Listed technology group Etion reports turnaround

JSE-listed digital technology group Etion on Wednesday reported a 14.7% rise in revenue to R308.6 million for the six months ended September 2019, with its performance benefiting from the rollover of revenue from a key project in its Digitise business.

Operating profit climbed to R10 million, from R1.5 million before, while earnings before interest, taxes, depreciation, and amortisation (EBITDA) was up 152.8% to R22.5 million.

Profit after tax up 325% to R5.4 million, while diluted headline earnings per share was up 294% to 0.97 cents, from a prior loss per share in 2018.

Etion, formerly Ansys, chief executive officer Teddy Daka said: “Our focus on integrating the LawTrust acquisition, reducing the cost base and implementing our strategy has resulted in a significant improvement in our performance. As promised, we have improved working capital by reducing inventory and have tightly managed capital allocation.

“We have enhanced our cash generation and moved from making a loss to achieving a profit after tax of R5.4 million. We are also seeing the benefits of the investment in our own targeted intellectual property.”

Slow revenue growth from Connect has continued, the group said, due to reduced project spend from key clients who have invested less because of macro and micro economic factors.

Operating expenses increased 8.7% to R99.7 million as a result of consolidation of six months’ operating expenses in Secure and non-recurring costs of the Digitise restructure.

The benefit of once-off costs of R10 million relating to the acquisition of Secure, the rebranding of the group, and the restructuring of Connect incurred in the prior year, has been offset by the decline in projects executed during the current period and resultant inability to allocate the related costs to cost of sales.

Etion Create

  • Contribution to Group revenue | 27% Contribution to Group profit | 20%

Continued investment into products and solutions has contributed positively to successful customer engagements, which bodes well for future business opportunities in the medium term.

Etion Digitise

  • Contribution to Group revenue | 7% Contribution to Group profit | -56%

The strategic review has been completed and a phased restructure plan is being implemented.

Etion Connect

  • Contribution to Group revenue | 33% Contribution to Group profit | -11.2%

Significant efforts at diversifying the customer base have translated into orders from greenfields operators. This is expected to continue through continued aggressive, yet targeted, pipeline development.

Etion Secure

  • Contribution to Group revenue | 37% Contribution to Group profit | 85%

Revenue increased due to the increased focus on growing international markets and the impact of consolidating revenue for the full 6-month period.

“In line with our strategy to build an integrated business, and in consideration of the current tough trading conditions in the RSA economy, we have effected some changes to our operating model. These are aimed at not only consolidating our business and making it more agile and responsive to current market conditions but also at building resilience and sustainability,” Daka said.

The Secure business has implemented four strategic initiatives to accelerate medium-term growth and further globalisation, including the creation of a cyber security centre which will generate subscription income and uncover opportunities.

Says Daka: “We have focussed on the MEA market with an immediate win in Saudi Arabia. Secure has been appointed as the sole distributor for the SOLIDguard range of products, designed and manufactured by Etion Create, which continues to directly support defence clients in the Middle East.”

The improved performance in Digitise was largely a result of historic contracts, which have now been fulfilled. Due to the long procurement cycles and prevailing market conditions, revenues are expected to remain subdued for the foreseeable future, thereby necessitating an internal reorganisation.

The division has been streamlined with only a dedicated rail-focused business development capability remaining. Digitise will leverage off the experience of the Create team for the oversight of operations and sales, the group said.

While closely monitoring the cost base and growing its revenue base, Etion said it has has decided to streamline its Connect business and make it more agile to match current business needs.

“Our corporate office has been reorganised and trimmed. We have implemented cost optimisation initiatives in the marketing team and human resources department, and we have insourced the company secretariat. As we progress into the second half of FY2020, Etion has four optimised business entities, each competitive in its field of excellence and serving local and international customers,” the CEO said.

Looking ahead, Daka said: “In response to the subdued market we have implemented initiatives to reduce costs, improve working capital and to re-focus business efforts to meet the challenge of thriving in the local landscape as well as growing international revenue. There is a clear global demand for our products and services and this indicates a positive outlook for the Group in the medium term with the drive into MEA and other markets.”

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Listed technology group Etion reports turnaround