Wrap Text
Reviewed Condensed Consolidated Results for the six months ended 31 January 2016
EOH Holdings Limited
Incorporated in the Republic of South Africa
Registration number: 1998/014669/06
JSE share code: EOH
ISIN code: ZAE000071072
Reviewed Condensed Consolidated Results
for the six months ended 31 January 2016
Revenue UP 30% to R6 002 million
Operating profit UP 35% to R682 million
Profit for the period UP 36% to R464 million
HEPS UP 24% to 359 cents
EPS UP 23% to 358 cents
Cash UP 6% to R1 561 million
During the six months to 31 January 2016 revenue increased by 30% to R6 002 million compared with the prior period.
The growth is attributable to a combination of strong organic growth and recent acquisitions with organic growth contributing 54% of the growth in revenue.
About EOH
EOH is the largest technology services provider in South Africa. EOH has been listed on the Johannesburg Stock Exchange ('JSE') since 1998 and has consistently delivered strong
financial results. EOH is committed to transformation, is a Level 2 contributor and has the highest BBBEE rating of its peers.
EOH is the largest technology service provider in South Africa. It has a wide range of Outsourcing, Cloud, Managed Services, Industrial Technologies and Business Process
Outsourcing ('BPO') solutions. EOH's 11 500 staff members deliver these services to over 5 000 large enterprise customers across all major industries. EOH has over 130 points
of presence nationally and has a growing international footprint, with operations in over 40 countries outside of South Africa. EOH remains entrepreneurial despite its size,
has a strong brand and is expanding into new products, services and territories.
EOH's purpose
To provide the technology, knowledge, skills and organisational ability critical to the development and growth of the societies it serves.
To be an ethical and relevant force for good and to play a positive role in society, beyond normal business practice.
EOH's 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 that we operate in whilst remaining entrepreneurial
Industry Consulting
EOH's consulting capability extends beyond the traditional consulting services and focuses on industry specific solutions. With our insight into future business trends and
business drivers, together with the enabling technology and know-how needed to support them, EOH has the skills and the ability to deliver end-to-end knowledge services.
By providing technology-agnostic business advice, our consultants are able to deliver practical, actionable and tangible business solutions from conception and design, through
to the implementation of these solutions.
IT Applications
As a market leader in enterprise solutions, EOH has developed an ecosystem that enables our customers to accelerate innovation, ensure return on investment and achieve
breakthrough results. This EOH ecosystem puts knowledge and expertise at customers' fingertips so that they can use it when needed to achieve their objectives and improve
business performance.
EOH's portfolio helps customers align strategy with execution in order for them to address short-term challenges while building a foundation for continued productivity and
growth.
IT Management
There is a shift in emphasis away from IT being a support division towards IT being a proactive service provider that functions as a business within a business. Technology now
underpins, informs and enables most organisations to function optimally. Technology - and hence Information Technology - creates differentiation, generates revenue and enables
customer-centricity.
The cornerstone of EOH's IT Management solutions is a process of transitioning IT from the traditional reactive mode to IT as a Service (ITaaS). EOH IT Management businesses
provide: consultation; readiness assessments; agnostic needs analysis; planning; migration and on-site support. EOH's solutions are designed to protect business critical
servers that house customers' information assets.
IT Outsourcing
Businesses need to leverage outsourcing as a competitive advantage. This reduces operational costs and drives business performance.
Traditionally outsourcing referred to an engagement model where customers outsourced their entire IT function to an outsource service provider. However, the advent of cloud
computing and managed services, provides customers with more flexible engagement models to meet their business requirements. The increasing complexity of IT systems and the
dependency of organisations on the availability of these systems, requires highly skilled experts to manage and maintain such systems. EOH has the skills and can therefore
ensure a realistic transition from piecemeal, incremental, unco-ordinated change to an outsourcing agenda that delivers a faster single process, without having to use any other
third party.
