Wrap Text
Unaudited Condensed Consolidated Interim Financial Statements for the period ended 30 September 2018
Etion Limited
(“Etion” or “the company” or “the Group”)
(Incorporated in the Republic of South Africa)
(Registration Number: 1987/001222/06)
Share Code: ETO
ISIN: ZAE000097028
Unaudited Condensed Consolidated Interim Financial Statements
for the period ended 30 September 2018
KEY FEATURES
- Revenue decreased from R314.4 million to R269.1 million (down 14.4%)
- Gross profit margin increased from 31.7% to 36.9% (up 5.2%)
- EBITDA decreased from R47.3 million to R8.9 million (down 81.2%)
- Profit after tax decreased from R28 million to a loss of R2.4 million (down 108.6%)
- Headline Earnings per share decreased from 6.11 cents to -0.5 cents (down 108.2%)
- Basic Earnings per share decreased from 6.08 cents to -0.5 cents (down 108.2%)
- Net Asset Value decreased from 64.4 cents to 63.2 cents (down 1.9 %)
Condensed consolidated statement of financial position
As at 30 September 2018
30 September 30 September
2018 2017 31 March 2018
Notes
(Unaudited) (Unaudited) (Audited)
R’000 R’000 R’000
Assets
Non-current assets 265 624 176 787 184 569
Property, plant and equipment 50 879 51 631 50 294
Intangible assets 191 468 118 346 118 543
Deferred tax asset 19 917 5 800 14 722
Other financial assets 3 360 1 010 1 010
Current assets 328 327 276 541 285 379
Inventories 4 138 819 99 466 88 276
Trade and other receivables 5 147 061 130 973 140 790
Current tax receivable 7 047 - 5 513
Cash and cash equivalents 35 400 46 102 50 800
Total assets 593 951 453 328 469 948
Equity and liabilities
Equity 312 389 297 002 302 446
Share capital 232 241 212 141 212 141
Accumulated profit 80 148 84 680 90 305
Minority interest - 181 -
Non-current liabilities 76 557 36 250 32 952
Interest bearing borrowings 69 990 34 828 27 788
Deferred tax liability 6 567 1 422 5 164
Current liabilities 205 005 120 076 134 550
Provisions 3 070 857 5 388
Interest bearing borrowings 7 37 777 4 258 9 461
Trade and other payables 6 146 367 112 219 110 155
Current tax payable - 2 577 -
Bank overdrafts 17 791 165 9 546
Total equity and liabilities 593 951 453 328 469 948
Condensed consolidated statement of comprehensive income
For the 6 months ended 30 September 2018
6 months 6 months Year
ended ended ended
30 September 2018 30 September 2017 31 March 2018
Note (Unaudited) (Unaudited) (Audited)
R’000 R’000 R’000
Revenue 269 093 314 419 572 562
Cost of sales (169 877) (214 594) (410 379)
Gross profit 99 216 99 825 162 183
Other operating income 2 092 251 2 276
Administrative and operating costs (91 689) (62 177) (125 787)
Other (losses)/ gains (8 127) 2 214 7 849
Operating profit 1 492 40 113 46 521
Finance income 698 1 104 1 975
Finance costs (5 996) (3 006) (6 143)
(Loss)/Profit before taxation (3 806) 38 211 42 353
Taxation 1 420 (10 230) (8 929)
Net (loss)/profit for the period (2 386) 27 981 33 424
Total comprehensive income for the (2 386) 27 981 33 424
period
Attributable to:
Equity holders of the company (2 386) 28 029 33 473
Non-controlling interest - (48) (49)
(2 386) 27 981 33 424
Basic and diluted earnings per share 3 (0,5) 6.08 7.26
(cents)
Condensed consolidated statement of cash flows
For the 6 months ended 30 September 2018
6 months 6 months Year
ended ended ended
30 September 2018 30 September 31 March
2017 2018
(Unaudited) (Unaudited) (Audited)
Notes R’000 R’000 R’000
Cash flows from operating activities
Cash receipts from customers 243 670 330 185 556 150
Cash paid to suppliers and employees (249 059) (340 052) (555 460)
Cash (utilised in)/generated from
operations (5 389) (9867) 690
Finance cost (5 996) (3 006) (6 143)
Finance income 698 1 104 1 975
Taxation paid (7 087) (10 671) (23 110)
Net cash flow utilised in operating
activities (17 774) (22 440) (26 588)
Cash flows from investing activities
Purchase of property, plant and
equipment (1 388) (1 944) (4 942)
Proceeds from disposal of property,
plant and equipment - 23 1 169
Cash payment for acquisition of
subsidiary net of cash acquired 2 (62 103) - -
Purchase of intangible assets
(6 590) (3 397) (7 578)
Net cash flow utilised in investing
activities (70 081) (5 318) (11 351)
Cash flows from financing activities
Proceeds from/ (repayment of) interest
bearing borrowings 70 519 (2 728) (4 564)
Net cash flow generated from
/(utilised in) financing activities 70 519 (2 728) (4 564)
Net decrease in cash, cash equivalents
and bank overdrafts (17 336) (30 486) (42 503)
Cash, cash equivalents and bank
overdrafts at beginning of period 41 254 79 234 79 235
Unrealised foreign exchange
