iOCO Limited (IOC) Earnings Call Transcript & Summary

Good morning, everyone. Apologies for the slight delay. COVID threw us a curve ball, but we're very excited to be here, and myself and Megan will take you through the presentation. The order of play will be, I'll take you through some of the highlights. Megan will take you through the detail, and then I'll come back and talk about what 2021 and the years ahead have in store for EOH. So since embarking on its turnaround strategy, EOH, in my view, has made great progress towards building a sustainable organization, while navigating these negative effects of the issues inherited from previous management as well as the impact of COVID-19. The near-term priority has been on improving EBITDA performance as well as the disposal of noncore units as part of the deleverage strategy; at the same time, building a robust governance framework to enable the future growth of the business. Our business is now more focused and less complex with our capital structure and cash generation improving. As we embark on the new phase in our evolution following a period of consolidation, our emphasis is now on enhancing our value proposition and growing our core business from a top line and an earnings perspective. We are well-positioned to take advantage of the exponential shifts in the world today, which creates an opportunity to be the most attractive digital transformation enabler throughout Africa and beyond. We continue to deliver on all our promises, and ensure that EOH quality of earnings is retained. As a result of the delivered promises, our gross debt, including our VFAs, now sits at ZAR 2 billion, more than halved since the new management joined the company. PwC's unqualified audit is a huge milestone for us, given last year was qualified. We have conservatively constructed the balance sheet providing for what we believe are the downside issues. EOH is a story of continued improvement in the quality of earnings. 2020 is much better than 2019. Half 2 is much better than half 1 for 2020. Margins have improved largely through cost optimization. Half 2, we achieved a positive reported EBITDA as the one-off costs diminished significantly. One-off cash items, down from ZAR 229 million in half 1 of 2020 went to only ZAR 10 million in half 2 of 2020. This is just evidence that we're now getting to the bottom of our issues. Improvement in liquidity through the implementation of cash pooling was key. We've simplified the business and created sustainable cost savings by a reduction of 99 of our 272 legal entities. We have said previously that we are targeting a cash conversion rate of greater than 80%. Well, I'm really excited and I'm pleased to say that we generated ZAR 707 million in cash from operations on normalized EBITDA of ZAR 827 million this year. That's an 85% cash conversion rate, largely due to significant improvement by the teams in managing the working capital, and Megan will take you through the detail of that. As of today, EOH and the new management team has achieved substantial success in executing asset sales, having sold more than 81 companies at a gross value of ZAR 1.6 billion, if you include the unpaid profit warranties or value for acquisition VFA liability as part of the proceeds. And important for the long-term future of EOH, we completed the first bottom-up clean sheet strategic review in 22 years. This has created enormous excitement within the business and has also contributed to the collaboration within the teams. And this is critically important for us as we consolidate our IP across the businesses so we can reuse it across all the teams. COVID-19 has shown us again how resilient the business is. We have a broad client base and a broad product base. We are not reliant on any single customer, sector or product. Although, financial services is dominant. The public sector remains meaningful to us as a business. We remain committed to supporting government. We have now embedded and integrated all public sector business into the product centers of excellence. This ensures all customers enjoy the same high level of service and our governance processes are consistent. More importantly, our sticky services businesses contribute over 81% of our revenue. Having a look at our revenue, through COVID and through asset sales, they've largely stabilized post-lockdown. iOCO remains the largest business for the group, contributing 59% of total revenue, 52% in 2019, but 67% of the normalized EBITDA. iOCO's end-to-end ICT capability provides a robust backbone on which to grow its market share. This business is currently being managed around its offerings, namely advisory, services, technology and digital. I'll speak more about that at the end of the presentation. Low-margin hardware sales were the hardest hit during COVID, and although stabilized somewhat, do not look like growing again anytime soon, as customers extend the life of their current hardware and accelerate their move to the cloud. Digital revenue has declined largely due to the sale of our loss-making international businesses, but since lockdown, has managed to increase its revenue. iOCO is, however, strategically positioned to grow organically as well as to capitalize on geographic opportunities. Once again, I'll talk about that at the end of the presentation. But I think iOCO is also set to benefit from the rapid digitization of business brought on as a result of COVID-19. A big success story this year is the fact that the NEXTEC team have managed