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Unaudited interim results for the six months ended 31 March 2013
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")
Unlocking the power of people in the world of work!
Unaudited interim results
for the six months ended 31 March 2013
HIGHLIGHTS
Sale of USA operations raises $11 million to focus on
South African operations
South African operations generate R22 million positive
cash flow for the half-year driven by cost savings across
the business
Turnaround in operating profit for South African businesses
from a loss of R6 million to a profit of R4,8 million
COMMENTS
OPERATIONAL REVIEW
Despite ongoing challenges in the employment industry, the period under review yielded much improved financial results
compared to the previous financial year. These challenges resulted in a 3,8% decline in SA based revenue, yet Group
consolidated earnings before interest and tax (EBIT) (including the USA operations for the period under review) improved
from R0,6 million a year ago to R13,2 million this year.
The pending sale of the USA business requires the Group to disclose it as a "discontinued operation" despite it remaining
part of the Group until the transaction is finally consummated during the second half of the financial year. The results
from this operation are thus separately disclosed from the remaining operations of the Group. However, despite these
accounting requirements, management is pleased with the overall turnaround in the Group from an after tax loss of
R13 million in 2012 to a profit after tax in 2013. The USA operation continued to grow revenue in ZAR terms and
increased its EBIT contribution to the Group by 28% compared to 2012.
Working capital management and debt collection remain a high priority for the Group. These were well managed and
underpinned by good client relationships and accurate invoicing procedures, resulting in the "Days Sales Outstanding"
(DSO) improving from 36 days to 31 days.
Cash generated from operations for the first six months of the financial year amounted to R22,0 million, compared to
R16,5 million for the full financial year of 2012, and R1,1 million for the comparative six months last year.
The effective tax rate was adversely affected by a company within the Group not recognising an increase in the value
of its deferred tax asset. The entity benefits from learnership allowances, and has generated a substantial tax loss.
Had this amount been recognised, the beneficial impact on the tax charge would have been R2,0 million for the period
under review.
Discontinued operations
The Group's USA-based subsidiaries, M Squared Consulting Inc. ("M Squared") and Collabrus Inc. ("Collabrus"), performed
well in tough market conditions. Despite the loss of a significant client, the business improved on its 2012 half-year
performance, and was assisted by a weaker ZAR/USD exchange rate. Revenue increased by 13,1% in ZAR terms, but
the business also suffered from margin compression which exerted pressure on its gross profit. The improved revenue
translated to operating profit of R8,4 million and profit after tax of R4,8 million.
Dividend
No dividend declaration is proposed.
Events after the reporting period
On 10 April 2013 Kelly Group finalised an agreement in terms of which it will sell its entire equity interest in its USA
operations, comprising M Squared and Collabrus. The Group currently has a strategy of focusing on core activities and
the sale of the USA operations will allow it to focus on the growth and expansion of activities in South Africa. The closing
date of the transaction is estimated to be towards the end of July 2013. The purchase consideration is an amount
equal to $11 million, adjusted for certain cash and working capital requirements and following the fulfilment of a number
of conditions precedent. The sale proceeds will be applied towards the repayment of debt, funding working capital
requirements, and the furthering of investment in South African businesses.
On 30 April 2013, the Group extended its debtors' securitisation funding programme with Investec Bank Limited on
amended terms. The new structure should result in finance cost savings estimated to be in the region of R3 million per
annum.
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 accordance with the
requirements of the Companies Act of South Africa, the Listings Requirements of the JSE Limited, the SAICA Financial
Reporting Guides as issued by the Accounting Practice Committee and Financial Reporting Pronouncements as
issued by the Financial Reporting Standards Council. These financial results have been prepared under the supervision
of Lionel Wilson CA (SA), the Group financial director. The Group's independent auditors have not audited or reviewed
the Group's results.
Accounting policies
The same accounting policies, presentation and measurement principles have been followed in the preparation of the
condensed financial information for the six months ended 31 March 2013 as were applied in the preparation of
the Group's annual financial statements for the year ended 30 September 2012.
Changes to directors
The Group welcomed Rex Tomlinson as a new non-executive director on 14 December 2012. Ferdinand Pieterse
resigned from the Group effective 28 February 2013.
Prospects
It is expected that industry conditions will remain tough for the remainder of the financial year. The Board is confident that
the current strategy will assist the Group in recovering its market position and profitability over time.
