Wrap Text
Audited summarised consolidated and separate provisional results for the year ended 28 February 2017
Adcorp Holdings Limited
(“Adcorp” or “Adcorp Group” or “the Group”)
Registration number 1974/001804/06
Share code: ADR
ISIN number: ZAE000000139
Audited summarised consolidated and separate provisional results
for the year ended 28 February 2017
Salient features
Revenue for the year increased by 3% to R16,1 billion
Normalised earnings per share decreased by 76% to 88,6 cents
per share*
Headline loss per share of 27,9 cents per share
Normalised EBITDA for the year decreased by 51% to R303,8 million
Cash generated by operations increased by 25% to R439,9 million
Cash conversion ratio improved to 178%
Debtors days at 45 days (2016: 47 days)
Gearing ratio at 48% (2016: 43%)
Audited summarised consolidated and separate statement of
comprehensive income
for the year ended 28 February 2017
Consolidated Separate
Audited Audited
2017 2016 2017 2016
R’000 R’000 R’000 R’000
Revenue 16 072 951 15 585 751 – –
Cost of sales (13 665 757) (13 069 007) – –
Gross profit 2 407 194 2 516 744 – –
Other income 74 514 128 325 536 644
Administration expenses (1 388 777) (1 233 713) (23 967) (15 834)
Marketing and selling
expenses (692 003) (685 545) – (2 303)
Other operating expenses (270 618) (261 044) – –
Operating profit/(loss) 130 310 464 767 (23 431) (17 493)
Interest received 12 300 23 669 137 622 100 783
Interest paid (151 865) (133 722) (118 602) (98 653)
Dividend received – – 232 946 510 000
Gain on bargain purchase – 3 999 – –
Impairment of intangible
assets, goodwill and loans (132 519) (34 721) – –
Impairment of investment –
available-for-sale – (54 922) – –
Share of profits from
associates 23 396 23 078 – –
Loss on sale of business – (30 056) – –
Loss on the sale of shares – (361) – –
Profit/(loss) on sale of
property and equipment 1 014 (991) – –
(Loss)/profit before
taxation (117 364) 260 740 228 535 494 637
Taxation (42 962) (53 930) (5 175) (4 099)
(Loss)/profit for the year (160 326) 206 810 223 360 490 538
Other comprehensive
(loss)/income*
Exchange differences on
translating foreign
operations (86 448) 106 445 – –
Realised foreign exchange
gains through profit and
loss on disposal of
business – 7 734 – –
Exchange differences
arising on the net
investment of a foreign
operation (41 905) 63 456 (41 905) 63 456
Fair value adjustment of
derivative financial
instrument 1 869 (580) – –
Non-controlling interest (1 682) 862 – –
Other comprehensive
(loss)/income for the
year, net of tax (128 166) 177 917 (41 905) 63 456
Total comprehensive
(loss)/income for the year (288 492) 384 727 181 455 553 994
(Loss)/profit attributable
to:
Owners of the parent (162 008) 207 672 223 360 490 538
Non-controlling interest 1 682 (862) – –
Total comprehensive
(loss)/income attributable
to:
Owners of the parent (288 492) 384 727 181 455 553 994
Non-controlling interest 1 682 (862) – –
(Loss)/earnings per share
Basic (cents) (149,5) 192,0 – –
Diluted (cents) (145,3) 185,4 – –
Approved dividends to
shareholders 95 148 – –
Interim dividend (cents) 20 60 – –
Final dividend (cents) in
respect of prior year 75 88 – –
* All items included in other comprehensive (loss)/income will be
reclassified to profit and loss upon derecognition.
Audited summarised consolidated and separate statement of financial
position
as at 28 February 2017
Consolidated Separate
Audited Audited
2017 2016 2017 2016
R’000 R’000 R’000 R’000
Assets
Non-current assets 2 439 079 2 636 416 1 213 838 1 213 838
Property and equipment 111 950 137 796 – –
Intangible assets 615 962 753 170 – –
Goodwill 1 373 162 1 513 633 – –
Investments 10 000 10 000 10 000 10 000
Investment in subsidiaries – – 1 203 838 1 203 838
Investment in associates 140 808 125 249 – –
Other financial assets 37 485 – – –
Deferred taxation 149 712 96 568 – –
Current assets 3 304 993 3 741 744 2 897 795 2 875 075
Trade, other receivables and
prepayments 2 538 182 2 795 262 450 1 591
Other financial assets 931 29 728 – –
Amounts due by subsidiary
companies – – 2 896 923 2 868 245
Taxation prepaid 42 709 70 690 – 4 745
Cash resources 723 171 846 064 422 494
Total assets 5 744 072 6 378 160 4 111 633 4 088 913
Equity and liabilities
Capital and reserves 2 301 987 2 685 301 2 534 492 2 450 289
Share capital 2 749 2 749 3 170 3 170
Share premium 1 738 109 1 738 109 1 738 109 1 738 109
Treasury shares (36 963) (36 963) – –
Non-distributable reserve – – 119 918 119 918
Share-based payment reserve 128 993 121 787 128 993 121 787
Foreign currency translation
reserve 24 289 110 737 – –
Cash flow hedging reserve (1 102) (2 971) – –
Accumulated profit 450 485 757 363 544 302 467 305
Equity attributable to equity
holders of the parent 2 306 560 2 690 811 2 534 492 2 450 289
Non-controlling interest (5 249) (6 186) – –
B-BBEE shareholders’ interest 676 676 – –
Non-current liabilities 758 250 1 507 324 655 017 879 407
Other non-current liabilities
– interest-bearing 1 991 650 – –
Long-term loan – interest-
bearing 649 229 1 349 502 649 229 857 322
Derivative financial
instrument – 4 245 – –
Share-based payment liability – 38 625 – –
Obligation under finance lease – 668 – –
Deferred taxation 107 030 113 634 5 788 22 085
Current liabilities 2 683 835 2 185 535 922 124 759 217
Non-interest-bearing current
liabilities 1 505 929 1 527 822 389 707 255 856
Trade and other payables 1 147 265 1 188 716 2 669 3 111
Share-based payment liability 39 067 – – –
Amounts due to subsidiary
companies – – 384 249 252 745
Provisions 263 585 281 186 – –
Other vendor payables – 26 078 – –
Derivative financial
instrument 1 574 – – –
Taxation 54 438 31 842 2 789 –
Interest-bearing current
liabilities 1 177 906 657 713 532 417 503 361
Current portion of other non-
current liabilities 17 256 15 170 – –
Short-term loans 720 603 274 382 272 387 223 361
Bank overdraft 440 047 368 161 260 030 280 000
Total equity and liabilities 5 744 072 6 378 160 4 111 633 4 088 913
