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Condensed consolidated audited results for the year ended 30 September 2012
KELLY GROUP LIMITED (Incorporated in the Republic of South Africa)
Registration number: 1999/026249/06
Share code: KEL ISIN: ZAE000093373
("Kelly Group" or "the Group")
Condensed consolidated audited results
for the year ended 30 September 2012
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
2012 2011 %
Note R'000 R'000 change
Revenue 1 1 974 307 1 988 618 (1)
Cost of sales (1 559 871) (1 552 096)
Gross profit 414 436 436 522 (5)
Operating expenses 2 (387 792) (401 154)
Earnings before interest, tax, depreciation and
amortisation (EBITDA) 26 644 35 368 (25)
Depreciation and amortisation (17 119) (19 782)
Operating profit 9 525 15 586 (39)
Impairments 3 (14 588) (33 191)
Profit on sale of controlling interest in subsidiary 4 6 692
Share of profit from joint ventures 241 17
Profit/(loss) before financing costs 1 870 (17 588) 111
Finance income 4 457 6 959
Finance costs (21 786) (21 881)
Loss before taxation (15 459) (32 510) 52
Taxation 5 (12 695) 10 764
Loss for the year (28 154) (21 746) (29)
Attributable to equity holders in parent (27 059) (22 057)
Attributable to non-controlling interests (1 095) 311
Other comprehensive income 1 910 4 384
Total comprehensive loss for the year (26 244) (17 362) (51)
Attributable to equity holders in parent (25 149) (17 673)
Attributable to non-controlling interests (1 095) 311
Attributable to equity holders in parent:
Basic
Loss per share (cents) (27,5) (23,0) (20)
Headline (loss)/earnings per share (cents) (25,9) 13,3 (294)
Fully diluted
Loss per share (cents) (27,5) (23,0) (20)
Headline (loss)/earnings per share (cents) (25,8) 13,3 (294)
NOTE
1. Revenue
Placement fees 65 129 68 104 (4)
Temporary staffing 1 770 368 1 775 276
Skills training 97 558 93 639 4
Other revenue 41 252 51 599 (20)
1 974 307 1 988 618
2. Operating expenses
Included in operating expenses are charges for restructuring which are in respect of retrenchment costs, and the
provision of R4.0 million for onerous lease contracts where certain branches have been closed and the fair value of
related unavoidable lease costs have been recognised.
3. Impairments
The impairment balance includes the impairment of goodwill and trademarks amounting to R7.1 million
(2011: R32.0 million). This follows impairment testing, which is performed annually on all goodwill and trademark
assets held within the Group. The impairment balance also includes the impairment of loan receivables amounting
to R6.7 million (2011: R1.2 million), and an impairment of other intangible assets.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
2012 2011
R'000 R'000
Cash generated by operations before working capital changes 29 119 40 489
Increase in working capital and other movements (2 312) (57 819)
Cash generated from/(distributed to) operations 26 807 (17 330)
Net financing costs (17 329) (14 922)
Net dividends paid (706)
Taxation paid (4 585) (13 149)
Cash flows from operating activities 4 187 (45 401)
Cash flows from investing activities 9 380 (24 292)
Cash flows from financing activities 1 058 54 440
Net increase/(decrease) in cash and cash equivalents 14 625 (15 253)
Foreign translation difference on offshore cash 1 364 2 952
Net cash and cash equivalents at the beginning of the year 73 187 85 488
Net cash and cash equivalents at the end of the year 89 176 73 187
RECONCILIATION OF SHARES ISSUED
2012 2011
R'000 R'000
Number of shares in issue 100 000 100 000
Treasury shares (1 558) (1 558)
Closing balance 98 442 98 442
Weighted average number of shares before treasury shares 100 000 100 000
Weighted average treasury shares (1 558) (4 042)
Weighted average number of shares after treasury shares 98 442 95 958
Dilutive effects of equity-settled share reserve 34 2
Fully diluted weighted average number of shares after treasury shares 98 476 95 960
STATEMENT OF CONSOLIDATED CHANGES IN EQUITY
Foreign Equity due to
Share capital currency change in Share-based Non-
and share translation control of payment Accumulated controlling
premium reserve interests reserve loss Subtotal interests Total
Note R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000
Balance at 1 October 2010 280 970 10 539 (18 038) 2 483 (37 885) 238 069 877 238 946
Share-based payment reserve 1 813 1 813 1 813
Sale of treasury shares 24 809 24 809 24 809
Total comprehensive loss for the year 4 384 (22 057) (17 673) 311 (17 362)
Balance at 1 October 2011 305 779 14 923 (18 038) 4 296 (59 942) 247 018 1 188 248 206
Disposal of controlling interest in subsidiary 4 4 479 4 479
Share-based payment reserve 1 668 1 668 1 668
Total comprehensive loss for the year 1 910 (27 059) (25 149) (1 095) (26 244)
