Ioco Limited · JSE:IOC
Ioco — EOH Holdings — H1 2020 Earnings Presentation
55 slides from Ioco's earnings presentation, Apr 7, 2020
Slide 1: Interim Results
Interim Results For the six months ended 31 January 2020 7 April 2020
Slide 2: Strategic & Operational Overview
Strategic & Operational Overview Stephen van Coller Group CEO
Slide 3: The Story So Far
THE STORY SO FAR… • Attracted experienced talent while retaining existing key talent • Significantly improved governance, risk and control procedures • Avoided Government and BUSA blacklisting/suspension • Stabilised core revenue • Traction on legal company rationalisation • Collected R400m in long
Slide 4: Key Achievements for the Period
KEY ACHIEVEMENTS FOR THE PERIOD Business performance stabilised with Total Revenue R 6 354 million Gross Profit margin improvement with 24% GP margin Normalised EBITDA Significant cost management progress made R405 million with ῀65% cash conversion rate Cash balances R826 million(1) with an Stable c
Slide 5: Tough Economic Environment
NEW MINDSET REQUIRED FOR CHANGING ENVIRONMENT TOUGH ECONOMIC ENVIRONMENT GOVERNMENT DEBT COVID-19 MOODY’S & FITCH LOADSHEDDING DOWNGRADE 5
Slide 6: Highly Experienced Leadership Team with Diverse Skills
HIGHLY EXPERIENCED LEADERSHIP TEAM WITH DIVERSE SKILLS Stephen van Megan Pydigadu Coller Fatima Newman Chief Financial Chief Risk Officer Chief Executive Officer Officer Lufuno Tsepa Natasha Sean Bennett Brian Harding Marius de la Rey Nevhutalo Ramoriting Andrykowsky Interim COO Head of iOCO Interim
Slide 7: Strong Support at Corporate and Public Sector Level
WITH STRONG SUPPORT AT A CORPORATE LEVEL AND PUBLIC SECTOR LEVEL.. Megan Pydigadu Fatima Newman Chief Financial Chief Risk Officer Officer Louise Pinto (Financial reporting, Planning and Analysis) CA(SA). Damian Naicken (Legal) LLB and admitted attorney. Previously Servest Group previously at Absa i
Slide 8: Creating a Sustainable Business Model
CREATING A SUSTAINABLE BUSINESS MODEL FOCUSED ON RESTORING GROWTH TRAJECTORY & DELEVERAGING • Energy • Sybrin • Water • Information Services • Learning and • Syntell Development • CCS • Optimise iOCO iOCO iOCO Customer Technology Solutions • Sales & Advisory • Compute • App Dev • Enterprise Business
Slide 9: Our Value Proposition – Main Business Lines in iOCO
OUR VALUE PROPOSITION – 5 MAIN BUSINESS LINES IN iOCO Extensive consulting capability offering industry advisory and extensive technology advisory services covering CT architecture, human-centered Advisory & design, agile and digital Consulting Outsourced management of IT infrastructure, services an
Slide 10: Governance Risk and Control Framework Progress
GOVERNANCE RISK AND CONTROL FRAMEWORK PROGRESS MAY 2019 MARCH 2020 7Pillars of Governance Strength Road Maps (building blocks/ each element building Governance 7Pillars of Governance Strength Road Maps (building blocks/ each element building Governance Value) Value) Ethical Ethics Ethical Core Code
Slide 11: Setting the Foundation for Sustainability Through Enhanced Governance
SETTING THE FOUNDATION FOR SUSTAINABILIY THROUGH ENHANCED GOVERNANCE King IV - Maturity assessment EOH staff governance training No Principles % Complete Total COMPLIANT % 1 Leadership 100% All 8 530 7 255 85% 2 Organizational Ethics 100% NEXTEC 1 273 859 67% 3 Responsible Corporate Citizenship 91%
