Tsebo - Mediclinic (Pre-Qualification) Submission

ELECTRONIC SUBMISSION

MEDICLINIC PRE-QUALIFICATIONS
QUESTIONNAIRE

OUTSOURCED SERVICES

WE DEVELOP PEOPLE, TO SERVE PEOPLE, TO UPLIFT SOCIETY

Table of Contents

Table of Contents

Cover Letter
Section 1

Executive Summary

Section 2

2.1 Forms MCPQ-1 and MCPQ-2
2.2 Certificate of Business registration
2.3 Audited Financial Statements (2 years)
2.4 FEDHASA registration
2.5 CATHSSETA Registration
2.6 Letter of Good Standing
2.7 Bank Provident Fund Letter
2.8 Bank Confirmation Letter
2.9 Tax Clearance Certificate
2.10 Public Liability Insurance
2.11 BBBEE Certificate
2.12 ISO 9001 Certificate Tsebo Facilities Solution

Section 3

3.1 Form MCPQ-3 Financial Position
3.2 Memo Supporting Audited Financial Statements
3.3 Tsebo Audited Financial Statements (2 years)

Section 4

4.1 Form MCPQ-4 Past Experience
4.2 Confidentiality Write up – Value of Contracts
4.3 Reference Letter 1
4.4 Reference Letter 2
4.5 Reference Letter 3

Section 5

5.1 Form MCPQ-5 – Litigation History
5.2 Litigation and Disputes Write up

Section 6

6.1 Form MCPQ-6 – Sustainable Environmental Management
6.2 Environmental Management Plan
6.3 Waste Management Plan
6.4.1 Quality Management Plan
6.4.2 Tsebo Sustainability Policy
6.5.1 Environmental Policy Statement
6.5.2 Tsebo Solutions Sustainability

WE DEVELOP PEOPLE, TO SERVE PEOPLE, TO UPLIFT SOCIETY.

Table of Contents

Section 7

7.1 Form MCPQ-7 – Sworn Statement
7.2 Form MCPQ-8 – Declaration of Interest
7.3 Conflict of Interest Write up

Section 8

Operational Support and Clusters Selection
MCPQ-1, MCPQ-2, MCPQ-3, MCPQ-4, MCPQ-5, MCPQ-6, MCPQ-7 and MCPQ-8

WE DEVELOP PEOPLE, TO SERVE PEOPLE, TO UPLIFT SOCIETY.

COVERING LETTER

COVER
LETTER

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WE DEVELOP PEOPLE, TO SERVE PEOPLE, TO UPLIFT SOCIETY

The opportunity to present our information and highlight that we are the best-in-class partner to
Mediclinic is an exciting one for us. We have read and understood the pre-qualification questionnaire,
and we trust that the detail contained in this executive summary and throughout our submission will
wholly address your queries.

Pre-qualification Instructions

a. Pre-qualification Objective – Noted and agreed
b. Invitation of Pre-qualification – Noted and agreed
c. Experience – Noted and agreed
d. Pre-qualification Document – Noted and agreed
e. Distribution of Pre-qualification Documents – Noted and agreed
f. Questions arising from the Pre-qualification documents – Noted and agreed
g. Additional Information – Noted and agreed
h. Tender Submission – Noted and agreed

Pre-qualification Date Instructions

a. Pre-Qualification – Noted and agreed
b. Pre-Qualification Questionnaire – Noted. Please note that some answers pertaining to the

questionnaire are answered in the Executive Summary
c. Compulsory Criteria for Pre-qualification

Accreditation: Noted and agreed
Compliance: Noted and agreed – note that all payments are up to date
Mandatory Policies, Processes and / or Guidelines: Noted and agreed
Note: copies of valid accreditation certificates and letter of good standings shall be certified.
Noted and agreed

d. Pre–qualification Experience – Noted and agreed
§ Experience 2 years, 5 years. Noted and agreed
§ Capability and capacity to organize and commission catering services within eight weeks
at any Mediclinic Hospital – Noted and agreed
§ Experience in customer experience and have regional and provincial offices – Noted and
agreed

e. Financial Position – Noted and agreed. In addition to AFS, we have also attached a letter from
Group CEO relating to financial position and changes in shareholding

f. Past Experience (References) – Noted and agreed
g. Withdrawal of Pre-qualification – Noted and agreed
h. Information on previous contracts

§ Continuous Improvement – no allocated space in MCPQ-5. We have written about in the
Executive Summary

§ Disputes – have addressed this on MCPQ-5 as well as in Section 5
§ Litigation – have addressed this on MCPQ-5 as well as in Section 5
§ Cancellation of Agreement – addressed in the Executive Summary
i. Operational Support and Sustainability –
§ Indication of Mediclinic facilities intending to propose for - Noted and agreed
§ List of previous contracts – Noted. Please note that we have provided number of contracts

we service. We have almost 400 client contracts, and for confidential reasons we have
grouped them into industries versus naming each client. Please see below in the Executive
Summary
j. Mandatory Policies, Processes and / or Guidelines – Noted and agreed
k. Statement – Noted and agreed
l. Conflict of Interest – Noted and agreed

We understand the assignment

Mediclinic is looking for an experienced, capable catering partner, to drive innovative, increase patience
satisfaction through positive patient experiences while steering efficiencies through modified and
industry-leading food processes. We are the right partner – and the information below will reinforce
this position.

Continuous improvement initiatives

We drive innovation in the industry. We introduced the Medicater solution into our clients’ hospitals,
to help manage the processes within the operations. For our clients this presented a professional meal
ticket solution and allows real time meal ordering and instant data feed. For the patients this
means the right order is received from the kitchen at the right time. This reduces human error,
whilst also adding the benefit of including pictures (visuals) of the food, so that patients do not make
incorrect assumptions of their orders. This effectively improves customer experience and adds to the
overall customer satisfaction.

At client hospitals where Medicater has not been onboarded, we have moved away from paper-
based menus and have evolved to orders via handheld tablets, which communicate with our
electronic booking system back of house.

Customisation of menus. We are flexible and our menus reflect this. In the past, all hospitals served
“western meals” exclusively. To suitably respond to the various hospital client profiles, we consider the
demographics of the various hospitals, and based on the patient preferences gained through
feedback, geographical placement, and the seasons, we customise the menus. As an example,
meals served in the rural parts of Limpopo will not be identical to the menus served in Stellenbosch.
Our experienced chefs and dietitians together with our unit managers use this information to
ensure our meals and snacks meet the palates of our patients.

Time trolley for food temperature. At the beginning and at the end of the conveyor belt we document
the temperature of the food, to assess speed and pace of temperature change, and we modify
processes and activities performed on the conveyor belt to reduce the temperature change. This is to
ensure that the meals are presented to the patients at the required and adequate temperature.