Audited summarised consolidated and separate statement of cash flows
for the year ended 28 February 2017
Consolidated Separate
Audited Audited
2017 2016 2017 2016
R’000 R’000 R’000 R’000
Operating activities
(Loss)/profit before taxation
and dividends (117 364) 260 740 (4 411) (15 363)
Adjusted for:
Dividend received – – 232 946 510 000
Depreciation 37 311 35 962 – –
Gain on bargain purchase – (3 999) – –
Impairment of intangible
assets, goodwill and loans 132 519 34 721 – –
Impairment of investment –
available-for-sale – 54 922 – –
Share profits from associates (23 396) (23 078) – –
Loss on sale of business – 30 056 – –
Loss on the sale of shares – 361 – –
(Profit)/loss on disposal of
property and equipment (1 014) 991 – –
Amortisation of intangible
assets 107 183 105 831 – –
Amortisation of intangible
assets – acquired in a
business combination 87 394 77 486 – –
Amortisation of intangible
assets – other than those
acquired in a business
combination 19 789 28 345 – –
Share-based payments 7 647 (31 164) – –
Share-based payment expense 7 206 43 514 7 206 –
Revaluation of share-based
payment liability 441 (74 678) – –
Unrealised foreign exchange 30 231 (11 859) – –
gains
Non-cash portion of operating
lease rentals 2 314 1 781 – –
Increase in bad debt
provision (26 608) – – –
Interest received (12 300) (23 669) (137 622) (100 783)
Interest paid 151 865 133 722 118 602 98 653
Cash generated from operations
before working capital changes 288 388 565 318 216 721 492 507
Decrease/(increase) in trade
and other receivables and
prepayments 222 935 (343 661) 1 141 2 255
Increase in bad debt
provision – (1 861) – –
Increase in other financial
assets (8 688) (29 728) – –
(Decrease)/increase in trade
and other payables (45 088) 126 090 (442) 1 438
(Decrease)/increase in
provisions (17 601) 37 148 – –
Net movement in holding and
fellow subsidiaries
intercompany accounts – – 44 624 (709 319)
Cash generated/(utilised) by
operations 439 946 353 306 262 044 (213 119)
Interest received 12 300 23 669 137 622 100 783
Interest paid (151 865) (133 722) (118 602) (98 653)
Taxation paid (31 632) (110 296) 2 359 (5 019)
Cash settlement of share
options exercised – (74 678) – –
Dividend paid (102 965) (164 571) (104 458) (166 018)
Net cash generated/(utilised)
by operating activities 165 784 (106 292) 178 965 (382 026)
Investing activities
Additions to property,
equipment and intangible
assets (81 692) (102 331) – –
Proceeds from sale of
property and equipment 5 874 13 821 – –
Acquisition of businesses (12 152) (267 214) – –
Net proceeds on the sale of
business – 6 953 – –
Acquisition of investment – (10 000) – (10 000)
Dividends received from
associates 7 837 – – –
Minority interest (745) (1 282) – –
Net cash utilised from
investing activities (80 878) (360 053) – (10 000)
Financing activities
Issue of shares under
employee share option scheme – 19 269 – 19 269
Treasury shares acquired – (23 973) – –
Net processed of repurchase
of “A” shares – (607) – –
Loans repaid (300 853) (124 081) (300 853) –
Loans raised 46 801 490 085 141 786 163 041
Other liabilities – interest-
bearing 445 (1 028) – –
(Decrease)/increase in other
payables (26 078) 13 458 – –
Net cash (utilised)/generated
by financing activities (279 685) 373 123 (159 067) 182 310
Net increase in cash and cash
equivalents (194 779) (93 222) 19 898 (209 716)
Cash and cash equivalents at
the beginning of the year 477 903 571 125 (279 506) (69 790)
Cash and cash equivalents at
the end of the year 283 124 477 903 (259 608) (279 506)
Total interest-bearing liabilities of the Group
for the year ended 28 February 2017
Consolidated Audited
2017 2016
R’000 R’000
Net gearing 48% 43%
Net bank balances (283 124) (477 903)
Other long term loans 1 991 650
Long term loan 649 229 1 349 502
Obligations under finance lease – 668
Current portion of other non-current liabilities 17 256 15 170
Short term loans 720 603 274 382
Total interest-bearing liabilities 1 389 079 1 640 372
Total net interest-bearing liabilities 1 105 955 1 162 469
Total long-term debt 47% 82%
Total short-term debt 53% 18%
Total 100% 100%
Financial instruments
Some of the Group’s financial assets and financial liabilities are measured
at fair value at the end of each reporting year. The following table gives
information about how the fair values of these financial assets and
financial liabilities are determined (in particular, the valuation
technique(s) and inputs used).
Consolidated Separate
2017 2016 2017 2016
Financial assets/financial liabilities R’000 R’000 R’000 R’000
Investment 10 000 10 000 10 000 10 000
Other financial assets 31 861 – – –
Other financial assets – 29 728 – –
Derivative financial instrument 1 574 4 245 – –
Share-based payment liability 39 066 38 625 – –
Fair
Financial assets/ value
financial liabilities hierarchy Valuation technique(s)
Investment Level 1 Fair value – Market valuation
Other financial assets Level 1 Bond fair value – Market valuation
Other financial assets Level 3 Fair value – Directors’ valuation
Derivative financial Level 2 Fair value – Discounted cash flow.
instrument Future cash flows are estimated
based on forward interest rates
(from observable yield curves at the
end of the reporting period) and
contract interest rates, discounted
at a rate that reflects the credit
risk of the counterparty
Share-based payment Level 1 Fair value – Standard present
liability value model
Relationship
Significant of unobservable
Financial assets/ unobservable inputs to
financial liabilities input(s) fair value
Investment n/a n/a
Other financial assets n/a n/a
Other financial assets n/a n/a
Derivative financial instrument n/a n/a
Share-based payment liability n/a n/a
Except as detailed in the table above, the directors consider that the
carrying amounts of all other financial assets and financial liabilities
recognised in the consolidated and separate financial statements
approximate their fair values.
