Tsebo - Mediclinic (Pre-Qualification) Submission

Mutualpark, Jan Smuts Drive, Pinelands 7405.
PO Box 728, Cape Town 8000, South Africa.
Member Queries: 0860 20 30 40. Fax: 0860 38 38 48
www.oldmutual.co.za

9 May 2022

Attention : Zubair Ebrahim
Via e-mail : [email protected]

Fund Name : Old Mutual Superfund Provident Fund
Fund Approval Number : 12/8/20246
Participating Employer : TSEBO SOLUTIONS GROUP (PTY) LTD
Participating Employer Fund Number : R001660D

Fund Name : Old Mutual Superfund Pension Fund
Fund Approval Number : 12/8/20237
Participating Employer : TSEBO SOLUTIONS GROUP (PTY) LTD
Participating Employer Fund Number : R001653D

We, the administrators of the Old Mutual Superfund Provident Fund and the Old Mutual Superfund Pension
Fund, hereby confirm that the TSEBO SOLUTIONS GROUP (PTY) LTD commenced participation in the afore
mentioned Funds on 1 August 2009 and continue to comply with the eligibility requirements.

I trust you will find the above in order.

Regards

ALAINE FRIGGENS
Service Consultant
Old Mutual Corporate Client Service
Old Mutual Life Assurance Company (SA) Limited)
Licensed Financial Services Provider
+27 (0)21 503 6647 (telephone)
[email protected] (email)

Old Mutual Life Assurance Company (South Africa) Limited, Registration Number 1999/004643/06. VAT number: 4880103785.
A licensed FSP and Life Insurer.
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three

WE DEVELOP PEOPLE, TO SERVE PEOPLE, TO UPLIFT SOCIETY



23 November 2021

To whom it may Concern

Tsebo Solutions Group (Pty) Ltd (TSG)

Annual Financial Statements

Please find attached the following documents as requested:

• Audited Annual Financial Statements for the following periods:
o 12 months ending 31 March 2016
o 12 months ending 31 March 2017 (Old TSG – 10 months trading)
o 12 months ending 31 March 2017 (Tsebo Solutions Group (“New TSG”) – 2 months trading)
o 9 months ending 31 December 2017
o 12 months ending 31 December 2018 / 2019 / 2020

Change in shareholding, subsequent restructure and change in Financial Year end: 2017

On 31 January 2017 a shareholder consortium consisting of Euronext listed French private equity investor Wendel
SE (Wendel) (65%) and Capital Group Private Markets, an experienced emerging markets private equity affiliate of
the Capital Group of Companies (35%); acquired 100% of Tsebo Solutions Group from Rockwood Private Equity and
other minority shareholders for R5.25 billion.

As a consequence of this acquisition, the Tsebo Group underwent a restructure to facilitate the funding of the
transaction and facilitate the future plans of the new shareholders.

A new trading entity, Tsebo Solutions Group (Pty) Ltd (“New TSG’’ – previously called Main Street 1476 (Pty) Ltd)
acquired the shares in Tsebo Holdings (Pty) Ltd (the holding company of the Group prior to the shareholder change
and restructure) and the operations of Old TSG (previously known as Tsebo Solutions Group), where after all the
foreign subsidiaries were unbundled to Tsebo Solutions Group AME, a fellow subsidiary, domiciled in Mauritius. Tsebo
Solutions Group (Pty) Ltd’s ultimate holding company is Tsebo Solutions Group Holdings, also domiciled in Mauritius.
The acquisition of the Group was funded through debt and equity, with the full amount of the debt being held in
Tsebo Solutions Group. All once-off costs relating to the shareholder change and restructure are included in the
Tsebo Solutions Group AFS and are disclosed separately in the notes to the financial statements.

As a result of the above restructure, Tsebo Solutions Group’s results for the year ending 31 March 2017 were
presented in two sets of financial statements: the 10 months ending 31 January 2017’s trading results were included
in the Old TSG AFS as at 31 March 2017, and the 2 months ending 31 March 2017’s results (post-restructure) were
included in the Tsebo Solutions Group (New TSG) AFS as at 31 March 2017.

During 2017, Tsebo Solutions Group changed its financial year end from March to December in order to align with
the new holding company’s financial year end. Therefore, the AFS for year ended 31 December 2017 only includes
9 months of trading in the current period (and 2 months in the prior period due to the restructure on 31 January
2017).

Change in ultimate shareholders and Capital structure: 2020

The 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 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) concluded a transaction with a consortium
of financial investors and management on 21 December 2020, which resulted in a change in ownership of the
company. The consortium consists of Investec Bank Ltd, Nedbank Ltd, Ninety One SA (Pty) Ltd, Standard Chartered
Bank Johannesburg and Standard Chartered Bank (Mauritius) Ltd.

