Wrap Text
Reviewed Provisional Condensed Consolidated Annual Financial Statements for the period ended 31 March 2019
Etion Limited
(“Etion” or “the company” or “the Group”)
(Incorporated in the Republic of South Africa)
(Registration Number: 1987/001222/06)
Share Code: ETO
ISIN: ZAE000097028
Reviewed Provisional Condensed Consolidated Annual Financial Statements
for the period ended 31 March 2019
KEY FEATURES
- Revenue increased to R595.9 million from R572.6 million (up 4%)
- Gross profit margin increased from 28.3% to 30.3% (up 2%)
- EBITDA decreased from R60.7 million to R31.1 million (down 49%)
- Profit after tax decreased from R33.4 million to a loss of R2.9 million (down 108%)
- Headline and Basic Earnings per share decreased from 7.26 cents to (0.56) cents (down 108%)
Condensed consolidated statement of financial position
As at 31 March 2019
31 March 2019 31 March 2018
Notes (Restated)
(Reviewed) (Audited)
R’000 R’000
Assets
Non-current assets 264 161 184 569
Property, plant and equipment 48 455 50 294
Intangible assets 2 191 421 118 543
Loans to related parties 2 330 -
Deferred tax asset 20 945 14 722
Other financial assets 1 010 1 010
Current assets 327 239 285 379
Inventories 3 90 305 88 276
Trade and other receivables 4 163 630 140 790
Contract assets 16 171 -
Current tax receivable 6 522 5 513
Cash and cash equivalents 50 611 50 800
Total assets 591 400 469 948
Equity and liabilities
Equity 343 066 302 446
Share capital 259 541 212 141
Accumulated profit 83 525 90 305
Non-current liabilities 41 724 32 952
Interest bearing borrowings 5 32 967 27 788
Contract liabilities 274 -
Deferred tax liability 8 483 5 164
Current liabilities 206 610 134 550
Provisions 1 890 5 388
Interest bearing borrowings 5 43 523 9 461
Trade and other payables 6 132 176 110455
Contract liabilities 14 918 -
Current tax payable 970 -
Bank overdrafts 13 133 9 546
Total equity and liabilities 591 400 469 948
Condensed consolidated statement of comprehensive income
For the year ended 31 March 2019
Year Year
ended ended
31 March 2019 31 March 2018
Notes (Reviewed) (Audited)
R’000 R’000
Revenue 595 939 572 562
Cost of sales (415 325) (410 379)
Gross profit 180 614 162 183
Other operating income 4 877 2 276
Administrative and operating costs (165 151) (125 787)
Other (losses)/ gains (8 956) 7 849
Operating profit 11 384 46 521
Finance income 1 717 1 975
Finance costs (11 262) (6 143)
Profit before taxation 1 839 42 353
Taxation (4 743) (8 929)
Net (loss)/profit for the period (2 904) 33 424
Total comprehensive (loss)/ income for the period (2 904) 33 424
Attributable to:
Equity holders of the company (2 904) 33 473
Non-controlling interest (49)
(2 904) 33 424
Basic and diluted (loss)/earnings per share (cents) 1 (0.56) 7.26
Condensed consolidated statement of cash flows
For the year ended 31 March 2019
Year Year
ended ended
31 March 2019 31 March 2018
Note (Reviewed) (Audited)
R’000 R’000
Cash flows from operating activities
Cash receipts from customers 561 283 556 150
Cash paid to suppliers and employees (527 513) (555 460)
Cash generated from operations 7 33 770 690
Finance cost (4 668) (6 143)
Finance income 1 717 1 975
(11 277
Taxation paid ) (23 110)
Net cash flow generated from/ (utilised in)
operating activities 19 542 (26 588)
Cash flows from investing activities
Purchase of property, plant and equipment (2 921) (4 942)
Proceeds from disposal of property, plant 435
and equipment 1 169
Cash payment for acquisition of subsidiary
net of cash acquired (63 103) -
Movement in intangible assets (10 514) (7 578)
Net cash flow utilised in investing activities (76 103) (11 351)
Cash flows from financing activities
Proceeds on share issue 27 300 -
Proceeds from/ (repayment of) interest
bearing borrowings 32 647 (4 564)
Net cash flow generated from / (utilised in)
financing activities 59 947 (4 564)
Net increase/(decrease) in cash, cash
equivalents and bank overdrafts 3 386 (42 503)
Cash, cash equivalents and bank overdrafts
at beginning of period 41 254 79 235
Unrealised foreign exchange adjustment (7 162) 4 522
Cash, cash equivalents net of bank
overdrafts at end of year 37 478 41 254
