EOH proposes across-the-board salary reductions as top executives take 25% cut

Embattled IT group, EOH [JSE: EOH] has joined retailers Woolworths and Mr Price in announcing that its CEO and executive committee will be taking a salary cut due to the spread of the coronavirus.

In a trading update on Tuesday, the group announced a 25% salary cut for its CEO and executive committee

This comes after Woolworths on Monday said that its executive would be taking pay cuts of up to 30% in bid to support staff. Mr Price, meanwhile, announced on March 26 that its executive management and board would be taking a cut. 

EOH also proposed across-the-board salary reductions of 20%. The only staff members exempted will be those earning less than approximately R250 000 per year. It is still in consultation with clients and its employees about this proposal. 

The EOH announcement comes a day after the Reserve Bank said that SA's economy may contract between 2% and 4% in 2020 due to the impact of the coronavirus. 

Alongside the release of its financial results for the six months to end January, the IT group said it is negotiating rent holidays with landlords and reviewing fixed term contracts. It is also reassessing its retirement policy for employees over the age of 65 years and relooking at several other fringe staff benefits in a bid to save money. 

The ongoing national lockdown is expected to have a financial impact on the group, even though its core ICT business is classified as an essential service and continues to operate.

“Being systemic to South Africa’s IT backbone creates significant responsibility for the group during Covid-19 to ensure it remains robust in order to continue providing key services to its 5000 long term clients,” said the company.

“For this reason, the Board and management of EOH felt it necessary to take proactive steps to ensure EOH is prudent in these times of uncertainty,” added the company before announcing the paycuts.

Business Stabilising

Even though the spread of Covid-19 has created an uncertain environment for business, EOH said its business is stabilising with a steady customer base. This follows a client exodus that saw EOH lose its partnership with software giant Microsoft

“[..] Ensuring accountability for past transgressions has gone a long way to avoiding both government and BUSA blacklistings,” it said. 

The group said its management team is confident that it will resolve the remaining “legacy issues” that continue to drain cash within the next 12 to 18 months.

Its ICT services business, iOCO which makes up approximately 56% of the group’s total revenue and over 61% of its gross profit still has public sector contract to unwind. “Included in the iOCO business grouping are eight poorly contracted legacy public sector contracts. These are expected to be substantially resolved by the end of the calendar year,” it said. 

The company added that these contracts contributed a total of R188 million in negative Earnings before interest, tax, depreciation and amortization (EBITDA) – meaning they ate away profits.

Several other engineering, procurement, construction and commissioning contracts the company plans to dispose also contributed negative EBITDA. EOH said it has sold over 40 businesses to the value of R1.17 billion as part of its plan to turnaround the business.

* This article has been updated to include comment about Mr Price. 

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