EOH combines knowledge, technology and experience in creating solutions to:
- manage users, their identities and their access to enterprise information;
- secure systems, devices and operating platforms;
- improve the resilience of information infrastructure and communication;
- protect information and data wherever it resides;
- ensure availability and performance of applications and processes; and
- improve the effectiveness of an enterprise's security programmes.
Industrial Technologies
The EOH Industrial Technologies division combines state-of-the-art technology and best practice to create facilities and infrastructures that are efficient, smart, safe,
healthy and secure.
This is achieved by optimising production and control; enhancing efficiency, availability, comfort and security; ensuring sustained protection of people and assets; creating
optimum working and living conditions; and lowering energy consumption and CO2 emissions.
The industrial technologies portfolio includes connectivity initiatives; safety and security solutions; energy infrastructure services; automation and control; and
infrastructure engineering. EOH's holistic approach to energy, gas, water and infrastructure management sets it apart from the pack.
Business Process Outsourcing ('BPO')
EOH BPO takes care of customers' business processes allowing them to focus on their primary business.
Our strategic ability, operational capacity, specialist skills and enabling technologies ensures that customers achieve optimum performance. EOH's BPO offerings provide:
knowledge process outsourcing and includes: human capital outsourcing; workplace health outsourcing; learning and development outsourcing; marketing outsourcing and legal
services outsourcing.
EOH Software
EOH has developed and acquired its own niche applications. These fit-for-purpose, industry specific or unique cross-industry applications address the bespoke requirements of
customers across the globe using distribution channels and/or EOH's in-country operations. These applications are owned, run and managed by EOH and are targeted at those
customers and industries where off-the-shelf applications only partially address their needs.
Commentary
Business performance
During the six months ended 31 January 2016, revenue increased by 30% to R6 002 million and profit before tax increased by 43% to R670 million, when compared with the
corresponding period. The growth is attributable to a combination of strong organic growth and recent acquisitions. Organic growth accounted for 54% of revenue after
considering all acquisitions since 1 February 2015. Headline earnings per share ('HEPS') increased by 24% and earnings per share ('EPS') increased by 23% with cash and cash
equivalents of R1 561 million at the end of the reporting period.
The growth came from all segments with the strongest growth coming from software sales, given EOH's concerted drive to sell its own niche software and intellectual property
('IP'). Overall services revenue is up 28%, software sales is up 87% and the sales of infrastructure products is up 7% compared with the corresponding period.
Revenue from the regions outside of South Africa also grew, but EOH remains a strong South African company with sales in South Africa contributing 87% of revenue. The rest of
Africa accounts for 9% of total revenue and the rest of the world, 4% of total revenue. Revenue is generated from all industries in the private sector, with revenue from the
public sector accounting for almost a quarter of EOH's revenue. EOH remains a very diverse company with a wide range of product and service offerings and a large number of
diverse enterprise customers.
Businesses joining EOH
During the period under review, EOH continued its strategy to consolidate and complement its existing services with strategic acquisitions. EOH focused on growing its local
business offerings through several business acquisitions and by further expanding into the rest of Africa and the Middle East by acquiring a 50% stake in several small
businesses.
During the period, two significant businesses joined the EOH family. The GCT group of companies, which focuses on utility management via smart metering solutions and
analytical, forensic and investigative software solutions for the security sector, was acquired with effect from 18 November 2015 for R868 million.
Mehleketo, which focuses on rail technology, was acquired with effect from 18 August 2015 for R205 million to bolster EOH's industrial technologies offerings in the transport
industry vertical.
EOH acquired several smaller businesses to enhance its industrial technologies capability, augment its BPO services business and bolster its IT technology applications and
consultancy businesses.
Transformation and social responsibility
Transformation is part of EOH's business strategy and is a key philosophy and business objective of EOH. EOH is certified as a Large Enterprise Level 2 Contributor with BBBEE
Procurement Recognition of 156% as a Value Adding Vendor. 55% of EOH's staff and 64% of its board members are black. EOH's current black shareholding is 39%.