to stabilize the business, and are now self-sustaining on a cash basis, having produced both positive reported EBITDA and normalized EBITDA of ZAR 158 million for the year -- for the second half of the year. This is really encouraging going into 2021. The NEXTEC businesses include an intelligent utility infrastructure solutions, which assists customers in optimizing the use of their finite resources, such as power, water and roads in a world facing climate change. They also have a People Outsourcing business, and I'll talk more about this also at the end. But more important is that as this cluster continues to reduce in size as its noncore businesses are wound down or sold, while the remaining business lines are being consolidated to maximize efficiencies. The IP assets were the most impacted by COVID through their B2B2C exposure in 2 of the companies. However, as you can see from the graph, there was strong recovery post-lockdown, both in Syntell and in Information Services. Syntell is now sold post-year, and as you remember, it was sold for a 10x multiple on profit. Clearly, assisted -- this clearly assisted our deleveraging process, along with both Denis and CCS sales. The IP assets are now largely comprised by 2 large assets, called Sybrin and Information Systems. In reality, they're good businesses. And so far, you've seen we've been able to sell our IP businesses at very good prices. Debt levels are now reasonable, although not perfect, so the banks have given us some leeway. So we're in a position where we're not forced to sell, so achieving fair value still remains very important. We do have more IP assets that are in growth phase. We've got 2 examples I can give you one is called Impressions, which is basically a DocuSign knockoff, very similar, and has grown exponentially through COVID. Nuvoteq was born out of the medical trials business. It's basically an FDA-approved document management audit trail software, and we've been using it internally to create Compliance as a Service, finance, attestations and our learning and development platform. And we've seen large interest in this across Africa from some of the NGOs and also some of the international medical companies. Clearly, we've been really focused on creating a fit-for-purpose cost structure. Operating costs continue to come down. We've continued with our property rationalization. This is largely completed at the moment until 2023 when all our rentals will align. We exited 81 buildings in 2020, basically a quarter of Sandton City and saved ZAR 75 million per annum on top of the 2019 savings. We expect in 2021 to save a further ZAR 10 million per annum. We saw a reduction of almost 3,000 in headcount, of which most of it, 2,800 was due to structural reasons. This was largely due to contractors, not having contracts renewed as we closed out large projects and businesses being sold. We did have around 450 retrenchments as we optimized the businesses pre-COVID. As we continue simplifying our structure and reducing legal entities to the target of 34 companies, we will end up with a consolidated and fit-for-purpose head office. If you remember, I talked about the analogy as we had 272 speedboats with no 2-way communication. What I didn't want to create and management and Board don't want to create is a -- one single big aircraft carrier. We're really trying to create a group of destroyers that are working together in unison with a single focus, but enabling them to operate at different speeds. We are still on a journey with regards to cost savings. These do take time to bleed-in. But for example, the digitization we are doing internally will see an estimated reduction of around 25% of our business system costs. Going into this new financial year, we're expecting to see a 3% to 5% further cost reduction in terms of our current normalized cost base within the businesses. We will continue as a key focus to optimize the business to maximize our competitiveness. This is the minimum requirement from our customers, but it's also an opportunity I will speak about at the end of the presentation. Clearly, our employees are a key priority, and we've really worked hard to enhance the value -- the employee value proposition to ensure that talent attraction and retention remains. As a responsible employer, COVID brought many challenges to the fore. One of the most important was the mental health of our people. We have introduced Wellness Wednesdays, whereby we engage thought leaders on sharing tools, techniques with our people to navigate through these extraordinary times. During COVID, we also launched our first People & Culture Imbizo that was framed around a new EVP and started the conversation on social cohesion. Instilling purpose and motivation is key. In driving our purpose to solve, we have a supporting CEO Awards program that is directly aligned to ensure we drive and reward the right behaviors and performance around courageous leadership, enablement, arising stars, the disruptors of the year and the solvers of the year. In our pursuit to build agility into our business and people we created R(IS)E UP, our internal reskilling and upskilling program. The objective of R(IS)E UP is to build skill agility. Our vision is to have a work environment where even our receptionists are able to code, if they would like to. This allows for redeployment of people and transfer of talent across the business. In extending our solve Ethos to solve for our youth in our communities, we launched GEAR UP. This is a