair our ability to raise capital by selling shares of capital stock and may impair our ability to acquire other companies by using our shares as consideration.

If securities or industry analysts do not publish or cease publishing research or reports about us, our business, or our market, or if they change their recommendations regarding the ADSs adversely, the price of the ADSs and trading volume could decline.

The trading market for the ADSs will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market, or our competitors. Securities and industry analysts do not currently, and may never, publish research on us. If no securities or industry analysts commence coverage of our company, the price of the ADSs and trading volume would likely be negatively impacted. If any of the analysts who may cover us change their recommendation regarding the ADSs adversely, or provide more favorable relative recommendations about our competitors, the price of the ADSs would likely decline. If any of the analysts who may cover us were to cease coverage or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the price of the ADSs or trading volume to decline.

Our ordinary shares will be traded on more than one market and this may result in price variations.

Our ordinary shares have been traded on the JSE since 2007, and the ADSs will trade, subject to notice of issuance, on the NYSE. Trading in our ordinary shares and ADSs on these markets will take place in different currencies (U.S. dollars on the NYSE and South African rand on the JSE), and at different times (resulting from different time zones, trading days and public holidays in the United States and South Africa). The trading prices of our ordinary shares and ADSs on these two markets may differ due to these and other factors. Any decrease in the price of our ordinary shares on the JSE could cause a decrease in the trading price of the ADSs on the NYSE.

Our management will have broad discretion over how to use the proceeds from this offering including using the proceeds in ways that might not improve our operating results or in ways with which investors may not agree.

We intend to use the net proceeds from this offering to pursue future acquisitions and other strategic investments and for general corporate purposes. However, depending on future developments and circumstances, we may use some of the proceeds for other purposes. Our management will have significant flexibility and discretion in applying the net proceeds we receive from this offering. The net proceeds could be applied in ways that do not improve our operating results or in ways with which you may not agree. The actual amounts and timing of these expenditures will vary significantly depending on a number of factors, including the amount of cash used in or generated by our operations and the market response to the introduction of any new product offerings.

 

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The requirements of being a public company in the United States may strain our resources and distract our management, which could make it difficult to manage our business and could have a negative effect on our results of operations and financial condition, particularly after we are no longer an “emerging growth company.”

Following the completion of this offering, we will be required to comply with various regulatory and reporting requirements, including those required by the SEC. Complying with these reporting and regulatory requirements will be time consuming, result in increased costs to us and could have a negative effect on our business, results of operations and financial condition.

As a public company in the United States, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the “Exchange Act,” and the requirements of SOX. These requirements may place a strain on our systems and resources. The Exchange Act requires that we file annual reports (and we must file or make public certain additional information reports in our home country) with respect to our business and financial condition. SOX requires that we maintain effective disclosure controls and procedures and internal controls over financial reporting. To maintain and improve the effectiveness of our disclosure controls and procedures, we may need to commit significant resources, hire additional staff and provide additional management oversight. We will be implementing additional procedures and processes for the purpose of addressing the standards and requirements applicable to public companies in the United States. These activities may divert management’s attention from other business concerns, which could have a material adverse effect on our business, financial condition and results of operations.

As an “emerging growth company,” as defined in the JOBS Act, we may take advantage of certain temporary exemptions from various reporting requirements, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of SOX (and the rules and regulations of the SEC thereunder). When these exemptions cease to apply, we expect to incur additional expenses and devote increased management effort toward ensuring compliance with them. We cannot predict or estimate the amount of additional costs we may incur as a result of becoming a public company or the timing of such costs.

Certain provisions of South African law may limit or otherwise discourage a takeover or business combination that could otherwise benefit our shareholders.

Various transactions including, without limitation, those which result in a person, or a group of persons acting in concert, holding shares entitled to exercise or cause to be exercised 35% of more of the voting rights at meetings of our shareholders will be subject to the Fundamental Transactions and Takeover Regulations, or the “Takeover Regulations,” promulgated in terms of the Companies Act, which are regulated by the Takeover Regulation Panel. The Takeover Regulations impose various obligations in such circumstances including the requirement of an offer to minority shareholders.

A transaction will be subject to the approval of the competition authorities in terms of the Competition Act No 89 of 1998, as amended, or the “Competition Act,” if it results in the acquisition of “control,” as defined in the Competition Act and otherwise falls within the scope of the Competition Act. The Competition Act prohibits a transaction (falling within its scope) from being implemented without the necessary approvals.

To the extent applicable, a transaction may be subject to JSE listings requirements as well as the approval of the Exchange Control Department of the South African Reserve Bank, and other applicable regulatory bodies. In addition, certain fundamental transactions such as mergers,

 

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amalgamations, schemes of arrangement and sales of a majority of a company’s assets, require the approval of shareholders exercising 75% of the voting rights, and if 15% or more of a company’s shareholders vote against the transaction, any dissenting shareholder may, within five days, require the company, at its expense, to obtain court approval before implementing the resolution. Even if less than 15% of the shareholders vote against the resolution, any dissenting shareholder may apply to court for a review of the transaction. Such regulations, including the Takeover Regulations and the Competition Act, may have the effect of delaying, deferring or preventing a change in control of us including an extraordinary transaction (such as a merger, tender offer, scheme of arrangement or sale of all or substantially all of our assets) that might provide a premium price for our shareholders.

The concentration of ownership of our capital stock limits your ability to influence corporate matters.

Our executive officers, directors, current 5% or greater shareholders and entities affiliated with them beneficially owned (as determined in accordance with the rules of the SEC) approximately 65% of our ordinary shares outstanding at August 8, 2013 and, upon completion of this offering and assuming that the over-allotment option has been exercised in full, will beneficially own approximately 50% of our ordinary shares. This significant concentration of share ownership may adversely affect the trading price for our ordinary shares and the ADSs because investors often perceive disadvantages in owning stock in companies with concentrated share ownership. Also, these shareholders, acting together, may be able to control our management and affairs and matters requiring shareholder approval, including the election of directors and the approval of significant corporate transactions, such as mergers, consolidations or the sale of substantially all of our assets. Shareholders owning greater than 25% of our outstanding ordinary shares will have the ability to block certain corporate actions, including the issuance of additional equity securities for cash. See “—Certain provisions of South African law may limit our ability to issue securities and access the capital markets in the future, which could hinder our ability to raise capital in the future.” Consequently, this concentration of ownership may have the effect of preventing us from financing or completing an acquisition, delaying or preventing a change of control, including a merger, consolidation or other business combination involving us, or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control, even if that change of control would benefit our other stockholders.

Certain provisions of South African law may limit our ability to issue securities and access the capital markets in the future, which could hinder our ability to raise capital in the future.

The authority of our Board of Directors to issue additional securities is limited by JSE listings requirements and certain provisions of the Companies Act and Memorandum of Incorporation, and as a result we may be unable to access the capital markets on a timely basis when it is opportune to do so. Under the JSE listings requirements, the issuance of equity securities, or securities convertible into equity securities, for cash by our Board of Directors requires shareholder approval, either by means of a specific authority for a specific transaction or by way of a general authority, for a limited time period. If a general authority is not in place, we may experience extended delays and uncertainty in seeking shareholder approval of financing transactions and as a result may be unable to execute financings with available investors, on advantageous terms or at all. Moreover, while a general authority could allow our Board of Directors to issue for cash additional ordinary shares representing up to 15% of the ordinary shares outstanding at the time of the general authorization, as a practical matter, shareholders in the South African market are often reluctant to grant general authorities up to the 15% threshold. A general authorization would not permit our Board of Directors to issue ordinary shares for cash with a greater than 10% discount to the 30-day volume-weighted average price, or “VWAP,” as of the issuance date, which, if we were to experience significant financial difficulties in the future, could prevent us from obtaining funds when needed. Shareholders owning greater than 25% of our outstanding ordinary shares have the

 

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ability to block an issuance of ordinary shares for cash or any approval of a general authorization to our Board of Directors. Our concentrated ownership structure exacerbates the delays and limitations on capital markets transactions described above and could materially and adversely affect our business, results of operations and financial condition. While we will be able to issue non-convertible debt securities without shareholder approval, we will not be able to grant any voting rights to debt holders, which would be likely to increase the cost of any such debt issuance to the Company.

Future sales of our ordinary shares in the public market could cause our share price to fall.

Sales by us or our shareholders of a substantial number of our ordinary shares or ADSs in the public market, either on the JSE or the NYSE, after this offering, or the perception that these sales might occur, could depress the market price of our ordinary shares and could impair our ability to raise capital through the sale of additional equity securities. Upon completion of this offering, we will have 770,212,500 ordinary shares outstanding, assuming no exercise of our outstanding options at August 8, 2013.

Following the completion of this offering, except for the 524,389,829 ordinary shares (which includes shares subject to certain options that are currently exercisable or may become exercisable within 60 days of August 8, 2013) that are the subject of lock-up agreements and shares held by our affiliates as contemplated by Rule 144 and the Securities Act of 1933, as amended, or the “Securities Act,” all of the ordinary shares in the form of ADSs sold in this offering will be freely tradable in the United States without restrictions or further registration under the Securities Act. Following the completion of this offering and assuming that the over-allotment option has been exercised in full, approximately 41.0% of our outstanding ordinary shares will be beneficially owned by affiliates. These entities could resell the shares into the public markets in the United States in the future in accordance with the requirements of Rule 144, which include certain limitations on volume. See “Shares Eligible for Future Sale.”

We and our executive officers, directors and certain shareholders, who collectively beneficially owned 78.6% of our outstanding ordinary shares prior to this offering, have agreed with the underwriters that, subject to limited exceptions, for a period of 180 days after the date of this prospectus, we and they will not directly or indirectly offer, pledge, sell, contract to sell, sell any option or contract to purchase or otherwise dispose of any ordinary shares or any securities convertible into or exercisable or exchangeable for ordinary shares, or in any manner transfer all or a portion of the economic consequences associated with the ownership of ordinary shares, or cause a registration statement covering any ordinary shares to be filed, without the prior written consent of Raymond James & Associates, Inc. and William Blair & Company, L.L.C., which may, in their sole discretion and at any time without notice, release all or any portion of the shares subject to these lock-up agreements. After these lock-up agreements have expired and holding periods have elapsed, additional shares will be eligible for sale in the public market.

You may not be able to sell your ADSs at the time or the price you desire because an active or liquid market may not develop.

Prior to this offering, there has not been a public market for the ADSs. The ADSs will trade, subject to notice of issuance, on the NYSE. A liquid market may not develop for the ADSs, which may reduce the price at which the ADSs may be sold. Also, the liquidity and the market for the ADSs may be affected by a number of factors, including variations in interest rates, the deterioration and volatility of the markets for similar securities and any changes in our liquidity, financial condition, creditworthiness, results of operations and profitability.

 

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The relative volatility and illiquidity of the South African securities markets may substantially limit your ability to sell the ordinary shares underlying the ADSs at the price and time you desire.

Our ordinary shares are listed for trading on the JSE. Investing in securities that trade in emerging markets, such as South Africa, often involves greater risk than investing in securities of issuers in the United States, and such investments are generally considered to be more speculative in nature. The South African securities market is substantially smaller, less liquid, more concentrated and can be more volatile than major securities markets in the United States. There is also significantly greater concentration in the South African securities markets than in major securities markets in the United States. At June 30, 2013, total market capitalization amounted to R8,028.9 billion ($867.8 billion) and the majority of this market capitalization was represented by only 10 companies. Accordingly, although you are entitled to withdraw the ordinary shares underlying the ADSs from the ADR depositary at any time, your ability to sell such shares at a price and time you desire may be substantially limited.

Investors in the United States may have difficulty bringing actions, and enforcing judgments, against us, our directors and our executive officers based on the civil liabilities provisions of the federal securities laws or other laws of the United States or any state thereof.

We are incorporated in South Africa. Most of our directors and senior management (and certain experts named herein) reside outside of the United States. Substantially all of the assets of these persons and substantially all of our assets are located outside the United States. As a result, it may not be possible for investors to enforce against these persons or us a judgment obtained in a United States court predicated upon the civil liability provisions of the federal securities or other laws of the Unites States or any state thereof. A foreign judgment is not directly enforceable in South Africa, but constitutes a cause of action which will be enforced by South African courts provided that:

 

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the court that pronounced the judgment had jurisdiction to entertain the case according to the principles recognized by South African law with reference to the jurisdiction of foreign courts;

 

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the judgment is final and conclusive (that is, it cannot be altered by the court which pronounced it);

 

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the judgment has not lapsed;

 

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the recognition and enforcement of the judgment by South African courts would not be contrary to public policy, including observance of the rules of natural justice which require that the documents initiating the United States proceeding were properly served on the defendant and that the defendant was given the right be heard and represented by counsel in a free and fair trial before an impartial tribunal;

 

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the judgment was not obtained by fraudulent means;

 

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the judgment does not involve the enforcement of a penal or revenue law; and

 

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the enforcement of the judgment is not otherwise precluded by the provisions of the South African Protection of Businesses Act 1978, as amended, or the “POB Act.”

 

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It is the policy of South African courts to award compensation for the loss or damage actually sustained by the person to whom the compensation is awarded. Although the award of punitive damages is generally unknown to the South African legal system, that does not mean that such awards are necessarily contrary to public policy. Whether a judgment was contrary to public policy depends on the facts of each case. Exorbitant, unconscionable, or excessive awards will generally be contrary to public policy. South African courts cannot enter into the merits of a foreign judgment and cannot act as a court of appeal or review over the foreign court. South African courts will usually implement their own procedural laws and, where an action based on an international contract is brought before a South African court, the capacity of the parties to the contract will usually be determined in accordance with South African law.

It is doubtful whether an original action based on United States federal securities laws may be brought before South African courts. A plaintiff who is not a resident in South Africa may be required to provide security for costs in the event of proceedings being initiated in South Africa. Furthermore, the Rules of the High Court of South Africa require that documents executed outside South Africa must be authenticated for the purpose of use in South Africa. See “Enforcement of Civil Liabilities.”

We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies may make our ADSs less attractive to investors and, as a result, adversely impact the price of our ADSs and result in a less active trading market for our ADSs.

We are an “emerging growth company,” as defined in the JOBS Act and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 for an extended period of time.

We may take advantage of these disclosure exemptions until we are no longer an “emerging growth company.” We cannot predict whether investors will find our ADSs less attractive because of our reliance on some or all of these exemptions. If investors find our ADSs less attractive, as a result, it may adversely impact the price of our ADSs and there may be a less active trading market for our ADSs.

We will cease to be an “emerging growth company” upon the earliest of:

 

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the last day of the fiscal year in which the fifth anniversary of this offering occurs;

 

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the last day of the fiscal year in which our annual gross revenues are $1 billion or more;

 

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the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt securities; or

 

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the last day of any fiscal year in which the market value of our ordinary shares held by non-affiliates exceeded $700 million as of the end of the second quarter of that fiscal year.

We are a “foreign private issuer” and have disclosure obligations that are different from those of U.S. domestic listed companies, and are permitted in some cases to follow corporate governance standards applicable to South African companies, which may limit the protections afforded to investors.

We are a “foreign private issuer” for purposes of SEC rules and within the meaning of the NYSE corporate governance standards. As a foreign private issuer, we are not subject to the same

 

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requirements that are imposed upon U.S. domestic issuers by the SEC. Under the Exchange Act, we will be subject to reporting obligations that are less frequent and in certain respects less detailed than those of U.S. domestic reporting companies. For example, we will not be required to issue quarterly reports, proxy statements that comply with the requirements applicable to U.S. domestic reporting companies or individual executive compensation information that is as detailed as that required of U.S. domestic reporting companies. We will also have four months after the end of each fiscal year to file our annual reports with the SEC and will not be required to file current reports on the same basis as U.S. domestic reporting companies. Furthermore, our officers, directors and principal shareholders will be exempt from the requirements to report short-swing profit recovery contained in Section 16 of the Exchange Act.

In addition, under the NYSE corporate governance standards, a foreign private issuer may elect to comply with the practices of its home country and not to comply with most corporate governance requirements applicable to U.S. companies with securities listed on the NYSE. We currently follow South African practices concerning corporate governance and intend to continue to do so. Accordingly, you will not have the same protections afforded to shareholders of domestic companies that are subject to all NYSE corporate governance requirements. For example, NYSE-listed companies that are not foreign private issuers are required to have a board of directors a majority of which satisfy NYSE listing standards for independence and to have fully independent audit, compensation and nominating committees of the board of directors. Although our Audit and Risk Committee members will be required to meet independence standards established by SEC rules, our independent directors will otherwise be subject to applicable South African standards for independence, which are different, and our Nominations and Remuneration Committee will not be required to be composed solely of independent directors.

We may lose our foreign private issuer status which would then require us to comply with the Exchange Act’s domestic reporting regime and cause us to incur significant legal, accounting and other expenses.

We are a foreign private issuer and therefore we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act applicable to U.S. domestic issuers. In order to maintain our current status as a foreign private issuer, either (a) a majority of our ordinary shares must be either directly or indirectly owned of record by non-residents of the United States or (b) (i) a majority of our executive officers or directors may not be United States citizens or residents, (ii) more than 50% of our assets cannot be located in the United States and (iii) our business must be administered principally outside the United States. If we lost this status, we would be required to comply with the Exchange Act reporting and other requirements applicable to U.S. domestic issuers, which are more detailed and extensive than the requirements for foreign private issuers. We may also be required to make changes in our corporate governance practices in accordance with various SEC and NYSE rules. The regulatory and compliance costs to us under U.S. securities laws if we are required to comply with the reporting requirements applicable to a U.S. domestic issuer may be significantly higher than the cost we would incur as a foreign private issuer. As a result, we expect that a loss of foreign private issuer status would increase our legal and financial compliance costs and would make some activities highly time consuming and costly. We also expect that if we were required to comply with the rules and regulations applicable to U.S. domestic issuers, it would make it more difficult and expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified members of our Board of Directors.

 

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We have not yet completed our evaluation of our internal control over financial reporting in compliance with Section 404 of SOX and if we fail, for any reason, to effectively or efficiently implement new internal control procedures for compliance with Section 404 of SOX, we will incur additional costs in addressing our non-compliance and our stock price could decline due to related market concerns.

We will be required to comply with the internal control evaluation and certification requirements of Section 404 of SOX by the end of our 2015 fiscal year. While we intend to achieve compliance within the time required, we may not be able to meet the Section 404 requirements in a timely manner. If it is determined that we are not in compliance with Section 404, we will be required to implement new internal control procedures and re-evaluate our financial reporting. We may experience higher than anticipated operating expenses as well as outside auditor fees during the implementation of these changes and thereafter. We will need to hire additional qualified personnel in order for us to be compliant with Section 404. If we fail, for any reason, to implement these changes effectively or efficiently, such failure could harm our operations, financial reporting or financial results and could result in our conclusion that our internal control over financial reporting is not effective.

Holders of the ADSs may not receive dividend payments, which could cause you to lose some or all of the value of any dividend distribution.

Under the terms of our deposit agreement with the depositary for the ADSs, the ADR depositary will convert any cash dividend or other cash distribution we pay on the ordinary shares underlying the ADSs into U.S. dollars, if it can do so on a reasonable basis and can transfer the U.S. dollars to the United States. If this conversion is not possible or if any government approval becomes necessary and cannot be obtained, the deposit agreement allows the ADR depositary to distribute the foreign currency only to those ADS holders to whom it is permissible to do so. If the exchange rate fluctuates significantly during a time when the ADR depositary cannot convert the foreign currency or distribute a payment to you, you may lose some or all of the value of any dividend distribution.

ADS holders may be subject to additional risks related to holding ADSs rather than ordinary shares.

ADS holders do not hold ordinary shares directly and thus are subject to, among others, the following additional risks:

 

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as an ADS holder, we will not treat you as one of our shareholders and you will not be able to exercise shareholder rights, except through the ADR depositary as permitted by the deposit agreement;

 

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distributions on the ordinary shares represented by your ADSs will be paid to the ADR depositary, and before the ADR depositary makes a distribution to you on behalf of your ADSs, any withholding taxes that must be paid will be deducted. Additionally, if the exchange rate fluctuates during a time when the ADR depositary cannot convert the foreign currency, you may lose some or all of the value of the distribution; and

 

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we and the ADR depositary may amend or terminate the deposit agreement without the ADS holders’ consent in a manner that could prejudice ADS holders.

