Wrap Text
Reviewed Condensed Consolidated Results for the Year Ended 31 July 2018
EOH Holdings Limited
Incorporated in the Republic of South Africa
Registration number: 1998/014669/06
JSE share code: EOH
ISIN code: ZAE000071072
2018
Reviewed condensed
consolidated results
for the year ended
31 July 2018
BRINGING
SOUTH AFRICAN
EXCELLENCE
TO THE WORLD
NORMALISED REVENUE
R16 277 million (R15 128 million)*
NORMALISED OPERATING PROFIT
R1 187 million (R1 736 million)*
NORMALISED EBITDA
R1 770 million (R2 184 million)*
* Comparatives for the year ended 31 July 2017
THE EOH GROUP JOURNEY
In 1998 a business model was conceived that would universally meet the needs created by this new revolution and so Enterprise Outsourcing Holdings, which was later renamed EOH, was born.
From humble beginnings of 20 staff and one customer in 1998, EOH has grown from strength to strength, to a staff complement of over 11 500 to become Africa's largest technology service
provider.
Coming together was our beginning, keeping together was our progress and working together is our success. Our success over the past 20 years has been driven by our five philosophies and
Group purpose. The EOH Group is a people driven business led by a strong leadership team that has embraced and delivered on our true 'Partner for Life' philosophy on a daily basis to grow
the EOH Group into the phenomenal business that it is today.
It is important to highlight that it is because of our people's attention to detail and living our philosophy and purpose that we can celebrate the success of our company. The long road to
success is always under construction and the Group will continue to operate true to its purpose by doing good for its people, customers and partners. May the memories of the past 20 years
fuel our spirits to pave the way for another 20 years to come.
About the EOH Group
The EOH Group is the largest technology business in Africa, providing the technology, knowledge, skills and organisational ability critical to Africa's development and growth. Following
the Consulting, Technology and Outsourcing model, the EOH Group provides high-value, end-to-end solutions to its clients in all industry verticals.
The EOH Group Purpose
We provide the technology, knowledge, skills and organisational ability critical to the development and growth of the companies we serve.
We are an ethical and relevant force for good and strive to play a positive role in society, beyond normal business practice.
The EOH Group Philosophy
- Best People
To attract, develop and retain the best people led by great leaders
- Partner for Life
To nurture lifelong partnerships with our customers and business partners
- Right 1st Time
To ensure professional planning and execution in all that we do
- Sustainable Transformation
To transform and celebrate diversity
- Lead and Grow
Strive to be number one in every domain in which we operate while remaining entrepreneurial
The Group employs more than 11 500 people, delivering technology solutions and knowledge services to over 5 000 large enterprise customers across all major industries. The EOH Group is
present throughout South Africa, and has a growing international footprint with 2 500 skilled resources in 30 countries on five continents.
As a leader in driving and supporting digital innovation, the Group offers solutions along a simple Design-Build-Operate engagement model. The Group recently completed its reconfiguration
into two distinct and independent businesses, EOH and NEXTEC, each with its own unique brand and identity, business model, growth and go-to-market strategies.
The ICT business will operate under the EOH brand, while the specialised solutions for high-growth industries will operate under the newly launched NEXTEC brand. With EOH and NEXTEC's dual
growth platforms, the Group is optimally positioned to continue to provide its customers tailored, flexible and robust solutions through its deep industry knowledge and expertise.
The EOH Group is a Level 1 Broad-based Black Economic Empowerment (BBBEE) contributor and is now majority black-owned following the conclusion of the Group's landmark strategic partnership
and empowerment transaction with the Lebashe Group.
The EOH Group will continue to expand internationally by investing in new businesses and creating an international go-to-market channel, to enable our entire business to expand and grow
into new countries and markets.
The EOH business
Overview
The EOH ICT division (EOH) comprises all the core IT-related business units. These teams are focused on delivering an end-to-end IT value proposition, from designing and building IT
solutions, through to providing managed services.
The breadth of ICT solutions offered by this division, positions EOH as the leading technology and cloud solution provider on the African continent.
The key characteristics of the business continuing under the EOH brand are:
- an end-to-end information and communication technology (ICT) offering
- an integrated go-to-market strategy
- cross-selling opportunities with existing customers
- a highly proficient systems integrator - a market differentiator
- driving new generation digital technologies
- specialising in industry-specific intellectual property.
The ICT business is going to market under a single EOH brand to increase focus and to be more responsive to ever-converging client needs. The target market of EOH is large enterprise
companies that are looking to transform into the digital economy.
Key Service Offerings
The business has recently undergone a value proposition refresh in line with the new strategy. The EOH business is focusing on assisting clients with their digital business transformation
in the cloud economy. The value proposition focuses on Applications/Software; Data and Analytics; Cloud and Technology Infrastructure; Managed Services; Digital and Advisory services; and
Security in its integrated go-to-market approach.
Business Performance
The ICT business remains strong and resilient. Customers are continuing to spend on maintaining their legacy systems, integrating with best-of-breed applications, and investing in new
generation digital technologies. Significant investments in technology slowed during the year and is expected to pick up in the short to medium term. There is a move to cloud-based
infrastructure solutions and infrastructure as a service as companies look for business efficiencies.
Software sales increased for the year with a different mix of third-party software and EOH's niche software compared with the previous year.
The business continues to support most of the major global technology OEMs and is a premier partner to SAP, Oracle, Microsoft, HP, IBM, Dell, Cisco, Huawei, Amazon Web Services, Qlik, CA
and many others. EOH is placing significant emphasis on aligning with these partners as they develop their IP and take their offerings to the cloud business model.
The growth drivers in this division are transformational outsourcing; ERP upgrades and re-implementation; digital transformation; new digital technologies and solutions; application
development; Internet of Things (IoT); Big Data; analytics and niche software development.
Outlook
The outlook for business in South Africa and the rest of the continent is positive. EOH is well positioned under its 'One EOH' go-to-market strategy to deliver integrated solutions from a
diverse and comprehensive range of underlying capabilities.
We expect the market to adopt a hybrid multi-cloud approach which means customers will make use of a combination of on-premise, local and global cloud service providers. EOH is well
positioned to become the leading cloud systems integrator in the market. EOH business relationships with global providers such as Microsoft and Amazon are growing to the benefit of EOH and
its clients.
We have invested in market-leading open source capabilities across the application, data and compute domains. This is key to the future of digital transformation.
EOH will continue to develop its own IP offerings, new services, products and solutions to enable it to deliver high-value solutions to large enterprise customers. In addition, we will
explore new vendor partnerships in new territories.
EOH International will continue to focus on the strategic markets of the Middle East, Africa, UK and Europe where we are present, where cash generating opportunities exist and where
business is performing well.
We expect market conditions to continue to be tough for at least the first six months of the 2019 financial year. We are, however, well positioned to take advantage of opportunities that
arise and expect to continue to post positive results.
Rob Godlonton
Chief Executive Officer EOH
NEXTEC
Overview
The EOH Group has brought together its specialised industry and domain solutions businesses for high-growth industries to form NEXTEC. NEXTEC offers deep, locally relevant expertise and
solutions across diverse industries and domains. Using new-world technologies, the businesses within NEXTEC create, build and manage innovative solutions and services - today.
