EOH welcomes stimulus plan
Ramaphosa’s infrastructure drive fits in with the technology group and could lift the economy, says management
President Cyril Ramaphosa’s stimulus package could be a boon to technology group EOH and the South African economy as a whole, EOH’s management said on Wednesday.
With the economy in recession for the first time since 2009, Ramaphosa announced a R400bn infrastructure fund and a shift in state spending towards health, education, municipal infrastructure and other "high impact" areas.
EOH’s new group CEO Stephen van Coller, who joined the company from MTN in September, said the infrastructure drive "fits squarely into where we play".
The company’s new Nextec unit, a product of the group’s split in two, focuses on applying technology to industries such as health, water, energy and transport, which are included in the infrastructure plan.
The group’s other unit, which is the same size by revenue, focuses on information and communications technology. Nextec head Zunaid Mayet, who relinquished the group CEO role in favour of Van Coller, said the stimulus package could lift business confidence and economic growth.
"Like EOH, the country has bottomed out," he said.
Old Mutual Investment Group head of economic research Johann Els agreed that the worst was probably over for the South African economy.
"I do think we’re at peak pessimism and it’s almost a turning point … but that will probably be after the elections next year because we need the president to solidify his position in the governing party.
"Even the president’s stimulus package — while there’s nothing in there that will get me to change my forecasts — it does build on the path of stabilising confidence at least and maybe even starting to improve confidence," Els said.
EOH on Wednesday reported that its headline earnings in the year ended July plummeted to R409m, from R1.2bn the previous year. This was despite an 8% rise in revenue from continuing operations, to R16.3bn.
In addition to asset write-downs, the profit decline was partly because the group gave up margins to retain customers, Mayet said.
Also included in the headline earnings number was a R393m loss on the sale of the GCT group of companies, which EOH bought in late 2015.
That loss was mostly because the EOH shares issued to GCT, which it has now regained, have lost most of their value, Van Coller said. EOH’s share price plummeted from R174 two years ago to R35.13 at Wednesday’s close.
EOH would also not pay a dividend for the 2018 financial year given that it recorded a total loss of R153m.
"We didn’t generate a profit this year so we didn’t generate cash. I think it would be silly to pay a dividend. I think we get a better return right now, on any spare cash, from paying back debt," Van Coller said.