Wrap Text
Unaudited Group Results
for the six months ended 31 August 2012
Adcorp Holdings Limited
(“Adcorp” or “Adcorp Group” or “the Group”)
Registration number 1974/001804/06
Share code: ADR
ISIN number: ZAE000000139
Unaudited Group Results
for the six months ended 31 August 2012
Headline earnings per share up 13%
Normalised earnings per share up 7%
Revenue up 41%
Normalised EBITDA for the period up 40%
Normalised EBITDA margin unchanged at 4,9%
Strategic alliance forged with global player Randstad
Interim dividend declared of 60 cents per share
Debtors days at 37 days
Greater clarity on the labour broking debate
Abridged Statement of Comprehensive Income
for the six months ended 31 August 2012
Unaudited Unaudited Audited
six months six months 12 months
August August February
2012 2011 2012
R’000 R’000 R’000
Revenue 4 022 523 2 846 026 6 423 229
Cost of sales (3 285 023) (2 290 948) (5 188 742)
Gross profit 737 500 555 078 1 234 487
Other income 26 858 29 602 56 113
Administrative expenses (251 499) (178 409) (423 483)
Marketing and selling expenses (285 469) (243 306) (506 674)
Other operating expenses (87 548) (69 716) (156 121)
Operating profit 139 842 93 249 204 322
Interest received 1 629 1 947 3 677
Interest paid (29 914) (18 801) (43 554)
Impairment of investments in
associates and goodwill – – (1 199)
Share of profits from associates 7 161 – 683
Profit on sale of business – – 160
Profit on sale of property and
equipment 150 100 673
Profit before taxation 118 868 76 495 164 762
Taxation (18 414) (7 411) (29 060)
Profit for the year 100 454 69 084 135 702
Other comprehensive income
Exchange differences on translating
foreign operations 2 736 (699) 414
Fair value adjustment of derivative
financial instrument (182) – (955)
Non-controlling interest (2 494) – (1 302)
Other comprehensive income for the
period/year, net of tax 60 (699) (1 843)
Total comprehensive income for the
year 100 514 68 385 133 859
Profit attributable to:
Owners of the parent 97 960 69 084 134 400
Non-controlling interest 2 494 – 1 302
Total comprehensive income attributable
to:
Owners of the parent 100 514 68 385 133 859
Non-controlling interest 2 494 – 1 302
Earnings per share
Basic (cents) 127,3 112,4 206,0
Diluted (cents) 126,3 110,3 201,7
Approved dividends to shareholders
Interim dividend (cents) 60 57 57
Final dividend (cents) in respect
of prior year 80 121 121
Calculation of headline earnings
Profit for the year 97 960 69 084 134 400
Loss on sale of property, plant and
equipment (108) (72) (485)
Impairment of investments in
associates and goodwill – – 1 199
Headline earnings 97 852 69 012 135 114
Headline earnings per share
Headline earnings per share – cents 127,1 112,3 207,1
Diluted headline earnings per share
– cents 126,1 110,2 202,8
Weighted average number of shares –
000’s 76 978 61 456 65 236
Diluted weighted average number of
shares – 000’s 77 587 62 621 66 631
Abridged Statement of Cash Flows
for the six months ended 31 August 2012
Unaudited Unaudited Audited
six months six months 12 months
August August February
2012 2011 2012
R’000 R’000 R’000
Operating activities
Cash generated by operations before
working capital changes 203 805 139 758 304 134
(Increase)/decrease in working
capital (83 944) 46 579 (88 945)
Cash generated by operations 119 861 186 337 215 189
Net interest paid (28 285) (16 854) (39 877)
Taxation paid (20 391) (24 927) (48 955)
Free cash generated by operations 71 185 144 556 126 357
Net dividend paid (62 413) (74 683) (110 610)
Cash inflows from operating
activities 8 772 69 873 15 747
Investing and financing activities
Cash outflows from investing
activities (25 896) (45 716) (304 612)
Cash (outflows)/inflows from
financing activities (25 963) 76 901 329 800
