CONTENT MISSION CORPORATE INFORMATION

Transcription

1 ANNUAL REPORT 2007

2 CONTENT MISSION CORPORATE INFORMATION 1 Financial Review 2 Chief Executive Officer s Report 4 Corporate Governance 6 Financial Statements 30 Notice of Annual General Meeting 35 Form of Proxy 37 Corporate Information To render comprehensive services to the criminal justice and security industries in the private and government sectors. OUR VISION To be a global service provider to the criminal justice system, security industry and the icybersecurity markets, creating wealth for our stockholders and adding value for our clients. NATURE OF THE BUSINESS CSS is a dedicated security solutions group, initially operating in industrial and commercial guarding. VIP protection units, cash in transit, forensic and fraud investigations, armed response and alarm monitoring, city policing, monitoring, parking and perimeter control and maintenance and asset and property protection. The group provides corporations and individuals with criminal, civil and financial investigative services and solutions. The need for a single security service provider that can provide all these services and more to the private sector and government under one roof and under accountable management prompted the Immerman consortium to create Command Security Services (CSS). CCS incorporates the necessary management and operational skills and portfolio of services to help address the present and future needs for security services in South Africa and abroad. These range from guarding, electronic monitoring, alarm installation, monitoring of offenders, prison design and operations, city policing, white collar crime investigations, profiling of individuals, and the employment of technology, including the Internet and Satellite systems, to name a few. Directors Z J Sithole (Chairman, non-executive) M S Mowzer (Chief executive officer) M I Parker (Non-executive) K G Druker (Non-executive) S Banda (HR & Training) F N Moshesh (Non-executive) Company Secretary Coastal Corporate Registrations CC Unit 1, Block 3, Vangate City, Athlone, Cape Town, 7764 P O Box 93, Gatesville, 7766 Tel: Fax: registrations@telkomsa.net Registered Office Command House 394 Voortrekker Road, Maitland, Cape Town, 7405 Tel: Fax: info@command.co.za Transfer Secretaries Computershare Investor Services 2004 (Pty) Ltd Ground Floor, 70 Marshall Street, Johannesburg, 2001 Auditors TCG (Alberton) Chartered Accountants S.A. 66 8th Avenue, Alberton, Johannesburg, 1449 Tel: Fax: tcgalberton@telkomsa.net Attorneys Webber Wentzel Bowens K G Druker & Associates Gross Papadopulo & Associates (Pretoria) Minde Schapiro & Smith Sponsors Deloitte & Touche Sponsor Services (Pty) Ltd Woodmead, Johannesburg Bankers ABSA Bank Limited McIntyre Street, Parow, 7500

3 FINANCIAL REVIEW Year ended Year ended 30 June June 06 1 Group performance Turnover (R 000) 104,327 79,439 Headline earnings (R 000) 9,727 5,245 Earnings (R 000) 9,727 5,245 Headline earnings per share (cents) Earnings per share (cents) Cash generated from operating activities per share (cents) Returns and productivity Headline return on equity (%) Return on equity (%) Net margin return (%) Solvency and liquidity Interest cover (times) Current ratio 2.41:1 1.25:1 Acid test ratio 2.36:1 1.12:1 Debt: equity ratio 2.1:1 1.64:1 4 Working capital management Average collection period (days) Average payment period (days) Socio-economic analysis Employees at period-end 3,556 2,537 Executive directors at period-end 2 2 Non-executive directors at period-end 4 4 Number of shareholders Cash flow summary Net cash inflow/(outflow) from operating activities (R 000) 4,090 3,045 Net cash inflow/(outflow) from investing activities (R 000) (3,534) ( 3,349) Net increase/(decrease) in cash resources (R 000) 10,344 (868) 7 Share statistics Price earnings ratio (times) Earnings yield (%) Market capitalisation (R 000) 72,738 30,000 Share price high (cents) Share price low (cents) COMMAND HOLDINGS Annual Report