Slide 12: Stabilised Revenue in Core Business
STABILISED REVENUE IN CORE BUSINESS *iOCO - LTM AVERAGE REVENUE 300 250 200 R’m 150 100 50 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Solutions Technology M&O and NS Digital Industries Sales & Advisory *iOCO – Core Business made up of the following business l
Slide 13: Effective Property Optimisation
EFFECTIVE PROPERTY OPTIMISATION R70m pa achieved – R147m pa targeted FY 2020 Projected reduction in Property Costs R30 000 000 • 114 000m2 of empty property as at 3 Sept 2018 R25 000 000 • 45 proposed building exits in R20 000 000 FY2020 ⁻ 31 complete (21 in HY 2020) R15 000 000 • Aiming for R147m s
Slide 14: Reduction of Legal Entities on Track
REDUCTION OF LEGAL ENTITES ON TRACK 87 completed 151 to be completed by January 2022 272 72 legal entities 40 businesses 34 August 2018: Deregistered Majority Liquidation Sales processes July 2020: August 2020: Dec 2020: Sales processes January 2022: Targeted Number of number of stake sold in progre
Slide 15: Headcount Containment in Dynamic Environment
HEADCOUNT CONTAINMENT IN DYNAMIC ENVIRONMENT August August February 2018 2019 2020 >=60 11 423 Employees >=60 10 279 Employees >=60 8 408 Employees 50 to 60 50 to 60 50 to 60 40 to 50 40 to 50 40 to 50 30 to 40 30 to 40 30 to 40 >30 >30 >30 0 1000 2000 3000 4000 5000 0 1000 2000 3000 4000 5000 0 100
Slide 16: Top Digital Transformation Projects
TOP DIGITAL TRANSFORMATION PROJECTS Employee Digital Signatures On-boarding App April 2020 June 2020 Digital IT Procurement Cognos Portal June 2020 Phase 2 & 3 August 2020 IDU Budgeting VOIP Project and Billing Tool August 2020 August 2020 Data ERP Management & Replacement Analytics August 2021 16
Slide 17: Companies Sold Since Feb 2019 for ~R1,2bn
40 COMPANIES SOLD SINCE 1 FEB 2019 FOR ῀R1,2bn DISPOSAL PROCEEDS BRIDGE 1 Feb'19 - 20 Mar '20 Total consideration: Total cash still to be received: VFA Extinguished: EOH Shares Gross cash received: R682.6m R1 170.3m R388.3m R94.2m returned: 5.2m 17
Slide 18: One Off Payments R227m
SIGNIFICANT AMOUNT OF CASH ONE-OFF COSTS PAID OVER THE PERIOD R227 million in one off cash payments last 6 months Retrenchments & Related Costs (R46m) OEM Settlements (R115m) ONE OFF PAYMENTS R227m Disposal & Advisory costs (R66m) 18
Slide 19: R1,5bn Paid to Lenders
R1,5BN PAID TO LENDERS OVER THE LAST 19 MONTHS R1,5bn R957m R56m R498m Capital Repayments Default Interest Normal Interest • In the last 7 months: o R177m in interest, o R56m in penalty interest and 19 o R113m in capital (R250m paid in July-19)
Slide 20: IP Disposals to Normalise Capital Structure Proceeding Well
IP DISPOSALS TO NORMALISE CAPITAL STRUCTURE PROCEEDING WELL Key Objectives: Certainty + Speed vs Pricing Update on IP Disposals Stage of completion • Two processes launched in December 2019 • Local / international trade / financial partners approached Asset 1 • Numerous non-binding offers confirm ma
Slide 21: Dealing with COVID-19: Achieved to Date
DEALING WITH COVID-19….ACHIEVED TO DATE Reduced headcount by 26% Weekly liquidity management implemented with business for over 9 months Reduced number of properties by 31 (70m pa) Centralised procurement efforts can now be fast tracked for implementation Reduced expenses by 32% Proactively liquidat
Slide 22: Dealing with COVID-19: Current Initiatives