Time and motion assessments of employees and equipment. We review the effectiveness and drive
efficiencies with our staff and the equipment. We measure the time it takes for a tray to be prepared,
loaded, and delivered to a patient, to understand whether there are hiccups in our processes which
impact our deliverables.

Menu images on the meal ordering handheld tablets. To reduce confusion and make meal selection
easier for patients, we have included images of the meals on the ordering tablets. Patients
appreciate this, as the naming of the meals may not be fully understood by every patient, and this
enables understanding and manages the expectations of the patients.

Confirming payment agreement (30 days from statement as per contract
agreement)

Tsebo confirms that the payment terms of 30 days from statement as per contract agreement is
acceptable to us.

Confirming Performance Standards as per contract agreement

Tsebo has reviewed the SLA and there are no areas in the draft SLA which cause serious concerns. We
are open to engaging and discussing the Service Levels Agreement further to establish the required
performance standards per hospital.

ISO 9001 – We facilitate certification

We have included the ISO 9001 certification of our sister company Tsebo Facilities Solutions, to indicate
to you that as a business we have the capabilities to support this. Tsebo Site Solutions (TSS) our sister
company has the ISO 9001:2000 and ISO 9001:2008 business quality tool which ensures continuous
improvement. The kitchens at the hospitals we manage are not ISO certified, while we are compliant
to the prescribes of HACCP and ISO. Should any of the hospitals wish to be certified we will support this
initiative and put our skills to making this a reality. In our experience, with the right level of
commitment this is achievable by the end of the first year. The first few months are content gathering
and retention, and thereafter the external ISO auditors would inspect and proceed with the
verifications.

Disputes and Litigation

We have addressed this on a signed letterhead sheet in Section 5, but this bears repeating. From
time-to-time disputes with clients do arise. These are mostly pertaining to outstanding payments,
clients attempting early termination, scope changes not agreed to or price escalation discussions.
These are however resolved through negotiations with clients during the course of business.
Tsebo is a contract intensive business and from time to time we do institute and defend legal action.
Tsebo is not currently involved in, nor has it been involved in any litigation in the last 5 years that
involves environmental or Health and safety issues, intellectual property or confidentiality
infringement or any bribery or corruption and none of our litigation would jeopardise the going
concern nature of Tsebo or our ability to deliver services to any of our clients.

Cancelled / Termination of Agreement

Pietermaritzburg Mediclinic contract was cancelled during contract term due to operational
challenges. The customer satisfaction Press Ganey scores were decreasing, and the client selected to
go to tender and award to another caterer.

Corrective and Preventative Measure in early termination of Pietermaritzburg contract. In hindsight, as
a business Tsebo should have been more proactive in retaining the contract. Tsebo should have
instituted a Hit Squad to help with recovering the contract once client raised concerns. We have

implemented the Hit Squad recovery models successfully at other clients, and those sites are already
showing improvements. The Hit Squad arrives onsite, monitors performance and services and reviews
contract, makes recommendations to the onsite management and ExCo across the broad spectrum,
such as staffing review, menu and product review, services review etc.

Value of Contracts

Due to confidentiality clauses in our client agreements, we are not at liberty to divulge the value of
the reference contracts, during the term of the agreements and post the termination of these. We
assure the Mediclinic team that we are able to manage an account the size of Mediclinic. Tsebo is
a multi-billion-rand organization, servicing some of the most established and largest brands in the
country with our skilled and professional teams. In October 2021 we successfully mobilised 10 hospitals
and 4 manufacturing contract catering and 2 schools in 1 day across the country. We are capable and
have processes that support such mobilisations.

Client list and regions

Due to the sensitive nature of the catering business, we are not at liberty to share our client list in tender
documents. Instead, we share with you the below, reflecting the vastness of our expertise, through
the clients we service.

We are the preferred partners in various industries, namely
§ Healthcare – 86 hospitals, inclusive of Mediclinic, Life Healthcare, Clinix Health Group, Lenmed
Health Group, RH Bophelo Group, Inkosi Albert Luthuli Hospital to name a few
§ Manufacturing - 112 manufacturing client facilities, inclusive of Mercedes Benz, Toyota, Nissan,
VW and Dischem to name a few
§ Corporate offices – 101 corporate client offices inclusive of Nedbank, Anglo American, Thungela,
Hollard and Exxaro to name a few
§ Education institutions – 12 education clients inclusive of Wits University, King Edwards School, St
Annes Diocesan Collage, Curro Parkdene and Beaulieu Prep and Beaulieu College to name a
few
§ Retirement villages – 12 retirement villages inclusive of Country Life, Celebrations Retirement
Village, The Village Bryanston, and Far Hills to name a few
§ Remote Sites (TSS) - 29 remote sites inclusive of Eskom Kusile, Letseng Diamond Mines, Black
Mountain Mine and Finsch Diamond Mines to name a few

Tsebo (Fedics) regional offices addresses

We are well represented by our competent regional teams who understand business nuances in the
various provinces. Our offices addresses are below

§ Gauteng – Kingsley Office Park, 85 Protea Road, Chislehurston, Sandton, Johannesburg
§ Western Cape - 124 Edward Road, Bellville, Cape Town
§ KwaZulu Natal - 1 Montgomery Drive, Block B, Mount Edgecombe, Durban
§ Free State - 1A Arboretum, Westdene, Bloemfontein
§ Eastern Cape - 38 Mc Adam Street, Newton Park, Gqeberha (Port Elizabeth)

Management teams

Our teams at the various hospitals that we are the preferred partners at are well-supported by the
executive committee and the Healthwise regional and central support services team. Below is a
diagrammatical representation of the teams.

Tsebo Catering Solutions Exco

Healthwise team Support organisation structure

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WE DEVELOP PEOPLE, TO SERVE PEOPLE, TO UPLIFT SOCIETY



















TSEBO SOLUTIONS GROUP PROPRIETARY LIMITED

AUDITED ANNUAL FINANCIAL STATEMENTS
AT 31 DECEMBER 2019

TSEBO SOLUTIONS GROUP PROPRIETARY LIMITED

AUDITED ANNUAL FINANCIAL STATEMENTS
AT 31 DECEMBER 2019

DIRECTORS C R Jardine
T G Walters
NATURE OF BUSINESS P P Z Mbele
N V Mokhesi
AUDITOR F N Khanyile
ATTORNEYS
BANKERS Catering, facilities management, energy solutions and
HOLDING COMPANY cleaning service providers
ULTIMATE HOLDING COMPANY
COMPANY REGISTRATION NUMBER Ernst & Young
COUNTRY OF INCORPORATION
DATE OF INCORPORATION Cliffe Dekker Inc.
REGISTERED OFFICE
Standard Bank of South Africa Limited

Tsebo Intragroup Proprietary Limited

Tsebo Solutions Group Holdings

2016/224394/07

Republic of South Africa

31 May 2016

Tsebo House
7 Arnold Road
Rosebank
Johannesburg
2196

The annual financial statements were prepared under the direct supervision of Mr T G Walters CA (SA), the
Chief Executive Officer of the Company.

