EOH now stabilised after selling almost 80 businesses to pay down debt

IT company EOH has completed its turnaround strategy and is now stabilised after selling almost 80 businesses in the last three years, says group CEO Stephen van Coller.

He was speaking to Moneyweb following the release of the group’s interim results to the end of January 2022 on Wednesday.

“When I arrived we had debt of about R4 billion – and given an Ebitda [earnings before interest, tax, depreciation and amortisation] margin of 10% that was not sustainable if we were to pay down our debt,” says Van Coller.

“The company had acquired too many businesses too quickly in previous years and would have ended up in trouble by breaching our debt covenants had we not sold some of these businesses to realise cash.”

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EOH’s latest unaudited interim results for the six-month period show a 214% increase to 41 cents a share in headline earnings, and an operating profit of R167 million (2021: R76 million), helped by improving gross profit margins.

The group ended its half-year with cash available of R625 million and undrawn overdraft facilities of R250 million.

The deleveraging strategy is now complete, the latest company to be sold (post financial period end) being fintech company Sybrin, the proceeds of which were banked in March.

EOH’s interest bill for the latest period came to R97 million, compared to R139 million for its comparative 2021 half-year.

Group debt

Debt at the end of January 2022 stood at just over R2 billion, dropping to R1.7 billion post the Sybrin sale. Another roughly R500 million is yet to come in from the sale of another two companies, InfoSys and Network Solutions, which will further reduce EOH’s debt burden.

The sale of so many businesses has been criticised by former staff and executives as “selling off the crown jewels” but Van Coller says the group had no choice, given the crippling level of debt inherited.

“If we didn’t do something, the banks would have foreclosed, so we didn’t have a choice. There were some businesses we didn’t want to sell, but in most cases it was good for the employees and for the buyers – they inherited some good assets and could provide a good home for the employees.”

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A look at how EOH’s turnaround is going

Van Coller says he is now focused on getting the right capital structure in place and rolling out the group’s growth strategy.

Growth

These growth opportunities, in areas such cloud development, automation, data analytics and artificial intelligence, typically grow at 2-3% above GDP. That compares with traditional hardware and software services which typically grow at GDP.

EOH also intends moving into the higher growth segments of the market.

The business is now split into two primary units, iOCO and NEXTEC. iOCO is the end-to-end systems integrator, and the largest contributor to revenue and profit, followed by NEXTEC – the digital industries and people solutions business.

With a diversified client base more than 5 000-strong and a global business footprint, Van Coller says the focus going forward is on meeting client demands for full digital transformation and IT infrastructure.

Listen to EOH CFO Megan Pydigadu discussing the group’s interim results with Fifi Peters: