EOH fined the max for false financials


EOH fined the max for false financials

Published Date: 2020-07-30 | Source: Stephen Gunnion | Author: Stephen Gunnion

EOH fined the max for false financials

The JSE blamed a lack of governance and oversight mechanisms, inadequate and ineffective controls and systems on previous management.

EOH Holdings has been fined R7.5 million by the JSE for publishing "incorrect, false and misleading" financial statements that may have compromised investors. The JSE said R2.5 million of the maximum fine it could impose would be suspended if the company wasn't in breach of material and important provision of the exchange's listing requirements for the next five years.

The censure came after the IT group was forced to restate its 2018 results, as well as its opening balances for 2017 and interim numbers for 2019, due to irregularities and fraudulent contracts, premature revenue recognition and a number of other factors. The exchange blamed this on a lack of governance and oversight mechanisms, inadequate and ineffective controls and systems in prior financial periods under its previous executive management team.

CEO Stephen van Coller, who took over in 2018, has led a drive to restore the group's reputation, including a review of its financial reporting process. Last year, a forensic report by law firm ENSafrica uncovered suspicious transactions worth R1.2 billion. These include unsubstantiated payments, tender irregularities and other unethical business deals in public sector business run from the group's head office and involving its EOH Mthombo subsidiary and a limited number of head office employees.

The company said it remained committed to pursuing legal action against the main perpetrators identified during the ENSafrica investigation and to try to recover losses caused by them.

In a separate pre-close update, EOH said the performance of its core iOCO business had remained relatively resilient despite the weaker macroeconomic environment created by Covid-19. While revenue had softened as a result of the lockdown, costs controls would result in a meaningful improvement in earnings before interest, tax, depreciation and amortisation (EBITDA) from the first half to the second half of its financial year.

The group had also repaid lenders R542 million since announcing a R1.6 billion deleverage plan in May last year, which it said would result in materially lower and more manageable financing costs going forward.

The company expects to release its results for the year to end-July on 17 November.

After declining 4% in early trade following the announcement of the JSE fine, its shares turned around to close 13% higher at R5.58.

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