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Abridged audited condensed consolidated financial results for the year ended 31 December 2012 and notice of annual g
WORKFORCE HOLDINGS LIMITED
Incorporated in the Republic of South Africa
(Registration number: 2006/018145/06)
Share code: WKF
ISIN: ZAE000087847
("Workforce" or "the company" or "the group")
Abridged audited condensed consolidated financial results for the year ended 31 December 2012 and notice of annual general meeting
HIGHLIGHTS
Revenue increase of 11%
EBITDA increase of 5,8%
Group statement of comprehensive income for the year ended 31 December 2012
2012 2011
Notes R'000 R'000
Revenue 1 498 435 1 348 561
Cost of sales (1 173 636) (1 039 586)
Gross profit 324 799 308 975
Operating costs (281 418) (267 974)
Earnings before impairment, depreciation, amortisation, interest and taxation ("EBITDA") 43 381 41 001
Depreciation and amortisation of non-financial assets (8 939) (7 694)
Operating profit 34 442 33 307
Finance income 2 670 3 434
Finance costs (12 463) (10 896)
Profit before taxation 24 649 25 845
Taxation 9 (1 105) (1 916)
Profit for the year 23 544 23 929
Other comprehensive income for the year, net of tax:
Fair value (loss)/gain on available-for-sale financial assets (462) 139
Total comprehensive income for the year 23 082 24 068
Profit for the year attributable to:
Owners of the parent 23 185 23 445
Non-controlling interests 359 484
23 544 23 929
Total comprehensive income attributable to:
Owners of the parent 22 723 23 584
Non-controlling interests 359 484
23 082 24 068
Earnings per share (cents per share)
Basic and fully diluted 10 10,3 10,4
Group statement of financial position at 31 December 2012
2012 2011
Notes R'000 R'000
Assets
Non-current assets 81 534 76 925
Property, plant and equipment 5 7 657 9 187
Goodwill 6 41 280 41 280
Intangible assets 7 17 224 13 165
Deferred tax assets 13 757 11 215
Other financial assets 1 616 2 078
Current assets 438 959 371 317
Trade and other receivables 415 712 351 136
Inventories 3 198 3 343
Taxation 1 523 861
Cash and cash equivalents 18 526 15 977
Total assets 520 493 448 242
Equity and liabilities
Equity 220 352 197 487
Equity attributable to owners of the parent 220 101 197 378
Share capital and premium 236 867 236 867
Treasury shares (7 616) (7 616)
Reverse acquisition reserve (125 499) (125 499)
Available-for-sale reserve (231) 231
Retained earnings 116 580 93 395
Non-controlling interests 251 109
Non-current liabilities 14 282 13 091
Financial liabilities 9 124 9 153
Deferred tax liabilities 5 158 3 938
Current liabilities 285 859 237 664
Trade and other payables 72 935 62 521
Financial liabilities 207 893 175 139
Taxation 565 -
Bank overdraft 4 466 4
Total equity and liabilities 520 493 448 242
Group net asset value per share (cents per share) 98 87
Group statement of changes in equity for the year ended 31 December 2012
Attributable to owners of the parent
Share
capital Reverse Available-
and acquisition Treasury for-sale
premium reserve shares reserve
R'000 R'000 R'000 R'000
Balance at 1 January 2011 236 867 (125 499) (7 616) 92
Payment of dividends - - - -
Total comprehensive income for the year - - - 139
Balance at 1 January 2012 236 867 (125 499) (7 616) 231
Payment of dividends - - - -
Total comprehensive income for the year - - - (462)
Balance at 31 December 2012 236 867 (125 499) (7 616) (231)
Notes 9 9 *
* Fair value gains on available-for-sale financial assets.
