EOH swings to operating profit as master plan pays off
Technology services group EOH has reported a swing to operating profit for the year ended July, which the company attributed to its turnaround strategy.
The JSE-listed company posted a R147 million operating profit, compared to a loss of R1.3 billion a year before.
This is the first time EOH has moved into a positive operating profit from continuing and discontinued operations since it embarked on its turnaround strategy three years ago.
EOH, which has in the past few years been troubled by allegations of corruption, also recorded gross profit margin improvement to 28% from 22% in the previous year, while operating margins increased to 2% from a negative 12% in 2020.
The company also says its work to close tainted legacy contracts and make targeted disposals over the past two years resulted in more profit from a smaller revenue base of R7.9 billion.
The legacy contracts EOH closed had been a source of pain for the company and costly to shareholders, as they were tainted by graft allegations.
Since the allegations of corruption and poor governance emerged, shareholders have lost about R24 billion. The company is now suing a number of former EOH executives, including Asher Bohbot, founder and former CEO; the late John King, former CFO; Jehan Mackay, former head of public sector; and Ebrahim Laher, former head of EOH International, for a total of R6.4 billion in damages.
CEO Stephen van Coller says the technology group is now focusing on quality earnings, as it seeks to rehabilitate itself after a series of costly missteps by the previous management team.
“I am really proud of the fact that we have rebuilt EOH in such a short time frame. Just two-and-a-half years ago, the new EOH management team initiated a massive turnaround strategy for the group. For the first time since I arrived, our current assets exceed our current liabilities, and we are well-positioned to progress the transformed EOH in supporting our customers to solve their business challenges using our innovative technology offerings.
“Today, EOH is streamlined, profitable and is winning new public and private sector contracts across multiple geographies.”
Further, Van Coller says, EOH’s troublesome debt has declined significantly since 2018, although he notes it was not as fast as his team would have liked.
“Reducing the debt burden remains a critical focus for the management team. Cash management has been a highlight, especially considering the current economic climate, with excellent discipline in managing net working capital supporting improved liquidity.
“The underlying effort and commitment from everyone in the EOH team to deliver this turnaround arises from the broader sense of purpose in the group to not only turn the business around, but also to transform it into a force for good that makes a difference in broader society.”
To manage its debt burden, EOH says it signed a common terms agreement with a lender group earlier this month.
“The refinancing of existing debt provides EOH with greater certainty with respect to the overall debt outstanding and provides a more stable platform for the optimisation of the capital structure.”
Going forward, EOH says it is entering an “exciting new phase with a key focus on solving its clients’ business challenges in an increasingly dynamic environment aimed at achieving mutual growth”.
It adds: “The company is keenly focused on enhancing its end-to-end technology solutions with future-generation offerings that will position EOH as the leading technology solutions partner.”
Additionally, Van Coller says as a group, EOH is embracing the digitisation and automation acceleration through its business systems optimisation project.
“This will ensure automation in our shared service functions and ensure we leverage off the latest cloud technologies. This is underpinned by a single target operating model and will ensure consistent processes across the organisation underpinning a single data strategy.”