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Reviewed Condensed Consolidated Financial Statements For The Year Ended 28 February 2014
Total Client Services Limited
Incorporated in the Republic of South Africa
(Registration number 1998/025018/06)
Share code: TCS ISIN: ZAE000116208
(“TCS” or “the Group” or “the Company”)
REVIEWED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 FEBRUARY 2014
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Reviewed Audited
% Year ended Year ended
Change 28 Feb 2014 28 Feb 2013
R’000 R’000
Revenue (37) 28 293 44 798
Cost of sales 25 (12 681) (16 911)
Gross profit (44) 5 612 27 887
Earnings before interest, tax, depreciation
and amortisation (2594) (11 088) 445
Depreciation (2 708) (2 877)
Goodwill impairment - (1 796)
Loss from operations (226) (13 796) (4 228)
Finance costs (4 227) (4 000)
Loss before taxation (119) (18 023) (8 228)
Taxation (387) (1 673)
Loss for the year (86) (18 410) (9 901)
Other comprehensive income
Revaluation of equipment - 2 370
Deferred tax on revaluation - (663)
Total comprehensive loss
for the year (125) (18 410) (8 194)
Loss attributable to:
Equity holders of the company (18 410) (9 901)
Non-controlling interest - -
Reconciliation of loss to headline loss:
Loss after tax (18 410) (9 901)
Adjusted for:
Goodwill impairment - 1 796
Asset impairment 10 352
Loss on disposal of equipment 41 -
Tax effect of the above (3) (99)
Headline loss for the year (134) (18 362) (7 852)
Basic and diluted loss per ordinary share
attributable to the equity holders of the
Company (cents) (86) (4.76) (2.56)
Weighted average number of ordinary
shares in issue (in thousands) 386 363 386 363
Headline and diluted headline loss
per ordinary share (cents) (134) (4.76) (2.03)
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Reviewed Audited
as at as at
28 Feb 2014 28 Feb 2013
R’000 R’000
ASSETS
Non-current assets 2 621 5 617
Property, Plant and Equipment 2 621 4 879
Intangible Assets - 321
Deferred tax - 417
Current assets 5 905 10 892
Trade and other receivables 4 657 6 329
Cash and cash equivalents 1 248 4 563
TOTAL ASSETS 8 526 16 509
EQUITY AND LIABILITIES
Capital and reserves (39 468) (21 058)
Share Capital 18 123 18 123
BEE reserves (9 923) (9 923)
Revaluation reserve
1 044 1 707
Retained earnings
(48 711) (30 964)
Non-current liabilities 58 565
Interest bearing borrowings 58 87
Deferred tax - 478
Current liabilities 47 936 37 002
Current tax payable 1 467 906
Interest bearing borrowings 24 529 23 679
Trade and other payables
21 940 12 417
TOTAL EQUITY AND LIABILITIES 8 526 16 509
Total number of ordinary shares in issue for the year 390 134 390 134
(in thousands)
Treasury shares (in thousands) (3 771) (3 771)
Total number of ordinary shares in issue excluding
treasury shares (in thousands) 386 363 386 363
Net asset value per ordinary share (cents) (10.22) (5.45)
Net tangible assets value per ordinary share (cents) (10.22) (5.53)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Reviewed Audited
Year ended Year ended
28 Feb 2014 28 Feb 2013
R’000 R’000
Net cash (outflow)/inflow from operating activities (3 082) 3 725
Net cash (outflow) from investing activities (169) (473)
Net cash (outflow) from financing activities (64) (89)
Net (decrease)/increase in cash and cash
Equivalents (3 315) 3 163
Cash and cash equivalents at the
beginning of the year 4 563 1 400
Cash and cash equivalents at the end of the
year 1 248 4 563
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share Share BEE Revaluation Retained
Capital Premium Reserves Reserve Income Total
R’000 R’000 R’000 R’000 R’000 R’000
Balance as at 1 March 2012 39 18 084 (9 923) 615 (21 678) (12 864)
Total comprehensive loss for the year - - - 1 707 (9 901) (8 194)
Realisation of revaluation reserve - - - (615) 615 -
Balance as at 28 February 2013 - Audited 39 18 084 (9 923) 1 707 (30 964) (21 058)
Total comprehensive loss for the year - - - - (18 410) (18 410)
Realisation of revaluation reserve - - - (663) 663 -
Balance as at 28 February 2014 - Reviewed 39 18 084 (9 923) 1 044 (48 711) (39 468)
CONDENSED CONSOLIDATED SEGMENT REPORT FOR THE GROUP
Southern Northern North-West Coastal Corporate Total
R’000 R’000 R’000 R’000 R’000 R’000
28 February 2013
Total revenue 1 724 29 821 2 569 4 099 6 584 44 797
Total (loss)/profit before tax for
Reportable segment (315) 6 280 1 319 1 946 (17 458) (8 228)
28 February 2014
Total revenue 669 12 406 1 326 2 193 11 699 28 293
Total (loss)/profit before tax for
reportable segment (299) 1 848 345 321 (20 238) (18 023)
COMMENTARY ON THE GROUP RESULTS
OPERATIONAL PERFORMANCE
During the year under review, TCS continued to deal with the challenges at hand in order to take advantage of
opportunities in the market. Management’s focus during the year has been to continue to consolidate the existing
contracts, improve the service offering and win new business. The performance of existing contracts has been
stable. Implementation of new contracts in a timely manner remained priority in this year. New clients have
been signed onto E-pay as part of our service offering.