Enterprise development
EOH has several enterprise development ('ED') initiatives aimed at developing black-owned companies by providing both financial and non-financial support. During this period,
EOH has embarked on specific initiatives to uplift and empower black female-owned businesses with a particular emphasis on building sustainable businesses in the technology
and knowledge services sectors.
Corporate Social Investment
EOH believes that youth development is paramount to a prosperous South Africa. To this end, EOH's Corporate Social Investment ('CSI') programme includes -
The EOH Youth Job Creation Initiative, which equips young people with the necessary skills and experience to enable them to have a job for life.
Financial support for the Maths Centre which focuses on teaching mathematics, science, technology and entrepreneurship. The centre's primary objective is to equip teachers,
learners and parents with learning materials and programmes to improve their competency in these subjects.
EOH provides support to the child and youth development programmes of Afrika Tikkun with the objective of providing a future for children living in townships.
The EOH Youth Job Creation Initiative
EOH believes that business has the responsibility to help solve the problem of unemployment. In 2012, EOH launched its successful EOH Youth Job Creation Initiative with the aim
of working with business partners, customers and the Government to stimulate job creation.
As part of this programme, EOH launched its Internal Learnership Programme. To date more than 1 900 interns have participated in these programmes and more than 70% of these
learners have been permanently employed by EOH. Another 700 learners are participating in the 2016 programme and we expect the number of participants to increase in the future.
So far, more than 10 000 jobs have been created country wide and together with our partners, we are aiming to create over 50 000 new jobs by 2020.
Future plans
EOH will continue to develop new solutions, new lines of business, enhance its industry-specific businesses and expand its service offerings into new territories. EOH is
a diversified business with a wide service offering and the ability to meet the challenges of a continually changing landscape. EOH has the ability to attract the best people
and to offer comprehensive complex solutions to its many and varied enterprise and public sector customers.
EOH has five large integrated divisions - Information Communication and Technology ('ICT in the Private Sector'); Smart Government ('ICT in the Public Sector'); Industrial
Technologies; BPO and Industry Services. The opportunity for growth in each of these areas is good. Each of these areas is growing both organically and through strategic
acquisitions and this growth will continue.
EOH is a Pan-African company and will continue to grow its business in the rest of Africa and in the Middle East. This growth is expected to accelerate by increasing our in-
country presence, forming joint ventures and partnerships and acquiring new businesses.
EOH sees its involvement in the public sector as both a business opportunity and as a responsibility to improve public sector service delivery. EOH intends to further increase
its involvement in all tiers of government - National, Provincial and Local.
EOH has developed, owns and is acquiring industry specific niche IP/software applications. EOH sells its own niche software to users across the globe and intends to intensify
its efforts in this regard with the establishment of an office in Dubai. EOH is executing on its plan to market and distribute these software applications internationally.
EOH is committed to further advancing its transformation efforts through increased black ownership, encouraging and supporting enterprise development and increasing its spend
on skills development.
EOH has exciting opportunities in South Africa and internationally. EOH is recognised for the quality of its people and its strong delivery capabilities. By continually driving
its philosophy of recruiting and retaining the best people and its 'Right 1st Time' quality initiatives, EOH expects to maintain and in time, to increase its operating margins.
EOH has the people, the scale, the offerings, the financial resources, the agility and the know-how to continue to grow aggressively.
Stated capital
During the period under review, 4 346 460 shares were issued as a result of the acquisition of businesses along with 534 086 shares issued in terms of the Group share
incentive schemes.
The dividend declared on 16 September 2015 (no. 14 for 150 cents per share) amounting to R194 million, was paid on 2 November 2015.
Subsequent events and capital commitments
There have been no significant events and no significant capital expenditure authorised since 31 January 2016.
