EOH Holdings Limited ("EOH" or "the Company") is a holding company domiciled in South Africa that is listed on the JSE Limited under the category Technology: Software and Computer Services. EOH is one of the largest information and communications technology ("ICT") services providers in South Africa and is committed to providing the technology, knowledge, skills and organisational ability critical to the development and growth of the markets it serves. The interim condensed consolidated financial statements of EOH, as at 31 January 2024 and for the six months then ended, comprise the Company and its subsidiaries (together referred to as "the Group").

The interim condensed consolidated financial statements have been prepared in accordance with the framework concepts and the measurement and recognition requirements of International Financial Reporting Standards Accounting Standards ("IFRS^® Accounting Standards") and its interpretations adopted by the International Accounting Standards Board ("IASB") and comply with the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council, and contain at a minimum the information required by IAS 34 Interim Financial Reporting, the requirements of the Companies Act 71 of 2008 of South Africa and the JSE Limited Listings Requirements.

These interim condensed consolidated financial statements were compiled under the supervision of Marialet Greeff CA(SA), the Group Chief Financial Officer ("CFO").

The accounting policies and methods of computation applied in the preparation of these interim condensed consolidated financial statements are consistent with those applied in the previous consolidated annual financial statements.

The interim condensed consolidated financial statements do not include all the notes of the type normally included in a set of consolidated annual financial statements. Accordingly, this report is to be read in conjunction with the consolidated annual financial statements for the year ended 31 July 2023.

The interim condensed consolidated financial statements have been prepared on the historical cost basis.

The interim condensed consolidated financial statements are presented in South African Rand, which is the Group's presentation currency, rounded to the nearest thousand except for when otherwise indicated. The going concern basis was used in preparing the interim condensed consolidated financial statements as the directors have a reasonable expectation that the Group will continue as a going concern for the foreseeable future. Refer to note 4 for further information.

The interim condensed consolidated financial statements have not been audited or reviewed by the Group's external auditor.

The IFRS Conceptual Framework states that the going concern concept is an underlying assumption in the preparation of IFRS financial statements. Therefore, the financial statements presume that an entity will continue in operation in the foreseeable future or, if that presumption is not valid, disclosure and a different basis of reporting is required. The Board of Directors ("Board") believes that, as of the date of this report, the going concern presumption is still appropriate and accordingly the interim condensed consolidated financial statements have been prepared on the going concern basis of accounting.

IAS 1 Preparation of Financial Statements ("IAS 1") requires management to perform an assessment of the Group's ability to continue as a going concern. If management is aware of material uncertainties related to events or conditions that may cast significant doubt upon the Group's ability to continue as a going concern, IAS 1 requires these uncertainties to be disclosed.

In conducting this assessment, the Board has taken into consideration the following factors:

The financial performance, condition and cash flows for the Group reflect a loss for the period of R91 million compared to the prior year, which had a loss of R5 million, net asset value at the end of the period of R506 million (31 July 2023: R588 million), and cash inflows from operating activities of R105 million (2023: outflows of R138 million), (including continuing and discontinued operations). Details of the financial performance, condition and cash flows for the Group are explained in the interim condensed consolidated financial statements. A detailed action plan for deleveraging the Group to a sustainable level and resolving the "fit-for-purpose" cost structure was developed by the Group and its lenders and committed to. Since its announcement in October 2019, and subsequent revisions, the plan was largely executed. Non-core businesses identified to be sold, have been successfully disposed of and proceeds received from these disposals were repaid to lenders as part of the Group's deleveraging strategy and commitment. Further to this, the rights issue and the specific issue was successfully implemented during February 2023, the proceeds of which were repaid to lenders. The Group is further in the process of disposing of various other businesses as part of a strategic portfolio clean up aimed at further streamlining the Group's operations and aligning its business portfolio with its core objectives, of which the proceeds will further be used to deleverage the Group.

As at period end, the Group had R467 million of cash available, including foreign and restricted cash but excluding the undrawn portion of the direct overdraft facility of R133 million, which was available at reporting date and remains at EOH's disposal. The Group expects to be in a positive free cash flow position in the forthcoming financial year.

