Wrap Text
Audited Summarised Consolidated Results for the Year Ended 31 December 2015
and Notice of Annual General Meeting
Workforce Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 2006/018145/06)
(JSE Share Code: WKF ISIN: ZAE000087847)
('Workforce' or 'the group')
Audited summarised consolidated results for the year ended 31 December 2015
and notice of annual general meeting
Highlights
- Revenue increased by 8.1% to R1.9 billion
- Basic earnings per share increased by 30% to 34.1 cents per share
- Profit for the year increased by 30% to R77 million
- During the year Workforce Holdings Limited acquired Prisma Training Solutions
Summarised consolidated statements of financial position as at 31 December 2015
2015 2014
Notes R'000 R'000
Assets
Non-current assets 152 097 109 391
Property, plant and equipment 6 15 176 7 052
Goodwill 62 501 41 280
Intangible assets 7 32 911 23 694
Deferred tax assets 38 576 35 349
Other financial assets 2 933 2 016
Current assets 535 436 453 506
Trade and other receivables 517 788 440 039
Inventories 4 111 3 085
Taxation 447 38
Cash and cash equivalents 8 13 090 10 344
Total assets 687 533 562 897
Equity and liabilities
Equity 354 247 272 313
Equity attributable to owners of the parent 354 275 272 684
Stated capital 241 867 236 867
Treasury shares (9 488) (7 616)
Reverse acquisition reserve (125 499) (125 499)
Available-for-sale reserve 686 (231)
Equity-settled employee benefits reserve 1 659 898
Retained earnings 245 050 168 265
Non-controlling interests (28) (371)
Non-current liabilities 34 791 14 233
Financial liabilities 24 076 8 822
Deferred tax liabilities 10 715 5 411
Current liabilities 298 495 276 351
Trade and other payables 88 480 84 117
Financial liabilities 209 989 192 210
Bank overdraft 26 24
Total equity and liabilities 687 533 562 897
Summarised consolidated statements of comprehensive income for the year ended 31 December 2015
2015 2014
Notes R'000 R'000
Revenue 1 949 771 1 801 895
Cost of sales (1 494 934) (1 403 346)
Gross profit 454 837 398 549
Other income 1 700 927
Operating costs (349 951) (319 708)
Earnings before interest, taxation,
depreciation and amortisation (EBITDA) 106 586 79 768
Depreciation and amortisation of
non-financial assets (12 910) (10 501)
Operating profit 93 676 69 267
Finance income 297 148
Finance costs (17 250) (18 194)
Profit before taxation 76 723 51 221
Taxation credit 758 8 313
Profit for the year 77 481 59 534
Other comprehensive income for
the year, net of tax: 917 185
Fair value gain on available-for-sale
financial assets to be reclassified
subsequently to profit or loss 917 185
Total comprehensive income for the year 78 398 59 719
Profit for the year attributable to:
Owners of the parent 76 785 59 209
Non-controlling interests 696 325
77 481 59 534
Total comprehensive income
attributable to:
Owners of the parent 77 702 59 394
Non-controlling interests 696 325
78 398 59 719
Earnings per share (cents per share)
Basic earnings per share 9 34.1 26.2
Diluted earnings per share 9 32.5 26.2
Summarised consolidated statements of changes in equity for the year ended 31 December 2015
Attributable to owners of the parent
Reverse
Stated acquisition Treasury
capital reserve shares
R'000 R'000 R'000
Balance at 1 January 2014 236 867 (125 499) (7 616)
Payment of dividends - - -
Recognition of share-based payments - - -
Total comprehensive income for the year - - -
Balance at 1 January 2015 236 867 (125 499) (7 616)
Payment of dividends - - -
Recognition of share-based payments - - -
Buy-back of shares - - (1 872)
Issue of ordinary shares arising
on the acquisition of a business 5 000 - -
Total comprehensive income for the year - - -
Balance at 31 December 2015 241 867 (125 499) (9 488)
Attributable to owners of the parent
Equity-
settled
Available- employee
for sale Retained benefits
reserve earnings reserve
R'000 R'000 R'000
Balance at 1 January 2014 (416) 109 056 355
Payment of dividends - - -
Recognition of share-based payments - - 543
Total comprehensive income for the year 185 59 209 -
Balance at 1 January 2015 (231) 168 265 898
Payment of dividends - - -
Recognition of share-based payments - - 761
Buy-back of shares - - -
Issue of ordinary shares arising
on the acquisition of a business - - -
Total comprehensive income for the year 917 76 785 -
Balance at 31 December 2015 686 245 050 1 659
Non-
controlling Total
Total interests equity
R'000 R'000 R'000
Balance at 1 January 2014 212 747 (186) 212 561
Payment of dividends - (510) (510)
Recognition of share-based payments 543 - 543
Total comprehensive income for the year 59 394 325 59 719
Balance at 1 January 2015 272 684 (371) 272 313