Directorate
At the AGM held on 19 February 2016, the directors who were eligible for re-election, being Sandile Zungu, Tshilidzi Marwala and Danny Mackay were re-elected as directors. Rob
Sporen, Tshilidzi Marwala and Lucky Khumalo were elected to the Audit Committee until the next AGM. Tebogo Skwambane resigned as a director with effect from 19 February 2016
following her appointment as a partner to an international consultancy which prohibits her from sitting on any external boards of public listed companies. The Board thanks
Tebogo for her valuable contribution over the past seven and a half years. There have been no other changes to the Board since the AGM.
Appreciation
We are very proud of our achievements over many years and would like to thank our people and their families, our customers, partners, vendors and the investment community for
their support and significant contribution to EOH's success.
Asher Bohbot
Chief executive officer
7 March 2016
Condensed consolidated statement of financial position
as at 31 January 2016
Figures in Rand thousand Reviewed at Reviewed at Audited at
31 January 2016 31 January 2015 31 July 2015
Assets
Non-current assets 6 206 739 3 454 866 4 009 826
Property, plant and equipment 468 454 430 373 412 159
Goodwill and intangible assets 4 872 786 2 772 813 2 989 582
Equity-accounted investments 517 094 3 007 351 852
Other financial assets 94 363 5 689 18 437
Deferred taxation 99 620 109 205 107 337
Finance lease receivables 154 422 133 779 130 459
Current assets 5 474 184 3 943 274 4 362 881
Inventory 329 204 157 476 195 665
Other financial assets 213 415 75 713 61 467
Current taxation receivable 49 445 29 297 47 955
Finance lease receivables 95 276 78 345 86 955
Trade and other receivables 3 226 300 2 136 842 2 307 021
Cash and cash equivalents 1 560 544 1 465 601 1 663 818
Total assets 11 680 923 7 398 140 8 372 707
Equity and liabilities
Equity 5 784 456 3 894 926 4 508 624
Equity attributable to the owners of EOH Holdings Limited 5 774 578 3 882 226 4 499 952
Non-controlling interest 9 878 12 700 8 672
Non-current liabilities 1 680 053 1 142 494 1 227 417
Other financial liabilities 1 313 722 1 004 102 1 068 477
Finance lease payables 28 413 29 744 21 010
Deferred taxation 337 918 108 648 137 930
Current liabilities 4 216 414 2 360 720 2 636 666
Other financial liabilities 1 842 735 659 664 869 485
Current taxation payable 116 649 69 146 57 344
Finance lease payables 28 632 28 620 20 915
Trade and other payables 1 674 478 1 190 592 1 424 329
Deferred income 553 795 412 588 264 508
Dividend payable 125 110 85
Total liabilities 5 896 467 3 503 214 3 864 083
Total equity and liabilities 11 680 923 7 398 140 8 372 707
Condensed consolidated statement of profit or loss and other comprehensive income
for the six months ended 31 January 2016
Figures in Rand thousand Reviewed % Reviewed Audited
six months to change six months to twelve months to
31 January 2016 31 January 2015 31 July 2015
Revenue 6 001 841 30 4 609 623 9 733 992
Cost of sales (3 958 424) (2 996 858) (6 532 019)
Gross profit 2 043 417 1 612 765 3 201 973
Operating expenses (1 204 891) (976 708) (1 925 957)
Depreciation (50 470) (72 845) (114 685)
Amortisation of intangible assets (106 153) (58 548) (114 726)
Operating profit before interest and impairments 681 903 35 504 664 1 046 605
Investment income 23 830 22 683 37 785
Impairment of goodwill and intangible assets - - (25 000)
Share of profits of equity-accounted investments 55 847 917 10 736
Finance costs (91 446) (60 059) (118 799)
Profit before taxation 670 134 43 468 205 951 327
Taxation (206 254) (127 991) (259 533)
Profit for the period 463 880 36 340 214 691 794
Other comprehensive income:
Item that may be reclassified subsequently to profit or loss
Exchange differences on translating foreign operations 149 113 8 438 27 144
