The Johannesburg bourse has given the go-ahead for Total Client Services (TCS) to raise capital without asking shareholder approval, a move the company anticipates will narrow its losses.
The company, which has been distressed for some time, is under business rescue and is now implementing its business rescue plan, adopted on 19 May and developed by business rescue practitioner Piers Marsden. Its announcement that it was entering business rescue saw its stock plummet 50%.
TCS has been battling financially for some time. In the year to February 2013, revenue dropped 9% and its loss widened 67%. For the six months to August - the last results it has issued - revenue dropped 40%, to R15 million, and its net loss leapt to R8.2 million, from R3 million.
The group says, in a statement to shareholders, that the capital-raising should boost its loss and headline loss per share from 1.68c to 2.12c, a 20.75% improvement.
TCS now aims to raise R100 million by issuing shares, at 1c each, to Slade Investments, although it did not provide a timeframe for when this will take place. TCS stock last traded at 1c, giving it a market capitalisation of R3.9 million, before it asked that the JSE voluntarily suspend the shares last December.
Several assumptions
The listed company, which has yet to publish results for the year to February, says cash flow is still "extremely" tight, but it has enough working cash to fund its working capital needs for the next year. In the six months to August 2013, it had R1.5 million in the bank after cash outflows of R3 million.
TCS says the key requirement for it to be able to continue as a going concern is to win tenders and make sure its existing deals are profitable. TCS was spun out of Labat and listed separately in April 2008. It provides integrated traffic law enforcement solutions, including technology, proprietary application software and administration services, to local authorities and provincial administrations.
However, it cautions that its future is contingent on current market conditions remaining stable, municipalities continuing to outsource administration of traffic violations, a cut back in its operating expenses, and new tenders being won.
"Any negative change in these assumptions would impact on the ability of the company to continue as a going concern. The cash injection relating to the specific issue gives the company the best possible chance of returning to profitability by providing liquidity to commence new projects, as well as pay historic creditors."
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