Information and communications technology (ICT) services company EOH improved its gross profit margin to 29.9%; its earnings before interest, taxes, depreciation and amortisation (Ebitda) margin to 9.7%; and its operating profit margin to 4.8% for the six months ended January 31.

The company posted an operating profit of R167-million, which bears testament to the significant shrinking of administration costs, which is the last piece of the puzzle to achieving a sustainable turnaround, CEO Stephen van Coller said.

“The EOH board and management team are pleased to report that, despite the ongoing challenging operating environment, this six-month period marks the successful completion of EOH’s targeted turnaround strategy.

“We are back in the black ahead of schedule and we are now confidently doing the right business with the right customers in the right way, and are now able to go and get our future,” he said in a presentation of the company’s interim results on April 13.

Creating the right capital structure as part of the turnaround enables EOH to significantly reduce the interest burden and provides headroom so that it can take advantage of opportunities that are aligned to its growth strategy, he said.

The group will have reduced business entities to about 100 by the end of the financial year. It is targeting a further reduction to 60 business entities by the end of the calendar year, along with a simplified business structure.

All its businesses are significant contributors to revenue and are earnings accretive, he added.

“The future foundations of EOH are our [intellectual property (IP)] companies, which are ready for scaling and geographic expansion. Currently, they are small, contributing less than 10% of group revenue [of R3.5-billion for the interim reporting period]. They present opportunities to build out and can be significant drivers of margins within five to ten years, but all require investment of capital to grow and expand,” Van Coller said.

Looking ahead, he commented that the market shows strong growth fundamentals and, although ICT is correlated to gross domestic product (GDP), it tends to grow faster than GDP and its growth has proved to be resilient – flat-lining as opposed to shrinking even during more severely Covid-19-impacted periods.

EOH is also enjoying a “digitalisation dividend”, with demand for its services supported by the digitalisation of clients and their ICT infrastructure.

The company’s client value proposition is aligned to their business transformation journeys with the goal of delivering value for them from the digitalisation of their businesses and helping them ensure their IT engine rooms are optimised to support their new business models and operations, he added.

Further, the company will expand its software development, analytics and cybersecurity services to support clients’ move to the cloud. It will also aim to develop and sell its IP products, as well as find and serve new clients.

For example, EOH Egypt is well-positioned to expand into markets in the Middle East and serve new clients, as well as support South Africa, the UK and Europe with cost-effective outsourcing services, illustrated Van Coller.

“We are now more confident than ever that EOH’s diverse services offering means we are well-positioned to meet the needs of our clients,” he said.

The company also has significant experience in helping industrial clients, including manufacturers and mining houses, to digitalise their processes and work with them according to Fourth Industrial Revolution standards to drive transformation.

“All of this is enabled by the digital agenda of businesses responding to the work and shop from anywhere trends, and is focused on how the companies can drive costs out and prepare to scale without adding too much to their businesses’ cost structures,” he highlighted.

EOH posted headline earnings a share of 41c, a year-on-year improvement of 214%, and total earnings a share of 13c.

Further, cash generated from operations was positive for the period. EOH had a cash balance as at January 31, of R625-million and undrawn overdraft facilities of R250-million available as at April 12.

Additionally, the company’s balance sheet remained stable and it experienced a good six months in terms of cash, and converted Ebitda to cash at a ratio of more than 75%, said EOH CFO Megan Pydigadu.

EOH also achieved good cash generation of R290-million from its operations and it managed to cover all its costs using the cash generated.

“The continued acceleration of digitisation across the business landscape has seen EOH entrenching its status as one of Africa’s largest technology service providers by enabling its clients to rapidly pursue secure digital transformation and automation strategies,” Van Coller added.

“We embarked on a challenging turnaround strategy for the EOH Group and it has been a tough but rewarding journey. Today, EOH is an agile and focused organisation, proudly celebrating the fact that we are able to report positive earnings a share. This important milestone is clear evidence of our collective success.

“Our clients’ strong demand for full digital transformation and EOH’s ability to deliver on all their needs across infrastructure, software and services puts the group in an attractive position with the ability to increase its market share,” he noted.