iOCO Limited ($IOC)

Good morning, everybody. Welcome to iOCO's Interim Results 31st of January 2026. With me today is Ashona Kooblall, Group CFO; and I'm Rhys Summerton. We've had a very good first 6 months of 2026. As a reminder, we will take you through our 3-stage strategy. which we implemented from July 2024 onwards. Those 3 steps were cost rationalization, introducing a decentralized operating model and focused on Capital and resource allocation. And what you'll see in these results is continued strong cash generation, renewed focus on capital and resource allocation. All our business units continue to be profitable, and we've shown strong revenue growth. You would have seen in the SENS announcement this morning, these set of results, 47% growth in headline earnings per share, after-tax earnings growth of 46% to ZAR 180 million. And then importantly, our return on equity has maintained above 40%, and that's notwithstanding that our equity value is now over ZAR 900 million. And then the number that we really want to draw attention to is EBITDA. We've continued to be able to grow EBITDA 21%, reaching ZAR 305 million in the first half of this year, and that was aided by revenue growth in line with the industry at about 3.5%. What made it possible, well, we've got this decentralized operating model. And these are the people that really drive the business of iOCO on a day-to-day basis. Each business unit has a business unit Chief Executive and collectively, they have 160 years of tech experience, which is important to drive the business forward in a sector which continues to see lots of disruption and change. Also, what makes this performance possible is the people. iOCO employees, 4,382 people, but it's across 10 countries. So the most of the employees are in South Africa, over 3,900. But we also importantly have operations in the Middle East. We have operations in the rest of Africa and also in Europe, in the U.K., Germany, Switzerland and Luxembourg. On our revenue slide, Slide 6, you'll see that the business units continue to show revenue progression. IT services grew 3.3%. Operational Technology grew 1.3% and then our international business grew 9.2%, even though it faced headwinds from a foreign exchange currency point of view. Overall, that resulted a 3.5% revenue growth across the group. This is what our EBITDA growth looks like. You'll see that 21% EBITDA growth is a year-on-year number. But also importantly, our sequential EBITDA growth continues to come through. And that's important because iOCO is seasonally -- has a weaker first half compared to second half. And so we're fairly confident on the second half EBITDA delivery, and you'll see our updated guidance at the end of this presentation. There's been a lot of questions from our investors about AI and the impact that has on iOCO. So what I thought we'd do is just briefly touch on a real-world AI use case, which is from the motor vehicle insurance industry and it was conducted by asset, which is our Middle East subsidiary. This is in 2 phases, you'll see on Slide 8, Phase 1. What is the problem there? In this contract that we rolled out, there was a problem with data capture. So when a mild accident happens, what is required is for the driver to take a photo of his car as well as his driver's license. You then uploads that the accident with the photographs is automatically saved into a central database. Now that's fairly simple and straightforward. But what it doesn't show is that accuracy improves in terms of data capture, 95% accuracy. It's faster and allows you to minimize data captures. But Phase 2 is where it really gets interesting. And this is where the problem is the opinion of who's at fault in that accident. So once again, what would happen is the photograph of the car would be uploaded. But our systems have been able to train using AI on thousands of previous photographs that have been uploaded at an accident sea. The AI then is able to detect the vehicle license plate, the position. And then it's able to make a decision about who was at fault in that accident. And that's what we're rolling out today in Phase 2. So what that accomplishes is it helps the assessor get through more accidents. And it also comes to an unbiased opinion about who's at fault in that accident. So these are real-world use cases, and we hope to be rolling these out in other countries. And if you look at Slide 10, we give you even more examples of real-world AI solutions that iOCO is rolling out. And that allows us to get to Slide 11, which is building a South Africa tech champion. So although we are operational in 10 countries, South Africa is still the key. And we have offerings from cybersecurity, all the way to cloud, it includes things like managed services, digital transformation, and that allows us to have a complete solution for our clients. We also have our international business, which we continue to be very excited about, particularly in the Middle East, notwithstanding the current issues. I'll come back for an update on the future strategy. But before that, I'll hand over to Ashona, who will take us through the financial overview.