1

TSEBO SOLUTIONS GROUP PROPRIETARY LIMITED

AUDITED ANNUAL FINANCIAL STATEMENTS
AT 31 DECEMBER 2019

CONTENTS Page

Report of the directors 3-5
Report of the independent auditors 6-8
Statement of profit or loss and other comprehensive income
Statement of financial position 9
Statement of changes in equity 10
Statement of cash flows 11
Notes to annual financial statements 12
Appendix - Directors' emoluments 13 - 57
58

APPROVAL OF ANNUAL FINANCIAL STATEMENTS

The annual financial statements set out on pages 9 to 58 were approved by the board of directors on
6 November 2020 and are signed on its behalf by:

CHIEF EXECUTIVE OFFICER

2

TSEBO SOLUTIONS GROUP PROPRIETARY LIMITED
REPORT OF THE DIRECTORS
AT 31 DECEMBER 2019

The directors have pleasure in presenting their report for the period ended 31 December 2019.
Statement of directors’ responsibility

The directors of the Company are responsible for the maintenance of adequate accounting records and the
preparation and integrity of the Company annual financial statements and related financial information in
this report.

The Company annual financial statements are prepared in accordance with International Financial
Reporting Standards and incorporate full and reasonable disclosure in line with the accounting policies of
the Company.

The directors are also responsible for the Company’s systems of internal control. These are designed to
provide reasonable, but not absolute, assurance as to the reliability of the financial statements, and to
adequately safeguard, verify and maintain accountability of assets, and to prevent and detect material
misstatement and loss.

These financial statements have been prepared on the going concern basis.

General review of the business of Tsebo Solutions Group Proprietary Limited

Operational review
Tsebo Solutions Group (Pty) Ltd ("TSG") provides catering, cleaning, energy solutions and facilities
management services through its operations in South Africa.
The group’s holding company is Tsebo Solutions Group Holdings ('TSGH'), domiciled in Mauritius. TSGH
holds 66.15% of the shares (indirectly) in Tsebo Intragroup (Pty) Ltd, which in turn holds 74% of the shares
in Tsebo Solutions Group (Pty) Ltd ('TSG') (effective shareholding of 49%).
AUTHORISED AND ISSUED SHARE CAPITAL

The authorised and issued share capital of the Company is set out in note 20 to these annual financial
statements.
DIVIDENDS
The Company did not declare any ordinary or preference share dividends during the financial period under
review.

3

TSEBO SOLUTIONS GROUP PROPRIETARY LIMITED

REPORT OF THE DIRECTORS
AT 31 DECEMBER 2019

BORROWING FACILITIES

At 31 December 2019 the amount outstanding to a consortium of lenders consisting of Investec Bank
Limited, Standard Chartered Bank and Nedbank Limited was ZAR 1,735,668,097. These loans were
provided to TSG on 31 January 2017. This amount excludes the balance of Facility D, which was provided
to Tsebo Solutions Group AME ('TSG AME'), a fellow subsidiary of ultimate holding company, Tsebo
Solutions Group Holdings ('TSGH').

The unutilised portion of Facility C was cancelled with effect from 17 December 2019.

The covenants were waived for the measurement period 31 December 2019.

Details of long-term and short-term borrowings are set out in note 21 to the financial statements.

Investec has provided TSG with guarantee facilities to the extent of ZAR 75,000,000, and Nedbank has
provided a working capital facility of ZAR 75,000,000.

The debt will be restructured in 2020 (please refer to the Going Concern disclosure below).

DIRECTORS

The board of directors is comprised of two executive and three non-executive directors.

A register of interests of directors and other employees in the shares of the Company is available to
shareholders.

GOING CONCERN

The recent COVID-19 pandemic induced uncertainty felt across markets, and has resulted in many
organisations re-adjusting their priorities. In line with this, Tsebo’s international shareholders, Wendel SE
(Wendel) and Capital Group, jointly decided on a strategic consolidation of their investment portfolio that
has seen them reducing their African exposure.

The controlling shareholders of Tsebo Solutions Group Holdings (Tsebo) are concluding a transaction with
a consortium of financial investors and management, which will result in a change in ownership of the
company. The consortium is led by Investec and Nedbank Private Equity. The transaction remains subject
to the finalisation of relevant documentation and South African Reserve Bank approval.
The new shareholding consortium will preserve Tsebo’s strong B-BBEE credentials and retain a
management shareholding element. Significantly, the transaction will strengthen the company’s balance
sheet by introducing R959 million of fresh equity as well as a Mezzanine finance facility of R675 million,
both of which will be utilised to pay down the senior debt, which will reduce to R450 million and
favourably position the business for its next phase of growth. The covenants and debt service requirements
will consequently be reset to the lower level of senior debt. Furthermore, a revolving credit facility of R100
million will be introduced.

The company has sufficient cash to continue its operations.

In light of this review, the directors believe that the Company will remain commercially solvent and that a
going concern assumption for preparing the Company financial statements is therefore considered to be
appropriate.

4

TSEBO SOLUTIONS GROUP PROPRIETARY LIMITED

REPORT OF THE DIRECTORS
AT 31 DECEMBER 2019

FINANCIAL REPORTING AND CONTROLS

The systems of internal control are based on established organisational structures and written policies and
procedures, including budgeting and forecasting disciplines. These systems and procedures are
implemented and monitored by suitably trained personnel with an appropriate segregation of authority and
duties. Nothing has come to the attention of the directors to indicate that any material breakdown in the
functioning of these controls, procedures and systems has occurred during the period under review.
The directors’ responsibilities regarding the financial statements are disclosed in the Independent Auditors
Report on page 3 to 4.

SUBSEQUENT EVENTS

COVID-19

On 11 March 2020 the World Health Organisation officially declared the novel corona virus a pandemic,
triggering various government interventions to stem the spread.

On 15 March 2020 a National State of Disaster was declared in South Africa due to the COVID-19
pandemic, with the country going into lockdown at end March 2020. Most restrictions were subsequently
lifted, but economic activity remains depressed with most businesses within the Corporate sector opting for
their employees to work from home.