For and on behalf of the board
MM Ngoasheng GJ Tindall
Chairman Chief executive
22 May 2013
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Restated1 Restated1
Unaudited Unaudited Audited
six months six months 12 months
31 March 31 March 30 Sept
R'000 Note 2013 2012 % change 2012
CONTINUING OPERATIONS
Revenue 2 695 497 723 302 (4) 1 440 479
Cost of sales (550 791) (566 809) (1 131 797)
Gross profit 144 706 156 493 (8) 308 682
Operating expenses (134 349) (154 858) (305 722)
Earnings before interest, tax, depreciation
and amortisation (EBITDA) 10 357 1 635 533 2 960
Depreciation and amortisation (5 559) (7 598) (14 541)
Operating profit/(loss) 4 798 (5 963) 180 (11 581)
Impairments (261) (851) (14 588)
Fair value adjustment to deferred consideration
on acquisition 1 964
Profit on sale of controlling interest in subsidiary 6 692
Share of net gains/(losses) from joint ventures 60 (38) 241
Profit/(loss) before financing costs 6 561 (6 852) 196 (19 236)
Finance income 2 341 2 024 4 326
Finance costs (10 635) (10 778) (21 786)
Loss before taxation (1 733) (15 606) 89 (36 696)
Taxation 3 (2 596) (1 202) (4 507)
Loss for the period from continuing operations (4 329) (16 808) 74 (41 203)
DISCONTINUED OPERATIONS
Profit for the period from discontinued operations 4 4 845 3 802 13 049
PROFIT/(LOSS) FOR THE PERIOD 516 (13 006) 104 (28 154)
Attributable to owners of the parent 423 (12 560) (27 059)
Attributable to non-controlling interests 93 (446) (1 095)
Other comprehensive income/(loss) 4 827 (1 005) 1 910
Total comprehensive income/(loss)
for the period 5 343 (14 011) 138 (26 244)
Attributable to owners of the parent 5 250 (13 565) (25 149)
Attributable to non-controlling interests 93 (446) (1 095)
EARNINGS/(LOSS) PER SHARE (CENTS)
Basic and diluted earnings/(loss)
Loss from continuing operations (4,5) (16,6) 73 (40,7)
Profit from discontinued operations 4,9 3,9 27 13,2
Total 0,4 (12,7) 104 (27,5)
Basic and diluted headline
earnings/(loss)
Loss from continuing operations (4,5) (16,0) 72 (39,1)
Profit from discontinued operations 4,9 3,9 27 13,3
Total 0,4 (12,1) 104 (25,8)
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unaudited Unaudited Audited
31 March 31 March 30 Sept
R'000 Note 2013 2012 2012
ASSETS
Non-current assets 211 757 244 836 219 848
Property and equipment 8 571 12 871 11 278
Goodwill 21 338 25 346 21 338
Trademarks 92 131 95 175 92 131
Other intangible assets 37 824 60 302 40 527
Investments in joint ventures and associate 902 563 842
Loan to associate 10 078 9 661
Deferred taxation 3 40 913 50 579 44 071
Current assets 285 860 372 865 380 628
Inventories 819 1 720 903
Loans to joint ventures and associate 14 005 18 447 13 974
Trade and other receivables 173 581 252 174 254 665
Taxation 724 4 371 446
Cash and cash equivalents 96 731 96 153 110 640
Assets included in disposal group classified
as held for sale 4 97 578
TOTAL ASSETS 595 195 617 701 600 476
EQUITY AND LIABILITIES
Capital and reserves 227 881 235 136 227 403
Share capital and share premium 305 779 305 779 305 779
Accumulated loss (86 578) (72 502) (87 001)
Other components of equity 8 680 1 477 4 759
Attributable to owners of the parent 227 881 234 754 223 537
Non-controlling interests 382 3 866
Non-current liabilities 6 075 161 670 13 686
Interest-bearing borrowings 5 252 150 579 435
Provisions 547 9 039 6 923
Trade and other payables 3 482 4 038
Deferred taxation 1 794 2 052 2 290
Current liabilities 315 346 220 895 359 387
Interest-bearing borrowings 5 152 950 2 403 152 700
Loans from joint ventures, associate and
discontinued operations 5 569 3 157 58
Provisions 2 089 9 089 6 800
Accruals for staff benefits 36 427 53 002 58 616
Trade and other payables 94 265 107 337 118 527
Taxation 2 865 7 057 1 222
Bank overdraft 21 181 38 850 21 464
Liabilities included in disposal group classified
as held for sale 4 45 893
TOTAL EQUITY AND LIABILITIES 595 195 617 701 600 476
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Restated1 Restated1
Unaudited Unaudited Audited
six months six months 12 months
31 March 31 March 30 Sept
R'000 Note 2013 2012 2012
Loss before taxation from continuing operations (1 733) (15 606) (36 696)
Adjustments 13 089 18 746 42 111
Cash from operations before working capital changes 11 356 3 140 5 415
Net changes in working capital and other movements 10 632 (2 003) 11 038
Cash generated by operations 21 988 1 137 16 453
Net financing costs (8 294) (8 754) (17 460)
Dividends paid (118) (360) (706)
Taxation (paid)/received (2 862) 4 844 492
Cash flows from operating activities 10 714 (3 133) (1 221)
