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EOH stages big turnaround
EOH stages big turnaround
Published Date: 2020-12-03 | Source: Stephen Gunnion | Author: Stephen Gunnion
The technology services group is still trying to sell its IP businesses as it reduces debt while refinancing talks continue.
EOH says it's beginning to realise the benefits of its turnaround strategy despite the obstacles Covid-19 has thrown in its path this year. Although it still posted a full-year loss, it says almost all metrics have improved as it focuses on quality of earnings rather than revenue at any cost.
The technology services company remains under pressure, however, to continue reducing its debt. Following additional repayments since its July year-end, it has cut debt to just over R2 billion from the R4 billion the new management team under CEO Stephen van Coller inherited when they took over in 2018. Talks with its lenders to finalise a long-term capital structure are advanced, but if refinancing is not concluded before debt becomes due next April, its auditors say a material uncertainty exists that may cast doubt on its ability to continue as a going concern.
Releasing its annual results, EOH said its capacity to repay debt as it became due was dependent on the timing and quantum of cash inflow from operations and its ability to realise cash through the disposal of non-core assets. While its IP businesses are up for sale, it said it was crucial that it achieved fair value and that they weren't sold at suboptimal prices due to the environment created by Covid-19.
Disposals put pressure on revenue, which declined by 24% to R11.3 billion, while revenue from continuing operations was 19% lower. The lockdown, together with deals not repeated this year, resulted in a 33% decrease in revenue at its hardware business, while its other operations were more resilient due to a broad client and product base.
Its core iOCO IT services business contributed 59% of group revenue and 67% of total core normalised earnings before interest, tax, depreciation, and amortisation (EBITDA). NEXTEC's contribution dipped to 30% from 35% as it wound down or sold non-core businesses. The remainder came from its IP operation, which is also being unwound, with all three of its underlying businesses earmarked for disposal as part of its deleveraging strategy.
The group cut total operating costs by 45% to R3.4 billion due to a reduction in once-off expenses, asset sales and closures, as well as improved efficiency measures. Impairment losses fell to R522 million from R2.26 billion last year, while other once-off costs fell 62%. It reduced its headcount by 29% to 7,333 largely due to contractors not renewed and the businesses it sold.
Total core normalised EBITDA for the year increased by 72% to R827 million and its total headline loss per share narrowed by 72% to 495c. It generated positive operating cash flows of R706 million, with 96% of this generated in the second six months, and ended the year with a positive cash balance of R946 million.
EOH said it was now focused on growing the iOCO business in SA and select African countries, while NEXTEC would continue its turnaround trajectory and remain self-sustaining.
EOH's shares declined by 3.6% to R6.20 yesterday, reversing Tuesday's gain. They climbed 29% last month.
Their debt seems manageable at 2bn and 500m of cash available ? January new term sheet on debt is the next catalyst or any non-core sales in the interim. Banks might be nervous on the bridge between ebitda and normal ebitda ?-- Mark Narramore (@marknarramore1) December 2, 2020