Wrap Text
Audited Summarised Consolidated Results for the Year Ended 31 December 2016
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" or "the company")
Audited summarised consolidated results
for the year ended 31 December 2016
Highlights
- Revenue increased by 29.4% to R2,52 billion
- EBITDA increased by 29.4% to R137,9 million
- Headline earnings per share increased by 20.1% to 40,0 cents
- Net asset value per share increased by 24.2% to R1,95
- Cash flow from operating activities improved to R69,2 million (2015: R22,5 million)
- Cash and cash equivalents available of R75,1 million at 31 December 2016 (2015: R13 million)
- Net interest-bearing debt to total assets has improved to 27% (2015: 36%)
Summarised consolidated statement of financial position
as at 31 December 2016
2016 2015
Notes R'000 R'000
Assets
Non-current assets 199 060 152 097
Property, plant and equipment 6 18 015 15 176
Goodwill 102 287 62 501
Intangible assets 7 39 130 32 911
Deferred tax assets 36 919 38 576
Other financial assets 2 709 2 933
Current assets 688 090 535 410
Trade and other receivables 610 219 517 788
Inventories 2 742 4 111
Taxation - 447
Cash and cash equivalents 8 75 129 13 064
Total assets 887 150 687 507
Equity and liabilities
Equity 446 768 354 247
Equity attributable to owners of the parent 446 491 354 275
Share capital and premium 241 867 241 867
Treasury shares (9 330) (9 488)
Available-for-sale reserve 462 686
Equity-settled employee benefits reserve 2 337 1 659
Reverse acquisition reserve - (125 499)
Retained earnings 211 155 245 050
Non-controlling interests 277 (28)
Non-current liabilities 40 349 34 791
Financial liabilities 30 840 24 076
Deferred tax liabilities 9 509 10 715
Current liabilities 400 033 298 469
Trade and other payables 115 231 88 480
Financial liabilities 283 857 209 989
Taxation 945 -
Total equity and liabilities 887 150 687 507
Summarised consolidated statement of comprehensive income
for the year ended 31 December 2016
Increase/
2016 2015 (decrease)
Notes R'000 R'000 %
Revenue 2 523 405 1 949 771 29.4
Cost of sales (1 924 425) (1 494 934) 28.7
Gross profit 598 980 454 837 31.7
Other income 720 1 700 (57.6)
Operating costs (461 810) (349 951) 32.0
Earnings before interest, taxation, depreciation
and amortisation ("EBITDA") 137 890 106 586 29.4
Depreciation and amortisation of
non-financial assets (17 476) (12 910) 35.4
Operating profit 120 414 93 676 28.5
Finance income 711 297 139.4
Finance costs (29 957) (17 250) 73.7
Profit before taxation 91 168 76 723 18.8
Taxation 735 758 (3.0)
Profit for the year 91 903 77 481 18.6
Other comprehensive income for the year,
net of tax: (224) 917
Fair value gain on available-for-sale
financial assets
to be reclassified subsequent to profit or loss (224) 917
Total comprehensive income for the year 91 679 78 398 18.1
Profit for the year attributable to:
Owners of the parent 91 604 76 785
Non-controlling interests 299 696
91 903 77 481 18.6
Total comprehensive income attributable to:
Owners of the parent 91 380 77 702
Non-controlling interests 299 696
91 679 78 398 16.9
Earnings per share (cents per share)
Basic earnings per share 9 40,1 34,1 17.6
Diluted earnings per share 9 38,1 32,5 17.2
Headline earnings per share 9 40,0 33,3 20,1
Summarised consolidated statement of changes in equity
for the year ended 31 December 2016
Attributable to owners of the parent
Equity-
Share settled
capital Available- employee
and Treasury for-sale benefits
premium shares reserve reserve
R'000 R'000 R'000 R'000
Balance at 1 January 2015 236 867 (7 616) (231) 898
Payment of dividends - - - -
Recognition of share-based payments - - - 761
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 - - 917 -