Condensed consolidated statement of changes in equity
For the year ended 31 March 2019
Issued Accumulated Minority
share capital profit/(losses) interest Total
R’000 R’000 R’000 R’000
Balance as at 1 April 2017 (Audited) 212 141 56 652 229 269 022
Movements during the year
Profit for the year - 33 473 (49) 33 424
Buy back of minority interest shares
180 (180) -
in subsidiary
Balance as at 1 April 2018, as
212 141 90 305 - 302 446
previously reported
Adjustment from adoption of IFRS
- (3 876) - (3 876)
9, net of tax
Restated balance as at 1 April 2018 212 141 86 429 - 298 570
Movements during the year
Shares issued as part of the
business combination 20 100 - - 20 100
Shares issued for cash 27 300 27 300
Loss for the year (2 904) (2 904)
Balance as at 31 March 2019
259 541 83 525 - 343 066
(Reviewed)
Condensed consolidated segment report
For the year ended 31 March 2019
Year Year ended ended
31 March 2019 31 March 2018
(Reviewed) (Restated*)
(Audited)
R’000 R’000
Segment revenue
Etion Digitise: Safety and Productivity Solutions 95 819 77 035
Etion Create: Original Design Manufacturing 206 565 235 775
Etion Connect: Digital Network Solutions 246 748 277 547
Etion Secure:Cyber Security Solutions (LawTrust) 106 966 -
Eliminations (60 159) (17 795)
Total 595 939 572 562
Segment profit/(loss)
Etion Digitise: Safety and Productivity Solutions (834) (8 276)
Etion Create: Original Design Manufacturing 20 189 38 375
Etion Connect: Digital Network Solutions 13 267 30 588
Etion Secure:Cyber Security Solutions (LawTrust) 5 373 -
Eliminations 22 117 6 255
Sub total 60 112 66 942
Corporate costs (48 728) (20 421)
Finance costs (11 262) (6 143)
Finance income 1 717 1 975
Profit before taxation 1 839 42 353
Financial position
Assets 591 400 469 948
Etion Digitise: Safety and Productivity Solutions 95 956 91 570
Etion Create: Original Design Manufacturing 278 520 235 627
Etion Connect: Digital Network Solutions 134 740 142 645
Etion Secure:Cyber Security Solutions (LawTrust) 52 853 -
Corporate 29 331 106
Liabilities 248 334 167 502
Etion Digitise: Safety and Productivity Solutions 30 092 24 922
Etion Create: Original Design Manufacturing 80 246 97 108
Etion Connect: Digital Network Solutions 66 887 45 470
Etion Secure:Cyber Security Solutions (LawTrust) 27 845 -
Corporate 43 264 2
* Due to the material increase of R60,1 in intersegment transactions during the current financial year the Group has
revised the manner in which it reports segment information for the four business segments. Intersegment transactions are
now eliminated on a gross basis and not directly from the results of the business segment to which it relates. The
comparative information for the 2018 financial year has been restated.
COMMENTARY
GROUP PROFILE
Etion Limited is a diversified digital technology provider. Our purpose is to advance humanity by improving
the safety, productivity, connectivity and cyber security of our customers. We create digital solutions and
products, digitilise business operations and processes, connect people, entities, systems and things, and
we secure identities, information and transactions in the cyber arena.
In order to achieve this, we draw on a proud electronic engineering heritage dating back over 30 years, as
well as on our extensive original design and manufacturing (ODM) capabilities. We create value by
designing and manufacturing custom-designed and generic solutions, by acting as a distributor and a
systems integrator of technology-based products, by operating an internationally recognised Trust Centre
and developing solutions for the global market.
FINANCIAL RESULTS HIGHLIGHTS
Revenue grew 4% from R572.6 million to R595.9 million. The growth was attributable to the acquisition
of LAWTrust (effective 1 June 2018) and an increase in revenue from Etion Digitise. Negative revenue
growth from Etion Create and Etion Connect was impacted by reduced project spend from our clients.
As project spend is largely an investment decision by our clients it is impacted by a number of macro and
micro economic factors that result in lower and sometimes a deferral of spend into the following year.
