Wrap Text
Unaudited Condensed Interim Financial Results for the Six Months Ended 30 June 2016
Workforce Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 2006/018145/06)
JSE Code: WKF ISIN: ZAE000087847)
("Workforce" or "the group")
Unaudited condensed interim financial results
for the six months ended 30 June 2016
Highlights
- Revenue increased by 32% from 2015.
- EBITDA increased by 70% from 2015.
- Headline earnings per share ("HEPS") increased by 45% to 17,7 cents, and earnings
per share ("EPS") increased by 48% to 18,0 cents.
- Diluted earnings per share increased by 48% to 17,2 cents.
- Net asset value per share increased to 175 cents.
Condensed consolidated statement of comprehensive income
for the six months ended 30 June 2016
Six months Six months Year to
to 30 June to 30 June Increase/ 31 December
2016 2015 (decrease) 2015
Notes R'000 R'000 % R'000
Revenue 8 1 192 824 904 594 31,8 1 949 771
Cost of sales (904 024) (696 306) 29,8 (1 494 934)
Gross profit 288 800 208 288 38,7 454 837
Other income - 1 000 1 700
Operating costs (222 865) (170 418) 30,8 (349 951)
Earnings before impairment, depreciation,
amortisation, interest and taxation ("EBITDA") 65 935 38 870 69,6 106 586
Depreciation and amortisation of
non-financial assets (8 008) (5 673) 41,2 (12 910)
Operating profit 8 57 927 33 197 74,5 93 676
Finance income 308 978 (68,5) 297
Finance costs (13 789) (8 025) 71,8 (17 250)
Profit before taxation 44 446 26 150 69,9 76 723
Taxation (expense)/credit 9 (3 811) 2 008 758
Profit for the period 40 635 28 158 44,3 77 481
Other comprehensive (loss)/income for the period (46) 1 200 917
Fair value (losses)/gains on available-for-sale
financial assets to be reclassified subsequently
to profit or loss (46) 1 200 917
Total comprehensive income for the period 40 589 29 358 78 398
Profit for the period attributable to:
Owners of the parent 40 671 27 524 76 785
Non-controlling interests (36) 634 696
40 635 28 158 77 481
Total comprehensive income attributable to:
Owners of the parent 40 625 28 724 77 702
Non-controlling interests (36) 634 696
40 589 29 358 78 398
Earnings per share (cents) 10
Basic 18,0 12,2 34,1
Diluted 17,2 11,6 32,5
Condensed consolidated statement of financial position
at 30 June 2016
Six months Six months Year to
to 30 June to 30 June 31 December
2016 2015 2015
Notes R'000 R'000 R'000
Assets
Non-current assets 198 156 114 579 152 097
Property, plant and equipment 5 17 318 8 451 15 176
Goodwill 6 102 287 41 280 62 501
Intangible assets 7 40 953 23 991 32 911
Deferred tax assets 34 711 37 641 38 576
Other financial assets 2 887 3 216 2 933
Current assets 671 126 460 562 535 436
Trade and other receivables 638 609 449 774 517 788
Inventories 4 264 3 076 4 111
Taxation - - 447
Cash and cash equivalents 28 253 7 712 13 090
Total assets 869 282 575 141 687 533
Equity and liabilities
Equity 395 498 301 981 354 247
Share capital and premium 241 867 236 867 241 867
Treasury shares (8 748) (7 616) (9 488)
Reverse acquisition reserve (125 499) (125 499) (125 499)
Available for sale reserve 640 969 686
Equity-settled employee benefits reserve 1 158 1 208 1 659
Retained earnings 285 721 195 789 245 050
Equity attributable to owners of the parent 395 139 301 718 354 275
Non-controlling interests 359 263 (28)
Non-current liabilities 77 197 14 026 34 791
Financial liabilities 66 581 8 529 24 076
Deferred tax liabilities 10 616 5 497 10 715
Current liabilities 396 587 259 134 298 495
Trade and other payables 142 630 89 785 88 480
Financial liabilities 251 379 169 108 209 989
Taxation 2 578 236 -
Bank overdrafts - 5 26
Total equity and liabilities 869 282 575 141 687 533
Condensed consolidated statement of changes in equity
for the six months ended 30 June 2016