adjustment (6 309) (2 811) 4 522
Cash, cash equivalents and bank
overdrafts at end of the period 17 609 45 937 41 254
Condensed consolidated statement of changes in equity
For the 6 months ended 30 September 2018
Issued Accumulated Minority
Notes share capital profit/(losses) interest Total
R’000 R’000 R’000 R’000
Balance as at 1 April 2017 (Audited) 212 141 56 652 229 269 022
Movements during the period
Profit for the period - 28 028 (49) 27 979
Balance as at 30 September 2017
(Unaudited) 212 141 84 680 180 297 002
Movements during the period
Profit for the period - 5 444 - 5 444
Buy back of minority interest shares
in subsidiary 180 (180) -
Balance as at 1 April 2018, as
previously reported (Audited) 212 141 90 304 - 302 445
Adjustment from adoption of IFRS
9, net of tax 1 - (5 086) - (5 086)
Adjustment from adoption of IFRS
15, net of tax 1 - (2 684) - (2 684)
Restated balance as at 1 April 2018 212 141 82 534 - 294 675
Movements during the period
Shares issued as part of the
business combination 2 20 100 - - 20 100
Loss for the period - (2 386) - (2 386)
Balance as at 30 September 2018
(Unaudited) 232 241 80 148 - 312 389
Condensed consolidated segment report
For the 6 months ended 30 September 2018
6 months 6 months Year
ended ended ended
30 September 2018 30 September 31 March 2018
2017
Notes (Unaudited) (Unaudited) (Audited)
R’000 R’000 R’000
Segment revenue
Etion Digitise: Safety and Productivity
Solutions 14 806 36 849 77 035
Etion Create: Original Design Manufacturing 83 327 105 855 229 058
Etion Connect: Digital Network Solutions 119 795 171 715 266 469
Etion Secure: Cyber Security Solutions
(LAWTrust) 51 164 - -
Total 269 092 314 419 572 562
Segment profit
Etion Digitise: Safety and Productivity
Solutions (4 966) (538) (4 211)
Etion Create: Original Design Manufacturing 6 309 16 139 31 542
Etion Connect: Digital Network Solutions 3 075 28 781 27 606
Etion Secure: Cyber Security Solutions
(LAWTrust) 5 414 - -
Sub total 9 832 44 382 54 937
Corporate costs (8 340) (4 269) (8 416)
Finance costs (5 996) (3 006) (6 143)
Finance income 698 1 104 1 975
(Loss)/ Profit before taxation (3 806) 38 211 42 353
Financial position
Assets 593 951 453 325 469 948
Etion Digitise: Safety and Productivity
Solutions 92 923 82 462 91 570
Etion Create: Original Design Manufacturing 207 814 211 906 235 627
Etion Connect: Digital Network Solutions 186 657 158 128 142 645
Etion Secure: Cyber Security Solutions
(LAWTrust) 106 035 - -
Corporate 521 829 106
Liabilities 281 562 156 325 167 502
Etion Digitise: Safety and Productivity
Solutions 16 983 17 694 24 922
Etion Create: Original Design Manufacturing 83 026 81 815 97 108
Etion Connect: Digital Network Solutions 98 444 55 791 45 470
Etion Secure: Cyber Security Solutions
(LAWTrust) 12 731 - -
Corporate 70 378 1 025 2
COMMENTARY
GROUP PROFILE
Etion Limited is a diversified digital technology solutions provider. We create, digitise, connect and secure both
generic and bespoke digital technology solutions to improve the safety, productivity, connectivity and cyber
security of our customers, all with one purpose: to advance humanity.
In order to achieve this, we draw on a proud engineering heritage dating back 31 years, as well as on our
extensive original design and manufacturing capabilities. We create value by designing and manufacturing
customer-designed solutions, by acting as a distributor and a system integrator of technology-based products.
FINANCIAL RESULTS
Revenue for the reporting period was R269.1 million, down by 14.4% to R314.4 million in comparison to the
previous corresponding period. The decline in revenue was mainly due to subdued trading conditions, R64
million, that slipped into H2, as a results of a delay in the delivery of a key rail project (R22m: margin R6.6m)
and a large cyber security project (R42m: margin R21m) that was deferred to later in the year. Revenue for the
period, includes R 51,2 million of LAWTrust for the four months since acquisition.
At a gross profit level (R99.2 million), the revenue shortfall was nevertheless entirely offset by the good
margins generated by the recently acquired LAWTrust business. As a result, the Group’s gross profit margin
increased from 31.7% to 36.9%.
It is notable to mention, that although the group has a comprehensive foreign exchange hedging framework,
the use of options in our Connect business has resulted in unrealised foreign exchange losses of R8.1 million,
when restating the trade payables. Foreign exchange gains will only realise in later periods when the
underlying liability is settled.