Gross profit margin improved 2% from 28.3% to 30.3%. The improvement is directly attributable to the
higher margins earned in Etion Secure.
Operating expenses increased R39.3 million from R125.8 million to R165.2 million. R33.6 million is 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. Exclusion of the incurred once-off operating expenses reflects a 8.6% reduction in year-on-year
expenditure in our existing operating units.
Although we had a difficult year, we strategically retain our design, engineering and manufacturing
capability, a major contributor of our fixed costs. This has resulted in a negative year-on-year opex-to-
revenue ratio, thereby impacting the overall operating profit.
The application of IFRS 9’s impairment requirements has resulted in the recognition of an additional
impairment on the Group’s trade and other receivables and a resultant decrease in retained earnings of
R5.086 million (before tax considerations and net of R0.885 million already recognised) as at 1 April 2018,
as well as an increase in operating expenses of R3.1 million in the current financial year. The Group has
opted to apply the modified retrospective transition approach. The cumulative effect of applying IFRS 9 is
recognised at the date of initial application (1 April 2018), with no restatement of the comparative period.
Other (losses) / gains includes foreign exchange losses arising from the revaluation of foreign creditors at
year-end. These losses arose due to the devaluation of the Rand in the last quarter. Foreign exchange gains
were recorded in the prior year.
Finance costs have increased from R6.1 million to R11.2 million due to an increase in debt of R40 million to
part fund the acquisition of Etion Secure (formerly LAWtrust).
The reassessment by SARS of our assessed losses brought forward from the prior financial year has
resulted in a reduction to our deferred tax asset and increase in tax charge to the Statement of
Comprehensive Income by R4 million.
Profit for the year decreased by 108% from R33.4 million to a loss of R2.9 million. Basic earnings per share
decreased by 108% from 7.26 to a loss of 0.56 cents per share.
STRATEGY AND PERFORMANCE
The Group consists of four operating units (Create, Digitise, Connect and more recently Secure) and a
corporate head office. Prior to the current year, the operating units conducted their business with limited
group synergies being explored. During the current year the Group executed on a number of strategic
decisions to further expand the Group’s offering and capabilities (by acquiring LawTrust), and better
integration of all operating units. These decisions required an investment in people, marketing, systems
and processes. The timing of the investment in people, marketing and some processes, coupled with the
low economic growth environment has proved difficult to manage. The Group is currently reviewing its
decisions and has taken appropriate steps to better position the Group in 2020.
Etion Create has been repositioned as a pure ODM offering solutions to both internal and external
clients. We have leveraged its capability to produce a range of new products and solutions that are
now entering both local and international markets.
Etion Digitise is transforming its old rail solutions business by specialising in digital solutions aimed at safety
and productivity across industry sectors. We have enhanced our technical capability and as a result have
developed new solutions that are pilot-ready. The transformation of this business has provided us with the
strategic leverage to achieve more with our existing clients and at the same time, to enter other market
segments namely transportation and mining, an outcome of our strategic drive to diversify.
Etion Connect was restructured during the year which enabled a 6% reduction in costs going into FY2020
making the business more efficient. Furthermore, the business has been successful in reducing client
concentration risk by broadening its client base. The largest customer made up 24% of revenue this year
(41% in the prior year).
The Group expanded its technology offering by acquiring Etion Secure (previously LawTrust) during the
year. The Group now has a technology offering servicing the cyber security industry which spans many
existing and new customers and industries.
As we conclude on a tough 2019 we move into 2020 with a Group that has four key business entities each
serving customers and industries - local and international - where they are competitive in their respective
fields of excellence. We have invested in a corporate head office that will focus on integrating these
business units and improving efficiencies. We have made good progress in diluting the concentration risk
posed by fewer clients, public sector exposure, and the South African market. Our work is not done and
will continue in 2020.
OUR OPERATIONS
Etion Create (“Create”) designs, develops and manufactures a wide range of advanced electronic and
digital technologies for internal and external customers. It develops customised and generic electronic
subsystems as well as products for clients in the aerospace & defence and cyber security industries as well
as in several other sectors including mining, industrial, and transportation.
Contribution to Group revenue 35%
Contribution to Group profit 34%
Year-on-Year Comparative Figures
Revenue declined 12% from R235.8 to R206.5 million.