Attributable to owners of the parent
Share Reverse
capital and acquisition Treasury
premium reserve shares
R'000 R'000 R'000
Balance at 1 January 2016 241 867 (125 499) (9 488)
Recognition of share-based payments - - -
Issue of ordinary shares under employee share option plan - - 740
Additional non-controlling interest arising on the
acquisition of a business - - -
Total comprehensive income for the period - - -
Balance at 30 June 2016 241 867 (125 499) (8 748)
Balance at 1 January 2015 236 867 (125 499) (7 616)
Recognition of share-based payments - - -
Total comprehensive income for the period - - -
Balance at 30 June 2015 236 867 (125 499) (7 616)
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)
Condensed consolidated statement of changes in equity
for the six months ended 30 June 2016
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 2016 686 245 050 1 659
Recognition of share-based payments - - 357
Issue of ordinary shares under employee share option plan - - (858)
Additional non-controlling interest arising on the
acquisition of a business - - -
Total comprehensive income for the period (46) 40 671 -
Balance at 30 June 2016 640 285 721 1 158
Balance at 1 January 2015 (231) 168 265 898
Recognition of share-based payments - - 310
Total comprehensive income for the period 1 200 27 524 -
Balance at 30 June 2015 969 195 789 1 208
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
Condensed consolidated statement of changes in equity
for the six months ended 30 June 2016
Non-
controlling
Total interest Total
R'000 R'000 R'000
Balance at 1 January 2016 354 275 (28) 354 247
Recognition of share-based payments 357 - 357
Issue of ordinary shares under employee share option plan (118) - (118)
Additional non-controlling interest arising on the
acquisition of a business - 423 423
Total comprehensive income for the period 40 625 (36) 40 589
Balance at 30 June 2016 395 139 359 395 498
Balance at 1 January 2015 272 684 (371) 272 313
Recognition of share-based payments 310 - 310
Total comprehensive income for the period 28 724 634 29 358
Balance at 30 June 2015 301 718 263 301 981
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
Condensed consolidated statement of cash flows
for the six months ended 30 June 2016
Six months Six months Year to
to 30 June to 30 June 31 December
2016 2015 2015
Note R'000 R'000 R'000
Cash generated from operations before net working
capital changes 51 505 31 899 88 638
Cash generated from operations 14.1 64 314 38 870 104 899
Finance income 308 978 297
Finance costs (12 076) (8 025) (17 250)
Taxation paid (1 041) 76 692
Increase in net working capital 14.2 (43 889) (3 748) (66 067)
Cash flows from operating activities 7 616 28 151 22 571
Cash flows from investing activities (33 587) (7 369) (26 098)
Property, plant and equipment acquired -
maintaining operations 6 (3 050) (3 209) (6 929)
Proceeds on disposal of property, plant and equipment 210 - 1 562
Dividend income - - 1 700
Intangible assets acquired - maintaining operations 7 (3 815) (4 160) (7 791)
Net cash flow on acquisition of business combinations 15 (26 932) - (14 640)
Cash flows from financing activities 41 160 (23 395) 6 271
Increase/(repayment) of borrowings 40 420 (23 395) 8 496
Payment for buy-back of share costs 740 - (1 872)
Dividends paid - - (353)
Net change in cash and cash equivalents 15 189 (2 613) 2 744
Cash and cash equivalents at the beginning of the period 13 064 10 320 10 320
Cash and cash equivalents at the end of the period 28 253 7 707 13 064
Notes to the condensed consolidated interim financial statements
for the six months ended 30 June 2016
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, employee health
management, process outsourcing and financial and lifestyle products.