Net (decrease)/increase in cash and
cash equivalents (43 087) 101 058 40 935
Net cash and cash equivalents at the
beginning of the period/year 136 237 95 302 95 302
Net cash and cash equivalents at
the end of the period/year 93 150 196 360 136 237
Free cash generated by operations
per share – cents 92,5 235,2 193,7
Total interest-bearing liabilities of the group
As at 31 August 2012
Unaudited Unaudited Audited
six months six months 12 months
August August February
2012 2011 2012
R’000 R’000 R’000
Net bank balances (93 150) (196 360) (136 237)
Other long-term loan 2 268 4 150 2 582
Long-term loan 62 500 135 000 86 667
Redeemable preference share 83 000 116 000 96 000
Obligations under finance lease 4 842 280 4 957
Operating lease liability 1 883 – 1 233
Current portion of other non-
current liabilities 8 358 4 406 8 838
Current portion of long-term loans 331 992 24 167 323 747
Current portion of redeemable
preference shares 24 988 9 129 22 182
Total interest-bearing liabilities 426 681 96 772 409 969
Abridged statement of financial position
As at 31 August 2012
Unaudited Unaudited Audited
six months six months 12 months
August August February
2012 2011 2012
R’000 R’000 R’000
Assets
Non-current assets 1 446 286 815 516 1 440 639
Property and equipment 58 116 47 258 58 399
Goodwill 915 862 575 716 911 570
Intangible assets 340 573 133 926 363 188
Investment in associates 54 044 2 625 49 708
Deferred taxation 77 691 55 991 57 774
Current assets 1 555 921 1 197 554 1 399 800
Trade and other receivables and
prepayments 1 203 013 784 273 1 079 508
Taxation prepaid 10 031 16 239 9 827
Cash resources 342 877 397 042 310 465
Total assets 3 002 207 2 013 070 2 840 439
Equity and liabilities
Equity attributable to owners of
the parent 1 498 479 1 024 343 1 440 987
Share capital 1 953 1 563 1 934
Share premium 866 326 498 692 865 942
Treasury shares (12 891) (12 891) (12 891)
Share-based payment reserve 188 612 177 200 189 534
Foreign currency translation
reserve 1 149 (2 700) (1 587)
Cash flow hedging reserve (1 137) (1 795) (955)
Retained earnings 449 314 363 853 396 787
Non-controlling interest 4 232 – 1 302
BEE shareholders’ interest 921 421 921
Non-current liabilities 231 871 275 094 269 833
Other non-current liabilities –
interest-bearing 2 268 4 150 2 582
Long-term loan – interest-bearing 62 500 135 000 86 667
Redeemable preference shares –
interest-bearing 83 000 116 000 96 000
Derivative financial instruments
and other financial liabilities 1 137 1 795 955
Obligations under finance lease 4 842 280 4 957
Operating lease liability 1 883 – 1 233
Deferred tax 76 241 17 869 77 439
Current liabilities 1 271 857 713 633 1 129 619
Non-interest-bearing current
liabilities 656 792 475 249 600 624
Trade and other payables 464 313 354 605 461 779
Provisions 167 987 114 538 133 696
Taxation 24 492 6 106 5 149
Interest-bearing current
liabilities 615 065 238 384 528 995
Current portion of other non-
current liabilities 8 358 4 406 8 838
Current portion of long-term loans 331 992 24 167 323 747
Current portion of redeemable
preference shares 24 988 9 129 22 182
Bank overdraft 249 727 200 682 174 228
Total equity and liabilities 3 002 207 2 013 070 2 840 439
Number of ordinary shares in issue
(000’s) 78 139 62 519 77 374
Net asset value per share (cents) 1 918 1 638 1 862
Normalised earnings
for the six months ended 31 August 2012
Normalised earnings exclude the amortisation of intangibles arising on business combinations as well as share-based payments, lease smoothing
adjustments and Paracon transaction cost. The table below sets out the normalised earnings for the period ended 31 August 2012, the prior period
comparative as well as the prior year comparative.
