EOH warns of slump in earnings - TechCentral

EOH warns of slump in earnings

Full-year headline earnings per share (Heps) at troubled JSE-listed technology services group EOH could fall by as much as 70%, it said on Thursday.

Despite an increase in revenue of about 8% to R16.3bn, normalised Heps from continuing operations is expected to be between R4.38 and R5.58, reflecting a decrease of between 30% and 45% compared to the R7.97 for the previous corresponding period. Reported Heps will be 55-70% lower compared to last year’s R8.32.

Normalised earnings before interest, tax, depreciation and amortisation will decline by between 15% and 25%.

“Although challenging, the past year has refocused, energised and strengthened the business and made it more resilient,” EOH said in a statement to shareholders. The group’s “new strategy, structure and operating model will enable the business to return to past performance”.

EOH blamed its poor performance on several factors.

The first was the disposal of the controversial CGT group of companies, which had a once-off negative impact on earnings of R399-million.

It said that “fake news stories” also adversely affected the business, requiring “intense stakeholder engagement”.

“In view of EOH’s specific market challenges during the period, the group adopted a deliberate customer retention strategy while sacrificing some margin,” it added. As a result, it won fewer major contracts, hurting the business in the second half of the financial year.

However, it said that in the past three months it has seen a marked increase in the number of large contracts awarded to it, “indicating the normalisation of business activities”.

EOH recently restructured itself into two separate business, EOH and Nextec. It has also dissolved its public sector division by incorporating most its activities into Nextec and EOH, and discontinuing the remainder of the business. The operating loss and restructuring cost amounted to about R380-million.

‘Right-sizing’

Various businesses went through “right-sizing” at an additional cost of about R120-million. Impairment of goodwill, investments and other assets came to about R90-million.

Its tax bill also rose due to the non-tax-deductible charge associated with the unwinding of GCT, and the varying degree of performance of the businesses in the group.

“The increased focus on working capital management resulted in a reduction of accounts receivable and an improvement in cash compared to the 2018 half-year interim results.”

After year-end, EOH appointed former MTN Group executive Stephen van Coller as its new CEO. It is also concluding a new black empowerment transaction with Lebashe, subject to shareholder approval.  — © 2018 NewsCentral Media

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