EOH is working on a plan that could cut its borrowings by about a quarter in the coming months, as the technology company posted its first full-year profit since a new management team took over in 2018.
EOH has been fighting to regain credibility after revelations of a corruption scandal surfaced, which contributed to a 95% fall in its shares over the past five years.
In September 2018, it brought in former MTN executive Stephen van Coller to turn around the group, facing a R4bn debt pile at the time.
That has since been cut in half to R2bn, with the company having now signed new agreements with lenders, a feat that CFO Megan Pydigadu says would not have been imaginable just two years ago.
“If you look historically at [our relationship with] the lenders, they weren’t really talking about putting in a long-term capital structure from a debt perspective. And I think the fact that we’ve been able to do that talks to the stability within the business and that we’re probably at an inflection point,” Pydigadu told Business Day on Thursday.
This comes as the ICT group said it is pleased with its progress in selling off noncore assets and closing out loss-making legacy contracts as it posted its first annual operating profit in 2021 since its turnaround strategy began.
The group generated R147m in operating profit in its year ending July, from a loss of R1.3bn previously, turning positive for the first time since its 2018 year
But revenue plunged more than 30% to R7.88bn, a sign that much of the growth in the bottom line was boosted by the proceeds from the asset sales as the group focused on high-margin contracts as part of turnaround plan after the scandal left the company on the edge of collapse.
Van Coller appointed law firm ENSafrica to investigate allegations of fraud and corruption. The investigation found underhand dealings with its government client, including transactions worth more than R600m with no evidence of valid contracts being in place or for which no work was done.
The group attributed its recent positive performance to its streamlining strategy, which has been focused on selling assets, trimming debt and reorganising the business that was once made up of more than 270 companies under three operating units.
However, EOH said the Covid-related delay in the disposal of Sybrin, which provides payment software solutions and online customer onboarding processes for banks, has resulted in the gross debt balance remaining at about R2bn, similar to levels reported at the half-year, but down R400m from its 2020 year.
The disposal of Sybrin is expected to bring in a net R334m for EOH, but is awaiting regulatory approvals. The cash is expected to flow by the end of the 2021 calendar year.
Pydigadu said the company is also trying to sell its Information Services business, which would net the group more cash to further pay down debt.
Apart from selling assets, EOH signed a common terms agreement with lenders on October, 20. “The refinancing of the existing debt package provides the group with greater certainty with respect to the overall debt outstanding and provides a more stable platform for the optimisation of the capital structure,” it said.
The company’s debt is made up of senior loans of about R500m and a bridging facility of R1.5bn.
EOH, valued at R1.42bn on the JSE, has still lost about three-quarters of its value since Van Coller’s appointment as group CEO but has gained almost 11% since October 5, when it released a trading update flagging its return to operational profitability.
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