The unaudited condensed interim financial results are presented in South African rands ("ZAR"),
which is the functional currency of the parent company.
The unaudited condensed interim financial results were approved for issue by the board of
directors of Workforce ("the Board") on 24 August 2016.
2. Basis of preparation and significant accounting policies
The condensed consolidated interim financial statements have been prepared in accordance with
the Listings Requirements of JSE Limited ("JSE") for interim financial statements, International
Accounting Standard ("IAS") 34, Interim Financial Reporting and the South African Companies Act,
2008 (Act 71 of 2008), as amended, the SAICA Financial Reporting Guides, as issued by the
Accounting Practice Committee, as well as the SAICA Financial Reporting Pronouncements as issued
by the Financial Reporting Standards Council.
The unaudited condensed interim financial results for the six months ended 30 June 2016 were
compiled under the supervision of W van Wyk, CA(SA) the Group Financial Director. The condensed
consolidated interim 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 2015.
3. Events after reporting date
No material events occurred between the reporting date and the date of approval of these
condensed financial statements.
4. Auditor's responsibility
These unaudited condensed interim financial results have not been audited nor reviewed by the
group's auditors.
Motor Computer Industrial Office
vehicles equipment equipment equipment
R'000 R'000 R'000 R'000
5. Property, plant and equipment
Six months to 30 June 2016
Carrying amount at 1 January 2016 3 393 2 524 2 026 1 361
Additions 4 1 525 373 1 116
Disposals (236) (66) - -
Acquired through business combination 1 311 28 52 58
Depreciation (461) (862) (314) (341)
Carrying amount at 30 June 2016 4 011 3 149 2 137 2 194
Six months to 30 June 2015
Carrying amount at 1 January 2015 2 105 1 865 463 1 263
Additions - 1 224 1 534 417
Depreciation (477) (573) (150) (327)
Carrying amount at 30 June 2015 1 628 2 516 1 847 1 353
Year to 31 December 2015
Carrying amount at 1 January 2015 2 105 1 865 463 1 263
Additions 1 668 2 251 1 975 916
Disposals (570) (225) - (14)
Acquired through business combination 1 212 35 - 33
Depreciation (1 022) (1 402) (412) (837)
Carrying amount 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
5. Property, plant and equipment
Six months to 30 June 2016
Carrying amount at 1 January 2016 183 2 989 2 700 15 176
Additions 7 25 - 3 050
Disposals - - - (302)
Acquired through business combination - - - 1 449
Depreciation (47) (30) - (2 055)
Carrying amount at 30 June 2016 143 2 984 2 700 17 318
Six months to 30 June 2015
Carrying amount at 1 January 2015 227 1 129 - 7 052
Additions 20 14 - 3 209
Depreciation (62) (221) - (1 810)
Carrying amount at 30 June 2015 185 922 - 8 451
Year to 31 December 2015
Carrying amount at 1 January 2015 227 1 129 - 7 052
Additions 78 41 - 6 929
Disposals - - - (809)
Acquired through business combination - 3 030 2 700 7 010
Depreciation (122) (1 211) - (5 006)
Carrying amount at 31 December 2015 183 2 989 2 700 15 176
R'000
6. Goodwill
Six months to 30 June 2016
Carrying amount at 1 January 2016 62 501
Acquired through business combinations (refer to note 15) 39 786
Carrying amount at 30 June 2016 102 287
Six months to 30 June 2015
Carrying amount at 1 January 2015 41 280
Acquired through business combinations -
Carrying amount at 30 June 2015 41 280
Year to 31 December 2015
Carrying amount at 1 January 2015 41 280
Acquired through business combinations 21 221
Carrying amount at 31 December 2015 62 501
Client