 

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You must act through the ADR depositary to exercise your voting rights, as a result of which you may be unable to exercise your voting rights on a timely basis.

As a holder of ADSs (and not the ordinary shares underlying your ADSs), we will not treat you as one of our shareholders and you will not be able to exercise shareholder rights. The ADR depositary will be the holder of the ordinary shares underlying your ADSs and ADS holders will be able to exercise voting rights with respect to the ordinary shares represented by the ADSs only in accordance with the deposit agreement relating to the ADSs. There are practical limitations on the ability of ADS holders to exercise their voting rights due to the additional procedural steps involved in communicating with these holders. For example, holders of our ordinary shares will receive notice of shareholders’ meetings by mail and through publication of a notice in a South African newspaper of general circulation and the securities exchange news service of the JSE, and will be able to exercise their voting rights by either attending the meeting in person or voting by proxy. ADS holders, by comparison, will not receive notice directly from us. Instead, in accordance with the deposit agreement, we will provide notice to the ADR depositary as soon as practicable of any applicable meeting date. If we ask it to do so, the ADR depositary will mail to holders of ADSs the notice of the meeting and a statement as to the manner in which voting instructions may be given by holders as soon as practicable after receiving notice from us of any such meeting. Subject to satisfaction of the foregoing standard, there is no specified number of days within which the depositary must mail ADS holders the notice of meeting and voting instructions. To exercise their voting rights, ADS holders must then instruct the ADR depositary as to voting the ordinary shares represented by their ADSs. Due to these procedural steps involving the ADR depositary, the process for exercising voting rights may take longer for ADS holders than for holders of ordinary shares. The ordinary shares represented by ADSs for which the ADR depositary fails to receive timely voting instructions may not be voted at all.

Our Memorandum of Incorporation provides that shareholder votes shall be taken by show of hands unless a poll (i.e., written ballot) is demanded by the chairman of the meeting, by at least five shareholders present in person or by proxy at the meeting who are entitled to vote on a particular matter, or by one or more shareholders present in person or by proxy representing at least 10% of the total voting rights of all shareholders having the right to vote at the meeting on a particular matter. When voting is conducted by show of hands, only the shareholders present in person at the meeting are entitled to vote and each of these shareholders may only cast one vote regardless of the total number of ordinary shares beneficially owned by him or her. When voting is conducted by poll, each shareholder present in person or by proxy is entitled to one vote for each ordinary share held by that shareholder. There is no mechanism in our agreement with the ADR depositary that would permit the ordinary shares represented by the ADRs to be voted in a show of hands vote. We have approved, and recommended to our shareholders for approval, an amendment to our Memorandum of Incorporation to eliminate voting by show of hands. If the amendment is not approved, and, until the amendment (if approved) is registered with the South Africa Companies and Intellectual Property Commission, the ordinary shares represented by the ADRs will not be voted in any shareholder vote for which a poll vote is not properly demanded.

Judgments of South African courts with respect to the ADSs will be payable only in South African rand, which could expose any prevailing party to exchange rate risk until the judgment is collected.

If proceedings are brought in a South African court seeking to enforce the rights of holders of the ADSs, any judgment made in favor of such holders, even if the judgment is on an obligation deemed to be denominated in U.S. dollars, could only be made or awarded in South African rand based on the exchange rate in effect at the time the judgment is entered. The prevailing party in such proceeding would therefore bear exchange rate risk until the judgment could be collected and converted into another currency.

 

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By purchasing ADSs, holders will irrevocably submit to the jurisdiction of state or federal courts in New York, New York in connection with any legal suit, action or proceeding relating to the deposit agreement or the ADSs.

By purchasing ADSs or an interest therein, holders of ADSs irrevocably agree that any legal suit, action or proceeding against or involving us or the ADR depositary, arising out of or based upon the deposit agreement or the ADSs, may only be instituted in a state or federal court in New York, New York, and by purchasing ADSs or an interest therein holders irrevocably waive any objection to the laying of venue of any such proceeding. We have agreed to indemnify the ADR depositary and its agents under certain circumstances. Neither the ADR depositary nor any of its agents will be liable to holders or beneficial owners of ADSs or interests in ADSs for any indirect, special, punitive or consequential damages (including, without limitation, lost profits) of any form incurred by any person or entity, whether or not foreseeable and regardless of the type of action in which such a claim may be brought.

There is a risk that we will be classified as a passive foreign investment company, or “PFIC,” which could result in adverse U.S. federal income tax consequences to U.S. Holders of ordinary shares or the ADSs.

We will be treated as a PFIC for U.S. federal income tax purposes in any taxable year in which either (i) at least 75% of our gross income is “passive income” or (ii) on average, at least 50% of our assets by value produce passive income or are held for the production of passive income. Passive income for this purpose generally includes, among other things, certain dividends, interest, royalties, rents and gains from commodities and securities transactions and from the sale or exchange of property that gives rise to passive income. Passive income also includes amounts derived by reason of the temporary investment of funds, including those raised in a public offering. In determining whether a non-U.S. corporation is a PFIC, a proportionate share of the income and assets of each corporation in which it owns, directly or indirectly, at least a 25% interest (by value) is taken into account. Based on the expected composition of our assets and income, including our subsidiaries, it is not anticipated that we will be treated as a PFIC for the taxable year that includes the offering. Our actual PFIC status for any taxable year, however, will not be determinable until the conclusion of our taxable year, and accordingly there can be no assurance as to our status as a PFIC for the current taxable year or any future taxable year.

If we are a PFIC for the taxable year that includes the offering, or any subsequent year, and a U.S. Holder (as defined in “Taxation—U.S. Federal Income Tax Considerations”) does not make an election to treat us as a “qualified electing fund,” or “QEF,” or make a “mark-to-market” election, then “excess distributions” to a U.S. Holder and any gain realized on the sale or other disposition of our ordinary shares or ADSs will be subject to special rules resulting in increased U.S. federal income tax liability and additional reporting requirements. In addition, if the U.S. Internal Revenue Service determines that we are a PFIC for a year with respect to which we have determined that we were not a PFIC, it may be too late for a U.S. Holder to make a timely QEF or mark-to-market election. U.S. Holders who hold our ordinary shares or ADSs during a period when we are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC in subsequent years, subject to exceptions for U.S. Holders who made a timely QEF or mark-to-market election. Currently, we do not intend to furnish U.S. Holders with information needed in order to make and maintain a valid QEF election for any year in which we are a PFIC. Prospective investors are urged to consult their own tax advisors regarding the possible application of the PFIC rules.

 

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FORWARD-LOOKING STATEMENTS

This prospectus includes “forward-looking statements.” Forward-looking statements are not based on historical information and include, without limitation, statements regarding our future financial condition and results of operations, business strategy and plans and objectives of management for future operations. Forward-looking statements reflect our current views with respect to future events. The words “may,” “will,” “expect,” “intend,” “anticipate,” “believe,” “project,” “estimate” and similar expressions identify forward-looking statements. These forward-looking statements are based upon estimates and assumptions made by us or our officials that, although believed to be reasonable, are subject to certain known and unknown risks and uncertainties that could cause actual results to differ materially and adversely as compared to those contemplated or implied by such forward-looking statements. These risks and uncertainties include, without limitation, the following:

 

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our ability to attract, sell to and retain customers;

 

  Ÿ  

our anticipated growth strategies, including our ability to increase sales to existing customers, the introduction of new solutions and international expansion;

 

  Ÿ  

our ability to adapt to rapid technological change in our industry;

 

  Ÿ  

competition from industry consolidation;

 

  Ÿ  

loss of key personnel or our failure to attract, train and retain other highly qualified personnel;

 

  Ÿ  

our ability to integrate any businesses we acquire;

 

  Ÿ  

our dependence on our network of dealers and distributors to sell our solutions;

 

  Ÿ  

our dependence on key suppliers and vendors to manufacture our hardware;

 

  Ÿ  

businesses may not continue to adopt fleet management solutions;

 

  Ÿ  

our future business development, results of operations and financial condition;

 

  Ÿ  

expected changes in our profitability and certain cost or expense items as a percentage of our revenue;

 

  Ÿ  

changes in the practices of insurance companies;

 

  Ÿ  

the impact of laws and regulations relating to the Internet and data privacy;

 

  Ÿ  

our ability to protect our intellectual property and proprietary technologies and address any infringement claims;

 

  Ÿ  

significant disruption in service on, or security breaches of, our websites or computer systems;

 

  Ÿ  

our dependence on third-party technology;

 

  Ÿ  

fluctuations in the value of the South African rand;

 

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  Ÿ  

economic, social, political and other conditions and developments in South Africa and globally;

 

  Ÿ  

our ability to issue securities and access the capital markets in the future; and

 

  Ÿ  

the use of proceeds from this offering.

All forward-looking statements involve risks, assumptions and uncertainties. You should not rely upon forward-looking statements as predictors of future events. The occurrence of the events described, and the achievement of the expected results, depend on many events, some or all of which are not predictable or within our control. Actual results may differ materially from expected results. See the sections “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this prospectus for a more complete discussion of these risks, assumptions and uncertainties and for other risks and uncertainties. These risks, assumptions and uncertainties are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could harm our results. All of the forward-looking statements we have included in this prospectus are based on information available to us on the date of this prospectus. We undertake no obligation, and specifically decline any obligation, to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this prospectus might not occur.

 

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USE OF PROCEEDS

We will receive total estimated net proceeds from this offering of approximately $62.9 million, based on the initial offering price of $16.00 per ADS, after deducting underwriting discounts and commissions and expenses of this offering that are payable by us.

The principal reasons for this offering are to increase our capitalization and financial flexibility, increase our visibility in the marketplace and create a public market for our ADSs. We intend to use the net proceeds from this offering to pursue future acquisitions and other strategic investments and for general corporate purposes. We have not yet identified any specific acquisitions or investments, and our management will have broad discretion over how to use the proceeds from this offering. Pending application of the net proceeds from this offering, we intend to invest the net proceeds of the offering in deposit accounts, money market funds, government-sponsored enterprise obligations and corporate obligations.

We will not receive any of the net proceeds from the sale of ordinary shares in the form of ADSs being offered by the selling shareholders.

 

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DIVIDEND POLICY

We do not intend to pay regular dividends following the completion of this offering. We intend to discontinue our policy of declaring regular dividends in order to increase the funds available to pursue opportunities for more rapid growth.

Our Board of Directors has historically declared, at its discretion, dividends to holders of our ordinary shares from time to time. Our current dividend policy guidelines limit annual dividends to no more than 50% of headline earnings and no more than 33.33% of cash generated from operating activities. Headline earnings is a profit measure required for JSE-listed companies as defined by the South African Institute of Chartered Accountants. The profit measure is determined by taking the profit for the year prior to separately identifiable re-measurements of the carrying amount of an asset or liability that arose after the initial recognition of such asset or liability net of related tax (both current and deferred) and related non-controlling interest.

In addition, under South African law, in order for our Board of Directors to declare a dividend, it must apply solvency and liquidity tests and our Board of Directors must conclude, and it must reasonably appear, that such tests will be satisfied immediately following the distribution.

Dividends are subject to a dividend withholding tax at a rate of 15% to those shareholders who are not exempt under Section 64F of the South African Income Tax Act or any applicable double taxation agreement.

Prior to fiscal year 2013, our dividend policy was to make one annual dividend payment. The following table summarizes dividends that we have paid or declared since 2008:

 

Month paid

   Amount per
ordinary share
     Total 
dividend
 
     (In thousands, except per share data)  

July 2013

     R 0.06         R 39,613   

December 2012

     0.04         26,378   

July 2012

     0.08         52,576   

August 2011

     0.06         39,420   

August 2010

     0.05         32,850   

August 2009

     0.04         26,280   

August 2008

     0.02         9,600   

 

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PRICE RANGE OF OUR ORDINARY SHARES

Prior to this offering, there has been no public market for the ADSs. We cannot assure you that an active trading market will develop for the ADSs, or that the ADSs will trade in the public market subsequent to this offering at or above the initial public offering price. Each ADS will represent 25 ordinary shares. We have been authorized to list the ADSs for trading on the NYSE under the symbol “MIXT.”

Trading History of our Ordinary Shares

Our ordinary shares are traded on the JSE under the symbol “MIX.” The table below shows the high and low closing prices in South African rand and the U.S. dollar equivalent per ADS for our ordinary shares on the JSE for the periods indicated:

 

     JSE      $ equivalent per ADS (1)      Average daily
trading volume (2)
 
           High                  Low                  High                  Low           
     (in South African rand)      (in U.S. dollars)      (in shares)  

Fiscal year ended March 31,

              

2013

     4.00         1.65         10.81         4.46         135,384   

2012

     1.75         1.20         4.72         3.24         171,993   

2011

     1.53         1.03         4.13         2.78         133,691   

2010

     1.25         0.42         3.38         1.13         1,028,215   

2009

     1.45         0.33         3.92         0.89         642,074   

Fiscal quarter ended

              

September 30, 2013 (through
August 8)

     6.00         3.20         16.21         8.65         431,847   

June 30, 2013

     3.80         3.10         10.27         8.38         66,710   

March 31, 2013

     4.00         2.90         10.81         7.84         119,127   

December 31, 2012

     3.10         2.20         8.38         5.94         136,940   

September 30, 2012

     2.70         2.20         7.30         5.94         212,119   

June 30, 2012

     2.83         1.65         7.65         4.46         70,783   

March 31, 2012

     1.75         1.25         4.73         3.38         215,046   

December 31, 2011

     1.63         1.41         4.40         3.81         62,090   

September 30, 2011

     1.55         1.25         4.19         3.38         220,617   

Month

              

August 2013 (through August 8)

     6.00         5.00         16.21         13.51         1,129,885   

July 2013

     4.80         3.20         12.97         8.65         249,750   

June 2013

     3.80         3.10         10.27         8.38         78,786   

May 2013

     3.80         3.20         10.27         8.65         56,295   

April 2013

     3.70         3.40         10.00         9.19         66,694   

March 2013

     4.00         3.40         10.81         9.19         121,080   

February 2013

     3.50         3.16         9.46         8.54         44,081   

 

Source: Johannesburg Stock Exchange
(1) We have translated U.S. dollar amounts from South African rand at the exchange rate of R9.2521 per $1.00, which was the R/$ exchange rate reported by the South African Reserve Bank for March 31, 2013.
(2) Calculated based on the total volume traded over the number of trading days during the respective period.

On August 8, 2013, the closing price of our ordinary shares on the JSE was R6.00 per ordinary share.

 

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EXCHANGE RATES

The following table shows the exchange rate (published by the South African Reserve Bank) of South African rand for U.S. dollars (per $1.00) for the periods and dates indicated. Since exchange rates are determined by the market, there can be no assurance that the exchange rate will be maintained at current levels. The average rate is calculated by using the average of the exchange rates on each day during a monthly period and on the last day of each month during an annual or six-month period.

 

     High      Low      Average      Period-end  
     (in South African rand)  

Year ended March 31,

  

2013

     9.3247         7.6268         8.5319         9.2521   

2012

     8.5423         6.5962         7.4521         7.6820   

2011

     7.9704         6.6224         7.1938         6.7820   

2010

     9.5260         7.2439         7.8099         7.3273   

2009

     11.474         7.2210         8.8684         9.6266   

Six months ended

           

September 30, 2012

     8.5909         7.6268         8.2066         8.2222   

September 30, 2011

     8.2825         6.5962         6.9762         8.0268   

Month

           

August 2013 (through August 8)

     10.0203         9.8098         9.8972         9.8878   

July 2013

     10.2698         9.6933         9.8972         9.8551   

June 2013

     10.2832         9.7660         10.0326         9.9655   

May 2013

     10.1985         8.9527         9.3675         10.1985   

April 2013

     9.3004         8.8762         9.1117         8.9686   

March 2013

     9.3247         9.0296         9.1745         9.2521   

February 2013

     8.9690         8.8109         8.8852         8.8410   

On August 8, 2013, the exchange rate of South African rand for U.S. dollars, as reported by the South African Reserve Bank, was R9.8878 per $1.00.

Exchange rate fluctuations will affect the market price of the ADSs and the U.S. dollar value of any dividends or distributions we make with respect to the ordinary shares underlying the ADSs. See “Risk Factors—Risks Relating to the Offering—Exchange rate volatility may adversely affect the market price of the ADSs and the dividends payable to ADS holders.”

 

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CAPITALIZATION

The following table presents our consolidated capitalization at March 31, 2013:

 

  Ÿ  

on a historical basis; and

 

  Ÿ  

as adjusted to give effect to the sale of ADSs by us in this offering and the receipt of approximately $62.9 million in net proceeds, based on the offering price of $16.00 per ADS, after deduction of the underwriting discounts and commissions and estimated offering expenses payable by us in connection with this offering.

You should read this table together with our audited consolidated financial statements, which we include elsewhere in this prospectus, and with the information under “Selected Financial and Operating Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

There have been no significant adjustments to our capitalization since March 31, 2013.

 

     At March 31, 2013  
     Actual (*)     Actual     As Adjusted (*)     As Adjusted  
     (In thousands)  

Cash and cash equivalents

   $ 15,964      R 147,702      $ 78,909      R 730,073   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total indebtedness (1)

     6,428        59,477        6,428        59,477   

Stated capital

     85,439        790,491        148,384        1,372,862   

Other reserves

     (12,036     (111,362     (12,036     (111,362

Retained earnings

     20,401        188,750        20,401        188,750   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total shareholders’ equity (2)

     93,803        867,879        156,748        1,450,250   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total capitalization

   $ 100,232      R 927,356      $ 163,177      R   1,509,727   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(*) We have translated U.S. dollar amounts from South African rand at the exchange rate of R9.2521 per $1.00, which was the R/$ exchange rate reported by the South African Reserve Bank for March 31, 2013.
(1) Total indebtedness includes amounts outstanding at March 31, 2013 for bank overdraft and borrowings. All of our indebtedness is secured and none of our debt is guaranteed.
(2) Excludes non-controlling interest.

 

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DILUTION

At March 31, 2013, we had net tangible book value of R222.1 million, corresponding to a net tangible book value of R0.337 per ordinary share or $0.91 per ADS (using the rate as reported by the South African Reserve Bank at March 31, 2013 of South African rand for U.S. dollars of R9.2521 per $1.00 and the ratio of 25 ordinary shares to one ADS). Net tangible book value per share or per ADS represents the amount of our total tangible assets less our total liabilities, divided by 659,962,500, the total number of ordinary shares outstanding at March 31, 2013, or 26,398,500, the total number of ADSs that would represent such total number of shares based on a share-to-ADS ratio of 25-to-one.

After giving effect to the sale of the ADSs representing ordinary shares offered by us in this offering and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, our net tangible book value estimated at March 31, 2013 would have been approximately R804.5 million, representing R1.045 per ordinary share or $2.82 per ADS. At the initial public offering price for this offering of $16.00 per ADS, this represents an immediate increase in net tangible book value of R0.708 per ordinary share or $1.91 per ADS to existing shareholders and an immediate dilution in net tangible book value of R4.877 per ordinary share or $13.18 per ADS to purchasers of ADSs in this offering. Dilution for this purpose represents the difference between the price per ADS paid by these purchasers and net tangible book value per ADS immediately after the completion of this offering.

The following table illustrates this dilution of $13.18 per ADS to purchasers of ADSs in this offering:

 

Initial public offering price per ADS

   $ 16.00   

Net tangible book value per ADS at March 31, 2013

     0.91   

Increase in net tangible book value per ADS attributable to new investors

     1.91   

Pro forma net tangible book value per ADS after this offering

     2.82   

Dilution per ADS to new investors

     13.18   

Percentage of dilution in net tangible book value per ADS for new investors (1)

     82.4

 

(1) Percentage of dilution for new investors is calculated by dividing the dilution in net tangible book value for new investors by the price of the offering.

