iOCO Limited (IOC) Earnings Call Transcript & Summary

Welcome, everyone. Good to be here today to do our interim results presentation. It's been a really good 6 months, obviously, affected by COVID, but very excited to have turned a profit for the first time since I've been here, and Megan has been here. Importantly, if you have a look at the numbers, the revenue is down ZAR 1.8 billion, but largely through planned disposals. If you think about it in context, we have reduced debt by ZAR 2 billion through selling businesses that had revenue of around ZAR 1.3 billion. And what's important about that is that we have closed out the negative EBITDA businesses or the low EBITDA businesses as well as the businesses that weren't core to our strategy. And this can be seen in the fact that our operating profit of ZAR 59 million, up from nearly ZAR 1 billion loss in the same period last year. What's also important to see is, obviously, as you sell businesses, your EBITDA will reduce. But if you remember, back as far as half 1 '19, we estimated before the sale of the IP assets, which we've now sold to CCS and Syntell, we would have a normalized EBITDA of around ZAR 800 million, which if you just half it would have been about ZAR 400 million for the period. And adding back those 2 EBITDAs that we sold, we've been pretty spot on in that real rudimentary calculation. And you can see that in the margins. We've normalized EBITDA for the last few halves. And it's been around 7.8%, 7.3% as we were conservative around that normalization. What's really pleasing is if we have a look at the normalized EBITDA adjustment this time, it's only ZAR 33 million. So reported and normalized coming very close together. And I think that's really important. And that margin up at 8.3% right now. And that's largely due to the fact that we've really created some significant optimization with our GP margins now moving up to nearly 28%. The other issue that, obviously, everyone has asked about is how COVID affected you. Well, we had about ZAR 500 million of sales affected by COVID, but ZAR 400 million of that ZAR 500 million was all hardware, low-margin hardware sales, which we've seen the commensurate increase in the digital business as people move to the cloud, automate their businesses, digitize their businesses faster. And Megan will show you that those businesses have grown in the mid- to high teens in the last 6 months, which is exactly what we expected. It's just been accelerated because of COVID. If you have a look at our quality of revenue. We've shown this slide before, where 84% of our revenue is services revenue. And that's our own IP, and this is why we remain important to our customers. We remain sticky. What's also pleasing is that we've now got 13% of our revenue coming from international. And we'll continue to grow that par as we export our competitive advantage around cost and also some of our platform businesses like our digital signatures, our medical records business and our compliance or risk as a service business platform. So what's also important is we continue to have a good spread of business across the sectors. And so when we looked at our business in over 3,500 customers, we earmarked about 67 customers who were going to be directly affected by COVID because they were in the difficult sectors, and we continue to monitor those and support those customers as they continue to recover. Just having a look at how we serve our customers in iOCO. You will see we've got a really good balance between what I call the OEM business in technology, being 70% of our total revenue contribution, and Megan will give you some detail around the margins in those business that did at 15% in the digital business, which is the growth industry, which we're seeing as people automate and digitize their businesses grows faster, and we'll see that becoming a bigger part of the power over time. And then you've got the services business as people outsource more and more of their IT spend, we're obviously well placed to capture that being 28% of our revenue. What's important about the advisory revenue is, this is the product agnostic business where we actually have a look at people's issues and help them on a product agnostic basis to implement digitization in their businesses. And this is important because one of the key differentiating factors for our iOCO, is the fact is it's so broad in end-to-end. It does just about everything that you can do. And so we have to make sure that we give our customers the best solutions that are proper for them and actually suitable for them. This slide is particularly pleasing because it really shows that we are now back in the mix, winning large multiyear contracts with large corporates and the public sector in South Africa. And if you remember, going back probably 1.5 years now, I spoke about how a lot of these contracts have dried up as people wanted to see what we were doing. And around the bribery and corruption, what we were doing around the turnaround of the business. And as we've got that credibility back, the pendulum, hopefully has swung the other way, and we're seeing lots of our big businesses now contract with us for longer terms. And