Wrap Text
Unaudited Condensed Interim Financial Results
for the Six Months Ended 30 June 2017
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")
Unaudited condensed interim financial results
for the six months ended 30 June 2017
Highlights
- Revenue increased by 14.5% to R1,4 billion
- EBITDA increased by 4.7% to R69 million
- Net asset value per share increased by 22.9% to R2,15
- Tangible net asset value per share increased by 19.6% to R1,32
- Cash flows from operating activities improved to R45 million (June 2016: R10 million)
- Headline earnings per share ("HEPS") increased by 5.1% to 18,6 cents
- Diluted earnings per share increased by 6.4% to 18,3 cents
Condensed consolidated statement of comprehensive income
for the six months ended 30 June 2017
Six months Six months Year to
to 30 June to 30 June Increase/ 31 December
2017 2016 (decrease) 2016
Notes R'000 R'000 % R'000
Revenue 1 366 109 1 192 824 14.5 2 523 405
Cost of sales (1 053 104) (904 024) 16.5 (1 924 425)
Gross profit 313 005 288 800 8.4 598 980
Other income - - 720
Operating costs (243 945) (222 865) 9.5 (461 810)
Earnings before interest, taxation,
depreciation and amortisation
("EBITDA") 69 060 65 935 4.7 137 890
Depreciation and amortisation of
non-financial assets (12 969) (8 008) 62.0 (17 476)
Operating profit 56 091 57 927 (3.2) 120 414
Finance income 606 308 96.8 711
Finance costs (13 602) (13 789) (1.4) (29 957)
Profit before taxation 43 095 44 446 (3.0) 91 168
Taxation (expense)/credit 9 (1 574) (3 811) (58.7) 735
Profit for the period 41 521 40 635 2.2 91 903
Other comprehensive income/(loss)
for the period 375 (46) (224)
Fair value gains/(losses) on
available-for-sale financial assets 375 (46) (224)
Total comprehensive income for
the period 41 896 40 589 91 679
Income for the period
attributable to:
Owners of the parent 42 461 40 671 91 604
Non-controlling interests (940) (36) 299
41 521 40 635 91 903
Total comprehensive income
attributable to:
Owners of the parent 42 836 40 625 91 380
Non-controlling interests (940) (36) 299
41 896 40 589 91 679
Earnings per share (cents) 10
Basic 18,7 18,0 40,1
Diluted 18,3 17,2 38,1
Condensed consolidated statement of financial position
at 30 June 2017
As at As at As at
30 June 30 June 31 December
2017 2016 2016
Notes R'000 R'000 R'000
Assets
Non-current assets 247 732 198 156 199 060
Property, plant and equipment 5 19 784 17 318 18 015
Goodwill 6 141 166 102 287 102 287
Intangible assets 7 48 188 40 953 39 130
Deferred tax assets 35 510 34 711 36 919
Other financial assets 3 084 2 887 2 709
Current assets 679 753 671 126 688 090
Trade and other receivables 651 676 638 609 610 219
Inventories 3 294 4 264 2 742
Cash and cash equivalents 24 783 28 253 75 129
Total assets 927 485 869 282 887 150
Equity and liabilities
Equity 489 104 395 498 446 768
Share capital and premium 241 867 241 867 241 867
Treasury shares (12 454) (8 748) (9 330)
Reverse acquisition reserve - (125 499) -
Available-for-sale reserve 837 640 462
Equity-settled employee
benefits reserve 5 901 1 158 2 337
Retained earnings 253 616 285 721 211 155
Equity attributable to owners of the parent 489 767 395 139 446 491
Non-controlling interests (663) 359 277
Non-current liabilities 54 434 77 197 40 349
Financial liabilities 40 278 66 581 30 840
Deferred tax liabilities 14 156 10 616 9 509
Current liabilities 383 947 396 587 400 033
Trade and other payables 145 006 142 630 115 231
Financial liabilities 238 224 251 379 283 857
Taxation 717 2 578 945
Total equity and liabilities 927 485 869 282 887 150
Condensed consolidated statement of changes in equity
Share
capital and
premium
R'000
For the six months ended 30 June 2017
Balance at 1 January 2017 241 867
Recognition of share-based payments -
Buy-back of shares -
Total comprehensive income for the period -
