No end to Van Coller’s EOH problems

EOH boss Stephen van Coller’s job is not getting any easier.

The embattled technology group, which has been struggling with corporate governance issues that cost it a major contract with US software company Microsoft earlier in 2019, said on Wednesday it would swing into a full-year loss, emphasising the uphill battle it faces as it tries to turn its fortunes around.

The group, which is under a new management team led by Van Coller, who previously held executive positions at Absa and MTN, also recently appointed Xolani Mkhwanazi as chair at EOH. Mkhwanazi was chair at BHP previously.

Van Coller has been leading the probe into EOH’s past contracts with the state since he took up the top job in September 2018.

EOH, whose share price has lost almost two thirds of its value in 2019, said on Wednesday that a tough operating environment and governance concerns had nudged it into a loss in the year to end-July.

The company was expecting a headline loss per share of 973c from continuing operations, from the period’s profit of 278c per share.

The figure did not include the potential effect of the findings of the ENSafrica forensic investigation, which predates current management, EOH said.

Clarity on this is expected in its results.

Avior Capital Markets analyst Ruhan du Plessis said EOH “definitely has some room in the short term to manage its liquidity”.

In the first half of the 2019 financial year, the company had R3bn debt, having so far paid off about R700m with another R1bn cash on hand, together with further proceeds from disposals. Du Plessis said that the group’s second largest shareholder Lebashe may potentially contribute another R250m to EOH.

EOH’s share price slumped as much as 13.62% to R10.97 in morning trade following the update. However, at 1.45pm, EOH had pared losses and was 0.79% lower at R12.60.

Unum Capital trading desk analyst Lester Davids said: “Judging by the initial share price reaction, the market may have been expecting a smaller loss.” However, the recovery through the day may be reflective of the market digesting the news, he said.

EOH’s share price fell 35.8% in March, when Microsoft terminated its contract with it.

Even Van Coller’s appointment as CEO has done little to arrest the downward spiral in EOH’s shares. In fact, its share price has fallen 66% since he took over.

EOH hired ENSafrica to review previous technology

contracts with the state, saying in July that it had uncovered suspicious transactions worth R1.2bn.

Among other things, ENSafrica found tender irregularities and “other unethical business practices”, including bribery and theft, mainly within the public sector business operated by EOH Mthombo, implicating a small group of employees.

EOH has said it expected to release its results on October 15.

“One has to give the new management credit in attempting to clean up the group from a reputational perspective,” Davids said.

Initiatives to regain the confidence of th e market, such as appointing a chief risk officer, other leadership changes as well as updates on the investigations, would help change negative perceptions, he said.

IN THE FIRST HALF OF THE 2019 FINANCIAL YEAR, THE COMPANY HAD R3BN DEBT, HAVING SO FAR PAID OFF ABOUT R700M