Payment of dividends - (353) (353)
Recognition of share-based payments 761 - 761
Buy-back of shares (1 872) - (1 872)
Issue of ordinary shares arising
on the acquisition of a business 5 000 - 5 000
Total comprehensive income for the year 77 702 696 78 398
Balance at 31 December 2015 354 275 (28) 354 247
Summarised consolidated statements of cash flows for the year ended 31 December
2015 2014
Notes R'000 R'000
Cash generated from operations before
net working capital changes 88 638 58 751
Cash generated from operations 10.1 104 899 77 750
Finance income 297 148
Finance costs (17 250) (18 194)
Taxation paid 10.2 692 (953)
Increase in net working capital 10.3 (66 067) (38 621)
Cash flows from operating activities 22 571 20 130
Cash flows from investing activities (26 098) (10 432)
Property, plant and equipment acquired
- maintaining operations 6 (6 929) (2 802)
Proceeds on disposal of property,
plant and equipment 1 562 586
Dividend income 1 700 -
Intangible assets acquired
- maintaining operations 7 (7 791) (7 166)
Net cash flow on acquisition of
business combination (14 640) (1 050)
Cash flows from financing activities 6 271 (13 026)
Increase/(repayment) of borrowings 8 496 (12 516)
Payment for buy-back of shares (1 872) -
Dividends paid to shareholder in subsidiary (353) (510)
Net change in cash and cash equivalents 2 744 (3 328)
Cash and cash equivalents at the
beginning of the year 10 320 13 648
Cash and cash equivalents at the end
of the year 10.4 13 064 10 320
Financial statements
Notes to the summarised consolidated financial statements for the year ended
31 December 2015
1. Nature of operations and general information
Workforce Holdings Limited is a holding company. Its subsidiaries carry on the
business of staff outsourcing, recruitment and specialist staffing, training and
consulting, process outsourcing, employee health management and financial and
lifestyle products.
2. Basis of preparation and significant accounting policies
This report is extracted from audited information, but is not itself audited. The
board of directors of Workforce takes full responsibility for the preparation of this
report and that the financial information has been correctly extracted from the underlying
annual financial statements. The audited underlying group financial statements are available
for inspection at the company's registered office. The summarised consolidated financial
statements have been prepared in accordance with the JSE Limited's Listings Requirements
for annual financial statements, International Accounting Standard (IAS) 34, Annual Financial
Reporting and the South African Companies Act, No 71 of 2008, as well as the SAICA Financial
Reporting Pronouncements as issued by the Financial Reporting Standards Council.
The summarised annual financial statements for the 12 months ended 31 December
2015 were prepared under the supervision of W van Wyk, the Group Financial
Director. The summarised consolidated annual financial statements have been
prepared in accordance with International Financial Reporting Standards and have
been applied consistently with the accounting policies applied in the Annual Financial
Statements for the year ended 31 December 2014.
3. Audit Opinion
The consolidated results for the year ended 31 December 2015 have been audited
by the Group's auditors, Horwath Leveton Boner, and their unqualified audit report
is available for inspection at the registered office of the Group.
4. Posting of integrated annual report and notice of annual general meeting
The integrated annual report for the year ended 31 December 2015 will be despatched
to shareholders on 31 March 2016.
Notice is hereby given that the annual general meeting of shareholders of Workforce
will be held at 11:00 on Wednesday, 4 May 2016 at 11 Wellington Street, Parktown,
Johannesburg, 2193 to transact the business stated in the notice of the annual
general meeting, which is contained in the integrated annual report.
The board of directors of the Company determined that, in terms of section 62 (3)(a),
as read with section 59 of the Companies Act, 2008 (Act 71 of 2008), as amended,
the record date for the purposes of determining which shareholders of the Company
are entitled to participate in and vote at the annual general meeting is Friday, 29 April
2016. Accordingly, the last day to trade in Workforce shares in order to be recorded
in the Register to be entitled to vote at the general meeting will be Friday, 22 April
2016.
5. Events after reporting date
Effective 1 February 2016, the Quyn group of companies was acquired by Workforce Holdings
for a consideration of R70 million (refer to note 14).