Six months Six months
to to Year to
31 August 31 August 28 February %
2012 2011 2012 change
R’000
Revenue 4 022 523 2 846 026 6 423 229 41
Cost of sales (3 285 023) (2 290 948) (5 188 742) (43)
Gross profit 737 500 555 078 1 234 487 33
Other income 26 858 29 602 56 113 (9)
Administrative, marketing,
selling and operating expenses (624 516) (491 431) (1 086 278) (27)
Operating profit 139 842 93 249 204 322 50
Adjusted for:
Depreciation 11 733 11 227 22 692 5
Amortisation of intangible
assets 28 583 17 897 42 480 60
Share-based payments 16 058 18 776 34 655 (14)
Lease smoothing (7) (1 391) (696) –
Paracon – Transaction costs – – 5 814
Normalised EBITDA (excluding
share-based payments and lease
smoothing) 196 209 139 758 309 267 40
Adjusted for:
Depreciation (11 733) (11 227) (22 692) (5)
Amortisation of intangibles other
than those acquired in a
business combination (8 340) (5 548) (13 834) (50)
Normalised operating profit 176 136 122 983 272 741 43
Net interest paid (28 285) (16 854) (39 877) (68)
Normalised profit before
taxation 147 851 106 129 232 864 39
Normalised taxation (24 081) (10 480) (36 887) (130)
Normalised profit for the
period/year 123 770 95 649 195 977 29
Share of profits from associates 7 161 – 683 –
Non-controlling interest (2 494) – (1 302) –
Total normalised profit for the
period/year 128 437 95 649 195 358 34
Normalised effective tax rate 16% 10% 16%
Normalised earnings per share –
cents 166,8 155,6 299,5 7
Diluted normalised earnings per
share – cents 165,5 152,7 293,2 8
Weighted average number of
shares – 000’s 76 978 61 456 65 236 25
Diluted weighted average number
of shares – 000’s 77 587 62 621 66 631 24
The unaudited pro forma financial information as shown in the statement of normalised earnings should be read in conjunction with the Deloitte &
Touche independent reporting accountants report thereon, which is
available for inspection at Adcorp’s registered office.
Abridged statement of changes in equity
for the six months ended 31 August 2012
Share-
based
Share Share Treasury payment
capital premium shares reserve
R’000 R’000 R’000 R’000
Balance as at 1 March 2011 (audited) 1 546 498 696 (13 227) 165 676
Issue of ordinary shares under
employee share option plan 23 12 – –
Treasury shares sold – – 336 –
Recognition of BBBEE and staff
share-based payments – – – 34 655
Share options exercised during
the year – – – (10 797)
Fair value adjustment on financial
instrument – – – –
Dividend distributions – – – –
Profit for the period – – – –
Other comprehensive income for
the year – – – –
Issue of ordinary shares 365 371 334 – –
Transaction cost capitalised Paracon – (4 100) – –
Balance as at 28 February 2012
(audited) 1 934 865 942 (12 891) 189 534
Issue of ordinary shares under
employee share option plan 19 384 – –
Recognition of BBBEE and staff
share-based payments – – – 16 058
Share options exercised during the
year – – – (16 980)
Dividend distributions – – – –
Profit for the period – – – –
Acquisition of subsidiary – – – –
Other comprehensive income for the
period – – – –
Balance as at 31 August 2012
(unaudited) 1 953 866 326 (12 891) 188 612
Foreign Cash
currency flow
translation hedging Retained
reserve reserve earnings
R’000 R’000 R’000
Balance as at 1 March 2011(audited) (2 001) – 362 200
Issue of ordinary shares under employee
share option plan – – –
Treasury shares sold – – –
Recognition of BBBEE and staff share-
based payments – – –
Share options exercised during the year – – 10 797
Fair value adjustment on financial
instrument – – –
Dividend distributions – – (110 610)
Profit for the period – – 134 400
Other comprehensive income for the year 414 (955) –
Issue of ordinary shares – – –
Transaction cost capitalised Paracon – – –
Balance as at 28 February 2012(audited) (1 587) (955) 396 787
Issue of ordinary shares under employee
share option plan – – –
