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EOH HOLDINGS LIMITED - Stakeholder Communication

Release Date: 15/02/2019 12:12
Code(s): EOH     PDF:  
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Stakeholder Communication

EOH HOLDINGS LIMITED
Incorporated in the Republic of South Africa
(Registration number 1998/014669/06)
Share code: EOH ISIN: ZAE000071072
(“EOH” or “the Group”)


STAKEHOLDER COMMUNICATION

This communication provides our stakeholders our view on market perceptions, an update on future proofing
the business and progress on the implementation of our strategy.

The EOH Group comprises 270 legal entities, employing approximately 12 500 people of which 11 500 are in
South Africa and over 1 000 internationally in majority held subsidiaries. EOH is a majority black-owned Level
1 B-BBEE technology service provider, the largest on the continent. The Group delivers technology,
knowledge and skills critical to Africa’s development and growth.


Market Perceptions

Over the past two years, EOH has been the subject of numerous negative allegations. All these historical
allegations have been proven unfounded through diligent efforts from EOH, disproving or securing the
withdrawal of the stories. Notwithstanding this, the EOH reputation was tarnished, causing significant harm
to our people, shareholders, customers and partners over a protracted period; masking the true value of the
EOH business. As a result of the last two weeks allegations the board and management are widening efforts
to obtain clarity and deal with any issues in the interests of all stakeholde rs. In this regard, you are advised
that an open letter to all shareholders is available on our website at www.eoh.co.za.

Despite all this, the business-resilience kept us strong, carried through by the commitment of our great
people, and the support of our customers, technology partners and shareholders.

There are two recent incidents that are currently adversely affecting the reputation of the business:

    1. On 28 January 2019, Eskom published a SENS which, amongst other matters, mentioned EOH
       because of an unsubstantiated news story. Eskom subsequently published another SENS on 31
       January, stating that the matter pertaining to EOH was closed, confirming no wrongdoing on the part
       of EOH. Eskom further confirmed that EOH continues to provide services and solutions on an ongoing
       basis.

    2. On 12 February 2019, EOH published a SENS that EOH Mthombo, a subsidiary of the Group, has been
       advised by Microsoft of its intention to terminate its Channel Partner Agreement with 30 days’
       notice. EOH has been a Microsoft partner for the past 20 years and is the largest partner by skills.

        Together with Microsoft, EOH is working to better understand the concerns and rationale for the
        action. Following a recent fruitful meeting between the EOH and Microsoft leadership, Microsoft has
        advised that it is taking the EOH proposals under consideration and further review. EOH has
        proactively initiated an internal investigation, supported by ENSafrica, into EOH Mthombo’s Channel
        Partner business unit.

Future Proofing the Business

EOH is committed to ensuring ethical leadership throughout the Group. In support of the business model
changes, the following leadership appointments have been confirmed and we are well advanced on a number
of initiatives:

   •   Appointment of a new Group CEO, Stephen van Coller, a seasoned executive with 20-years’
       experience as a banker, seven of them as a CEO of a 12-country international corporate and
       Investment Bank. He has a solid understanding of large local and international organisations, having
       worked in three large global companies, prior to joining EOH. Coming from the banking sector,
       Stephen has a deep understanding of governance best-practice.

       Stephen is proudly South African and has been committed to job creation in South Africa for the last
       decade, forming part of Minister Gordhan’s CEO initiative for several years. He also served on World
       Economic Forum Committees for Financial Inclusion and Internet for All.

   •   Appointment of Megan Pydigadu as new group financial director in January 2019. Megan has a strong
       track record locally and internationally as a finance executive, recently as CFO at a technology listed
       company.

   •   Appointment of ENSafrica to perform an independent, ongoing risk-based, monitoring and oversight
       role in all the Group’s major public sector bids, contracts and engagements. They’ve also overseen
       EOH’s review of all material current public sector contracts to ensure that governance relating to
       these contracts were adhered to.

   •   Enhancing and digitalising supplier and customer Due Diligence procedures.

