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Shunned by Microsoft, EOH forges new software partnerships

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Megan Pydigadu, EOH group finance director.
Megan Pydigadu, EOH group finance director.

EOH says it has moved on from the challenges it faced after the cancellation of its lucrative software licensing contract with Microsoft, and is now courting global tech giants such as Salesforce and Amazon Web Services (AWS) to forge key business alliances.

This was revealed by Megan Pydigadu, EOH group finance director, in a telephonic interview with ITWeb yesterday after the company announced its financial results for the year ended 31 July.

Over the past couple of years, EOH has faced several problems relating to corruption and poor governance systems, which threatened to sink the JSE-listed technology services company.

An investigation, requested by EOH, revealed several acts of wrongdoing, especially in relation to public sector contracts.

These issues saw international companies such as Microsoft cancelling lucrative contracts with EOH.

This after in February last year, the US-based software giant terminated its contract with the IT services company following an anonymous whistle-blower filing a complaint with the United States Securities and Exchange Commission about alleged malfeasance to do with a R120 million contract with the SA Department of Defence.

The Microsoft contract was eventually won by Altron Karabina.

Signs of trust

However, Pydigadu said the new leadership under group CEO Stephen van Coller is steering it out of the woods and now global original equipment manufacturers (OEMs) are beginning to show trust in the company.

“EOH has moved forward quite significantly, as we have changed the way we do business and we now have proper processes in place around anti-bribery and corruption,” Pydigadu said.

“A good testament of us moving on is the support that we are getting from our clients in South Africa and their commitment to support us. We have also formed new relationships during the year with international OEMs such as Salesforce and Amazon Web Services. So we have put the past behind us and people are entrusting us, looking to partner with us into the future.”

She explained that from a Salesforce perspective, this year EOH signed a partnership with the American cloud-based software company, where EOH can start selling the Salesforce product portfolio in SA.

Salesforce provides customer relationship management services and sells a complementary suite of enterprise applications focused on customer service, marketing automation, analytics and application development.

“We have also partnered Amazon Web Services (AWS) from a cloud computing perspective on hosting customer data in the cloud,” Pydigadu noted.

The alliance with AWS comes after the US-based cloud computing giant in April opened its Africa data centre region located in Cape Town.

AWS rival in the cloud space, Microsoft, last year also opened two data centre regions in SA, becoming the first global provider to deliver cloud services from data centres on the African continent.

“Microsoft stopped us from selling their licences but these new partnerships demonstrate that people are beginning to entrust us to take their products to market in South Africa,” said Pydigadu.

“These are global OEM players. I think Salesforce is probably one of the biggest customer relationship management platforms, and for us to enter into a partnership with them is great. This also indicates we have moved on from what happened with Microsoft.”

Healthier financial outlook

Commenting on the progress the new leadership has made in stabilising the company, Pydigadu said: “EOH has witnessed continued improvement in stabilising the business. From a total revenue perspective, we had R11.2 billion, so we have seen stabilisation in our revenue.

“We have also seen an improvement in our gross profit margin. Our total normalised EBITDA [earnings before interest, taxes, depreciation and amortisation] was also healthy at R827 million.”

From a headline earnings perspective, she said, the company saw a 72% improvement.

“Last year, we made a loss of R17.51 and this year, we made a loss of R4.45. Thus, the turnaround strategy that we have been driving and working on is starting to bear fruit.”

From an operating cash perspective, she added that the technology services firm generated just over R700 million of cash for the financial year.

“There was also a strong improvement from the first half (H1) to the second half (H2). In H1, we still had a lot of legacy costs that we were paying in relationship with the old EOH as well as the issues that we inherited.

“So 95% of our operating cash was generated in H2, so we are starting to see some momentum in the business.”

Pydigadu pointed out that debt was the biggest achievement because it had always been a big overhanging challenge.

“When Stephen [Van Coller] started at the end of financial year 2018, we were sitting with a debt of R4 billion and now we are sitting at R2 billion. So that’s a very significant improvement for us.”

She also revealed EOH is in discussions with its lenders on putting in place a long-term debt structure.

“We are aiming to get to a place where we have 70% equity and 30% debt, and at the moment it’s the other way round, where we have 70% debt and 30% equity.

“We are still on a path to deleverage through the sale of assets and our lenders have been working with us in a constructive manner and they don’t want to see us selling for less value. They are quite supportive in giving us more time to bring the debt levels down and that we get fair value for those assets.”

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