Thank you, Rhys. Good morning, everybody. It is a pleasure to present iOCO interim results to you today. Our first half results was a period in which clear strategy, disciplined execution and exceptional teamwork delivered pleasing results for iOCO. We achieved sustained trading momentum, building on the strong performance delivered in the prior year. Continued demand for our core offerings with new business wins, alongside successful international expansion has driven a marked improvement in our financial results. We have achieved growth in revenue and EBITDA, while maintaining strong cash conversion. By pairing this top line success with disciplined cost management, we enter the second half of the year in a position of strength. Our half year results required no restatements or earnings normalizations, affirming the reporting integrity established in the prior periods. All business divisions delivered positive contributions. Revenue grew 3.5% to ZAR 2.8 billion, a 3% increase in IT services, 9% in international and a marginal increase in operational technology, reflecting early traction in growth opportunities. By combining this growth with disciplined cost management, we achieved EBITDA margins of 11% and operating margins of 9%, clear evidencing the earning power within a streamlined iOCO despite inflationary pressures and strategic increased investments in our sales, business development and solutioning teams, we reduced operating expenses by just over 10% combined with lower finance costs and tax efficiencies, this drove a 46% increase in profit after tax. Consequently, EPS and HEPS grew 47.4% and rising from ZAR 0.19 to ZAR 0.28 per share. Gross profit reflected the weight of infrastructure cost increases and a temporary lag in select contract execution by replacing traditional high-margin work with high-volume, cost-effective technology solutions, we expect gross profit to level out at a sustainable 28% going forward. iOCO on a like-for-like basis, after normalizing for these one-off impacts, grew gross margin by 4%. The strategy will be that over time, our increase in market share and revenue will grow absolute gross profit. Cash generation in the first half remained strong. There has been investment in working capital required for specific upfront deals. However, this is largely timing related and will flow through in H2. Operating cash generated of ZAR 294 million enable continued investment, debt reduction and share buybacks while maintaining a closing cash balance of ZAR 379 million. Ongoing deleveraging has reduced finance costs and strengthen the group's liquidity and cash flow resilience. As shown on the following slides, we have continued to reduce debt and interest cost significantly strengthening our capacity to generate and grow free cash flow. Working capital remained stable at ZAR 329 million compared to ZAR 204 million at the end of the prior period. The primary drivers continue to be trade and other receivables and payables, given that inventory is not significant in a services-focused business, our emphasis will remain firmly on disciplined management of trade accounts to optimize cash flow and liquidity and allow for upfront investment where needed to secure higher-margin opportunities. Improved cash generation over time has materially strengthened the group's balance sheet. Net interest-bearing debt has reduced by approximately 58% from FY '23 level. declining from ZAR 1.2 billion to ZAR 512 million at the close of this period. This reduction has been achieved primarily through sustained operational cash flow and disciplined capital allocation. Over the same period, finance charges have reduced by approximately 70% from ZAR 99 million in FY '23 to ZAR 29 million in the current period. This reflects both lower absolute debt levels and improved funding efficiency, the continued deleveraging of the balance sheet has improved earnings quality, strengthened liquidity and enhance the group's financial resilience. Importantly, while we remain committed to maintaining a disciplined capital structure, the balance sheet is now materially stronger and provides the flexibility to support measured value-accretive growth and investment opportunities going forward. Ensuring that we remain a cash-generative organization with strong free cash flow is a priority. In H1, the group repaid a total of ZAR 58 million in capital and interest to lenders fully funded from operational cash flows. Of this amount, ZAR 30 million related to capital reduction, while the balance attributable to interest payments. As reflected on the left side of Slide 19, we have once again closed at a zero bank overdraft. Our balance sheet is the strongest it has been in several years. supported by a robust and growing cash position and a continued reduction in liabilities. Net asset value increased by 20% in the current period reflecting disciplined capital management and targeted asset optimization. Net bank debt has reduced further compared to the prior year and the substantially lower debt burden is now well covered by operational cash flows. The strengthening of our financial position is clearly reflected in our key ratios. Interest cover improved materially from 6.1 to 10.4x, demonstrating the reduced impact of finance costs and improved earnings. Net bank debt to EBITDA reduced from 1.2 to 0.8x on an annualized basis. Importantly, return on equity at 40% on an annualized basis, highlighting improved profitability. Key factor here is that our equity has increased from ZAR 753 million to ZAR 903 million to the current year. These key metrics collectively reflect a deliberate strengthening of the balance sheet enhanced earnings quality and improved capital efficiency. I now hand back to Rhys to take you through the company outlook.

