Zunaid Mayet's tumultuous tenure at EOH

Johannesburg, 27 Jun 2018
No one has come with any shred of evidence to indicate that anyone at EOH has done anything wrong, Mayet told ITWeb Brainstorm in a recent interview.
No one has come with any shred of evidence to indicate that anyone at EOH has done anything wrong, Mayet told ITWeb Brainstorm in a recent interview.

EOH chief executive Zunaid Mayet has stepped down after about a year in the post, it was announced on Wednesday morning.

EOH spokesperson Katlego Ledimo told ITWeb that Mayet would not be leaving the company, however, but would be heading up new subsidiary Nextec.

Mayet replaced EOH founder Asher Bohbot.

Mayet has been with the group since August 2009, joining as the CEO of Mtombo IT services, and then moving onto head EOH Industrial Technologies. Before joining EOH, he was already an industry veteran, having been the CEO of Siemens Business Services South Africa for four years.

He had to manage the company through turbulent times, as news broke in 2017 alleging the company was complicit in 'state capture'.

Apart from allegations, later retracted, that it was caught up in the politically connected Gupta family's alleged attempts to take control of several state entities, it was later revealed in Parliament that three recently bought subsidiaries, Grid Control Technologies, Forensic Data Analysts (FDA) and Investigative Software Solutions, collectively the GCT Group, were involved in tender-rigging.

EOH later 'unwound' its acquisition of these companies at a cost of R385 million.

'Blue-eyed' past

How did EOH get here? How did the one-time darling of the IT sector go from having a share price as high as R170 to see it now trading at around R32?

Over the past year, its share price has declined about 73.9%, at a time when the JSE All Share benchmark has gained 5% in the same volatile environment.

Surprisingly, there was once a time when EOH went about its business rather unnoticed. The group went public in 1998, and for the most part, it produced steady, but not spectacular, earnings for its first decade as a listed company. The 'no flash' nature of the group at that time can be seen in its share price never rising above R10 until January 2010.

The company might have gone unnoticed, but it was soon to demonstrate it had great ambition. It started to expand at an exponential rate, buying over 40 sizable businesses and many smaller ones for well over R3 billion between 2007 and 2016.

This acquisition spree eventually saw it becoming the largest ICT company in the country, growing revenue by around 40% year on year.

About 18 months ago, this run came to an end. The first stutter came when its share price collapsed in December 2016. This was as a result of a derivatives position gone wrong for two of its directors. They were forced to sell their holdings in the group, which they had used as collateral, when they could not pay for shares they had pledged to buy.

Its share price came under further pressure when stories alluding to wrongdoing in how it got contracts at Eskom and pay-outs of grants, later retracted, made headlines.

News that its GCT Group was being investigated for tender fraud also weighed on its share price.

Its latest results for the half-year to end-January, which came out in March, were a further blow. There was a sharp downturn, with profit from continuing operations dropping from R838 million to R784 million. Its after-tax profit plunged to R71 million from R597 million.

The R385 million cost related to the disposal of GCT Group was a big part of the drop in profit, and the difficult economic environment has not helped. (Rival Telkom-owned BCX also produced less than impressive numbers in its latest results.)

Understandably, there are signs that shareholders are not happy with what's happening at the group.

Restless shareholders

According to information from Profile Data, institutional support for the group dropped from 33.33% as of the September quarter, to 2.37% by the three months to March. That is rather telling, and indicates the company has lost favour with the more conservative investors out there.

Its annual general meeting in April also saw a revolt of sorts, by its shareholders. The votes to approve board members are usually a formality, where each board member tends to get approved in the high 90 percentages.

Anything less than that is generally seen as bit of a rebuke. Only 84.6% of shareholders voted for Mayet to be re-elected as a director, while 25.2% voted against board member Pumeza Bam's appointment, 33.1% voted against the appointments of directors Brian Gubbins, Johan van Jaarsveld and Ebrahim Laher; 32.2% did not want board member Rob Godlonton confirmed, and 38.1% voted against director Jehan Mackay's reappointment.

Interviewed in May this year, Mayet acknowledged the company's share price was under pressure, but said he hoped that once it started producing solid results, it would be reflected in its valuation.

"Share prices are as much a function of fundamentals as they are of sentiment. Of course, the sentiment is not with us at the moment, but what we are confident of are the fundamentals of our business. We have a strong value proposition, and we have great skills to deliver on our promises."

Split-up future

In the interview, Mayet said the company was focused on positioning itself for future growth, and it intended bringing clarity to the brand.

To this end, EOH is splitting into two organisations. The one will still be known as EOH and continue to provide a full suite of enterprise IT solutions and platforms. The other will be branded Nextec, and will house its 'domain'-specific businesses.

These are its service offerings that focus on a particular industry or sector of the economy. For example, it operates the entire human resources function for some of its large industrial companies.

The difference between EOH's IT offering and Nextec is that EOH will offer integrated services that affect the whole organisation.

Robust framework

In the past year, serious allegations have been made against EOH regarding tender-rigging.

In the interview, Mayet defended the group's governance structures and maintained they have always been quite good. "Over the years, we developed a pretty robust governance, risk and compliance framework. This framework has been applied by all the businesses within the group, and is 'lived' on a daily basis," he said.

Even so, given the questions around its governance, it decided to launch a review of its governance, risk and compliance network, which, said Mayet, found it to be 'robust'.

It then brought in law firm ENS to do an independent review of its governance framework.

EOH is now having ENS implement an ISO standard for its governance processes.

Mayet also said no one has presented it with a 'smoking gun' regarding any of the allegations against it. "No one has come with any shred of evidence to indicate that anyone at EOH has done anything wrong," he said in the interview.

ENS also looked into its acquisition of the GCT Group. Despite an extensive investigation, the law firm found no evidence of wrongdoing.

Mayet said all the questionable contracts done by the GCT Group were concluded before they were bought by EOH, and no evidence had been found of wrongdoing.

Prior to news breaking of the latest leadership change at EOH, the group's share price closed down 15% on Tuesday.

* Matthew Burbidge contributed to this story.