Calculation of headline (loss)/earnings per share
Consolidated Audited
2017 2016
R’000 R’000
Headline (loss)/earnings per share*
Headline earnings per share – cents (27,9) 299,6
Diluted headline earnings per share – cents (27,1) 289,3
Weighted average no of shares – 000’s 108 383 108 189
Diluted weighted average no of shares – 000’s 111 468 112 008
(Loss)/profit for the year (162 008) 207 672
(Profit)/loss on sale of property and equipment (1 014) 991
Taxation recovered/(charged) on the sale of
property and equipment 284 (278)
Impairment of investments, goodwill and loans 132 519 34 721
Impairment on available-for-sale – 54 922
Gain on bargain purchase – (3 999)
Loss on sale of business – 30 056
Headline (loss)/earnings (30 219) 324 085
* Headline (loss)/earnings is required in terms of Circular 2/2015 and not
an IFRS requirement
Audited summarised consolidated and separate statement of changes in equity
for the year ended 28 February 2017
Share Share Treasury
capital premium shares
R’000 R’000 R’000
Consolidated
Balance as at 28 February 2015 2 733 1 718 856 (12 990)
Issue of ordinary shares under employee share
option plan 16 19 253 –
Dividend distributions – – –
Recognition of BBBEE and staff share-based
payments – – –
Treasury shares acquired during the year – – (23 973)
Movement in BBBEE shareholders’ interest – – –
Profit for the year – – –
Other comprehensive income/(loss) for the
year – – –
Realised foreign exchange gains through
profit and loss on disposal
of business – – –
Non-controlling interest – – –
Balance as at 29 February 2016 2 749 1 738 109 (36 963)
Dividend distributions – – –
Recognition of BBBEE and staff share-based
payments – – –
Loss for the year – – –
Other comprehensive (loss)/income for the
year – – –
Non-controlling interest – – –
Balance as at 28 February 2017 2 749 1 738 109 (36 963)
Separate
Balance as at 28 February 2015 3 154 1 718 856 –
Issue of ordinary shares under employee share
option plan 16 19 253 –
Dividend distributions – – –
Recognition of BBBEE and staff share-based
payments – – –
Profit for the year – – –
Other comprehensive income for the year – – –
Balance as at 29 February 2016 3 170 1 738 109 –
Dividend distributions – – –
Recognition of BBBEE and staff share-based
payments – – –
Profit for the year – – –
Other comprehensive loss for the year – – –
Balance as at 28 February 2017 3 170 1 738 109 –
Share- Foreign
Non- based currency
distributable payment translation
reserve reserve reserve
R’000 R’000 R’000
Consolidated
Balance as at 28 February 2015 – 114 581 (3 442)
Issue of ordinary shares under
employee share option plan – – –
Dividend distributions – – –
Recognition of BBBEE and staff share-
based payments – 7 206 –
Treasury shares acquired during the
year – – –
Movement in BBBEE shareholders’
interest – – –
Profit for the year – – –
Other comprehensive income/(loss) for
the year – – 106 445
Realised foreign exchange gains
through profit and loss on disposal
of business – – 7 734
Non-controlling interest – – –
Balance as at 29 February 2016 – 121 787 110 737
Dividend distributions – – –
Recognition of BBBEE and staff share-
based payments – 7 206 –
Loss for the year – – –
Other comprehensive (loss)/income for
the year – – (86 448)
Non-controlling interest – – –
Balance as at 28 February 2017 – 128 993 24 289
Separate
Balance as at 28 February 2015 119 918 114 581 –
Issue of ordinary shares under
employee share option plan – – –
Dividend distributions – – –
Recognition of BBBEE and staff share-
based payments – 7 206 –
Profit for the year – – –
Other comprehensive income for the
year – – –
Balance as at 29 February 2016 119 918 121 787 –
Dividend distributions – – –
Recognition of BBBEE and staff share-
based payments – 7 206 –
Profit for the year – – –
Other comprehensive loss for the year – – –
Balance as at 28 February 2017 119 918 128 993 –
Cash flow Attributable to
hedging Retained equity holders
reserve earnings of the parent
R’000 R’000 R’000
Consolidated
Balance as at 28 February 2015 (2 391) 650 806 2 468 153
Issue of ordinary shares under
employee share option plan – – 19 269
Dividend distributions – (164 571) (164 571)
Recognition of BBBEE and staff
share-based payments – – 7 206
Treasury shares acquired during the
year – – (23 973)
Movement in BBBEE shareholders’
interest – – –
Profit for the year – 207 672 207 672
Other comprehensive income/(loss)
for the year (580) 63 456 169 321
Realised foreign exchange gains
through profit and loss on disposal
of business – – 7 734
Non-controlling interest – – –
Balance as at 29 February 2016 (2 971) 757 363 2 690 811
Dividend distributions – (102 965) (102 965)
Recognition of BBBEE and staff
share-based payments – – 7 206
Loss for the year – (162 008) (162 008)
Other comprehensive (loss)/income
for the year 1 869 (41 905) (126 484)
Non-controlling interest – – –
Balance as at 28 February 2017 (1 102) 450 485 2 306 560
Separate
Balance as at 28 February 2015 – 79 329 2 035 838
Issue of ordinary shares under
employee share option plan – – 19 269
Dividend distributions – (166 018) (166 018)
Recognition of BBBEE and staff
share-based payments – – 7 206
Profit for the year – 490 538 490 538