Understanding and managing what is next in a complex world, enables the NEXTEC specialists to create a better future by skilfully bringing together smart thinking and solutions for
sustainable outcomes.
As we enter a connected future, new-world problems demand relevant, smart and resilient solutions. Where others fragment, NEXTEC harnesses the power of interconnectivity through
independent domains that are at the very top of their fields, while retaining the ability to collaborate and converge to create value. Interconnectivity is more than a philosophy - it is
how we do business. Through it, we create sustainable value and holistic solutions that build towards improving the lives of our people, customers and society.
The key characteristics of NEXTEC are:
- High degree of specialisation in each of the businesses
- Deep levels of expertise
- Domain-specific IP
- Growth to be driven equally by acquisitions and organically
- Vertical-specific offering - key differentiator
- Multi-brand businesses
Domain Consulting and Advisory moves businesses into the future and inspire change by empowering them to take full advantage of technology. NEXTEC is a thought leader in an ever-changing
business environment, from expertise to implementation.
Knowledge Process Outsourcing offers the assets, expertise and capabilities required to outsource critical, core and non-core business processes creating efficiencies and saving costs.
People Solutions facilitate employment life cycles where the possibilities of people, businesses and the economy are realised. NEXTEC equips people with the skills needed to adapt,
develop and meaningfully engage.
Digital Industries automates and controls solutions and delivers smarter digital infrastructure. NEXTEC provides foundational services that create more efficient, healthier and secure
environments and enhance the economy and quality of life.
Smart Utilities cost-effectively and consciously manages finite resources such as power, water and gas, in a world facing climate change, environmental impact, and resource conservation
concerns.
Safe City, Smart City skilfully applies knowledge and technology in different contexts to create safer, smarter and more efficient urban spaces that digitally optimise infrastructure to
improve lives.
Health Sciences combine future technologies and innovative techniques to enable health systems that deliver accessible and impactful member-centric care, while creating value for all
stakeholders.
Business Performance
The NEXTEC businesses delivered a mixed set of results for the period. The digital infrastructure, software and IP portfolios, as well as the process services businesses delivered robust
performance in challenging market conditions. Several instances of annual renewals resulted in some margin sacrifice.
Broad market conditions have significantly hampered performance in several other areas of NEXTEC. The long delays in the awarding of smart infrastructure contracts, combined with delays in
contracting of client engagements already secured, resulted in lower than expected revenue in the second half of the period.
The anticipated awarding of these contracts and the delay in the initiation of contracts already secured, has highlighted the need to retain critical skills during the delay period
resulting in significant margin erosion across the business.
In conjunction with the broader Group strategic portfolio review, a number of the businesses within NEXTEC were rightsized and/or consolidated in response to the respective specific
situation of the businesses affected and broader market conditions.
Outlook
The general outlook for the NEXTEC business in the South African and African markets remains positive. The growth drivers in NEXTEC span diverse areas whose relevance in both South Africa
and other countries on the continent is unquestionable. These areas include the digitalisation of industries and industrial IoT; e-Health; smart cities incorporating public safety
technologies; intelligent transport and traffic management; smarter utilities; new industry-specific digital technologies; and embedded software. The increased adoption of artificial
intelligence and robotics in business operations, coupled with a maturing and rapidly growing knowledge process outsourcing and off-shoring markets, point to significant growth potential.
Market conditions are expected to continue to be difficult in the short to medium term. However, the NEXTEC specialised solutions, combined with the deep levels of domain expertise,
position the business optimally to navigate this. Having invested in establishing the NEXTEC platform over the recent period, management remains cautiously optimistic about the growth
prospects in the medium to long term.
Zunaid Mayet
Chief Executive Officer
NEXTEC
Business Performance
The changes in political leadership saw South Africa enter a period of renewed hope and optimism. The euphoria of this change has somewhat dissipated with the stark reality of the rather
difficult situation within which the economy and the country finds itself. The reporting period was therefore characterised by difficult trading conditions, compounded by a unique set of
challenges that the Group had to overcome.
The combination of the macro-economic environment and adverse, unfounded media coverage temporarily affected the Group's position in the market. Consequently, the EOH Group has delivered
results reflective of the above for the year under review.
The public sector business had a particularly difficult year as a result of the political uncertainty; squeeze on public sector funding; delays in sign-offs on projects; and the
postponement of the awarding of contracts. Payment practices from the public sector continued to deteriorate during the year, and are not expected to dramatically improve in the short-
term.
The performance of the Group for the year under review was characterised by two very different halves.
First six months ended 31 January 2018
The disposal of the GCT group of companies (GCT) had a negative impact on earnings of R400 million (non-cash, once-off deduction).
Negative news stories adversely impacted the business necessitating intense stakeholder engagement.
In view of the specific market challenges during the period, the Group adopted a deliberate customer retention strategy while sacrificing some margin.
As a result of the above, fewer major contracts were awarded to the Group during the period, adversely impacting the business in the second half of the year.
Second six months ended 31 July 2018
In March this year, EOH Holdings announced its new strategy, which centred on reconfiguring the Group into two distinct and independent businesses, EOH and NEXTEC, each with its own CEO,
unique brand and identity, business model, growth and go-to-market strategy. The second six months has seen the creation of these two independent businesses, which will result in major
benefits to the Group in the short to medium term.
During this period, the Group underwent substantial reorganising into these two independent businesses. The Group's public-sector-focused division was dissolved by incorporating the
majority of its activities into NEXTEC and EOH, and discontinuing the remainder of the business. The associated operating loss and restructuring costs amounted to approximately
R379 million.
The impairment of goodwill, investments and other assets, approximated R121 million.
As a result of the non-tax deductible charge associated with the unwinding of the GCT group of companies (effective 31 October 2017), and the varying performance of the businesses in the
Group, the tax charge is much higher than would normally be expected.
The increased focus on working capital management resulted in a reduction of accounts receivable; an improvement in profit converted into cash; and an increase in the cash balance compared
to the cash reported in the Group's 2018 interim results.
Over the last three months, the Group saw a marked increase in the number of large contracts awarded to it indicating a normalising of business activities.
Financial results
Normalised revenue from continuing operations grew by 8% to R16 277 million (2017: R15 128 million) as a result of increased activity at existing customers. Revenue from services accounted
for 79% of total revenue.
Normalised operating profit totalled R1 187 million (2017: R1 736 million).
Normalised EBITDA for the year amounted to R1 770 million (2017: R2 184 million). Headline earnings per share (HEPS) and earnings per share (EPS) from continuing operations was
278 cents (2017: 797 cents) and 202 cents (2017: 794 cents) respectively.
Normalisation adjustments to revenue and EBITDA totalled R64 million and R379 million respectively, related to the discontinuing activities in the public sector division.
During the year, there were fewer acquisitions than in previous years as the Group consolidated and aligned its operations into two major businesses. The Group acquired LSD Information
Technology (Pty) Ltd as well as a few other strategic businesses which have been successfully integrated into the Group's management structures, operating model and ecosystem. The
consideration for acquisitions during the year totalled R511 million, subject to cumulative profits warranted of R173 million being met over two years.
