Wrap Text
Unaudited Condensed Consolidated Results for the Six Months Ended 31 January 2018
EOH Holdings Limited
Incorporated in the Republic of South Africa
Registration number: 1998/014669/06
JSE share code: EOH
ISIN code: ZAE000071072
Unaudited Condensed Consolidated Results for the six months ended 31 January 2018
BRINGING SOUTH AFRICAN EXCELLENCE TO THE WORLD
EOH TIMELINE
In 1998 a business model was conceived that would universally meet the needs created by this new revolution and so Enterprise Outsourcing Holdings was born which
was later called EOH. From humble beginnings of 20 staff and one customer in 1998, EOH has grown from strength to strength, to now having a staff complement of over
13 000 and achieving the position of Africa's largest technology service provider.
Coming together was our beginning, keeping together was our progress and working together is our success. Our 20-year long prosperity has been led by our five
philosophies and company purpose. EOH is a people driven business led by a strong leadership team that has executed the true partner for life philosophy daily to
grow EOH into the phenomenal company that it is today. It is imperative to highlight that it is because of our people's meticulous 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 EOH will continue to operate
true to its purpose by doing good for our 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.
REVENUE
R8 354 million
(R7 025 million)*
OPERATING PROFIT
R784 million
(R838 million)*
EBITDA
R1 004 million
(R1 090 million)*
# Results from continuing operations
* Comparatives for the period ended 31 January 2017
About EOH
EOH is the largest technology services company in Africa and has a wide range of solutions in Industry Consulting, IT Services, Software, Industrial Technologies
and Business Process Outsourcing.
EOH's 13 000 staff members deliver these services to over 5 000 large enterprise customers across all major industries throughout South Africa, Africa and the
Middle East. EOH is present in 134 locations in South Africa, and has a growing international footprint with 36 points of presence in the rest of Africa and
internationally. As a proudly South African business, EOH is committed to sustainable transformation, making a positive, meaningful contribution to society, and is
a Level 1 Broad-based Black Economic Empowerment (BBBEE) contributor.
The EOH Purpose
To provide the technology, knowledge, skills and organisational ability critical to the development and growth of the markets we serve
To be an ethical and relevant force for good and to play a positive role in society, beyond normal business practice
The EOH 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 whilst remaining entrepreneurial
Current operating model
EOH's operating model is two dimensional, focused on key business areas and industry verticals. EOH offers solutions across all major industries through a simple
'Design, Build and Operate' model and is able to offer its customers tailored, flexible and robust solutions through its deep industry knowledge and expertise. The
current business segments of the Group have been identified based on the nature of the major business activities of EOH. The services and solutions in each segment
are outlined below.
IT Services IT consulting services; systems integration; IT managed services; application support; IT management; software development, implementation and
integration services; information services; network solutions; IT security solutions; cloud solutions and digital solutions; IT hardware,
infrastructure-as-a-service.
Software Software sales and maintenance revenue for vendor owned software and EOH's own niche software.
Industrial Technologies Sale of services, products, software and technology solutions relating to industrial automation; data centre and connectivity solutions;
energy services; water technology services and solutions; intelligent transport solutions; safety and security solutions services and
infrastructure; and environmental management solutions.
Business Process Outsourcing Sale of services and technology solutions relating to Human Capital Solutions, claims and payment processes, finance and admin
services; and outsourced marketing services.
Future operating model
EOH has announced it's growth strategy, establishing duel growth platforms and forming two independent businesses, each with its own distinct identity and brand,
growth strategy, go-to-market approach, business model and culture.
COMMENTARY
The recent political leadership changes in South Africa has seen the country enter a phase filled with a renewed sense of hope and optimism. Prior to this, the
period under review was characterised by difficult trading conditions, compounded by a unique set of challenges that EOH had to overcome during the period. EOH
welcomes the "dawn of a new era" and enters the next period with confidence.
Business Performance
The combination of the macro-economic environment and the adverse, unfounded media coverage that EOH received, temporarily affected the Group's position in the
market. Consequently, EOH has delivered results reflective of the above for the period under review. Despite these market conditions, all areas of the business
coped relatively well. However the public sector business did have a particularly tough period as a result of the political uncertainty, squeeze on public sector
funding and delays in sign-offs as well as the awarding of contracts. Payment practices from the public sector over the past year were poor, however we have seen
a marked improvement over the last two months.
EOH adopted a deliberate customer retention strategy which resulted in some margin sacrifice. As a result of this, the Group has retained all major customers and
customer contracts, gaining market-share in the process. Since February 2018, there has been a positive shift in the market towards EOH, resulting in a normalising
of the environment and client engagements. These are strong indications that margins will normalise in the second half of the year as stability returns and business
confidence grows.
The Group's overall resilience during this period is attributable to its broad solutions offering, collaborative business model, skilled people and diverse customer
base. During this period, EOH has continued to develop new solutions and service offerings to meet the needs of customers - particularly in the area of new
generation digital solutions.
Revenue for the six month period has increased in all areas of the business. Growth has been focused on existing business which has resulted in organic growth
accounting for 71% of the overall revenue growth. 85% of EOH's revenue is derived from within South Africa.
During the six months under review, EOH unwound the original acquisition of the GCT Group of companies through a 'sell-back' agreement effective 31 October 2017.
This had a material impact on the results of the Group due to a once off, non-cash reduction in consolidated earnings after tax of R400 million. This has had a
negative impact on EPS.