Accumulated Carrying
Cost depreciation value
R'000 R'000 R'000
6. Property, plant and equipment
2015
Motor vehicles 8 296 (4 903) 3 393
Computer equipment 20 259 (17 735) 2 524
Industrial equipment 4 674 (2 648) 2 026
Office equipment 12 322 (10 961) 1 361
Leasehold improvements 1 242 (1 059) 183
Training manuals 9 677 (6 688) 2 989
Land and buildings 2 700 - 2 700
59 170 (43 994) 15 176
Accumulated Carrying
Cost depreciation value
R'000 R'000 R'000
2014
Motor vehicles 6 944 (4 839) 2 105
Computer equipment 18 958 (17 093) 1 865
Industrial equipment 2 700 (2 237) 463
Office equipment 11 453 (10 190) 1 263
Leasehold improvements 1 187 (960) 227
Training manuals 6 605 (5 476) 1 129
Land and buildings - - -
47 847 (40 795) 7 052
The carrying value of property, plant and equipment can be reconciled as follows:
Motor Computer Industrial Office
vehicles equipment equipment equipment
R'000 R'000 R'000 R'000
Carrying value at
1 January 2014 2 387 1 800 234 1 797
Additions 714 1 283 372 189
Disposals (1) - - -
Depreciation (995) (1 218) (143) (723)
Carrying value at
31 December 2014 2 105 1 865 463 1 263
Additions 1 668 2 251 1 975 916
Disposals (570) (225) - (14)
Acquired through
business
combinations 1 212 35 - 33
Depreciation (1 022) (1 402) (412) (837)
Carrying value at
31 December 2015 3 393 2 524 2 026 1 361
Leasehold Training Land and
improvements manuals buildings Total
R'000 R'000 R'000 R'000
Carrying value at
1 January 2014 338 1 445 - 8 001
Additions 24 220 - 2 802
Disposals - - - (1)
Depreciation (135) (536) - (3 750)
Carrying value at
31 December 2014 227 1 129 - 7 052
Additions 78 41 - 6 929
Disposals - - - (809)
Acquired through
business
combinations - 3 030 2 700 7 010
Depreciation (122) (1 211) - (5 006)
Carrying value at
31 December 2015 183 2 989 2 700 15 176
All depreciation charges are included in 'Depreciation and amortisation of non-financial
assets' in the statement of comprehensive income. No property, plant and equipment
have been impaired during the year (2014: Nil).
A 100% interest in Prisma Training Solutions was acquired on 1 October 2015 in
order to increase the scope of the training segment in the mining sector. Property,
plant and equipment to the value of R7 010 000 was acquired as part of the business
combination.
The group has no further contractual commitments to acquire property, plant and
equipment at reporting date.
Accumulated Carrying
Cost amortisation value
R'000 R'000 R'000
7. Intangible assets
2015
Computer software 45 711 (29 156) 16 555
Brands 3 209 (1 409) 1 800
Client relationships 9 330 (252) 9 078
Work in progress 5 478 - 5 478
63 728 (30 817) 32 911
Accumulated Carrying
Cost amortisation value
R'000 R'000 R'000
2014
Computer software 44 467 (26 170) 18 297
Brands 3 209 (339) 2 870
Client relationships - - -
Work in progress 2 527 - 2 527
50 203 (26 509) 23 694
The carrying amounts of intangible assets can be reconciled as follows:
Client
Computer relation-
software Brands ships
R'000 R'000 R'000
Carrying value at 1 January 2014 20 096 156 -
Additions 4 639 - -
Acquired through business
combinations - 3 027 -
Amortisation (6 438) (313) -
Carrying value at
31 December 2014 18 297 2 870 -
Additions 4 840 - -
Acquired through business
combinations - - 9 330
Amortisation (6 582) (1 070) (252)
Carrying value at
31 December 2015 16 555 1 800 9 078
Work in
progress Total
R'000 R'000
Carrying value at 1 January 2014 - 20 252
Additions 2 527 7 166
Acquired through business
combinations - 3 027
Amortisation - (6 751)
Carrying value at
31 December 2014 2 527 23 694
Additions 2 951 7 791
Acquired through business
combinations - 9 330
Amortisation - (7 904)
Carrying value at
31 December 2015 5 478 32 911
The above amortisation expense is included in 'Depreciation and amortisation of
non-financial assets' in the statement of comprehensive income. No intangible
assets have been impaired during the year (2014: Nil). Computer software is mostly
internally generated.
A 100% interest in Prisma Training Solutions was acquired on 1 October 2015, in
order to increase the scope of the training segment in the mining sector. Intangible
assets to the value of R9 330 000 were acquired as part of the business combination.