Although the company’s service offerings are diversified across many industries, trading in the sectors
which were considered as non-essential services were impacted, especially during the lockdown in April,
with the Catering division bearing the brunt of it due to the nature of its services and clients. The company
however continued to operate at client sites in industries which are considered to be essential services. The
duration of the pandemic, and the pace at which containment measures are relaxed or possibly reinstated is
unknown, which makes it a challenge to reliably assess the impact across our markets and our business.

The company is doing what is required to ensure the safety and wellbeing of our customers and employees
and has applied for TERS-benefits for qualifying employees.

The company has assessed the impact including the related risks that the pandemic will have on its
performance and liquidity. The company expects its operating results to be impacted negatively for the
short term, however in the medium to long term management expect to resume normal trading levels. No
significant impairments of the company’s assets are expected to arise except for a potential impairment of
Goodwill due to lower trading, the impact of which will only be able to be quantified once a formal
assessment is done at the 2020 year end.

The company has taken action to protect its financial position. Cost saving initiatives have been
implemented and capital expenditure have been delayed, together with prudent cash and working capital
management, enabling the company to remain liquid and able to settle its current liabilities. As part of
these cost saving initiatives, the company has also decided to restructure some of its business activities
within certain business units. This is anticipated to cost R25 million.

5

EY Ernst & Young Incorporated
102 Rivonia Road Co. Reg. No. 2005/002308/21
Sandton Tel: +27 (0) 11 772 3000
Private Bag X14 Fax: +27 (0) 11 772 4000
Sandton Docex 123 Randburg
2146 ey.com

Independent Auditor’s Report

To the Shareholders of Tsebo Solutions Group Proprietary Limited

Report on the Audit of the Financial Statements

Opinion
We have audited the financial statements of Tsebo Solutions Group Proprietary Limited set out on
pages 9 - 58, which comprise the statement of financial position as at 31 December 2019, and the
statement of profit or loss and other comprehensive income, statement of changes in equity and
statement of cash flows for the year then ended, and notes to the financial statements, including a
summary of significant accounting policies.

In our opinion, the financial statements present fairly, in all material respects, the financial position of
Tsebo Solutions Group Proprietary Limited as at 31 December 2019, and its financial performance and
cash flows for the year then ended in accordance with International Financial Reporting Standards and
the requirements of the Companies Act of South Africa.

Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing (ISAs). Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for the
Audit of the financial statements section of our report. We are independent of the company in
accordance with the sections 290 and 291 of the Independent Regulatory Board for Auditors’ Code of
Professional Conduct for Registered Auditors (Revised January 2018), parts 1 and 3 of the Independent
Regulatory Board for Auditors’ Code of Professional Conduct for Registered Auditors (Revised
November 2018) (together the IRBA Codes) and other independence requirements applicable to
performing audits of financial statements of the company and in South Africa. We have fulfilled our other
ethical responsibilities, as applicable, in accordance with the IRBA Codes and in accordance with other
ethical requirements applicable to performing audits of the company and in South Africa. The IRBA
Codes are consistent with the corresponding sections of the International Ethics Standards Board for
Accountants’ Code of Ethics for Professional Accountants and the International Ethics Standards Board
for Accountants’ International Code of Ethics for Professional Accountants (including International
Independence Standards) respectively. We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.

Other Information
The directors are responsible for the other information. The other information comprises the information
included in pages 3 to 5 document titled Tsebo Solutions Group Proprietary Limited Annual Financial
Statements for the year ended 31 December 2019, which includes the Directors’ Report as required by
the Companies Act of South Africa. The other information does not include the financial statements and
our auditor’s report thereon.
Our opinion on the financial statements does not cover the other information and we do not express an
audit opinion or any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the Directors for Financial Statements
The directors are responsible for the preparation and fair presentation of the financial statements in
accordance with International Financial Reporting Standards and the requirements of the Companies
Act of South Africa, and for such internal control as the directors determine is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud or
error.

In preparing the financial statements, the directors are responsible for assessing the company’s ability
to continue as a going concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless the directors either intend to liquidate the company or to
cease operations, or have no realistic alternative but to do so.

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with ISAs will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgement and maintain
professional scepticism throughout the audit. We also:
· Identify and assess the risks of material misstatement of the financial statements, whether due to fraud
or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that
is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve
collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

· Obtain an understanding of internal control relevant to the audit in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the company’s internal control.

· Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by the directors.

· Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the company’s ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report
to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify
our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s

report. However, future events or conditions may cause the company to cease to continue as a going
concern.
· Evaluate the overall presentation, structure and content of the financial statements, including the
disclosures, and whether the financial statements represent the underlying transactions and events in
a manner that achieves fair presentation.
· Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the group to express an opinion on the consolidated and separate financial
statements. We are responsible for the direction, supervision and performance of the group audit. We
remain solely responsible for our audit opinion.
We communicate with the directors regarding, among other matters, the planned scope and timing of
the audit and significant audit findings, including any significant deficiencies in internal control that we
identify during our audit.

Ernst & Young Inc.
Director: Gerwin Peter Harry Weinreich
Registered Auditor
Chartered Accountant (SA)
Date: 06 November 2020

TSEBO SOLUTIONS GROUP PROPRIETARY LIMITED

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2019

Revenue Notes 2019 2018
- Catering 3
- Cleaning R’000 R’000
- Facilities solutions 4
5,054,556 5,283,927
Cost of sales 5 2,243,824 2,277,671
6
Gross profit 7 937,189 992,431
1,873,543 2,013,825
Other income 8
Finance costs 9 (4,477,365) (4,627,981)
Finance income
Other expenses 577,190 655,946
46,441 71,945
(Loss) / profit before tax (262,534)
Taxation 26,803 (234,935)
(485,371) 79,098
(Loss) / profit for the year
Other comprehensive income (97,471) (497,724)
2,022
Total comprehensive (loss) / profit for the year, net of tax 74,330
(95,449) (11,677)
-
62,652
(95,449) -