using our skills, we can do it. And you can see on that slide, lots of different types of businesses. And this is really where I think EOH differentiates ourself in the ability to have such a broad product set. What's important about multiyear contracts, though, is clearly, it gives you sustainability into the future. So every year, when you start your business, you're not starting from 0. You've actually got a good mix of contracts that are rolling. And so you don't have such a big gap to close. And I think this has been one of the most pleasing aspects of the last 6 months because we spent a lot of time in that wholesale strategy, building that team, not just being product push anymore, but actually being client centric. And a number of these deals are actually cross-business units or cross-product line where we brought people together in our solutioning for our customers. NEXTEC, just to give you a feel for it. Obviously, some big names as key tech partners. About 24% of our revenue but once again, has managed to make a small but a positive EBITDA contribution to the business. It's now split into 2 box -- blocks or business units, the intelligent infrastructure solutions and the people outsourcing solutions. And those are going to be the 2 core businesses for NEXTEC going forward, and we'll continue to optimize and grow those EBITDA margins into the future. What is pleasing about NEXTEC, you can see a lot of the non-core businesses came out of NEXTEC. That's now come down to a very small number, and we will close those out. Some of them is just closing contracts out and making sure we don't leave the customers in the lurch, but those should largely be done by the end of this calendar year. You'll see infrastructure dominates it, but obviously, people solutions a significant contributor. And what's really good, as you can see in that core revenue is that it has started to recover and has grown from the second half to the -- of last year to the first half of this year. And so we will continue to drive that business forward. Our IP disposals on track, obviously, had to be adjusted for COVID. They are all B2B2C businesses. We managed to get Syntell away but you can see how the head of V-shape recovery in Level 5 and Level 4, clearly, B2C didn't work, but we've seen since Level 3, those businesses recover. We've got 2 sales in progress at the moment at different stages, but reasonably advanced. Of the ZAR 141 million EBITDA that's left in those businesses, about ZAR 20 million, ZAR 21 million was Syntell, so we've got about ZAR 120 million of EBITDA left in those 2 businesses that will continue to be disposed. Clearly, we had to wait because the buyers wanted to see that there would be a recovery. There clearly has been a recovery. And so we've been able to continue with those sales. The downside of that is we were unable to reduce the debt as quickly as we wanted to, and that's obviously affected the amount of interest we have to pay. And obviously, the cash outflows in the business, but we will push hard with those and make sure that they are both done by the end of this calendar year. That's the aim at least. Obviously, we need to wait for competition -- commission approvals and things like that, that are out of our control, but we should have signed the sale and purchase agreements before the end of the year. Another pleasing slide, I suppose, because it's been really hard yards, closing out the problematic legacy contracts. We have closed all of them now. Five of them totally closed and finished. One of them actually terminates at the end of April. That has been RFP'd out and we'll go to another supply. So we'll be busy doing handover. A further contract was terminated at the end of this month and handed over. We're busy in handover, but we've terminated. And there will be a payment arbitration process just to do final settlement on that. And then the last one was terminated in January, and there's allowance on the contract for a 6-month handover, which we are presently negotiating with the party, and then those will all be problematic contracts closed. What's good about that is actually the significant cash leakage on the bad contracting has now come back to a reasonable amount that we can manage. And so going into the second half, we're feeling quite confident that we can sort those out on an amicable manner, and then that will be done. On SIU, we in -- we closed out the 2 contracts that related to the Department of Defense Microsoft licensing contracts where we over-invoiced, and that's been settled and we're busy repaying that. We're in negotiations at the moment with the SIU on the overbilling of the Department of Water and sanitation contracts. And hopefully, that will be concluded soon. And then that will really put to bed all those issues that we uncovered in the ENS investigation. On the Zondo Commission, we went in November. We were meant to be going in March. That's been pushed out and will probably happen in April, and we've continued to issue our civil sovereigns in an attempt to recover some of the money that was stolen from EOH. With that, I will hand over to Megan, and she will take you through the financial details.

