JSE-listed information technology services multinational EOH has grown its revenue for the six months ended January 31, by 19% to R8.35-billion compared with R7.03-billion in the corresponding period in 2017.
Its profit, however, decreased by 6.5% year-on-year to R784-million as a result of difficult trading conditions and public sector service delays.
The company’s earnings before interest, taxes, depreciation and amortisation remained largely unchanged at just over R1-billion for the six-month period.
“Despite difficult market conditions, all areas of the business coped relatively well. EOH adopted a deliberate customer retention strategy, which resulted in some margin sacrifice. The group has retained all major customers and customer contracts, gaining market share in the process,” the company said in its interim results statement on Wednesday.
Further, since February, there has been a positive shift in the market towards EOH, resulting in a normalising of the environment and client engagements. These are strong indications that margins will normalise in the second half of the year as stability returns and business confidence grows.
“The public sector business did have a particularly tough period as a result of the political uncertainty, squeeze on public sector funding and delays in sign-offs, as well as the awarding of contracts. Payment practices from the public sector over the past year were poor; however, we have seen a marked improvement over the last two months,” EOH noted.
Revenue for the six-month period had increased in all areas of the business. Growth has been focused on existing business, which has resulted in organic growth accounting for 71% of the overall revenue growth. Eighty-five per cent of EOH's revenue is derived from within South Africa.
However, EOH’s overall resilience during this period is attributable to its broad solutions offering, collaborative business model, skilled people and diverse customer base. During the period under review, EOH continued to develop new solutions and service offerings to meet the needs of customers, particularly in the area of new-generation digital solutions,” the company said.
Revenue from services accounted for 84% of total revenue, a significant portion of which is annuity revenue based on multiple year contracts.
Meanwhile, EOH’s working capital increased by R995-million in the six months under review as a result of growth funding and increased work in-progress associated with ongoing long-term projects, but offset by slower cash collections, particularly from the public sector.
“This trend has begun to change following the period under review, and since February 1, the group has received payments totalling over R500-million from outstanding public sector debtors.
“With the normalising of our environment, an emphasis on organic growth and stringent working capital management, the board is confident of improved margins and a higher cash conversion rate moving forward.”
The information and communication technology (ICT) business remained strong and resilient, with customers continuing to invest in maintaining their legacy systems, integrating with best-of-breed applications and investing in new-generation digital technologies.
Significant investment in technology slowed during the period but is expected to pick up in the short to medium term. There is a move to cloud-based infrastructure solutions and infrastructure as a service.
“The growth drivers in this division are transformational outsourcing, enterprise resource planning upgrades and re-implementation, digital transformation, new digital technologies and solutions, application development, Internet of Things (IoT), Big Data, analytics and software.”
During the last quarter of the 2017 calendar year, the company’s executives initiated a strategic review of the business. The aim of the review was to define a growth strategy aimed at simplifying the business model, enhancing effectiveness, improving commercial agility and driving optimal business performance into the future.
“EOH will establish dual growth platforms by forming two independent businesses, each with its own distinct identity and brand; growth strategy; go-to-market approach; business model and culture.
The first business will trade under the EOH brand and focus on ICT services and solutions. It is a highly efficient, integrated business with cross-industry intellectual property (IP) and has an integrated go-to-market strategy focused on organic growth driven by new-generation digital technologies.”
The second business – to be named and launched in April – is characterised by a high degree of specialisation in each business area. It has domain-specific IP and each business area is less integrated, operates relatively autonomously, operates in high-growth industries and is differentiated by its domain specific offerings.
Growth in the new company will be driven by both acquisitions and organically.
“The benefit of having two different businesses will enable each business to realise its full potential with clarity of brand and identity, a simplified business model, reduced complexity and cost, greater oversight and stronger governance, increased agility and the reversal of dis-economies of scale.”
While the first half of the 2018 financial year had been challenging, EOH looks forward to a stronger second half.
“The implementation of EOH’s strategy – with two distinct growth platforms, each highly focused – will improve growth from each of the businesses. A stable economic and political environment provides the platform for continued growth, a more efficient and cost-effective organisation, increased profitability and improved margins,” the statement concluded.