Segment Profit declined 47% from R38.4 million to R20.2 million.
Export revenue decreased 59% from R103.4 million to R 42.5 million.
The decline in revenue was impacted by a depressed local economy and delayed buying from the Middle
East clients. The defence industry, much like the construction industry, is subject to 4- 7-year cycles with
prolonged sales cycles. Consequently, we note an increased trend in design and development work which
we anticipate will convert into an uptick in requests for production as the cycle turns.
While Create did not run at full capacity due to reduced business during the year under review, its
operational teams introduced new systems and continued to improve on efficiencies, quality and delivery,
to position the business for the next upswing. Create also undertook the redesign of the Integrated System
Display (ISD) product, with Etion Digitise as its customer. Other initiatives include Create, working jointly
with Etion Secure on the development of the Solid WebKey solution, both being major initiatives in terms
of the Group’s corporate strategy to leverage off Create’s capabilities.
Etion Digitise (“Digitise”) specialises in digital systems that help improve the safety and productivity of
client operations in sectors that include transport & logistics, mining and energy. It provides digital safety
and environmental management systems that incorporate IoT devices and custom software to provide
condition monitoring systems aimed at helping clients derive value from efficient asset management.
Contribution to Group revenue 16%
Contribution to Group profit -1%
Year-on-Year Comparative Figures
Revenue increased 24% from R77 mil to R95.8 mil.
Segment loss before tax improved by 90% from a loss of R8.3 mil to a loss of R0.8 mil.
During the year under review Digitise continued its drive to diversify from a single-client, single-sector
business. The business also focused on the development of new technologies such as the Autonomous
Train Movement Monitoring System, Asset Tracking, on-board and trackside energy harvesting, as well as
the digitilisation of mining systems. These enhancements will improve sustainability for the business in the
short, medium and long term.
Etion Connect (“Connect”) offers connectivity and communications products, solutions and services for
fibre wireless deployments, data and digital radio communications networks, network monitoring, power-
related infrastructure solutions, and services Data Centre environments.
Contribution to Group revenue 41%
Contribution to Group profit 22%
Year-on-Year Comparative Figures
Revenue declined by 11% from R277.5 mil to R246.7 mil.
Segment Profit decreased 55% from R30.6 mil to R13.3 mil.
The decline in revenue is primarily due to a slowdown in the fibre network build. This is attributable to the
economic downturn and financial pressures on households and businesses which reduced the demand for
Fibre-To-The-Home (FTTx) services. In addition, due to a restructure, Connect also incurred once off cost
of R4.1 million and the full benefit of the reduced cost to be realised in FY2020.
During the year under review Connect reduced its concentration risk by diversifying its client base. A major
client made up 24% of the revenue in the current year, down from 41% in the prior year. Introducing new
clients takes time. Our extensive engagements with these new clients together with our products and
competitive pricing have laid the back drop for the business to return to growth in 2020.
Etion Secure (“Secure”), incorporating the newly acquired LAWtrust (effective 1 June 2018), provides cyber
security solutions that focus on establishing positive identity, ensuring authenticity and protecting privacy.
Solutions include SSL certificates and certificate management systems, FIDO certified strong
authentication, digital signature and approval solutions, managed public key infrastructure (PKI), biometric
enrolment and matching systems and insider threat prevention with the eDNA platform.
Contribution to Group revenue 18%
Contribution to Group profit 9%
Revenue and Segment Profit Contribution: 10 months
Revenue: R106.9 million
Segment Profit: R5.4 million
Secure develops products and services that focus on the global cyber security market. The research &
development team is located in South Africa, but its products and services can be exported internationally
as required. Some of the immediate international markets include representation in territories such as the
rest of Africa, the Middle East and Australia.
Outlook
We expect the market in the short term to remain subdued, with spending to be unlocked in the second
half of 2019. Local GDP growth is expected to be 1% or less in 2019, following poor Q1 GDP results and
1.5% in 2020. Furthermore, global GDP is expected to decline to 1.5% from 1.7% in 2019, and stabilise in
2020.
Despite these declines, the digitilisation of economies continues to grow at a much faster pace, for which
we are well placed to take advantage of the opportunities both in South Africa and globally.
The Middle East is our second largest market outside of South Africa, with potential for further growth.
Although the region is currently experiencing moderate growth impacted by subdued oil prices, it is
diversifying its economies beyond oil by developing its defence industry. In addition, the region is
replenishing its defence assets, and hence creating growth opportunities for our solutions.