Thank you, Stephen, and welcome, everyone. The past 6 months continue to be unprecedented times. We are a resilient company and have the most amazing team and have come through the 6-month period stronger and better than before. We are focused on creating a sustainable organization, understanding our cost base and driving productivity and ensuring we have an appropriate capital structure. This focus has come through in our results. In the quality of earnings that continue to improve, together with our continual improvement in performance. From a highlights perspective, we saw revenue stabilizing at ZAR 4.6 billion, although down from prior periods, mainly due to the sale of assets, as Stephen has explained. This, however, has led to better quality of earnings, which has come through in our margins, with our gross profit margin up 3.4% from 27.6% -- to 27.6% in the current year and also EBITDA margins up 0.5% to 8.3% for the half year. We continue to build an anti-fragile organization by responding to the changing environment. From a property perspective, we continue to execute on consolidating our property portfolio and creating a hub work environment for our staff, where they can work from the office close to where they live. We exited a further 10,000 square meters, which resulted in an annualized -- which will result in an annualized saving of ZAR 23 million. We also looked at exiting a further 15,000 square meters, which we'll do in the course of the remaining financial year. From a legal entity perspective, since we embarked on the journey 2 years ago, we have removed 99 legal entities from our structure. This is key to optimizing our structure as well as creating an efficient tax structure and as part of our project [ Tetris ]. Our tax payments decreased by ZAR 98 million from the prior year as part of this optimization. Critical to resolving our capital structure is reducing the debt burden which can be seen by the reduction in interest payments from ZAR 185 million to ZAR 195 million in H1 and H2 of the prior year and coming down to ZAR 128 million in the current year. From a people perspective, we have seen a reduction in headcount of 1,566 employees, the majority due to the sale of business or contracts not being renewed with a small number of retrenchments in nonperforming businesses. We continue to deal with the highly technical IFRS accounts due to discontinued operations that require restatement of the prior year relative to what is classified as discontinued in the current year. As a result and for ease of reference, we have shown the total income statement for both continued and discontinued. All our unpacking of the numbers is based on the total numbers. As the business has stabilized, we have seen the benefits coming through in the reduction in operating costs and a significant drop-off in once-off items on the operating expense line as well as an improvement in how we manage our credit to customers with financial impairments decreasing by ZAR 115 million. As Stephen has said, for the first time, we have started to see the turnaround coming through and post an operating profit of ZAR 59 million. This has been a significant milestone for us. If we move to revenue. From an overall perspective, we have seen a decline in total revenue to ZAR 4.4 billion, which has largely been driven off the sale of assets and the closure of non-core businesses. When we look at our core businesses, we have seen a 5% and 8% reduction in revenue between H1 and H2 and H1 for financial year 2021. The impact of COVID been most severely felt in H2 in our IP businesses. Our iOCO businesses saw a decrease in revenue initially due to lockdown and hardware revenue not being able to be delivered. But now as businesses accelerate their digitization and move to the cloud, we expect this to be a lasting trend. Our iOCO revenue was just over ZAR 2.7 billion. The stability in the NEXTEC revenue can also be seen for H1 in the current year at ZAR 880 million. Although we have seen a drop-off in hardware revenue in our technology business, what has really been exciting is a trend of adoption of digitization, which is strongly seen in our iOCO digital business, which delivers application development, cloud, automation and security. And saw a 15% trailing 12-month revenue growth. Digital industries, which brings IoT to heavy industry and mining, saw the trailing 12-month growth of 33%, which also talks to the digital trend coming through strongly in our revenue growth. In terms of unpacking the revenue and looking at where the reduction in revenue came from, the large part of it came from the sale of businesses and close down of legacy contracts in the iOCO space and the -- and [indiscernible] and auto spec in the NEXTEC space as these projects draw to a conclusion. This accounts for over 70% of the drop in revenue. As I said, what initially had started off as an impact of lockdown on hardware revenue can now be seen as a lasting impact on revenue with hardware revenue declining by ZAR 400 million. And the remainder of the reduction in revenue being very small relative to our overall revenue. One of our core focuses is to create an anti-fragile organization and to be able to adapt to the changing environment. The business has been strongly focused on a rightsized cost base for the business and