volunteerism program that aims to ensure that our youth get a head start and gear up for their first interview or job. This is done through coaching and mentoring on mock interviews and also the collection of business attire for the attendance of interviews. The MyNextMove platform allows us to rotate talent and provide career growth for our people. Promoting our diversity inclusion is critical. Our vision on inclusion is based on the principle that an inclusive world is an enabled world. Our focus is how do we, as EOH, be an anti-racist organization, one in which we proactively engage one another so that we may transition from being color-blind to being color-brave. Our focus includes constructs like structural and social exclusion and how do we proactively break these down in order to level the playing field. Our gender diversity focus is aligned to both the United Nations women empowerment principles, like the 30% Club. This year, we have also created a Make Your Story Lean and Circle and Women in Leadership program. Generational diversity is built around our Youth Solvers. Our -- an employee resource group aimed at keeping us relevant and socially impactful while building the leadership pipeline. Our debt burden has been our biggest headache. Lowest interest rates has given us good headroom and time to restructure this debt. I must thank the banks for their continued support and assistance to manage this process. These processes are always tough, and the banks also got side swiped by COVID during this year as well. I was hoping for a number of ZAR 1.999 billion, and that, I would have won at shirt, but we'll need to leave that for next time. For now, I'm just ecstatic that the team has halved our debt and ZAR 2.042 billion is a great number because this is half the debt burden that we started with. I just wanted to talk a little bit, and this is probably the last time I'll put this slide up, but the transparency and progress that we've made through governance, risk and compliance roadmap. We started in May 2019 with a very red risk assessment. And you can see the progress we've made in a very short time and also having a look at this strong culture of compliance and how the team and all the staff in EOH have actually worked together. This can only happen if you have the right procedures in place. This is really what I call the continual improvements slide. Some of these numbers achieved there, I don't even think I achieved when I was a banker. And it’s a real testament to the EOH people and their character and their ability to change and their willingness to be better. Although I am sure that the policy of no training or no attestation equals no bonus did play its part. Importantly, we've made significant progress in settling and closing out our problematic legacy contracts. We continue with our bid review process to ensure we manage the business risks properly. The public sector still remains a valuable segment for us, as discussed earlier, as they now form part of the centers of excellence to ensure the processes and delivery are consistent for all clients. The evidence given before the Zondo Commission over the past 2 days or past week sees us firmly close the door on the old EOH. While ENS has been mandated by the Board to continue to collaborate, I personally am relieved that the law enforcement agencies can now take this forward, and we can give 100% focus to the growth of the business. Obviously, corporate -- being a good corporate citizen is the foundation to our social license to operate. We're committed to enabling and solving for our communities, women and youth in particular, through key partnerships. Adopting schools in less advantaged areas and upskilling scholars with additional classes and exam preparation, specifically for Grade 12 peoples in maths and science. It includes support to parents and teachers of adopted schools. This is facilitated through the Maths and Science Center. Entrepreneurship, career development, financial literacy through peoples through prime stars. Afrika Tikkun is the partner EOH used for running ICT programming and other ICT-related skills building. We donated 77 bursaries to diploma and degree students in ICT studying at the Belgium iTversity. This program has a specific focus on developing young women in ICT. EOH is one of the first organizations to respond to a call from solidarity and remains an essential partner to the fund. We joined the fund on the 20th of March this year as we went into lockdown. We designed, developed and hosted the website and provided the ongoing maintenance pro bono. The team recently assisted in the configuration of the Microsoft 360 platform, including coordinating and assisting with the migration of all their data from the individual solidarity fund users to the Microsoft Team SharePoint platform. Just in summary, the business has really stabilized. Our 2-year turnaround plan is ahead of target. We've continued with positive business improvement, which has resulted in real quality of earnings. As I said earlier, 2019 -- or 2020, much better than 2019, half 2 much better than half 1. Gross debt is now half to ZAR 2 billion. Reduced interest rates, cash pooling and operating cash generation has made this debt way more manageable. The strategic review completed, which was a critical part of consolidating the business into something simpler, more manageable and agile has really set us up for a very exciting future. Thank you. And I'll hand over to Megan to go through the detail.