62,652

9

TSEBO SOLUTIONS GROUP PROPRIETARY LIMITED

STATEMENT OF FINANCIAL POSITION
AT 31 DECEMBER 2019

ASSETS Notes 2019 2018
Non-current assets
10 R’000 R’000
Property, plant and equipment 11
Goodwill 12 1,381,291 1,426,756
Investments 13 101,487
Loans receivable 14 139,202 879,404
Investment in subsidiary companies 15 879,404 59,069
Amounts due from group companies 16 66,018 23,330
Deferred tax assets 18,620 260,710
17 260,710 87,133
Current assets 18 15,623
19 -
Inventories 13 17,336 736,071
Trade and other receivables 44,132
Cash and cash equivalents 743,689
Loan receivable 553,739
Taxation receivable 48,296 118,009
538,668
Total assets 143,255 309
19,883
EQUITY AND LIABILITIES -
13,470 2,162,827
Capital and reserves
2,124,980 (472,952)
Share capital 1,201,205
Preference shares (568,401) 1,482,382
Non-distributable reserves (3,102,807)
Accumulated loss 20 1,201,205
20 1,482,382 (53,732)
Non-current liabilities
(3,102,807) 1,740,867
Secured loans (149,181) 1,738,273
Amounts due to group companies
IFRS 16 lease liability 1,749,500 -
Deferred tax liabilities -
21 1,594,709 2,594
Current liabilities 22 125,595
31 27,131 894,912
Trade and other payables 16 2,065 755,453
Provisions
Short-term liabilities - secured loans 943,881 59,420
IFRS 16 lease liability 57,878
Bank overdraft 23 652,178
Interest rate swap 24 61,727 -
21 140,959 10,006
Total equity and liabilities 31 29,800 12,156
19 39,260
27 19,957 2,162,827

2,124,980

10

TSEBO SOLUTIONS GROUP PROPRIETARY LIMITED Share ca
STATEMENT OF CHANGES IN EQUITY R
FOR THE YEAR ENDED 31 DECEMBER 2019
1,201
Balance at 31 December 2017 1,201
Impact of Adoption of IFRS 9 1,201
As at 1 January 2018 (Restated)
Total comprehensive profit for the year 1,201
Balance at 31 December 2018
Total comprehensive loss for the year
Balance at 31 December 2019

11

apital Preference Accumulated Non- Total equity
R’000 share capital loss R’000
distributable
R’000 R’000
reserve
R’000

1,205 1,482,382 (116,101) (3,102,807) (535,321)
- - (284) - (284)

1,205 1,482,382 (116,385) (3,102,807) (535,605)
- - 62,652 - 62,652

1,205 1,482,382 (53,733) (3,102,807) (472,952)
- - (95,448) - (95,448)

1,205 1,482,382 (149,181) (3,102,807) (568,401)

1

TSEBO SOLUTIONS GROUP PROPRIETARY LIMITED

STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2019

Net cash flows from operating activities Notes 2019 2018
29.1
Cash generated from operations 29.2 R’000 R’000
Finance costs
Finance income (124,156) (16,016)
Taxation paid
91,636 185,219
Net cash flows from investing activities 10 (248,787) (234,935)

Expansion and replacement of property, plant and equipment 14 26,803 45,500
Proceeds on disposal of property, plant and equipment 5 6,193 (11,800)
Purchase of subsidiaries net of cash acquired
Dividends received (32,052) (56,554)

Net cash flows from financing activities 21 (46,679) (49,435)
6,502 2,324
Repayment of secured loans - net of short-term portion 13 -
Decrease in loans receivable 22 8,124 (29,454)
Increase in amounts due to group companies 20,012
152,200
Net increase in cash and cash equivalents 29.3 24,927
Cash and cash equivalents at beginning of period (69,375)
8,848 (4,088)
Cash and cash equivalents at end of period 513
212,727
28,502
(4,008)
108,003 (47,643)
155,646
103,995
108,003

12

TSEBO SOLUTIONS GROUP PROPRIETARY LIMITED

NOTES TO ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019

1. ACCOUNTING POLICIES

1.1 Basis of preparation
The annual financial statements set out on pages 9 to 58 are prepared in accordance with, and
comply with IFRS and the South African Companies Act, 2008. The financial statements are
prepared in accordance with the going concern principle under the historical cost basis adjusted
for the fair valuing of certain financial assets and liabilities, as set out in the accounting policies
below.

1.2 Investment in subsidiaries

Investment in subsidiaries are initially recognised at cost, being the fair value of the
consideration given and include acquisition charges associated with the investment.

The carrying value of subsidiaries is reviewed for impairment where there are indications of
impairment. Where necessary, the value of the investment is written down to the recoverable
amount.

The difference between the net proceeds on disposal and the cost of the investment is taken to
statement of profit or loss.

Subsidiaries are carried at cost in the Company’s financial statements.

1.3 Business combinations and goodwill

Acquisitions are included in the Company’s financial statements using the acquisition method of
accounting, which involves allocating the cost of the business combination to the fair value of the
assets acquired and liabilities and contingent liabilities assumed at the date of acquisition.

Goodwill acquired in a business combination is initially measured at cost, being the excess of the
consideration paid over the Company’s interest in the net assets. If the consideration transferred
is less than the net assets of the subsidiary acquired, the difference is recognised in the statement
of profit or loss as a bargain purchase.

Following initial recognition, goodwill is measured at cost less any accumulated impairment
losses. Goodwill is reviewed for impairment, annually or more frequently if events or changes in
circumstances indicate that the carrying value may be impaired.

For the purpose of impairment testing, goodwill acquired in a business combination is, from the
acquisition date, allocated to each of the Company’s cash-generating units, that are expected to
benefit from the synergies of the combination, irrespective of whether other assets or liabilities of
the Company are assigned to those units.

Each unit to which goodwill is so allocated, represents the lowest level within the Company at
which the goodwill is monitored for internal management purposes.

13

TSEBO SOLUTIONS GROUP PROPRIETARY LIMITED

NOTES TO ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019

1. ACCOUNTING POLICIES

1.3 Business combinations and goodwill (continued)

Impairment of goodwill is determined by assessing the recoverable amount of the cash-generating
unit to which the goodwill relates. Where the recoverable amount of the cash-generating unit is
less than the carrying amount, an impairment loss is recognised. Impairment losses relating to
goodwill cannot be reversed in future periods. The Company performs its impairment test
annually.

Where goodwill forms part of a cash-generating unit and part of the operation within that unit is
disposed of, the goodwill associated with the operation disposed of is included in the carrying
amount of the operation when determining the gain or loss on disposal of the operation.
Goodwill disposed of in this circumstance, is measured based on the relative values of the
operation disposed of and the portion of the cash-generating unit retained.

When subsidiaries are sold, the difference between the selling price and the net assets plus
cumulative translation differences and goodwill, is recognised in profit and loss.

1.4 Revenue recognition

The Company is in the business of providing integrated workplace management solutions that
provide catering, facilities management, cleaning, energy, leasing and security services. Revenue
from contracts with customers is recognised when control of the goods or services are transferred
to the customer at an amount that reflects the consideration to which the Company expects to be
entitled in exchange for those goods or services. The Company has generally concluded that it is
the principal in its revenue arrangements, except for the procurement services below, because it
typically controls the goods or services before transferring them to the customer.

