EOH to use cash injection for deals, debt reduction

Stephen van Coller, EOH Holdings’ new CEO, said he will use a R1-billion cash injection from a stake sale to black investors to pay for acquisitions and decrease the group’s bank debt.

The IT services firm said earlier this year it would split into two units and work to improve its corporate governance amid a slump in its share price.

Its founder, Asher Bohbot, returned as chairman when Sandile Zungu resigned after more than four years in the position. Van Coller, a former vice president of MTN Group and before that head of Absa Group’s investment banking unit, was named as CEO in July and tasked with EOH’s turnaround.

“The cash will be used to pay for outstanding acquisitions, which is about R500-million over the next 12 months, and bank debt that needs to be serviced,” Van Coller said by phone from Johannesburg on Wednesday. “There is still some balance sheet clean-up that needs to be done. We need to centralise cash flow, for instance.”

During the year, EOH bought LSD Information Technology and a few other smaller businesses with the consideration for acquisitions totalling R511-million. EOH earlier on Wednesday reported a full-year loss of R101-million and said it wouldn’t pay a dividend. The group’s unit focused on government contracts was dissolved by incorporating the majority of its activities into EOH’s two separate businesses with the remainder of that unit being discontinued. EOH also bought back a business unit.

“Those two impairments costs us about R800-million, as we also had to pay out cash for some retrenchments that came with closing the public sector business,” said Van Coller. Such large impairments are not expected to happen again, he said.

EOH dropped 1.9% to R34.80 as of 10.43am in Johannesburg. The stock has declined 49% this year.  — (c) 2018 Bloomberg LP