also ensuring that we have once-off cost items in hand, and these are reducing and ultimately eliminated. Our non-cash items, which include largely impairments, depreciation, amortization and share-based payments, have reduced significantly in the current half with ZAR 272 million of noncash items, down from ZAR 437 million in H2. Cash costs of ZAR 755 million were also down for H2 by 4.5% on the remaining cost base. As we continue to execute on our turnaround, earnings continue to improve. And overall operating profit was posted for the first time in 2 years since the new management team has taken over of ZAR 59 million, which talks to the sustainability of the core business and the turnaround efforts beginning to bear fruit. HEPS loss has improved to a loss of ZAR 0.60 a share. The key reason why the group is still making a loss from a HEPS perspective, is as a result of the interest burden, which we are addressing through deleveraging and the legal entity structure, which we are addressing, which is causing tax leakage. Overall, our iOCO business continues to deliver solid performance, with margins in excess of 10%, except in our engine room of manage and operator network solutions which experienced headwinds over the last 6 months. Our IP businesses also delivered very healthy margins in excess of 20%. NEXTEC, although delivering good revenue is still in a turnaround phase. Over the long term, we would expect EBITDA margins in the NEXTEC business to approach 10%. The key standout for our EBITDA of ZAR 363 million of normalized EBITDA are that the adjustments between EBITDA and normalized EBITDA are becoming very small. And we only saw ZAR 33 million of difference between EBITDA and normalized EBITDA. We are also seeing a steady improvement in margin and the quality of earnings with overall normalized EBITDA up to 8.3% margin. Normalization adjustments have always been those costs that are once-off and which, in the long term, we do not expect to repeat. Advisory costs, which were part of the costs incurred around the ENS investigation as well as cleaning up the group and disposing of assets have come down significantly in the current year from ZAR 90 million to ZAR 14 million. Non-core business costs have historically been the drain on the business and relate to the legacy public sector contracts and projects within NEXTEC in the water and energy space, which we have been closing down. These costs have curtailed in H1 as we are close to having finality on these items. We also saw a net increase of ZAR 63 million in the current year for provisions we had made, which we have been able to favorably settle at less than the provisions originally raised in 2020. Moving to the balance sheet. From a balance sheet perspective, the balance sheet has remained stable with the biggest movements coming from the sale of assets. If we look at our debt, the debt owing to lenders has decreased to just over ZAR 2 billion, with ZAR 430 million paid to lenders and the note-holders over the last 6 months. We expect the debt to further reduce on the conclusion of the sale of the remaining IP assets. Moving to working capital. Working capital management has been a key part of our focus. We have seen an increase in working capital for the period, up from up ZAR 250 million to ZAR 427 million. Part of this related to seasonality in that at July, we had high leave balances together with special COVID leave that we had given our staff as a result of taking salary cuts. A large majority of this leave was taken over the December-January period, which has reduced this liability by ZAR 130 million. We also saw payables decreasing by ZAR 70 million and a slight rollover of debtors of ZAR 50 million. Post half year and specifically in March, we have seen strong collections from a debtors perspective. Moving to our cash flow. Our cash generated from operations was ZAR 232 million with a cash conversion for the period of 64%, which is slightly lower than our targeted 70% to 80%. Our business, as usual, generated just over ZAR 53 million, showing our core business is self-sustaining. What is impacting us are our legacy costs of just over ZAR 200 million, which relates to our legacy contracts and non-core businesses that we are in the process of closing down. A significant portion of this has been closed out in H1 however, we still expect to see cash outflows for H2 on certain of our legacy EPC and public sector contracts as we finish closing these out. From a sale of assets perspective, we received ZAR 410 million of cash and paid our debt, including VFAs and project finance of ZAR 472 million, a portion of our opening cash was also used to repay the debt from entities that we had disposed of. As at the end of January, we had cash of ZAR 455 million, and this continues to remain the same at the end of March. Our 2021 focus continues to be on quality of earnings, which has been demonstrated in the continued improvement in the margins and earnings over the last 3 halves. Our focus on the cost structure remains in ensuring it is both anti fragile and appropriate for the business going forward. We also continue to have a proactive focus on working capital management. This is all underpinned by the strong team we have built and the financial discipline within the organization. Thank you, and over to Stephen.