DEALING WITH COVID-19…CURRENT INITIATIVES Reduced pay by 20% • Includes contractors Office & property R15m • Excludes < R250k employees R55m related expenditure • Ensured ALL client delivery continues Targeting closing 24 Saving in travel, entertainment, more leases R5m marketing & events R10m Reduc
Slide 23: Financial Overview
Financial Overview Megan Pydigadu Group CFO
Slide 24: Financial Highlights
FINANCIAL HIGHLIGHTS REVENUE GROSS PROFIT NORMALISED EBITDA CASH BALANCE R 6 354m R 1,498m R 405m R 826m 1 809 431 125 307 519 4 544 1 067 280 Continuing Discontinued Continuing Discontinued Continuing Discontinued Continuing Discontinued GROSS PROFIT MARGIN HY 2020 24% HY 2019 20% 24
Slide 25: Priorities for FY 2020
PRIORITIES FOR FY 2020 Improved Working Deleverage Fit for systems, financial capital Balance Sheet purpose cost discipline management further structure and controls • Sale of IP assets far • Cognos controller live & • Positive cashflow from • Property savings progressed used for HY 2020 operations
Slide 26: Income Statement
INCOME STATEMENT HY 2020 HY2020 HY2020 HY 2019 R’m Continuing Discontinued change Reported Restated (IFRS defined) (IFRS defined) Revenue 6 354 4 544 1 810 8 128 (22%) Cost of sales (4 856) (3 477) (1 379) (6 537) (26%) Gross Profit 1 498 1 067 431 1 591 (6%) Gross Profit Margin (%) 23,6% 23,5% 23,8
Slide 27: HY2020: Revenue & EBITDA
HY2020: REVENUE & EBITDA Group: Net revenue R6 354m| Normalised EBITDA R405m| Margin 6.4% 2 750 iOCO: Net revenue R2 988m |Norm. EBITDA R374m | Margin 12.5% 45,0% 2 500 39,3% 40,0% 2 250 35,0% 2 000 1 750 30,0% 28,6% 1 500 25,0% EBITDA % R’m 1 250 2 439 19,8% 20,0% 1 000 750 15,0% 1 279 12,8% 500 4,
Slide 28: Revenue Analysis
REVENUE ANALYSIS Revenue by Sector HY 2019 R’m HY 2020 Change Restated 16% 21% Total Reported 6 354 8 128 (22%) Revenue Public sector 79% 84% Private sector Continuing 4 544 5 502 (17%) HY 2020 HY 2019 Continuing iOCO 3 234 4 065 (21%) • Public sector remains an important client and integral part of
Slide 29: HY2020: EOH of the Future Breakdown
HY2020: EOH OF THE FUTURE BREAKDOWN R811m REVENUE R584m REVENUE 9% normalised 4% normalised EBITDA EBITDA R1,279m REVENUE 13% normalised EBITDA R136m R179m REVENUE REVENUE 29% 39% normalised normalised EBITDA EBITDA 29
Slide 30: GP by Division
GP BY DIVISION HY 2020 HY 2019 76 GP Margin HY 2020 Restated 218 Total Reported 23,6% 19,6% Other IP Continuing 23,5 % 15,8 % 794 246 Nextec 56 iOCO R’m Continuing iOCO 24,3 % 15,2 % 129 Continuing (21) Discontinuing Continuing Nextec 19,7 % 14,2 % HY 2019 Continuing IP 28,9 % 52,9 % 64 Discontinued
Slide 31: Operating Expenses
OPERATING EXPENSES Total operating expenses HY 2020 down by 32% and sustainable costs up One-off costs marginally by 3% R688m Provisions & Loss on sale of assets onerous contracts 216 49 One-off costs Advisory & other Normalised 688 costs operating Total 91 expenses Operating 1 596 Expenses R2,284 m
Slide 32: Operating Expenses HY 2019 Restated
OPERATING EXPENSES HY 2019 - Restated One-off costs R1,779m Loss on sale of assets 157 Advisory & other costs Normalised 86 operating One-off costs Inventory write offs Total expenses 1 779 44 1 556 Operating Expenses R3,335 million Asset impairments Lebashe IFRS2 1 335 157 32
Slide 33: Total Normalised EBITDA