Balance at 1 January 2016 241 867 (9 488) 686 1 659
Payment of dividends - - - -
Recognition of share-based payments - - - 1 536
Buy-back of shares - (1 714) - -
Issue of ordinary shares under employee
share option plan - 1 872 - (858)
Additional non-controlling interest
arising on business combination - - - -
Transfer of reverse acquisition reserve
to retained earnings - - - -
Total comprehensive income for the year - - (224) -
Balance at 31 December 2016 241 867 (9 330) 462 2 337
Attributable to owners of the parent
Reverse
acquisition Retained
reserve earnings Total
R'000 R'000 R'000
Balance at 1 January 2015 (125 499) 168 265 272 684
Payment of dividends - - -
Recognition of share-based payments - - 761
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 - 76 785 77 702
Balance at 1 January 2016 (125 499) 245 050 354 275
Payment of dividends - - -
Recognition of share-based payments - - 2 536
Buy-back of shares - - (1 714)
Issue of ordinary shares under employee
share option plan - - 1 014
Additional non-controlling interest
arising on business combination - - -
Transfer of reverse acquisition reserve
to retained earnings 125 499 (125 499) -
Total comprehensive income for the year - 91 604 91 380
Balance at 31 December 2016 - 211 155 447 491
Non-
controlling Total
interests equity
R'000 R'000
Balance at 1 January 2015 (371) 272 313
Payment of dividends (353) (353)
Recognition of share-based payments - 761
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 696 78 398
Balance at 1 January 2016 (28) 354 247
Payment of dividends (417) (417)
Recognition of share-based payments - 2 536
Buy-back of shares - (1 714)
Issue of ordinary shares under employee
share option plan - 1 014
Additional non-controlling interest arising
on business combination 423 423
Transfer of reverse acquisition reserve to
retained earnings - -
Total comprehensive income for the year 299 91 679
Balance at 31 December 2016 277 447 768
Summarised consolidated statement of cash flows
for the year ended 31 December 2016
2016 2015
Notes R'000 R'000
Cash generated from operations before net working
capital changes 109 763 88 638
Cash generated from operations 10.1 136 989 104 899
Finance income 711 297
Finance costs (26 493) (17 250)
Taxation paid 10.2 (1 444) 692
Increase in net working capital 10.3 (40 551) (66 067)
Cash flows from operating activities 69 212 22 571
Cash flows from investing activities (55 992) (26 098)
Property, plant and equipment acquired - maintaining
operations 6 (7 170) (6 929)
Proceeds on disposal of property, plant and equipment 791 1 562
Dividend income 720 1 700
Intangible assets acquired - maintaining operations 7 (8 452) (7 791)
Net cash flow on acquisition of business combinations 10.4 (41 881) (14 640)
Cash flows from financing activities 48 845 6 271
Increase of borrowings 51 834 8 496
Payment for buy-back of shares (1 714) (1 872)
Cash-settled share-based payments (858) -
Dividends paid (417) (353)
Net change in cash and cash equivalents 62 065 2 744
Cash and cash equivalents at the beginning of the year 13 064 10 320
Cash and cash equivalents at the end of the year 10.5 75 129 13 064
Notes to the summarised consolidated results
for the year ended 31 December 2016
1. Nature of operations and general information
Workforce Holdings and its group of companies is a leading, trusted provider of employment,
training, healthcare wellness, financial services and lifestyle services and benefits to
individuals and their employers. Our human capital solutions include: temporary employment
services, permanent placement recruitment, training and skills development, healthcare and
wellness, disability solutions, financial and lifestyle services and business
process outsourcing.
