EOH earnings plagued by irregular contracts

JSE-listed ICT services group EOH Holdings appears to have stopped the bleeding as the company reduced its losses substantially in financial results for the year ended July 2020.

The group noted that its headline loss per share decreased by 72% from a loss of 1,751 cents per share, to 495 cents per share.

Total revenue, however, declined 25% to R11.27 billion, from R14.94 billion, while normalised EBITDA increased by 71.58% to R827 million.

Operating costs fell by 45% to R3.4 billion, while EOH also cut its debt from over R4 billion in July 2018, to slightly over R2 billion as of 1 December 2020.

EOH conducted a detailed investigation into allegations of corruption within its business.

It has spent the best part of 18 months focusing on cleaning up the business both from a governance and financial perspective, under the leadership of chief executive officer, Stephen van Coller.

“We are immensely pleased with the significant progress made by the EOH Group during the current financial year.

“We have managed to position ourselves for growth and largely deal with our legacy issues all while successfully steering the group safely through unprecedented global market conditions,” he said in a statement on Wednesday (2 November).

“While the economic recovery is uncertain, the path is now clearly set for EOH to capitalise on future growth prospects which can be accelerated given the new normal is premised on an enhanced global digital reality.”

The chief executive said that the company is focused on ‘quality of earnings as opposed to revenue at any cost’.

“This is evidenced by the improvement in margins as well as the closing out of legacy issues, which have historically caused a drag both on earnings and cash generation,” he said.

The company reduced its headcount by around 29% to 7,333 (10,279) largely because of not renewing contractors and selling businesses.

In July, the JSE fined EOH R5 million for false and misleading reporting over the past several years.

The company said on Wednesday that five out of eight “problematic” public sector contracts have been settled, one is currently in arbitration, one in final negotiations and one contact ends on 30 April 2021. These legacy contracts led to a loss of R323 million.

The group also reached a settlement with the Special Investigations Unit relating to disclosures reported in May 2019 for two of the three identified contracts ‘where overbilling of licences occurred’. EOH will repay R42 million over the next three years for overcharging the Department of Defence.

It is finalising a similar agreement with regards to the third contract, it said.

Read: JSE fines EOH R5 million for false and misleading reporting