EOH seals R1.2bn in new business

EOH has signed deals valued at R1.2bn as the technology group expands its operations four years after the management team took over a business racked by corruption and crippling debt. 

The group said in its recent earnings statement for the six months ended January 31 that mining, manufacturing and financial services led the pack for new contracts.

The latest deals “show the diversity of business that EOH is winning”, said CEO Stephen van Coller. “This is further testament of having returned to growth.”

The group recently raised R600m from shareholders, including R100m from Lebashe Investment Group via a broad-based BEE deal, which has brought down interest-bearing debt to more manageable levels and enabled the group to invest in expansion, focusing on areas such as developing in-house software products.

That’s a far cry from the days of it having to sell important business segments and closing a number of subsidiaries in a group structure that once comprised about 270 entities.

New business

The biggest transaction is a four-year custom software development contract with a manufacturing concern valued at R239m. EOH has also secured a R151.4m three-year field services global support contract in mining, a five-year contract for mainframe support, software development in financial services for R144m, and two more in mining for about R126m each. 

In total, mining accounts for about R404m of new business, and financial services R313m. Manufacturing accounts for a further R304m, telecommunications R80m, diversified industrials R39m, and the public sector R37m. Deals in energy and utilities are valued at R23.2m. 

EOH has traditionally been strong in industries such financial services, but its biggest drop off has been with the state. The public sector was the second-largest earner, accounting for 15% of business in the previous comparable period. That has since decreased to just 3.25%. 

“On the negative side, we have seen a significant slow down in public sector work, especially with state owned enterprises and metros. This is a significant worry for the economy moving forward,” said Van Coller. 

The group has also been expanding internationally to mitigate the impact of a slowdowns in its home market. 

The Middle East, Europe and UK portions of its digital enablement business showed strong growth of more than 45% to R257m for the six-month period.

Shaking off the past

Management has been salvaging the company’s reputation after allegations of malpractice and tender irregularities under the previous leadership. The group has also had to deal with a mountain of debt accumulated during that period, when it focused on acquisitions to expand the business, especially in the public sector.

Law firm ENSafrica was hired to investigate the allegations and it found R1.2bn worth of suspicious transactions, mostly involving public sector contracts that ensnared the group in state capture.

The technology group agreed in November 2022 to pay R177m in a final settlement after a Special Investigating Unit (SIU) investigation into allegations of corrupt dealings with the department of water & sanitation over four IT contracts worth R474m.

Debt has been cut to R673m from R4bn in September 2018.

In the review period gross profit — revenue minus the cost of sales — from continuing operations rose 8.5% to R933.9m. Still, operating profit slumped by almost a third to R110.4m as expenses rose 8.5% and the tax bill jumped about two-thirds.

EOH reported cash outflows of R138.2m for the period, a sharp reversal from the previous period’s inflows of R124.2m, while cash and cash equivalents more than halved to R192.1m.

gavazam@businesslive.co.za