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Digicore Throws Out a Life-Life

Digicore Holdings has been doing some really good things of late. Not only is it becoming an exporter of note but it is also surging ahead on the local front with its C-Track and Co-Driver products while also adding new products to its line-up. It's latest move has been to throw a life-line to the former clients of Q Fleet which closed the door on its fleet management and tracking operations a few months ago.

Since its listing on the Johannesburg Stock Exchange in December last year when Digicore Holdings capitalised R215-million, the company has been making headlines in quite a few financial journals. The main focus of attention has been on its export activities which financial analysts regard as good news given that the drive is on in South Africa to build up our exports. Having markets outside of South Africa is also seen as clever boxing in that it makes the company less vulnerable to the economic vagaries on the local front.

It is interesting to note that while it is generally recognised that South Africa is a leader in terms of vehicle tracking and monitoring technology, Digicore is putting proof on the table that this is so. In Pakistan, for example, the company has a 30% shareholding in a local operation and is achieving success in penetrating the market with C-Track, its South African developed vehicle tracking and management system, as well as with the Co-Driver vehicle monitoring system. Co-Driver originated under Durban-based Kivtronics which was brought into the Digicore stable last year prior to the company being listed.

In Australia, a company called Digicore Technology has also been formed which is being run in association with Digicore Holdings by an ex South African. News recently came through that following months of tests conducted on 35 vehicles belonging to one of Australia's biggest fleets, Linfox, the company has now started a fitment programme of Co-Driver to 50 new vehicles. Linfox's total fleet size is between 1 500 to 2 000 truck tractors and the plan is to fit every new vehicle that goes into the fleet with the Co-Driver. Prospects are looking good for C-Track in the Australian market.

Digicore has also penetrated the Benelux countries and is expecting big things in that area of the world with 100 C-Track units already fitted in Holland and more to follow soon. Other overseas export markets are also being pursued, one being Ireland where a distributor has already been appointed.

Closer to home, Africa has always been a big market for the Co-Driver system with breakthroughs being made in Tanzania, Ghana, Zimbabwe, Kenya, Malawi and Zambia.

BP, for example, has fitted 45 units to its fleet in Tanzania and, according to Bruce Richards, Digicore's marketing manager, the company has indicated its intention to standardise on Co-Driver throughout Africa. Also in Tanzania, R J Reynolds has fitted 100 units to its vehicles while in Zimbabwe, an order recently came through from one of the major bus fleets.

In South Africa, both the Co-Driver and C-Track systems continue to enjoy significant success. According to Digicore's group MD, Nick Vlok, about 6 000 C-Track units are in operation in the market while Co-Driver runs into many thousands. One of the largest single orders for Co-Driver came from Eskom with an order for 700 units placed last year. Since then, a further 100 have been installed into Eskom vehicles.

Second largest in the world

Of particular interest is that municipalities around the country have taken to the Co-Driver with great enthusiasm with the company having penetrated some 19 municipalities around the country - the latest being Pietermaritzburg. "To date," says Richards, "around 26 000 Co-Driver units have been sold which makes us the second largest supplier of vehicle monitoring systems in the world."

Although we have made mention of only two of the group's products, there are others, the most recent addition to the stable being the Bekamax central lubrication system which hails out of Germany where it is fitted as standard OE equipment to MAN trucks. Then there are tachographs and a wide variety of vehicle gauges - plus more.

This variety of product is an important part of the group's growth strategy for just as it's export activities have lessened its reliance on the South Africa market, so too is the organisation no longer reliant on one or two products for its survival and growth. This is an important point and especially when related to its activities in the vehicle management and tracking arena via its C-Track product.

As is well known, many players have entered the vehicle tracking arena over the past few years but few have survived. The main reason for this lies not solely in shoddy product offerings. In fact, there have been some tremendous products on offer. There has also, of course, been some real junk. No, it lies rather in the inability of these companies to hang in over the long term while units sales are building up. In other words, the return on investment has not been sufficient to justify long term viability.

There are many examples of this but let's just mention two. The first was Datatrak which, under the Jasco banner, lasted about a year before having the plug pulled - and that was after an investment of some R53-million. Another, and one totally pertinent to this article, was Q Fleet which, after an investment of around R10-million, pulled out earlier this year. Both companies had good products but both cited inadequate returns on investment due to slow and low units sales as being the main reason behind their pull out.

On Vlok's own admittance, even Digicore was at one stage ready to get out of the fire - and that was not too long after it started. "We started with C-Track in November 1997 and by July the next year, I wanted to quit because of cash flow problems as well as problems with the system. It was a hard road to walk but we have now paid our dues and have ironed out both sets of problems," he says.

The cash-flow problem was ironed out via the stock exchange listing and the software problems were ironed out by bringing in skilled personnel - some from military background - to get the software on stream. Luckily for the company, there were clients who were prepared to hang in while the problems were sorted out.