Although there are notable losses in the year under review, it needs to be understood that these losses were
compounded by the challenges brought by uncertainty within the Company and certain historically duly noted
limitations related to Company structures.
Although the Business Rescue process added value and enabled the restructuring of the Company, the impact it
had on general operations should be taken into consideration when considering the performance. The negative
perception in the market had a definite impact on current and new business, and it also allowed opportunity for
competitors to take advantage of the situation.
FINANCIAL PERFORMANCE
Revenue for the year under review compared to the previous year has decreased by 37% to R28.3 million. This
can be largely attributed to the Ekurhuleni contract coming to an end in December 2012. The efforts by
management to improve efficiency and the service offering started to deliver results with certain cost reductions
noted. Earnings before, interest, tax, depreciation and amortisation (“EBITDA”) have also declined during the
year, with a negative EBITDA of R11.1 million reported.
After deducting depreciation and finance costs, a loss before tax of R18.0 million has been recorded compared to
R8.2 million recorded in the prior year. Cost of sales reduced during the year by R4.2 million compared to the
corresponding year, this change reflects the results of cost containment efforts and efficient deployment of
resources.
The headline loss per share increased to a loss of 4.76 cents compared to a loss of 2.03 cents for the prior year
ending 28 February 2013.
The movement in non-current assets relates mainly to depreciation recorded during the year and the reduction in
current assets reflects the reduced cash balances and trade receivables at year end. In spite of the effort put into
debt collection, some clients did not adhere to their terms. This had an impact on trade and other payables at
the end of the year. The Group utilized cash of R3.1 million in operations and invested R0.2 million in existing
operations. At the end of the year the Group’s closing cash balance was R1.2 million.
PROSPECTS
The Administration Adjudication of Road Traffic Offences Project (“AARTO”) has been delayed and a new date has
not as yet been announced. It is anticipated that AARTO will enhance the Company’s revenue and growth
prospects. TCS has aligned its business strategy, products and services in accordance with the requirements
of AARTO and our systems are fully compliant.
The new contracts commissioned included Mandeni, Mnquma and Sundays River. The performance of the
Gauteng contract is expected to increase in the next few months with production increasing and E-pay being
added.
The Company aims to introduce a more focussed service orientated approach to include robust Back Office
Service Solutions (BOSS Division), Total Computer Services (New Information and Communications Division), and
Equipment Technologies Solutions (ETS). These divisions will be equipped to operate as self- sustainable cost
centres, providing services and creating new diverse market attraction to grow shareholder value for Total Client
Services.
The market already provides sustainable targets for the TCS Group of companies with new manageable sites
being concluded, which will be announced to the market in due course. These will also include the introduction of
new products to the market, being: own re-engineered Artimas fixed Radar Camera, own new “TCS CAPTURE”
mobile camera, Handheld Devices, new Windows based Traffic Management System, the Pound Management
System and the On Board Automatic Number Plate recognition systems. These products, together with other new
innovations, will be launched over the coming months and is expected to play a significant role in the re-focussed
TCS.
SEGMENT REPORTING
Regional Service Centres have been identified by TCS as operating segments as they engage in business activities
from which they earn revenue and incur expenses. In addition, operating results are regularly reviewed by the
Group’s chief operating decision makers in order to assess the segment’s performance and to allocate resources.