Computer relation-
software Brands ships
R'000 R'000 R'000
7. Intangible assets
Six months to 30 June 2016
Carrying amount at 1 January 2016 16 555 1 800 9 078
Acquired through business combinations - - 10 180
Additions 1 385 - -
Amortisation (3 257) (535) (2 161)
Carrying amount at 30 June 2016 14 683 1 265 17 097
Six months to 30 June 2015
Carrying amount at 1 January 2015 18 297 2 870 -
Additions 878 - -
Amortisation (3 328) (535) -
Carrying amount at 30 June 2015 15 847 2 335 -
Year to 31 December 2015
Carrying amount at 1 January 2015 18 297 2 870 -
Acquired through business combinations - - 9 330
Additions 4 840 - -
Amortisation (6 582) (1 070) (252)
Carrying amount at 31 December 2015 16 555 1 800 9 078
Work in
progress Total
R'000 R'000
7. Intangible assets
Six months to 30 June 2016
Carrying amount at 1 January 2016 5 478 32 911
Acquired through business combinations - 10 180
Additions 2 430 3 815
Amortisation - (5 953)
Carrying amount at 30 June 2016 7 908 40 953
Six months to 30 June 2015
Carrying amount at 1 January 2015 2 527 23 694
Additions 3 282 4 160
Amortisation - (3 863)
Carrying amount at 30 June 2015 5 809 23 991
Year to 31 December 2015
Carrying amount at 1 January 2015 2 527 23 694
Acquired through business combinations - 9 330
Additions 2 951 7 791
Amortisation - (7 904)
Carrying amount at 31 December 2015 5 478 32 911
8. Segment analysis
The group's segment 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 businesses and their employees
across all industry sectors. Our training programmes are aligned with South African
Qualifications Authority ("SAQA") and accredited with Sector Education and Training Authority
("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; and
- Process Outsourcing, which focuses on delivering productive and functional business process
outsourcing solutions, including the statutory and legal elements associated therewith.
These operating segments are monitored and strategic decisions are made on the basis of
adjusted segment operating results.
Revenues, profit, assets and liabilities generated for each of the group's business
segments are summarised as follows:
Financial and
Staffing and Training and Lifestyle
Recruitment Consulting Products
R'000 R'000 R'000
Six months to June 2016
Segment revenues 1 006 316 47 830 43 343
Inter-segment revenues - 6 026 -
Cost of sales (794 696) (18 531) (15 615)
Operating costs (125 943) (23 504) (22 671)
EBITDA 85 677 11 821 5 057
Depreciation and amortisation
of non-financial assets (1 610) (449) (1 174)
Segment operating profit 84 067 11 372 3 883
Capital expenditure 12 260 104 1 684
Segment total assets 396 782 81 305 189 105
Segment total liabilities (51 120) (52 948) (188 901)
Net segment assets 345 662 28 357 204
Six months to June 2015
Segment revenues 772 039 23 581 32 709
Cost of sales (607 873) (12 545) (9 248)
Operating costs (101 771) (9 702) (17 926)
Other income - - 1 000
EBITDA 62 395 1 334 6 535
Depreciation and amortisation of
non-financial assets (1 400) (338) (1 296)
Segment operating profit 60 995 996 5 239
Capital expenditure 1 135 104 1 684
Segment total assets 251 975 6 835 154 746
Segment total liabilities (44 201) (18 144) (137 155)
Net segment assets/(liabilities) 207 774 (11 309) 17 591
Year to 31 December 2015
Segment revenues 1 665 232 48 210 69 710
Inter-segment revenues 3 5 969 9 414
Cost of sales (1 314 678) (23 606) (21 855)
Inter-segment cost of sales - - (6 778)
Operating costs (213 790) (26 693) (37 093)
Other income 1 700 - -
EBITDA 138 467 3 880 13 398
Depreciation and amortisation
of non-financial assets (2 799) (741) (2 622)
