Unaudited interim results for the six months ended 31 March 2014 KELLY GROUP LIMITED ("Kelly Group" or "the Group" or "Kelly") (Incorporated in the Republic of South Africa) Registration number: 1999/026249/06 Share code: KEL ISIN: ZAE000093373 Unaudited interim results for the six months ended 31 March 2014 HIGHLIGHTS Turnaround strategy delivering results: - Revenue +13% to R786.3 million - Operating profit +117% to R10.4 million - Headline EPS up to 5.7 cents COMMENTS Performance overview Kelly Group is pleased to report significantly improved results for the six months ending 31 March 2014. The results highlight the positive impact of the new strategy implemented over the past two years and are a pleasing reward for management's efforts. Net profit for continued operations increased to R6.2 million from a loss of R4.3 million for the comparative period. Group consolidated revenue for the year increased by 13% to R786.3 million largely as a result of the 31% increase in "Blue Collar" revenues with the "White Collar" divisions managing to maintain revenue levels in a tough and competitive market. As a result of the shift in business mix, the gross margin declined from 20.8% to 19.0%. Efforts to manage and curtail costs continued; for the period under review, operating costs were below the comparative period despite inflationary pressures. Focus on telecoms and IT related expenses continue to bear fruit and manpower costs are closely monitored to ensure that the largest expenses in the Group are managed appropriately. The combined effect resulted in operating profit of R10.4 million, up 117% on the R4.8 million for the comparative period last year. Net finance charges of R2.2 million were incurred, down from R8.3 million in the previous period. The decrease is attributable to improved cash flow management, a reduction in the use of overdraft facilities, and the receipt of the USA sale proceeds. Profit before tax improved to R8.2 million from a loss of R1.7 million for the comparative period last year. During the period under review the Group finalised the acquisition of Anglo African Outstaffing (Pty) Ltd, and the results of the acquisition were consolidated into the Group's results effective 1 March 2014. In an extremely tough collections environment, "Days Sales Outstanding" (DSO) increased from 29 at year-end to 33 at the end of March 2014. The group has a strong balance sheet with cash balances of R147 million at 31 March 2014. Interest bearing borrowings reduced from R141 million to R101 million over the reporting period. Events after the reporting period Shareholders are referred to the cautionary announcements issued regarding the receipt of non-binding expressions of interest to acquire 100% of Kelly Group and the related discussions currently being pursued by Kelly Group's independent board of directors with Adcorp. Dividend No interim dividend declaration is proposed to be paid. This position will be reviewed at year end. 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, the SAICA Reporting Guides as issued by the Accounting Practices Committee and the Financial Reporting Pronouncements as issued by the Financial Reporting Accountants Council. 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 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 2014 as were applied in the preparation of the Group's annual financial statements for the year ended 30 September 2013. Changes to directors The Group welcomed Josta Nkosi as anˆ executive director on 1 April 2014. Cornelius Roodt, Babalwa Ngonyama and Malcolm McCulloch resigned from the Group effective 31 December 2013, and are thanked for their past contribution as non-executive directors on the board. Prospects The turnaround strategy implemented by the current management team over the past two years is beginning to deliver results as evidenced by the 13% revenue growth and 117% improvement in operating profits for the current period. The Group is focused on building on this improvement in the second half of the year. For and on behalf of the board MM Ngoasheng GJ Tindall Chairman Chief executive 28 May 2014 CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Unaudited Unaudited Audited six months six months 12 months 31 March 31 March 30 Sept R'000 Note 2014 2013 % change 2013 CONTINUING OPERATIONS Revenue 1 786 267 695 497 13 1 422 637 Cost of sales (637 101) (550 791) (1 125 476) Gross profit 149 166 144 706 3 297 161 Operating expenses (133 983) (134 349) (274 523) Earnings before interest, tax, depreciation