EOH HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1998/014669/06)
JSE share code: EOH ISIN: ZAE000071072
(“EOH” or “the Group”)


PRE-CLOSING STAKEHOLDER UPDATE FOR THE FINANCIAL YEAR ENDING
31 JULY 2023


Background
On 5 April 2023 EOH published its unaudited interim results for the six months ended
31 January 2023 (H1-2023), which included the following key features:

   •   Further improvement in continuing revenues of 8% year on year, including a 45%
       increase in international revenue, but with challenges being faced with public sector
       and SOE new business
   •   Stable gross profit margins at approximately 29%
   •   Continued progress with cost management initiatives
   •   Achieving R110 million in continuing operating profit, more than that achieved in the
       full previous financial year
   •   Impact of the higher interest rate environment being felt with the R600 million capital
       raise only completing during February 2023.

Positive momentum was built over the first 6 months (H1-2023) with all key metrics measured
on a continuing basis, improving; revenue increasing 5%, gross profit 13%, adjusted EBITDA
112% and loss after tax reducing by 82%, compared to the previous six-month period (H2-
2022).

EOH is now providing stakeholders with an update on trading conditions and events during the
second six-month period of its financial year ending 31 July 2023 (H2-2023).

Completion of Restructuring and Deleveraging Plan
As communicated at the release of the H1-2023 results on 5 April 2023, EOH successfully
completed a R600 million capital raise, comprising a R500 million rights issue and a R100
million specific share issue to its strategic partner Lebashe Investment Group.

Total demand for the R500 million rights issue, including underwriting commitments,
amounted to R1.03 billion, with over 91% of shareholders following their rights and requests
for excess allocations of R220 million. In the current economic environment this level of
support demonstrates strong support for EOH’s strategy and investment case.

The proceeds of the capital raise were utilised to pay down the majority of EOH’s bridge
facility. The strengthening of the capital structure combined with the improved trading results
allowed for a debt restructuring with a single lender at markedly lower interest rates, as well as
freeing up cashflow to make meaningful investments into the growth of the business.
The capital raise and optimising the capital structure marks the end of a long journey in
restructuring and deleveraging EOH, allowing the leadership and employees to focus
exclusively on the Growth-Efficiency-Talent strategy (GET).

Operating Context
The operating environment in South Africa continues to be challenging and has deteriorated
since the last update. The impact of high inflation and the South African Reserve Bank’s
response of further increasing interest rates is placing consumers, companies and the Public
Sector under extreme pressure and dampening growth forecasts for the economy. Liquidity in
the market is getting tighter with businesses taking a conservative approach to cash
management.

This, coupled with rising tensions, as a result of South Africa’s global allegiances, has put
further pressure on an already negative market sentiment with questions on whether South
Africa will be included in AGOA going forward potentially negatively impacting foreign trade.
Internationally economies are also under pressure, driven by rising interest rates, the Ukraine
Russia war and continuing supply chain issues. However, EOH continues to see and pursue
growth opportunities in its chosen markets as it invests in its international expansion.

The EOH Board and Management team continue to closely monitor these developments and to
proactively manage their impact on the Group’s business, whilst maintaining focus on
delivering current financial targets and implementing the Growth-Efficiency-Talent (GET)
strategy communicated to the market.

Re-alignment of Operating Businesses
EOH’s restructuring and deleveraging strategy was effectively completed with the capital raise
closing in February 2023. As introduced at the release of the H1-2023 results and with a stable
client offering, EOH has introduced a simplified divisional structure in line with its product
and services and executive responsibilities. The full year results as at 31 July 2023 will be
reported under the new structure. EOH will approach the market through four solution pillars:
    • Infrastructure Services & Applications; management of clients’ IT infrastructures,
        Enterprise Applications and Software sales
    • Digital Enablement; the modernisation and digitalisation of clients’ IT infrastructures
        and operations including application development, automation, data, cloud as well as
        EOH’s own platform and IP development together with its International business.
    • Industrial Technology; primarily Operational Technology advisory, implementation and
        managed services previously under the Operational Technologies cluster within iOCO
        and the businesses previously under Nextec Infrastructure Solutions
    • EasyHQ; including the People and HR solutions businesses previously under Nextec,
        and the recently launched GRC-as-a-service, outsourcing EOH’s digital head office
        business infrastructure to our clients.

