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EOH cuts salaries to ride out Covid-19
EOH cuts salaries to ride out Covid-19
Published Date: 2020-04-08 | Source: Stephen Gunnion | Author: Stephen Gunnion
The technology group is taking a number of measures to secure its sustainability as a key player in the SA IT infrastructure.
EOH is taking steps to bolster its cash position so it can ride out the Covid-19 pandemic - including trimming the salaries of its top executive team and a large portion of its staff. Releasing its interim results, the group said it expected the coronavirus and the national lockdown to have a financial impact in the period ahead - just as it was starting to reap the benefits of a turnaround programme.
CEO Stephen van Coller and the EOH executive committee will take a 25% reduction in their pay, while all staff earning R250,000 or more will have their salaries reduced by 20%. The group is also negotiating rent holidays, reviewing all fixed-term and consultant contracts and reviewing discretionary spend on travel, entertainment and events.
EOH's customers include many banks in SA and across the rest of the continent, telecommunications companies, Eskom, municipalities and government agencies. It says it is also at the forefront of providing cutting edge medical solutions through companies such as Nuvoteq and TCD.
Half way through a two-year turnaround plan, the group said its customer base and core revenues had started to stabilise following the reputational crisis it faced last year. Strong corporate governance structures had been put in place and it was ensuring accountability for past transgressions, helping to avoid a government blacklisting.
After splitting the group into three operating divisions in 2018, EOH said it had sold off a number of the businesses that fell under Nextec and would merge the remaining operations into its key iOCO cluster. Its IP group, which includes businesses that have developed proprietary software for customers, was being disposed off as part of its strategy to pay down debt.
It now plans to raise R1.6 billion to pay down debt, up from R1.5 billion, and has extended the deadline by a month to 28 February 2021. The larger disposals of its Dental Information Systems (Denis), Information Services, Syntell and Sybrin businesses were progressing well, although it said it was unclear whether Covid-19 could affect the timeline for the sales.
The group said it had identified a further R100 million to R250 million in potential cost savings to be realised by the end of its 2021 financial year, which were expected to significantly improve its cost structure. These are over and above short-term liquidity measures implemented as part of its response to the Covid-19 pandemic.
Revenue fell 22% to R6.35 billion in the six months to end-January due to lower hardware and software sales as well as legacy public sector deals that weren't repeated in the current period. It was also impacted by the disposal of some businesses and the slowdown in the economy. It cut total operating expenses by 31.5% to R2.28 billion, largely due to lower provisions and write-offs. Its loss per share from total operations decreased 59% to 687c while its headline loss per share more than halved to 395c.
Its shares rose 16% to R3.56 yesterday.
If you strip out once-off costs (legacy contracts and other) and include the R100 million - R250 million cost savings identified for next 12 months, EOH looks extremely cheap. Can only imagine that digital transformation will gain traction in economy, requiring their services.-- Dave Hazelwood (@hazelwood_dave) April 7, 2020
With those results, it's obvious EOH is oversold at these levels.-- Teflon Tom (@Agrizzi8) April 7, 2020