EOH Commentary

"Our business, while smaller from a revenue perspective due to the strategic disposal of non-core assets and exit of under-performing businesses, is now a more sustainable business delivering better quality of earnings. We have seen a significant reduction in one-off costs and are confident that our legacy issues are now under control. The local and global economy remains constrained as we have seen the negative impact on some of our clients. However, we have also seen increased cloud uptake and spend on automation and application development in line with global trends since the beginning of the pandemic. Over the coming months, our focus will be on deleveraging, enhancing margins and remaining antifragile."

Stephen van Coller, CEO


The period
followed the

from the last two
six-month periods

Total Group
revenue of
R4.4 billion

Generated positive
operating profit of
R59 million
compared to
a R915 million
operating loss
in the prior period

Total gross profit
margin increased to
from 24.2%
in the prior period

Total core
normalised EBITDA
of R363 million
representing a
0.5% increase
in EBITDA margin
to 8.3%

Total headline loss
per share improved
by 83%
with losses
narrowing from
350 cents per
share to
60 cents per share


COVID-19 has placed immense pressure on the South African economy as the national lockdowns, the second wave and the delays in the vaccine rollout have compromised economic recovery and led to an increase in the unemployment rate. Local businesses' liquidity positions have also taken strain, leading to reduced spend and project delays.

There was, however, an increased drive towards digital adoption and transformation, which gave rise to new areas of potential growth. EOH has been evolving its business model and has seen the direct benefit of digital uptake in its iOCO business in the digital industries, automation and cloud space.

EOH has seen progress in its key strategic initiatives, including optimising the cost structure and capital structure as well as focusing on quality of earnings. The benefit of this can be seen through the sustained and continued improvement in margins and the return to an operating profit.

Deleveraging and proactively engaging with lenders remains a strategic priority for EOH. Year-to-date, the Group has repaid the lenders a further R433 million principally from disposal proceeds. This brings the total legacy debt reduction since July 2018, including vendors for acquisition liabilities (VFAs), to c.R2 billion from R4 billion. We anticipate this to reduce further as we conclude the sale of the two largest IP businesses, namely Sybrin and Information Services.


The overall iOCO business has benefitted from customers' increased migration to the Cloud and increased spend on Automation and App Dev. These trends contributed to iOCO Digital's pleasing 15%* growth in revenue underpinned by healthy EBITDA margins of 15%. The Digital Industries business that operates in the Internet of Things ('IOT') space, where the focus is on operational technology related to heavy industry and mining, continued to perform well with revenue growth of 33%*.

Hardware revenue was muted, falling short of the prior year as a result of customers both delaying spend on hardware or considering cloud alternatives.

iOCO achieved a 2.7% increase in its consolidated gross profit margin to 28.3%, up from 25.6% in the prior period with an EBITDA margin of 10%.

* Refers to TTM average growth.


NEXTEC has experienced an improved operating performance for the period with a strong result from the Digital Infrastructure cluster off the back of increased customer investment in digital technologies, particularly in the mining industry. The people businesses, albeit a smaller contributor to the overall result, have also performed well against expectations.

The positive performance from NEXTEC is a direct result of the sale or closure of underperforming businesses over the past 12 months and the strategic interventions put in place by the new management teams.

EOH continues to report on the NEXTEC non-core businesses to be closed, namely PiA Solar and Autospec. In both businesses, significant steps have been taken to materially reduce the expected losses to completion.

NEXTEC's focus remains on quality of earnings, cash conversion and profitable growth as low margin projects are phased out. Gross margins in NEXTEC improved by 4.4% to 18.1% from 13.7% in the prior period.


The IP cluster performed well over the period and has recovered from the low levels seen over April and May 2020, where the negative impact of the national lockdown was most severe. Following the sale of Syntell post year-end, the disposal processes of the two remaining IP assets, namely Sybrin and Information System, have advanced significantly and are expected to close before the calendar year-end. Gross profit margins remained strong in the IP business in excess of 41% with EBITDA margins of c.23%.

Legacy contracts

Significant progress has been made in closing out the previously disclosed problematic legacy contracts. Five of the eight problematic public sector contracts have been settled, with one having been ceded to a sub-contractor with settlement currently in arbitration, another concluding at the end of April 2021 and one that has been terminated with handover discussions currently underway. We anticipate that all these contracts will be satisfactorily closed out by the end of the current financial year.

With respect to the overbilling uncovered in the ENSafrica investigation, EOH has settled with the Special Investigating Unit (SIU) on the Department of Defence contracts and has begun repayment. Furthermore, final negotiations with the SIU on the Department of Water and Sanitation contracts are underway and it is anticipated that settlement will take place in H2 2021. This will bring to a conclusion the overbilling issues.

The public sector division is an important business for the Group and project delivery has been streamlined through the existing Centres of Excellence to ensure consistency in quality delivery.

Cost optimisation

EOH continues to focus on cost control and efficiency measures across the Group, having exited a further 9 581m2 of property year-to-date with an additional 14 900m2 under negotiation.

Headcount was further reduced by 1 566 (excluding new hires and resignations) primarily due to asset disposals and contracts not being renewed.

Cost reductions have continued across the major expense categories such as travel, marketing and administrative expenses, and a 5% reduction in costs on the remaining business has been realised over the six-month period.

