Cost-cutting measures are bearing fruit, says EOH
EOH on Thursday closed at its lowest levels on the JSE since September 2009 even as the company said its cost-saving efforts were starting to bear fruit.
The technology group, whose share price has fallen almost 95% since the beginning of 2017, said on Thursday it has made progress in cutting costs in its six months to end-January as it seeks to balance its books in the wake of a corporate governance scandal.
In a pre-close update the group said it has implemented a better cash management system, saving money through the exit of 19 rental contracts. It is still, however, facing one-off costs relating to investigations into prior dealings with the state, but said these “continue to taper off”.
“For the six-month period the group expects the overall business to have a positive operational cash trajectory, before one-off costs, as the business starts turning,” it said.
Due to the corporate governance issues the group has lost lucrative contracts, including that with Microsoft, and has been selling off assets. It said in December it had exceeded its R1bn disposal target for the 2019 calendar year.
As part of cleanup efforts, Van Coller has said EOH Mthombo, the business unit implicated in the fraud and which was primarily responsible for securing public-sector contracts, would be closed.
EOH Mthombo accounts for 18% of the company’s nearly R12bn revenue. As of its year to end-July, the company had gross debt of about R3.17bn, roughly equivalent to its market capitalisation at the time.
The company, now worth R1.53bn, has said it is closing down the Mthombo unit.
In February, it hired law firm ENSafrica (ENS) to review all its large, historical licensing contracts with the state. It has since instructed ENS to begin legal proceedings against alleged perpetrators implicated during the probe.
The share price of EOH, which expects to release its interim results on April 7, ended the day 1.81% lower at R8.69, having lost almost 60% in 2019.