Profit after tax (PAT) decreased by 108.6% from R28 million to a loss of R2.4 million. This was due to the
increased finance costs relating to the funding of the LAWTrust transaction, the increase in operating costs,
lower contribution by the existing businesses and the absorption of the LAWTrust cost base of R26.4 million.
The fixed cost nature of overall Group costs has also contributed negatively to the year-on-year opex-to-
revenue ratio, thereby negatively impacting the overall PAT percentage.
Headline earnings slowed to a loss of R2.4 million from a profit of R28.2 million, a decrease of 108.2%. The
resultant headline earnings per share reduced from 6.11 to -0.5 cents.
Etion’s net asset value per share decreased from 64.4 cents per share to 63.2 cents per share - a decrease of
1.9% - while our tangible net asset value per share decreased from 38.8 cents per share to 24.5 cents per
share, representing a decrease of 36.9%. The decrease in the tangible net asset value per share is directly
attributable to the intangible asset arising from the LAWTrust acquisition.
Post the acquisition of Etion Secure (LAWTrust), the group solvency ratio at 2.11 and the liquidity ratio at 1.6
remains healthy.
The Group has assessed the impact of IFRS 9 & 15, and this has been incorporated into these results. The
impact has been determined to be not material.
OUR OPERATIONS
During the period under review we completed the acquisition of LAWTrust as of 01 June 2018. It is now the
fourth of our operating businesses and strengthens our thrust into markets aligned to our strategy.
We rebranded from Ansys to Etion with the name changed on the JSE effective from 13 July 2018. The rebrand
reflects our strategy and positioning to exploit Industry 4.0 opportunities and to be an iconic digital technology
solutions provider that turns ideas into solutions that advance the living and working environments of
humanity.
Our operational focus has therefore over the period under review been on efforts to create a more integrated
business, as well as to streamline our structure and operations.
Our businesses and functions are now arranged by capabilities along an integrated value chain that draws on
each business’s capabilities to deliver seamless end-to-end solutions to customers.
This has positioned Etion Create (Parsec), our original design manufacturer as the hub of all detailed designs
for products and the manufacturing thereof, for the entire Group, while the other business units, Digitise,
Connect and Secure, are mainly responsible for the design and development of solutions in their respective
domains.
Etion Create continues to follow a standard performance curve for an innovative business, growing in phases
subject to medium-and-long term contracts, a major portion of which is in the Middle East, where the business
has built a solid reputation and continues to grow, giving the group an opportunity to leverage new projects
being initiated by major customers in the region.
In line with the Group’s strategy to offer digitalisation solutions in the safety and productivity market, Etion
Digitise (Ansys Rail) is creating strategic alliances and partnerships that will not only enhance its safety
solutions capability but also provide access to new markets and also introduce subscription revenue into the
business.
Etion Connect (Tedaka Network Solutions) was restructured with non-core activities out-sourced, non-
performing solutions discontinued and reduced personnel in areas that had become overstaffed as a result of
the slow down. Warehousing operations were optimised and moved to a more cost effective site. These
initiatives will realise opex savings on an annualised basis going forward. We have further geared our inventory
levels to be able to execute new orders as they come in.
We have invested further in our ability to develop IP by increasing our engineering and design capability, the
total number of engineers most of whom are in Etion Create stands at 89 from 53 at the end of the 2017
financial year end. In the period under review, Etion Create has deployed a larger contingent of its engineering
base on investments that are aimed at new and future revenue streams and at developing own IP to drive this.
These initiatives are supported by the deployment of a lean-start-up approach and methodology development
cycles .
The Group has made further strategic investments to create capacity for the corporate office, in Finance,
People and Organisation Development, Digital and Business Development, as well as Marketing teams as we
position our business for growth and its ability to take advantage of market opportunities.
SEGMENT PERFORMANCE
Etion Create
During the reporting period, revenue decreased by 21.3% from R105.8 million to R83.3 million, mainly due to a
lower order book in the mining and local defence sectors. Segment profit reduced by 60.9% as a direct result
of the decrease in revenue.
Prospects for the business look good in Internet of Things (IoT) initiatives being explored in South America and
the Middle East where proof of concepts have been successfully implemented and pilot programmes are in
place for Connected Car and Connected Electrical Metre Readings.
The business continues to improve on planning, as well as on quality and manufacturing processes and
efficiencies that are of benefit to customers. This has ensured that Create is able to minimise the impact of the
global shortage of components on both the business and customers. The shortage is affecting most electronic
manufacturers, including Create as an original design manufacturer.
Etion Digitise
While Etion Digitise has managed to grow a healthy order book when compared to the previous corresponding
period, the interim results have been impacted by a delay in the delivery of the Integrated System Display for a
major key client (R22 million against a total order value: R66 million). The testing and commissioning of this
project is scheduled for completion in Q3.
