Etion losses stretch, looks beyond borders for resurgence
JSE-listed specialist technology group Etion is betting on markets in Latin America and South-East Asia to revive growth prospects, after extending losses in the financial year ended-March.
The company has since begun piloting its Internet of things technology solutions in Indonesia and Mexico, while growing its tactical navigation and cyber security markets in the Middle East.
CEO Teddy Daka says his team is aiming to restore profitability in uncertain market conditions and achieve long-term growth potential for its two units, Etion Create and Etion Secure, formerly LAWTrust.
For the year ended 31 March, Etion recorded an after tax loss of R36.1 million, from a loss of R2.7 million previously, while revenue dropped 4% to R572.9 million.
Daka says: “We are betting on our international markets but that doesn’t mean we are not also betting on the South African market. We are just de-risking our exposure to the South African market. We are growing in the South African market but we are augmenting that growth with international markets.”
The listed specialist technology company has been chasing dollar growth since last year.
At the time, Daka told ITWeb his company was scouting beyond borders for growth, due to the restrained local economy. “We recognise the South African economy will be subdued for some time, at least in the short-term, therefore we need to internationalise some of our revenue.”
In the current reporting period, Etion’s four units had mixed performances, with Daka saying it will now customise solutions to support internationalisation and challenges faced by each business unit.
In the period under review, Etion Create had declining revenue, which the company says is attributable to the completion of certain large multi-year contracts and a delay in anticipated orders from the defence sector in the Middle East.
However, it says, 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.”
Contrarily, Etion Secure (LAWTrust) more than doubled its revenue and profit, because it focused on building a digital business that delivers solutions online or supports its customers remotely.
Further, Etion says 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.”
The business unit expanded its customer base by sector, extending its biometric enrolment and matching platform from government to banking and insurance customers.
Turning to its other unit, Etion Digitise, the company says as the year progressed, it became clear the business unit was unsustainable in its current form, “exacerbated by the depressed market conditions within its target markets”.
It adds: “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.”
According to Etion, these interventions provided a stable platform to ensure service delivery and maintenance support to Etion Digitise's key “rail customer continues and positions us to respond to new, emerging customer demands”.
Etion Connect was impacted by the economically-driven slump in demand for installation of fibre to homes and offices since 2017.
It says this 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.”
Resultantly, Etion says 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”.