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 ("the board") 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 results have
been prepared in accordance with the Listings Requirements of the JSE Limited, International
Accounting Standard (IAS) 34, SAICA Financial Reporting Guides 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 consolidated results for the year ended 31 December 2016
were compiled under the supervision of W van Wyk, the group financial director. The
summarised consolidated results have been prepared in accordance with International
Financial Reporting Standards ("IFRS") and have been applied consistently with
the accounting policies applied in the annual financial statements for the year ended
31 December 2016.
3. Audit opinion
The summarised consolidated results for the year ended 31 December 2016 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
The integrated annual report for the year ended 31 December 2016 will be despatched to
shareholders on 31 March 2017.
5. Events after reporting date
Effective 1 January 2017, KBC Holdings Proprietary Limited and 1 February 2017 Oxyon Human
Capital Solutions Proprietary Limited were acquired by Workforce Holdings Limited for
maximum contingent considerations of R47 million and R9 million respectively, and effective
1 March 2017, Day-Click Limited was acquired by Workforce Holdings Limited for a
consideration of R484 000.
Accum- Accum-
ulated ulated
deprec- Carrying depre- Carrying
Cost iation value Cost iation value
2016 2016 2016 2015 2015 2015
R'000 R'000 R'000 R'000 R'000 R'000
6. Property, plant and equipment
Motor vehicles 9 218 (5 525) 3 693 8 296 (4 903) 3 393
Computer equipment 24 805 (20 665) 4 140 20 259 (17 735) 2 524
Industrial equipment 5 522 (3 650) 1 872 4 674 (2 648) 2 026
Office equipment 15 261 (12 434) 2 827 12 322 (10 961) 1 361
Leasehold improvements 1 268 (1 138) 130 1 242 (1 059) 183
Training manuals 9 854 (7 201) 2 653 9 677 (6 688) 2 989
Land and buildings 2 700 - 2 700 2 700 - 2 700
68 628 (50 613) 18 015 59 170 (43 994) 15 176
The carrying value of property, plant and equipment can be reconciled as follows:
Motor Computer Industrial
vehicles equipment equipment
R'000 R'000 R'000
Carrying value at 1 January 2015 2 105 1 865 463
Additions 1 668 2 251 1 975
Disposals (570) (225) -
Acquired through business combinations 1 212 35 -
Depreciation (1 022) (1 402) (412)
Carrying value at 31 December 2015 3 393 2 524 2 026
Additions 984 3 345 445
Disposals (637) (23) (16)
Acquired through business combinations 1 259 43 53
Depreciation (1 306) (1 749) (636)
Carrying value at 31 December 2016 3 693 4 140 1 872
Leasehold
Office improve- Training
equipment ments manuals
R'000 R'000 R'000
Carrying value at 1 January 2015 1 263 227 1 129
Additions 916 78 41
Disposals (14) - -
Acquired through business combinations 33 - 3 030
Depreciation (837) (122) (1 211)
Carrying value at 31 December 2015 1 361 183 2 989
Additions 2 193 25 178
Disposals - - -
Acquired through business combinations 62 - -
Depreciation (789) (78) (514)
Carrying value at 31 December 2016 2 827 130 2 653
Land and
buildings Total
R'000 R'000
Carrying value at 1 January 2015 - 7 052
Additions - 6 929
Disposals - (809)
Acquired through business combinations 2 700 7 010
Depreciation - (5 006)
Carrying value at 31 December 2015 2 700 15 176
Additions 7 170
Disposals - (676)
Acquired through business combinations - 1 417
Depreciation - (5 072)
Carrying value at 31 December 2016 2 700 18 015
All depreciation charges are included in "Depreciation and amortisation of non-financial
assets" in the statement of comprehensive income. No property, plant and equipment has
been impaired during the year (2015: Nil).
The net book value of motor vehicles held under instalment credit agreements at
31 December 2016 amounted to R1 460 340 (2015: R2 152 341). Motor vehicles acquired under
instalment credit agreements amounted to R728 139 (2015: R1 147 227).
The Quyn Group was acquired on 1 February 2016, in order to give Workforce an increased
presence in the provision of outsourced technical skills. Property, plant and equipment to
the value of R1 389 000 was acquired as part of the business combination.
