EOH Holdings has reported that normalised revenue from continuing operations grew by 8% to R16 277 million (2017: R15 128 million) for the year ended 31 July, as a result of increased activity at existing customers. Revenue from services accounted for 79% of total revenue.
Normalised operating profit totalled R1 187 million (2017: R1 736 million).
Normalised EBITDA for the year amounted to R1 770 million (2017: R2 184 million). Headline earnings per share (HEPS) and earnings per share (EPS) from continuing operations was 278 cents (2017: 797 cents) and 202 cents (2017: 794 cents) respectively.
Normalisation adjustments to revenue and EBITDA totalled R64-million and R379-million respectively, related to the discontinuing activities in the public sector division.
The group, which was formed in 1998, recently completed its reconfiguration into two distinct and independent businesses, EOH and Nextec, each with its own brand and identity, business model, growth and go-to-market strategies.
The ICT business will operate under the EOH brand, while the specialised solutions for high-growth industries will operate under the newly launched Nextec brand.
The EOH ICT division (EOH) comprises all the core IT-related business units.
The key characteristics of the business continuing under the EOH brand are:
* An end-to-end information and communication technology (ICT) offering;
* An integrated go-to-market strategy;
* Cross-selling opportunities with existing customers;
* A highly proficient systems integrator;
* Driving new generation digital technologies; and
* Specialising in industry-specific intellectual property.
The business has recently undergone a value proposition refresh in line with the new strategy. The EOH business is focusing on assisting clients with their digital business transformation in the cloud economy.
The value proposition focuses on Applications/Software; Data and Analytics; Cloud and Technology Infrastructure; Managed Services; Digital and Advisory services; and Security in its integrated go-to-market approach.
The ICT business remains strong and resilient. Customers are continuing to spend on maintaining their legacy systems, integrating with best-of-breed applications, and investing in new generation digital technologies. Significant investments in technology slowed during the year and is expected to pick up in the short to medium term. There is a move to cloud-based infrastructure solutions and infrastructure as a service as companies look for business efficiencies.
Software sales increased for the year with a different mix of third-party software and EOH’s niche software compared with the previous year.
The business continues to support most of the major global technology OEMs and is a premier partner to SAP, Oracle, Microsoft, HP, IBM, Dell, Cisco, Huawei, Amazon Web Services, Qlik, CA and many others. EOH is placing emphasis on aligning with these partners as they develop their IP and take their offerings to the cloud business model.
The growth drivers in this division are transformational outsourcing; ERP upgrades and re-implementation; digital transformation; new digital technologies and solutions; application development; Internet of Things (IoT); big data; analytics and niche software development.
The outlook for business in South Africa and the rest of the continent is positive. EOH expects the market to adopt a hybrid multi-cloud approach which means customers will make use of a combination of on-premise, local and global cloud service providers.
Nextec offers locally relevant expertise and solutions across diverse industries and domains.
The key characteristics of Nextec are:
* High degree of specialisation in each of the businesses;
* Deep levels of expertise;
* Domain-specific IP;
* Growth to be driven equally by acquisitions and organically;
* Vertical-specific offering – key differentiator; and
* Multi-brand businesses.
The Nextec businesses delivered a mixed set of results for the period. The digital infrastructure, software and IP portfolios, as well as the process services businesses delivered robust performance in challenging market conditions. Several instances of annual renewals resulted in some margin sacrifice.
Broad market conditions have significantly hampered performance in several other areas of Nextec. The long delays in the awarding of smart infrastructure contracts, combined with delays in contracting of client engagements already secured, resulted in lower than expected revenue in the second half of the period.
The anticipated awarding of these contracts and the delay in the initiation of contracts already secured, has highlighted the need to retain critical skills during the delay period resulting in significant margin erosion across the business.
In conjunction with the broader group strategic portfolio review, a number of the businesses within Nextec were rightsized and/or consolidated in response to the respective specific situation of the businesses affected and broader market conditions.
The general outlook for the Netec business in the South African and African markets remains positive.
Overall, the group had fewer acquisitions during the financial year, as it consolidated and aligned its operations into two major businesses.
The Group acquired LSD Information Technology as well as a few other strategic businesses which have been successfully integrated into the management structures, operating model and ecosystem. The consideration for acquisitions during the year totalled R511-million, subject to cumulative profits warranted of R173-million being met over two years.
Operating expenses increased by R842-million to R4 009-million, driven by the increased activity levels, higher advisory fees (R18-million) for consulting on BEE, media, governance and technical accounting advice); R121-million in impairments; higher provisions for bad debts linked to the discontinued public-sector-focused division (R127-million); and a higher staff cost base as a result of prior year acquisitions contributing to costs for the entire 2018 financial year.