Thank you, Stephen, and good morning to everyone. This past year has truly been unprecedented times for us, what with COVID and lockdown and adopting to new ways of work. And then a first-time audit with PwC. We are a resilient company and have the most amazing team, and I've come through this period strongly and better than before. We are focused on creating a sustainable organization, understanding our cost base and driving productivity and ensuring we run an efficient working capital. The focus has come through in our results as our quality of earnings continue to improve, together with our continual improvement in performance year-on-year and H1 to H2, as Stephen has said. And as for myself, as FD the biggest achievement has to be having an unqualified audit opinion by one of the big 4 audit firms, PwC. This is a far-cry from where we were a year ago with the qualified opinion on opening balances with our previous auditors. It has been an amazing effort from our finance team, big gratitude to them, and also to PwC, who have been prepared to stand with us and journey together as we restore EOH. Before we start going through the numbers, our accounts are incredibly complex from an IFRS perspective. We have discontinued operations that require restatements of the prior year numbers to show what it would have been classified had the prior year also had those discontinued. So the way we've shown our numbers is on a total basis, and is a combination of adding the continuing and discontinued when we do the unpack of the numbers. So from a revenue perspective, we posted ZAR 11.7 billion of revenue with close to 60% coming from our core iOCO ICT integrator -- systems integrated business. We have also seen a stabilization in our revenue base as we move forward. Our GP margins have shown an improvement of 2% to 22%, as we focus on productivity and ensure that we are not idle from a resource perspective with people sitting on the bench. Our medium-term target still remains in the mid-20s for our GP margin. From an EBITDA perspective, we continue to drive our productivity levels to ensure we optimize margins to greater than 10%, and we have shown improvement from the prior year with EBITDA now at ZAR 827 million normalized. When we compare this to our cash generation from operations of ZAR 706 million, we have seen over 80% cash conversion, which is our medium-term target. And then we finished the year on a strong cash balance at ZAR 946 million. Our key priorities this year have been to ensure a fit-for-purpose capital structure that is appropriate for the size of the business. We have made great progress this past year, paying back ZAR 292 million in the financial year and a further ZAR 400 million post year-end. Our VFA liabilities have also shrunk significantly to ZAR 44 million at year-end and then less than ZAR 10 million post year-end. As Stephen said, our debt is now sitting at slightly over ZAR 2 billion. That's a significant improvement from 2 years ago. Our systems have been a key focus as we embed proper financial controls across the organization. We have also embarked on a journey to digitize our own organization and are looking at implementing a new ERP. We are currently in the design phase. One of the key takeaways this year has also been our ability to leverage off our own IP and the use of our low-code platform, which Stephen spoke about previously, Nuvoteq, to automate our attestation process for year-end purposes and our governance training and compliance within business. Our working capital has continued to be a key focus. Our net investment has reduced to ZAR 176 million as we continue to focus on how we manage working capital effectively and drive towards a net-neutral position. Our fourth priority has been to drive-down costs and create a flexible cost base and fit-for-purpose cost structure. I will go into this further into the presentation. Key to a sustainable organization is creating a strong foundation. Digitization of our own systems have been a core focus. What better position than to leverage off our own in-house capabilities. We continue to deliver on this as well as building out the right disciplines and processes across the organization. We have also seen further efficiencies in terms of how we manage our cash, having implemented cash pooling across our significant businesses. Moving to the income statement. I previously explained that we have shown the income statement and analyzed it on the total, including continuing and discontinued. I will go into more detail now in the presentation. From an operational performance, our core iOCO performed well with normalized EBITDA of around ZAR 800 million and an EBITDA margin of over 11%. Our iOCO Solutions business is our business of the future and growth opportunity. It comprises our cloud, Aptiv, automation business, and the margins in this business were impacted by the exiting of nonperforming international businesses, which we are largely now out of. Our iOCO core technology business is our traditional ICT business and comprises hardware, software sales and ERP implementations. The business saw healthy margins and revenue, albeit we did see a drop-off in the hardware revenue. Our iOCO core Digital Industries business is also one of our businesses of the future and is involved in the IoT space and has seen strong growth. The profitability of this business was impacted by our NEXTEC advisory business, who were loss-making and who have subsequently been put into liquidation post year-end. Our sales in the advisory business, although a small revenue contributor, is a strategic enabler in bringing opportunities for solutions to the group through advisory work. Our Manage & Operate and Network Solutions are our engine rooms and also have contributed significantly to profitability within the group. Our iOCO Systems Integrated business continues to be our biggest revenue contributor of around 60% with NEXTEC at 30% and our IP businesses at 11%. From a sectors perspective, our revenue contribution from public sector is around 20%, with central and local government making up the bulk. Public sector still remains a key focus for us and has now been integrated into our offerings. Our product mix has also stayed largely consistent year-on-year. And one of the important call-outs here is the fact that our service revenue makes up over 80%, which really makes our customers sticky. In terms of understanding the reduction in revenues, so revenue reduced by 26%, with the biggest reduction coming from the sale of entities of 14%. COVID also had an impact of around 5%, representing ZAR 700 million, and this was from our inability to deliver hardware during lockdown. Our IP businesses, which Stephen previously referred to who are B2B2C facing, being significantly impacted during lockdown levels 5 and 4. And in certain of our businesses within the NEXTEC space, seeing a reduction in revenue. Other reduction in revenue was as a result of Pia Solar, which we are currently in the rundown phase as we close out projects and don't want to enter into any further projects in this space, in line with our risk profile, and then large hardware sales in the previous year, which we haven't repeated in the current year. From an overall cost perspective, costs were down 45% from ZAR 6.2 billion to ZAR 3.4 billion. Obviously, the prior year included significant one-offs in the forms of impairments of over ZAR 2 billion. In the current year, impairment write-offs have just been over ZAR 500 million. Once the one-offs are backed out together with the sold entities, we saw a 5% reduction in operating expenditure on a like-for-like basis. One of the themes for this year has been our continued improvement from last year, to this year and also between halves. This is also seen in the decrease in OpEx from H1 to H2 by 48%. Core