Post on 07-Jun-2020
Annual Financial Results
1
For the year ended
31 March 2019
TEDDY DAKA / CHIEF EXECUTIVE OFFICER
ELVIN DE KOCK / CHIEF FINANCIAL OFFICER
Agenda Group Overview and Key
Features
Operating Context
Financial Performance
Outlook and Strategy
01
02
03
04
Questions05
2
Proviso
• Please note that matters discussed in today’s presentation may contain forward looking statements, which are subject to various risks
and uncertainties and other factors including, but not limited to:
o changes in the political and/or economic environment that would materially affect the Etion group
o changes in legislation or regulation impacting on Etion Group’s operations or its accounting policies
o changes in business conditions that will have significant impact on Etion Group’s operations
o changes in exchange rates and/or tax rates from the prevailing rates outlined in this announcement
o changes in the structure of the markets, client demand or the competitive environment
• A number of these factors are beyond Etion Group’s control
• These factors may cause the Etion Group’s actual future results, performance or achievements in markets in which it operates to differ
from those expressed or implied
• Any forward looking statements made are based on the knowledge of the Group as at 25 June 2019
3
2019/06/27
Etion Presentation
Group Overview & Key Features
4
Revenue
4%R572.6 M R595.7 M
Gross Margin
28,3% 30,3%
2%
Headline Earnings
108%
7,26c (0,56) c
EBITDA
49%
R60.7 M R31.1 M
Profit After Tax
108%
R33.4 M (R2.9) M
Cash generated
0,69 M 33,7 M
33 M
5
Key Features
1987 Ansys established as a
defence company -providing avionic
computers / crash recorders to South
African Airforce
1998Enters Rail
2007 Lists on the
JSE
2010Enters Industrial
and Mining
2012 Restructures, with a focus on creating a sustainable and
competitive business
Level 5 B-BBEE
2013Entered telecoms
through the acquisition of
Tedaka Network Solutions
Level 4 B-BBEE
2014 Acquires Parsec as
part of drive to become IP led
provider of technology solutions
Level 2 B-BBEE
2015-2016Consolidates all
defence and cyber security as well as
mining and industrial activities within
Parsec
2017Redefine operating
segments to become a digital solutions provider
Achieve level 1 B-BBEE
Rated as the “Most empowered” company
on the JSE
2018Acquires
LAWTrust to augment current cyber security
capability and to establish a distinct cyber
business. Repositions and
rebrands to Etion to unlock the integral value
of the Etion Group
We Have Come A Long Way6
Our value proposition and positioning is to offer
• Integrated and seamless solutions
That offer
• Productivity
• Safety
• Connectivity &
• Cyber security
To our clients
Our ability to present a unified value proposition across sectors
and ecosystems backed by cooperation and collaboration, is
core to our being as it will open endless opportunities for
growth.
Group Capabilities
Our Value Proposition7
Intelligence Control
CommunicationStatus
Machine ID Management
Reporting
Analytics &Machine Learning
Data LakeCyber Security
Fatality Prevention
Remote Access
Paperless
TrackingSensors
GPS Maps
Asset Tracking
Networks
Failure
Performance
Environment
ComponentHealth
Owner ControlledSecurity Posture
Agile Industry Requirements8
Frictionless Transacting Private Communication
Easy On-Boarding
Citizens
Officials
Devices
Suppliers Printing
Scanning
Couriers
Paper Storage
StoredInformation
Back Doors &Surveillance
SecretInformationPersonal
Information
Convenient Contracting
Anywhere
Any Device
Any Time
Any Browser
Privacy
Integrity
Accountability
Positive Identity
TRUST
Agile Government Requirements9
Original Design Manufacturing (ODM)
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.
Safety & Productivity Solutions
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.
Digital Network Solutions
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.
Cyber Security Solutions
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.
