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ETION LIMITED - Annual Audited Consolidated Financial Statements for the year ended 31 March 2020

Release Date: 13/08/2020 09:03
Code(s): ETO     PDF:  
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Annual Audited Consolidated Financial Statements for the year ended 31 March 2020

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

Annual Results for the year ended 31 March 2020

Advancing Humanity Through Technology

R572.9 MILLION | Revenue - down
(R9.62 MILLION) | EBITDA - down
3.04 CENTS | Normalised HEPS - up
-0.87 CENTS | HEPS - down
R82.6 MILLION | Cash - up

The past financial year tested Etion's resilience in extremely challenging operating conditions, with significant once-off
operating costs being incurred following the strategic reorganisation of the Safety and Productivity Solutions and Digital
Network Solutions businesses. Etion grew its cyber security offering and benefited from the strong financial performance of its
new acquisition.

These performances are reflected in the Group's financial results for FY2020. Revenue declined by 4% to R572.9 million and the
normalised profit (after excluding exceptional costs relating to, amongst others, the write down of inventory, write down and
impairment of intangible assets and retrenchments costs totalling R64.2 million) as summarised below increased to R17.1 million.

Normalised earnings computation
(R'000)                                                      31 March 2020
Loss after tax including exceptional items                         (36 128)
Exceptional cost items included in the income statement
1. Digitise restructure                                             25 251
2. Connect restructure                                              38 936
Taxation adjustment                                                (10 924)
Normalised profit after tax after exceptional items                 17 135
Normalised EPS                                                        3.04

The Group made encouraging progress, albeit from a low base, in its international expansion strategy and grew its cyber security
offering through the acquisition of LAWTrust (now incorporated into Etion Secure). We benefitted from the strong financial
performance of LAWTrust, while Etion Create remained cash-generative and continued to invest in new IP and international
expansion for future growth, despite lengthy delays in major project awards. However, Etion Digitise and Etion Connect were
heavily impacted by sustained economic weakness in South Africa, even before the impact of COVID-19 in March 2020.

Etion Create
Declining revenue was attributable to the completion of certain large multi-year contracts and a delay in anticipated orders
from the defence sector in the Middle East. Disciplined financial and operational management enabled Etion Create to remain
cash-generative and profitable, albeit at a lower level. The business unit continued to invest in design and engineering
capability for the development of export products. By carefully balancing product margins and maintaining cost discipline,
Etion Create increased its gross margin in difficult market conditions.

Etion Digitise
As the year progressed, it became clear that Etion Digitise was unsustainable in its current form, exacerbated by the depressed
market conditions within its target markets . A strategic restructuring of Etion Digitise removed non-core activities from the
business unit, reduced its monthly run rate costs by approximately 82% and resulted in the absorption of a small team of
remaining employees with critical engineering capability into Etion Create. These interventions provided a stable platform to
ensure that service delivery and maintenance support to Etion Digitise's key rail customer continues and position us to respond
to new, emerging customer demands.

Etion Connect
The economically driven slump in demand for installation of fibre to homes and offices since 2017 caused a three-year decline in
Etion Connect's revenue, making its cost base unsustainable in the current environment. Etion Connect's profit margin was
impacted by competition and the rising cost of imported components due to the Rand's steady decline. Although the customer base
was diversified and costs realigned, revenue generation remained a major challenge in a low-growth, highly competitive market,
where the realisation of growth depends on economic recovery. Within this context, management proactively initiated a strategic
review of Etion Connect to explore the opportunity, to implement a reorganisation of the business with the objective of ensuring
the long term sustainability and profitability of the business.

Etion Secure (LAWTrust)
LAWTrust focused on building a digital business that delivers solutions online or supports its customers remotely. This, combined
with the effective implementation of its international expansion strategy, enabled the business unit to more than double revenue
and profits. By reorganising its digital signature services, LAWTrust is able to offer the hosting of signing solutions in major
public or private cloud providers. LAWTrust released a digital ID proofing (on-boarding) process for high-assurance, publicly
trusted signatures that supports agent-led enrolment and app-based self-enrolment. When COVID-19 emerged, LAWTrust was able to
offer this digital service to all customers. Etion Secure expanded its customer base by sector, extending its biometric enrolment
and matching platform from government to banking and insurance customers.

Corporate office
The Board and management agreed that it had become necessary to reorganise the corporate office in alignment with the Group's
revised strategy and devolve more operational and entrepreneurial autonomy to the subsidiaries. We transformed the corporate
office into a lean centre responsible for governance, strategic direction and growth of shareholder value by effectively
allocating capital and holding the business units accountable for value creation.

While the challenges ahead of us are significant, we have established the foundation for sustainable growth by preparing our
businesses for leaner, less predictable times, while ensuring we capitalise on growth opportunities, particularly in international
markets. The Board is resolute in its determination to achieve sustainable long-term growth for Etion. Our key focus areas are:

- Sustaining Etion post-COVID-19. We are positioning the Group to do "business unusual" in unpredictable operating conditions.

