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PRIMESERV GROUP LIMITED - Unaudited results for the six months ended 30 September 2012

Release Date: 29/11/2012 17:10
Code(s): PMV     PDF:  
Wrap Text
Unaudited results for the six months ended 30 September 2012

PRIMESERV GROUP LIMITED
(“Primeserv” or “the Group” or “the Company”)
Incorporated in the Republic of South Africa
Registration number: 1997/013448/06
Share code: PMV
ISIN: ZAE000039277
E-mail: productivity@primeserv.co.za
www.primeserv.co.za
UNAUDITED RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2012
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
                               Restated
                   Unaudited  Unaudited   Unaudited      Audited
                    6 months   6 months    6 months   12 months
                       ended      ended        ended       ended
                      30 Sep     30 Sep       30 Sep      31 Mar
                        2012        2011        2011        2012
                       R’000      R’000        R’000       R’000
Revenue              340 428    307 357      307 357     613 145
Revenue from
  continuing
  operations         321 760    290 225      290 225     579 344
Revenue from
  discontinued
  operations          18 668     17 132       17 132      33 801
Cost of sales       (279 184)  (251 120)   (249 513)   (499 352)
Gross profit          61 244     56 237       57 844     113 793
Gross profit from
  continuing
  operations          44 400     42 731       44 338      91 075
Gross profit from
  discontinued
  operations          16 844     13 506       13 506      22 718
EBITDA                 6 425      6 743        8 350       7 058
Depreciation and
  amortisation        (1 457)    (1 344)      (1 344)     (1 439)
Operating profit       4 968      5 399        7 006       5 619
Operating profit from
  continuing
  operations           5 476      5 130        6 737       8 720
Operating (loss)/profit
  from discontinued
  operations            (508)        269         269      (3 101)
Interest received        904     2 990     2 990     6 255
Interest paid         (2 572)   (2 687)   (2 687)   (4 990)
Share of loss
  from associate        (186)     (847)     (847)   (1 355)
Profit before
  taxation             3 114     4 855     6 462     5 529
Profit before
  taxation from
  continuing
  operations           4 330     4 969     6 576     6 858
Loss before taxation
  from discontinued
  operations          (1 216)     (114)     (114)   (1 329)
Taxation               1 218      (903)   (1 353)    1 249
Total comprehensive
  income for the
  period               4 332     3 952     5 109     6 778
Profit from
  continuing
  operations           5 207     4 034     5 191     7 735
Loss from discontinued
  operations            (875)      (82)      (82)     (957)
Total comprehensive
  income attributable
  to:
Ordinary shareholders
  of the Company       4 340     4 161     5 271     7 359
Non-controlling
  shareholders’
  interest                (8)     (209)     (162)     (581)
Total comprehensive
  income               4 332     3 952     5 109     6 778
Reconciliation of
  headline earnings
Net profit
  attributable to
  shareholders         4 340     4 161     5 271    7 359
Headline earnings      4 340     4 161     5 271    7 359
Weighted average
  number of
  shares (’000)       93 682    95 037    95 037    93 377
Diluted weighted
  average number of
  shares (’000)       93 682     96 046      96 046       93 377
Earnings per
  share (cents)         4,63       4,38         5,55        7,88
From continuing
  operations            5,56       4,47         5,64        8,90
From discontinued
  operations           (0,93)     (0,09)       (0,09)      (1,02)
Diluted earnings per
  share (cents)         4,63       4,33         5,49        7,88
From continuing
  operations            5,56       4,42         5,58        8,90
From discontinued
  operations           (0,93)     (0,09)       (0,09)      (1,02)
Headline earnings per
  share (cents)         4,63       4,38         5,55        7,88
From continuing
  operations            5,56       4,47         5,64        8,90
From discontinued
  operations           (0,93)     (0,09)       (0,09)      (1,02)
Diluted headline
  earnings per
  share (cents)         4,63       4,33         5,49        7,88
From continuing
  operations            5,56       4,42         5,58        8,90
From discontinued
  operations           (0,93)     (0,09)       (0,09)      (1,02)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                               Restated
                  Unaudited   Unaudited   Unaudited       Audited
                    6 months   6 months    6 months     12 months
                       ended      ended        ended        ended
                      30 Sep     30 Sep      30 Sep        31 Mar
                        2012       2011         2011         2012
                       R’000      R’000        R’000        R’000
Profit before
  taxation             3 114      4 855        6 462       5 529
Adjusted for
  non-cash items       1 457      2 221        2 221       3 202
Operating cash flows
  before working
  capital changes      4 571      7 076        8 683       8 731
Net working capital
  changes            (10 275)    (4 867)     (6 474)     (14 867)
Taxation refunded/
  (paid)                  59     (2 152)     (2 152)     (1 308)
Cash flows
  (utilised in)/ from
  operating
  activities          (5 645)        57          57       (7 444)
Cash flows utilised
  in investing
  activities          (2 395)    (9 395)     (9 395)     (16 976)
Cash flows
  (utilised in)/from
  financing
  activities             (40)       (16)        (16)      2 829
Returned to
  shareholders             –     (3 745)     (3 745)      (6 154)
Net decrease in
  cash and cash
  equivalents         (8 080)   (13 099)    (13 099)     (27 745)
