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 SIX MONTHS ENDING 31 JANUARY
2023 AND THE PROPOSED CAPITAL RAISE


Background

On 26 October 2022, EOH released its results for the financial year ended 31 July 2022 (“FY2022”). The
highlights of the Group’s continuing operations were as follows: -

   -   an improvement in the Group’s gross margin to 28% from 26% in the prior year;
   -   an 80% improvement in operating profit to R100 million;
   -   a 26% improvement in the Group’s headline loss per share of 72 cents versus 98 cents for FY2021;
   -   the Group’s loss per share improved by 45%, reducing from 181 cents to 99 cents;
   -   excellent financial discipline resulted in:
           o strong cash generation from continuing and discontinued operations, with an 80% adjusted
               EBITDA cash conversion; and
           o the Group’s net working capital remaining stable at R218 million, despite a tough economic
               environment; and
   -   the Group reported that it had refinanced its debt facilities with lenders on 31 March 2022 into a
       R500 million senior three-year term facility and a senior bridge facility. The Group ended the
       financial year with R832 million outstanding on the senior bridge facility, which was further paid
       down to R728 million by the time of the release of the FY2022 results, and R459 million of cash
       and R250 million of undrawn direct overdraft facilities.

EOH is now providing its stakeholders with an update on trading conditions and events during the first six-
month period of its financial year ending 31 July 2023 (“FY2023”).

Operating Environment

The operating environment in South Africa continues to be challenging. The global economy remains under
pressure with growth forecasts downgraded on the back of inflationary pressures and geopolitical tensions
caused by, inter alia, the ongoing Ukrainian conflict, COVID lockdowns in China and the ceasing of
quantitative easing in developed markets. In addition, supply chain disruptions have continued through the
period which have slowed down the Group’s project delivery. In South Africa, the prolonged
macroeconomic effects of the pandemic, riots, the flooding in KwaZulu-Natal, the lack of investment in
the mining and rail sectors as well as the increased frequency and severity of loadshedding is placing severe
strain on the economy.
The EOH Board and management team continue to 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 capital restructuring strategy.
Historical Financial performance

 R’m                            2022 H2            2022 H1            FY 2022
                               continuing         continuing         continuing
 Revenue                              3 051               2 980              6 031
 Operating Profit                       (62)                162                100
 Net finance costs                      (98)               (92)              (190)
 Adjusted EBITDA                          86                278                363

Historically the Group has performed better in H2 in comparison to H1. However, this was not the case in
FY2022, predominantly due to the challenges faced in Nextec’s Infrastructure Solutions and iOCO’s
Software Reseller and Enterprise Applications divisions, as well as the timing of once off items, including
provisions for Special Investigating Unit settlements, goodwill impairments, the loss on sale of assets and
financial impairments related to the lease receivable book, which all primarily arose in H2. In light of the
timing issues and management actions taken to address the specific iOCO and Nextec challenges (refer
commentary below under iOCO and Nextec Performance) the Group is now operationally well positioned
to produce improved results for the full 2023 financial year.

Despite the challenging operating environment, the Group’s continuing operations for the 5 months ending
31 December 2022 (“the Period”) have performed in line with budgets, achieving revenue growth above
inflation and the prior period. Gross margins in H1 2023 have remained stable when compared to the
continuing operations for FY2022 full year. The Group has also seen strong performance at an EBITDA
and Operating Profit level as the business resets and embarks on its growth strategy.

Whilst the Group reduced debt levels disclosed at FY2022 year end from R1.3 billion to R1.2 billion, the
increased refinancing costs incurred under the new Common Terms Agreement, along with higher repo rate
levels, have resulted in only a modest reduction in the finance cost in comparison to the prior period (H1
2022). The proposed capital raise, comprising a R500 million rights offer (“Rights Offer”) and a R100
million specific issue of shares for cash to EOH’s black empowerment partner, Lebashe Investment Group
(“Specific Issue”) (together “the Capital Raise”), therefore remains a strategic imperative, allowing the
Group to reduce its debt levels, gain access to cheaper forms of debt and secure less onerous lending terms.

The Group has concluded a term sheet with The Standard Bank of South Africa Limited (acting through its
Corporate and Investment Banking division), subject to the successful conclusion of the Capital Raise, the
application of the Capital Raise proceeds towards a partial reduction of existing debt and the satisfactory
conclusion of written agreements together with the fulfilment of conditions precedent, to refinance the
remaining debt into the following package:

    •   a R200 million 4-year amortising term loan;
    •   a R250 million 3-year bullet term loan;
    •   a R250 million 4-year revolving credit facility; and
    •   R500 million general banking facilities which will include a working capital facility and ancillary
        banking facilities.

