iOCO, a subsidiary of JSE-listed technology services firm EOH, has scored some lucrative contracts, as the parent company puts behind its troubled past with dodgy public sector tenders.
This emerged yesterday when EOH presented its pre-closing stakeholder update for the six months ending 31 January 2023 and the proposed capital raise.
iOCO is EOH’s systems integrator business which was launched in 2019. Atthe time, the move was described as “a key milestone in the internal reorganisation process, aimed at simplifying the ICT business, integrating client offerings under one brand, driving governance imperatives, and aligning the service delivery model and offerings for the cloud economy and fourth industrial revolution”.
The brand was unveiled after EOH faced several governance issues relating to corruption, especially with government contracts.
This, as EOH’s new leadership, under CEO Stephen van Coller, moved to clear the company’s name.
Top line growth
In a statement yesterday, EOH said iOCO continued to show strong growth from a top line perspective.
According to the technology services firm, this has most notably been seen in the digital business which has delivered top line growth in excess of 10% for the period.
“iOCO Digital continues to support its customers in their digital transformation journeys, with growth in this segment of the business having accelerated since COVID,” says EOH.
Following certain successful resourcing and structural changes, there has been a healthy rebound in the Enterprise Application and Software business, with growth in excess of 10% being a key contributor to iOCO’s growth for the period, it notes.
It adds that the iOCO Infrastructure Services business showed solid and consistent performance relative to the prior period.
The top line was, however, impacted by the supply chain issues where orders have been received from customers but remain unfulfilled due to stock shortages.
The Operational Technologies business also performed well considering the current economic backdrop of constrained state-owned enterprise investment and delayed spend which negatively impacted year-on-year performance.
The Operational Technologies business continued to invest in East and West Africa and its other organic expansion plans, says the firm.
Overall, it says, the iOCO forward pipeline looks strong. “The period again saw good wins and multi-year awards as customers continued to demonstrate their trust in iOCO to deliver on their digital and technology journeys.”
Solid contracts
Among the deals that iOCO bagged is a multi-year contract in the mining sector covering aspects of operational technology, field services and the local and international service desk.
The company also inked a home loans front end development contract with a “top tier bank” to move off their legacy platform and to replace it with a new digital front end, improving capabilities and customer experience, says EOH.
Also penned by iOCO is a multifaceted cloud migration and agile consulting services contract at a “top tier insurance company” across multiple divisions.
The systems integrator also signed a three-year contract at a “top tiered telco” to mature its business intelligence services and extract value from their data using artificial intelligence.
Another deal is a large-scale infrastructure refresh, coupled with services at a large bank, says EOH, adding that iOCO also won an outsource and strategic services contract for an industrial development zone.
Lastly, it scooped a multi-year SAP S/4 HANA Application Management Services support contract covering multiple countries in Central, Eastern and Southern Africa.
Debt reduction
Meanwhile, EOH says despite the challenging operating environment, the group’s continuing operations for the five months ending 31 December 2022 have performed in line with budgets, achieving revenue growth above inflation and the prior period.
Gross margins in H1 2023 have remained stable when compared to the continuing operations for FY2022 full year, says the firm.
It notes that the group has also seen strong performance at an EBITDA and operating profit level as the business resets and embarks on its growth strategy.
While the group reduced debt levels disclosed at FY2022 year end from R1.3 billion to R1.2 billion, the increased refinancing costs incurred under the new common terms agreement, along with higher repo rate levels, have resulted in only a modest reduction in the finance cost in comparison to the prior period (H1 2022).
The company has proposed a capital raise, comprising a R500 million rights offer and a R100 million specific issue of shares for cash to EOH’s black empowerment partner, Lebashe Investment Group.
Therefore, it says, the capital raise remains a strategic imperative, allowing the group to reduce its debt levels, gain access to cheaper forms of debt and secure less onerous lending terms.
The group has concluded a term sheet with the Standard Bank (acting through its Corporate and Investment Banking division), subject to the successful conclusion of the capital raise, the application of the capital raise proceeds towards a partial reduction of existing debt and the satisfactory conclusion of written agreements together with the fulfilment of conditions precedent, to refinance the remaining debt into the following package:
- a R200 million four-year amortising term loan;
- a R250 million three-year bullet term loan;
- a R250 million four-year revolving credit facility; and
- R500 million general banking facilities which will include a working capital facility and ancillary banking facilities.
“This will ensure that the group emerges from the capital raise with a sustainable capital structure, allowing management to focus on driving growth in the operations,” says EOH.
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