Dividends paid (706) (706)
Balance at 30 September 2012 305 779 16 833 (18 038) 5 964 (87 001) 223 537 3 866 227 403
CONDENSED CONSOLIDATED SEGMENTAL ANALYSIS
Revenue Operating profit Total assets Total liabilities
2012 2011 2012 2011 2012 2011 2012 2011
R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000
Staffing, skills and value added services 1 440 479 1 512 914 18 827 24 943 368 950 352 394 109 324 127 284
USA 533 828 475 704 21 106 9 610 98 679 104 358 48 430 62 990
Central costs (30 408) (18 967) 132 847 214 087 215 319 232 359
Total 1 974 307 1 988 618 9 525 15 586 600 476 670 839 373 073 422 633
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
2012 2011
Note R'000 R'000
ASSETS
Non-current assets 219 848 244 963
Property and equipment 11 278 13 599
Goodwill 3 21 338 25 346
Trademarks 3 92 131 95 175
Other intangible assets 3 40 527 60 293
Investments in joint ventures and associate 842 601
Loan to associate 9 661
Deferred taxation 5 44 071 49 949
Current assets 380 628 425 876
Inventories 903 1 543
Loans to joint ventures 3 13 974 18 691
Trade and other receivables 254 665 282 751
Taxation 446 7 510
Cash and cash equivalents 110 640 115 381
TOTAL ASSETS 600 476 670 839
EQUITY AND LIABILITIES
Capital and reserves 227 403 248 206
Share capital and share premium 305 779 305 779
Accumulated loss (87 001) (59 942)
Other components of equity 4 759 1 181
Attributable to equity holders in parent 223 537 247 018
Non-controlling interests 3 866 1 188
Non-current liabilities 13 686 166 221
Interest-bearing borrowings 6 435 149 896
Provisions 7 6 923 9 302
Trade and other payables 7 4 038 4 470
Deferred taxation 2 290 2 553
Current liabilities 359 387 256 412
Interest-bearing borrowings 6 152 700 2 181
Loans from joint ventures and associate 58 3 357
Provisions 7 6 800 5 938
Accruals for staff benefits 7 58 616 76 468
Trade and other payables 7 118 527 124 546
Taxation 1 222 1 728
Bank overdraft 21 464 42 194
TOTAL EQUITY AND LIABILITIES 600 476 670 839
NOTE
4. Sale of controlling interest in subsidiary
During the year, the Group disposed of 30% of the share capital of K-log Proprietary Limited, reducing its
shareholding from 60% to 30%. The loss of control resulted in a deconsolidation of the investment in subsidiary, and
commencement of accounting for the residual interest as an investment in associate.
5. Taxation
The entity in the Group that benefits from learnership allowances, has generated a substantial tax loss. It was
decided not to increase the deferred tax on this entity and the value of the deferred tax asset not recognised amounts
to R19.3 million (2011: R Nil).
6. Interest-bearing borrowings
Debentures 152 177 151 219
Finance leases 958 858
153 135 152 077
Debentures are issued to Investec Bank Limited, bear interest at a blended fixed rate of 11.2% per annum (adjusted
for structuring fees), and are repayable on 30 April 2013. These instruments will be settled from the proceeds of
funding that is currently being re-negotiated. The instruments are secured by a cession of South African trade
receivables amounting to R164 million.
7. Reclassification of comparatives
Comparative figures for categories of provisions and payables have been reclassified to enhance disclosure. The net
effect was to create an additional category of liabilities, and to reclassify balances within these categories. In addition
to these movements, an amount of R4.5 million was reclassified from current to non-current liabilities, which relates
to the straight-lining of lease liabilities.
RECONCILIATION OF HEADLINE (LOSS)/EARNINGS
2012 2011
Note R'000 R'000
Attributable loss for the year (27 059) (22 057)
Profit on disposed property and equipment (net of tax) 559 2 830
Impairment of goodwill, trademarks and other intangibles (net of tax) 3 7 741 31 988
Profit on sale of controlling interest in subsidiary (6 693)
Headline (loss)/earnings (25 452) 12 761
COMMENTS
Review of results
The Kelly Group managed to make up lost ground and clawed back some of the revenue lost in the first half
to end with only a marginal 0.7% decline in consolidated group revenue compared to the previous year.
The improved second half performance lifted operational profit from R0.6 million at half year, to R9.5 million
for the full year, compared to R15.5 million for the comparative reporting period. Cash generated from
operations amounted to R26.8 million compared to R17.3 million of cash utilised in operations during the
previous financial year, which contributed to increasing net cash balances to R89 million at year-end. The
Group is confident that this improved performance is indicative of the success of the turnaround strategy and
the significant changes made to both operations and senior management over the past 12 months.