Total comprehensive income for the period 612 993 348 652 718 938
Profit attributable to:
Owners of EOH Holdings Limited 462 480 339 165 690 692
Non-controlling interest 1 400 1 049 1 102
463 880 340 214 691 794
Total comprehensive income attributable to:
Owners of EOH Holdings Limited 610 347 347 603 717 342
Non-controlling interest 2 646 1 049 1 596
612 993 348 652 718 938
Earnings per share
Earnings per share (cents) 358 23 290 561
Diluted earnings per share (cents) 340 23 277 534
Condensed consolidated statement of changes in equity
for the six months ended 31 January 2016
Figures in Rand thousand Shares to Non-
Stated be issued Retained controlling Total
capital to vendors Reserves earnings interest equity
Audited balance at 1 August 2014 627 006 371 066 349 106 1 270 985 10 647 2 628 810
Total comprehensive income for the six months 8 438 339 165 1 049 348 652
Issue of shares 914 774 914 774
Non-controlling interest arising on business combination 1 004 1 004
Movement in treasury shares 28 184 47 451 75 635
Shares to be issued 49 760 49 760
Share-based payments 17 261 17 261
Dividends (140 970) (140 970)
Reviewed balance at 31 January 2015 1 569 964 420 826 422 256 1 469 180 12 700 3 894 926
Total comprehensive income for the six months 18 212 351 527 547 370 286
Issue of shares 49 915 49 915
Non-controlling interest arising on business combination (139) (139)
Non-controlling interest acquired (7 684) (4 436) (12 120)
Movement in treasury shares (86 716) 24 250 (62 466)
Shares to be issued 242 635 242 635
Share-based payments 25 587 25 587
Audited balance at 31 July 2015 1 533 163 663 461 490 305 1 813 023 8 672 4 508 624
Total comprehensive income for the six months 147 867 462 480 2 646 612 993
Issue of shares 509 243 509 243
Non-controlling interest acquired (1 062) (1 440) (2 502)
Movement in treasury shares (93 760) 30 617 (63 143)
Shares to be issued 383 215 383 215
Share-based payments 30 366 30 366
Dividends (194 340) (194 340)
Reviewed balance at 31 January 2016 1 948 646 1 046 676 699 155 2 080 101 9 878 5 784 456
Condensed consolidated statement of cash flows
for the six months ended 31 January 2016
Figures in Rand thousand Reviewed Reviewed Audited
six months to six months to twelve months to
31 January 2016 31 January 2015 31 July 2015
Cash flows from operating activities
Cash generated from operations 314 369 336 882 908 567
Investment income 23 761 22 683 37 571
Finance costs (88 473) (60 059) (117 549)
Taxation paid (163 912) (143 530) (301 143)
Net cash inflow from operating activities 85 745 155 976 527 446
Net cash (outflow) from investing activities (270 621) (117 989) (326 865)
Net cash inflow from financing activities 60 796 364 954 398 093
Net (decrease)/increase in cash and cash equivalents (124 080) 402 941 598 674
Foreign currency translation 20 806 (1 862) 622
Cash and cash equivalents at the beginning of the period 1 663 818 1 064 522 1 064 522
Cash and cash equivalents at the end of the period 1 560 544 1 465 601 1 663 818
Performance of segments
for the six months ended 31 January 2016
The reportable segments of the Group have been identified based on the nature of the business activities. This basis is representative of the internal structure for management
purposes. Segment results that are reported to the Group CEO include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.
Unallocated items mainly comprise corporate and head office expenses. Segmental profit before taxation includes revenue and expenses directly relating to a business segment as
allocated.
EOH's revenue is derived from Services (systems integration, outsourcing and industrial technologies), Software (software sales and maintenance revenue) and Infrastructure
products (traditional IT hardware, network infrastructure, telecommunications infrastructure and the hardware associated with security solutions).
