EOH plunges as revenue and profit decline

EOH shares crashed almost 6% on Wednesday after the technology company said it would report more losses for the half-year to end-January 2024. 

“As reported at the 2023 financial year-end, EOH experienced a challenging second half. This trend continued through the first three months of 2024. Despite an improvement in trading and tendering activity in the second three-month period, the challenging environment has led to a reduction in revenue,” the group said in a trading update. 

In a previous trading update, issued in January, EOH said it expected an improved performance in its second quarter while it navigates a challenging economic environment that has affected IT budgets and investment planning.

The group said its core digital enablement business, including the international segment, has experienced seen good revenue growth. However, “this has been offset by reductions in other areas,” particularly in the operational technologies division, which has been affected by delays in closing public sector contracts and contracting delays with large mining customers.

The group — valued at about R727.42m on the JSE — said revenue from continuing operations increased between 5% and 7% from the prior comparable period. However, revenue declined between 2% and 4% overall at group level for the period. 

Adjusted earnings before interest, tax, depreciation and amortisation is forecast at between R90m and R105m, compared with R171m in the previous corresponding period.

EOH generated an operating profit of between R5m and R15m, down from R142m previously, while the headline loss per share is expected to improve to between 10c and 12c compared with the previous loss of 17c.

By 1.45pm, the shares were down 5.79% at R1.14. 

“One of the major challenges facing the SA IT industry is finding and retaining appropriately skilled talent. Accordingly, despite the impact on gross margins and overall profitability, EOH took the decision to retain highly skilled staff that were not fully productive, in anticipation of improved trading,” the group said in the statement.

Management believes this is the correct medium-term approach to deal with an anticipated increase in activity “appropriately.”

Still, as part of efforts to streamline, the group is looking to cut at least R50m in costs from its operations. 

The group ended the period with a net cash balance of R300m, up from R198m in the prior comparable period.

The latest update comes just weeks after the group announced that chair Andrew Mthembu will take over the running of the technology firm from the start of April as CEO Stephen van Coller retires at the end of March. 

EOH’s management has been salvaging the company’s reputation after allegations of malpractice and tender irregularities under the previous leadership, while also dealing with a mountain of debt accumulated during that period when it focused on acquisitions to expand the business.

With much of the turnaround in place, EOH is hunting for a new CEO to replace Van Coller, who had extended his five-year contract by six months. 

By market close the share had recovered some of its earlier losses, ending down 1.65% at R1.19.

gavazam@businesslive.co.za