- Growing shareholder value. Etion Create and Etion Secure are cash-generative, profitable and operate in growing markets. Their
  investment in own IP to develop unique digital products that are value-adding to global customers improves their resilience in
  unpredictable environments.

  - Investments in lean start-up minimum viable products in the IoT market in Latin America and Southeast Asia and tactical
    navigation and cyber security markets in the Middle East contributed positively to customer engagement, and the potential
    for substantial additional future opportunities for Etion Create.

  - Incorporation of Etion Digitise into Etion Create provides opportunities to the Group with a base from which to expand its
    offerings through upgrades, feature enhancements and improved integration of the offerings.

  - Digitalisation and automation of services is a survival and growth strategy for many businesses, particularly in an economic
    recession, because it reduces cost and improves efficiency. As businesses adopt these fast-evolving technologies, their need
    for cyber security, governance and accountability enforced by digital signatures increases. Etion Secure is well positioned
    to capitalise on these related trends in domestic and international markets. Being the first trusted signature service
    provider to enable easy-to-enrol, high-assurance public signatures in global markets will give Etion Secure a significant
    competitive advantage.
  - Approved capital allocation to Etion Connect to return the business to profitability at a smaller scale.

Dr Snowy Khoza                             T Daka
Chairman                                   CEO

13 August 2020

                                     31 March 2020           31 March 2019            % change
                                           Audited                 Audited
Revenue (R'000)                            572 889                 595 939                  (4)
EBITDA (R'000)                              (9 622)                 29 860                (132)
Loss after tax (R'000)                     (36 128)                 (2 730)             (1 223)
Basic loss per share (cents)                 (6.40)                  (0.53)             (1 108)
Headline loss per share* (cents)             (0.87)                  (0.53)                (64)
Cash (R'000)                                82 606                  37 478                 120
Solvency                                       2.8                    2.38                 n/a
Liquidity                                     1.83                    1.41                 n/a

Note: No ordinary cash dividend declared for 2020 (2019: nil).
* Headline earnings adjusted for write down and impairments on intangible assets, loss on disposal of property, plant and
  equipment and tax effects.


31 March 2020
Audited R'000                      Segment revenue    Segment profit/(loss)
Etion Create                               165 465                   7 757
Etion Digitise                              29 558                 (36 407)
Etion Connect                              163 010                 (32 554)
Etion Secure                               225 920                  38 072
Eliminations                               (11 064)                 46 497
Total                                      572 889                  23 365

As these events arising from the government's COVID-19 interventions commenced before the financial year-end and continued to
have an impact after the reporting date, the Group considered them to be adjusting post-balance sheet events and, accordingly,
the financial effects that resulted from the impact of COVID-19 are reflected in the Group's financial statements, note 42.

Subsequent to the year-end, Christi Maherry resigned as an executive director of Etion Limited and CEO of LAWTrust with effect
from 31 August 2020. She will however continue as the non-executive Chairperson of the LAWTrust Board.

This short-form announcement is the responsibility of the directors and is only a summary of the information in the full
announcement and does not contain full details thereof. The full announcement can be found at The announcement is also available on the Company's website at and copies of the announcement may also be
requested by contacting Elvin de Kock by email at and are available for inspection at the Company's
registered office at no charge, weekdays during office hours. Any investment decision in relation to the Company's shares should
be based on the full announcement.
Shareholders are advised that:

- the company's audited group annual financial statements for the year ended 31 March 2020 is available on the company's
  website at; and

- the annual general meeting ('AGM') of Etion shareholders will be held by way of electronic communication at 10:00 (SA time)
  on Monday, 5 October 2020. The notice of annual general meeting will be distributed to shareholders and also made available
  on the company's website on 31 August 2020.

Wyna Modisapodi
Company Secretary

13 August 2020

Directors: S Khoza* (Chairman), T Daka (Group Chief Executive), E de Kock (Group Financial Officer), C Maherry, R Willis*,
M Janse van Rensburg*, C Bester*, (* Non-executive)

Company Secretary: W Modisapodi

Etion Limited: (Etion) or (the company) or (the group)
Registration number: 1987/115237/06
ISIN: ZAE000257739
JSE share code: ETO

Registered office: 85 Regency Drive, Route 21 Corporate Park, Irene, 0157

Transfer secretaries: Computershare Investor Services (Pty) Limited, PO Box 6105, Marshalltown, 2107

Auditors: PricewaterhouseCoopers Inc., 4 Lisbon Lane, Waterfall City, 2090

Sponsor: Exchange Sponsors (2008) (Pty) Ltd, 44A Boundary Road, Sandton 2196

Bankers: Nedbank Limited, Standard Bank of South Africa Limited, ABSA

Date: 13-08-2020 09:03:00
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