EOH slumps as public-sector earnings fall

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EOH slumps as public-sector earnings fall

Published Date: 2018-03-15 | Source: Stephen Gunnion | Author: Stephen Gunnion

EOH slumps as public-sector earnings fall

The business outsourcing group has missed the mark with its first-half earnings forecast, sending its shares as much as 17% lower yesterday

Shares in EOH fell as much as 24% yesterday after it warned of a sharp fall in first-half earnings, largely due to lower profitability in public sector work.

The IT and business outsourcing group said revenue for the six months ended January was likely to be 16% higher at around R8.4 billion, indicating increased market share. However, earnings before interest, tax, depreciation and amortisation (EBITDA) from continuing operations would be 5% to 10% lower at between R980 million and R1.04 billion. Headline earnings per share on the same basis would show a decline of between 20% and 25%. Earnings per share excluding the R399 million it netted from the disposal of businesses earlier this year would be 85%-90% lower than a year earlier.

"Despite the challenging general market conditions during this period, most areas of the business coped well," the company said in a statement. "However certain areas in the business, particularly those operating in the public sector, have under-performed and did not timeously adjust their cost base."

The company warned in January that the decision to unwind its acquisition of Grid Control Technologies, Forensic Data Analysts and Investigative Software Solutions to former owners CGT Group would lead to a once-off earnings reduction. While the groups hadn't met their performance warranties, EOH said at the time that negative media around Keith Keating, a director of all three companies, had forced it to expedite the unwinding and conclusion of the sell-back agreement. Daily Maverick reported that Keating was implicated in alleged procurement irregularities in the South African Information and Technology Agency and South African Police Service amounting to about R6.1 billion.

EOH said in view of the challenges during the period, it adopted a deliberate client retention strategy while sacrificing some margin. It said it expected improved market conditions and increased business confident to result in a better performance in the second half of its financial year. Earlier this week, it announced a restructuring of its business into two independent businesses, which it said would benefit all stakeholders. It also announced the introduction of a new black empowerment partner.

Its shares ended trade 21% lower at R59.50.



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