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FIFI PETERS: IT group EOH has a very necessary date with its shareholders tomorrow [Tuesday, 13 December]. It is the corporate’s annual normal assembly, and it’s planning to ask its shareholders for permission to do just a few issues, together with elevating about R500 million to R600 million available on the market by means of issuing new shares. It’s one thing known as a rights issue. It’s a less expensive type of elevating cash for an organization [than] going to a financial institution, however it’s not all the time the perfect state of affairs for a shareholder, as a rights issue can dilute the place of present shareholders, and it additionally presents a chance price for buyers who select to comply with their rights, as a result of they may have achieved one thing else with the cash.
But right here to inform us how he’s planning to serenade his shareholders is the CEO of EOH, Stephen van Coller.
Stephen, thanks a lot in your time and in your endurance with us. Just to start, it’s been a few weeks because you first introduced to the market that you simply’d be calling in your shareholders for assist, and I’d like to perceive, first off, how you feel about tomorrow’s assembly, and the way assured you’re that you simply’ll get the help to elevate the cash you want?
STEPHEN VAN COLLER: Thanks very a lot. I actually respect the time. Just to be clear, we introduced that we’d be elevating capital at the top of January this 12 months. It was a requirement of the financial institution, so it’s been available in the market for a while and that’s created a little bit of an overhang on the share.
Also, simply from shareholders, bear in mind going again to 2019 we had successfully about R5 billion value of debt and acquisition finance and licensing charges and financial institution debt that we had to pay again.
Part of the technique with the shareholder and the board was we’d first promote some property till we obtained to a degree the place we felt that there was an funding case for EOH, then we’d return to them – as a result of it’s their firm – to decide. If you noticed our year-end outcomes, we made a R282 million working revenue from nearly R6 billion value of turnover.
The board feels that the corporate is now investible as a result of that was 91% higher than in 2021. And so this was a part of the plan.
It’s taken – clearly with Covid and [the KZN] floods, the Ukraine conflict and rioting – us three years to get right here, however we’re right here now and shareholders should take the choice.
FIFI PETERS: I’m glad you talked about the overhang in your share worth since you probably did announce to the markets that you may be embarking on the route of a rights issue.
I used to be checking and I see that the inventory worth is down 37% previously 12 months, down 68% previously three years, and down round 92% previously 5 years, in accordance to the information I used to be wanting at.
So the query is: in hindsight do you suppose you waited too lengthy to pursue the rights issue, given what your share worth has achieved and the volatility in all probability available in the market, which hasn’t added to the ranking of your inventory proper now?
STEPHEN VAN COLLER: Yes, it’s an awesome query. The issue is I don’t suppose you possibly can go to shareholders for more cash except you possibly can inform them that there’s an investible case that they’ll take a look at. Until now we haven’t had an investible case. We’ve nonetheless been cleansing up, altering, promoting, getting all the things right into a form that you may really go to individuals and say, look at this firm, that is what it’s actually like.
The share worth is a little bit of an anomaly as a result of as we have been cleansing up you didn’t know what was going to come out of the woodwork.
You didn’t know the way a lot you have been going to have to settle with the SIU [Special Investigating Unit], the place clients have been going to go, and many others. So it was very troublesome. I don’t suppose it will’ve been doable previously two to three years to try this. Certainly that was the board’s view.
And provided that we owed a lot cash to the banks, we had to put a plan in entrance of the banks to say to them ‘this is what we are going to do to get your money back’ in order that they didn’t take us over and we might retain some worth for shareholders.
You noticed in Tongaat they didn’t get settlement with the banks, and the banks have turned down that plan. We didn’t have that state of affairs. So I feel we’re in an awesome place now – having weathered 4 main storms and nonetheless [having] elevated working revenue 91% final 12 months – to go to shareholders and say, properly, would you like to make investments on this enterprise, or should we proceed to promote extra property, or should we proceed to give the cash to the banks at 15% rates of interest and rising?
We are pretty assured that we are going to proceed with our shareholders who I feel would need to make investments largely within the enterprise.
FIFI PETERS: You have introduced your debt place down fairly considerably over the previous 12 months, I consider. Your 2022 monetary debt is sitting at round R1.3 billion or so. Is that right?
STEPHEN VAN COLLER: That’s right. Just over R1.2 billion now.