Gcubed was acquired on 1 May 2016 in order to increase Workforce's skills base and to
enhance its permanent placement and executive search capability. Property, plant and
equipment to the value of R28 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.
Accumu- Accumu-
lated lated
deprec- Carrying deprec- Carrying
Cost iation value Cost iation value
2016 2016 2016 2015 2015 2015
R'000 R'000 R'000 R'000 R'000 R'000
7. Intangible assets
Computer software 51 162 (35 407) 15 755 45 711 (29 156) 16 555
Brands 3 209 (2 453) 756 3 209 (1 409) 1 800
Client relationships 19 510 (5 443) 14 067 9 330 (252) 9 078
Work in progress 8 552 - 8 552 5 478 - 5 478
82 433 (43 303) 39 130 63 728 (30 817) 32 911
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 2015 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
Additions 5 378 -
Disposals (9) - -
Acquired through business combinations - - 10 180
Amortisation (6 169) (1 044) (5 191)
Carrying value at 31 December 2016 15 755 756 14 067
Work in
progress Total
R'000 R'000
Carrying value at 1 January 2015 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
Additions 3 074 8 452
Disposals - (9)
Acquired through business combinations - 10 180
Amortisation - (12 404)
Carrying value at 31 December 2016 8 552 39 130
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 (2015: Nil). Computer software is mostly internally
generated.
The Quyn Group was acquired on 1 February 2016, in order to give Workforce an increased
presence in the provision of outsourced technical skills. Intangibles to the value of
R6 180 000 was acquired as part of the business combination.
Gcubed was acquired on 1 May 2016 in order to increase Workforce's skills base and to
enhance its permanent placement and executive search capability. Intangibles to the value
of R4 000 000 were acquired as part of the business combination.
The group has no further contractual commitments to acquire intangible assets at
reporting date.
2016 2015
R'000 R'000
8. Cash and cash equivalents
Cash and cash equivalents include the following components:
Cash at bank and in hand 74 181 12 142
Short-term deposits 948 922
75 129 13 064
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) 91 604 76 785
Weighted average number of ordinary shares in issue ('000) 228 577 225 328
Diluted weighted average number of shares in issue ('000) 240 643 236 619
Basic earnings per share (cents) 40,1 34,0
Diluted earnings per shares (cents) 38,1 32,5
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) 91 604 76 785
Headline earnings adjustment (R'000) (87) (1 806)
(Gain) on disposal of property, plant and equipment (121) (809)
Dividend income - (1 700)
Tax effects of adjustments 34 703
Total headline earnings (R'000) 91 517 74 979
Weighted average number of shares in issue ('000) 228 577 225 328
Headline earnings per share (cents) 40,0 33,3
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: 228 577 225 328
Shares deemed to be issued in respect of:
Employee options 12 066 11 291
Weighted average number of ordinary shares in the calculation
of diluted earnings per share 240 643 236 619
2016 2015
R'000 R'000
10. Notes to the statement of cash flows
10.1 Cash generated from operations
Profit before taxation 91 168 76 723
Interest income (711) (297)
Dividend income (720) (1 700)
Finance costs 26 489 17 250
Adjusted for non-cash items:
Gain on disposal of property, plant and equipment (121) (809)
Depreciation and amortisation of non-financial assets 17 476 12 910
Equity-settled share-based payments 1 536 761
Shares issued 1 872 -
Other - 61
136 989 104 899
10.2 Taxation paid
Charged to profit or loss 735 758
Adjusted for deferred tax (2 400) (520)
Movement in taxation balance 221 454
(1 444) 692
10.3 Working capital changes
Change in trade and other receivables (52 182) (69 404)
Change in inventories 1 369 (1 026)
Change in trade and other payables 10 262 4 363
(40 551) (66 067)
10.4 Net cash flow on acquisition of business combinations
Net cash outflow on the acquisition of subsidiaries
Quyn Group (39 381) -
Net cash outflow on the acquisition of subsidiaries
Gcubed (2 500) -
Net cash outflow on the acquisition of subsidiaries -
prior year acquisition - (14 640)
(41 881) (14 640)
10.5 Cash and cash equivalents
Bank and cash balances (note 8) 75 129 13 064
75 129 13 064
11. Segment reporting
The group's segmental analysis is based on the following five core business segments:
- Staffing and Recruitment: Comprises the provision of staff and labour outsourcing
solutions and recruitment and specialist staffing, which includes permanent and
temporary placements, ad-response handling, executive search and the importing and
exporting of skills.
