EOH’s share price fell yesterday after it outlined a plan to restructure its debt through a planned rights issue.
The shares were down 5.71% in intraday trade yesterday and traded at R3.30. They have declined by 47.76% in the past year.
In its financial performance update for the first half of the 2023 financial year, the IT group said it concluded a debt term sheet with Standard Bank of South Africa, acting through its Corporate and Investment Banking division, subject to the successful conclusion of the capital raise.
EOH said its remaining debt would be refinanced as follows: A R200 million, four-year amortising term loan; A R250m, three-year bullet term loan; a R250m, four-year revolving credit facility; and R500m in general banking facilities, which will include a working capital facility and ancillary banking facilities.
EOH said this would ensure that the group emerged from the capital raise with a sustainable capital structure, allowing management to focus on driving growth in the operations.
According to the group, while it reduced debt levels disclosed at the 2022 financial year end from R1.3 billion to R1.2bn, the increased refinancing costs incurred under the new Common Terms Agreement, along with higher repo rate levels, had resulted in only a modest reduction in the finance cost in comparison to the prior period, the first half of 2022.
In November, the group announced a planned rights issue in which it sought to raise up to R500m from shareholders. The rights offer subscription period is set to open on January 30 and close on February 10.
“The proposed capital raise, comprising a R500m rights offer and a R100m specific issue of shares for cash to EOH’s black empowerment partner, Lebashe Investment Group, therefore remains a strategic imperative, allowing the group to reduce its debt levels, gain access to cheaper forms of debt and secure less onerous lending terms,” it said.
On the operating environment in South Africa, EOH said it continued to be challenging.
“The global economy remains under pressure with growth forecasts downgraded on the back of inflationary pressures and geopolitical tensions caused by, inter alia, the ongoing Ukrainian conflict, Covid-19 lockdowns in China, and the ceasing of quantitative easing in developed markets.
“In addition, supply chain disruptions have continued through the period which has slowed down the Group's project delivery. In South Africa, the prolonged macroeconomic effects of the pandemic, riots, the flooding in KwaZulu-Natal, the lack of investment in the mining and rail sectors as well as the increased frequency and severity of load shedding is placing severe strain on the economy,” it said.
Despite this, the group said it had seen an improvement in the group’s gross margin to 28% from 26% in the prior year, and an 80% improvement in operating profit to R100m.
“The group achieved a 26% improvement in the group’s headline loss per share of 72 cents versus 98 cents for the 2021 financial year, the group’s loss per share improved by 45%, reducing from 181 cents to 99 cents,” it said.
EOH said it had reached an excellent financial discipline resulting in strong cash generation from continuing and discontinued operations, with an 80% adjusted earnings before interest, taxes, depreciation and amortisation (Ebitda) cash conversion.
“The group’s net working capital remained stable at R218m, despite a tough economic environment, and it ended the financial year with R832m outstanding on the senior bridge facility, which was further paid down to R728m by the time of the release of the 2022 financial year results, and R459m of cash and R250m of undrawn direct overdraft facilities,” EOH said.
Looking ahead, the group said while it continued to deliver on its strategy and show growth from a top-line level and strong momentum in operating profit, the group remained cautious about the local and global economic and political environment.
“The board and management continue to monitor these issues regularly to ensure that EOH remains agile as a group,” it said.
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