EOH continues work to pay down debt

EOH expects to announce plans for a new capital structure as the technology conglomerate nears completion of its plan to pay down debt. 

“With the deleveraging strategy approaching completion, the group has been actively assessing its strategic options with regards to achieving an optimal long-term capital structure which will allow EOH to pursue its growth strategy, immediately improve earnings and ultimately lead to value creation for shareholders,” the group said in a trading statement on Friday. 

The group continues to assess its capital restructuring options and expects to make an announcement in this regard shortly after the release of its full earnings report, set for the end of October. 

The firm has hinted at new capital-raising plans for some time, raising speculation about a possible rights offer and an equity sale of the company. 

EOH, valued at R812m, has refinanced its existing R1.9bn debt into a R1.4bn senior bridge facility repayable by April 2023; a R500m three-year senior term loan, due in April 2025; a R250m overdraft facility; and R250m in indirect facilities.

The company — which generates about 90% of its revenue in SA and also has operations in North Africa, the Middle East and Europe — is restructuring to further cut debt. It is disposing of noncore assets and closing out unprofitable contracts.

In March, EOH concluded the sale of software company Sybrin for R334m and announced plans to sell data analytics and risk-mitigation business Information Services for a base purchase price of R417m.

With the Information Services transaction now complete, gross debt totals R1.33bn, down from R1.7bn in March.

Proceeds from the sale of Sybrin and the Information Services Group, reduced the senior bridge facility to R832m at year-end. Subsequent to year-end the sales of Network Solutions and Hymax SA were concluded, further reducing the facility to R732m.

The technology group said it generated an operating profit of R250m-R310m from continuing and discontinued operations for the year to the end of July 2022. In the prior year, the company had reported an operating profit of R147m.

The group expects an improvement in operating profit from continuing operations of between R90m and R110m.

Headline loss per share — which strips out the effects of one off financial events — is expected to improve 25%-36% from the previously reported loss of 109c from continuing operations. 

The group said though its operational earnings improved, adjusted earnings before interest, tax, depreciation and amortisation is lower primarily due to the loss of earnings from the sale of IP assets and as a result of increasing the provision related to the settlement with the Special Investigating Unit (SIU) on the department of water & sanitation investigation.

In 2021, the SIU — an independent statutory body with a mandate to investigate allegations of corruption, malpractice and maladministration in government departments, municipalities and state-owned entities — said it will begin an investigation into the procurement, or contracting and implementation, of four IT contracts that were awarded by the department to EOH and its subsidiaries, worth R474m. 

EOH’s management team has had to try to salvage the company’s reputation after allegations of malpractice and tender irregularities. The group also had to deal with a mountain of debt accumulated under its previous leadership, which was focused on acquisitions to expand the business, especially in the public sector. It hired law firm ENSafrica to investigate the allegations. 

“The additional provision made on the amount finally to be settled with the SIU was the single item that caused the group to make a loss for the year rather than a profit, notwithstanding the heavy interest burden,” said EOH. 

gavazam@businesslive.co.za