So looking at Slide 23. This is the fun part. We'll update the strategy, and we'll look at these 3 stages of turning iOCO around. On the cost rationalization side, it's worth taking a step back and seeing what we've delivered from July 2024 to now. And that shows net cost savings annualized at ZAR 350 million. So the cost savings on a gross basis are obviously higher than that, but annualized at ZAR 350 million. And that includes head office costs of ZAR 250 million. There were central direct costs of ZAR 65 million, and those were things like reducing the audit fee, rationalizing the facilities that we were using. And then the direct business savings are about ZAR 35 million. On the decentralized operating model, whatever we delivered there. We've embedded this business unit autonomy. As we showed you earlier, we have the business unit chief executives, and they run their own shows. They run their own businesses. We can then incentivize them alongside revenue growth and EBITDA, focusing on costs so that they can achieve the outcomes we want at a group level under each of their business units. And then we have, importantly, improved customer centricity. As far as capital and resource allocation is concerned, what have we delivered there. Well, with the cost savings, we've been able to take that cash flow and pay down the debt, as I shown and mentioned earlier, and that's reduced our net debt to 0.3x net debt to EBITDA. So debt is taken completely off the table. It's not an issue for iOCO. We largely run an ungeared balance sheet. That's allowed us to commence a share buyback program, and we'll give you the details of that a little bit later and our plans for the future. We're also happy to announce for the first time in 8 years, iOCO has been able to execute on an acquisition successfully, which shows the strength of our balance sheet, the confidence we have but also indicates how important acquisitions are to iOCO . It breeds life into this business. Now we didn't just take the first acquisition we found. We've examined more than 10 opportunities closely. We've got to the pre-due diligence stage. The range of these 10 acquisitions that we looked at were between ZAR 50 million to ZAR 700 million in equity value shows you that we're open to many different opportunities in the market. There are still lots of opportunities, and we're excited about executing on the serial acquirer part of iOCO into the future. On the resource allocation. Importantly, we've returned everybody to the office. So work from home is a thing of the past and we now work from work. And that's led to productivity benefits. And then we've invested in new sales and business solution specialists. Going over to Slide 24, a bit more on the capital allocation slide. Share buybacks. So we started the year with 630.3 million shares in issue. Every month, we put out an announcement informing shareholders of how many shares we bought back on that month. And so far, we bought back 9.3 million shares, which is around 1.5% at a price of ZAR 4.14 per share. And that's important because share buybacks are great when your share is undervalued, but we will never overpay for iOCO shares. And so if we are buying shares back, it indicates that our assessment of the business is that it's undervalued by the market. And that leaves us with shares an issue of about 620.9 million shares. Now it's important just to think about share buybacks for a second because I think if I look at our peers, our listed peers, iOCO is the only tech services company that is actually buying back shares currently in the market. So we certainly believe in the undervaluation of iOCO. Second part of capital allocation is very exciting is this acquisition we've made of the MySky Group of companies. What does it do for iOCO ? It strengthens our networking capability, it expands access to new enterprise clients, which is important, and it provides scalable recurring revenue growth for the group. It's a founder-led business. It's got very strong technical leadership. And it's 1 of only 2 HPE Aruba networking Platinum Partners. And it's also the recipient of the HPE Managed Service Provider Partner of the Year Award in 2026. The payment for this business or the acquisition price is made up of 3 tranches. The first tranche is ZAR 52 million which includes cash and equity component. The balance will be made up of a profit earn-out. The strategic fit with MySky and iOCO, what we're seeing on Slide 26, is essentially that they've got lots of clients, iOCO's got lots of clients, but there's very little overlap