The group has no further contractual commitments to acquire intangible assets at
reporting date.
2015 2014
R'000 R'000
8. Cash and cash equivalents
Cash and cash equivalents include the
following components:
Cash at bank and in hand 12 142 9 964
Short-term deposits 948 380
13 090 10 344
The carrying value of cash and cash
equivalents is considered a reasonable
approximation of fair value.
9. 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) 76 785 59 209
Weighted average number of ordinary shares
in issue ('000) 225 328 225 630
Diluted weighted average number of shares
in issue ('000) 236 619 225 630
Basic earnings per share (cents) 34.1 26.2
Diluted earnings per shares (cents) 32.5 26.2
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) 76 785 59 209
Headline earnings adjustment (R'000) (1 806) (1 088)
Gain on disposal of property, plant
and equipment (809) (584)
Dividend received (1 700)
Gain on bargain purchase - (927)
Tax effects of adjustments 703 423
Total headline earnings (R'000) 74 979 58 121
Weighted average number of shares in
issue ('000) 225 328 225 630
Headline earnings per share (cents) 33.3 25.8
The weighted average number of ordinary
shares for the purpose of diluted earnings per
share reconciles to the weighted average
number of ordinary shares used in the
calculation of basic earnings per share
as follows:
Weighted average of number of shares used
in the calculation of basic earnings per share ('000) 225 328 225 630
Shares deemed to be issued for no
consideration in respect of:
Employee options ('000) 11 291 -
Weighted average number of ordinary shares
in the calculation of diluted earnings per share ('000) 236 619 225 630
10. Notes to the statement of cash flows
10.1 Cash generated from operations
Profit before taxation 76 723 51 221
Interest income (297) (148)
Dividend income (1 700) -
Finance costs 17 250 18 194
Adjusted for non-cash items:
Gain on disposal of property, plant
and equipment (809) (584)
Depreciation and amortisation of
non-financial assets 12 910 10 501
Equity-settled share-based payments 761 543
Gain on bargain purchase - (927)
Other 61 -
Increase in contingent consideration payment - (1 050)
104 899 77 750
10.2 Taxation paid
Charged to profit or loss 758 8 313
Adjusted for deferred tax (520) (9 261)
Movement in taxation balance 454 (5)
692 (953)
10.3 Working capital changes
Change in trade and other receivables (69 404) (22 005)
Change in inventories (1 026) (504)
Change in trade and other payables 4 363 (16 112)
(66 067) (38 621)
10.4 Cash and cash equivalents
Bank and cash balances (note 8) 13 090 10 344
Bank overdraft (note 12) (26) (24)
13 064 10 320
11. 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 is a registered training provider focused on delivering industry
and job-specific skills assessments and training interventions to business and their
employees across all industry sectors. Our training programmes are aligned with
SAQA (South African Qualifications Authority) and accredited with SETA Quality
Assurance departments.
- 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.
- Process outsourcing, which focuses on delivering productive and functional business
process outsourcing solutions, including the statutory and legal elements associated
therewith.
Segment information can be analysed as follows for the reporting periods under review:
Financial Employee
Training and health
Staffing and and lifestyle manage-
recruitment consulting products ment
R'000 R'000 R'000 R'000
2015
Segment revenues 1 665 232 48 210 69 710 36 591
Inter-segment revenue 3 5 969 9 414 -
Cost of sales (1 314 678) (23 606) (21 855) (14 915)
Inter-segment cost of sales - - (6 778) -
Operating costs (213 790) (26 693) (37 093) (18 894)
Other income 1 700 - - -
EBITDA 138 467 3 880 13 398 2 782
Depreciation and
amortisation of non-
financial assets (2 799) (741) (2 622) (671)
Segment operating profit 135 668 3 139 10 776 2 111
Capital expenditure 2 084 17 059 3 343 2 251
Segment total assets 311 680 76 034 166 435 3 208
Segment total liabilities (18 873) (62 162) (174 910) (2 776)
Net segment assets 292 807 13 872 (8 475) 432
Consoli-
Process Central dation
outsourcing cost entries Total
R'000 R'000 R'000 R'000
2015
Segment revenues 130 028 - - 1 949 771
Inter-segment revenue - - (15 386) -
Cost of sales (119 880) - - (1 494 934)
Inter-segment cost of sales - - 6 778 -
Operating costs (7 306) (54 783) 8 608 (349 951)
Other income - - - 1 700
EBITDA 2 842 (54 783) - 106 586
Depreciation and
amortisation of non-
financial assets (93) (5 984) - (12 910)
