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EOH fined R7.5m for falsifying previous financial results

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EOH CEO Stephen van Coller.
EOH CEO Stephen van Coller.

Troubled JSE-listed technology services firm EOH has acknowledged publishing false information in its 2017 and 2018 financial results.

EOH this morning issued a statement to shareholders saying the JSE has censured the company.

It says the previously published financial information for the periods 2017 to 2018 did not comply with International Financial Reporting Standards (IFRS) and was incorrect, false and misleading in material aspects, and this incorrect information was disseminated to shareholders, the JSE and the investing public.

In these circumstances, the JSE found that EOH failed to comply with section 8.62(b) of the JSE Listings Requirements in that it failed to comply with IFRS in respect of the annual financial statements for the 2017 and 2018 financial periods.

EOH says it assisted the JSE in its investigation and admitted its failure to comply with these provisions of the listings requirements.

For these reasons and with reference to the JSE’s findings of breach, the JSE has decided to impose a public censure and the maximum fine of R7.5 million on EOH as a result of its failure to comply with important provisions of the listings requirements.

The news comes a day after Anushka Bogdanov, lead independent non-executive director of EOH and chairperson of the Social and Ethics Committee, resigned from the EOH board of directors.

Suitable punishment

The JSE considered all the relevant facts and information at its disposal in deciding on an appropriate censure and financial penalty as a result of EOH’s transgressions of the listing requirements, which include EOH’s internal review that uncovered the irregular accounting and other practices, its full cooperation and assistance in the JSE’s investigation, the current economic climate, the remedial actions undertaken by the board and the interests of shareholders, the JSE and the investing public, says EOH.

In these circumstances, it adds, the JSE has decided to suspend R2.5 million of the fine for a period of five years, on condition that EOH is not found to be in breach of material and important provisions of the Listings Requirements during the period of suspension.

This is not the first time EOH has found itself in hot water. EOH’s problems surfaced after Microsoft in February last year terminated its contract with the IT services company after an anonymous whistle-blower filed a complaint with the United States Securities and Exchange Commission about alleged malfeasance to do with a R120 million contract with the SA Department of Defence.

This led to a forensic investigation by ENSafrica revealing R1.2 billion of suspicious transactions.

Since then, the company, led by CEO Stephen van Coller, has tried to rebuild its battered image.

In a separate statement to the media, EOH says in the annual report for the 2019 financial year, EOH disclosed the historical accounting issues and discrepancies the new management team uncovered, which included various transactions that spanned various accounting topics, including revenue recognition, asset capitalisation and subsequent recovery, the timing of the recognition of liabilities and the recognition of impairment losses.

False and misleading

It notes the primary focus for the 2019 reporting period was on ensuring the closing balance sheet provided a credible basis upon which investors and shareholders could make decisions.

“Although EOH is disappointed to have received a public censure and fine from the JSE, the group accepts the JSE’s finding that the FY2017 financial results and the FY2018 financial results did not comply with IFRS, were incorrectly prepared and as a result incorrect, false and misleading information was disseminated to shareholders in respect of the FY2017 financial results and the FY2018 financial results,” says the company.

“This is in line with the group’s own findings following its own internal review of the financial periods approved by the previous management team and vindicates the actions taken in restating the FY2018 financial results.”

It adds the EOH board is pleased the JSE has agreed to suspend a portion of the fine and allocate the balance to potential future costs.

“EOH has worked tirelessly to address the inherited legacy issues and ensure EOH is once again a respected name in the South African ICT sector. EOH remains committed to pursuing legal action against the main perpetrators identified during the ENSafrica forensic investigation and to try to recover losses caused by the main perpetrators of wrongdoing,” the company says.

Megan Pydigadu, EOH Group CFO, says: “The current management team and board of directors have spent a significant amount of time rebuilding EOH’s credibility through the establishment of a robust governance framework, driving transparency in the business and ensuring the accuracy and reliability of the financial information disclosed to the market, whilst continuing to resolve the remaining inherited legacy issues.

“The EOH management team remains committed to transparency and the timeous dissemination of relevant and accurate information to all stakeholders.”

The fine imposed against EOH will be appropriated in settlement of any future costs incurred by the JSE which may arise through the enforcement of the provisions of the Listings Requirements as contemplated in section 11(4) of the Financial Markets Act, 19 of 2012 read with section 1.25 of the listings requirements, which may include the investigation into the conduct of individuals that presided at the company during the periods in question and who are bound by the listings requirements.

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