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Chief Executive Officer's report

"Despite moving from one crisis to another we have made real, steady progress in terms of transparency, liquidity and credibility. We have seen a meaningful improvement in EBITDA performance, the disposal of non-core units is ongoing, our business is more focused and less complex, our balance sheet is improving and the business is now cash-positive."

Stephen van Coller
Chief Executive Officer


QIt has been an unprecedented year. How was EOH positioned when COVID-19 struck, and how is it positioned now?

A year ago, EOH was just emerging from a defining crisis. Corruption had caused massive damage to our reputation, prompted a loss of confidence from investors and lenders, saddled us with huge bank debt, and resulted in a declining cash-realisation rate and return on our assets.

In response to that crisis we focused on three priorities: re-establishing our credibility; committing to widespread transparency and articulating a clear strategy; and improving our liquidity. We made real, tangible progress in each of those areas. Then, in March 2020, another crisis hit.

The impact of the COVID-19 pandemic and of our government's response put clients and ourselves under pressure, and resulted in an unprecedented macroeconomic environment. We had to cope with reduced sales while tackling a high debt burden, and adjust to remote working while managing employee wellbeing. That said, the COVID-19 crisis presented some opportunities with respect to our ability to provide our customers with innovative technological support through our solutions.

Despite moving from one crisis to another, we have made real, steady progress in terms of transparency, liquidity and credibility. We have seen a meaningful improvement in EBITDA performance, the disposal of non-core units is ongoing, our business is more focused and less complex, our balance sheet is improving and the business is now cash-positive.

QWhat have been the highlights for the 2020 financial year?

We have made tremendous progress on our deleverage strategy having paid R292 million in capital in the current year and a further R409 million post-year end. To date, R950 million has been paid in back to lenders. Our debt burden remains an overhang on the business and on market sentiment. Deleveraging the balance sheet and normalising the capital structure will allow the Group flexibility as we seek to execute on our long-term growth strategy.

Our core iOCO business has stabilised and proven its resilience through the disruption caused by COVID-19. Our specialised solutions and services have enabled customers to quickly transition to remote working and supported the accelerated migration to digital, automation and other cloud solutions. We are immensely proud of how we have been able to help our clients navigate their responses to COVID-19 and thus ensure their business continuity.

Our NEXTEC business has turned the corner and is now in a break-even position due to its new management teams and the implementation of a number of turnaround initiatives which are now bearing fruit. A number of non-core assets have been disposed of which were a significant drain on the performance of the cluster and we look forward to building on the solid foundation we now have in place.

One of our promises to stakeholders when the current management team took over was that we would create transparency in the business, which included creating a transparent business model.

To that end, we were able to present our first bottom-up strategy to employees and investors towards the end of the financial year. This was an intense and consultative process that involved engagement with top leadership across the whole Group and regular cross-divisional sessions. We are now in a position to chart our growth path with clear objectives to track our progress and report back to stakeholders.

Q You mentioned that you are now in a position to execute on your recently completed growth strategy. What are your key strategic objectives over the next three to five years?

Our near-term objectives are clear and simple:

  1. We need to create liquidity and remove the overhang of the large debt burden on our business
  2. Driving growth in our core iOCO business, which is our technology engine room and makes up c.60% of revenue and EBITDA is a key focus area
  3. Completing and solidifying the turnaround of the NEXTEC business with a view to realising consistent profit and cash generation
  4. Creating a fit-for–purpose cost structure
  5. Finding the right growth solution for our high potential IP companies through strategic partnerships and outright disposals where appropriate

Once we deliver on the five objectives stated above, we will be a stronger, leaner organisation and will be able to complete our evolution from a linear product based business model to an integrated platform business with exponential capabilities.

QYou have always positioned the EOH turnaround story alongside the three pillars of transparency, credibility and liquidity. How have you made progress in terms of transparency?

Transparency was always about being clear not only on the issues that were exposed, but on our goals for the company and the way in which we were going to achieve them. We promised the market a growth strategy, and then went about developing our first bottom up, zero-based strategy in 22 years.