- Training and Consulting: Comprises the provision of industry and job-specific skills
assessments and training interventions to business and their employees across all
industry sectors.
- Employee Health Management: Comprises the provision of a comprehensive range of
occupational and primary health management services and assistance and wellness
services.
- Financial and Lifestyle Products: Comprises the provision of a range of lifestyle
products and support services to employees and their families.
- Process Outsourcing: Comprises the delivery of 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:
Employee
Staffing and Training and health
recruitment consulting management
R'000 R'000 R'000
2016
Segment revenues 2 160 288 88 383 39 508
Inter-segment revenue 1 614 16 361 -
Cost of sales (1 702 335) (43 862) (13 628)
Inter-segment cost
of sales (1 616) - -
Operating costs (284 660) (35 704) (22 884)
Other income - - -
EBITDA 173 291 25 178 2 996
Depreciation and amortisation of
non-financial assets (3 691) (870) (865)
Segment operating profit 169 600 24 308 2 131
Capital expenditure 21 548 1 591 617
Segment total assets 402 977 79 401 2 883
Segment total liabilities (54 217) (64 249) (2 915)
Net segment assets 348 760 15 152 (32)
2015
Segment revenues 1 665 232 48 210 36 591
Inter-segment revenue 3 5 969 -
Cost of sales (1 314 678) (23 606) (14 915)
Inter-segment cost
of sales - - -
Operating costs (213 790) (26 693) (18 894)
Other income - - -
EBITDA 136 767 3 880 2 782
Depreciation and amortisation of
non-financial assets (2 799) (741) (671)
Segment operating profit 133 968 3 139 2 111
Capital expenditure 2 084 17 059 2 251
Segment total assets 311 680 76 034 3 208
Segment total liabilities (18 873) (62 162) (2 776)
Net segment assets 292 807 13 872 432
Shared
Financial and services
lifestyle Process and central
products outsourcing costs
R'000 R'000 R'000
2016
Segment revenues 93 490 141 736 -
Inter-segment revenue 4 026 12 734 -
Cost of sales (30 927) (130 224) (3 449)
Inter-segment cost of sales (4 026) (12 360) -
Operating costs (48 708) (9 230) (77 357)
Other income 720 - -
EBITDA 14 575 2 656 (80 806)
Depreciation and amortisation of
non-financial assets (2 177) (108) (4 874)
Segment operating profit 12 398 2 548 (85 680)
Capital expenditure 3 397 65 -
Segment total assets 221 954 5 145 174 790
Segment total liabilities (237 202) (4 537) (76 262)
Net segment assets (15 248) 608 97 528
2015
Segment revenues 69 710 130 028 -
Inter-segment revenue 9 414 - -
Cost of sales (21 855) (119 880) -
Inter-segment cost of sales (6 778) - -
Operating costs (37 093) (7 306) (54 783)
Other income 1 700 - -
EBITDA 15 098 2 842 (54 783)
Depreciation and amortisation of
non-financial assets (2 622) (93) (5 984)
Segment
operating profit 12 476 2 749 (60 767)
Capital expenditure 3 343 46 6 277
Segment total assets 166 435 17 152 113 024
Segment total liabilities (174 910) (16 692) (57 873)
Net segment assets (8 475) 460 55 151
Consoli-
dation
entries Total
R'000 R'000
2016
Segment revenues - 2 523 405
Inter-segment revenue (34 735) -
Cost of sales - (1 924 425)
Inter-segment cost of sales 18 002 -
Operating costs 16 733 (461 810)
Other income - 720
EBITDA - 137 890
Depreciation and amortisation
of non-financial assets (4 891) (17 476)
Segment operating profit (4 891) 120 414
Capital expenditure - 27 218
Segment total assets - 887 150
Segment total liabilities - (440 382)
Net segment assets - 446 768
2015
Segment revenues - 1 949 771
Inter-segment revenue (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 - 354 247
Directors' commentary
Background and year under review
Workforce Holdings is a leading and trusted provider of employment, training, healthcare
wellness and financial services and lifestyle benefits to individuals and their employers,
across all industries throughout the economy.