Segment operating profit 135 668 3 139 10 776
Capital expenditure 2 084 17 059 3 343
Segment total assets 311 680 76 034 166 435
Segment total liabilities (18 873) (62 162) (174 910)
Net segment assets/(liabilities) 292 807 13 872 (8 475)
8. Segment analysis (continued)
Revenues, profit, assets and liabilities generated for each of the group's business segments
are summarised as follows:
Employee
Health Process Central
Management Outsourcing cost
R'000 R'000 R'000
Six months to June 2016
Segment revenues 19 856 75 479 -
Inter-segment revenues - - -
Cost of sales (6 472) (68 710) -
Operating costs (11 961) (4 142) (40 670)
EBITDA 1 423 2 627 (40 670)
Depreciation and amortisation of
non-financial assets (444) (48) (2 280)
Segment operating profit 979 2 579 (42 950)
Capital expenditure 1 921 7 2 518
Segment total assets 3 523 28 633 169 934
Segment total liabilities (2 778) (21 078) (156 959)
Net segment assets 745 7 555 12 975
Six months to June 2015
Segment revenues 17 375 60 480 -
Cost of sales (7 221) (59 419) -
Operating costs (8 989) (3 656) (29 964)
Other income - - -
EBITDA 1 165 (2 595) (29 964)
Depreciation and amortisation of
non-financial assets (284) (33) (2 322)
Segment operating profit 881 (2 628) (32 286)
Capital expenditure 1 921 7 2 518
Segment total assets 12 419 24 298 124 868
Segment total liabilities (7 432) (22 863) (43 365)
Net segment assets/(liabilities) 4 987 1 435 81 503
Year to 31 December 2015
Segment revenues 36 591 130 028 -
Inter-segment revenues - - -
Cost of sales (14 915) (119 880) -
Inter-segment cost of sales - - -
Operating costs (18 894) (7 306) (54 783)
Other income - - -
EBITDA 2 782 2 842 (54 783)
Depreciation and amortisation of
non-financial assets (671) (93) (5 984)
Segment operating profit 2 111 2 749 (60 767)
Capital expenditure 2 251 46 6 277
Segment total assets 3 208 17 152 113 024
Segment total liabilities (2 776) (16 692) (57 873)
Net segment assets/(liabilities) 432 460 55 151
8. Segment analysis (continued)
Revenues, profit, assets and liabilities generated for each of the group's business segments
are summarised
as follows:
Consolidation
entries Total
R'000 R'000
Six months to June 2016
Segment revenues - 1 192 824
Inter-segment revenues (6 026) -
Cost of sales - (904 024)
Operating costs 6 026 (222 865)
EBITDA - 65 935
Depreciation and amortisation of non-financial assets (2 003) (8 008)
Segment operating profit (2 003) 57 927
Capital expenditure - 18 494
Segment total assets - 869 282
Segment total liabilities - (473 784)
Net segment assets - 395 498
Six months to June 2015
Segment revenues (1 590) 904 594
Cost of sales - (696 306)
Operating costs 1 590 (170 418)
Other income - 1 000
EBITDA - 38 870
Depreciation and amortisation of non-financial assets - (5 673)
Segment operating profit - 33 197
Capital expenditure - 7 369
Segment total assets - 575 141
Segment total liabilities - (273 160)
Net segment assets/(liabilities) - 301 981
Year to 31 December 2015
Segment revenues - 1 949 771
Inter-segment revenues (15 386) -
Cost of sales - (1 494 934)
Inter-segment cost of sales 6 778 -
Operating costs 8 608 (349 951)
Other income - 1 700
EBITDA - 106 586
Depreciation and amortisation of non-financial assets - (12 910)
Segment operating profit - 93 676
Capital expenditure - 31 060
Segment total assets - 687 533
Segment total liabilities - (333 286)
Net segment assets/(liabilities) - 354 247
9. Taxation
The effective tax rate of 8,6% (2015: [7,7%]) for the period was based on the anticipated
weighted average tax rate for the full financial year. The low tax rate is due to learnership
allowances as well as employment tax incentive income.
