Technology group Etion has reported a 108% slide in full-year headline earnings per share to a loss of 0.56 cents and has blamed the weak South African economy for the poor performance.
Though revenue rose 4% to R596 million, and gross profit margin improved to 30.3%, the group reported a full-year loss to March 31, 2019 of R2.9 million (from a R33.4 million profit previously).
During the year, the group “executed on a number of strategic decisions” to expand its “offering and capabilities and better integrate all operating units”. While this has ensured that it’s “on track in terms of executing its strategy, we did not anticipate the severe downturn in economic activity”, said CEO Teddy Daka in a statement.
“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 proved to be challenging.”
In response, Daka said, 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 said the group has retained its design, engineering and manufacturing capability, which is a major contributor to 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 decision resulted in a negative year-on-year operational expenditure-to-revenue ratio, significantly impacting operating profit. Earnings before interest, tax, depreciation and amortisation — a measure of operating profitability — fell by half.
Group revenue grew due to the acquisition of LAWTrust (now Etion Secure) and an better sales performance at Etion Digitise. Negative revenue growth from Etion Create and Etion Connect was impacted by reduced project spend by clients.
Operating expenses increased from R38.1 million to R165.2 million, mainly due 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.
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 Etion Connect.
The group was also hit by an increase in taxes.
Etion believes there is scope for growth in the Middle East, its second largest market outside South Africa. It is also eyeing opportunities in sub-Saharan Africa in safety, cybersecurity and frictionless operations, digitalisation of operations, and e-government.
This article was first published on TechCentral here.