The new shareholding consortium preserved Tsebo’s strong B-BBEE credentials, with the company having black
ownership of 53.7% and black woman ownership of 45.9%, while maintaining its Level 1 status following the
restructure.

Significantly, the transaction strengthened the company’s balance sheet by introducing R872 million of fresh equity
as well as a Mezzanine finance facility of R900 million, both of which were utilised to pay down the senior debt, which
reduced to R300 million and favourably position the business for its next phase of growth. Finance costs and related
fees will therefore reduce materially because of the new debt structure.

Furthermore, a revolving credit facility of R100 million was introduced.

If you have any questions with regards to the above please contact myself ([email protected]) or the Group FM,
Elsa de Jongh ([email protected]).

Regards

_____________________
TG Walters
Chief Executive Officer

TSEBO SOLUTIONS GROUP PROPRIETARY LIMITED

AUDITED ANNUAL FINANCIAL STATEMENTS
AT 31 DECEMBER 2020

TSEBO SOLUTIONS GROUP PROPRIETARY LIMITED

AUDITED ANNUAL FINANCIAL STATEMENTS
AT 31 DECEMBER 2020

DIRECTORS Non-executives Date of appointment Date of cessation
P P Z Mbele 2 November 2020
N V Mokhesi 6 November 2020 13 November 2020
F N Khanyile 6 November 2020 20 January 2021
M D Hlophe
S C H Nkabinde

Executives 31 January 2017
C R Jardine 31 January 2017
T G Walters 8 December 2020
N Sheik

NATURE OF BUSINESS Catering, facilities management, energy solutions and
cleaning service providers

AUDITOR Ernst & Young Inc
ATTORNEYS Cliffe Dekker Inc.

BANKERS Standard Bank of South Africa Limited

HOLDING COMPANY Tsebo Intragroup Proprietary Limited

ULTIMATE HOLDING COMPANY Tsebo Solutions Group Holdings SA Proprietary Limited

COMPANY REGISTRATION NUMBER 2016/224394/07

COUNTRY OF INCORPORATION Republic of South Africa

DATE OF INCORPORATION 31 May 2016
REGISTERED OFFICE
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 2020

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 - 56
57

APPROVAL OF ANNUAL FINANCIAL STATEMENTS
The annual financial statements set out on pages 9 to 57 were approved by the board of directors on
and are signed on its behalf by:

Timothy Garrett Walters
CHIEF EXECUTIVE OFFICER

14 July 2021

TSEBO SOLUTIONS GROUP PROPRIETARY LIMITED

REPORT OF THE DIRECTORS
AT 31 DECEMBER 2020

The directors have pleasure in presenting their report for the period ended 31 December 2020.

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
Overview
The recent COVID-19 pandemic induced uncertainty felt across markets an resulted in many organisations re-
adjusting their priorities. In line with this, the shareholders of Tsebo Solutions Group (Pty) Ltd's ('TSG')
holding company (Tsebo Solutions Group Holdings (incorporated in Mauritius) ('TSGH Mru')), Wendel SE
('Wendel') and Capital Group, jointly decided on a strategic consolidation of their investment portfolio that
has seen them reducing their African exposure.
As a result TSGH Mru concluded a transaction with Tsebo Solutions Group Holdings SA (Pty) Ltd
('TSGH SA') on 21 December 2020, which resulted in the acquisition by TSGH SA of all the assets of TSGH
Mru. The shareholders of TSGH SA consist of Investec Bank Ltd, Nedbank Ltd, Ninety One SA (Pty) Ltd,
Standard Chartered Bank Johannesburg, Standard Chartered Bank (Mauritius) Ltd and management through
the Tsebo RSA Management Trust. Jaxson 800 (Pty) Ltd, a direct 100% owned subsidiary of TSGH SA,
acquired the shares in Tsebo Holdings SA (Pty) Ltd and Tsebo Solutions Group AME (incorporated in
Mauritius) for a nominal amount. All the operations of the Group therefore continues under the ownership
of TSGH SA.
Following the above, Khulasande Restructure Partners (Pty) Ltd acquired 40% of the shares of Tsebo
Holdings SA (Pty) Ltd, and the shares in Tsebo Intragroup (Pty) Ltd held by WDB Investment Holdings (Pty)
Ltd were sold to Tsebo Holdings SA (Pty) Ltd for a nominal consideration.
Following the subscription by the consortium to additional shares in TSGH SA for R964,177,000, Tsebo
Intragroup (Pty) Ltd subscribed for additional shares in TSG for R872,434,168. These funds were used to
settle senior debt in TSG.