 

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SELECTED FINANCIAL AND OPERATING DATA

The following tables set forth selected financial and operating data at and for the fiscal years ended March 31, 2013, 2012 and 2011. The selected financial data set forth below at and for the fiscal years ended March 31, 2013 and 2012 have been derived from our audited consolidated financial statements for fiscal years 2013 and 2012 and the accompanying notes included in this prospectus and should be read together with such financial statements. The selected financial data at and for the fiscal year ended March 31, 2011 has been derived from consolidated financial statements which are not included in this prospectus. The results of operations for the periods presented below are not necessarily indicative of the results to be expected for any future period.

Our fiscal 2012 audited consolidated statements of financial position and statement of cash flows have been restated to correct the classification of in-vehicle devices (installed and uninstalled) and record such devices as property, plant, and equipment. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Restatement of 2012 Financial Statements” and Note 42 to our audited consolidated financial statements for the years ended March 31, 2013 and March 31, 2012.

Our consolidated financial statements included in this prospectus and certain data derived therefrom are presented in South African rand.

We prepare our consolidated financial statements in accordance with IFRS as issued by the IASB, which differ in certain significant respects from GAAP.

Consolidated Income Statement Data

 

     For the Year Ended March 31,  
     2013 (*)     2013     2012     2011
(Unaudited)
 
     (In thousands)  

Revenue

   $  126,618      R  1,171,480      R  1,018,482      R 886,604   

Cost of sales

     (45,886     (424,545     (390,926     (340,168
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     80,731        746,935        627,556        546,436   

Sales and marketing

     (14,359     (132,849     (97,312     (82,805

Administration and other charges (1)

     (46,788     (432,890     (383,856     (346,451
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit

     19,584        181,196        146,388        117,180   

Finance income/(costs)—net

     (144     (1,330     (2,873     (11,432
  

 

 

   

 

 

   

 

 

   

 

 

 

Profit before taxation

     19,441        179,866        143,515        105,748   

Taxation

     (5,555     (51,400     (40,275     (34,247
  

 

 

   

 

 

   

 

 

   

 

 

 

Profit for the year

   $ 13,885      R 128,466      R 103,240      R 71,501   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(*) We have translated U.S. dollar amounts from South African rand at the exchange rate of R9.2521 per $1.00, which was the R/$ exchange rate reported by the South African Reserve Bank for March 31, 2013.
(1) Includes other income/(expenses)—net.

 

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Other Financial and Operating Data

 

     For the Year Ended March 31,  
     2013 (*)      2013      2012      2011
(Unaudited)
 
     (In thousands, except vehicle data)  

Subscription revenue

   $ 74,223         R 686,720         R 577,330         R 503,429   

Adjusted EBITDA (1)

   $ 31,433         R 290,821         R 240,622         R 201,833   

Vehicles under subscription

     359,643         359,643         272,935         240,279   

 

(*) We have translated U.S. dollar amounts from South African rand at the exchange rate of R9.2521 per $1.00, which was the R/$ exchange rate reported by the South African Reserve Bank for March 31, 2013.
(1) See “—Adjusted EBITDA” below for our definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to profit for the year, the most directly comparable financial measure presented in accordance with IFRS.

Consolidated Statement of Financial Position Data

 

     At March 31,  
     2013 (*)      2013      2012      2011
(Unaudited)
 
     (In thousands)  

Cash and cash equivalents

   $ 15,964       R 147,702       R 118,695       R 110,007   

Total assets

     124,597         1,152,788         1,068,416         994,208   

Working capital

     12,349         114,252         56,347         8,914   

Total indebtedness (1)

     6,428         59,477         73,106         103,546   

Total shareholders’ equity (2)

     93,803         867,879         772,090         682,935   

 

(*) We have translated U.S. dollar amounts from South African rand at the exchange rate of R9.2521 per $1.00, which was the R/$ exchange rate reported by the South African Reserve Bank for March 31, 2013.
(1) Total indebtedness includes amounts outstanding at March 31, 2013 for bank overdraft and borrowings. All of our indebtedness is secured and none of our debt is guaranteed.
(2) Excludes non-controlling interest.

Adjusted EBITDA

To provide investors with additional information regarding our financial results, we have disclosed within this prospectus Adjusted EBITDA, which is a non-IFRS, non-GAAP, financial measure. We define Adjusted EBITDA as the profit for the year before income taxes, net interest income/(expense), depreciation of property, plant and equipment including capitalized customer in-vehicle-devices, amortization of intangible assets including capitalized in-house development costs, share-based compensation costs, transaction costs arising from the acquisition of a business, restructuring costs, profits/(losses) on the disposal or impairments of assets, and unrealized foreign exchange profits/(losses). We present below a reconciliation of Adjusted EBITDA to profit for the year, the most directly comparable financial measure presented in accordance with IFRS.

We have included Adjusted EBITDA in this prospectus because it is a key measure that our management and Board of Directors intends to use instead of EBITDA to understand and evaluate our core operating performance and trends; to prepare and approve our annual budget; and to develop short- and long-term operational plans. In particular, the exclusion of certain expenses in calculating Adjusted EBITDA can provide a useful measure for period-to-period comparisons of our core business. Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results.

 

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Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider this performance measure in isolation from or as a substitute for analysis of our results as reported under IFRS. Some of these limitations are:

 

  Ÿ  

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;

 

  Ÿ  

Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

 

  Ÿ  

Adjusted EBITDA does not consider the potentially dilutive impact of equity-based compensation;

 

  Ÿ  

Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us;

 

  Ÿ  

Adjusted EBITDA does not reflect the interest expense or the cash requirements necessary to service interest payments on our debt or any losses on the extinguishment of our debt;

 

  Ÿ  

Adjusted EBITDA does not include unrealized foreign currency transaction gains and losses; and

 

  Ÿ  

other companies, including companies in our industry, may calculate Adjusted EBITDA differently, which reduces its usefulness as a comparative measure.

Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including operating profit, profit for the year and our other results.

Reconciliation of Adjusted EBITDA to Profit for the Year

 

     For the Year Ended March 31,  
     2013 (*)      2013      2012      2011
(Unaudited)
 
     ($ and R in thousands)  

Adjusted EBITDA

   $  31,433       R  290,821       R  240,622       R  201,833   

Add:

           

Finance income

     218         2,018         2,392         2,193   

Less:

           

Depreciation and amortization (1)

     10,612         98,186         89,832         79,831   

Taxation

     5,555         51,400         40,275         34,247   

Impairment (2)

     557         5,158         1,332         3,132   

Finance costs

     362         3,348         5,265         13,625   

Share-based payment costs

     341         3,151         2,001         1,048   

Foreign exchange—unrealized

     326         3,012         639         581   

Non-recurring items (3)

     13         118         430         61   
  

 

 

    

 

 

    

 

 

    

 

 

 

Profit for the year

   $  13,885       R  128,466       R  103,240       R 71,501   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(*) We have translated U.S. dollar amounts from South African rand at the exchange rate of R9.2521 per $1.00, which was the R/$ exchange rate reported by the South African Reserve Bank for March 31, 2013.
(1) Includes depreciation of property, plant and equipment (including in-vehicle devices) and amortization of intangible assets.
(2) Includes impairment of intangibles and impairment of available-for-sale financial assets.
(3) Includes loss on disposal of subsidiary, loss on sale of intangibles, transaction costs arising from acquisition of a business, restructuring costs and (profit)/loss on sale of property, plant and equipment.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements at and for the fiscal years ended March 31, 2013 and 2012 and the accompanying notes included in this prospectus, and the financial information set forth under “Selected Financial and Operating Data” at and for the fiscal years ended March 31, 2013, 2012 and 2011 included in this prospectus.

We prepare our consolidated financial statements in accordance with IFRS as issued by the IASB. The preparation of our financial statements requires us to make certain assumptions and estimates that affect the amounts we record as assets, liabilities, revenues and expenses in the years and periods addressed and these are subject to certain risks and uncertainties. Our future results may vary substantially from those indicated as a result of the risks that affect our business, including, among others, those identified in “Forward-Looking Statements” and “Risk Factors.”

Overview

We are a leading global provider of fleet and mobile asset management solutions delivered as software-as-a-service, or SaaS. Our solutions deliver a measurable return by enabling our customers to manage, optimize and protect their investments in commercial fleets or personal vehicles. We generate actionable intelligence that allows a wide range of customers, from large enterprise fleets to small fleet operators and consumers, to reduce fuel and other operating costs, improve efficiency, enhance regulatory compliance, promote driver safety, manage risk and mitigate theft. Our solutions rely on our proprietary, highly scalable technology platform, which allows us to collect, analyze and deliver data collected from our customers’ vehicles. Using an intuitive, web-based interface, our fleet customers can access large volumes of historical and real-time data, monitor the location and status of their drivers and vehicles and view a wide selection of reports and key performance indicator dashboards. We have a global presence, with customers located in 112 countries across six continents for whom we collectively tracked and managed over 359,000 vehicles under subscription at March 31, 2013.

We were founded in 1996 in Johannesburg, South Africa as Matrix Vehicle Tracking Proprietary Limited, and since that time, we have grown both organically and through acquisitions. In 2007, we acquired Control Instruments OmniBridge Proprietary Limited and certain affiliated entities (which we refer to collectively as “OmniBridge”), which provided fleet management services in both the South African and international markets. In November 2007, we listed our shares on the JSE in order to facilitate the OmniBridge stock acquisition. In 2008, we acquired Tripmaster Corporation, located in the United States and Safe Drive, which included both Safe Drive International Proprietary Limited, located in Australia, and Safe Drive FZE, located in the United Arab Emirates. These acquisitions extended our geographic reach, broadened our customer relationships and expanded our driver safety and training solution offerings. In May 2012, we acquired Intellichain (located in South Africa), as part of our strategy to broaden our transportation management software functionality.

We derive the majority of our revenues from subscriptions to our fleet and mobile asset management solutions. Our subscriptions generally include access to our SaaS solutions, connectivity, and in many cases, use of an in-vehicle device. We also generate revenues from the sale of in-vehicle devices, which enable customers to use our subscription-based solutions. We generate sales through the efforts of our direct sales teams, staffed in our regional sales offices, and

 

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through our global network of distributors and dealers. Our direct sales teams focus on marketing our fleet solutions to multinational enterprise accounts and to other large customer accounts located in regions of the world where we maintain a direct sales presence. Our direct sales teams have industry expertise across multiple industries, including oil and gas, transportation and logistics, government and municipal, bus and coach, and rental and leasing. In some markets, we rely on a network of distributors and dealers to sell our solutions on our behalf. Our distributors and dealers also install our in-vehicle devices and provide training, technical support and ongoing maintenance for the customers they support.

We have achieved significant revenue growth historically. For fiscal year 2013, we generated subscription revenue, total revenue, Adjusted EBITDA and profit for the year of R686.7 million, R1,171.5 million, R290.8 million, and R128.5 million, respectively, representing year-over-year growth of 18.9%, 15.0%, 20.9%, and 24.4% respectively. For fiscal year 2012, we generated subscription revenue, total revenue, Adjusted EBITDA, and profit for the year of R577.3 million, R1,018.5 million, R240.6 million and R103.2 million, respectively, representing year-over-year growth of 14.7%, 14.9%, 19.2% and 44.4%, respectively. For fiscal year 2011, we generated subscription revenue, total revenue, Adjusted EBITDA, and profit for the year of R503.4 million, R886.6 million, R201.8 million, and R71.5 million, respectively. Our growth is attributable to a combination of sales to new customers and additional sales to existing customers due to increased penetration of their fleets. In fiscal years 2013, 2012 and 2011, our top 10 customers represented 24.5%, 23.6% and 22.6%, respectively, of our subscription revenue.

We believe the large and growing market for fleet and mobile asset management solutions will provide us with significant growth opportunities going forward. We seek to capitalize on these growth opportunities and manage the factors affecting our performance, including subscription revenue accounting for a greater component of revenue, a gradual decline of in-vehicle hardware prices, an evolving mix of subscribers with different revenue and cost economics, varying conditions in our markets and long sales cycles for our enterprise fleet management solutions. See “—Factors Affecting Our Performance,” for more information on these factors.

We intend to grow our revenue by adding new customers, selling more subscriptions to existing customers, and expanding our customer base to include industry sectors, customer segments and geographic regions beyond those that we currently serve. As part of our growth strategy, we intend to pursue strategic acquisitions to enhance our fleet management leadership in certain geographic regions or industry segments.

Restatement of 2012 Financial Statements

Following a May 2013 review of our financial accounting policies and the financial accounting policies of comparable U.S. public companies, we made the determination to correct certain aspects of our accounting relating to in-vehicle devices. As a result, we have restated our consolidated statements of financial position and statement of cash flows at and for the fiscal year ended March 31, 2012 to change the classification of in-vehicle devices (installed and uninstalled) to property, plant and equipment. We previously accounted for these assets as current assets in our consolidated statements of financial position. The restatement has had no impact on our net cash flow or income statement for any period. See Note 42 to our audited consolidated financial statements for the fiscal years ended March 31, 2013 and 2012.

 

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Key Financial and Operating Metrics

In addition to financial metrics based on our consolidated financial statements, we monitor our business operations using various financially and non-financially derived metrics. The following table presents these metrics.

 

     Fiscal Year Ended March 31,  
     2013      2013      2012      2011
(Unaudited)
 
     (In thousands)  

Subscription revenue

   $ 74,223       R  686,720       R  577,330       R  503,429   

Adjusted EBITDA

   $ 31,433       R  290,821       R  240,622       R  201,833   

Vehicles under subscription

     359,643         359,643         272,935         240,279   

Subscription Revenue

Subscription revenue represents subscription fees for our solutions, which include the use of our SaaS fleet management solutions, connectivity, and in many cases our in-vehicle devices. Our subscription revenue is driven primarily by the number of vehicles under subscription and the monthly price charged per vehicle, which varies depending on the services and features customers require, hardware options, customer size and geographic location.

Adjusted EBITDA

We define Adjusted EBITDA as the profit for the year before income taxes, net interest income/(expense), depreciation of property, plant and equipment including depreciation of in-vehicle-devices, amortization of intangible assets including capitalized in-house development costs, share-based compensation costs, transaction costs arising from the acquisition of a business, restructuring costs, profits/(losses) on the disposal or impairments of assets and unrealized foreign exchange profits/(losses). See “—Selected Financial and Operating Data—Adjusted EBITDA” for our definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to profit for the year.

Vehicles under Subscription

Vehicles under subscription represent the total number of vehicles using our solutions at the end of the period.

Factors Affecting Our Performance

Subscription Revenue Accounting for a Greater Component of Revenue

We are focused on growing our recurring subscription revenue base, and subscription revenue is increasing as a percentage of revenue. In fiscal 2013, subscription-based revenues accounted for 58.6% of our total revenues, up from 56.7% in 2012. We expect to see this trend continue as we grow our base of vehicles under subscription. In addition to relying on our general sales and marketing efforts, we seek to attract new subscribers by reducing the upfront investment required by our customers and by introducing attractive new features and services.

Gradual Decline of In-Vehicle Hardware Prices

Our in-vehicle hardware enables us to capture and report on key attributes related to our vehicles under subscription. Hardware components are becoming more commoditized. Lower hardware costs and prices allow us to reduce the upfront investment required by us and by our customers, helping to drive increases in our subscriber base. We are continually investing in

 

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research and development to reduce the cost of our hardware, negotiating competitive prices with suppliers of our hardware components and working toward standardizing the components used in our hardware in order to increase volume and realize economies of scale.

Mix of Subscribers with Different Revenue and Cost Economics

We offer services to a wide range of customers, from large enterprise vehicle fleets to small fleet operators and consumers. The subscription revenue and cost per subscriber and the subscriber retention pattern differ by type of subscriber. For example, we recently launched our entry-level solution, Beam-e, in South Africa and this has driven accelerated subscriber growth. Beam-e is characterized by lower revenue and lower cost per subscriber compared to our large enterprise solutions. Furthermore, small fleet and consumer customers enter into and terminate contracts much more frequently than our enterprise customers, thereby affecting subscriber retention. As the mix of our subscribers evolves, average revenue per subscriber and average cost per subscriber is likely to change. We continue to manage our subscriber mix and cost structures.

Varying Conditions in Our Markets

We seek to capitalize on opportunities and manage risks in our key markets, which are geographically dispersed with customers located in 112 countries worldwide. Overall, we believe that our presence across multiple geographic markets and our exposure to multiple economies provides us with diversification from the risk of changing economic conditions in any one country or region. In addition to macroeconomic changes, performance in any given region may vary due to multiple factors, including growth in vehicles under subscription, the overall profile of the customer base (for example, in Africa, we have a significant consumer subscriber base and in North America, we have historically focused primarily on large fleets), the services and hardware options selected by particular subscribers and our distribution strategy in the region.

The following table presents our subscription revenue by geographic region.

 

     For the Year Ended March 31,  
     2013*      2013      2012      2011
(Unaudited)
 
     (In thousands)  

Africa

   $ 53,079       R  491,092         R 440,608       R  398,824   

Europe

     5,902         54,607         56,678         59,268   

North America

     6,247         57,801         30,148         14,618   

Middle East and Australasia

     8,288         76,682         40,233         25,796   

Rest of World

     707         6,538         9,663         4,923   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 74,223       R  686,720       R  577,330       R  503,429   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

* We have translated U.S. dollar amounts from South African rand at the exchange rate of R9.2521 per $1.00, which was the R/$ exchange rate reported by the South African Reserve Bank for March 31, 2013.

For a discussion of material changes in our segment revenue that have impacted our financial results for the periods presented, see “—Results of Operations.”

Changes in regional conditions require management to formulate strategic responses that safeguard our financial position and enhance opportunities for growth. For example, in recent periods, performance in Europe has been adversely impacted by economic uncertainty in the region. In response, we have managed costs by reducing headcount, consolidating our office space and refining our distribution strategy.

 

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Long Sales Cycle for Our Enterprise Fleet Management Solutions

From period to period, our revenues may fluctuate depending upon the customer contracts we have secured. The typical sales cycle for large enterprise fleet management solutions contracts may be long, especially by comparison to the sales cycle for our consumer solutions. It may also be difficult for us to predict the timing of when we will enter into enterprise fleet management contracts. Our revenue has been impacted in specific geographic regions and in certain periods by a small number of customer contracts of significant magnitude. For example, our 2013 and 2012 fiscal year revenue in our North America segment was impacted positively by revenue from two large oil and gas sector contracts, which were contracted in prior periods. These contracts included the upfront purchase of in-vehicle devices by the customer.

Longer sales cycles for large contracts, and in particular those under which our customers purchase in-vehicle devices, may affect the comparability of financial results in certain segments, or cause our revenue to fluctuate from period to period. We are seeking to mitigate these long sales cycles and the associated volatility by enhancing our sales pipeline management process, by increasing our sales and marketing investment and by diversifying our customer segment focus.

Basis of Presentation and Key Components of Our Results of Operations

We manage our business in seven segments: Africa consumer solutions, Africa fleet solutions, Europe fleet solutions, North America fleet solutions, Middle East and Australasia fleet solutions, Brazil fleet solutions and International fleet solutions and development. We evaluate segment performance based on revenue, EBITDA (defined as earnings before interest, tax, depreciation, amortization, impairment of assets and negative goodwill), vehicles under subscription and subscriber growth. Costs associated with our holding company and consolidation accounting entries are not allocated to our segments.

Revenue

The majority of our revenue is subscription-based. Consequently, growth in vehicles under subscription influences our subscription revenue growth. However, other factors, including, but not limited to, the types of new subscribers we add and the timing of entry into subscription contracts also play a significant role. In addition, we derive revenue from the sale of in-vehicle devices, which are used to collect, generate and transmit the data used to enable our SaaS solutions. The price and terms of our customer subscription contracts vary based on a number of factors, including customer type, hardware options, geographic region, and distribution channel.