Cash and cash
  equivalents at
  beginning of
  period             (29 050)    (1 305)     (1 305)      (1 305)
Cash and cash
  equivalents at
  end of period      (37 130)   (14 404)    (14 404)     (29 050)
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
                               Restated
                   Unaudited  Unaudited   Unaudited      Audited
                      30 Sep     30 Sep      30 Sep       31 Mar
                        2012       2011        2011         2012
                       R’000      R’000       R’000        R’000
Assets
Non-current assets    50 000     42 623      42 173       47 299
Equipment and
  vehicles             6 294      9 998       9 998       6   878
Investment property    7 645      3 257       3 257       7   645
Goodwill              13 293     12 012      12 012      13   293
Intangible assets      3 962      1 348       1 348       2   992
Long-term
  receivables          1 214      1 214       1 214       1 214
Investment in and
  loan to associate    6 912     5   704     5   704     5 815
Deferred tax asset    10 680     9   090     8   640     9 462
Current assets       119 335   109   826   109   826   104 087
Inventories              741     1   497     1   497       532
Trade receivables    106 814    82   352    82   352    86 641
Other receivables      4 551     3   596     3   596     5 419
Cash and cash
  equivalents          7 229    22 381      22 381      11 495
Total assets         169 335   152 449     151 999     151 386
Equity and liabilities
Equity                78 706   73 202      74 359      73 530
Capital and
  reserves            79 561    73 677      74 787      74 377
Non-controlling
  interest             (855)      (475)       (428)       (847)
Non-current
  liabilities             –      4 066       4 066           –
Interest-bearing
  financial
  liabilities             –      4 066       4 066           –
Current
  liabilities        90 629     75 181      73 574      77 856
Trade and other
  payables           38 115     35 253      33 646      30 400
Current portion of
  financial
  liabilities             –       101         101          40
Taxation payable      1 261     2 139       2 139       1 202
Short-term vendor
  obligation            981       903         903       1 281
Short-term loan       4 388         –           –       4 388
Bank borrowings      45 884    36 785      36 785      40 545
Total equity and
  liabilities       169 335    152 449     151 999     151 386
Number of shares
  in issue at
  end of period (’000)
  (net of treasury
  and share trust
  shares)            93 682     92 152      92 152      93 682
Net asset value
  per share (cents)      84          79          81          78
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
                               Restated
                  Unaudited   Unaudited   Unaudited     Audited
                   6 months    6 months    6 months   12 months
                      ended       ended       ended       ended
                     30 Sep      30 Sep      30 Sep      31 Mar
                       2012        2011        2011        2012
                      R’000       R’000       R’000       R’000
Balance at beginning
  of the period      73 530      72 896      72 896      72 896
Attributable
  earnings for the
  period              4 340       4 161       5 271       7 359
Dividends paid            –      (2 381)     (2 381)     (3 124)
Treasury share
  movements             844      (1 276)     (1 276)     (3 030)
Share-based payment       –          11          11          10
Non-controlling
  shareholders’
  interest               (8)       (209)       (162)       (581)
Balance at end of
  the period         78 706      73 202      74 359      73 530
SEGMENTAL ANALYSIS
                               Restated
                  Unaudited   Unaudited   Unaudited     Audited
                   6 months    6 months    6 months   12 months
                      ended       ended       ended       ended
                     30 Sep      30 Sep      30 Sep      31 Mar
                       2012        2011        2011        2012
                      R’000       R’000       R’000       R’000
Revenue from
  external customers
Human Capital
  Outsourcing       307 581     275 667      275 667    552 309
Human Capital
  Development        32 847      31 690       31 690     60 836
Total               340 428     307 357      307 357    613 145
Revenue –
  inter-segment
Human Capital
  Outsourcing             –           –             –         –
Human Capital
  Development         3 757       1 031        1 031       5 424
Total                 3 757       1 031        1 031       5 424
Business segment
  results
Human Capital
  Outsourcing         6 236       7 294        8 901     10 369
Human Capital
  Development         1 655       1 397        1 397     (1 206)
Central Services    (2 923)      (3 292)      (3 292)    (3 544)
Operating profit      4 968       5 399        7 006       5 619
Interest received       904       2 990        2 990       6 255
Interest paid        (2 572)     (2 687)      (2 687)    (4 990)
Share of loss from
  associate            (186)       (847)        (847)    (1 355)
Profit before
  taxation            3 114       4 855        6 462       5 529
Business segment
  total assets
Human Capital
  Outsourcing      126 084       99 268       98 818    111 278
Human Capital
  Development        29 443      33 888       33 888     32 346
Central Services    13 808       19 293       19 293       7 762
Total              169 335      152 449      151 999    151 386
COMMENTARY
REVIEW OF RESULTS
Operating results for the six-month interim period ended 30
September 2012 were encouraging, given the volatile legislative
and economic environment facing the temporary employment services
industry.