Our Growth Engines10
12
Original Design Manufacturing (ODM)
IOT SOLUTIONS
Technologies• Low Power Wide-Area Network• LoRa, SigFox, RPMA, NB-IoT• GSM• Proprietary
Product Ranges
• Sensor packs • Gateway Units• Collators• Complete Systems• Automotive Intelligent Driver
(Aidr)
EMBEDDED COTS
Rural wireless networks
We develop and manufacture a wide range of embedded boards and modules aimed at high performance rugged computing solutions
Product Ranges• PCI• MPC• VPX
SOLID GUARD
Encryption Products
• SOLIDWebkey• SOLIDCase• SOLIDId• SOLIDChat• SOLIDNet
Etion Create Original Design Manufacturer (ODM)
Performance - Year-on-Year Comparative Figures
Safety and Productivity Solutions
Etion Digitise Safety and Productivity Solutions
Weigh-In-Motion rail and road scales (WIMS)
• Mobile Weigher – spot-check vehicles anywhere; static or in motion
• Accurate, cost effective wheel/axle weigh stations for all types of locomotives and rolling stock
• Portable Bogie Weighing – Can be moved to any location, eliminates the need to have fixed systems at every workshop
Vehicle Identification Systems (VIS)
• Locomotives and wagons are fitted with passive RF tags.
• Unique identity of each specific vehicle
• Controllers can access the data real time
• Provides optimisation of vehicle assignments as well as real time tracking of rolling stock
TracksideSystems
• Vehicle identification• Hot bearing detection• Load profile
monitoring• Wheel profile
monitoring• Integrated train
condition• Monitoring system• Vandal proof solar
power solution
Integrated System Display (ISD)
• The ISD serves as a human machine interface for other system in the train as trains have limited space for display systems in the drivers console.
• The ISD makes use of the protocol over the LAN to interface with other devices. Any of these protocols can be used by potential sub-systems.
13
Etion Connect Solutions Portfolio
Etion Connect Digital Network Solutions
Products• Outside plant fiber• Inside plant fiber• Hardened connectivity• Structured Cabling
Services• Network design• Bill of materials design• Kitting• Fiber splicing and testing• Deployment• Maintenance and
support• Training
PASSIVE CONNECTIVITY
WIRELESS CONNECTIVITY
Rural wireless networks• Microwave links• Wireless Mesh• Towers
o Designo Manufacturingo Deployment
IOT Networks• LORA• RPMA
Smart Antenna Solutions• DAS Solutions• 5G Solutions
SECURE CONNECTIVITY
Secure Communication• Secure satellite links• Secure WANs
Gateways• Rack mount• Mobile
CONNECTIVITY INFRASTRUCTURE
Power Solutions• DC Power• AC Power• UPS• Solar solutions
Data Centre• Thermal solutions• Smart racks
Infrastructure management• Monitoring• Maintenance• SLAs
14
Cyber Security Solutions
Performance - Year-on-Year Comparative Figures
15
We create trust in business interactions by providing
• trusted identity,
• secure transaction and
• digital signature solutions;
• and we ensure that security and efficiency never compromises a
great user experience
Etion SecureWe touch lives daily
15
16
• RSA shrinking market in the short to
medium term but has opportunities
• Sub Saharan Africa – growth potential
• Middle East – growing market
• Other markets – we will be opportunistic (Put dot on Australia)
Our Market ScopeOur Market Scope16
Improve profitability over the planning window resulting in improved NPAT and EBIDTA
How will we do this?
• Focus on improved efficiencies across the business.
• Convert some of the new and promising innovations that we have produced in the past 12 months into profitable revenues.
• Enhance our product marketing to unearth our hidden gems.
• Leverage our group capabilities to provide solutions to our clients.
• Ensure that our proposals cater for the expected margin and cashflows.
• Reduce our operational overheads to be in line with or better than peer companies.
• Achieve consistently strong and reliable working capital practices group-wide.
Corporate Strategic Objectives17
Refining our Growth Engines – Customising solutions to challenges faced by each Business Unit
How will we do this?
• We will intensify the pursuance of the game changing initiatives in Etion Create, through further investments into products and our
production facility to ensure that we remain globally competitive and aligned with global manufacturing trends.
• Grow our base of Golden clients, which effectively provide Create with a form of annuity revenue.
• We will grow our business development capacity and land at least two clients in the period.
• Remain focused on technological trends and shifts impacting our client base.
• Enhance our ODM capability through strengthening our production engineering and lean start-up capability.
Corporate Strategic Objectives18
Refining our Growth Engines – Customising solutions to challenges faced by each Business Unit
How will we do this?
