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Dodgy tenders dog EOH’s progress

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EOH’s group CEO Stephen van Coller.
EOH’s group CEO Stephen van Coller.

Suspect transactions took centre stage as JSE-listed IT services firm EOH today announced audited financial statements for the year ended 31 July.

EOH’s group CEO Stephen van Coller says he is “immensely pleased with the significant progress made by the EOH Group during the current financial year”. However, the company says it faces uncertainty regarding historical taxes that may be due as a result of the impact of the fraudulent transactions identified in the forensic investigation performed by ENS during the 2019 financial year, at EOH’s request.

In its results, EOH’s total headline loss per share decreased by 72% from 1 751c per share to 495c per share.

The company says operating cash flow generated was R706 million (H1:2020 R31 million and H2:2020 R675 million).

Gross debt is down 20% year-on-year to R2.6 billion, EOH notes, adding that further significant progress was made on deleveraging post-year-end with an additional R410 million being paid.

During the period, EOH posted revenue of R11.2 billion while for the year-ended 31 July 2019, it was R14.9 billion.

“We have managed to position ourselves for growth and largely deal with our legacy issues, all while successfully steering the group safely through unprecedented global market conditions,” says Van Coller.

“While the economic recovery is uncertain, the path is now clearly set for EOH to capitalise on future growth prospects which can be accelerated given the new normal is premised on an enhanced global digital reality,” he adds.

Litigation worries

Nonetheless, EOH and its subsidiaries are involved in various litigation matters arising in the ordinary course of business, “none of which are considered material on an individual basis or in aggregate,” says the company.

According to EOH, an assessment was undertaken in relation to contracts flagged by ENS as being associated with suspicious activities, for purposes of determining the likelihood of a claim/s being raised against EOH in relation to the contracts in question.

It points out that the total contingent exposure identified in consequence of the results of that assessment is R84.2 million.

EOH notes there are disputes with the SAP implementation contract with the Amathole District Municipality as to deliverables and sums payable to EOH under this contract. However, EOH maintains it has performed substantially on the contract.

In the event of a successful challenge to the validity of the contract, EOH would be entitled to just and equitable relief and would never be exposed for the full value of the contract, says the company.

EOH is also facing challenges with its contract with the Universal Service and Access Agency of South Africa (USAASA), again on an SAP implementation tender.

National Treasury is investigating this contract; however, the scope of the investigation is unknown to EOH, says the company, adding there is a risk there may be a finding of impropriety in the contract.

“This contract came to a natural conclusion at the end of 2017, with EOH having performed and with no claims or complaints having arisen since. Any claims to be raised will have probably prescribed. In the event of a successful challenge to the validity of this contract, EOH, having performed under the contract, would be entitled to motivate a just and equitable remedy.

“It would be unlikely and certainly contrary to the principles of just and equitable relief, that EOH would have to ‘refund’ USAASA,” it says.

EOH is also facing uncertainties with the Department of Water and Sanitation (DWS) in a contract dubbed Project Muratho SAP Upgrade.

According to EOH, this contract came to its natural conclusion in October 2015 with EOH having performed thereunder and with no claims or complaints being instituted against it.

It points out it is unlikely any attempt to set aside this contract would succeed due to excessive delay. In the event of a successful challenge to the validity of this contract, EOH having performed under the contract would be entitled to motivate a just and equitable remedy and would not be expected to “refund” DWS, it notes.

More woes

The other challenge is with the City of Johannesburg’s SAP Licence Sale contract. EOH points out the contract came to conclusion with EOH having performed its obligations in 2015 with no claims subsequently arising.

“Any claims will, in all likelihood, have prescribed. In the event of a successful challenge to the validity of this contract, EOH having performed under the contract would be entitled to motivate a just and equitable remedy.”

At the Department of Home Affairs (DHA), red flags have been raised about the Automated Biometric Identification System (ABIS) tender.

Last month, ITWeb reported the DHA had moved to salvage the controversial multimillion-rand ABIS tender and slapped the technology services firm with a R44 million penalty over delays in the implementation of the project.

Nonetheless, EOH says there are currently no disputes relating to the value received; however, there are current disputes relating to contractual interpretation and entitlement derived under the contract terms, as amended, with EOH claiming R53 million excluding VAT and DHA claiming R44 million.

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