Thank you, Megan. So just in sort of summary, what does EOH look like post the IP disposals? Were 2 things. I mean, the growth is really important. We will now be focused on the scalable ICT growth segments around automation, cloud, data analytics, security, Aptiv, IoT, and we've seen you saw Megan's slide where that revenue has all been growing in double digits. And that's really important going forward. What's also important is our ability to manage and operate infrastructure and connectivity for customers as they outsource more and more of that business. We will look to expand our platform businesses locally and geographically and also expand geographically where we think we've got a competitive advantage, especially in the knowledge processing businesses that we have. EBITDA targets remain 10% over the medium term. And you can see we're starting to move towards that as we get that quality of business sustainable with very few normalization adjustments from reported to normalized. And I think that's the most important thing as we get these legacy issues under control now. Those adjustments remains small. The optimal cost base, clearly, very important. Longer term, we will continue to drive those. As always, I think it's one thing COVID has taught us is that you never know what's coming, make sure your business is optimized before you get there. Our target for the head office costs, around 3% of revenue. That's what our research tells us should be optimal. Clearly, what we've had to do is obviously build a head office. We had no internal audit, no compliance, no risk. And these functions were pretty important and resulted in huge losses for the business, not having them. So having built those up, we've tried to keep them optimal by making sure that we automate everything we do there, and we've got some really good systems that we're starting to offer to customers as well, so they can also automate these processes. But as this business evolves, Megan will talk about how even in the -- in the accounting and business information systems that were quite archaic in our business, we will automate those to create those efficiencies through the whole stack, from managing our cash right through to receipts and payments and invoicing. And so that's going to be quite an important part of the next few halves. We've got projects underway, project [ Tetris ], which is part of this consolidation of our business units. As you know, we've talked about producing 99 legal entities already, we'll continue to do that. Unfortunately, that had to be put on hold because of COVID as the banks waited to see exactly what our base normalized EBITDA was so that we could sign those term sheets to put duration on our debt and actually normalize that capital structure. So we're moving ahead with that, and we'll see some of those benefits come through. Unfortunately, that has impacted negatively on our headline earnings because of the overpayment in the tax between the loss-making and profit-making businesses. Obviously, key going forward is to get this appropriate capital structure in place. You can see from operating profit, it leaks out through tax and it leaks out through interest and making sure that we reduce our debt burden to a reasonable size is going to be pretty critical. And this is really what we focused on now that those IP businesses have recovered post COVID. And that's going to be a big focus for the rest of the calendar year. And once we've got those 2 things under control, we'll have a nice normalized business. So really, really excited about where we've got to. I think just the whole last 2 years of continual improvement continue. And clearly, as we get into the second half of the year, I expect that to continue and then 2022, we should have a pretty clean business and back to normalization. If you look at the business, we will continue to expand in South Africa, make sure that we remain relevant in our businesses that we offer to customers, continue to get new offerings like salesforce, like IFRS, I spoke about earlier. But these, we then want to use to export our differentiation that we've got through cost into geographies like the U.K., Europe and using our Egyptian business asset to then export those capabilities and differentiations into the Middle East. And especially where we've got platforms like our digital signatures business impressions and like our medical trial medical records business, nucleus and our compliance risk and HR as a service business on Cerebra, and that's going to be a big focus moving forward, already 13% of our revenue is offshore. I suppose, lastly, just to recap, is as we've compacted the business into something that's more efficient, much more sustainable earnings. We've seen our EBITDA margins rise. Our normalization adjustments decrease significantly and what's really pleasing is what we predicted 2 years ago in terms of a normalized EBITDA number, we've actually got to with very little normalization adjustments. And I think that just shows you how if you actually execute on your strategy, you can actually turn a business around. And I think the increased GP margins will help us in the future. I suppose, lastly, just a huge thank you to the team and the Board for just an amazing team effort to get us through very difficult COVID economy, very difficult first crisis, and we continue on this path of continual improvement half-on-half, and we will continue to deliver that, optimize the business and remain relevant to our customers across this whole ICT segment as they look to move to the cloud, digitize their businesses and optimize the way they do their business going forward will remain a key partner to them. Thank you very much, and look forward to speaking again in the short term.

