By Ivan Uttley: Senior Rescue Practitioner

By Ivan Uttley: Senior Rescue Practitioner This is a pre-packaged insolvency proposal for Company-x and is a document forming the basis of creditor approval discussions This is a SUMMMARY document for presentation and discussion purposes, and should not be used without first understanding the mechanics of the economic engine spreadsheet which has been summarized here.

Document Structure & Contents • The document is structured in three sections with accompanying attachments • Section 1: Legal Standing and motivations for embarking on a pre-pack. • Section 2: - Quantitative review of Financials and Rescue prospects. • Assessing BRiL (Better Return than in Liquidation (S128(1)iii) • Quantifying the need for PCF (Post Commencement Finance (funding) • Section 3 – Delivery and Uplift Detail • Cost of Goods Sold • Opex • Inventory Holding Days • Receivable Days • Days Payable • Section 4 – Appendixes : Supporting documentation

Section 1 – Description of the Debtor’s Business • The piping system industry (also referred to as liquid and gas transfer), is a remarkably robust industry as it is a supplier to Heavy Industry (ie Mining), Agriculture and the Building industry. There are healthy 2ndary markets providing specialist services, (high pressure, toxic gas) and the diversification is a strong mitigant against cyclical downturns. There are no dominant players, and the Cr3 and c10 stats point towards a healthy competitive market with no room for predatory pricing. • We employ 1700 people • NUMSA is a key stakeholder representing 900 of our people • Our footprint covers all of the republic and namibia • 25% of our revenue is derived from Europe and Asia • Our last audited Public Interest score was • The weak balance sheet, but potentially strong income statement and healthy cash flows… • yyyyyyyyyyyyyy • yyyyyyyyyyyyy • yyyyyyyyyyyy • yyyyyyyyyyyyy • We see compelling evidence …………………

Section 1 – The Debtor’s History • The ……………….. • xxxxxxxxxxx • xxxxxxxxxxxxxxx • xxxxxxxxxxxxxx • xxxxxxxxxxxxxxxxxxx • xxxxxxxxxxxxxxxxx • The weak balance sheet, but potentially strong income statement and healthy cash flows… • yyyyyyyyyyyyyy • yyyyyyyyyyyyy • yyyyyyyyyyyy • yyyyyyyyyyyyy • We see compelling evidence …………………

Section 1 – Debtor’s circumstances and possible outcomes • The ……………….. • xxxxxxxxxxx • xxxxxxxxxxxxxxx • xxxxxxxxxxxxxx • xxxxxxxxxxxxxxxxxxx • xxxxxxxxxxxxxxxxx • The weak balance sheet, but potentially strong income statement and healthy cash flows… • yyyyyyyyyyyyyy • yyyyyyyyyyyyy • yyyyyyyyyyyy • yyyyyyyyyyyyy • We see compelling evidence …………………

Section 1 – Risks to delivery of Debtor’s Goals • This is a working capital crisis of a business that is at core a viable one with great potential. Mistakes have been made especially with regard to our market strategy but also regarding the short-term investment and financing of the business. This pre-packaged rescue plan addresses these mistakes and is aimed at: • Ensuring all debt obligations are met in full • Restoring adequate cash flow to operations • Self-funding future growth

A Synopsis of Pre-Pack Plan Pre-Packaged Rescue Plan – High Level work streams and Timing Validate IS line Accountabilities Plug revenue leakage. Stabilize the business. Implement Full Expense Austerity? Apply LEAN survival to Opex & overheads. VBM - Waste & Value Destroyer Removal. Cash Acceleration Process Efficiency Gains. Supplier Consolidation? Can we minimize PCF? Can we be self-funding? Clean-up balance sheet Non-core asset disposal Will we be able to Negotiate Financial Restructuring? Value Chain Rationalization. Will there be Opportunities for Debt Refinancing? Return to core competency. New Outsourcing Consolidation. Refine Operational Scaling. LBO. MBO, merger possibilities? Restructured Non-core asset disposal.

We have kept our Communication Simple so far. Never done properly, often seniority equates to entitlement and budgets are considered at best targets at worst allowances. Expect range of 3-5% impact on bottom Line Implement transparent and unambiguous stakeholder management plan, retain supporters, nurture converts, win-over skeptics or remove vociferous obstructers . No direct bottom-line benefit but has massive impact on both stability & ongoing support. Always an issue. Any cost that is not directly related to production is targeted. Test is simple: if the customer has an invoice with EVERY cost itemized on it, what would they reasonable refuse to pay? Executive catering? Time-share at Kruger? Membership of golf-club? Conflict resolution training? Newspapers? Expect range of 3-8% impact on bottom line. First cull of non-performers, obstructers, and culturally misaligned. Propose (reversible) working hours reduction to fit capacity of production and sales. – share the pain! Implement people-plan. Expect impact on bottom line of >20% Focus on Current and Long term assets – Debate core-assets, Assess Lease vs. Own Non-Core Asset Disposal Factoring & Debtor Invoicing Loan Recall, query bonus provisions Review Intangible Goodwill – Replace with equity using Texas style auction with majority shareholders who object – Expect positive impact on Cash and then reduced liabilities, but can have a negative impact Remove emotional barriers, show respect, treat as partners, manage expectations, get plan approval Assess cost allocation methodology Generate Whale curves by: Product, Customer, Branch, Channel, Region, Sales Exec. Retain, Reposition, Re-price & Remove of Value Destroyers. For every ZAR 1 of delinquent revenue removed, costs MUST be removed too. Address CCC. Expect uplift of 20-40% on bottom line.

