JSE-listed technology services group EOH has set itself a November deadline to conclude a graft probe into the company by the Special Investigating Unit (SIU).
EOH made the announcement on Friday in a business update to shareholders.
In August last year, the SUI launched an investigation into tenders worth R470 million issued to the company by the Department of Water and Sanitation.
The investigation focuses on the procurement, contracting and implementation of four IT contracts awarded by the department to the technology group and its subsidiaries.
The probe by the state came on the back of increased efforts by the Stephen van Coller-led management’s efforts to rehabilitate the company, which for years had been linked to impropriety.
“We have made significant progress with the SIU and should have a legal basis agreed and concluded by the end of November 2022 with the SIU,” says EOH.
It explains the additional provision made on the amount finally to be settled with the SIU was the single item that caused the group to make a loss for the year rather than a profit, notwithstanding the heavy interest burden.
EOH says although operational earnings improved, adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA), when compared to FY2021, is lower primarily due to the loss of earnings from the sale of IP assets and as a result of increasing the provision related to the settlement with the SIU on the Department of Water and Sanitation investigation.
Capital priority
On the financials, the firm says it continued with its trend of year-on-year improvement in the operational environment with significant increase in operating profit and specifically as it relates to its continuing operations.
The company generated an operating profit of between R250 million to R310 million from continuing and discontinued operations for the year ended 31 July 2022 (FY2022), following an operating profit of R147 million for the year ended 31 July 2021 (FY2021).
The firm saw an improvement in operating profit from continuing operations to between R90 million and R110 million.
The net cash balance at 31 July 2022 was R460 million and the group had gross leverage of circa R1.3 billion, with unutilised short-term facilities of R250 million.
“The group is now stable from an operational perspective and the remaining imperative is to strengthen the group’s capital structure and reduce its high interest charge,” says the company.
According to EOH, the 2022 financial year was characterised by an operating environment in South Africa that remained challenging.
It notes the Ukraine conflict, stringent lockdowns in China, ongoing supply chain disruptions, the sharp rise in energy prices, floods in KwaZulu-Natal and increased load-shedding all impacted an already weak local economy.
“The aggressive tightening of monetary policy locally and worldwide to combat rising inflation is placing consumers and many corporates under pressure. Notwithstanding this, EOH was able to deliver an improved total operating profit of between R250 million and R310 million, compared to a total operating profit of R147 million in the prior financial year and retain significant cash reserves while servicing its significant interest burden in full.
“This is testament to the focused changes to the business model and way of operating.”
The iOCO business continued to perform well and delivered improvements in gross margin and EBITDA margin compared to the prior financial year.
“Whilst our Nextec business started the year well, the second half of FY2022 brought challenges in the infrastructure solutions business as a result of the effects of supply chain delays from OEM [original equipment manufacturer] providers and the delay in project spend.
“Despite these headwinds, Nextec also delivered an improvement in gross profit and EBITDA margins relative to the prior financial year.”
Debt reduction plans
The firm says it continues to closely manage its working capital and liquidity, with gross cash balances of circa R460 million at 31 July 2022, including foreign and restricted cash, but excluding the undrawn R250 million overdraft facility, which remains at EOH’s disposal.
It notes the reduction of EOH’s debt and finalisation of an overall sustainable capital structure remains a key priority for EOH’s management team and board.
Following negotiations with lenders, EOH says it successfully refinanced the existing R1.9 billion debt into a R1.4 billion senior bridge facility, repayable on or before 1 April 2023; a R500 million three-year senior term loan, due 1 April 2025; a R250 million overdraft facility; and R250 million in indirect facilities.
It adds that proceeds from the sale of Sybrin and the Information Services Group reduced the senior bridge facility to R832 million at year-end. Subsequent to year-end, the sale of Network Solutions and Hymax SA concluded, further reducing the bridge facility to R732 million.
With the deleveraging strategy approaching completion, the group says it has been actively assessing its strategic options with regards to achieving an optimal long-term capital structure, which will allow EOH to pursue its growth strategy, immediately improve earnings and ultimately lead to value creation for shareholders.
EOH will publish its results for FY2022 on or about 27 October.
ITWeb