Operational review
The company’s holding company, TSGH SA, is domiciled in South Africa. TSGH SA holds 60% of the
shares (indirectly) in Tsebo Holdings SA (Pty) Ltd ('THSA'), which in turn holds 97% of the shares
(indirectly) in Tsebo Solutions Group (Pty) Ltd (effective shareholding of 58%). TSG provides catering,
cleaning and facilities management services through its operations in South Africa.

3

TSEBO SOLUTIONS GROUP PROPRIETARY LIMITED
REPORT OF THE DIRECTORS
AT 31 DECEMBER 2020
SUBSEQUENT EVENTS
Following the acquisition of Tsebo Holdings SA (Pty) Ltd and Tsebo Solutions Group AME by TSGH SA at
the end of December 2020, the secured debt (refer to Note 20) is being refinanced, with the introduction of a
Mezzanine finance facility of R675 million, which will be utilised to pay down the senior debt 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.

AUTHORISED AND ISSUED SHARE CAPITAL
The authorised and issued share capital of the Company is set out in Note 19 to these annual financial
statements. The preference shares issued by TSG to Tsebo Intragroup (Pty) Ltd were redeemed for Rnil on
21 December 2020.

DIVIDENDS
The Company did not declare any ordinary or preference share dividends during the financial period under
review.

BORROWING FACILITIES

At 31 December 2020 the amount outstanding to a consortium of lenders consisting of Investec Bank
Limited, Standard Chartered Bank and Nedbank Limited was R1,038,924,856. These loans were provided to
TSG on 31 January 2017. On 21 December 2020 R872,434,168 was settled in total on Facility A, B and C.
The quarterly interest payments were deferred for the 2020 financial year. The covenants were waived for
the measurement periods ending 31 December 2019, 30 June 2020 and 31 December 2020.
Details of long-term and short-term borrowings are set out in Note 20 to the financial statements.
Investec has provided TSG with guarantee facilities to the extent of R75,000,000, and Nedbank has provided
a working capital facility of R75,000,000.

DIRECTORS
The latest board of directors is comprised of three executive directors and two shareholder appointed non-
executive directors.
A register of interests of directors and other employees in the shares of the Company is available to
shareholders.

SOLVENCY AND LIQUIDITY TEST

The directors have performed the solvency and liquidity tests required by the Companies Act of South Africa.

4

TSEBO SOLUTIONS GROUP PROPRIETARY LIMITED

REPORT OF THE DIRECTORS
AT 31 DECEMBER 2020

GOING CONCERN

The lender group have provided the company with a capital and interest service holiday until September 2021
and furthermore, a revolving credit facility of R100 million will be introduced.
The directors have reviewed all available information about the future, including the Group and company's
budget and cash flow forecast. In the light of this review, we believe that the Group and company is and will
continue to remain commercially solvent for the foreseeable future but at least twelve months from approval
of these financial statements and will be able to realise their assets and discharge their liabilities in the normal
course of operations.
The going concern assumption for preparing the company annual financial statements is therefore considered
to be appropriate.

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 6 - 8.

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 Temporary Employment relief scheme (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.
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 group has also decided to restructure some of its business activities within certain business
units.

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 9-57, which comprise the statement of financial position as at 31 December 2020, 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 2020, 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 Independent Regulatory Board for Auditors’ Code of Professional Conduct for
Registered Auditors (IRBA Code) 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 in accordance with the IRBA Code and in accordance with other ethical requirements
applicable to performing audits of the company and in South Africa. The IRBA Code is consistent with
the corresponding sections of the International Ethics Standards Board for Accountants’
International Code of Ethics for Professional Accountants (including International Independence
Standards). 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 the 57 pages document titled “Tsebo Solutions Group Proprietary Limited
Annual Financial Statements for the year ended 31 December 2020”, 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.

6

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 skepticism 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.

