|42.||EVENTS AFTER REPORTING DATE|
The Group considers information obtained subsequent to the reporting date, in relation to events it knows or should have known and expected eventualities identified as at 31 July 2020, as adjusting subsequent events. With regards to financial reporting impacts associated with COVID-19, the key principle is that COVID-19 is considered to be sufficiently prevalent in the Group's major markets at 31 July 2020. Therefore, COVID-19 related events that arise in the post balance sheet period, that provide additional information in relation to assets and liabilities in existence at 31 July 2020, have been considered adjusting subsequent events. New events which occur after 31 July 2020, which do not relate to existing assets and liabilities related to COVID-19 at the reporting date (such as donations to relief initiatives), are considered to be non-adjusting subsequent events, and these, together with their relating financial effects, have been disclosed to the extent that they are considered to be material.
Update to unsecured interest-bearing loan
On 28 August 2020, the Group entered into a new arrangement with an unsecured interest-bearing loan provider with an outstanding capital amount of R200 million, in terms of which it would not be repaid, but rather participate in the deleveraging and refinancing plan and be secured through its participation in the security SPV arrangements.
Debt reduction plan
The Group entered into an agreement with its lenders to deleverage R1 600 million by 1 April 2021. As at 31 July 2020
R540 million had been paid towards the R500 million target due by 30 August 2020. A further payment of R700 million was required by 30 November 2020. R450 million of the 30 November 2020 target was met. The Group's disposal process, which is a road to deleverage, has been impacted by COVID-19 in terms of the time to close a deal and investors taking a conservative view on investing capital into new assets. Lockdown level 5 and level 4 had a significant impact on delaying the process as well as an impact on operating performance of the IP B2B2C assets. The months since July have seen a meaningful improvement in the performance of these assets. As a result of these delays the Group was unlikely to meet its R700 million target for 30 November 2020. The Group has obtained a waiver on financial covenants and an amendment to defer the R250 million target to
The Group is in advanced discussions with its lender group to restructure the debt into a more long-term acceptable capital structure and has signed an indicative term sheet.
Disposal of assets
On 13 December 2019, EOH advised shareholders that a sales agreement had been entered into between EOH Abantu Proprietary Limited (EOH Abantu), a wholly owned subsidiary of EOH and a subsidiary of Afrocentric Investment Corporation Limited (Afrocentric), in terms of which EOH Abantu disposed of all of its shares in Dental Information Systems Holdings Proprietary Limited (Denis) for a total consideration of R250 million. All suspensive conditions pertaining to the Denis transaction have now been fulfilled and the first R234 million payment related to the transaction was received on 30 September 2020, with R16 million being held in escrow until 1 April 2022.
On 20 April 2020, EOH announced the sale of the remaining 30% stake in CCS to RIB Limited (RIB), a wholly owned subsidiary of RIB Software SE, for a total consideration of R143 million. In addition to the early exercise of the call option, RIB agreed to release the full cash amount in escrow of R47 million, by no later than 30 September 2020 which has now been completed.
Disposal of MARS Holdings Proprietary Limited
The Group entered into a share purchase agreement ('SPA') on 18 November 2020 to dispose of 100% of the issued ordinary shares of MARS Holdings Proprietary Limited, together with its subsidiaries and associates (together 'Syntell'), to K2020776145 South Africa Proprietary Limited ('the Purchaser'), for a consideration of R211 million ('the Base Purchase Price') ('the Transaction').
The Transaction is in line with EOH's stated strategic intent of selling non-core assets as it seeks to right-size the Group and deleverage its balance sheet. Furthermore, the execution of the Transaction provides EOH with the opportunity to extinguish the last sizeable VFA liability of R36 million on the EOH balance sheet ('the VFA Liability').
The cash consideration received by EOH will primarily be utilised to reduce debt which is consistent with EOH's objective of creating a fit-for-purpose capital structure. The remainder of the proceeds will be utilised for the working capital requirements of EOH.
On 18 November 2020, the Purchaser paid the Group a cash amount equal to the Base Purchase Price, less the VFA Liability of R36 million. Furthermore, a shareholder loan from the Group of R10.5 million was settled by Syntell prior to the Signature Date.
The SPA contains undertakings, warranties and indemnities that are customary for a transaction of this nature and the Transaction is not subject to any conditions precedent.
Liquidation of NEXTEC Advisory Proprietary Limited
NEXTEC Advisory Proprietary Limited, being a wholly owned subsidiary in the Group, was placed in voluntary liquidation subsequent to reporting date. The Company reflected a loss after tax for the year of R27 million and has a negative net asset value at 31 July 2020 of R17 million. The business of this company was its use of a radio frequency identification tracking solution developed for the public sector. The Tshwane Trust has formally been appointed as liquidator.
Forensic investigation into suspect payments
At the initial stage of the investigation, three contracts were identified as having apparent irregularities including collusion to bypass State Information Technology Agency ('SITA') processes to enable over-invoicing. The provision for the over-invoicing was raised in the Group's 2019 annual financial statements and remained with no update required. Refer to note 23 for the provision raised.
EOH declared the over-invoicing to the National Treasury at a meeting on 31 May 2019 and has already commenced reimbursing the Special Investigations Unit for the overcharging in two contracts, pursuant to an agreement which states that EOH will repay approximately R42 million as reimbursement for the overcharging. EOH is in the process of finalising a similar reimbursement arrangement with regards to the remaining third and final contract.