We have earmarked Sub-Saharan Africa (SSA) as a new growth market. Six out of ten of the fastest growing
economies in the world are in Africa albeit starting from a low base. From this growth potential we expect
that SSA economies will continue to implement the much-needed macro-economic reforms which will
make it easier to expand business in the region. These conditions and reforms provide good opportunities
in safety, cyber security & frictionless operations, digitalisation of operations and the drive towards e-
government.
Etion Create - Our track record and reputation in the Middle East has placed us well to pursue large public
sector contracts in the region’s defence and cyber security markets. We expect this to lead to an uptick in
development work in new manufacturing business, in the short to medium term.
We are positioning ourselves to enter new IoT markets and are exploring potential opportunities in
international geographies such as South America, as well as for opportunities locally where our solutions
have various potential applications.
There is still a level of uncertainty in the local mining industry, thus we foresee slow growth in the short to
-medium term in this segment.
Etion Digitise –The rail sector remains a major contributor of revenue in this business unit, as the drive to
move cargo from road to rail by most African governments points to heightened activity in optimisation of
current fleets and rail networks. Further growth is expected to be in the freight and logistics of goods, as
well as dry bulk commodities across SSA markets, driven by cooperation among the Rail operators in the
region.
Key contributors to the sustainability of the business in the short, medium and long term is our pursuit to
access new markets with our new technologies, as well as the existing proven, products and solutions for
existing and prospective clients.
Our positioning as an OEM of various electronic solutions stands to benefit us from opportunities presented
by the growing trend of asset management and maintenance, which continues to be a key focus area for
operators looking to partner with OEMs through SLA contracts.
In Mining: We expect the mining sector to remain flat in the year ahead. In response to market pressure,
mining operations are driving down costs through the adoption of digitilisation, which provides us with
opportunities for growth. The increased requirement for safety in the sector is expected to further fuel the
demand for digital safety solutions.
Etion Connect – While demand for higher bandwidth continues to grow, we expect moderate growth in
fibre network rollouts in the short term. Depressed economic growth in South Africa has caused operators
to monetise past network investments resulting in reduced capex spend. However connecting homes
historically excluded, presents opportunities for growth in passive connectivity solutions.
In the medium to long term, fibre deployments are expected to increase both due to an expected uptick in
economic growth and the deployment of 5G networks that demand higher passive connectivity as a result
of the concentrated nature of the 5G antennaes.
Etion Secure – We envisage demand for protection against cybercrime and cyber warfare to continue to
increase across all industry sectors including the public sector, and in global markets. The complexities of
cyber-attacks are creating an unprecedent demand for new approaches that require a more defensive
approach to harden systems and reduce attack possibilities.
This is creating a growth opportunity for crypto based security in all applications including machine identity
and authentication, communication of all types, data protection and compliance to laws such as the
Protection of Personal Information Act (PoPI).
Our solutions, which are rooted in both crypto based security and security as part of responsible
governance, position us to exploit opportunities in both local and international markets.
Corporate – As noted above, the Group has made strategic investments to create capacity for the
corporate office, in Finance, People and Organisation Development, Digital and Business Development, as
well as Marketing teams as we position our business for growth and its ability to take advantage of
market opportunities. This aligns to our value proposition and positioning to offer customised, integrated
and seamless solutions to our clients. The in year effect of this investment is R9.7 million. Cost
management remains a key focus area and further optimisation to the corporate cost structure has been
implemented with the full year effect to be realised in FY2020. Furthermore, in executing on the business
strategy, other once-off costs to the value of R10.6 million have been incurred. This comprises in the
main of the cost of rebranding and the LAWtrust acquisition costs.
KEY ASPECTS OF THE FINANCIAL RESULTS
The business environment in which the Group operated remained challenging throughout the reporting
year. Focus was placed on those factors within our control, namely: extracting operational efficiencies, cost
and increased focus on managing working capital.
Significant movements include the following:
CASH FLOW STATEMENT
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 Connect. Please refer notes to the financial information for
further detail and commentary.
One of the key focus areas of the Group in 2020 is to improve working capital. The investment in people
and systems will enable group finance to improve efficiencies and unlock cash to further pursue growth
opportunities.
