Debt-plagued IT services group EOH Holdings will announce details of a planned capital restructuring soon after it publishes its financial results for the year ended 31 July 2022 later this month.

“The board and management continue to assess the group’s capital restructuring options and expect to make an announcement in this regard shortly after the release of the results,” the JSE-listed solutions provider said in a trading update late on Friday.

It said the business is now “operationally stable”, with fixing the capital structure and reducing high interest payments the key priorities for the management team, led by CEO Stephen van Coller.

The group said it will report a reduction in its full-year headline loss per share from continuing operations for the 12 months ended 31 July 2022. The HLPS is expected to be between 72c and 80c from R1.09 a year ago.

However, adjusted Ebitda – earnings before interest, tax, depreciation and amortisation – will fall year on year, from R667-million to between R460-million and R520-million, due to the loss of earnings from the sale of assets (to reduce debt) and a provision to pay a settlement related to a legacy dodgy government contract.

The settlement, related to a corrupt contract with the department of water & sanitation, will likely see EOH paying a hefty sum, in agreement with the Special Investigating Unit, with an agreement expected to be in place by end-November.

“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 said in the trading update.

Better performance

The better operational performance came in spite of a “challenging” economic operating environment. “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.”

The iOCO IT services subsidiary “continued to perform well and delivered improvements in gross margin and Ebitda margin”. Its Nextec business performed less well in the second half of the financial year due to “challenges in the Infrastructure Solutions business as a result of the effects of supply chain delays from OEM providers (third-party vendors) and the delay in project spend”. Still, Nextec managed an improvement in gross profit and Ebitda margins for the 2022 financial year, the group said.

Debt remains EOH’s single biggest challenge, one that “remains a key priority for EOH’s management team and board”.

The group’s net cash balance at year-end was R460-million, and it had access to gross leverage of R1.3-billion, with unutilised short-term facilities of R250-million.

Read: If EOH is put up for sale, who might buy it?

“Following negotiations with lenders, EOH 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 explained.

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 sales of Network Solutions and Hymax SA were concluded, reducing the bridge facility to R732-million.

Read: Zondo commission heaps praise on EOH over disclosures

“With the deleveraging strategy approaching completion, the group 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,” it said.