JSE-listed technology group EOH is making progress in reducing its debt, as it forges ahead with its turnaround strategy.
EOH this morning presented its interim results for the period ended 31 January, posting headline earnings per share of 41c, a year-on-year improvement of 214%.
According to the company, the deleveraging strategy saw the conclusion of the sale of Sybrin, with the proceeds received on 31 March.
In June last year, EOH announced the disposal of its subsidiary, Sybrin, in a R410 million deal with a consortium led by One Thousand & One Voices Management.
In its financial results, the company says it repaid R360 million of debt since 31 January, with the majority of the proceeds coming from the Sybrin sale.
According to the company, the sale of Information Services is expected to conclude in May and the group also recently announced the sale of Network Solutions.
It says R500 million is expected to flow from these transactions, which will further help in deleveraging the group.
Liabilities kitty
Meanwhile, EOH has set aside a multimillion-rand kitty to be paid out when liabilities arise from investigations into government contracts awarded to it that are associated with impropriety.
The dodgy legacy public sector contracts have bedevilled the technology group over the years, negatively impacting its financial performance.
In an update to shareholders today, EOH says an assessment was undertaken in relation to these contracts, which were flagged by ENSafrica as being associated with suspicious activities, “for purposes of determining the likelihood of a claim/s being raised against EOH Mthombo in relation to the contracts in question”.
As a result, EOH says, the total contingent exposure identified in consequence of the results of that assessment is R48 million.
The company says the assessments that resulted in a claim being regarded as likely and where a contingent liability was identified were in relation to Amathole District Municipality – SAP implementation contracts; Universal Service and Access Agency of South Africa (USAASA) – SAP implementation; Department of Water and Sanitation; as well as the Department of Home Affairs – biometric contract.
With the Amathole District Municipality, there are disputes raised by the municipality as to deliverables and sums payable to EOH under this contract. However, EOH maintains it has performed substantially on the contract.
With the USAASA SAP implementation contract, in early 2021, National Treasury investigated the procurement of the SAP implementation services by USAASA from EOH. EOH feels there is a risk there may be a finding of impropriety in the contract.
The Special Investigating Unit is probing whether there was improper conduct in the award of the Department of Water and Sanitation contract to EOH, or whether EOH delivered on its contractual obligations.
With the Department of Home Affairs biometrics tender, there is an arbitration process relating to the delay of the project.
However, EOH says, in the event of a successful challenge to the validity of some of these contracts, the company would be entitled to just and equitable relief.
Positive turn
In the six months, the group generated an operating profit of R167 million from continuing and discontinued operations, compared to R76 million generated for the six months ended 31 January 2021.
“We embarked on a challenging turnaround strategy for the EOH Group and it has been a tough but truly rewarding journey,” comments Stephen van Coller, EOH CEO.
“Today we stand together as an agile and focused organisation proudly celebrating the fact that we are able to report positive earnings per share. This important milestone is clear evidence of our collective success.
“Our collective confidence is underpinned by the business’s ever-improving cashflow generation and positive momentum towards achieving the optimal sustainable capital structure.
“I am hugely grateful to our staff, clients, shareholders and partners for their unwavering support over the last three years and look forward to our next chapter which will be underpinned by exponential growth.”
According to Van Coller, EOH’s full stack of technology offerings, its 5 000-strong diversified client base, as well as its global footprint, ensure the group is well-positioned for the future.
“Our clients’ strong demand for full digital transformation and EOH’s ability to deliver on all their needs across infrastructure, software and services puts the group in an attractive position with the ability to increase its market share.”
On asset sales, EOH says, in the six months, the group continued to explore opportunities for the sale of certain non-core assets, of which a few have been sold during the current financial period.
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