Cash flows from investing activities (7 478) (7 815) 11 286
Cash flows from financing activities 67 904 1 058
Net increase/(decrease) in cash and cash equivalents
from continuing operations 3 303 (10 044) 11 123
Net increase/(decrease) in cash and cash equivalents
from discontinued operations 4 2 666 (5 080) 3 502
Cash flows from operating activities 3 840 (3 880) 5 408
Cash flows from investing activities (1 174) (1 200) (1 906)
Cash flows from financing activities
Foreign translation difference on offshore cash
related to discontinued operations 2 867 (760) 1 364
Net cash and cash equivalents at the beginning of the period 89 176 73 187 73 187
Net cash and cash equivalents at the end of the period 98 012 57 303 89 176
Included in the statement of financial position 75 550 57 303 89 176
Included in disposal group classified as held for sale 22 462
RECONCILIATION OF HEADLINE EARNINGS/(LOSS)
Restated1 Restated1
Unaudited Unaudited Audited
six months six months 12 months
31 March 31 March 30 Sept
R'000 Note 2013 2012 2012
CONTINUING OPERATIONS
Attributable loss for the period (4 422) (16 362) (40 108)
Loss on disposed property and equipment (net of tax) 1 173 546
Impairment of goodwill, trademarks and other intangibles (net of tax) 447 7 741
Profit on sale of controlling interest in subsidiary (6 692)
Headline loss (4 421) (15 742) (38 513)
DISCONTINUED OPERATIONS 4
Attributable profit for the period 4 845 3 802 13 049
Loss on disposed property and equipment (net of tax) 11 12
Headline earnings 4 845 3 813 13 061
Total headline earnings/(loss) 424 (11 929) (25 452)
RECONCILIATION OF SHARES ISSUED
Unaudited Unaudited Audited
six months six months 12 months
31 March 31 March 30 Sept
R'000 2013 2012 2012
Shares in issue 100 000 100 000 100 000
Treasury shares (1 558) (1 558) (1 558)
Closing balance 98 442 98 442 98 442
Weighted average number of shares before treasury shares 100 000 100 000 100 000
Weighted average number of treasury shares (1 558) (1 558) (1 558)
Weighted average number of shares after treasury shares 98 442 98 442 98 442
Dilutive effects of equity-settled share reserve 170 34
Fully diluted weighted average number of shares
after treasury shares 98 612 98 442 98 476
STATEMENT OF CONDENSED CONSOLIDATED CHANGES IN EQUITY
Share capital Foreign currency Equity due to Share-based Non-
and share translation change in control payment Accumulated controlling
R'000 premium reserve of interests reserve loss Sub-total interests Total
Balance at 1 October 2011 305 779 14 923 (18 038) 4 296 (59 942) 247 018 1 188 248 206
Share-based payment reserve 1 301 1 301 1 301
Total comprehensive loss for the period (1 005) (12 560) (13 565) (446) (14 011)
Dividends paid (360) (360)
Balance at 31 March 2012 305 779 13 918 (18 038) 5 597 (72 502) 234 754 382 235 136
Disposal of controlling interest in subsidiary 4 479 4 479
Share-based payment reserve 367 367 367
Total comprehensive loss for the period 2 915 (14 499) (11 584) (649) (12 233)
Dividends paid (346) (346)
Balance at 30 September 2012 305 779 16 833 (18 038) 5 964 (87 001) 223 537 3 866 227 403
Acquisition of non-controlling interests in subsidiaries (1 863) (1 863) (3 841) (5 704)
Share-based payment reserve 957 957 957
Total comprehensive income for the period 4 827 423 5 250 93 5 343
Dividends paid (118) (118)
Balance at 31 March 2013 305 779 21 660 (19 901) 6 921 (86 578) 227 881 227 881
CONDENSED CONSOLIDATED SEGMENTAL ANALYSIS
Revenue Operating profit Total assets Total liabilities
six months ended 31 March six months ended 31 March at 31 March at 31 March
R'000 Note 2013 2012 2013 2012 2013 2012 2013 2012
Staffing, skills and value-added services 695 497 723 302 15 488 4 045 375 460 340 456 97 276 102 188
Central costs (10 690) (10 008) 122 157 193 339 224 145 234 198
Continuing operations 695 497 723 302 4 798 (5 963) 497 617 533 795 321 421 336 386
USA discontinued operations 4 278 634 246 368 8 433 6 604 97 578 83 906 45 893 46 179
Total 974 131 969 670 13 231 641 595 195 617 701 367 314 382 565
NOTES
1. Restatement
Half-year and full-year 2012 financial results have been restated to reflect IFRS 5 accounting treatment of the USA
operations. In accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations we have
recorded the USA operations as discontinued operations. Net income and losses from these activities have been
recorded on a separate line entitled "Profit for the period from discontinued operations" and have been restated in both
the Condensed Consolidated Statement of Comprehensive Income and Condensed Consolidated Statement of Cash
Flows for the periods under consideration.