on the client base. So we see many cross-selling opportunities between MySky and iOCO. It will be run very much along the lines of a radical autonomy approach. We want these founders of the business to continue to deliver as they have in the past, and we have very high hopes that they will continue to deliver into the future. On Slide 27, what is there left to do? Well, there's a lot left to do at iOCO. We implemented this 3-step strategy, cost rationalization. We think that is largely complete, though. We've made investment decisions to reinvest in some of the growth areas. And the only way that we can continue to reinvest in the growth is because of the cost cutting we put in place already. But we think that's largely over. Then on the decentralized operating model, as we said, radical autonomy is well embedded. What's left for us to do is, with the 4,300 employees at iOCO, there is amazing talent in the group. And so what we want to do is elevate and empower some of the rising talent and to be able to give them additional responsibility where they can run their own businesses, too. So that's a very exciting development, which we look forward to coming back to you with later on. And importantly, capital and resource allocation. iOCO has made its first acquisition in 8 years, as we mentioned. And we have a pipeline of future acquisitions, but we will maintain a very disciplined approach to making any further acquisitions. We attracted to the serial acquirer model, and we see the potential for iOCO to continue to develop its acquisition pipeline along those lines. But there's also the opportunity for larger acquisitions. From a top-down point of view, if you look at the market, consolidation remains a key opportunity for iOCO. We have a strong balance sheet, and we also have the tax benefits, which would accrue on any kind of consolidation in the market. Also, share buybacks will continue to be a feature so long as iOCO remains undervalued. And we'll speak a bit more about that on our guidance slide at the end of the presentation which brings us to our guidance, which is on Slide 28. We've revised upward our guidance on EBITDA. So if you remember, our previous guidance was ZAR 580 million to ZAR 600 million rand for 2026. As you would note, we already generated ZAR 305 million of EBITDA in the first half of the year. We expect the second half to be as good or if not better. And so we've revised up the EBITDA guidance to above ZAR 610 million for 2026. Recurring revenue at over 60%. I think in the first half, it was already 68%. So we're doing well on that score. And then the free cash flow per share at $0.60, we hope to get around the ZAR 400 million plus of free cash flow at a group level. And that brings us to a very important part of the guidance, and that's this bottom bar, the long-term double-digit free cash flow per share growth. That's what we think iOCO can deliver. And then underneath that, we've put this 500 divided by 500. Now what do we mean by that. So we think iOCO can take their free cash flow from ZAR 400 million to ZAR 500 million in the short to medium term. And the second 500, you would remember, we've got an issue at the moment, about 620.9 million shares. With our share buyback program, we hope that we can reduce the shares in issue down to about 500 million shares. So ZAR 500 million of free cash divided by 500 million shares in issue gives you ZAR 1 a share. And we think at the appropriate multiple that iOCO can still deliver outstanding returns for our shareholders going forward. And we look forward to updating you at our year-end results, which will be in October 2026. Well, thank you, everyone, for getting through the presentation with us. We now have -- we'll now move over to questions.

You can submit your questions online. We have some questions that have already come in quite a few, actually. So be happy to answer as many questions as you want and as time allows. So that's all good. The first question, can you unpack the GP number. So I'll hand over to Ashona to speak about that, and then I'll add a few comments afterwards.

Thank you, Rhys. We delivered healthy GPs at 28% for the first half of this year. We had some contracts roll off from 2024, delivered at higher margins in the prior period. We replaced this with new business at slightly lower margins as we continue to drive our strategy of being the most cost-effective technology partner in our countries. In addition to this, we did invest in the upgrade of our infrastructure platform. And over time, increased revenue will cover this.