Continuing Financial Performance (excl Network Solutions & Nuvoteq)
Despite the challenging economic environment, the Group has continued to deliver top-line
revenue growth from continuing operations and expects the full year revenue to show year on
year growth. The Group continues to deliver a healthy gross profit margin similar to H1-2023.

The focus on cost management has continued into H2-2023 to ensure the Group remains agile
and responsive to the changing economic environment. The Group however did incur once off
charges in H2-2023. The first relates to the impact of the rights issue discount on the specific
R100 million share issue to the Lebashe Investment Group. This is a non-cashflow IFRS2
charge and is expected to be in the region of R54 million. The second relates to a financial asset
impairment of the Tech Leasing book of R65 million (R 6 million in H1-2023). The Group has
previously taken impairments on the Tech Leasing book and has now deemed it appropriate to
fully provide for the book. This book relates to legacy (pre-2018) debts from customers who
operate in the casino industry who had been badly affected by Covid and lockdowns. The
Group has attempted to provide support to these customers and extended repayment terms,
however it now considers it is prudent to provide for these debts in full.

The Group has made good progress in closing out most of the legacy issues (previously
disclosed in our contingent liabilities). Given the discussions that have been had to date,
management believes that the current provisions for legacy items are reasonable.

Before accounting for these once-off provisions and impairments the Group is expected to post
operating profit from continuing operations at least similar to, if not marginally better than H1-
2023.

The Group’s interest charge has decreased significantly from H1-2023 despite rising interest
rates, as a result of the R600 million capital raise and the refinancing of consortium facilities
with a single bank at improved interest rates. However, the delay in the rights issue due to
factors beyond the Group’s control did result in an unbudgeted extra interest cost of R74 million
which will not recur in 2024. The Group has performed well from a cash perspective with a
strong focus on working capital management with no overdraft as at 30 July 2023 (H1-2023
overdraft R45 million) and a positive cash balance of R255 million (H1–2023 R236 million).

Infrastructure Services & Applications performance
The Infrastructure Services business continued with its H1-2023 performance into H2-2023
including adding around ten new customers. The Software business also continued with its
H1-2023 performance into H2-2023. The Enterprise Applications business however has
experienced significant headwinds in H2-2023 and is not expected to repeat the performance
achieved in H1-2023.

Digital Enablement performance
EOH’s clients continue to modernise and digitalise their IT infrastructures to extract
efficiencies and improve customer experiences, which continues to provide the driver for
growth in this business.

The International businesses in Egypt, the Middle East and Europe continued its positive
momentum into H2-2023 as the Group continues to invest for accelerated growth.

Industrial Technology performance
Pressure in the public sector and SOE businesses has continued its impact into H2-2023. EOH
continues to focus on strategies to diversify this pillar’s client base to reduce reliance on the
public sector and SOE businesses which includes, but is not limited to, its investment into East
and West Africa where it has exclusive AVEVA distribution rights. The East and West Africa
investment continues to bear fruit with the good traction in H1-2023 continuing into H2-2023.

EasyHQ performance
While the People Solutions businesses remains under top line pressure due to the current
economic climate and SOE business pressure, its core cost structure continues to be managed
closely. In particular the contact centre businesses have concluded a successful turnaround and
are now contributing positively to the Group’s profitability. Despite the pressure at a top line
the profitability demonstrated in H1-2023 has continued into H2-2023 due to a good efficiency
focus.

Outlook
With the Group GET Strategy now embedded and the ability for the first time to invest in the
growth of the business the Group is cautiously optimistic of its growth prospects going forward.
This is underpinned by the current trends in the IT space of cloud, security and automation
which are fully integrated in the Group strategy across the four pillars of the business.
Furthermore, the final legacy issues look like they will be crystalised in the near term which
will allow for the completion of the efficient reorganisation of the complex legal entity
structure. The majority of the reorganisation will be completed by the end of H1-2023 which
will assist in improved cost and operational efficiency.

The financial information contained in this pre-closing stakeholder update has not been
reviewed nor reported on by PricewaterhouseCoopers Inc., the Group's independent external
auditors.

31 July 2023


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