Six months Six months Year to
to 30 June to 30 June 31 December
2016 2015 2015
10. Earnings per share
Basic earnings per share
Profit attributable to equity shareholders of the
parent company (R'000) 40 671 27 524 76 785
Weighted average number of shares in issue ('000) 228 534 225 630 225 328
Diluted weighted average number of shares in issue ('000) 222 208 236 514 236 619
Basic earnings per share (cents) 18,0 12,2 34,1
Diluted earnings per share (cents) 17,2 11,6 32,5
Headline earnings per share
The earnings used in the calculation of headline
earnings per share are as follows:
Profit after taxation (R'000) 40 671 27 524 76 785
Headline earnings adjustment (R'000) (217) - (1 806)
- (Gain) on disposal of property, plant and equipment (302) - (809)
- Gain on bargain purchase - - (1 700)
- Tax effect of adjustments 85 - 703
Total headline earnings (R'000) 40 453 27 524 74 979
Weighted average number of shares in issue ('000) 228 534 225 630 225 328
Headline earnings per share (cents) 17,7 12,2 33,3
11. Dividends
No dividend was declared relating to the period under review.
12. Related party transactions
The group, in the ordinary course of business, entered into various sale and purchase
transactions on an arm's length basis at market rates with related parties.
13. Changes to the Board
Ms Lulu Letlape resigned on 1 June 2016 as an Independent Non-Executive Director and member
of the Audit and Risk Committee as well as the Social and Ethics Committee with effect from
31 May 2016. The Board are in the process of finding a suitable replacement and shareholders
will be advised once an appointment has been made.
As announced on SENS on 26 July 2016, Mr Philip Froom was appointed as Chief Executive Officer
with effect from 15 August 2016. Following Mr Froom's appointment to the Board:
- Mr Ronny Katz will no longer serve as acting Chief Executive Officer and will resume his
role as Executive Chairman of the Board and;
- Mr John Macey will cease acting as Chairman of the Board and he will resume his role as lead
independent director and Chairperson of the Audit and Risk Committee; and
- Ms Kyansambo Vundla will cease acting as Chairperson of the Audit and Risk Committee and
she will resume her role as Independent Non-Executive Director and member of the Audit and
Risk Committee.
Six months Six months Year to
to 30 June to 30 June 31 December
2016 2015 2015
14. Notes to the condensed consolidated statement
of cash flows
14.1 Cash generated from operations
Profit before taxation 44 446 26 150 76 723
Interest and dividend income (308) (978) (1 997)
Finance costs 12 076 8 025 17 250
Adjustment for non-cash items:
Loss/(gain) on disposal of property, plant
and equipment 92 - (809)
Depreciation and amortisation of
non-financial assets 8 008 5 673 12 910
Equity-settled share-based payments - - 761
Other - - 61
64 314 38 870 104 899
14.2 Working capital changes
Change in trade and other receivables (80 896) (9 735) (69 404)
Change in inventories (153) 9 (1 026)
Change in share-based payment (501) 310 -
Change in trade and other payables 37 661 5 668 4 363
(43 889) (3 748) (66 067)
Portion of
business
Date of acquired
acquisition % R'000
15. Business combinations
15.1.1 Business acquired
Quyn Group 1 February 2016 100 76 851
Principal activity
Provision of outsourced human resources ("HR") services including
Temporary Employment Services ("TES"), HR outsourcing, payroll bureau
services, HR and industrial relations ("IR") consulting and permanent
placements.
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
Solutions Proprietary Limited, Quyn Payroll Services Proprietary Limited
and Quyn HR Consulting Proprietary Limited.
15.1.2 Consideration transferred
Cash 38 101
Contingent consideration arrangement 38 750
Total 76 851
15.1.3 Contingent consideration
Third payment 6 250
Fourth payment 6 250
Fifth payment 18 750
Sixth payment 7 500
Total additional amount 38 750
Under the contingent consideration arrangement, the group is required
to pay the balance of R38,75 million in 4 installments over a 19 month
period commencing from 1 August 2016. The third, fourth, fifth and sixth
payments fall due on 1 August 2016, 1 November 2016, 1 February 2017,
and 1 February 2018 respectively.