• We will continue to invest in capacitating Etion Digitise in the skills required for digitalisation.
• Etion Digitise will develop high-level solutions architecture and source data analytics capability that will allow us to play down
stream in the value chain of digitalisation.
• Digitise must develop business development competences in specific domains given our aspiration to play in other market
domains beyond rail.
Corporate Strategic Objectives19
Refining our Growth Engines – Customising solutions to challenges faced by each Business Unit
How will we do this?
• Etion Secure will continue to develop a portfolio of export ready products and begin in earnest to earn significant international
sales.
• Key strategic competences that we will add include the diagnosis of each product, to identify its potential and bottlenecks/
challenges, as well as its innovative capability to solve client challenges.
Strategic Objectives20
Refining our Growth Engines – Customising solutions to challenges faced by each Business Unit
How will we do this?
• Etion Connect will continue to grow and defend the current VAR business as well as build a new DAS neutral host business that
will enhance the Group’s annuity earnings capacity.
• Key competences that need development in the VAR business that will have impact in 2020 are: Customer focus by customising
best solutions for our clients including low price options, and supply chain optimisation.
• Competence for building DAS Neutral Host business model that would most likely have a negative impact on 2020 goal of HEPS.
• Forging synergies across the Etion Group to launch disruptive solutions to the market.
Corporate Strategic Objectives21
Evolve the organisation structure to meet new demands
How will we do this?
• We will identify areas of our business that need to be integrated
applying the principles of best fit for purposes and maximum extraction
of synergies.
• We will explore and implement a share services model for the support
functions.
• We will create an integrated financial group for the business.
• We will have an integrated human resources group for the business.
• We will make our Group Marketing and Communications function more
tailor made to support the business units.
• We will stream line the engagement between Group Digital, Marketing
and Sales to better support the business units.
Strategic Objectives22
Operating Context and Financial Performance
23
Contribution to Group revenue 34%
Contribution to Group profit 31%
Performance - Year-on-Year Comparative Figures
Original Design Manufacturing (ODM)
• The decline in revenue was impacted by a depressed local
economy and delayed buying from the Middle East clients.
• While it 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 Etion Create for the next upswing.
Etion Create
Original Design Manufacturing (ODM)
R235.8 Mto
R206.5 M
12%
Revenue
-
R38.4 Mto
R20.2 M
47%
Segment Profit
-
R103.4 Mto
R42.5 M
59%
Export Revenue
-
R2
35
,8
R3
8,4
R1
03
,4
R2
06
,5
R2
0,2
R4
2,5
R E V E N U E P R O F I T E X P O R T R E V E N U E
2018 2019
24
Contribution to Group revenue 16%
Contribution to Group profit -1%
Performance - Year-on-Year Comparative Figures
Safety and Productivity Solutions
• Etion 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 Autonomous Train Movement Monitoring System, Asset
Tracking, on-board and trackside energy harvesting, as well as the
digitalisation of mining systems.
• These enhancements did not yield financial results but will ensure
sustainability for the business in the short, medium and long term.
Etion Digitise
Safety and Productivity Solutions
R77.0 Mto
R95.8 M
24%
Revenue
+
R8.3 Mto
R0.1 M
99%
Segment Loss
-
R7
7,0
-R8
,3
R9
5,8
-R0
,1
R E V E N U E P R O F I T
2018 2019
25
Contribution to Group revenue 41%
Contribution to Group profit 22%
Performance - Year-on-Year Comparative Figures
Digital Network Solutions
• The decline in revenue is primarily due to a slow down in the fibre
network build.
• This is underpinned by the national economic downturn and
financial pressures on households and businesses, which reduced
the demand for Fibre-To-The-X (FTTX) services.
Etion Connect
Digital Network Solutions
R277.5 Mto
R246.7 M
11%
Revenue
-
R30.6 Mto
R13.3 M
55%
Segment Profit
-
R277,5
R30,6
R246,7
R13,3
R E V E N U E P R O F I T
2018 2019
26
Contribution to Group revenue 18%
Contribution to Group profit 9%
Performance - Year-on-Year Comparative Figures
Cyber Security Solutions
• LAWTrust’s revenue has only been reflected for ten months, which
excludes much of its annuity income which is received in the first
two months of the financial year.
