A healthier EOH looks north

● Technology company EOH, which has spent more than two years cleaning up a financial mismanagement scandal at the firm, is starting to turn the corner and has pegged its office in Egypt to play a critical role in expanding its international footprint.

Stephen van Coller, EOH group CEO, has his sights set on the Middle East and Europe. But, Van Coller told Business Times this week, to access the market in the Middle East from SA is “not easy” and he wants EOH’s office in Egypt to be the gateway.

The office in Egypt has about 550 employees — a number he wants to triple or even quadruple in the next three to four years.

Van Coller said the Egypt office gives the group access to a “more affordable” skilled workforce. The company will focus on moving its intellectual property into the country to start its expansion programme.

“Egypt is also closer to Europe,” he said. He hopes this will aid the company’s expansion strategy in a region where it currently operates in Switzerland, Germany, the Czech Republic and the UK; they contribute 13% to revenue.

Mark Walker, who leads the Sub-Saharan Africa research and consulting practice at the International Data Corporation Middle East, Africa & Turkey, said using Egypt as a hub for expansion “is not a bad idea”. Dubai is traditionally the entry point to the Middle Eastern market.

Nevertheless, using the existing office in Cairo, he said, will give EOH access to an affordable and highly skilled workforce with a work ethic that is similar to that of countries in the Middle East. “It could be an attractive proposition,” he said.

Van Coller said while EOH’s expansion is under way, the group will continue to invest in solutions to service the South African market.

This expansion strategy comes after almost three years of saving a business that was under financial and reputational duress.

Three months after Van Coller became CEO in September 2018, he received a call from a journalist with evidence of fraud and corruption in the company — specifically with regard to government contracts.

“I should probably have walked away but I didn’t. I don’t know why I didn’t, but I think it’s because I realised too many jobs would be lost, ” Van Coller said in an interview with Business Times.

When he accepted the role as group CEO he was under the impression EOH was a good business that required consolidation — not one that would lead to him testifying at the Zondo commission into state capture, which he did in November 2020.

EOH commissioned ENSafrica to investigate the allegations. The investigators found eight dubious contracts, of which five have now been settled, one has come to its natural conclusion, one is in arbitration and the last was terminated and is in the handover process, said Van Coller.

Repayment in terms of the R42m settlement agreement with the Special Investigating Unit (SIU) and the department of defence for overbilling has commenced. The repayment term is 36 months and “we are about six to nine months in”, he said.

A settlement agreement with the SIU and the department of water affairs & sanitation for a similar infringement is in negotiation.

This week one of the eight contracts came under the spotlight when the DA in a press release queried the implementation of an SAP software system for the City of Johannesburg’s billing system. The DA said the contracts awarded to EOH Mthombe, a division of EOH, which leapt from R64m in 2017 to R404m shortly after implementation, yielded no results.

In a statement to Business Times, EOH confirmed this was one of the eight contracts that it has terminated. The company said it is discussing the exit strategy from the contract with the City of Johannesburg.

The City of Johannesburg did not respond to a request for comment.

Commenting on the many issues the group has faced, Van Coller said: “We are confident that our legacy issues are now under control.”

The company’s road to stability can be seen in its latest interim financial results, released this week. For the six months to the end of January 2021, it reported a R1.8bn decline in revenue to R4.4bn, but its gross profit margin improved to 27.6% from 24.2%.

The revenue drop was attributed to the disposal of non-core assets and exiting underperforming businesses, which has made the company more sustainable, said Van Coller. The company shed 1,566 jobs, mostly due to businesses being sold. Operating profit was R59m compared to a R915m loss in the prior period.

The business has been focused on reducing debt and has spent R93m on settling onerous contract provisions.

● Lebashe Investment Holdings, a shareholder in EOH, owns Arena Holdings, which publishes Business Times.