The directors' assessment of whether the Group is a going concern was considered and the directors concluded that:

1. The Group is solvent and is expected to remain solvent after considering the approved budget and expected performance;
2. Net asset value as at 31 January 2024 is R506 million;
3. The Group's current assets exceed its current liabilities by R167 million;
4. There is an approved budget for the following 30 months;
5. There are monthly cash flow forecasts for the following 12 months to 31 January 2025 and annual forecasts for the 18 months to 31 July 2025, which were interrogated and adjusted for anomalies for each of the periods under review together with a detailed review of one-off cash payments; and
6. The Group has sufficient access to facilities and liquidity events to fund operations for the following 12 months based on the following assumptions:
   • Improved operational performance;
   • The Group's assets are appropriately insured; and
   • There is currently no outstanding litigation, that the directors believe has not been adequately provided for, that could pressurise the Group's ability to meet its obligations.

At the time of approval of these interim condensed consolidated financial statements for the period ended 31 January 2024, the Board has a reasonable expectation that the Group has sufficient resources to continue in operation for the foreseeable future, which is not less than 12 months from the date of approval of these interim condensed consolidated financial statements.

The Board remains focused on and committed to the turnaround strategy and improving the capital structure.

The Board, after considering the renegotiated funding terms and mitigating actions described above, has concluded that the Group should be able to discharge its liabilities as they fall due in the normal course of business and is therefore of the opinion that the going concern assumption is appropriate in the preparation of the interim condensed consolidated financial statements.

Certain amendments to accounting standards became effective from 1 August 2023. These did not have a material impact on the Group.

Disaggregated revenue

** The impact of share options and EOH A shares were excluded from the weighted average diluted number of shares for the six months to 31 January 2024 as they would be anti-dilutive.

Impairment (losses)/reversals on financial assets recognised in profit or loss from continuing operations were as follows:

Identification and classification of discontinued operations

Judgement was applied in determining whether a component is a discontinued operation by assessing whether it represents a separate major line of business or geographical area of operations or is part of a single plan to dispose of a separate major line of business or geographical area of operations.

Network Solutions business and Hymax SA Proprietary Limited, which represented a significant component of the mobile network and voice solutions within the Group, were previously classified as held for sale and successfully disposed in the prior period. Their results as reported below were classified as discontinued operations. There are no discontinued operations for the six-month period ended 31 January 2024.

Loss before taxation before including the gain on disposal and remeasurement to fair value less costs to sell for the six months ended 31 January 2023 amounted to R10 million.

The Group acquired property, plant, equipment and right-of-use assets at a value of R52.4 million (year ended 31 July 2023: R67.7 million) and intangible assets at a value of R11.3 million (year ended 31 July 2023: R42.8 million). The Group disposed of property, plant, equipment and right-of-use assets with a carrying value of R3.7 million (year ended 31 July 2023: R7.4 million) and intangible assets with a carrying value of R5.4 million (year ended 31 July 2023: R2.5 million).

A reversal of an impairment loss of R4.5 million and an impairment charge of R2.0 million (year ended 31 July 2023: Rnil and Rnil) against right-of-use assets and intangible assets respectively were recognised during the period.

In the current period a reversal of a prior year impairment loss of R4.5 million was recognised on certain right-of-use assets (buildings) in a cash-generating unit ("CGUs") in the Operational Technologies segment, in which impairments to goodwill and other assets were previously recognised. The impairment loss reversal results in the right-of use assets carrying amount being that which would have been determined, net of depreciation, had no previous impairment loss been recognised. The impairment loss reversal was recognised as a result of evidence becoming available indicating that there is significant value remaining in the right-of-use asset (buildings) for which the Group has made use of in the current period and will make use of in future periods.

Impairment of goodwill

During the six months ended 31 January 2024, the Group performed a review of goodwill impairments in certain CGUs. Where impairment indicators were identified, the carrying amounts of the CGUs were compared to their respective recoverable amounts. These recoverable amounts were determined through value-in-use calculations, discounting estimated post-tax projected cash flows using a post-tax discount rate. Impairment tests on assets held for sale were based on their fair value less costs of disposal.