Recognition of BBBEE and staff share-
based payments – – –
Share options exercised during the year – – 16 980
Dividend distributions – – (62 413)
Profit for the period – – 97 960
Acquisition of subsidiary – – –
Other comprehensive income for the
period 2 736 (182) –
Balance as at 31 August 2012(unaudited) 1 149 (1 137) 449 314
Attributable
to equity Non-
holders of controlling
the parent interest
R’000
Balance as at 1 March 2011(audited) 1 012 890 –
Issue of ordinary shares under employee
share option plan 35 –
Treasury shares sold 336 –
Recognition of BBBEE and staff share-based
payments 34 655 –
Share options exercised during the year – –
Fair value adjustment on financial
instrument – –
Dividend distributions (110 610) –
Profit for the period 134 400 –
Other comprehensive income for the year (541) 1 302
Issue of ordinary shares 371 699 –
Transaction cost capitalised Paracon (4 100) –
Balance as at 28 February 2012(audited) 1 438 764 1 302
Issue of ordinary shares under employee
share option plan 403 –
Recognition of BBBEE and staff share-based
payments 16 058 –
Share options exercised during the year – –
Dividend distributions (62 413) –
Profit for the period 97 960 –
Acquisition of subsidiary – 436
Other comprehensive income for the period 2 554 2 494
Balance as at 31 August 2012(unaudited) 1 493 326 4 232
BEE
shareholders’
interest Total
R’000 R’000
Balance as at 1 March 2011(audited) 421 1 013 311
Issue of ordinary shares under employee share – 35
option plan
Treasury shares sold – 336
Recognition of BBBEE and staff share-based payments 500 35 155
Share options exercised during the year – –
Fair value adjustment on financial instrument – –
Dividend distributions – (110 610)
Profit for the period – 134 400
Other comprehensive income for the year – 761
Issue of ordinary shares – 371 699
Transaction cost capitalised Paracon – (4 100)
Balance as at 28 February 2012(audited) 921 1 440 987
Issue of ordinary shares under employee share option plan – 403
Recognition of BBBEE and staff share-based payments – 16 058
Share options exercised during the year – –
Dividend distributions – (62 413)
Profit for the period – 97 960
Acquisition of subsidiary – 436
Other comprehensive income for the period – 5 048
Balance as at 31 August 2012(unaudited) 921 1 498 479
Abridged segment report (Unaudited)
for the six months ended 31 August 2012
Revenue Internal revenue
Aug Aug Feb* Aug Aug Feb*
2012 2011 2012 2012 2011 2012
R’000 R’000 R’000 R’000 R’000 R’000
Central costs
Central costs – – – – – –
Group recoveries – 81 066 – – – –
Staffing
Blue collar 2 598 063 2 108 448 4 622 841 15 167 15 897 30 691
White collar 1 312 042 559 005 1 602 385 1 228 90 187 97 694
BPO, Training and
Financial Services
BPO 108 368 94 655 193 613 20 275 19 016 44 191
Emerging businesses 4 050 2 852 4 390 – – –
Total 4 022 523 2 846 026 6 423 229 36 670 125 100 172 576
Normalised EBITDA excluding
share-based payments,
lease smoothing and
Operating profit Paracon transaction cost
Aug Aug Feb* Aug Aug Feb*
2012 2011 2012 2012 2011 2012
R’000 R’000 R’000 R’000 R’000 R’000
Central costs
Central costs (25 167) (25 268) (62 907) (18 493) (17 578) (41 885)
Group recoveries (2 345) 2 497 (2 890) (1 496) 3 871 (184)
Staffing
Blue collar 103 947 77 674 193 369 122 497 94 254 226 497
White collar 56 482 19 941 51 249 73 825 28 229 73 732
BPO, Training and
Financial Services
BPO 17 232 24 739 40 821 29 496 36 945 65 675
Emerging businesses (10 307) (6 334) (15 320) (9 620) (5 963) (14 568)
Total 139 842 93 249 204 322 196 209 139 758 309 267
Normalised EBITDA
excluding share-
Normalised EBITDA based payments,
margin excluding lease smoothing and
share-based payments, Paracon transaction cost
lease smoothing and Contribution % to
Paracon transaction cost Group profit
Aug Aug Feb* Aug Aug Feb*
2012 2011 2012 2012 2011 2012
