Wrap Text
Pre-closing stakeholder update and extension of financial reporting period
EOH HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1998/014669/06)
JSE share code: EOH
ISIN: ZAE000071072
(“EOH” or the “Company” or the “Group”)
PRE-CLOSING STAKEHOLDER UPDATE AND EXTENSION OF FINANCIAL REPORTING PERIOD
Shareholders are referred to the last market update published on SENS on 9 June 2020, in
which EOH provided an update on its key initiatives including a strategic review of the iOCO
business, plans to reduce its debt burden and how it has adapted to the impact of COVID-19.
The Group also reported resilient financial performance for the third quarter. The Group wishes
to provide shareholders with a further update on these key initiatives as well as financial
performance during the six month period ending 31 July 2020 (“H2”).
EOH continues to make positive progress on these commitments as well as the three key themes
identified at the previous year-end results, namely:
- Creating more transparency on the business and its financials;
- Creating a fit-for-purpose capital structure; and
- Rebuilding credibility through establishing robust governance.
EOH is now in a position where within an unprecedented macro-economic environment the
core iOCO business remains stable, the IP businesses sound and NEXTEC is well positioned
to return to a state of profitability.
Business model evolution
As communicated on 9 June 2020, EOH has recently completed a detailed strategic review of
the iOCO business which was a bottom up zero base process. iOCO’s end-to-end ICT
capability provides a significant differentiator on which to meaningfully grow its market share
going forward.
The NEXTEC strategy has also been updated to reassess the businesses which have started to
turnaround and for which a clearer strategy within the Group was required. Nextec is now
focused on the following three core areas:
- Business process outsourcing;
- Technology infrastructure; and
- Disposing of non-core assets that are either Balance Sheet intensive or of too high a
risk profile.
Sound progress has been made in optimizing the legal structure of the Group. During the course
of the financial year, 8 entities were deregistered and another 41 entities sold. The Group looks
to continue optimizing its legal structure in the next financial year.
Financial performance and liquidity
Whilst COVID-19 has resulted in a weaker macro-economic environment, the performance of
the core iOCO business has remained relatively resilient. The total Group has however, felt
some softening at a revenue level as a result of the impact of lockdown and COVID-19. This
was offset through cost control measures implemented across the Group. Consequently, EOH
expects to show meaningful improvement in EBITDA performance, before normalisation
adjustments, from H1 to H2.
The Group has also seen positive cash generation from operations for H2. As communicated
as part of the interim results presentation, management targeted cash cost savings of R400
million over the four months to the end of July 2020. To date, through strict adherence to cost
control measures, including salary cuts for three months, management have been able to
achieve in excess of 90% of this target. Sustainable cost savings of 3 to 5% are expected to
continue into the new financial year. Additionally, over the last year, the Group has exited
over 28,000 square meters of property, resulting in an ultimate expected annualised go forward
saving of R84 million.
As a result of the successful implementation of the first phase of a formalised treasury function,
the Group’s liquidity position has improved significantly. Cash balances have increased from
approximately R893 million of positive cash balances reported at 3 June 2020, to
approximately R1,004 million of positive cash balances as at 28 July 2020. Furthermore the
new cash pooling process implemented by the treasury function also makes a significant
difference to liquidity.
In the pre-closing statement in respect of EOH’s interim period, published on 30 January 2020,
EOH advised that 8 of the 54 legacy public sector contracts had negatively impacted the
financial performance of the business. The operational and financial viability of these contracts
has been closely managed and tracked on an ongoing basis. Of the 8 contracts 1 has been exited,
2 normalised and positive progress is being made with normalising the remaining 5 contracts.
In 4 of these remaining cases, we are awaiting specific legal and committee approval for the
amended agreements reached with the parties. This has significantly reduced the risk the Group
has previously been exposed to.
Positive progress has been made in H2 within the NEXTEC portfolio, with several loss-making
entities either being sold or closed down. Apart from the impact of PiA Solar and Autospec,
which have unique challenges, NEXTEC is now in a position whereby the division is not
expected to be a cash burden to the Group.
Despite being impacted by COVID-19 through the nature of their services, the IP businesses
continue to perform well albeit at lower profitability levels then in H1, which we expect to
largely recover. The sales processes for the whole, or part of, these businesses remain in
progress despite some delays while the businesses re-forecast their budgets and projections
based on new economic forecasts.
Deleverage plan
EOH committed to a R1.6 billion deleverage plan with its lenders effective from 1 May 2019.
To date EOH has repaid the lenders R542 million of this target principally from disposal
proceeds. Disposal proceeds in the current financial year totalled R421 million and capital
repayments to lenders totalled R292 million over the same period. In addition, EOH serviced
R319 million in interest costs on this debt in the current financial year. The lower outstanding
debt balance, of approximately R2.5 billion, combined with the sizeable reduction in interest
rates will result in materially lower and more manageable financing costs for the Group going
forward.
The large legacy liabilities associated with vendors for acquisitions have been significantly
reduced over the last year reducing from R303 million at the end of July 2019 to approximately
R90 million by 28 July 2020.
Additionally, as communicated previously, the sale of Dental Information Systems Holdings
(Pty) Ltd (“Denis”) has been approved by the Competition Commission without any conditions
and is currently before the Competition Tribunal for approval before the end of August 2020.
This transaction will result in a further R250 million total cash inflow for the Group which will
be used in part to reduce debt balances.
Management remain committed to deleveraging the Balance Sheet and normalising the capital
structure of the business.
Governance
Adhering to sound Governance principles remains a key tenet for management. Consequently,
management has established an internal audit function and rolled out 16 new policies across
the Group. 94% of key training has been completed across the Group and a standard contracting
framework is now in place.
Extension of financial reporting period in respect of the full year results
Shareholders are referred to the third market notice issued on 7 July 2020 by the Financial
Services Conduct Authority (“FSCA”), wherein, as a result of the impact of the COVID-19
pandemic and resultant nationwide lockdown, the FSCA granted companies listed on the JSE
Limited who have financial years ends of 31 May 2020, 30 June 2020 and 31 July 2020, an
extension of two months by which to comply with various reporting timeframes as provided
for in the JSE Listings Requirements (“the FSCA extension”).
As a consequence of the COVID-19 pandemic and resultant national lockdown, shareholders
are advised that EOH will be relying on the FSCA extension and accordingly, the summarised
audited financial results for the year ending 31 July 2020 will be published on or about 17
November 2020 together with the Company’s integrated annual report containing the audited
annual financial statements and the notice of annual general meeting.
The financial information contained in this pre-closing stakeholder update has not been
reviewed nor reported on by PricewaterhouseCoopers Inc., the Group's independent external
auditors.
Stephen van Coller said “I am very excited that EOH has returned to a stable and cash
generative organisation in such a short period notwithstanding the negative effects of
COVID19. This has been achieved at least 6 months ahead of plan and is a result of the
enormous efforts of a highly dedicated and experienced team and indicative of the inherent
culture and quality of the underlying businesses.”
EOH will be holding an investor strategy day tomorrow, 30 July 2020, hosted by Avior Capital
Markets (Pty) Ltd. A copy of the investor presentation, which will form the basis of the
engagement is available on the Company’s website at, https://www.eoh.co.za/investor-
relations/presentations/.
29 July 2020
Sponsor
Java Capital
Date: 29-07-2020 04:10:00
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