Ann: Update on COVID-19 Impact, page-4

From Gordan capital
KEY POINTS
First half 2020 operating revenue (excluding impact of Votiro) lower at $9.5m ($9.9m) with product sales lower and maintenance revenue stronger. Operating profit before tax (excluding Votiro loss) declined 8% to $1.3m weaker than expected. Gross profit margin increased 12% to 85% (76%) reflecting a lower cost of goods sold (COGS) due to reduced production volumes.Cash on hand remained strong at $14.5m (30 June 2019 $17.8m) with no debt. There remains considerable flexibility to undertake strategic investments and capital management initiatives.Well placed to grow sales driven by traditional and new hardware encryption products, virtualised encryption and SureDrop. Any impact of the Coronavirus on sales and earnings is difficult to assess at this stage as still evolving.

OUTLOOK
Despite the weaker than expected first half 2020 result, Senetas continues to make good progress towards becoming a trusted provider of a portfolio of high-assurance digital security solutions for governments and corporations. The continuing evolution of Senetas’s product suite with the soon to be released transport layer independence, virtual technologies and SureDrop provides an expanded range of uses and revenue opportunities over the medium term. Importantly, distribution capability has been considerably enhanced with Thales who has a significantly expanded sales and distribution platform for Senetas’s products. In the short-term, revenue growth will continue to be driven by Senetas’s traditional hardware products until the new software and hardware products start to build sales momentum. An increasing portion of overall revenue in the future will be derived from software based solutions which are delivered as a service (SaaS). This will increase annuity style income which is far more predictable than product sales. The investment in Votiro further expands Senetas’s product suite and offers an exciting growth opportunity. The building of Votiro’s sales and distribution capability during first half 2020 particularly in the US is showing immediate results with sales momentum and the pipeline of opportunities building strongly over recent months. Votiro will continue to impact negatively on Senetas’s earnings in the near term but we are confident on the outlook for revenue growth as sales continue to build in its major markets. We have reduced our earnings forecasts based on the lower than expected first half 2020 result. For FY2020, we are forecasting revenue of $21.0m and a net operating profit after tax of $2.3m (excluding impact of Votiro). For FY2021, we expect operating profit after tax to increase around 30% to $3.0m on revenue growth of 12% (excluding impact of Votiro). The short-term impact of the Coronavirus on sales and earnings is difficult to ascertain at this stage as the situation is still evolving but with the significant disruptions occurring in markets there could well be an impact on our current forecasts. On average, we would expect Senetas to achieve annual revenue growth of at least 10%-15% over the longer-term.We believe the current valuation does not reflect the potential of Senetas’ new products and the distribution capability of Thales which we expect will open up significant new growth markets for Senetas over the next few years.

anyway heard anything about EON?