COGNITION HOLDINGS LIMITED - Trading Statement and Operational Update

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 Group” or “the Company”)


TRADING STATEMENT AND OPERATIONAL UPDATE


TRADING STATEMENT

In terms of the Listings Requirements of 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 differ by more than 20% from that of the previous corresponding period.

Accordingly, a review of the financial results for the year ended 30 June 2016 by management has
indicated that:
  - the earnings per share (“EPS”) is expected to be between 10.81 cents and 12.67 cents, reflecting
    a decrease of between 32% and 42% compared to the EPS of 18.63 cents for the year ended
    30 June 2015; and
  - the headline earnings per share (“HEPS”) is expected to be between 10.76 cents and 12.62
    cents, reflecting a decrease of between 32% and 42% compared to the HEPS of 18.56 cents for
    the year ended 30 June 2015.

The decrease is primarily due to a further decline in faxing volumes. 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 coming to the market. Faxing solutions have historically
constituted the largest percentage of the Company’s revenue.

Other than the decline in faxing volumes, the rest of the business is on a solid footing. The Company
remains optimistic that its new products and services will replace, and then exceed the revenue accruing
from faxing going forward. 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’s auditors. The Company’s financial results are expected to be released on SENS on or
about 22 September 2016.

OPERATIONAL UPDATE

Active Data Exchange Services (“ADES”)
Faxing has, for the last eleven years, been the largest contributor to revenue in ADES and the Group.
The Group had previously informed shareholders that there had been a rapid decline in faxing traffic over
the last 24 months, as newer technologies become more prominent.

In line with this decline, the Group has developed a six point strategy (reflected below) to transform the
business and deploy new and innovative products to supplement, and then exceed the decline in faxing
revenue.

Document Management
Fax2email has shown a decline in the average rate per user (“ARPU”) resulting in a decline in revenue;
the Group still has over 350,000 users on the system.

The Group is, accordingly, developing a new document service called “Secure Document Exchange”.
This service will not make use of faxing technology, but will instead make use of blockchain encryption
and UMA transfer standards to securely transfer documents from sender to receiver and vice versa, using
the web.
This new service will enable full point-to-point security, full certification of date and time, and will be well-
suited to a number of sectors currently making use of the Group’s faxing services, such as brokerage,
medical, insurance and retail. As the Group has an established customer base of over 350,000, the
service will be launched to the existing market first. It is anticipated that this service will launch around
October 2016.

Call2Action
The Group’s traditional competitions, promotions and data pull technology, using SMS, IVR, Instant
Messaging and Loyalty, continues to perform well, and the Group is accordingly increasing its sales force
to meet additional demand.

Knowledge 350°
The Group’s third strategic pillar is making positive inroads, with existing clients making use of the solution
to gain valuable insights around their customer data. The Group’s Knowledge Dashboard, developed in
Micro Strategy, will be marketed aggressively in the following financial year, and will also form the
backbone of mibubble, which will be launched at the end of September 2016.

Vendor Relationship Management (“mibubble”)
mibubble has been in development for twelve months. It is anticipated that mibubble will be launched at
the end of September 2016. This is an innovative and secure Personal Information Management System
(“PIMS”) which enables users to store and share personal data with businesses of their choice in
exchange for value. mibubble uses a private ledger blockchain encryption and encapsulates data push
technologies incorporating the Group’s Knowledge 350° Dashboards and platform.

Management is very excited by this product as it can be deployed internationally to solve many of the
growing consumer issues around the sharing of personal data. mibubble is fully compliant with local and
international privacy legislation such as the Protection of Personal Information Act (“POPI”) and the
European Union’s General Data Protection Regulation (“GDPR”).

Incentive and Loyalty Programme
The Group has developed and deployed a very successful card-based Channel Incentive Programme for
a large mobile phone brand. In doing so, over 7,000 cards have been issued, and incentives in excess
of R35 million have been paid via the software and moderation system that has been developed to run
the Incentive and Loyalty Programme. The Group is now in a position to sign up new incentive clients
using this newly developed software and moderation system.

Acquisitions
The Group continues to look at possible acquisitions to enhance its overall strategy and future direction.

Despite the decline in faxing, which has had an obvious impact on our revenue in the short term, all other
aspects of the Group, together with the acquisitions to date, are performing well. New products and
services, referred to above, are being introduced to supplement and replace the decline in faxing revenue.

Johannesburg
12 August 2016

Sponsor
Merchantec Capital

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