to driving our cost structures down has been how we take systemic costs out of the system. Stephen has spoken about our property optimization. And this graphically represents that we had 140 leases in 2018, and we've now reduced it to 60 leases by 2020 and have removed ZAR 74 million of rental costs out of the system in the past year, with a further ZAR 10 million planned for the upcoming 2021 financial year. By 2023, when our lease renewals align, we should see our optimal lease portfolio. COVID has also made us reassess our office space needs and has made us realize that there are further savings to be had as we move to a more work-from-anywhere policy and implement an Office-Hub model in key areas. Another core systemic unlock for us is our overly complex legal structure. In 2018, we started with 272 legal entities. By July, 99 entities have been reduced from our structure. Our strategy is to get to around 34 legal entities, ensuring a simple legal structure. A simple structure makes it easier to run the business and ensure governance processes are in place and naturally reduces all the ancillary costs of keeping a complex structure. At the heart of our business are our people, and we are a people business. And it's core to us delivering on our strategy execution. The past year has seen a reduction of close to 3,000 people, mainly due to the sale of businesses and then contractors not renewing due to us exiting legacy contracts, and also as a result of our drive to improve productivity, which has seen an improvement in the GP margin of 2%. Our performance from an EBITDA perspective shows a significant improvement from H1 to H2. Our operating loss in H2 was 72% less than H1. We were EBITDA positive in H2 before any one-off costs of ZAR 286 million, and saw a significant decrease in one-off items, resulting in an overall EBITDA loss before normalization adjustments of -- in the prior year, we had -- in H2, we had a loss of -- EBITDA loss of ZAR 287 million -- sorry, profit. And in H1, it was $286 million before normalizations. Overall, we posted ZAR 827 million of EBITDA and normalization. The key takeout from here is that our normalized EBITDA is in the region of ZAR 400 million per half. We have far-less one-off items. In H2, we actually took out ZAR 100 million in cost savings from COVID and added back them as they were no longer sustainable going into 2021. And we have our noncore businesses in hand as we close out our legacy contracts. Our noncore business lines include our legacy public sector contracts and 2 EPC businesses within NEXTEC. At year-end, these have been fully provided for. What remains is the completion of these projects and the ancillary-related cash flows. Autospec, which electrifies water pumps, is set to close out in the next 12 months with a net cash outflow of ZAR 20 million. Pia Solar is substantially complete with just 2 projects remaining, and minimal cash outflows are expected. Our legacy public sector contracts have a potential ZAR 25 million outflow. We have 8 noncore legacy badly-contracted public sector contracts, of which, 5 are closed. One is in arbitration, one is with council awaiting approval and one is running out in April. To reiterate, public sector is still core to our strategy and contributes 20% of our revenue. Moving on to our balance sheet. From a balance sheet perspective, some of the key call-outs are our PPE, where we saw the adoption of IFRS 16 in the current financial year, where we capitalized ZAR 367 million to right-of-use assets. Goodwill has reduced to ZAR 960 million, with ZAR 600 million also included in assets held for sale. ZAR 400 million was impaired in the current year. And of the remaining goodwill, 75% sits within iOCO. Other financial liabilities include borrowings from lenders classified as current due to refinancing being required by 1 April. We are far down the road with the lenders in terms of resolving the debt structure as we look to a more permanent capital structure. We have an in-principle plan with our lenders, and we plan to negotiate a long-form of the term sheet by the end of January. Provisions include ZAR 173 million for overinvoicing of licenses. As you will be aware, there were 3 contracts that we had overlicensing with. 2 of those contracts have already been settled out with the SIU, and there's one remaining to close-out. Further provisions relate to provision for PAYE of ZAR 250 million and tax disputes of -- related to tax disputes and then ZAR 250 million related to Onerous Provisions, which are largely related to our noncore business. Our debt has decreased from ZAR 4 billion at 2018 to ZAR 2 billion at the first of December. We have seen VFAs of over ZAR 600 million reduced to virtually nil, and significant progress made on repaying, such that we are now in a position to start refinancing with our lenders and putting in a permanent capital structure. We paid a further ZAR 400 million post year-end. And we have met -- of the ZAR 700 million that we were required to meet with our lenders for the 30th of November, ZAR 450 million has been met of that. The lenders did give us a waiver on the ZAR 215 million that was required to be paid by the 30th of November. The sales of our IP assets were impacted by COVID, which resulted in us not meeting this target and the fact that these deals will be closed later. We've seen significant improvement in working capital management from a net investment of ZAR 1.5 billion to ZAR 176 million. This is over a 90% improvement. Not all of this has been cash resolution, with some of this having to be written-off in the prior years. From a liquidity perspective, improvements have been made in ensuring liquidity is forecast on a weekly basis, together with ensuring we have a cash management system in place, and that there is capacity within our overdraft facilities. We are also cognizant of issuing guarantees and currently have ZAR 353 million of outstanding guarantees, mainly in the NEXTEC space. Significant improvement has been made from H1 to H2 for our -- from a cash flow perspective. H1, we produced a net ZAR 34 million from operations as we still dealt with large legacy payments of over ZAR 229 million. H2 saw only ZAR 20 million of legacy one-off payments. 95% of our cash generation from operations happened in H2, and was able to cover-off all our operational funding as well as part of our debt. Our priorities remain fit-for-purpose capital structure. We are now in a place where we can start contemplating a permanent capital structure, and should see this being executed on in the next 12 months. We will continue to optimize on systems and controls as we digitize EOH. And as we reduce and simplify the group and address systemic issues, we will ensure we have fit-for-purpose cost structures. Our downside risks have been contained. They've been quantified and provided for them. PwC have audited our accounts, and we have an unqualified opinion. Our legacy contracts are largely known and resolved, and we have settled out 2 of the 3 contracts with the SIU, where we overbilled. And we are currently engaging with SARS in a constructive manner to find resolution with them. In conclusion, although the economy is difficult, our revenue has stabilized. We continue to execute on the turnaround of EOH and show meaningful improvement in performance and quality of earnings demonstrated through the reduction of our one-off costs and cash flows as well as improvements in margins. Our normalized EBITDA is over ZAR 800 million. We have been cash-generative from an operational perspective. And H2, we were able to fund the business apart from our repayment of debt. And lastly, we are in a good place to put in a permanent capital structure in the new year. With that, I would like to hand over to Stephen as we move to thinking about our growth strategy.