Turnover comprises of sales to customers, turnover from operations and pass-through costs
recovery charged to customers for management services rendered, net of value added tax.

The following specific recognition criteria must also be met before revenue is recognised:
Catering
Revenue earned from catering is recognised at the point in time when control of the asset is
transferred to the customer. Sales of goods are normally recognised once the goods are delivered
at the customer’s location.
Cleaning, Facilities Management and Energy services
The Company recognises revenue from contracts, which require the rendering of service, by
reference to the stage of completion at the reporting date when the outcome of a contract can be
estimated reliably.

The Company considers the outcome of a contract to be reliably estimated when:
(a) Total contract revenue can be measured reliably;
(b) It is probable that the economic benefits associated with the contract will flow to the

entity.

14

TSEBO SOLUTIONS GROUP PROPRIETARY LIMITED

NOTES TO ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019

1. ACCOUNTING POLICIES

1.4 Revenue recognition (continued)

Pass through costs recovery
Pass through costs are as a result of the Company performing the management function for the
relevant client. They represent items that are not identified as being covered by the monthly
management fee charged to the client. The Company is the primary obligor in the arrangement
with the customer and therefore recognises revenue on a gross basis.

Finance income
Finance income is recognised on the effective interest method.

1.5 Taxes

Current tax
The charge for current tax is the amount of income taxes payable in respect of the taxable profit
and loss for the current period. It is calculated using tax rates that have been enacted or
substantially enacted by the reporting date. Tax payable/(receivable) is based on the amount
expected to be paid over or recovered from the tax authorities.

Income tax relating to items recognised directly in equity is recognised in equity and not in the
statement of comprehensive income.

Deferred tax
Deferred tax is provided, using the liability method, on all temporary differences at the reporting
date between the tax bases of assets and liabilities and their carrying amounts for financial
reporting purposes.

The carrying amount of deferred tax assets is reviewed at each reporting period date and reduced
to the extent that it is no longer probable that sufficient taxable profit will be available to allow
all or part of the deferred tax asset to be utilised.

Unrecognised deferred tax assets are reassessed at each reporting period date and are recognised
to the extent that it has become probable that future taxable profit will allow the deferred tax
asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the
period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that
have been enacted or substantively enacted at the reporting date.

15

TSEBO SOLUTIONS GROUP PROPRIETARY LIMITED

NOTES TO ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019

1. ACCOUNTING POLICIES

1.6 Property, plant and equipment

Property, plant and equipment is stated at cost less accumulated depreciation and any impairment
losses recognised. Cost includes the costs incurred subsequent to initial recognition to add to,
replace part of or service the item to the extent that it is probable that future economic benefits
will flow to the Company, and the cost can be reliably measured. Costs of day-to-day servicing
are expensed. If a replacement part is recognised in the amount of an item of property, plant and
equipment, the carrying amount of the replaced part is derecognised.

Property, plant and equipment is depreciated on the straight-line basis estimated to write each
asset down to estimated residual value over the term of its useful life. The residual value, useful
lives and depreciation methods of these assets are reviewed annually.

Where the estimated residual value is greater than the book value, depreciation is ceased on the
asset.

The estimated useful lives are as follows:

- Computer equipment 2 - 3 years

- Laptops 2 - 3 years

- Desktops and printers 2 - 5 years

- Application software 2 - 10 years

- Furniture and fittings 5 - 10 years

- Kitchen equipment 5 - 10 years

- Motor vehicles 3 - 5 years

- Investments at units over the life of the contract

- Leasehold improvements over the lease period

An item of property, plant and equipment is derecognised upon disposal or when no future
economic benefits are expected from its use or disposal. Any gain or loss arising on
derecognition of the asset (calculated as the difference between net disposal proceeds and the
carrying value of the asset) is included in the statement of profit or loss in the period the asset is
derecognised.

1.7 Inventories

Inventories comprising of raw materials, consumable stores and merchandise are valued at the
lower of cost, determined on the first-in, first-out basis, and net realisable value. Inventories
comprising of spare parts and tools are valued on the weighted average basis. Redundant and
slow moving inventory items are identified and written down to their estimated net realisable

Net realisable value is the estimated selling price in the ordinary course of business, less
estimated costs of completion and the estimated costs necessary to make the sale.

16

TSEBO SOLUTIONS GROUP PROPRIETARY LIMITED

NOTES TO ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019

1. ACCOUNTING POLICIES

1.8 Retirement benefits

The Company provides retirement benefits in the form of defined contribution pension and
provident funds to their employees, the assets of which are held in separate funds.

Contributions to defined contribution plans are recognised as an expense when employees have
rendered service entitling them to the contributions. The entity does not have any further
obligation above the contributions to the funds.

1.9 Financial instruments

A financial instrument is any contract that gives rise to a financial asset of one entity and a
financial liability or equity instrument of another entity.

Financial Assets
Initial Recognition and Measurement

Financial assets are classified, at initial recognition, as subsequently measured at amortised cost,
fair value through other comprehensive income (OCI), and fair value through profit or loss.
The classification of financial assets at initial recognition depends on the financial asset’s
contractual cash flow characteristics and the Company’s business model for managing them.
With the exception of trade receivables that do not contain a significant financing component or
for which the Company has applied the practical expedient, the Company initially measures a
financial asset at its fair value plus, in the case of a financial asset not at fair value through profit
or loss, transaction costs. Trade receivables that do not contain a significant financing component
or for which the Company has applied the practical expedient are measured at the transaction
price as disclosed in section 1.5 Revenue from contracts with customers.
In order for a financial asset to be classified and measured at amortised cost or fair value through
OCI, it needs to give rise to cash flows that are ‘solely payments of principal and interest (SPPI)’
on the principal amount outstanding. This assessment is referred to as the SPPI test and is
performed at an instrument level. Financial assets with cash flows that are not SPPI are classified
and measured at fair value through profit or loss, irrespective of the business model.
The Company’s business model for managing financial assets refers to how it manages its
financial assets in order to generate cash flows. The business model determines whether cash
flows will result from collecting contractual cash flows, selling the financial assets, or both.
Financial assets classified and measured at amortised cost are held within a business model with
the objective to hold financial assets in order to collect contractual cash flows while financial
assets classified and measured at fair value through OCI are held within a business model with
the objective of both holding to collect contractual cash flows and selling.

Purchases or sales of financial assets that require delivery of assets within a time frame
established by regulation or convention in the market place (regular way trades) are recognised
on the trade date, i.e., the date that the Company commits to purchase or sell the asset.

