It was absolutely critical to control and reduce costs, especially because our priority was to minimise job losses, which we mostly succeeded in doing. It required collective commitment and collective sacrifice, but a sacrifice our people were willing to make for the greater good. We saw staff taking 20% salary cuts for two months and 10% for a further month.

At the beginning of the national lockdown, we set a target to save R100 million in cash costs per month for the four-month period from April to July 2020. We achieved in excess of 90% of this with the biggest contribution coming from employees. In addition, we saved costs on marketing, events, travel and entertainment. We will maintain a freeze on salary increases until January 2021 when we will reassess our financial position, as we wait to see where the South African economy settles. We expect some of these cost-cutting measures – about 3% to 5% – to prove durable in the longer term.

From a property portfolio perspective we have been on a rationalisation drive to reduce our office footprint and in the past year saw a further reduction in rental costs of R75 million. COVID-19 has offered a further opportunity to reduce our square meterage as many of our staff transitioned to working from home and are likely to continue to do so. A sizeable portion of our leases can only be renegotiated in 2023, which is when we expect to optimise our property portfolio. Improved systems and controls are also set to yield future cost benefits.

Normalised EBITDA (ZAR in millions)

The rightsizing of costs, structures and systems is core to the Group strategy. COVID-19 has placed even more focus on ensuring that our cost base is as flexible as possible with the reduction in fixed costs being a key priority. We have also made positive progress in existing underperforming businesses which have previously negatively impacted earnings. Quality of earnings remains at the core of our business rationale as opposed to revenue at all costs. This is evidenced by the improvement in margins seen in the 2020 financial year.

We have had a strong focus on working capital management and reduced net investment in working capital from R1.5 billion in the second half of the 2018 financial year to R176 million in the second half of 2020, which amounts to a 89% reduction.

H1 '20 cash flow bridge (ZAR in millions)

H2 '20 cash flow bridge (ZAR in millions)

Working capital management (ZAR in millions)

Our once-off costs have decreased significantly from the prior year. Our most significant once-off costs relate to impairment losses which decreased from R2 259 million in the prior year to R522 million and are related to goodwill and intangible assets.

Legacy contracts in non-core business lines resulted in R496 million of further losses down from R526 million last year. This relates to legacy public sector contracts and EPC contracts in the energy and water business.

We have made positive progress with the previously disclosed eight legacy public sector contracts. At the date of publishing this report, five of the eight problematic public sector contracts have been settled, with one currently in arbitration, one in final negotiations and the last contract concluding at the end of April 2021. These contracts were fully provided for at year end.

Fit-for-purpose cost structure

This has been one of our key priorities for the year. Late last year we embarked on the sale of our IP assets to assist in the deleveraging of the balance sheet with the view to protecting the core iOCO business. Solving for the right capital structure remains key for the business. We are relatively well advanced on the sale of the IP assets and expect them to further assist in the reduction of debt on the balance sheet.

The lower outstanding debt balance of approximately R2.5 billion, combined with the sizeable reduction in interest rates, will result in materially lower and more manageable financing costs for the Group going forward.

For us it has been critical to get through an audit with our new auditors, PwC, who bring fresh eyes to EOH’s financials. We have undergone a thorough audit and I am confident that with the level of robustness, it gives further comfort to the numbers presented.

The priorities for 2021 are centred around targeting an appropriate capital structure, optimising systems and controls and establishing a fit-for-purpose cost structure. This requires continued focus on the balance sheet, completing the legal entity and property rationalisation projects and identifying duplications in management structures.