Thank you very much, Megan and Stephen. We have 314 people on the webcast. Just some questions coming through. Megan, if we could start with Hartford Mark from YSI. Any update on the longer-term restructuring of your debt?

So we have been working closely with our lenders, and we have entered into long-form agreements with them now. We are in the process of negotiating and hopefully, we will conclude that in the next few months with them. So our banks have been very supportive during this process as we've looked to dispose and de-leverage.

Martin [indiscernible], private investor saying brilliant job done over the last 2 years on the cleanup. Can you elaborate more on the growth strategy going forward, top line growth? Stephen, you have spoken about the opportunities in terms of the Middle East, Egypt, et cetera, et cetera, mid-tier companies, anything else you'd like to add?

Yes. Just I suppose for me, what's key is to get this permanent capital structure in place, sort out to the bank so that we can start, obviously, saving this, what I call, unproductive cash payments around interest and unoptimized tax so that we can actually invest that in growth of these businesses and accelerate them. And that's, I suppose, a very exciting for us because we see the opportunities. And even organically, we're managing to capture them at the moment. And I think that just shows that the actual underlying business is very capable of differentiating itself with some of those very large multiyear contracts we've won and also some of the things we're winning offshore now that we can deliver, partly from South Africa and Egypt, but also into those countries.

With gross margin almost 28%. That's very good. This is from [ Bernard Fundenberg ] and EBITDA of only 8%. It's clear that overheads are eating a lot of the profits. Are you going to get the overheads in line with the smaller business and are you planning to go to the market to get some cash to clear the large debt? Megan or Stephen?

So let me take the first bit. Clearly, as I said, there's a few things. We have a target of 3% of revenue for our total overhead. So as we get more and more efficient, we will get to that point. One also has to remember, a lot of our overheads were one-off costs. We spent, I think in the previous period, about ZAR 90 million just on advisory cost, that's down at ZAR 14 million. Our property costs, probably over the 2 years or 1.5 years that we've been at it are down just under ZAR 100 million. We'll continue with that optimization. You've seen that we have cleaned up on contractors and unproductive parts of our business, and we'll continue with that. So some of these one-off costs as we get to the end of them, will then bleed out the business, and that in itself will bring the overhead down significantly. But having said that, we still have this target of 3% for head office. And so there's still some work to be done on that, and that will be done through the digitization and automation of our own business as we make that more efficient for our customers and also for our staff. Megan, I don't know if you want to add to that?

No, I think there's nothing really to add. But obviously, costs are a key focus for us in terms of driving that down and making sure our costs are appropriate for the business that has left. In terms of talking about the debt, we -- as I said in the previous answer, we've been working with our lenders and we're in the process of closing that out with them. And we should then have a better long-term look at what our debt structure will look like.

David Fraser of Peregrine Capital. Please can give us an estimate of the future cash flow implications of the proposed settlements of over invoicing on the SIU investigator contracts? And when you expect of this cash flow -- cash outflow to occur?

So I can't give you a view on the second contract because we're still negotiating it. But we have provided for it. So we're fairly confident on that. The Department of Defense was a settlement of around ZAR 42 million, that gets paid back over 36 months. And we anticipate a similar period of repayment on the Department of Water Affairs contract as well.

