EOH revenue drops as CEO Van Coller bids farewell

Admire Moyo
By Admire Moyo, ITWeb's news editor.
Johannesburg, 26 Mar 2024
Outgoing EOH CEO Stephen van Coller.
Outgoing EOH CEO Stephen van Coller.

JSE-listed technology services firm EOH has seen a marginal drop in its revenue, as it readies to bid farewell to outgoing CEO Stephen van Coller.

This emerged today, when the company announced its unaudited interim condensed consolidated financial results for the six months ended 31 January 2024.

The company reported group revenue of R3.1 billion for the six months ended 31 January 2024 (HY2024) compared to R3.2 billion for the six months ended 31 January 2023 (HY2023).

It posted group operating profit of R9 million for HY2024 (HY2023: R142 million), and total loss per share (of 15c for HY2024 (HY2023: 3c).

EOH posted total headline loss per share of 11c for HY2024 (HY2023: 17c) and adjusted EBITDA of R97 million for HY2024 (HY2023: R171 million).

Total cash generated from operations was R201 million for HY2024 (HY2023: R5 million).

In a statement, the firm says the challenges experienced by EOH in the second half of FY2023 continued into the first three months of HY2024.

As a result, it notes, despite an improvement in trading activity in the second three months of HY2024, the group experienced a marginal reduction in revenue for the six-month period.

However, it points out there was a 6% increase in revenue from the second half of FY2023.

EOH explains that the operational technologies division had a particularly challenging six months, impacted by delays in closing public sector contracts, as well as contracting delays with large mining customers.

However, the core digital enablement business, the international business and the revectored infrastructure as a service business, delivered solid revenue growth, it adds.

Closing legacy issues

Notably, after four years at the negotiating table, EOH recently announced an agreement with the South African Revenue Service (SARS) on the last remaining legacy issue that has been holding it back from finalising the restructure and getting back to business-as-usual, says the company.

It notes the closure of this matter allows for further corporate structure rationalisation of the EasyHQ business and the further normalisation of the tax rate. The final settlement was materially in line with provisions held on the balance sheet, it says.

In February, EOH agreed to pay SARS a R112 million settlement over a tax dispute. The tax issue, dating back to 2012, related to a pay-as-you-earn dispute in two of EOH’s staff outsourcing businesses.

Van Coller, who retires this month after agreeing to extend his initial five-year contact for another six months until the end of March 2024, says: “As my journey with EOH draws to a close, I am extremely relieved that we have managed to close the final outstanding legacy issue.

“The negotiation with SARS will certainly go down as one of the toughest negotiations of my corporate career. I would like to take this opportunity to thank the board, executive team, staff and customers of EOH for the privilege of leading the company over this time.

“I know that the business will go from strength to strength as our three business unit CEOs − Marius De La Rey, Fatima Newman and Brian Harding − bring continuity of leadership as they further execute on the operational strategies they have been leading for the past 12 months.

“A special thank you to chairman Andrew Mthembu, whose advice and guidance has been invaluable to me throughout my time at EOH and who will continue to walk the journey with Marialet [Greeff], Marius, Fatima and Brian.”

Says Mthembu: “This has been a tough six-month period for EOH but the lead indicators are moving in the right direction, and thanks to Stephen and the team, we now have a clean slate from which we can move forward.

“Stephen’s time at EOH has been nothing short of remarkable and when I look back at what he and his team have achieved, it is hard to believe they have reduced a R5 billion legacy debt burden to R700 million, while navigating COVID-19, the KZN riots and floods, geopolitical turmoil, as well as challenging economic conditions.

“Perhaps even more importantly, I celebrate the fact that under Stephen’s leadership, we are well on our journey to creating a fit-for-purpose business with depth and breadth of leadership to ensure it delivers into the future. I look forward to continuing the journey with Marialet, Marius, Fatima and Brian, as we execute on their already deeply entrenched operational strategies.”

Skills retention

EOH notes that one of the major challenges facing the South African IT industry is finding and retaining appropriately skilled talent. Accordingly, it says despite the impact on gross margins and overall profitability, EOH took the decision to retain highly-skilled staff that were not fully productive, in anticipation of improved trading.

Management believes this is the correct medium-term approach in order to resource an anticipated increase in activity appropriately, but will continue to monitor the economic environment closely.

Operating costs continue to be a core focus, and EOH is on track to eliminate at least R50 million from the FY2023 cost base, on an annualised basis, as part of the efficiency strategy, it says.

“Working capital remains tightly managed, with debtors' days remaining constant positive cash generation from operating activities. EOH had a net cash balance of R300 million at 31 January 2024, with unutilised short-term facilities of R133 million.”

The group’s interest charge decreased to R68 million from R102 million, as a result of the R600 million capital raise and the refinancing of consortium facilities with a single bank at improved interest rates during FY2023.

This improvement has been ameliorated by an additional interest charge provided on legacy debts of R14 million, says the company.