Non-
Retained controlling Total
earnings Total interests equity
R'000 R'000 R'000 R'000
Balance at 1 January 2011 69 950 173 794 10 173 804
Payment of dividends - – (385) (385)
Total comprehensive income for the year 23 445 23 584 484 24 068
Balance at 1 January 2012 93 395 197 378 109 197 487
Payment of dividends - – (217) (217)
Total comprehensive income for the year 23 185 22 723 359 23 082
Balance at 31 December 2012 116 580 220 101 251 220 352
Group statement of cash flows for the year ended 31 December 2012
2012 2011
R'000 R'000
Cash generated from operations before net working capital changes 31 214 30 428
Cash generated from operations 43 555 40 932
Finance income 2 646 3 271
Finance costs (12 463) (10 896)
Taxation paid (2 524) (2 879)
Increase in net working capital (54 017) (65 751)
Cash flows from operating activities (22 803) (35 323)
Cash flows from investing activities (11 224) (10 349)
Acquisition adjustment to purchase price of subsidiary previously acquired - (75)
Dividends received 24 163
Property, plant and equipment acquired - maintaining operations (2 714) (4 245)
- expanding operations (321) (151)
Proceeds on disposal of property, plant and equipment 381 593
Intangible assets acquired (8 594) (6 634)
Cash flows from financing activities 32 114 14 200
Proceeds from borrowings 32 331 14 585
Dividends paid to shareholder in subsidiary (217) (385)
Net change in cash and cash equivalents (1 913) (31 472)
Cash and cash equivalents at the beginning of the year 15 973 47 445
Cash and cash equivalents at the end of the year 14 060 15 973
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2012
1. Nature of business
Workforce Holdings Limited is an investment holding company. Its subsidiaries carry on the business of staff and recruitment, training
and consulting, financial and lifestyle products, employee health management and process outsourcing.
2. Basis of preparation
The condensed group financial statements for the year ended 31 December 2012, have been prepared in accordance with the framework
concepts and the measurement and recognition of International Financial Reporting Standards, the Listing Requirements of the JSE
Limited ("JSE"), International Accounting Standard (IAS) 34, Interim Financial Reporting and the South African Companies Act. No 71 of
2008, as well as the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Reporting
Pronouncements as issued by the Financial Reporting Standards Council.
The condensed group financial statements for the year ended 31 December 2012 were compiled under the supervision of WP Van Wyk CA (SA),
The group financial director. The accounting policies have been consistent with those of the most recent financial statements.
During the period under review, the group adopted all the IFRS and interpretations being effective and deemed applicable to the group.
None of these standards and interpretations had a material impact on the results.
3. Events after reporting date
No material events occurred between the reporting date and the date of approval of these condensed group financial statements.
4. Auditor's report
The external independent auditor, Horwath Leveton Boner, have issued their opinion on the group financial statements for the year ended
31 December 2012. The audit was conducted in accordance with International Standards of Auditing. The auditor has issued an unqualified
audit opinion. A copy of the audit report is available for inspection at the company's registered offices. These condensed financial
statements have been derived from the group financial statements and are consistent, in all material respects, with the group financial
statements.
5. Additions and disposals of property, plant and equipment
Motor Computer Industrial Office
vehicles equipment equipment equipment
R'000 R'000 R'000 R'000
Carrying value at 1 January 2011 2 720 1 729 321 2 511
Additions 672 1 734 - 1 170
Disposals (470) (1) - (51)
Reclassifications - 594 (80) (514)
Depreciation (1 061) (1 130) (59) (1 306)
Carrying value at 31 December 2011 1 861 2 926 182 1 810
Additions 583 1 189 10 967
Disposals (535) (18) - (2)
Depreciation (808) (1 733) (59) (657)
Carrying value at 31 December 2012 1 101 2 364 133 2 118
Leasehold
improve- Training
ments manuals Total
R'000 R'000 R'000
Carrying value at 1 January 2011 202 2 416 9 899
Additions 258 562 4 396
Disposals - (1) (523)
Reclassifications - - -
Depreciation (80) (949) (4 585)
Carrying value at 31 December 2011 380 2 028 9 187
Additions 89 591 3 429
Disposals - - (555)
Depreciation (92) (1 055) (4 404)
Carrying value at 31 December 2012 377 1 564 7 657
2012 2011
R'000 R'000
6. Goodwill
Carrying value at the beginning of the year 41 280 41 205
Adjustment of purchase price - 75
Carrying value at the end of the year 41 280 41 280
7. Intangible assets
The carrying amounts of intangible assets can be reconciled as follows:
Computer
software
R'000
Carrying value at 1 January 2011 9 640
Additions 6 634
Amortisation (3 109)
Carrying value at 31 December 2011 13 165
Additions 8 594
Amortisation (4 535)
Carrying value at 31 December 2012 17 224
8. Segment reporting
The group's segmental analysis is based on the following five core business segments:
- Staffing and Recruitment comprises staff outsourcing which provides human resources to clients on both a short- and long-term basis,
recruitment and specialist staffing, which includes permanent and temporary placements, ad-response handling, executive search, call
centre staffing and importing and exporting of skills;
- Training and Consulting, which responds to market demands as a Private Further Education and Training ("FET") provider;
- Financial and Lifestyle Products, which offers a range of lifestyle products and support services to employees;
- Employee Health Management, which offers a comprehensive range of occupational and primary health management services; and
- Process Outsourcing, which focuses on delivering productive and functional business process outsourcing solutions, including the
statutory and legal elements associated therewith.