Operating expenses increased by R842 million to R4 009 million, driven by the increased activity levels, higher advisory fees (R18 million) for consulting on BEE, media, governance and
technical accounting advice); R121 million in impairments; higher provisions for bad debts linked to the discontinued public-sector-focused division (R127 million); and a higher staff cost
base as a result of prior year acquisitions contributing to costs for the entire 2018 financial year.
Non-cash-related expenses increased by R451 million to R928 million. These included the amortisation of identifiable assets R263 million (2017: R277 million); IFRS 2 share-based payment
expenses R96 million (2017: R95 million); depreciation R163 million (2017: R171 million); impairments of assets R121 million (2017: R10 million); and the unwinding of GCT R386 million.
Net cash outflows in both financing and investing activities were significant. Repayments on amortised medium term loans totalled R483 million; R587 million was paid to vendors on the
meeting of profits warranted; R141 million was spent on repurchasing EOH shares as part of EOH's general approval for share buy-backs; R170 million was spent on IT infrastructure as EOH
grew its cloud-based solutions business; and dividends of R312 million were paid in respect of the 2017 financial year.
Cash generated from operations was R1 266 million. While working capital was under strain throughout the year as a result of slow payments from the public sector and delays in long term
projects, there has been a positive shift in the second half of the year. Work-in-progress has decreased by R636 million since the end of January 2018 (after a R375 million increase in
the first six months); trade receivables have increased in line with revenue growth; and the cash conversation ratio (based on EBITDA) has improved to 71% (2017: 58%).
Operating segments
Below is a summary of the revenue and normalised EBITDA (from continuing operations) of the reporting segments of the EOH Group. The combined revenue derived from services totalled R12 949
million for the year representing 79% of the Group's total revenue.
Figures in Rand thousand Reviewed Audited*
for the for the
year ended year ended
31 July 2018 31 July 2017
Normalised Revenue1
ICT2 9 405 504 8 482 692
Industrial Technologies 3 916 342 3 855 964
BPO 2 956 116 2 789 406
16 277 962 15 128 062
Normalised EBITDA3
ICT4 1 304 654 1 298 510
Industrial Technologies 149 643 449 093
BPO 315 583 436 123
1 769 880 2 183 726
* Comparative figures previously reported have been amended to reflect continuing operations
1 Revenue has been normalised for discontinuing certain operations relating to the public sector division; software revenue of R2 276 million (2017: R2 240 million) has been
included in normalised revenue
2 ICT includes IT Infrastructure revenue of R1 116 million (2017: R1 290 million)
3 EBITDA has been normalised for discontinuing certain operations relating to the public sector division; software EBITDA of R413 million (2017: R528 million) has been included in
normalised EBITDA
4 ICT includes IT Infrastructure EBITDA of R52 million (2017: R62 million)
The normalised revenue and EBITDA of EOH and NEXTEC
Normalised Normalised
Revenue EBITDA
for the for the
year ended year ended
31 July 2018 31 July 2018
NEXTEC 8 040 569 660 171
EOH 8 237 393 1 109 709
16 277 962 1 769 880
SUSTAINABLE TRANSFORMATION
Sustainable transformation is one of the Group's key business philosophies. Our approach is underpinned by our strong appreciation that South Africa's development and growth are the
responsibility of both government and business.
It is our belief that people, business and the community are integrally linked; meaningfully contributing to sustainable transformation in South Africa which is fundamental to achieving a
more equal society and a stable growing economy.
EOH Holdings is certified as a Large Enterprise B-BBEE Level 1 Contributor and is now majority black-owned following the approval of the Lebashe BEE transaction.
The Group is committed to transformation through its Youth Job Creation Initiative; continually increasing diversity at all levels in the Group; increasing black ownership; supporting
enterprise development programmes; advancing supplier and preferential procurement initiatives; and increasing expenditure on skills development.
The Group's sustainability strategy is founded on its guiding philosophies. These philosophies demonstrate our commitment to sustainability by making a meaningful contribution to
transformation and Broad-Based Black Economic Empowerment in South Africa; by being a responsible employer; delivering excellent service to customers; by being ethical and fair in all
business relationships; and by maintaining a low environmental footprint.
Strategic partnership with Lebashe
To facilitate growth, remain relevant and to continue to promote black economic empowerment, the Group signed a long-term partnership with Lebashe, a 100% black-owned investment holding
company, providing an opportunity for both parties to jointly pursue and benefit from growth opportunities.
This transaction, which was approved by shareholders on 18 September 2018, will result in a total equity investment of R1 billion over 12 months, of which R500 million was injected by
Lebashe on 26 September 2018.
The Lebashe transaction comprises three elements:
- An increase in the Group's secured BEE ownership to over 51% following the issue of 40 000 000 EOH Holdings A Shares to Lebashe. These shares are to be held by Lebashe until the redemption
thereof in five years' time upon the implementation of the Capitalisation Issue.
- An Initial Subscription of R250 million new EOH Holdings ordinary shares by Lebashe, at a 10% discount to the 60-Day VWAP on the implementation date, to be held by Lebashe for the duration
of the transaction term (five years).
- A Subscription Undertaking, whereby Lebashe subscribes for R750 million new EOH Holdings ordinary shares, at a 10% discount to the 30-Day VWAP on subscription date, in three tranches over
a 12-month period. The first tranche of R250 million was received on 26 September 2018.
Corporate governance
The Board is committed to high levels of corporate governance. During the year the Group focused on further strengthening and enhancing its governance framework.
The Board was reconfigured and further strengthened with the appointment of two independent non-executive directors. Mr Asher Bohbot was also appointed non-executive Chairman.
The Group conducted its own internal review of its governance framework (Project WiseOwl) which was overseen by the Chair of the Audit Committee.
- A review of the policies/procedures/toolkit including Anti-Bribery and Corruption ('ABC') policies; a review of the Group's ABC training approach; and a review of our
certification/compliance processes.
- A review of material contracts to ensure that they were subjected to our risk compliance process.
- A review of the public sector bidding process in light of the perceived higher risk in the public sector.
- The acceleration of the validation and re-accreditation of preferred suppliers (including enterprise and social development partners) and the maintenance thereof on a centralised
technology platform.
The EOH Group also engaged ENS to review its governance framework which included:
- A review of outcomes of the Group's Project WiseOwl.
- A fact finding review of the commercial activities of the GCT group of companies.
- A review of the Group's governance framework.
- Providing an on going risk-based monitoring role in respect of public sector bids prior to submission.
- A review of the Group's regulatory compliance framework with the view to becoming ISO 37001 compliant (ABC International Standard).
- Ad-hoc investigations and reviews following media reports.
- Ad-hoc open source due diligence reviews of companies/partners/individuals.
ENS did not discover or raise any areas of concern during its review and has made several recommendations to strengthen the Group's governance framework which have or are in the process of
being implemented. During ENS's reviews to date, nothing untoward has materialised.
Corporate governance is integral to our business philosophy of ethical leadership. The Group has a zero tolerance policy towards unethical behaviour and corporate governance is a priority
focus area for the 2019 financial year.