Our customer contracts typically have a three-year initial term. Following the initial term, most fleet customers elect to renew for fixed terms ranging from one to three years. Some of our customer agreements, including our consumer subscriptions, provide for automatic monthly or yearly renewals unless the customer elects not to renew its subscription. Our consumer contracts in South Africa are governed by the Consumer Protection Act, which allows customers to cancel without paying the full balance of the contract amount. Our fleet contracts and our customer contracts outside of South Africa are non-cancelable.

Cost of Sales

Cost of sales associated with our subscription revenue consists primarily of costs related to cellular communications, infrastructure hosting, third-party data providers, amortization of capitalized software development costs and depreciation of our capitalized installed in-vehicle devices. Cost of sales associated with our hardware revenue includes the cost of the in-vehicle

 

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device, cost of hardware warranty, shipping costs and amortization of capitalized hardware development costs. We capitalize the cost of in-vehicle devices utilized to service customers who do not purchase the unit initially, and we depreciate these costs from the date of installation over their expected useful lives.

We expect that cost of sales as a percentage of revenue will vary from period to period depending on our revenue mix, including the proportion of our revenue attributable to our subscription-based services. The cost of sales related to hosting our infrastructure and the amortization of capitalized development costs are relatively fixed in nature and not directly related to the number of vehicles under subscription. However, most of the other components of our cost of sales are variable and are affected by the number of vehicles under subscription, the composition of our subscriber base, and the number of new subscriptions sold in the period.

Operating Expenses

Sales and Marketing

Sales and marketing expenses consist primarily of salaries and wages, commissions, travel-related expenses, and advertising and promotional costs. We pay our sales employees commissions based on achieving subscription targets and we expense commission costs as incurred. Advertising costs consist primarily of costs for print, radio and television advertising, promotions, public relations, customer events, tradeshows and sponsorships. We expense advertising costs as incurred. We plan to continue to invest in sales and marketing in order to grow our sales and build brand and category awareness. We expect sales and marketing expenses to increase in absolute terms, although they may vary as a percentage of revenue.

Administration and Other Charges

Administration and other charges consist primarily of salaries and wages for administrative staff, travel costs, professional fees (including audit and legal fees), real estate leasing costs, and depreciation of fixed assets including vehicles and office equipment. We expect that administration and other charges will increase in absolute terms as we continue to add personnel as we grow our business. In addition, we anticipate that we will incur additional personnel expenses, professional fees and insurance costs related to operating as a public company in the United States.

Taxes

Taxation mainly consists of normal statutory income tax paid or payable and deferred tax on any timing differences. Our effective tax rate varies according to the mix of profits made in various jurisdictions and will continue to vary. For fiscal years 2013, 2012 and 2011 our effective tax rates were 28.6%, 28.1% and 32.4%, respectively.

Our European operations have generated losses historically for which we have not recognized a deferred tax asset. These losses will be utilized going forward against any taxable profits generated in our European business. The losses available to be utilized at March 31, 2013 are R91.7 million, of which R74.4 million relate to our European operations.

 

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Results of Operations

The following table sets forth certain consolidated income statement data:

 

     For the Year Ended March 31,  
     2013 *     2013     2012     2011
(Unaudited)
 
     (In thousands)  

Revenue

   $  126,618      R  1,171,480      R  1,018,482      R 886,604   

Cost of sales

     (45,886     (424,545     (390,926     (340,168
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     80,731        746,935        627,556        546,436   

Sales and marketing

     (14,359     (132,849     (97,312     (82,805

Administration and other charges (1)

     (46,788     (432,890     (383,856     (346,451
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit

     19,584        181,196        146,388        117,180   

Finance income/(costs)–net

     (144     (1,330     (2,873     (11,432
  

 

 

   

 

 

   

 

 

   

 

 

 

Profit before taxation

     19,441        179,866        143,515        105,748   

Taxation

     (5,555     (51,400     (40,275     (34,247
  

 

 

   

 

 

   

 

 

   

 

 

 

Profit for the year

   $ 13,885      R 128,466      R 103,240      R 71,501   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

* We have translated U.S. dollar amounts from South African rand at the exchange rate of R9.2521 per $1.00, which was the R/$ exchange rate reported by the South African Reserve Bank for March 31, 2013.
(1) Includes other income/(expenses)—net.

Results of Operations for Fiscal Year 2013 Compared to Fiscal Year 2012

Revenue

 

     For the Year Ended March 31,  
     2013      2013      2012      % Change  
     (In thousands, except percentages)  

Subscription revenue

   $ 74,223       R 686,720       R 577,330         18.9

Hardware revenue

     40,863         378,070         328,386         15.1

Other revenue

     11,531         106,690         112,766         (5.4 %) 
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

   $  126,618       R  1,171,480       R  1,018,482         15.0
  

 

 

    

 

 

    

 

 

    

 

 

 

Our total revenue increased by R153.0 million, or 15.0%, from fiscal year 2012 to fiscal year 2013. The principal factors affecting our revenue growth included:

 

  Ÿ  

Subscription revenue, which grew by R109.4 million, or 18.9%. This was the primary factor driving our total revenue growth. Subscription revenue represented 58.6% of our total revenue for fiscal year 2013 compared to 56.7% for the prior year. Our growth in vehicles under subscription, which increased from 272,935 at March 31, 2012 to 359,643 at March 31, 2013, contributed to the increase in subscription revenue. The 31.8% rate of growth in vehicles under subscription exceeded the rate of subscription revenue growth due principally to an increase in sales of our recently introduced Beam-e solution, which carries a lower subscription price per vehicle.

 

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  Ÿ  

Hardware revenue increased by R49.7 million, or 15.1%, from fiscal year 2012 to fiscal year 2013. During fiscal 2013, we successfully entered into two substantial fleet customer subscription agreements that included the up-front purchase by the customer of in-vehicle devices, and we also had increased hardware sales to our dealer network in the Middle East and Australasia.

 

  Ÿ  

Connection incentive revenue, a component of other revenue, declined by R25.2 million to R10.7 million for fiscal year 2013 as a result of the modification of MiX Africa’s carrier arrangements. As a result of our renegotiation of contracts with certain cellular providers to provide us with reduced cost of sales, we do not expect to receive connection incentive revenue in the future.

The performance of our Africa fleet and Middle East and Australasia business segments were important contributors to our revenue growth in fiscal year 2013. Africa fleet revenue increased by R49.4 million, or 21.2%, due to an increase in the number of subscribers of over 50% from fiscal year 2012 to fiscal year 2013 with a significant portion of such additions attributable to entry-level fleet solutions. Middle East and Australasia revenue increased by R134.2 million, or 102.1%, of which R40.3 million was due to the transfer of 16 dealers from our International segment to the Middle East and Australasia segment during fiscal year 2013, R28.1 million was due to an increase in subscription revenue primarily as a result of certain large contracts awarded in the region, and the balance was due to increased hardware sales, primarily to a large oil and gas customer.

Cost of Sales

 

     For the Year Ended March 31,  
     2013     2013     2012     % Change  
     (In thousands, except percentages)  

Cost of sales

   $   45,886        R  424,545        R  390,926        8.6

Gross profit margin

     63.8     63.8     61.6  

Gross profit margin – subscription

     74.3     74.3     68.8  

Gross profit margin – hardware

     54.7     54.7     53.2  

Cost of sales increased by R33.6 million, or 8.6%, from fiscal year 2012 to fiscal year 2013, which was less than the rate of revenue growth, and resulted in an increased gross profit margin of 63.8%. The margin increase resulted primarily from a decrease in data costs related to the Africa consumer business during the period as a result of the renegotiation of MiX Africa’s arrangements with its carrier.

Gross profit margin – subscription increased from fiscal year 2012 to fiscal year 2013, primarily as a result of a decrease in data costs related to the Africa consumer business as described above. Incentive bonuses from our carrier previously included in other income were discontinued in return for a lower monthly data charge as discussed above, which resulted in a R33.6 million reduction in data costs. Gross profit margin – hardware increased from fiscal year 2012 to fiscal year 2013. During fiscal year 2013, we realized approximately R9.4 million in cost savings from a change in manufacturers.

Sales and Marketing

Sales and marketing costs increased by R35.5 million, or 36.5%, from fiscal year 2012 to fiscal year 2013. The increase resulted principally from increases in employee costs, and increases in advertising and travel costs. Employee costs increased by R18.6 million, or 31.6%, from fiscal year 2012 to fiscal year 2013, as a result of a R15.2 million increase in expenses primarily from the

 

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addition of 26 sales and marketing personnel and internal staff promotions and a R3.4 million increase from cost of living adjustments. Advertising costs increased by R11.8 million, or 55.4%, from fiscal year 2012 to fiscal year 2013 as a result of increases in advertising expenditures related to the launch of Beam-e and expenditures for dealer events. Travel costs increased by R4.1 million, or 61.9%, from fiscal year 2012 to fiscal year 2013 as a result of increased staff travel related to sales.

Administration and Other Charges (Including Other (Expenses)/Income—Net)

Administration and other charges (including other (expenses)/income—net) increased by R49.0 million, or 12.8%, from fiscal year 2012 to fiscal year 2013. The increase in costs was primarily a result of employee costs increasing by R32.0 million, or 13.9%, due to a R18.1 million increase in expenses primarily from an increase of 65 employees and internal staff promotions and a R13.9 million increase from cost of living adjustments. Information and technology costs increased by R5.9 million or 38.6% from fiscal year 2012 to fiscal year 2013. Additionally, other (expenses)/income—net declined due to a decrease in Motor Industry Development Program incentive income of R5.4 million, or 67.6%.

Finance Income/(Costs)—Net

Finance costs decreased by R1.9 million, or 36.4%, from fiscal year 2012 to fiscal year 2013. Interest on other long-term loans decreased by R2.8 million, or 81.1%, from fiscal year 2012 to fiscal year 2013 because we paid off term loans in November 2012. Finance income decreased by R0.4 million, or 15.6%, from fiscal year 2012 to fiscal year 2013. We manage interest as a net cost and when we have surplus cash available we prepay our debt facilities, when permissible, or deposit the cash in interest-bearing accounts. We generally do not repatriate cash earned outside of South Africa.

Taxation

 

     For the Year Ended March 31,  
     2013     2013     2012     % Change  
     (In thousands, except percentages)  

Taxation

   $ 5,555      R 51,400      R 40,275        27.6

Effective tax rate

     28.6     28.6     28.1  

Our effective tax rate varies according to the mix of profits made in various jurisdictions and will continue to vary. Taxation cost increased by R11.1 million or 27.6% from fiscal year 2012 to fiscal year 2013. Our effective tax rate increased from 28.1% to 28.6% for fiscal year 2013.

Results of Operations for Fiscal Year 2012 Compared to Fiscal Year 2011

Revenue

 

     For the Year Ended March 31,  
     2012      2011
(Unaudited)
     % Change  
     (In thousands, except percentages)  

Subscription revenue

   R 577,330       R 503,429         14.7

Hardware revenue

     328,386         262,781         25.0

Other revenue

     112,766         120,395         (6.3 %) 
  

 

 

    

 

 

    

 

 

 

Total revenue

   R  1,018,482       R  886,604         14.9
  

 

 

    

 

 

    

 

 

 

 

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Our total revenue increased by R131.9 million, or 14.9%, from fiscal year 2011 to fiscal year 2012. Principal factors affecting our revenue growth included:

 

  Ÿ  

Subscription revenue, which grew by R73.9 million, or 14.7% from fiscal year 2011 to fiscal year 2012. This represented the largest source of growth (in terms of South African rand) during the year. The subscription revenue increase was primarily due to an increase in vehicles under subscription from 240,279 at March 31, 2011 to 272,935 at March 31, 2012. This increase in vehicles under subscription was driven principally by an increase of over 90% in our North America segment as a result of the rollout of two large contracts and by an increase of over 20% in our Africa fleet segment primarily as a result of the rollout of a large contract.

 

  Ÿ  

Hardware revenue increased by R65.6 million, or 25.0%, from fiscal year 2011 to fiscal year 2012. During fiscal 2012, we successfully entered into two substantial fleet customer subscription agreements that included the up-front purchase by the customer of in-vehicle devices.

We experienced strong performance in our North America, Middle East and Australasia and Africa fleet business segments during fiscal year 2012. North America fleet revenue increased by R104.3 million, or 201.8%, from fiscal year 2011 to fiscal year 2012 due to the recognition of revenue during fiscal year 2012 from two recently won multinational fleet customer contracts in the oil and gas industry. Middle East and Australasia fleet revenue increased by R21.4 million, or 19.5%, from fiscal year 2011 to fiscal year 2012 primarily as a result of increased unit sales resulting in subscriber growth. Africa fleet revenue increased by R32.6 million, or 16.3%, from fiscal year 2011 to fiscal year 2012 comprised of a R37.0 million increase in subscription revenue (primarily attributable to the rollout of a large contract) offset by a R4.4 million decrease in Africa fleet hardware and other revenue.

Our results during fiscal year 2012 were adversely impacted by a R27.6 million decrease in revenue from our Europe fleet business. This decrease was primarily the result of our sale of a non-core division in Europe during fiscal year 2012, which resulted in a R19.9 million decrease in revenues. A R2.6 million decrease in subscription revenue from our planned migration of certain legacy fleet customers in Europe, a R6.1 million decrease in hardware sales and adverse market conditions in the region adversely impacted results in the region.

Cost of Sales

 

     For the Year Ended March 31,  
     2012     2011
(Unaudited)
    % Change  
     (In thousands, except percentages)  

Cost of sales

   R  390,926      R  340,168        14.9

Gross profit margin

     61.6     61.6  

Gross profit margin – subscription

     68.8     65.3  

Gross profit margin – hardware

     53.2     56.7  

Cost of sales increased by R50.8 million, or 14.9%, from fiscal year 2011 to fiscal year 2012, consistent with revenue growth. As a result, the gross profit margin remained unchanged from fiscal year 2011 to fiscal year 2012. The increase in cost of sales was primarily the result of an increase in hardware cost of sales due to an increase in the volume of in-vehicle devices supplied in connection with the entry into two substantial customer subscription agreements in North America.

 

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Gross profit margin—subscription increased from fiscal year 2011 to fiscal year 2012, primarily as a result of decreased maintenance charges of R4.9 million during fiscal year 2012 and significant growth in our subscriber base, resulting in fixed costs supporting an increased number of subscribers. Gross profit margin—hardware decreased from fiscal year 2011 to fiscal year 2012. During fiscal year 2012, lower hardware selling prices were associated with two significant contracts within our North America division based on the significant volume of units supplied.

Sales and Marketing

Sales and marketing costs increased by R14.5 million, or 17.5%, from fiscal year 2011 to fiscal year 2012 as a result of increased employee costs, and increased advertising and travel costs. Employee costs increased by R12.5 million, or 26.9%, from fiscal year 2011 to fiscal year 2012 due to a R3.5 million increase in expenses primarily from three additional senior sales and marketing personnel hired during the year, two of which were personnel hired in connection with the launch of our Beam-e product, R2.5 million in cost of living adjustments and a R6.5 million increase in bonus and commission expenses. Advertising costs and travel costs also increased as a result of increased sales activity.

Administration and Other Charges (Including Other (Expenses)/Income—Net)

Administration and other charges (including other (expenses)/income—net) increased by R37.4 million, or 10.8%, from fiscal year 2011 to fiscal year 2012. This increase was primarily the result of a R51.1 million increase in employee costs consisting of R26.2 million primarily due to the addition of 42 employees and internal staff promotions, a R15.6 million increase in the bonus expense and R9.3 million due to cost of living adjustments. These employee costs were offset by decreases of R5.0 million in depreciation and amortization and R4.5 million in communication, administration and other costs.

Finance Income/(Costs)—Net

Finance costs decreased by R8.4 million, or 61.4%, from fiscal year 2011 to fiscal year 2012. Interest on other long-term loans decreased by R5.6 million, or 61.8%, from fiscal year 2011 to fiscal year 2012. Finance income increased by R0.2 million, or 9.1%, from fiscal year 2011 to fiscal year 2012.

Taxation

 

     For the Year Ended March 31,  
     2012     2011
(Unaudited)
    % Change  
     (In thousands, except percentages)  

Taxation

   R  40,275      R  34,247        17.6

Effective tax rate

     28.1     32.4  

Taxation expense increased by R6.0 million, or 17.6%, from fiscal year 2011 to fiscal year 2012. Our effective tax rate in fiscal year 2012 of 28.1% decreased by 4.3% compared to fiscal year 2011 due to our North America operation recognizing profit and utilizing previously unrecognized deferred tax assets.

 

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Quarterly Results of Operations

The following table sets forth our unaudited consolidated statements of operations data and other financial data for each of the last eight quarters through the period ended March 31, 2013. We have prepared the consolidated statement of operations for each of these quarters on the same basis as the audited consolidated financial statements included elsewhere in this prospectus. In management’s opinion, each consolidated statement of operations includes all adjustments, consisting solely of normal recurring adjustments, necessary for a fair statement of this data for the periods presented. This information should be read in conjunction with our audited consolidated financial statements for the fiscal years ended March 31, 2013 and 2012 and related notes included elsewhere in this prospectus. These quarterly operating results are not necessarily indicative of the results to be expected in future periods.

 

    For the Quarter Ended,  
    Mar 31,
2013
    Dec 31,
2012
    Sep 30,
2012
    Jun 30,
2012
    Mar 31,
2012
    Dec 31,
2011
    Sep 30,
2011
    Jun 30,
2011
 
    (In thousands)  

Revenue

  R 308,540      R 298,599      R 283,963      R 280,378      R 276,754      R 272,754      R 248,129      R 220,845   

Cost of sales

    (101,566     (112,035     (98,507     (112,437     (98,231     (109,875     (95,836     (86,985
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    206,974        186,564        185,456        167,941        178,523        162,879        152,293        133,860   

Operating expenses (1)

    (143,984     (144,703     (143,895     (133,156     (119,970     (122,511     (119,070     (119,616
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit

    62,990        41,861        41,561        34,785        58,553        40,368        33,223        14,244   

Finance income/(costs)—net

    125        (551     (862     (42     (262     (103     (933     (1,576
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit before taxation

    63,115        41,310        40,699        34,743        58,291        40,265        32,290        12,668   

Taxation

    (17,532     (11,896     (11,853     (10,119     (15,109     (10,415     (10,723     (4,028
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit

  R 45,583      R 29,414      R 28,846      R 24,624      R 43,182      R 29,850      R 21,567      R 8,640   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subscription revenue

    186,294        176,032        164,995        159,399        151,350        149,675        141,758        134,546   

Adjusted EBITDA

    91,735        69,205        69,311        60,570        84,581        61,804        58,923        35,314   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Includes sales and marketing, administration and other charges and other income/(expenses)—net.

Revenue increased sequentially in each of the quarters presented primarily due to an increase in subscription revenue.

Liquidity and Capital Resources

The following table sets forth certain statement of cash flows data:

 

     For the Year Ended March 31,  
     2013     2013     2012     2011
(Unaudited)
 
     (In thousands)  

Cash generated from operating activities

   $ 22,905      R 211,918      R 153,076      R 169,068   

Cash used in investing activities

     (10,382     (96,054     (82,085     (81,117

Cash used in finance activities

     (10,342     (95,686     (80,686     (136,300

Effects of exchange rate changes on cash

     323        2,989        8,186        (1,276
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

   $ 2,504      R 23,167      R (1,509   R (49,625
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Operating Activities

Net cash generated from operating activities in fiscal year 2013 increased to R211.9 million from R153.1 million in the prior year due to continued growth in profitability of the business. Net cash generated from operating activities during fiscal year 2013 consisted of our operating profit (after excluding non-cash charges) of R311.1 million, net investments in working capital of R23.1 million, net interest paid of R1.5 million and taxes paid of R74.4 million.

Net cash generated from operating activities in fiscal year 2012 decreased to R153.1 million from R169.1 million in the prior year primarily due to increased investments required in working capital. Net cash generated from operating activities during fiscal year 2012 consisted of our operating profit (after excluding non-cash charges) of R257.8 million, net investments in working capital of R65.3 million, net interest paid of R3.6 million and taxes paid of R35.8 million.