4 CHIEF EXECUTIVE OFFICER S REPORT The past year saw the culmination of the planning process begun in 2002 / 2003 to restructure Command, the only truly Black Economic Empowerment Security Service Provider, listed on the Johannesburg Securities Exchange. Command s results for the year to June 2007 reflect the consistent progress we have made on all the elements of the strategy we began implementing five years ago. We are therefore pleased to report that in 2007 we have once again delivered continued growth in turnover and profits. Our growth over the past three consecutive years has exceeded 20% per annum. This was achieved in a very competitive market, but we continue to secure long-term and sustainable contracts. Management succeeded in client and contract retention in the year under review. We have once again succeeded in reducing our operating costs and improving our efficiencies to the benefit of our stakeholders. We believe our brand and presence in the South African Security market allows us to compete and operate cost effectively and profitably. Our enhanced empowerment credentials, cutting edge security solutions and satisfactory service delivery have been contributory factors in our continued growth in turnover and new clients. REVIEW OF OPERATIONS The Group s businesses continued to perform satisfactorily and ahead of expectations. Headline earnings increased by 85.4% to R9.727 million, translating into strong organic growth which was the key driver of the Group s performance. The Group achieved revenue of R104 million compared to revenue of R79 million in 2006, an increase of 31.9%. This reflects an increase across all divisions and geographic regions. The Group s operating profit increased by 60.9%. The Guarding Division, Bank Security Division and Forensic Investigation Division continued to show substantial organic growth. The Group has accomplished a national footprint and the brand is trading satisfactorily in all regions. The Group has been successful in securing long-term contracts from major corporates and parastatals on a regular basis. A successful issue of shares for cash to the Cape Empowerment Trust (a leading BEE entity) resulted in healthy cash flow generation and boosted working capital management to enhance the Group s cash position. Cash balances at year-end totalled R7.652 million. The efforts of management and staff are acknowledged and commended. The Group is confident that it will sustain and improve upon the level of organic growth of the past year. The Group anticipates strong growth in turnover and an increase in profits in the year ahead. FINANCIAL RESULTS The Board of Directors is satisfied with the performance of the Group which made a profit of R9.727 million during the financial year ended 30 June Revenue for the Group increased by 31.9%. Operating profit has grown by 60.9% to R13 million, representing approximately 12.5% of revenue. Headline earnings per share increased by 40% from 5.25 cents per share to 7.35 cents per share. OWNERSHIP - Enhancing our Empowerment Status In November 2006 our strategic empowerment partner, Cape Empowerment Trust, subscribed for shares for cash in Command which resulted in their 24.4% equity stake in the Group. It is gratifying to have an eminent business associate to whom we can look for both moral and logistical support, and who also have the ability to unlock business opportunities for our Group. I thank them and look forward to their continued strategic and operational backing. The Group now enjoys a direct black equity ownership of 43.5%. As far as the Board representation is concerned, our Board is representative of the demographics of our country and the diversity of its people, with five black and one white Director. One of the black Directors is a female. All Executive Directors are black. 2 COMMAND HOLDINGS Annual Report 2007

5 PROCUREMENT Command s procurement policy is a vital component of our transformation strategy and Black Economic Empowerment companies continue to enjoy the direct benefits of this policy. The Group s BEE procurement spend is above 85% of its budget. HIV/AIDS The Board of Command is fully aware of both the risk that the AIDS pandemic poses to our business, as well as the broader socio-economic consequences of the disease. Command views the education of staff members on HIV/AIDS as a high priority. AIDS education is available to all staff within the Group. CORPORATE SOCIAL INVESTMENT (CSI) Corporate social investment is an important platform in Command s overall transformation strategy. We continue to support and assist marginalized communities. We have created sustainable social investment programmes that support our business goals and that of the broader communities where we do business. LEARNERSHIPS Command continues to commit resources in addressing the present lack of skills in the Security Service Sector by training unskilled matriculants through its various accredited training academies. The Group enjoys full accreditation in the learnership programme under the auspices of the Safety and Security Sector Education and Training Authority (SASSETA). PROSPECTS We anticipate improving on the Group s performance in the year ahead. We wish to express our gratitude to Management and staff for their commitment and loyalty. We wish to extend our gratitude to our stakeholders and clients who made the year under review a success. Many thanks to the Board of Directors whose wisdom and guidance were invaluable and highly appreciated. Stakeholders can look ahead to 2008 with confidence. M S Mowzer Chief Executive Officer 6 November 2007 COMMAND HOLDINGS Annual Report

6 CORPORATE GOVERNANCE GENERAL The directors of Command Holdings Limited endorse the provisions of the Code of Corporate Practices and Conduct as set out in the King Report on Corporate Governance, and maintain and enforce ethical conduct and business integrity among themselves and senior management. It is the directors responsibility to prepare annual financial statements that fairly present the state of affairs of the group at the end of the financial period and the profit and loss for the period. In this regarding the directors have taken concrete measures to ensure implementation throughout the period. ACCOUNTABILITY The directors confirm that they are satisfied that the group has adequate resources to continue in business for the foreseeable future. For this reason, they continue to adopt the going concern basis for preparing the annual financial statements. The directors acknowledge that they are responsible for instituting internal control systems that should provide reasonable assurance regarding the safeguarding of assets and the prevention of their unauthorised use or disposition, maintenance of proper accounting records and ensuring the reliability of financial information produced. INTERNAL CONTROL The directors are responsible for the maintenance of adequate accounting records and an effective system of internal controls. BOARD OF DIRECTORS The board of directors comprises three executive and four non-executive directors. The roles of chairman and chief executive officer are separate. Directors are appointed on the basis of skill, experience and level of contribution to and impact on group activities. The executive directors are responsible for making and implementing operational decisions on running the group s business. Non-executive directors complement the skills and experience of the executive directors contributing to the formulation of policy- and decision-making. The board of directors met four times during the period. They also met informally on a regular basis. The board considers issues of strategic direction, major acquisitions and disposals and approves major capital expenditure and other matters having a material effect on the group. Presentations are made to the board on the activities of operations and directors undertake regular visits to operations. The current directors attended all four meetings convened during their period of appointment. The entire board is involved in the process of the nomination, selection and appointment of directors. All directors are subject to election by shareholders. All directors have access to management, including the company secretary and to such information as is required to carry out their duties and responsibilities fully and effectively. Furthermore, all directors are entitled and authorised, at the company s expense, to seek independent professional advice about the group s affairs. Subject to specific fundamental, strategic and formal matters reserved for its decision, the board delegates certain responsibilities to ad hoc committees that operate within defined terms of reference laid down by the board. REMUNERATION COMMITTEE The committee s main responsibility is to consider, review and make recommendations to the board concerning the remuneration policies and principles of the group and to review and approve the remuneration and terms of employment of the directors. Directors do not have service contracts that exceed one year. The committee presently comprises M I Parker, M S Mowzer and K G Druker. The various components of directors remuneration are set out in Annexure 2 to the annual report. 4 COMMAND HOLDINGS Annual Report 2007