Balance at 30 June 2017 241 867
For the six months ended 30 June 2016
Balance at 1 January 2016 241 867
Recognition of share-based payments -
Issue of ordinary shares under employee share option plan -
Additional non-controlling interest arising on business combination -
Total comprehensive income for the period -
Balance at 30 June 2016 241 867
For the year ended 31 December 2016
Balance at 1 January 2016 241 867
Payment of dividends -
Recognition of share-based payments -
Buy-back of shares -
Issue of ordinary shares under employee share option plan -
Additional non-controlling interest arising on business combination -
Transfer of reverse acquisition reserve to retained earnings -
Total comprehensive income for the year -
Balance at 31 December 2016 241 867
Attributable to owners of the parent
Equity-
settled
Available- employee
Treasury for-sale benefits
shares reserve reserve
R'000 R'000 R'000
For the six months ended 30 June 2017
Balance at 1 January 2017 (9 330) 462 2 337
Recognition of share-based payments - - 3 564
Buy-back of shares (3 124) - -
Total comprehensive income for the period - 375 -
Balance at 30 June 2017 (12 454) 837 5 901
For the six months ended 30 June 2016
Balance at 1 January 2016 (9 488) 686 1 659
Recognition of share-based payments - - 357
Issue of ordinary shares under employee share
option plan 740 - (858)
Additional non-controlling interest arising on
business combination - - -
Total comprehensive income for the period - (46) -
Balance at 30 June 2016 (8 748) 640 1 158
For the year ended 31 December 2016
Balance at 1 January 2016 (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 (9 330) 462 2 337
Attributable to owners of the parent
Reverse
acquisition Retained
reserve earnings Total
R'000 R'000 R'000
For the six months ended 30 June 2017
Balance at 1 January 2017 - 211 155 446 491
Recognition of share-based payments - - 3 564
Buy-back of shares - - (3 124)
Total comprehensive income for the period - 42 461 42 836
Balance at 30 June 2017 - 253 616 489 767
For the six months ended 30 June 2016
Balance at 1 January 2016 (125 499) 245 050 354 275
Recognition of share-based payments - - 357
Issue of ordinary shares under employee share
option plan - - (118)
Additional non-controlling interest arising on
business combination - - -
Total comprehensive income for the period - 40 671 40 625
Balance at 30 June 2016 (125 499) 285 721 395 139
For the year ended 31 December 2016
Balance at 1 January 2016 (125 499) 245 050 354 275
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 - - 1 014
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 - 211 155 446 491
Non-
controlling
interest Total
R'000 R'000
For the six months ended 30 June 2017
Balance at 1 January 2017 277 446 768
Recognition of share-based payments - 3 564
Buy-back of shares - (3 124)
Total comprehensive income for the period (940) 41 896
Balance at 30 June 2017 (663) 489 104
For the six months ended 30 June 2016
Balance at 1 January 2016 (28) 354 247
Recognition of share-based payments - 357
Issue of ordinary shares under employee share option plan - (118)
Additional non-controlling interest arising on business combination 423 423
Total comprehensive income for the period (36) 40 589
Balance at 30 June 2016 359 395 498
For the year ended 31 December 2016
Balance at 1 January 2016 (28) 354 247
Payment of dividends (417) (417)
Recognition of share-based payments - 1 536
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 277 446 768
Condensed consolidated statement of cash flows
for the six months ended 30 June 2017
Six months Six months Year to
to 30 June to 30 June 31 December
2017 2016 2016
Notes R'000 R'000 R'000
Cash generated from operations before
net working capital changes 55 735 53 959 109 763
Cash generated from operations 14.1 66 340 66 768 136 989