and amortisation (EBITDA) 15 183 10 357 47 22 638 Depreciation and amortisation (4 775) (5 559) (10 658) Operating profit 10 408 4 798 117 11 980 Impairments – (261) (35 109) Fair value adjustment to deferred consideration on acquisition – 1 964 2 040 Share of net (loss)/profit from joint ventures (18) 60 87 Profit/(Loss) before financing costs 10 390 6 561 58 (21 002) Finance income 3 826 2 341 4 878 Finance costs (6 043) (10 635) (18 724) Profit/(Loss) before taxation 8 173 (1 733) 572 (34 848) Taxation 2 (1 974) (2 596) (3 360) Profit/(Loss) for the period from continuing operations 6 199 (4 329) 243 (38 208) DISCONTINUED OPERATIONS Profit for the period from discontinued operations 3 – 4 845 76 132 PROFIT FOR THE PERIOD 6 199 516 1 101 37 924 – Attributable to equity holders of the parent 6 152 423 37 831 – Attributable to non-controlling interests 47 93 93 Other comprehensive income/(loss) – 4 827 (16 833) Total comprehensive income for the period 6 199 5 343 16 21 091 – Attributable to equity holders of the parent 6 152 5 250 20 998 – Attributable to non-controlling interests 47 93 93 EARNINGS/(LOSS) PER SHARE (CENTS) Basic earnings Earnings/(loss) per share from continuing operations 6.2 (4.5) 239 (38.9) Earnings per share from discontinued operations – 4.9 (100) 77.3 Total earnings per share 6.2 0.4 1 462 38.4 Basic headline earnings Earnings/(loss) per share from continuing operations 5.7 (4.5) 226 (5.4) Earnings per share from discontinued operations – 4.9 (100) 14.4 Total headline earnings per share 5.7 0.4 1 314 9.0 Diluted earnings Earnings/(loss) per share from continuing operations 6.2 (4.5) 238 (38.7) Earnings per share from discontinued operations – 4.9 (100) 77.0 Total diluted earnings per share 6.2 0.4 1 455 38.3 Diluted headline earnings Earnings/(loss) per share from continuing operations 5.6 (4.5) 225 (5.4) Earnings per share from discontinued operations – 4.9 (100) 14.4 Total diluted headline earnings per share 5.6 0.4 1 307 9.0 CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION Unaudited Unaudited Audited 31 March 31 March 30 Sept R'000 Note 2014 2013 2013 ASSETS Non-current assets 161 582 211 757 158 778 Property and equipment 8 972 8 571 7 998 Goodwill 2 973 21 338 888 Trademarks 83 850 92 131 83 850 Other intangible assets 23 395 37 824 22 645 Investments in joint ventures and associate 911 902 929 Loan to associate – 10 078 – Deferred taxation 2 41 481 40 913 42 468 Current assets 392 193 285 860 403 886 Inventories 1 782 819 1 547 Loans to joint ventures and associate 81 14 005 15 218 Trade and other receivables 242 799 173 581 188 159 Taxation 608 724 671 Cash and cash equivalents 146 923 96 731 198 291 Assets included in disposal group classified as held for sale 3 – 97 578 – TOTAL ASSETS 553 775 595 195 562 664 EQUITY AND LIABILITIES Capital and reserves 251 481 227 881 244 642 Share capital and share premium 305 779 305 779 305 779 Accumulated loss (61 056) (86 578) (67 208) Other components of equity 4 633 8 680 6 071 Attributable to equity holders of the parent 249 356 227 881 244 642 Non-controlling interests 2 125 – – Non-current liabilities 3 589 6 075 104 978 Interest-bearing borrowings – 252 100 000 Provisions – 547 80 Trade and other payables 1 518 3 482 2 882 Deferred taxation 2 071 1 794 2 016 Current liabilities 298 705 315 346 213 044 Interest-bearing borrowings 101 336 152 950 41 442 Loans from joint ventures, associate and discontinued operation 1 469 5 569 – Provisions 577 2 089 1 300 Accruals for staff benefits 45 135 36 427 44 326 Trade and other payables 148 743 94 265 125 075 Taxation 1 445 2 865 901 Bank overdraft – 21 181 – Liabilities included in disposal group classified as held for sale 3 – 45 893 – TOTAL EQUITY AND LIABILITIES 553 775 595 195 562 664 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS Unaudited Unaudited Audited six months six months 12 months 31 March 31 March 30 Sept R'000 Note 2014 2013 2013 Profit/(Loss) before taxation from continuing operations 8 173 (1 733) (34 848) Adjustments 7 539 13 089 59 146 Cash from operations before working capital changes 15 712 11 356 24 298 Net changes in working capital and other movements (17 942) 10 632 33 306 Cash (utilised)/generated by operations (2 230) 21 988 57 604 Net financing costs (2 217) (8 294) (13 846) Dividends paid – (118) (118) Taxation paid (447) (2 862) (6 870) Cash flows from operating activities (4 894) 10 714 36 770 Cash flows from investing activities (6 367) (7 478) 84 678 Cash flows from financing activities (40 107) 67 (11 