A “severe” downturn in South Africa’s economic environment plunged JSE-listed Etion into the red for the financial year ended March 31.

The group on Tuesday posted a headline and basic loss a share of 0.56c, a 108% decline on the basic earnings a share of 7.26c reported for the prior financial year.

Earnings before interest, taxes, depreciation and amortisation fell 49% to R31.1-million, while a loss for the period of R2.9-million, down from a profit of R33.4-million in the prior year, was recorded.

“We had anticipated that the strategy would sacrifice margins in the short term as we transform the business; however, accomplishing this transformation in tougher trading conditions has proven to be challenging,” said CEO Teddy Daka, referring to the number of strategic decisions undertaken to further expand the group’s offering and capabilities and better integrate all operating units.

“While these decisions have ensured that the group is on track in terms of executing its strategy, we did not anticipate the severe downturn in economic activity,” he said.

Revenue increased by 4% to R595.9-million, owing to the acquisition of LAWTrust, now called Etion Secure, and an increase in revenue from Etion Digitise, which was offset by negative revenue growth from Etion Create and Etion Connect.

The gross profit margin improved to 30.3% owing to higher margins in Etion Secure.

Operating expenses increased from R38.1-million to R165.2-million, mainly attributable to the acquisition of LAWTrust, operating expenditure of R33.6-million, one-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 one-off operating expenses reflects an 8.6% reduction in year-on-year expenditure in Etion’s existing operating units.

Etion is now undertaking a strategic review of its operational costs to identify further optimisation opportunities across the group and has tightened working capital management.

“We are currently reviewing our decisions and have taken appropriate steps to better position Etion in 2020,” Daka assured shareholders, warning, however, that the short-term market would remain subdued owing to a decline in gross domestic product, with spending expected to be unlocked only in the second half of this year.

“As the digitalisation of economies continues to grow at a much faster pace, Etion is well placed to take advantage of the opportunities both in South Africa and globally,” Daka added.

The Middle East is Etion’s second-largest market outside of South Africa, with potential for further growth, while sub-Saharan Africa has been earmarked as a new growth market with good opportunities in safety, cybersecurity and frictionless operations, digitalisation of operations and the drive towards e-government.