Finance income 606 308 711
Finance costs (11 163) (12 076) (26 493)
Taxation paid (48) (1 041) (1 444)
Increase in net working capital 14.2 (10 405) (43 889) (40 551)
Cash flows from operating activities 45 330 10 070 69 212
Cash flows from investing activities (46 461) (33 587) (55 992)
Property, plant and equipment
acquired - maintaining operations 5 (3 508) (3 050) (7 170)
Proceeds on disposal of property, plant
and equipment 565 210 791
Dividend income - - 720
Intangible assets acquired - maintaining
operations 7 (2 989) (3 815) (8 452)
Net cash flow on acquisition of
business combinations 14.3 (40 529) (26 932) (41 881)
Cash flows from financing activities (49 215) 38 706 48 845
(Repayment)/increase of borrowings (46 091) 40 420 51 834
Payment for buy-back of shares (3 124) (1 714) (1 714)
Cash-settled share-based payments - - (858)
Dividends paid - - (417)
Net change in cash and cash equivalents (50 346) 15 189 62 065
Cash and cash equivalents at
beginning of period 75 129 13 064 13 064
Cash and cash equivalents at
end of period 24 783 28 253 75 129
Notes to the unaudited condensed consolidated interim financial statements
for the six months ended 30 June 2017
1. Nature of operations and general information
Workforce Holdings Limited is a holding company whose subsidiaries specialise in outsourcing,
recruitment and specialist staffing, training and consulting, employee health management,
process outsourcing, financial services and lifestyle products.
The unaudited condensed interim financial statements are presented in South African Rand
("ZAR"), which is also the functional currency of the parent company.
The unaudited condensed interim financial statements were approved for issue by the board
of directors of Workforce ("the board") on 23 August 2017.
2. Basis of preparation and significant accounting policies
The unaudited 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 statements for the six months ended 30 June 2017
were compiled under the supervision of W van Wyk, CA(SA), the group financial
director. The unaudited condensed consolidated interim financial statements have been
prepared using the measurement basis specified by International Financial Reporting
Standards ("IFRS") for each type of asset, liability, income and expense and have been
applied consistently with the accounting policies in the annual financial statements for the
year ended 31 December 2016.
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
vehicles equipment equipment
R'000 R'000 R'000
5. Property, plant and equipment
Six months to 30 June 2017
Carrying amount at 1 January 2017 3 693 4 140 1 872
Additions - 1 793 568
Disposals (281) - -
Acquired through business combination 417 719 686
Depreciation (853) (1 584) (607)
Carrying amount at 30 June 2017 2 976 5 068 2 519
Six months to 30 June 2016
Carrying amount at 1 January 2016 3 393 2 524 2 026
Additions 4 1 525 373
Disposals (236) (66) -
Acquired through business combination 1 311 28 52
Depreciation (461) (862) (314)
Carrying amount at 30 June 2016 4 011 3 149 2 137
Carrying amount at 1 January 2016 3 393 2 524 2 026
Additions 984 3 345 445
Disposals (637) (23) (16)
Acquired through business combination 1 259 43 53
Depreciation (1 306) (1 749) (636)
Carrying amount at 31 December 2016 3 693 4 140 1 872
Office Leasehold Training
equipment improvements manuals
R'000 R'000 R'000
Six months to 30 June 2017
Carrying amount at 1 January 2017 2 827 130 2 653
Additions 670 220 257
Disposals - - -
Acquired through business combination 985 - -
Depreciation (729) (28) (464)
Carrying amount at 30 June 2017 3 753 322 2 446
Six months to 30 June 2016
Carrying amount at 1 January 2016 1 361 183 2 989
Additions 1 116 7 25
Disposals - - -
Acquired through business combination 58 - -
Depreciation (341) (47) (30)