Disposal of assets

EOH continues to dispose of assets as part of its stated deleveraging strategy. The sale of DENIS and the remaining 30% stake in CCS to RIB Limited (RIB) was announced in the 2020 financial year with the first R234 million payment related to the DENIS transaction received on 30 September 2020 and R16 million being held in escrow until 1 April 2022. In addition to the early exercise of the call option, RIB released the full cash amount in escrow of R47 million on 30 September 2020.

On 18 November 2020, EOH concluded the sale of 100% of the issued share capital of MARS Holdings (Pty) Ltd and its principal business Syntell, to a consortium led by the current executive directors of Syntell for a consideration of R211 million. The execution of the transaction provided EOH with the opportunity to extinguish the last sizeable VFA liability of R36 million on the balance sheet. Furthermore, a shareholder loan from EOH of R10.5 million was settled by Syntell prior to the signature date of the sale agreement. On 18 November 2020, the Group received a cash amount equal to the base purchase price of R211 million less the VFA liability of R36 million.

Deleveraging imperative

Due to the heavy interest burden of the legacy debt, deleveraging the business through disposals has been a top priority. Year-to-date, the Group has repaid the lenders a further R433 million (including the Sanlam Note) principally from disposal proceeds with the current total debt balance at c.R 2 billion from R4 billion in 2018.

The Group has been engaging with lenders to create a more sustainable debt structure and has concluded term sheets with its lenders. This has also resulted in the lender group waiving the R1.6 billion that was required to be paid by 28 February 2021 of which EOH has paid R950 million.

The Group is in advanced stages for the sale of the last two IP assets, which will reduce the Group's debt to a more manageable level.

Total finance costs reduced by R39 million to R164 million in the current period from R203 million in the prior period. The lower base rates and lower outstanding gross debt balance have resulted in materially lower financing costs, albeit at a higher level than budgeted due to the delay in the IP sale processes as a result of COVID-19.


(Commentary based on total continuing and discontinued numbers)

Total revenue decreased to R4 376 million from R6 194 million in the prior period and was largely attributable to disposals and the settlement of legacy contracts (which accounted for c.70% of the decline) as the Group continued executing on its stated strategy of exiting non-performing as well as non-core businesses. Revenue was impacted by COVID-19 as customers delayed spend on large, planned information technology (IT) projects specifically in the hardware space. While revenue has declined, the Group's focus on quality of earnings and sustained improvements is demonstrated by an increase of 3.4% in the Group's total gross profit margin to 27.6%, up from 24.2% in the prior period.

Total operating expenses decreased by 52% to R1 060 million from R2 209 million in the prior period. The decline in operating expenditure is largely a result of a reduction in once-off costs as the Group continued to close out its remaining legacy issues and implemented cost-saving initiatives and asset sales or closures.

Once-off costs (excluding normalisation adjustments) reduced by R415 million in the period under review due to a 74% decrease in impairment losses to R72 million (H1 2020: R279 million) and a R208 million reduction in other once-off costs to R8 million in the current period. Normalised operating costs (excluding one-off costs) reduced 33% to R1 024 million from R1 522 million. This was significantly higher than the 29% reduction in revenue, creating a significant positive effect on the operating profit and margins.

Total core normalised EBITDA for the period was R363 million compared to R480 million in H1 2020, while EBITDA before normalisation adjustments was R329 million for the period. As the business evolves and approaches a steady state, the gap between normalised EBITDA and reported EBITDA continues to narrow. The Group also saw an improvement in EBITDA margin from 7.8% in the prior year to 8.3% in the current year.

For the first time in the two years since the Group embarked on its turnaround plan, EOH posted a positive operating profit of R59 million for the half year.

Total headline loss per share from continuing and discontinuing operations improved by 83% with losses narrowing to 60 cents compared to 350 cents in H1 2020. Currently, the Group is making a headline loss as a result of its over-indebted capital structure and inefficient legal entity structure. The management team continues to address this as a core focus area.

Working capital management continues to receive a high degree of prioritisation as part of overall liquidity management. Investment in net working capital increased by R252 million due to:

  • leave pay accruals released due to leave taken over the December/January period;
  • paydown of payables; and
  • an increase of debtors.

The Group is closely managing the collections of debtors as a slight general delay in payment is being experienced.

Cash generated from operations after changes in working capital was R26 million (H1 2020: R31 million). The business continues to be impacted by once-off payments, which resulted in a cash outflow of R202 million for the period. In addition, the reduction in the total cash balance was also impacted by businesses that were sold during the period, resulting in the Group no longer having access to R214 million of cash relating to these entities. The Group remains pleased with the progress made in managing liquidity following the implementation of its cash pooling arrangement. The Group'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.


The Group remains cautious around the recovery of the economy over the next few months. The possibility of a third and fourth wave of COVID-19 and the potential stricter national lockdown restrictions are likely to see customers continuing to exercise caution when considering spend. Given this underlying uncertainty, the focus will be on maintaining margins and continuing to develop best-in-class solutions for our clients as they seek to maintain business continuity and digitally transform their businesses beyond COVID-19.

Following the sale of the two remaining IP assets, EOH will be substantially relieved of the onerous legacy debt burden it has been carrying. Over the past two years, the management team has prioritised consolidating the Group's legal entity structures, optimising the business through non-core disposals, paying down legacy debt and refinancing. Significant progress has been made on these initiatives and the Group anticipates it will have the optimal business structure and model to begin executing on its growth plans towards the end of H2 2021.

Approved on behalf of the board of directors of EOH.

Stephen van Coller

Chief Executive Officer

14 April 2021