Segment operating profit 2 749 (60 767) - 93 676
Capital expenditure 46 6 277 - 31 060
Segment total assets 17 152 113 024 - 68 753
Segment total liabilities (16 692) (57 873) - (33 328)
Net segment assets 460 55 151 - 354 247
Financial Employee
Training and health
Staffing and and lifestyle manage-
recruitment consulting products ment
R'000 R'000 R'000 R'000
2014
Segment revenues 1 570 885 32 893 59 835 26 096
Inter-segment revenue 338 6 512 - 830
Cost of sales (1 247 702) (17 826) (16 711) (10 412)
Operating costs (196 113) (19 382) (33 578) (13 972)
Other income 927 - - -
EBITDA 128 335 2 077 9 545 2 542
Depreciation and
amortisation of non-
financial assets (2 210) (827) (2 975) (325)
Segment operating profit 126 125 1 250 6 571 2 217
Capital expenditure 9 686 367 774 488
Segment total assets 255 465 8 721 145 595 7 411
Segment total liabilities (35 409) (14 666) (149 723) (6 685)
Net segment assets 220 056 (5 945) (4 128) 726
Consoli-
Process Central dation
outsourcing cost entries Total
R'000 R'000 R'000 R'000
2014
Segment revenues 112 186 - - 1 801 895
Inter-segment revenue - - (7 680) -
Cost of sales (109 029) - - (1 401 680)
Operating costs (5 842) (58 501) 7 680 (319 708)
Other income - - - 927
EBITDA (2 685) (58 501) - 79 768
Depreciation and
amortisation of non-
financial assets (96) (4 068) - (10 501)
Segment operating profit (2 781) (62 569) - 69 267
Capital expenditure 12 1 668 - 12 995
Segment total assets 18 536 127 169 - 562 897
Segment total liabilities (18 895) (65 205) - (290 583)
Net segment assets (359) 61 964 - 272 314
12. Related party transactions
No transactions between the company and its subsidiaries
have occurred.
12.1 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:
2015 2014
R'000 R'000
Wellington Property Investments
Proprietary Limited 9 458 5 283
Relationship: Director has significant
influence
Type of transaction: Operating lease
rentals paid
Vunani Capital Proprietary Limited 114 84
Relationship: Shareholder
Type of transaction: Designated advisors'
fees
Hunts Attorneys 3 056 2 402
Relationship: Director with an interest in
a legal practice - RS Katz
Type of transaction: Disbursements for
advocates' fees paid
Guardrisk Insurance Company Limited
Relationship: Insurance underwriter
Type of transaction: Insurance paid 2 785 2 802
Force Holdings Proprietary Limited
Relationship: Shareholder
Type of transaction: Sale of trade and
other receivables 13 610 -
12.2 Related party loans
Amounts due from/(payable to) related
parties are as follows:
Force Holdings Proprietary Limited (47) (17 176)
Relationship: Shareholder
Simgarvan Investments Proprietary Limited (7 783) (7 876)
Relationship: Company controlled by
a director of the group
Hunts Attorneys 162 162
Relationship: Director with an interest in
a legal practice - RS Katz
Portion of Conside-
business ration
acquired transferred
% R'000
13. Business combinations
13.1 Business acquired
2015
Prisma Training Solutions 100 48 447
Principle activity: Provide training to
mining industries
Date of acquisition: 1 October 2015
48 447
Prisma Training Solutions was purchased in order to increase the
scope of the training segment in the mining sector.
R'000
13.2 Consideration transferred
Cash 22 371
Equity instrument* 5 000
Contingent consideration arrangement 21 106
Total 48 477
* 3 731 343 shares were issued at a price of R1,34 per share,
the fair value of the shares is based on the published price
on the date of the transfer.
13.3 Contingent consideration
First payment 2 628
Second payment 5 400
Third payment 5 800
Fourth payment 16 821
Total additional amount 30 650
Less: Interest raised on future payments 9 544
21 106
Present value of capital cost
Under the contingent consideration arrangement, the group is required to pay an
additional R2 628 356 in the event that Prisma's profit before tax (PBT) reaches
R3 650 495 before 1 October 2016 and three additional payments of R5 400 000,
R5 800 000 and R6 200 000 in the event that Prisma's PBT for the periods ending
30 September 2016, 30 September 2017 and 30 September 2018 amounts to R13 500 000
for each of those periods. Should aggregate PBT for the aforementioned three-year
period exceed R40 500 000 and reach a maximum of R100 000 000, an additional amount
of up to R17 635 000 may become payable. R21 105 702 represents the estimated fair
value of this obligation at the acquisition date. The PBT for the past three years
on average has been R7 698 487 and the directors do consider it probable that the
additional payment will be required.
