Wrap Text
Condensed consolidated audited results for the year ended 30 September 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")
Condensed consolidated audited results
for the year ended 30 September 2013
HIGHLIGHTS
Profits attributable to shareholders of
R37.8 million
(2012: R27.1 million loss)
Headline earnings per share of
9.0 cents
(2012: 25.9 cents loss)
Strengthening of balance sheet through sale of US
operations for US$11 MILLION
Effective working capital management and tight cost control
DAYS SALES OUTSTANDING 29 DAYS VERSUS 32 DAYS
SA OVERHEADS DOWN R35.1 MILLION (11%) ON 2012
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Represented(1)
2013 2012 %
Note R'000 R'000 change
CONTINUING OPERATIONS
Revenue 2 1 422 637 1 440 479 (1)
Cost of sales (1 125 476) (1 131 797)
Gross profit 297 161 308 682 (4)
Operating expenses (274 523) (305 722)
Earnings before interest, tax, depreciation and
amortisation (EBITDA) 22 638 2 960 665
Depreciation and amortisation (10 658) (14 541)
Operating profit/(loss) 11 980 (11 581) 203
Fair value adjustments 2 040 –
Share of net profit from joint ventures and associate 87 241
Profit on sale of controlling interest in subsidiary – 6 692
Impairments 3 (35 109) (14 588)
Loss before net finance costs (21 002) (19 236) (9)
Finance income 4 878 4 326
Finance costs (18 724) (21 786)
Loss before taxation (34 848) (36 696) 5
Taxation 4 (3 360) (4 507)
Loss for the year from continuing operations (38 208) (41 203) 7
DISCONTINUED OPERATIONS
Profit for the year from discontinued operations 1 76 132 13 049
Profit/(loss) for the year 37 924 (28 154) 235
– Attributable to owners of the parent 37 831 (27 059)
– Attributable to non-controlling interests 93 (1 095)
Other comprehensive income/(loss)
– Exchange difference on translating foreign operations 7 646 1 910
– Foreign currency translation reserve recycled through
profit or loss 1 (24 479) –
Total comprehensive profit/(loss) for the year 21 091 (26 244) 180
– Attributable to owners of the parent 20 998 (25 149)
– Attributable to non-controlling interests 93 (1 095)
EARNINGS/(LOSS) PER SHARE (CENTS)
Basic attributable
Loss per share from continuing operations (38.9) (40.7) 5
Earnings per share from discontinued operations 77.3 13.2 483
Total earnings/(loss) per share 38.4 (27.5) 240
Basic headline
Loss per share from continuing operations (5.4) (39.1) 86
Earnings per share from discontinued operations 14.4 13.2 8
Total earnings/(loss) per share 9.0 (25.9) 135
Diluted attributable
Loss per share from continuing operations (38.7) (40.7) 5
Earnings per share from discontinued operations 77.0 13.2 481
Total earnings/(loss) per share 38.3 (27.5) 239
Diluted headline
Loss per share from continuing operations (5.4) (39.1) 86
Earnings per share from discontinued operations 14.4 13.3 8
Total earnings/(loss) per share 9.0 (25.8) 135
RECONCILIATION OF HEADLINE EARNINGS
Represented(1)
2013 2012
Note R'000 R'000
CONTINUING OPERATIONS
Loss attributable to owners of the parent (38 301) (40 108)
(Profit)/loss on disposed property, equipment and other intangibles (net of tax) (438) 546
Impairments (net of tax) 3 33 439 7 741
Profit on sale of controlling interest in subsidiary – (6 692)
Headline loss (5 300) (38 513)
DISCONTINUED OPERATIONS 1
Profit attributable to owners of the parent 76 132 13 049
Loss on disposed property, equipment and other intangibles (net of tax) – 12
Profit on sale of discontinued operations (37 496) –
Foreign currency translation reserve recycled through profit or loss (24 479) –
Headline earnings 14 157 13 061
Total headline earnings/(loss) 8 857 (25 452)
RECONCILIATION OF SHARES ISSUED
2013 2012
'000 '000
Basic
Shares in issue 100 000 100 000
Shares held as treasury shares (1 558) (1 558)
Weighted average 98 442 98 442
Diluted
Weighted average 98 442 98 442
Dilutive effect of equity-settled share reserve 447 34
Diluted weighted average 98 889 98 476
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
2013 2012
Note R'000 R'000
ASSETS
Non-current assets 158 778 219 848
