JSE-listed information technology services company EOH has posted a profit of R147-million for the financial year ended July 31, compared with a loss of R1.3-billion posted for the prior financial year.

The company on October 28 said its work to close out legacy contracts and make targeted disposals over the past two years had resulted in more profit from a smaller revenue base of R7.9-billion.

Total revenue decreased to R7.88-billion for the full-year from R11.27-billion in the 2020 financial year; however, gross profit margin improved to 28% from 22% in the prior financial year and operating margins increased to 2% from -12%.

Further, the adjusted earnings before interest, taxes, depreciation and amortisation (Ebitda) margin improved to 9% from 0% in the 2020 financial year.

“Business disposals and the close-out of loss-making legacy contracts accounted for about 75% of the revenue decline. Base revenue, which is total revenue excluding the impacts of the legacy issues clean-up, as well as liquidated and sold assets, decreased by 11% to R7.2-billion in the current financial year from R8.14-billion in 2020.

“Approximately R740-million of the decline in base revenue was owing to reduced hardware sales, as customers delayed spend on large, planned information technology projects with the move to the cloud gathering pace and the impact of Covid-19 on our clients in the education and human capital, beverage, travel and health sectors,” said EOH Group CEO Stephen van Coller.

The group’s focus on quality of earnings and continual improvement resulted in a significant improvement in gross profit, adjusted Ebitda and operating profit margins.

Gross profit margins have increased from 20% achieved by July 31, 2019, to 28% in the reporting period, operating margins have increased from a -29% in the 2019 financial results to 2% in the current results, and adjusted Ebitda margins increased from -9% in the 2019 year to 8% in the year under review.

“Two-and-a-half years ago, the new EOH management team initiated a massive turnaround strategy for the group. For the first time since I arrived, our current assets exceed our current liabilities, and we are well-positioned to progress the transformed EOH in supporting our customers to solve their business challenges using our innovative technology offerings,” said Van Coller.

“Today, EOH is streamlined, profitable and is winning new public and private sector contracts across multiple geographies,” he added.

EOH was entering an exciting new phase with a key focus on solving its clients' business challenges "in an increasingly dynamic environment aimed at achieving mutual growth". The company was keenly focused on enhancing its end-to-end technology solutions with future generation offerings that would position EOH as a leading technology solutions partner, he said.

The company signed a common terms agreement with its lender group on October 20, and the refinancing of existing debt provides EOH with greater certainty with respect to the overall debt outstanding and provides a more stable platform for the optimisation of the capital structure, Van Coller said in a statement on October 28.

“Debt has declined significantly since 2018, although not as fast as we would have liked. Reducing the debt burden remains a critical focus for the management team,” he said.

Cash management has been a highlight, especially considering the current economic climate, with excellent discipline in managing net working capital supporting improved liquidity.

“The underlying effort and commitment from everyone in the EOH team to deliver this turnaround arises from the broader sense of purpose in the group to not only turn the business around but also to transform it into a force for good that makes a difference in  broader society,” Van Coller said.

Meanwhile, the private sector had a key role to play in ensuring that business conducted itself ethically and with appropriate regard for the greater good. Now, more than ever, it was critical business embraced its role in society by partnering with government and civil society, by uplifting communities, developing skills and creating employment, thus ensuring a  sustainable and thriving economy, he emphasised.

“As a group, we are embracing the digitisation and automation acceleration through our business systems optimisation project. This will ensure automation in our shared service functions and ensure we leverage off the latest cloud technologies. It is underpinned by a single target operating model and will ensure consistent processes across the organisation underpinning a single data strategy,” he said.

Further, the appointment of Ziaad Suleman as EOH chief commercial officer is seen as an excellent addition to an already strong management team. Suleman spent 13 years at information technology multinational IBM in various roles including that of COO for Africa, South Africa chairperson of the Fourth Industrial Revolution Digital economy committee of the Brazil, Russia, India, China and South Africa bloc of countries and the digital economy chairperson of the Presidentcy's Public-Private Growth Initiative.

“Ziaad is driving a visionary, yet pragmatic, commercial go-to-market strategy, which sees the group expanding its footprint in Southern Africa, Europe and the Middle East, with its operations in Egypt well positioned to develop into a centre of excellence serving the Middle East and Europe,” Van Coller highlighted.

“As a group, we remain cautiously optimistic around the recovery of the economy over the next few months and how emerging economic trends may impact our business. Regardless of the economic conditions, we are committed to delivering value to our clients through our Solve mindset,” he said.