In a sign that the once must-have in fund managers’ portfolios is on a comeback trail, EOH has posted an operating profit for the first time since founder Asher Bohbot resigned as chair in the wake of graft allegations that struck its finances and tarnished its reputation.
The company, whose stock fetched about R170 before crashing to R8 after the revelations of dodgy public sector contracts emerged about three years ago, has introduced a raft of changes such as selling non-core assets and cutting debt after bringing in Stephen van Coller to spearhead the recovery efforts.
EOH’s earnings report for the six months to the end of January showed that Van Coller, who took over two years ago, has something to show for his efforts. It returned to an operating profit of R59m from an operating loss of almost R1bn the same time a year earlier.
Before the scandal that ensnared the company in the state capture project and led to the loss of a lucrative licence to sell Microsoft products, the company was making about R700m in half-year profits.
"The fact that we’ve had an operating profit for the period, that’s a significant milestone for us," CFO Megan Pydigadu told Business Day.
Though EOH has more than halved its debt to R1.8bn since Van Coller took over and put a number of businesses up for sale to fix the lopsided capital structure, it still needs to sell two more businesses, the proceeds of which would be used to further pay down debt.
Once the sales of its two largest intellectual property businesses, Sybrin and Information Services, are complete, Pydigadu says the company will be able to pay down debt from operations as it grows earnings and attracts new business.
Cutting costs
Having improved margins and reduced costs, Pydigadu anticipates that the group will have a "better quality of earnings" in future.
"We’ve had some wins over the last two months, signing some new multiyear contracts with blue-chip clients," she said.
Among these wins, EOH signed a R204m three-year contract with a large telecoms operator for contact centre automation, as well as a R375m analytics project for three years, together with a R170m five-year demand response agreement.
Getting to the stage of winning such contracts has not been easy. EOH’s management team has had to try to salvage the company’s reputation, figure out which contracts were suspect and deal with a mountain of debt accumulated under its previous acquisition-obsessed executive.
An ENSafrica probe found R1.2bn worth of suspicious transactions, mostly involving public sector contracts, which ensnared the group in the state capture project.
Office space
"It’s been exciting to see new work come through and that blue-chip clients want to partner with us, signing multiyear contracts," said Pydigadu.
EOH, which provides a range of technology solutions to the public and private sectors, has reduced its headline loss per share by 83% to 60c compared with the same period a year ago. It is a widely watched measure of performance that strips out one-off items.
Total revenue dropped to R4.376bn from R6.194bn, as the group sold underperforming and noncore businesses.
Covid-19 affected the revenue line as customers deferred capital expenditure on large IT projects, the company said. As part of its revival plan, EOH is overhauling its operational structure, consolidating more than 170 entities into three business units, down from 272 entities and operations.
Tied to this effort is cutting down EOH’s office space and properties.
With R100m in property costs slashed in the past two years, Pydigadu says it is looking to cut more than 10,000m² of office space, which is about the size of three Pickn Pay stores.
In a sign of the times and the trend towards remote work, the group has built "hubs" in Gillooly’s, Sandton and Midrand for staff who require specific tools for work or meetings. It will soon have such a hub in Pretoria. With Andries Mahlangu
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