Thanks, Ashona. I think just to add to that, we're looking to -- or the way investors should think about the GP number is not so much at the margin level. Investors should look at the GP number in absolute terms. And what we're really looking for there is to grow GP over time. So it's less important what the percentage is, what's far more important for us is growth in GP. And so we look forward to delivering that. And I think if you look at the normalized number that Ashona spoke about, you would see that growth already coming through. Next question, why buy back shares instead of accelerating debt reduction? I think we might have covered that. We've go largely ungeared balance sheet. I personally like having a little bit of debt. I think it keeps everybody on their toes. Christmas parties are obviously smaller. And so I think a little bit of debt is important. But the buybacks are really interesting because as far as I'm aware, I think iOCO is the only tech services company on the JSE that's actually buying its shares back currently, which just shows you that we kind of believe the story. We wouldn't be wasting money on buybacks if we thought there was a problem with the business or that we weren't going to deliver on further growth going forward. Also, this is a highly cash generative business. So if you look at our CapEx, but hardly any CapEx needs, EBITDA converts into free cash flow, a very high percentage. So we have the potential to buy back shares. Almost moving ahead of what the performance of the business is. So we think that's the best use of capital at this point. Obviously, we marry that with the opportunities for acquisitions, and we're kind of interested in looking at even more acquisitions than the ones that we've already looked at. Next question is progress on acquisitions and how will that benefit iOCO . I think we've shown at least the acquisition of MySky how that will benefit iOCO. It probably also benefits MySky as well. So I think that's a really great outcome for both parties. We will obviously maintain the sort of radical autonomy approach with the acquisitions that we make. So that the founders can continue to flourish with their businesses. And I kind of want to see iOCO get to this serial acquirer position again. And if you can really pull that strategy off, that's when you get a real re-rating in the value of the business. So we think there's a pipeline of potential acquisitions. We're very cautious when we make them. We do thorough analysis, deep due diligence, but we can also move quite quickly. And what's nice about it is we're not making huge bets at this point. They're smaller bets and they're based on element of cash element of shares that are issued and profit warranties or profit earn-outs. Another question is about what's happening with the Egyptian and Saudi expansion and how is the Iran war affecting these. So far, we haven't had any impact from operations in Egypt, Dubai or Saudi. Maybe it's a little bit early. There might be some knock-on effects later on. I think in our disclaimer, we alluded to our guidance that we gave being based on events that we know as of now. But we don't necessarily think this is going to have a long-term impact on the business. So we're not too concerned about that at this point. Then we have a couple of more questions, which have come in. There's a question about the reasons for the other joint CEO resigning. And I think it's a really good question. As you might have picked up over the last couple of months, well, for the last year, Dennis and I have been co-CEOs. And if you read the iOCO annual report, I think, in that CEO statement, we said that we joined out of necessity, but stayed for the opportunity. And so when Dennis and I joined and became co-CEOs, the idea was that iOCO really needed some stability, and we needed to focus on our 3 stages of the turnaround. And Dennis was hugely instrumental in driving the cost-cutting approach, did an outstanding job. I think we all learned a lot from his approach. It was refreshing. And I think iOCO can be very grateful that Dennis was involved in that role. I think he remains a key shareholder of iOCO at least indirectly. And I think we still count on him for his support in what happens with iOCO going forward. So that's all fine. I think there's another question about where is it a breakdown of the revenue growth of iOCO, I think I'd point you in the direction of both the presentation and the results booklet, which came out, that will give you the revenue breakdown by geography and currency. But it's worth pointing out that international operations when translated back into rands would have been a headwind for us in this period because of the stronger rand and transacting mostly in dollars. And then there's a question about is the CEO, still not earning a salary. And if so, what drives them to dedicate enough time and effort to iOCO. That's an interesting one. I think both Dennis and I were indirectly or directly shareholders ioko in a substantial way. And you want to drive it. iOCO need stability going forward. And I think we will move in that direction to make sure that there's no changes to the structure in the short term. Going to the next set of results -- sorry, the next question, you've delivered well on the strategy so far. Most of the earnings improvement has come from lower costs and interest revenue growth is quite low. Especially in South Africa. That's an interesting point. Interesting question. Revenue grew at about 3.5% across the group. I think that's the way to think about it. The cost rationalization is now complete, mostly complete. There's still the benefits of the cost rationalization that we did in the first half to come through in the second half and then into next year. So you have to adjust your numbers for that benefit as well. But on the revenue line, if you look at what we think the market is growing at in South Africa, we think the market is probably growing at about 6% or 7%. And that's backed up by kind of the public statements made by the real big tech services spenders like the banks, for example. So that's growing at 6% or 7%, while we're growing at 3.5%. And I think the reason is that iOCO focus has been very much on the big tech spenders in the