7 AUDIT COMMITTEE The audit committee is fully mandated by the board by means of terms of reference as to its membership, authority and duties. The committee is responsible for the appointment of external auditors, the maintenance of a professional relationship with them and reviewing accounting principles, policies and practices adopted in the preparation of public financial information. The group audit committee comprises two non-executive directors and is chaired by a non-executive director. Appropriate members of management, including those involved in risk management, internal control and finance, also attend meetings. The committee present comprises Z J Sithole (chairman) and K G Druker. RISK MANAGEMENT The focus of risk management within the group is on identifying, assessing, managing and monitoring all known forms of risk across the group. While operating risks cannot be fully eliminated, the group tries to minimise it by ensuring that the appropriate infrastructure, controls, systems and ethics are applied throughout the group and managed within predetermined procedures and constraints. RELATIONS WITH SHAREHOLDERS The group furnishes information to its shareholders based on the guidelines of relevance, openness and substance over form. Shareholders have the opportunity to put questions to the board at annual general meetings. EMPLOYMENT EQUITY AND PRACTICES The group is committed to providing equal opportunities to its employees regardless of their ethnic origin or gender. Structures have been set up with trade unions and other employee representatives to achieve good employee-employer relations through consultation and the identification and resolution of conflict. The directors believe that affirmative action, structured in an economically viable and self-sustaining manner, is an essential and integral part of corporate governance within any company operating within South Africa. CODE OF ETHICS Management and employees operate within a framework that requires compliance with all applicable laws and the maintenance of the highest integrity in the conduct of the group s business. INSIDER TRADING No director or employee who has inside information in respect of the group may deal directly or indirectly in Command Holdings Limited shares. The board has determined certain embargo periods during which directors and other senior management officials of the group may not deal, directly or indirectly, in Command Holdings Limited shares. These include the periods between the end of interim and annual reporting and any period during which a transaction which it is anticipated is reasonably likely to be concluded, is being negotiated, if the information relating thereto constitutes inside information. COMMAND HOLDINGS Annual Report

8 REPORT OF THE INDEPENDENT AUDITORS We have audited the financial statements of Command Holdings set out on pages 10 to 25 for the year ended 30 June These financial statements are the responsibility of the company s directors. Our responsibility is to express an opinion on these financial statements based on our audit. We were engaged to audit the financial statements of Command Holdings Limited set out on pages 10 to 25 for the year ended 30 June These financial statements are the responsibility of the company s directors. Scope We conducted our audit in accordance with International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting policies used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of the company at 30 June 2007 and the results of its operations and cash flows for the year then ended in accordance with International Financial Reporting Standards ( IFRS ) and in the manner required by the Companies Act of South Africa. TCG (Alberton) Registered Accountants and Auditors Chartered Accountants (SA) 19 October 2007 DIRECTORS APPROVAL The directors are required by the South African Companies Act, 1973, to maintain adequate accounting records and are responsible for the content and integrity of the financial statements and related financial information included in this report. It is their responsibility to ensure that the financial statements fairly present the state of affairs of the company as at the end of the financial year and the results of its operations and cash flows for the period then ended, in conformity with International Financial Reporting Standards ( IFRS ). The external auditors are engaged to express an independent opinion on the financial statements. The financial statements are prepared in accordance with International Financial Reporting Standards and are based upon appropriate accounting policies consistently applied and supported by reasonable and prudent judgements and estimates. The directors acknowledge that they are ultimately responsible for the system of internal financial control established by the company and place considerable importance on maintaining a strong control environment. To enable the directors to meet these responsibilities, the board of directors sets standards for internal control aimed at reducing the risk of error or loss in a cost-effective manner. The standards include the proper delegation of responsibilities within a clearly defined framework, effective accounting procedures and adequate segregation of duties to ensure an acceptable level of risk. These controls are monitored throughout the company and all employees are required to maintain the highest ethical standards in ensuring the company s business is conducted in a manner that in all reasonable circumstances is above reproach. The focus of risk management in the company is on identifying, assessing, managing and monitoring all known forms of risk across the 6 COMMAND HOLDINGS Annual Report 2007