Carrying amount at 30 June 2016 2 194 143 2 984
Carrying amount at 1 January 2016 1 361 183 2 989
Additions 2 193 25 178
Disposals - - -
Acquired through business combination 62 - -
Depreciation (789) (78) (514)
Carrying amount at 31 December 2016 2 827 130 2 653
Land and
buildings Total
R'000 R'000
Six months to 30 June 2017
Carrying amount at 1 January 2017 2 700 18 015
Additions - 3 508
Disposals - (281)
Acquired through business combination - 2 807
Depreciation - (4 265)
Carrying amount at 30 June 2017 2 700 19 784
Six months to 30 June 2016
Carrying amount at 1 January 2016 2 700 15 176
Additions - 3 050
Disposals - (302)
Acquired through business combination - 1 449
Depreciation - (2 055)
Carrying amount at 30 June 2016 2 700 17 318
Carrying amount at 1 January 2016 2 700 15 176
Additions - 7 170
Disposals - (676)
Acquired through business combination - 1 417
Depreciation - (5 072)
Carrying amount at 31 December 2016 2 700 18 015
Total
R'000
6. Goodwill
Six months to 30 June 2017
Carrying amount at 1 January 2017 102 287
Acquired through business combination 38 879
Carrying amount at 30 June 2017 141 166
Six months to 30 June 2016
Carrying amount at 1 January 2016 62 501
Acquired through business combination 39 786
Carrying amount at 30 June 2016 102 287
Year to 31 December 2016
Carrying amount at 1 January 2016 62 501
Acquired through business combination 39 786
Carrying amount at 31 December 2016 102 287
Client
Computer relation- Work in
software Brands ships progress Total
R'000 R'000 R'000 R'000 R'000
7. Intangible assets
Six months to 30 June 2017
Carrying amount at
1 January 2017 15 755 756 14 067 8 552 39 130
Additions 965 - - 2 024 2 989
Acquired through business
combination 2 761 - 12 012 - 14 773
Amortisation (3 639) (501) (4 564) - (8 704)
Carrying amount at 30 June 2017 15 842 255 21 515 10 576 48 188
Six months to 30 June 2016
Carrying amount at 1 January 2016 16 555 1 800 9 078 5 478 32 911
Additions 1 385 - - 2 430 3 815
Acquired through business
combination - - 10 180 - 10 180
Amortisation (3 257) (535) (2 161) - (5 953)
Carrying amount at 30 June 2016 14 683 1 265 17 097 7 908 40 953
Year to 31 December 2016
Carrying amount at 1 January 2016 16 555 1 800 9 078 5 478 32 911
Additions 5 378 - - 3 074 8 452
Disposals (9) - - - (9)
Acquired through business
combination - - 10 180 - 10 180
Amortisation (6 169) (1 044) (5 191) - (12 404)
Carrying amount at
31 December 2016 15 755 756 14 067 8 552 39 130
8. Segment analysis
During the reporting period, the group consolidated its five previous reporting segments into
three segments, namely:
- Staffing and outsourcing - comprises industrial staff outsourcing, recruitment and
specialist staffing, ad-response handling, executive search, call centre staffing and the
delivery of productive and functional business process outsourcing solutions;
- Training and healthcare - includes registered and accredited industry and job-specific
skills training interventions, induction training, safety, health and environmental
training, contractor onboarding, and management services to businesses and their employees
across all industry sectors. Healthcare comprises of comprehensive employee health
management services that include occupational and primary healthcare, employee wellness
and employee assistance programmes;
- Financial and lifestyle - spans an extensive range of employee support services that
include lifestyle products, as well as financial and insurance products for employees and
their families. These operating segments are monitored and strategic decisions are made on
the basis of adjusted segment operating results.
These new segments better represent the current core trading of the group and allows for
simpler understanding and communication of the performance of the business.