• The focus of our strategy is on internationalisation of our customer
base, as well as on growing our capacity to deliver exportable
products, thereby increasing our ability to generate growth both in
South Africa and globally.
Etion Secure
Information Security Solutions
R106.9 M
Revenue
R5.4 M
Segment Profit
10 Months
R106,9
R5,4
R E V E N U E P R O F I T
2019
27
2019/06/27
Etion Presentation
FinancialPerformance
28
Condensed consolidated statement of comprehensive incomeFor the year ended 31 March 2019
29
0
119 110 10345
251
355
696
470550
25%
14%
(18%)4%
2 0 1 5 2 0 1 6 2 0 1 7 2 0 1 8 2 0 1 9
International Local
30
Revenue Evolution
CAGR (FY2015-2017)+25%
30
3131
Cost Management Remains a Focus
R 165,80
R-M
LAWTrust
Opex take-
on
FY2018 Once-off
Strategic
cost
LAWTrust
PPAV
Corporate
capacityMarketing
Cost
previously
in BU’s
ECL Savings in
BU’sFY2019
Condensed consolidated statement of financial position
For the year ended 31 March 2019
32
33
Balance Sheet Ratio
100
90
80
70
60
50
2017 2018 2019
89,8
84,2
74,1
57,1
90
89
81,3
33
Financial Performance Measurements
98,0
Debtor Days Creditor days Inventory
Working Capital Ratio
34
Nedbank Facility - Key financial covenants
Financial Covenants FYE 2018 FYE 2019 TARGETFYE 2019
PRELIM ACTUAL
Interest-bearing debt to Tangible Net Worth
1,75 1,75 1,98
Annual cash-to-debt-service cover 1,30 1,30 1,18
Cumulative cash-to-debt-service cover 1,80 1,80 3,39
Management’s response to the potential breach:
• Reclassification of debt facility to current - Conservative approach
• Renegotiation of covenants once the audited FY2019 AFS are available
• Implement stringent working capital management
• Implemented cost optimisation
34
35
Condensed consolidated statement of cash flowsFor the year ended 31 March 2019
35
36
Capital Allocation FY 2020
Capital
Invest in the “Game Changers”
R13 M
Quality improvements in
manufacturing R4.3 M
Capitalisation of development
costs R10 M
Investment to diversify the
service offering R5 M
Products are exportable to
international markets R5 M
Capitalisation of development
costs R3 M
36
Working capital discipline building on
foundation laid in FY2019
Cost management across the Group
Deliver a shared finance capability to
leverage skills across the Group
Continue improving the control environment
and finance discipline
Implement and integrate the disparate
finance systems across the group to improve
efficiencies and release synergies
37
Our Finance Objectives
SIMPLIFY, FOCUS AND GROW WITH DISCIPLINE
37
Outlook &Strategy
38
39
Outlook
• Market in the short term will remain subdued.
• The digitalisation of economies continues to grow at a much faster pace, 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.
• We have earmarked Sub-Saharan Africa (SSA) as a new growth market.
• The Group has made strategic investments to create capacity for the corporate office,
in Finance, Digital and Business Development, as well as Marketing as we position our
business for growth.
• This aligns to our value proposition and positioning to offer customised, integrated and
seamless solutions to our clients.
• We have commenced a strategic review across the business to identify optimisation
opportunities.
39
Outlook
• We expect this to lead to an uptick in development work in new
manufacturing business.
• We are positioning ourselves to enter new IoT markets and are
exploring potential opportunities in international geographies such as
South America.
• 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.
• 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.
• We are accessing new markets with our new technologies, as well as
the existing proven, products and solutions.
• We expect the mining sector to remain flat in the year ahead.
• We expect moderate growth in fibre network rollouts in the short-
term.
• Connecting homes historically excluded, presents opportunities for
growth in passive connectivity solutions.
• 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.
• We envisage demand for protection against cybercrime and cyber
warfare to continue to increase across all industry sectors.
• Growth opportunity in crypto based security in all applications
including machine identity and authentication.
40
Questions?
41
Teddy Daka
teddy.daka@etion.co.za
Elvin de Kock
Elvin.dekock@etion.co.za
Thank You