Covid-19 prompts EOH to cut pay

• Group says move could save it R40m-R50m a month

Technology group EOH will cut executive and staff pay to rein in costs and save jobs. This is partly in response to the Covid-19 pandemic. EOH, which is battling a debt pile that is more than four times its market capitalisation, joins other companies such as Mr Price and Woolworths, which have taken similar action.

Technology group EOH will cut executive and staff pay to rein in costs and save jobs. This is partly in response to the Covid-19 pandemic.

EOH, which is battling a debt pile that is more than four times its market capitalisation, joins other companies such as Mr Price and Woolworths, which have taken similar action.

EOH CEO Stephen van Coller and the group’s executive committee members will cut their salaries by a quarter.

The group also proposes a 20% reduction in salaries for staff paid more than R250,000 a year. The company will consult staff on its proposal.

CFO Megan Pydigadu told Business Day that cutting pay across the group could save it R40m-R50m a month in people-related costs. EOH aimed to save up to R100m in total monthly costs during the Covid-19 crisis, she said.

The group said it had responsibilities in supporting SA’s information technology infrastructure, with its 5,000 longterm clients including many SA banks and Eskom as well as municipalities and government agencies. The move comes as EOH battles a debt burden and reputational damage from poorly contracted legacy publicsector agreements.

In February 2019, it asked law firm ENSafrica (ENS) to review its large, historical licensing contracts with the state. It has since instructed ENS to begin legal proceedings against people implicated in illegal actions in the probe.

The group is disposing of assets to reduce its debt burden, which fell to R2.99bn at the end of its first half to end-January, from R4.1bn at the end of the prior matching period. This compares unfavourably with its R628.5m market capitalisation on Tuesday.

The group narrowed its loss in the first half, more than halving it to R1.16bn. Sales concluded during the period included that of Dental Information Systems, a Cape Town-based health-care technology group, for R250m to AfroCentric.

Total revenue fell 21.8% to R6.35bn. The group reported lower sales of hardware and software, citing a slowdown in SA’s economy.

Peter Takaendesa, a portfolio manager at Mergence Investment Managers, said the EOH management team did well to reduce losses and the cash drain on the business while operating in a very challenging market.

Poor legacy contracts that were unprofitable, more restructuring costs and a highly geared balance sheet would remain key EOH challenges for a while, particularly if the economy continued to decline, said Takaendesa.

However, improved market conditions could help EOH accelerate its asset-disposal programme, and better operational performance could help reduce debt to “sustainable levels by July 2021”, he said.

The foundation for a successful turnaround had been laid, but addressing challenges identified in returning the company to revenue growth were critical to EOH’s sustainability, said Takaendesa.

EOH said the customer base and revenue of its core ICT businesses had stabilised.

“Our key businesses have delivered sound performances demonstrated by improved gross margins over the reporting period,” said Van Coller.

EOH’s share price, which was once more than R170, was 16.34% higher at R3.56 at close of trade on Tuesday.