Information and communication technology services group EOH reported in its interim results for the six months ended January 31, 2021, that it had stabilised its businesses, achieved an operating profit for the first time in two years and narrowed its headline loss a share.
It achieved an operating profit of R59-million for the interim period, compared with a R915-million loss reported for the six months to January 31, 2020.
Its headline loss a share narrowed to 60c, from 350c in the prior comparable period.
The group anticipates it will have the optimal business structure and model to begin executing on its growth plans towards the end of the 2021 financial year, EOH CEO Stephen van Coller said in the interim results commentary.
The group also repaid lenders R433-million, reducing its total debt to R2.03-billion and its gross interest payments to R128-million from R195-million.
EOH's revenue declined to R4.3-billion, mainly attributable to disposals and exiting legacy contracts, but its gross profit margin improved to 27.6% from 24.2%.
The group derives 13% of its revenue from international operations and will pursue further international opportunities.
The company is aiming to grow its international footprint, including in the Middle East where it holds a cost advantage over competitors and aims to provide services into Europe and the Middle East from its Egypt operations and South Africa.
Additionally, the group's normalised earnings before interest, taxes, depreciation, and amortisation (Ebitda) of R363-million is narrowing the gap with its reported Ebitda before normalisation adjustments of R329-million as the business evolves and approaches a steady state. It also improved the Ebitda margin to 8.3% from 7.8%.
The group had closed or is closing out negative- and low-Ebitda businesses and those that were noncore to its strategy, and was aiming to achieve a profit margin of around 10%, said Van Coller.
"Over the next 24 months, we are looking at getting Ebitda margins to 10%. They have slowly been creeping up as we optimise the business. These improvements will then bleed into the margins and into earnings a share," said Van Coller.
The company had managed to create significant optimisation, in the form of exiting unnecessary properties and consolidating its offices, and reducing the number of legal entities in the group and tax obligations, which led to the improvement in its gross profit margin, he said.
EOH had mainly concluded its problematic legacy contracts, with only three legacy contracts remaining. These will be concluded during the current calendar year.
Further, the company is focusing on cementing the turnaround in its Nextec business, which already contributes 24% of total revenue. It is working on getting the capital structure of the business and its overhead costs to the correct size. It was aiming for 3% of revenue as its target for personnel costs.
A new capital structure will enable the group to start using unproductive cash currently used for interest payments and unoptimised tax obligations to invest in the growth of the business and seize opportunities locally and internationally.
Additionally, EOH was winning multi-year contracts with large private and public enterprises in South Africa, Van Coller highlighted, adding that the group was hoping to achieve this as it regained its credibility and completed its turnaround.
After the sale of the two remaining intellectual property assets, EOH would be substantially relieved of the onerous legacy debt burden it had been carrying. Over the past two years, the management team had prioritised consolidating the group’s legal entity structures, optimising the business through non-core disposals, paying down legacy debt and refinancing. Significant progress had been made on these initiatives, he said.
However, EOH remains cautious around the recovery of the economy over the next few months. The possibility of a third and fourth wave of Covid-19 infections and the potential stricter national lockdown restrictions are likely to see customers continuing to exercise caution when considering spend.
"Given this underlying uncertainty, the focus will be on maintaining margins and continuing to develop best-in-class solutions for our clients as they seek to maintain business continuity and digitally transform their businesses beyond Covid-19."