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EOH shares are being battered after it emerged that Microsoft is ending EOH's Channel partner agreement. And this for a stock that was already under pressure due to some of their directors being linked to companies with shady dealings. Not good for the company and its share price.
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16 July 2019: EOH finds irregularities on large scale, So Microsoft was right to cancel agreement with the group
EOH released a SENS today updating investors on the investigations into irregularities at the group. The share price is currently trading at R19.78 (down 5.2% for the day). Below the SENS released earlier today.
UPDATE ON THE EOH INVESTIGATIONS, INCLUDING WEBCAST INVITE AND FURTHER CAUTIONARY ANNOUNCEMENT
Shareholders are referred to the initial cautionary announcement released on SENS on 19 February 2019 and the further cautionary announcements released on 3 April 2019, 21 May 2019 and 3 July 2019, respectively. Following submission of a forensic report and its recommendations to the board of directors of EOH (the "Board"), the Board has assessed the findings of the ENSafrica report ("ENS Report") and has prepared an interim update on the forensic investigation ("Interim Update"). The Interim Update is available on the Company's website at https://www.eoh.co.za/media-room/ and a webcast will be hosted by the Company at 09h00 on Tuesday, 16 July 2019.
Interested parties are requested to register their attendance at http://themediaframe.eu/links/eoh190606.html. To date, the ENSafrica investigation has found evidence of a number of governance failings and wrongdoing at EOH, including unsubstantiated payments, tender irregularities and other unethical business practices which are primarily limited to the public sector business centralised in EOH Mthombo (Pty) Ltd and to a limited number of EOH employees.
Suspicious transactions of R1.2 billion have been identified and are being investigated by ENSafrica. The exact nature of each of these transactions has not as yet been verified and may relate to legitimate transactions, theft or bribery and corruption payments. ENSafrica will provide the Company with bi-monthly updates which will in turn inform areas for further investigation and remedial work. EOH will continue to assess the financial impact of the findings. Accordingly, shareholders are advised to continue to exercise caution when dealing in the Company's securities until a further announcement is made.
16 July 2019
UPDATE ON THE EOH INVESTIGATIONS, INCLUDING WEBCAST INVITE AND FURTHER CAUTIONARY ANNOUNCEMENT
Shareholders are referred to the initial cautionary announcement released on SENS on 19 February 2019 and the further cautionary announcements released on 3 April 2019, 21 May 2019 and 3 July 2019, respectively. Following submission of a forensic report and its recommendations to the board of directors of EOH (the "Board"), the Board has assessed the findings of the ENSafrica report ("ENS Report") and has prepared an interim update on the forensic investigation ("Interim Update"). The Interim Update is available on the Company's website at https://www.eoh.co.za/media-room/ and a webcast will be hosted by the Company at 09h00 on Tuesday, 16 July 2019.
Interested parties are requested to register their attendance at http://themediaframe.eu/links/eoh190606.html. To date, the ENSafrica investigation has found evidence of a number of governance failings and wrongdoing at EOH, including unsubstantiated payments, tender irregularities and other unethical business practices which are primarily limited to the public sector business centralised in EOH Mthombo (Pty) Ltd and to a limited number of EOH employees.
Suspicious transactions of R1.2 billion have been identified and are being investigated by ENSafrica. The exact nature of each of these transactions has not as yet been verified and may relate to legitimate transactions, theft or bribery and corruption payments. ENSafrica will provide the Company with bi-monthly updates which will in turn inform areas for further investigation and remedial work. EOH will continue to assess the financial impact of the findings. Accordingly, shareholders are advised to continue to exercise caution when dealing in the Company's securities until a further announcement is made.
16 July 2019
15 April 2019: EOH shares before its results announcement
The report below from Moneyweb, shows that EOH shares skyrocketed in anticipation of their results. Does investors think the worst is over or is this a dead cat bounce.
Start of Moneyweb article
Shares in EOH Holdings soared nearly 20% on Monday, ahead of interim results on Tuesday, as investors began taking the view that the worst may be over for the battered JSE-listed technology services group. The shares were up 18.4% at 1.30pm in Johannesburg following a trading update published last week in which EOH warned that its earnings would plummet on the back of major impairments.
Its shares touched a near-decade low of R9 — an intraday loss of 19.8% — after the update was released on Friday, but they have since rallied strongly as investors warmed to CEO Stephen van Coller’s efforts to clean up the company. EOH said it would post a headline loss of R9.93/share for the six months ended 31 January 2019. However, revenue would remain stable at R8.4-billion and operating costs would remain roughly unchanged (after the exclusion of the impairments and other one-off items).