To facilitate ease of comparison, the comparable six-month period
ended 30 September 2011 has been updated for the residual effects
of the prior year error, which was fully accounted for and
disclosed in the preliminary and integrated reports for the year
ended 31 March 2012.
The error was detected by management after the March 2012 year
end, and after the publication of the September 2011 interim
results. The comparative results have also been restated to
separately disclose the trading results of the computer training
colleges business which is in the process of being discontinued,
and is accounted for as a discontinued operation in terms of IFRS
5, Non-current Assets Held for Sale and Discontinued Operations.
Consequently the comparisons in the commentary are made in
relation to the restated numbers as presented.
Revenue for the six months increased by 11% to R340,4 million.
Gross profit increased by 9% from R56,2 million to R61,2 million,
while the gross profit percentage decreased from 18,3% to 18,0%,
which is indicative of ongoing margin pressures across the
sectors which the Group services. EBITDA was negatively affected
by the substantial expenditure on learnerships during the current
review period and has decreased marginally from R6,7 million to
R6,4 million. The operating profit, including the costs of these
learnerships, was R5,0 million compared to R5,4 million for the
comparable period.
The learnership programme benefits the Group and its clients
through the development of workplace skills and also positively
impacts the Group’s tax line.
Actions taken to turn around the associate company have proved
positive, with the Group’s share of the associate’s loss
decreasing from R0,9 million to R0,2 million. The increase in the
investment in and loan to associate relates not only to the
aforementioned loss but also to the associate’s working capital
needs arising from improved sales and increased trade
receivables.
Total comprehensive income increased by 10% compared to the
corresponding period, with earnings per share and headline
earnings per share both improving by 6% from 4,38 cents per share
to 4,63 cents share. Earnings per share and headline earnings per
share from continuing operations increased by 24% from 4,47 cents
per share to 5,56 cents per share.
The material increase in trade debtors is attributable to a
combination of sales growth, particularly in the Outsourcing
division, compounded by a few significant clients having settled
their accounts immediately after the due date of the end of
September. The delay also negatively affected the cash generated
from operations as well as gearing measured at 30 September. But
for these delayed payments the overall gearing would have
decreased from 46% at the end of March 2012 to 40% at the end of
September. The Group’s focus on cash generation is expected to
improve liquidity which will position it to take advantage of new
opportunities.
In order to reduce risk in the Group, the decision to discontinue
the Colleges unit was made during the interim reporting period
and the effects of this decision are evident in the financial
statements. The unit’s performance over the last few years has
been negatively affected by the economic segment in which it
operated. The operation, whilst trading at a loss, is not
anticipated to utilise significant cash during the remainder of
the year. The Group will meet its responsibility to complete the
education of learners who are currently enrolled.
As part of its ongoing cost management and efficiency focus, the
Group has implemented a programme of reorganisation and
centralisation, particularly in its back-office environment, so
as to enhance its competitive position. This will incur some
costs in the short-term, but should deliver benefits in the
forthcoming financial year. As part of this reorganisation D
Seaton, previously a non-executive director and consultant to the
Group, was appointed as an executive director responsible for
Legal and Risk and associated commercial activities.
