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Etion sees increase in revenue, profit

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Teddy Daka, CEO of Etion Group.
Teddy Daka, CEO of Etion Group.

Specialist technology company Etion concluded the first half of fiscal year ended 30 September with profit after tax surging by 325% from a loss of R2.4 million to a profit of R5.4 million.

The company saw its revenue and profit moving upwards in the six months, thanks to its international strategy.

Etion’s revenue for the reporting period was R308.6 million, up by 14.7% from R269.1 million in the previous corresponding period.

Basic earnings per share for the JSE-listed company increased by 294% from a loss of 0.56c per share to 0.97c per share.

In a note to shareholders, Etion says: “Focus was placed on those factors within our control, namely: extracting operational efficiencies, costs and increased focus on managing working capital. This has contributed to the significantly improved cash and cash equivalents position of R71.7 million, an increase of 307% on 1H18 and 91% on FY19.”

It adds the improved performance was driven mainly by the impact of consolidating the results of its subsidiary, Secure, for a full six-month period and increased revenue realised from the internationalisation strategy.

“The group’s performance has benefited from the rollover of revenue from a key project in the digitise business,” reads the note.

During this period, performance by its subsidiaries was mixed.

Etion Connect recorded slow revenue growth, which has continued into the first half of financial year 2020. The company says this is due to reduced project spending from key clients that have invested less due to a number of macro and micro economic factors.

Moderate revenue growth has been recorded in Etion Create, which it notes was due to delayed buying from Middle East clients.

“We are, however, encouraged by Create’s continued involvement in design and development work, which we anticipate will convert into an uptick in requests for production as the cycle turns,” says Etion.

Furthermore, the company says at a gross profit level of R106.7 million, pricing pressure from customers in its Connect business and the impact of the deteriorating rand/dollar exchange rate resulted in a slight deterioration of margins from 36.9% to 34.6%.

Additionally, Etion says administration and operating expenses increased by R8 million (8.7%) from R91.7 million to R99.7 million.

“The main contributors to this variance are the consolidation of six months of operating expenses attributable to the Secure business (R6.7 million) and non-recurring costs incurred during phase one of the Digitise restructure (R3.8 million).

“The benefit of once-off costs of R10 million relating to the acquisition of Secure, the rebranding of the group, and the restructuring of Connect incurred in the prior year has been offset by the decline in projects executed during the current period and resultant inability to allocate the related costs to cost of sales.”

Etion adds it has a comprehensive foreign exchange hedging framework. “This resulted in a reduction of the unrealised foreign exchange losses from a loss of R8.1 million to R0.1 million, when restating the trade payables.”

Finance costs of R5.7 million have reduced by 27% “when excluding interest of R1.3 million in respect of the right-of-use lease liabilities recognised by the group upon implementation of IFRS 16 leases”. This was previously included in operating expenses.

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