EOH expects its losses to narrow significantly in the six months ended 31 January 2021, but the shares fell sharply in reaction to a trading statement published on Thursday.
The IT services group said it will report positive operating profit and earnings before interest, tax, depreciation and amortisaton (Ebitda) for the 2021 interim period, with continued improvement in gross profit and normalised Ebitda margins despite the tough economic environment.
The headline loss per share will improve by between 83% and 86% compared to the year-ago period, for a loss of between 66c and 54c/share (-R3.95 a year ago).
“EOH has seen progress in its key strategic initiatives, including optimising the cost structure and capital structure as well as focusing on quality of earnings as it has evolved the business model,” the group said in the trading statement.
“Deleveraging and proactively engaging with lenders remains a strategic priority for EOH. Year to date, the group has repaid the lenders a further R409-million principally from disposal proceeds. This brings the total legacy debt repayment since July 2018, including vendors for acquisition liabilities, to R2-billion — leaving current debt levels at about R2-billion.”
It said it has made “significant progress” in closing out problematic legacy contracts, mainly with the public sector.
“At the date of publishing this trading statement, five of the eight problematic public sector contracts have been settled, one is currently in arbitration, one is concluding at the end of April 2021, and one is in the process of being terminated with handover discussions now underway.”
EOH’s iOCO IT services business benefited from customers’ increased cloud take-up, spend on automation and application development, and a focus on operational technology. Hardware revenue was muted. Gross profit margins for iOCO remained in the mid-20% range.
The Nextec business experienced improved operating performance, with a strong result from the Digital Infrastructure cluster off the back of customer investment in digital technologies, particularly in the mining industry.
“While a smaller contributor to the overall result, the people businesses have also performed well against expectations. The positive performance from Nextec is as a result of the sale or closure of underperforming businesses over the past 12 months and the strategic interventions put in place by the new management teams,” EOH said.
“The focus remains on quality of earnings, cash conversion and profitable growth as low margin projects are phased out.”
EOH’s share price closed down 9.6% at R6.69/share after falling as low as low as R6.45 after the trading statement was published. The group will publish its interim results on 14 April. — © 2021 NewsCentral Media