% % % % % %
Central costs
Central costs – – – (9,4) (12,6) (13,4)
Group recoveries – – – (0,7) 2,9 (0,1)
Staffing
Blue collar 4,7 4,5 4,9 62,4 67,4 73,2
White collar 5,6 5,0 4,6 37,6 20,2 23,8
BPO, Training and Financial Services
BPO 27,2 39,0 33,9 15,0 26,4 21,2
Emerging businesses – – – (4,9) (4,3) (4,7)
Total 4,9 4,9 4,8 100,0% 100,0% 100,0%
Net asset values Total assets
Aug Aug Feb* Aug Aug Feb*
2012 2011 2012 2012 2011 2012
R’000 R’000 R’000 R’000 R’000 R’000
Central costs
Central costs (298 516) (357 397) (256 339) 6 579 5 849 3 270
Group recoveries (10 868) 11 712 (12 007) 19 952 37 946 16 946
Staffing
Blue collar 1 570 176 1 060 631 1 316 562 1 912 295 1 384 756 1 845 573
White collar (12 495) 80 859 151 507 790 355 321 558 704 942
BPO, Training and
Financial Services
BPO 246 031 224 876 241 014 266 206 257 361 266 166
Emerging
businesses 4 151 3 662 250 6 820 5 600 3 542
Total 1 498 479 1 024 343 1 440 987 3 002 207 2 013 070 2 840 439
Depreciation and
Total amortisation of
liabilities intangibles
Aug Aug Feb* Aug Aug Feb*
2012 2011 2012 2012 2011 2012
R’000 R’000 R’000 R’000 R’000 R’000
Central costs
Central costs 305 095 363 245 259 609 535 559 1 094
Group recoveries 30 820 26 234 28 953 – – –
Staffing
Blue collar 342 119 324 125 529 011 9 687 7 138 16 920
White collar 802 850 240 699 553 435 20 229 11 425 27 038
BPO, Training and Financial
Services
BPO 20 175 32 485 25 152 9 815 9 982 20 075
Emerging businesses 2 669 1 939 3 292 50 20 45
Total 1 503 728 988 727 1 399 452 40 316 29 124 65 172
Interest income Interest expense
Aug Aug Feb* Aug Aug Feb*
2012 2011 2012 2012 2011 2012
R’000 R’000 R’000 R’000 R’000 R’000
Central costs
Central costs (16 090) (5 819) (17 033) 5 349 4 672 15 107
Group recoveries 375 317 739 – (68) (363)
Staffing
Blue collar 5 394 2 324 5 652 (41 511) (17 332) (44 518)
White collar 7 190 2 473 8 267 8 578 (502) (10 720)
BPO, Training and Financial
Services
BPO 4 749 2 650 6 047 (819) (5 097) (1 622)
Emerging businesses 11 2 5 (1 511) (474) (1 438)
Total 1 629 1 947 3 677 (29 914) (18 801) (43 554)
Taxation expense/ Additions to
(income) property and equipment
Aug Aug Feb* Aug Aug Feb*
2012 2011 2012 2012 2011 2012
R’000 R’000 R’000 R’000 R’000 R’000
Central costs
Central costs (13) 7 098 10 844 26 50 59
Group recoveries 2 346 2 718 7 018 1 616 1 294 7 591
Staffing
Blue collar 7 375 3 385 4 551 6 738 5 229 9 292
White collar 11 615 (6 067) 2 861 1 543 5 500 10 033
BPO, Training and Financial
Services
BPO 684 2 084 2 862 1 575 2 306 4 234
Emerging businesses (3 593) (1 807) 924 93 – –
Total 18 414 7 411 29 060 11 591 14 379 31 209
* Audited
Pro Forma Financial Information
The unaudited 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 unaudited 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 unaudited 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 unaudited interim consolidated
results of the Group for the period ended 31 August 2012.
Since there are no significant subsequent post balance sheet events, no adjustments have been made to the pro forma financial information.
The directors of the Group are responsible for the compilation, contents and preparation of the unaudited pro forma financial information contained
in the announcement. Their responsibility includes determining that: the unaudited pro forma financial information has been properly compiled on the
basis stated; the basis is consistent with the accounting policies of the Group; and the pro forma adjustments are appropriate for the purposes of
the unaudited pro forma financial information disclosed in terms of the JSE Limited (JSE) Listings Requirements.
The unaudited pro forma financial information should be read in conjunction with the Deloitte & Touche independent reporting accountants’ report
thereon, which is available for inspection at Adcorp’s registered office.