Financial results
EOH's revenue from continuing operations grew by 19% to R8 354 million (2017: R7 025 million) as a result of increased activity at EOH's existing customers. Revenue
from services accounts for 84% of total revenue, a significant portion of which is annuity revenue, based on multiple year contracts.
Operating profit from continuing operations amounted to R784 million (2017: R838 million).
EBITDA for the period amounted R1 004 million (2017: R1 090 million). Headline earnings per share (HEPS) and Earnings per share (EPS) from continuing operations was
314 cents (2017: 415 cents) and 320 cents (2017: 416 cents) respectively.
Cash generated by operations before changes in working capital was R1 054 million. Working capital has increased by R995 million as a result of growth funding;
increased work-in-progress associated with ongoing long-term projects; slower cash collections particularly from the public sector. This trend has begun to change
following the period under review, and since 1 February 2018, the Group has received payments totalling over R500 million from outstanding public sector debtors.
Cash outflows for financing activities relate to the payment to vendors for acquisition (R369 million); dividends (R312 million) and repayments on amortised
medium-term interest-bearing debt (R275 million).
With the normalising of our environment, an emphasis on organic growth, and stringent working capital management, the Board is confident of improved margins and a
higher cash conversion rate moving forward.
Operational reviews
Below is an overview of the revenue and EBITDA of the reporting segments of EOH. The combined revenue derived from services is R7 002 million for the period which
represents 84% of EOH's total revenue.
Information Technology businesses (incorporating IT Services and Software)
The ICT business remains strong and fairly 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 period but should pick up in the short
to medium-term. There is a move to cloud-based infrastructure solutions and infrastructure as a service.
Software sales increased for the period with a different mix between third-party software and EOH's niche software as compared with the previous period.
Revenue and EBITDA from continuing operations*
Figures in Rand thousand Unaudited for the Reviewed for Audited
six months to the six months to twelve months to
31 January 2018 31 January 2017 31 July 2017
Revenue
IT Services# 3 705 643 3 045 228 6 504 720
Software 1 351 317 1 144 477 2 239 273
Industrial Technologies 1 880 564 1 528 906 3 703 629
BPO 1 416 082 1 306 214 2 680 440
8 353 606 7 024 825 15 128 062
EBITDA
IT Services# 448 602 409 127 921 926
Software 255 309 293 864 544 637
Industrial Technologies 153 588 217 948 448 740
BPO 146 921 169 421 364 699
1 004 420 1 090 360 2 280 002
* Comparative figures previously reported have been amended to reflect continuing operations
# IT Services includes IT Infrastructure
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 software.
Industrial Technologies
Revenue is up primarily as a result of water technology engagements and continued work on existing projects (which are not customer dependent) that have been
delayed. Long delays in the awarding of energy related contracts remains a concern and has had an impact on the profitability in the energy cluster. The anticipated
awarding of these contracts has highlighted the need to retain critical skills. With the stabilisation of the broader political and economic environment, the
outlook is more promising.
Growth drivers include smart city initiatives, smart water technologies and solutions, industrial IoT, energy management and efficiency programmes, broadband
infrastructure, public safety and security solutions and intelligent transport technology solutions.
Business Process Outsourcing (BPO)
The majority of BPO engagements are multiple year contracts with a significant portion of revenue being annuity based, where certain annual renewals resulted in
some margin sacrifice. The major growth drivers remain the complexity of solutions and the constant change in the regulatory environment, which makes it easier for
customers to take the decision to outsource these processes to highly skilled technology service providers like EOH.
Growth Strategy
During the last quarter of 2017, the Group executive initiated a strategic review of the business. The aim of the review was to define a growth strategy aimed
at simplifying the Group's business model, enhancing effectiveness, improving commercial agility and driving optimal business performance well into the future.
EOH will establish dual growth platforms by forming two independent businesses, each with its own distinct identity and brand; growth strategy; go-to-market
approach; business model and culture.
The first business will trade under the EOH brand and focus on ICT services and solutions. It is a highly efficient integrated business with cross-industry IP; has
an integrated go-to-market strategy focused on organic growth driven by new generation digital technologies.
The second business (Newco - to be named and launched in April 2018) is characterised by a high degree of specialisation in each business area; it has domain
specific IP; each business area is less integrated, operates relatively autonomously, operates in high growth industries and is differentiated by its domain
specific offerings. Growth will be driven by both acquisitions and organically.
The benefit of having two different businesses will enable each business to realise its full potential with clarity of brand and identity; a simplified business
model, reduced complexity and cost; greater oversight and stronger governance; increased agility; and the reversal of dis-economies of scale.
Strategic long term partnership with Lebashe
To facilitate growth, remain relevant and continue to promote black economic empowerment, EOH has signed a long-term partnership with Lebashe, a 100% black-owned
investment holding company.
The strategic alignment of Lebashe and EOH's interests through an equity transaction presents an opportunity for both parties to jointly pursue growth opportunities
to the benefit of both.
The transaction will result in an equity investment by Lebashe of R250 million and the provision of a funding facility of R3 billion. EOH will have access to such
facility for growth opportunities whilst significantly increasing its B-BBEE ownership by an additional 20.3%, taking the overall black ownership in the Group to
over 51%.
