January 18, 2022

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Edited Transcript of EOH.J earnings conference call or presentation 7-Apr-20 9:00am GMT

Apr 14, 2020 (Thomson StreetEvents) — Edited Transcript of Eoh Holdings Ltd earnings conference call or presentation Tuesday, April 7, 2020 at 9:00:00am GMT

Good morning, ladies and gentlemen, and welcome to the EOH Interim Results 6 Months Ended 31st January 2020. (Operator Instructions) Please note that this is being recorded. I would now like to turn over to the group CEO, Stephen van Coller. Please go ahead, sir.

Good morning, everyone. Really, thank you for joining us. Obviously, a difficult situation, slightly different to what we used to, all being in locked down. So I’m sure some of you are probably still in your pajamas, but I suppose it’s all about being comfortable. Very pleased to be going through our results.

What I will do is I’ll go through just some of the progress, how I see it, some of the things we promised to, give you some of the details, just to give you some background to what we promised we would do a year ago, we’re now standing up here and where we’ve got to. Megan will take you through the numbers, and then I’ll just conclude it by the end just talking a little bit about going forward.

What’s interesting, though, for me is it’s a bit of déjà vu. If you remember last year, we had stood up in front and we had the bombshell dropped on us. And so we had a fairly uncertain or unclear view of the future, and we had to go into it. I suppose we’re standing here again and very difficult to predict what the future is going to look like. But the difference is that, I suppose, us at EOH, we’ve had a year to prepare for this. We’ve been through this once before, and I’m feeling so much better in terms of that. I’ve got proper teams in place, proper support, proper processes. And I think we have hit the ground running, which has really helped us come up with some ideas on how we manage going forward. But more importantly, I just think the business is so much fitter than it was before. And I’ll take you through some of that.

So if we start with the story so far, those of you who are paging yourselves on the presentation. I think the first thing we had to do was to attract experienced talent, especially in the support services because there wasn’t anything. But at the same time, retaining the existing front-end talent, as I call it, because that was the differentiator for EOH. And I’m pretty pleased to say that in the last year, we’ve only lost 1 person, and that was due to retirement of that original ICT management team, and so we’ve managed to keep that together. And I think that’s one of the main reasons why we are able to present results like this.

Clearly, what was important in that hallmark issue was to significantly improve governance risk and control procedures, and I’ll take you through that. We’ve made huge steps forward, but I think the proof is in the pudding that we managed to avoid government and BUSA blacklisting suspension, which some of our fellow companies who didn’t act as quickly and as aggressively as we did, didn’t manage to do that and just been able to go out in front of all our top customers, sit in front of their risk committees and to be able to talk to them about what we’ve done, how we’re dealing with it and what we’re going to look like going forward, has really made a huge impact on stabilizing our core revenue, and I’ll take you through that

But what have we achieved? I think, largely big traction on legal company rationalization. I’ll show you that we’ve closed down about 87 of our legal entities, still more to go, but that obviously helps in many things like tax, like overhead costs, et cetera, admin costs. We collected over ZAR 400 million in long outstanding debt, close to 31 properties over the last 19 months since I’ve been there, 21 of them in this year, annualized savings of around ZAR 70 million.

Contained headcount. Staff numbers down by about 3,000, obviously a mix of closing businesses down, selling businesses as well as retrenchments and hiring freezes in the right places. And I told you I would raise around ZAR 1 billion selling businesses. We sold over 40, and that’s also obviously added to the bottom line. All of that allowed us to pay around ZAR 227 million in one-off off costs, about ZAR 1.5 billion to the lenders in the last 19 months: ZAR 1 billion of it, capital ZAR 0.5 million of it interest. You’ll see when Megan takes you through the significant accounts cleanup, it was a real mess. Everything done on spreadsheets. So we had to do a lot of data cleansing and work through it. And then, I suppose, more importantly, looking forward, restructuring the core iOCO plus business, as I call it now, because it includes some of the NEXTEC businesses that we think are core into 5 manageable units that creates a real ecosystem, and I’ll talk a little bit about those LEGO blocks and the business model differentiation in a minute.

If we go into the key achievements slide, just the highlights, Megan will take you more, but I think the business performance very much stabilized. Revenue was down 21% because of a number of factors like selling businesses, et cetera, but costs down 31%. So I suppose, like-for-like, a nice 10% pickup there or positive jaws, and you’ve seen our GP margin go up significantly up to 24% as we’ve cleaned up a lot of the businesses.

We spoke around an ZAR 800 million normalized EBITDA a year ago. I told you it was very much just a mechanical calculation with lots of things done. We weren’t certain about it. But it looks like we were pretty close on that number doing 4.5 — ZAR 405 million for the first half year. Cash conversion, still not as good as I like a bit largely because of some of the one-offs and things like that. But normally, we’d have a better second half. Obviously, COVID and the lockdown going to affect that a little bit.

I think more importantly is that through everything we went through over the last 12 months, including a revenue store as customers waited to see how we got through corruption crisis and didn’t really do any new contracting with us. We’ve managed to pay all those one-offs, we’ve managed to pay the banks, and our cash balances have improved. If you go like-for-like, they’re pretty flat, but if you have a look at the 2nd of April, had a very good collection month in March, obviously, making sure we were properly prepared for the lockdown, and we closed at the 2nd of April with ZAR 950 million on the balance sheet.

I think more importantly, we’ve now got a clear path to extinguish the drain of these large one-off settlements and large loss-making businesses. We’ll talk more about that. And I think that’s the big difference. We know what we have to do. We’ve got a timeline. We’ve got processes in place for all of them, and I’ll give you some insight into that.

If you go into the next page, I think, obviously, we need to talk about what’s going on at the moment. I think in South Africa, very, very tough economic environment. I saw that SARS this morning came out saying that they think the deficit this year, the budget deficit, will probably be around 10%. Some of the economists talking about a recession of somewhere between 4% and 10% negative on GDP. And this is largely because of these 4 factors: The load shedding plus the large government debt now with the Moody’s and Fitch downgrade into junk status as well as COVID-19, all making it very difficult. And so we’ve — we’ll talk about it later, but really, a new mindset.

I think we’re going into a very different world. I mean I think from whatever happens even after the close down, I can’t see people going and squashing up next to a whole lot of people in a restaurant, squashing up in an airplane, squashing up in sports fields. I think this is going to create a fundamental change in how we spend our money, what we do and how we go forward. And I think as South Africa, we need to stand together and do as much as we can for the country, not just look after our own little patch, and I’ll talk a little bit about that, especially people like EOH where we’re very critical to the business.

The next slide I put up really just to give you a feel for the team. Very experienced team that we’ve put in place, and I’ll give you some of the detail behind it, but all seasoned campaigners. I think very importantly, our 2 core product businesses now run by veterans, people that have been in EOH for some time, Brian Harding and Tsepa Ramoriting, and they will be driving those core businesses. Lufuno, who has been with us for a long time was open in his own right. He bought his company some years ago, and he’s been really, really instrumental in helping us sort out the Public Sector.

Sean, previously a banker, but did a lot of advisory to ICT companies when he was in the U.K. and in South Africa. So good background, also did a recent turnaround of a listed mining company. I brought him in really to help us accelerate the sale processes and the close down and rationalization of the noncore businesses, and you can see significant progress there. So he’s helped us.

