BUSINESS DAY TV: EOH, at the leading and bleeding edge of new technologies
EOH financial director John King speaks about half-year results, which show a 22% increase in headline earnings per share — and lots of new jobs created
John King is EOH financial director.
BUSINESS DAY TV: Technology services group EOH has maintained its consistency with another set of strong numbers. Revenue for the six months to January jumped 21% while headline earnings per share for the period rose 22%. Group financial director, John King, joins us on News Leader with more.
John, so, a consistent performance from the group despite a less-than-consistent economy, I suppose, over the last couple of years. How do you maintain that consistency when you do go through some very bumpy periods?
JOHN KING: EOH is the largest technology service provider in Africa and the Middle East, and probably in the southern hemisphere at this stage.
EOH financial director John King speaks to Stephen Gunnion about half-year results, which show a 22% increase in headline earnings per share.
So we have lots of solutions, lots of our own solutions, lots of clients and, regardless of what happens out there, everyone needs technology of some sort. It may be in the IT space, it may be in the technology space, in energy or water. So that does cushion EOH a lot in that process.
BDTV: And it’s not just SA that’s had a tough economy over the past year, it’s been across most of the continent. Have you felt it in any of your business units over the period?
JK: In our industrial technologies business, when you’re in some of the energy spaces, particularly, we rely on some of the big energy providers, and when they have delays in projects, obviously our teams are delayed as well. But it’s really only been the energy sector that’s really been a problem for us. In water ... we’ve had a tremendous growth in a lot of the technologies in the water space. But overall, every part of EOH has contributed to the growth on a revenue side and from the profitability point of view. And if you look right now, our services and software account for 83% of our revenue. So it’s not just software sales or technology sales, it’s really the services that carry EOH through tough times — any times.
BDTV: Are you comfortable with services and software making up such a large portion of your revenue, would you like to see more coming from IT infrastructure or the industrial technologies, or the likes?
JK: In services, we include industrial technologies in that space, in the BPO (business process outsourcing) we include in it. The one part that is not included directly is the IT infrastructure side, which is very lumpy and that basically depends on demand, depending on who wants the demand. But when you have services, that’s what you want. More than 50% of our revenue is annuity-based revenue. So, yes, absolutely we would even prefer to increase that 83%.
BDTV: And do you find that at times you lose some of that annuity revenue if customers cancel contracts?
JK: It’s very difficult to cancel contracts. Most of our contracts are three-to five-year contracts and the one thing about technology is that you need technology. In fact, often, technology is the facilitator to reduce costs and to improve customer service, so I suppose we’re in the right industry at the right time, and we’ve been in that space for a long time.
BDTV: So 80% of the growth in revenue, you say, over the six-month period came organically — is that selling more products to existing customers?
JK: Absolutely, that’s primarily what it is, it’s new products and services and solutions into the existing base. But also we found that a lot of the acquisitive growth, a lot of the acquisitions only came on board ... December, January, so as we go through the year it will be more normalised and we’ll probably end up with a 60-40 in favour of organic.
BDTV: In fact, nine businesses you bought over the period, including Cornerstone — if they had been included for the full-period what would they have done to your revenue and profit?
JK: We accounted for about R250m worth of revenue from the acquisitions and they would have been about R560m for the entire period.
BDTV: You say you’re based in Africa, the Middle East, SA, 87% of revenue still coming from SA though. Are you starting to see that coming down? Are you focused on acquisitions outside of SA’s borders?
JK: We still see a huge runway and huge opportunities in SA. The only reason why we’re in Africa and the Middle East is because they need the same solutions that have been tried and tested in SA. So we’re looking in those countries, particularly in north Africa and [the] Middle East where they’ve got really good GDPs. They’re often twice the size or bigger than SA, a little behind sometimes in technology. There is no service integrator like an EOH in those regions, so it’s really fairly opportunistic, but now strategic to move into those countries in both the public and the private sector.
BDTV: Would you look beyond those countries?
JK: Probably in time we will, but we’re Africa. Africa, Middle East is really where the need is. Emerging markets are certainly on the cards and we’d look at South America and other parts of the world.
BDTV: What part of your business now comes from government?
JK: About 20%, and that’s really in line with the overall technology spend in the country. The 80% of technology spend is in the private sector and about 20% in the public sector. We’re involved in big enterprises both from a private-sector point of view and, obviously, large government departments from a public sector point of view. So we don’t focus on SMEs or small businesses, and we know we have a responsibility, quite frankly, as the biggest player in this space, to be involved in government.
BDTV: But it is a business opportunity, you say, in your results?
JK: Absolutely, it is and it’s huge. There is so much more that we can do. If you look at what’s happening in terms of all the different ... with Sassa and the stuff with the grant payments etc, it’s all based around technology and we have all those technologies, which we can obviously use.
BDTV: You should have been in the Constitutional Court today, maybe putting forward that case. With government as a customer for EOH, because it’s not the easiest customer for some corporates, how does EOH find it because you seem to be getting it right?
JK: What you need to do with the government, the public sector in general, is to make sure that everyone knows exactly what is expected of the service that we’re delivering, so you’ve got to contract absolutely correctly ... make sure that you have the right milestones and you need to deliver. So as long as you’re doing that then you’re going to be fine. We don’t have a problem with non-payment. Yes, the payment terms are slightly longer than in the private sector, that is an absolute fact, but we have no write-offs. So as long as you’re delivering and you contract right, then you make a difference. We’re everywhere, in the provincial government, in national government, in the municipalities in big metros.
BDTV: The focus in the current six months?
JK: The same: more of the same. The idea is acquisitive growth. Obviously we’re much bigger now, we have 12,500 people, we’re probably a R14bn to R15bn turnover business, so we continue looking for new ideas, but our focus is really our own EOH IP solutions, so we’re doing a lot of work in that particular space and obviously selling more into our own existing customers. So we’re at the leading edge and bleeding edge of a lot of new technologies: the cloud, the digital and all those things care, coming together very nicely at the moment.
BDTV: Maybe, just quickly, your youth job-creation initiative turns five this year. How successful has that been? How many opportunities have you actually created?
JK: It’s been fantastic. We’ve had, from an EOH point of view, over 2,500 people coming through EOH itself as interns and learners. Nearly 90% of those people have been employed by EOH. In working with our customers, more than 10,000 people have found jobs and now we’ve got the 702-EOH challenge to all CEOs and the target is to have 100,000 new jobs by 2020, and since we launched this a few months ago, 15,000 new jobs have been created, so we’re well on the way and it’s been very successful.
BDTV: And it’ll be keeping government happy as well.