Operational Technologies

During the period ended 31 January 2024, goodwill amounting to R10.2 million attributed to the JOAT CGU was impaired. This impairment was necessitated by delays on the commencement of major contracts which contributed to a downward adjustment in forecast revenue and adjusted EBITDA margins compared to the budgeted expectations.

The Energy Insight CGU recorded a full impairment of their goodwill balance amounting to R5.6 million. This impairment was driven by stagnant revenue growth, a lack of new business opportunities and high-operating costs.

Digital Enablement

During the period ended 31 January 2024, goodwill amounting to R3.9 million related to the Impression CGU was impaired. This impairment was primarily attributed to a decline in revenue compared to budgeted expectations and loss of notable pipeline revenue opportunities which prompted a downward revision in revenue projections.

Reversal of write-down of inventories of R0.4 million (2023: write-down of R17 million) to net realisable value was recognised as an income during the period (and as an expense in the prior period) and included in costs of sales in the interim condensed consolidated statement of profit or loss and other comprehensive income.

Over the past four years, EOH had embarked on a strategic journey to deleverage and create a sustainable capital structure. A key part of that deleveraging strategy was the disposal of non-core businesses and the Group has, over the past years, identified and sold a group of assets in line with that strategy. The restructuring and deleveraging strategy was effectively completed with the capital raise closing in February 2023 and the focus has now shifted towards the alignment of product and service offering within the Group and enhancing operational efficiency.

As at 31 January 2024, the Coastal and Environmental Services group ("CES") comprising Coastal and Environmental Services Proprietary Limited and Coastal & Environmental Services Mozambique Limitada, Exigo Sustainability Proprietary Limited and E-business Systems, Consultancy and Information Systems Limitada ("EBS") were approved for sale and classified as disposal groups held for sale with the sale expected to be completed within 12 months from the reporting date. Their planned disposal is part of a strategic portfolio clean up aimed at streamlining the Group's operations and further aligning its business portfolio with its core objectives. The disposal groups were measured at the lower of their carrying amount and fair value less cost of disposal and no impairment was recognised. No disposal groups were classified as held for sale in the comparative period ended 31 July 2023.

The major classes of assets and liabilities of the disposal groups, per reportable segment, classified as held for sale are as follows:

The Group has disposed of the below investment in a subsidiary during the period.

Reconciliation of cash received from disposal of businesses

The carrying amounts of major classes of assets and liabilities, associated with the subsidiaries disposed of during the current and prior periods, are as follows:

Authorised

7 500 000 000 (2023: 7 500 000 000) ordinary shares of no-par value.

40 000 000 (2023: 40 000 000) EOH A shares of no-par value.

Unissued

6 861 916 579 (2023: 6 861 916 579) unissued ordinary shares.

Issued

*   Ring-fenced debt owing to the Industrial Development Corporation.
** The cash-based long-term incentive is measured in accordance with IFRS 2.

Interest-bearing bank loans are secured through a Security special purpose vehicle ("SPV") which requires that all the South African wholly owned subsidiaries of the Group provide a pledge and cession of:

• all shares in, and claims on loan account against, any member of the Group incorporated in South Africa;
• cash;
• cash equivalents;
• bank accounts;
• investments;
• claims;
• disposal proceeds;
• any other amounts, of any nature whatsoever, now or from time to time in the future owing to that Obligor by any third person arising out of any cause of action whatsoever, including, without limitation, all amounts owing or becoming payable to that Obligor by any of its debtors; and
• related rights.

South African wholly owned subsidiaries contributing more than 80% of the Group's adjusted EBITDA are pledged as required above and the process of providing the security is ongoing.

The following interest-bearing bank loans were in place during the period and secured through the Security SPV:

• R200 million four-year amortising term loan of three-month JIBAR + 3.7% repayable in March 2027;
• R250 million three-year bullet term loan of three-month JIBAR + 3.8% repayable in March 2026;
• R250 million four-year revolving credit facility of three-month JIBAR + 4% repayable in March 2027; and
• R500 million general banking facilities which will include a working capital facility and ancillary banking facilities of prime + 1%.