Net cash generated from operating activities was R169.1 million for fiscal year 2011. Net cash generated from operating activities during fiscal year 2011 consisted of our operating profit (after excluding non-cash charges) of R232.6 million, net investments in working capital of R18.0 million, net interest paid of R9.9 million and taxes paid of R35.6 million.

Investing Activities

Net cash used in investing activities in fiscal year 2013 increased to R96.1 million from R82.1 million in the prior year. Net cash used in investing activities during fiscal year 2013 primarily consisted of capital expenditures of R94.1 million. Capital expenditures during the year included capitalized development costs of R31.2 million and cash paid to purchase property, plant, and equipment of R51.5 million, which included in-vehicle devices of R33.9 million.

Net cash used in investing activities in fiscal year 2012 increased to R82.1 million as compared to R81.1 million in the prior year. Net cash used in investing activities during fiscal year 2012 primarily consisted of capital expenditures of R77.5 million. Capital expenditures during the year included capitalized development costs of R32.6 million and cash paid to purchase property, plant and equipment of R41.6 million, which included in-vehicle devices of R26.7 million. In fiscal year 2012, we also used R5.5 million to grant a loan to Intellichain, which we extinguished when we subsequently acquired the business of Intellichain during fiscal year 2013.

Net cash used in investing activities was R81.1 million for fiscal year 2011. During fiscal year 2011, net cash used in investing activities primarily consisted of capital expenditures of R81.7 million. Capital expenditures during the year included capitalized development costs of R37.8 million and cash paid to purchase property, plant, and equipment of R39.9 million, which included in-vehicle devices of R24.8 million.

Financing Activities

Net cash used in financing activities was R95.7 million, R80.7 million and R136.3 million for fiscal years 2013, 2012 and 2011, respectively. Net cash used in financing activities consisted primarily of dividend payments of R78.9 million, R39.4 million and R32.8 million for fiscal years 2013, 2012 and 2011, respectively, as well as net repayment of borrowings of R19.7 million, R41.5 million and R103.5 million over the same periods.

Credit Facilities

At March 31, 2013, our principal sources of liquidity were net cash balances (consisting of cash and cash equivalents less bank overdraft and borrowings) of R88.2 million ($9.5 million) and

 

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unutilized borrowing capacity of R79.2 million ($8.6 million) available through our credit facilities. Our principal sources of credit are our facilities with Investec Bank Limited and Standard Bank Limited. We believe that our cash and borrowings available under our credit facilities will be sufficient to meet our liquidity requirements for the foreseeable future.

We have a R70 million overdraft facility with Standard Bank Limited that bears interest at the South African prime rate less 1.2%. At March 31, 2013, R23.7 million was outstanding under this facility. We use this facility as part of our currency hedging strategy. We draw down on this facility in the applicable currency in order to fix the exchange rate, in anticipation of settling a future transaction in that currency. Our obligations under the overdraft facility with Standard Bank Limited are guaranteed by our wholly-owned subsidiaries, MiX Telematics Africa Proprietary Limited and MiX Telematics International Proprietary Limited, and secured by a pledge of accounts receivable by us and MiX Telematics International Proprietary Limited.

Our Investec credit facility includes an overdraft facility, and two term loan facilities. Our R50 million overdraft facility matures in February 2015 and bears interest at the South African prime rate less 0.5%. At March 31, 2013, we had borrowed R32.3 million under this facility, which we use to meet the working capital requirements of our Africa consumer operation. One of the term loan facilities matures in September 2013 and bears interest at the South African prime rate less 0.5%. At March 31, 2013, there were no amounts outstanding under this facility and R3.5 million was available for draw downs. The other term loan facility matures in September 2015 and bears interest at the South African prime rate less 0.5%. At March 31, 2013, R3.5 million was outstanding under this loan. There is currently R11 million of unutilized capacity under this loan, which we use for working capital purposes.

Our obligations under the overdraft facility with Investec Bank Limited are guaranteed by MiX Telematics Africa Proprietary Limited and are secured by a lien on all of rights, title and interest in and to the subscriber contracts of MiX Telematics Africa Proprietary Limited. Our obligations under the term loan and term loan facility with Investec Bank Limited are guaranteed by us and MiX Telematics Africa Proprietary Limited and are secured by a lien on all rights, title and interest in and to the customer contracts of MiX Telematics Africa Proprietary Limited, and a pledge of 100% of the shares of MiX Telematics Australasia Proprietary Limited, our wholly-owned subsidiary.

After the end of fiscal year 2013, we entered into a R10 million facility with Nedbank Limited that bears interest at South African prime less 2%. This facility has not been drawn down to date. We plan to use this facility for working capital purposes in our Africa consumer operation.

Our credit facilities with Standard Bank Limited, Investec Bank Limited and Nedbank Limited contain certain covenants, including without limitation, those limiting our and our guarantor subsidiaries’, as applicable, ability to, among other things, incur indebtedness, incur liens, or sell or acquire assets or businesses.

Leverage

Our Board of Directors regularly monitors our financial leverage, including, without limitation, the levels of our indebtedness. Our Board of Directors considers our level of net debt, which it calculates as total borrowings less net cash and cash equivalents, and a leverage ratio, which we refer to as a gearing ratio in our consolidated financial statements. This leverage ratio is calculated as net debt divided by total equity. Since fiscal year 2011, our Board of Directors has maintained a target leverage ratio of 60%. Our Board of Directors assesses our target leverage ratio based on cash flows required to service net debt under a variety of scenarios, combined with higher borrowing costs and additional restrictive covenants typically required by lenders as leverage levels are raised. Our Board of Directors believes that leveraging at this targeted level

 

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should enhance shareholder returns in the prevailing relatively low interest rate environment. A leverage ratio of 60% at March 31, 2013 would imply net debt of R 520,724 ($56,282). As of March 31, 2013, we held cash and cash equivalents in excess of our total borrowings and had a leverage ratio below our target. Immediately following the completion of this offering, we will continue to be below our target leverage ratio as we pursue future acquisitions and other strategic investments. 

Contractual Obligations

Our contractual cash obligations at the end of fiscal year 2013 are summarized in the following table:

 

     Payments Due by Period  
     Total      Less than
1 Year
     1 – 3
Years
     3 – 5
Years
     More
than 5
Years
 
     (in thousands)  

Term loan

   R 3,707       R 3,707                           

Operating lease obligations

     41,013         15,337       R 25,676                   

Approved and committed capital commitments

     11,705         11,705                           

Outstanding purchase obligations

     29,143         29,143                           

Data center commitments

     4,199         4,199                           
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   R 89,767       R 64,091       R 25,676                   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total contractual obligations as of March 31, 2013 were R89.8 million ($9.7 million).

Off-Balance Sheet Arrangements

We do not engage in any off-balance sheet financing activities. We do not have any interest in entities referred to as variable interest entities, which include special purpose entities and other structured finance entities.

Repatriation of Proceeds

The South African Reserve Bank requires that the net proceeds from this offering be maintained in South Africa in rand pending registration with the South African Reserve Bank of a special subsidiary to hold the proceeds. We are in the process of forming and registering such a subsidiary, which, once registered, will not be subject to any exchange control restrictions. Once this subsidiary is registered, the funds will be transferred to and held by this subsidiary. The subsidiary will have discretion as to the denomination of the funds.

Qualitative and Quantitative Disclosures About Market Risk

We face exposure to the risk of adverse movements in foreign currency exchange rates and changes in interest rates. Portions of our revenues, expenses, assets and liabilities are denominated in currencies other than the rand, primarily the U.S. dollar, the euro, the British pound, and the Australian dollar with respect to revenues, expenses and intercompany payables and receivables. These exposures may change over time as business practices evolve.

 

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Foreign Currency Exchange Risk

Foreign currency transaction exposure results primarily from intercompany transactions and customer and vendor transactions denominated in currencies other than the functional currency of the legal entity entering into the transaction. Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or date of valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement. We recorded net foreign currency transaction losses of R4.7 million in fiscal year 2013.

Foreign currency translation exposure also results from the translation of the financial statements of our subsidiaries whose functional currency is not the rand into rand for consolidated reporting purposes. Assets and liabilities of these subsidiaries are translated into rand using period-end exchange rates and their income statements are translated into rand using the weighted average exchange rate over the period. We record resulting currency translation adjustments in the consolidated statement of comprehensive income and as part of reserves on the consolidated statement of financial position. We recorded net foreign currency translation gains of R37.1 million in fiscal year 2013.

For fiscal year 2013, 50.5% of our revenues were denominated in a currency other than the rand, and 37.1% of our operating expenses were generated by subsidiaries whose functional currency is not the rand and, therefore, are subject to foreign currency translation exposure.

Currently, our largest foreign currency exposures are those with respect to the U.S. dollar, Australian dollar, the euro and British pound. An unfavorable exchange rate movement with respect to any of these currencies against the rand would expose us to losses. For fiscal 2013, based on our financial position at March 31, 2013, we estimated that a 10% unfavorable movement in foreign currency exchange rates would have resulted in a decline of R1.7 million in pre-tax income. For purposes of this sensitivity analysis, we assume that all currencies move in the same direction at the same time.

We have experienced and expect to experience fluctuations in our net profit as a result of revaluing monetary assets and liabilities that are not denominated in the functional currency of the entity that recorded the asset or liability. We do not hedge our foreign currency translation risk. However, we have a policy in place to hedge transaction risks that takes into account all foreign currency debits, credits, purchase and sales orders and determines a net position. This net position is then drawn down in a foreign currency bank account in anticipation of the expenditure or receipt of cash. Our policy is in effect primarily in our South African and European operations and has not yet been implemented for our Middle East and Australasian operations. We do not plan to implement this policy in our U.S. operation as all trading income and expenses and resulting debits and credits are denominated in U.S. dollars.

Interest Rate Fluctuation Risk

We are exposed to interest rate risk in respect of our net cash balances that earn interest at variable rates. Amounts outstanding under our credit facilities accrue interest at variable rates linked to the South African prime rate and expose us to interest rate risk. An increase of 100 basis points at March 31, 2013 would have resulted in R0.5 million additional interest income.

 

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Inflation Risk

We do not believe that inflation had a material effect on our business, financial condition or results of operations in the last two fiscal years. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset these higher costs through price increases. Our inability to do so could harm our business, financial condition and results of operations.

JOBS Act

On April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for an “emerging growth company.” Subject to certain conditions set forth in the JOBS Act, if as an “emerging growth company” we choose to rely on such exemptions, we may not be required to, among other things, provide an auditor’s attestation report on our system of internal control over financial reporting pursuant to Section 404. These exemptions will apply for a period of five years following the completion of our initial public offering or until we no longer meet the requirements of being an “emerging growth company,” whichever is earlier.

Critical Accounting Policies

Our consolidated financial statements are prepared in accordance with IFRS as issued by the IASB. Certain of our significant accounting policies and critical accounting estimates are summarized below. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates.

Significant Accounting Policies

Revenue Recognition

We recognize revenue at the fair value of the consideration received or receivable for the sale of goods or services in the ordinary course of our activities. Revenue includes amounts earned on the sale of hardware, subscription sales, installation revenue and cellular network connection and upgrade incentives. Revenue is shown net of discounts, value added tax, returns and after eliminating inter-company sales within the Group.

We offer certain arrangements whereby the customer can purchase a combination of the products and services as referred to above. Where such multiple element arrangements exist, the amount of revenue allocated to each element is based on the relative fair values of the various elements offered in the arrangement. When applying the relative fair value approach, the fair values of each element are determined based on the current market price of each of the elements when sold separately.

We recognize revenue when the amount of revenue can be measured reliably and it is probable that we will receive future economic benefits at the time when specific criteria have been met for each of our activities, as we discuss below. We base our estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.

Subscription Revenue

Subscription revenue for our consumer products is invoiced in accordance with the terms of the respective contractual arrangements and is generally invoiced monthly in advance. Revenue is initially deferred and only recognized in the period in which the service is performed, which for the majority of contracts is the following month.

 

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Subscription revenue for our fleet products are provided on a contracted price basis. Our fleet contracts typically have a three-year initial term and renewal terms ranging from one to three years. Subscription revenue for fleet products is either billed in arrears or in advance. When billed in arrears, revenue is recognized in the month that the service is performed and when billed in advance, the revenue is initially deferred and only recognized in the period in which the service is provided. The majority of our subscription revenue for fleet products is billed in the month in which the service is performed.

Hardware Sales

We recognize revenue from hardware sales once the risks and rewards of ownership have transferred to the purchaser. The risks and rewards of ownership typically transfer when legal title and possession is transferred to the buyer. Certain contractual arrangements require customer acceptance of the hardware after the hardware devices have been installed, and, in these cases, we recognize hardware revenue when customer acceptances have been received.

In addition to selling directly, we sell indirectly through our network of distributors and dealers. We distribute products to small fleet customers and consumers through distributors. Distributors act as agents and hardware revenue is only recognized when the distributor sells the hardware unit to the end customer or consumer. Once a unit is sold to a customer or consumer, the customer or consumer enters into a service agreement directly with us for the product. The obligation to supply the service rests with us and the credit risk rests with us. The service revenue is recognized when the service is rendered (i.e., on a monthly basis).

We distribute products to enterprise fleet customers through dealers. Dealers are considered principals in respect of the sale of hardware and revenue is recognized upon sale of the hardware unit to the dealer. Similar to the relationship with consumers and small fleet customers originated through distributors, the responsibility for providing services rests with us and revenue is recognized as the service is rendered.

Hardware is invoiced when the risks and rewards of ownership have passed to the purchaser or in arrangements where customer acceptance is required, invoices are issued upon receipt of customer acceptances.

Driver Training and Other Services

We recognize revenue at the contractual hourly/daily rate in the period during which the training is performed. Customers are typically invoiced in the month in which the service has occurred.

Installation Revenue

We recognize revenue earned from the installation of hardware in customer vehicles and invoice it separately once the installation has been completed. Due to the short timeframe between delivery and installation (installation may occur on the delivery date), invoicing of the hardware and installation elements may occur at the same time.

Connection and Upgrade Incentive Revenue

Until June 2012, we recognized revenue from cellular network connection and upgrade incentives. This revenue was invoiced in the month of installation of a unit in a vehicle, which was considered to be the point at which we had substantially completed our service obligation to the cellular network.

 

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Where a combination of our products and services are included in a multiple element revenue arrangement, these are invoiced in accordance with the contractual terms and for the amounts per the agreement.

Foreign Currency Translation

Functional and Presentation Currency

Items included in the financial statements of each of our entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). Our consolidated financial statements are presented in South African rand, which is the Group’s presentation currency.

Transactions and Balances

Foreign currency transactions are translated into the respective entity’s functional currency using the exchange rates prevailing at the transaction dates or valuation date where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from year-end currency translations of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement.

The results and financial position of all of our entities that have a functional currency different from the presentation currency are translated into South African rand as follows:

 

  Ÿ  

assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that statement of financial position;

 

  Ÿ  

income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the transaction dates);

 

  Ÿ  

all resulting exchange differences are recognized in other comprehensive income; and

 

  Ÿ  

equity items are measured in terms of historical cost at the time of recording, translated at the rate on the date of recording and are not retranslated to closing rates at reporting dates.

On consolidation, exchange differences arising from the translation of net investments in foreign operations are taken into other comprehensive income. When a foreign operation is fully disposed of or sold (i.e., control is lost), exchange differences that were recorded in equity are recognized in the income statement as part of the gain or loss on sale. Goodwill and fair value adjustments arising in connection with the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. Exchange differences arising are recognized in equity.

Property, Plant and Equipment

Property, plant and equipment is stated at historical cost less accumulated depreciation and any accumulated impairment losses. Historical cost includes all expenditure directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to us and the cost of the item can be measured reliably.

 

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The carrying amount of the replaced part is derecognized. Repairs and maintenance are charged to the income statement in the financial period in which they are incurred.

The cost of in-vehicle devices installed in vehicles (including installation and shipping costs) as well as the cost of uninstalled in-vehicle devices are capitalized as property, plant and equipment. We depreciate installed in-vehicle devices on a straight-line basis over their expected useful lives, commencing upon installation whereas uninstalled in-vehicle devices are not depreciated until installation. The related depreciation expense is recorded as part of cost of sales in the income statement.

Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to reduce their cost to their residual values over their estimated useful life.

Intangible Assets

Goodwill

Goodwill arises on the acquisition of subsidiaries and represents the excess of consideration transferred over the acquirer’s interest in the net fair value of the net identifiable assets, liabilities and contingent liabilities of the acquiree and the fair value of the non-controlling interests in the acquiree. Goodwill on acquisition of the subsidiaries is included in intangible assets. Gains and losses on the disposition of an entity include the carrying amount of the goodwill relating to the entity sold.

We test goodwill annually for impairment, or more frequently if events or changes in circumstances indicate a potential impairment, and is carried at cost less accumulated impairment losses. We compare the carrying amount of goodwill to the recoverable amount, which is the higher of value in use and the fair value less costs to sell. Impairment losses recognized as an expense in relation to goodwill are not subsequently reversed. For the purpose of impairment testing, we allocate goodwill to those cash-generating units or groups of cash generating units that are expected to benefit from the business combination in which the goodwill arose. Each unit or group of units to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. We monitor goodwill at the operating segment level.

Computer Software, Technology, In-House Software and Product Development

Acquired computer software licenses are capitalized on the basis of costs incurred to acquire and bring the software into use. The acquired computer software licenses have a finite useful life and are carried at cost less accumulated amortization and accumulated impairment losses. These costs are amortized over their estimated useful lives (3-5 years). In-house software and product development costs that are directly attributable to the design, testing and development of identifiable and unique software and products controlled by us are capitalized as intangible assets when it is feasible to complete the software product so that it will be available for use, management intends to complete the software product and use it or sell it, there is an ability to use or sell the software product, it can be demonstrated how the software will generate probable future economic benefits, adequate technical, financial and other resources to complete the development and use or sell the software product are available and the expenditure attributable to the software product during its development can be reliably measured.

Directly attributable costs that are capitalized as part of intangible assets include software and product development employee costs and an appropriate portion of relevant overhead.

 

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Other development expenditures that do not meet the criteria are recognized as an expense as incurred. Development costs previously recognized as an expense are not recognized as an asset in a subsequent period if the criteria are subsequently met. Costs associated with maintaining computer software programs are recognized as an expense as incurred. Computer software and product development costs recognized as assets are amortized over their estimated useful lives (3-8 years).

Writedown of Intangible Assets

An intangible asset is written down on disposition or when no future economic benefits are expected from use or disposition. Gains or losses arising from the write-down of an intangible asset, measured as the difference between the net disposition proceeds and the carrying amount of the asset, are recognized in the income statement when the asset is written down. We review annually the useful life of intangible assets to assess whether there is a change in economic patterns.

Impairment of Non-Financial Assets

Assets that have an indefinite useful life, such as goodwill, are not subject to amortization or depreciation but are tested annually for impairment or whenever there is an indication of impairment. Assets subject to amortization or depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

We recognize an impairment loss for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less cost to sell, and value in use. In assessing the value in use, the estimated future cash flows are discounted to their present value.

For purposes of assessing impairment, we group assets at the operating segment level. At each reporting date, we review non-financial assets other than goodwill that have suffered an impairment for possible reversal of the impairment.

Trade Receivables

Trade receivables are amounts due from customers for goods sold or services performed. If collection is expected in one year or less they are classified as current assets. If not, they are presented as non-current assets. Trade receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment.

Critical Accounting Estimates and Judgments in Applying Accounting Policies

We continually evaluate estimates and judgments, which are based on historical experience and other factors, including expectations of future events that we believe reasonable under the circumstances. We make estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. We outline below the estimates and assumptions that have significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

Warranty Claims

We generally offer warranties on our hardware. We estimate the related provision for future warranty claims based on historical claim information, as well as recent trends that might suggest that past claim information may differ from future claims.

