JSE-listed information technology services company EOH announced in a statement on Monday that it had, on March 12, received a 30-day notice period from software multinational Microsoft Ireland of its intention to terminate the Partner Network Agreement with a number of EOH group companies, and was not provided with reasons for the termination.
The EOH group comprises about 270 legal entities that employ about 11 500 people.
“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,” it lamented in the statement, and added that its senior executives were meeting and corresponding with local Microsoft leadership to discuss the impact of these terminations and seek a responsible solution to limit the impact on affected clients.
EOH said on Monday that the impact of the latest notice was still being assessed, but early indications were that its Microsoft-related bespoke-application development, its largest business, would be predominantly unaffected.
“The Microsoft-related managed services business and clients will experience no impact as these services are provided on client infrastructure and platforms.”
EOH added that any long-term impact on its intellectual property (IP) businesses, including the core IP that had been developed for resale using Microsoft technologies, could be mitigated through migration to other cloud providers.
EOH’s customer-relationship management Dynamics 365 and Productivity Solutions business would be impacted in terms of access to partner support portals and its Cloud business and platform business and the resale of Azure cloud offerings would also be impacted in the short term.
The group was in discussions to find a solution to ensure continuity of service and revenue streams, it said.
The statement on Monday also confirmed that the resale licence of its subsidiary, EOH Mthombo, had been terminated by Microsoft on March 12, although the group added that it had secured an agreement with a pre-existing Microsoft Channel Partner, independent of EOH, to limit the impact of this on clients.
Further, Microsoft’s local office advised EOH that it had initiated its own investigations into contracts involving Microsoft and government, which may take 6 to 12 months to conclude. Microsoft’s local offices advised that it would not be able to enter into any discussions regarding the reinstatement of the partnership until it had concluded its investigations, EOH said in the statement.
“EOH has provided a number of suggestions to Microsoft for consideration. We await their feedback,” the company said in the first public statement tackling this issue since the termination period of the EOH Mthombo licence concluded on March 12.
EOH has been roiled by allegations of inflated resale of Microsoft licences to government departments, specifically Microsoft software licences sold through EOH Mthombo to the Department of Defence, which led to the group’s share price taking a hammering, shedding more than half of its value since early January.
The company brushed off the loss of the channel partner agreement as “not material to EOH and reported a total [negative impact on] profit before tax of about R10-million during the last financial year.”
Its estimation of the impact of the latest notification on profit before tax is less than R20-million during the current financial year, which would bring the total impact of Microsoft exposure to R30-million on its profit before tax.
However, it added that while the short-term impact could be managed, the company was assessing and discussing various alternatives to ensure the long-term continuity of service to all customers and to maximise value for shareholders.
“There is an overall medium to long-term go-to-market and credential impact and risk from not retaining Microsoft Gold Partner status,” EOH warned.
The group added that various investigations were progressing to determine any potential 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 wrongdoing 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 law firm ENSafrica dedicated to this,” it said on Monday.
The company had also implemented a new framework under which all public sector transactions and related enterprise development partners were reviewed, screened and independently vetted by ENSafrica.
Additionally, a subcommittee of the board, comprising independent nonexecutive directors and the CEO, has been established to evaluate the findings and determine the most appropriate manner in which to act. It would engage with affected entities and authorities to ensure appropriate accountability as required.
The company had 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,” the statement concluded.