Normalised earnings before interest, tax, depreciation and amortisation would be R387-million. EOH’s share price has fallen spectacularly this year, in part after TechCentral revealed in March that Microsoft had terminated its channel partner agreements with the company over possible malfeasance involving a department of defence contract.
The company said on Friday that interim earnings — a loss of R20.99/share — would be impacted by, among other things, impairments to goodwill, intangible assets and equity-accounted investments of R10.92/share. EOH emphasised that its net asset value — “notwithstanding the non-cash-flow items” — was R4.6 billion, including cash of R957-million, at the end of January 2019. This was “substantially above” the group’s market capitalisation, it said.
End article from Moneyweb
The image below, also from Moneyweb, shows the share price performance for EOH for today. And its clear investors think that the worst is over for the company that has been hit by one scandal and problem one after the other.
Start of Moneyweb article
Shares in EOH Holdings soared nearly 20% on Monday, ahead of interim results on Tuesday, as investors began taking the view that the worst may be over for the battered JSE-listed technology services group. The shares were up 18.4% at 1.30pm in Johannesburg following a trading update published last week in which EOH warned that its earnings would plummet on the back of major impairments.
Its shares touched a near-decade low of R9 — an intraday loss of 19.8% — after the update was released on Friday, but they have since rallied strongly as investors warmed to CEO Stephen van Coller’s efforts to clean up the company. EOH said it would post a headline loss of R9.93/share for the six months ended 31 January 2019. However, revenue would remain stable at R8.4-billion and operating costs would remain roughly unchanged (after the exclusion of the impairments and other one-off items).
Normalised earnings before interest, tax, depreciation and amortisation would be R387-million. EOH’s share price has fallen spectacularly this year, in part after TechCentral revealed in March that Microsoft had terminated its channel partner agreements with the company over possible malfeasance involving a department of defence contract.
The company said on Friday that interim earnings — a loss of R20.99/share — would be impacted by, among other things, impairments to goodwill, intangible assets and equity-accounted investments of R10.92/share. EOH emphasised that its net asset value — “notwithstanding the non-cash-flow items” — was R4.6 billion, including cash of R957-million, at the end of January 2019. This was “substantially above” the group’s market capitalisation, it said.
End article from Moneyweb
The image below, also from Moneyweb, shows the share price performance for EOH for today. And its clear investors think that the worst is over for the company that has been hit by one scandal and problem one after the other.
Even with the share price surge today, the stock is still down -22.8% from the price it was at when the first article regarding EOH and its Microsoft channel license issues hit the market. Investors be careful, this bounce in EOH shares might just be a classic dead cat bounce.
25 March 2019: Latest update
In a further development in the EOH/ Microsoft Channel agreement, below the latest sens released by EOH
SENS starts
Shareholders are referred to the SENS announcements released on 12 February 2019 and 18 February 2019, as well as the cautionary announcement released on 19 February 2019 and are hereby advised as to further developments relating to EOH'S Microsoft contractual relationships. Following expiry of the 30-day notice period relating to the termination of the Microsoft Channel Partner Agreement ("the Channel Partner Agreement") with EOH Mthombo, as detailed in previous announcements, the termination has become effective and EOH is no longer a reseller of Microsoft software licences. Acceptable arrangements with a pre-existing Microsoft Channel Partner, independent of the Group, have been secured. Further to this, on 12 March 2019, a number of EOH group companies received a 30-day notice period of Microsoft Ireland's intention to terminate the Microsoft Partner Network Agreement ("the Partner Network Agreement"), without providing reasons for the termination. While we understand the need for Microsoft to interrogate and finalise their own investigations, we are disappointed at the unilateral manner in which Microsoft has terminated the relationship prior to giving consideration to the impact on South African corporates. Further meetings and correspondence between EOH senior executives and local Microsoft leadership are ongoing to discuss the impact of these terminations and to seek a responsible solution that would limit the impact on all affected customers. EOH have provided a number of suggestions to Microsoft for consideration. We await their feedback.
During these engagements, Microsoft's local office advised EOH that they had initiated their own investigations into contracts involving Microsoft and Government which may take 6 to 12 months to conclude. They advised they would not be able to enter into any discussions regarding re-instatement of the partnership until they had concluded their investigations. Impact While the immediate short-term impact can be managed, EOH is assessing and discussing various alternatives to ensure the long-term continuity of service to all customers and to maximise value for shareholders. EOH is confident that this can be achieved. As previously disclosed, the Channel Partner Agreement (as software licence re-seller division) is not material to EOH and reported a total profit before tax of approximately R10 million during the last financial year.
