The automotive sector has been one of the industries hardest hit by the global economic downturn and Digicore Holdings, the JSE-listed fleet management and vehicle tracking solutions provider, is therefore likely to suffer lower profits this year as vehicle sales decline.
Digicore released interim results today, revealing a 7% decrease in turnover for the six months. Operating profit was marginally up from the comparable period in 2007, supported by 47% growth from its South African distribution. Foreign distribution was however sharply down by 27%.
"In South Africa, Digicore experienced rising demand for its C-track Stolen Vehicle Recovery Systems due to ongoing vehicle theft," notes Frost & Sullivan ICT analyst Mpho Moyo. "However, the global financial crisis and the subsequent drop in international vehicle sales led to a decline in exports."
Digicore has penetrated a number of international markets, such as Saudi Arabia, the UK, Nigeria, Pakistan, Australia and Malaysia. Its well-entrenched distribution network has enabled it to gain entry into new locations.
"However, political instability and declining oil prices in Pakistan resulted in lower unit sales there," Moyo notes. "Also, the benefits of DigiCore's geographical expansion are limited by the depressed international automotive market. The company is not likely to outperform the motor industry."
This dependence on the motor industry is a threat to DigiCore's operations. It will need to further develop relationships with different role players in the industry to secure revenue streams.
"The expansion of DigiCore's sales channel to include car dealerships and insurance brokers will be a key growth driver for Stolen Vehicle Recovery products," Moyo says. "In the UK, successful negotiations with original equipment manufactures to install fleet management systems in factories are likely to provide additional growth stimulus."