The Group has the following continuing debt covenant limits in respect of the above-mentioned loans:

• debt to EBITDA ratio of 2.75x or lower, whereas the actual ratio was 3.99x;
• debt service coverage ratio to free cash flow of 1.10x or higher, whereas the actual ratio was 1.88x; and
• interest cover ratio of 2.00x or higher, whereas the actual ratio was 2.02x.

There was a breach of the debt to EBITDA ratio for the covenant reporting period ended 31 January 2024. The Standard Bank of South Africa Limited (acting through its Corporate and Investment Banking division) ("Standard Bank"), agreed to waive the covenant measurement related the debt to EBITDA ratio for the measurement period and therefore there was no Default or Event of Default for the measurement date ending 31 January 2024.

With regards to the prior period, an error was noted in the definition of Finance Costs as included in the Second Amendment to the Common Terms Agreement entered into on 31 March 2023. This had a significant impact on the calculation of the interest cover ratio as required in the debt covenants on the above-mentioned loans, as interest on the old Senior Bridge Loan prior to the refinance was included in error, resulting in the interest cover ratio being 2.32 at 31 July 2023, which was less than the minimum of 3.75 based on the agreement effective at reporting date. The debt had thus been classified as current. This error was rectified through an amendment on 6 October 2023 to the covenant ratio from 3.75 to 2.00 and agreed by both Standard Bank and the Group. Standard Bank further agreed that there was never a Default or an Event of Default that had occurred for the measurement date ending 31 July 2023.

The provision for litigation relates to the matter arising in the course of liquidating Mehleketo Resources Proprietary Limited ("Mehleketo"), which was a wholly owned subsidiary which was placed into liquidation in 2019, due to its inability to pay its financial obligations as they became due. The liquidators of Mehleketo held certain section 417 and 418 (in terms of the Companies Act) inquiries. In 2022, the liquidators instituted litigious action against various EOH entities citing, among other things, preference of creditors. In January 2024, the various EOH entities and the liquidators of Mehleketo concluded a settlement agreement in respect of the ongoing dispute between the parties. The settlement agreement sees the various EOH entities paying the liquidators an amount of approximately R49 million. The settlement agreement was concluded on a without prejudice basis. This balance was accordingly transferred out of provisions to other payables as there is no longer uncertainty over the timing or amount payable.

The PAYE provision relates to a PAYE dispute which the Group was contesting, that relates to Abantu, a wholly owned subsidiary, which had an ongoing tax dispute dating back to 2012 related to a PAYE dispute in two of its staff outsourcing businesses. At 31 January 2024, the Group had provided for R115 million on the PAYE liability assessed and is in ongoing discussions with SARS, regarding the potential settlement of this matter, in line with the requirements of the Tax Administration Act. In October 2022, Abantu launched a review application against SARS relating to the above-mentioned tax dispute. Since the launch of the review application, Abantu and SARS were engaging to resolve the dispute in an amicable and efficient manner through a Compromise process, which was resolved in February 2024. A total of R98 million for the period 2020 to 2022 was repaid up to 31 January 2024, and there have been no other movements in this provision during the current period. Refer to note 22 for more information.

Provisions also include onerous contract provisions, where there is uncertainty on the final amount, which is the lower of the cost of fulfilling the contract and any compensation or penalties arising from failure to fulfil the contracts, with the timing of outflow expected to be in the next financial period.

Financial risk management and fair value disclosures

The following table shows the carrying amounts and fair values of financial assets and financial liabilities at 31 January 2024:

The following table shows the carrying amounts and fair values of financial assets and financial liabilities at 31 July 2023:

The Group does not have any financial instruments that are subject to offsetting.

All cash and cash equivalents, short-term receivables and short-term payables carrying amounts approximate their fair values due to their short-term nature.

Other financial liabilities and assets, and lease receivables and payables carrying amounts approximate their fair values due to the nature and contractual terms of the instruments.

There have been no transfers between levels of the fair value hierarchy.

Non-recurring fair value measurements

Disposal groups classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. The fair values are determined based on sales agreements and offers that are in place for each of the disposal groups that are held for sale. The total of such fair values is R17 million (year ended 31 July 2023: Rnil). These fair values are categorised as level 3, based on inputs used.