The impact of the latest notices is still being assessed, but early indications are that:
- Our Microsoft related bespoke application development, its largest business, will be predominantly unimpacted.
- Any long-term impact on the IP businesses, including the core IP that has been developed for re-sale utilising Microsoft technologies, can be mitigated through migration to other cloud providers.
- Our CRM (Dynamics 365) and Productivity Solutions business will be impacted in terms of access to partner support portals.
- Our Microsoft-related managed services business and clients will experience no impact as these services are provided on client infrastructure and platforms.
- Our Cloud business and platform business and the re-sale of Azure cloud offerings will be impacted in the short-term and EOH is in discussions to find a solution to ensure continuity of service and revenue streams.
While EOH's assessed impact of the latest notification on profit before tax is estimated at less than R20 million during the current financial year, this will bring the total impact of Microsoft exposure to R30 million profit before tax. Moreover, there is an overall medium to long-term go-to-market and credential impact and risk in not retaining Microsoft Gold Partner status. EOH apologises for any uncertainty and inconvenience caused and will continue to use our best endeavours to ensure there are no outages or disruptions to any client services as a result of the terminations.
Governance
Various investigations are progressing to determine any wrongdoing on the part of EOH, its customers, its partners or its employees. To date we have migrated the legacy public sector business under a new structure and employees implicated in wrong doing have either been suspended or have resigned. We are committed to concluding the reviews as quickly as possible and have a team of people under the auspices of ENSafrica dedicated to this. We have also implemented a new framework under which all public sector transactions and related Enterprise Development Partners are reviewed, screened and independently vetted by ENSafrica.
Furthermore, a sub-committee of the board comprising independent non-executive directors and the CEO has been formed to evaluate the findings and determine the most appropriate manner in which to act. We will engage with any affected entities and authorities to ensure appropriate accountability as required. We have filed a section 34 report in terms of the Prevention and Combatting of Corrupt Activities Act.
EOH wishes to reaffirm its commitment to ethical leadership and robust and transparent governance practices. EOH has a zero-tolerance approach to unethical or fraudulent business practices and is committed to addressing any such activities in a responsible and effective manner. We remain engaged with customers and other partners and will communicate with the market again as soon as we have further information. Stakeholders are invited to send any queries to ir@eoh.co.za.
SENS ends
So what did the market think about the latest SENS announcement from EOH? The screenshot taken from Sharenet shows that the market did not like the latest SENS announcement at all.
SENS starts
Shareholders are referred to the SENS announcements released on 12 February 2019 and 18 February 2019, as well as the cautionary announcement released on 19 February 2019 and are hereby advised as to further developments relating to EOH'S Microsoft contractual relationships. Following expiry of the 30-day notice period relating to the termination of the Microsoft Channel Partner Agreement ("the Channel Partner Agreement") with EOH Mthombo, as detailed in previous announcements, the termination has become effective and EOH is no longer a reseller of Microsoft software licences. Acceptable arrangements with a pre-existing Microsoft Channel Partner, independent of the Group, have been secured. Further to this, on 12 March 2019, a number of EOH group companies received a 30-day notice period of Microsoft Ireland's intention to terminate the Microsoft Partner Network Agreement ("the Partner Network Agreement"), without providing reasons for the termination. While we understand the need for Microsoft to interrogate and finalise their own investigations, we are disappointed at the unilateral manner in which Microsoft has terminated the relationship prior to giving consideration to the impact on South African corporates. Further meetings and correspondence between EOH senior executives and local Microsoft leadership are ongoing to discuss the impact of these terminations and to seek a responsible solution that would limit the impact on all affected customers. EOH have provided a number of suggestions to Microsoft for consideration. We await their feedback.
During these engagements, Microsoft's local office advised EOH that they had initiated their own investigations into contracts involving Microsoft and Government which may take 6 to 12 months to conclude. They advised they would not be able to enter into any discussions regarding re-instatement of the partnership until they had concluded their investigations. Impact While the immediate short-term impact can be managed, EOH is assessing and discussing various alternatives to ensure the long-term continuity of service to all customers and to maximise value for shareholders. EOH is confident that this can be achieved. As previously disclosed, the Channel Partner Agreement (as software licence re-seller division) is not material to EOH and reported a total profit before tax of approximately R10 million during the last financial year.
The impact of the latest notices is still being assessed, but early indications are that:
- Our Microsoft related bespoke application development, its largest business, will be predominantly unimpacted.
- Any long-term impact on the IP businesses, including the core IP that has been developed for re-sale utilising Microsoft technologies, can be mitigated through migration to other cloud providers.
