EOH’s journey to redemption has blue chips knocking on its door | The Citizen

EOH, a company once regarded as the toxic face of South African capitalism, has gone a long way to redeeming itself – both financially and reputationally – under the new management team led by CEO Stephen van Coller.

Its results for the year to July 2022 point to continued improvements in operational performance, with an 82% increase in operating profit from continuing operations to R100 million (2021: R55 million).

It repaid R733 million to lenders over the last year, bringing debt down to about R1.2 billion from R4 billion in 2018.

Perhaps most importantly, it generated cash from operations of R283 million, adding to a cash pile of R459 million at year-end, which includes unused short-term facilities of R250 million.

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The company has been accused by detractors (including former executives) of “selling off the crown jewels” to fatten profits, but the sale of non-core assets appears to have come to an end.

State capture grilling

The tech company featured prominently in the Zondo Commission of Inquiry into allegations of state capture, mostly for the wrong reasons.

Part IV of the final Zondo Report, based on evidence submitted by Van Coller, detailed the extent to which corrupt practices had flourished in the organisation.

Power was concentrated in the hands of a few executives, sales of software licences were inflated, there were well-publicised tender irregularities in which politically-connected individuals were involved, and large amounts of money flowed out of the company by way of gifts and other forms of payment, with no evidence of work being done.

In total, EOH spent R865 million on kickbacks and commissions to politically connected intermediaries.

Zondo was complimentary of Van Coller and his team for bringing in ENS Forensics to start cleaning up the mess and for making public the results of this investigation.

Rather than hiding or denying the adverse media reports surrounding the company when he took over in 2018, management set about a massive cleansing process.

Former executives deemed responsible for the corruption now face billions of rands in damages claims from the company, something that is likely to take years of court skirmishes to resolve.

Reputational rebound

“We were the only organisation that gave evidence at Zondo to end up being praised by the commission,” says EOH chief financial officer Megan Pydigadu.

“Since then, we’ve had a lot of customers, including blue chip companies, approach us for help in establishing robust corporate governance standards, and put[ting] in policies around potential areas of corruption, like the giving of gifts.

“We are seen as experts in this area.”

So expert, in fact, that EOH is planning to turn its corporate governance lessons, enhanced by some fancy technological tools, into a revenue stream.

Other organisations, like prison services group Bosasa, withered under the Zondo microscope.

EOH seems to have gained some spring in its step because it confronted its demons and exorcised them.

An encouraging feature of the latest results is the countercyclical nature of the company’s business, and the fact that it achieved cash-to-Ebitda (earnings before interest, tax, depreciation and amortisation) of 87%.

“Our business is countercyclical in that we tend to do well in difficult economic times, since so much of our offering involves building efficiencies and improving bottom line performance,” says Pydigadu.


The company says it plans to raise up to R600 million through a R500 million rights issue and an additional R100 million specific issue to its BEE partner, Lebashe Investment Group, which will end up with roughly 29% voting rights in the company.

The proceeds will be used to further pay down debt, on which it is currently paying about 15% annual interest.

That could release about R120 million in interest charges annually.

EOH’s growth engines comprise iOCO Digital which taps into Fourth Industrial Revolution trends; iOCO Operational Technologies which is pursuing growth opportunities into East and West Africa; and IOCO Infrastructure Services, an IT outsourcing business.

There’s no shortage of growth opportunities, and it plans to expand its presence in Africa, Europe and the Middle East.

“Our focus is on creating centres of excellence internationally, pursuing mid-market clients, and ensuring that there is an appropriate movement of IP [intellectual property] and skills across the geographies in which the group operates,” says the company in a statement.

This article originally appeared on Moneyweb and was republished with permission.
Read the original article here. 

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