Corporate social responsibility
The Group understands that youth development is paramount to a prosperous South Africa. To this end, our Corporate Social Investment (CSI) activities are focused on the youth. These
programmes include financial support for the Maths Centre, support for the child and youth development programmes of Afrika Tikkun, and a partnership with the South African Business
Coalition on Health and AIDS (SABCOHA).
The EOH Youth Job Creation Initiative
The EOH Youth Job Creation Initiative has grown from strength to strength since its inception in 2012. Initiated by the Group's founder and Chairman, Asher Bohbot, this initiative is
deeply entrenched in the Group. Since 2012, in partnership with customers and business partners, over 35 000 learners and graduates have been reached, with most of them completing their
learnership and internship programmes.
Of the individuals who completed the programme, 83% have been employed by the Group or one of its business partners or participating customers. Lives are changed when business gets
involved.
Zunaid Mayet
Group Chief Executive Officer (until 31 August 2018)
Comments from the incoming CEO
South Africa had a challenging 2018, entering a technical recession, with the incoming President Cyril Ramaphosa placing the need to address state capture at the centre of his agenda, and
a complex global political environment including conflicting US sentiments towards Africa and South Africa in particular. The EOH Group was not unscathed but still managed to grow revenue
at a credible 8% which is testament to a dedicated and loyal workforce. The Group remains a business with significant potential combining outstanding intellectual property with highly
skilled staff.
The EOH Group occupies a critical position at the centre of the fourth industrial revolution with all the skills and capabilities to make a meaningful impact and, ultimately provide
integrated services covering a broad spectrum of associated technology needs. The EOH ICT business has capabilities in all the product verticals required to build and create digital
ecosystems for its clients in the private and public sectors. NEXTEC has already started creating and delivering specialised software solutions to many of these sectors and will continue
to develop unique solutions for its clients.
The Executive Committee is committed to completing the Group reorganisation in a manner that creates best in class governance and transparency, while retaining the entrepreneurial and
innovative spirit that has made the Group the most successful ICT business in Africa. Over the next year our primary focus will be on:
- Finalising the corporate strategy and capital structure for the Group, to ensure that underlying businesses that require capital to take advantage of appropriate opportunities are not
constrained while Group return on equity is improved.
- Expense and working capital optimisation, expanding on the significant work done in the second half of 2018
- Creating shared value partnerships with our clients to meet their needs in a cost-effective and mutually beneficial manner.
- Finalising and completing the implementation of an appropriate corporate governance structure. This is an ongoing process that started in 2018, will be refined in 2019 and continually
improved on an annual basis. Particular reference will be on ISO 37001, King Codes of Governance and the JSE Listings Requirements.
- Continuing and enhancing the anti-bribery and corruption and fraud screening on our tenders, especially with the public sector.
As the incoming Group CEO, I must thank my new colleagues for the extraordinary effort that was exerted in 2018 to obtain these results in difficult circumstances. I am excited at the
opportunity the EOH Group presents and am committed to partnering with all stakeholders to grow the company both transparently and sustainably.
Stephen Van Coller
Group Chief Executive Officer (effective 1 September 2018)
3 October 2018
Condensed consolidated statement of profit or loss
for the year ended 31 July 2018
Figures in Rand thousand Notes Reviewed Audited
for the for the
year ended year ended
31 July 2018 31 July 2017
Continuing operations
Revenue 16 341 024 15 128 062
Cost of sales (11 523 643) (10 225 139)
Gross profit 4 817 381 4 902 923
Operating expenses (4 009 492) (3 167 381)
Operating profit before interest and equity-accounted profits 15 807 889 1 735 542
Investment income 52 750 70 321
Share of equity-accounted profits 9 48 223 39 241
Finance costs (352 145) (259 614)
Profit before taxation 556 717 1 585 490
Taxation (268 460) (462 009)
Profit for the period from continuing operations 288 257 1 123 481
(Loss)/profit for the period from discontinued operation 16 (392 450) 49 602
(Loss)/profit for the year (104 193) 1 173 083
(Loss)/profit attributable to:
Owners of EOH Holdings Limited (100 984) 1 164 234
Non-controlling interest (3 209) 8 849
(104 193) 1 173 083
(Loss)/earnings per share (cents)
From continuing operations
Earnings per share (cents) 202 794
Diluted earnings per share (cents) 196 771
Including discontinued operation
(Loss)/earnings per share (cents) (70) 825
Diluted (loss)/earnings per share (cents) (68) 801
Consolidated statement of other comprehensive income
for the year ended 31 July 2018
Figures in Rand thousand Reviewed Audited
for the for the
year ended year ended
31 July 2018 31 July 2017
(Loss)/profit for the year (104 193) 1 173 083
Item that may be reclassified subsequently to profit or loss
Exchange differences on translating foreign operations (48 317) (44 627)
Total comprehensive (loss)/income for the year (152 510) 1 128 456
Total comprehensive (loss)/income attributable to:
Owners of the EOH Holdings Limited (146 267) 1 121 277
Non-controlling interest (6 243) 7 179
Headline earnings
for the year ended 31 July 2018
Reviewed Audited
for the for the
year ended year ended
31 July 2018 31 July 2017
Headline earnings reconciliation (R'000)
(Loss)/profit attributable to owners of EOH Holdings Limited (100 984) 1 164 234
Adjusted for:
Loss on disposal of subsidiaries, businesses and property, plant and equipment 392 880 3 007
Gain on bargain purchase (7 528) -
Impairment of assets 25 797 9 784
Impairment of goodwill 84 710 -
Impairment of equity-accounted investments 10 000 -
Total tax effects of the above adjustments 4 385 (3 581)
Headline earnings 409 260 1 173 444
Headline earnings per share (cents)
From continuing operations
Headline earnings per share (cents) 278 797
Diluted headline earnings per share (cents) 271 773
Including discontinued operation
Headline earnings per share (cents) 283 832
Diluted headline earnings per share (cents) 276 808
Ordinary shares (000)
Total number of shares in issue 152 798 150 095
Weighted average number of shares in issue 144 597 141 072
Weighted average diluted number of shares in issue 148 450 145 300
Condensed consolidated statement of financial position
as at 31 July 2018
Figures in Rand thousand Notes Reviewed Audited
31 July 2018 31 July 2017
Assets
Non-current assets
Property, plant and equipment 6 742 983 677 719
Goodwill and intangible assets 5 520 501 6 074 699
Goodwill 7 4 255 281 4 625 403
Intangible assets 8 1 265 220 1 449 296
Equity-accounted investments 9 822 204 847 917
Other financial assets 10 681 409 214 156
Deferred taxation 327 270 196 764
Finance lease receivables 140 511 169 611
8 234 878 8 180 866
Current assets
Inventory 11 431 609 599 764
Other financial assets 10 225 950 141 112
Current taxation receivable 88 442 84 383
Finance lease receivables 63 307 74 610
Trade and other receivables 12 5 583 044 5 132 697
Cash and cash equivalents 1 418 319 2 506 551
7 810 671 8 539 117
Total assets 16 045 549 16 719 983
Equity and liabilities
Equity
Equity attributable to the owners of EOH Holdings Limited 8 100 679 8 505 188
Non-controlling interest 28 034 56 416
8 128 713 8 561 604
Liabilities
Non-current liabilities
