EOH Holdings CEO Stephen van Coller has announced he will step down in March after five years at the IT services group. By his own admission, the job was not what he expected it to be.
On Wednesday, announcing the JSE-listed firm’s audited annual results, he said: “I am immensely proud of what we have achieved as a team. EOH today is a sustainable company which lies at the heart of South Africa’s ICT ecosystem and plays an important role in everyone’s lives.”
But with a share price near record lows after a recent rights issue, and investors clearly still skittish about EOH’s prospects, how has Van Coller really done at the helm of one of South Africa’s most important IT companies?
“It has great potential and now is an appropriate time to hand over to new leadership to guide the company through this next chapter,” Van Coller said on Wednesday.
When he joined EOH in 2018, he wasn’t aware of the scale of malfeasance he was going to unearth in the company’s public sector contracts.
A dodgy Microsoft licensing deal with the department of defence turned out to be only the tip of the iceberg, with ENSafrica – appointed by Van Coller to investigate EOH’s legacy public sector contracts – digging up more evidence of corruption involving contracts with a range of government departments and institutions, including the City of Johannesburg.
The Zondo commission’s 2022 report on state capture heaped praise on EOH, its board and Van Coller for the way they disclosed the group’s role in state capture corruption.
In terms of the City of Johannesburg contract, EOH was described as a “unique case” in that it was alone among all the companies mentioned in proceedings that approached the commission proactively to be “given the opportunity to disclose publicly what wrongdoing had taken place historically within its ranks”.
“It sought to explain what it has already done, and what it proposed to do, to make reparation for such wrongdoing and to prevent similar wrongdoing occurring within its ranks in the future,” the report said. “EOH’s attitude towards the commission is illustrative of the attitude it has taken to regulatory and law enforcement authorities more generally.”
The Zondo commission stated: “There is no other company that has been of greater assistance to the commission … in relation to the investigation of historical wrongdoing within its ranks.”
It commended Van Coller and the EOH board “for taking the approach they have”.
“Primary credit for the attitude taken by EOH must be accorded to Mr Van Coller. At the time of his appointment in 2018, he was aware of adverse media reports relating to EOH. His response to these reports was not to seek to negate them, but rather to investigate to establish whether they were substantiated.”
When it became clear that there was substance to several of the reports, the commission said Van Coller put in place a wide range of measures to, in its words:
- Investigate the full extent of historical wrongdoing within the ranks of EOH;
- Draw the historical wrongdoing to the attention of the authorities;
- Engage the affected organs of state so as to reach agreement on the payment of compensation by EOH to make good the harm that they had suffered as a result of wrongdoing by EOH executives; and
- Make appointments and to establish structures in EOH that would provide safeguards to prevent future repetition of the past wrongs committed by individuals associated with EOH.
Asked on Wednesday to rate his performance as CEO, Van Coller said the most important metric to consider is that the company has been turned around and jobs saved, although the languishing share price, which was knocked lower by the recent rights issue, has left some investors unhappy.
“I don’t think you get everything 100% right,” Van Coller said of his five years leading the troubled group. “I have made a few wrong decisions, which happens. One of those was not closing out problematic legacy contracts faster.
“You can’t just walk in and say this contract wasn’t kosher and cancel it – it would have been a disaster. But it cost us money.”
Van Coller said EOH’s full-year financial results show that the business is now firmly on the mend, with most key metrics pointing in the right direction. Stripping out the impact of accounting rules related to leases as well as once-offs, including the impact of the rights issue, operating profit more than doubled, he said.
He would also have preferred the rights issue to have happened far sooner than it did. That delay “cost us R60-million”.
“The bankers told me we couldn’t get [the rights issue] done. I was pretty confident we could get it done. We decided not to go without the bankers, but we could have done that. We should have just got it done when we were ready to.”
He said he also wished he had spent more time on EOH’s Nextec business, saying his focus, at least initially, was on fixing the core iOCO IT services business. He said that’s changed in the past year, with Nextec now “getting the love it deserves”.