Property and equipment 7 998 11 278
Goodwill 3 888 21 338
Trademarks 3 83 850 92 131
Other intangible assets 3 22 645 40 527
Interests in joint ventures and associate 3 929 10 503
Deferred taxation 4 42 468 44 071
Current assets 403 886 380 628
Inventories 1 547 903
Loans to joint ventures and associate 15 218 13 974
Trade and other receivables 188 159 254 665
Taxation 671 446
Cash and cash equivalents 5 198 291 110 640
TOTAL ASSETS 562 664 600 476
EQUITY AND LIABILITIES
Capital and reserves 244 642 227 403
Share capital and share premium 305 779 305 779
Accumulated loss (67 208) (87 001)
Other components of equity 6 071 4 759
Attributable to owners of the parent 244 642 223 537
Non-controlling interests – 3 866
Non-current liabilities 104 978 13 686
Interest-bearing borrowings 6 100 000 435
Provisions 80 6 923
Trade and other payables 2 882 4 038
Deferred taxation 2 016 2 290
Current liabilities 213 044 359 387
Interest-bearing borrowings 6 41 442 152 700
Loan from associate – 58
Provisions 1 300 6 800
Accruals for staff benefits 44 326 58 616
Trade and other payables 5 125 075 118 527
Taxation 901 1 222
Bank overdraft – 21 464
TOTAL EQUITY AND LIABILITIES 562 664 600 476
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Represented(1)
2013 2012
Note R'000 R'000
Loss before taxation from continuing operations (34 848) (36 696)
Adjustments 59 146 42 111
Cash from operations before working capital changes 24 298 5 415
Net changes in working capital and other movements 33 306 11 038
Cash generated from operations 57 604 16 453
Net finance costs (13 846) (17 460)
Dividends paid (118) (706)
Taxation (paid)/received (6 870) 492
Cash flows from/(to) operating activities 36 770 (1 221)
Cash flows from investing activities 84 678 11 286
Cash flows (to)/from financing activities (11 693) 1 058
Net increase in cash and cash equivalents from continuing operations 109 755 11 123
Net (decrease)/increase in cash and cash equivalents from
discontinued operations (640) 4 866
– Cash flows from operating activities (2 297) 5 408
– Cash flows from investing activities (2 996) (1 906)
– Forex translation difference on offshore cash related to discontinued operations 4 653 1 364
Net cash and cash equivalents at the beginning of the year 89 176 73 187
Net cash and cash equivalents at the end of the year 5 198 291 89 176
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 interest reserve loss Sub-total interests Total
Note R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000
Balance at 1 October 2011 305 779 14 923 (18 038) 4 296 (59 942) 247 018 1 188 248 206
Sale of controlling interest in subsidiary – – – – – – 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 1 October 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)
Transfer to distributable reserves on sale of discontinued operations 1 – – 18 038 – (18 038) – – –
Share-based payment reserve – – – 1 970 – 1 970 – 1 970
Total comprehensive profit for the year – (16 833) – – 37 831 20 998 93 21 091
Dividends paid – – – – – – (118) (118)
Balance at 30 September 2013 305 779 – (1 863) 7 934 (67 208) 244 642 – 244 642
CONDENSED CONSOLIDATED SEGMENTAL ANALYSIS
Revenue(1) Operating profit(1) Profit for the year(1) Total assets Total liabilities
2013 2012 2013 2012 2013 2012 2013 2012 2013 2012
R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000
Staffing, skills and value added services 1 422 637 1 440 479 33 572 12 135 27 327 10 955 422 638 368 950 134 375 109 324
Central costs – – (21 592) (23 716) (65 535) (52 158) 140 026 132 847 183 647 215 319
Continuing operations 1 422 637 1 440 479 11 980 (11 581) (38 208) (41 203) 562 664 501 797 318 022 324 643
Discontinued operations – USA – – – – 76 132 13 049 – 98 679 – 48 430
Total 1 422 637 1 440 479 11 980 (11 581) 37 924 (28 154) 562 664 600 476 318 022 373 073
NOTES
1. Discontinued operations and representation of 2012 financial results
During the year, the Group sold its US operations, in line with the strategy to focus on its core South African
businesses.