7

· 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.
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: Suren Naidoo
Registered Auditor
Chartered Accountant (SA)
Date: 14 July 2021

8

TSEBO SOLUTIONS GROUP PROPRIETARY LIMITED

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2020

Revenue Notes 2020 2019
2 R’000 R’000
- Catering
- Cleaning 3 3 352 999 5 054 556
- Facilities solutions
4 1 502 842 2 243 824
Cost of sales 5 843 804 937 189
6
Gross profit 1 006 353 1 873 543
10
Other income 7 (2 967 672) (4 477 365)
Finance costs 8
Finance income 385 327 577 190
Other expenses 46 441
Impairment of investment 68 431
Impairment of goodwill (235 156) (262 534)
26 803
Loss before tax 9 298
Taxation (495 637) (485 371)
(180 536) -
Loss for the year (270 564) -
Other comprehensive income
(718 837) (97 471)
Total comprehensive loss for the year, net of tax 2 022
8 065
(95 449)
(710 772) -
-
(95 449)
(710 772)

9

TSEBO SOLUTIONS GROUP PROPRIETARY LIMITED

STATEMENT OF FINANCIAL POSITION
AT 31 DECEMBER 2020

Notes 2020 2019 (Restated)*
R’000 R’000
9
ASSETS 10 838 304 1 317 988
Non-current assets 11
Property, plant and equipment 12 98 865 122 282
Goodwill 13 608 840 879 404
Intangible assets 14
Investments 15 7 031 16 920
Loans receivable 7 947 6 739
Investment in subsidiary companies 16 11 708
Deferred tax assets 17 80 175 16 662
18 23 738 260 710
Current assets 13
Inventories 479 979 15 271
Trade and other receivables 19
Cash and cash equivalents 19 34 417 745 647
Loan receivable 379 922
Taxation receivable 20 48 296
21 51 097 538 668
Total assets 30 855 143 255

EQUITY AND LIABILITIES 22 13 688 1 958
24 13 470
Capital and reserves 20
Share capital 30 1 318 283 2 063 635
Preference shares 18
Non-distributable reserves 25 (402 790) (568 401)
Accumulated loss 2 073 639 1 201 205
1 482 382
Non-current liabilities - (3 102 807)
Secured loans (1 616 476) (149 181)
Amounts due to group companies
IFRS 16 lease liability (859 953) 1 688 155
1 594 709
Current liabilities 1 115 528
Trade and other payables 1 038 925 66 315
Provisions 27 131
Short-term liabilities - secured loans 65 477
IFRS 16 lease liability 11 126 943 881
Bank overdraft 652 178
Interest rate swap 605 545
409 823 61 727
Total equity and liabilities 140 959
69 109
* Refer to Note 1.19 - 29 800
39 260
25 165 19 957
46 122
55 326 2 063 635

1 318 283

10

TSEBO SOLUTIONS GROUP PROPRIETARY LIMITED

STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2020

Share capital
R’000

Balance at 31 December 2018 1 201 205

Total comprehensive profit for the year -

Balance at 31 December 2019 1 201 205
Shares issued 872 434
Redemption of preference shares -
Other movements to NDR -
Total comprehensive loss for the year -

Balance at 31 December 2020 2 073 639

* Non-distributable reserves was created as a result of the revaluation of assets of subs
distributed in the form of dividends.

11

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

1 482 382 (53 733) (3 102 807) (472 952)

- (95 449) - (95 449)

1 482 382 (149 181) (3 102 807) (568 401)
- - - 872 434
- -
(1 482 382) - 1 482 382 3 949
- 3 949
- (710 772) - (710 772)

- (859 953) (1 616 476) (402 790)

sidiaries and are the portion of accumulated shareholders' equity which could not be

1

TSEBO SOLUTIONS GROUP PROPRIETARY LIMITED

STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2020

Net cash flows from operating activities Notes 2020 2019
27.1 R’000 R’000
Cash generated from operations 27.2
Finance costs (39 050) (91 569)
Finance income (37 945) 124 222
Income tax (paid) / received (2 101) (248 787)
26 803
Net cash flows from investing activities 9 1 616
4 (620) 6 193
Purchase of property, plant and equipment and intangible assets
Proceeds on disposal of property, plant and equipment (26 684) (32 052)
Purchase of intangible assets (38 605) (46 679)
Dividends received
2 414 6 502
Net cash flows from financing activities 20 (26)
19 8 124
Capital repayment of secured loans 12 9 532
Increase in share capital 13 119 614
Drawings on unlisted investments (33 285)
Decrease in loans receivable 21 (69 375)
Settlement of IFRS 16 lease liability (872 434) -
(Repayment of) / increase in amounts due to group companies 872 434
3 523 6 908
Net increase in cash and cash equivalents 27.3 7 648 8 848
Cash and cash equivalents at beginning of period (36 448) (32 586)
Cash and cash equivalents at end of period (8 009) 205 819

(99 019) (4 008)
103 995 108 003
103 995
4 976

12

TSEBO SOLUTIONS GROUP PROPRIETARY LIMITED

NOTES TO ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020

1. ACCOUNTING POLICIES

1.1 Basis of preparation

The annual financial statements set out on pages 9 to 57 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 2020

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 Group is in the business of providing integrated workplace management solutions that
provide catering, facilities management, cleaning, energy, leasing and security services.
Performance obligations are met when control transfers. 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 Group expects to be entitled in exchange for those
goods or services. The Group has generally concluded that it is the principal in its revenue
arrangements, 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.