Other comprehensive income for the
year – 63 456 63 456
Balance as at 29 February 2016 – 467 305 2 450 289
Dividend distributions – (104 458) (104 458)
Recognition of BBBEE and staff
share-based payments – – 7 206
Profit for the year – 223 360 223 360
Other comprehensive loss for the
year – (41 905) (41 905)
Balance as at 28 February 2017 – 544 302 2 534 492
Non- B-BBEE
controlling shareholders’
interest interest Total
R’000 R’000 R’000
Consolidated
Balance as at 28 February 2015 (4 042) 921 2 465 032
Issue of ordinary shares under
employee share option plan – – 19 269
Dividend distributions – – (164 571)
Recognition of BBBEE and staff
share-based payments – – 7 206
Treasury shares acquired during the
year – – (23 973)
Movement in BBBEE shareholders’
interest – (245) (245)
Profit for the year (862) – 206 810
Other comprehensive income/(loss)
for the year – – 169 321
Realised foreign exchange gains
through profit and loss on disposal
of business – – 7 734
Non-controlling interest (1 282) – (1 282)
Balance as at 29 February 2016 (6 186) 676 2 685 301
Dividend distributions – – (102 965)
Recognition of BBBEE and staff
share-based payments – – 7 206
Loss for the year 1 682 – (160 326)
Other comprehensive (loss)/income
for the year – – (126 484)
Non-controlling interest (745) – (745)
Balance as at 28 February 2017 (5 249) 676 2 301 987
Separate
Balance as at 28 February 2015 – – 2 035 838
Issue of ordinary shares under
employee share option plan – – 19 269
Dividend distributions – – (166 018)
Recognition of BBBEE and staff
share-based payments – – 7 206
Profit for the year – – 490 538
Other comprehensive income for the
year – – 63 456
Balance as at 29 February 2016 – – 2 450 289
Dividend distributions – – (104 458)
Recognition of BBBEE and staff
share-based payments – – 7 206
Profit for the year – – 223 360
Other comprehensive loss for the
year – – (41 905)
Balance as at 28 February 2017 – – 2 534 492
Audited summarised consolidated segment report
for the year ended 28 February 2017
Support Professional
Industrial services services
Revenue
– 2017 (R’000) 8 254 712 1 582 604 5 818 527
– 2016 (R’000) 9 021 122 1 438 836 4 785 485
Internal revenue
– 2017 (R’000) 117 320 83 302 4 343
– 2016 (R’000) 71 354 90 038 –
Operating profit/(loss)
– 2017 (R’000) 116 296 8 838 153 625
– 2016 (R’000) 400 128 65 228 113 453
Normalised* EBITDA excluding lease-
smoothing and transaction costs
– 2017 (R’000) 169 780 11 904 182 016
– 2016 (R’000) 446 007 68 991 160 834
Normalised* EBITDA margin excluding
lease-smoothing and transaction costs
– 2017 (%) 2,1 0,8 3,1
– 2016 (%) 4,9 4,8 3,4
Normalised* EBITDA excluding lease-
smoothing, transaction costs as a
contribution % to Group normalised*
EBITDA
– 2017 (%) 55,9 3,9 59,9
– 2016 (%) 71,7 11,1 25,9
Depreciation and amortisation
– 2017 (R’000) 63 131 13 629 28 816
– 2016 (R’000) 57 980 12 175 47 805
Interest income
– 2017 (R’000) 41 989 8 567 11 424
– 2016 (R’000) 41 816 8 015 2 486
Interest expense
– 2017 (R’000) (49 109) (9 313) (52 418)
– 2016 (R’000) (53 046) (3 436) (17 795)
Taxation expense/(income)
– 2017 (R’000) 20 927 1 805 9 057
– 2016 (R’000) 28 068 1 650 2 247
Net asset values
– 2017 (R’000) 1 629 435 178 243 856 311
– 2016 (R’000) 1 793 487 234 032 701 166
Asset carrying value
– 2017 (R’000) 2 297 125 354 308 1 358 394
– 2016 (R’000) 2 555 311 379 170 1 123 355
Liabilities carrying value
– 2017 (R’000) 667 690 176 065 502 083
– 2016 (R’000) 761 824 145 138 422 189
Additions to property and equipment
– 2017 (R’000) 4 645 670 19 190
– 2016 (R’000) 26 740 4 677 14 766
Tangible assets
– 2017 (R’000) 54 544 5 476 26 486
– 2016 (R’000) 77 051 10 734 21 070
Financial
Training services*** Sub-total
Revenue
– 2017 (R’000) 251 323 163 670 16 070 836
– 2016 (R’000) 176 298 162 019 15 583 760
Internal revenue
– 2017 (R’000) 40 539 – 245 504
– 2016 (R’000) 68 459 – 229 851
Operating profit/(loss)
– 2017 (R’000) 11 972 38 744 329 475
– 2016 (R’000) 12 234 42 771 633 814
Normalised* EBITDA excluding lease-
smoothing and transaction costs
– 2017 (R’000) 14 766 40 916 419 382
– 2016 (R’000) 16 091 45 397 737 320
Normalised* EBITDA margin excluding
lease-smoothing and transaction costs
– 2017 (%) 5,9 25,0 2,6
– 2016 (%) 9,1 28,0 4,7
Normalised* EBITDA excluding lease-
smoothing, transaction costs as a
contribution % to Group normalised*
EBITDA
– 2017 (%) 4,9 13,5 138,1
– 2016 (%) 2,6 7,3 118,6
Depreciation and amortisation
– 2017 (R’000) 4 255 2 266 112 097
– 2016 (R’000) 5 641 2 533 126 134
Interest income
– 2017 (R’000) 186 18 660 80 826
– 2016 (R’000) 102 15 645 68 064
Interest expense
– 2017 (R’000) (4 328) (2 312) (117 480)
– 2016 (R’000) (5 027) (849) (80 153)
Taxation expense/(income)
– 2017 (R’000) (1 462) 11 837 42 164
– 2016 (R’000) (2 211) 11 426 41 180
Net asset values
– 2017 (R’000) 71 795 202 727 2 938 511
– 2016 (R’000) 40 517 193 717 2 962 919
Asset carrying value
– 2017 (R’000) 97 002 220 467 4 327 296
– 2016 (R’000) 66 425 214 353 4 338 614
Liabilities carrying value
– 2017 (R’000) 25 207 17 740 1 388 785
– 2016 (R’000) 25 908 20 636 1 375 695
Additions to property and equipment
– 2017 (R’000) 542 2 442 27 489
– 2016 (R’000) 1 522 1 439 49 144
Tangible assets