Interesting is that despite the problems, C-Track was well accepted by operators but if the cash had not been raised via the listing, the wheels may well have fallen off. "Growth was one of our big problems. I now know how you can sell yourself into bankruptcy," says Vlok.

Catch-22 again

Apart from cash-flow, another Catch-22 arises on the systems side for, as Vlok states, the more units you install, the quicker you are able to weed out the flaws that arise in operations. But who wants to install a system with flaws? Well, in the case of C-Track, they were lucky to have clients who hung in. "There are a lot of suppliers of systems out there who haven't got over that hurdle because they only have a few units installed."

As you might have gauged, the vehicle management and tracking sector could well be nick-named the Catch-22 arena. Firstly you need money and skills to develop a system, then you need sales to get some of that money back, a percentage of which you have to plough back into R&D because you can only really refine the system once it is in operation. But if the market hears of the flaws, it will not buy the system so you have to get the system right before you can get the sales volumes up. And then just as you have got the system right, you run out of cash so now you desperately need the units sales. In the meantime, the market has been stung by other players who have sold systems and then disappeared so there is now a wall of suspicion through which you have to break. Need I go on….

FleetWatch has stated on more than one occasion that the trucking industry is not the place for a quick buck to be made, and especially not in the vehicle management and tracking arena. It is a long and a hard route that requires great patience and loads of money. However, once you're through the barrier, it's a wonderful industry to operate in - and that's where Digicore now finds itself.

"We're over the hill and are now facing the beginning of our growth era." It's Etienne Badenhorst speaking. He's MD of Digicore Distribution, one of the three divisions that Digicore Holdings has formed to handle the operations of the group. The other two are Digicore International, responsible for all export activities and Digicore Technology, which incorporates Kivtronics and handles the R&D as well as manufacture of C-Track and Co-Driver.

His optimism comes from the fact that Digicore now has some 4 000 customers on its books some of which have C-Track fitted, others have Co-Driver, others have tachographs and more recently, others have installed the Bekamax lubrication system on some of their vehicles. So he is not only looking at new customers for growth.

"Because of our spectrum of products, we can grow into our existing client base with products all aimed at providing solutions to different fleet problems," says Badenhorst. "We've got a good record of bottom line profitability, we've got a wide product range and we've got dedicated and capable people to install and support our products so we are moving confidently into the future. Our potential is something special."

That is not to say the group is tardy in looking for new clients. In fact, Digicore is now moving out of the transport arena and is looking towards industries like mining, forestry and other operations to offer its products. "Wherever there are wheels in operation is where we want to be," says Bruce Richards.

Life-line to Q Fleet clients

And it is from this base of confidence that Digicore has thrown a life-line to former Q Fleet clients. "We've made an offer to these companies to take the Q Fleet system out of their vehicles and replace it with our system at no extra cost to the client."

It is important to note that Digicore is not taking over Q Fleet's business. Far from it. How it will work is that the clients will continue to pay to Digicore the monthly fee they were previously paying to Q Fleet but Digicore will bear the capital cost of the new C-Track system as well as the installation costs. They will not, however, take over any capital costs still owing to whatever finance house provided the capital for the Q Fleet system. That will be between the client, Q Fleet and the finance house to settle.

"The objective is to bail these companies out and offer them an easy route to achieve continuity in their original vehicle management and tracking objectives. We're saying to them that they don’t have to spend all that money again. They merely have to continue paying their monthly fee and we'll absorb the rest of the spend - and give them a new system that works," says Bruce Richards.

The alternative is for clients to enter into litigation with Q Fleet which could take upwards of a year and while they wait for the outcome, their fleet goes unprotected.

It seems a magnanimous gesture and it is - but it is also an investment into the future. "Sure we're taking a knock but we regard this as a medium term investment in an industry in which we plan to around for a long time. We're willing and are able to wait and in the meantime, we're happy to help these companies as we want to protect the good name of this industry," says Badenhorst.

The agreement with Q Fleet is that Digicore can salvage from the Q Fleet systems whatever is usable. However, Badenhorst does not see this as a huge incentive. "It's small potatoes really because although there are a few common components like the Nokia 6081 phones, there aren't many. Our main incentive is to bail those clients out."

As a matter of interest, there are some 140 Q Fleet units out in the field - and this after an investment of some R10-million by the company. Let anyone who is thinking of entering this market take note.

FleetWatch congratulates Digicore on its gesture towards these transport companies. Sure you may say it's not a lot - but to those companies which fitted the Q Fleet system and were left in the lurch, it is everything. There is a real element of good corporate citizenship embodied in this deal and, given Digicore's spread of products, it may just bounce back into additional short term profits. That's not the aim but I, for one, hope it's the end result.

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