- Our CRM (Dynamics 365) and Productivity Solutions business will be impacted in terms of access to partner support portals.
- Our Microsoft-related managed services business and clients will experience no impact as these services are provided on client infrastructure and platforms.
- Our Cloud business and platform business and the re-sale of Azure cloud offerings will be impacted in the short-term and EOH is in discussions to find a solution to ensure continuity of service and revenue streams.
While EOH's assessed impact of the latest notification on profit before tax is estimated at less than R20 million during the current financial year, this will bring the total impact of Microsoft exposure to R30 million profit before tax. Moreover, there is an overall medium to long-term go-to-market and credential impact and risk in not retaining Microsoft Gold Partner status. EOH apologises for any uncertainty and inconvenience caused and will continue to use our best endeavours to ensure there are no outages or disruptions to any client services as a result of the terminations.
Governance
Various investigations are progressing to determine any wrongdoing on the part of EOH, its customers, its partners or its employees. To date we have migrated the legacy public sector business under a new structure and employees implicated in wrong doing have either been suspended or have resigned. We are committed to concluding the reviews as quickly as possible and have a team of people under the auspices of ENSafrica dedicated to this. We have also implemented a new framework under which all public sector transactions and related Enterprise Development Partners are reviewed, screened and independently vetted by ENSafrica.
Furthermore, a sub-committee of the board comprising independent non-executive directors and the CEO has been formed to evaluate the findings and determine the most appropriate manner in which to act. We will engage with any affected entities and authorities to ensure appropriate accountability as required. We have filed a section 34 report in terms of the Prevention and Combatting of Corrupt Activities Act.
EOH wishes to reaffirm its commitment to ethical leadership and robust and transparent governance practices. EOH has a zero-tolerance approach to unethical or fraudulent business practices and is committed to addressing any such activities in a responsible and effective manner. We remain engaged with customers and other partners and will communicate with the market again as soon as we have further information. Stakeholders are invited to send any queries to ir@eoh.co.za.
SENS ends
So what did the market think about the latest SENS announcement from EOH? The screenshot taken from Sharenet shows that the market did not like the latest SENS announcement at all.
The summary below shows the share price performance of EOH over various time periods":
Not pretty reading for a former darling of the markets.
- 1 day: -5.99%
- 1 week: -14.10%
- 1 month: -23.87%
- Year to Date: -56.13%
- 1 Year: -71.98%
- 3 Years: -90.84%
- 5 Years: -84.28%
Not pretty reading for a former darling of the markets.
19 February 2019: Another SENS from EOH
Below the content of another SENS announcement released earlier today by EOH regarding the Microsoft Channel Agreement and other EOH issues.
SENS starts
Shareholders are referred to the recent announcements released on SENS pertaining to, inter alia, the Microsoft Channel Partner Agreement. Shareholders are advised that the Microsoft investigation forms part of EOH’s larger internally-initiated investigation into all public sector contracts over the last five years, with the support of ENSafrica. This process involves obtaining information from whistleblowers and the corroboration of internal facts as part of a thorough and detailed forensic investigation of these public sector contracts. The media may also have access to these contracts and evidence from whistleblowers.
EOH cannot respond each time the media publishes information on the back of their information, but shareholders will be provided with responses to relevant media coverage and advised of developments as appropriate, subject to legal advice.
Accordingly, shareholders are advised to exercise caution when dealing in the Company’s securities until a further announcement to withdraw this cautionary is made.
SENS ends
EOH shares continues its downward spiral as the screenshot taken from Sharenet below shows. The share is currently down R2.27 on yesterday's closing price of R17.47, or stated differently the share is down -12.99% for the day
SENS starts
Shareholders are referred to the recent announcements released on SENS pertaining to, inter alia, the Microsoft Channel Partner Agreement. Shareholders are advised that the Microsoft investigation forms part of EOH’s larger internally-initiated investigation into all public sector contracts over the last five years, with the support of ENSafrica. This process involves obtaining information from whistleblowers and the corroboration of internal facts as part of a thorough and detailed forensic investigation of these public sector contracts. The media may also have access to these contracts and evidence from whistleblowers.
EOH cannot respond each time the media publishes information on the back of their information, but shareholders will be provided with responses to relevant media coverage and advised of developments as appropriate, subject to legal advice.
Accordingly, shareholders are advised to exercise caution when dealing in the Company’s securities until a further announcement to withdraw this cautionary is made.