Thank you, Megan. I think you can all agree that's been a pretty impressive performance from the teams. Certainly from where I sit, I'm really proud of them and how much they've really put energy into this turnaround and getting us ahead of schedule. I want to talk a little bit about our value proposition going forward and just give you a very simple diagrammatic version of what iOCO and NEXTEC really are. iOCO is an end-to-end systems integrator that is unparalleled in its breadth of offering and high level of sticky services. iOCO’s strategy is influenced by the evolving market trends of data and analytics, cloud and automation and dev anything that are driving the need for bespoke development and Everything-as-a-Service. With customer solutions and advisory at the center, we can now be product agnostic and solution with our customers. There are 3 main parts of this stack, namely digital, services and technology. Digital is about everything new age, and generally geographically agnostic with regards to OEMs. In there, we have a large application development business, a large cloud business, a data and analytics business and everything open source. Technology, in contrast, is everything linked to OEMs. Basically, hardware and software sales and the related services and implementations that go with that. One thinks about IBM, Dell, HP, SAP, Oracle, InFor, to name a few. The services business is largely driven by our network managed solutions and our infrastructure manage and operate, so anything from desktops to data farms to server farms. During the year, iOCO created an intellectual property or IP business unit with a sole focus on IP development. The unit has set up an ideation forum and uses an ideation tool set to harness the power of the extensive experience in our digital team to grow out ideas to develop and take to market. This led to the creation of various bots that enable faster processing of back-end shared services such as finance, procurement and reporting. NEXTEC has 2 pillars, namely Intelligent Infrastructure and People Outsourcing. NEXTEC, Intelligent Infrastructure offers valuable technology products and service opportunities, including Intelligent Infrastructure Solutions that, amongst other things, use the latest OEM technology to create safe and smart cities. These technologies that support smart, safe, healthy and secure environments, including energy control systems, building management, environmental solutions and intelligent green building design. NEXTEC's energy and water technology solutions can significantly reduce energy and water consumption. The digital revolution has presented cities with the opportunity to optimize through the use of existing infrastructure as well as build new smart infrastructure, and NEXTEC aims to be at the center of the smart and safe city revolution. NEXTEC people outsourcing solutions span from specialized mining payroll to employee benefits. Strategic partnerships really underpin our stability. We continue to add to our checkerboard of capabilities to ensure we remain relevant to our customers. New age OEMs are partnering with us, creating new opportunities for revenue as we fill in the systems integration checkerboard with the latest ecosystems. Just 2 to mention, Salesforce, the largest new age customer relationship management ecosystem in the world, competing with the likes of Microsoft for this space, have chosen to partner with us. IFS is a new age ERP system, largely for retailers. They hail from Sweden, but have chosen us as their partner. Not to mention the large OEMs renewing their partnerships and choosing EOH to deliver for them. iOCO, ironically, has been named Amazon Web Service's and Microsoft Workloads partner of the year. I think this is testament to the depth of our capability within iOCO. We will continue to ensure we support our customers with the current offerings, but also ensure we upskill our staff to allow customers to migrate to new age solutions as well as opening up new revenue streams for us. EOH is well-positioned to grow in our heightened digital reality, especially in the mid-tier customer space in SA, the Middle East and Europe. The opportunity lies in our Digital and Services businesses as well as our Digital Industry businesses, which is an IoT business and continues to perform well. These are the 3 areas of growth where we would expect the growth to be above GDP. There's a lot of opportunity to use our IP in South Africa to create business in a box. We are busy doing that, which I've spoken about before, but the real opportunity, in my view, is exporting some of this. We have a brilliant business in Egypt, which has been quite limited in what it does. But Egypt is a massive economy, and it's a gateway into the Middle East. For those of you who know Egypt, it's 110 million people with GDP growing at 5% to 6%. We've already started expanding their products and also bringing some of their products into South Africa. The main reason for this is we have a competitive advantage from a cost perspective using Egypt and also South Africa into Europe and the Middle East. Currently, salary costs are about 60% of that of Europe, and it enables us to really drive low-cost products into the European and U.K. market. Our focus will largely be the mid-market. I don't see us being the IT person of choice for the JPMorgans and the Barclays of the world. But in the mid-market, this cost advantage is going to be critical as people look for Everything-as-a-Service. We are well positioned to take advantage of this in a new global digitization normal. I think the PwC unqualified audit was a huge milestone for us. Excuse the excitement, but this was a real achievement from the finance team. To summarize, we continue to deliver on all our promises and ensure that EOH quality of earnings is retained and enhanced. As a result of the delivering on our promises, our gross debt, including the VFAs, now sits at ZAR 2 billion, more than half since the new management joined the company. EOH is really a story of continued improvement. In that 2020 is much better than 2019. H2 is much better than H1 for 2020. Margins have largely improved through cost optimizations. We generated over ZAR 700 million in cash from operations on a normalized EBITDA of ZAR 827 million this year, which equals an 85% cash conversion rate, which just shows the huge improvement in the management of the company, and we continue to look to have neutral working capital. I'm not sure if I said it before, but let me say it again. PwC unqualified audit is a huge milestone for us, given last year was qualified, and it really sets a base for us to move forward. I'm truly grateful for the outstanding effort delivered by the team, putting us 6 months ahead on our turnaround journey. I want to say thank you to the Board as well for their expert and precise guidance. I am truly excited about the new EOH future. Thank you very much.