STATEMENT OF FINANCIAL POSITION
The unsatisfactory performance has resulted in the potential breach of one of the loan covenants under
the Nedbank loan facility within Etion Limited. Management have alerted the Bank and are in early
conversations to revise this covenant. In the interim, Nedbank have advised that it will be reducing the
revolving credit facility and limiting overdraft facilities across the Group to 33% of the debtor balance
excluding intercompany balances and long outstanding debts greater than 120 days. As a result the facility
has been classified as current at reporting date.
In response management have embarked on a strategic review of operational costs to identify further
optimisation opportunities across the Group and have tightened working capital management.
Some of the line items on the statement of financial position that have shown significant changes when
compared to March 2018, have been included in the notes to the financial information to give some context
and explanation to these movements.
NOTES TO THE FINANCIAL INFORMATION
STATEMENT OF COMPLIANCE, BASIS OF PREPARATION AND AUDIT REPORT
The reviewed provisional condensed consolidated annual financial statements are prepared in accordance
with International Financial Reporting Standard, IAS 34 Interim Financial Reporting, the SAICA Financial
Reporting Guides as issued by Accounting Practices Committee and Financial Pronouncements as issued by
Financial Reporting Standards Council, the requirements of the Companies Act of South Africa and the
listing requirements of the JSE Limited. The accounting policies applied in the preparation of these annual
financial statements are in terms of International Financial Reporting Standards and are consistent with
those applied in the previous annual financial statements for the year ended 31 March 2018, except as
noted below in the changes in accounting policies. The directors take full responsibility for the preparation
of the reviewed provisional condensed consolidated financial statements.
These reviewed provisional condensed consolidated financial statements for the year ended 31 March
2019 have been reviewed by PricewaterhouseCoopers Incorporated, which expressed an unqualified
review conclusion. A copy of the auditor’s report is available for inspection at the company’s registered
office.
The auditor’s report does not necessarily report on all the information contained in these financial results.
Shareholders are therefore advised that, to obtain a full understanding of the nature of the auditor’s
engagement, they should obtain a copy of the auditor’s reviewed report together with the accompanying
financial information from the issuers registered office.
CHANGES IN ACCOUNTING POLICIES
The Group has adopted IFRS 15 “Revenue from Contracts with Customers” (IFRS 15) and IFRS 9 “Financial
Instruments” (IFRS 9) from 1 April 2018. A number of other new standards are effective from 1 January
2018 but they do not have a material effect on the Group's financial statements.
The effect of initially applying these standards is mainly attributed to the following:
- deferral of recognition of revenue relating to provision of services where revenue will now be recorded
over time versus point in time. (IFRS 15)
- an increase in impairment losses recognised on trade receivables (IFRS 9)
IFRS 15 Accounting policy
The Group has adopted IFRS 15 using the cumulative effect method, with the effect of initially applying
this standard recognised at the date of initial application (i.e. 1 April 2018). Accordingly, the information
presented in the 31 March 2018 financial statements has not been restated - i.e. it is presented, as
previously reported, under IAS 18 and related interpretations. The Group has also applied the practical
expedients are available under this method. There was no material impact on the condensed
consolidated statement of comprehensive income. The changes made to the statement of financial
position at 31 March 2019 is the disclosure of the contract assets and laibilities, which were disclosed in
trade and other receiveables and trade and other payables as at 31 March 2018.
IFRS 9 Accounting policy
IFRS 9 sets out requirements for recognising and measuring financial assets and financial liabilities. This
standard replaces IAS 39 Financial Instruments: Recognition and Measurement.
The Group has applied IFRS 9 using the modified retrospective approach, with the initial application date
of 1 April 2018.
The adoption of IFRS 9 has fundamentally changed the Group’s accounting for impairment losses for
financial assets by replacing IAS 39’s incurred loss approach with a forward-looking expected credit loss
(ECL) approach. IFRS 9 requires the Group to recognise an allowance for ECLs for all debt instruments not
held at fair value through profit or loss. Under IFRS 9, credit losses are recognised earlier than under IAS
39. The Group has determined that the application of IFRS 9’s impairment requirements at 1 April 2018
results in the recognition of an additional impairment on the Group’s trade receivables and a resultant
decrease in retained earnings of R5.085 million as at 1 April 2018.