Facilities Management and Cleaning 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 2020

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 2020

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 2020

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
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, 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.
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 2020

1. ACCOUNTING POLICIES

1.9 Financial instruments (continued)

Subsequent Measurement

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 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 Group 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.

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.

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.

18

TSEBO SOLUTIONS GROUP PROPRIETARY LIMITED

NOTES TO ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020

1. ACCOUNTING POLICIES

1.9 Financial instruments (continued)

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

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

19

TSEBO SOLUTIONS GROUP PROPRIETARY LIMITED

NOTES TO ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020

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.
The Company considers a financial asset in default when contractual payments are 90 days past
due. However, in certain cases, the Group may also consider a financial asset to be in default
when internal or external information indicates that the Company is unlikely to receive the
outstanding contractual amounts in full before taking into account any credit enhancements held
by the Company. A financial asset is written off when there is no reasonable expectation of
recovering the contractual cash flows.

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.

20

TSEBO SOLUTIONS GROUP PROPRIETARY LIMITED

NOTES TO ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020

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.

21

TSEBO SOLUTIONS GROUP PROPRIETARY LIMITED

NOTES TO ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020

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:

- Buildings and machinery 3 - 15 years

- Motor vehicles and other equipment 2 - 5 years

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.

22

TSEBO SOLUTIONS GROUP PROPRIETARY LIMITED

NOTES TO ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020

1. ACCOUNTING POLICIES

1.16 Leases (continued)

ii) Lease liabilities

At the commencement date of the lease, the Company recognises lease liabilities measured at the
present value of lease payments to be made over the lease term. The lease payments include fixed
payments (including in substance fixed payments) less any lease incentives receivable, variable
lease payments that depend on an index or a rate, and amounts expected to be paid under residual
value guarantees. The lease payments also include the exercise price of a purchase option
reasonably certain to be exercised by the Company and payments of penalties for terminating the
lease, if the lease term reflects the Company exercising the option to terminate. Variable lease
payments that do not depend on an index or a rate are recognised as expenses (unless they are
incurred to produce inventories) in the period in which the event or condition that triggers the
payment occurs.

In calculating the present value of lease payments, the Company uses its incremental borrowing
rate at the lease commencement date because the interest rate implicit in the lease is not readily
determinable. After the commencement date, the amount of lease liabilities is increased to reflect
the accretion of interest and reduced for the lease payments made. In addition, the carrying
amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a
change in the lease payments (e.g., changes to future payments resulting from a change in an
index or rate used to determine such lease payments) or a change in the assessment of an option
to purchase the underlying asset.

The Company’s lease liabilities are included in Note 30.

iii) Short-term leases and leases of low-value assets

The Company applies the short-term lease recognition exemption to its short-term leases of
machinery and equipment (i.e., those leases that have a lease term of 12 months or less from the
commencement date and do not contain a purchase option). It also applies the lease of low-value
assets recognition exemption to leases of office equipment that are considered to be low value.
Lease payments on short-term leases and leases of low-value assets are recognised as expense on
a straight-line basis over the lease term.

Company as a lessor
The Company applies the short-term lease recognition exemption to its short-term leases of
machinery and equipment (i.e., those leases that have a lease term of 12 months or less from the
commencement date and do not contain a purchase option). It also applies the lease of low-value
assets recognition exemption to leases of office equipment that are considered to be low value.
Lease payments on short-term leases and leases of low-value assets are recognised as expense on
a straight-line basis over the lease term.

23

TSEBO SOLUTIONS GROUP PROPRIETARY LIMITED

NOTES TO ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020

1. ACCOUNTING POLICIES

1.17 Changes in accounting policies

New and amended standards and interpretations

The Group applied for the first-time certain standards and amendments, which are effective for
annual periods beginning on or after 1 January 2020. The Group has not early adopted any other
standard, interpretation or amendment that has been issued but is not yet effective.

Amendments to IFRS 3: Definition of a Business

The amendment to IFRS 3 Business Combinations clarifies that to be considered a business, an
integrated set of activities and assets must include, at a minimum, an input and a substantive
process that, together, significantly contribute to the ability to create output. Furthermore, it
clarifies that a business can exist without including all of the inputs and processes needed to
create outputs. These amendments had no impact on the consolidated financial statements of the
Group, but may impact future periods should the Group enter into any business combinations.

