Release Date: October 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- EOH Holdings Ltd (JSE:EOH, Financial) achieved a significant turnaround with an unqualified audit opinion for the fifth consecutive year.
- The company reported strong growth in its international and infrastructure services businesses, with revenue increases of 27% and 5% respectively.
- EOH Holdings Ltd (JSE:EOH) has successfully reduced net finance costs by 28% due to debt reduction and refinancing at improved interest rates.
- The company has achieved top employer certification for 2024, emphasizing its focus on retaining critical skills.
- EOH Holdings Ltd (JSE:EOH) has a healthy pipeline and positive outlook for FY '25, driven by demand for cloud managed services, AI software development, and cybersecurity solutions.
Negative Points
- Revenue declined by 15% in the connected industrial ecosystems segment due to a slowdown in the mining, metals, and minerals market.
- The company experienced a 12% revenue decline in the Digital Business Solution business due to the loss of a key contract and slower system integration closeouts.
- Operating profit decreased by 23 million to 112 million, primarily due to underperformance in three business lines and restructuring costs.
- EOH Holdings Ltd (JSE:EOH) incurred a headline loss per share of 0.21 cents, although this reflects a significant improvement from the prior year.
- The company continues to face challenges with customers pushing out payment terms, affecting cash flow and working capital management.
Q & A Highlights
Q: Marius, a question for you. We see you are changing the EOH name to IOCO. Tell us a little bit more about what went into that decision.
A: Well, thanks. I think it's been a long time coming. We spent an inordinate amount of time as IOCO, many of our customers have contracted with IOCO over an extended period of time. Coupled with that, our staff also move across to IOCO and we just felt that with us closing out two very major legacy items last year, this would be a great opportunity for us to start a new beginning, which was coupled with the turnaround strategy that we do with our board. So we do know that there is some approvals that need to be done. We will take it to the AGM. So it's certainly not all done and dusted but us as an organization fully behind the change and we look forward to what it can bring us.
Q: Thanks Marius. Can you unpack your plan for paying down debt?
A: The efficiency and cost-cutting program we have in place puts the group on a sustainable path with cash flows that can be applied to reduce debt. While we have some legacy payments in 2025, we should still see some progress in debt reduction. This will gain momentum in 2026 with higher free cash flow conversion. We don't see any further need to dispose of assets.
Q: Another question for you Ashona, when will we start paying dividends?
A: So our first priorities will be to reduce our debt and to invest in growth. However, our reconstituted board is eager to allocate capital for share buybacks rather than dividends, depending on the level of the share price, but certainly at the current price levels, that would be our preference.
Q: Marius, I think this is a question for you. We see good growth in the international business. Can you elaborate on that a little bit?
A: I think it's an exciting opportunity that we unlocked some time ago. We're quite fortunate that we had a base that has been part of the group for a long period of time. Currently, we are based in the UK, Switzerland, and Egypt. The teams there have performed exceptionally well in FY '24 and certainly is a part of our ongoing strategy to make sure that we can explore opportunities specifically within the UK and the Middle East. I think our opportunities that we look forward to in Saudi will be driven out of the team that operates within Egypt at the moment. So certainly from our perspective, it currently makes up about 11% of our revenue as a group, which is certainly up on what it was in the prior years. But we're looking forward to some more exponential growth. And I'd like the teams that delivered well in FY '24 to deliver something similar in FY '25. But we're looking forward to unlocking those opportunities.
Q: Thanks Marius, question from Duncan. The previous CEO was pursuing large damages claims against various former executives including former CEO Asher Bobo Marius. Does EOH intend to continue pursuing those claims? Can you explain why or why not?
A: Thanks. It's part of the EOH Legacy. I do think it's well documented in the public that those matters have gone legal. Certainly, it's an ongoing process. It's nothing that we're involved in as a management team at the moment, the justice system will turn according to their timelines. And as a result of EOH being part of that when required, all the documentation that needs to be submitted from our side will be, but we're not actively pursuing anything different to what was communicated before.
Q: Hanna, a Ashona question for you. Can you please provide more details and break down the cost-cutting numbers as well as the restructuring costs? There are a few questions around that. Do you want to respond to that?
A: So, from a restructure cost perspective, the detail is quite significant in terms of the various aspects of the restructure costs that are included in the FY '24 numbers.
Q: What is the strategy to mitigate the negative market view that EOH remains unstable due to the numerous and constant restructuring and changing that has happened and continues to happen?
A: Yeah, I mean, I think again, probably in two parts, I think we broke our strategy into three relatively simple buckets. The first one was to do a systemic cost change that will fall through into FY '25. The second one will be to focus on revenue generation in how we've constructed ourselves. We're a business that's been coming from five years ago, that was 900 different businesses and probably more than 270 legal entities. And so that rationalization process for us has been ongoing and certainly not something that was only an FY '24 implication and we're quite optimistic that those three structures are driven largely by customer needs. The industry that we're participating in requires solution-driven structures that are within our business. And so we changed from a product-based business to a solution-based business. And yes, I am appreciative of the fact that when you try to analyze our accounts, there does seem to be changing needs from how we organize ourselves. But I think with us creating headroom now around the cost, the next phase will be to create momentum and rhythm within the structures that we've created with the four pillars as disclosed in the financials. And by and large, we will then only now tamper with that as we see solutions that are better offered to customers. So it's not an internally driven restructure that we're planning. If the customers demand different solutions, we will organize ourselves around their needs as opposed to what works for us internally. And hopefully from a market perspective, we'll provide greater clarity on what that looks like. We have already undergone significant simplification over the last three or four years.
Q: Are there Marius or Ashona, are there any risks that could lead to the remaining legacy payments being higher than guided?
A: As far as we're concerned, we've just come through a full audit and later show a comment after me, but we're certainly not aware at the stage of anything that could make those payments more than they are, they're contractually committed by us. The two big legacy payments specifically referred to in the AF are the Melato and S A matters. So I as a leadership team, business risks are normal, but from a legacy perspective. Yeah, we are quite comfortable with the medication factors that we've got with the rest of the stuff that's in our system.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