Marius came, and he’s really helping us manage the complexities of multiple businesses. He’s done this many times before, and he has been helping us sort out that complexity as well as put in a proper sales process underneath them. We’ve got all the original ICT ex-co members still running the various businesses. And so a lot of ICT support there. Natasha, who used to be part of the monitor group as a consultant, was actually part of digitizing the International FX business at Barclays Africa and has brought that with her helping us put our long-term strategy together.

If I go over the page, I think it’s quite an important slide. If you have a look at just the people that we brought in to create support services, these are all new people that we brought in over the last year. Some of them replacing some of the old staff, obviously, in the risk space. We didn’t have internal audit. We didn’t have risk. We had 1 person in compliance. We didn’t have a Head of HR. So we didn’t have a Head of Procurement. So very, very strong people we brought in, and this is why we’ve been able to make significant progress in that regard.

And I think ditto for the financial team. If you have a look at them, all coming from large corporates, large companies and enabling us to really do a big turnaround in the numbers, the reporting of them and just managing them and allowing us to have this big positive jaws on revenue and cost differential. So feeling very comfortable that we are now properly staffed, especially going into something like this lockdown and the potential recession. As we come out of it, we couldn’t have been more prepared. So I’m very thankful that we had a practice run at it last year.

If I go into the sustainable business model, I think this is quite important really because IFRS doesn’t really allow you to report the way you run the business, the way you see it and so this slide is pretty important, and I’ll talk a little bit to it. We’ve got 3 business units in essence. The iOCO business, which I’ll talk about on the next slide, but the iOCO Plus business, which is the core business, which includes the core NEXTEC and the core ICT business. We’ve got the NEXTEC business, which is where we’ve split it into 2. There were obviously a bunch of assets that were highlighted for sale. Those are busy being closed out. There’s a number of other businesses that are not really ICT businesses. We’re having a look at optimizing them. If we think we can digitize them, we will then put that plan in place, put them into the core business. Otherwise, we will find rightful homes for them where they can thrive.

And then you’ve got the IP businesses where — which I call delever core. As you know, we’re busy selling those businesses to make sure that we delever to the less than 1x EBITDA that we had talked about on a net debt basis. So we’ve got 4 businesses there. If you remember, CCS, we sold it 8.5x EBITDA last year. We started processes on Sybrin and Information Services, those are pretty well advanced, and I’ll show you a slide on that. And Syntell — sorry, we started processes on Information Services and Syntell, and we shall start shortly on Sybrin. Those 3 businesses together making up about ZAR 350 million of EBITDA on an annualized basis. So very pleased with the progress there. Clearly, obviously, the lockdown may slow that process a bit.

If you go over the page, just having a look at our value proposition, the 5 main business lines as I talked about it in iOCO Plus, very much an ecosystem. I think this is the differentiator for EOH in this market. No one has got the end-to-end capability we’ve got. You’ve got iOCO Technology, which is the original business, and that is where we are very much aligned to OEMs, both in the hardware and services space, HP, IBM, Dell. Plus, we’ve got our enterprise applications in that business, which is the large corporate mainframe enterprise applications that are obviously over time being cloudified. And that’s things like SAP, Oracle, Infor, et cetera. And then we’ve also got in there our software reselling business, which is really where we are the agent for software companies, and we sell their software and related services, once again aligned to the OEM strategy.

In the Solutions business, this is what I call the new age business. This is all the new stuff that’s going on. It’s the open source. It’s the AppDev, UX, UI businesses, the data analytics and the security and cloud solutions. This is where I think we’ve got a real competitive advantage. It’s a big business, and we see that our cost structures with Egypt being about 50% of a South African employee and employee being — serving employee being about 65% of Europe, we’ve got a real ability to follow our customers, whether they’re Nestlé, AB InBev or Sasol into other markets. We can build stuff here for them and then cut and paste and take it offshore, and you can do 70% of the work in these lower cost jurisdictions. Really excited about that business.

I suppose the one business we haven’t talked about a lot is our Digital Industries business. This is really an automation and AI business driven by IoT. And this is really where we’re seeing significant growth as industry mining try to automate their processes. If you just think about a yellow goods truck with an IoT device and its petrol or its diesel tank, engine temperature, speed, mapping, to see efficiency, tire pressures, you can monitor that all on a big screen. You can monitor your whole fleet, make sure that they are driving in the right direction, on the right path, but you can also do preventative maintenance. But you can see this being as the precursor to driverless trucks on mines and industries, et cetera. Very exciting business as well.

The Advisory & Consulting business is a really important part of it. We’ve got brands like Freethinking in there, where it’s really about design thinking. We’re seeing more and more of our customers wanting solutions. They want us to sit and solution with them, whether it’s with the Head of HR or the Head of Finance, to come up with what is the best solution for their employees and their customers in terms of taking cost out, in terms of digitizing, and they want you to be product agnostic, and then they want you to deliver on that. So very important part of the customer-centric nature of our business.

And then lastly, obviously, people want to have a look at, can you manage and operate some of the IT operations. Today, this is largely infrastructure based. So very much data storage or data farms, server farms and desktop management with all our field services. But obviously, we need to expand this as we manage people’s software and services in the cloud going forward. And then lastly, the connectivity bit is we manage our customers’ connectivity because you can’t have a whole IT stack and not have connectivity, and we’ve got a very good business there. So that’s really what the core is going to be going forward, and, well , Megan will give you some of those numbers.

Very quickly, just going on to the governance risk and control framework. Just really to put this up to see our road to green working very well. The number of reds being replaced with some greens will continue with us. Pretty excited with the progress we’ve made there. If you have a look, we talked about the King IV maturity assessment. I promised you that we would go to full King IV compliance. We’ve made extreme progress there. Very happy with it. And we’ll continue to improve on that. And I’m pretty sure the next 12 months, we’ll get almost everything green.

I put up the governance and training slide because it’s actually quite novel. It’s the first time anyone in EOH has ever had to do governance training, and we’ve managed to achieve an 85% hit rate, which I think is just amazing for a company like us. Clearly, in some cases, like NEXTEC, a little bit more difficult. You have some blue collar workers there, but 85% hit rate, probably better than we ever did in any of the banks. So very excited about that. But you can see how quickly you can change the culture of an organization. And as I said to you last time, 99% of people just want to do the right thing and do it in the right way. And I think this is just proof to the tenacity of the EOH employer as a whole, given that we’ve got that result on a first out.

Obviously, all this governance and risk and control work allowed us to stabilize the revenue. This is a rolling 12-month revenue. You can see the only real dip being in the hardware space. But that came back at the end of the year, and that’s picked up nicely, and going back to a normalized position. So feeling very comfortable that we’ve managed to — in a very difficult economic climate with the bribery and corruption 6 months on top of it, we’ve managed to actually get back to normal, and that core business looking very solid going forward.

If we go to the Property Optimization slide, this is really just showing our property costs have come down. If you remember, we had 114,000 square meters of empty property when I joined. That’s ZAR 0.005 in city. We have completed 31 exits, 21 this year, with another 24 to go. And hopefully, by the end of 2021, we will have saved as much as ZAR 147 million per annum, ZAR 70 million is currently what we’ve achieved to date.