Other financial liabilities 13 3 208 415 3 017 416
Finance lease payables 56 388 65 594
Deferred taxation 388 042 406 132
3 652 845 3 489 142
Current liabilities
Other financial liabilities 13 895 581 1 523 676
Current taxation payable 149 830 148 182
Finance lease payables 35 360 41 187
Trade and other payables 14 2 760 283 2 466 647
Deferred income 422 937 489 545
4 263 991 4 669 237
Total liabilities 7 916 836 8 158 379
Total equity and liabilities 16 045 549 16 719 983
Condensed consolidated statement of changes in equity
for the year ended 31 July 2018
Figures in Rand thousand Stated Shares to Other Retained Non- Total
capital be issued reserves earnings controlling equity
to vendors interest
Audited balance at 1 August 2016 2 263 307 1 164 870 603 015 2 544 975 9 678 6 585 845
Profit for the year - - - 1 164 234 8 849 1 173 083
Other comprehensive income for the year - - (42 956) - (1 671) (44 627)
Issue of shares 1 194 809 (562 098) - - - 632 711
Non-controlling interest acquired - - - (12 581) 39 560 26 979
Movement in treasury shares (124 438) - 10 887 - - (113 551)
Remaining shares to be issued to vendors - 459 242 - - - 459 242
Transfer within equity - (48 205) - 48 205 - -
Share-based payments - - 94 991 - - 94 991
Dividends - - - (253 069) - (253 069)
Audited balance at 31 July 2017 3 333 678 1 013 809 665 937 3 491 764 56 416 8 561 604
Loss for the year - - - (100 984) (3 209) (104 193)
Other comprehensive loss for the year - - (45 283) - (3 034) (48 317)
Issue of shares 219 751 (207 491) - - - 12 260
Non-controlling interest acquired/disposed 1 000 - - (105 484) (22 139) (126 623)
Movement in treasury shares (111 206) - (53 094) - - (164 300)
Remaining shares to be issued to vendors - 288 989 - - - 288 989
EOH shares forfeited - consideration - (74 549) - - - (74 549)
Transfer within equity - (210 783) - 210 783 - -
Share-based payments - - 95 562 - - 95 562
Dividends - - - (311 720) - (311 720)
Reviewed balance at 31 July 2018 3 443 223 809 975 663 122 3 184 359 28 034 8 128 713
Condensed consolidated statements of cash flows
for the year ended 31 July 2018
Figures in Rand thousand Notes Reviewed Audited
for the for the
year ended year ended
31 July 2018 31 July 2017
Cash flows from operating activities
Cash generated before working capital changes 18 1 410 522 2 298 320
Working capital changes (144 501) (984 256)
Cash generated from operations 18 1 266 021 1 314 064
Investment income 51 184 72 681
Finance costs (282 337) (201 715)
Taxation paid (369 688) (524 111)
Net cash inflow from operating activities 665 180 660 919
Net cash outflow from investing activities (679 728) (488 664)
Additions to property, plant and equipment (261 518) (231 121)
Proceeds on the sale of property, plant and equipment and intangible assets 63 020 44 306
Intangible assets acquired (336 591) (284 419)
Net cash (outflow)/inflow from acquisition of businesses 19 (61 452) 46 037
Cash outflow on the acquisition of equity-accounted investments - (91 377)
Cash (outflow)/inflow relating to financial assets (83 187) 27 910
Net cash (outflow)/inflow from financing activities (1 060 065) 400 497
Proceeds from the issue of shares 10 248 613 213
Proceeds from other financial liabilities 502 849 1 293 455
Repayment of other financial liabilities (1 070 477) (1 030 810)
Purchase of treasury shares (141 295) (171 941)
Finance lease payments (49 592) (50 401)
Dividends paid (311 798) (253 019)
Net (decrease)/increase in cash and cash equivalents (1 074 613) 572 752
Foreign currency translation (13 619) (15 600)
Cash and cash equivalents at the beginning of the year 2 506 551 1 949 399
Cash and cash equivalents at the end of the year 1 418 319 2 506 551
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 July 2018
1. Reporting entity
EOH Holdings Limited (the Company) is a holding company domiciled in South Africa, listed on the JSE Limited under the category Technology: Software and Computer Services. The condensed
consolidated financial statements of the Company comprise the Company and its subsidiaries (together referred to as the EOH Group or the Group) and the Group's interests in associates and
joint ventures.
2.Statement of compliance
These condensed consolidated financial statements have been prepared in accordance with the framework concepts and the measurements and recognition requirements of International Financial
Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and interpretations as issued by the IFRS Interpretations Committee (IFRIC) and comply with the
SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and the Financial Reporting Pronouncements as issued by Financial Reporting Standards Council, and contain
at a minimum the information required by IAS 34, the JSE Listings Requirements and the Companies Act of South Africa, 71 of 2008, as amended (the Companies Act).
3. Basis of preparation
The accounting policies applied in the presentation of the condensed consolidated financial statements are consistent with those applied for the year ended 31 July 2017, except for the new
standards that became effective for the Group's financial period beginning 1 August 2017.
The condensed consolidated financial statements have been prepared on the historical cost basis, except for other financial assets measured at fair value through profit or loss, under the
supervision of John King CA(SA), Group Financial Director.
4. New standards and interpretations
IFRS 9 and IFRS 15 will both be effective for the EOH Group's financial year ending 31 July 2019. The Group is undergoing a detailed assessment of the potential impact of the new standards
on financial results and disclosures going forward.
5. Review opinion
The condensed consolidated financial results for the year ended 31 July 2018 have been reviewed by the Group auditors, Mazars (Gauteng) Inc., and their unmodified review report is
available for inspection at the registered office of the EOH Group.
The auditor's report does not necessarily report on all of the information contained in these financial results.
Shareholders may obtain further information regarding the nature of the auditor's engagement as per inspection of the report available at the registered office of the EOH Group.
Figures in Rand thousand Notes Reviewed Audited
31 July 2018 31 July 2017
6. Property, plant and equipment
Opening balance 677 719 492 221
Additions 289 470 271 740
Acquired in business combinations 19 13 517 131 987
Disposals (72 881) (47 313)
Depreciation (163 143) (170 689)
Foreign currency translation (1 699) (227)
Closing balance 742 983 677 719
7. Goodwill
Opening balance 4 625 403 3 894 720
Acquired in business combinations 19 340 255 743 561
Disposals (634 935) -
Impairments* (84 710) -
Foreign currency translation 9 268 (12 878)
Closing balance 4 255 281 4 625 403
* The carrying amount of certain cash-generating units (CGU's)
was determined to be less than their recoverable amounts resulting in
impairment losses being allocated to their
attributable goodwill. The operating segments affected were IT Services
(R39,7 million) and Industrial Technologies (R45 million).
8. Intangible assets
Opening balance 1 449 296 1 249 522
Additions 336 591 284 419
Acquired in business combinations 19 141 801 186 236
Disposals (390 660) -
Impairments (8 665) -
Amortisation (262 718) (276 608)
Foreign currency translation (425) 5 727
Closing balance 1 265 220 1 449 296
9. Equity-accounted investments
Opening balance 847 917 626 085
Additions - 219 678
Share of equity-accounted profits 48 223 39 241
Dividends received (3 638) -
Impairment (10 000) -
Foreign currency translation (60 298) (37 087)
Closing balance 822 204 847 917
Figures in Rand thousand Reviewed Audited
31 July 2018 31 July 2017
10. Other financial assets
Other financial assets carried at fair value through profit or loss 89 020 78 959
Other financial assets relate to investments for which the fair value is determined
by reference to the performance of indices in active markets.