Revenue
Figures in Rand thousand Reviewed Reviewed Audited
six months to six months to twelve months to
31 January 2016 31 January 2015 31 July 2015
Services 4 302 801 3 362 923 7 002 948
Systems integration 1 538 498 1 188 704 2 492 733
Outsourcing 1 977 140 1 571 997 3 258 282
Industrial technologies 787 163 602 222 1 251 933
Software 850 698 454 880 1 179 856
Infrastructure products 848 342 791 820 1 551 188
Total 6 001 841 4 609 623 9 733 992
Profit before taxation
Figures in Rand thousand Reviewed Reviewed Audited
six months to six months to twelve months to
31 January 2016 31 January 2015 31 July 2015
Services 457 851 354 105 701 325
Systems integration 184 915 149 026 226 085
Outsourcing 175 383 138 080 305 130
Industrial technologies 97 553 66 999 170 110
Software 158 366 60 023 175 188
Infrastructure products 56 909 54 077 77 326
Not specifically allocated (2 992) - (2 512)
Total 670 134 468 205 951 327
Notes to the consolidated interim financial statements
for the six months ended 31 January 2016
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 interim financial statements of the company comprises the company and its subsidiaries (together referred to as 'the Group' or 'EOH') and the Group's
investments in associates and joint ventures for the six months ended 31 January 2016.
Statement of compliance
These condensed consolidated interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting, the SAICA Financial Reporting Pronouncements
issued by the Financial Reporting Standards Council, the JSE Listings Requirements, and the Companies Act of South Africa.
Basis of preparation
The accounting policies applied in the presentation of the condensed consolidated interim financial statements are consistent with those applied for the year ended 31 July
2015, except for new standards that became effective for the Group's financial period beginning 1 August 2015. The condensed consolidated interim financial statements have been
prepared on the historical cost basis, under the supervision of John King CA(SA), Group Financial Director.
Changes in accounting policies
The Group has adopted the following new standards and amendments to standards, including any consequential amendments to other standards, with a date of initial application of
1 August 2015: - Amendments to IFRS 7, IFRS 10, IAS 1, IAS 16, IAS 27, IAS 28 and IAS 38. The adoption of the new standards listed above did not have a significant impact on
the Group's condensed consolidated interim financial statements.
Review opinion
The condensed consolidated interim financial results for the six months ended 31 January 2016 have been reviewed by the Group auditors, Mazars (Gauteng) Inc., and their
unmodified review report is available for inspection at the registered office of EOH. 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 EOH.
Earnings per share and headline earnings per share
Reviewed % Reviewed Audited
six months to six months to twelve months to
31 January 2016 change 31 January 2015 31 July 2015
Earnings per share (cents)
Earnings per share 358 23 290 561
Diluted earnings per share 340 23 277 534
Headline earnings per share 359 24 290 575
Diluted headline earnings per share 341 23 277 548
Headline earnings reconciliation (R'000)
Profit attributable to owners of EOH Holdings Limited 462 480 339 165 690 692
Adjusted for:
After tax loss/(profit) on disposal of property, plant and equipment 1 006 (239) 1 557
Impairment of intangible assets - - 25 000
Gain on bargain purchase - - (9 474)
Headline earnings 463 486 338 926 707 775
Ordinary shares ('000)
Total number of shares in issue 136 919 130 837 132 039
Weighted average number of shares in issue 129 200 116 838 123 031
Weighted average diluted number of shares in issue 135 973 122 534 129 271
Other ratios
Reviewed Reviewed Audited
six months to six months to twelve months to
31 January 2016 31 January 2015 31 July 2015
Profit before taxation margin (excluding share of
profits of equity-accounted investments) 10,2 10,1 9,7
Operating profit margin 11,4 10,9 10,8
Return on equity (annualised) 18,1 20,9 19,9
Financial instruments
Figures in Rand thousand Reviewed at Reviewed at Audited at
31 January 2016 31 January 2015 31 July 2015
The following table summarises the carrying amount
of financial instruments recorded at 31 January 2016:
Financial assets
Loans and receivables:
Other financial assets 156 438 81 402 79 904
Finance lease receivables 249 698 212 124 217 414
Trade and other receivables 3 014 634 2 104 714 2 200 077
Cash and cash equivalents 1 560 544 1 465 601 1 663 818
Fair value through profit or loss:
Other financial assets 151 339 - -
5 132 653 3 863 841 4 161 213
Financial liabilities
Measured at amortised cost:
Other financial liabilities 2 070 144 983 574 1 166 953
Finance lease payables 57 045 58 364 41 925
Trade and other payables 1 290 585 932 762 993 313
Dividend payable 125 110 85
Fair value through profit or loss:
Vendors for acquisition 1 086 313 680 192 771 009
4 504 212 2 655 002 2 973 285
The Group does not have any financial instruments that are subject to offsetting.