Stephen, Megan, we have a couple of questions coming through. The first once from [ Rafaelo Sima ]. Thanks for the detailed overview. Seeing that we have a cash balance close to ZAR 1 billion, any plans to look at further acquisitions to strengthen the core business while disposing of noncore assets?

Thank you, [ Brandon ], and thank you for that question. Clearly, now that we have got to a point where we know what the downside in the business is and we've stabilized our balance sheet, there is going to be opportunity in this market to consolidate and to create a better business. Obviously, the one thing we have to do still is we have to get our capital structure permanent. Once we've got that in place, we then know what we've got to move forward. But I think with our cash pooling, with our positive operating cash flow that we generated last year, plus with the negotiations we're in with the banks at the moment to put in the permanent capital structure, in the next 12-months, we will definitely be able to start having a look at how we grow, both organically but also inorganically.

From Muneer Ahmed, Prescient, well done on an encouraging set of results. Are you comfortable that during this deleveraging process, you haven't sold the crown jewels of EOH? The first question. Two, although debt is looking significantly better, it seems like expensive debt. What is the average borrowing rate on remaining debt? Three, what is the cash balance as at 30th of November 2020? Has the Syntell money been received? Can we take those? And let me know if you want me to break them down again.

Yes. So going backwards. Yes, the Syntell money has been received. It has been paid back to the banks. I'll just need to check whether we can talk about our bank balance because I don't know if that needs a sense. But clearly, as Megan said, we have paid back ZAR 450 million post year-end. Obviously, that was largely to do with the Syntell money coming in, the CCS retention coming in and also Denis proceeds. And then there was one -- oh, selling the crown jewels, and I'll -- Megan can add to that. Do you want to add to that before I go to selling the crown jewels?

Just so from a debt perspective, so our cost of debt is probably running around between 8% to 9%, currently. One of the things with our debt is we do have our interest rate set at a quarterly JIBAR rate. So as we went into lockdown, we haven't really seen the benefit of the lowering interest rates until the very back end. Our debt is reset at the end of May. So only June, July, we started to see the benefit of the lower interest rates coming in. And then in terms of cash -- just to maybe talk about our cash, our cash balances do vary throughout the month. We do have quite a peak and trough in terms of our working capital balances, and we probably run between EUR 800 million to just over ZAR 1 billion in terms of cash. And we're still sitting in that space. Obviously, we have repaid the cash that we got in -- at the end of November from all the proceeds of disposing of assets.

So just going to the crown jewels. I've always said the RPS, it's the 3 that we -- the one we've sold in the CCS -- the 2 we've sold and the 2 that are left, clearly are good businesses. On CCS, if you remember, on average, we've got to 7.9x EBITDA for it. I think that was a great deal and was the best thing for shareholders. I think shareholders have been the biggest loser in this whole -- last 2 years. And really, what we've been looking to do is to make sure we can maximize returns for them. Syntell, we sold for a 10x profit. I think you can also agree that, that was a good price. And we will continue to ensure that we get good prices for the rest of our assets. But I think the most important thing is that as we get the business back to a level where we can really have a look at being a leader in the industry and driving consolidation and some acquisitions, we need to have a proper capital structure. Until we have that, we're never going to get back to a positive dividend story, number one. Number two is, also, we have managed to keep the iOCO business. We've managed to really consolidate and turn that around. And you can see, just in these results how important that has been. So have we sold all the crown jewels? No. Have we sold some of them? Yes, we have, but I think we got very good prices for them.

So many questions coming through from Ernst Kaplan. Unfortunately, time constraints. We'll only be able to take another 4 questions. From Ernst Kaplan, has there been any development regarding rekindling the Microsoft relationship?