TOTAL NORMALISED EBITDA Bridge between Operating Loss & Normalised EBITDA (R’m) loss(1) losses loss(1) D&A Operating Impairment assets provisions contracts Loss on sale of IFRS specific onerous Other(2) EBITDA Other (2) EBITDA Advisory costs PPE & other Non-core lines to be closed Provisions & Norma
Slide 34: Normalised EBITDA Breakdown
NORMALISED EBITDA BREAKDOWN R’m Normalised EBITDA - IFRS 405 Continuing 280 Discontinued 125 iOCO (EOH of the future) 374 Solutions 26 Technology 163 Digital Industries 70 Sales & Advisory 39 M&O and NS 76 Mthombo & Cornastone 6 Nextec & Potential sales (7) Nextec (36) Digital Infrastructure (23) Di
Slide 35: Balance Sheet
BALANCE SHEET Unaudited at Audited at Figures in Rand thousand 31 January 2020 31 July 2019 Assets Non-current assets Property, plant and equipment 654 471 481 674 Intangible assets 288 758 488 974 Goodwill 1 354 802 1 850 854 Equity-accounted investments 195 928 228 067 Other financial assets 29 42
Slide 36: Balance Sheet (Continued)
BALANCE SHEET (CONTINUED) Unaudited at Audited at Figures in Rand thousand 31 January 2020 31 July 2019 Equity and liabilities Equity Stated capital 4 249 909 4 239 621 Shares to be issued to vendors 210 871 358 733 Other reserves 653 962 547 914 Retained earnings (4 228 185) (3 230 193) Equity attr
Slide 37: Deleveraging Remains a Key Objective
DELEVERAGING REMAINS A KEY OBJECTIVE Clear path to deleveraging R ‘m HY 2020 FY 2019 HY 2019 Kjjh Interest bearing liabilities 2 855 2 981 2 775 • Significant traction has allowed deleveraging to date • Core lending group contributes ῀93% to total debt for which there is Cash and cash equivalents 82
Slide 38: Positive Cash Generation in a Challenging Environment
R’ m Opening cash balance Sale bb proceeds Sale proceeds R55m Cash in companies sold/liquidated Sources of funding * Cash Balance as at 2 April 2020 = R950 million Cash generated from ops OEM Settlements Disposal and advisory assets R33m Business Unusual Mb Cashflows from business Other Taxation pai
Slide 39: Inventory
INVENTORY Net Inventory Gross Gross Inventory Inventory R64m R165m 59 Provision Provision R5m R20m 145 Gross Inventory Breakdown HY 2020 Gross Inventory Breakdown R’m R251m R64m Continuing Assets Held for Sale 3 COMMENTARY 1 R165m R’m HY 2020 HY 2019 8 226 Inventory 145 251 141 Included in AHS 59 35
Slide 40: Trade & Other Receivables Breakdown
TRADE & OTHER RECEIVABLES BREAKDOWN Continuing Operations vs AHFS R’m 697 R 3 328m 2 632 Continuing Operations Assets Held for Sale Trade & other Receivables Trade & other Receivables Total Trade Debtors for ageing R 2 994m 40
Slide 41: Trade Debtors Ageing
TRADE DEBTORS AGEING R4 125m 1 319 R3 145m R2 994m 221 899 856 402 178 178 297 312 2 183 1 780 1 648 31 January 2019 31 July 2019 31 January 2020 Current 30-60 Days 60-90 Days 90+ Days 41
Slide 42: Receivables: 90 Days Bridge
RECEIVABLES: 90 DAYS BRIDGE 9 356 88 400 101 336 1 319 347 R’ m 194 890 856 COMMENTARY 31 January 2019 Sold companies Non-cash Cash Resolution Rolled over 31 July 2019 Companies sold Non-cash Cash Resolution Net roll-over 31 January 2020 resolution resolution 42
Slide 43: EOH Exposure to COVID-19 Uncertainty
EOH EXPOSURE TO COVID-19 UNCERTAINTY *Client exposure by sector Local Government Other 15% 21% Retail Financial Services 3% 12% Energy 3% Education 3% Telecommunications Construction 7% 3% Food & Beverage 4% Manufacturing & Logistics Mining 7% 4% Health Central Government 5% 6% Information Technolog