SENS ends
EOH shares continues its downward spiral as the screenshot taken from Sharenet below shows. The share is currently down R2.27 on yesterday's closing price of R17.47, or stated differently the share is down -12.99% for the day
18 February 2018: EOH tries to steady the markets
EOH released a SENS today in which it tried to address market concerns regarding the pulling of their license to operate/service Microsoft products. But based on the share price decline the SENS did little to calm investors. As the screenshot below will show.
SENS starts
There have been further developments in the media following our stakeholder communication issued on SENS on the 15 February 2019 and as previously advised EOH focused ENS to look at all large historical licensing contracts in the public sector vertical. Microsoft has still not officially provided us any confirmation for the reasons for the notice. This matter is now sub judice. ENS continue to give us regular updates and we are committed to swift and appropriate action.
Stephen van Coller reiterated “I again encourage anyone who has evidence to please come forward so we can root out any historical, unethical business practices both within EOH and the broader country. As part of our current processes, ENS reviews about 8-10 bids per week”. Shareholders will be advised of any further developments.
SENS ends
However the serious trouble for EOH started after they released the following SENS on 12 February 2019:
12 February 2019: SENS starts
EOH has been advised that Microsoft has given notice of its intention to terminate its Channel Partner Agreement with EOH Mthombo, one of the group’s subsidiaries, with 30 days notice. At this stage, EOH has not been provided with any reason for the notice of termination. The effect of this notice, if acted on, will be that Group subsidiary company, EOH Mthombo, will no longer be a direct reseller of Microsoft licences with a profit impact of approximately R10million in the current financial year.
However, Microsoft remains an important part of EOH’s network of the more than 50 technology partners within the EOH Group and resolution of this matter is a priority. EOH has initiated plans to ensure minimal disruption to customers and to limit the potential impact on the business, until more clarity has been obtained.
In this regard, EOH Group CEO, Stephen van Coller is actively engaging Microsoft to better understand and resolve this matter as soon as practically possible. Additional announcements will be made as soon as more detailed information is available.
12 February 2019: SENS ends
So lets take a look at the share price performance of BID shares in recent times.
SENS starts
There have been further developments in the media following our stakeholder communication issued on SENS on the 15 February 2019 and as previously advised EOH focused ENS to look at all large historical licensing contracts in the public sector vertical. Microsoft has still not officially provided us any confirmation for the reasons for the notice. This matter is now sub judice. ENS continue to give us regular updates and we are committed to swift and appropriate action.
Stephen van Coller reiterated “I again encourage anyone who has evidence to please come forward so we can root out any historical, unethical business practices both within EOH and the broader country. As part of our current processes, ENS reviews about 8-10 bids per week”. Shareholders will be advised of any further developments.
SENS ends
However the serious trouble for EOH started after they released the following SENS on 12 February 2019:
12 February 2019: SENS starts
EOH has been advised that Microsoft has given notice of its intention to terminate its Channel Partner Agreement with EOH Mthombo, one of the group’s subsidiaries, with 30 days notice. At this stage, EOH has not been provided with any reason for the notice of termination. The effect of this notice, if acted on, will be that Group subsidiary company, EOH Mthombo, will no longer be a direct reseller of Microsoft licences with a profit impact of approximately R10million in the current financial year.
However, Microsoft remains an important part of EOH’s network of the more than 50 technology partners within the EOH Group and resolution of this matter is a priority. EOH has initiated plans to ensure minimal disruption to customers and to limit the potential impact on the business, until more clarity has been obtained.
In this regard, EOH Group CEO, Stephen van Coller is actively engaging Microsoft to better understand and resolve this matter as soon as practically possible. Additional announcements will be made as soon as more detailed information is available.
12 February 2019: SENS ends
So lets take a look at the share price performance of BID shares in recent times.
Share price performance of EOH over the last year reads like a horror story
The image below is a screenshot taken from Sharenet, showing EOH (EOH) share price performance for the last 12 months, and also the returns offered over longer periods such as 3 and 5 years. And as it shows, it is not a pretty story for EOH investors.
Over the last week, EOH shares have declined by -27.9%, the last month it has declined by -40.04%, and the 1 year move in EOH share price is -69.99%. Over the last 3 years EOH shares have declined by 85.6%. Its an absolute bloodbath that might give Steinhoff a run for their money after news broke of large scale fraudulent financial reporting by Steinhoff.
Good luck to EOH investors, but be concerned, there has been a lof of smoke around EOH regarding their businesses practices or that of some of their directors, and as is often the case, where there is smoke there is fire.
Good luck to EOH investors, but be concerned, there has been a lof of smoke around EOH regarding their businesses practices or that of some of their directors, and as is often the case, where there is smoke there is fire.