Our purpose is to make a meaningful and sustainable difference to people's lives by finding
employment for people and to further empower them by providing access to appropriate
training, healthcare wellness, financial services and lifestyle benefits. These key objectives
and goals are aligned with those of the South African government.
We are proud to report that we employ 1 186 people and paid 75 138 temporary contractors during
the year under review. In addition, we trained 14 573 people (3 109 on learnership and
internship programmes), have issued over 24 000 lifestyle benefit insurance policies and
conducted over 50 000 medical examinations through our 27 operating brands, network of
93 branches and nine training centres across South Africa.
Financial performance
Our results for the reporting period have shown significant improvement on previous years.
This has been achieved against the backdrop of a sluggish economy coupled with ever increasing
levels of unemployment and amended labour regulations. The prevailing tough economic environment
has highlighted the resilience of our diversified and integrated business model, reinforced by
the effectiveness of our customer-centric product and service solutions that have been delivered
to the market from our national branch network.
These results were achieved mainly from a strong performance in our two largest operating
segments - the staffing and recruitment segment, led by our core blue collar Workforce Staffing
business, and our training segment, which benefited from the acquisition of Prisma Training
Solutions Proprietary Limited ("Prisma") in October 2015 and which was included in our results
for a full 12 months for the first time during this financial year.
Turnover for the 2016 fiscal year reflects an increase of 29.4% to R2,52 billion
(2015: R1,95 billion). Turnover grew organically by 16.6% whilst the remainder of the increase
is attributable to the two acquisitions made during the 2015 and 2016 financial years, namely
Prisma and the Quyn group of companies, effective 1 February 2016. Operating costs have
increased by 32% while operating costs as a percentage of revenue is at 18.3% (2015: 17.9%).
Operating expenses were negatively affected by an increase in trade receivable impairments of
R29,5 million (2015: R8,5 million) and an increased spend in shared services, to support
business growth.
EBITDA increased by 29.4% to R137,9 million (2015: R106,6 million). EBITDA attributable to
organic growth, though positive, has been negated by the increase in trade receivable
impairments and shared services costs as described above. The companies acquired during the
2015 and 2016 financial years contributed R25,4 million (2015: R1,5 million) to EBITDA.
However, due to the IFRS charges of imputed interest, intangible amortisations, and incremental
interest paid on the increased debt to fund the acquisitions, the contribution of the acquired
companies to our earnings per share has been marginal.
Our diversification strategy is starting to bear fruit with the staffing and recruitment
segment now contributing 79% of our segmental EBITDA versus an 86% contribution in 2015. Our
training and consulting operating segment has grown significantly and now comprises 11.5% of
our segmented EBITDA (2.4% in 2015). We will continue to drive growth in our training segment
both organically and acquisitively. We recognise too that the staff outsourcing segment of our
group is an important and growing business and, coupled with the consolidated opportunities in
this industry, we will continue to pursue potential acquisitions in this space.
The increase in depreciation and amortisation to R17,4 million (2015: R12,9 million) primarily
relates to intangible asset amortisation as a result of the acquisitions.