The Group entered into various transactions with related parties.

Parent company guarantees

EOH issued parent company guarantees ("PCGs") during May 2019, as required by a client for a wholly owned subsidiary, PiA Solar SA Proprietary Limited ("PiA"). The guarantees were provided during both construction and after handover, including an operation warranty guarantee, which by nature could (in the event of a contractual breach by PiA) compel EOH to either ensure physical performance or settle any underperformance in cash terms. The continued provision of these guarantees is being discussed with the relevant client. While PiA had undergone some operational challenges as a result of several factors, EOH has intervened in order to minimise the potential impact of these PCGs and is working closely with the client to resolve outstanding issues. EOH will continue to proactively manage these projects to ensure that the risks presented by the PCGs are mitigated.

Litigation

EOH and its subsidiaries are involved in various litigation matters, which are at varying stages in the litigation process, and most of which arise from the ordinary course of business and some of which arise from legacy issues. None of these matters are considered material on an individual or in aggregate basis. Management has no reason to believe that the outcome of these matters will have a materially adverse effect in the consolidated financial position, financial results or cash flows of EOH.

Digital Industries Proprietary Limited ("DI")/Shema Power Lake Kivu ("SPLK") – Dispute

DI, a subsidiary of EOH, concluded an agreement with SPLK for certain services, goods and equipment to be delivered to SPLK's site in Rwanda. SPLK's allegation is that the services and equipment provided by DI were deficient in that it failed to provide proper advice and to properly instruct the installation of the equipment, resulting in the equipment being damaged and rendered unfit for purpose. SPLK instituted a summons against DI and its claim equates to approximately R57 million. EOH has defended the action and has instituted certain counterclaims in relation to the matter. The litigation proceedings are ongoing.

EOH Mthombo Proprietary Limited ("Mthombo")/Msunduzi Local Municipality – Dispute

Msunduzi Local Municipality issued a letter of demand against Mthombo in 2021 looking to enter into an arbitration in respect of Mthombo's alleged repudiation of the service level agreement concluded between them on or about April 2016. Mthombo contends that delays in the contract were attributable to both parties and that in 2019, Msunduzi Local Municipality was placed under administration and did not pay any further invoices to Mthombo. Mthombo's suspension of services was ultimately as a result of the municipality not paying Mthombo.

Commitments

Disposal of Coastal and Environmental Services Group and Exigo Sustainability Proprietary Limited

On 12 February 2024, the Group concluded the sale of Coastal and Environmental Services Proprietary Limited, including its subsidiary Coastal & Environmental Services Mozambique Limitada and Exigo Sustainability Proprietary Limited as one indivisible transaction for a purchase consideration of R14 million. The full purchase consideration was received on 9 February 2024.

Settlement reached on the PAYE dispute with SARS

On 29 February 2024, a statement was issued regarding the historical PAYE dispute between EOH Abantu Proprietary Limited t/a Highveld ("Abantu"), a subsidiary in the Group, and SARS.

After a process of continuous engagement between the Group and SARS final settlement terms were agreed as follows:

• The payment of R112 million, which was paid on 1 March 2024. This amount is in line with the PAYE provision raised and therefore will not have an effect on the Group's condensed consolidated statement of profit or loss and other comprehensive income.
• Abantu forfeited its tax receivable credit of R6.9 million which has not been provided for and therefore affects the taxation line item in the Group's condensed consolidated statement of profit or loss and other comprehensive income.
• Abantu will forfeit its assessed loss of R34.5 million. This will not affect the Group's condensed consolidated statement of profit or loss and other comprehensive income nor its condensed consolidated statement of financial position as no deferred taxation has been previously recognised for this assessed loss.

As a result of the above settlement the Group's lenders, Standard Bank have agreed to the below:

• Agreement for a temporary increase to facilities to allow for payment to be made on 1 March 2024.
• Due to successful sales of non-core assets the additional facility requirements are limited to R63 million.
• Agreement to waiving the loan covenants for a period of 12 months to allow additional loan repayments to reduce the EBITDA to total debt covenant ratio below the 2:1 requirement level.