The Group’s reportable segments are:
- Southern region;
- Northern region;
- North/West region;
- Coastal region; and
- Corporate.
BASIS OF PREPARATION
Statement of compliance
The condensed consolidated financial statements are prepared in accordance with the requirements of the JSE
Limited Listings Requirements and the requirements of the Companies Act of South Africa, 2008 (Act 71 of
2008), as amended. The Listings Requirements require reports to be prepared in accordance with the framework
concepts and the measurement and recognition requirements of International Financial Reporting Standards
(IFRS) and the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial
Pronouncements as issued by Financial Reporting Standards Council and to also, as a minimum, contain the
information required by IAS 34 Interim Financial Reporting. The accounting policies applied in the preparation of
the condensed consolidated financial statements are in terms of IFRS and consistent with those of the annual
financial statements for the year ended 28 February 2013, except for the adoption of new, improved and revised
standards and interpretations which became effective, which had no material effect on the financial results.
The directors take full responsibility for the preparation of the financial information and the financial information
has been correctly extracted from the underlying financial information.
The reviewed financial statements have been prepared under the supervision of the Acting Financial Director
Mr C Els.
Business rescue process and subsequent events
As per the announcement released on SENS on 22 November 2013, the board of directors of TCS (“the Board”)
deemed TCS to be financially distressed as contemplated in Chapter 6 of the Companies Act, 71 of 2008, as
amended (“the Companies Act”) and accordingly, on 21 November 2013 resolved that business rescue
proceedings commence, and that TCS be placed under supervision in terms of section 129 of the Companies Act.
In this regard, Mr Piers Marsden of Matuson & Associates was appointed as the Company’s business rescue
practitioner (“Business Rescue Practitioner”) on 9 December 2013.
An announcement was released on SENS on 2 May 2014, informing shareholders of the publication of a proposed
business rescue plan (“Business Rescue Plan”) and included a notice of meeting of creditors, other holders of a
voting interest and shareholders to be held on 19 May 2014 to consider the Business Rescue Plan.
As per the announcement released on SENS on 19 May 2014, the Business Rescue Plan was approved by the
requisite majority of creditors, other holders of a voting interest and shareholders. Subsequent to the
announcement released on SENS on 19 June 2014, wherein shareholders were advised that the Company
submitted its Schedule 13 application to the JSE to enable the Company to raise capital through the issue of new
shares, the application was approved by JSE Limited.
The Business Rescue Practitioner confirmed on 14 August 2014 that the Business Rescue Plan had been
substantially implemented and that the control of the Company effectively reverted back to the Board.
The Business Rescue Plan included the below restructuring of the Statement of Financial Position. The pro-forma
financial effect of the specific issue of shares as part of the business rescue and subsequent restructuring will be
released in a separate announcement in due course.
- Equity Injection - Slade Investments CC (“Slade”)
The Company required a cash injection. The amount injected into the Company would be used as working capital.
The Company’s financial model indicated a cash requirement of R 2million. Slade injected R 2million into the
Company as follows:
1) R1million by subscribing to 100 million shares at a fixed price of 1 cent per share. This constituted 20.4% of
the issued share capital post the issues of the new shares.
2) R1million loan, which will be interest free for the first twelve months. Slade has the option to convert the loan
to ordinary shares at a fixed price of 1 cent per share after twelve months, subject to all the JSE and Companies
Act regulations at that date. Should the option to convert not be exercised the loan will become repayable over
12 months at the prime interest rate.
- Debt restructuring and forgiveness - Mvelapanda Holdings Proprietary Limited (“Mvela”)
A total amount of R35.77 million was due and payable to Mvela relating to the preference shares and accrued
interest thereon. The repayment/distribution of the preference shares were subject to section 46 of the
Companies Act including the solvency and liquidity test. An amount of R5million was written off. The remaining
preference share capital and accrued interest were converted to loans as indicated below which are not subject to
section 46 of the Companies Act requirements.
- Terms and Repayment of Remaining Debt
The remaining debt of R30.77 million owing to Mvela was structured as follows:
1) R5 million to be a senior loan repayable monthly over 3 years at 10% interest per annum with repayment of
capital and interest commencing on 1 March 2015.
2) R25.77 million loan subordinated in favour of all creditors.
- Interest free for the first 12 months commencing on adoption of The Plan.
- After 12 months have the option to convert into ordinary shares at the fixed price of 1 cent per share, subject to
all the JSE and Companies Act regulations at that date.