Net interest cost increased to R29,2 million (2015: R16,9 million). The increase is mostly
attributable to imputed interest as prescribed by International Financial Reporting Standards,
as well as relatively higher debt levels during the year due to acquisitions funded
by debt. Despite this, net debt levels increased only marginally by 8.4% at year end to
R239,5 million (2015: R221 million).
Headline earnings per share increased by 20.1% to 40,0 cents (2015: 33,3 cents).
Taxation
The group continued to benefit from the employment tax incentive programme as well as from
learnership allowances in terms of section 12H of the Income Tax Act, 1962 (Act 58 of 1962).
The result is a near net nil tax expense for the financial year.
The employment tax incentive represents a lower percentage of total EBITDA in 2016 relative to
2015 but remains a significant contributor to our financial results. This program, which
incentivises the employment of youth for new projects, was extended until February 2019.
The learnership tax allowances have been extended until 1 April 2022.
Cash flow
Days sales outstanding has remained relatively stable at 46 days (2015: 45 days).
Overdue debtors older than 90 days improved to 5.0% (2015: 7.8%). Operating cash flows
generated improved to R69,2 million (2015: R22,5 million). The group's operating cash
conversion ratio improved to 70% (2015: 36%). This ratio has been curtailed by the high growth
experienced during the year as well as the higher than normal bad debt write offs as described
earlier in this review. Cash flows from operating activities was mostly utilised to fund
acquisition of businesses to the amount of R41,9 million (2015: R14,6 million). The group
ended the year with cash and cash equivalents of R75,1 million (2015: R13,1 million).
Gearing
Net interest bearing debt to total assets improved to 27% (2015: 36%) despite payments arising
from acquisitions. Included in interest bearing debt are contingent amounts owing to sellers
of acquired companies to the amount of R45 million (2015: R22 million).
Group structure and Africa
In alignment with our strategy to diversify the group's income, we continued our efforts to
solidify leadership and management structures. In addition to the appointment of Philip Froom
as group CEO, we are also currently expanding the depth and quality of our internal
audit, financial resources and group financial department. The growth in our underlying
businesses is also necessitating further investments in our shared services areas including
information technology, human resources, marketing and legal.
The restructure of our core business, Workforce Staffing and the appointment of Sean Momberg as
its managing director in January 2016, produced positive results with this business gaining
market share and delivering particularly pleasing returns. The period under review also saw
the official commencement of Workforce Africa operations and branches were opened in Mozambique,
Namibia and Botswana. We are currently investigating partnership opportunities in other African
territories. Our presence in these territories has been initiated on a conservative basis to
establish an operational footprint with as little risk as possible and has largely been pursued
via our existing client base.
Workforce delegates authority and responsibility to its divisions and businesses to give its
people a sense of ownership and responsibility. This motivates them to innovate within a
defined business model and risk parameters, enhanced by corporate support and shared services,
including a governance framework.
Acquisitions
During the financial year under review, we continued with our stated acquisition strategy of
actively seeking to grow market share within both our core business and our diversified service
offerings by sourcing and concluding relevant and meaningful acquisitions of suitable businesses.
We have refined our acquisition criteria and have become more efficient in identifying quality,
businesses which are profitable and cash generative and that are also underpinned by strong
management teams that share Workforce's entrepreneurial culture and values. Prisma,
the mining focused training provider as reported above performed well and has exceeded its
profit projections.
On 1 February 2016, we concluded the acquisition of the Quyn group of companies ("Quyn").
Quyn is primarily a temporary employment services ("TES") provider which focuses on the
outsourcing of higher skilled technical and engineering staff, whilst also providing allied
services such as payroll administration and human resources/industrial relations services.
This acquisition has allowed Workforce to broaden and upgrade its temporary skills offering
into the market and to also diversify its client base. Whilst Quyn has contributed positively
to the profitability of the group, it has also been impacted by delays in the commencement
of certain infrastructural projects.
