Etion eyes security market as it posts R2.9m loss
JSE-listed technology group Etion has blamed depressed economic conditions for its R2.9 million loss in the financial year ended 31 March, from a profit of R33.5 million in the 2018 financial year.
The group on Tuesday posted a headline and basic loss a share of 0.56c, a 108% decline on basic earnings a share of 7.26c reported for the prior fiscal year.
Teddy Daka, CEO of Etion Group, expects the market in the short-term to remain subdued due to the decline in GDP, with spending to be unlocked in the second half of 2019.
He says as the digitalisation of economies continues to grow at an accelerated pace, Etion is well-placed to take advantage of the opportunities both in South Africa and globally, during a period he feels the company’s growth opportunities will increase.
Daka says Etion also “shifted focus” to cyber security as it sees the sector as a growth area.
He feels opportunities exist locally and on the rest of the continent, adding SA is ripe with opportunities because it is not as secure from cyber warfare and cyber attacks as it should be and the levels of readiness are still not high.
“We can certainly do much better in terms of cyber security readiness. If you look at the reports that come out, we are very vulnerable when it comes to cyber attacks. It’s only that it’s under-reported, but most reports that come from think tanks are telling us that most of our country is not that secure from cyber attacks.
“We see cyber attacks in the public sector and we see it in the private sector as well.” He believes SA as a country is not well-prepared for the cyber warfare and cyber attacks we are getting at the moment. “As it becomes problematic, people will start to act. Compared to five years ago, there is increased spending on cyber security but it’s still small.”
Daka says Etion’s “shifted focus” to cyber security is evidenced by the company’s recent acquisition of LAWtrust, which is now Etion Secure.
“We got LAWtrust so we can enhance our capability and offerings. Cyber security is a growth area for this business,” Daka explains.
He says Etion has set its sights on Sub-Saharan Africa as a new growth market with good opportunities in safety, cyber security and frictionless operations, digitalisation of operations and the drive towards e-government.
Daka presented Etion’s annual financial statements for the period ended 31 March to analysts and journalists in Pretoria yesterday.
“During the year under review, the group executed on several strategic decisions to further expand the group’s offering and capabilities, and better integrate all operating units. While these decisions have ensured the group is on track in terms of executing its strategy, we did not anticipate the severe downturn in economic activity.
“Although we had a difficult year, we have strategically retained our design, engineering and manufacturing capability, which is a major contributor to our 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 has resulted in a negative year-on-year opex-to-revenue ratio, thereby significantly impacting the overall operating profit,” adds Daka.
Etion’s revenue grew 4% from R572.6 million to R595.9 million due to the acquisition of LAWtrust and an increase in revenue from Etion Digitise. Negative revenue growth from Etion Create and Etion Connect was impacted by reduced project spend by Etion’s clients. Higher margins in Etion Secure resulted in a gross profit margin improvement of 2%, from 28.3% to 30.3%.
The technology company increased operating expenses from R38.1 million to R165.2 million, mainly attributable to the acquisition of Etion Secure (previously LAWtrust) opex of R33.6 million, once-off costs of R14.6 million relating to the acquisition of LAWtrust, rebranding of the group, and restructuring of Etion Connect.
The company also experienced a downturn in its fortunes in the Middle East, which is Etion’s second largest market outside of SA, but it believes the setback is temporary as the region still has potential growth for Etion.