– 2017 (R’000) 1 668 4 161 92 335
– 2016 (R’000) 2 533 3 117 114 505
Central Total International**
Revenue
– 2017 (R’000) 2 115 16 072 951 6 564 162
– 2016 (R’000) 1 991 15 585 751 5 778 324
Internal revenue
– 2017 (R’000) 823 246 327 –
– 2016 (R’000) 1 777 231 628 –
Operating profit/(loss)
– 2017 (R’000) (199 165) 130 310 (103 702)
– 2016 (R’000) (169 047) 464 767 90 794
Normalised* EBITDA excluding lease-
smoothing and transaction costs
– 2017 (R’000) (115 596) 303 786 (2 743)
– 2016 (R’000) (115 541) 621 779 150 083
Normalised* EBITDA margin excluding
lease-smoothing and transaction
costs
– 2017 (%) – 1,9 (0,0)
– 2016 (%) – 4,0 2,6
Normalised* EBITDA excluding lease-
smoothing, transaction costs as a
contribution % to Group
normalised*
EBITDA
– 2017 (%) (38,1) 100,0 (0,9)
– 2016 (%) (18,6) 100,0 24,1
Depreciation and amortisation
– 2017 (R’000) 32 397 144 494 74 313
– 2016 (R’000) 15 659 141 793 62 797
Interest income
– 2017 (R’000) (68 526) 12 300 4 838
– 2016 (R’000) (44 395) 23 669 19 422
Interest expense
– 2017 (R’000) (34 385) (151 865) (53 466)
– 2016 (R’000) (53 569) (133 722) (25 156)
Taxation expense/(income)
– 2017 (R’000) 798 42 962 55 811
– 2016 (R’000) 12 750 53 930 41 275
Net asset values
– 2017 (R’000) (636 524) 2 301 987 1 189 584
– 2016 (R’000) (277 618) 2 685 301 1 137 045
Asset carrying value
– 2017 (R’000) 1 416 776 5 744 072 2 227 237
– 2016 (R’000) 2 039 546 6 378 160 2 412 659
Liabilities carrying value
– 2017 (R’000) 2 053 300 3 442 085 1 037 653
– 2016 (R’000) 2 317 164 3 692 859 1 275 614
Additions to property and equipment
– 2017 (R’000) 5 337 32 826 7 995
– 2016 (R’000) 27 034 76 178 27 872
Tangible assets
– 2017 (R’000) 19 615 111 950 43 284
– 2016 (R’000) 23 291 137 796 64 137
South
Africa Total
Revenue
– 2017 (R’000) 9 508 789 16 072 951
– 2016 (R’000) 9 807 427 15 585 751
Internal revenue
– 2017 (R’000) 246 327 246 327
– 2016 (R’000) 231 628 231 628
Operating profit/(loss)
– 2017 (R’000) 234 012 130 310
– 2016 (R’000) 373 973 464 767
Normalised* EBITDA excluding lease-
smoothing and transaction costs
– 2017 (R’000) 306 529 303 786
– 2016 (R’000) 471 696 621 779
Normalised* EBITDA margin excluding
lease-smoothing and transaction costs
– 2017 (%) 3,2 1,9
– 2016 (%) 4,8 4,0
Normalised* EBITDA excluding lease-smoothing,
transaction costs as a contribution % to
Group normalised*
EBITDA
– 2017 (%) 100,9 100,0
– 2016 (%) 75,9 100,0
Depreciation and amortisation
– 2017 (R’000) 70 181 144 494
– 2016 (R’000) 78 996 141 793
Interest income
– 2017 (R’000) 7 462 12 300
– 2016 (R’000) 4 247 23 669
Interest expense
– 2017 (R’000) (98 399) (151 865)
– 2016 (R’000) (108 566) (133 722)
Taxation expense/(income)
– 2017 (R’000) (12 849) 42 962
– 2016 (R’000) 12 655 53 930
Net asset values
– 2017 (R’000) 1 112 403 2 301 987
– 2016 (R’000) 1 548 256 2 685 301
Asset carrying value
– 2017 (R’000) 3 516 835 5 744 072
– 2016 (R’000) 3 965 501 6 378 160
Liabilities carrying value
– 2017 (R’000) 2 404 432 3 442 085
– 2016 (R’000) 2 417 245 3 692 859
Additions to property and equipment
– 2017 (R’000) 24 831 32 826
– 2016 (R’000) 48 306 76 178
Tangible assets
– 2017 (R’000) 68 666 111 950
– 2016 (R’000) 73 659 137 796
* Normalised earnings is defined as operating profit adjusted for
depreciation, amortisation of intangibles, lease-smoothing and one-off
transaction costs relating to acquisitions.
** International represents operations in Africa, Australia and Asia-
Pacific regions.
*** In the current year Financial services is disclosed separately from
training to reflect how the business is managed.
In the current financial year operating entities are reallocated from
industrial to support services, support services to professional services
and central/shared services were combined to reflect how the Group is
managed. Comparative figures are disclosed on the same basis.
Pro Forma Financial Information
The pro forma financial information below has been prepared for illustrative
purposes only to provide information on how the normalised earnings
adjustments might have impacted on the financial results of the Group.
Because of its nature, the pro forma financial information may not be a
fair reflection of the Group’s results of operation, financial position,
changes in equity or cash flows.
The underlying information used in the preparation of the pro forma
financial information has been prepared using the accounting policies
that comply with International Financial Reporting Standards. These are
consistent with those applied in the published audited consolidated
provisional results of the consolidated and separate financial statements
for the year ended 28 February 2017.
No other adjustments have been made to the pro forma financial information.
The directors are responsible for compiling the pro forma financial
information on the basis of the applicable criteria specified in the JSE
Listings Requirements.
The pro forma financial information as shown in the statement of normalised
earnings should be read in conjunction with the unmodified Deloitte & Touche
independent reporting accountants’ report thereon, issued on 23 May 2017,
which is available for inspection at Adcorp’s registered office.
