EOH expects improved full-year gross profit margin despite lower second-half revenue

30th July 2021 By: Schalk Burger - Creamer Media Senior Contributing Editor

Information and communications technology services multinational EOH says it expects to report a gross profit margin improvement of between 4% and 6% for the financial year ending July 31.

While total group revenue in the second half of the financial year had been negatively impacted on by the prevailing economic conditions, the group remains focused on the quality of earnings.

The total revenue generated by the iOCO business in the second half of the financial year saw a drop-off as a result of hardware sales continuing to be under pressure owing to the impact of Covid-19 and as customers migrate to cloud alternatives.

The iOCO segment still posted an operating profit and positive earnings before interest, taxes, depreciation and amortisation (Ebitda) for the second half, largely driven by the iOCO Services cluster, specifically Digital Industries which has seen significant growth in its Internet of Things capability.

“The iOCO business has seen positive momentum with strong traction in customer renewals and the recently mobilised public sector re-entry strategy is yielding value with a solid pipeline.

"The signing of new multi-year annuity deals across both private and public sector clients is evidence of iOCO’s position as the country’s leading end-to-end technology solutions provider,” EOH Group CEO Stephen van Coller notes in a pre-close business update to shareholders.

The group's Nextec business continues to execute its turnaround strategy, with revenue having remained resilient in the second half despite the challenging economic conditions. The Nextec People solutions business has generated strong operating profit and Ebitda in the second half, with margins improving owing to efficiency gains and stringent cost control.

The Nextec Infrastructure solutions business, however, remained under pressure characterised by contract delays in the consulting services predominantly across municipalities, and the construction, water and energy sectors.

“The Nextec businesses that remain core to EOH are self-sufficient from a liquidity perspective,” Van Coller says.

EOH has continued to prioritise an appropriate cost structure for the business that is agile and responsive to changing market conditions. As a result, the group expects to post a positive operating profit and Ebitda for the full year.

“The EOH of today has emerged out of exceptional times characterised by massive uncertainty. We have built a sustainable business with clear alignment and focus allowing us to better serve more than 5 000 enterprise customers, the government and the citizens of South Africa with technology and digital enablement that is critical to our country’s future success.

“We are now positioned to grow our international footprint in the UK, Europe and the Middle East. Our turnaround plan remains on track and is underpinned by stable revenue and quality earnings. Whether we are providing end-to-end technology solutions, infrastructure solutions or people solutions, we are living our stated brand promise, which is to solve for our clients at every turn,” he says.

EOH’s international operations in the Middle East, the UK and Europe remain "exciting" platforms from which to pursue exponential growth across its application development, security and cloud solutions.

In addition, these geographies provide opportunities for EOH’s intellectual property platforms and potential strategic in-country partnerships.

The group’s turnaround strategy, which has been focused on restoring credibility, increasing transparency and improving liquidity, remains on track despite the ongoing challenges in the local and global environment. By focusing on these priorities, the new EOH board and management team have made a distinct break from the past and have successfully rebuilt a sustainable organisation with clear alignment and focus.

The general operating environment in South Africa continues to remain extremely challenging. The third wave of Covid-19, the ongoing load-shedding and the significant impact of the looting and violence have all taken their toll on the country’s already fragile prospects of economic recovery and investor confidence.

The EOH board and management team have dealt with the individual challenges as they have arisen over the last six months by activating a clear vision through consistent communication and being proactive with rapid and considered decision-making. Building resilience throughout the organisation has been an ongoing imperative.

Further, the priorities for the 2021 financial year have been a continued focus on quality earnings, cost reduction and solving for the group’s substantial legacy debt and inefficient capital structure.

EOH has also been keenly focused on enhancing its end-to-end technology solutions with future generation offerings such as application development, security, automation, robotics, and data analytics which all further enhance the Group’s role as a key technology solutions partner for leading companies.

The events of the last few weeks have evidenced that business, civil society and government need to urgently come together to find a sustainable way forward for South Africa, EOH states.

It is in this spirit that the group delivered 6 000 cooked meals and 24 t of groceries to EOH staff in areas affected by looting and violence and provided 500 employees with trauma counselling.

“Our purpose at EOH is to solve and with this as our overarching priority, we will not only continue to be the technology partner of choice for our clients but we will also ensure that we play a leading role in being a force for good in South Africa.

“I need to add how very proud I am of all of those at EOH who have gone the extra mile during this challenging period in South Africa to demonstrate that we stand in solidarity with those in our society who most need our help,” says Van Coller.