17

TSEBO SOLUTIONS GROUP PROPRIETARY LIMITED

NOTES TO ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019

1. ACCOUNTING POLICIES

1.9 Financial instruments (continued)

Subsequent Measurement
For purposes of subsequent measurement, financial assets are classified in four categories:

• Financial assets at amortised cost (debt instruments);
• Financial assets at fair value through OCI with recycling of cumulative gains and losses (debt
instruments);
• Financial assets designated at fair value through OCI with no recycling of cumulative gains
and losses upon derecognition (equity instruments);
• Financial assets at fair value through profit or loss.

Financial assets at amortised cost (debt instruments)
Financial assets at amortised cost are subsequently measured using the effective interest (EIR)
method and are subject to impairment. Gains and losses are recognised in profit or loss when the
asset is derecognised, modified or impaired.
The Company’s financial assets at amortised cost includes trade receivables, and loan to an
associate and loan to a director included under other non-current financial assets.

Financial assets at fair value through OCI (debt instruments)
For debt instruments at fair value through OCI, interest income, foreign exchange revaluation and
impairment losses or reversals are recognised in the statement of profit or loss and computed in
the same manner as for financial assets measured at amortised cost. The remaining fair value
changes are recognised in OCI. Upon derecognition, the cumulative fair value change recognised
in OCI is recycled to profit or loss.

Financial assets designated at fair value through OCI (equity instruments)
Upon initial recognition, the Company can elect to classify irrevocably its equity investments as
equity instruments designated at fair value through OCI when they meet the definition of equity
under IAS 32 Financial Instruments: Presentation and are not held for trading. The classification
is determined on an instrument-byinstrument basis.
Gains and losses on these financial assets are never recycled to profit or loss. Dividends are
recognised as other income in the statement of profit or loss when the right of payment has been
established, except when the Company benefits from such proceeds as a recovery of part of the
cost of the financial asset, in which case, such gains are recorded in OCI. Equity instruments
designated at fair value through OCI are not subject to impairment assessment.

18

TSEBO SOLUTIONS GROUP PROPRIETARY LIMITED

NOTES TO ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019

1. ACCOUNTING POLICIES

1.9 Financial instruments (continued)

Financial assets designated at fair value through OCI (equity instruments)

Financial assets at amortised cost are subsequently measured using the effective interest (EIR)
method and are subject to impairment. Gains and losses are recognised in profit or loss when the
asset is derecognised, modified or impaired.
The Company’s financial assets at amortised cost includes trade receivables, and loan to an
associate and loan to a director included under other non-current financial assets.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are carried in the statement of financial
position at fair value with net changes in fair value recognised in the statement of profit or loss.
This category includes derivative instruments and listed equity investments which the Company
had not irrevocably elected to classify at fair value through OCI. Dividends on listed equity
investments are recognised as other income in the statement of profit or loss when the right of
payment has been established.
A derivative embedded in a hybrid contract, with a financial liability or non-financial host, is
separated from the host and accounted for as a separate derivative if: the economic characteristics
and risks are not closely related to the host; a separate instrument with the same terms as the
embedded derivative would meet the definition of a derivative; and the hybrid contract is not
measured at fair value through profit or loss. Embedded derivatives are measured at fair value
with changes in fair value recognised in profit or loss. Reassessment only occurs if there is either
a change in the terms of the contract that significantly modifies the cash flows that would
otherwise be required or a reclassification of a financial asset out of the fair value through profit
or loss category.

Derecognition

A financial asset (or, where applicable, a part of a financial asset or part of a Company of similar
financial assets) is primarily derecognised (i.e., removed from the Company’s consolidated
statement of financial position) when:

• The rights to receive cash flows from the asset have expired; or
• The Company has transferred its rights to receive cash flows from the asset or has assumed an
obligation to pay the received cash flows in full without material delay to a third party under a
‘pass-through’ arrangement; and either (a) the Company has transferred substantially all the
risks and rewards of the asset, or (b) the Company has neither transferred nor retained
substantially all the risks and rewards of the asset, but has transferred control of the asset.

19

TSEBO SOLUTIONS GROUP PROPRIETARY LIMITED

NOTES TO ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019

1. ACCOUNTING POLICIES

1.9 Financial instruments (continued)

When the Company has transferred its rights to receive cash flows from an asset or has entered
into a passthrough arrangement, it evaluates if, and to what extent, it has retained the risks and
rewards of ownership. When it has neither transferred nor retained substantially all of the risks
and rewards of the asset, nor transferred control of the asset, the Company continues to recognise
the transferred asset to the extent of its continuing involvement. In that case, the Company also
recognises an associated liability. The transferred asset and the associated liability are measured
on a basis that reflects the rights and obligations that the Company has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured
at the lower of the original carrying amount of the asset and the maximum amount of
consideration that the Company could be required to repay.

Financial Liabilities
Initial Recognition and Measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value
through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging
instruments in an effective hedge, as appropriate.
All financial liabilities are recognised initially at fair value and, in the case of loans and
borrowings and payables, net of directly attributable transaction costs.
The Company’s financial liabilities include trade and other payables, loans and borrowings
including bank overdrafts, and derivative financial instruments.

Subsequent Measurement
For purposes of subsequent measurement, financial liabilities are classified in two categories:

• Financial liabilities at fair value through profit or loss;
• Financial liabilities at amortised cost (loans and borrowings).

Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include financial liabilities held for trading
and financial liabilities designated upon initial recognition as at fair value through profit or loss.
Financial liabilities are classified as held for trading if they are incurred for the purpose of
repurchasing in the near term. This category also includes derivative financial instruments
entered into by the Company that are not designated as hedging instruments in hedge
relationships as defined by IFRS 9. Separated embedded derivatives are also classified as held for
trading unless they are designated as effective hedging instruments.
Gains or losses on liabilities held for trading are recognised in the statement of profit or loss.

20

TSEBO SOLUTIONS GROUP PROPRIETARY LIMITED

NOTES TO ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019

1. ACCOUNTING POLICIES

1.9 Financial instruments (continued)

Financial liabilities designated upon initial recognition at fair value through profit or loss are
designated at the initial date of recognition, and only if the criteria in IFRS 9 are satisfied. The
Company has not designated any financial liability as at fair value through profit or loss.

Financial liabilities at amortised cost (loans and borrowings)
This is the category most relevant to the Company. After initial recognition, interest-bearing
loans and borrowings are subsequently measured at amortised cost using the EIR method. Gains
and losses are recognised in profit or loss when the liabilities are derecognised as well as through
the EIR amortisation process.
Amortised cost is calculated by taking into account any discount or premium on acquisition and
fees or costs that are an integral part of the EIR. The EIR amortisation is included as finance
costs in the statement of profit or loss.
Derecognition
A financial liability is derecognised when the obligation under the liability is discharged or
cancelled or expires. Where an existing financial liability is replaced by another from the same
lender on substantially different terms, or the terms of an existing liability are substantially
modified, such an exchange or modification is treated as a derecognition of the original liability
and the recognition of a new liability, and the difference in the respective carrying amounts is
recognised in the statement of profit or loss.