The 2012 financial results have been represented to reflect IFRS 5 – Non-current Assets Held for Sale and
Discontinued Operations – accounting treatment of the US operations. In accordance with IFRS 5 these operations
were recorded as discontinued operations. Net income and losses from these activities and the profit on sale of these
operations have been recorded on a separate line entitled "Profit for the year from discontinued operations" and
have been represented in both the Condensed Consolidated Statement of Comprehensive Income and Condensed
Consolidated Statement of Cash Flows for the years under consideration.
The effect of the discontinued operations on the Group's financial performance in the current and comparative years is:
2013 2012
R'000 R'000
Revenue 486 938 533 828
Gross profit 94 000 105 754
EBITDA 21 859 23 684
Operating profit 19 431 21 106
Profit before tax 19 544 21 237
Profit after tax 14 157 13 049
Profit for the year from discontinued operations:
2013 2012
R'000 R'000
Sales consideration (net of transaction costs) 115 037 –
Net book value of net assets derecognised on sale (77 541) –
Profit on sale 37 496 –
Profit after tax 14 157 13 049
Foreign currency translation reserve recycled through profit or loss 24 479 –
76 132 13 049
In addition to the above financial effects on the results, an amount of R18.0 million has been transferred from the
Equity due to change in control of interest reserve, to distributable reserves.
2. Revenue Restated(1)
2013 2012
R'000 R'000
Placement fees 60 905 64 783
Temporary staffing 1 217 239 1 238 090
Skills training 114 652 97 558
Other revenue 29 841 40 048
1 422 637 1 440 479
3. Impairments
The impairment charge includes the impairment of goodwill and trademarks amounting to R9.8 million (2012:
R7.0 million). This follows impairment testing, which is performed annually on all goodwill and trademark assets held
within the Group. The charge also includes the impairment of loan receivables to, and interests in, joint ventures and
associates amounting to R11.2 million (2012: R6.7 million). Additionally, other intangible assets were impaired by
R14.1 million (2012: R0.9 million).
4. Taxation
The entity in the Group that benefits from learnership allowances, has generated a substantial tax loss. Management
have recognised a deferred tax asset relating to unused tax losses to the extent that they are considered to be
probable to be offset against the Group's taxable profit expected to arise in the future. The value of the asset not
recognised at 30 September 2013 amounts to R33.3 million (2012: R19.3 million), which has effectively increased
the tax charge by R14.0 million (2012: R19.3 million).
5. Cash and cash equivalents and trade and other payables
The Group holds cash on behalf of third parties, and is reported as follows:
2013 2012
R'000 R'000
Included in cash and cash equivalents 34 138 12 612
Less: Included in trade and other payables (34 138) (12 612)
Net effect on the Group – –
6. Interest-bearing borrowings
2013 2012
R'000 R'000
Debentures 100 000 152 177
Revolving credit note 41 380 –
Finance leases 62 958
141 442 153 135
Debentures and a revolving credit note have been issued to Investec Bank Limited, and comprise R100 million of
18-month debentures that are repayable on 31 October 2014, and a R40 million revolving credit note (being the
utilised portion of an available R50 million revolving credit note facility). The debentures bear interest at an effective
fixed rate of 10.1% per annum (adjusted for structuring fees), and the revolving credit note bears interest at a variable
rate linked to prime. The instruments are secured by a cession of South African trade receivables amounting to
R162 million (2012: R164 million).
COMMENTS
Performance overview
Kelly Group is pleased to advise that the turnaround strategy implemented under current management is now starting to
yield benefits as reflected in the improved year-on-year results of the Group. Profits attributable to shareholders reverted
from a prior year loss to a profit of R37.8 million for the year and, after adjusting for capital profits and losses, the Group
returned headline profits of 9.0 cents per share (2012: 25.9 cents loss). Management is cognisant that industry conditions
remain challenging and much is still needed to be achieved to restore the market position and profitability of the Group.
The Group concluded the strategic sale of its US operations for US$11 million during the course of the year and the
balance of this commentary is therefore focused on the continuing SA operations.