Fair value through profit or loss:
For financial assets measured at fair value through profit or loss, in terms of the hierarchy, these are classified as level 1 as the valuation techniques used are based on
observable market data.
For financial liabilities measured at fair value through profit or loss, in terms of the hierarchy, these are classified as level 3 as the valuation techniques used are not
based on observable market data.
There have been no transfers between levels during the period under review.
Other financial assets
Other financial assets relate to investments acquired as part of a business combination. The fair value of the investments is determined by reference to the performance of
indices in the active market.
Figures in Rand thousand Reviewed at Reviewed at Audited at
31 January 2016 31 January 2015 31 July 2015
Other financial assets
Reconciliation of movement:
Balance at the beginning of the period - - -
Raised through business combinations 152 030 - -
Net changes in fair value (691) - -
Balance at the end of the period 151 339 - -
Vendors for acquisition
The vendors for acquisition balance relates to the contingent consideration payable relating to business combinations where profit warranties are applicable. 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 it is exceeded. The fair value of
the contingent liability 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 are generally for a 24-month period.
Upwardly revised performance expectations would result in an increase in the related liability limited to the terms of the applicable warranty 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.
EOH 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 at Reviewed at Audited at
31 January 2016 31 January 2015 31 July 2015
Vendors for acquisition
Reconciliation of movement:
Balance at the beginning of the period 771 009 440 568 440 568
Raised through business combinations 580 668 372 837 403 923
Raised for equity-accounted and other investments 29 964 - 119 160
Foreign exchange effects 40 774 7 517 11 234
Net changes in fair value 24 704 12 969 13 670
Cash paid to vendors (360 806) (153 699) (217 546)
Balance at the end of the period 1 086 313 680 192 771 009
Acquisition of businesses
Figures in Rand thousand GCT
group of
companies Mehleketo Other Total
Fair value of assets and liabilities acquired
Property, plant and equipment 12 869 23 714 16 516 53 099
Intangible assets 483 963 43 943 125 213 653 119
Other financial assets 540 153 472 40 469 194 481
Inventory 98 359 23 440 8 019 129 818
Trade and other receivables* 45 991 14 706 143 278 203 975
Cash and cash equivalents (23 753) 67 052 125 961 169 260
Other financial liabilities (96 582) (45 468) (99 366) (241 416)
Finance lease payables (2 190) (3 294) (1 136) (6 620)
Net deferred taxation liabilities (135 110) (21 208) (31 011) (187 329)
Net current taxation payables (13 045) (3 807) (11 807) (28 659)
Trade, other payables and other liabilities (58 279) (15 710) (88 510) (162 499)
Deferred income (36 647) (190 858) (25 112) (252 617)
Net assets acquired 276 116 45 982 202 514 524 612
Goodwill 591 945 159 046 439 618 1 190 609
Purchase price 868 061 205 028 642 132 1 715 221
Cash consideration paid (119 167) (15 000) (118 372) (252 539)
Less: Cash and cash equivalents acquired (23 753) 67 052 125 961 169 260
Net cash (outflow)/inflow on acquisition (142 920) 52 052 7 589 (83 279)
Consideration payable
Cash paid (119 167) (15 000) (118 372) (252 539)
Shares issued (114 181) (59 996) (84 317) (258 494)
Cash to be paid (309 872) (15 000) (255 796) (580 668)
Shares to be issued (324 841) (115 032) (183 647) (623 520)
Total consideration (868 061) (205 028) (642 132) (1 715 221)
* The gross contractual value of trade and other receivables of the GCT group of companies and the Mehleketo group of companies approximated their fair value. For other
acquisitions the gross contractual value was R145 million.