With effect from 1 May 2016, we acquired the business of Gcubed Boutique Recruitment ("Gcubed")
as a going concern. Gcubed is a niche permanent placement recruitment and executive search
business. The transaction, while not material from a size or value perspective, has given the
group access to a unique skillset in the executive search arena whilst at the same time
complementing our existing recruitment businesses.
We continue evaluating and assessing a range of acquisition opportunities. Acquisitive growth
remains a core strategic thrust for the group.
Events after reporting date
Effective 1 January 2017, KBC Holdings Proprietary Limited ("KBC") was acquired by the group
for a maximum contingent consideration of R47 million. KBC is a training business that provides
induction training and safety health and environment training as well as contractor on-boarding
and management services primarily to the mining and minerals sectors, where KBC enjoys
meaningful market share and brand equity.
Effective 1 February 2017, the business of Oxyon Human Capital Solutions, was acquired for a
maximum contingent consideration of R9 million. Oxyon was established 20 years ago as a TES
provider and permanent placement recruitment business with a niche focus on higher level
technical and artisanal skills, primarily within the engineering industry.
Effective 1 March 2017, we acquired 76% of Day-Click Limited, a business that provides TES and
permanent recruitment services in Mauritius.
Management anticipates that meaningful synergies and value will be unlocked from the
above acquisitions.
The board
During the year, non-executive director Lulu Letlape resigned. The board extends its
appreciation to Lulu for the valuable contribution she made to the group during the six years
she served on the board.
Philip Froom was appointed as an executive director and group chief executive officer in August 2016.
Shelley Thomas was appointed as a non-executive director, a member of the audit and risk
committee and chairperson of the social and ethics committee in December 2016.
Investor policy
Diversification of our shareholder base and an improvement in the liquidity of our shares
on the JSE is constantly being considered. Communication with shareholders, the capital markets
and all our stakeholders have been deliberately enhanced. This coupled with our improved
financial performance has seen Workforce's market capitalisation exceed R500 million
for the first time.
Outlook
The nature of the group's business model is defensive in nature and the various businesses that
make up the Workforce group of companies continue to benefit from the various initiatives that
the government introduces to drive economic growth.
Government aims to transform the economy through training, job creation and increased investment.
Government's progress on its delayed infrastructure development plans should result in further
demand for our group's services.
From a regulatory point of view, we welcome the introduction of a minimum wage and although it
may initially create a degree of uncertainty, in the longer term, we believe it will improve the
stability of labour in the country and will provide fairer and more sustainable pay structures.
We do not, at this stage, believe it will have any material impact on our earnings.
With the activities and services that our group undertakes, we create shared value by making a
meaningful and sustainable difference in people's lives and see ourselves as a substantial
contributor to the socio-economic development of the communities in which we operate. There is a
clear sense of purpose within the group and our business unit leaders are optimistic about the
prospects of their respective businesses.
Appreciation
People are the heart of our business and we would like to thank our group's directors, managers,
employees and professional advisers for their ongoing passion and contribution to the various
businesses of the group. We also extend our appreciation to our outsourced employees, trainees,
learners and interns for the dedication and commitment they continue to display and to our
customers for the faith that they have demonstrated in our ability to provide the vital
component of labour into their organisations. Collectively, their contribution and confidence
is paramount to our business success.
Ronny Katz
Executive chairman
Philip Froom
Chief executive officer
Willie van Wyk
Financial director
Executive directors
RS Katz
PM Froom
WP van Wyk
Non-executive directors
NM Anderson
JR Macey
K Vundla
S Thomas
Designated adviser
Merchantec Proprietary Limited trading as 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
PO Box 11137
Johannesburg
2000
Transfer secretaries
Link Market Services (South Africa) Proprietary Limited
11 Diagonal Street
Johannesburg
2001
Commercial bankers
ABSA Business Bank
Company registration number
2006/018145/06
Website address
www.workforce.co.za
Date: 23/03/2017 07:10:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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