Period ended Period ended
31 August 31 August %
2012 2011 change
R’000 R’000
Revenue 4 022 523 2 846 026 41
Cost of sales (3 285 023) (2 290 948) 43
Gross profit 737 500 555 078 33
Other income 26 858 29 602 (9)
Administrative marketing,
selling and operating expenses (624 516) (491 431) 27
Operating profit 139 842 93 249 50
Adjusted for:
Depreciation 11 733 11 227 5
Amortisation of intangible assets 28 583 17 897 60
Share-based payments 16 058 18 776 (14)
Lease-smoothing (7) (1 391)
Normalised EBITDA (excluding share-
based payments and lease-smoothing) 196 209 139 758 40
Adjusted for:
Depreciation (11 733) (11 227) 5
Amortisation of intangibles other
than those acquired in a business
combination (8 340) (5 548) 50
Normalised operating profit 176 136 122 983 43
Net interest paid (28 285) (16 854) 68
Normalised profit before taxation 147 851 106 129 39
Normalised taxation (24 081) (10 480) >100
Normalised profit for the period 123 770 95 649 29
Share of profits from associates 7 161 - -
Non-controlling interests (2 494) - -
Total Normalised profit for the period 128 437 95 649 34
Normalised effective tax rate 16% 10%
Normalised earnings per share – cents 166,8 155,6 7
Diluted normalised earnings per share – cents 165,5 152,7 8
Weighted average number of shares – 000’s 76 978 61 456 25
Diluted weighted average number of shares – 000’s 77 587 62 621 24
Comments
Overview
Trading results for the six-month interim period ended 31 August 2012 were most encouraging with revenue of R4 023 million being some 41% ahead of
the same period’s revenue last year whilst normalised EBITDA of R196,2 million (2011: R139,8 million) was 40% ahead of last year.
Headline earnings per share of 127,1 cents per share (2011: 112,3 cents per share) were 13% ahead of the prior comparative period, whilst normalised
earnings per share of 166,8 cents were 7% ahead of the 155,6 cents per share recorded for the same period last year.
The blue collar businesses of the Group continued to perform particularly well despite losing business due to certain clients in the private sector
automating previously labour absorbing activities and others in the public sector succumbing to political pressure and either converting temporary
workers to permanent posts or taking on contractors as direct employees. This loss of volume has been the direct result of the on-going debate
surrounding the future regulation of labour brokers. Importantly, these losses have, fortunately, been limited.
The current landscape relating to labour relations in South Africa is extremely turbulent, volatile and uncertain as has recently been witnessed in
the mining and transport industries. Despite this and possibly as a result of it, demand for the services provided by the Group’s blue collar
businesses is currently extremely buoyant as reflected by the strong financial results delivered by these businesses.
The white collar businesses experienced mixed fortunes. The recently acquired information technology (IT) contracting business of Paracon has
integrated well into the Group and, together with its associate investment in Nihilent, has performed well and ahead of expectations.
Contracting business, Quest, had a flat six months, mainly as a result of its strong focus on the financial services sector which has been relatively
stagnant in terms of job vacancies.
The permanent recruitment operation of DAV performed particularly well in a relatively tight jobs’ market aided by its strong focus on the placement
of IT and engineering skills.
The business process outsourcing (BPO) division comprises the operations of FMS, training business, PMI, and the Group’s financial services
offerings. The division has been negatively impacted by a significant pull back by certain SETAs in the registration of learners. It is hoped that
some of this backlog will be caught up in the second half of the year.
The Group has taken the decision in tandem with the upgrade of its enterprise resource planning (ERP) system, Microsoft Dynamics AX, to outsource the
majority of its back office operations to outsourcing specialist, Genpact.
The decision was taken with a view to remaining cost competitive, achieving cost flexibility in operations and unlocking economies of scale. The
project which went live on 1 September 2012, has been a major undertaking and, so far, the transition has gone relatively smoothly. Despite some
minor teething problems, no major disruptions to the business have been experienced. Whilst there will be a net negative impact on earnings in the
current financial year relating to restructuring costs associated with this project approximating R8 million, it is anticipated that the full
financial benefits will only be realised in the next financial year.