The segment’s performance was therefore negatively impacted, with revenue reducing by 59.8% to
R14.8 million from R36.8 million. Consequently, the business unit recorded a net loss of R4.9 million (2017:
R0.5 million loss).
Etion Digitise focused on capacity building initiatives and invested in senior-level skills to improve the current
product line and support new product development. This investment in expertise allowed access to innovative
IP for potential expansion into the passenger rail market and digital mining operations.
Etion Connect
As anticipated, the slow-down in the economy has had a negative impact on the roll-out of fibre by major
network operators, all of which have underperformed against their targets over the past two years. Etion
Connect achieved revenue of R119.8 million in the current period, which is 30.2% down from R171.7 million in
the previous interim period. Segment profit decreased from R28.8 million to R3.1 million, down by 89.3%.
While the year began slowly, there was an uptick at the end of Q2. Etion Connect continues to diversify its
customer base, with a new network owner signed on in Q2, and delivery on the first order for this customer
and existing customers expected to take place in Q3 and Q4. Like the other business units, Etion Connect has
significantly improved order book, when compared against H1, and is expected to report a firm performance
for FY2019.
Etion Secure
LAWTrust was integrated into the Group to form Etion Secure as of 1 June 2018. Profits are expected to
increase as volumes increase and operations stabilise post the integration phase. Growth will also be
supported by customer-centric product development and planned expansion into global markets with its
Digital Signatures solutions, with Australia and New Zealand targeted for now.
The acquisition has given the Group access to the financial services market and government departments,
where it has secured several sizeable contracts. The business has contributed R51.1 million in revenue to the
Group during the reporting period, as well as an encouraging profit of R5.4 million.
During the reporting period, LAWTrust secured and retained WebTrust certification which ensures that it is on
the Adobe list of globally trusted signatures, and the advanced electronic signature accreditation, which offers
customers high assurance that it can issue these signatures under the South African law, providing legal and
cost benefits to the markets it serves.
Collaboration and joint work with the Group’s other business units is producing promising products and
market leads.
OUTLOOK
The South African GDP performance remains subdued; however, business confidence is beginning to rise on
the back of more business friendly initiatives from government. It is further expected that government’s
reprioritised R400 billion injection in infrastructure spend and the growing investment commitments and
pledges from business, coupled with restoring the SOCs, will continue to improve the growth prospects for
South Africa, which augurs well for Etion in general.
For Etion Connect, while data usage is proliferating, fibre rollouts volumes have slowed down over the past
two years. The potential for growth in the market therefore remains strong for the next three to five years. We
anticipate that this network “catch-up phase” will contribute to Etion Connect’s revenue in the next reporting
period and beyond. In addition, data usage is ever increasing and we expect the major players to speed up
fibre rollouts again which will positively impact the Etion Connect business.
Modernisation initiatives as organisations gear up to exploit industry version 4.0 technologies such as the IoTs
are driving demand for sensors and data analytics. The railways sector is moving towards building digital
railways. Mines as well are moving towards digital mines. The Etion group has been remodelled and positioned
to offer turnkey digitilisation solutions across many industry sectors, and we expect to grow our business in
these areas.
Locally, the renewed impetus from government to bring about regulatory certainty and improving safety levels
in the mining sector, as well as the need to reduce costs and increase productivity, will translate into business
for Etion Digitise, Create and Secure.
We are finding expression in the mining industry through the addition of consulting in fatality prevention
solutions through a global partner. This will introduce subscription revenue to Etion Digitise.
Globally the segments in which we operate show significant growth. Cyber security risks are on the rise
creating an opportunity for the Etion Secure suite of solutions that are designed to build trust in transactions
through using a variety of encrypted solutions and products such as strong authentication, Secure Sockets
Layer (SSL) certificates, Public Key Infrastructure (PKI) amongst others, and are well positioned to benefit from
these trends, which includes FinTech’s that can benefit from LAWTrust’s FIDO authentication products.
Movements in the geopolitical arena to lessen dependence outside of the Middle East is envisaged to increase
demand for defence and cyber security solutions in the Middle East. Investment emanating from operating in
this market for over a decade positions us in good stead to benefit from this trend.
We also see increasing demand for IoT solutions for low powered networks that operate smart cities, and
smart mines and are driving demand for devices that operate on such networks. Etion Create is running pilot
programmes in the Middle East and South America markets
On the back of this, we expect a significant recovery in the performance of the group in the next half of next
year.
KEY ASPECTS OF THE FINANCIAL RESULTS
The business environment in which the Group operated remained challenging throughout the reporting
period. Focus was placed on those factors within our control, namely: extracting operational efficiencies, cost
and increased focus on managing working capital.
CASH FLOW STATEMENT
Net working capital increased from R118.2 million in the previous comparative period to R139.5 million in the
period under review, which directly affected the cash-flow from operations and was the main driver for the
decrease in cash balance which came down by R10.7 million during the period under review. Contributing
factors to the increase in net working capital were inventory, which increased from the previous comparative
period by 40%, trade and other receivables which increased by 12%, and trade and other payables which
increased by 30%. Refer to the respective notes below for details of these movements.
