EOH asset sales analysed

EOH generated around R2 billion from selling many of its prime businesses. However, it also lost R9 billion in revenue generation from those businesses and R8.4 billion in net assets.

To understand the selling spree, one must turn back the clock to 2018, when the company was facing significant challenges.

In 2017, EOH made headlines for all the wrong reasons, including corruption and malfeasance linked to state capture. The company also had a growing debt burden.

EOH founder and chief executive Asher Bohbot stepped down, and the company had to find someone new to guide it through its challenges.

On 1 September 2018, EOH appointed former banker and MTN executive Stephen van Coller as CEO to create value by growing the company and creating jobs.

He inherited a company with R16.3 billion in revenue, a net profit of R288 million, equity of R8.1 billion, and 11,500 employees.

When Van Coller took the reins, the share price was on a downward trend. It traded at R40 per share, well below its highs of over R100 two years earlier.

More corruption allegations surfaced, and he hired a team from ENSAfrica to investigate the corruption allegations.

It culminated in Van Coller testifying at the Zondo Commission, EOH suing former executives for R6.4 billion, and criminal charges being laid against employees implicated in corruption.

EOH, along with Steinhoff, became the poster child for corporate corruption and got hammered as a result.

The share price continued its downward slide as investors did not know how deep the corruption went and whether the company would recover.

Another challenge Van Coller focussed on during his tenure as EOH chief executive was reducing debt.

When he took the hot seat, the company had R4.5 billion in loan debt and R2.51 billion in cash and cash equivalents. Therefore, EOH had enough cash to cover 55% of its R4.54 billion debt.

EOH also had R5.3 billion in trade debtors. This represents the money customers still owed EOH for delivered products and services.

The company’s auditors described its debtor accounts that were not past due as being of good credit quality and not expected to default.

Only R1.5 billion in the debtor accounts represented past-due debtors primarily from public enterprises.

Simply put, the combination of EOH’s cash and trade debtors account had enough money to cover EOH’s loan account.

However, Van Coller opted to sell many of EOH’s biggest revenue-generating assets to reduce debt and pay the banks their money.

Van Coller said he was very proud that EOH never missed an interest payment and that the banks got all their money.

A summary of the businesses sold, and what EOH achieved

During EOH’s asset disposal programme to reduce debt, the company sold many of its best businesses.

Through its asset disposals, the company generated around R2 billion in cash, which it used to pay off debt.

The deals also included R156 million in debt relief and R30 million in dividend withholdings, as shown in the table below.

Company sold	Cash	Debt Relief	Dividend
Construction Computer Software	R587.40	–	–
Data World Group	R40.00	R60.00	–
Dental Information Systems	R250.00	–	–
LSD Information Technology	–	R96.00	R30.00
MARS Holdings	R211.00	–	–
Sybrin and Sybrin Systems	R334.35	–	–
Hoonar Tewurks Consulting (HTC)
Managed Integrity Evaluation (MIE)
Xpert Decision Systems
Zenaptix
HTC, MIE, Xpert, and Zenaptix	R422.00	–	–
EOH Network Solutions (EOH NS)
Hymax
EOH NS and Hymax	R144.90	–	–
Total	R1,989.65	R156.00	R30.00

EOH’s asset disposal programme came at a significant cost to the company, making it a shadow of its former glory.

• EOH generated R2 billion in cash from selling businesses.
• EOH lost approximately R9 billion in revenue generation from these businesses.
• EOH lost R8.4 billion in net assets from selling the businesses.

During this period of business disposal, EOH decreased its interest-bearing loans by R3.11 billion from R4.5 billion to R1.43 billion.

Considering the significant reduction in net assets and revenue, it is debatable whether it was the right strategy.

The chart below shows the net effect of EOH’s asset disposals during Van Coller’s term as chief executive.

Despite the significant asset disposals, EOH did not generate enough money to pay off all of its interest-bearing debt.

When it no longer had assets to sell and faced technical insolvency, EOH turned to its shareholders.

It launched a rights offer to raise R500 million to pay off the result of the debt and ensured the banks got their money.

Investors were promised significant growth following the rights offer under the EOH 2.0 banner. However, it never materialised.

The EOH share price continued to decline, and the battered shareholders continued to lose money.

The finances also did not improve. Today, EOH generates around R6 billion in revenue, a fraction of its former R16 billion.

The company’s market cap is around R1.2 billion, compared to R6 billion when EOH started its asset disposal programme.

Debt has also started to creep up again. At the end of the 2023 financial year, EOH reported total loan debts of R838.5 million.

Only six months later, for the H1 2024 period, EOH reported that this figure had already increased back to R960.1 million.

To address the challenges, EOH announced a new board and management. Many investors hope the new team will turn the company around.

To date, investors have given the team a vote of confidence. The share price increased by around 50% since the new board and chief executive was announced.