Figures in Rand thousand GCT
group of
companies Mehleketo Other Total
Effective date of acquisition 18 Nov 2015 18 Aug 2015
Contribution to trading results for the six months
Revenue 111 011 101 997 253 771 466 779
Profit before taxation 13 652 15 835 17 910 47 397*
Adjusted as if acquired with effect from 1 August 2015
Revenue 212 972 111 974 300 455 625 401
Profit before taxation 29 473 17 384 32 715 79 572*
Acquisition related costs 10 500
(included in operating expenses in the statement of profit or loss and other comprehensive income)
* Shown after the effects of amortisation on identifiable intangible assets of R34 million.
For all acquisitions, the results of operations have been accounted for 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 within the EOH stable were 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 acquisition 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 values 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 to be
derived as a result of joining EOH.
GCT group of companies
During the six months under review, the Group acquired 100% of the share capital of Grid Control Technologies Proprietary Limited, Forensic Data Analysts Proprietary Limited
and Investigative Software Solutions Proprietary Limited ('GCT') with effect from 18 November 2015 for an amount of R868 million of which R429 million is payable in cash and
the balance through the issue of 2 869 426 EOH shares. The group specialises in utility management solutions (smart metering) and analytical, forensic and investigating
software solutions for the security sector. EOH acquired the shares in GCT to strengthen its service offerings in the industrial infrastructure sector and enhance its
analytical technology solutions.
Mehleketo
100% of the share capital of Mehleketo Resourcing Proprietary Limited ('Mehleketo') was acquired with effect from 18 August 2015 for an amount of R205 million of which R30
million is payable in cash and the balance through the issue of 1 015 596 EOH shares.
Mehleketo provides rail automation and technology solutions, coupled with the design, build and management of operational nerve centres for the rail industry. EOH acquired the
shares in Mehleketo to enhance its transport industry vertical through Mehleketo's deep industry knowledge and established presence.
Other acquisitions that are not individually material
During the six months under review, EOH continued its strategy to consolidate and complement its existing services with strategic acquisitions. EOH acquired a number of
businesses in order to bolster the Group's industrial technology capabilities, augment its BPO service offerings and enhance its technology applications and consulting
solutions.
The total purchase consideration for these acquisitions is R642 million, consisting of R374 million in cash and 1 647 243 EOH shares. In all instances 100% of the shares were
acquired.
CORPORATE INFORMATION
Directorate
Non-executive
Sandile Zungu (Chairman)
Rob Sporen* (Lead Non-executive Director)
Lucky Khumalo
Danny Mackay
Tshilidzi Marwala
Thoko Mnyango
Tebogo Skwambane (Resigned 19 February 2016)
* (Dutch)
Executive
Asher Bohbot (Group Chief Executive Officer)
John King (Group Financial Director)
Pumeza Bam
Dion Ramoo
Jane Thomson
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
E-mail: info@eoh.co.za
Website: www.eoh.co.za
Transfer secretaries
Computershare Investor Services Proprietary Limited
Registration number: 2004/003647/07
70 Marshall Street, Johannesburg, 2001
PO Box 61051. Marshalltown, 2107
Auditors
Mazars (Gauteng) Inc.
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
Technology makes it possible...
People make it happen.
EOH
Date: 09/03/2016 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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