 

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Maintenance Provision

In some instances, we offer maintenance services as part of our subscription contracts. Management estimates the related provision for maintenance costs per vehicle when the obligation to repair occurs.

Decommissioning Provision

We estimate decommissioning costs based on best estimates of the costs to restore the property to its original condition. Costs are discounted to present value where the obligation extends beyond 12 months, using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the obligation.

Income Taxes

Where applicable tax legislation is subject to interpretation, management makes assessments, based on expert tax advice, of the relevant tax that is likely to be paid and provides accordingly. When the final outcome is determined, any difference is recognized in the period in which the final outcome is determined.

Estimated Impairment of Goodwill

We test annually whether goodwill has suffered any impairment. The recoverable amount of cash generating units has been based on value in use calculations that require the use of estimates. No impairment was recorded during fiscal 2013.

The calculation of each segment’s discounted net present value requires extensive use of estimates and assumptions about discount rates and forecasted cash flows. Actual results could be different. Future changes in assumptions or market conditions may negatively affect these discounted cash flows.

Product Development Cost

We record product development cost directly attributable to the design and testing of software products as intangible assets when the criteria discussed above have been met. Determining when these criteria have been met is subjective and based on management’s best judgment.

Receivables Allowance

The valuation allowance for trade receivables reflects our estimates of losses arising from the failure or inability of our customers to make required payments. The allowance is based on the aging of customer accounts, customer creditworthiness and our historical write-off experience. Changes to the allowance may be required if the financial condition of our customers improves or deteriorates.

Recent Accounting Pronouncements

There are no IFRS or International Financial Reporting Interpretations Committee, or “IFRIC,” interpretations that are effective for the first time during fiscal 2013 that had a material impact on our results. Certain IFRSs and amendments and interpretations of IFRS have been issued but are not effective for fiscal 2013. We will apply the standards and interpretations when they become effective (effective date is defined as financial years beginning on or after the stated date), the

 

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impact of which is still in the process of being assessed and finalized by management. There are no other IFRS or IFRIC interpretations that are not yet effective that we expect to have a material impact on us.

IFRS 9 Financial Instruments (effective January 1, 2015)

IFRS 9 is part of the IASB’s project to replace IAS 39, Financial Instruments: Recognition and Measurement. The statement addresses classification and measurement of financial assets and replaces the multiple classification and measurement models in IAS 39 with a single model that requires financial assets to be classified into two measurement categories: those measured at fair value and those measured at amortized cost. The determination is made at initial recognition. The classification depends on the entity’s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. IFRS 9 has amended the classification and measurement of financial liabilities to account for changes in the fair value of a financial liability (designated as at fair value through profit or loss) attributable to changes in the credit risk of that liability. Changes in fair value attributable to a financial liability’s credit risk are accounted for in other comprehensive income unless such recognition would create or enlarge an accounting mismatch and are not subsequently reclassified to the income statement.

IFRS 10 Consolidated Financial Statements (effective January 1, 2013)

This standard replaces the parts of IAS 27, Consolidated and Separate Financial Statements that address consolidated financial statements. SIC-12, Consolidation—Special Purpose Entities, has been withdrawn upon the issuance of IFRS 10. Under IFRS 10, control is based on whether an investor has: (a) power over an investee, (b) exposure or rights to variable returns from its investment with the investee and (c) the ability to use its power over the investee to affect the amount of the investor’s returns. The standard also provides additional guidance to assist in the determination of control where it is difficult to assess. In a subsequent amendment, it was also clarified that the date of initial application is the first day of the annual period in which IFRS 10 is adopted. Entities adopting IFRS 10 should assess control at the date of initial application as the treatment of comparative figures depends on this assessment.

IFRS 11 Joint Arrangements (effective January 1, 2013)

This standard replaces IAS 31, Interests in Joint Ventures. The standard provides for a more realistic reflection of joint ventures by focusing on the rights and obligations of the arrangement, rather than its legal form. SIC-13, Jointly Controlled Entities—Non-Monetary Contributions by Ventures, has been withdrawn upon the issuance of IFRS 11. Two types of joint arrangements are defined under this standard: joint operations (rights to assets and obligations) and joint ventures (rights to net assets). Proportional consolidation of joint ventures is no longer allowed.

IFRS 12 Disclosures of Interests in Other Entities (effective January 1, 2013)

This standard includes the disclosure requirements for all forms of interests in other entities, including joint ventures, associates, special purpose entities and other off-balance sheet vehicles. In June 2012, the amendments to IFRS 10, IFRS 11 and IFRS 12 were issued to clarify certain transitional guidance on the application of these IFRS’ for the first time.

IFRS 13 Fair Value Measurement (effective January 1, 2013)

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

 

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across all IFRS standards. The requirements do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRS.

IAS 19 (revised 2011) Employee Benefits (effective date: 1 January 2013)

IAS 19 has made significant changes to the recognition and measurement of defined benefit plans and termination benefits, and to the disclosures for all employee benefits.

IAS 27 (revised 2011) Separate Financial Statements (effective January 1, 2013)

This standard will only deal with the requirements for separate financial statements as the requirements for consolidation are now contained in IFRS 10. The standard requires that when an entity prepares separate financial statements, investments in subsidiaries, associates and jointly controlled entities are accounted for either at cost or in accordance with IFRS 9.

IAS 28 (revised 2011) Associates and Joint Ventures (effective January 1, 2013)

This standard includes the requirements for joint ventures, as well as associates, to be equity accounted following the guidance of IFRS 11.

Amendments to IAS 1 Presentation of Financial Statements, on changes in accounting policies (effective January 1, 2013)

IAS 1 requires an entity that changes accounting policies retrospectively, or makes a retrospective restatement or reclassification, to present a statement of financial position as at the beginning of the preceding period. The amendments clarify that an entity is required to present a third statement of financial position only when the retrospective application, restatement or reclassification has a material effect on the information in the third statement of financial position and that related notes are not required to accompany the third statement of financial position.

Amendments to IAS 1 Presentation of Financial Statements, on presentation of items of OCI (effective July 1, 2012)

The amendments to IAS 1 introduce new terminology for the statement of comprehensive income and income statement. The amendments retain the option to present profit or loss and other comprehensive income in either a single statement or in two separate but consecutive statements. However, the amendments to IAS 1 require items of other comprehensive income to be grouped into two categories in the other comprehensive income section: (a) items that will not be reclassified subsequently to profit or loss and (b) items that may be reclassified subsequently to profit or loss when specific conditions are met. Income tax on items of other comprehensive income is required to be allocated on the same basis. The amendments do not address which items are presented in other comprehensive income.

Amendments to IFRS 7 Financial Instruments—Disclosures and IAS 32 Financial Instruments—Presentation, regarding the offsetting of financial assets and financial liabilities and the related disclosures (effective January 1, 2013 and January 1, 2014 respectively)

The amendments to IAS 32 clarify some of the requirements for offsetting financial assets and financial liabilities on the statement of financial position. Specifically, the amendments clarify the meaning of “currently has a legally enforceable right of set-off” and “simultaneous realization and

 

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settlement.” The amendments to IFRS 7 require entities to disclose information about rights of offset and related arrangements (such as collateral requirements) for financial instruments under an enforceable master netting agreement or similar arrangement. The amendments to IFRS 7 are effective for annual periods beginning on or after January 1, 2013 and are effective for IAS 32 for annual periods beginning on or after January 1, 2014.

Amendments to IAS 16 Property, Plant and Equipment (effective January 1, 2013)

The amendments to IAS 16 clarify that spare parts, stand-by equipment and servicing equipment should be classified as property, plant and equipment when they meet the definition of property, plant and equipment in IAS 16. Otherwise these items should be classified as inventory.

Amendments to IAS 32 Financial Instruments: Presentation (effective January 1, 2013)

The amendments to IAS 32 clarify the treatment of income tax relating to distributions and transaction costs. The amendments clarify that the treatment is in accordance with IAS 12 Income Taxes. Income tax related to distributions is recognized in the income statement, and income tax related to the costs of equity transactions is recognized in equity.

 

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BUSINESS

Overview

We are a leading global provider of fleet and mobile asset management solutions delivered as SaaS. Our solutions deliver a measurable return by enabling our customers to manage, optimize and protect their investments in commercial fleets or personal vehicles. We generate actionable intelligence that enables a wide range of customers, from large enterprise fleets to small fleet operators and consumers, to reduce fuel and other operating costs, improve efficiency, enhance regulatory compliance, promote driver safety, manage risk and mitigate theft. Our solutions rely on our proprietary, highly scalable technology platform, which allows us to collect, analyze and deliver data from our customers’ vehicles. Using an intuitive, web-based interface, our fleet customers can access large volumes of historical and real-time data, monitor the location and status of their drivers and vehicles and view a wide selection of reports and key performance indicator dashboards.

We have a global presence, with customers located in 112 countries across six continents. We currently serve a highly diverse customer base, including more than 4,000 fleet operators, which represented 64% of our subscription revenue for fiscal year 2013. We target sales of our enterprise fleet management solutions to customers who desire a premium solution, generally for large fleets, which we define as fleets of 100 or more vehicles. Large fleets accounted for approximately 74% of our fleet vehicles under subscription at March 31, 2013. We believe we have a satisfied customer base and, among our 224 large fleet operator customers, we experienced an annual customer retention rate in excess of 95% in fiscal year 2013. We have multinational enterprise fleet customer deployments with companies such as Baker Hughes, Bechtel Corporation, Chevron, Nestlé, PepsiCo, Rio Tinto and Schlumberger. We also offer a range of subscription-based fleet and vehicle management solutions to meet the needs and price points of small fleet operators and consumers. Our safety and security features, including driver performance and vehicle monitoring, are important attributes of our solutions for these customers.

We have consistently grown our customer base. As evidence of this growth, vehicles under subscription, one of our key operating metrics and a factor influencing our rate of subscription revenue growth, increased at a compound annual growth rate of 22.3% from April 1, 2011 to March 31, 2013 and as of March 31, 2013, we tracked and managed over 359,000 vehicles under subscription. As a further indicator of our scale, in fiscal year 2013, we collected data on an average of approximately 57 million trips per month representing as many as 3 billion vehicle locations per month. The monthly price charged per vehicle under subscription varies among our customers depending on the services and features they require, hardware options, the customer size and the geographic location of the customer. Consequently, our rate of subscription revenue growth is influenced by not only the rate of growth in the number of vehicles under subscription but also by the evolving mix of our subscriber base. For fiscal year 2013, our subscription revenue was R686.7 million ($74.2 million), total revenue was R1,171.5 million ($126.6 million), Adjusted EBITDA was R290.8 million ($31.4 million) and profit for the year was R128.5 million ($13.9 million), representing 18.9%, 15.0%, 20.9% and 24.4% growth over the prior year, respectively. See “—Summary Financial and Operating Data—Adjusted EBITDA” for our definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to profit for the year.

 

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Industry Overview

Challenges Facing Fleet Operators Worldwide

Fleet managers operate in an increasingly competitive and highly regulated global environment. Timely and accurate decision-making enabled by solutions that provide real-time visibility into vehicle location and driver performance is critical to managing a safe, efficient fleet. In some developing areas of the world, ensuring driver and vehicle safety and security is also particularly challenging given high crime rates, which have resulted in automotive insurance mandates and regulatory requirements for vehicle tracking. Consequently, fleet managers and consumers demand solutions that promote driver and passenger safety, mitigate theft, improve stolen vehicle recovery rates and reduce automotive insurance rates. The business environment for fleet managers is further complicated by the large number of transportation-related regulatory and compliance requirements worldwide, and the frequency with which rules and regulations change.

Legacy fleet management solutions inadequately address industry needs as many use discrete manual processes, such as spreadsheet- and paper-based systems and mobile phones, to monitor fleets. These approaches are labor intensive, do not provide continuous monitoring of fleets, make it difficult to optimize fleet utilization and manage operating costs and generate minimal business intelligence. Additionally, legacy fleet management technology frequently provides limited functionality beyond basic location-based tracking and makes it difficult for fleet operators to fully benefit from the cost savings and efficiency improvements associated with more robust fleet management offerings.

Fleet operators face many significant challenges, which can include:

 

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Significant operating costs. Fuel costs represent a significant cost for fleet operators. For example, the American Transportation Research Institute estimates that fuel and oil, driver wages and benefits, repair and maintenance and truck insurance premium costs collectively represented approximately 84% of total trucking operational costs per mile in 2011. Certain driving behaviors, such as speeding, harsh acceleration and excessive idling can contribute to poor fuel efficiency as well as increased wear and tear and maintenance costs.

 

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Poor visibility into fleet operations. Fleet operators often maintain vehicles across multiple geographic regions and often lack visibility into their fleets and oversight of their drivers. Poor fleet visibility makes it challenging to optimize fleet utilization, vehicle fleet size and miles driven while still meeting core business and customer servicing requirements. Poor driver oversight makes it difficult for operators to validate hours worked or customers visited, incentivize greater efficiency and discourage unproductive, undesirable or dangerous worker behavior.

 

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Challenges in maintaining regulatory compliance. Internal compliance and reporting is driven by legislative and regulatory requirements, which are often subject to change, from regulatory authorities in nearly every jurisdiction globally. This can be particularly burdensome for fleet operators managing large vehicle fleets in multiple jurisdictions. For example, in the U.S., fleet operators can face numerous complex regulatory requirements, including mandatory Compliance, Safety and Accountability driver safety scoring, hours of service compliance and fuel tax reporting.

 

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Challenges in managing risk. Fleet operators are responsible for hiring, training and identifying risks associated with their fleet drivers. Vehicle crashes are a leading cause of workplace injury and lead to significant costs for fleet operators, including financial

 

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liability and increased insurance premiums. Fleet operators face difficulties gaining visibility into driving behavior to proactively identify or remediate drivers with poor driving habits.

 

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Inefficient data management. Fleet operators receive operational information from many disparate sources, including communications from their technicians and customers, paper-based reports, third-party receipts for items such as fuel purchases, vehicle maintenance logs and customer invoices. While simply collecting this unstructured data is burdensome, organizing and analyzing the data to identify trends and other actionable business intelligence can be even more challenging.

Challenges Facing Fleet Operators and Consumers in Developing Markets

In certain developing regions of the world, driver safety and vehicle security are significant concerns given high crime rates and the impact these higher crime rates have on consumers, insurance costs and regulatory requirements. More specifically, fleet operators and consumers often need to address challenges including:

 

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Managing the impact of crime. Vehicle crime rates in developing regions of the world often far exceed those in the U.S. and Western Europe, incurring potentially significant costs for fleet operators and consumers. For example, we estimate that the rate of vehicle theft in South Africa is approximately three times higher than that in the U.S.

 

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Reducing insurance costs. In developed and developing regions, insurers often provide incentives for fleet operators and consumers who subscribe to a safety and security mobile asset management solution. Some insurance providers in developing markets will not insure vehicles that lack a tracking solution or will make the insurance premium cost prohibitive without one. Furthermore, insurance provider interest in safety and security solutions has increased following the introduction of driver performance monitoring solutions, which can enable innovative usage-based insurance and claims management initiatives.

 

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Complying with regulatory mandates. Some emerging economies, such as Brazil, are enacting or considering enacting regulations that would require the installation of vehicle tracking devices in all new automobiles.

Industry Trends

There have been substantial advances in the performance, reliability and affordability of technologies that can be used to cost-effectively collect and disseminate large amounts of vehicle data. GPS positioning and advanced on-board systems generate valuable, objective real-time information, which provides the basis for driver and vehicle management solutions. Similarly, significant advances in the performance, reliability and affordability of fixed and wireless networks, computing power and data storage capabilities have supported the rise of cloud computing that enables the delivery of SaaS. These technological advances and market shifts have helped to foster demand for subscription-based fleet and mobile asset management solutions like ours.

While fleet and mobile asset management solutions can offer a wide range of features and benefits, the reasons for adopting these solutions often vary by customer type and geography. In developed regions, including North America and Western Europe, many fleet operators adopt fleet management software solutions in order to obtain greater visibility over their vehicles and mobile

 

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workforces, to achieve cost savings through efficiency improvements, including reduced fuel consumption, and to reduce regulatory compliance burdens. In many developing regions, including Eastern Europe, Latin America, Africa and parts of Asia, the security and asset protection features afforded by vehicle tracking and monitoring, resulting in greater asset visibility and a lower impact of theft, are also important reasons for the adoption of fleet and mobile asset management solutions. In Australia, Asia, parts of Europe and the Middle East, compliance with health and safety standards and policies are a key reason for adoption of these systems. Recognizing the variety of motivations influencing our existing and potential customers is an important aspect of developing and marketing our solutions.

Market Opportunity

We believe that the addressable market for our fleet management solutions is large, growing and underpenetrated. According to a report by ABI Research, there were more than 333 million commercial vehicles in operation globally at the end of 2012 and commercial telematics market penetration was approximately 4%. The report forecasts that the number of commercial vehicles utilizing commercial telematics will nearly triple by the end of 2017.

In addition to the growing market opportunity in commercial fleet vehicles, we believe there is a large and underpenetrated market to provide a tailored set of safety and security solutions to non-commercial passenger vehicles. Worldwide, the pool of motor vehicles is large and growing, particularly in developing markets. We estimate that there are approximately 33 million non-commercial passenger vehicles in operation in South Africa and Brazil, our current geographic focus for passenger vehicle mobile asset management solutions. We believe the potential rate of consumer adoption of mobile asset management solutions is highest in developing regions where vehicle tracking and monitoring features can help to improve driver and passenger safety, reduce the impact of theft by improving stolen vehicle recovery rates and reduce consumer automotive insurance rates.

Our Solutions

Our subscription-based solutions enable our customers to manage, optimize and protect their investments in their commercial fleets and personal vehicles efficiently. Our highly scalable multi-tenant architecture leverages GPS and other data transmitted from in-vehicle devices, primarily over cellular networks, and in fiscal year 2013, we have collected data on an average of approximately 57 million trips per month representing as many as 3 billion vehicle locations per month.

The key attributes of our solutions include:

 

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Highly scalable solutions. We have built our software solutions to scale and support geographically distributed fleets of any size. We currently provide services to more than 359,000 vehicles under subscription with customers ranging from small fleet operators and consumers to large enterprise fleets with more than 10,000 vehicles under subscription.

 

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Robust portfolio of features addressing a full range of customer needs. We believe we offer one of the broadest ranges of features for fleet and mobile asset management available. For example, for fleet efficiency, we offer vehicle tracking and analysis, route optimization and enhanced dispatching; for regulatory compliance, we offer compliance monitoring, hours of service tracking and fuel tax reporting; for driver improvement, we offer in-vehicle video monitoring and real-time driver feedback; for risk management, we offer driver scoring and analysis; and for safety and security, we offer vehicle tracking, crash notifications and vehicle theft recovery.

 

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Insightful business intelligence and reporting. Our fleet management software is designed to provide our customers with insightful, actionable business intelligence on demand. For example, our FM-Web fleet management solution includes data reporting and analysis tools with more than 45 standard reports and the ability of customers to generate custom fleet, vehicle and driver reports. We also offer a premium web-based business intelligence engine with enhanced analytics, reporting and data visualization tools for those customers seeking to perform highly granular analyses of large quantities of historical and real-time data.

 

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Easily accessible, intuitive applications. Our web-based solutions are accessible from fixed and mobile computing devices, and provide vehicle and fleet information, dashboard views and alerts and the ability to generate analytical reports from an office or a remote location. Our customers can choose to access our solution via an intuitive web-based interface or through our custom mobile applications developed for the Android and iOS mobile platforms. Fleet operators can also use our software development kits and application program interfaces to integrate our solution directly with their software systems, such as transportation management software, route planning systems and enterprise resource management software.

 

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Software-as-a-service powered by a proven, reliable infrastructure. Our use of a multi-tenant SaaS architecture allows us to deliver fleet management applications that are highly functional, flexible and fast while reducing the cost and complexity associated with customer adoption. We support our SaaS delivered solutions with a proven infrastructure of redundant servers and other hardware located in five secure third-party data centers. Over the last three years, we have consistently maintained overall system uptime of over 99.8%.