Transformation
Sustainable Transformation is one of EOH's key business philosophies. EOH's approach is underpinned by our strong appreciation that South Africa's development and
growth is 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 is certified as a Large Enterprise B-BBEE Level 1 Contributor with black economic interest voting rights at 30.2% (This will be over 51% after the partnership
with Lebashe is finalised).
EOH is committed to transformation through its Youth Job Creation Initiative; continuing to increase diversity in all levels of the Group; increasing black
ownership; enterprise development programmes; supplier and preferential procurement initiatives and increasing its spend on skills development.
Corporate social responsibility and EOH's Youth Job creation initiative
EOH understands that youth development is paramount to a prosperous South Africa. To this end, EOH's Corporate Social Investment ('CSI') activities include
programmes and initiatives 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 has grown from strength to strength since its inception in 2012. Initiated by EOH's founder and Chairman, Asher Bohbot, this
initiative is deeply entrenched in EOH. Since 2012, in partnership with customers and business partners, over 35 000 learners and graduates have been reached, with
most of them completing learnership and internship programmes. Lives are changed when business gets involved.
Of the individuals who completed the programme, 83% have been employed by EOH or one of its business partners and participating customers.
Sustainable business
EOH's sustainability strategy is founded on its guiding philosophies. These philosophies demonstrate EOH's 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.
Corporate governance
EOH adheres to the King IV corporate governance principles. The Board is committed to high levels of corporate governance and has implemented and continues to
refine structures, policies and procedures aimed at strengthening governance throughout EOH. Following the review of EOH's Governance Framework, by EOH's
Governance, Risk and Compliance Function, Chair of the Audit Committee and external advisers, Edward Nathan Sonnenberg (ENS), the Group strengthened the overall
Governance Framework to ensure that it is even more resilient and robust.
Corporate governance is integral to EOH's business philosophy of ethical leadership. EOH has a zero tolerance policy towards unethical behaviour in line with its
values.
Outlook
Whilst the first half of 2018 has been challenging, the Group looks forward to a stronger second half.
The Group will continue to develop new services, products and solutions; meet customers' ever-increasing technology needs; partner with new vendors both locally and
abroad; build stronger partnerships with existing customers and provide more of their technology needs through the more focused 'go-to-market' approach of the two
new businesses. We will continue to develop, distribute and implement EOH's niche software and own IP solutions across EOH's existing footprint and in new
territories.
The implementation of EOH's strategy - with two distinct growth platforms - each highly focused, will facilitate enhanced growth from each of the businesses. With
the partnership with Lebashe and the enhanced empowerment credentials, EOH has the ability to compete more effectively in a very competitive market. These two
significant developments have served to energise the people across the business, providing clarity and direction for the future. This, coupled with a stable
economic and political environment, provides the platform for continued growth, a more efficient and cost-effective organisation, increased profitability and
improved margins.
Approved on behalf of the Board of directors of EOH ('the Board'),
Zunaid Mayet
Chief Executive Officer
26 March 2018
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
for the six months 31 January 2018
Figures in Rand thousand Notes Unaudited for Reviewed for Audited
the six months to the six months to 12 months to
31 January 2018 31 January 2017* 31 July 2017
Continuing operations
Revenue 8 353 606 7 024 825 15 128 062
Cost of sales (5 671 326) (4 651 086) (10 225 139)
Gross profit 2 682 280 2 373 739 4 902 923
Operating expenses* (1 898 096) (1 535 902) (3 167 381)
Operating profit before interest and equity-accounted profits 14 784 184 837 837 1 735 542
Investment income 35 729 28 784 70 321
Share of equity-accounted profits 8 6 371 35 179 39 241
Finance costs* (176 548) (104 639) (259 614)
Profit before taxation 649 736 797 161 1 585 490
Taxation (186 344) (231 627) (462 009)
Profit for the period from continuing operations 463 392 565 534 1 123 481
(Loss)/profit for the period from discontinued operation 15 (392 450) 31 947 49 602
Profit for the period 70 942 597 481 1 173 083
Profit attributable to:
Owners of the EOH Holdings Limited 67 495 596 610 1 164 234
Non-controlling interest 3 447 871 8 849
Earnings per share
From continuing operations
Earnings per share (cents) 320 416 794
Diluted earnings per share (cents) 310 393 771
Including discontinued operations
Earnings per share (cents) 47 439 825
Diluted earnings per share (cents) 45 415 801
CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
for the six months 31 January 2018
Figures in Rand thousand Unaudited for Reviewed for Audited
the six months to the six months to 12 months to
31 January 2018 31 January 2017* 31 July 2017
Profit for the period 70 942 597 481 1 173 083
Item that may be reclassified subsequently to profit or loss
Exchange differences on translating foreign operations (152 600) (49 772) (44 627)
Total comprehensive income for the period (81 658) 547 709 1 128 456
Total comprehensive income attributable to:
Owners of the EOH Holdings Limited (83 871) 546 838 1 121 277
Non-controlling interest 2 213 871 7 179
* The comparative amounts for 31 January 2017 have been reclassified following recommendations emanating from the JSE's proactive monitoring process. The
impact resulted in no change to profit before taxation nor cash flows from operating activities. An amount of R27,8 million was reclassified from 'finance costs'
to 'operating expenses' under 'fair value loss/(gain) on remeasurement of contingent consideration'.