He criticised recent media reports that he had spent too much time fighting corruption instead of fixing the business and working to improve the company’s valuation. He said that for one thing, those reports used the wrong financial data to analyse EOH’s performance – instead of using the restated numbers from 2019, they used the originally published figures. Those numbers had to be restated due to accounting errors, false invoicing and other legacy problems inherited from the previous management team.
When Van Coller took the reins at EOH, the group had about R4-billion in debt in various forms. Ebitda – earnings before interest, tax, depreciation and amortisation – was only R1-billion, meaning the debt problem had to be solved or it would imperil the group.
When you have high debt, it compounds quickly, as it did at Tongaat, and we had to do that to avoid going into a business rescue situation
“The business was incapable of generating R4-billion, or even the interest on the debt. We avoided a Tongaat situation,” he said, referring to JSE-listed sugar producer Tongaat Hulett that has been placed into business rescue. “I have to give the team credit for coming up with a plan the banks believed in. But we had to sell some businesses – and some of our best businesses. We sold some of our crown jewels, but there was no other way out. When you have high debt, it compounds quickly, as it did at Tongaat, and we had to do that to avoid going into a business rescue situation.”
He said he received a lot of flak from some sections of the media, but said this criticism was largely unfair.
“There was a lot of negative media going out. It was [from] people not wanting us to uncover [the corruption]. I went to see our main regulated customers, national treasury, the public enterprises department and Business Leadership South Africa, and told them the problem we faced. I asked, do you want me to save the jobs? If you do, what do you want to do? They gave me five things: do the investigation [into the public sector contracts]; understand what went wrong; be public about it; put processes in to fix it; and prosecute the offenders.”
If he hadn’t done all those things – some of which he was severely criticised for – “we would have lost business”.
“Because we are a services business, we could have lost our customers very quickly. In 2020, we won no long-term contracts. If we hadn’t done what we did, we would have lost customers and eventually we would have been forced to close,” he added.
Challenging critics who say he spent too much time focusing on the legacy corruption instead of running the business, he said: “I think people who say that don’t really understand what we were facing and what we had to do. I can understand why people are disappointed, but at least there is value left in the business.”
EOH generated a 35% increase in operating profit from continuing operations to R135-million for the year ended 31 July 2023. The successful rights issue and capital raise allowed for R678-million of debt to be repaid and for the restructuring of debt facilities with a single lender – Standard Bank – at significantly reduced interest rates.
Group net debt now stands at R683-million and gross margins were maintained at 28% for the year.
“Despite a deteriorating local economy and significant headwinds in the public sector, EOH’s continuing operations managed to deliver revenue growth of 3%, an increase in operating profit of 35% and a halving of the net loss after tax from R160-million in FY2022 to R81-million,” the group said.
Van Coller said EOH is now largely fixed and ready for growth. “You will look back in 18 months, when you have no legacy eating at this business, and you will see an extremely competent and capable outfit that is lean, mean and fit with incredibly good people.”
As for his next move, Van Coller said he’s had enough of leading listed companies. He said he will take time off before deciding what to do next, but hinted he may take on a business consulting role.
EOH Holdings chief financial officer Megan Pydigadu is leaving the IT services group, too, at the end of this month, to become chief operating officer at embattled retailer Spar Group. Irnest Kaplan, MD of Kaplan Equity Analysts, said he’s “not sure how to interpret the moves”.
“Perhaps she wants to apply what she’s learnt at EOH and the Spar directors hope she’ll be able to turn it around, in which case that’s a feather in her cap. But after all the blood, sweat and tears they’ve endured to get EOH going, you’d think they’d want to enjoy their success,” he said. “To Van Coller’s credit, he’s tenacious. I think as a client of EOH he thought it wasn’t corporatised enough and that he could turn it around.
“After a year or so he realised the situation was far worse than he’d thought, but he stayed on to see it through. He fixed the company, and he saved jobs. His banking background also helped keep bankers at bay while they turned things around,” said Kaplan. – © 2023 NewsCentral Media