These operating segments, as further described in the accounting policies in the annual report, are monitored and strategic decisions
are made on the basis of adjusted segment operating results. The format in which segmental information is presented to the chief
operating decision-maker was changed, hence the format of the prior period numbers was changed. Furthermore income and expenses not
previously allocated have now been allocated across segments.
Segment information can be analysed as follows for the reporting periods under review:
Staffing Financial Employee
and Training and Health
Recruit- and Lifestyle Manage-
ment Consulting Products ment
R'000 R'000 R'000 R'000
2012
Segment revenues 1 360 103 39 613 50 088 23 513
Cost of sales (1 102 190) (10 405) (17 761) (9 580)
Operating costs (184 580) (33 186) (18 015) (12 449)
EBITDA 73 333 (3 978) 14 312 1 484
Depreciation and amortisation of non-financial assets (2 247) (1 286) (1 866) (177)
Segment operating profit 71 086 (5 264) 12 446 1 307
Capital expenditure 3 513 936 3 284 325
Segment total assets 288 171 4 982 97 403 5 901
Segment total liabilities (40 352) (3 009) (17 906) (1 403)
Net segment assets 247 819 1 973 79 497 4 498
Segment information can be analysed as follows for the reporting periods under review:
Process Consoli-
Outsour- Central dation
cing cost entries Total
R'000 R'000 R'000 R'000
2012
Segment revenues 47 109 - (21 991) 1 498 435
Cost of sales (33 700) - - (1 173 636)
Operating costs (13 165) (42 014) 21 991 (281 418)
EBITDA 244 (42 014) - 43 381
Depreciation and amortisation of non-financial assets (272) (3 091) - (8 939)
Segment operating profit (28) (45 105) - 34 442
Capital expenditure 306 3 659 - 12 023
Segment total assets 1 037 122 999 - 520 493
Segment total liabilities (598) (236 873) - (300 141)
Net segment assets 439 (113 874) - 220 352
Staffing Financial Employee
and Training and Health
Recruit- and Lifestyle Manage-
ment Consulting Products ment
2011
Segment revenues 1 221 993 29 264 45 386 21 285
Cost of sales (986 792) (5 479) (12 264) (8 318)
Operating costs (177 916) (21 458) (14 542) (11 054)
EBITDA 57 285 2 327 18 580 1 913
Depreciation and amortisation of non-financial assets (2 630) (1 236) (1 334) (123)
Segment operating profit 54 655 1 091 17 246 1 790
Capital expenditure 2 767 466 3 971 91
Segment total assets 250 444 11 112 75 194 3 992
Segment total liabilities (65 929) (1 693) (2 131) (897)
Net segment assets 184 515 9 419 73 063 3 095
Process Consoli-
Outsour- Central dation
cing cost entries Total
2011
Segment revenues 41 010 - (10 377) 1 348 561
Cost of sales (26 733) - - (1 039 586)
Operating costs (12 761) (40 620) 10 377 (267 974)
EBITDA 1 516 (40 620) - 41 001
Depreciation and amortisation of non-financial assets (275) (2 096) - (7 694)
Segment operating profit 1 241 (42 716) - 33 307
Capital expenditure 133 3 602 - 11 030
Segment total assets 1 527 105 973 - 448 242
Segment total liabilities (149) (179 956) - (250 755)
Net segment assets 1 378 (73 983) - 197 487
No segmental information is provided in respect of geographical analysis as the group operates primarily in South Africa.