9 company. While operating risk cannot be fully eliminated, the company endeavours to minimise it by ensuring that appropriate infrastructure, controls, systems and ethical behaviour are applied and managed within predetermined procedures and constraints. The directors are of the opinion, based on the information and explanations given by management, that the system of internal control provides reasonable assurance that the financial records may be relied on for the preparation of the financial statements. However, any system of internal financial control can provide only reasonable, and not absolute, assurance against material misstatement or loss. The directors have reviewed the company s cash flow forecast for the year to 30 June 2008 and, in the light of this review and the current financial position, they are satisfied that the company has, or has access to, adequate resources to continue in operational existence for the foreseeable future. Although the board of directors is primarily responsible for the financial affairs of the company, they are supported by the company s external auditors. The external auditors are responsible for independently reviewing and reporting on the company s financial statements. The financial statements have been examined by the company s external auditors and their report is presented on page 6. The financial statements set out on pages 10 to 29, which have been prepared on the going concern basis, were approved by the board of directors on 6 October 2007 and were signed on its behalf by: M S Mowzer Chief executive officer 19 October 2007 Z J Sithole Chairman CERTIFICATE BY THE COMPANY SECRETARY In terms of section 268G(d) of the Companies Act, 1973 (Act No 61 of 1973), as amended, I hereby certify that the company has lodged with the Registrar of Companies all such returns as are required of a public company in terms of this Act and that all such returns are true, correct and up to date. Coastal Corporate Registrations CC Company secretary 19 October 2007 COMMAND HOLDINGS Annual Report

10 REPORT OF THE DIRECTORS Your directors have pleasure in presenting their report for the period ended 30 June NATURE OF BUSINESS The company is an investment holding company which trades through its wholly-owned subsidiary, Command Security Services (Proprietary) Limited ( CSS ). CSS trades primarily in the security industry rendering a wide range of security-related services. A detailed review of the group s performance is set out in the annual financial statements. CLAIM AGAINST JONATHAN IMMERMAN The company obtained judgement against Jonathan Immerman in the Cape High Court on 23 March 2006 for R10.8 million and efforts to recover this amount is ongoing. WORK PARTICIPATION The group engages in consultation with workers before taking action on matters that affect them. There are procedures in place to ensure the quick identification of conflict and its effective resolution. AFFIRMATIVE ACTION PROGRAMMES The Group has filed its employment equity programme with the Department of Labour and is committed to adhering to the content of the programme. CODE OF ETHICS The group has implemented a Code of Ethics as part of its commitment to the principles of good corporate governance. The Code of Ethics: commits the corporation to the highest standards of behaviour; has total commitment from the board and chief executive officer of the corporation; and is sufficiently detailed as to give a clear guide to the expected behaviour of all employees. SHARE CAPITAL There were no changes to the authorised ordinary share capital during the period under review. ARTICLES AND MEMORANDUM OF ASSOCIATION There were no changes to the company s Articles and Memorandum of Association during the period under review. CHANGE OF YEAR-END As a result of the restructuring of the group, all companies in the group changed their year-end to 30 June. SUBSIDIARIES The company s investments in subsidiaries are set out in Annexure 1 to the annual financial statements. Subsidiary aggregate net income and losses attributable to the holding company after taxation during the period under review were: Command Security Command Protection Comwezi Security Services (Pty) Ltd Services (Pty) Ltd Services (Pty) Ltd R 000 R 000 R 000 Net income before tax 2, ,060 Net income after tax 2, ,930 8 COMMAND HOLDINGS Annual Report 2007

11 TANGIBLE ASSETS Details of tangible assets, acquisitions and disposals to maintain, upgrade and expand company and group operations are contained in note 1 to the annual financial statements. There has been no change in the nature or use of these assets during the period under review. DIVIDENDS The company has not declared any dividends for the period under review in accordance with the group s policy on dividends. SECRETARIES The postal address of the company secretary appears on the inside back cover of the annual report. During the year, Coastal Corporate Registrations CC served as group secretary. Computershare Investor Services (Proprietary) Limited continued to serve as transfer secretaries during the period under review. AUDITORS TCG (Alberton) Chartered Accountants SA served as auditors during the period under review. MATERIAL FACTORS BETWEEN BALANCE SHEET DATE AND DATE OF THIS REPORT None. THE FUTURE The group has now successfully survived the restructuring exercise we embarked on four years ago. The successful restructuring of the group at all levels has seen a marked decrease in overhead costs and this will reflect directly on the group bottom line in the future. The guarding divisions of the group are regularly taking on new clients and the potential for organic and acquisitive growth in this area is particularly exciting. DIRECTORS The names and physical addresses of the directors in office at the date of this report are as follows: Executive directors: Mr S Banda Command House, 394 Voortrekker Road, Maitland, Cape Town 7405 Mr M S Mowzer (CEO) Command House, 394 Voortrekker Road, Maitland, Cape Town 7405 Non-executive directors: Mr K G Druker 11th Floor, SA Reserve Bank Building, St Georges Mall, Cape Town 8001 Prof M I Parker Faculty of Health Sciences, University of Cape Town, Anzio Road, Observatory, Cape Town 7925 Ms F M Moshesh Unit 91, Riverglades Estate, Juweel Street, Jukskei Park, Johannesburg 2188 Mr Z J Sithole 74 Oxford Street, Houghton, Johannesburg 2041 COMMAND HOLDINGS Annual Report