Nick Keher from [indiscernible], saying the balance sheet reflects ZAR 900 million net assets available for sale. What proceeds do you expect to receive from the sale of these assets? And will the proceeds exceed the ZAR 900 million AFS balance?

So I think that's a difficult question to answer because we are in obviously fairly sensitive negotiations. The 2 large ones, the 2 main ones. There are some others that are included in that balance. But the 2 large ones I've spoken about ZAR 120 million of EBITDA for the half. I think you need to use your own multiples that you think are reasonable for those type of businesses to get a feel. I think that's the best we can do at the moment. But obviously, as I've said before, we're not going to give the assets away. I'd rather keep the cash flow if we can't get decent prices, but I'm fairly comfortable that we will. So that will play out over the coming period.

And just to add to Stephen's comment, in terms of the way we prepare the balance sheet, so obviously, we do it in terms of IFRS, which means that it has to be fairly valued less cost to sell. So the asset value on the balance sheet, we wouldn't sell for less than that.

Just in terms of a question coming through from Mark Narramore, Excelsia Capital. If we annualize the continuing operations of ZAR 4.4 billion in revenue and the ZAR 363 million of EBITDA, is that a good indication of what the core business should look like by the end of the year? If not, please elaborate?

Yes. I think -- I mean, we have to obviously work through, I think, I mean, that's a reasonable calculation. Clearly, we have to see whether there's third waves and fourth waves of COVID and obviously, business conditions are quite important. But what we're looking at is to over time, over the next 24 months, get those EBITDA margins up to around 10%. You've seen them slowly creep up over the last 2 years, and we'll continue to do that as we optimize. And you can have a look at that slide that Megan put in of the core businesses and what their EBITDA margins are already. So it's largely going to be getting the turnaround and NEXTEC actually cemented and working, and that will then bleed into those margins. And then obviously, getting the overhead cost to the right size based on the size of the business now. So those are the 2 things that are going to be a big focus. And then obviously, reducing tax payments to what is a normal tax payment and reducing the interest cost, which will then bleed into the earnings per share.

[indiscernible] Business Day & Financial Mail. What is EOH's current gearing ratio? And what tolerance have lenders expressed in this regard going forward?

So in terms of lenders. I think lenders, as I've said earlier, have been very supportive over the period, I think, especially last year when we saw a delay in the sale of assets. I think over the longer term, just maybe to answer the question a little bit differently, I think we'd like to see the level of debt at about 1x to 1.5x the EBITDA that EOH of the future stabilizes at. And I think that should give you a good indication of where we'd like to see debt levels.

This is a question from Zaid Paruk. We've got time just for this question and one other, Zaid Paruk from AEON Investment Management. Please talk us through the debt reduction plan in the event the disposal business process takes longer than anticipated. Have funders required a rights issue commitment?

At the moment, this is obviously part of the discussions. We've only just got to a point where we feel that the EBITDA has normalized. And so the negotiations will be around what that annualized number looks like. And therefore, what is the senior debt we can support. And once we've done that, we will then have a look at how we get into this 1x to 1.5x EBITDA multiple. Clearly, at the end of the day, the shareholders need to make a decision on how they want us to manage the business in the long term. And we'll be having those discussions with them, but no fixed plans at the moment.

And then the final question, [indiscernible] given the debt still being on ZAR 2 billion and above-market cap of ZAR 1.47 billion, can we still expect a dividend pay by 2023, as mentioned in the last results presentation?

I think certainly, our plans put us in a properly cash positive situation by 2023, but there's obviously lots of things to happen between then and now. Depends how much we want to expand our business, what opportunities come up and how we spend that cash flow. But certainly, by then, we intend to be cash flow positive. And so the dividends will definitely be one of the considerations at that point.

Stephen van Coller, Megan Pydigadu, thank you very much you.

Thank you.

Thank you.