This will ensure that the Group emerges from the Capital Raise with a sustainable capital structure,
allowing management to focus on driving growth in the operations.

iOCO Performance

iOCO continued to show strong growth from a top line perspective. This has most notably been seen in the
Digital business which has delivered top line growth in excess of 10% for the Period. iOCO Digital
continues to support its customers in their digital transformation journeys, with growth in this segment of
the business having accelerated since COVID.

Following certain successful resourcing and structural changes there has been a healthy rebound in the
Enterprise Application and Software business, with growth in excess of 10% being a key contributor to
iOCO’s growth for the Period.

The iOCO Infrastructure Services business showed solid and consistent performance relative to the prior
period. The top line was however impacted by the supply chain issues where orders have been received
from customers but remain unfulfilled due to stock shortages.

The Operational Technologies business also performed well considering the current economic backdrop of
constrained State-Owned Enterprise investment and delayed spend which negatively impacted year on year
performance. The Operational Technologies business continued to invest in East and West Africa and its
other organic expansion plans.

Overall, the iOCO forward pipeline looks strong. The Period again saw good wins and multiyear awards as
customers continued to demonstrate their trust in iOCO to deliver on their digital and technology journeys.
Notably we were awarded numerous significant contracts, including but not limited to:

   -   a multiyear contract in the mining sector covering aspects of operational technology, field services
       and the local and international service desk;
   -   a Home Loans Front End Development contract with a top tier bank to move off their legacy
       platform and to replace it with a new digital front end, improving capabilities and customer
       experience;
   -   a multifaceted cloud migration and agile consulting services contract at a top tier insurance company
       across multiple divisions;
   -   a three-year contract at a top tiered telco to mature their business intelligence services and extract
       value from their data using AI;
   -   a large-scale infrastructure refresh coupled with services at a large bank
   -   an outsource and strategic services contract for an Industrial Development Zone; and
   -   a multi-year SAP S/4 HANA Application Management Services support contract covering multiple
       countries in Central, Eastern and Southern Africa.

NEXTEC Performance

The People Solutions business continued its solid EBITDA performance from the prior year into the first
five months of H1 2023. Specific focus and a clear strategy are currently being outlined for opportunities
that management believes are relevant in light of current market conditions.

The Infrastructure Solutions business faced significant challenges in FY2022 requiring a strong focus on
turning around the business. The turnaround has continued into H1 2023 with the right-sizing of specific
operations. Whilst this right-sizing limited revenue growth opportunities for the business it was
counteracted by our mesh network business which outperformed for the Period. This Infrastructure
Solutions business continues to feel the effects of project delays primarily in the Public Sector.

International Performance

The international business has continued its growth path, with revenue continuing to grow at double digit
rates, as the business increased its staff complement and product offerings. Whilst small relative to the rest
of the business, we believe that at its current trajectory, it will become an important contributor to the Group
in the medium term, allowing South African and Middle East customers to replicate their IT across the
EMEA time zone, as well as balancing the Group’s portfolio, opportunity and risk across various regions
and economies.

Top Employer Certification

EOH has received Top Employer certification from the Top Employers Institute, the global authority on
recognising excellence in people practices. The accolade demonstrates that EOH is succeeding in building
a forward-thinking workplace that allows its diverse people complement to grow and thrive. It also signals
that the Group is well-equipped to implement its growth strategy in 2023.

Update on the Capital Raise

As previously announced at EOH’s FY2022 results presentation, EOH intends to proceed with the Capital
Raise to raise an aggregate amount of R600 million by way of a R500 million Rights Offer and through a
R100 million Specific Issue.

On 13 December 2022 EOH shareholders unanimously approved all of the resolutions required for the
implementation of the Capital Raise. The Group is now in a position to implement the Capital Raise. It is
intended that a finalisation announcement providing salient details of the Rights Offer will be released on
or about Thursday, 19 January 2023. The Rights Offer subscription period is currently expected to open on
or about Monday, 30 January2023 and close on or about Friday, 10 February 2023. Immediately following
the closing of the Rights Offer, Lebashe Investment Group will subscribe for additional EOH shares at the
Rights Offer price for an aggregate subscription price of R100 million pursuant to the Specific Issue.
Significant interest has been shown in the Rights Offer which we expect to be fully de-risked through a
combination of irrevocable commitments to follow rights and underwriting commitments at the time of
launch.

Outlook

Whilst the Group has continued to deliver on its strategy and show growth from a top line level and strong
momentum on operating profit, the Group remains cautious about the local and global economic and
political environment. The Board and Management continue to monitor these issues regularly to ensure that
EOH remains agile as a Group.

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.

17 January 2023


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