12 BALANCE SHEETS at 30 June 2007 GROUP COMPANY Year ended Year ended Year ended Year ended 30 June 30 June 30 June 30 June Notes R 000 R 000 R 000 R 000 ASSETS Non-current assets 16,250 11,764 6,551 1,132 Tangible assets 1 7,167 5,230 Deferred taxation ,520 3, Intangible assets 2 1,527 Investments and loans 3.1 3,036 2,966 5, Current assets 31,833 26,388 2, Inventories Accounts receivable 5 23,594 25, Bank balances and cash 22 7, ,975 Total assets 48,083 38,152 9,526 1,144 EQUITY AND LIABILITIES Capital and reserves 32,585 14,473 9,496 1,064 Share capital Share premium 9 16,338 7,953 16,338 7,953 Accumulated loss 16,246 6,519 (6,843) (6,890) Minority shareholders interests Non-current liabilities Shareholders loan Long-term borrowings 10 2,296 1, Current liabilities 13,202 21, Short-term borrowings 10 2,593 2,115 Bank overdrafts ,901 Accounts payable 2,980 1, Accruals 6 2,113 7,978 Provisions 7 3,257 2, Taxation 2,259 4,419 Total equity and liabilities 48,083 38,152 9,526 1, COMMAND HOLDINGS Annual Report 2007

13 INCOME STATEMENTS for the year ended 30 June 2007 GROUP COMPANY Year ended Year ended Year ended Year ended 30 June 30 June 30 June 30 June Notes R 000 R 000 R 000 R 000 Revenue ,327 79,103 Cost of sales (67,161) (53,176) Gross profit 37,166 25, Operating costs selling and administrative (24,235) (17,845) 0 0 Attributable profit/(loss) 12,931 8, Loss on sale of investment 0 Other income 85 1, Net profit/(loss) before interest 12 13,016 9, Interest paid on borrowings (1,077) (429) 0 Interest received on bank balances 69 Attributable profit/(loss) before other items 12,008 9, Other items (1,976) (1,565) 0 amortisation of trademarks reversal of impairment loss Net profit/(loss) before taxation 10,032 7, Taxation 13 (305) (2,562) (19) 0 Profit/(Loss) attributable to ordinary shareholders 9,727 5, Share of associated company s profit/(loss) Minority shareholders share of loss Net profit for the period 9,727 5, COMMAND HOLDINGS Annual Report

14 STATEMENTS OF CHANGES IN EQUITY for the year ended 30 June 2007 Share Share Accumulated Minority interest premium loss Total interest Total R 000 R 000 R 000 R 000 R 000 R 000 GROUP Balance at 1 July ,953 1,224 9, ,228 Net profit for the period 5,295 5,295 (50) 5,245 Balance at 30 June ,953 6,519 14, ,473 Issue of shares 8,385 8,385 8,385 Net profit for the period 9,727 9, ,727 Loss on acquisition of subsidiary Balance at 30 June ,338 16,246 32, ,585 COMPANY Balance at 1 July ,953 (6,891) 1,063 1,063 Net loss for the period 0 0 Balance at 30 June ,953 (6,891) 1, ,063 Net profit for the period Issue of shares 8,385 8,385 8,385 Balance at 30 June ,338 (6,843) 9, ,496 GROUP Year ended Year ended 30 June 30 June Number of shares in issue 132,250, ,000,000 Headline earnings per share (cents) Earnings per share (cents) COMMAND HOLDINGS Annual Report 2007

15 CASH FLOW STATEMENTS for the year ended 30 June 2007 GROUP COMPANY Year ended Year ended Year ended Year ended 30 June 30 June 30 June 30 June Notes R 000 R 000 R 000 R 000 Cash flows from operating activities Cash generated from operations 17 6,246 3, Taxation 18 (1,148) ,098 3, Cash from trading Interest paid (1,077) (429) 0 0 Interest received Net cash inflow/(outflow) from operating activities 4,090 3, Cash flows from investing activities Increase/(Decrease) in investments and loans 19 (1,597) (1,482) (5,458) 0 Cash flows from asset sales and acquisitions to maintain business 20.1 (1,937) (1,867) 0 0 Net cash inflow/(outflow) from investing activities (3,534) (3,349) (5,458) 0 Cash flows from financing activities Proceeds from long-term borrowings 1,403 (564) 0 0 Issue of shares 8,385 8,385 Net increase/(decrease) in cash resources 10,344 (868) 2,975 0 Cash and cash equivalents at the beginning of the period 21 (2,692) (1,824) 0 0 Cash and cash equivalents at end of the period 21 7,652 (2,692) 2,975 0 COMMAND HOLDINGS Annual Report

