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    Home»Sections»IT services»Things may finally be looking up for EOH

    Things may finally be looking up for EOH

    IT services By Duncan McLeod2 December 2020
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    Stephen van Coller speaking during the EOH full-year results webcast presentation on Wednesday

    Scandal-plagued IT services group EOH Holdings has turned in a significant improvement in full-year results, with the total headline loss per share in the period ended 31 July 2020 reduced by 72% to R4.95.

    At the same time, the group’s debt problem – though still there – is less severe than it was a year ago, with gross doubt down 20% to R2.6-billion at end-July.

    It made “further significant progress on deleveraging (the balance sheet) post-year-end – an additional R410-million”.

    The group has also been involved in constructive discussions with its lenders group with a view to finalising the long-term capital structure

    “The group has also been involved in constructive discussions with its lenders group with a view to finalising the long-term capital structure,” EOH said. “Although the group is far advanced in these discussions with lenders, the negotiations have not yet been concluded.”

    As a result, a “material uncertainty exists that may cast doubt on the group’s ability to continue as a going concern if the refinancing is not concluded with lenders”. Management, led by CEO Stephen van Coller, is, however, upbeat about EOH’s future, saying the worst is now in the past.

    The group retrenched 450 employees during the financial year. Headcount has further reduced from 10 279 to 7 333 largely due to contractors not renewed and businesses being sold. The cash balance at year-end was R946-million. Total revenue was R11.3-billion, down 25%, while total normalised earnings before interest, tax, depreciation and amortisation was R946-million.

    Turnaround

    “Notwithstanding the current unprecedented market conditions, EOH is beginning to realise the benefits of its turnaround strategy,” CEO Van Coller said in the results statement.

    “The performance trajectory on almost all metrics has meaningfully improved on both an annual basis (FY2019 to FY2020) and on a six-monthly basis (H1 2020 to H2 2020) and have continued to improve into the first quarter of the 2021 financial year,” he said.

    “A significant focus has been placed on quality of earnings as opposed to revenue at any cost. This is evidenced by the improvement in margins as well as the closing out of legacy issues, which have historically caused a drag both on earnings and cash generation.”

    He said the core iOCO IT services business “remained relatively resilient” with an overall reduction of 13% in gross revenue. The decrease was largely due to businesses disposed of or closed during the current or prior year.

    The national lockdown, together with deals not repeated in the 2020 financial year, had a negative impact on the hardware business, which saw a decrease in revenue of 33%. “The other businesses remained resilient due to a broad client and product base that had little reliance on a single sector or product group.”

    The other main business, Nextec, saw revenue fall by 36% as non-core businesses were exited.

    Group gross profit margin increased by 2.3 percentage points, from 19.6% to 21.9%. iOCO saw an improvement of 3.7 percentage points to 24.3%

    Group gross profit margin increased by 2.3 percentage points, from 19.6% to 21.9%. iOCO saw an improvement of 3.7 percentage points to 24.3%. The improvement in margin was due to its exiting international businesses in the prior year that were underperforming and “significant efficiency measures that bore fruit during the year”. A lower contribution from hardware sales also supported the margin improvement. Nextec’s gross margin, meanwhile, increased from 12% to 14.9%.

    However, some of the problematic legacy government contracts continued to be a drag on EOH. “Five of the eight problematic public sector contracts have been settled, with one currently in arbitration, one in final negotiations and the final contract concluding at the end of April 2021,” Van Coller.

    SIU settlement

    “In the current financial year, a total loss of R323-million was recorded as a result of these legacy contracts (H1 2020: R188-million and FY2019: R279-million).

    “Settlement has also been reached with the Special Investigations Unit post-year-end in respect of disclosures reported in May 2019 for two of the three identified contracts where overbilling of licences occurred. EOH will repay R42-million over a period of 36 months as reimbursement for overcharging the department of defence and is in the process of finalising a similar arrangement with regards to the third and final contract. These costs have been fully provided for in the FY2019 and FY2020 accounts.”

    EOH will repay R42-million over a period of 36 months as reimbursement for overcharging the department of defence and is in the process of finalising a similar arrangement regarding the third and final contract.  — © 2020 NewsCentral Media

    EOH iOCO Nextec Stephen van Coller top
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