Pro forma Pro forma
year to year to
28 February 29 February
2017 2016 %
Notes R’000 R’000 change
Revenue 1 16 072 951 15 585 751 3
Cost of sales 1 (13 665 757) (13 069 007) (5)
Gross profit 1 2 407 194 2 516 744 (4)
Other income 1 74 514 128 325 (42)
Administrative, marketing,
selling and operating expenses 1 (2 351 398) (2 180 302) (8)
Operating profit 1 130 310 464 767 (72)
Adjusted for:
Depreciation 2 37 311 35 962 (4)
Amortisation of intangible
assets 2 107 183 105 831 (1)
Lease smoothing 2 2 314 1 781 (30)
Transaction costs 3 26 668 13 438 (98)
EBITDA (excluding lease
smoothing and transaction cost) 303 786 621 779 (51)
Adjusted for:
Depreciation 2 (37 311) (35 962) (4)
Amortisation of intangibles
other than those acquired in a
business combination 2 (19 789) (28 345) (30)
Normalised operating profit 246 686 557 472 (56)
Net interest paid 1 (139 565) (110 053) (27)
Normalised profit before
taxation 107 121 447 419 (76)
Taxation 4 (32 814) (76 125) 57
Normalised profit for the year 74 307 371 294 (80)
Share of profits from associates 1 23 396 23 078 1
Non-controlling interest 1 (1 682) 862 –
Total normalised profit for the
year 96 021 395 234 (76)
Normalised effective tax rate 30,63% 17,01%
Normalised earnings per share –
cents 5 88,6 365,3 (76)
Diluted normalised earnings per
share – cents 5 86,1 352,9 (76)
Weighted average number of
shares 1 108 383 108 189 -
Diluted weighted average number
of shares – 000’s 1 111 468 112 008 -
Notes:
1 As per the audited statement of comprehensive income for the year ended
28 February 2017.
2 As per the audited statement of cash flows for the year ended
28 February 2017.
3 Being one-off transaction costs incurred pursuant to the Group’s
international operations. In the prior year costs refer to the acquisition
of Dare Holdings Proprietary Limited as per the notes to the audited annual
financial statements for the year ended 28 February 2017.
4 The taxation expense has been adjusted for the adjusted items above.
5 Per share calculation is based on normalised earnings.
Comments
Overview
The year ended 28 February 2017 proved to be the most difficult in the
Group’s 41-year long history.
Group revenues of R16,1 billion (2016: R15,6 billion) increased by a modest
3% compared to the prior year.
Trading profits were significantly impacted as a result of volumes lost as a
consequence of recent changes to South African labour laws as well as by a
material trading loss incurred in the Group’s African operations as a result
of the cut back in oil and gas related projects on which the Group was heavily
reliant due to the sustained, depressed global oil price. The depressed global
oil price also impacted on one of the Group’s Australian subsidiaries, Dare,
which at the EBITDA level incurred a small loss.
On the back of these trading pressures, presenting a major drag on earnings was
a material year-on-year swing from a R59,0 million foreign exchange profit recorded
in the prior year to a R30,2 million loss recorded in the current financial year.
These foreign exchange accounting translation gains and losses emanate primarily
from the Group’s African operations whereby the South African Rand reporting
currency has strengthened in the current financial year against many of the
underlying currencies of those African countries where the Group has operations.
Year-on-year comparative earnings were also negatively impacted by a net share
based payment credit of R31,2 million recorded in the prior year compared to a
R7,6 million net charge to loss in the current financial year.
Normalised EBITDA of R304 million was 51% lower than reported in the
previous year.
The impact of these “one-off” adjustments and the effect they have had on the
quality of sustainable Normalised EBITDA of the business can be summarised
as follows:
Comparison of sustainable year-on-year profitability
(Figures in R millions) FY2017 FY2016 % change
Reported Normalised EBITDA 304 622 (51)
– Africa/DARE trading loss/(profit) –
(Oil and Gas) 74 (8) –
– Foreign exchange translation loss/(profit) 30 (59) –
Operations excluding Africa and Dare 408 555 (26)
– Share based payment charge/(credit) 8 (31) –
– Restructuring costs 33 – –
Sustainable Normalised EBITDA 449 524 (14)
In addition, the Group’s effective tax rate has been adversely impacted by the
non-recognition of tax losses in Africa as well as by a deferred tax liability
raised on the rest of Africa inter-company loan accounts, the recovery of
which are doubtful. The combined tax effect of these items which also negatively
affected earnings is R47,3 million.
As a consequence of these factors, normalised earnings per share of 88,6
cents decreased by 76% compared to the comparative figure of 365,3 cents in
the prior year.
Given the significant retreat in earnings, the Group has embarked on a number
of initiatives to ensure a return to sustainable earnings growth in order to
retrace the earnings path of the past.
In this regard, the Group has restructured its operations resulting in a large
number of job cuts which also negatively impacted the year’s earnings by
R32,6 million in respect of severance packages paid to those affected, the
benefits of which will only be realised in the new financial year. The majority
of these expenses were incurred towards the end of the financial year.
Also, the Group has embarked on a new and exciting strategic path known as
“Adcorp 2.0”. The main aims of this strategy are to move closer to our key
clients centred on a collaborative approach, using technology where appropriate
to better and more effectively service clients with a view to growing revenues,
de-risking earnings and improving margins.
Central to this approach is to co-design effective labour solutions with clients
in a fast evolving environment where, in future, people are likely to work
alongside robotic machines using new technologies.
So far, this new strategic initiative has been well received within the Group
as well as by a number of key clients and is starting to deliver positive results.
Following the turbulent year, the Group is far better positioned from a trading
perspective and of the sizeable one-off charges mentioned above are unlikely
to be repeated.
Cash generation remains a key management focus and, in this regard, the Group’s
cash performance has once again been extremely positive. The Group’s cash
conversion ratio was a creditable 178% compared to the Group’s target conversion
ratio of 80%.
Despite this, given the current uncertain economic environment, the Group has
recognised the need to reduce debt levels and de-gear the balance sheet.
Accordingly, the Group is exploring the possibility of disposing of certain
non-core assets in order to free up cash resources.
South Africa
As previously reported, the passing of the new Labour Relations Act (LRA) in
2015 initially led to a high degree of uncertainty in the South African market
resulting in volumes being negatively impacted. Hardest hit was the support
services or white collar segment of the business.
The ambiguity in the new labour laws was clarified in a milestone Labour Court
ruling in September 2015 subsequent to which, stability has largely returned
to the Temporary Employment Services (TES) market resulting in a recovery in
volumes, albeit not yet to the levels achieved prior to the new legislation.
This ruling is the subject of an appeal process.
A further positive development in this regard is a recent favourable ruling in
the court providing legal legitimacy for one of the Group’s important delivery
models. The lower levels of business activity have affected margins negatively
whereby the normalised EBITDA margin achieved in the South African business
was 3,2% compared to the 4,8% margin achieved in the prior year.
Margins should continue to improve and retrace previous levels as volumes
continue to recover.
