Destruction at EOH

EOH experienced tremendous value destruction under CEO Stephen van Coller and is on the verge of technical insolvency.

When Van Coller took over as EOH CEO in September 2018, the company produced R16 billion in revenue, R977 million in operating profit, and R288 million in profit after tax.

Fast forward four years, revenue is down 62%, operating profit declined 84%, and net equity plummeted by 99%.

Van Coller blamed the poor performance on legacy corruption problems, the Covid-19 pandemic, rioting in KwaZulu-Natal and Gauteng, flooding in KwaZulu-Natal, and the war in Ukraine.

However, many former executives and shareholders blame Van Coller for the value destruction over the last four years.

They argue that Van Coller, a former banker, served the banks by ensuring they got their money back quickly at the expense of employees and shareholders.

A group called Save EOH said EOH was a good company when he arrived, servicing thousands of clients worldwide and employing over 11,000 people.

Save EOH said Van Coller created the false narrative that EOH was struggling, wrought with corruption, and needed saving.

As part of this narrative, the new CEO allegedly spent R245 million with legal firm ENS Africa and another R190 million on consultants. This is more than half of EOH’s current market cap.

“Van Coller did all this to promote himself and gain fame as a great CEO, a great leader, and a corruption fighter,” they said.

EOH became the poster child for corporate corruption in South Africa, making it easy for the government to target the company to show it was acting against malfeasance.

Another problem, they said, was that EOH sold many valuable, profitable and cash-generative subsidiaries for a small fraction of their true value. This has caused a R6 billion loss to EOH.

“The proceeds from the disposals did not greatly impact the net debt level,” they said.

They added that Van Coller was appointed with the mandate to create value by growing EOH and creating jobs.

However, under his leadership, the company has lost half its staff, disposed of many well-performing businesses, and has significantly lower revenues than before.

The two biggest losers under Van Coller were EOH shareholders and employees. Shareholders lost 89% of their investment, and many employees lost their jobs and livelihoods.

The table below shows EOH’s performance under Stephen van Coller.

EOH	31 July 2018	31 July 2022	Difference
Revenue	R16.3 billion	R6.0 billion	-63%
Operating profit	R977 million	R159 million	-84%
Profit after tax	R288 million	-R160 million	-156%
EBITDA	R1.4 billion	R0.5 billion	-64%
Total assets	R16.0 billion	R3.8 billion	-76%
Total liabilities	R7.9 billion	R3.7 billion	-53%
Total equity	R8.1 billion	R60 million	-99%
Employees	11,500	6,111	-47%
Share price	R36.16	R4.50	-88%

Stephen van Coller dismisses criticism

Van Coller dismissed criticism for selling assets and reducing staff, saying it was necessary to reduce debt and save the company.

He told The Money Show he needed to take a scalpal to the business to make it more efficient and sustainable.

“Selling the peripherals, saving the core business, and moving on was the right thing to do, and we made it out the other side in terrible conditions,” he said.

He said they had to make a few “no-regret decisions” to reduce debt and ensure they do not pay all their cash to the banks.

“If we had R4 billion debt now and were paying 15% interest, that is a serious amount of money,” Van Coller said.

As the final step to reduce the remaining debt, EOH is planning to raise up to R600 million through a R500 million rights issue and an additional R100 million BBBEE deal.

The capital raise, he said, will leave EOH with a “fit-for-purpose capital structure”.

“Following a turnaround period, we are now efficiently streamlined and profitable to allow for growth,” he said.

Van Coller said he looks forward to being part of this growth.

What the numbers say

With such varying views and serious accusations against Van Coller, it is instructional to look at the company’s numbers.

Daily Investor also asked EOH about the allegations against Van Coller and the company’s poor performance under his leadership.

EOH group chief risk officer Fatima Newman said they have an independent board that sets the company strategy and makes decisions on executives’ performance relative to the execution of that strategy.

“EOH has also, on numerous occasions, publicly dealt with and finalised its legacy corruption issues,” she said.

However, Newman would not say whether EOH’s management was incentivised to reduce debt over the last four years.

She would also not comment on allegedly spending R435 million on ENS Africa and consultants, who potentially damaged the reputation of the company and the morale among staff.

EOH CEO Stephen van Coller’s remuneration

Former executives said Van Coller and his management team received big salaries and bonuses for making sure the banks got their money. It came at the expense of staff and shareholders, they said.

EOH preferred not to comment on these allegations.

The chart below shows Van Coller’s remuneration in comparison with his predecessors.

EOH’s net equity

When Van Coller took over as CEO, EOH’s net equity – the fair market value of its assets minus its liabilities – was R8 billion. It is now R60 million, a 99% decline.

EOH’s net equity has shown a tremendous decline over the last four years and is now on the verge of technical insolvency.

Former executives said it shows that valuable assets were sold below market price, which destroyed shareholder value.

EOH preferred not to comment on these allegations.

The chart below shows EOH’s shrinking net equity over the last four years.

EOH’s share price

EOH’s share price declined 89% under Van Coller, which destroyed tremendous shareholder value.

Save EOH said the poor performance impacted foreign confidence in investment in South Africa and caused damage to the economy.

EOH preferred not to comment on the share price decline under Van Coller.

The chart below shows EOH’s share price since Van Coller took over as EOH CEO.