Going to next slide, just this is the legal entity reduction, completed 87 and with another 151 to go, targeting, hopefully, 34 companies by the end of next calendar year that will massively simplify our company as well as sorting out a lot of our tax issues that we have at the moment, just the inefficiency around it. So pretty excited about the progress of that, and I must really thank Marius and his team for such a diligent outcome.

If you go to headcount, this is also just showing you the reduction in headcount from 11,400 when I stood up in August when I first got here to 8,400. Clearly, that’s a mixture of sales, retrenchments as well as just not hiring and where we didn’t have to hire. And that, obviously, much better structure that’s given us the GP improvement. I think also, importantly, we’ve done a lot of digital transformation projects in place. This is — everything was manual when I got there, and the team has just done an amazing job of actually building up a whole digital assets. Some of them were already — we had like the digital signatures. It’s a company called Impressions. It’s one of the few certificator — certified digital signature companies. We’re using it internally. It makes a huge difference when you are dealing with a number of — the amount of admin we had to deal with.

We’ve done things like put in a VOIP Project. We have our own VOIP technology called Martel. So we’ve taken everyone off usual voice, put them on VOIP. We would have gone through the whole organization by the end of August. That’s saving us an enormous amount of money. We’ve put in cognize for the first level consolidation, which has really helped in terms of getting proper information together that Megan will show you, and you can see there’s a number of other things we’re doing as well. Hopefully, a lot of this we will be able to use as IP to actually sell to our customers, and we’ll be the test site for all of it. So very excited about the progress people are making on that.

I told you I’d sell ZAR 1 billion worth of assets. We sold ZAR 1.2 billion. Obviously, not all the cash has come in yet. So there’s still some of it. Some of it being that we’ve got competition commission, and there’s also some deal retentions that we’ll go through. The issue here is this wasn’t enough, and this is why we’ve gone into selling the IP assets.

This was just a slide really just detailing some of the one-offs, a big number, a lot of cash. Megan will tell you. We’ve got about ZAR 20 million left to pay. Otherwise, that’s pretty much done. So very excited about that. This is one slide that always amazes me that we’ve managed to, in the last 19 months, pay so much to the banks. So quite important that we continue with this delevering. Obviously, some of that ZAR 957 million was out of the leverage, say, ZAR 750 million, but we have managed to pay ZAR 1.5 billion back. So very important for us and the banks.

This is just to update on the sale processes of the 3 IP assets. Obviously, 2 of them very much in the final stages, just waiting for the binding bids to come in. Just dealing with the shortlisted bidders and the timing around, obviously, the lockdown, and then we will launch the third one being Sybrin shortly.

I suppose dealing with COVID, I think this is quite an important slide because it just tells you how fit for purpose we are going into this. Obviously, no one knows going to a situation like this. But we’ve done an enormous amount of work over the last 3 years — 12 months and just feeling so much more organized and able to actually deal with it, having reduced headcount by 26%, 31 less properties, reduced expenses by 32% versus revenue only 21%, increased GP margins by 4%, reduced the number of legal entities by 87, implemented proper debt collection process, as I spoke about March collecting 97% of forecast I think is just amazing. We’ve got our short- and medium-term cash flow forecasting, which pre warns us of anything we need to deal with. We’ve had weekly liquidity management implemented over the last 9 months. So the businesses really understand this and can manage it properly.

We’ve centralized procurement efforts. I told you we had very decentralized procurement even though we procured over ZAR 2.5 billion worth of equipment. We’ve proactively liquidated and identified bleeding businesses where necessary. I think that you can see the bounce back into the GP margin, and Megan will take you more on that. We’ve got our rolling, budgeting and forecasting. So we can predict better what’s happening going forward. And we’re busy implementing our 3-year business model, which should be finished and ready for 1st of August. Obviously, ongoing dialogue and engagement with the lenders now with established monthly meetings, and we’ve now agreed the deleverage program with them that Megan will take you through the detail of it. But more importantly, we’ve ended up with 10% more cash on the 2nd of April that I had standing up here last time speaking to you a year ago. So feeling very good about where we’ve got to. Clearly, there’s more to do.

If you go to the next slide, dealing with the COVID-19 current initiatives. We’ve put a few things in place, and I think it’s really important. I’m trying to save around ZAR 100 million of cash per month just for the lockdown and maybe into the beginning of the recession or the coming out. And I think it’s really important. One thing I’ve realized over the last year is how systemic we are to South Africa, and that all businesses, some of them, when I speak to some of our bank colleagues, some really good businesses who were doing extremely well, but they just overnight closed their doors, their revenues stopped. When we come out of this, they’ll want to kick up again, and I just think its incumbent on us as EOH’s #1 to make sure that we fit for purpose that we can continue to service them through their difficult times. They’ve been customers for us for a long time and as well as I just think this is something all of South Africa should be doing.

We should be thinking about rather having 100 people employed at 80% rather than 80 people employed at 100%. This country just cannot afford any more job losses. Our unemployment is high enough, and we know what the social impact of that is on all of us, and so we’ve acted quickly. Ex-co have taken a 25% pay cut. The rest of the business, we’ve looked at, and we’re busy consulting with them in a way to reduce pay — cash pay by 20%, but maybe payback through noncash means like extra leave or shares or out of our share scheme or something like that, and that will close on Thursday, but I’m pretty confident we will make a good saving, and we can do our bit for South Africa while still remaining relevant to all our clients. I’ve had an amazing feedback from most of our staff. It just feel that it’s great, we’ve got some certainty, but also it can be there but to ensuring that we keep South Africa on track and going while keeping all our client contracts and delivery in — on track and on target.

Obviously, looking at office and property-related expenditures, lots of savings in travel entertainment, marketing and events at the moment. There’s some other cash savings. We look at it around CapEx. And as we close more leases as they come to an end, some of that cash will come out. So that’s going to be tough. I mean ZAR 100 million is a big number. It’s about just under 10% of our revenue and is more or less our EBITDA margin. But I think it’s the most prudent thing to do as we go into this time of uncertainty. We need to manage this for our customers.

So with that, I’ll hand you over to Megan, and she’ll take you through the detailed numbers.

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Megan Loanne Pydigadu, EOH Holdings Limited – CFO & Executive Director [3]

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Thanks, Stephen, and welcome to everyone from our side. I think for the first time, I’m starting to feel really encouraged about the hard work that we’ve put in over the last year, and I think these results are starting to show the benefits of those hard work and path to recovery for EOH.

So if we start off from a financial highlights perspective, total revenue of just under ZAR 6.4 billion. This was obviously 20% down. But I think when you consider it in the light of the fact that costs were down 31.5%, it’s been good improvement across the business. We’ve also seen our gross profit margin increase from 20% to 24%, which has been improved efficiencies and productivity from a customer perspective. Normalized EBITDA, we finished at ZAR 405 million. And just to reiterate what Stephen said is at year-end, we had seen a normalized EBITDA of close to ZAR 800 million. So there’s — definitely, this number is coming through strongly in terms of our go-forward business. And then we also ended with strong cash balances of ZAR 826 million.

If we move to our priorities for the year, so the most critical one being deleveraging the balance sheet. And here, we have made commitments to deleverage by ZAR 1.6 billion by the 28th of February 2021, and a lot of that is pretty much on the sale of assets, mainly around our IP assets. I will go into some further detail around our current debt position.