- Should the option to convert not be exercised the loan will become repayable over 3 years commencing only
once the senior loan has been repaid. Interest will accrue at the prime interest rate.
Going Concern
During the year certain significant contracts came to an end which contributed to the Group making a loss after
tax of R18.4 million for the year, and at year end the Group had a negative equity position of R39.5 million. The
Group continues to incur losses. The preference shares were mandatory redeemable on 29 November 2013 for
which the Company did not have sufficient funds to settle the liability. As per the announcement released on
SENS on 22 November 2013, the Board deemed the Company to be financially distressed and passed a resolution
on 21st November 2013 to place the Company in business rescue. As explained in the Business Rescue Plan
section, the Company’s statement of financial position has been restructured after year end and additional funding
of R2million was received.
The Ekhurhuleni and Emfuleni contracts historically contributed revenue of approximately R20 million per annum
and the loss of these contracts during 2013, largely contributed to the reported drop in revenue for the year
under review. These losses, together with the operating restrictions experienced during the Business Rescue
process, continued to have a severe effect on the trading during the year from March 2014 until the date of this
report. Restrictions mainly relate to limited cash for operations, as well as reservations amongst existing clients
and new clients in the market to engage in or increase business activities with the Company during the Business
Rescue period.
However, since the discharge from Business Rescue as announced on SENS on 29 August 2014, the Company has
managed to secure significant new business. This includes contracts for Polokwane, Kokstad, Makhado and Nelson
Mandela Bay Metropole. Negotiations for contracts in Namibia are at an advanced stage and conclusion is
expected during November 2014. Additional contract specific funding may be required to successfully implement
certain of the new contract plans and to achieve the best return on these contracts.
Focus will also be on equipment technology advances and service delivery to improve income from existing
contracts and confidently pursue new markets and contracts.
In addition to the revenue initiatives, the cost saving processes started during the Business Rescue period will
continue as part of an ongoing profitability improvement process.
The Board believes that as a result of the above, positive operating cash flows will be realised in the foreseeable
future. The Board determined the future cash flows of the Group when it assessed the going concern status.
Although due care has been exercised in the preparation of these forecasts, any forecast is based on certain
assumptions which may or may not materialise in future. Any forecast financial information contained in the year
end results has not been reviewed and reported on by the Group’s auditors in accordance with paragraph 8.40(a)
of the Listings Requirements. However, the Board is of the opinion that the mentioned positive developments
combined with management processes and initiatives implemented, makes the forecasts realistic and achievable.
The Group has come through an extremely difficult trading period and cash flow remains extremely tight. The key
components of the Group continuing as a going concern is the ability to win tenders for new projects, obtain
specific contract funding if required and ensuring existing contracts are profitable.
The forecasts are based on the following assumptions:
- there is no deterioration in the current market conditions;
- municipalities continue to outsource the administration of traffic violations;
- the Company is able to cut its operational expenses in line with sales levels;
- there is no deterioration in the payment and collection cycle;
- the Company is able to obtain tax clearance certificates for the various new tenders;
- projected tenders are awarded to the Company;
- the Company has the ongoing support of all its stakeholders and will obtain additional financing where required
for specific projects; and
- the current and ongoing South African Post Office strike is resolved in the near future.
Significant negative change in these areas of assumptions will require swift action and adjustment by the
Company in order to continue as a going concern. The cash injection relating to the Specific Issue gives the
Company the best possible chance of returning to profitability by providing liquidity to commence new projects as
well as pay historic creditors.
These conditions underline the ever-present uncertain and variable circumstances in the market. Failure by
the Company to effectively operate under these conditions, will give rise to a material uncertainty which may
cast significant doubt about the Company’s ability to continue as a going concern and, therefore that it may
be unable to realise its assets and discharge its liabilities in the normal course of business.
The financial information have been prepared on a going concern basis which presumes that the Group will
generate sufficient cash flows to enable it to service its debts in the normal course of business as and when they
become payable.
Modified review report
The condensed consolidated financial statements for the year ended 28 February 2014 have been reviewed by the
Company's auditor, BDO South Africa Incorporated, who has expressed a modified review conclusion on the
results. A copy of their review report is available for inspection at the Company’s registered office. The auditor’s
report does not necessarily report on all of the information contained in these financial results. Shareholders are
therefore advised that in order to obtain a full understanding of the nature of the auditor’s engagement they
should obtain a copy of the auditor’s report together with the accompanying financial information from the issuer’s
registered office.