Amendments to IFRS 7, IFRS 9 and IAS 39: Interest Rate Benchmark Reform

The amendments to IFRS 9 and IAS 39 Financial Instruments: Recognition and Measurement
provide a number of reliefs, which apply to all hedging relationships that are directly affected by
interest rate benchmark reform. A hedging relationship is affected if the reform gives rise to
uncertainty about the timing and/or amount of benchmark-based cash flows of the hedged item or
the hedging instrument. These amendments have no impact on the consolidated financial
statements of the Group as it does not have any interest rate hedge relationships.

Amendments to IAS 1 and IAS 8: Definition of Material
The amendments provide a new definition of material that states, “information is material if
omitting, misstating or obscuring it could reasonably be expected to influence decisions that the
primary users of general purpose financial statements make on the basis of those financial
statements, which provide financial information about a specific reporting entity.” The
amendments clarify that materiality will depend on the nature or magnitude of information, either
individually or in combination with other information, in the context of the financial statements.
A misstatement of information is material if it could reasonably be expected to influence
decisions made by the primary users. These amendments had no impact on the consolidated
financial statements of, nor is there expected to be any future impact to the Group.

Conceptual Framework for Financial Reporting issued on 29 March 2018

The Conceptual Framework is not a standard, and none of the concepts contained therein
override the concepts or requirements in any standard. The purpose of the Conceptual
Framework is to assist the IASB in developing standards, to help preparers develop consistent
accounting policies where there is no applicable standard in place and to assist all parties to
understand and interpret the standards. This will affect those entities which developed their
accounting policies based on the Conceptual Framework. The revised Conceptual Framework
includes some new concepts, updated definitions and recognition criteria for assets and liabilities
and clarifies some important concepts. These amendments had no impact on the consolidated

24

TSEBO SOLUTIONS GROUP PROPRIETARY LIMITED

NOTES TO ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020

1. ACCOUNTING POLICIES

1.18 Significant accounting judgements, estimates and assumptions

In preparing the Company's financial statements, management is required to make estimates and
assumptions that affect reported income, expenses, assets, liabilities and disclosure of contingent
assets and liabilities. Use of available information and the application of judgement are inherent
in the formation of estimates. Actual results in the future could differ from these estimates which
may be material to the financial statements.

Judgements
Significant judgements made relate to the estimate of useful lives and residual values of property,
plant and equipment and intangible assets which are determined by management at acquisition
and subsequently reviewed annually. Management judgements also extend to the allowance for
doubtful debts which have been deducted in arriving at the trade receivables amount. This
judgement is usually based on expected write-offs.

Estimates and assumptions
The key assumptions concerning the future and other key sources of estimation uncertainty at the
reporting date, that have a significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year, are described below. The
Company based its assumptions and estimates on parameters available when the consolidated
financial statements were prepared. Existing circumstances and assumptions about future
developments, however, may change due to market changes or circumstances arising that are
beyond the control of the Company. Such changes are reflected in the assumptions when they
occur.

Goodwill

In arriving at the goodwill value recorded on the statement of financial position, which is the
excess of the purchase price over the fair value of the assets purchased and liabilities and
contingent liabilities assumed, estimates and judgements were used by management in arriving at
these fair values.

The Company determines whether goodwill is impaired at least on an annual basis. The
impairment of goodwill was tested for each cash-generating unit in the Company using the
discounted cash flow method. Various assumptions pertaining to inflation rates and the discount
rate (Weighted Average Cost of Capital) had to be made based on the information available at the
time of doing the valuation.

Leases - Estimating the incremental borrowing rate

The Company cannot readily determine the interest rate implicit in the lease, therefore, it uses its
incremental borrowing rate (IBR) to measure lease liabilities. The IBR is the rate of interest that
the Company would have to pay to borrow over a similar term, and with a similar security, the
funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar
economic environment.

25

TSEBO SOLUTIONS GROUP PROPRIETARY LIMITED

NOTES TO ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020

1. ACCOUNTING POLICIES

1.18 Significant accounting judgements, estimates and assumptions (continued)

The IBR therefore reflects what the Company ‘would have to pay’, which requires estimation
when no observable rates are available (such as for subsidiaries that do not enter into financing
transactions) or when they need to be adjusted to reflect the terms and conditions of the lease (for
example, when leases are not in the subsidiary’s functional currency). The Company estimates
the IBR using observable inputs (such as market interest rates) when available and is required to
make certain entity-specific estimates (such as the subsidiary’s stand-alone credit rating).