From a systems financial discipline and controls perspective, I think we’ve made really good progress here. We’ve got the right people, we’ve got the right processes and we have started to put in the right systems. Some of those systems we’ve put in our Cognos controller, which is a consolidation system. So we didn’t have to use Excel to consolidate over 200 companies. We had that all automated from a system perspective, which was a big achievement. We also have internal audits in place.

And then from a budgeting and forecasting perspective, we are also implementing a new budgeting and forecasting system that was previously done in Excel. We’ve also automated our attestation process by one of our own businesses, Nuvoteq, who’ve done a great workflow for us. And then we are also in the final stages of selecting a new ERP for the business, and that will be cutting edge.

From a working capital management perspective, over the past year, we’ve really made good progress in terms of focusing on this area via through our cash management, our debtor’s management. And this has come through both in the positive cash flows from operations and then the decrease we’ve seen in inventory levels as well as the improvement in our trade and other receivables balance.

We are also focused on ensuring that we have a fit-for-purpose cost structure. And Stephen has spoken to some of these initiatives being our property savings, then also another big item for us was the fact that we had these head office structures across the organization, which were in effect, just management structures overlaying the various businesses. There were 4 of them. We are in the process of dismantling them, and 2 of them have already been dismantled.

Also when I started a year ago, we really didn’t have a head office function that was fit for a listed entity and an organization that makes ZAR 16 billion of revenue. So we did have a need to spend advisory costs and related to looking at how we get our structure more efficient through reorganizing. We needed to also go through our reputational investigation with E&S where we spent money. But we do believe that, that will be coming to an end. The other area we are focusing on is the spans and layers of control within the organization.

If we move to the income statement, obviously, this is a very technical set of accounts due to the fact that there are lots of businesses we have in the process that we are looking at selling. So there’s a split between continuing and discontinued. So how we’ve tried to present the results is to show it from a total perspective to give better unpack and transparency into the numbers.

I think one item just to highlight from the income statement perspective is the tax line. Although we paid ZAR 170 million of tax, we did see deferred tax credits coming through against the tax line. So we were relatively neutral from a tax perspective in the income statement.

If we move to the next slide, the revenue and EBITDA slide. I think this is really core to how we see the business and how we intend running the business forward and the strategy we’re building for the organization. So for us, the companies in all the business units that have got the red block around them, those are core to the business and it’s our iOCO business. Stephen has spoken in some detail about the businesses. But if we look at our Solutions business, that business saw over — just under ZAR 600 million of revenue and then 4.4% EBITDA margin. I think what needs to be taken into account there is the fact that we’ve had these legacy international businesses, which sit in the solutions space. And we have been in the process of closing those down or exiting or selling those nonperforming businesses. So the results from our Solutions business is clouded by our international business. But when you look at how our cloud business performed, it had over 20% margins as well as our ODI business, which has over 12% margins. That is a part of the business that we see as having a growth vector. And once we’ve normalize out the international businesses, we should see good returns coming from that area.

Our Technology business is our hardware, software and enterprise application business. This business really performed well for the half year and in some cases was ahead of budget in certain areas. Over here, we delivered 12.8% EBITDA margin. Our Digital Industries business is the automation of heavy industry and mining and is really at the heart of IoT. This business for us is very exciting. And revenue growth over the last year was 35%, and the margins are phenomenal at 39% EBITDA margins. Our Consulting business also delivered great EBITDA margins at 28.6%. A lot of the time, our Consulting business is an opportunity for us to deliver on other areas in the business. So it’s a great gateway into organizations.

Then our Manage and Operate and Network Solutions business performed very well at 9.3% EBITDA margins. These businesses service some big blue-chip customers in terms of managing their IT services within their businesses. Then from a legacy perspective, if we look at Cornastone and Mthombo, those are the 2 companies that carry some of the public sector legacy issues that we’re busy dealing with. We have backed those out to get to a virtually neutral normalized EBITDA. When taken into account, there were ZAR 187 million of losses that we’ve backed out of that to get a normalized ZAR 6 million. Our NEXTEC business, although contributing significantly from a revenue perspective, is virtually neutral from an EBITDA perspective. And then our IP businesses continued to perform very well. We see good revenue growth from these businesses and delivering just under 20% of EBITDA margins.

Moving to our revenue. I think the 2 things really to highlight here is that Public sector still remains an important client and integral part of our business. It’s only 8 legacy contracts that we’re currently dealing with out of 54 contracts, and Public sector contributed 21% to revenue. The other takeout from a revenue perspective is we have seen a 22% drop. However, 1/3 of that is related to Hardware sales that we had in the half year last year that weren’t repeated again in the current year. We had Services revenue drop off related to our legacy public sector ERP implementation contracts, our international business as well as our NEXTEC EPC businesses. And then there was roughly 1/3 also lost from sale of businesses.

If we go to the EOH of the future breakdown, this is really just to give a graphical representation of what the business looks like going forward, and the business is anchored in our traditional iOCO Technology business.

We then move to our gross profit. Our gross profit has seen significant improvements from 19.6% to 23.6%. And again, just to reiterate, where the margin improvement came from in the prior year, we did have significant losses recorded from our public sector legacy contracts from our international business that’s contributed to a decline in the EBITDA in the prior year. And then also from a mix perspective, we had large Hardware sales that have lower margin than our normal GP margin. We also have seen efficiency coming through in terms of our business that has also contributed to the improved margin.

Moving on to our operating expenses. Total operating expenses for the half year was ZAR 2.3 billion. From a once-off cost perspective, the biggest once-off costs relate to asset impairments. Of the ZAR 279 million, ZAR 211 million relates to goodwill. And the goodwill impairments we saw largely related to our health business, our EPC business and then some of our HR businesses. And then we had impairments of ZAR 62 million against our equity accounted investments. Our loss in sales of ZAR 216 million relates to the disposals of businesses.

If we then move to the operating expenses related to the 2019 financial year, you will see in the prior year, there were significant once-off costs of close to ZAR 1.8 billion and the most significant being in asset impairments where we took large goodwill impairments in the prior year.

The next slide is also a critical slide and a pathway to how we get to our normalized EBITDA number. So from a total perspective, if we start with our operating loss of ZAR 991 million and then add back our impairment losses of ZAR 279 million, our depreciation and amortization of ZAR 250 million and losses on sale of assets, we get to ZAR 214 million negative EBITDA. Then, we take into account the fact that we’ve had to raise specific IFRS 9 provisions against various debtors and loan balances that we had with some of our equity accounted investments that we are disposing off and won’t recover loans from them as well as businesses that we have put into liquidation and won’t recover our trade receivables from those businesses. That amounted to ZAR 149 million.

Then our noncore lines of businesses to be closed. This relates to our public sector business where we recorded a loss of ZAR 187 million. And then ZAR 84 million relating to our energy, water and rail business in the NEXTEC space. The rail business has been liquidated. And the energy and water businesses are still in the process of being closed out. Advisory costs, we spent ZAR 91 million in the current financial year and those costs should start to evaporate out of the business. Then Other of ZAR 59 million contains stock write-offs as well as retrenchments to give us a normalized EBITDA of ZAR 405 million.

If we move to the next slide, the normalized EBITDA breakdown. Here, we’ve just try to give more transparency and insight into where the normalized EBITDA comes from, broken up between continuing and discontinued and then broken up by the various pillars. So you’ll see that iOCO, which is EOH of the future, contributes ZAR 374 million and then taken with Corporate of ZAR 125 million of costs, gets us to ZAR 250 million of EBITDA for the EOH of the future.

