EOH losses widen as it details method of corruption

Technology company EOH said on Tuesday (15 October) that losses widened for the year ended July 2019 as it comes to terms with the findings of an ongoing forensic investigation into corruption at the group.

“The past 12 months have been very difficult for EOH. We have spent extensive time focusing on cleaning up the business both from a governance and financial perspective as well as understanding the group’s strategic capabilities,” said chief executive officer, Stephen van Coller.

Revenue declined 2.6% to R11.79 billion, while the group reported a headline loss per share and loss per share from continuing operations of 1 352 cents (2018: 728 cents) and 2 464 cents (2018: 1 277 cents), respectively.

Normalised EBITDA for the period amounted R792 million.

EOH said that the ongoing weakness in the macroeconomic environment, an investigation and the reputational impact of Microsoft cancelling its licence reseller agreement as well as the delay in infrastructure projects in the NEXTEC business has led to depressed revenues and margin pressure for the 2019 financial year.

EOH said it has also undergone a reassessment of its strategy which led to certain businesses being classified as discontinued operations and assets held for sale.

An investigation was conducted into the group earlier this year after software and technology group Microsoft terminated longstanding partner agreements with EOH. This, after a contract worth R120 million – awarded to subsidiary EOH Mthombo by the Department of Defence – was questioned.

The forensic report by law firm ENSafrica flagged suspicious transaction to the value of R1.2 billion.

“The ENSafrica team has made significant progress on the investigation. They have completed almost 80% of their investigation into the R1.2 billion identified suspect payments.

“This amount has since been modified to R935 million and includes transactions with no evidence of valid contracts being in place or where no work was done, valued at R665 million; R90 million of loans written off, and overbilling valued at approximately R180 million,” EOH said.

EOH said that the ENSafrica investigation team confirmed the key modus operandi that was utilised by the main perpetrators to commit wrongdoing which involved enterprise development (ED) partners and intermediaries.

“EOH has suspended payments to and blacklisted 50 ED business partners implicated in suspect payments,” said van Coller.

“Some of these ED partners have initiated legal challenges against the company, however EOH is committed to ensuring that all perpetrators of wrongdoing are held accountable for their actions. EOH is accordingly robustly opposing legal challenges brought by such parties,” the chief executive said.

“The further investigation has confirmed that the main perpetrators of wrongdoing remain confined primarily to a small group of individuals in the public sector team.

“Apart from this type of wrongdoing, the investigation has also identified various opportunistic incidents of fraud and theft to the prejudice of EOH.

“This has resulted in the company initiating disciplinary measures which has led to the termination of employment relationships with a number of individuals.”

EOH said it is actively pursuing criminal charges as a complainant against various individuals implicated in wrongdoing.

The group said it is ‘encouraged’ by the active support that it has received to date from its clients, technology partners and employees to help build the EOH of the future.

“While there is much still to do, the path is much clearer. In the short term we will focus on continuing to deleverage our balance sheet while implementing governance changes and over the longer term we remain steadfast in a vision of a more synergised and focused offering that is well positioned to take advantage of the next wave of change in the ICT industry.” van Coller said.

Read: EOH chief exec clears the air on corruption report and resignations 

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EOH losses widen as it details method of corruption