final h1 results 28 november 18 - etion.co.za · cash payment for the acquisition of subsidiary net...

H1 FY19 Interim Results for the Six Month Ended

30 September 2018

TEDDY DAKA / CHIEF EXECUTIVE OFFICER ELVIN DE KOCK / CHIEF FINANCIAL OFFICER

MAESON MAHERRY / CHIEF DIGITAL OFFICER

2

AgendaGroup Overview

Strategy Update

Operating Context

Financial Performance

03

08

17

Outlook

Questions

2230

Etion Financial Results2018/11/27

3

Group Overview &Key Features


4Etion Financial Results2018/11/27

*The Group has assessed the impact of IFRS 9 & 15, and this has been incorporated into these results. The impacts have been determined to be not material.

REVENUE

R269.1 million (down 14%)

Impact of delays in delivery of key projects to be realised in H2 (R66 M, margin R27.6M)

EBIDTA

R8.9 million(down 81,2%)

HEPS

-0.5 cents (down 108.3%)

GROSS MARGIN

R99.2 million Up to 36,9%

Derived from the LAWTrustacquisition

NET ASSET

63.2 cents (down 1.9%)

RATIOS

Liquidity: 1.60 remains healthy post LAWTrust acquisition

Solvency: 2.11

What it means: Flat structure and Solutions Architecture


Digitalisation

Design and Manufacturing

Connectivity

Security and Trust

Structural Update


Value Chain

7

Most Empowered Companies Awards 2018Most Empowered Black Managed CompanyMost Empowered ICT Company Most Empowered on the ALTx

Standard Bank Top Women Etion Secure CEO - Christi Maherry nominated entrepreneur of the year

Institute of Information Technology Professionals SA –President’s Awards Etion Limited CEO – Teddy Daka IT Personality of the year


Awards and Accolades


Operating Context

9

Successfully completed the LAWTrust acquisition

Completed the rebrand of the group and its

subsidiaries

Key appointments in Corporate Office: • Chief Digital and

Business Development Officer

• Executive: People and Organisational Development

Replacement of SASFIN bridge finance with equity

partnership: Douglas Investments

Board Changes:

Richard Willis

Martie Janse van RensburgChair Audit and Risk

Committee

Retained and improved Level 1 –BBEE rating with greater margin


Group Initiatives

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• Economic activity in advanced economies lost some momentum in H1 2018 and the forecast remained unchanged at 2,4% in 2018 , but easing to 2,1% in 2019 largely influenced by trade and geopolitical developments

• We expect this to trickle down into emerging markets • May impact on Etion Connect aggressive international growth

• The South African economy shrank by 0.7% q-on-q in Q2 of 2018(Q1:-2.2%)• Connectivity business peaked to highest since October 2016

• Policy uncertainty is slowing down decision making, which may impact on State business. • Our advantage is that we mostly sell essential services and solutions into State

• Notably, Customers in financial services appear to be deferring projects to later in the financial year.

• The medium term outlook for commodity exports remain generally subdued deferring project of our mining customers


Macros and Micro factors impacting Etion’s business


Original Design Manufacturing (ODM)

R 83 327

R 6 309

R 105 855

R 16 139

Revenue Segment Profit

Create Segment Performance2018 2017

• Rebranded from Parsec to Etion Create

• Hub of all detailed designs for products and the manufacturing thereof;

