EOH’s share price fell nearly 8% after it posted yesterday that it expected a loss in its upcoming annual results amid a high inflation environment with muted spending by the South African public sector on technology.
The shares fell to a low of R1.48. They have declined by 63.22% in the past year.
In its trading statement for the financial year ended July 31, 2023, the group said its headline loss per share was expected to broaden to between 72.7% and 109.1% to 19c-23c on total operations. Continuing operations would improve to 53%-62% to 17c-21c.
Total loss per share from continuing and discontinued operations increased to between 12c and 14c, compared to 9c in the prior corresponding reporting period.
EOH reported that the 2023 financial year was characterised by an increasingly difficult trading environment with the effects of high inflation and the South African Reserve Bank’s response to continued interest rate increases starting to have significant negative impacts on corporate strategy, spending and cash management.
“This is complicated by the ongoing disruption of the Russia-Ukraine war, the greylisting of South Africa earlier this year and the impacts thereof, combined with South Africa’s persistent low growth and high unemployment rate.
“Compounding the effects of the above, the public sector’s and state-owned enterprises’ investment in technology remain significantly constrained,” it said.
Despite this, the group said it would report an increase in revenue from continuing operations of between 2% and 4% and an increase in operating profit from continuing operations to between R120 million and R150m, from the R100m reported in the 2022 financial year.
“This includes the IFRS 2 (International Financial Reporting Standards) charge of around R49m and a significant net provision of R28m mainly against the Tech Leasing legacy assets that have not improved post-Covid.
“After taking this into consideration, the operating profit has increased by at least 100% since the prior year,” the group said.
EOH reported that the Digital Enablement business had performed well under the difficult trading environment and recorded an increase in revenues for the year.
“The International businesses continued the good growth trends experienced in the first half of the financial year with buoyant demand for our services from mid-tier European and Middle East corporates,” it said.
According to EOH, the Infrastructure Services business benefited from a rebound in hardware sales to existing clients as well as a healthy new client growth. However, the challenges in the Enterprise Application and Software business continued in the second half of the year, with sales and margins coming under pressure.
“The Operational Technology business, within the Industrial Technology business, managed to grow revenues for the year despite the significant slowdown in public sector technology spending.
“This was achieved due to good performances in the mesh networking business, specifically in the mining sector and in our power business, which does commercial-grade distribution boards, as well as the investments in East and West Africa on the back of our exclusive AVEVA partnership showing promising returns,” it said.
The NEXTEC Consulting and Infrastructure businesses continued to be a focus of strategic realignment and restructuring to return to profitability. These businesses account for approximately 12% of group revenue, EOH said.
“The EasyHQ business saw a reduction in revenues as it exited non-profitable contracts. However, this resulted in an improvement in profitability. The people resources businesses in NEXTEC have largely completed the turnarounds and are well positioned to grow revenue and customers in 2024, alongside a rebrand to EasyHQ,” it said.
EOH said that during the second half of the year it successfully strengthened its capital structure through the R500m rights offer and the R100m specific issue to Lebashe Investment Group.
“The proceeds were used to reduce the group’s debt levels which, on an annualised basis, will lead to a significant reduction in interest expense. This will allow the group to invest for growth, as well as afford greater flexibility in managing the business and its cash flows.
“The Lebashe Investment Group-specific issue has a R49 million non-cashflow IFRS2 negative effect on the current year annual accounts due to the discount of the rights offer to the share price,” it said.
EOH expects to publish its results for the 2023 financial year on or about October 18.