Notwithstanding continued pressures on revenues and margins across the SA staffing businesses, there are encouraging
signs of good revenue growth on Kelly's large corporate accounts resulting from improved servicing strategies. These
strategies are now being rolled out to the next tier of clients. The blue collar businesses, InnStaff and Kelly Industrial,
continued to grow and both businesses reported improved results, despite this area of the labour market being
characterised by unrest and strikes. Torque IT, the Group's skills development arm, once again reported solid results.
Accountants On Call, Frontline Recruitment, PAG and Renwick Talent have undergone a brand consolidation and are
now part of Kelly, operating as Kelly Professional Assignments. This dedicated team is led by new management with a
renewed operational focus. This strategic decision resulted in the impairment of all the trademarks and goodwill
associated with these brands and was expensed during the year. In addition, the board decided to impair a number of
capitalised software items that no longer have value in use.
Major success was achieved in controlling overhead costs with the SA operations achieving a R35.1 million or 11% saving
in costs year-on-year. Continued focus on streamlining of processes, cost containment and working capital management
is a part of the Group's strategy going forward. Cash generated from operations continues to improve and despite the
challenging collection environment, the Group's DSO's improved to 29 days at year-end versus 32 days in the comparative
year. As a result, the SA operations reverted from a prior year loss to a R12.0 million operating profit for the year and cash
generated from operations increased substantially to total R57.6 million for the year.
Net finance costs totalled R13.8 million (2012: R17.5 million). The year-on-year reduction resulted from the restructuring
of the Group's funding in May 2013 and the receipt of the proceeds from the US sale in August 2013. These items will
benefit the full period in the next financial year.
The effective tax rate for the current period was negatively impacted by unrecognised deferred tax assets of R14.0 million
relating to taxable losses in parts of the Group.
Dividend
No dividend is proposed in order to execute on the stated strategy of investing and growing the South African business.
Basis of preparation
The preliminary 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 – Interim Financial Reporting. In addition they
have been prepared in accordance with the requirements of the Companies Act of South Africa, 2008, as amended, the
JSE Listings Requirements and the SAICA Financial Reporting Guides as issued by the Accounting Practices 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 directors of Kelly
take full responsibility for the preparation of the preliminary report and ensuring that the financial information has been
correctly extracted from the underlying annual financial statements. 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 auditors'
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 auditors' 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
preliminary condensed financial information for the year ended 30 September 2013 as were applied in the preparation of
the Group's annual financial statements for the year ended 30 September 2012, apart from the adoption of the
amendments to IAS 1 – Presentation of Items of Other Comprehensive Income.
Changes to directors
Rex Tomlinson joined the board on 14 December 2012. Babalwa Ngonyama previously tendered her resignation which
is effective 31 December 2013. Corrie Roodt and Malcolm McCulloch have tendered their resignations to be effective
from 31 December 2013. Their resignations are part of the process of rationalising the board and its committees and the
board thanks them for their lengthy service to the Group. Rex Tomlinson is appointed as the lead independent director
in place of McCulloch and Yvonne Dladla is appointed as a member of the Audit Committee in place of Roodt.
Prospects
The amendments to the Labour Relations Act were passed by the National Assembly in Parliament and the National
Council of Provinces, and are now awaiting signature by the Presidency. The effect of these amendments, which have
caused confusion in the marketplace, is difficult to quantify, but the expected industry consolidation should be positive
for the Group. Notwithstanding the uncertain and challenging environment, there is evidence that the Group's turnaround
strategy is working and management is firmly focused on restoring the Group's market position and profitability.
For and on behalf of the board
MM Ngoasheng GJ Tindall
Chairman Chief Executive
27 November 2013
Registered office: 6 Protea Place, corner Fredman Drive, Sandton
Transfer secretaries: Computershare Investor Services Proprietary Limited
Sponsor: PSG Capital
Auditors: Grant Thornton
Directors: MM Ngoasheng (Chairman), MW McCulloch (Lead Independent Director), GJ Tindall* (Chief Executive), Y Dladla, MG Ilsley, B Ngonyama, CJ Roodt, RG Tomlinson and L Wilson* (Financial Director) *Executive
Company secretary: KH Fihrer
Our website is regularly updated to supply you with the latest information on the company.
www.kellygroup.co.za
Date: 27/11/2013 12:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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