servicing internal and external customers

• Continued growth in the Middle East – Group opportunity to leverage

new projects initiated by major customers in the region

• Driving investment in IoT and exploring new geographies

• Deployed larger base of engineers on investments to drive new and

future revenue streams and developing own IP

• Operational pressure to manage global shortage of components –

impact on business and customers

Operating Context

Performance• Segment Revenue: decreased by 21.3% from R105.8 million to

R83.3 million

• Segment profit: reduced by 60%

• Low order book in mining and local defence sectors due to policy

and political uncertainty

• International demand for defence and cyber solutions products

remains strong, a slowdown resulted in declined revenue from

exports of 39%


Safety and Productivity Solutions

R 14 806

R -4 966

R 36 849

R -538


Digitise Segment Performance

2018 2017

• Rebranded from Ansys Rail to Etion Digitise

• Repositioned as a digital solutions provider of safety and productivity

solutions

• Broader focus to include transportation and mining

• Established a Project Management Office

• Invested in senior-level skills to improve the current product line and

support new product development

• Expects mining to start contributing to revenue in current FY

• Exploring partnerships to enhance safety solutions capability; access to

markets and subscription revenue

• Segment revenue: reduced by 59.8% to R14.8 million from R36.8 million

• Segment profit: net loss of R4.9 million

• Impacted by a delay in the delivery of the Integrated System Display for

a major key client (R22 million against a total order value: R66 million)

• The testing and commissioning of this project is scheduled for

completion in H2.

• Healthy order book when compared to the previous corresponding

period. A firm performance is forecast for FY2019

Operating Context

Performance

Digital Network Solutions

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R 119 795

R 3 075

R 171 715

R 28 871


2018 2017

• Rebranded from Tedaka Network Solutions to Etion Connect

• Restructured with non-core activities ; out-sourced, non-performing

solutions ; discontinued and reduced personnel in overstaffed areas due

to slow down

• Optimised warehousing operations and moved to a more cost effective

site

• Geared inventory levels to be able to execute new orders as they come in

• Will realise opex savings on an annualised basis going forward

• Diversifying customer base - Vumatel now biggest customer

• Segment revenue: reduced by 30.2% to R119.8 million from R171.7

million

• Segment Profit: decreased to R3.1 million, down by 89.3 %.

• Revenues impacted by a slowdown in economy, which impacted on

the roll-out of fibre by major network operators,

• Uptick towards the closing of H1 with orders expected to be delivered in

H2

• Significantly improved order book, when compared against H1, firm

performance forecast for FY2019

Operating Context

Performance


Connect Segment Performance

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Cyber Security Solutions

R 51 164

R 5 414 R - R -


2018 2017

• LAWtrust was integrated into the Group to form Etion Secure as of 1 June 2018.

• Strengthens thrust into markets aligned to Corporate strategy

• Enhances and augments Etion’s existing cyber security business - introducing

strategically aligned products

• Solutions include digital signatures and approvals, biometric matching, fraud

management, digital certificates, public key infrastructure and encryption

solutions

• Acquisition has given the Group access to the financial services market and more

government departments

• Collaboration and joint work with Group business units is producing promising

products and market leads

• Partnership with Entrust for global volume sales of Solid WebKey – a second

factor authentication token by Etion Create

• Planned expansion into global markets with digital signatures in Australia and

New Zealand

• First four months of reporting post acquisition

• Revenue: R51.1 million

• Profit: R5.4 million.

• Key customers deferring projects to H2 and FY2020

• Forecast for H2 on track

Operating Context

Performance


Secure Segment Performance

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Top 10 Clients by RevenueSeptember 2018 September 2017


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We add value to



Financial Performance

Changes to Key Accounting Policies

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In the current reporting period, the Group adopted IFRS 15 Revenue from contracts with customers and IFRS 9 Financial Instruments. The group

has opted to follow the modified retrospective transition approach. The cumulative effect of applying IFRS 9 and

IFRS 15 is recognised at the date of initial application (1 April 2018), with no restatement of the comparative

period.

As at 1 April 2018, the impact, net of tax, of the transition to IFRS 15 on retained earnings is (R2.68m). The application of

IFRS 9 results in the recognition of an additional impairment on the Group’s trade receivables and a

resultant decrease in Retained earnings of R5.08 million.