1.10 Impairment of financial assets

The Company assesses at each balance sheet date whether there is any objective evidence that a
financial asset or Company of financial assets is impaired. Evidence of impairment may include
indications that the trade receivables or a Company of trade receivables is experiencing
significant financial difficulty, default or delinquency in interest or principal payments, the
probability that the trade receivable will enter bankruptcy or other financial re-organisation, and
continued losses or prolonged decline in the fair value of the investment below its cost.
Further disclosures relating to impairment of financial assets are also provided in the following
notes:
• Disclosure of significant judgements and estimates - Refer note 1.16
• Trade and other receivables - Refer note 18

21

TSEBO SOLUTIONS GROUP PROPRIETARY LIMITED

NOTES TO ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019

1. ACCOUNTING POLICIES

1.10 Impairment of financial assets (continued)

The Company first assesses whether objective evidence of impairment exists individually for
financial assets that are individually significant, and individually or collectively for financial
assets that are not individually significant.
If it is determined that no objective evidence of impairment exists for an individually assessed
financial asset, whether significant or not, the asset is included in a Company of financial assets
with similar credit risk characteristics and that Company of financial assets is collectively
assessed for impairment.

The Company recognises an allowance for expected credit losses (ECLs) for all debt instruments
not held at fair value through profit or loss. ECLs are based on the difference between the
contractual cash flows due in accordance with the contract and all the cash flows that the
Company expects to receive, discounted at an approximation of the original effective interest
rate. The expected cash flows will include cash flows from the sale of collateral held or other
credit enhancements that are integral to the contractual terms.

ECLs are recognised in two stages. For credit exposures for which there has not been a
significant increase in credit risk since initial recognition, ECLs are provided for credit losses
that result from default events that are possible within the next 12-months (a 12-month ECL). For
those credit exposures for which there has been a significant increase in credit risk since initial
recognition, a loss allowance is required for credit losses expected over the remaining life of the
exposure, irrespective of the timing of the default (a lifetime ECL).

For trade receivables, the Company applies a simplified approach in calculating ECLs. Therefore,
apart from tracking significant changes in credit risk, the Company also recognises a loss
allowance based on lifetime ECLs at each reporting date. The Company has established a
provision matrix that is based on its historical credit loss experience, adjusted for forward-
looking factors specific to the trade receivables and the economic environment.

1.11 Derivative financial instruments

The Company uses interest rate swaps to hedge its interest rate risks. Such derivative financial
instruments are initially recognised at fair value on the date on which the contract is entered into
and are subsequently re-measured at fair value. Derivatives are carried as financial assets when
the fair value is positive and as financial liabilities when the fair value is negative.
Any gains or losses arising from changes in fair value on derivatives during the period that do not
qualify for hedge accounting, are taken directly to the statement of profit or loss.
The fair value of interest rate swap contracts is determined by reference to market values for
similar instruments.

22

TSEBO SOLUTIONS GROUP PROPRIETARY LIMITED

NOTES TO ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019

1. ACCOUNTING POLICIES

1.12 Provisions

Provisions are recognised when the Company has a present obligation (legal or constructive) as a
result of a past event, it is probable that an outflow of resources embodying economic benefits
will be required to settle the obligation and a reliable estimate can be made of the amount of the
obligation. Where the Company expects some or all of a provision to be reimbursed, for example
under an insurance contract, the reimbursement is recognised as a separate asset but only when
the reimbursement is virtually certain. The expense relating to any provision is presented in the
statement of profit or loss, net of any reimbursement.

Leave pay
When an employee has rendered service to the Company during the accounting period, the
Company recognises the undiscounted amount of short term employee benefits expected to be
paid in exchange for that service:
a) as a liability (accrued expense);
b) as an expense.

The Company recognises the expected cost of short term employee benefits in the form of paid
absences in the case of accumulating paid absences, when the employees render service that
increases their entitlement to future paid absences. The policy of the Company is to provide for
accumulated leave pay based on the total cost of employment to the Company at current
employment costs limited to twenty days, unless under exceptional circumstances.

The Company measures the expected cost of accumulating paid absences as the additional
amount that the Company expects to pay as a result of the unused entitlement that has
accumulated at the end of the reporting period.

1.13 Contingent liability
A contingent liability is either a possible obligation arising from past events whose existence will
only be confirmed by the occurrence or non-occurrence of one or more uncertain future events
not wholly within the control of the entity; or a present obligation arising from past events that is
not recognised as either it is not probable that an outflow of resources will be required to settle
the obligation or the amount cannot be measured reliably. Contingent liabilities are not
recognised, but are disclosed, unless the possibility of an outflow of economic resources is

1.14 Government grants

Government grants towards staff training costs are recognised once it is reasonably certain that
the grant will be received and the requirements met.

1.15 Borrowing costs

Borrowing costs are recognised as an expense when incurred and measured using the effective
interest rate method.

23

TSEBO SOLUTIONS GROUP PROPRIETARY LIMITED

NOTES TO ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019

1. ACCOUNTING POLICIES

1.16 Leases

The Company assesses at contract inception whether a contract is, or contains, a lease. That is, if
the contract conveys the right to control the use of an identified asset for a period of time in
exchange for consideration.

Company as a lessee

The Company applies a single recognition and measurement approach for all leases, except for
short-term leases and leases of low-value assets. The Company recognises lease liabilities to
make lease payments and right-of-use assets representing the right to use the underlying assets.

i) Right-of-use assets

The Company recognises right-of-use assets at the commencement date of the lease (i.e., the date
the underlying asset is available for use). Right-of-use assets are measured at cost, less any
accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease
liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised,
initial direct costs incurred, and lease payments made at or before the commencement date less
any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the
shorter of the lease term and the estimated useful lives of the assets, as follows:

- Computer equipment 2 - 3 years
- Laptops 2 - 3 years
- Desktops and printers 2 - 5 years
- Application software 2 - 10 years
- Furniture and fittings 5 - 10 years
- Kitchen equipment 5 - 10 years
- Motor vehicles 3 - 5 years
- Buildings 10 years
- Investments at units over the life of the contract
- Leasehold improvements over the lease period

If ownership of the leased asset transfers to the Company at the end of the lease term or the cost
reflects the exercise of a purchase option, depreciation is calculated using the estimated useful
life of the asset. The right-of-use assets are also subject to impairment.

24