2. Revenue Restated1 Restated1
Unaudited Unaudited Audited
six months six months 12 months
31 March 31 March 30 Sept
R'000 2013 2012 2012
Placement fees 32 186 35 064 64 783
Temporary staffing 598 033 624 734 1 238 090
Skills training 51 105 43 738 97 558
Other revenue 14 173 19 766 40 048
695 497 723 302 1 440 479
3. Taxation
The entity in the Group that benefits from learnership allowances, has generated a substantial tax loss. In line with the
decision taken in the prior year, the deferred tax asset has not been increased further on this entity. The value of the asset
not recognised at 31 March 2013 amounts to R21,3 million (31 March 2012: R7,8 million, 30 Sept 2012: R19,3 million),
which has effectively increased the tax charge by R2,0 million (31 March 2012: R7,8 million, 30 Sept 2012: R19,3 million).
4. Discontinued operations
During the period the board of directors approved the disposal of the Group's USA operations, in line with the strategy
to focus on its core South African businesses. The results of this segment are thus reported as discontinued operations
and the assets and liabilities allocable to it have been classified as held for sale. A sale agreement was finalised in
April 2013, which is expected to be completed by July 2013, and is subject to shareholders' approval.
The effect of the discontinued operations on the Group's financial performance in the current and comparative periods is:
Unaudited Unaudited Audited
six months six months 12 months
31 March 31 March 30 Sept
R'000 2013 2012 2012
Revenue 278 634 246 368 533 828
Gross profit 54 196 49 481 105 754
EBITDA 9 834 7 849 23 684
Operating profit 8 433 6 604 21 106
Profit before tax 8 498 6 669 21 237
Profit after tax 4 845 3 802 13 049
The carrying amounts of assets and liabilities in this disposal group are summarised as follows:
Unaudited
31 March
R'000 2013
Non-current assets 7 550
Property and equipment 1 995
Other intangible assets 2 403
Deferred taxation 3 152
Current assets 90 028
Intra-Group loan receivables 5 496
Trade and other receivables 60 578
Taxation 1 492
Cash and cash equivalents 22 462
Assets included in disposal group classified as held for sale 97 578
Non-current liabilities
Provisions 3 929
Current liabilities 41 964
Provisions 4 623
Accruals for staff benefits 10 401
Trade and other payables 26 940
Liabilities included in disposal group classified as held for sale 45 893
5. Interest-bearing borrowings Unaudited Unaudited Audited
31 March 31 March 30 Sept
R'000 2013 2012 2012
Debentures issued 152 548 151 677 152 177
Finance leases 654 1 305 958
153 202 152 982 153 135
On 30 April 2013, the Group extended its debtors' securitisation funding programme with Investec Bank Limited.
The existing R150 million of debentures were settled and replaced with R100 million of 18-month debentures and a
R50 million revolving credit note, both secured by South African trade receivables. The debentures bear interest at a fixed
rate of 8,26%, and the revolving credit note bears interest at a variable rate linked to prime.
Registered office: 6 Protea Place, corner Fredman Drive, Sandton
Company secretary: KH Fihrer
Transfer secretaries: Computershare Investor Services (Pty) Limited
Sponsor: PSG Capital
Auditors: Grant Thornton
Directors: MM Ngoasheng (Chairman), MW McCulloch (Deputy Chairman), GJ Tindall* (Chief Executive),
Y Dladla, MG Ilsley, B Ngonyama, CJ Roodt, RG Tomlinson, L Wilson* (Financial Director) * Executive
For more information contact:
www.kellygroup.co.za
Date: 22/05/2013 01:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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