2012 2011
% %
9. Taxation
The tax rate for the year can be reconciled as follows:
Standard corporate tax rate 28,00 28,00
Adjusted for:
Non-deductible expenses 0,20 0,13
Tax allowances (22,44) (23,37)
Prior year tax losses now recognised (1,31) -
Prior year tax adjustments - 0,36
STC - 0,29
Unused tax losses 0,03 2,00
Effective tax rate 4,48 7,41
10. Earnings per share
Basic earnings per share
The earnings and weighted average number of ordinary shares used in the calculation of basic
earnings per share are as follows:
Profit attributable to equity shareholders of the parent company (R'000) 23 185 23 445
Weighted average number of ordinary shares in issue ('000) 225 630 225 630
Basic earnings per share (cents) 10,3 10,4
Diluted earnings per share
There are no potential dilutive shares therefore diluted earnings per share equates to basic
earnings per share.
Headline earnings per share
The earnings used in the calculation of headline earnings per share are as follows:
Profit attributable to equity shareholders of the parent company (R'000) 23 185 23 445
Headline earnings adjustment (R'000) 125 (50)
(Loss)/gain on disposal of property, plant and equipment 174 (69)
Tax effects of adjustments (49) 19
Total headline earnings (R'000) 23 310 23 395
Weighted average number of shares in issue ('000) 225 630 225 630
Headline earnings per share (cents) 10,3 10,4
11. Dividends
No dividends were declared relating to the period under review (2011: Nil).
12. Business combinations
No business combinations occurred during the period under review.
13. Related party transactions
The group, in the ordinary course of business, entered into various sale and purchase transactions with related parties.
13.1 Transactions with related parties
During the year the group entities entered into the following trading transactions with related parties that are not members of
the group:
2012 2011
R'000 R'000
11 Wellington Street Investments Proprietary Limited 4 392 4 063
Relationship: Director has significant influence
Type of transaction: Operating lease rentals paid
Vunani Capital Proprietary Limited 121 121
Relationship: Shareholder
Type of transaction: Designated advisers' fees
Hunts Attorneys 3 031 2 391
Relationship: Director with an interest in a legal practice - R S Katz
Type of transaction: Disbursements for advocates' fees paid
14. Contingent liabilities
Third party claims
Various legal claims were brought against the group during the year. Unless recognised as a liability, the directors consider these
claims to be unjustified and the probability that they will require settlement at the group's expense to be remote, since the claims are
not in accordance with either the contracts with the customers or normal business practices in the industry. This evaluation is
consistent with external independent legal advice.
Potential claims by third parties amount to R2 696 556 (2011: R1 739 248). The directors believe, based on past history, that the
likelihood of such claims being successful are minimal.
15. Directors' Commentary
The year ended December 2012 was a challenging year for Workforce and the human resources services sector as a whole. The macro
environment proved very challenging with protracted violent labour unrest which, at points, threatened the core of the current labour
relations and social systems.
Our industry is in a process of adapting to expected changes emanating from various proposed amendments to labour legislation. It has
been, and continues to be our view that the amendments will result in the further entrenchment of the staff outsourcing value
proposition - fostering greater flexibility and security within the three-dimensional employment relationships. We continue to embrace
these changes in the most innovative way so as to ensure that we are able to continue providing our clients with all the benefits
associated with the utilisation of flexible staffing.
As reported on in our 2011 report, the restructuring of our business into five focus areas comprising staffing and recruitment, financial
and lifestyle products, training and consulting, process outsourcing and employee health management, has yielded varying levels of
success; and 2012 has provided us with numerous lessons learned which we will build on and look to capitalise on during 2013.