Section 1 – Info Sharing – Red Flags No show stopper concerns have been raised with regard to any of the following Red Flags Confirmation in writing on the issue of preferential procurement has been requested in writing from the leadership team.

The Pre-Pack Scope • The document provides detail on the following • Continued Business Stabilization and • Austerity Measures (covered in the ~20% reduction • Tactical self-funding initiatives – as we have proven in the numbers • Strategic Review • Operational Restructuring • Company Restructuring • Financial Restructuring • Debt Refinancing a review of core operations and product as well as consideration of divesting non-core parts of the value chain to better suited 3rd party providers should add value, for example. This business has no competency in managing their call centre, which is expensive and also sub-standard in service metrics. This should be divested and outsourced, as an obvious starting point. Refinancing and restructuring will only commence once we have finished these first stages, (if all all even necessary) it would be ill-advised to do so beforehand as we believe the information that will guide valuations, decisions and attract alternate investors (mezzanine) requires the data output from these initial steps. However the business remains open to all considerations.

Section 1 – Pre-pack Planning Sections

Section 1 – Pre-pack Planning Outcomes and Proposals

Quantitative Current Outlook – refer to Attachment A Immediate insolvency would still incur risk and this is time line as well as WACC dependent.. Estimates, depending on 3-6 &12 month time horizons value the outcome at 63-76 cents on each Rand of outstanding debt.(capital + remaining interest, using discount rate of prime + 5, higher WACCS are obviously penalized.) The latest Audited Financials confirm the financial distress, and the YTD actual vs. Forecast is misaligned. On the current trend the business will again miss its own forecasts. (not a unique occurrence). Some concerns are obvious (OpEx as % of Rev,) and the PBIT of just under 1.5% and COGS on an historical trend has increased disproportionately with revenue growth.

Quantitative Current Outlook – refer to Attachment A The current performance can barely self-fund growth to keep abreast of inflation (remember the costs are inflated before the income is generated! And if we consider the stated change in Working Capital that must be funded as well as servicing debt then we have a business that meets every definition of financial distress

Quantitative Prospect review – What is hidden

Quantitative Planned Outcome – The what-if Economic Engine The potential theoretically, and indeed quite practically, as we do not consider any Revenue uplift as a benefit in this analysis, is quite clear, although previously disguised. We will now generate over 9 cents per ZAR of revenue, a 7 fold increase, and moreover each rand we have will be cycled more frequently through the business acting as a multiplier on this 7 fold increase.

Key Domains required for delivery of the Plan – Attachment B The Self Assessment of the Key domains of Leadership, Data & Information, Strategy & Planning, Human Capital, Process Management, Operations Management and Voice of Customer, show remarkable consensus even within the existing leadership team. The data is the aggregate feedback of the leadership team, their direct reports, and again theirs in turn. 47 responses. The issues are quite apparent, and this is why a gated plan is recommended.

Company-X Value Chain If we walk through the Value Chain of Company X you will agree that certain domains can be considered “non-core”, i.e. they are better managed and will profit from economies of scale as well as core competency focus, within these domains are secondary considerations, such as Marketing, HR, Office Management etc, which will also be considered as part of the Value Chain rationalization and will inform the Company Restructuring discussions.

Reasonable Prospects: Reporting Quantitative Part for each line of IS/BS Risk unmanaged Obstacles Overcome 100% Certainty 3 2 • Risks that materialise • Risk 1 • Risk 2 • etc • Obstacle or Assumption 1 • Obstacle or Assumption 2 • Obstacle or Assumption 3 • etc Conditional Target (But all risks are managed) 4 High Confidence Target Stretch Target ( requires some luck and full co-operation and no distractions) Outcome Likelihood/Expectation 1 Rescue plan a failure A range for the Reported Financial metric (OpEx or COGS Days Receivable, Inventory Holding Days etc) 0% Certainty Key Shaded area 1 – Shows unmanaged or unavoidable risk hampered delivery of the expected result. Shared area 2 – Very confident of meeting at least this target Shaded area 3 – Conditional Target, which requires certain conditions Shaded area 4 - Stretch Target – but not beyond the realms of the impossible – we will strive for this. R - Documented Risks/Issues that will prevent us reaching this benefit O - Documented Obstacles that we must overcome to get the Stretch The range of expected results for appropriate level of IS or BS

Reasonable Prospects: Opex Uplift – Actual Reporting and Commitment Risk unmanaged Obstacles Overcome 100% Certainty 3 2 • No overtime needed • Taking Leave does not disrupt • Union co-operation • Time-keeping systems not working • Training Providers not to impose penalties • Booked airfares to be fully refunded Conditional Target (But all risks are managed) 4 High Confidence Target Stretch Target ( requires some luck and full co-operation and no distractions) Outcome Likelihood/Expectation 1 Rescue plan a failure Opex Reduction 0% Certainty The range of conditional results for expense removal Tracking/Reporting on Delivery Key Shaded area 1 – Shows managed risk dealt with is 15% reduction – bank on this. Shared area 2 – We should reduce expenses 18% – no reason to miss this target. Shaded area 3 – We could reduce expenses by 23%, but this requires A & B to happen Shaded area 4 – We are aiming for 31%, but this requires C, D & E to happen Unlikely At risk Bank it

By Ivan Uttley: Senior Rescue Practitioner