iOCO CEO Rhys Summerton stated on Wednesday that the company will not pay dividends as long as he remains at the helm of the IT group. Instead, he plans to direct a significant portion of the expected 650 million Rand next year towards acquisitions and further share buyback programs, which could reduce the number of shares to one-fifth.
In an interview with TechCentral, Summerton emphasized: 'We will not pay dividends while I am involved in iOCO, but we will conduct buybacks.' These statements came a day after iOCO announced a 39% increase in annual profit and a 44% decrease in operating cash flow.
Acquisitions and Buyback Strategy
Acquisitions are a priority for iOCO. The company made its first acquisition in eight years—the corporate network business MySky—and also agreed to purchase the ERP specialist Astraia Technology, which, according to annual financial reports, should be completed within a month. Summerton reported that they are preparing for a third acquisition. The targets are founder-led companies with concentrated customer bases that would gain access to approximately 3,000 iOCO clients.
Nevertheless, iOCO, formerly known as EOH Holdings, declined 'some rather large deals.' Management preferred to hold a larger stake in iOCO, considering it a higher-quality business than some of the proposed assets or companies.
When suitable deals are unavailable at the desired price, funds are directed to buybacks. The total number of shares is about 620 million, and Summerton noted that the goal is to reduce this figure to approximately 500 million shares. At the current price of 3.83 Rand per share, a 0.5% daily reduction, buying back 120 million shares would cost approximately 460 million Rands, which would constitute the majority of the company's expected income next year. Previously, in the 2026 fiscal year, iOCO spent 69 million Rands to buy back 16.8 million shares, averaging about 4.11 Rands per share, exceeding the current market price.
Analogy of Shareholder Loyalty
When asked about the reluctance to pay dividends, Summerton provided an analogy. He compared the situation to a pastor with 100 parishioners, 80 of whom support him, and 20 who throw 'stones' at him. If the pastor gets rid of these 20, 80 loyal parishioners remain, and this is how share buyback programs work. In his opinion, shareholders who wish to exit the company will sell their shares at a very attractive price because they do not approve of the management.
Dividends, conversely, do the opposite. In his view, shareholders receive dividends and then sell their shares, and they disappear. This does not foster loyalty among the shareholder base.
He also justified that the figures favor buybacks, as iOCO's free cash flow yield is about 25%. At a price of 3.83 Rands, iOCO is valued at approximately 2.4 billion Rands, so the expected 650 million Rands account for about 27% of the market value. Only the core cash flow of 450 million Rands accounts for about 19%.
Summerton warned that this period may end: 'Eventually, your 80 parishioners will start to truly love you, and the stock price will rise even more. Then they won't want to sell.'
The 650 million Rand sum consists of 450 million Rands from core cash flow and 200 million Rands from working capital recycling. This is 'more than one Rand per share,' he added, noting that since 2023, iOCO has repaid 'nearly 1 billion Rands in debt.' Interest obligations at the end of the 2026 fiscal year were 607 million Rands, compared to 952 million two years ago.
Structural Issues and Equipment Sales
CFO Ashona Kuubllal explained that part of the working capital problem is structural. As a service company, '80% of our expenses are fixed monthly through payroll,' whereas clients pay later, and corporate clients in South Africa require longer payment terms. She noted the need to find a balance between offering such payment terms and protecting revenue.
Most of the cash outflow in the report is related to iOCO repaying creditors: the statement of cash flows shows a reduction in trade and other payables by 216 million Rands in the 2026 fiscal year, after a reduction of 220 million Rands the previous year. Accounts receivable only increased by 30 million Rands. Previously, the group 'paid suppliers very late and lost partnership status and market trust,' she said, adding that a management decision was made to pay creditors on time.
Meanwhile, annual results showed a half-year increase in equipment sales, while service revenue, which is the basis of the business, fell by 6.6%. The question arises: is iOCO becoming a reseller?
'Yes and no,' Kuubllal replied. 'Yes, because there was an opportunity, and we used it.' She described equipment as infrastructure creation work from start to finish, including computing power, within which iOCO helps clients modernize their systems. The services sector decreased partly because iOCO scaled back 'body shopping,' i.e., providing contract personnel to clients, in international markets, as well as due to lower income from managed services and the public sector. Work in the public sector decreased from 12% to 9% of revenue.
New Contracts
Summerton reported that in the 2026 fiscal year, iOCO won 2.1 billion Rands in new contracts across several agreements with a revenue base of 5.7 billion Rands. He specified that 'equipment constitutes a higher proportion in the contract at an early stage than at a later stage, and services follow it.'
One of the areas that performed worst was the international segment. The adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in iOCO International fell by a third, to 57 million Rands, and the annual financial reports did not provide reasons. Kuubllal explained this in an interview with TechCentral with two factors. A stronger Rand reduced profits by approximately 7 million Rands. Furthermore, in the 2025 fiscal year, iOCO's sales of proprietary software to government organizations in the Middle East added about 24 million Rands to profits. Since iOCO owns this software, sales have a low cost of goods sold, so most of the revenue goes to profit. However, in the 2026 fiscal year, military actions in the Middle East delayed government spending, she said. These two factors combined explain the drop in the division's adjusted EBITDA by more than 27 million Rands. Kuubllal added that 'we see growth this year? Yes, we do,' and that iOCO still aims to double the international segment.
Meanwhile, Summerton did not receive a salary in the 2026 fiscal year, and the reports do not reflect equity-based compensation expenses for him. When asked about having a long-term incentive in the form of shares, he replied: 'No, essentially, no.' TechCentral reported in February that he and former co-CEO Dennis Winter worked without fixed salaries, tying their compensation to iOCO's share price.
'Obviously, I am a 10% shareholder in the company, and we have an unconventional structure at iOCO,' he said. 'We only receive capital gains.' When asked if he would ever take a salary, he replied: 'We will see at the right time what structure we have, but for now, I am satisfied with earning less than everyone else in the company.'