1. Headline earnings per share
for the year ended 31 March 2019
Year Year
ended ended
31 March 2019 31 March 2018
(Reviewed) (Audited)
R’000 R’000
(Loss)/ profit attributable to ordinary shareholders (2 904) 33 473
Basic (loss)/earnings per share (cents) (0, 56) 7,26
Diluted basic (loss)/earnings per share (cents) (0,56) 7,26
Reconciliation of headline earnings:
Profit attributable to ordinary shareholders (2 904) 33 473
Loss on disposal of property, plant and equipment 13 198
Total tax effect of adjustments (4) (55)
Headline earnings attributable to ordinary shareholders (2 895) 33 616
Headline (loss)/earnings per share (cents) (0,56) 7,29
Diluted headline (loss)/earnings per share (cents) (0,56) 7,29
Weighted average number of shares in issue 516 037 573 461 038 321
2. Intangible assets
2019 2018
Cost/ Accumulated Carrying Cost/ Accumulated Carrying
Valuation Amortisation value Valuation Amortisation value
Customer
relationships and 39 467 (20 750) 18 717 23 620 (13 385) 10 235
brands
Computer software 6 191 (4 223) 1 968 4 575 (3 681) 894
Goodwill 149 272 - 149 272 93 072 - 93 072
Developed products 42 898 (20 983) 21 464 32 560 (18 218) 14 342
Total 237 377 (45 956) 191 421 153 827 (35 284) 118 543
The increase in intangible assets during the current financial year is mainly attributable to the Lawtrust
business combination and the allocation of the excess of the purchase consideration over the fair value of
the net identifiable assets to goodwill (R56.2 million), customer relationships and brand (R15.8 million)
and computer software (R1.7 million).
3. Inventories
31 March 2019 31 March 2018
(Reviewed) (Audited)
R’000 R’000
Inventories comprise:
- Finished goods 87 500 77 585
- Work in progress 6 351 6 080
93 851 83 665
Provision for slow moving inventories (3 546) (5 312)
90 305 78 353
Inventory has increased by 15% over the prior year. This increase, on the back of lower revenues, has
negatively influenced cash on hand at the end of the financial year. The increase in finished goods is
attributable to stock landed for a large new network operator added to the Connect customer base to
enable us to timeously execute on forecast orders.
Management continues to focus on improving inventory turnover and have defined targets to optimise.
4. Trade and other receivables
31 March 2019 31 March 2018
(Reviewed) (Audited)
R’000 R’000
- Trade receivables 155 443 128 978
Gross trade receivables 164 505 129 833
Loss allowance (9 062) (855)
- Deposits 1 034 1 166
- Retention debtors 44 221
- Sundry debtors 1 597 784
- Value added tax 37 882
- Prepayments 5 416 1 304
- Employee costs in advance 59 112
- Accrued revenue - 7 343
163 630 140 790
Trade debtors have increased by R29.6 mil due to the acquisition of Etion Secure. The most significant area
impacted by the implementation of IFRS 9 within the Group is that of Trade Receivables and the calculation
of impairment allowances. The Group has used the simplified approach in calculating expected credit losses
(ECLs”). We do not track changes in credit risk, but instead recognise an allowance based on lifetime ECLs
at each reporting date.
The calculations performed as at 31 March 2019 has resulted in an expected credit loss of R9.1 million
(2018 restated: R5.9 million) for the Group.
Management has commenced with proactive monitoring and management of debtors’ days to improve
the Group’s working capital management.
Following the adoption of IFRS 15 the accrued revenue was reclassified in the current year and is disclosed
on the face of the condensed consolidated statement of financial position as contract assets.
5. Interest bearing borrowings
31 March 2019 31 March 2018
(Reviewed) (Audited)
R’000 R’000
Non-current 32 967 27 788
- Properties loan 29 255 21 206
- Instalment sale agreements 3 712 6 582
Current 43 523 9 461
- Properties loan 622 6 634
- Medium term loan for Lawtrust transaction 40 009 -
- Instalment sale agreements 2 892 2 827
Total 76 490 37 249
- Nedbank Properties loan 29 877 27 840
- Nedbank medium term loan for Lawtrust transaction 40 009 -
- Instalment sale agreements 6 604 9 409
The increase in interest bearing borrowings when compared to the previous financial year is due to the
funding procured in respect to the acquisition of LAWtrust.