FIFI PETERS: So why not elevate extra? You are elevating R500 million to R600 million, you’ve obtained the help of one in every of your buyers who will be plugging in a R100 million or so. Why not elevate extra? You wipe out the debt and you’re achieved, and also you proceed with the street forward – or will the R600 million be sufficient?
STEPHEN VAN COLLER: The means the buyers look at it, and the bankers, is what your cowl in your debt is. At the second, in case you have a glance at our Ebitda [earnings before interest, tax, depreciation and amortisation], we did about R500 million – in order that’s about two-and-a-half instances cowl. Then we’ve offered a few of the companies, so we’re barely much less, so perhaps we’re at two-and-three-quarter instances Ebitda cowl.
The drawback with that’s we’re seen as a leveraged firm, and subsequently the bankers cost us I feel extreme rates of interest at 15%.
With rates of interest going up, that might be 16%, that might be 17%, and when you simply run that on a spreadsheet, 15% compounding isn’t a really fairly factor to behold.
The actual issue, to be fairly frank, is that we should both put money into rising the enterprise or we should do one thing else, and we are able to’t put money into it whereas we’re paying 15% curiosity, as a result of principally we’re a ten% Ebitda margin enterprise and that principally takes all our free money stream. So [we] don’t generate sufficient money to actually put money into the way forward for the enterprise.
That’s why it’s a shareholder choice. We haven’t missed an curiosity fee, even by means of all these crises. If we now have to proceed paying it, it’s what it’s. But then we’re not going to develop the enterprise. And in order that’s why it wants to be a shareholder choice.
FIFI PETERS: I used to be talking to an analyst earlier, a revered market commentator who appears at your organization and the sector, Keith McLachlan.
I requested him: “What it will take for you to invest in a company like EOH again?” He stated the day it strikes from the place of being a turnaround story to a development story.
Now you’ve simply advised us that you simply consider that you simply’ve obtained an funding case to current to your shareholders tomorrow, and that’s why the corporate is assured embarking on this route to elevate cash from its shareholders. You consider you do have a powerful funding case.
So what’s that, Stephen, and the way is it probably going to be impacted by what is going on within the macroeconomic setting? We are listening to talks of recession taking place in lots of components of the world whereas our economic system has been much more resilient. Many are saying that it’s only a matter of time earlier than issues catch up. You’ve obtained the aspect of load shedding that’s additionally hanging over the economic system. What’s your funding case, and the way is the macroeconomic setting impacting that case?
STEPHEN VAN COLLER: That’s additionally an awesome query. The issue with the macro setting is it impacts each single enterprise in South Africa. So nobody is exclusive [in that] they don’t get affected by load shedding, by financial crises, and many others.
The query you’ve gotten to ask your self is relative: Company A to firm B, which one would you somewhat be in?
There are two issues, and I feel this is the reason Lebashe [Investment Group], which owns 14% of us, have already agreed to comply with their rights, about R54 million, and so they’ve requested to put one other R100 million in to up their strategic stake nearer to 22/23%. The cause why I feel they [did that] you want to ask them – however there are two issues.
One is that the IT business usually grows at GDP-plus-2%, so it’s very correlated to the GDP however all the time barely forward of GDP.
But what we noticed by means of these crises is that we didn’t get the destructive GDP. So when South Africa went minus 10%, the ICT business went flat. So we really are a really defensive business.
It is an fascinating business to put money into in troublesome instances, as a result of it’s a bit like bread and butter. People want IT to run their firms post-Covid. Everyone with a store anyplace, working anyplace, wants correct IT programs with correct cybersecurity, with correct storage, with correct connectivity. And so individuals have a tendency to make it possible for they don’t cease shopping for their bread and milk.
The second factor is that we appear to have hit backside – [and] in case you have a glance at our half-to-2021 versus half-to-2022 [period], we grew 17%.
So we’re seeing that turnaround as we get again into our regular market share inside South Africa. I feel that’s what persons are seeing. That’s actually what I feel our strategic companions noticed.
And from our roadshow the present shareholders [seemed] fairly proud of what we’ve achieved. In my entire life it’s in all probability among the best roadshows I’ve been on, by way of shareholders thanking us and accepting that we’ve now obtained to the top and we want to decide.
FIFI PETERS: All proper. Stephen, we’ll go away it there. Best of lack for tomorrow. We’ll clearly comply with the assertion that you simply’ll have to issue after the AGM is finished actually intently, and catch up then.
Stephen van Coller is the CEO of EOH.