HEADLINE EARNINGS
for the six months 31 January 2018
Figures in Rand thousand Unaudited for Reviewed for Audited
the six months to the six months to 12 months to
31 January 2018 31 January 2017 31 July 2017
Headline earnings reconciliation (R'000)
Profit attributable to owners of EOH Holdings Limited 67 495 596 610 1 164 234
Adjusted for:
Loss/(gain) on disposal of subsidiaries and property,
plant and equipment and other financial assets 384 251 (1 489) 3 007
Gain on bargain purchase (7 988) - -
Impairment of assets - - 9 784
Total tax effects of adjustments 14 676 417 (3 581)
Headline earnings 458 434 595 538 1 173 444
Headline earnings per share
From continuing operations
Headline earnings per share (cents) 314 415 797
Diluted headline earnings per share (cents) 304 392 773
Including discontinued operations
Headline earnings per share (cents) 319 438 832
Diluted headline earnings per share (cents) 309 415 808
Ordinary shares (000)
Total number of shares in issue 152 009 148 060 150 095
Weighted average number of shares in issue 143 765 135 869 141 072
Weighted average diluted number of shares in issue 148 349 143 606 145 300
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 31 January 2018
Figures in Rand thousand Notes Unaudited at Reviewed at Audited at
31 January 2018 31 January 2017 31 July 2017
Assets
Non-current assets
Property, plant and equipment 5 683 249 582 543 677 719
Goodwill and intangible assets 5 529 360 5 703 334 6 074 699
Goodwill 6 4 335 125 4 328 894 4 625 403
Intangible assets 7 1 194 235 1 374 440 1 449 296
Equity-accounted investments 8 762 530 754 687 847 917
Other financial assets 9 477 952 284 771 214 156
Deferred taxation 294 341 187 647 196 764
Finance lease receivables 154 724 182 837 169 611
7 902 156 7 695 819 8 180 866
Current assets
Inventory 10 468 392 532 605 599 764
Other financial assets 9 406 118 103 233 141 112
Current taxation receivable 101 489 34 477 84 383
Finance lease receivables 66 978 85 479 74 610
Trade and other receivables 11 5 921 302 4 276 190 5 132 697
Cash and cash equivalents 1 301 951 2 052 790 2 506 551
8 266 230 7 084 774 8 539 117
Total assets 16 168 386 14 780 593 16 719 983
Equity and liabilities
Equity
Equity attributable to the owners of EOH Holdings Limited 8 221 402 7 860 469 8 505 188
Non-controlling interest 30 448 20 558 56 416
8 251 850 7 881 027 8 561 604
Liabilities
Non-current liabilities
Other financial liabilities 12 3 115 042 2 222 378 3 017 416
Finance lease payables 65 550 57 479 65 594
Deferred taxation 450 142 356 212 406 132
3 630 734 2 636 069 3 489 142
Current liabilities
Other financial liabilities 12 1 317 710 1 610 711 1 523 676
Current taxation payable 149 446 208 507 148 182
Finance lease payables 38 815 41 603 41 187
Trade and other payables 13 2 324 260 1 853 094 2 466 647
Deferred income 455 571 549 582 489 545
4 285 802 4 263 497 4 669 237
Total liabilities 7 916 536 6 899 566 8 158 379
Total equity and liabilities 16 168 386 14 780 593 16 719 983
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the six months ended 31 January 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 period 596 610 871 597 481
Other comprehensive income (48 211) (1 561) (49 772)
Issue of shares 922 863 (314 973) 607 890
Non-controlling interest acquired (570) 11 570 11 000
Movement in treasury shares (65 439) 5 677 (59 762)
Remaining shares to be issued* 398 581 398 581
Share-based payments 42 800 42 800
Dividends (253 036) (253 036)
Reviewed balance at 31 January 2017 3 120 731 1 248 478 603 281 2 887 979 20 558 7 881 027
Profit for the period 567 624 7 978 575 602
Other comprehensive income 5 255 (110) 5 145
Issue of shares 271 946 (247 125) 24 821
Non-controlling interest acquired (12 011) 27 990 15 979
Movement in treasury shares (58 999) 5 210 (53 789)
Remaining shares to be issued* 60 661 60 661
Transfer within equity (48 205) 48 205 -
Share-based payments 52 191 52 191
Dividends (33) (33)
Audited balance at 31 July 2017 3 333 678 1 013 809 665 937 3 491 764 56 416 8 561 604
Profit for the period 67 495 3 447 70 942
Other comprehensive income (151 366) (1 234) (152 600)
Issue of shares 162 950 (128 479) 34 471
Non-controlling interest acquired 1 000 (57 410) (28 181) (84 591)
Movement in treasury shares (120 955) 670 (120 285)
Remaining shares to be issued* 280 603 280 603
Consideration - EOH shares forfeited (74 549) (74 549)
Transfer within equity (207 882) 207 882 -
Share-based payments 47 975 47 975
Dividends (311 720) (311 720)
Unaudited balance at 31 January 2018 3 376 673 883 502 563 216 3 398 011 30 448 8 251 850
* Remaining shares to be issued to vendors
CONSOLIDATED STATEMENT OF CASH FLOWS
for the six months ended 31 January 2018
Figures in Rand thousand Notes Unaudited for Reviewed for Audited
the six months to the six months to 12 months to
31 January 2018 31 January 2017 31 July 2017
