Shares in EOH soared more than 8% on Tuesday as the company, which has been fighting to mend its reputation after the huge fallout from a governance scandal that saw it lose a major contract with Microsoft, said it was on track for its first full-year operating profit in more than two years.
In a trading update, the firm headed up by Stephen van Coller, said it generated an operating profit of between R125m to R175m from continuing and discontinued operations for the year to end-July, after a R1.3bn loss in the prior year. The market cheered the news, sending the stock up 8.22% to close at R7.90, its highest close since May.
EOH has been fighting to regain credibility after revelations of a corruption scandal surfaced. In September 2018, the company 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.
With a lot of work having been done to correct the wrongs of its previous management, including a case brought against former CEO Asher Bohbot and others for closing their eyes to a culture of corruption and financial irresponsibility, the group is now looking to head down a growth path.
The company said it expects to report an improvement of 79%- 86% on its total loss per share for the full year to end-July, as well as an improvement of 93%-99% to the headline loss per share.
In addition, it noted a “significant improvement” in adjusted earnings before interest, tax, depreciation and amortisation (ebitda) of more than R500m compared with R72m, and an improvement in its adjusted ebitda margin to between 7.6% and 9.3% compared with 0.6% previously.
The group attributed the positive performance to its ongoing strategy of streamlining the business, which has been focused on selling assets, trimming debt and reorganising the business that was once made up of more than 270 companies under three operating units.
However, EOH said the delay in the disposal of Sybrin, which provides payments software solutions and online customer onboarding process for banks, due to the Covid-19 pandemic, has resulted in the gross debt balance remaining at about R2bn, similar to levels reported at the half-year.
The disposal of Sybrin is expected to net R334m for EOH.
The group said its interest burden had “adversely impacted the group’s cash resources, however, the proceeds from the Sybrin disposal will be used to immediately reduce leverage, cut interest costs and contribute to the strengthening of the capital structure”.
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