HUMAN CAPITAL OUTSOURCING
The Outsourcing division’s revenue increased by 12% from R275,7
million to R307,6 million for the review period. Operating profit
was R6,2 million compared to R7,3 million in the comparable
period with the reduction being attributable to the high level of
expenditure in regard to learnerships delivered. The shortage of
large infrastructure projects continues to impede the performance
of the “white collar” professional draughting and engineering
unit as well as the performance of the mega-project wage bureau
unit. The performance of the “blue collar” flexible staffing
unit, which has specialist expertise in the logistics,
warehousing and distribution industries as well as in the
manufacturing, construction and engineering sectors, has been
solid. While revenue has improved, margins have remained under
pressure. Operationally, the reorganisation of the Outsourcing
division has focused on strengthening client relationships and on
driving a customer-centric outlook across the division.
The issue relating to the further regulation rather than the
banning of labour brokers seems to be reaching conclusion. The
proposed amendments to the Labour Relations Act and Basic
Conditions of Employment Act will compound the complexity and
administrative burdens within the existing labour environment. As
a result of the impending legislation organisations will require
specialised expertise and infrastructure to manage their staffing
requirements. Consequently, the larger more reputable temporary
employment services providers such as Primeserv stand to benefit
from these changes.
The Outsourcing division experienced significant disruption due
to the lengthy absence through illness and subsequent resignation
of its long-serving and valued MD, Allan McMillan. In order to
minimise that disruption and prioritise key client relationships,
the Group CEO formally assumed operational control as MD of the
division. This dual role has proved successful both operationally
and as a key cost-saving initiative.
HUMAN CAPITAL DEVELOPMENT
The segment’s operating profit increased despite the R0,5 million
operating loss from the discontinued Colleges business. The
improvement in performance is attributable to the improved
results from the HR consulting and training units.
A key differentiator for the Group is its integrated HR services
offering which draws from the various operating units to deliver
a complete HR services solution to Primeserv’s clients.
EMPOWERMENT AND TRANSFORMATION
As previously announced, and as part of Primeserv’s ongoing
transformation process, the Group is finalising the first phase
of a new and enhanced B-BBEE ownership participation structure.
EVENTS AFTER THE REPORTING DATE
Management is not aware of any material events which have
occurred subsequent to the end of September 2012.
ACCOUNTING POLICIES
The results for the six months have been prepared in accordance
with the Group’s accounting policies which are consistent with
those at 31 March 2012 and these comply with International
Financial Reporting Standards and the AC 500 standards, as issued
by the Accounting Practices Board. This report has been prepared
in accordance with IAS 34 – Interim Financial Reporting, the
South African Companies Act and the JSE Limited Listings
Requirements. The results were prepared by the Group Financial
Director, Mr R Sack.
DIVIDEND DECLARATION
No dividend has been proposed for the period under review. The
resumption of dividend payments will be assessed at the
conclusion of each reporting period.
OUTLOOK
Operationally, the Group continues to focus on managing its costs
and working capital, implementing its reorganisation plan,
driving efficiencies and delivering an integrated HR value
offering to its clients.
Strategically, the Group is actively working to increase the
realisable value creation opportunities inherent in its operating
subsidiaries.
On behalf of the Board
JM Judin                              M Abel
Independent Non-Executive Chairman    Chief Executive Officer
R Sack
Financial Director
29 November 2012
Bryanston
Directors: JM Judin# (Chairman), M Abel (Chief Executive
Officer), Prof S Klein# (American), LM Maisela*, DL Rose#, R Sack
(Financial Director), DC Seaton, CS Shiceka#
# Independent Non-Executive               * Non-Executive
Company secretary: ER Goodman Secretarial Services cc
(represented by E Goodman)
Registered address: Venture House, Peter Place Park, 54 Peter
Place, Bryanston, 2021 (PO Box 3008, Saxonwold, 2132)
Transfer secretaries: Computershare Investor Services (Pty) Ltd,
70 Marshall Street, Johannesburg, 2001 (PO Box 61051,
Marshalltown, 2107)
Auditors: Charles Orbach & Company, Third Floor, 3 Melrose
Boulevard, Melrose Arch, 2076 (PO Box 355, Melrose Arch, 2076)
Sponsor: Deloitte & Touche Sponsor Services (Pty) Ltd, The
Woodlands, Woodlands Drive, Woodmead, 2196 (Private Bag X6, Gallo
Manor, 2052)

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