Cash flows from operating activities
Cash generated before working capital changes 1 054 455 1 117 654 2 298 320
Working capital changes (995 074) (624 585) (984 256)
Cash generated from operations 17 59 381 493 069 1 314 064
Investment income 34 163 29 969 72 681
Finance costs (132 684) (93 383) (201 715)
Taxation paid (207 486) (218 055) (524 111)
Net cash (outflow)/inflow from operating activities (246 626) 211 600 660 919
Net cash outflow from investing activities (231 912) (214 159) (488 664)
Additions to property, plant and equipment (88 649) (55 615) (231 121)
Proceeds on the sale of property, plant and equipment and intangible assets 35 193 14 278 44 306
Intangible assets acquired (124 509) (129 757) (284 419)
Net cash (outflow)/inflow from acquisition of businesses 18 (16 767) 14 200 46 037
Cash outflow on acquisition of equity accounted investments - (51 867) (91 377)
Cash (outflow)/inflow relating to financial assets (37 180) (5 398) 27 910
Net cash (outflow)/inflow from financing activities (686 199) 122 806 400 497
Proceeds from the issue of shares 7 769 580 904 613 213
Proceeds from other financial liabilities 504 401 535 566 1 293 455
Repayment of other financial liabilities (711 592) (638 565) (1 030 810)
Purchases of treasury shares (141 295) (57 939) (171 941)
Finance lease payments (33 817) (44 173) (50 401)
Dividends paid (311 665) (252 987) (253 019)
Net (decrease)/increase in cash and cash equivalents (1 164 737) 120 247 572 752
Foreign currency translation (39 863) (16 856) (15 600)
Cash and cash equivalents at the beginning of the period 2 506 551 1 949 399 1 949 399
Cash and cash equivalents at the end of the period 1 301 951 2 052 790 2 506 551
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the six months ended 31 January 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 Group' or 'EOH')
and the Group's interests in associates and joint ventures.
2 Statement of compliance
These condensed consolidated interim financial statements have been prepared in accordance with IAS 34 - Interim Financial Reporting, the SAICA Financial Reporting
Guides as issued by the Accounting Practices Committee and the Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council,
the Listings Requirements of JSE Limited and the Companies Act of South Africa.
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 not been audited or reviewed by the Group's external auditors.
The condensed consolidated financial statements have been prepared on the historical cost basis, under the supervision of John King CA(SA), Group Financial
Director.
4 Changes in accounting policies
The Group adopted the amendments to IAS 7 - Statement of Cash Flows, including any consequential amendment to other standards, with a date of initial application
of 1 August 2017.
The adoption of the amended standard did not have a significant impact on the Group's condensed consolidated financial statements.
Figures in Rand thousand Notes Unaudited at Reviewed at Audited at
31 January 2018 31 January 2017 31 July 2017
5 Property, plant and equipment
Opening balance 677 719 492 221 492 221
Additions 117 454 94 104 271 740
Acquired in business combinations 18 13 517 74 275 131 987
Foreign currency translation (1 381) 136 (227)
Disposals (42 489) (12 837) (47 313)
Depreciation (81 571) (65 356) (170 689)
Closing balance 683 249 582 543 677 719
6 Goodwill
Opening balance 4 625 403 3 894 720 3 894 720
Acquired in business combinations 18 347 998 440 703 743 561
Foreign currency translation (30 292) (6 529) (12 878)
Disposals (607 984) - -
Closing balance 4 335 125 4 328 894 4 625 403
7 Intangible assets
Opening balance 1 449 296 1 249 522 1 249 522
Additions 124 509 129 712 284 419
Acquired in business combinations 18 126 716 126 815 186 236
Foreign currency translation (7 807) (3 427) 5 727
Disposals (378 010) - -
Amortisation (120 469) (128 182) (276 608)
Closing balance 1 194 235 1 374 440 1 449 296
8 Equity-accounted investments
Opening balance 847 917 626 085 626 085
Additions - 132 690 219 678
Foreign currency translation (91 758) (39 267) (37 087)
Share of equity-accounted profits 6 371 35 179 39 241
Closing balance 762 530 754 687 847 917
Figures in Rand thousand Unaudited at Reviewed at Audited at
31 January 2018 31 January 2017 31 July 2017
9 Other financial assets
Other financial assets carried at fair value through profit or loss 84 000 163 739 78 959
Investment in 9% of Gibela Rail Transport Consortium Proprietary Limited 39 462 27 462 39 462
Enterprise development loans 92 027 58 847 92 201
The loans' maturity dates range between one and five years.
Vendor loans and receivables 63 969 76 117 58 270
The loans' maturity dates range between one and five years.
CA Incorporated Limited - multi-year contracts 4 276 3 639 3 477
The loans' maturity dates range between one and two years.