Investment in 9% of Gibela Rail Transport Consortium Proprietary Limited 39 462 39 462
The investment is measured at fair value through profit and loss and is classified
as a level 3 investment. The directors have evaluated that the fair value of the investment
is determined based on a valuation using a discounted cash flow model which has been adjusted for
risk inherent in the investees' nature of operations.
Enterprise development loans 76 733 92 201
The loans' maturity dates range between one and five years.
Vendor loans and receivables 59 819 58 270
The loans' maturity dates range between one and five years.
CA Incorporated Limited - multi-year contracts 2 320 3 477
The loans' maturity dates range between one and two years.
Loans repayable in three to five years bearing interest at a rate of 10% per annum 277 675 -
The loan is interest bearing at a rate of 10% per annum and repayable over the next five years.
Share-based GCT consideration receivable 18 644 -
Interest-free loan repayable before 31 October 2018 128 000 -
Loans to related parties 167 569 82 624
These loans are interest free and payable on demand.
Bid Bond 33 338 -
The bid bond deposit will be released within the next 12 months.
Cell captive investment 10 306 -
The investment is measured at fair value through profit and loss and is classified as
a level 3 investment. The directors have evaluated that the fair value of the investment
is determined based on a valuation of the asset value attributable to the investment.
Consideration receivable 4 200 -
Other loans and receivables 273 275
The loans are unsecured, interest free and have no fixed terms of repayment. The loans
and receivables consist of a number of smaller loans to unrelated parties.
907 359 355 268
Non-current other financial assets 681 409 214 156
Current other financial assets 225 950 141 112
907 359 355 268
Financial instruments
Financial assets carried at fair value through profit or loss 138 788 78 959
Loans and receivables 768 571 276 309
907 359 355 268
11. Inventory
Finished goods 404 295 568 024
Consumables 8 831 23 308
Work-in-progress 34 234 28 396
447 360 619 728
Inventory write-downs (15 751) (19 964)
431 609 599 764
Cost of goods sold during the year amounted to: 2 751 100 2 478 318
12. Trade and other receivables
Financial instruments 5 263 885 4 867 742
Trade debtors 4 066 043 3 416 075
Work-in-progress 1 107 926 1 368 571
Other receivables 89 916 83 096
Non-financial instruments 319 159 264 955
Prepayments 237 396 218 411
VAT receivable 25 797 24 724
Other receivables 55 966 21 820
5 583 044 5 132 697
Figures in Rand thousand Reviewed Audited
31 July 2018 31 July 2017
13. Other financial liabilities
Interest-bearing liabilities 3 404 595 3 298 497
Interest-bearing bank loans secured by trade receivables 2 841 518 2 681 237
Unsecured interest-bearing bank loans 537 844 544 578
Interest-bearing bank loans secured by certain property 25 233 72 682
Non-interest-bearing liabilities 699 401 1 242 595
Vendors for acquisition 633 709 1 167 453
Other non-interest-bearing liabilities 65 692 75 142
4 103 996 4 541 092
Non-current financial liabilities 3 208 415 3 017 416
Current financial liabilities 895 581 1 523 676
4 103 996 4 541 092
Financial instruments
Measured at amortised cost 3 470 287 3 373 639
Financial liabilities carried at fair value through profit or loss 633 709 1 167 453
4 103 996 4 541 092
Vendors for acquisition 633 709 1 167 453
Non-current financial liabilities 62 666 230 616
Current financial liabilities 571 043 936 837
14. Trade and other payables
Financial instruments 1 951 216 1 758 664
Trade payables 1 245 207 1 113 313
Other accrued expenses 693 164 643 839
Other payables 12 845 1 512
Non-financial instruments 809 067 707 983
VAT 149 472 119 645
Payroll accruals 659 595 588 338
2 760 283 2 466 647
Figures in Rand thousand Reviewed Audited
31 July 2018 31 July 2017
15. Operating profit before interest and equity-accounted profits
EBITDA from continuing operations
Operating profit before interest and equity-accounted profits
from continuing operations 807 889 1 735 542
Equity-accounted profits 48 223 39 241
Amortisation from continuing operations 251 924 231 742
Depreciation from continuing operations 162 114 167 417
Impairment of assets 120 507 9 784
1 390 657 2 183 726
Operating profit before interest after taking into account the following:
Amortisation from continuing and discontinued operations 262 719 276 608
Amortisation included in cost of sales 38 475 20 257
Amortisation not included in cost of sales 224 244 256 351
Depreciation from continuing and discontinued operations 163 143 170 689
Depreciation included in cost of sales 71 305 69 431
Depreciation not included in cost of sales 91 838 101 258
Employee costs 5 817 828 5 314 775
Employee costs included in cost of sales 3 498 051 3 338 117
Employee costs not included in cost of sales 2 224 215 1 881 667
Share-based payments expense 95 562 94 991
Impairments of assets 120 507 9 784
Foreign exchange (profit)/loss (32 338) 20 720
Fair value gain on remeasurement of contingent consideration (9 156) (35 764)
Fair value gain through profit or loss (15 456) (20 089)
Loss on disposal of subsidiaries and property, plant and equipment 392 880 3 007
Gain on bargain purchase on acquisition of businesses (7 528) -
Operating lease charges 280 087 231 540
Operating lease charges on immovable property 259 865 211 575
Operating lease charges on movable property 20 222 19 965
16. Disposal of subsidiary
The Group disposed of the GCT Group of companies (GCT), namely, Grid Control Technologies Proprietary Limited, Forensic Data Analysts Proprietary Limited and Investigative Software
Solutions Proprietary Limited to BVI (the former shareholders) on 31 October 2017 as a result of significant underachievement of profits warranted.
The unwinding involved selling back the companies to the former shareholders for a net amount of R365 million, which is equal to the cash originally paid and the value adjusted EOH shares
originally transferred. The unwinding resulted in a non-cash, once-off reduction in consolidated earnings of R386 million. This once-off loss has been recognised in the statement of profit
or loss.