Revenues, profit, assets and liabilities generated for each of the group's business segments
are summarised as follows:
Training
Staffing and Financial
and out- health- and
sourcing care lifestyle
R'000 R'000 R'000
Six months to June 2017
Segment revenues 1 229 474 104 924 40 277
Cost of sales (1 005 396) (41 954) (13 453)
Operating costs (132 236) (47 877) (22 052)
EBITDA 91 842 15 093 4 772
Depreciation and amortisation
of non-financial assets (1 817) (2 308) (968)
Segment operating profit 90 025 12 785 3 804
Capital expenditure 1 892 19 156 304
Segment total assets 447 787 87 949 211 171
Segment total liabilities (77 127) (64 689) (222 807)
Net segment assets/(liabilities) 370 660 23 260 (11 636)
6 months to June 2016
Segment revenues 1 081 795 67 686 43 343
Inter-segment revenues - 6 026 -
Cost of sales (863 406) (25 003) (15 615)
Operating costs (130 085) (35 465) (22 671)
EBITDA 88 304 13 244 5 057
Depreciation and
amortisation of non-financial assets (1 658) (893) (1 174)
Segment operating profit 86 646 12 351 3 883
Capital expenditure 12 267 2 025 1 684
Segment total assets 425 415 84 828 189 105
Segment total liabilities (72 198) (55 726) (188 901)
Net segment assets 353 217 29 102 204
Year to 31 December 2016
Segment revenues 2 302 024 127 891 93 490
Inter-segment revenues 14 348 16 361 4 026
Cost of sales (1 832 559) (57 490) (30 927)
Inter-segment cost of sales (13 976) - (4 026)
Operating costs (293 890) (58 588) (48 706)
Other income - - 720
EBITDA 175 947 28 174 14 575
Depreciation and
amortisation of non-financial
assets (3 799) (1 735) (2 177)
Segment operating profit 172 148 26 439 12 398
Capital expenditure 21 613 2 208 3 397
Segment total assets 408 122 82 284 221 954
Segment total liabilities (58 754) (67 164) (237 202)
Net segment assets/(liabilities) 349 368 15 120 (15 248)
Consoli-
Central dation
cost entries Total
R'000 R'000 R'000
Six months to June 2017
Segment revenues - (8 566) 1 366 109
Cost of sales (867) (8 566) (1 053 104)
Operating costs (41 780) - (243 945)
EBITDA (42 647) - 69 060
Depreciation and amortisation
of non-financial assets (3 010) (4 866) (12 969)
Segment operating profit (45 518) (5 005) 56 091
Capital expenditure 2 725 - 24 077
Segment total assets 180 578 - 927 485
Segment total liabilities (73 758) - (438 381)
Net segment assets/(liabilities) 106 820 - 489 104
6 months to June 2016
Segment revenues - - 1 192 824
Inter-segment revenues - (6 026) -
Cost of sales - - (904 024)
Operating costs (40 670) 6 026 (222 865)
EBITDA (40 670) - 65 935
Depreciation and amortisation
of non-financial assets (2 280) (2 003) (8 008)
Segment operating profit (42 950) (2 003) 57 927
Capital expenditure 2 518 - 18 494
Segment total assets 169 934 - 869 282
Segment total liabilities (156 959) - (473 784)
Net segment assets 12 975 - 395 498
Year to 31 December 2016
Segment revenues - - 2 523 405
Inter-segment revenues - (34 735) -
Cost of sales (3 449) - (1 924 425)
Inter-segment cost of sales - 18 002 -
Operating costs (77 357) 16 733 (461 810)
Other income - - 720
EBITDA (80 806) - 137 890
Depreciation and
amortisation of non-financial assets (4 874) (4 891) (17 476)
Segment operating profit (85 680) (4 891) 120 414
Capital expenditure - - 27 218
Segment total assets 174 790 - 887 150
Segment total liabilities (77 262) - (440 382)
Net segment assets/(liabilities) 97 528 - 446 768
9. Taxation
The effective tax rate of 3.7% (2016: 8.6%) 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
2017 2016 2016
10. Earnings per share
Basic earnings per share
Profit attributable to equity shareholders of
the parent company (R'000) 42 461 40 671 91 604
Weighted average number of shares
in issue ('000) 226 979 225 639 228 577
Diluted weighted average number of shares
in issue ('000) 232 370 236 523 240 643
Basic earnings per share (cents) 18,7 18,0 40,1
Diluted earnings per share (cents) 18,3 17,2 38,1
Headline earnings per share
The earnings used in the calculation of
headline earnings
per share are as follows:
Profit after taxation (R'000) 42 461 40 671 91 604
Headline earnings adjustment (R'000) (202) (217) (87)
- Gain on disposal of property, plant
and equipment (281) (302) (121)
- Tax effect of adjustments 79 85 34
Total headline earnings (R'000) 42 259 40 453 91 517
Weighted average number of shares
in issue ('000) 226 979 228 534 228 577
Headline earnings per share (cents) 18,6 17,7 40,0
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: 226 979 225 639 228 577
Shares deemed to be issued for no consideration
in respect of:
Employee options 5 391 10 884 12 066
Weighted average number of ordinary shares in
the calculation of diluted earnings per share 232 370 239 825 240 643
11. Dividends
No dividend was declared relating to the period under review.