Our Offerings

We offer a range of solutions to address the needs of diverse customer segments. Our primary subscription-based offerings are:

 

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FM-Web. FM-Web is our premiere commercial fleet management system. It is a highly scalable SaaS platform for managing enterprise vehicle fleets ranging from 10 to 15,000 or more vehicles. Fleet management systems provide a wide variety of complex data pertaining to driver behavior and the location, status and operational cost of vehicles and fleets. FM-Web is an interactive, web-based and mobile device-accessible system providing secure access to this complex data in a simple, intuitive manner. Live and historical views of driver and vehicle performance information, including vehicle tracking and status information as well as alerts and notifications are the foundation of FM-Web. Together with our integrated Insight Reports, FM-Web provides fleet managers with actionable business intelligence in the form of reports and fleet analytics. Customers can also subscribe to premium subscription-based applications associated with FM-Web, such as:

 

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MiX Insight Analyzer, a sophisticated business intelligence suite that allows for the potential discovery of hidden trends and the implementation of innovative decisions. Our customers are able to annotate and collaborate on findings in real-time using MiX Insight Analyzer’s social business discovery capabilities, which include items such as screenshots and annotations, shared bookmarks and Microsoft Office® integration.

 

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MiX Vision, an on-road and in-vehicle video surveillance solution that allows fleet managers to record and monitor driver behavior and events. We believe MiX Vision, which we introduced in April 2013, addresses an important market need for in-vehicle surveillance, and MiX Vision is fully integrated with our premium fleet management solutions to enable event-driven monitoring.

 

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  Ÿ  

MiX Rovi, an in-vehicle display and communications system allowing fleet operators to streamline their fleet operations through improved communication between drivers and their back offices. Customized data inputs are configured in FM-Web and can be updated locally or remotely via the Internet. For example, a fleet operator of delivery vehicles can set custom data inputs for information relating to deliveries, such as quantities delivered and collected, times of arrival and departure or time spent at unscheduled stops.

 

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MiX RIBAS, an in-cab driving aid that helps drivers improve their driving style. Using an unobtrusive system of symbols with red, amber and green status lights accompanied by audible warning tones, drivers receive feedback on their driving style in real-time, enabling customers to manage improvements in driver and vehicle performance and reductions in fuel consumption and accident rates.

 

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MiX Trailer Tracking, an in-trailer tracking solution introduced in July 2012 that delivers data directly to FM-Web allowing fleet managers to track and manage trailers independently from their truck tractors.

 

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MiX Locate. MiX Locate is our mid-range fleet management system designed to provide vehicle and fleet tracking, location, driver event and status information without the complexity of a full enterprise fleet management system. By providing real-time information in an intuitive and user-friendly format, MiX Locate provides fleet operators with the essential information needed to efficiently and effectively manage and operate their vehicle fleets. Customers can access MiX Locate data and reporting functionality via a web-based interface or our mobile applications.

 

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Matrix. Our Matrix suite of mobile asset management solutions is designed for entry-level fleets and consumers. The Matrix range of solutions can provide real-time and historical vehicle tracking and positioning, unauthorized vehicle use alerts, panic emergency response, crash alerts, fuel tax logbooks and vehicle maintenance notifications. Users can access their Matrix subscription functionality via a web-based interface or our mobile applications.

 

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Beam-e. Beam-e leverages our large network of vehicles under subscription as a crowdsourcing platform to locate vehicles without the expense of utilizing a traditional cellular network connection. Each Beam-e device communicates with other nearby devices in order to form a crowdsourced network that interfaces with our systems. Rental car companies, consumers and owners of high-value mobile assets can use Beam-e to provide entry-level tracking and recovery services at an upfront cost and monthly subscription price point that is well below the cost of traditional vehicle tracking solutions. We currently offer Beam-e in South Africa and we intend to introduce a Beam-e solution in other countries in the future.

Customers deploy our devices to collect real-time data from their vehicles and transmit this information to our secure third-party data centers for processing. We generally design our hardware and firmware in order to ensure their modularity and interoperability with our core subscription offerings. We outsource the manufacturing of these devices and seek to drive device costs down over time in order to reduce the upfront investment required by our customers. In addition to sales of these devices to customers, we offer customers the option of leasing our devices, further reducing the capital investment required to access our solutions.

We believe our modular, proprietary designs give us an advantage over competitors who rely on third-party commodity in-vehicle devices because we are able to provide more customized solutions through our proprietary devices. Currently, our primary in-vehicle devices are the FM

 

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Communicator and FM Tracer for enterprise fleet management, MX1000 for consumer vehicle management and Beam-e for entry-level vehicle and asset tracking and recovery. We are in the process of introducing the MX2000 for consumer and small fleet vehicle management.

Principal features associated with our subscription-based offerings include the following:

 

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Vehicle tracking alerts. Our vehicle tracking alerts allow our customers to pinpoint the exact locations of vehicles using real-time data. Notifications about vehicle activity and status are accessed through a web-based interface or our mobile applications. Our customers also have the ability to access historical tracking data for analysis.

 

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Location management. Our location management and geofencing features allow customers to easily designate geographic areas in which vehicles are allowed or not allowed to travel or areas deemed dangerous or high risk. Customers receive notifications when a vehicle enters or exits unauthorized regions or locations.

 

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Vehicle security. Our vehicle security solution provides our customers with security options tailored to individual requirements. We offer vehicle tracking and recovery features, providing safety and security for our customers and their vehicles and helping to reduce the costs associated with theft.

 

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Reporting. We provide our customers with on demand reports enabling access to a wide range of fleet data. Our reports contain detailed information about driver behavior, vehicle location, idle time, miles and hours driven, average speed, acceleration, crash analysis and vehicle diagnostics. We also offer premium data visualization and business intelligence tools.

 

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Regulatory compliance. Customers can use our solutions to assist in regulatory compliance, including compliance monitoring, hours of service and fuel tax reporting.

 

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Vehicle and driver management. We provide functionality for customers to manage licenses, registrations, certifications and other vehicle and driver requirements.

 

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Messaging. With the addition of MiX Rovi to our fleet solutions portfolio, fleet operators can now communicate more efficiently and effectively with their drivers. Custom menus direct driver workflow, jobs and navigation, ensuring drivers arrive at the correct destination and improving communication between fleet operators and their drivers.

 

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Mobile access. Our applications are available on a variety of mobile platforms, including iOS and Android, and provide our customers with access to actionable business intelligence on their vehicles and mobile assets from the office or remotely.

 

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Application integration. Our software development kits allow our customers to integrate our applications with their existing enterprise software systems and allow for increased customization of our fleet reports, vehicle tracking alerts and location management features.

Following our acquisition of Intellichain during fiscal year 2013, we offer our customers supply chain transportation management features for advanced routing, bulk transport management and field service management. Integrated transportation management software capabilities will provide our customers with functionality for managing their investments in fleet assets, fuel management, stock management, maintenance optimization, route optimization and

 

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compliance and financial reporting integration, among other features. These software solutions will allow our customers to increase their transportation management efficiency by leveraging the real-time visibility provided by our fleet management solutions.

Our Key Competitive Strengths

The markets in which we operate are highly competitive and fragmented. We believe that the following attributes differentiate us from our competitors and are key factors to our success:

 

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Globalized sales, distribution and support capabilities. We currently maintain a direct or indirect sales and support presence, with localized application support for 24 languages, in countries across Africa, Asia, Australia, Europe, the Middle East, North America and South America. We believe our global presence gives us an important advantage in competing for business from multinational enterprise fleet customers such as Baker Hughes, Bechtel Corporation, Chevron, Nestlé, PepsiCo, Rio Tinto and Schlumberger, who often prefer to consolidate disparate fleet management systems.

 

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Solutions adaptable to multiple customer segments. We believe that by leveraging our common core technologies, personnel and systems, we can cost-effectively develop and sell a range of subscription-based fleet and mobile asset management solutions that are designed to meet the functionality and price needs of multiple customer segments, including fleet operators and consumers. Our fleet management solutions include targeted functionality to address the distinct needs of key industry segments, including oil and gas, transportation and logistics, government and municipal, bus and coach, and rental and leasing, as well as for the needs of consumers. We believe that offering a range of subscription-based solutions maximizes our ability to serve the addressable market and offers an appealing value proposition to our customers, while distinguishing ourselves from competitors that offer a single, one-size-fits-all solution.

 

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Focus on safety and security. Most of our offerings incorporate safety and security features enabling our customers to enhance their drivers’ personal safety, encourage safe driving behavior, and protect their investment in their vehicles. We also offer web-based driver training, proactive journey management and other related services to provide a turnkey safety and security solution. Our differentiated safety and security features have particularly strong appeal to customers in regulated industries, such as oil and gas, customers in industries exposed to liability concerns, such as bus and coach, and customers operating in high crime regions. We perform training and land transport assessments for customers to assist them in establishing and maintaining safety levels. We believe our safety and security offerings also help our customers to reduce operating costs associated with the training of drivers.

 

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Track record of innovation. Our investment in software development is core to our business strategy. Our software teams employ an agile software development methodology, which we believe gives us a time-to-market advantage as compared to many of our competitors. We also recently launched a separate development incubator office to develop our next-generation fleet and mobile asset management platform. Since inception, we have made significant investment in product development, and we have routinely been among the first to market with innovative solutions and features that cater to the needs of our customers. For example, in September 2011, we introduced the Beam-e solution, which leverages our large network of vehicles under subscription as a crowdsourcing platform to locate vehicles without the expense of utilizing a traditional cellular network connection. In April 2013, we introduced MiX Vision, which provides customers with a premium subscription-based, in-vehicle video surveillance solution.

 

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Longstanding, established market position. We have a 17-year history, a geographically diverse sales and marketing footprint, a large established network of distributors and dealers, and a large base of satisfied customers. Our robust and referenceable customer base, including numerous Forbes Global 2000 enterprises, is a critical selling point to both large enterprise fleets and small fleet operators and consumers.

Growth Strategy

We intend to expand our leadership in our market by:

 

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Acquiring new customers and increasing sales to existing customers. We believe the market for fleet and mobile asset management solutions is large and growing, creating a significant opportunity for us to expand our customer base. Additionally, we believe we have the opportunity to expand our fleet management market share among our existing customer base by demonstrating our value proposition, growing with the customer, introducing new and innovative value-added solutions and displacing legacy fleet management solutions.

 

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Expanding our geographic presence. We market and distribute our solutions directly and through a global network of more than 100 distribution partners outside of South Africa. We are expanding our penetration in attractive geographic regions, such as Brazil this year. We also continue to expand our network of strategic and sales distribution partners in other regions of the world.

 

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Broadening our customer segment focus. We currently have customers across numerous industry segments, with the resources of our direct sales organization focused on premium customers in certain key segments, including oil and gas, transportation and logistics, government and municipal, bus and coach, and rental and leasing. In the future, we may increase our product development initiatives and sales and distribution efforts in other industry segments, such as service fleets, and in other customer segments, such as small business fleets. We regularly evaluate opportunities to expand our target customer focus.

 

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Continuing to introduce new, innovative solutions to address market demand. We intend to continue to invest in product development to expand our portfolio of fleet and mobile asset management solutions. We recently introduced MiX Vision, which offers a premium subscription-based, in-vehicle video surveillance solution. We are currently developing other extensions to our solutions portfolio based on our assessment of market demand. For example, following our recent acquisition of Intellichain, a supply chain management software business, we are currently developing elements of integrated transportation management software.

 

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Pursuing strategic acquisitions. Our industry is highly fragmented and, since our inception, we have consummated four acquisitions worldwide. We intend to selectively evaluate acquisition opportunities in certain geographic regions and industry segments.

Sales and Marketing

We offer our solutions in 112 countries through a combination of our direct and indirect selling efforts. Our sales and marketing strategy is segmented by geographic region and customer type in order to cost effectively target and acquire new customers. In certain regions, we sell subscriptions of our fleet management solutions to large enterprise fleets through our direct sales force. In other regions, and for sales to small fleet operators and consumers, we work with an extensive distribution network of regional partners and national distribution dealers. Through our

 

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central services organization headquartered in South Africa, we provide common marketing, product management support and distribution support to each of our regional sales and marketing operations.

The following is a brief description of the main categories of our sales efforts.

 

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Direct Sales—Enterprise Fleet. We focus our direct selling efforts on targeting, acquiring, servicing and upselling our premium solutions to large enterprise fleet operators. We maintain sales offices in Australia, Brazil, South Africa, Uganda, the United Arab Emirates, the United Kingdom and the United States. These offices sell directly to large enterprise fleet operators in their respective regions and are also responsible for channel management for fleet solution distribution partners throughout their regions. Our sales and marketing approach with these customers is generally based on a combination of return on investment and the improvements in safety and security delivered by our solutions.

 

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Indirect Sales—Enterprise Fleet. We have approximately 135 fleet dealers supporting customers in 112 countries worldwide. These distribution partners are responsible for sales, marketing, technical support, installation and training of customers in their regions. We are introducing a partner accreditation program in order to assure a consistent customer experience across our distribution partners worldwide. We also offer marketing and support services to our distribution partners in order to enhance their selling success. We believe our large network of distribution partners provides us with a geographically diverse, highly effective channel for reaching local customers in countries where we do not currently have a direct presence.

 

  Ÿ  

Indirect Sales—Small Fleet Operators and Consumers. We currently manage a network of nearly 600 distribution partners for our small fleet operator and consumer customers. Our distribution partners include automobile dealers, aftermarket automotive parts and service suppliers, automobile insurers and retailers. We believe our indirect distribution strategy for the small fleet operator and consumer markets provides us with a differentiated, cost-effective customer acquisition and sales model.

Our global network of independent dealers and distributors is an important component of our sales strategy. Our dealers and distributors account for a substantial percentage of our total sales, and sales generated by certain dealers and distributors individually represent a meaningful percentage of our revenue. One group of distributors under common ownership accounts for a substantial portion of our sales in the Africa consumer segment. The terms of our agreements with our dealers do not usually include minimum purchase obligations, are specific to a geographic territory and are nonexclusive. They generally have a fixed initial term, after which they continue indefinitely, subject to the right of either party to terminate on specified notice generally ranging from 90 days to one year, or for breach. Similarly, our distributor agreements do not include minimum purchase obligations and consist principally of a commission agreement applicable to sales generated by the distributor.

Customers

We currently serve a highly diverse customer base, including more than 4,000 fleet operators, which represented 64% of our subscription revenue for fiscal 2013, and consumers. We target sales of our enterprise fleet management solutions to customers who desire a premium solution, generally for large fleets, which we define as being fleets of 100 or more vehicles. Large fleets

 

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comprised approximately 74% of our fleet customer vehicles under subscription as of March 31, 2013. We also offer a range of subscription-based fleet and mobile asset management solutions optimized for the needs and price points demanded by small fleet operators and consumers.

Our current customer base spans numerous industry categories and customer segments, including oil and gas, transportation and logistics, government and municipal, bus and coach, and rental and leasing. No individual customer represented more than 6.2% of our subscription revenues for fiscal year 2013. For fiscal years 2013, 2012 and 2011, our top 10 customers represented 24.5%, 23.6% and 22.6%, respectively, of our total subscription revenue.

The following is a representative list of some of our larger customers:

 

Ÿ     Baker Hughes

 

Ÿ     Bechtel Corporation

 

Ÿ     Chevron

 

Ÿ     Daimler Fleet Management

 

Ÿ     Eskom

 

Ÿ     Europcar

  

Ÿ     Go Ahead Group

 

Ÿ     Nestlé

 

Ÿ     PepsiCo

 

Ÿ     Rio Tinto

 

Ÿ     Scania

 

Ÿ     Schlumberger

We believe that we have a satisfied customer base as evidenced by our customer retention rate and the favorable results of our customer surveys. In fiscal year 2013, among our 224 large fleet operator customers, we experienced an annual customer retention rate in excess of 95%. Across our entire subscriber base, including our range of smaller fleet and consumer subscribers, we experienced a subscriber retention rate in excess of 87% during fiscal year 2013. We maintain a strong focus on monitoring and continuously enhancing our customer satisfaction levels.

Service and Support

Installation of our solutions in our customers’ vehicles is generally provided by us or our third-party network, which includes dealers and distributors and installation partners. Customer care and technical support services are provided by our offices in Australia, Brazil, South Africa, the United Arab Emirates, the United Kingdom and the United States. In many cases, our dealers and distributors also provide customers with tier-one customer support services. Our regional offices and dealers and distributors are, in turn, supported by our central technical support team in South Africa that handles any escalated issues. Existing customers can also access customer and technical support directly through our web or mobile applications. Our technical support department is composed of a team of highly skilled staff who are familiar with all of our products, including our entire range of software and service solutions as well as our hardware.

We offer warranties of varying duration on our products. Product warranties are predominantly for a one-year period but periods of up to three years are provided in certain geographic locations. Our Beam-e product carries a lifetime warranty (to the extent that the unit is located in the vehicle into which it was installed for the original subscriber). Warranty expenses are not a significant portion of our total costs.

Research and Development

Our development group consists of 90 full-time staff responsible for software, hardware and firmware development and quality assurance. Our primary development group is based in

 

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Stellenbosch, South Africa and we have additional local development resources in the United States and the United Kingdom. Our software development teams employ an agile development methodology, which we believe gives us a time-to-market advantage against many of our competitors. During fiscal years 2013, 2012 and 2011, we invested R61.1 million ($6.6 million), R57.1 million and R57.0 million, respectively, in research and development.

Our investment in development is core to our business strategy. Our research and development efforts principally involve software development, firmware development, hardware design and related test equipment. In addition, over the last 18 months, we have redesigned certain of our hardware components to extend their functionality and reduce manufacturing costs. We also recently launched a separate software development incubator office to develop our next-generation fleet and asset management platform.

We have been successful in expanding our product offerings over time through internal development and select acquisitions. During fiscal years 2013 and 2012, we introduced six new, distinct solutions and many incremental features.

We are ISO 9001 certified with a formalized quality policy and consistent monitoring of internal processes, supplier and solution performance. We are currently in the process of being ISO 27001 certified. We outsource all hardware manufacturing to third parties.

Technology

Our solutions are offered using a multi-tenant SaaS architecture that scales rapidly to support additional new subscribers through the addition of incremental data processing and storage hardware. This architecture flexibility allows us to sustain high levels of uptime without degradation of system performance, despite significant subscriber growth. Our existing architecture and infrastructure has been designed with sufficient capacity to meet our current and anticipated future needs. Our subscription-based fleet and consumer service offerings are designed to be accessible via a standard web browser or mobile device application.

Our solutions include a proprietary in-vehicle device that incorporates off-the-shelf components, generally including a cellular modem, GPS receiver and memory capacity sufficient to run our firmware, which gathers vehicle location, time, speed, ignition status, miles driven and various vehicle and driver statistics. This information is collected at a predefined frequency and then sent to our receivers at secure third-party data centers, generally via a commercial cellular network. The information is then processed and delivered to our customers through our web-based and mobile device applications. Our solutions enable our fleet customers to access large volumes of historical and real-time data, monitor the location and status of their fleet vehicles and drivers, view a wide selection of reports and key performance indicator dashboards and generate valuable, actionable business intelligence.

We host our solutions for our customers in five secure third-party data centers located in Amsterdam, Cape Town, Johannesburg, London and Miami. Our data management facilities provide us with both physical security, including manned security, biometric access controls and systems security, including firewalls, encryption, redundant power and environmental controls. We believe that our third-party hosting facilities are adequate for our current needs and that suitable additional capacity will be available as needed to accommodate planned expansion of our operations.

Intellectual Property

We rely primarily on trade secret laws, confidentiality agreements, confidentiality procedures and contractual restrictions to establish and protect our intellectual property rights. We also rely to

 

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a limited extent on patent, trademark and copyright law. Patent applications covering certain aspects of our Beam-e product are pending in South Africa and Brazil, and we have an additional patent application pending in South Africa covering a method for driver verification.