Impairment of non-financial assets

Impairment exists when the carrying value of a cash generating unit exceeds its recoverable
amount, which is the higher of its fair value less costs of disposal and its value in use. The fair
value less costs of disposal calculation is based on available data from binding sales transactions,
conducted at arm’s length, for similar assets or observable market prices less incremental costs of
disposing of the asset. The value in use calculation is based on a DCF model. The cash flows are
derived from the forecast for the next five years and do not include restructuring activities that
the Company is not yet committed to or significant future investments that will enhance the
performance of the assets of the CGU being tested. The recoverable amount is sensitive to the
discount rate used for the DCF model as well as the expected future cash-inflows and the growth
rate used for extrapolation purposes. These estimates are relevant to goodwill.

The key assumptions used to determine the recoverable amount for the different CGUs, including
a sensitivity analysis, are disclosed and further explained in Note 10.

1.19 Correction of an error

The Investment in Lephalale Site Services Partnership include accumulated drawings which were
previously disclosed as part of Amounts due to group companies.

A reallocation has been done by restating the affected financial statement line items for the prior
year, as follows:

2019

Investments (59 280)
Total assets (59 280)

Amounts due to group companies (59 280)
Total liabilities (59 280)

Net impact on equity -

26

TSEBO SOLUTIONS GROUP PROPRIETARY LIMITED

NOTES TO ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020

1. ACCOUNTING POLICIES

1.20 Standards issued but not yet effective
The new and amended standards and interpretations that are issued, but not yet effective, up to
the date of issuance of the Company’s financial statements are disclosed below. The Company
intends to adopt these new and amended standards and interpretations, if applicable, when they
become effective.

Amendments to IAS 1: Classification of Liabilities as Current or Non-current

In January 2020, the IASB issued amendments to paragraphs 69 to 76 of IAS 1 to specify the
requirements for classifying liabilities as current or non-current. The amendments clarify:
• What is meant by a right to defer settlement;
• That a right to defer must exist at the end of the reporting period;
• That classification is unaffected by the likelihood that an entity will exercise its deferral right;
• That only if an embedded derivative in a convertible liability is itself an equity instrument
would the terms of a liability not impact its classification.
The amendments are effective for annual reporting periods beginning on or after 1 January 2023
and must be applied retrospectively. The Group is currently assessing the impact the
amendments will have on current practice and whether existing loan agreements may require

Reference to the Conceptual Framework – Amendments to IFRS 3

In May 2020, the IASB issued Amendments to IFRS 3 Business Combinations - Reference to the
Conceptual Framework. The amendments are intended to replace a reference to the Framework
for the Preparation and Presentation of Financial Statements, issued in 1989, with a reference to
the Conceptual Framework for Financial Reporting issued in March 2018 without significantly
changing its requirements.
The Board also added an exception to the recognition principle of IFRS 3 to avoid the issue of
potential ‘day 2’ gains or losses arising for liabilities and contingent liabilities that would be
within the scope of IAS 37 or IFRIC 21 Levies, if incurred separately.
At the same time, the Board decided to clarify existing guidance in IFRS 3 for contingent assets
that would not be affected by replacing the reference to the Framework for the Preparation and
Presentation of Financial Statements.
The amendments are effective for annual reporting periods beginning on or after 1 January 2022
and apply prospectively.

27

TSEBO SOLUTIONS GROUP PROPRIETARY LIMITED

NOTES TO ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020

1. ACCOUNTING POLICIES

1.20 Standards issued but not yet effective (continued)
Property, Plant and Equipment: Proceeds before Intended Use – Amendments to IAS 16

In May 2020, the IASB issued Property, Plant and Equipment — Proceeds before Intended Use,
which prohibits entities deducting from the cost of an item of property, plant and equipment, any
proceeds from selling items produced while bringing that asset to the location and condition
necessary for it to be capable of operating in the manner intended by management. Instead, an
entity recognises the proceeds from selling such items, and the costs of producing those items, in
profit or loss.

The amendment is effective for annual reporting periods beginning on or after 1 January 2022
and must be applied retrospectively to items of property, plant and equipment made available for
use on or after the beginning of the earliest period presented when the entity first applies the
amendment.

These amendments are not expected to have a significant impact on the Company’s financial
statements.

IFRS 9 Financial Instruments – Fees in the ’10 per cent’ test for derecognition of financial
As part of its 2018-2020 annual improvements to IFRS standards process the IASB issued
amendment to IFRS 9. The amendment clarifies the fees that an entity includes when assessing
whether the terms of a new or modified financial liability are substantially different from the
terms of the original financial liability. These fees include only those paid or received between
the borrower and the lender, including fees paid or received by either the borrower or lender on
the other’s behalf. An entity applies the amendment to financial liabilities that are modified or
exchanged on or after the beginning of the annual reporting period in which the entity first
applies the amendment.