12. Changes to the board
Shaun Naidoo (Alternate Mark Anderson) has been appointed non-executive director of the
board effective 26 June 2017.
13. Other significant matter
The employment tax incentive introduced in January 2014 incentivises companies that employ
young job seekers. The effect of this incentive on the group's results has been substantial
and has been treated as a deduction of the relevant wage expense in terms of
IAS 20: Accounting for government grants and disclosure of government assistance.
Six months Six months Year to
to 30 June to 30 June 31 December
2017 2016 2016
R'000 R'000 R'000
14. Notes to the condensed consolidated statement
of cash flows
14.1 Cash generated from operations
Profit before taxation 43 095 44 446 91 168
Finance income (606) (308) (1 431)
Finance costs 11 163 12 076 26 489
Adjustment for non-cash items:
(Gain)/loss on disposal of property,
plant and equipment (281) 92 (121)
Depreciation and amortisation of
non-financial assets 12 969 8 008 17 476
Equity-settled share based scheme - 2 454 1 536
Shares issued - - 1 872
66 340 66 768 136 989
14.2 Working capital changes
Change in trade and other receivables (26 874) (80 896) (52 182)
Change in inventories (275) (153) 1 369
Change in share-based payment 3 564 (501) -
Change in trade payables 13 180 37 661 10 262
(10 405) (43 889) (40 551)
14.3 Net cash flow on acquisition of
business combinations
Net cash outflow on the acquisition
of subsidiaries (refer to note 15.1.5) (16 096) - -
Net cash outflow on the acquisition
of subsidiaries (refer to note 15.2.5) (5 683) - -
Net cash outflow on the acquisition of
subsidiaries - prior year's acquisition (18 750) (26 932) (41 881)
(40 529) (26 932) (41 881)
Maximum
Portion of consider-
business ation
Date of acquired transferred
acquisition % R'000
15. Business combinations
15.1.1 Business acquired
KBC Holdings Proprietary Limited ("KBC") 1 January 2017 100 48 489
Principal activity
KBC is involved in the provision of induction training, safety, health and
environmental training,contractor onboarding and contractor management services.
KBC was acquired as it complements the group's existing technical training offerings
and its temporary employment service business, that provides contract workers to a
wide range of industries. It is anticipated that the acquisition will give rise to
cross-selling opportunities within the mining industries that require contractors
to be compliant with relevant health and safety legislation.