Cash balances were also influenced negatively by delayed customer payments at the end of the period. Most
of these outstanding payments equating to R25 million were received subsequent to the end of the period.
The group is still experiencing slow refunds on outstanding VAT payments which are payable to the group and
have also influenced the period-end cash balance.
For more detail, reference note 4 ,5 and 6 of this booklet.
STATEMENT OF FINANCIAL POSITION
Some of the line items on the statement of financial position that have shown significant changes when
compared to September 2017, have been included in the notes to the financial information to give some
context and explanation to these movements.
NOTES TO THE FINANCIAL INFORMATION
1. Changes in significant accounting policies
The accounting policies applied in these interim financial statements are the same as those applied in the
Group's consolidated financial statements as at and for the year ended 31 March 2018, except as
described below,
The changes in accounting policies are also expected to be reflected in the Group's consolidated financial
statements as at and for the year ended 31 March 2019.
The Group has initially adopted IFRS 15 Revenue from Contracts with Customers (see A) and IFRS 9
Financial Instruments (see B) from 1 April 2018.
The effect of initially applying these standards is mainly attributed to the following:
- deferral of recognition of revenue relating to provision of services where revenue will now be
recorded over time versus point in time (see A);
- an increase in impairment losses recognised on trade receivables (see B).
A IFRS 15 Revenue from Contracts with Customers
IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue
is recognised. It replaces IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations.
The Group has adopted IFRS 15 using the cumulative effect method, with the effect of initially applying
this standard recognised at the date of initial application (i.e. 1 April 2018). Accordingly, the information
presented in the 31 March 2018 financial statements has not been restated - i.e. it is presented, as
previously reported, under IAS 18 and related interpretations. The details and quantitative impact of the
changes in the accounting policy are disclosed below.
Service level agreements in Etion Secure sold as a bundle with goods
A bundle of goods and services are sold by Etion Secure. Previously the full revenue was recorded in full
on delivery of the goods. Therefore, the full amount of the services yet to be provided were recorded on
the delivery of goods i.e. before the service is provided. Under IFRS 15 the goods and the services are
separate performance obligations and the timing of recording revenue is different. Revenue is recorded
at a point in time for the goods (on delivery which is when control transfers) and over time for the
services (service level agreements). Revenue on the services had therefore been recorded earlier and
under IFRS 15 should be deferred and recorded over time as the service is performed.
Installation services in Etion Connect sold as a bundle with goods
Installation services are sold with goods in Etion Connect. Previously, the group recorded the installation
revenue at a point in time. The full amount of revenue, including installation revenue, was recorded on
delivery of the goods. Under IFRS 15 the goods and the installation services are separate performance
obligations and the timing of revenue of the performance obligations is different. Revenue is recorded at
a point in time for the goods when control transfers and over time for the installation service. Revenue
on the installation service had therefore previously been recorded earlier and under IFRS 15 should be
deferred and recorded over time as the service is performed.
The following table summarised the impact, net of tax, of transactions to IFRS 15 on retained earnings on
transition date (1 April 2018)
Impact of adopting IFRS 15 at 1
April 2018
Retained earnings R’000
Revenue on installation services in Connect t to be recorded over time (3 728)
Related tax 1 044
Impact 1 April 2018 (2 684)
B IFRS 9 Financial Instruments
IFRS 9 sets out requirements for recognising and measuring financial assets, financial liabilities and some
contracts to buy or sell non-financial items. This standard replaces IAS 39 Financial Instruments:
Recognition and Measurement.
The Group has applied IFRS 9 using the modified retrospective approach, with the initial application date of
1 April 2018.
Classification and measurement
Under IFRS 9, debt instruments are subsequently measured at fair value through profit or loss, amortised
cost, or fair value through OCI. The classification is based on two criteria: the Group’s business model for
managing the assets; and whether the instruments’ contractual cash flows represent ‘solely payments of
principal and interest’ on the principal amount outstanding.
The assessment of the Group’s business model was made as of the date of initial application, 1 April 2018.
The classification and measurement requirements of IFRS 9 did not have a significant impact on the Group.
The Group continued measuring at fair value all financial assets previously held at fair value under IAS 39.
The following is the change in the classification of the Group’s financial assets:
- Trade receivables and other non-current financial assets (i.e., Loan to Tau Di A Rora Technologies
CC) previously classified as loans and receivables are held to collect contractual cash flows and
give rise to cash flows representing solely payments of principal and interest. These are now
classified and measured as debt instruments at amortised cost.
The Group has not designated any financial liabilities as at fair value through profit or loss. There are no
changes in classification and measurement for the Group’s financial liabilities.
Impairment of financial assets
The adoption of IFRS 9 has fundamentally changed the Group’s accounting for impairment losses for
financial assets by replacing IAS 39’s incurred loss approach with a forward-looking expected credit loss
(ECL) approach. IFRS 9 requires the Group to recognise an allowance for ECLs for all debt instruments not
held at fair value through profit or loss. Under IFRS 9, credit losses are recognised earlier than under IAS 39.