Moving to the balance sheet. So just to point out the fact that we do have assets held for sale as a one line item of just over ZAR 2 billion sitting on the balance sheet. So all line items are stripped off any assets that are held for sale at the half year. From a property, plant and equipment perspective, we adopted IFRS 16 in the current year, which is the lease standard and sees us capitalizing operating leases onto the balance sheet. This largely relates to our office rentals, and that was an amount of ZAR 367 million that we took into property, plant and equipment. The commensurate amount was taken to the liability side as well.

From a goodwill perspective, we have seen a decrease in goodwill. ZAR 466 million of goodwill has been reclassified as assets held for sale. We then also had an impairment of ZAR 211 million, and then the ZAR 140 million of goodwill was disposed off. Equity-accounted investments of ZAR 195 million only comprises our investment in CCS.

If we move to the second part of the balance sheet, the equity and liabilities. Again, just to point out the fact that we have liabilities associated with assets held for sale of ZAR 820 million.

We then move to the next slide on the deleveraging. This is obviously one of our core objectives. And we have a clear plan in place with the banks and see that we will deleverage by ZAR 1.6 billion by the 28th of February. This is made up of 3 parts, and the first part being a target date of the 31st of August 2020. So if we look at where we were at year-end, we had deleveraged by ZAR 306 million. Subsequent to the half year end, we have deleveraged another ZAR 124 million. So there’s ZAR 70 million left to deleverage by the 31st of August. This needs to be taken into account with the fact that we have Denis, our dental business, which is in the competition commission at the moment. We were hoping that, that would be closed out by May. But with COVID, it may be delayed until June. We’re expecting ZAR 250 million of consideration related to that business. And we’ve also launched our IP assets sales, and the IP businesses contribute around ZAR 325 million of EBITDA annually. And when you look at those businesses and take into consideration CCS that we sold at 8.5x multiple, we should meet our deleveraging requirements by the 28th of February.

I think from a goal perspective, from management, we would like to be in a place where we have less than 1x EBITDA as debt within the business, and that’s looking at it from a net debt perspective. So currently, we still can get more efficient in terms of how we manage our cash and our debt as we do have a large balance of cash on the balance sheet of ZAR 950 million at the end of last week.

Then just turning to cash generation. I think, here, again, like I’m quite encouraged and excited by what I’m seeing from a cash management perspective. And I think this really goes into the discipline that’s been instilled in the organization over the last year and the robustness of the way we look at cash. So first, in terms of sales proceeds, we’ve seen ZAR 181 million of proceeds from disposals. But at the same time, there was cash in those businesses of ZAR 126 million. So we saw a net inflow of ZAR 55 million from the sale of businesses. Then from cash generated from operations, before we take into account the once-off items, we generated ZAR 260 million from operations. However, we did have to settle OEMs of ZAR 115 million that had been provided for in the prior year, but the cash costs came through in the current year. We spent ZAR 66 million on disposal and advisory costs. And then within Other of ZAR 46 million, that largely relates to retrenchment costs. From a business as usual perspective, we paid tax of ZAR 171 million. We had lease payments of ZAR 53 million and then net CapEx investment of ZAR 134 million. And that’s split roughly 50-50 between PPE and intangible assets, and the intangible assets mainly relate to our IP businesses where we do development.

Then from a cash flows related to debt, we paid ZAR 166 million in interest costs and ZAR 100 million related to financial liabilities. ZAR 56 million of those financial liabilities relate to the payback to our lenders. And ultimately, we ended on cash of ZAR 826 million for the half year.

If we then move to inventory, again, I think we’ve really stabilized our working capital management. We’ve seen a decrease in our inventory related to our continuing assets. So that decreased by ZAR 100 million. So we’re happy with the levels of inventory currently within the business.

Then moving to trade and other receivables. If we look at our total trade and other receivables of ZAR 3.3 billion, I think the takeout point here is the fact that we have provisions for bad debts of around 20%, both on our trade debtors book and our contract assets related to projects.

Then moving to the next slide, the ageing. So I think there’s been significant improvement in work here. So a year ago, we had ZAR 4.1 billion of trade debtors. Currently, where we ended at the end of Jan, just under ZAR 3 billion.

Then the next slide, the 90 days bridge. We put this slide up at year-end just showing what had happened in the 90 days and the fact that we had cash resolution of ZAR 400 million from debt bucket. In the second 6 months, we’ve seen just under ZAR 200 million of resolution related to debt bucket.

Okay then just moving to our EOH exposure to COVID-19 uncertainty. So here, we just really wanted to depict our client exposure by sector and the fact that we don’t have any specific concentration risk, and we supply into all sectors within the South African economy. So from a risk perspective, I think it stands us in good stead.

Then just to wrap up in terms of having a clear path to extinguishing our legacy cash draining issues, the first being the fact that we have these poorly contracted public sector contracts. We currently have a very specific plan in place, and we expect to exit these in the next 6 to 12 months. From a cash flow perspective, we expect that there may be another ZAR 50 million to ZAR 100 million outflow related to these businesses. Then from our EPC contract businesses, this relates to EPC contracts we are working on in the water and energy space. And we’re hoping to close these out in the next 12 to 18 months. And from a cash outflow perspective, there could be potentially another ZAR 25 million to ZAR 75 million. From an OEM settlement perspective, here, we had found that there were liabilities sitting off balance sheet and issues that we had to settle with OEMs that had all been provided in the prior year. In the first 6 months, ZAR 115 million of cash outflow as a result of this, and there’s less than ZAR 20 million anticipated in cash outflows on a go-forward basis related to this. From an advisory cost perspective, we have had to spend significantly on advisers in the past 6 months. We do see going forward that the most significant spend here will relate to our ENS costs for civil claims that we intend to lay against certain of the perpetrators. Then from Other, which included retrenchments, we had a cash impact of ZAR 46 million for the half year. I think this is dependent on the macro environment as we go through COVID and get through COVID on the other side. What we have tried to do, as a management team and as an organization, is to try and protect as many jobs as possible, and that’s why our ExCo has taken a 25% pay cut. And again, I think, I’ll reiterate Stephen’s words, we all need to be thinking of the greater good of South Africa and seeing what we can do to protect jobs across the country.

Then from a debt burden perspective, we’ve laid out our plans as to how we get to a fit-for-purpose capital structure and how we intend deleveraging. The other area that we’re working on is our tax structure. We’ve already made progress in the past 6 months in terms of getting rid of some of the legal entities and getting to a more efficient structure that our effective tax rate starts to make sense against the profits we make.

With that, I’d like to turn back to Stephen to finish off the presentation. Thank you.

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Stephen van Coller, EOH Holdings Limited – CEO & Executive Director [4]

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Thanks, Megan. I appreciate that, and I think you can all agree that, that is much clearer, much easier to read and very much more succinct than a year ago. And so I hope you can just appreciate the hard work, and if we can thank Megan and her team for just an amazing job of getting through that and starting to automate the process.