Loans to related parties 106 756 52 488 82 624
These loans are interest-free and repayable on demand
Interest-free loan repayable before 31 October 2018 128 000 - -
Return of shares issued to former shareholders 87 575 - -
Loans repayable in three to five years bearing interest at a rate of 10% per annum 277 675 - -
Other loans and receivables 330 5 712 275
The loans are unsecured, interest-free and have no fixed terms of repayment
884 070 388 004 355 268
Non-current other financial assets 477 952 284 771 214 156
Current other financial assets 406 118 103 233 141 112
884 070 388 004 355 268
Financial instruments
Loans and receivables 760 608 196 803 276 309
Financial assets carried at fair value through profit or loss 123 462 191 201 78 959
884 070 388 004 355 268
Figures in Rand thousand Unaudited at Reviewed at Audited at
31 January 2018 31 January 2017 31 July 2017
10 Inventory
Finished goods 434 164 492 453 568 024
Consumables 6 666 29 022 23 308
Work in progress 41 359 27 563 28 396
482 189 549 038 619 728
Inventory write-downs (13 797) (16 433) (19 964)
468 392 532 605 599 764
Cost of goods sold during the year amounted to: 1 380 626 1 128 892 2 478 318
11 Trade and other receivables
Financial instruments 5 624 339 4 077 589 4 867 742
Trade debtors 3 805 760 3 003 711 3 416 075
Work in progress 1 743 841 999 243 1 368 571
Other receivables 74 738 74 635 83 096
Non-financial instruments 296 963 198 601 264 955
Prepayments 213 359 172 768 218 411
VAT receivable 37 961 20 934 24 724
Other receivables 45 643 4 899 21 820
5 921 302 4 276 190 5 132 697
Figures in Rand thousand Unaudited at Reviewed at Audited at
31 January 2018 31 January 2017 31 July 2017
12 Other financial liabilities
Interest bearing liabilities 3 529 770 2 592 906 3 298 497
Interest bearing bank loans secured by trade receivables 2 964 406 465 251 2 681 237
Unsecured interest bearing bank loans 529 793 2 076 618 544 578
Interest bearing bank loans secured by certain property 35 571 51 037 72 682
Non-interest bearing liabilities 902 981 1 240 183 1 242 595
Vendors for acquisition 824 129 1 169 217 1 167 453
Other non-interest bearing liabilities 78 852 70 966 75 142
4 432 751 3 833 089 4 541 092
Non-current financial liabilities 3 115 042 2 222 378 3 017 416
Current financial liabilities 1 317 710 1 610 711 1 523 676
4 432 752 3 833 089 4 541 092
Financial instruments
Measured at amortised cost 3 608 623 2 663 872 3 373 639
Financial liabilities carried at fair value through profit or loss 824 129 1 169 217 1 167 453
4 432 752 3 833 089 4 541 092
Vendors for acquisition 824 129 1 169 217 1 167 453
Non-current financial liabilities 151 008 467 234 230 616
Current financial liabilities 673 121 701 983 936 837
13 Trade and other payables
Financial instruments 1 728 437 1 322 743 1 758 664
Trade payables 952 657 717 332 1 113 313
Other accrued expenses 734 961 591 056 643 839
Other payables 40 819 14 355 1 512
Non-financial instruments 595 823 530 351 707 983
VAT 128 495 104 488 119 645
Payroll accruals 467 328 425 863 588 338
2 324 260 1 853 094 2 466 647
Figures in Rand thousand Unaudited at Reviewed at Audited at
31 January 2018 31 January 2017* 31 July 2017
14 Operating profit before interest
EBITDA from continuing operations
Operating profit before interest and equity-accounted profits from continuing operations 784 184 837 837 1 735 542
Equity-accounted profits 6 371 35 179 39 241
Amortisation from continuing operations 131 265 150 615 321 474
Depreciation from continuing operations 82 600 66 729 173 961
Impairment of assets - - 9 784
1 004 420 1 090 360 2 280 002
Operating profit before interest after taking into account, the following:
Amortisation 120 470 128 182 276 608
Amortisation included in cost of sales 19 895 9 880 20 257
Amortisation not included in cost of sales 100 575 118 302 256 351
Depreciation 81 571 65 356 170 689
Depreciation included in cost of sales 24 667 26 706 69 431
Depreciation not included in cost of sales 56 904 38 650 101 258
Employee costs 2 812 211 2 402 007 5 314 775
Employee costs included in cost of sales 1 687 145 1 463 310 3 338 117
Employee costs not included in cost of sales 1 077 090 895 897 1 881 667
Share-based payments expense 47 976 42 800 94 991
Impairments of assets - - 9 784
Foreign exchange loss 24 791 13 182 20 720
Fair value (gain)/loss on remeasurement of contingent consideration* (14 617) 8 391 (35 764)
Fair value (gain) through profit or loss (5 041) (4 449) (20 089)
Loss/(gain) on disposal of subsidiaries and property, plant and equipment 384 251 (1 489) 3 007
Gain on bargain purchase on acquisition of business (7 988) - -
Operating lease charges 166 677 114 751 231 540
Operating lease charges on immovable property 157 009 106 759 211 575
Operating lease charges on movable property 9 668 7 992 19 965
* The comparative amounts for 31 January 2017 have been reclassified following recommendations emanating from the JSE's proactive monitoring process. The
impact resulted in no change to profit before taxation nor cash flows from operating activities. An amount of R27,8 million was reclassified from 'finance costs'
to 'operating expenses' under 'fair value loss/(gain) on remeasurement of contingent consideration'.
15 Disposal of discontinued operation
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 under achievement 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.
