Etion Group has announced reviewed provisional condensed consolidated annual results for the year ended 31 March 2019.
Key features include revenue up 4% to R595,9-million; gross profit margin up 2% 30,3%; EBITDA down 49% to R31,1-million;lLoss of R2,9-million; headline and basic earnings per share down 108% to loss of 0.56 cents.
Teddy Daka, CEO of Etion Group, says: “During the year under review the Group executed on a number of strategic decisions to further expand the Group’s offering and capabilities and better integrate all operating units.
“While these decisions have ensured that the Group is on track in terms of executing its strategy, we did not anticipate the severe downturn in economic activity. We had anticipated that the strategy would sacrifice margins in the short term as we transform the business, however accomplishing this transformation in tougher trading conditions has proven to be challenging.
“In response, management has embarked on a strategic review of operational costs to identify further optimisation opportunities across the Group, and has tightened working capital management. We are currently reviewing our decisions and have taken appropriate steps to better position Etion in 2020.”
He adds: “Although we had a difficult year, we have strategically retained our design, engineering and manufacturing capability, which is a major contributor to our fixed costs. A deep reduction of capacity in this area of our business would cause difficulties in ramping up once there is an uptick in the business. This has resulted in a negative year-on-year opex-to-revenue ratio, thereby significantly impacting the overall operating profit.”
Revenue grew 4% from R572,6-million to R595,9-million due to the acquisition of LAWTrust and an increase in revenue from Etion Digitise. Negative revenue growth from Etion Create and Etion Connect was impacted by reduced project spend by Etion’s clients. Higher margins in Etion Secure resulted in a gross profit margin improvement of 2% from 28,3% to 30,3%.
Operating expenses increased from R38,1-million to R165,2-million, mainly attributable to the acquisition of Etion Secure (previously LAWtrust) opex of R 33,6-million, once-off costs of R14,6-million relating to the acquisition of LAWTrust, the rebranding of the Group, and the restructuring of Etion Connect. Exclusion of the incurred once-off operating expenses reflects an 8,6% reduction in year-on-year expenditure in our existing operating units.
Cash generated from operations increased from R0,69-million to R33,7-million. However, the net working capital movement for the year, at R7,3-million, was negatively impacted by the increased inventory holdings earmarked for a major customer in Connect.
The application of IFRS 9’s impairment requirements led to the recognition of an additional impairment on trade and other receivables and a resultant decrease in retained earnings of R5,086-million (before tax considerations and net of R0,885-million already recognised) as at 1 April 2018, as well as an increase in operating expenses of R3,1-million in the current financial year. The group has applied the modified retrospective transition approach whereby the cumulative effect of applying IFRS 9 is recognised at the date of initial application (1 April 2018), with no restatement of the comparative period.
Finance costs have increased from R6,1-million to R11,2-million as debt was incurred to fund the LAWtrust acquisition.
The reassessment by SARS of assessed losses brought forward from the prior year has resulted in a reduction to our deferred tax asset and increase in tax charge of R4-million.
Compared to the R33,4-million profit last year, Etion recorded a loss of R2.9 million, resulting in earnings per share decreasing by 108% to 0.56 cents per share.
Daka says: “As we conclude on a tough 2019 financial year, we move into 2020 with a Group that has four key business entities, competitive in their respective fields of excellence and serving local and international customers. We have made good progress in diluting the concentration risk posed by fewer clients, public sector exposure, and the South African market. Our work is not done and will continue in 2020.”
Daka expects the market in the short term to remain subdued due to the decline in GDP, with spending to be unlocked in the second half of 2019. As the digitalisation of economies continues to grow at a much faster pace, Etion is well placed to take advantage of the opportunities both in South Africa and globally.
The Middle East is Etion’s second largest market outside of South Africa, with potential for further growth. The group has also earmarked Sub-Saharan Africa as a new growth market with good opportunities in safety, cyber security and frictionless operations, digitalisation of operations and the drive towards e-government.
Daka concludes: “One of the key focus areas of the group in 2020 will be to improve working capital. The investment in people and systems will improve efficiencies and unlock cash to further pursue growth opportunities.”