If we go into our 5- to 10-year vision, just quickly. This really goes back to the heart of where and why we think EOH has got a differentiated proposition. Today, very much end-to-end system integrator with the ability to audit, execute, manage and operate, cloudify it, put security around it, but it’s very much on a customer-by-customer basis. We are seeing this move as we become the cloud solution integrator as people go more into the cloud offerings, and you need to manage it between the various clouds, whether it’s private, whether it’s public cloud, whether it’s hyperscale cloud and how you manage that seamlessly.

Eventually, it will come into a situation where you very much — your business enablement partner with customers where you’re building platforms, and they are paying per use everything as a service. And I think this is very much like if you just think back to the old days of getting on to the Internet that you used to walk into your house, you used to fire up your modem and then you’d be on the internet. Today, you’re just expecting as you walk into places, whether it’s restaurants, work, your house for it to be seamless. This is really what’s starting to happen with IT across the piece. If you think about Facebook, you don’t think about whether — what the actual underlying technology is and how it scales. All you want to know is that when I get on, it works, I can deliver what I want to in real time, and it’s stable. And that’s where the IT world is going, and I just think that EOH with our broad end-to-end capabilities, we can do everything. We can do the migration, we can do the solutioning, and we can take people into the new world together. And so I think given our breadth of offering with all — with having more blocks of LEGO in our LEGO box compared to any other competitor, we are best place to do that. And I think this is why our business has remained very sticky to customers through very difficult times.

And I think that goes on to the next slide. Just to remind everyone, we are very, very systemic in South Africa’s economy. And this is why I think we are so important, and we’ve had to be very prudent to make sure that we can service everyone in South Africa going forward. A number of things we’ve been able to do for our various businesses. I mean, things like assisting Eskom with balancing the power grid is our tech. We’ve got some medical solutions in our medical sector. As well as, we skinned up the solidarity fund over the weekend so that people could donate very urgent request out of the presidency. We did it. It’s running. It’s in good shape now as well as BUSA asked us to provide them with a platform to monitor data and actually to disseminate data. We did that in 24 hours. You can go and have a look at that. But also in the heart of things like SASSA, Home affairs, SARS, municipalities which are very important at the moment. And so we continue to believe that we need to make sure that we are doing our bit for SA Inc. through these difficult times.

On to the next slide. If you remember a year ago, I said, we’re going to split things up into credibility, liquidity and transparency. These are the things we spoke about. That was going to be a 2-year turnaround. We are 1 year into it. Where are we? Well, I think you will have seen today in the presentation, very much refined the business model for you to have a look at much better information than you ever had to evaluate the business case and the proposition. We’re probably halfway through the portfolio refinement. That will probably take a good part of the next 12 months, but a great team in place. Already done 40 sales and would do more. A much clearer view on our long-term strategic plan, very focused. As you saw, very much an ecosystem for customers and clients. And our plan is that, that would have rolled out on a bottom-up basis by the 1st of August. So everyone having busy, as we speak, giving input into that.

Liquidity, I promised you more than ZAR 1 billion in disposals. We did that. Clearly, we need to do more because that hasn’t brought our gross debt target down enough in my view. It’s brought it down a lot, but we still need to do more, and we will continue with those IP sales. So I’m hoping in 1 years’ time, when I stand up here, that will be pretty much green.

EBITDA, still some work to do. Clearly, the core business is doing good. They’re above 10% pre overhead. So we need to sort out our overheads to get that properly done. But clearly, things moving in the right direction. Revenue down because of sales and closures of 21%. Cost down 31%, really adding to being able to lift our gross margins.

Neutral working capital, almost there. I mean, there’s been a lot of progress there. If we just see those numbers come — caught up with a lot of creditors’ payments as well as manage our debt. Our debt is so much better.

Cash conversion, not quite 80% yet. That will take time given the issues we are dealing with. But very confident that we’re on the right track there.

I suppose on the — transparency is where we’ve had very quick traction and very, very pleased with that team and how well they’ve executed on it. And also just the change in culture in the business to take this whole governance thing as seriously as you saw in that training outcome.

Top talent incentivization, been very difficult, obviously, over the last year. But we have a plan in place with the Board, we have a structure, and hopefully, that will be delivered as planned for the 1st of August start of next year. So I think you can see that we said we’d deliver a lot of things we have. And so I’m pretty confident we will deliver on the new things that we have to do as well as closing these out.

If you go over the page, these are our plans, these are our problems. We know what they are. We need to deal with them. Clearly, COVID-19 putting a little bit of a stick in the spokes, but we’re much better placed to manage that going forward given that we’ve had 1 year of some practice, and we’ve had 1 year to clean up and make ourselves fit and ready for it. But we’ve got our 8 Public sector contracts. We plan to close these out by December 2020. There’s a plan for each of them. And we are moving forward ditto for the 3 problematic NEXTEC companies that are being closed out. There’s some more sales there, but we’ll get that done.

As Megan said, advisory costs are nearing an end. Only advisory costs are really relating to sales. So when cash comes in, we pay, and there’s about ZAR 20 million of OEM settlements left, which we would do once those are closed out. The head office consolidation, we — 2 down, 2 to go. The current ones, we are just putting together, and that should be done by July next year properly, and we should have a very efficient, hopefully digitized head office as you saw from that program that we have put in place. And you’ve seen the improvement just in delivery from head office.

Tax inefficiency. Tax was obviously a big issue, but once we reduced the legal entities, there’s a plan there. We’ve got a normalization process going with SARS at the moment, making sure that all our tax issues are up-to-date settled so that we can continue properly. We’ve also done a lot of work on VAT optimization, just to make sure across the company as we’re managing that cash flow, there’s been a big improvement there. And then obviously, delevering, I talked about that. We’ve got a target of ZAR 1.6 billion to be done by next February and to complete all the sale of IP assets by the end of June 2021. Obviously, those are in a different play. So we have a plan. We know what we need to do. We know what’s left and are pretty confident that if we can do just 70% of what we did in the last year, we’ll get most of this done in the 2-year time period that we talked about.

And I suppose, lastly, just to reiterate, I’m really, really impressed with how the team has really tackled this, both the front-office and the support staff, and it’s really made a difference and put us back on to a path of profitability. As I said, GP margins up at 24%, normalized EBITDA of ZAR 405 million, cash balances at the 2nd of April of ZAR 950 million and a clear path to extinguish the last remaining drains of large one-off settlements and loss-making business units.

So feeling very comfortable where we are now. I think it’s been massive progress. And once again, if I can just thank the whole team, every employee in EOH for the efforts they put in. It’s has been a very, very tough year for us, but at least it’s put us in a very strong position for managing this new challenge that comes in the form of COVID-19 and potential recession ahead of us.

With that, thanks very much, and I’ll hand back to Debbie for the Q&A.

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Debbie Millar, EOH Holdings Limited – Head of Treasury & IR [5]

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Thank you, Stephen. Okay. I’m going to — I’ve got a few questions here. I’m going to read out the person’s name who asked the question. And then the question. Stephen, I’m posing the questions to you and if you want to pass them on to Megan, obviously, I think, she’s online to be able to do that.

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Questions and Answers

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Debbie Millar, EOH Holdings Limited – Head of Treasury & IR [1]

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Okay. So the first from Fin24 from Londiwe. You managed to avoid blacklisting, but are you getting any new Public sector contracts? And do you want them after everything that has happened? How much of EOH’s revenue comes from the Public sector contract?