15.1.4 Assets acquired and liabilities recognised at the date of acquisition
Non-current assets
Property, plant and equipment 1 421
Intangible assets 6 180
Current assets
Trade and other receivables 39 909
Cash and cash equivalents 11 169
Current tax 1 074
Equity
Non-controlling interest (423)
Current liabilities
Trade and other payables (16 489)
Taxation payable (2 245)
Deferred tax liability (1 730)
Financial liability (1 148)
Total 37 718
The receivables acquired (principally trade receivables) in this
transaction with fair value of R39 909 000 is equivalent to the gross
contractual amount. All contractual cash flows are expected to
be collected.
15.1.5 Net cash outflow on acquisition of subsidiaries
Consideration paid in cash 38 101
Less: Cash and cash equivalent balance acquired (11 169)
Total 26 932
Goodwill arising on acquisition
Consideration transferred 76 851
Less: Fair value of identifiable net assets (37 718)
Goodwill arising on acquisition 39 133
Goodwill arose on the acquisition of The 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. The intangible asset attributable to this business
combination comprises of client relationships. None of the goodwill arising in the
above acquisition is expected to be deductible for tax purposes.
15.1.6 Impact of acquisitions on results of the group.
Included in the profit for the year is R2,6 million, attributable to the additional
business generated by the Quyn Group. Revenue for the period includes R93 million in
respect of the Quyn Group.
Portion of
business
Date of acquired
acquisition % R'000
15.2.1 Business acquired
Gcubed Boutique Recruitment 1 May 2016 100 3 900
Principal activity
Gcubed is a boutique permanent placement recruitment business that also
provides executive search services
Gcubed was acquired to give Workforce an increased presence in the
permanent placement recruitment sector of outsourcing.
15.2.2 Consideration transferred
Cash 2 500
Contingent consideration arrangement 1 400
Total 3 900
The cash component above was paid on 5 August 2016. Under the
contingent consideration arrangement, the group is required to pay up to
R1,4 million at the end of a one-year period commencing from 1 May
2016, subject to the achievement of PAT of between R714 000 and R1 500
000 during this period. The PBIT for the 12-month period ending 29
February 2016 was R998 000, and the directors do consider it probable
that the additional payments will be required.
15.2.3 Contingent consideration
Second payment 1 400
Total additional amount 1 400
15.2.4 Assets acquired and liabilities recognised at the date of acquisition
Non-current assets
Property, plant and equipment 28
Intangible assets 4 000
Current assets
Trade and other receivables 340
Current liabilities
Deferred tax liability (1 121)
Total 3 247
15.2.5 Net cash outflow on acquisition of subsidiaries
Consideration paid in cash -
Less: Cash and cash equivalent balance acquired -
Total -
Goodwill arising on acquisition
Consideration transferred 3 900
Less: Fair value of identifiable net assets (3 247)
Goodwill arising on acquisition 653
The intangible asset attributable to this business combination comprises continuing
client relationships which are underpinned by restraint of trade agreements in place
with key Gcubed staff. The remaining differential in purchase price and identifiable
tangible and intangible assets has been ascribed to goodwill. This goodwill is not
deductible for tax purposes.
Directors' commentary
Turnover for the six-month period under review reflects an increase of 32% to R1,12 billion (2015:
R905 million). Nineteen percentage points of this increase is attributable towards organic growth
whilst the remainder of the increase is due to the two acquisitions, Prisma Training Solutions
Proprietary Limited ("Prisma Training Solutions") effective 1 October 2015, and the Quyn group of
companies, effective 1 February 2016. A smaller acquisition, Gcubed, was made towards the end of
the reporting period, but did not have a material impact on the results.
