After years of being dogged by allegations of corruption surrounding public sector contracts and failures in corporate governance, among other issues, EOH is now a “normal business”.
This is according to group CEO Stephen van Coller, who has over the years been on the back foot in his efforts to restore the company’s battered image after taking over from the previous management.
JSE-listed technology services firm EOH today announced sustained operating profitability during the six months ended 31 January, and the subsequent deleveraging of the group’s balance sheet post the capital raise after the half year-end.
Among the highlights, the company reported R110 million in operating profit from continuing operations, compared to the R100 million for the full year-end 31 July 2022.
According to EOH, revenue from continuing operations increased 8%, despite a challenging local operating environment.
It adds that gross profit margins remain stable at 29%, and the firm invested R48 million in the business as part of its Growth-Efficiency-Talent strategy.
The company raised R600 million new capital post half year-end, which it used to reduce debt levels to R673 million, creating an efficient capital structure and a significantly reduced interest charge going forward.
EOH posted a cash balance at 31 January of R234 million and a normalised debt structure with a single bank.
State of affairs
Despite the progress made, EOH has failed to close several deals with some state-owned enterprises (SOEs) − an area where it previously had issues with graft allegations.
The Operational Technologies business had a challenging trading period primarily due to delays and the inability to close SOE contracts, resulting in a 10% reduction in revenue.
“This business is fairly reliant on SOEs and mining in South Africa, but diversification initiatives have started, with investments in West and East Africa through the exclusive AVEVA rights, as well as a focus on manufacturing and FMCG clients in South Africa,” EOH says.
“For the first time since 2019, I am able to address our stakeholders in the context of EOH being a normal business,” says Van Coller in a note to shareholders.
“For many years, we have been battling corruption scandals, unprofitable legacy contracts, inefficient corporate structures, huge debt burdens and a highly-inefficient capital structure. Today, following our successful R600 million capital raise, EOH can now truly get back to business and focus on our Growth-Efficiency-Talent strategy.”
Despite the challenging operating environment, EOH notes it achieved revenue growth of 8% for the period, with sustained operating profitability.
The largest operating division, Digital Enablement, led the way with a 20% increase in revenue and 24% increase in earnings before interest, taxes, depreciation and amortisation (EBITDA) at improved margins.
The company points out the international diversification strategy delivered benefits, with the Middle East, Europe and UK businesses showing excellent growth of over 45% to R257 million.
“At 33% of our Digital Enablement revenues, the international operations are becoming key contributors,” says the firm.
It adds the IT Infrastructure Services, Enterprise Apps & Software and Infrastructure Solutions divisions all saw revenue growth of over 10%.
With the improved operating performance and outlook in FY2022, the board was able to approve an R80 million strategic investment in the business, of which R48 million has been invested in the first six months.
Additionally, it says, the recent successful capital raise significantly reduces interest charges. Going forward, EOH points out it will further accelerate its organic growth strategy, especially on the back of the pleasing results being seen on the initial investments.
“Looking forward, the EOH executive and board is excited with the momentum that has built over the past six months. Compared to the previous six-month period (H2-2022) all key metrics have improved, with revenue increasing 5%, gross profit 13%, adjusted EBITDA 112% and profit after tax 82%.”
Furthermore, EOH notes, with the completion of the asset disposal process to deleverage the company, it now has a stable portfolio of businesses, with a coherent go-to-market strategy.
Onwards and upwards
The group will approach the market through four key product pillars: Digital Enablement, IT Infrastructure Services, Operational Technologies and EasyHQ.
The international business outside of Sub-Saharan Africa will focus mainly on digital enablement and selling of its own IP platforms.
It points out the executive committee has also been aligned along these pillars, improving efficiency and accountability in reporting structures.
“Having successfully completed our capital raise to normalise EOH’s capital structure, I am excited we can now turn our full attention to our Growth-Efficiency-Talent strategy. Our initial growth investments are showing great results and we will continue to build on this momentum, whilst maintain our focus on cost-efficiencies and making EOH the employer of choice in the IT industry,” says Van Coller.
“We look forward to the next phase of our journey, working with our many clients to enhance their business through industry-leading information and digital technologies.”
According to the company, debt at 31 January was at R1.2 billion and has subsequently been reduced to R673 million after paying down the bridge finance with the proceeds of the capital raise.
It explains the remaining debt has been refinanced through Standard Bank at significantly improved interest rates, reflecting the normalised capital structure and improved performance of the group. EOH adds the benefits of the revised debt package will start to be recognised in H2-2023.
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