The Group has determined that the application of IFRS 9’s impairment requirements at 1 April 2018 results
in the recognition of an additional impairment on the Group’s trade and a resultant decrease in Retained
earnings of R5.086 million as at 1 April 2018.
Allowance for Remeasurement ECL under IFRS 9 as at
impairment under IAS 1 April 2018
39 as at 31 March 2018
R000 R000 R000
Loans and receivables
under IAS 39/Financial
assets at amortised cost 855 5 086 5 941
under IFRS 9
The following tables summarise the impacts of adopting IFRS 9 and IFRS 15 on the Group's interim
statement of financial position as at 30 September 2018 and its interim statement of profit or loss and
OCI for the 6 months then ended for each of the line items affected. There was no material impact on the
Group’s interim statement of cash flows for the six month period ended 30 September 2018.
Affected line items on the condensed interim statement of financial position
Amount before IFRS 15 IFRS 15 adjustment As presented
adjustment
R’000 R’000 R’000
Trade and other payables 147 432 (1 065) 146 367
Amount before IFRS 9 IFRS 9 adjustment As presented
adjustment
R’000 R’000 R’000
Trade and other receivables 139 516 545 140 061
Amount before IFRS 9 IFRS 9 and IFRS 15 As presented
and IFRS 15 adjustment adjustment
R’000 R’000 R’000
Deferred tax asset 20 253 (337) 19 917
Affected line items on the condensed interim statement of profit or loss and OCI
Amount before IFRS 15 IFRS 15 adjustment As presented
adjustment
R’000 R’000 R’000
Revenue 264 301 4 792 269 093
Amount before IFRS 9 IFRS 9 adjustment As presented
adjustment
R’000 R’000 R’000
Administrative and operating costs 92 233 (545) 91 689
Amount before IFRS 15 IFRS 15 and IFRS 9 As presented
and IFRS 9 adjustment adjustment
R’000 R’000 R’000
Taxation 2 801 (1 380) 1 420
2. Acquisition of LAWTrust
On 1 June 2018, the Group acquired 100% of the issued share capital and outstanding shareholder claims
of Law Trusted Third Party Services (Pty) Ltd (“LAWTrust”).
LAWTrust is an information technology developer and provider of cyber / information security solutions.
The acquisition of LAWTrust will enhance Etion’s current cyber security business by introducing
strategically aligned products and by providing access to new markets which, in turn will provide significant
annuity revenue.
The acquired business contributed revenues of R51.2 million and net profit of R 5.4million to the group for
the period from 1 June 2018 to 30 September 2018.
Details of the net assets acquired are as follows:
R’000
Fair value of purchase consideration
Shares issued (33 372 712 shares at 60.22885 cents per share) 20 100
Cash consideration 88 400
Additional cash consideration 1 000
Total purchase consideration 109 500
The fair value of assets acquired comprise:
Property, plant and equipment 4 149
Deferred tax 951
Inventory 956
Loan to joint venture 2 350
Trade and other receivables 45 060
Cash and cash equivalents 26 297
Current tax payable (2 375)
Trade and other payables (36 721)
Total fair value of assets acquired 40 667
Intangible assets to be classified 68 833
Total purchase consideration 109 500
The issue price of 60 cents per share was determined on 7 June 2018 and was determined with reference to
the 30 day VWAP of Etion for the 30 days preceding 4 June 2018.
The initial purchase consideration of R108.5 million was made up as follows:
- R88.4 million payable in cash and
- R20.1 million payable by the issue of 33 372 712 Etion shares at 60.22885 cents per share
The Founders of LAWTrust received 75% of their payment consideration in Etion shares and 25% of their
consideration in cash while the remaining shareholders, all external to the business, received 100% of their
consideration in cash.
As reported in the 30 October 2017 circular, prior to the effective date, the LAWTrust sellers were entitled to
receive a maximum pre-effective date distribution of R10 million (“Distribution”) which was due to be paid by
LAWTrust into an escrow account before the Effective Date of the Transaction and after the fulfilment of the
conditions precedent specified below.
The payment of the Distribution to the Sellers was subject to the following:
- LAWTrust achieving a minimum audited net profit after tax (“Minimum Audited NPAT”) for the year
ending 31 March 2018 (“FY18”) of R14 million; and
- LAWTrust having a minimum cash balance (“Minimum Audited Cash Balance”) of R25 million as at 31
March 2018.
In the event that the Minimum Audited NPAT and Minimum Audited Cash Balance amounts have not been
met, the Distribution to the Sellers shall be reduced by the shortfall between the actual audited net profit after
tax for the year ending 31 March 2018 and the Minimum Audited NPAT and by the shortfall between the
actual audited cash balance for the year ending 31 March 2018 and the Minimum Audited Cash Balance,
before distribution to the Sellers. Any Distribution not distributed to the Sellers was to be paid to Etion.