16 NOTES TO THE ANNUAL FINANCIAL STATEMENTS 30 June 2007 ACCOUNTING POLICIES AND TERMINOLOGY Basis of presentation The annual financial statements and group annual financial statements have been prepared in accordance with International Standards of Accounting on the historical cost basis and incorporate the principal accounting policies set out below, which are consistent with those of the previous year, save where stated otherwise. Basis of consolidation The group annual financial statements include the results and financial position of the company and its subsidiary companies. Subsidiaries are companies controlled by the company through its power to control the financial and operating policies of an investee so as to obtain benefits from its activities. The results of the subsidiary companies are included from the effective date of acquisition and up to the effective date of disposal. On acquisition, the assets and liabilities of the relevant subsidiaries are measured at their fair values at the date of acquisition. The interest of minority shareholders is stated at the minority s portion of the fair value of the assets and liabilities recognised. All intercompany balances and transactions between group companies are eliminated on consolidation. Investments in associates An associate is an enterprise in which the group has significant influence, through participation in the financial and operating policy decisions of the investee. The results and net assets of associates are incorporated in these annual financial statements, using the equity method of accounting. The carrying amount of such investments is reduced to recognise any decline, other than a temporary decline, in the value of individual investments. Deferred taxation Deferred taxation is provided for, using the balance sheet liability method for all temporary differences arising between the tax bases of assets and liabilities and the carrying amounts on the balance sheet. Current tax rates are used to determine the deferred tax balances. Deferred tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the balance can be utilised. Tangible assets Tangible assets are valued at historical cost less accumulated depreciation and are depreciated, using the straight-line method, over their estimated useful lives as set out in the notes to the annual financial statements. Other adjustments as a result of the adoption of IFRS The impact of other adjustments as a result of the adoption of IFRS is summarised below. The quantification of the adjustments is shown in the reconciliation of equity and net profit. Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. Residual values and useful lives of all assets are reassessed annually. This more robust assessment has resulted in an increase in estimated useful lives of property, plant and equipment and accordingly the depreciation charged to the income statement has reduced for the year ended 31 May 2006 and the year ended 31 May Operating lease charges are now accounted for on a accrual basis. Previously, operating lease charges were expensed on a cash flow basis as incurred. This has resulted in higher lease costs in previously reported periods and a reduction of lease costs for the year ended 30 June 2007 and the year ended 30 June Intangible assets Where the purchase consideration exceeds the group s interest in the fair value of the identifiable assets and liabilities of a subsidiary, associate or jointly-controlled entity at the date of acquisition, the excess, being goodwill, is reflected as an intangible asset and is amortised over the period the business is expected to generate positive cash flows, but in any event over a period not exceeding 20 years. Trademarks are amortised using the straight-line method over their estimated useful lives or 20 years, whichever is the lesser. Investments Non-trading investments are stated at the lower of cost and net realisable value. Deficits arising from revaluations are written off as non-trading expenses in the income statement. Trading investments are valued at fair value. Any increase or decrease in the fair value of trading investments in an accounting period will be reflected as income or expenditure for that period. Inventories Spares, consumables, work in progress and uniforms are stated at the lower of cost and net realisable value. Cost is determined on the first-in, first-out basis and includes direct material costs, together with appropriate allocations of labour and overheads. Net realisable value is the estimated selling price less expected costs of disposal. Revenue recognition Revenue from the sale of goods is recognised when the significant risks and rewards of ownership are transferred to the buyer. Revenue from guarding is recognised when services are rendered. Revenue from alarm installations is recognised when goods are delivered and title has passed and when the subsequent monitoring services are rendered. Interest income is accrued on a time basis, by reference to the principal outstanding and at the interest rate applicable. Dividend income from investments is recognised when the shareholders rights to receive payment has been established. Borrowing costs Finance charges on instalment sales are accounted for over the period of the transactions, using the effective rate method. Financial instruments Financial assets and financial liabilities are recognised when the company and the group has become a party to the contractual provisions of the agreement. Financial assets The company and group s financial assets are bank balances and cash, trade receivables and equity investments. Trade receivables are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts. Investments in securities are recognised on a trade-date basis and initially measured at cost and subsequently at fair value. Financial liabilities and equity instruments Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. Significant financial liabilities include instalment sale obligations and trade creditors. Interest-bearing loans are recorded at the proceeds received, net of direct issue costs. Finance charges are accounted for on an accrual basis and added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. Trade and other payables are stated at their nominal value. Equity instruments are recorded at the proceeds received, net of direct issue costs. 14 COMMAND HOLDINGS Annual Report 2007