Maximum
conside-
ration
transferred
R'000
15.1.2 Maximum consideration transferred
Cash 24 036
Contingent consideration arrangement 24 453
Total 48 489
15.1.3 Contingent consideration
Second payment 7 516
Third payment 7 516
Fourth payment 9 421
Total additional amount 24 453
Under the contingent consideration arrangement for KBC, the group is required to
pay up to a maximum of R24,453 million over a two-year period commencing on
1 January 2017 and ending on 31 December 2018 and will be subject to KBC achieving
agreed upon profit after tax ("PAT") figures for the years ending 31 December 2017
and 31 December 2018. It is anticipated that the contingent payments will take
place as follows:
- the second payment of up to R7,516 million will take place on 31 March 2018,
subject to KBC achieving PAT of between R5,375 million and R7,133 million;
- the third payment of up to R7,516 million will take place on 31 March 2019,
subject to KBC achieving
PAT of between R6,069 million and R8,670 million; and
- provided that the full second and third payments have been made, a possible
fourth payment of up to R9,421 million will take place on 31 March 2019, subject
to KBC achieving an aggregate PAT in excess of R16,830 million for the years
ended 31 December 2017 and 2018.
R'000
15.1.4 Assets acquired and liabilities recognised at the date of acquisition
Non-current assets
Property, plant and equipment 2 750
Intangible assets 14 773
Investment in associate 163
Current assets
Trade and other receivables 4 408
Cash and cash equivalents 7 940
Inventory 277
Current liabilities
Trade and other payables (6 581)
Taxation payable (204)
Non-current liabilities
Deferred tax liability (4 098)
Total 19 428
The receivables acquired (principally trade receivables) in this
transaction with fair value of R4 408 000 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 24 036
Less: Cash and cash equivalent balance acquired (7 940)
Total 16 096
Goodwill arising on acquisition
Maximum consideration transferred 48 489
Less: Fair value of identifiable net assets (19 428)
Goodwill arising on acquisition 29 061
Goodwill arose on the acquisition of KBC 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 the 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 in the KBC acquisition is expected to be
deductible for tax purposes.
Impact of acquisitions on the results of the group
Revenue from the above acquisition amounted to R33 570 654 and profit before tax
of R7 330 395 for the period under review.
Maximum
Portion of conside-
business ration
Date of acquired transferred
acquisition % R'000
15.2.1 Business acquired
Oxyon Human Capital Solutions 1 February 2017 100 9 000
Principal activity
Oxyon provides temporary
employment services
and permanent placement
recruitment services.
Day-Click Limited 1 March 2017 76 484
Principal activity
Day-Click provides temporary employment
services and permanent placement recruitment
services in Mauritius.
Oxyon was acquired in order to expand Workforce's offering in the skilled artisan
and technical segments of the engineering industry.
Day-Click was acquired in order to give Workforce an entry point into the Mauritian
market, where business opportunities have been identified.
Oxyon
Human
Capital Day-Click
Solutions Limited Total
R'000 R'000 R'000
15.2.2 Maximum consideration transferred
Cash 6 000 484 6 484
Contingent consideration arrangement 3 000 - 3 000
Total 9 000 484 9 484
15.2.3 Contingent consideration
Contingent payment 3 000 - 3 000
Total additional amount 3 000 - 3 000
Under the contingent consideration arrangement
for Oxyon, the group will be required to pay
an amount of R3 million subject to the Oxyon
business achieving an agreed upon gross profit
target of no less than R16 million for the
12-month period commencing 1 February 2017.
It is anticipated that this payment will be
made on 31 March 2018.
15.2.4 Assets acquired and liabilities recognised at
the date of acquisition
Non-current assets
Property, plant and equipment 19 38 57
Current assets
Trade and other receivables - 12 12
Cash and cash equivalents - 271 271
Current liabilities
Borrowings - (594) (594)
Trade and other payables - (12) (12)
Total 19 (285) (266)
The receivables acquired (principally trade
receivables) in this transaction with a fair value
of R12 000 for Day-Click Limited is equivalent
to the gross contractual amount. All contractual
cash flows are expected to be collected.
