EOH shareholders and employees have taken a hammering over the last few years, and it is now time for them to see the benefits of the recent rights offer and CEO Stephen van Coller’s strategy.
EOH used to be a JSE darling. At its peak, it had a market cap of over R23 billion and generated revenue of R16 billion.
Fast forward six years, and the company is a shadow of its former self. Revenue plummeted to R6 billion, and its market cap shrunk to less than R1 billion.
The company’s troubles are partly related to corruption and mismanagement, which surfaced before Van Coller took the reins on 1 September 2018.
EOH also suffered because of non-existent risk and compliance and poor corporate governance.
Another challenge was EOH’s debt burden. In 2018, EOH had total debt of R4 billion, which posed a significant constraint to the company.
Van Coller focused on reducing debt and fighting corruption, which he said was needed to save the company.
He became a hero for his public fight against corruption because it is usually swept under the rug by the government and corporations.
Van Coller also served the banks and other lenders well. He proudly said they have never missed an interest payment.
However, there were also losers. Under Van Coller, shareholders lost most of their money, and many employees lost their jobs.
Detractors, including a group called “Save EOH”, alleged that van Coller sold many valuable cash-generating companies at large discounts to make sure the banks got their money.
EOH’s financials support this view as the company’s assets fell much quicker than the liabilities they paid off.
It pushed the company to the brink of becoming technically insolvent, a situation where a company’s assets are worth less than its liabilities.
In a last blow to shareholders, EOH announced a rights issue to settle the majority of its senior bridge facility.
It raised R600 million through a R500 million rights issue and a R100 million BBBEE deal. It was closer to an IPO because shareholders who did not take the rights offer would have been hugely diluted.
Stephen van Coller’s time to shine
Van Coller said the successful rights issue welcomes a new era for EOH, knowing that their strategy for EOH 2.0 has the backing of all their shareholders and lenders.
EOH will now restructure its debt at lower interest rates and allow the company to make significant investments in the growth of the business.
Van Coller said the vote of confidence from their shareholders in the EOH of tomorrow is proof that the company is investable again.
“Over 91% of shareholders followed their rights, with requests for additional allocations of R220 million,” he said.
It is now time for the EOH board and its CEO to show that their strategy and rights issue served the needs of shareholders and employees.
Shareholders have not seen any benefit from the rights issue yet, and the company has not announced any big growth plans.
The only beneficiaries to date have been the banks and EOH’s top management, who enjoyed huge salaries over the last four years.
It is time for Van Coller to prove his critics wrong by delivering the promised growth and showing that his strategy benefits shareholders and employees.