Revenue from high margin permanent placements contracted to R65 million and comprises 3.3% of
total group revenue. The Group recorded a negligible decline in annuity revenue derived from outsourcing,
and gross margin % declined by 1% which is indicative of the fact that clients demand more for less. Skill
training reflected growth of 4% and remains the second largest revenue contributor to the Group. The USA
subsidiaries continued their strong contribution to the Group despite the 3% decline in revenue in US Dollar
terms.
The Kelly division remained under pressure for the first six months until the appointment of the new Kelly MD,
which under his leadership and guidance, has made a significant recovery and is poised to recover lost
market share. The brand remains the most significant contributor to the Group, and a 7% decline in revenue
and 48% in earnings before interest and tax (EBIT) weighed heavily on the Group's results. M Squared
Consulting Inc., Torque IT, Kelly Industrial and InnStaff all performed well in challenging market conditions.
M Squared Consulting Inc. maintained its revenue base in a very challenging American economy, increasing
operating profit by 90% to US$2.6 million. Both InnStaff and Kelly Industrial, through its strong value
proposition, delivery model and positioning in the market, managed to grow revenue and Torque IT continues
to meet and exceed expectations.
The overhead costs of the Group have been very tightly managed and the South African operations achieved
a 4% decline in operating costs from 2011 to 2012. The current year includes charges related to restructuring
within the Group, including a provision for onerous leases amounting to R4.0 million at year-end. After
accounting for R14.6 million (2011: R33.2 million) of impairment charges (mainly impairment of goodwill and
trademarks and loans receivable) and finance charges, the Group recorded a pre-tax loss of R15.5 million
(2011: R32.5 million). The effective tax rate for the current period was negatively impacted by taxable profits
in parts of the Group, the taxation effects of which were not fully offset by deferred tax assets not recognised
in respect of taxable losses elsewhere in the Group. This conservative approach is consistent with the
methodology applied at half year and the unrecognised deferred tax assets relating to temporary differences
amount to R19.3 million for the period.
During the year the Kelly Group sold 30% of the issued share capital in K-log Proprietary Limited, and
subsequent to year-end it acquired the remaining 30% of the issued share capital of InnStaff Proprietary
Limited and Inn-Staff (Swaziland) (Proprietary) Limited. These transactions are in line with the strategy of
focusing on activities that are core to the Group.
Dividend
No dividend declaration is proposed based on the decline in profitability and the need to fund future growth.
Basis of preparation
The condensed financial results included in this announcement have been prepared in accordance with the
measurement and recognition criteria of International Financial Reporting Standards ("IFRS") and have been
prepared in accordance with the presentation and disclosure requirements of IAS 34. In addition they have
been prepared in the manner required by the South African Companies Act as well as the Listings
Requirements of the JSE. These financial results have been prepared under the supervision of Lionel Wilson
CA (SA), the Group financial director.
The Group's independent auditors have audited the Group's results and their unqualified report is available for
inspection at the company's registered office. The auditor's report does not necessarily cover all of the
information contained in this announcement. Shareholders are therefore advised that in order to obtain a full
understanding of the nature of the auditor's work they should obtain a copy of that report together with the
accompanying financial information from the registered office of the company.
Accounting policies
The same accounting policies, presentation and measurement principles have been followed in the
preparation of the condensed financial information for the year ended 30 September 2012 as were applied in
the preparation of the Group's annual financial statements for the year ended 30 September 2011.
Changes to directors
The Group welcomed Lionel Wilson as the new CFO on 13 February 2012 following the appointment of
Ferdie Pieterse as COO on 13 February 2012. Elias Monage resigned from the Group effective 29 June 2012
and long serving non-executive director Peet van der Walt retired on 31 August 2012.
Prospects
While the board expects industry conditions to remain tough over the next trading period, it is confident that
under the new leadership and renewed client focus, the Group will recover its market position and profitability
over time underpinned by a change in the corporate culture. A sharpened external focus supported by
operational improvements and enabling technology will benefit the Group going forward.
For and on behalf of the board
MM Ngoasheng GJ Tindall
Chairman Chief Executive
Sandton
20 November 2012
KELLY GROUP LIMITED (Incorporated in the Republic of South Africa) Registration number: 1999/026249/06 Share code: KEL ISIN: ZAE000093373
("Kelly Group" or "the Group")
Registered office: 6 Protea Place, corner Fredman Drive, Sandton
Transfer secretaries: Computershare Investor Services (Pty) Limited
Sponsor: Rand Merchant Bank (A division of FirstRand Bank Limited)
Auditors: Grant Thornton
Directors: MM Ngoasheng (Chairman), MW McCulloch (Deputy Chairman), GJ Tindall (Chief Executive), Y Dladla, MG Ilsley, B Ngonyama, F Pieterse, CJ Roodt and L Wilson
Company secretary: KH Fihrer
Our website is regularly updated to supply you with the latest information on the company.
www.kellygroup.co.za
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