Acquisition related costs of R1 420 000 have been excluded from the consideration,
and have been recognised as an expense in the profit and loss for the year under
operating expenses.
R'000
13.4 Assets acquired and liabilities recognised at the
date of acquisition
Non-current assets
Property, plant and equipment 7 010
Intangible assets 9 330
Current assets
Trade and other receivables 8 345
Loans receivable 4
Cash and cash equivalents 7 731
Current tax 861
Current liabilities
Deferred tax liability (3 460)
Financial liability (2 565)
Total 27 256
The receivables acquired (principally trade receivables) in this transaction with
a fair value of R8 344 532 is equivalent to the gross contractual amount. All
contractual cash flows are expected to be collected.
R'000
13.5 Net cash outflow on acquisition of subsidiaries
Consideration paid in cash 22 371
Less: Cash and cash equivalent balances acquired (7 731)
Total 14 640
13.6 Goodwill arising on acquisition
Consideration transferred 48 477
Less: Fair value of identifiable net assets (27 256)
Goodwill arising on acquisition 21 221
Goodwill arose in the acquisition of Prisma Training Solutions because the cost of
the combination included a control premium. In addition, the consideration paid for
the combination effectively included amounts in relation to the benefit of expected
synergies, revenue growth and future market share. These benefits are not recognised
seperately from goodwill because they do not meet the recognition criteria for
identifiable intangible assets. None of the goodwill arising in the above acquisition
is expected to be deductible for tax purposes.
13.7 Impact of acquisitions on the results of the group
Included in the profit for the year is R808 641 attributable to the additional business
generated by Prisma Training Solutions Proprietary Limited. Revenue for the year includes
R6 952 098 in respect of Prisma Training Solutions Proprietary Limited.
Had these business combinations been affective at 1 January 2015, the revenue of the
group from continuing operations would have been R33 412 823 and the profit for the
year from continuing operations would have been R5 523 001. The directors consider
these pro-forma numbers to represent an approximate measure of the performance of
the combined group on an annualised basis and to provide a reference point for the
comparison in future periods.
In determining the pro-forma revenue and profit of the group had Prisma Training
Solutions Proprietary Limited been acquired at the beginning of the current year
the directors have calculated the depreciation of the plant and equipment and
intangible assets acquired on the basis of the fair values arising in the initial
accounting for the business combination rather than the carrying amounts recognised
in the pre-acquisition financial statements.
Portion of Conside-
business ration
acquired transferred
% R'000
14. Subsequent events
14.1 Business acquired
2015
Quyn Group 100 75 000
Principle activity: Provision of oustourced
HR services including TES, HR
outsourcing, payroll bureau services,
HR and IR consulting and permanent
placements
Date of acquisition: 1 February 2016
75 000
The Quyn Group was acquired to give Workforce an increased presence in the provision
of outsourced technical skills. The entities comprising the Quyn Group are Quyn
International Outsourcing Proprietary Limited, Molapo Quyn Outsourcing Proprietary
Limited, Sizuluntu Staffing Solution Proprietary Limited, Quyn Payroll Services
Proprietary Limited and Quyn HR Consulting Proprietary Limited.
R'000
14.2 Consideration transferred
Cash 30 000
Contingent consideration arrangement 45 000
Total 75 000
14.3 Contingent consideration
Second payment 6 250
Third payment 6 250
Fourth payment 6 250
Fifth payment 18 750
Sixth payment 7 500
Total additional amount 45 000
Under the contingent consideration arrangement, the group is required to pay the
balance of R45 million over a two-year period commencing from 1 February 2016. In
terms of this arrangement, should the operating profit of the Quyn Group for the
12-month period ending 29 February 2016 be below R14,5 million, then the R75 million
total purchase consideration owing will be reduced by R5 for every R1 that the Quyn
Group's operating profit falls below R15 million, and accordingly the amounts due to
discharge the R45 million outstanding balance will be reduced proportionately. The
second, third, fourth, fifth and sixth payments fall due on 1 May 2016, 1 August 2016,
1 November 2016, 1 February 2017 and 1 February 2018 respectively.
The PBIT for the 11-month period ending 31 January 2016 was R13,6 million, and the
directors do consider it probable that the additional payments will be required.