Operational and financial review
The year under review produced average results with some segments performing better than expectation, while others performed below
management expectation. Group revenue of R1,5 billion (FY2011: R1,35) was 11% ahead of the prior year while earnings per share of 10,3
cents (FY2011: 10,4 cents) was 1% down on last year.
Operating costs increased by 5%. The results saw an increase in EBITDA to R43,4 million (FY2011: R41 million) representing an increase
of 5,9%.
Working capital management and debtors remained a management focus area - average Debtors Days Outstanding decreased to 56 days from
58 days in 2011. The group's debt to equity ratio of 0,91 was slightly higher than the previous year of 0,85, which management believe
is acceptable at current levels of trading.
Staffing and recruitment
The staffing and recruitment segment of the group showed strong growth. Revenue increased by 11,5% to R1,36 billion. This was matched
by a 28% increase in EBITDA to R73,4 million. This was achieved as a result of tight management of operating costs which increased
marginally by 3,7%.
The staff outsourcing segment of the business showed strong market share growth specifically within the industrial blue collar segments.
Investment in business development skills over the past three years is fuelling this growth. The group's objective of protecting and
growing market share within its core segments will continue to receive primary focus.
Workforce Staffing added an additional three branches during the year, bringing our national footprint to 49 branches. Further
development has also taken place in Lesotho and Mozambique - with established infrastructure across these territories. Plans are
currently in place to establish a presence in Zimbabwe.
Skills shortages within the white collar segment of industry remained a challenge and our niche businesses within this segment were
able to capitalise on these opportunities. Telebest group performed above expectation and contributed a material increase in EBITDA of
R7,8 million, (FY2011: R2,3 million). Albrecht Nursing Agency extended its reach through the establishment of branches in the Gauteng
and Kwazulu-Natal regions.
Training and consulting
Training and skills development is a national priority in our country and the group's training subsidiary is well positioned to respond
to market demands. Training Force has undergone a major restructure which has included a reorganisation of executive management,
further decentralisation of operating units and operational cost reductions. These changes, we believe, will result in a more
sustainable business model delivering greater profitability and greater focus on the client's value proposition. The challenges
experienced during 2012 resulted in negative EBITDA of R4,0 million.
Financial and lifestyle products
The group's wholly owned subsidiary, Babereki Employee Support Services and its trading division Dreams Direct, provides a range of
lifestyle products and services to employees. Babereki has become an important contributor to the group's earnings. The business is
extremely reliant on system integration and development and 2012 saw the roll out of our third generation systems enabling more
efficient control of credit granting and collection processes. The business reported a decrease in EBITDA of 23% to R14,3 million. This
was primarily as a result of increased operational overheads specifically in the area of risk management and collections. Added to this,
additional resources have been employed to bolster the current system development team's capability.
Employee health management
Workforce Healthcare is making slow progress in developing and growing its market share. Organisations are becoming more sensitised to
the importance of workplace wellness and the impact that early identification and management of risk has on increasing productivity,
reducing absenteeism and positively influencing the wellbeing of their employees when managed correctly. Wellness and assistance
programmes are currently provided to approximately 26 500 employees nationally. In addition to this, the division also provides
employers with a comprehensive range of occupational and primary health management services, with some 53 500 medicals conducted during
2012 through its network of 42 on-site clinics. Revenue increased by 10,5% to R23,5 million. This benefit associated with this increase
was absorbed by an increase in operating expenditure of 12,6% which resulted in a marginal decrease in EBITDA to R1,5 million for year
ended 2012. Management believe that with continued focus, progress in gaining market share will be achieved in the forthcoming year.
Process outsourcing
The group's process outsourcing segment, managed to increase revenue by 14,9% to R47,1 million. However gross margins fell by 6,3% as
a result of increased competition, specifically in the Programmed Construction business. EBITDA decreased by R1,2 million resulting in
a close to break-even result for the year. Management are currently reviewing the operations of the respective businesses in this
segment and a refocused strategy will be implemented during 2013, which will see this segment return to profitability.