Given the reduction in earnings, the South African operations have been the
subject of restructure and rationalisation which will reap cost benefits in
the new financial year.
Rest of Africa, Asia and Australia
Australian IT specialist, Paxus, performed particularly well showing strong
earnings growth.
Australian blue collar business, Labour Solutions Australia (LSA), continues
to gain new volumes and would have recorded solid year-on-year earnings growth
save for a sizeable bad debt incurred. The business is well positioned in its
market, should perform well in the ensuing year and is also exploring broader
market opportunities beyond it’s traditional agriculture base.
Australian oil and gas business, Dare, which was acquired by the Group in
May 2015 lost volumes due to the sustained, low oil price. Consequently,
earnings from this business have declined substantially whereby the business
broke even for the year.
As a result of the lower levels of profitability in this business the goodwill
associated with Dare has been impaired by an amount of R86,1 million.
Similarly impacted by a decline in global oil prices has been the Group’s
African business beyond South Africa’s borders which has a high dependency
on the oil and gas industry.
As mentioned above, this business was also negatively impacted by foreign
exchange translation losses compared to a foreign exchange translation profit
in the prior year which pushed this operation into a sizeable loss for the
year under review.
The global oil and gas industry remains an important industry sector of focus
for the Group and still offers up potential, even at the current lower energy
prices. Accordingly, the Group has adopted a global approach to acquiring
business in this industry sector but will scale back its African operations
until such time as prospects improve in the markets.
Indian associate IT solutions business, Nihilent, in which the Group owns a
34,6% stake, also experienced a difficult trading period, being negatively
impacted by a reduction in business emanating from South Africa and has also
been negatively impacted by currency fluctuations in Africa. Associate earnings
from the business were flat year-on-year.
Other strategic initiatives
Over the recent years, the global workforce management and staffing industry
has seen the rapid adoption of innovative, new delivery models, the adoption
of potentially disruptive technologies, as well as a number of innovative
approaches to the client interface. Coupled with this, is the imperative to
remain operationally excellent and cost competitive.
Over the past years, Adcorp has invested in new technologies and methodologies
in expanding its global footprint and in streamlining its operating model.
This foresight has now been rewarded in the current, relatively tough trading
environment.
Much progress has been achieved in developing a cost-effective and efficient
shared service capability with the ability to service the Group’s operations
on the same back office platform.
In addition, the Group has adopted a far more client-centric approach to selling
and is particularly well positioned in the industry in its markets of choice.
This is evidenced by some important and sizeable client wins achieved over the
past year, in multiple jurisdictions, across various industry sectors and against
respected global competition.
Financial overview
Headline earnings per share decreased from 299,6 cents to a loss of 27,9 cents
per share. Earnings per share of 192,0 cents decreased to a loss of
149,5 cents in the current year.
Gross profit margin levels declined by 1% to 15% due largely to a change in
business mix. The overall expense ratio increased from 14,0% to 14,6% against
the backdrop of an extensive group-wide restructuring program of integration
and rightsizing. The Group’s normalised EBITDA margin declined to 1,9%
(2016: 4,0%).
The Group’s overall normalised effective tax rate increased to 30,6%
(2016: 17,0%) mainly as a result of the losses incurred in Africa which
are unlikely to provide future tax relief and the raising of a deferred
tax liability related to the Africa inter-company loans as mentioned.
The Group Tax rate is likely to revert to a lower effective rate in future.
Given the working capital intensive nature of the business requires strict
cash management and, to this extent, the cash conversion ratio was 178%.
Days settlement outstanding (DSO) were 45 days (2016: 47 days).
The Group has been active over the past year in trying to raise capital in
order to fund the Group’s international growth strategy focused on
emerging markets and the Southern Hemisphere and, in particular,
Africa, Asia, Australia and the Middle East.
Negotiations regarding a possible funding deal were recently halted
given that the proposed funding terms were not considered optimal.
Further consideration will be given to funding the Group’s international
expansion plans when market conditions are considered more conducive to
achieving this objective.
Acquisition of business
During the current financial year, Adcorp Holdings Australia Proprietary
Limited acquired WHR Solutions Proprietary Limited (WHR) with effect
1 July 2016. As such, it has been included in Group profits for eight
months of this financial year. The profit after tax from WHR included in
Group net profit after tax for the year ended February 2017 is R3,1 million
after taking account of non-cash flow IFRS charges and acquisition-related
transaction costs. Had the business combination been effective from
1 March 2016, the revenue of the Group would not have been materially
impacted while the net loss after tax would have totalled R159,0 million.
The directors of the Group consider these numbers to represent an approximate
measure of the performance of the combined Group on an annualised basis
and to provide a reference point for comparison in future periods.
Consolidated
2017 2016
R’000 R’000
Total purchase consideration for all business
combinations 15 792 284 146
Less: investment converted into subsidiary – (7 800)
Less: liabilities assumed (482) –
Less: contingent liability (3 158) –
Less: cash and cash equivalents acquired – (9 132)
Net purchase consideration for all business combinations 12 152 267 214
Cash outflow on acquisition of businesses – 267 214
Cash outflow on acquisition of businesses 12 152 267 214
In complying with the IFRS 3, Business Combinations, the Group determined
the fair value of the assets and liabilities acquired on the acquisition
of the business as follows:
2017 2016
R’000 WHR Total
Property and equipment – 400
Intangible assets 6 535 160 392
Deferred tax asset – 8 809
Trade and other receivables – 137 546
Cash and cash equivalents – 9 132
Trade and other payables – (133 854)
Provisions – (1 275)
Taxation owing – (562)
Deferred taxation – (28 635)
6 535 151 953
Gain on bargain purchase – (3 999)
Resulting goodwill on acquisition 9 257 136 192
Total consideration 15 792 284 146
Basis of preparation
The Group’s summarised consolidated and separate financial statements are
prepared in accordance with the requirements of the JSE Limited Listings
Requirements for provisional reports, and the requirements of the Companies
Act of South Africa applicable to summarised financial statements. The
Listings Requirements require provisional reports to be prepared in
accordance with the framework concepts and the measurement and recognition
requirements of International Financial Reporting Standards (IFRS), the
SAICA Financial Reporting Guides as issued by the Accounting Practices
Committee and the Financial Pronouncements as issued by the Financial
Reporting Standards Council, and to also, as a minimum, contain the
information required by IAS 34, Interim Financial Reporting. The
accounting policies applied in the preparation of the consolidated
and separate financial statements, from which the summarised consolidated
financial statements were derived, are in terms of IFRS and are consistent
with the accounting policies applied in the preparation of the Group’s
previous consolidated and separate financial statements.