The Disclaimer of opinion and Report on Other Legal and Regulatory Requirements paragraphs as contained in
the review report are set out below:
Basis for Disclaimer of Opinion
As indicated in the going concern section, the Group incurred a net loss for the year ended 28 February 2014 of
R18.4 million and, as at that date its total liabilities exceeded its total assets by R39,5 million and applied for
business rescue on 21 November 2013. Subsequent to year-end, the Business Rescue Plan was approved and
substantially implemented by the Business Rescue Practitioner which will materially adjust the carrying value of
certain financial statement items. The going concern of the Group is significantly dependent on the Group
securing new contracts and the successful restructuring of its operational expenses in line with sales levels. The
going concern note also indicates that these conditions, along with other matters, indicates the existence of a
material uncertainty which may cast significant doubt on the Group’s ability to continue as a going concern and
therefore it may be unable to realise its assets and discharge its liabilities in the normal course of business. In
these circumstances and as a result of the significance thereof, we have not been able to obtain sufficient
appropriate audit evidence to confirm or dispel whether it is appropriate to prepare the financial statements on
the going concern basis.
Disclaimer of opinion
Because of the significance of the matter described in the Basis for Disclaimer of Opinion paragraph, we have not
been able to obtain sufficient appropriate audit evidence to provide a basis for an opinion. Accordingly we do not
express an opinion on the financial statements.
Report on Other Legal and Regulatory Requirements
In accordance with our responsibilities in terms of sections 44(2) and 44(3) of the Auditing Profession Act, we
report that we have identified certain unlawful acts or omissions committed by persons responsible for the
management of the Company which constitute reportable irregularities in terms of the Auditing Profession Act,
and have reported such matters to the Independent Regulatory Board for Auditors. The matters pertaining to the
reportable irregularities are as follows:
- The entity has submitted the Value Added Tax returns (VAT 201) and Employees Tax returns (EMP 201) to
the South African Revenue Services but no payment has been made to settle the outstanding liability.
- Contravention of Section 30 of the Companies Act, 2008 by failing to prepare annual financial statements
within six months after its financial year end.
- Contravention of Listing Requirement 3.19 of the JSE Limited Listing Requirements which requires issuers to
distribute a notice of the annual general meeting and annual financial statements to all holders of securities
and to submit to the JSE Limited within six months after its financial year end.
- Contravention of Section 66(2)(b) of the Companies Act, 2008 by failing to have the minimum number of
directors as prescribed
- Contravention Section 94 (6) of the Companies Act by failing appoint a person to fill any vacancy on the
audit committee within 40 business days after the vacancy arises.
Contingent liabilities
The former landlord has issued summons against the Company for R1.0 million. The Company has defended the
action. The Board do not believe that any amounts are due to the former landlord and have not provided for
this amount in the results.
DIRECTORATE
The following changes to the Board occurred during the year under review, up to and including the date of this
report:
Director Detail Date
Elaine Page Resignation 15 March 2013
Vuyo Zitumane Retirement 22 November 2013
Lucas Ramagaga Resignation 2 May 2014 (last working date)
Christo Els Appointment 8 May 2014
By order of the Board
D Mafu
Non-Executive Chairman
28 November 2014
Directors
D. Mafu* (Chairman), L Sipoyo, (CEO), C Els (Executive: Acting financial director), N Chonco*
(*Independent Non-executive)
Registered office:
1st Floor, River Falls Office Park
Bushwillow Building, No.3, Rose Ave,
Doringkloof, Centurion, 0157
Company secretary:
Merchantec Proprietary Limited
2nd Floor, North Block
Hyde Park Office Towers
Cnr 6th Road & Jan Smuts Ave
Hyde Park, 2196
Auditors:
BDO South Africa Incorporated
Riverwalk Office Park Building C
41 Matroosberg Road
Ashlea Gardens
Pretoria
0081
Designated Adviser:
Merchantec Capital
2nd Floor, North Block
Hyde Park Office Towers
Cnr 6th Road & Jan Smuts Ave
Hyde Park, 2196
Transfer secretaries:
Computershare Investor Services Proprietary Limited
70 Marshall Street, Johannesburg, 2001
(PO Box 61763, Marshalltown, 2107)
Business Rescue Practitioner:
Piers Marsden - Matuson & Associates
Company website:
www.tcsonline.co.za
www.viewfines.net
Date: 28/11/2014 12:45:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
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