R'000
14.4 Assets acquired and liabilities recognised at the
date of acquisition
Non-current assets
Property, plant and equipment 1 427
Deferred tax asset 996
Intangible assets 6 180
Current assets
Trade and other receivables 39 301
Loans receivable 269
Cash and cash equivalents 11 169
Current tax 1 237
Equity
Non-controlling interest (580)
Non-current liabilities
Finance lease obligations (844)
14.5 Current liabilities
Trade and other payables (15 644)
Taxation payable (51)
Deferred tax liability (1 730)
Financial liability (216)
Total 41 514
The receivables acquired (principally trade receivables) in this transaction with
a fair value of R39 301 000 is equivalent to the gross contractual amount. All
contractual cash flows are expected to be collected.
R'000
14.6 Net cash outflow on acquisition of subsidiaries
Consideration paid in cash 30 000
Less: Cash and cash equivalent balances acquired (11 169)
Total 18 831
Goodwill arising on acquisition
Consideration transferred 75 000
Less: Fair value of identifiable net assets 41 514
Goodwill arising on acquisition 33 486
Goodwill arose in the acquisition of Quyn Group because the cost of the combination
included a control premium. In addition, the consideration paid for the combination
effectively included amounts in relation to the benefit of expected synergies,
revenue growth and future market share. These benefits are not recognised separately
from goodwill because they do not meet the recognition criteria for identifiable
intangible assets. None of the goodwill arising in the above acquisition is expected
to be deductible for tax purposes.
Director's commentary
Overview
Our progress financially, operationally and structurally was more than satisfactory,
and needs to be viewed in the context of the challenging environment in which we
have operated.
On a macro level the economy continued to be under strain affected by both local
and international issues, particularly in the latter part of the year. Locally, the
economy endured a fall-off in production in most industries resulting in a reduced
rate of employment in the commodity sectors, as well as in the wholesale, retail and
production sectors, negatively impacting our business activities. Notwithstanding
these adverse pressures, the group saw increased turnovers and activity in all of its
operating divisions.
The implementation of the various labour law amendments brought about stability to
the industry as both our clients and our own businesses became clear on the terms
of the legislation, and we were then able to understand how our respective
operations would function in the light of this.
We are pleased with the group's financial performance, particularly in the second
half of the year, where we saw an increase of 12.4% of turnover compared to the
last six months of 2014. This is primarily attributable to the following:
- Dissipating uncertainty in the market around new labour legislation;
- Strong performances in our white collar recruitment businesses; and
- Improved performance of our recruitment, financial, lifestyle and process
outsourcing businesses.
We are confident that we will continue to perform strongly in the year ahead and we
are well positioned to derive benefit from our diversified business portfolio.
Group structure
In alignment with our strategy to diversify the group's income, we restructured the
organisation with particular emphasis on the structure of the underlying businesses.
Each trading activity has been placed into an independent legal entity with its own
management structure reporting into the holding company through the group chief
executive officer. The essence of this change was to appoint managing directors for
each business entity who in turn would have the requisite authority delegated to
them to manage their own teams and conduct their businesses in the best manner
that the executives saw fit to attain budgeted goals.
CEO position
During November 2015, Lawrence Diamond the former CEO of the group, resigned
effective 31 December 2015, and Ronny Katz, the former executive chairman, was
appointed acting chief executive officer. John Macey, the former lead independent
director, was appointed as acting chairman and Kyansambo Vundla was appointed acting
chairman of the audit and risk committee. We are well into the process of appointing
a new chief executive officer. There were no other changes to the Board during the
2015 financial year.
Investor's policy
The group and its shareholders are aware of the relatively poor performance of the
Group's share price on the JSE. We have analysed this and have established a strategy
that will hopefully deal with a number of the grounds for poor performance. Included
in these grounds are the past profit performance of the group, the threats to the group
arising from its status of a labour broker, the liquidity of its shares and its status
as a company listed on the JSE AltX. We are taking whatever reasonable management
action that we can in order to overcome these inhibiting factors.
Financial results review
Turnover for the 2015 fiscal year reflects an increase of 8.1% to R1.95 billion (2014:
R1.80 billion). Whilst the first six months of the year reflected an increase of only
3.8% compared to the same period in the previous year, the second six months reflected
an increase of 12.4% comparatively.
Gross margins percentage improved to 23.3% (2014: 22.1%), primarily as a result of improved
performances from the group's higher margin recruitment, financial, lifestyle and
process outsourcing businesses, as is evident by the accompanied segmental
analysis.
The employment tax incentive continues to make a contribution to the group's results.
