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 ) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 FEBRUARY 2014 CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME % Change Note 28 Feb 2014 28 Feb 2013 Revenue (37) 28 293 44 798 Cost of sales 25 (12 681) (16 911) Gross Profit (44) 15 612 27 887 Other Income 15 111 Operating Expenses 23 (29 423) (32 226) Loss from operations 71 (13 796) (4 228) Investment revenue 57 Finance costs 57 (4 284) (4 000)) Loss before taxation 67 (18 023) (8 228) Taxation 216 (387) (1 673) Loss for the period 71 (18 410) (9 901) Other comprehensive income Revaluation of equipment - 2 370 Deferred tax on revaluation - (663) Total comprehensive loss for the year 77 (18 410) (8 194) Loss attributable to: Equity holders of the company 71 (18 410) (9 901) Non-controlling interest - - Total comprehensive loss attributable to: Equity holders of the company 77 (18 410) (9 901 Non-controlling interest - - Reconciliation of loss to headline loss Loss after tax 71 (18 410) (18 410) Adjusted for: Goodwill impairment - 1 796 Asset Impairment 10 352 Loss on disposal of equipment 41 - Tax effect of the above - (99) Headline loss for the period 65 (18 359) (7 852)
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION 28 Feb 2014 28 Feb 2013 ASSETS Non-current assets 2 621 5 617 Property, Plant and Equipment Intangible Assets Deferred tax 2 621 - - 4 879 321 417 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 18 122 18 122 BEE reserves - (9 923) Revaluation reserve 1 044 1 707 Retained earnings (58 634) (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 (in thousands) Treasury shares (in thousands) Total number of ordinary shares in issue excluding treasury shares (in thousands) Net asset value per ordinary share (cents) Net tangible assets value per ordinary share (cents) 390 134 (3 771) 386 363 (10.22) (10.22) 390 134 (3 771) 386 363 (5.45) (5.53)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS 28 Feb 2014 28 Feb 2013 Cash flows from operating activities Cash generated from operations (2 998) 4 279 Investment revenue 57 7 Finance costs (141) (61) Taxation paid - (500) Net cash from operating activities (3 082) 3 725 Cash flow from investing activities Purchase of property, plant and equipment (169) (473) Sale of property, plant and equipment - - Net cash from investing activities (169) (473) Cash flow from financing activities Proceeds from loans from holding company - - Increase in loan owing to subsidiary - - Repayment of interest bearing borrowings (64) (89) Net cash from financing activities (64) (89) Total cash movement for the year (3 315) 3 163 Cash at the beginning of the period. 4 563 1 401 Total cash 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 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 2013-39 18 084 (9 923) 1 707 (30 964) (21 058) Total comprehensive loss for the year - - - - (18 410) (18 410) Realisation/reallocation of reserves - 9 923 (663) (9 260) - Balance as at 28 February 2014-39 18 084-1 044 (58 634) (39 468)
CONDENSED CONSOLIDATED SEGMENT REPORT FOR THE GROUP Southern Northern North- West Coastal Corporate Unallocated Total 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 12 471 1 326 2 128 11 699-28 293 Total (loss)/profit before tax for reportable segment (299) 1 848 345 321 (5 095) (25 333) (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 4.75 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. These Condensed Consolidated Financial Statements are extracted from audited information but are not themselves audited. The directors take full responsibility for the preparation of the financial information and confirm that the financial information has been correctly extracted from the underlying financial information. The annual financial statements have been prepared under the supervision of the Financial Director, Mr C Els and have been audited by the Group s auditors, BDO South Africa Incorporated, who s modified audit report is available for inspection at the registered office of the Company. The auditor s report does not necessarily report on all of the information contained in these Condensed Consolidated Financial Statements. 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 audit report are set out below: Basis for Disclaimer of Opinion As indicated in note 31 to the financial statements as well as in the directors report relating to going concern, 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 ongoing support of all its stakeholders, especially key staff and financiers including subordination and non-repayment of loans for the foreseeable future, Group securing new contracts and the successful restructuring of its operational expenses in line with sales levels and the JSE listing to be re-instated. 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 reportable irregularities in terms of the Auditing Profession Act. We 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. 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 2013/2014 term, certain significant contracts came to an end which contributed to the Group making a loss after tax of R18.4 million for the year. This includes finance costs of R4.3 million as explained in note 20 of this report. As at the year ended 28 February 2014, the Group had a negative equity position of R39.5 million. Please refer to notes 12 and 30 which provides additional information on the restructuring of the borrowings and the favourable settlement of the SARS liabilities through the final settlement agreement. Even though borrowings to the value of R25.8 million has been subordinated in favour of other creditors and R5 million was waived after year end as part of the business rescue plan, the Group s Statement of Financial Position still reflects a technical insolvent position with liabilities exceeding assets. After year-end repayment terms as per the original agreements of these loans have also been amended in favour of the Company. During the period after year end up to the date of this report, the primary shareholders provided capital to fund the operational losses and cash shortfalls when required. This was done in support of the business and its restructuring initiatives during the transition period. There is no indication that the Company will not continue to receive similar support if required for the foreseeable future. The Company remains confident that a sustainable business model will be achieved and that external support will not be required in the future. Since the discharge from Business Rescue, as announced on SENS on 29 August 2014, the Company has managed to restructure the business to a sustainable level. TCS managed to secure new profitable contracts, which includes full service contracts for Polokwane (September 2014), Tlokwe (May 2015) and Buffalo City (December 2015). It also includes a relationship with the Namibian Police, whereby TCS will be providing services and equipment to support the traffic law enforcement expansion in Namibia over the next few years. 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 continued during 2016, and 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 the 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 under constant pressure. The key components of the Group continuing as a going concern is the ability to provide sophisticated management systems and equipment to the market, maintain a low cost base, selectively approach new tenders, considering strategic partnerships and co-operation agreements and ensuring existing contracts are profitable. The cash flow forecasts and Going Concern assumptions are based on the following: - no deterioration in the current market conditions; - municipalities continue to outsource the administration of traffic violations; - the Company is able to reduce and maintain its operational expenses in line with sales levels; - no deterioration in the payment and collection cycle; - the Company continues to have the ongoing support of all its stakeholders, especially key staff and financiers; - no repayment of loans is required during the foreseeable future; and - the Company s JSE listing to be re-instated. 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. These conditions underline the ever-present uncertain and variable circumstances in the market. Failure by the Company to effectively operate under these conditions will be detrimental to the business. These conditions 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 has 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. 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 Piet Nieman Appointment 9 December 2015 Francois Smit Resignation 21 November 2018 Dumisani Mafu Passed away 9 July 2016 By order of the Board
P Nieman Acting Non-Executive Chairman 18 December 2018 Directors as at year end: D. Mafu* (Chairman), L Sipoyo, (CEO), C Els (Executive: Financial Director), N Chonco* (*Independent Non-executive) Registered office: Futurum Office Park Units C1A and D2A Lenchen Avenue 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