The cash collections environment remains tough generally. As a result, daily sales outstanding (DSO) were 37 days compared to the prior year’s DSO
comparative figure of 34 days. Cash generated by operations for the six month trading period was R119,9 million whilst the cash conversion ratio of
cash generated by operations to normalised operating profit was 68%.
Whilst pressure remains on gross margins, with the exception of BPO and training, operating margins were improved largely as a result of a more
favourable mix of business emanating from the newly acquired earnings of Paracon, a strong performance by Staff-U-Need and growth in higher margin
business generated by Capital Outsourcing Group through its African operations.
With regard to acquiring business emanating from the rest of the African continent, a strong focus has been put on this source of revenue which
continues to be derived predominantly from the buoyant oil, coal, mining, exploration and gas sectors where technical skills are in high demand. It
is anticipated that this segment of the business should present good growth potential for the Group in the future.
The issue of further regulation relating to labour brokers appears to be reaching finality. In this regard, draft legislation has been submitted to
Parliament for approval which is likely towards the end of this year.
This draft legislation proposes to amend the Labour Relations Act and the Basic Conditions of Employment Act. The major impact of these proposed
amendments as they apply to the business of Adcorp is to hold clients jointly and severally liable for the employment relationship as it relates to
contract employees as well as to require the equal treatment of contract workers as compared to their permanent counterparts after an initial
employment period of six months. In this context, equal treatment refers primarily to remuneration and the extension of employee benefits such as
pension, provident and medical benefits.
This new legislation is likely to favour the larger, more established and reputable temporary employment service providers such as Adcorp.
Importantly, there is no contemplation of a ban on the practice of labour broking as was originally called for by, amongst others, the largest
confederation of trade unions, COSATU.
As the staffing industry matures, there has been a definite trend towards greater sophistication in the procurement process. In this regard, there
has been far greater adoption of technology to manage the procurement process. Many organisations follow this trend to centralise the procurement of
talent and to increase the use of formal tenders. Larger businesses are also adopting a single point of contact, master service provider (MSP)
solution whereby one provider is typically appointed to manage the entire recruitment requirements of the principal client organisation on an
outsourced basis.
Adcorp has positioned itself optimally to take advantage of these trends by investing in technology, developing a MSP solution, forging important
international linkages in order to be the largest provider in South Africa with the broadest range of staffing solutions.
With regard to MSP offerings, this trend has not only taken foothold in South Africa but also dominates the international recruitment landscape. As
such, the requirement for international representation spanning broad geographies has become an imperative.
Adcorp is pleased to announce that it has forged a formal alliance with the world’s second largest resourcing company, Randstad, whereby there will
be cross referral of work across the respective geographies serviced by these two organisations. It is an exciting development for the Group and
should benefit both parties.
Financial overview
Normalised EBITDA of R196,2 million for the six months ended 31 August 2012
is 40% higher than the R139,8 million for the comparative prior period largely as a result of the Paracon acquisition, which was, for the first time,
included for the full period under review. Organic EBITDA growth was also encouraging.
The Group’s normalised EBITDA margin was 4,9% (2011: 4,9%) which is considered satisfactory in an environment where, despite improvements in margins
attributable to the traditional staffing businesses and the inclusion of Paracon, margin pressure was experienced in the BPO training and financial
services segment.
The Group’s overall normalised effective tax rate has increased to 16% (2011: 10%) due to, inter alia, the lower tax deductions claimed in respect of
registered learnerships in compliance with the Income Tax Act, increased adjustments made to the computation of normalised earnings and significant
non-deductible finance charges incurred on the Paracon acquisition related debt.
The Group’s net gearing percentage increased to 28% (2011: 9%) due to the inclusion of R280 million (2011: nil) of Paracon acquisition related debt.
On 5 June 2012, and as reported in the 2012 integrated annual report, the Group successfully extended the expiry of the said debt to 5 March 2013,
whereafter the outstanding debt balance at the time, shall be converted into long term loans. As such, this debt is currently disclosed as current
portion of long term loans.
Basis of preparation
Adcorp prepares its accounts in accordance with International Financial Reporting Standards, the South African Companies Act and the JSE Listings
Requirements.
The accounting policies are consistent with the prior period annual financial statements and deal with new disclosure requirements by IFRS. This
report is prepared in accordance with IAS 34 (Interim Financial Reporting) as well as the AC500 Standards as issued by the Accounting Practices Board
or its successor.