country. I think where the opportunity lies is to move down to the mid-tier companies where you might be competing with smaller players. But remember, the strategy is for iOCO to be the lowest cost producer of tech services. And I think if you look at our numbers, our cost base, we've achieved that. So we think that iOCO is actually positioned to accelerate that growth going forward. It's going to take more time. As we always mentioned, there's 4,300 employees you need to turn the ship around. But we're getting there. I think we're starting to get traction. And I think you'll see more of that in the second half and also into 2027. So we're fairly confident that, we don't want to get carried away on the growth. The market is growing 6% and 7%. So I think that's where you need to think is par for us to achieve going forward. Then we have a question about what is the revenue and EBITDA of MySky. We haven't disclosed those numbers fully, but we paid what we think is an attractive multiple based on the profit earnout that will come through. And we think it will, from day 1, be earnings accretive to the business. When will the company be able to pay dividends again. Hopefully, never is the direct answer. We return capital through share buybacks. And as long as iOCO remains undervalued, we will continue to do share buybacks. So if you think about it, you're already getting a -- you've already got a 1.5% capital return for the -- from the end of 2025 to now. because of the share buybacks that we're doing. What is the current size of the acquisition pipeline? To what extent will it use debt to fund new deals and what is the available headroom. As you would have seen, we've looked at, I think, over 10 acquisitions, varying sizes, small deals up to ZAR 600 million, ZAR 700 million SaaS transactions. We also made mention that we think the market is ripe for consolidation. There's not many players that are as well positioned to consolidate the market as iOCO is. So that will obviously make available opportunity for bigger acquisitions, and that could really be exciting. But we like the serial acquirer model. Now remember what we said, this business generates ZAR 400-plus million of free cash flow a year. We've got a largely ungeared balance sheet, which means that if we used ZAR 200 million of it, let's say half of it in share buybacks, I'm not saying we're going to. I'm just saying let's just say we're going to use half of it for buybacks. And the other half for acquisitions. And we're buying things at 4 and 5x earnings. We're going to be able to add close to ZAR 50 million of EBITDA on to at a group level by using the ZAR 200 million of available free cash flow. We expect the free cash flow to grow as we've indicated, we think we like the 500 divided by 500 story. So that's where we think we'll be able to get to. We'll use a mix as we've done with MySky, a part of it will be equity part of it cash, and we haven't let you raise any debt for acquisitions yet. What time line are you guiding for free cash flow per share to go from ZAR 0.60 to ZAR 0.75 per share. We haven't given the guidance but we did give very explicit guidance that iOCO potential, which we believe strongly about is they can grow double digits each year. So if double digits is, let's say, above 10% or 10% and above. You're going to be doubling in at least 7 years. So there's every potential to go from ZAR 0.60 to ZAR 0.75 in the short to medium term. What percentage of revenue is from the South African government and how will you track this in the future? We don't actually focus too much on that. I think we look at what's known as the public sector. The public sector is not only the South African government. It can also include other departments, which are allowed to the South African government. That number, we think, has a huge opportunity to grow, but you have to do it in the right way. And what you have to do is also take into consideration the history of iOCO . We're desperately trying to put that history behind us, which we've largely done. But there's the history. And so we will take an extremely cautious approach to any kind of government work or public sector work. But we are there. We are making the most of the tenders that are available. And we think that there's a lot of potential there to drive that higher. What is the optimal level of gearing that you're comfortable with? We don't mind iOCO having maybe up to 1x net debt and maybe a little bit higher than that at an extreme. But we're very comfortable where it is now. The only reason that we would take on additional debt is for a really interesting acquisition that came about or if there was an opportunity to reduce the share count. Those would be the main two reasons why we would take on debt. Otherwise, as we said, we've got this growing ZAR 400 million a year cash flow generator coming in, which won't require us to take on much more debt. There's a question about. Can you talk about any upcoming debt maturities? No, there's nothing that we have to worry about debt. And then we have a question. You indicated your view is the share is undervalued what do you perceive to be the current fair value? I wish I could say, but I won't. But we did -- we were fairly explicit about saying what we want to get to in the medium term is ZAR 500 million of free cash as we sit today. So that's without any kind of game-changing acquisitions. So let's say, we have ZAR 500 million of free cash, and we 500 million shares in issue. That's where we aspire to be. That's ZAR 1 a share. and you can choose the multiple you want to pay for that. Maybe that multiple is 8x, 10x, 12x. I don't know that you'll have to make that decision, but I think the number would be a lot higher than 4x, which is where we are at the moment. And so I kind of reiterate the point, I think that's why iOCO is probably the only tech services company that is actually buying shares back right now. I think that brings an end. Well, I think that's the time we have for questions. If you'd like to ask any further questions or if we didn't cover your question, you're welcome to contact Ashona, who will be able to give you the full responses. Thanks very much for joining. We look forward to coming back to you in October with the year-end results.