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Stephen van Coller, EOH Holdings Limited – CEO & Executive Director [2]

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So it used to be — Megan can correct me if I wrong, it used to be around 20-odd percent, I think it’s about 16% now, firstly. Secondly, yes, we’re still getting a lot of Public sector contracts. I mean, not — our problems, as you know, there were — we had 50 — 54 public sector contracts, I think, in EOH Mthombo, only 8 of them being problematic. The rest have been fine. We’ve delivered well. There weren’t any issues around them. So, no. I mean, going forward, I think the Public sector is still a very important part of our business. We will just make sure we do the business that we’re good at with them rather than trying to do these very large, complex, multi-year ERP implementations, which really have been pretty difficult for us for a number of reasons. Not just the Public sector, it’s been ourselves, where I just don’t think we geared up to 3- and 4-year programs. We need to sort out a number of things in our own world, but also government, a lot of these Public sector customers have had changes in management. And when you’re trying to do it over 4 years, makes it very difficult because you stop and start. So we’re just managing what business we’re doing and what business we’re not doing, but we continue to contract with them.

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Debbie Millar, EOH Holdings Limited – Head of Treasury & IR [3]

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Okay. And the next question is from Mergermarket from Peter Cromberge, and he’s asked, to what extent has COVID-19 affected the noncore asset sales? Do you expect a dampening of investor appetite and a delay in your deleveraging strategy?

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Stephen van Coller, EOH Holdings Limited – CEO & Executive Director [4]

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Yes, I think those are sort of 2 questions. Is there a dampening? No, I don’t think there is. People are still very interested. These are very important — these are very good assets, very — platform, new age. There’s a lot of interest in them. I do think, however, though, it’s going to be quite difficult to get things in the near term for investment communities. Just because of the uncertainty, people are going to want to know what’s happening in South Africa. How is the government dealing with it? What does it look like? So we have discussed, I think, a 3-month delay with the banks, Debbie, in terms of — or we’ve reorganized the repayment structure, and we’ll continue to monitor with that.

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Debbie Millar, EOH Holdings Limited – Head of Treasury & IR [5]

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Okay. Linked question, Stephen, just is — can you give us an estimate for the proceeds one can expect from the sale of these discontinued operations? That comes from [Signal AM] and [Nick Kriffer].

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Stephen van Coller, EOH Holdings Limited – CEO & Executive Director [6]

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Yes. I mean listen, you’d have to go and do your own work on what you think reasonable multiples are. Clearly, we got 8.5x an EBITDA multiple for CCS. I’m not sure we’ll get that for all of these assets, not in the time. But we should get a reasonable multiple. You can kind of have a look. As I said before, those EBITDAs are around ZAR 350 million that was what was anticipated. And so you can work out what a reasonable EBITDA multiple is for those businesses. Clearly, what normally happens is there’s some retentions in there as you do the deal. So we’re fairly confident that we will get enough to meet our delevering targets from the banks.

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Debbie Millar, EOH Holdings Limited – Head of Treasury & IR [7]

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Thanks, Stephen. Duncan McLeod from TechCentral. How do you cut salaries by 20% across the Board while ensuring you retain top talent you can’t afford to lose?

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Stephen van Coller, EOH Holdings Limited – CEO & Executive Director [8]

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Yes. Duncan, I mean, fortunately, this wasn’t a top-down thing. There was a lot of staff coming saying they want to do something for SA Inc., and they — a lot of them. It’s quite interesting. It’s the top talent that tends to be the most mature around these things. And they came back and said, listen, we need to make sure that we keep 100 staff at 80% rather than 80 staff at 100% because when this turns, we’re going to need all those people and actually getting them back and recruiting them and training them is going to cost us more. So let’s hunker down for a while. That’s the first thing. The second thing is, clearly, some of the staff will go in 4-day weeks, the ones that aren’t that busy at the moment because maybe they were in sectors that have also reduced their costs. And then the ones that are — have to work full-time and have actually got an increased workload, we will look at a noncash mechanisms like extra leave and things like shares and that to pay them. But personally, I think this is a very important thing that every company in South Africa should be doing. We should all be making sure that we save as many jobs as possible because when we come out of this to have 20% of all the workforce now retrenched because people are looking after themselves, I think, is just the wrong thing for South Africa. And I think your good staff are the people that are competent and capable. They know this will turn. I don’t know about you, but I think I would feel good that I’ve actually done something to assist South Africa and assist the people who are really struggling on this time because their businesses have closed down. I think it’s just a good positive humane thing to do. And maybe we will get a sorting of the good from the bad, but then we know the people that stay are the people with the right culture for the business we are trying to build. At the moment, the feedback from staff has been generally positive. There’s always going to be some people who are negative. We’ve had some very interesting proposals, which we’ll deal with, and we’ll see where we get to at the end of Thursday. But we’re not the first company to do this. I’ve been speaking to some IT companies internationally in Spain and Italy and places like that. They’re all doing exactly what we’re doing. So I think this will — we’re just a little bit ahead of the pack. I think you’re going to see this happen for quite a few more companies.

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Debbie Millar, EOH Holdings Limited – Head of Treasury & IR [9]

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Okay. In pursuing the legal claims against corrupt officials, how much of the ZAR 91 million is recoverable? This is from [Triton Kitt] who is a private investor.

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Stephen van Coller, EOH Holdings Limited – CEO & Executive Director [10]

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The ZAR 91 million is the — you’re obviously talking about the ENS costs?

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Debbie Millar, EOH Holdings Limited – Head of Treasury & IR [11]

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Yes. The one-offs. Yes.

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Stephen van Coller, EOH Holdings Limited – CEO & Executive Director [12]

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The advisory costs. I mean, those aren’t — you can only recover what people can pay you back. So as you go into the court case, you’ll put a claim in for — if you remember, we had up to — I think it was closer to ZAR 960-odd million stolen from us. So we’re going to be claiming all of that. But it all depends if you can actually get your hands on the cash and you can get some kind of court settlement that you get the money back. So I don’t know what those numbers will be, but I just think we have to do our fiduciary duty in making an attempt to get as much of the money back as possible because otherwise, I think we’d be reminiscent of our duties. I’m not sure what we’ll get, if anything, but we have to go through the process.

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Debbie Millar, EOH Holdings Limited – Head of Treasury & IR [13]

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Okay. I’ve got one more sort of overarching question here. Are the — this is from [Maran] at Metal Industries. Are the IP businesses sales to be structured similar to the CCS asset in the sense that you retain a portion and participate in some of the upside? And remind us what the plan is for the portion of CCS that you still own?

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Stephen van Coller, EOH Holdings Limited – CEO & Executive Director [14]

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Yes. So 2 things. I mean, it will be horses for courses. It all depends on what value we get and whether we think we can add value to the partnership going forward. So it depends who the buyers are. The CCS thing was quite specific. The buyer RRB wanted us to assist them with certain things, and that’s why they wanted to keep the partnership alive. That had a 3-year put in call, which we are sort of almost a year into it now. It will be a year in June, if I remember. And so that will get purchased. We’ve got the right to put it to them and they’ve got the right to call it. So that’s got another 2 years to run. Clearly, that’s going to happen at any time depending on what their strategy is. So we’ll see. There’s no — I’ve got no fixed plans in my mind honestly what else is coming and whether some people — if the Industry buyers want to buy 100% or they don’t want to buy at all. So we will mix and match and see what the best outcome is for the business, obviously, in consultation with the Board and the banks and obviously, the shareholders because some of these are being big disposals and shareholders all have to vote on some of them.