Figures in Rand thousand 3 months ended 12 months ended
31 October 2017 31 July 2017
The profit/(loss) for the period from the discontinued operation is analysed as follows:
Profit for the period 7 290 49 602
Non-cash, once-off, accounting loss on disposal (399 740) -
Accounting loss on disposal (386 288) -
Taxation at capital gains rate (13 452) -
(392 450) 49 602
The results of the GCT group for the relevant periods were as follows:
Revenue 84 327 361 462
Cost of sales (40 009) (184 347)
Gross profit 44 318 177 115
Operating expenses (31 782) (130 911)
Investment income (1 530) 2 422
Finance costs (881) 1 065
Profit before taxation 10 125 49 691
Taxation (2 835) (89)
Profit for the period 7 290 49 602
The net cash flows incurred by the GCT group for the relevant periods:
Operating expenses (39 145) 45 896
Investment income 1 990 (12 835)
Financing costs (1 965) 1 668
Net cash flows (39 120) 34 729
The net assets of the GCT group at the date of disposal were as follows:
Net assets disposed of 345 025
Goodwill 604 593
Total net asset value disposed of 949 618
Consideration
Return of EOH shares issued to former shareholders 87 575
Cash receivable from former shareholders 277 675
Receivable from former shareholders 365 250
EOH shares forfeited 74 549
Vendors for acquisition released 123 531
563 330
Reviewed Audited
31 July 2018 31 July 2017
17. Stated capital
Issued
Reconciliation of the number of shares in issue (000):
Opening balance 150 095 140 752
Shares issued for cash - 3 757
Shares issued as a result of the acquisition of businesses 2 208 4 160
Shares issued to the Group share incentive schemes 495 1 426
Shares in issue at the end of the period 152 798 150 095
Less:
Treasury shares held in the Group share incentive schemes (2 367) (2 066)
Treasury shares held by wholly owned subsidiaries of the Company that will not
be cancelled (5 530) (4 494)
144 901 143 535
Figures in Rand thousand Reviewed at Audited at
31 July 2018 31 July 2017
Stated capital
Opening balance 3 333 678 2 263 307
Shares issued for cash1 - 580 904
Shares issued as a result of the acquisition of businesses2 210 503 581 598
Shares issued to the Group share incentive schemes3 10 248 32 307
Treasury shares4 (111 206) (124 438)
3 443 223 3 333 678
1 At fair value
2 In terms of purchase and sale agreements
3 In terms of the Group share incentive schemes
4 Average price paid for treasury shares amounts to R110,08 per share
Figures in Rand thousand Reviewed Audited
for the for the
year ended year ended
31 July 2018 31 July 2017
18. Cash generated from operations
Profit before taxation from: 180 556 1 635 181
Continuing operations 556 717 1 585 490
Discontinued operation (376 161) 49 691
Adjustments for:
Amortisation of intangible assets 262 719 276 608
Depreciation of property, plant and equipment 163 143 170 689
Foreign exchange (profit)/loss (30 359) 20 720
Impairment of assets 120 507 9 784
Loss on disposal of subsidiaries and property, plant and equipment 392 880 3 007
Gain on bargain purchase on acquisition of businesses (7 528) -
Fair value gain on remeasurement of contingent consideration (9 156) (35 764)
Fair value gain through profit or loss (15 456) (20 089)
Share-based payments expense 95 562 94 991
Investment income (51 220) (72 743)
Share of profits of equity-accounted investments (48 223) (39 241)
Finance costs 353 026 258 549
Other non-cash items 4 071 (3 372)
Cash generated before changes in working capital 1 410 522 2 298 320
Working capital changes net of effects of acquisition of businesses and disposal
of subsidiaries (144 501) (984 256)
Increase in inventories (411) (97 177)
Increase in trade and other receivables (606 744) (527 870)
Decrease/(increase) in work-in-progress receivables 260 644 (508 336)
Increase in payables 258 429 314 377
Decrease in deferred income (56 419) (165 250)
Cash generated from operations 1 266 021 1 314 064
Figures in Rand thousand LSD Other 2018 2017
19. Acquisition of businesses
Fair value of assets and liabilities acquired
Property, plant and equipment 77 13 440 13 517 131 987
Intangible assets 77 571 64 230 141 801 186 236
Other financial assets - 7 029 7 029 12 764
Finance lease receivables - - - 614
Inventory - 9 645 9 645 34 195
Trade and other receivables* 9 215 142 641 151 856 381 905
Cash and cash equivalents 19 826 24 269 44 095 226 984
Other financial liabilities (3 570) (43 788) (47 358) (67 506)
Finance lease payables - (967) (967) (57 468)
Net deferred taxation liabilities (21 654) (14 735) (36 389) (33 014)
Net current taxation payables (1 984) (172) (2 156) (22 633)
Trade and other payables (9 038) (62 474) (71 512) (268 119)
Deferred income - (33 794) (33 794) (56 018)
Net assets acquired 70 443 105 324 175 767 469 927
Non-controlling interests measured at their share of the fair value of net assets - 2 854 2 854 (51 885)
Amount capitalised 70 443 108 178 178 621 418 042
Gain on bargain purchase - (7 528) (7 528) -
Goodwill 170 649 169 606 340 255 743 561
Purchase price 241 092 270 256 511 348 1 161 603
Consideration payable
Cash paid (37 500) (68 046) (105 546) (180 947)
Shares issued** (45 172) (18 526) (63 698) (95 501)
Cash to be paid (68 076) (85 619) (153 695) (559 934)
Shares to be issued (90 344) (98 065) (188 409) (325 221)
Total consideration (241 092) (270 256) (511 348) (1 161 603)
* The gross contractual value of trade and other receivables for all acquisitions was R158 million.
** Shares are issued at fair value at the effective date.
Acquisition related costs of R20 million are included in operating expenses in the statement of profit or loss and other comprehensive income.
During the year under review, the EOH Group continued to consolidate and complement its existing services with strategic acquisitions. The total purchase consideration for these
acquisitions is R511 million, consisting of R259 million in cash and 2 618 317 EOH shares. Effective 1 December 2017, the EOH Group acquired a 100% interest in LSD Information Technology,
a company specialising in Linux and enterprise open source technology for a consideration of R241 million (R105 million in cash and R136 million in shares).
The contribution to the trading results of the Group, made by all acquisitions, has been accounted from the effective date of the business combination. In determining the purchase
consideration paid, the profit history of the relevant business and its growth prospects in the EOH Group are considered. The fair value of shares issued as part of the purchase price was
determined based on the share price at the effective date. The accounting of these subsidiaries and businesses is based on best estimates and provisional fair values. The Group has not yet
completed its assessment of the fair value of all identifiable assets, liabilities and/or contingent liabilities. The fair values will be accurately determined within twelve months from
the date of acquisition. Goodwill relates mainly to future profits of these businesses and the anticipated synergies that the business brings to the Group.
Figures in Rand thousand LSD Other 2018 2017
Contribution to results
Revenue 110 192 641 501 751 693 1 018 100
Profit before taxation*** 23 567 91 517 115 084 162 902
Contribution had the effective date been from 1 August
Revenue 144 100 644 936 789 036 1 665 867
Profit before taxation 29 670 91 748 121 418 230 971
*** Shown before the effect of amortisation on identifiable assets of R24,7 million in 2018 (2017: R21, 6 million) and other related charges incurred by the Group of R52 million
(2017: R42 million).
20. Financial instruments
The following table summarises the carrying amount of financial instruments as well as the classification
of each class of financial assets and liabilities:
Figures in Rand thousand Reviewed Audited
31 July 2018 31 July 2017
Financial assets
Loans and receivables:
Other financial assets 768 571 236 847
Finance lease receivables 203 818 244 221
Trade and other receivables 5 263 885 4 867 742
Cash and cash equivalents 1 418 319 2 506 551
Fair value through profit or loss:
Other financial assets - level 1 89 020 78 959
Other financial assets - level 3 49 768 39 462
7 793 381 7 973 782
Financial liabilities
Measured at amortised cost:
Other financial liabilities 3 470 287 3 373 639
Finance lease payables 91 748 106 781
Trade and other payables 1 951 216 1 758 664
Fair value through profit or loss:
Vendors for acquisition - level 3 633 709 1 167 453
6 146 960 6 406 537
The Group does not have any financial instruments that are subject to offsetting.