17 NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued 30 June 2007 Derivative financial instruments Derivative financial instruments are recorded initially at cost and are remeasured to fair value at subsequent reporting dates. Changes in the fair value of derivative financial instruments that are designated as cash flow hedges are recognised directly in equity. Amounts deferred in equity are recognised in the income statement when the hedged firm commitment or forecasted transaction affects profit or loss. Changes in the fair value of instruments that do not qualify as cash flow hedges are recognised in the income statement when they arise. Earnings per share Earnings per share are based on earnings attributable to shareholders and are calculated on the weighted average number of shares in issue during the financial period. Headline earnings per share are based on earnings attributable to shareholders, excluding items of a capital nature and the tax and minorities effect thereon, and are calculated on the weighted average number of shares in issue during the financial period. Fully diluted earnings per share are calculated in the same manner as earnings per share, but include the effects of dilutive potential ordinary shares. Impairment At each balance sheet date, the group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets may be impaired. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount for an individual asset, the recoverable amount is determined for the cash-generating unit to which the asset belongs. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. Impairment losses are recognised as an expense immediately, unless the relevant asset is carried at a revalued amount under another Standard, in which case the impairment loss is treated as a revaluation decrease under that Standard. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount under another Standard, in which case the reversal of the impairment loss is treated as a revaluation increase under that other Standard. Service warranties Provision is made for the group s estimated liability on all products still under warranty at balance sheet date. This is based on service history. Employee benefits The company and the group have no unfunded employee benefit obligations. Provisions Provisions are recognised for all liabilities where either the timing or the amount of the outflow of benefits is uncertain. Foreign exchange The group records foreign currency transactions at the rate ruling on the date of the transaction. Monetary items are revalued at period-end using the closing rate method. Non-monetary items are not revalued. The group enters into forward exchange contracts to cover its foreign currency exposure. At period-end these are revalued using the rate applicable to an instrument with similar terms and maturity. All differences on revaluation are dealt with in the income statement in the period in which they arise. Other items Other items are expenses and income of a non-trading or nonrecurring nature falling within the ordinary business activities of the company and are separately disclosed in the income statements. Cash flow Cash generated per share constitutes cash generated from trading per share calculated on the weighted average number of shares in issue. Return on equity and assets Headline return on equity constitutes headline earnings as related to closing ordinary shareholders equity. Return on equity constitutes earnings as related to closing ordinary shareholders equity. Headline return on net assets constitutes headline earnings as related to closing net assets. Margins and asset turns Net margin return constitutes headline earnings as related to turnover. Interest cover Interest cover constitutes the number of times that the net interest is covered by headline earnings. Gearing and borrowing ratios The gearing ratio constitutes the total interest-bearing debt expressed as a percentage of shareholders funds. The managed borrowing ratio constitutes the ratio of interestfree debt to interest-bearing debt. The borrowing ratio constitutes the ratio of total debt excluding provisions to total assets. The debt/equity ratio constitutes the ratio of total debt, both interest free and interest bearing, to closing shareholders equity. Liquidity ratios The current ratio comprises the ratio of current assets to the total current liabilities. The acid test ratio comprises the current ratio with inventory excluded from current assets. Working capital management statistics The average collection period reflects the average number of days the group takes to collect its accounts receivable excluding rental debtors. The average payment period reflects the average number of days the group takes to pay its suppliers. Share statistics The price-earnings ratio constitutes the ruling price of the share on the last day of the period as related to earnings per share. Comparative figures Where appropriate, comparative figures have been adjusted to conform to changes in presentation in the current period. COMMAND HOLDINGS Annual Report

18 NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued 30 June 2007 Computers, Arms, office machinery Land and equipment Motor and electronic buildings and furniture vehicles equipment Total R 000 R 000 R 000 R 000 R TANGIBLE ASSETS GROUP Carrying amount at 1 July , ,345 Comprising: Cost 1,667 6,653 1,001 9,321 Accumulated depreciation (1,128) (2,311) (537) (3,976) Additions ,188 Disposals at net book value (64) (64) Depreciation for the period (122) (1,365) (277) (1,487) Carrying amount at 30 June , ,110 Comprising: Cost 1,892 7,680 1,394 10,573 Accumulated depreciation (1,250) (3,676) (814) (5,463) Additions 655 3, ,805 Disposals at net book value Depreciation for the period (263) (2,052) (214) (2,529) Carrying amount at 30 June ,258 1,014 7,167 Comprising: Cost 2,547 10,334 1,938 14,819 Accumulated depreciation (1,652) (5,076) (924) (7,652) Estimated useful life (years) Motor vehicles with a book value of R4,141,187 (2006: R3,049,072) is encumbered as per note 10. Radios and electronic equipment with a book value of R718,289 (2006: R389,114) is encumbered as per note 10. Certain other assets are also encumbered as disclosed in notes 10 and 22. Patents, trademarks and Goodwill distribution rights Total R 000 R 000 R INTANGIBLE ASSETS GROUP Carrying amount at 1 July Comprising: Cost 66,838 2,104 68,942 Value written off against share premium (64,690) (64,690) Accumulated amortisation (621) (2,104) (2,725) Carrying amount at 30 June , , COMMAND HOLDINGS Annual Report 2007