The profit/(loss) for the period from the discontinued operation is analysed as follows:
Figures in Rand thousand 3 months ending 6 months ended 12 months ended
31 October 2017 31 January 2017 31 July 2017
Profit for the period 7 290 31 947 49 602
Non-cash, once-off, after-taxation accounting loss on disposal of subsidiaries (399 740) - -
(392 450) 31 947 49 602
The results of the GCT Group for the relevant periods were as follows:
Revenue 84 327 214 658 361 462
Cost of sales (40 009) (102 618) (184 347)
Gross profit 44 318 112 040 177 115
Operating expenses (31 782) (65 933) (130 911)
Investment income (1 530) 1 198 2 422
Finance costs (881) 447 1 065
Profit before taxation 10 125 47 752 49 691
Taxation (2 835) (15 805) (89)
Profit for the period 7 290 31 947 49 602
The net cash flows incurred by the GCT Group for the relevant periods were as follows:
Net cash flows from operating activities (39 145) 9 973 45 896
Net cash flows from investing activities 1 990 (6 065) (12 835)
Net cash flows from financing activities (1 965) 2 718 1 668
Net cash flows (39 120) 6 626 34 729
The net assets of the GCT Group at the date of disposal were as follows:
Net assets de-recognised 345 025
Goodwill 604 593
Total net asset value 949 618
Consideration
Return of EOH shares issued to former shareholders 87 575
Receivable from former shareholders 277 675
365 250
EOH shares forfeited 74 549
Vendors for acquisition released 123 531
563 330
Non-cash, once-off, accounting loss before taxation (386 288)
Capital gains taxation on disposal of subsidiaries (13 452)
Non-cash, once-off, after-taxation accounting loss (399 740)
Figures in thousands Unaudited for Reviewed for Audited for the
the six months to the six months to 12 months to
31 January 2018 31 January 2017 31 July 2017
16 Stated capital
Issued
Reconciliation of the number of shares in issue (000):
Opening balance 150 095 140 752 140 752
Shares issued for cash - 3 757 3 757
Shares issued as a result of the acquisition of businesses 1 503 2 282 4 160
Shares issued to the Group share incentive/retention schemes 411 1 269 1 426
Shares in issue at year end 152 009 148 060 150 095
Less:
Treasury shares held in the Group share incentive schemes (2 370) (2 568) (2 066)
Treasury shares held by wholly owned subsidiaries of the Company that will not be cancelled (5 616) (3 773) (4 494)
144 023 141 719 143 535
Figures in Rand thousand Unaudited for Reviewed for Audited for the
the six months to the six months to 12 months to
31 January 2018 31 January 2017 31 July 2017
Stated capital
Opening balance 3 333 678 2 263 307 2 263 307
Shares issued for cash1 - 580 904 580 904
Shares issued as a result of the acquisition of businesses2 156 182 314 973 581 598
Shares issued to the Group share incentive/retention schemes3 7 768 26 986 32 307
Treasury shares4 (120 955) (65 439) (124 438)
3 376 673 3 120 731 3 333 678
1 At fair value
2 In terms of purchase and sale agreements
3 In terms of the Group share incentive/retention schemes
4 Average price paid for treasury shares amounts to R110,08 per share
Figures in Rand thousand Unaudited at Reviewed at Audited at
31 January 2018 31 January 2017 31 July 2017
17 Cash generated from operations
Profit before taxation from: 273 575 844 913 1 635 181
Continuing operations 649 736 797 161 1 585 490
Discontinued operations (376 161) 47 752 49 691
Adjustments for:
Amortisation of intangible assets 120 470 128 182 276 608
Depreciation of property, plant and equipment 81 571 65 356 170 689
Foreign exchange loss 14 477 2 892 20 720
Impairment of assets - - 9 784
Loss/(profit) on disposal of subsidiaries and property, plant and equipment 384 251 (1 489) 3 007
Gain on bargain purchase on acquisition of business (7 988) - -
Fair value (gain)/loss on remeasurement of contingent consideration (14 617) 8 391 (35 764)
Fair value (gain) through profit or loss (5 041) (4 449) (20 089)
Share-based payments expense 47 976 42 800 94 991
Investment income (34 199) (29 982) (72 743)
Share of profits of equity-accounted investments (6 371) (35 179) (39 241)
Finance costs 177 429 104 192 258 549
Other non-cash items 22 922 (7 973) (3 372)
Cash generated before changes in working capital 1 054 455 1 117 654 2 298 320
Working capital changes net of effects of disposal of subsidiaries (995 074) (624 585) (984 256)
(Increase) in inventories (37 195) (34 049) (97 177)
(Increase) in trade and other receivables (349 293) (194 224) (527 870)
(Increase) in work in progress receivables (375 270) (139 010) (508 336)
(Decrease)/increase in payables (232 760) (175 840) 314 377
(Decrease) in deferred income (556) (81 462) (165 250)
Cash generated from operations 59 381 493 069 1 314 064
Figures in Rand thousand Total
2018
18 Acquisition of businesses
Fair value of assets and liabilities acquired
Property, plant and equipment 13 517
Intangible assets 126 716
Other financial assets 7 229
Inventory 9 645
Trade and other receivables1 129 539
Cash and cash equivalents 41 025
Other financial liabilities (47 058)
Finance lease payables (967)
Net deferred taxation liabilities (32 277)
Net current taxation payables (1 671)
Trade and other payables (72 165)
Deferred income (11 977)
Net assets acquired 161 556
Non-controlling interests measured at their share of the fair value of net assets 2 854
Amount capitalised 164 410
Gain on bargain purchase (7 988)
Goodwill 347 998
Purchase price 504 420
Cash consideration paid (57 792)
Less: Cash and cash equivalents acquired 41 025
Net cash outflow on acquisition (16 767)
Consideration payable
Cash paid (57 792)
Shares issued2 (11 832)
Cash to be paid (194 949)
Shares to be issued (239 847)
Total consideration (504 420)
1 The gross contractual value of trade and other receivables for all acquisitions was R134 million.
2 Shares are issued at fair value at the effective date.
Figures in Rand thousand Total
2018
Contribution to trading results for the period
Revenue 386 193
Profit before taxation* 56 645
Contribution had the effective date been 1 August 2017
Revenue 420 102
Profit before taxation* 61 423
* Shown after the effect of amortisation on identifiable assets of R9,2 million (2017: R21,6 million).