We typically enter into non-disclosure and confidentiality agreements with our employees and consultants. We also seek these protective agreements from some of our suppliers and subcontractors who have access to sensitive information regarding our intellectual property.

Competition

The rapidly evolving market for our solutions is competitive and highly fragmented, particularly by geography and customer segment. We currently compete with numerous providers of fleet and mobile asset management solutions that range from small, regional providers to midsized multinational providers, such as NavMan Wireless, to large global providers, such as Trimble and Qualcomm. While we currently only compete with Trimble and Qualcomm on a limited basis, these two competitors are well established companies with significantly greater financial and other resources than we have. Many of our competitors offer fleet or mobile asset management software solutions to particular industry segments or in limited geographic regions. For example, we compete with Masternaut in Europe, we compete with inthinc for oil and gas fleet opportunities, and we compete with Tracker and NetStar for consumer and small fleet mobile asset management deployments in South Africa.

We believe the principal competitive factors in our market include the following:

 

  Ÿ  

functionality and reliability;

 

  Ÿ  

total cost of ownership;

 

  Ÿ  

breadth and depth of application functionality for fleet deployments;

 

  Ÿ  

product performance;

 

  Ÿ  

interoperability;

 

  Ÿ  

brand and reputation;

 

  Ÿ  

customer service;

 

  Ÿ  

distribution channels;

 

  Ÿ  

regional geographic expertise including localized language support and support for applicable government regulations;

 

  Ÿ  

size of customer base and reference accounts within key industry segments;

 

  Ÿ  

ability to deliver ongoing value and return on investment;

 

  Ÿ  

ease of deployment and ease of use;

 

  Ÿ  

relevant industry domain expertise and functionality; and

 

  Ÿ  

the financial resources of the vendor.

We believe that we compete favorably on the basis of these factors.

 

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Broad Based Black Economic Empowerment

The South African government, through the Broad-Based Black Economic Empowerment Act, 2003, the codes of good practice (the “BBBEE Codes”) and industry charters published pursuant thereto (collectively, “BBBEE”) has established a legislative framework to promote broad-based black economic empowerment in South Africa. Achievement of BBBEE objectives is measured by a scorecard which establishes a weighting for the various components of BBBEE under the applicable BBBEE Code.

BBBEE objectives are pursued in significant part by requiring parties who contract with governmental or quasi-governmental entities in South Africa to achieve BBBEE compliance through satisfaction of an applicable scorecard. Parties improve their BBBEE score when contracting privately with black-owned businesses or businesses that have earned good BBBEE ratings in relation to their scorecards. The significance of government contracting opportunities to the private sector in South Africa drives BBBEE compliance both directly and indirectly through this scoring mechanism. We do not have any significant contracts requiring us to maintain a BBBEE rating level as measured under a BBBEE scorecard but are required to meet certain specific BBBEE targets under two contracts which service South African quasi-governmental customers. One of these agreements has a 36-month term and requires us to meet agreed targets, which we have not yet met, prior to July 2015. Failure to have met the targets by that time will allow the client to cancel the agreement before the end of the term. The other contract has passed its initial term and is operating on a month-to-month basis, allowing the client to cancel the contract on 30 days’ notice. We have met the agreed BBBEE target but failure to maintain the agreed BBBEE target may increase the likelihood of cancellation. The combined value of these contracts was 6.7% of our total revenue for fiscal year 2013.

The BBBEE Codes and associated scorecards are currently under review by the South African Department of Trade and Industry. We are unable to estimate when revised BBBEE Codes will be implemented or the nature of its impact on us. It is expected that upon implementation, there will be a transitional period of at least one year. The revision of the BBBEE Codes is not expected to impact on our existing contracts but could materially impact our ability to secure new contracts, or renew existing contracts, if we are unable to maintain our BBBEE rating level following the changes to the BBBEE Codes, particularly when contracting with governmental or quasi-governmental organizations.

Employees

As of March 31, 2013, we had 873 full-time permanent employees and 64 part-time employees. The following table presents the breakdown of our employees at the date indicated by geographic location:

 

     As of March 31, 2013  

South Africa

     727   

United States

     59   

United Kingdom

     55   

United Arab Emirates

     53   

Australia

     39   

Brazil

     3   

Uganda

     1   
  

 

 

 

Total

     937   
  

 

 

 

 

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Properties

As of July 24, 2013, we owned or leased the following properties, used primarily for office space:

 

Property

  Owned or
Leased
   Square
Footage
 

South Africa

    

Howick Close, Waterfall Park, Midrand, South Africa

  Leased      45,100   

Blaauwklip Office Development & Park, Stellenbosch, South Africa

  Owned      17,158   

Blaauwklip Office Development & Park, Stellenbosch, South Africa

  Leased      15,834   

Unit B6, Arden Grove, Montague Gardens, Cape Town, South Africa

  Leased      2,196   

8 Caefron Avenue, Westville, Durban, South Africa

  Leased      1,550   

Office 3B, The Woodmill, Stellenbosch, Cape Town, South Africa

  Leased      1,076   

Australia

    

Ground Floor, 1 Alvan Street, Subiaco, Australia

  Leased      2,146   

28 Fortescue Street, Spring Hill, Brisbane, Queensland, Australia

  Leased      1,679   

12 – 20 Railway Road, Subiaco, Australia

  Leased      1,023   

HWT Tower, Southbank, Melbourne, Victoria, Australia

  Leased      196   

United States

    

750 Park of Commerce Blvd., Suite 100 and 105, Boca Raton, Florida, USA

  Leased      7,390   

1452 Hughes Rd., Suite 200, Grapevine, Texas, USA

  Leased      218   

United Kingdom

    

Ground Floor, Unit 17, Wiltshire House, County Park Business Centre, Swindon, UK

  Leased      5,382   

6170 & 6180 Knights Court, Birmingham Business Park, Birmingham, UK

  Leased      5,280   

United Arab Emirates

    

Dubai Airport, Freezone, Dubai, United Arab Emirates

  Leased      3,937   

Brazil

    

Salas 1505, 1506 & 1507, Av. Marquês de São Vicente 446, São Aqulo, Brazil

  Leased      1,722   

Uganda

    

7th Floor, Course View Towers, Kitane Road, Nakasero, Kampala, Uganda

  Leased      185   

We believe that our facilities are adequate for our current needs and that suitable additional space will be available as needed to accommodate any potential expansion.

Legal Proceedings

From time to time, we have been and may become involved in legal proceedings arising in the ordinary course of our business.

 

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GOVERNMENT REGULATION

We are subject to laws and regulations relating to our business operations, including laws applicable to providers of Internet and mobile services both domestically and internationally, as we collect data, including personal data, disseminate data and, in some cases, sell data. The application of existing domestic and international laws and regulations relating to issues such as user privacy and data protection, marketing, advertising, inadvertent disclosure and consumer protection in many instances is unclear or unsettled.

The transmission of data over the Internet and cellular networks is a critical component of our SaaS business model. We believe that as cloud computing continues to evolve, increased regulation by federal, state and foreign agencies becomes more likely, including in the areas of data privacy and data security. In particular, we believe that the dynamic regulatory environment in the United States and the European Union is likely to result in additional and increasingly complex regulation in these areas and that new laws governing data privacy and data security will be enacted in many other regions. Laws governing the solicitation, collection, processing or use of data could impair our ability to manage and report on customer data, which is integral to the delivery of our SaaS solutions. Increased regulation will require us to devote legal and other resources to address this regulation. We have not completed a legal review to determine our compliance with data privacy and data security laws. As we expand our business and operations, we will be required to devote increased resources to regulatory compliance.

Data privacy regulations and applicable laws in the U.S., the European Union or elsewhere could limit our ability to use the data we gather from our customers, increase the cost of doing business and result in claims brought by our customers or third parties. As discussed below, South Africa, which is currently our largest market, is expected to adopt data privacy legislation in the near future.

South African Regulatory Environment

The Protection of Personal Information Bill, or “POPI,” is pending in South Africa and is expected to be enacted during 2013. If POPI becomes law, we anticipate being subject to a variety of obligations thereunder to take steps to protect personal information. Although we are continuing to evaluate the potential impact of POPI, taking into account our existing privacy and data security practices and procedures, we do not believe its implementation will have a material impact on our business.

A number of existing South African statutes regulate electronic communications, including the Electronic Communications Act No 36 of 2005 and the Electronic Communications and Transactions Act No 25 of 2002, which apply to a number of aspects of our business. These statutes regulate the generation, communication, production, processing, sending, receiving, recording, retaining, storing, displaying and use of any information, document or signature by or in electronic form. The Electronic Communications and Transactions Act requires us to implement reliable and auditable procedures relating to records maintained in electronic form.

U.S. Regulatory Environment

In addition to its regulation of Internet and, by extension, SaaS providers, the Federal Trade Commission, or “FTC,” has been asked by consumer groups to identify practices that may compromise privacy and consumer welfare; examine opt-in procedures to ensure consumers are aware of the type of data being collected and how it will be used; and create policies to halt

 

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abusive practices. The FTC has expressed interest in particular in the mobile environment and services that collect sensitive data, such as location-based information, which could conceivably be expanded to include transceiver products such as our in-vehicle devices.

Our business is affected by U.S. federal and U.S. state laws and regulations governing the collection, use, retention, sharing and security of data that we receive from and about our users. In recent years, regulation has focused on the collection, use, disclosure and security of information that may be used to identify or that actually identifies an individual, such as a name, address and/or email address. Although mobile and Internet advertising privacy practices are currently largely self-regulated in the U.S., the FTC has conducted numerous discussions on this subject and suggested that more rigorous privacy regulation is appropriate, possibly including regulation of non-personally identifiable information which could, with other information, be used to identify an individual.

Finally, we use GPS satellites to obtain location data for our in-vehicle devices. The satellites and their ground control and monitoring stations are maintained and operated by the U.S. Department of Defense. The Department of Defense does not currently impose regulations in connection with our ability to access location data from the GPS satellite constellation. However, it could do so in the future.

European Union Regulatory Environment

We are subject to regulation under the laws of the European Union. Of particular relevance with regard to the regulation of our solutions are matters of data protection and privacy. More broadly, any processing of personal data in the course of the provision of services is governed by the European Union data protection regime. The framework legislation at a European Union level in respect of data protection is Directive 95/46/EC, which we refer to as the Data Protection Directive. The purpose of the Data Protection Directive is to provide for the protection of the individual’s right to privacy with respect to the processing of personal data. Each member state is obligated to have national legislation consistent with the Data Protection Directive.

Australian Regulatory Environment

The National Privacy Principles contained in the Privacy Act 1988 regulate the collection, use, retention, disclosure and security of personal information. Personal information is defined as “information or an opinion (including information or an opinion forming part of a database), whether true or not, and whether recorded in a material form or not, about an individual whose identity is apparent, or can reasonably be ascertained, from the information or opinion.” Personal information includes location-based information where the information enables the location of an individual to be ascertained. Australian privacy laws in general prohibit the transfer of personal information outside Australia unless the individual to whom the information relates has consented to the transfer or there is a data transfer agreement in place between the transferor and the transferee under which the transferee agrees to offer the same protections as are provided under Australian privacy laws. Amendments to these laws imposing stricter regulation will become effective in March 2014. These amendments include a provision making an organization which transfers data outside Australia responsible for any breaches of Australian privacy laws when personal information is transferred outside Australia, regardless of whether there is consent or a data transfer agreement in place. There are also proposals to introduce privacy breach reporting which have not yet been enacted.

 

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MANAGEMENT

The names of the senior management and directors of MiX Telematics Limited, their ages at July 24, 2013 and their positions are set forth in the table below. The business address of each of our members of senior management and directors is c/o MiX Telematics Limited, Howick Close, Waterfall Park, Midrand, South Africa 1686. Effective upon the closing of the offering, Messrs. Shough, Buzer and Scott and Ms. Botha will resign as directors.

 

Name

   Age   

Position

Stefan Joselowitz

   54    Chief Executive Officer and Director

Megan Pydigadu

   38    Group Financial Director

Charles Tasker

   49    Executive—Fleet Solutions and Director

Brendan Horan

   38    Executive—Consumer Solutions

Gert Pretorius

   45    Executive—Africa Fleet Solutions

Terence Buzer

   64    Executive—Development and Engineering and Director

Riëtte Botha

   45    Executive—Special Projects and Director

Howard Scott

   54    Executive—Strategy and Acquisitions and Director

Richard Bruyns

   60    Chairman

Hubert Brody

   49    Director

Robin Frew

   53    Director

Christopher Ewing

   64    Director

Royston Shough

   62    Director

Anthony Welton

   65    Director

Enos Banda

   48    Director

Fundiswa Roji

   37    Alternate Director to Hubert Brody

Senior Management

Stefan Joselowitz has served as our Chief Executive Officer and as a member of our Board of Directors since he founded the Group in 1996. Since founding MiX, Mr. Joselowitz has overseen four acquisitions and successfully orchestrated the Company’s listing on the JSE. In 2008, he relocated to the United States as part of our global expansion strategy. Prior to MiX, from 1984 to 1995, he served as Chief Executive Officer, and previously, Sales Director, of Shurlok (Pty) Ltd, a developer of electronic systems for the automotive industry, helping to build the company into a leader in the field of vehicle safety and security.

Megan Pydigadu has served as our Group Financial Director and as a member of our Board of Directors since 2010. Previously, Ms. Pydigadu served as our Financial Controller. From 2005 until joining MiX in 2010, Ms. Pydigadu served as financial controller for Bateman Engineering, an international project management business based in South Africa. Ms. Pydigadu previously was an accountant with Deloitte & Touche and she is a registered accountant in South Africa.

Charles Tasker has served as the Executive responsible for Fleet Solutions world-wide since our acquisition of Omnibridge in 2007 and has served as a member of our Board of Directors since August 2007. Prior to MiX, Mr. Tasker founded DataPro in 1986, an internet service provider & software development company, which was acquired by Control Instruments Group Limited in 1996. As part of that acquisition, Mr Tasker joined Control Instruments to lead its fleet management business, which became OmniBridge. Mr. Tasker has more than 25 years of entrepreneurial and management experience working with companies in the technology sector.

 

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Brendan Horan has served as the Executive responsible for Consumer Solutions since January 2012. From September 2008 until December 2011, Mr. Horan served as General Manager—Sales and Marketing of MiX Telematics Africa Pty Ltd. Previously, Mr. Horan served as our General Manager—RSA and Africa Fleet from March 2007 until September 2008. Mr. Horan is a registered accountant with previous accounting experience in South Africa and the United Kingdom.

Gert Pretorius has served as the Executive responsible for Africa Fleet Solutions since January 2012. He served in various other senior sales and operations roles at MiX before being appointed chief operating officer for MiX Africa in 2010. Previously, Mr. Pretorius served as operations manager for Omnibridge. From 1998 until joining Omnibridge, Mr. Pretorius held senior executive roles at fleet management companies including Super Group and Daimler Fleet Management and in the security industry at Coin Security Group.

Terence Buzer has served as the Executive of Development and Engineering since January 2011 and has served on our Board of Directors since August 2007. Previously, Mr. Buzer was the executive responsible for our European business from February 2008 until January 2011. Mr. Buzer has extensive international experience in the automotive component and fleet management businesses. He served as an executive on the board of directors of Control Instruments Group Limited from 1987 until joining MiX.

Riëtte Botha has served as the Executive of Special Projects since 2011 with a focus on developing our strategy to globalize our consumer business. Ms. Botha joined our predecessor company in 1999 as Financial Manager and she has been a member of the Board of Directors since October 2002. Ms. Botha has held a number of positions with the Company including Financial Director and Managing Director of MiX Telematics Africa Pty Ltd. Ms. Botha has been involved in most aspects of the MiX business during her tenure including roles in finance, operational management, product management, strategic planning and business development.

Howard Scott has served as the Executive of Strategy and Acquisitions since September 2010 and as a member of our Board of Directors since November 2010. Mr. Scott served as a consultant to us from March 2008 until November 2010 and served as our Financial Director from August 2007 until February 2008. Previously, Mr. Scott has held senior finance and accounting roles including as the financial director of a JSE-listed company and as the non-executive director of a JSE-listed accounting software provider.

Directors

Richard Bruyns has served as the Chairman of our Board of Directors since October 2007. Mr. Bruyns is also a member of our Audit and Risk Committee, our Nominations and Remuneration Committee and our Social and Ethics Committee. Mr. Bruyns serves as non-executive director on the board of directors of Conduit Capital Ltd., a publicly traded financial services company. Mr. Bruyns served as Chairman of New Africa Investments from 2009 until 2013.

Hubert Brody has served as a member of our Board of Directors since August 2010. Mr. Brody is also Chief Executive Officer and Chairman of the Executive Board of Imperial Holdings Limited, a leading vehicle distributor and retailing group and our largest indirect shareholder, since 2007.

Robin Frew has served as a member of our Board of Directors since November 1997. Mr. Frew serves as the Chairman of our Nominations and Remuneration Committee. Mr. Frew has served as the Chief Executive Officer of Masalini Capital Proprietary Limited, a private investment partnership, since 2002.

 

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Christopher Ewing has served as a member of our Board of Directors since January 2012. Mr. Ewing serves a member of our Audit and Risk Committee and will assume the role of chairman of our Audit and Risk Committee upon Mr. Shough’s resignation effective as of the closing of the offering. Mr. Ewing serves as the chairman of the law firm of Cliffe Dekker Hofmeyr and a director in the Corporate and Commercial practice. Mr. Ewing has practiced corporate law for more than 30 years, specializing in mergers and acquisitions. Mr. Ewing serves on the board of directors and audit committee of BetterGroup Limited, a mortgage servicing company.

Royston Shough has served as a member of our Board of Directors since June 2012. Mr. Shough serves as the chairman of our Audit and Risk Committee. Mr. Shough served as a consultant and most recently, as a director in risk advisory, for Deloitte & Touche from 1971 until 2012. At Deloitte & Touche, Mr. Shough was responsible for the outsourced internal audit services to MiX. Mr. Shough serves as a director and on the audit and compliance, remuneration, and enterprise risk and capital management committees of the South African Bank of Athens Limited.

Anthony Welton has served as a member of our Board of Directors since February 2008. Mr. Welton serves as the chairman of our Social and Ethics Committee and a member of our Nominations and Remuneration Committee. Mr. Welton served as a financial consultant from 2003 until 2009 and as the Financial Director of Malbak Ltd., an industrial holding company, from 1997 until 2002.

Enos Banda has served as a member of our Board of Directors since May 2013. Mr. Banda is also a member of our Audit and Risk Committee. Mr. Banda has served as the Chief Executive Officer of Freetel Capital (Pty) Ltd., a private investment partnership, since 2006.

Fundiswa Roji served as a member of our Board of Directors from August 2007 until her resignation in May 2013, which resulted in her ceasing to be an independent director for JSE purposes by reason of her affiliation with Imperial Holding Limited. Ms. Roji continues to serve as an alternate director to Hubert Brody in order to afford us the benefit of her nine years of extensive experience with us in various non-executive roles. As an alternate director, Ms Roji has no power to act or vote unless Mr. Brody is absent. Ms. Roji is also a member of our Social and Ethics Committee. Ms. Roji has served as a Senior Manager—Strategy and Investor Relations at Imperial Holdings Limited, our largest indirect shareholder, since January 2013. Ms. Roji served as Director of Investments at Kagiso Tiso Holdings (Pty) Ltd., from 2001 until 2012.

Board of Directors

Our Board of Directors is composed of seven non-executive directors and six executive directors. Our Memorandum of Incorporation requires that our Board of Directors must be comprised of at least four directors. At least one-third of the non-executive directors retire by rotation each year and stand for re-election at each annual general meeting in accordance with our Memorandum of Incorporation. Director appointments during the year are ratified at the next annual general meeting. The expiration of our directors’ terms of office is set forth in the table below. As noted above, Messrs. Shough, Buzer and Scott and Ms. Botha will resign from our Board of Directors effective upon the closing of the offering.

 

Director

   Year Current Term Expires

Enos Banda

   2015

Richard Bruyns