Our ability to do so was enhanced by our improved financial systems, discipline and controls, which enabled a clean base for portfolio review, and which will continue to improve our reporting, forecasting and liquidity management going forward.

This process wasn't undertaken in isolation from the business. We knew this was a great opportunity to create understanding and buy-in amongst internal and external stakeholders, and so we actively engaged staff at all levels across the Group, and made sure that investors and the public were kept up to date throughout the process.

What has been fantastic has been the way in which we have managed to continue to focus on our strategic goals in spite of the challenging environment. There is, however, more work to be done and we are now focused on executing on our strategy through a solution-focused rather than product-focused approach.

Q How have you improved EOH's credibility?

In 2019 we focused on improving and enhancing our Governance, Risk and Compliance policies and procedures. We have placed great importance on this which is evidenced by the improvement in our governance, risk and control framework since May 2019. Approximately 97% of our people have completed the various compliance training courses that have been rolled out over the course of the year which is a very pleasing outcome and an indication of our people's commitment to doing the right thing.

Furthermore, the Policies and Procedures that were put in place from this process also enabled a seamless, robust and well governed transition into a remote-working digital environment. These processes allowed our business to function effectively and alongside strong governance practices within a contactless environment.

Q Can you elaborate on your current liquidity position and how it has improved?

Through asset sales and significant business restructuring we have reduced our outstanding debt from R4.1 billion in August 2018 to R2.5 billion as at July 2020. Following the sale of Syntell post-year end, our debt level stood at R2 billion as at 30 November 2020.

Despite COVID-19 and tough economic conditions we were still able to achieve our first capital repayment milestone of R540 million. As at 28 July 2020 we had delivered R360 million in cash savings in four months, and reflected a positive cash balance of R1 billion. This has only been possible as a result of a lot of people's very hard work and sacrifice, of which I am exceptionally appreciative.

We had a very clear deleveraging strategy in place. We have been able to review the details of that strategy post COVID-19, which changed many of the applicable variables. We are spending much less on servicing debt and we're generating more cash than we expected. At the same time, uncertainty in the market is depressing asset sales.

Due to the flexibility and strength of the business and because we have a wide customer and service base, we've reached a point where we've been able to create optionality for ourselves. That said, we're clearly shouldering a large debt burden and we're not yet where we need to be.

QHow do you view the public sector business given the issues of the past?

We previously disclosed that eight of the 54 legacy public sector contracts had negatively impacted the financial performance of the business. Of the eight contracts, five have been settled, one is awaiting council's approval, one is in arbitration and the remaining contract runs out in April 2021. This has significantly reduced the risk the Group is exposed to. Furthermore, we have implemented a robust process to screen all public-sector deals as well as related partners, and we have formed a Business Review Committee which reviews both public sector and material private sector bids.

Building credibility: governance and risk roadmap

The public sector remains an integral part of our business and with the recent launch our new strategy we are intent on bringing our subject matter experts closer to our clients. This means that we have consolidated all our public-sector business into our centres of excellence, and are treating it in the same way we would any other client in terms of our delivery of solutions. In adopting this approach, we aim to mitigate project delivery risks and enhance the value that we provide to clients, no matter the sector.

QHow has EOH responded to COVID-19?

Very well overall, I am pleased to say, though of course it has been an exceptionally difficult and testing period for our people. The business as a whole held up incredibly well, which is a testament both to its resilience, innovativeness and robust standing, and to the hard work, sacrifice and creativity of our staff.

Our teams went above and beyond to support our customers during COVID-19. Our commitment to what we called SOLVECOVID-19 resulted in the development of over 75 solutions in three months, including ICUlate – a fully complaint mobile intensive care unit – and a range of Telemedicine technologies; the pro bono development of the Solidarity Fund and Business for SA portal in under 48 hours; a range of crisis management tools and remote working solutions including the Sikhona App; improving supply chains with streamlined online collaboration through our Infor solution; and a range of solutions to address social challenges, including LinkedTo and the SASSA KOFAX email solution.