Based on LawTrust’s actual performance recorded prior to the effective date, it was agreed that Etion would
pay an amount of R1 million to the Sellers as additional purchase consideration. This was paid on 14 November
2018.
The purchase price was funded by a combination of debt, bridge finance and internal cash resources:
- Nedbank debt facility to the value of R45 million; this facility is repayable over a 60-month period and
bears interest at prime plus 0.25%:
- SASFIN bridge finance facility to the amount of R25 million with the following salient terms:
o Repayable by a single payment after six months, extendable to one year but under punitive
terms;
o Interest charged at Prime plus 2 %
o Settlement cost of 5% of loan amount;
o SASFIN has an option on profit share for the increase in the Etion share price between the
date of signature and loan settlement on 20% of the Bridge facility should settlement made
in cash or 40% if settled in shares.
- R18,4 million internally generated cash.
Etion has successfully secured funding to settle SASFIN facility within the six months repayment term.
The total number of Etion shares issued to the sellers was R33 372 712, which were all issued on 8 June 2018.
Refer to the business combination in the Statement of Changes in Equity.
Management is in the process of completing the purchase price allocation and the “intangible assets to be
classified” will be reclassified at year-end.
3. Headline earnings per share
for the 6 months ended 30 September 2017
6 months 6 months 12 months
ended ended ended
30 September 2018 30 September 2017 31 March 2018
(Unaudited) (Unaudited) (Audited)
R’000 R’000 R’000
(Loss)/Profit attributable to ordinary shareholders (2 385) 28 029 33 473
Basic earnings per share (cents) (0,5) 6.08 7,26
Diluted basic earnings per share (cents) (0,5) 6.08 7,26
Reconciliation of headline earnings:
(Loss)/Profit attributable to ordinary shareholders (2 385) 28 029 33 473
Loss/(profit) on disposal of property, plant and 198
equipment 3 192
Total tax effect of adjustments (1) (54) (55)
Headline earnings attributable to ordinary
shareholders (2 383) 28 167 33 616
Headline (loss)/earnings per share (cents) (0,5) 6.11 7,29
Diluted headline (loss)/earnings per share (cents) (0,5) 6.11 7,29
Weighted average number of shares in issue 470 821 554 461 038 321 461 038 321
Net asset value per share (cents) 63,2 64.4 65,6
Tangible net asset value per share (cents) 24,5 38.8 39,9
4. Inventories
30 September 2018 30 September 2017 31 March 2018
(Unaudited) (Unaudited) (Audited)
R’000 R’000 R’000
Inventories comprise:
- Finished goods 109 029 78 669 77 585
- Work in progress 32 482 23 340 16 003
141 511 102 010 93 588
Provision for slow moving inventories (2 692) (2 544) (5 312)
138 819 99 466 88 276
The current level of inventory shows an increase of 40% since our prior comparative period. This increase, on
the back of lower revenues for the current period, has directly influenced our cash balance at the end of our
current interim period. The increase in finished stock holding is attributable to the stock landed for a large new
network operator added to the Connect customer base to enable us to timeously execute on forecast orders. R
32.4 million of the inventory is Work in Progress that is committed to current projects, one of which relates to
the delay of a key project as mentioned previously.
In addition management has recognised that the inventory turnover requires specific focus and have defined
targets to optimise.
5. Trade and other receivables
30 September 30 September 2017 31 March 2018
2018
(Unaudited) (Unaudited) (Audited)
R’000 R’000 R’000
- Trade receivables 130 659 103 526 128 978
Gross trade receivables 137 204 104 305 129 833
Provision for impairment (6 545) (779) (855)
- Deposits 1 413 675 1 166
- Retention debtors 228 197 228
- Sundry debtors 1 070 224 784
- Prepayments 3 827 824 1 303
- Value added tax 6 786 9 791 882
- Project receivables (Work-in- 3 058 15 710 7 337
progress)
147 061 130 973 140 790
Trade debtors have increased by R13.2 million since year end due to the acquisition of Etion Secure.
Although the trade receivables appear to be in line the year-end 31 March 2018 trade debtors, the group
had some delayed customer payments and has provided extended payment terms to allow network owners
to complete sign off of build and transfer sites. Most of these outstanding payments equating to R25
million. have been received subsequent to September 2018.
Delays in receiving Value Added Tax refunds from the South African Revenue Services also negatively
affected our cash flow for the period under review, however we have started to see inflow of VAT funds
post the interim period.
Management has commenced with proactive monitoring and management of debtors’ days to improve the
Group’s working capital management.
6. Trade and other payables
30 September 30 September 2017 31 March 2018
2018
(Unaudited) (Unaudited) (Audited)
R’000 R’000 R’000
- Trade creditors 119 654 82 322 80 215
- Accrued leave 7 084 4 362 3 414
- Sundry creditors 105 - 188
- Value added tax 3 120 184 2 691
- Advance payments 5 913 15 325 12 302
- Accruals 9 874 10 026 10 728
- Operating lease straight line
adjustment 617 - 617
146 367 112 219 110 155
Trade and other payables have increased in line with higher inventory balances. The increase is also
attributable to unrealised foreign exchange exposures. No payables are outside contractual payment terms.
