EOH reports big drop in headline earnings citing ‘unfounded media coverage’

Listed IT service and technology firm EOH on Wednesday reported a big drop in headline earnings for the six months ended January 2018, citing ‘unfounded media coverage’.

EOH’s revenue from continuing operations grew by 19% to R8.354 billion as a result of increased activity at EOH’s existing customers. Revenue from services accounts for 84% of total revenue, a significant portion of which is annuity revenue, based on multiple year contracts, it said.

Revenue for the six month period increased in all areas of the business. “Growth has been focused on existing business which has resulted in organic growthaccounting for 71% of the overall revenue growth. 85% of EOH’s revenue is derived from within South Africa,” it said.

Operating profit from continuing operations however, declined to R784 million, from R838 million in 2017.

Headline earnings per share and Earnings per share from continuing operations was 314 cents (2017: 415 cents) and 320 cents (2017: 416 cents) respectively.

Earnings before interest, taxes, depreciation and amortisation (EBITDA) for the period amounted R1.004 billion, from R1.090 billion before.

“The recent political leadership changes in South Africa has seen the country enter a phase filled with a renewed sense of hope and optimism. Prior to this, the period under review was characterised by difficult trading conditions, compounded by a unique set of challenges that EOH had to overcome during the period, the group said in a statement on Wednesday.

“The combination of the macro-economic environment and the adverse, unfounded media coverage that EOH received, temporarily affected the Group’s position in the market,” it said.

EOH has endured a miserable period, underpinned by a massive sell-off in its share price following allegations of government tender irregularity and what was dubbed a ‘smear-story’ by Business Report in July 2017.

The group announced earlier in March that it will undergo a major restructure which will see it form two independent businesses.

It said that despite these market conditions, all areas of the business “coped relatively well”. “However the public sector business did have a particularly tough period as a result of the political uncertainty, squeeze on public sector funding and delays in sign-offs as well as theĀ  awarding of contracts.

“Payment practices from the public sector over the past year were poor, however we have seena marked improvement over the last two months.”

EOH said it adopted a deliberate customer retention strategy which resulted in some margin sacrifice. “As a result of this, the group has retained all major customers and customer contracts, gaining market-share in the process,” it said.

“Since February 2018, there has been a positive shift in the market towards EOH, resulting in a normalising of the environment and client engagements. These are strong indications that margins will normalise in the second half of the year as stability returns and business confidence grows.”

During the six months under review, EOH unwound the original acquisition of the GCT Group of companies through a ‘sell-back’ agreement effective 31 October 2017. This, it noted, had a material impact on the results of the Group due to a once off, non-cash reduction in consolidated earnings after tax of R400 million. This has had a negative impact on EPS.

Shares in EOH advancedĀ 2.08% to R49.00 in early trade on Wednesday on the JSE, down from a peak of R144 just less than a year ago (April).

Read: EOH set for massive shakeup including new company name

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EOH reports big drop in headline earnings citing ‘unfounded media coverage’