The financial results have been prepared by A Viljoen, assisted by W Manthe and supervised by AM Sher.
Contingent liabilities and commitments
The bank has guaranteed R11,9 million (2011: R11,9 million) on behalf of the Group to creditors. As at the balance sheet date, the Group has
outstanding operating lease commitments totalling R75,6 million (2011: R80 million) in non-cancellable property leases.
Changes to the board
On 14 September 2012 Ms Sindisiwe (“Sindi”) Mabaso-Koyana was appointed as an independent non-executive director and Mr C Maswanganyi was appointed
as an alternate non-executive director to Mr Robinson Ramaite with effect from 11 July 2012.
Declaration of interim dividend
Notice is hereby given that an interim dividend of 60 cents per share (2011:57 cents per share) was declared on 17 October 2012 payable to
shareholders recorded in the register of Adcorp at the close of business on the record date appearing below. The salient dates pertaining to the
interim dividend are as follows:
Last date to trade “cum” dividend Friday, 30 November 2012
Date trading commences “ex” dividend Monday, 3 December 2012
Record date Friday, 7 December 2012
Date of payment Monday, 10 December 2012
Ordinary share certificates may not be dematerialised or rematerialised between Monday, 3 December 2012 and Friday, 7 December 2012, both days
inclusive.
In determining the dividends tax (DT) of 15% to withhold in terms of the Income Tax Act for those shareholders who are not exempt from the DT, no
secondary tax on companies (STC) credits have been utilised. Shareholders who are not exempt from the DT will therefore receive a dividend of 51
cents net of DT. Adcorp has 78 139 101 ordinary shares in issue and its income tax reference number is 9233/68071/0.
All times provided in this announcement are South African local times. The above dates and times are subject to change. Any changes will be released
on SENS and published in the South African press.
Where applicable, dividends in respect of certificated shares will be transferred electronically to shareholders’ bank accounts on the payment date.
In the absence of specific mandates, dividend cheques will be posted to shareholders. Ordinary shareholders who hold dematerialised shares will have
their accounts at their CSDP or broker credited/updated on Monday, 10 December 2012.
Subsequent event
The Board is not aware of any significant subsequent event.
Outlook
With finality imminent with regard to the proposed legislation relating to the provision of temporary employment services, this should do much to
provide certainty, stabilise the industry and provide clients and investors with greater confidence. It is likely, however, that trade unions will
persist in pressurising clients at shop floor level.
The impending, tightened labour legislation, the move to centralised procurement, greater adoption of technology by clients, wider utilisation of
MSP solutions, generally enhanced sophistication in the industry as well as tightened economic conditions have resulted in a marked reduction in the
number of providers in the industry over the past three years, thus favouring the larger players such as Adcorp. It is likely that this trend will
continue.
The rest of the African continent and, in particular, the buoyant oil, coal, mining, exploration and gas sectors hold strong potential for the Group.
Also, the formal alliance with Randstad provides the Group with an important and extensive global reach.
Strategically, the Group continues to focus on managing its costs, driving economies of scale, delivering value for its clients and increasing the
level of sophistication and technological advancement it applies in its day to day operations. In addition, the Group has a strong and robust balance
sheet.
As such, the Group is well positioned for the future.
This general forecast has not been reviewed or reported on by the Group’s auditors.
By order of the board
MJN Njeke RL Pike AM Sher
Chairman Chief Executive Officer Chief Financial Officer
17 October 2012
Executive directors: C Bomela, RL Pike (Chief Executive Officer), AM Sher, PC Swart
Non-executive directors: GP Dingaan, MR Ramaite, NS Ndhlazi
Independent non- executive directors: MJN Njeke (Chairman), ME Mthunzi, TDA Ross, SN Mabaso-Koyana
Alternate non-executive directors: C Maswanganyi, L Mojela
Company secretary: Premium Corporate Consulting Services Proprietary Limited
Transfer secretaries: Link Market Services SA Proprietary Ltd, 13th Floor, 19 Ameshoff Street, Braamfontein
Sponsor:Deloitte & Touche Sponsor Services Proprietary Ltd
Date: 17/10/2012 11:53:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
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