The organic growth is mainly attributable to the staffing and recruitment business which has been
able to build on momentum gained towards the end of the 2015 financial year. This growth is driven
by a broad-based improvement in turnover across all regions and especially buoyed by the group's
continued involvement in energy and telecommunication-related infrastructure projects. The training,
financial and lifestyle, employee health management and process outsourcing segments all made
positive contributions and contributed to growth in earnings.
Gross margins improved to 24,2% (2015: 23,0%), primarily due to the acquisition of Prisma Training
Solutions which operates in the high margin training space, as well as slightly higher margins in
the staffing and recruitment business.
The employment tax incentive remains a contributor to the group's results, albeit at lower levels
than 2015.
Whilst the possibility of extending this incentive has been raised in the recent budget speech,
it may be discontinued as from the end of 2016. Strategies are in place to replace this
income stream.
Total operating expenses as a percentage of total turnover is flat at 18,6% (2015: 18,8%).
Management is of the opinion that operating expenses are too high compared to the industry and
efforts continued to be made to reduce this, including further unlocking of organisational and
technological opportunities.
Prisma Training Solutions, acquired effective 1 October 2015, performed to expectation, as
mirrored by the training segment results. The Quyn group of companies, acquired effective
1 February 2016, whilst still contributing positively, had a slow start as bigger projects they
are involved in, will only take off during the second half of the financial year.
EBITDA increased by 69,6% to R65,9 million (2015: R38,9 million) resulting in EBITDA to sales
of 5,5% (2015: 4,3%).
An increase in depreciation and amortisation costs to R8,0 million (2015: R5,7 million), is
almost exclusively due to the amortisation of intangible assets, derived from the
two acquisitions.
Net finance costs increased to R13,5 million (2015: R7,0 million). R3,4 million of this amount
reflects imputed interest as a result of acquisitions made. The differential is due to the
increase in the prime lending rate from the previous year as well as slightly higher levels of
borrowings as a result of funding acquisitions. In spite of this, the interest cover ratio
improved to 5,1 (2015: 4,5).
Earnings per share increased by 48% to 18,0 cents (2015: 12,2 cents), and headline earnings per
share increased by 45% to 17,7 cents.
The increase in goodwill and intangible assets is mostly due to the acquisition of the Quyn
group of companies effective 1 February 2016.
The substantial increase in trade and other receivables also reflects the Quyn acquisition.
Days sales outstanding ("DSO") has, however, deteriorated from 45 days in December 2015 to
49 days as at the reporting date. This reflects an increase in debtor levels typical of
infrastructure projects, and the tougher collection environment. In spite of this the net overdue
book over 90 days still reflects 8% of the total which is in line with December 2015.
Included in non-current and current liabilities are amounts due to sellers of the acquired
companies to the value of R62 million which is payable between reporting date and the 2018
financial year.
The relatively low cash flows generated from operating activities is indicative of the higher
DSO as described above, but also the growth in turnover during the last couple of months of the
reporting period. Debtor management remains a key priority for management.
Looking forward
The group expects the current momentum in the business to be maintained throughout the second
half of the financial year, albeit from a higher base established during the fourth quarter
of 2015. Consideration should also be given to the fact that the temporary employment industry
typically performs better during the second half of the calendar year due to seasonal factors.
Philip Froom was appointed Chief Executive Officer with effect from 15 August and we look forward
to his contributions to the group.
For and on behalf of the Board
RS Katz
Chairman
WP van Wyk
Group Financial Director
Johannesburg
24 August 2016
Executive directors
RS Katz
PM Froom
WP van Wyk
Non-executive directors
NM Anderson
JR Macey
K Vundla
Designated adviser
Merchantec Capital
Company secretary
S van Schalkwyk
Registered office
The registered office, which is also its principal place of business, is:
11 Wellington Road
Parktown
2193
Transfer secretaries
Link Market Services South Africa Proprietary Limited
11 Diagonal Street
Johannesburg
2001
www.workforce.co.za
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