19 NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued 30 June 2007 GROUP COMPANY Year ended Year ended Year ended Year ended 30 June 30 June 30 June 30 June R 000 R 000 R 000 R INVESTMENTS 3.1 Investments and loans Unlisted investments Shares at cost 1,312 1,312 1,312 1,312 Impairment provision (1,098) (1,098) (1,098) (1,098) Net investment Unsecured loans Maigret (Proprietary) Limited Sundry 1,185 1,115 5,419 Aludie Ltd 1,617 1,617 Retail Security ,036 2,966 5, The loans are unsecured, interest free and have no fixed terms of repayment. 4 INVENTORIES Inventories comprise: Spares, consumables and uniforms guards Inventories are carried at the lower of cost and net realisable value. 5 ACCOUNTS RECEIVABLE Accounts receivable comprise: Trade receivables 24,819 24,585 Other receivables 1,102 1,546 25,921 26, Provision for doubtful debts (2,327) (140) 23,594 25, Credit risk attached to accounts receivable is detailed in note 24. Details of the related party receivables are detailed in note 25. Accounts receivable are encumbered as stated in note ACCRUALS VAT 1,041 2,971 PAYE Other statutory accruals 182 2,021 Sundry accruals 639 2,644 2,113 7, COMMAND HOLDINGS Annual Report

20 NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued 30 June 2007 GROUP COMPANY Year ended Year ended Year ended Year ended 30 June 30 June 30 June 30 June R 000 R 000 R 000 R PROVISIONS Balance at beginning of the period Provision for leave pay 1,690 1,690 Other provisions ,012 2, Movement at end of the period Increase in provision for leave pay Increase/(utilisation) of other provisions 1,190 (56) 0 1,245 (56) 0 0 Balance at end of the period Provision for leave pay 1,745 1, Other provisions 1, ,257 2, SHARE CAPITAL 8.1 Ordinary share capital Authorised 1,000,000,000 ordinary par value shares of cent each Issued 132,250,000 (2006: 100,000,000) ordinary par value shares of cent each Preference share capital Authorised 100,000,000 variable rate cumulative convertible redeemable preference shares at cent each Issued Nil 8.3 Unissued shares As in the past, it is proposed that the unissued shares be placed under the control of the directors of the company subject to the provisions of sections 221 and 222 of the Companies Act, 1973, as amended and the Listing Requirements of the JSE Limited. 8.4 Share repurchase In terms of a shareholder s special resolution registered with the Register of Companies on 22 November 1999, the company is authorised to repurchase a maximum of 10% of its issued share capital subject to the Listings Requirements of the JSE Limited. 8.5 Shares issued An additional 32,250,000 shares were issued to Cape Empowerment Trust. 18 COMMAND HOLDINGS Annual Report 2007

21 NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued 30 June 2007 GROUP COMPANY Year ended Year ended Year ended Year ended 30 June 30 June 30 June 30 June R 000 R 000 R 000 R SHARE PREMIUM Balance at beginning of the period 7,953 7,953 7,953 7,953 Shares issued premium 8,385 8,385 Balance at end of the period 16,338 7,953 16,338 7, LONG-TERM BORROWINGS Secured borrowings comprise: Instalment sale borrowings secured over movable tangible assets 4,889 3,486 Less: Amounts repayable in 12 months reflected as short-term borrowings (2,593) (2,115) 2,296 1, Interest rates range from prime to prime plus 1% Secured asset values: Computers, office equipment and furniture Motor vehicles 4,141 3,049 4,939 3, Total book value of tangible asset security (refer note 1) Minimum instalment sale and rental advance payments, including interest payments, amounting to R4,939 million (2006: R4,404 million) are repayable as follows: R2,012 million next year and R2,927 million in years two to five. Unsecured borrowings comprise: Loan M S Mowzer The loan is unsecured, interest free with no fixed terms of repayment. Total long-term borrowings 2,296 2, REVENUE Revenue comprises net sales of: Guarding, private investigation and armed response services Parking management services 101,927 77,143 Security access control and alarm systems installation 0 0 Management fees 2,400 1, ,327 79, COMMAND HOLDINGS Annual Report

22 NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued 30 June 2007 GROUP COMPANY Year ended Year ended Year ended Year ended 30 June 30 June 30 June 30 June R 000 R 000 R 000 R NET PROFIT/(LOSS) BEFORE INTEREST Net profit/(loss) before interest is arrived at after taking into account the following items: Income Foreign exchange gains Profit on sale of fixed assets Gain on reorganisation of debt 0 0 Expenditure Auditors remuneration audit fee current year Significant bad debt write-off 0 0 Depreciation 2,529 1,728 Legal fees Rental of equipment Rental of premises 1, Staff costs 63,671 52,073 Included in the bad debts write-off is a single debtor amounting to R6,245 million. Directors emoluments (paid by company or subsidiary companies) Executive directors Remuneration inclusive of fringe benefits for all managerial services 1,014 1,615 Non-executive directors Emoluments for services as directors ,348 1, Salient information regarding individual director receipts is disclosed in Annexure COMMAND HOLDINGS Annual Report 2007