Annual Financial Results For the year ended 31 March 2019 TEDDY - - PowerPoint PPT Presentation

Annual Financial Results

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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 Questions 05

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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:

• changes in the political and/or economic environment that would materially affect the Etion group
• changes in legislation or regulation impacting on Etion Group’s operations or its accounting policies
• changes in business conditions that will have significant impact on Etion Group’s operations
• changes in exchange rates and/or tax rates from the prevailing rates outlined in this announcement
• 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

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2019/06/27 Etion Presentation

Group Overview & Key Features

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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

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Key Features

1987 Ansys established as a defence company - providing avionic computers / crash recorders to South African Airforce 1998 Enters Rail 2007 Lists on the JSE 2010 Enters Industrial and Mining 2012 Restructures, with a focus on creating a sustainable and competitive business Level 5 B-BBEE 2013 Entered 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 2015-2016 Consolidates all defence and cyber security as well as mining and industrial activities within Parsec 2017 Redefine operating segments to become a digital solutions provider Achieve level 1 B-BBEE Rated as the “Most empowered” company

• n the JSE

2018 Acquires LAWTrust to augment current cyber security capability and to establish a distinct cyber business. Repositions and rebrands to Etion to unlock the integral value

• f the Etion Group

We Have Come A Long Way

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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 Proposition

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Intelligence Control Communication Status Machine ID Management Reporting Analytics & Machine Learning Data Lake Cyber Security Fatality Prevention Remote Access Paperless Tracking Sensors GPS Maps Asset Tracking Networks Failure Performance Environment Component Health

Owner Controlled Security Posture

Agile Industry Requirements

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Frictionless Transacting Private Communication Easy On-Boarding

Citizens Officials Devices Suppliers Printing Scanning Couriers Paper Storage Stored Information Back Doors & Surveillance Secret Information Personal Information

Convenient Contracting

Anywhere Any Device Any Time Any Browser Privacy Integrity Accountability Positive Identity

TRUST

Agile Government Requirements

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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

• perations 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”)

• ffers 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

• n 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 Engines

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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
• f vehicle assignments

as well as real time tracking of rolling stock

Trackside Systems

• 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

• ther 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
• Design
• Manufacturing
• 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

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Cyber Security Solutions

Performance - Year-on-Year Comparative Figures

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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 Secure We touch lives daily

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• 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 Scope Our Market Scope

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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 Objectives

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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 Objectives

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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 Objectives

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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 Objectives

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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 Objectives

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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

• f 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 Objectives

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Operating Context and Financial Performance

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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 M to R206.5 M 12%

Revenue

• R38.4 M

to R20.2 M 47%

Segment Profit

• R103.4 M

to R42.5 M 59%

Export Revenue

• R235,8

R38,4 R103,4 R206,5 R20,2 R42,5 RE VE NUE P ROF IT E X P ORT RE VE NUE

2018 2019

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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 M to R95.8 M 24%

Revenue +

R8.3 M to R0.1 M 99%

Segment Loss

• R77,0
• R8,3

R95,8

• R0,1

RE VE NUE P ROF IT

2018 2019

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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 M to R246.7 M 11%

Revenue

• R30.6 M

to R13.3 M 55%

Segment Profit

• R277,5

R30,6 R246,7 R13,3 RE V E NUE P ROFI T

2018 2019

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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 RE V E NUE P ROFI T

2019

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2019/06/27 Etion Presentation

Financial Performance

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Condensed consolidated statement of comprehensive income

For the year ended 31 March 2019

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119 110 103 45 251 355 696 470 550 25% 14% (18%) 4% 2015 2016 2017 2018 2019 International Local

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Revenue Evolution

CAGR (FY2015-2017) +25%

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Cost Management Remains a Focus

R 165,80

R-M

LAWTrust Opex take-

• n

FY2018 Once-off Strategic cost LAWTrust PPAV Corporate capacity Marketing Cost previously in BU’s ECL Savings in BU’s FY2019

Condensed consolidated statement of financial position

For the year ended 31 March 2019

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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

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Nedbank Facility - Key financial covenants

Financial Covenants FYE 2018 FYE 2019 TARGET FYE 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

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Condensed consolidated statement of cash flows

For the year ended 31 March 2019

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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

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Our Finance Objectives

SIMPLIFY, FOCUS AND GROW WITH DISCIPLINE

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Outlook & Strategy

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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
• pportunities.

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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?

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Teddy Daka teddy.daka@etion.co.za Elvin de Kock Elvin.dekock@etion.co.za

Thank You