693) Net (decrease)/increase in cash and cash equivalents from continuing operations (51 368) 3 303 109 755 Net increase/(decrease) in cash and cash equivalents from discontinued operations 3 – 2 666 (5 293) – Cash flows from operating activities – 3 840 (2 297) – Cash flows from investing activities – (1 174) (2 996) – Cash flows from financing activities – – – Foreign translation difference on offshore cash related to discontinued operation – 2 867 4 653 Net cash and cash equivalents at the beginning of the period 198 291 89 176 89 176 Net cash and cash equivalents at the end of the period 146 923 98 012 198 291 – Included in the statement of financial position 146 923 75 550 198 291 – Included in disposal group classified as held for sale 3 – 22 462 – 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 R'000 premium reserve interests reserve loss Subtotal interests Total 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) 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 Transfer to distributable reserves on sale of discontinued operations – – 18 038 – (18 038) – – – Share-based payment reserve – – – 1 013 – 1 013 – 1 013 Total comprehensive loss for the period – (21 660) – – 37 408 15 748 – 15 748 Balance at 30 September 2013 305 779 – (1 863) 7 934 (67 208) 244 642 – 244 642 Non-controlling interest on acquisition of subsidiary – – – – – – 2 078 2 078 Share-based payment reserve – – – 1 162 – 1 162 – 1 162 Total comprehensive income for the period – – – – 6 152 6 152 47 6 199 Acquisition of non-controlling interest option – – (2 600) – – (2 600) – (2 600) Balance as at 31 March 2014 305 779 – (4 463) 9 096 (61 056) 249 356 2 125 251 481 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 2014 2013 2014 2013 2014 2013 2014 2013 Staffing, skills and value added services 786 267 695 497 22 421 15 488 511 110 375 460 127 077 97 276 Central costs – – (12 013) (10 690) 42 665 122 157 175 217 224 145 Continuing operations 786 267 695 497 10 408 4 798 553 775 497 617 302 294 321 421 USA – discontinued operations 3 – 278 634 – 8 433 – 97 578 – 45 893 Total 786 267 974 131 10 408 13 231 553 775 595 195 302 294 367 314 RECONCILIATION OF HEADLINE EARNINGS/(LOSS) Unaudited Unaudited Audited six months six months 12 months 31 March 31 March 30 Sept R'000 Note 2014 2013 2013 CONTINUING OPERATIONS Attributable profit/(loss) for the period 6 152 (4 422) (38 301) (Profit)/Loss on disposed property and equipment (net of tax) (585) 1 (438) Impairments (net of tax) – – 33 439 Headline profit/(loss) 5 567 (4 421) (5 300) DISCONTINUED OPERATIONS 3 Attributable profit for the period – 4 845 76 132 Profit on sale of discontinued operations – – (37 496) Foreign currency translation reserve recycled through profit or loss – – (24 479) Headline earnings – 4 845 14 157 Total headline earnings 5 567 424 8 857 RECONCILIATION OF SHARES ISSUED Unaudited Unaudited Audited six months six months 12 months 31 March 31 March 30 Sept '000 2014 2013 2013 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 446 170 447 Fully diluted weighted average number of shares after treasury shares 98 888 98 612 98 889 NOTES 1. Revenue Unaudited Unaudited Audited six months six months 12 months 31 March 31 March 30 Sept R'000 2014 2013 2013 Placement fees 28 400 32 186 60 905 Temporary staffing 689 529 598 033 1 217 239 Skills training 54 286 51 105 114 652 Other revenue 14 051 14 173 29 841 786 267 695 497 1 422 637 2. Taxation The main Kelly operating entity has generated significant accumulated tax losses as a result of past trading losses and substantial special tax deductions for learnership allowances. A decision was made in the 2012 financial year not to increase the related deferred tax asset recognised in the group balance sheet. In the current period, the group has benefitted from R1.8 million of tax relief against the unrecognised portion of the deferred tax asset. The remaining unrecognised deferred tax asset at 31 March 2014 totalled R31.5 million. 3. Discontinued operations The results of discontinued operations reflected in comparative figures are in respect of the Group's US operations, which were sold in the prior year. 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), GJ Tindall* (Chief Executive), L Wilson* (Financial Director), Y Dladla, MG Ilsley, HJM Nkosi*, RG Tomlinson (Lead Independent Director) * Executive For more information contact: www.kellygroup.co.za Date: 28/05/2014 09:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. 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