EOH s regeneration plan bearing fruit ’
• Tech company slashes its debt pile and is on track for return to profit
EOH sharply cut its debt and losses in the 2020 financial year, putting it closer to restoring its financial health after a devastating fraud scandal that almost tipped the tech outfit into bankruptcy.
CEO Stephen van Coller has made fixing the company’s balance sheet a priority since taking over two years ago after allegations of underhanded dealings with the government forced it into taking billions of rand in writedown charges and sparked a selling frenzy of its stock.
Van Coller’s efforts, which include selling assets, cutting costs and paying down debt, appear to be bearing fruit for EOH, which was also ensnared in the state capture project and lost a lucrative licence to resell Microsoft software.
In the year to end-July, the company slashed its debt pile by a fifth to R2bn, relieving pressure from lenders to sell assets in a hurry to fix its lopsided capital structure, in which it uses more debt to fund itself rather than equity or retained earnings.
CASH PILE
CFO Megan Pydigadu said EOH ultimately wanted to cut its borrowings by at least another 50% to reverse the make-up of its capital structure.
Though the company’s debt load has halved since Van Coller took over in 2018, it is still some way from deploying its nearly R1bn cash pile generated in the year to end-July on acquisitions, Pydigadu said.
“We need to sort out our debt first before we start looking at acquisitions. Once we’ve settled our debt and agreed with lenders on what that looks like going forward, we can start looking at acquisitions. But that’s not going to be now. I think it’s going to be in the next six to 12 months when we can start reconsidering that,” she said after the company issued its annual earnings report.
EOH appears to be on course to return to the black after narrowing headline losses 72% to 495c from 1,751 per share. It reported a 25% drop in revenue to R11.277bn. Headline earnings are a widely watched profit measure that strip out certain one-off, non-trading items to give a clearer picture of a company ’ s underlying performance.
Peter Takaendesa, head of equities at Mergence Investment Managers, said though the company still had plenty to do before getting into a growth mode, it should be in a healthier financial position by 2022.
SUSTAINABLE
“Assuming no major external shocks and no further legacy issues that result in material cash outflows, we expect EOH to be in a sustainable financial position by 2022,” he said.
As part of its revival plan, EOH is overhauling its operational structure, consolidating more than 170 entities into three business units. Before Van Coller and his team came in, EOH was made up of 272 entities and operations. This has been brought down to 34.
Shares in EOH, down 50.7% this year, were 3.58% weaker at the close of trade onWednesday at R6.20.
IN THE YEAR, THE COMPANY SLASHED ITS DEBT PILE BY A FIFTH TO R2BN, RELIEVING PRESSURE FROM LENDERS TO SELL ASSETS
THOUGH THE COMPANY STILL HAD PLENTY TO DO, IT SHOULD BE IN A HEALTHIER FINANCIAL POSITION BY 2022