The financial results have been prepared by the Group Financial Manager,
Ms A Viljoen (BCom Honours) and supervised by the acting Group Chief
Financial Officer, Mr L Wilson (CA(SA)).
Contingent liabilities and commitments
The bank has guaranteed R7,0 million (2016: R7,5 million) on behalf of the
Group to creditors. As at the balance sheet date, the Group has outstanding
operating lease commitments totalling R164,8 million (2016: R315,6 million)
in non-cancellable property leases.
As reported previously, a client of the South African industrial services
segment indicated that they believe that they may not have been billed in
accordance with the original client service level agreement over the past
years and the client has subsequently issued a summons in this regard.
The matter is being defended by the Group. In this regard, using the
information at its disposal, the Board has made a provision it believes
adequate to cover any financial loss which may result from this claim.
Changes to the board of Adcorp
The following changes transpired:
* resignation of Mr A Guharoy with effect from 1 October 2016.
* appointment of Ms JA Boggenpoel with effect from 1 January 2017.
Ms Boggenpoel is also a member of the Group Audit and Risk Committee.
* resignation of Mr AM Sher with effect from 31 January 2017.
* appointment of Mr C Maswanganyi (with Mr MR Ramaite being his alternate)
both with effect from 1 March 2017. Mr Maswanganyi is also a member of the
Group Remuneration and Nominations Committee.
* at the Board meeting held on 23 May 2017, it was decided to appoint
Mr MW Spicer as the lead independent director as required by King IV.
Final dividend
No final dividend declared.
Events after the reporting date
Ms Cheryl-Jane Kujenga was appointed as the Group Chief Financial Officer,
with effect 1 July 2017.
Subsequent to the end of the financial year ended 28 February 2017 and prior
to the approval of this report, no material transactions or events took place.
Auditor’s report
These summarised consolidated and separate financial statements for the
year ended 28 February 2017 have been audited by Deloitte & Touche, who
expressed an unmodified opinion thereon. The auditor also expressed an
unmodified opinion on the consolidated and separate financial statements
from which these summarised consolidated and separate financial statements
were derived.
A copy of the auditor’s report on the summarised consolidated and separate
financial statements and of the auditor’s report on the consolidated and
separate financial statements are available for inspection during office
hours 8:00 – 16:00, Monday – Friday at the Company’s registered office,
Adcorp Office Park, corner William Nicol and Wedgewood Link, Bryanston,
together with the financial statements identified in the respective
auditor’s reports.
Outlook and prospects
On the back of a tough year, the economic environment remains challenging
particularly in the core South African market. The recent credit downgrade
of South Africa’s sovereign debt will further hamper economic growth and
job creation in the Group’s core market.
Despite this, stability has crept back into the South African TES market
following the initial uncertainty created by the new South African labour
laws that also contributed a decline in earnings.
In addition, the Group is in the process of scaling back its African
operations to stem losses in that part of the business and has seen an
improvement in the fortunes of Australian business, Dare, which has seen a
pick-up in volumes and is exploring other industrial sectors such as
renewable energy.
FY 2017’s financial results have also been distorted by a number of one-
off costs such as foreign exchange losses, losses in the Group’s Africa
operations and retrenchment costs that have adversely affected earnings
and are unlikely to repeat in FY2018 which should provide a major boost to
earnings.
These can be summarised as follows:
Impacting Normalised and Headline EPS
Operational challenges Accounting issues
- Sizeable loss in rest of Africa - Foreign exchange translations –
due to decline in global oil price year-on-year swing from a sizeable
– R71 million year-on-year swing. profit to a loss on currency
translations – R89 million.
- No tax relief taken on Africa
losses plus deferred tax liability
raised on Africa loan accounts
– R47 million.
- Share based payments – year on
year swing from a sizeable gain
to cost – R39 million.
- Restructuring costs – R33 million.
Further impacting EPS
Accounting issues
- Dare impairment – R86 million.
- Impairment of obsolete software
– R46 million.
Adcorp 2.0 is starting to deliver which has manifested itself in increased
volumes and margins whilst there is still scope to reduce the Group’s cost
base even further which management is committed to achieving.
The need to reduce debt and to de-gear the balance sheet is seen as an
imperative. In this regard, the Group is looking to shed non-core
assets in order to free up cash resources as described above.
Accordingly, the Group’s prospects are looking more positive due to
the following factors:
* The non-repeat of one-off costs and charges;
* The non-repeat of the rest of Africa losses;
* A more stable South African TES market;
* Paxus and LSA are both performing well;
* Dare is recovering;
* Lower gearing levels will strengthen the balance sheet; and
* The Group has achieved and is working towards a lower overhead cost base.
This general forecast has not been reviewed or reported on by the Group’s
auditors.
By order of the board
MJN Njeke
Chairman
RL Pike
Chief Executive Officer
23 May 2017
Corporate information
Executive directors
BE Bulunga, RL Pike (Chief Executive Officer), PC Swart
Non-executive directors
C Maswanganyi, GP Dingaan, NS Ndhlazi
Independent non-executive directors
MJN Njeke (Chairman), JA Boggenpoel, SN Mabaso-Koyana, ME Mthunzi,
TDA Ross, MW Spicer
Alternate non-executive directors
MR Ramaite
Physical address
Adcorp Office Park Nicolway Bryanston
Cnr William Nicol Drive and Wedgewood Link
Bryanston, 2021
PO Box 70635, Bryanston, 2021
Tel: 011 244 5300
Fax: 011 244 5310
Email: cfo@adcorp.co.za
Website: www.adcorpgroup.com
Registration number 1974/001804/06
Company secretary
KH Fihrer
Transfer secretaries
Terbium Financial Services (Pty) Ltd
Beacon House
31 Beacon Road
Florida North
1709
Sponsor
Deloitte & Touche Sponsor Services (Pty) Ltd
Building 8, Deloitte Place
The Woodlands
20 Woodlands Drive
Woodmead, Sandton
2196
Date: 23/05/2017 04:20:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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