Acquisition related costs of R10 million (2017: R25 million) are included in operating expenses in the statement of profit or loss and other comprehensive income.
During the six months under review, EOH consolidated and complemented its existing services with strategic acquisitions. EOH acquired several businesses to bolster
the Group's ICT applications technology capabilities. The total purchase consideration for these acquisitions is R504 million, consisting of R253 million in cash
and 2 618 317 EOH shares. In all instances 100% of the shares were acquired. No acquisitions were individually material and therefore the consolidated impact has
been presented.
The contribution to the trading results of businesses acquired 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 12 months from the date of acquisition. Goodwill relates primarily to future profits of these businesses and the
anticipated synergies that the businesses bring to the Group.
19 Financial instruments
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.
Figures in Rand thousand Unaudited for Reviewed for Audited for
the six months to the six months to the 12 months
31 January 2018 31 January 2017 to 31 July 2017
Financial assets
Loans and receivables:
Other financial assets 760 608 224 265 236 847
Finance lease receivables 221 702 268 316 244 221
Trade and other receivables 5 624 339 4 077 590 4 867 742
Cash and cash equivalents 1 301 951 2 052 790 2 506 551
Fair value through profit or loss:
Other financial assets - level 1 84 000 163 739 78 959
Other financial assets - level 3 39 462 - 39 462
8 032 062 6 786 700 7 973 782
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 similar 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.
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 interests in unlisted businesses. The valuation is based on a discounted cash flow model which has been
adjusted for risk inherent in the investees' nature of operations. At 31 January 2018 the carrying value of the level 3 financial asset, based on the directors'
evaluation, is R39,5 million.
Figures in Rand thousand Unaudited Unaudited Reviewed at Audited at Audited at
for the six for the six 31 January 2017 31 July 2017 31 July 2017
months to months to Level 1 Level 3 Level 1
31 January 2018 31 January 2018
Level 3 Level 1
Reconciliation of movement:
Balance at the beginning of the period 39 462 78 959 165 529 - 165 529
Transfer from loans and receivables - - - 25 983 -
Disposal - - (6 239) - (94 659)
Net changes in fair value - 5 041 4 449 13 479 8 089
Balance at the end of the period 39 462 84 000 163 739 39 462 78 959
Figures in Rand thousand Unaudited for Reviewed for Audited for
the six months to the six months to the 12 months
31 January 2018 31 January 2017 to 31 July 2017
Financial liabilities
Measured at amortised cost:
Other financial liabilities 3 608 623 2 663 872 3 373 639
Finance lease payables 104 365 99 082 106 781
Trade and other payables 1 728 437 1 322 743 1 758 664
Fair value through profit or loss:
Vendors for acquisition - level 3 824 129 1 169 217 1 167 453
6 265 554 5 254 914 6 406 537
Fair value through profit or loss:
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.
Vendors for acquisition
The vendors for acquisition balance 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 of 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. 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.
Vendors for acquisition
Figures in Rand thousand Unaudited for the Reviewed for the Audited for the
six months to six months to 12 months to
31 January 2018 31 January 2017 31 July 2017
Reconciliation of movement:
Balance at the beginning of the period 1 167 453 1 284 763 1 284 763
Raised through business combinations 194 949 288 173 559 934
Raised as investments in joint ventures and associates - 33 800 152 203
Acquisitions of remaining non-controlling interests 54 432 - 14 279
Foreign exchange effects (16 908) (16 356) (10 812)
Net changes in fair value (14 617) 8 391 (35 764)
Discharged to vendors (561 180) (429 554) (797 150)
Balance at the end of the period 824 129 1 169 217 1 167 453
20 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 individually significant. Loans to related parties are interest free
with no fixed repayment terms but repayable on demand. These loans are working capital loans to support organic growth in associates and joint ventures.
21 Events after the reporting date
There have been no significant events between the reporting date and the date of authorisation other than the change in the directorate, effective 12 March 2018.
22 Directorate
During the period since 1 August 2017, Asher Bohbot was appointed as non-executive Chairman with effect from 12 March 2018.
Tebogo Maenetja was appointed as an executive director with effect from 12 March 2018.
Sandile Zungu resigned as non-executive Chairman with effect from 12 March 2018.
Grathel Motau resigned as a non-executive director with effect from 12 March 2018.
CORPORATE INFORMATION
Directorate
Non-executive
Asher Bohbot (Chairman) (Appointed 12 March 2018)
Rob Sporen* (Lead Non-executive Director)
Pumeza Bam
Lucky Khumalo
Tshilidzi Marwala
Moretlo Molefi
Sandile Zungu (Resigned 12 March 2018)
Grathel Motau (Resigned 12 March 2018)
Executive
Zunaid Mayet (Chief Executive Officer)
John King (Group Financial Director)
Rob Godlonton
Brian Gubbins
Ebrahim Laher
Jehan Mackay
Tebogo Maenetja (Appointed 12 March 2018)
Johan Van Jaarsveld
* Dutch
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: 28/03/2018 08:00:00 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
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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,
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