   •   ENSafrica recently issued an ISO 37001 assessment report against the six principles contained in ISO
       37001, (the International standard for Anti-Bribery Management Standards). On this assessment,
       ENS confirmed that most of the associated initiatives are already completed and others are well
       progressed. EOH is committed to completing and maintaining this alignment to the ISO standards.
       ENS are part of a broadened review of a broadened review of large public sector licencing
       agreements.

   •   Appointing two highly qualified and experienced independent non-executive board members, one
       to chair the audit committee and the other to chair the governance and risk committee. EOH will
       shortly announce further changes to the board to closer align with King IV.

   •   Implementing recommendations from University of Stellenbosch Centre for Corporate Governance
       in Africa report.

   •   Refocussing Public Sector business away from complex and risky projects. Lufuno Nevhutalu, with
       his vast experience and unique insights, has been appointed as Executive Head for Public Sector in
       the ICT business.

   •   Forming an internal audit function enabled through the appointment of PWC.


The EOH Group is committed to zero-tolerance to any impropriety and upholds the highest levels of
governance and ethical conduct. In an organisation with 12 500 people in 270 entities across 50 countries,
one must expect that there may be governance-related incidents. For cases like these, EOH has retained
ENSafrica to conduct forensics investigations so that matters can be acted on swiftly and decisively.


Strategy Implementation Update

In March 2018 EOH announced its new strategy, which was then further refined during the CEO-100 day
update. The strategy centres on reconfiguring the Group into distinct and independent businesses.

The Group is at an advanced stage of implementing the strategy with the aim of achieving the following:

 •   Robust governance which includes a board for each of the independent businesses to achieve greater
     levels of oversight
 •   Separate equity, capital structures and balance sheets appropriate for each type of business
 •   Lean holdings structure and reduced complexity to achieve optimal management span of control and a
     reduction of overhead costs
 •   Better managed business diversity and clarity of brand identity
 •   Remuneration and incentives directly related to the independent business

The implementation of the strategy sees the EOH Group organised as follows:

       EOH Holdings
       
       EOH Holdings is evolving into an investment holding company and will focus on maximising
       shareholder value pertaining to the business portfolio. The Holdings company will be responsible for
       corporate strategy, corporate finance, investments in new areas, investor relations and group
       treasury.

       The Group performance as reported in FY2018, is:

               REVENUE         circa R16 billion
               EBITDA          circa R 1.8 billion
               EBITDA %        circa 11%

       ICT Systems Integrator
       
       An end-to-end, fully integrated ICT business, including international ICT businesses, which may
       operates under many different brands. This is the largest ICT business and systems integrator in
       Africa.

       The performance relating to this business, as reported in FY2018, is:

               REVENUE         circa R8 billion
               EBITDA          circa R950 million
               EBITDA %        circa 12%

       NEXTEC
       
       Operating in high growth industries, NEXTEC offers deep levels of expertise and high degrees of
       specialisation. NEXTEC delivers data-driven IoT solutions differentiated by domain and industry
       specific offerings.

       The performance relating to this business, as reported in FY2018, is:
                REVENUE         circa R6.7 billion
                EBITDA          circa R370 million
                EBITDA %        circa 5.5%

        Own-IP Based Businesses
        
        This grouping comprises of seven independent, substantial IP-based businesses that are scalable,
        have an international footprint and vast local and international expansion opportunities, operating
        in the areas of specialised construction, mining and engineering software, financial services software
        solutions (fintech), big data and analytics, transport management systems, health data analytics,
        geospatial systems and human capital systems.

        The performance relating to this business, as reported in FY2018, is:

                REVENUE         circa R1.7 billion
                EBITDA          circa R450 million
                EBITDA %        circa 26%


Further detail will be provided on 26 March 2019, when the Group publishes its interim results. The financial
information contained in this announcement has not been audited, reviewed or reported on by the Group’s
auditors.

The board and management remain committed to delivering long-term, sustainable value to its people,
customers, shareholders and partners, always guided by a common purpose, philosophy and value system.
With this strategy, the Group is well-positioned for its next wave of growth in an exciting and growing
technology market.


Johannesburg
15 February 2019

Sponsor
Merchantec Capital

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