EOH shares dive as it warns of massive losses
Last year, the group reported earnings per share from continuing operations of 202c. A loss of 2073c was reported in the six months to the end of January.
EOH said its results were impacted by the accounting, or IFRS, classification of certain businesses as either continuing or discontinued operations, including assets held for sale. The impairment and the accounting classification were the subject of ongoing discussions with the group’s external auditors, it said.
The group said the figures did not include the potential impact of the findings of the ENSafrica forensic investigation into suspicious transactions that predated the existing EOH management team.
The law firm’s interim report released in July uncovered “suspicious transactions” worth R1.2 billion and tender irregularities.
EOH said on Wednesday that it continued to focus on building a “more appropriate capital structure” and had already realised more than R400 million of cash from its debtors’ book and R566m from the sale of assets between February 1 and July 31. This enabled a settlement of the outstanding R250m bridge loan facility and a payment of about R455m into existing banking facilities at year-end, it said.
EOH expected to report a headline loss per share of at least 1800c, compared with headline earnings per share of 278c last year. In its half-year results, a headline loss per share of 973c was reported. It had about R1.35 billion in cash at the end of July.
Jordan Weir, a trader at Citadel, said the loss had come as quite a surprise to the market.
“The potential extent of the loss a share over the last financial period starts to point towards a more fundamentally dire situation within EOH. Although the general investor knows EOH has been trying to carve a new way forward, given the investigations into potentially corrupt historical transactions, the weight of losing client confidence and trust may now start to take effect more materially, should such bitter-tasting announcements continue to be released,” Weir said.
Weir said the October 15 release of the financial results might provide investors with a more certain idea of “where to next” for EOH, given that the legal team investigating the potentially questionable transactions might provide more transparent insight into the company’s past. Until then, not much action should be expected from the share price, he added.
The group said it remained under sales and margin pressure as a result of recent governance issues, as well as the slow-down in the economy. However, good progress had been made on key strategic initiatives. “The benefit of these initiatives will only be seen in the next financial year,” it said.
The firm said it would provide more clarity at the release of the 2019 financial year results “on or about October 15”.
The share fell as low as R10.97 after the trading update was released, before closing at R12.60.