All short-term receivables and payables carrying amounts approximate their fair values due to their short-term nature.
Fair value through profit or loss
Financial assets measured at fair value through profit or loss, in terms of the hierarchy, are classified as level 1 based on quoted prices (adjusted) in active markets for identical
assets that the Group can access at the measurement date and as level 3 where the valuation technique used is based on unobservable inputs for the asset.
Financial liabilities measured at fair value through profit or loss, in terms of the hierarchy, are classified as level 3 as the valuation techniques used are based on unobservable inputs
for the liability.
Other financial assets
Other financial assets (level 1) relate to investments for which the fair value is determined by reference to the performance of indices in the active market.
Other financial assets (level 3) relate to a non-controlling interest in an unlisted business and a cell captive. The valuation of the unlisted business is based on a discounted cash flow
model which has been adjusted for risk inherent in the investees' nature of operations and the cell captive is valued based on the net asset value reported by the service provider. At 31
July 2018 the carrying value of the level 3 financial asset, based on the directors' evaluation, is R49,8 million (31 July 2017: R39,5 million).
Figures in Rand thousand Reviewed Reviewed Audited Audited
31 July 2018 31 July 2018 31 July 2017 31 July 2017
Level 3 Level 1 Level 3 Level 1
Reconciliation of other financial assets
Balance at the beginning of the period 39 462 78 959 - 165 529
Transfer from loans and receivables 5 774 - 25 983 -
Disposal - - - (94 659)
Net changes in fair value 4 532 10 061 13 479 8 089
Balance at the end of the period 49 768 89 020 39 462 78 959
Vendors for acquisition
The balance in respect of vendors for acquisition relates to the contingent consideration where business combinations are subject to profit warranties. The profit warranties allow for a
defined adjusted value to the consideration payable in the event that the warranted profit after tax is not achieved, or in the event that it is exceeded, an agreed sharing in the surplus.
The fair value of the contingent arrangement is initially estimated by applying the income approach assuming that the relevant profit warrant will be achieved. Subsequent measurement uses
the income approach to calculate the present value of the expected settlement payment using the latest approved budgeted results and reasonable growth rates for the remainder of the
relevant warranty periods taking into account any specific circumstances. Profit warrant periods normally extend over a 24-month period.
Upwardly revised performance expectations would result in an increase in the related liability, limited to the terms of the applicable purchase agreement.
Unobservable inputs include budgeted results based on margins and revenue growth rates historically achieved by the various segments. Changing such inputs to reflect reasonably possible
alternative assumptions does not significantly change the fair value of the vendors for acquisition liability.
The EOH Group has an established control framework with respect to the measurement of fair values.
This includes a valuation team that reports directly to the Group Financial Director who oversees all significant fair value measurements.
Figures in Rand thousand Reviewed Audited
for the for the
year ended year ended
31 July 2018 31 July 2017
Reconciliation of vendors for acquisition:
Balance at the beginning of the period 1 167 453 1 284 763
Raised through business combinations 153 695 559 934
Raised as investments in joint ventures and associates - 152 203
Acquisitions of remaining non-controlling interests 67 839 14 279
Discharged to vendors (730 677) (797 150)
Foreign exchange effects (20 071) (10 812)
Net changes in fair value (4 530) (35 764)
Balance at the end of the period 633 709 1 167 453
21. Related-party transactions
The Group entered into various sale and purchase transactions with related parties, in the ordinary course of business, on an arm's length basis. The nature of related-party transactions
is consistent with those reported previously, none of which were significant.
22. Events after the reporting date
The EOH Group signed a long-term partnership with Lebashe, a 100% black-owned investment holding company. This BEE transaction was concluded following the approval of shareholders on 18
September 2018. Lebashe will provide a total equity investment to the Group of R1 billion over 12 months of which R500 million has already been injected.
Stephen van Coller was appointed as CEO of EOH Holdings Limited. Zunaid Mayet resigned as the CEO of the EOH Holdings Limited to take up the position of the CEO of NEXTEC.
The Board has decided that no dividend will be declared for the 2018 financial year.
23. Directorate
During the period since 1 August 2017, there were several changes to the Board:
- Tebogo Maenetja was appointed as an executive director effective 1 March 2018.
- Asher Bohbot was appointed as non-executive Chairman effective 12 March 2018.
- Grathel Motau resigned as a non-executive director effective 12 March 2018.
- Sandile Zungu resigned as an independent non-executive Chairman effective 12 March 2018.
- Jesmane Boggenpoel was appointed as an independent non-executive director effective 1 July 2018.
- Rob Godlonton resigned as an executive director effective 1 July 2018.
- Brian Gubbins resigned as an executive director effective 1 July 2018.
- Lucky Khumalo resigned as a non-executive director effective 1 July 2018.
- Ebrahim Laher resigned as an executive director effective 1 July 2018.
- Jehan Mackay resigned as an executive director effective 1 July 2018.
- Ismail Mamoojee was appointed as an independent non-executive director effective 1 July 2018.
- Johan van Jaarsveld resigned as an executive director effective 1 July 2018.
- Zunaid Mayet resigned as Group Chief Executive Officer effective 1 September 2018.
- Stephen van Coller was appointed as Group Chief Executive Officer effective 1 September 2018.
Directorate
Non-executive
Asher Bohbot (Chairman) (appointed 12 March 2018)
Rob Sporen* (lead independent non-executive Director)
Pumeza Bam
Tshilidzi Marwala
Moretlo Molefi
Jesmane Boggenpoel (appointed 1 July 2018)
Ismail Mamoojee (appointed 1 July 2018)
* Dutch
Executive
Stephen van Coller (appointed as Group Chief Executive Officer effective 1 September 2018)
Zunaid Mayet (resigned as Group Chief Executive Officer effective 31 August 2018)
John King (Group Financial Director)
Tebogo Maenetja (appointed 12 March 2018)
Group Company Secretary
Adri Els
Registered address
Block D, EOH Business Park
Osborne Lane, Bedfordview, 2007
PO Box 59, Bruma, 2026
Telephone: +27 (0) 11 607 8100
Website: http://www.eoh.co.za
Investor e-mail: eohir@kris.co.za
Auditors
Mazars (Gauteng) Inc.
Registration number: 2000/026635/21
Erasmus Forum A, 434 Rigel Avenue South, Erasmusrand, Pretoria, 0181
Sponsor
Merchantec Capital
Registration number: 2008/027362/07
2nd Floor, North Block Hyde Park Corner Office Towers
Corner 6th Road and Jan Smuts Avenue
Hyde Park, 2196
PO Box 41480, Craighall, 2024
Transfer secretaries
Computershare Investor Services Proprietary Limited
Registration number: 2004/003647/07
Rosebank Towers, 15 Biermann Avenue, Rosebank, 2196
PO Box 61051 Marshalltown, 2107
Date: 03/10/2018 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
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