Sustainability
We are committed to effective risk management and recognise the importance of this to our sustainability. Material issues and risks get
identified through a rigorous process of interaction with a broad range of stakeholders across our organisation. This strategy is driven
from the bottom to top and vice-versa which gives us a deep understanding of various risks across our business.
Strategy
The group's integrated value proposition involves aligning and integrating our diverse yet interdependent businesses to create a
seamless solution for our clients. Our competitive advantage is our ability to execute on this value proposition utilising our
technology and systems. We enable this through a decentralised business model - which we believe gives us greater exposure to our
various markets. This model has been deployed across all of our businesses with varying degrees of success. Key imperatives which make
this model sustainable include: developing an innovative and entrepreneurial culture across the organisation; maintaining deep areas
of knowledge and specialisation of and within markets; being able to offer diversified yet integrated products and services; and,
developing depth in both general and operational management. These key imperatives will form the basis of delivering on our strategic
objectives.
Liquidity
The group will continue to focus on its liquidity management and through various initiatives will look to enhance processes and systems
that are already in place. Liquidity as measured by the current ratio is 1,54 - management believe however that this needs to improve
in order to enable the group to take advantage of market opportunities as they present themselves. The group's net financing charge
increased to R9,8 million from R7,4 million the previous year. This is predominantly as a result of increased turnover and investment
in debtors. In addition to this, Babereki secured its own ring-fenced funding structure which has added to the cost.
Technology
Technology is at the forefront of enabling us to provide our clients with value over and above our competitors. Our ongoing investment
in employer-centric technology is driven through our internal development teams who typically have a deep understanding of the various
businesses and their respective requirements. Various new developments have been piloted for full roll out during 2013. This includes
our proprietary system, Worktrac Zone which among others, enables clients to optimise work processes and staffing requirements across
multiple sites and categories of staff.
Regulation
Indications are that government will continue to press on with its law reforms this year with the clear intention to finalise the
amendment processes by the end of the year; this specifically includes the amendments to the Basic Conditions of Employment Act, Labour
Relations Act, Employment Equity Act and the new Employment Services Bill. Whilst the introduction of these laws will place its own
demand on the group's internal requirements, the reality is that the group is awaiting the introduction of these amendments with
certain eagerness. The nature of the amendments is such that it will create a need for the services of the group which will give the
group further development opportunities.
Workforce has over the last year continued with its programme to develop forward thinking systems, improve skills development and find
cost effective ways to increase production. Its current development has placed Workforce in the lead when it comes to the ability to
assist its clients to successfully adapt to the changes that businesses will be required to meet over the coming year.
Outlook
The group is confident that its current strategy will result in the achievement of its stated objectives. Continued investment in people
and systems has proven to be the primary driver of success in its core business. This will continue and will be augmented by additional
investment. Legislative challenges are being addressed both strategically and operationally and the group is well prepared for these
changes. We look forward to a challenging yet rewarding 2013.
Directorate
There have been no changes to the board during the period under review.
Annual General Meeting
The company's annual general meeting will be held at 11 Wellington Road, Parktown, Johannesburg on Thursday, 10 May 2013 at 10:00.
The financial statements for the year ended 31 December 2012, incorporating a notice of annual general meeting, will be mailed to all
shareholders on or about 28 March 2013.
For and on behalf of the board
RS Katz
(Executive chairman)
LH Diamond
(Chief executive officer)
WP van Wyk
(Group financial director)
Johannesburg
27 March 2013
Executive directors
RS Katz, LH Diamond, WP van Wyk
Non-executive directors
NM Anderson, JR Macey*, L Letlape*, K Vundla*
* Independent.
Designated Adviser
Merchantec Capital
Company secretary
Sirkien Van Schalkwyk
Registered office
The registered office, which is also its principal place of business, is 11 Wellington Road, Parktown, 2193
Transfer secretaries
Link Market Services South Africa Proprietary Limited
Auditors
Horwath Leveton Boner
Date: 27/03/2013 03:07:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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