Ernst, thanks for that question. No, there hasn't. I mean, we have contacted them from time to time. They are still going through, from what I can understand, their own investigations or some of the authorities. And I think until that's done, it's very difficult to have those discussions. But as you can see, we still continue to do a lot of Microsoft product work. The only thing we can't do is sell Microsoft licenses directly. But as I said before, we have partnered with organizations so that they become part of our offering. But the key money gets made in actually delivering these solutions. The AWS award, you can see even some of our training, in our CSR program. If you have a look on LinkedIn I posted yesterday, we're actually training people in Microsoft SharePoint and things like that. And so those skills still remain within the business.

Mike Farry from a Sasol Pension Fund. Why the need to maintain the cash balance so high at between ZAR 800 million to ZAR 1 billion? Why not use a portion of this to pay down debt?

All right. So although the cash balance does look high, there's probably only ZAR 400 million that's accessible and that we can use. And as I explained earlier, we do have quite a peak and trough in terms of our working capital movements during the month. So that's one of the reasons. And then we do have cash that isn't easily accessible, some of it's sitting offshore, some of it’s regulatory. And so we don't have full access to that. We are, however -- over this past year, we have been looking at how we manage our cash. We put cash pooling in place. We're getting a lot more efficient in terms of how we manage our cash. And as we said in the presentation, we are looking at how we now sort out our capital structure together with our funding. And part of looking at that will also be how we then optimize our cash balances. I mean, obviously, our ideal would to be at a place where we have very little cash and rather use working capital facilities to go in and out. So that is the ultimate goal. But at this point, structurally, we aren't really in a position yet to use that cash to pay off some of the debt.

Warren Riley from Bateleur saying please, can you give an idea of ongoing D&A charges for the continued business? And what is your best view of normalized EBITDA for the ongoing business, excluding the COVID impact?

So from a -- I think you're referring to depreciation and amortization in terms of the continuing business. We have unpacked that in the results. And if we look at what's currently sitting in discontinued, we're probably looking from a continuing perspective in the region of, say, ZAR 500 million to ZAR 600 million in terms of continuing EBITDA. And then a lot of our depreciation and amortization is significantly driven from our IP assets that we are looking at disposing. So our EBITDA would probably be -- well, our depreciation and amortization would probably be roughly in the region of around probably ZAR 250 million for continuing.

So a number of questions coming through on when it will be realistic to start paying a dividend again.

I think our dividends will only get paid once we've normalized the debt and once we have got efficient capital structure and a long-term capital structure. So that is going to take at least 2021. I think also importantly, it's going to depend heavily on how the world economy and how South African economy actually performs. My discussions with the CEOs of our banks seem to be, in their view, that we're only going to get back to pre-COVID, South Africa probably end of 2023. And so clearly, we're going to have to manage through that and make sure that we keep the business flexible and agile terms of being able to prosecute any opportunities that come up. So this is going to be a thing we will discuss with shareholders. The Board will also have to have a look at it, but it's still some time away as we get to our normalized capital structure.

And I think that is one through coming here from [ Yuvanika ], just from EOH -- some questions coming through from your teams as well. And Stephen, this one, these results are a true testament to the super human effort of everyone in this organization. Again, disclosing this is from [ Yuvanika ] from EOH, including the leadership team at the helm, a compliment to you all. How do these results compare to your past banking achievements? And what have you been most proud of this year?

Thanks. I think there's a few things. I'm actually staggered and astonished at how quickly the team have put their shoulder to the wheel. And that's not just in the support services that's on the ground. It's just amazing how quickly we have managed to turn the business around in the face of enormous adversity, unprecedented times, and yet the staff have really put their shoulder to the wheel. I did say when I first joined as one of the things that really struck me was the quality of people and the capabilities. And that has really come through again. The second thing that has been very exciting for me, has really been just to see how corporate South Africa has really embraced EOH, even though we had difficulties in 2019, giving us a chance to prove ourselves and continue to up the contracts with us and give us business and ask us to be part of their core teams. I think this just tells you a lot about South Africa as well and how resilient we are. And this is why I'm pretty excited for the future because I know South Africa will get through this. We've got through worse things before. And we will make the adaptations. And all my discussions I'm having with people at the moment or customers are telling me that. And so I think that's been truly the most exciting thing. And this idea that we can -- this new EOH can move forward. And when I look at the opportunity into Egypt, into the Middle East into Europe, we truly have a competitive advantage given the breadth of our services, that's really unparalleled and is a big differentiator for us. So as we consolidate our businesses and work together more, you'll see that come through in the numbers.

And I think that's it in time called on Q&A. Thank you very much. I know you will be engaging with your investors, and you said to do a round of media interviews now. Thank you, Stephen and Megan.

Thank you, everyone. Appreciate your time. Thank you, [ Brandon ].

Thanks. Bye.