For the 6 months ended 30 September 2018Period Periodended ended

30 September 2018 30 September 2017Note (Unaudited) (Unaudited)

R’000 R’000

Revenue 269 093 314 419Cost of sales (169 877) (214 594)Gross profit 99 216 99 825Other income 2 092 251Operating costs (91 689) (62 177)Other gains/(losses) (8 127) 2 214

Operating profit 1 492 40 113Finance income 698 1 104Finance costs (5 996) (3 006)Profit before taxation (3 806) 38 211Taxation 1 420 (10 230)Net profit for the period (2 386) 27 981

Total comprehensive income for the period (2 386) 27 981Attributable to:Equity holders of the company (2 386) 28 029Non-controlling interest - (48)

(2 386) 27 981Basic earnings per share (cents) 3 -0.50 6.08

Diluted earnings per share (cents) -0.50 6.08

Condensed Consolidated Statement of Comprehensive Income

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As at 30 September 201830 September 2018 30 September 2017

Notes (Unaudited) (Unaudited)R’000 R’000

AssetsNon-current assets 265 624 176 787Property, plant and equipment 50 879 51 631Intangible assets 191 468 118 346Deferred tax asset 19 917 5 800Other financial asset 3 360 1 010Current assets 328 327 276 541Inventories 4 138 819 99 466Trade and other receivables 5 147 061 130 973Current tax receivables 7 047 -Cash and cash equivalents 35 400 46 102Total assets 593 951 453 328Equity and liabilitiesEquity 132 389 297 002

Share capital 232 241 212 141Accumulated profit 80 148 84 6800Minority interest - 181

Non-current liabilities 76 557 36 250Interest bearing borrowings 7 69 990 34 828Deferred tax liability 6 567 1 422Current liabilities 205 005 120 076Provisions 3 070 857Interest bearing borrowings 7 37 777 4 258Trade and other payables 6 146 367 112 219Current tax payable - 2 577Bank overdrafts 17 791 165Total equity and liabilities 593 951 453 328

Condensed Consolidated Statement of Financial Position20

Period Periodended Ended

30 September 2018 30 September 2017

(Unaudited) (Unaudited)R’000 R’000

Cash flows from operating activitiesCash receipts from customers 243 670 330 185

Cash paid to suppliers and employees (249 059)(340 052)

Cash (utilised in)/generated from operations (5 389) (9 867) Finance costs (5 996) (3 006)Finance income 698 1 104Taxation paid (7 087) (10 671)

Net cash flow utilised in operating activities (17 774) (22 440)Cash flows from investing activitiesPurchase of property, plant and equipment (1 388) (1 944) Proceeds from disposal of property, plant and equipment - 23Cash payment for the acquisition of subsidiary net of cash acquired (62 103) (3 397)Purchase of intangible assets (6 590) -Net cash flow utilised in investing activities (70 081) (5 318) Cash flows from financing activitiesProceeds from/ (repayment of) interest bearing borrowings 70 519 (2 728) Net cash flow generated from/ (utilised in) financing activities 70 519 (2 728)Net decrease in cash, cash equivalents and bank overdrafts (17 366) (30 486)Cash and cash equivalents and bank overdrafts at the beginning of the period 41 254 79 234Unrealised foreign exchange adjustment (6 309) (2 811)Cash, cash equivalents and bank overdrafts at year end 17 609 45 937

Condensed Consolidated Statement of Cash FlowsFor the 6 months ended 30 September 2018

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Outlook

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Spin-offs of global growth

Global defence industry is experiencing growth

Middle East Spending Cycle

International growth is envisaged, particularly in the Middle East, where the current spending cycle will continue into the foreseeable future

Source: UAE defence expenditure - IHS Defense & Aerospace

Outlook: Industry Data: ODM We see market growth and demand for our design, development and manufacturing services as detail design and rollout of technology solutions increases

Forecast growth in global defense expenditure between 2014 and 2020 (ex USA)

Forecast growth in Sub-Saharan Africa defense expenditure between 2014 and 2020

Forecast growth in expenditure in the UAE from $11 billion in 2009 to $19.8 billion 2020

