Van Coller puts EOH on growth path beyond SA

Technology group EOH continues to look beyond SA for growth and to reduce its reliance on the country while diversifying its exposure to SA’s downturn and lacklustre economic prospects.

“SA continues to go through an immensely challenging period as it battles low growth, high unemployment, persistent load-shedding, high inflation and interest rates, a weak currency, greylisting by FATF [Financial Action Task Force] and deteriorating investor sentiment,” outgoing CEO Stephen van Coller said as the group reported interim earnings to January.

He highlighted that the IT sector shields EOH from some of the negative effects of these factors.

“EOH’s growth into East and West Africa, through its exclusive Aveva distribution, and the investments into Europe and the Middle East through existing operations, also provide further revenue growth potential and geographic risk diversification.”

The group has for more than a year sought to grow the international portion of its business. This growth has been made possible by the execution of EOH’s turnaround strategy over the past four years.

REVENUE

The group operates in four key areas: digital enablement, IT infrastructure services, operational technologies — together forming iOCO SA — and EasyHQ. The international business outside Sub-Saharan Africa focuses on digital enablement and selling own IP platforms by the group.

In the period, iOCO’s international unit had strong revenue growth of 11% to R298m, which was driven by Switzerland and the Middle East.

“Our business based in the UK had a slow start to the year in terms of revenue. However, it is consistent with the performance” in the previous comparable period, EOH said.

EOH reported a narrowing in its interim total headline loss per share to 11c from 17c in the yearearlier period.

The group, which has for years battled the effects of corruption scandals and unprofitable legacy contracts, incurred a loss after tax from continuing operations for the six months of R91.4m compared with a loss of R37m a year ago.

Revenue declined to R3.15bn from R3.24bn a year ago, despite an improvement in trading and tendering activity in the second three-month period, it said.

CONTRACTS

The group’s core digital enablement business, including international, has seen good revenue growth, it said. However, this was offset by reductions in other areas, particularly in the operational technologies division, which was negatively affected by delays in closing public sector contracts and contracting delays with large mining customers.

Operating costs remain a core focus, and EOH is on track to eliminate at least R50m from the 2023 cost base, on an annualised basis, as part of the efficiency strategy.

Despite these savings, the pressure on gross margins and the reduced gross profit had affected adjusted earnings before interest, tax, depreciation and amortisation (ebitda) performance for the 2024 half year, the company said. Adjusted ebitda fell to R97m from R171m.

EOH recently announced an agreement with the SA Revenue Service on the last remaining legacy issue that has been holding it back from finalising its restructuring and returning to business as usual.

“The closure of this matter will allow for further corporate structure rationalisation and normalisation of the tax rate.

“The final agreement was in line with provisions held on the balance sheet, save for the write-off of a R7m tax receivable, which negatively affected the tax charge for the reporting period,” it said.

Management has been salvaging EOH’s reputation after allegations of malpractice and tender irregularities under the previous leadership, while also dealing with a mountain of debt accumulated during that period when it focused on acquisitions to expand the business.

“With the capital raise now complete and a more appropriate capital structure in place with reduced interest payments, as well as closing out the last of the significant legacy items, EOH is well positioned to execute its growth strategy and execute its business consolidation in iOCO and EasyHQ,” said Van Coller, who is set leave the group at the end of March after five-and-ahalf years.

RIGHT-SIZE

This would enable the business to right-size its cost structure and capitalise on the growing demand for digital transformation across its client base, Van Coller said.

Andrew Mthembu, EOH’s chair, will take over the running of EOH from April, with a replacement for Van Coller expected in the next six months.

EOH shares ended the day with an advance of 1.75% to R1.16. The stock is down almost 21% over the past 12 months.