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Debbie Millar, EOH Holdings Limited – Head of Treasury & IR [15]

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Thanks, Stephen. I think we’ve got quite a few technical questions. Stephen, I’m not sure how many of these you’ll want to answer, but I’m going to run through them anyway. We’ve got a question from a private investor here and he’s asking about the NAV per share of the — of EOH after selling noncore assets.

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Stephen van Coller, EOH Holdings Limited – CEO & Executive Director [16]

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Megs, do you want to answer?

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Megan Loanne Pydigadu, EOH Holdings Limited – CFO & Executive Director [17]

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Sure. So currently, our NAV per share is ZAR 5.25 round about. And then if you take into consideration the fact that assets held for sale are written down to the fair value of what we expect to sell, the assets will be replaced with cash. So it stays at about ZAR 5.25.

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Debbie Millar, EOH Holdings Limited – Head of Treasury & IR [18]

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Thanks. The next question is, as far as revenue decline is concerned, there’s an element driven by selling businesses. But when you strip the impact of these sales, how does EOH’s revenue look on a continuing basis? This is again from Fin24 from Londiwe Buthelezi.

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Stephen van Coller, EOH Holdings Limited – CEO & Executive Director [19]

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Megs, do you want to carry on?

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Megan Loanne Pydigadu, EOH Holdings Limited – CFO & Executive Director [20]

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Sure. So I think we have tried to show that through the slides and the deck that we put out and be as transparent as possible. So in there, you will see that we have broken out the revenue between continuing and discontinued. So the total revenue was just under ZAR 6.4 billion. And of the continuing business, it’s ZAR 4.5 billion. So although we have seen a decline in revenue from continuing at about 17%, as we said previously, some of that relates to the fact that there’s a bit of a mix change in terms of the fact that we had less hardware sales and then also it’s been businesses that we’ve been closing out. So the GP margin has increased. And I think that’s more the takeaway than the fact that the revenue has declined. That we’re seeing better margins on the revenue that we’ve got in the business at 24% versus 20% in the prior year.

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Debbie Millar, EOH Holdings Limited – Head of Treasury & IR [21]

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Okay. I’ve got 2 questions here from Irnest Kaplan from Kaplan Equity Analysts. What amount of revenue drop can you sustain for the year ahead? And what would you do if you don’t have enough to pay costs? And then the second question, Megan, and then I’ll let you answer both, I presume. Maybe, Stephen, you want to chip in here. How has March been? February looks okay from the revenue perspective at iOCO in that graph on Slide 12.

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Stephen van Coller, EOH Holdings Limited – CEO & Executive Director [22]

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So let me begin that answer. I mean, March was a good month for us, as you saw with our cash collections. But just in terms of how much can we sustain, if all things being equal, if you only got a 10% EBITDA margin and your revenue goes down 10%, that’s what you can sustain. But clearly, what we’ve done here is 50% of our costs are people. So we’ve created an extra 10% buffer. So revenue would have to go down 20% just on pure math before it becomes a problem. And clearly, we’ve got some cash in the bank that will get us through that period as well. So there’s a few levers to pull here, it’s not just one lever. And if we have to go harder at it, we will go harder at it. So I’m just trying to make sure that we’re prudent. You don’t want to wait till you’re in the ambush before you pull your gun out because it’s too late. We know the enemy is coming. We don’t know how big it is. We don’t know what their guns look like. We don’t know how big their inventory is. But we’ve prepared ourselves over the last year, but also in the last month, that at least when they arrive, we’ll be able to then vector and change whatever we need to change to meet it. So you know that.

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Debbie Millar, EOH Holdings Limited – Head of Treasury & IR [23]

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Yes. Stephen, and also leading from the front, I mean you talked about the 20%, but obviously, the ExCo team taking a 25% and at the lower end not expecting earners under ZAR 250,000 to carry that burden in the short term.

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Stephen van Coller, EOH Holdings Limited – CEO & Executive Director [24]

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Yes, sure. So just going back to Duncan’s question. I hope he thinks I’m key talent, and I’ve taken a 25% cut, I’m not about to go and neither is Meg or any of the ExCo . So hopefully, we’ll keep that key talent alive to deliver another set of results like these.

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Megan Loanne Pydigadu, EOH Holdings Limited – CFO & Executive Director [25]

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Then Debbie, can I just add to Irnest’s question in terms of how March has been.

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Debbie Millar, EOH Holdings Limited – Head of Treasury & IR [26]

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Of course.

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Megan Loanne Pydigadu, EOH Holdings Limited – CFO & Executive Director [27]

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So I think just a quick takeaway in terms of where we ended cash on the 2nd of April, we were sitting with ZAR 950 million of cash. So that’s up since January of ZAR 827 million. We’ve also seen in the space of the last week, we continue to land new deals from customers. So that has also been very encouraging just from an anecdotal perspective going into COVID.

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Debbie Millar, EOH Holdings Limited – Head of Treasury & IR [28]

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Okay. And I think we’re down to the last question, and it’s a combination here because it’s a very similar question coming, from Muneer at Prescient and Mark Narramore at Excelsia, around the normalized EBITDA and how we should think about the long-term targeted EBITDA post all the disposals. Are we still targeting the ZAR 800 million on an annual basis? When do you think you could achieve this, et cetera? So Megan, maybe you want to just talk a little bit about.

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Megan Loanne Pydigadu, EOH Holdings Limited – CFO & Executive Director [29]

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Sure. So if we just start, I mean, again, in the deck, we gave a breakout of the EBITDA as it relates to the various parts. And if you remember, the core iOCO is about ZAR 370 million, taken into account with Corporate of ZAR 125 million, you get to ZAR 250 million. When you annualize that to the core iOCO business after we’ve — if we had to sell all the IP assets and we’ve sold all the NEXTEC assets, we would have a sustainable ZAR 500 million normalized EBITDA. From a revenue perspective, just looking at the revenue from those businesses, you probably get to just over ZAR 8.5 billion of revenue. So there’s still efficiencies that we can drive through the business. And ultimately, that ZAR 500 million and looking at a revenue of ZAR 8.5 billion, you would want to get to at least a 10% EBITDA margin over the medium term. And there are already plans underway in terms of how we drive through operational cost efficiencies. You’ll see what we’ve done to our GP margin. So there’s room for improvement from that perspective. So long term, we probably want to get to ZAR 750 million to ZAR 1 billion over the next 5 years of that revenue base.

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Debbie Millar, EOH Holdings Limited – Head of Treasury & IR [30]

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Thanks. I don’t — there are no other questions. Stephen, I don’t know if you want to have any closing remarks before we end the call.

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Stephen van Coller, EOH Holdings Limited – CEO & Executive Director [31]

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Yes, no, just thanks, everyone. I appreciate your time. I know there’s a lot of you on the call. And thanks for your time. Keep safe. Look after your family and your colleagues. Stay in contact. And if there’s any further questions, please drop them into Debbie or [Sinclair], and we will do our best to answer them. But thanks again for your time, and look forward to catching up in the near future. Thanks.

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Operator [32]

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Thank you, sir. Ladies and gentlemen, that then concludes today’s presentation. Thank you for joining us. You may now disconnect your lines.

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