Advanced payments received have decreased since prior period and year end 31 March 2018 due to projects
been completed and the related revenue being recognised.
7. Interest bearing borrowings
30 September 30 September 2017 31 March 2018
2018
(Unaudited) (Unaudited) (Audited)
R’000 R’000 R’000
Non-current 69 990 34 828 27 788
- Properties loan 29 649 27 107 21 206
- Medium term loan for LAWTrust 35 177 - -
transaction
- Bridge financing loan for LAWTrust
- - -
transaction
- Instalment sale agreements 5 164 7 721 6 582
Current 37 777 4 258 9 461
- Properties loan 473 1 442 6 634
- Medium term loan for LAWTrust 8 486 - -
transaction
- Bridge financing loan for LAWTrust
25 962 - -
transaction
- Instalment sale agreements 2 856 2 815 2 827
Total 107 767 39 086 37 249
- Nedbank Properties loan 30 122 28 549 27 840
- Nedbank medium term loan for 43 663 - -
LAWTrust transaction
- SASFIN interim loan for LAWTrust
transaction 25 962 - -
- Instalment sale agreements 8 020 10 536 9 409
The increase in interest bearing borrowings when compared to the previous comparative period and year-end
31 March 2018 is due to the funding procured in respect to the acquisition of LAWTrust. Refer to note 2 above
for further information on these financing arrangements.
STATEMENT OF COMPLIANCE, BASIS OF PREPARATION AND AUDIT REPORT
The condensed consolidated interim financial statements are prepared in accordance with International
Financial Reporting Standard, (IAS) 34 Interim Financial Reporting, the SAICA Financial Reporting Guides as
issued by Accounting Practices Committee and Financial Pronouncements as issued by Financial Reporting
Standards Council and the requirements of the Companies Act of South Africa. The accounting policies applied
in the preparation of these interim financial statements are in terms of International Financial Reporting
Standards and are consistent with those applied in the previous annual financial statements except where
stated otherwise. The directors take full responsibility for the preparation of the condensed interim financial
statements.
PREPARER
These unaudited Condensed Consolidated Interim Financial Statements results were prepared by Burt
Lamprecht CA (SA) under the supervision of Elvin de Kock FCMA, the Chief Financial Officer.
GOING CONCERN
The directors have reviewed the group’s budget and cash flow forecast for the year to September 2019. On
this basis and in light of the group’s current financial position, the directors are satisfied that the group will
continue to operate for the foreseeable future and have adopted the going concern basis in preparing these
reviewed provisional financial results.
DIRECTORATE
The following changes were made to the board of directors subsequent to half year:
MJ Janse van Rensburg- appointed 12 November 2018 as independent non-executive director and chairperson
of the Audit and Risk Committee
RC Willis- appointed 13 November 2018 as independent non-executive director
EVENTS SUBSEQUENT TO PERIOD END
General issue of shares for cash
The directors refer to the SENS announcement released on 07 November 2018 regarding the issue of 70 000
000 Etion shares at 39 cents per share raising an amount of R 27.3 million ("the general issue"). The general
issue was implemented at a 3.8% discount to the 30-day weighted average traded price of Etion shares for the
30 business days preceding the date that the price of the issue was agreed.
The shares were issued to Conexus Capital Growth Fund Trust, which is represented by Clive Douglas
Investments ("Douglas Investments") and represent 14.16% of the issued share capital of Etion prior to the
general issue, and 12.40% after the issue of the shares. Douglas Investments manages its clients’ funds on a
discretionary basis and provides investment exposure across all asset classes, both locally and offshore. The
investment by Douglas Investments is intended to strengthen Etion’s thrust into cutting- edge digital security
innovation, following its acquisition of cybersecurity specialist, LAWTrust, in June 2018.
The proceeds from this share issue will be used to settle the SASFIN bridge finance facility.
By order of the board
Teddy Daka Elvin De Kock
Chief Executive Officer Chief Financial Officer
29 November 2017
Directors
CP Bester; T Daka (CEO)*; Dr. SJ Khoza; EC De Kock* (CFO); N Medupe; NS Mjoli-Mncube (Non-Executive
Chairperson); MJ Janse Van Rensburg ; RC Willis ; C Maherry*
*Executive
Company secretary
M van den Berg
Telephone: +27 12 749 1800
Facsimile: +27 12 665 2767
Website: www.etion.co.za
Registered office: 85 Regency Drive, Route 21 Corporate Park, Irene, 0157 (PO Box 95361, Waterkloof,
Pretoria)
Designated adviser: Exchange Sponsors (2008) (Pty) Ltd
Transfer secretaries: Computershare Investor Services (Pty) Ltd
Date: 28/11/2018 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
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