Slide 44: Clear Path to Extinguishing Legacy Cash Draining Issues
CLEAR PATH TO EXTINGUISHING LEGACY CASH DRAINING ISSUES HY 2020 EBITDA4 impact HY 2020 Cash impact Going forward R'm R'm LEGACY COMMERCIAL CONTRACTS 271 - Poorly contracted public sector 188 - Completed or exited in 6-12 months: R50'm - R100'm contracts1 EPC contract business2 83 - Closed or sold in
Slide 45: Looking Forward
Looking Forward Stephen van Coller Group CEO
Slide 46: Our 5- to 10-Year Vision of the Future
OUR 5- TO 10-YEAR VISION OF THE FUTURE Digital Journey Partner Cloud Solution Integrator Business Enablement Partner aaS • Strengthen app, data, cloud • Build integrated client ecosystems in the cloud • Serverless architectures, cloud native development • Build AI and cloud native apps and • IT as a
Slide 47: EOH Remains Systemic to South Africa's Economy
EOH REMAINS SYSTEMIC TO SOUTH AFRICA’S ECONOMY – ELEVATED BY COVID-19 OVER 5000 CUSTOMERS RELYING ON US – INCREASED CONNECTIVITY IMPERATIVE Backbone of banking system for many Cutting edged medical solutions banks in SA & Africa companies including Nuvoteq & TCD Providing BUSA with platform to Provi
Slide 48: Our Stated Turnaround Strategy with Clear Priorities
OUR STATED TURNAROUND STRATEGY WITH CLEAR PRIORITIES Refine business Continue portfolio refinement Focus on long term CREDIBILITY model for investors to return to growth strategic plan >R1 bn in Gross debt target of EBITDA margin of Neutral working EBITDA cash conversion LIQUIDITY disposals <R1.5bn
Slide 49: Plans in Place to Address Remaining Challenges
PLANS IN PLACE TO ADDRESS REMAINING CHALLENGES Plan • 8 Public sector contracts to be closed out by Dec 2020 • Problematic Nextec companies being closed out Legacy One-off • Advisory costs nearing end commercial Settlements Plan • Minimal OEM Settlements contracts Head Office • 2 senior management s
Slide 50: Key Achievements for the Period
KEY ACHIEVEMENTS FOR THE PERIOD Business performance stabilised with Total Revenue R 6 354 million Gross Profit margin improvement with 24% GP margin Normalised EBITDA Significant cost management progress made R405 million with ῀65% cash conversion rate Cash balances R826 million(1) with an Stable c
Slide 51: Q&A
Q&A
Slide 52: Appendices
EOH Appendices
Slide 53: Appendix 1: Clarifying Disclosure Definitions
APPENDIX 1: CLARIFYING DISCLOSURE DEFINITIONS CONTINUING OPERATIONS ASSETS HELD FOR SALE DISCONTINUED In one line item In each line of I/S unless it is also Income Statement In each line of I/S Loss from discontinued a discontinued operation operations In assets held for sale unless In each line of
Slide 54: Appendix 2: EBITDA Reconciliation
APPENDIX 2: EBITDA RECONCILIATION HY 2019* R’000 HY 2020 Restated Operating loss before interest and equity-accounted losses from continuing operations (728 216) (2 408 373) Depreciation 118 025 100 713 Amortisation 57 402 134 953 Impairment losses 152 452 1 334 569 Loss on disposal of assets 93 948
Slide 55: Appendix 3: EBITDA Reconciliation – Continuing vs Discontinued
APPENDIX 3: EBITDA RECONCILIATION – Continuing vs Discontinued Continuing Discontinued R’000 Reported (IFRS defined) (IFRS defined) Operating loss (990 506) (728 216) (262 290) Adjustments 776 493 452 072 324 421 Depreciation 165 040 118 025 47 015 Amortisation 85 054 57 402 27 652 Impairment losses