Financial Mail and Business Day

EOH ‘remains profitable’ as it battles tough conditions

Karl Gernetzky and Mudiwa Gavaza

Technology group EOH, which is demanding R6.4bn from former executives as it battles to repair a reputational hit from corruption claims, says it remains profitable even as Covid-19, load-shedding and unrest batter SA’s prospects.

The group, which provides digital services ranging from maximising crop production to network infrastructure and water management, is also facing the threat of a ban from doing business with the government, which provides about a fifth of its revenue.

In a pre-close update for its year to end-July, EOH said tough conditions weighed on revenue in the second half but its gross profit margin is expected to improve by between four and six percentage points from the 22% it reported in 2020.

EOH said it expects to report positive operating profit and reported core profit for the full year, while net cash balances at July 28 were R605m, from R440m at end-March. Debt remained steady at about R2bn, the group said, almost twice its market value.

“The group’s turnaround strategy, which has been focused on restoring credibility, increasing transparency and improving liquidity, remains on track despite the ongoing challenges in the local and global environment,” EOH said.

The group generated operating profit of R59m in its six months to end-January, from a R915m loss previously, and is struggling to regain investors’ confidence after the uncovering of dodgy contracts with the government.

In July, EOH filed a lawsuit against four former executives, including cofounder and former CEO Asher Bohbot and former CFO John King, demanding a total R6.4bn for either benefiting from, or closing their eyes to, a culture of corruption and financial irresponsibility that helped prompt an 84% share price decline over three years.

EOH has played its part in “clearing out the skeletons”, said Irnest Kaplan, MD of Kaplan Equity Analysts.

“The company is doing all right with their asset sales. It’s not as fast as they’d like. To make it worse, things in the economy are also tough,” Kaplan said.

FLAGGED

Though CEO Stephen van Coller and his team have been able to cut the group’s debt in half, Kaplan flagged this as an issue because debt is still high and is proving tough to reduce to a more manageable level.

“They don’t have the amount of breathing space they would like to have,” he said.

A large part of the problem is the interest to be paid on the debt. “It’s a big chunk of operating profit and it puts significant pressure on the business,” Kaplan said.

In September 2018 the group brought in Van Coller to turn around the group. Van Coller appointed law firm ENSafrica to investigate allegations of fraud and corruption.

The investigation found underhand dealings with its government client, including transactions worth more than R600m with no evidence of valid contracts being in place or for which no work was done.

The investigation resulted in up to 46 people being reported to authorities; 16 employees at EOH were implicated directly in the wrongdoing, along with 12 government employees.

The Treasury said in July it is yet to be requested to decide on whether to bar EOH from doing business with the government.

This followed the technology group saying it had received a letter from the State Information Technology Agency (Sita) in June, “which intimated that the Sita would consider restricting EOH from doing business with the public sector”. The Treasury has the final say on the matter.

EOH’s shares ended 2.55% lower at R6.50 on Friday, having fallen almost a fifth so far in 2021 and 95% over the past five years.

COMPANIES & MARKET S

en-za

2021-08-02T07:00:00.0000000Z

2021-08-02T07:00:00.0000000Z

https://tisobg.pressreader.com/article/281754157364938

Arena Holdings PTY