Due to the potential breach of one of the loan covenants under the Nedbank facility, management is
required to classify the the loan facility as a current liability at reporting date. This is a more conservative
approach to follow in light of the Bank’s willingness to consider a waiver and revision to this covenant as
well as the fact that the breach is still to be confirmed as part of Nedbank’s annual facilities review process.
6. Trade and other payables
31 March 2019 31 March 2018
(Reviewed) (Audited)
R’000 R’000
- Trade creditors 92 596 80 207
- Accrued leave 6 669 3 414
- Sundry creditors 645 188
- Advance payments 5 955 -
- Value added tax 7 168 2 691
- Accruals 17 169 10 492
- Operating lease straight line adjustment 2 031 617
- Billings in excess of earnings and prepayments received - 12 839
132 176 110 455
Trade and other payables have increased in line with higher inventory balances. The increase is also
attributable to unrealised foreign exchange exposures. No payables are outside contractual payment
terms.
Following the adoption of IFRS 15 the Billings in excess of earnings and prepayments received was
reclassified in the current year and is disclosed on the face of the condensed consolidated statement of
financial position as contract liabilities.
7. Cash generated from operations
Year Year
ended ended
31 March 2019 31 March 2018
(Reviewed) (Audited)
R’000 R’000
Profit before taxation 1 839 42 353
Adjustments for:
Depreciation and amortisation 19 687 14 166
Interest income (1 717) (1 975)
Finance costs 11 262 6 143
Increase in provision for slow moving and obsolete raw materials (1 766) 91
Increase/(decrease) in provision for impairment of trade
receivables 3 204 (751)
Loss on sale of property, plant and equipment 13 198
Operating lease straight line adjustment 1 414 617
(Decrease)/increase in provisions (3 498) 4 202
Unrealised foreign exchange differences - cash and bank
equivalents 7 162 (4 522)
Unrealised foreign exchange differences - debtors (66) 1 475
Unrealised foreign exchange differences - trade creditors 3 498 1 888
Changes in working capital:
Inventories (9 230) 12 732
Contract assets 1 625 -
Trade and other receivables 6 680 (17 522)
Trade and other payables (8 690) (58 405)
Contract liabilities 2 353 -
33 770 690
PREPARER
These audited Condensed Consolidated Annual Financial Statements results were prepared by Nerishini
Naidoo CA (SA) under the supervision of Elvin de Kock FCMA, the Chief Financial Officer.
GOING CONCERN
The directors have reviewed the group's budget and cash flow forecasts for the year ended March 2020
which include certain assumptions about the cash flows from planned and unplanned projects and raising
additional funding when required. On this basis and in light of the group's current financial position, the
directors are satisfied that the group will continue to operate for the foreseeable future and have therefore
adopted the going concern basis in preparing these audited financial results.
DIRECTORATE
The following changes were made to the board of directors:
- CF Maherry- appointed 20 June 2018 as executive director
- SP Mzimela - resigned 18 October 2018 as independent non-executive director
- MJ Janse van Rensburg- appointed 12 November 2018 as independent non-executive director and
chairperson of the Audit and Risk Committee
- RC Willis- appointed 13 November 2018 as independent non-executive director
- N Medupe- resigned 25 January 2019 as independent non-executive director
- NS Mjoli-Mncube- resigned 31 May 2019 as non-executive director and chairperson of the Board
of Directors
EVENTS SUBSEQUENT TO PERIOD END
Due to the potential breach of one of the Nedbank facility loan covenants, discussions have been initiated
with the Bank to renegotiate the covenant and remedy this breach.
With the exception of the preceding matter, there are no other events which are material to the financial
affairs of the Group.
By order of the board
Teddy Daka Elvin De Kock
Chief Executive Officer Chief Financial Officer
25 June 2019
Directors
CP Bester; T Daka (CEO)*; Dr. SJ Khoza; EC De Kock* (CFO); N Medupe;; MJ Janse Van Rensburg ; RC Willis
; C Maherry*
*Executive
Company secretary
M van den Berg
Telephone: +27 12 749 1800
Facsimile: +27 12 665 2767
Page 18 of 19
Website: www.etion.co.za
Registered office: 85 Regency Drive, Route 21 Corporate Park, Irene, 0157 (PO Box 95361, Waterkloof,
Pretoria)
Designated adviser: Exchange Sponsors (2008) (Pty) Ltd
Transfer secretaries: Computershare Investor Services (Pty) Ltd
Page 19 of 19
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