17%

10%

80%


24

Low Throughput IoT Applications

Smart Grid & CityAsset Tracking Automotive

Security Agriculture

Oil, Gas, Mining

ConsumerShipping• Fire & security

alarms• Propane tank

monitoring

• Precision irrigation• Moisture control• Fertilizer

management• Lifestock

management

• Border patrol• Intrusion detection• Alarm monitoring

• 10 year battery life@ 1 ping / week

• Pipeline monitoring

• Well head monitoring

• Personnel tracking• Asset tracking

• UBI• BHPH• Train yards, ports,

airports• Military, industrial• Hospitals• Construction

• Electric/water/gas meters• Demand response• Line & transformer

monitoring• Transportation & safety

• Parking meters• Environmental

monitoring

Broad & Diverse Opportunities

We are responding to the increasing demand for low powered IoT networks that operate smart cities, and smart mines

• Internationalising IoT solutions with prospects in the UAE, South America and Indonesia• Paid IoT pilots for connected Electrical Metre Monitoring in South America


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Trends driving the sector Modernisation and digitisation: We are optimistic that our current product offering places Etion Digitise in good stead to meet the demands of rail operators

Africa Expansion of rail infrastructure: Presents an opportunity for us to take advantage of growth markets out of South Africa

Big data and analytics: We envisage that growth in the utilisation of health monitoring systems and big data will drive demand for our products and service in the medium to long term

Outlook: Industry Data: Rail Opportunity: Technology gap due to high levels of demand for rail technology and components by both Transnet and other operators

R300 billion capital

injection

210 to 350 million

4.9 %

Transnet Market Development strategy

Increase in volumes in 2017 financial year

Expected increase in rail volumes

Expected spend in the years leading to 2024 R229.9 billion


26

• Spend is increasing as Mines as Modernisation initiatives take effect

• Mines are gearing up to exploit industry version 4.0 technologies such as IoTs and data analytics.

• Regulatory certainty and enhanced safety levels in the mining sector, cost reduction and increased productivity will translate into business for Etion

• Global strategic alliances with international specialist partners in place to offer proven safety management solutions in mining initially, then expanding to other industrial sectors

Outlook: Industry Data: Mining


27

Trends in the sector

The target for broadband was to connect 80% of the population by 2019

Homes passed business still has potential in the next five years

Homes connected lagging plan. Huge potential going forward

5G to extend fibre network rollout (fibre to the antennae)

Number of players in FTTx increasing e.g. SADV, Frogfoot, Vumatel etc

Outlook: Digital Networks


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MTN • Investment in Network in 2017: Over R11 billion • Estimated spend on capital expenditure in SA

2018/9: R11.5 billion

Vodacom• Investment in Network in 2017: R8.5 billion• Estimated spend: R8.4 billion


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Source: Global Defence Outlook 2015 – Deloitte.

Cyber Attack Top 10

Countries

43%Trends in the sectorThe extensive use of authentication, encryption, and, PKI and biometrics in enterprise applications enable us to bring trust into transactions to protect enterprises, governments, and individuals making this a high-growth segment, in the year ahead.

Etion Secure is expanding into global markets with its Digital Signatures solutions, with Australia and New Zealand

The introduction of new technologies is creating entirely new ways of serving existing needs, causing significant disruption to industry value chains.

This is driving worldwide need for digital solutions - opportunities for us not only local but global.

Outlook: Industry Data: Cyber Security

6x more vulnerable to cyberattack than the 10 least vulnerable Top 50 countries

South Africa cybersecurity spending projected to 0.35 of GDP, up from 0.2 in 2010

Increase in average global vulnerability to cyber attack2010 – 14


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Outlook


Leveraging international prospects: 1. Central Africa: Cyber Security 2. Middle East: Cyber Security and Defence 3. Australia and New Zealand: Cyber Security4. South America: IoT – Connected Electrical Metre Readings 5. Rest of Africa – Rail and Mine Fatality Prevention System


Questions

Thank [email protected]

final h1 results 28 november 18 - etion.co.za · cash payment for the acquisition of subsidiary net...

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