A gratifying benefit of having previously improved our governance processes was the seamless, robust and well-governed transition into a remote-working digital paradigm. These processes allowed our business to function effectively and with strong governance practices in a contactless environment.

QThe burden on employees, coming out of one crisis and going immediately into another, must have been severe. How did you support employees over this period and beyond?

It has been an exceptionally difficult period for our staff. As a result of the dismal macroeconomic environment and the COVID-19 pandemic, we've effectively had to continue servicing our vehicle while doing 120 km/h down the highway. This has put a lot of stress on the teams who were also having to deal with salary cuts over the same period. We enhanced staff engagement through ongoing climate surveys and the launch of a new Employee Value proposition (EVP) which incorporates the SOLVE purpose and introduced refreshed values. We launched a number of wellness initiatives aimed at helping our people cope with stress, avoid burnout while transitioning to remote working. I held weekly online Friday morning sessions through and beyond the national lockdown to keep our employees engaged and up to date on COVID-19-related news.

I do believe that the way in which we've been able to transition to a remote work setup, to keep our staff safe and informed, and to adapt to a new normal, has set the standard in South Africa.

We also leveraged our Expose_IT whistleblowing app to create a platform to deal with workplace bullying, discrimination and harassment in EOH. We are acutely aware that we still have a lot to do in order to address transformation and equal working conditions across the Group. We want to make sure that from the bottom up there are equal opportunities for everyone across the business, no matter their race, gender, sexuality, or religion. We have begun that process by relaunching our Diversity and Inclusion policies, and by tackling important issues around gender-based violence, diversity and Black Lives Matter in open forums.

QWhat keeps you up at night?

The JSE's censures this year were on the one hand perfectly appropriate, and were a case of the sins of the past continuing to haunt those who did not commit them, and who have worked very hard to address them and move forward. It is tough to watch principled, hard-working people punished for the actions of those who, as of now, have not yet been properly held to account.

As directed by the Board, we are in a process of pursuing civil and criminal cases against those who benefited from unethical business practices in the past and as part of this process. Steven Powell from ENSafrica, who led the independent forensic investigation, and I recently gave evidence on money flows at EOH in the past at the Judicial Commission of Inquiry into Allegations of State Capture, Corruption and Fraud in the Public Sector ('The Zondo Commission').

EOH has since been widely acknowledged and lauded by the Commission, stakeholders and the investment community for sharing its findings from the forensic investigation and its pioneering and proactive approach to transparency and zero tolerance to corruption.

Having been on this journey, I do strongly encourage corporate South Africa to acknowledge its role in systemic corruption and take a zero-tolerance approach to graft. We risk losing the gains made during the democratic era and ultimately we will sacrifice the fight for equality if we do not.

It is now my hope that the information that we have shared with the Commission assists the authorities in expediting the prosecution of wrongdoers.

Of course another issue that weighs on me significantly is the effect of the COVID-19 pandemic on our employees, and the absolute importance of preserving jobs in the face of a recession and widespread unemployment across the country.

QAnd what are you most looking forward to?

As the world navigates the effects of the pandemic, technology trends that were on the horizon – including security and cloud; Everything-aaS and DevAnything – will increasingly become ubiquitous necessities.

We are well positioned to take advantage of that shift. I think that EOH today has the potential to be the most attractive digital transformation enabler throughout Africa and beyond. We have hundreds of building blocks (business solutions) at our disposal and are adept at turning them into powerful solutions for our clients. We look forward to transitioning from a product to a business-solution platform, to helping our customers expand into new markets, and to using our competitive advantages to gain market share ourselves.

We will continue our drive for internal efficiency and coherence, remain anti-fragile, and collaborate internally to extract the significant value that resides in our teams and create compelling technology platforms that enable digital transformation. We have consistently shown what we're capable of while under immense pressure. I can't wait to see what we can achieve when we're finally playing off the front foot.

The team and I are so proud to be able to say that the new EOH is a fundamentally transformed business, committed to providing best in breed technology solutions with unwavering ethical integrity and as we place the past times behind us, we can continue to focus on earnings growth and sustainability.

Stephen van Coller
Chief Executive Officer