COGNITION HOLDINGS LIMITED - Restatement of Financial Information, Trading Statement and Operational Update

Restatement of Financial Information, Trading Statement and Operational Update

COGNITION HOLDINGS LIMITED
Incorporated in the Republic of South Africa
(Registration number 1997/010640/06)
Share code: CGN      ISIN: ZAE000197042
(“Cognition” or “the Company”)


RESTATEMENT OF FINANCIAL INFORMATION, TRADING STATEMENT AND OPERATIONAL UPDATE


RESTATEMENT OF FINANCIAL INFORMATION

In accounting for the business combination of the BMi Sport Group for the six month period ended
31 December 2014 (“31 December 2014 Results”) the effective date was reported and accounted for as
1 July 2014. The date of 1 July 2014 reflected the date on which the Company acquired contractual
control of the BMi Sport Group. However, after a review by the the Company’s auditors during the
preparation of the full year results for the period ended 30 June 2015, it was found that whilst the
contractual control date of 1 July 2014 was indeed correct, it did not accord with the control of entity
requirements of IFRS and that the effective date of the transaction and of control for purposes of IFRS
was determined to be 1 March 2015. The restatement has no impact on the financial results for the year
ended 30 June 2015.

The effect of the above on the 31 December 2014 Results are as follows:

                                                         As originally      Restated     Percentage
                                                         reported           amount       change
 Net asset value per share (cents)                       102.36             98.50        (3.8%)
 Net tangible asset value per share (cents)              82.65              78.80        (4.7%)
 Basic earnings per share (cents)                        10.73              9.31         (13.2%)
 Headline earnings per share (cents)                     10.69              9.27         (13.3%)
 Diluted earnings per share (cents)                      10.73              9.31         (13.2%)
 Diluted headline earnings per share (cents)             10.69              9.27         (13.3%)

TRADING STATEMENT

In terms of the Listings Requirements of the JSE Limited, companies are required to publish a trading
statement as soon as they become reasonably certain that the financial results for the period to be
reported on will be more than 20% different from that of the previous corresponding period.

Accordingly, a review of the financial results for the six months ended 31 December 2015 by
management has indicated that:
- the basic earnings per share (“EPS”) is expected to be between 5.58 cents and 6.52 cents, reflecting
  a decrease of between 30% and 40% compared to the restated EPS of 9.31 cents for the six months
  ended 31 December 2014; and
- the headline earnings per share (“HEPS”) is expected to be between 5.56 cents and 6.48 cents,
  reflecting a decrease of between 30% and 40% compared to the restated HEPS of 9.27 cents for the
  six months ended 31 December 2014.

The expected decrease is primarily due to a further decline in faxing volumes during the six months
under review. Whilst the number of fax subscribers remained constant, the average rate per user for
Fax2Email declined. Although this trend has been anticipated, giving rise to the development of new
products and services, the decline was quicker than the increased revenue from new services being
introduced to the market. However, for the period under review, Email2Fax increased by 15% albeit off
a lower base.

Faxing solutions have historically constituted the largest percentage of the Company’s revenue. Over
the last three years, new services and products were developed to reverse the decline. Other than the
decline in fax, the rest of the business is on a solid footing.

The Company remains optimistic (given positive inroads made during the first six months of the year)
that going forward it’s new products and services will replace and then exceed the revenue accruing
from fax. This is addressed in the operational update below.

The financial information on which this trading statement is based has not been reviewed or reported on
by the Company’ auditors. Cognition’s interim financial results are expected to be released on SENS on
or about 23 March 2016.

OPERATIONAL UPDATE

Active Data Exchange Services (“ADES”)

Faxing is one division within ADES and is still the largest contributor to revenue in ADES. However, the
Company is strategically and operationally working to fast-track the growth of media infotainment, retail
promotions and data investment services all using various bearer services such as SMS, USSD, Instant
Messaging and MMS. In line with this strategy, the Company has, during the period under review:
- renewed the majority of contracts with existing clients;
- signed up a number of new clients;
- extended its service offering to existing clients with additional service offerings;
- increased its sales and back-office support from 8 to 11 staff; and
- launched new services under its newly formed incentive and loyalty programme, with the start of a
  channel incentive programme with a well-known mobile phone brand. Via this programme the
  Company has issued 5 000 loyalty cards and processed 47 000 incentives into these cards. The
  Company sees this programme increasing in size and value and also enabling it to deploy many
  more similar incentives to different brands.

Knowledge Creation and Management

The Company’s strategy of extending its service offering to existing ADES clients into community builds
and then into its Knowledge 350? (“K350”) solution has gained momentum and the response has been
positive. The market for the Knowledge Economy, including data analytics and insights, is huge and
provides great opportunities for the Company. The Company has successfully started a number of
community builds and K350 initiatives.

The Company believes that its K350 solution can be offered to over 300 of its existing clients and also
to the clients serviced by BMi Research, BMi Sport and Livingfacts. The K350 model is primarily
revenue annuity-based and is intended to supplement the decline in fax revenue.

During the period under review the Company commenced with the development of a new product within
the sphere of Vendor Relationship Management (VRM) which will enable consumers to engage directly
with business and share their personal data. The Company expects to launch this product by the end of
March 2016.

Investment Portfolio

The Company’s three investments, BMi Research (100%), BMi Sport (63%) and Livingfacts (48%),
have all performed well and excelled in a number of KPI’s whilst collectively offering services to over 60
blue chip brands. The Company is currently working on accelerating the integration of K350 to defined
clients of these companies.

Further Acquisitions / Investments

Good progress has been made in evaluating a number of additional investments that would
complement the Company’s K350 and data analytics initiatives. Shareholders will be kept updated via
SENS at the appropriate times.


Johannesburg
26 February 2016


Sponsor
Merchantec Capital

Date: 26/02/2016 05:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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