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EOH says executing growth initiatives, expects return to profit, positive earnings

29th January 2021

By: Schalk Burger

Creamer Media Senior Deputy Editor

     

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Information technology services provider EOH, in a January 29 update to stakeholders, reported that it was well positioned to execute on its growth initiatives while still navigating volatile local and global market conditions.

This is as a result of the significant improvement in its liquidity position, as reported in December.

"Total group revenue remains resilient and in line with budget expectations despite the continued disruption caused by Covid-19. EOH continues to benefit from the turnaround efforts executed upon in the 2020 financial year and expects to post an operating profit and positive earnings before interest, taxes, depreciation and amortisation (Ebitda) for the first six months of the 2021 financial year," said EOH CEO Stephen van Coller.

Cash generation from operations for the period is positive, with a cash balance of R591-million as at January 27, 2021, after EOH paid R409-million down on debt during this period. EOH continues to focus on cost control and efficiency measures across the group, having exited a further 7 034 m2 of property year-to-date, resulting in savings of about R3-million to date.

Deleveraging and proactively engaging with lenders remains a strategic priority for EOH. By the end of January, the group has repaid the lenders a further R409-million, principally from disposal proceeds.

The lower base interest rates and lower outstanding gross debt balance, about R2-billion as at January 25, 2021, have resulted in materially lower and more manageable financing costs.

CORPORATE CLUSTERS
The iOCO business remains relatively resilient across its three core offerings with gross profit margins being maintained in the mid-20% range. The collective iOCO business also continues to post an operating profit and positive Ebitda.

However, the iOCO Technology cluster felt the largest impact of the national lockdown and its recovery over the period was muted with the lower margin hardware business falling short of prior year profitability as a result of customers delaying spend on hardware or considering cloud alternatives.

Conversely, the iOCO Services cluster’s positive performance was largely driven by the Digital Industries unit, which has seen year-on-year growth in revenue and Ebitda in excess of 20%.

Digital Industries is focused on operational technology across a broad spectrum of light and heavy-duty industrial sectors and has enabled customers with mission critical production plants to keep running despite the disruptions and challenges caused by Covid-19.

"The iOCO Digital cluster, which includes EOH’s cloud, application development and automation business, is performing well and has delivered in line with expectations."

The Nextec business continues to execute its turnaround strategy, with most businesses seeing revenue growth despite the tough macroeconomic conditions. Margins remain under pressure. As seen in the second half of the 2020 financial year, the Nextec businesses that remain core to the EOH Group are self-sufficient from a liquidity perspective, added Van Coller.

The IP Cluster is exceeding expectations with performance largely driven by the strong recovery in Information Services post the national lockdown at the end of March 2020.

At year-end, EOH advised that five of the eight problematic legacy public sector contracts had been settled. Of the remaining three legacy contracts, one is currently in arbitration, one is in legal dispute owing to nonpayment from the customer and the final contract is concluding at the end of April this year.

"The group remains pleased with the progress made in managing liquidity following the implementation of its cash pooling arrangement. EOH’s cash pooling policy allows for cash previously held in individual legal entities to be centrally managed. This improved visibility has significantly decreased liquidity risk for the business," he said.

“EOH has made great progress towards building a sustainable organisation and our business is now more focused and less complex, with an improving cost and capital structure and positive cash generation. We will continue to look at opportunities to optimise and fine-tune the business. The emphasis is now on executing on our growth strategy and growing our core business from a top-line and earnings perspective while providing globally competitive technology services and innovations to our customers,” said Van Coller.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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