Operating expenses increased by 9.5%, reflecting increased activity in the training
and healthcare segments as well as the acquisition of Prisma Training Solutions as
of 1 October 2015. As a result of a significant enterprise-wide cost reduction exercise,
operating expenses increased by only 5% compared to the same period in the
previous year, if the above mentioned growth related expenses are excluded.
However, the full effect of the cost reduction exercise will only be visible in 2016.
The acquisition of Prisma Training Solutions had a marginal effect on results as the
company's operating activities tend to slow down towards the end of the year.
EBITDA increased by 33.6% to R106.6 million (2014: R79.8 million). Earnings per
share increased by 29.8% to 34.1 cents (2014: 26.2 cents).
Taxation
The group continued to benefit from the employment tax incentive programme as
well as learnership allowances in terms of section 12H of the Income Tax Act, 1962
(Act 58 of 1962). This resulted in a net taxation credit of R758 000 (2014: R8,3 million).
The reduction in the taxation credit is purely a function of increased profitability as
taxable allowances remained on par with the previous year.
Cash flow
A surge in turnover during the last two months of the year, compared to the previous
year, caused a substantial increase in trade receivables which negatively affected
cash flows. The group's day's sales outstanding (DSO) deteriorated marginally to
45 days (2014: 42 days), which, considering the current challenging collection
environment, is acceptable. Trade debtors older than 120 days demonstrates a
well-managed book with 7.8% of trade debtors older than 120 days compared to
9.8% in 2014. Cash generated from operations before net working capital changes
improved to R88.6 million (2014 : R58.7 million) and net cash flows from operating
activities amounted to R23 million (2014: R20.1 million).
Acquisition funding
The Prisma acquisition was funded partially through existing funds, available working
capital funding, and a small share issue. The majority of the acquisition payment is
however deferred which will be funded by future cash flows generated by the acquired
company. In this regard, the acquisition is de-risked as payments are only due as
and when the acquired company reaches agreed profit targets.
Gearing
Net interest bearing debt-to-equity improved to 0.62 (2014: 0.7), despite the
R21 million initial payment for the Prisma acquisition. This is well within management's
target range of between 0.5 and 1.1. This ratio is however expected to increase
during 2016 due to the funding of acquisitions. Finance service cost improved
marginally to R17.2 million (2014: R18.1 million), with the interest cover ratio improving
to a healthy 6.1 (2014: 4.4).
The current assets to liabilities ratio also improved to 1.8:1 (2014 :1.64:1).
Events after reporting date
Effective 1 February 2016, the Quyn group of companies was acquired by Workforce
Holdings for a consideration of R70 million. We will be in a position to report on the
net effects of this acquisition in the next financial year.
Prospects
We are encouraged by the manner in which each of our subsidiaries is advancing
their business growth and profitability. We believe we will have an increased
contribution from each of the diversifications as well as from the core business and
the acquisitions we have made. However, we are realistic that this may be tempered
by the clear reduction in economic activity in the country resulting from various
factors both internal and external which would impact our core business.
We also have to bear in mind that the employment tax incentive that the group has
benefitted from terminates at the end of 2016. However, this may be replaced by
other incentives aimed at retaining and growing youth employment. We have tried
to balance this potential risk with our increased activities, diversifications and
acquisitions, and are confident that will be able to replace the revenue lost with
income from the group's other activities.
As we currently stand, we anticipate the financial year 2016 to show growth
consistent with the past year.
Appreciation
Quality of service is the cornerstone of our business and increasingly, the hallmark
of the Workforce group. Delivering superior service, in turn, is only possible through
the energy, commitment and loyalty of our staff at all levels. We thank every one of
you for the sheer passion you bring to our group and your commitment to achieving
our goals.
Our non-executive directors and professional advisors have provided important
counsel to the group and their continuous support is valued and greatly appreciated.
For and on behalf of the board
J Macey
Interim Independent Chairman
R.S Katz
Interim Chief Executive Officer
W.P van Wyk
Group Financial Director
17 March 2016
Johannesburg
Designated Adviser
Merchantec Capital
Auditor
Horwath Leveton Boner
Transfer secretaries
Link Market Services South Africa Proprietary Limited
Directors
John Macey (Interim independent chairman)
Ronny Katz (Interim chief executive officer)
Willie van Wyk (Group Financial Director)
Mark Anderson (Non-executive director)
Lulu Letlape (Independent non-executive director)
Kyansambo Vundla (Independent non-executive director)
Company Secretary
Sirkien van Schalwyk
Registered office address
11 Wellington Road
Parktown
2193
PO Box 11137
Johannesburg
2000
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