The amendment is effective for annual reporting periods beginning on or after 1 January 2022
with earlier adoption permitted. The Group will apply the amendments to financial liabilities that
are modified or exchanged on or after the beginning of the annual reporting period in which the
entity first applies the amendment.

These amendments are not expected to have a significant impact on the Company’s financial
statements.

28

TSEBO SOLUTIONS GROUP PROPRIETARY LIMITED

NOTES TO ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020

2020 2019

R’000 R’000

2. REVENUE

Set out below is the disaggregation of the Company’s revenue from contracts with customers:

Type of goods or service 1 502 842 2 243 824
- Catering 843 804 937 189
- Cleaning
- Facilities solutions 1 006 353 1 873 543

Total revenue from contracts with customers 3 352 999 5 054 556

Timing of revenue recognition 1 502 842 2 243 824
- Goods and services transferred at a point in time 1 850 157 2 810 731
- Goods and services transferred over time
3 352 999 5 054 556
Total revenue from contracts with customers

3. COST OF SALES 664 093 1 062 970

Included in cost of sales are the following: 1 100 348 1 307 614
74 587 79 005
Food costs and consumables used 7 522 12 055
57 566 73 494
Direct labour costs in respect of staff at contract sites: 4 043 10 950
- Salaries and wages 53 523 62 544
- Incentive bonuses
- Medical aid contribution 7 652 11 365
- Defined contribution plans 2 723 5 978
5 452
- Pension fund 11 707 24 473
- Provident fund 5 477 25 190
50 780
- Travel allowance 13 357 6 579
- Labour brokers 31 758 50 590
- Leave pay 11 067
- Payroll taxes 11 499
- Workman's compensation
- Overtime
- Staff meals and welfare
- Other*

* Other direct labour costs are made up of long service awards, recruitment charges, staff welfare, commissions, annual
conferences, training, staff relocation, uniforms and severance pay.

29

TSEBO SOLUTIONS GROUP PROPRIETARY LIMITED

NOTES TO ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020

2020 2019

R’000 R’000

4. OTHER INCOME

SETA refund 1 2 130 583
Sundry income 2 10 986
6 949
Share of partnership profit 4 731 107
Profit on disposal of fixed assets 346 863
Rental income 941 28 829
ETI youth incentive 3 8 124
Dividends received 50 741
9 532

68 431 46 441

1 The SETA refund relates to government grant received for learnerships.
2 Sundry income is made up of immaterial items that occur in the normal course of business.
3 ETI youth incentive is a government incentive to employers to employ youth workers with little to no previous work

experience.

5. FINANCE COSTS

Bank overdraft and other 2 833 15 314
Finance leases - IFRS 16 4 819 5 946
Loans secured - Consortium of lenders 164 025 201 466
Interest rate swaps 41 459 19 471
Receiver of revenue
Loans from group companies - 320
Finance raising and facility fees 11 087 85
10 933 19 931

235 156 262 533

6. FINANCE INCOME 1 616 3 456
6 090 -
Bank 1 592
Interest rate swaps - MTM adjustments 23 347
Loans to group companies 9 298
26 803

30

TSEBO SOLUTIONS GROUP PROPRIETARY LIMITED

NOTES TO ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020

7. LOSS BEFORE TAX 2020 2019
Loss before tax is arrived at after taking the following items into
account: R’000 R’000

Auditors’ remuneration 8 279 9 827

Fees for professional services 10 255 13 637

Depreciation 70 943 69 896
- Computer equipment 3 188 4 003
- Furniture and fittings 1 411 1 341
- Leasehold improvements 2 479 1 520
- Motor vehicles
- Investment at units 368 672
- Right-of-use assets 31 740 32 323
31 757 30 037
Expenses relating to once-off items and restructuring costs
46 155 21 048
Acquisition price adjusments
- 2 431
Fair value adjustments
303 -
Donations
1 320 2 361
Staff costs (excluding items disclosed under cost of sales)
- Salaries and wages 259 691 301 395
- Contributions to pension and provident funds 202 511 233 074
- Medical aid contributions 11 102 11 935
- Staff recruitment
- Payroll taxes 6 033 6 149
- Travel allowances 1 937 1 011
- Incentive bonuses 1 229 2 693
- Leave pay 34 039 42 376
- Training costs 17 435 18 921
(19 026) (22 898)
4 431 8 134

31