15.2.5 Net cash outflow on acquisition of subsidiaries
Consideration paid in cash 5 804 150 5 954
Less: Cash and cash equivalent balance acquired - (271) (271)
Total 5 804 (121) 5 683
15.2.6 Non-controlling interest
The non-controlling interest (24% ownership
interest in Day-Click Limited) recognised at the
acquisition date was measured by reference to
the present ownership instruments' proportionate
share in the recognised amounts of the acquiree's
identifiable net assets and amounts to (R68 142).
Goodwill arising on acquisition
Maximum consideration transferred 9 000 484 9 484
Plus: Non-controlling interest - (68) (68)
Less: Fair value of identifiable net assets (19) (285) (304)
Goodwill arising on acquisition 8 981 837 9 818
For the Oxyon and Day-Click acquisitions, goodwill arose because the consideration
paid for these combinations includes a control premium as well as amounts in
relation to the benefit of the 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 an identifiable intangible asset. None of
the goodwill in these acquisitions is expected to be deductible for tax purposes.
Revenue from the above acquisitions amounted to R53 244 941 and profit before tax
of R2 278 715 for the period under review.
16. Financial assets and financial liabilities
16.1.1 Set out below is an overview of financial assets other than cash and short-term
deposits held by the group as at June 2017, 31 December 2016 and June 2016.
Six months Six months Year to
to 30 June to 30 June 31 December
2017 2016 2016
R'000 R'000 R'000
Financial assets at amortised cost
Trade and other receivables 651 676 638 609 610 219
Available-for-sale investments
Quoted equity shares 3 084 2 887 2 709
Total 654 760 641 496 612 928
Total current 651 676 638 609 610 219
Total non-current 3 084 2 887 2 709
16.1.2 Set out below is an overview of
financial liabilities
held by the group as at June 2017,
31 December 2016 and June 2016.
Financial liabilities at amortised cost
Trade and other payables 145 006 142 630 115 231
Interest-bearing borrowings 196 753 221 686 245 078
Financial liabilities at fair value through
profit or loss
Contingent consideration 55 518 63 725 45 056
Loan on treasury shares 7 711 7 783 7 711
Total 404 988 435 824 413 076
Total current 366 681 406 882 348 725
Total non-current 38 307 28 942 64 351
16.2 Fair value measurement
Fair values
16.2.1 Set out below is a comparison of the carrying amounts and fair values of the
group's financial instruments, other than those with carrying amounts that are
reasonable approximations of fair value.
Six months to Six months to Year to
June 2017 June 2016 December 2016
Carrying Fair Carrying Fair Carrying Fair
amount value amount value amount value
R'000 R'000 R'000 R'000 R'000 R'000
Financial assets
Available-for-sale
financial asset 2 684 2 684 2 487 2 487 2 309 2 309
Total 2 684 2 684 2 487 2 487 2 309 2 309
Financial liabilities
Loan on treasury shares 7 711 7 711 7 783 7 783 7 711 7 711
Contingent consideration
relating to business
combination 55 518 55 518 63 725 63 725 45 056 45 056
Total 63 229 63 229 71 508 71 508 52 767 52 767
16.2.2 The following table provides the fair value measurement hierarchy of the groups
financial asset and financial liabilities as at June 2017 and June 2016.
Fair value measurement using
Quoted Significant Significant
prices in obser- unobser-
active vable vable
markets inputs inputs
Date of Total level 1 level 2 level 3
valuation R'000 R'000 R'000 R'000
As at 30 June 2017
Assets measured at
fair value
Available-for-sale
financial asset 30 June 2017 2 684 2 684 - -
Liabilities measured
at fair value
Loan on treasury shares 30 June 2017 7 711 - - 7 711
Contingent consideration
relating to business
combination 30 June 2017 28 080 - - 28 080
As at 30 June 2016
Assets measured at
fair value
Available-for-sale
financial asset 30 June 2016 2 487 2 487 - -
Liabilities measured at
fair value
Loan on treasury shares 30 June 2016 7 783 - - 7 783
Contingent consideration
relating to business
combination 30 June 2016 63 725 - - 63 725
16.2.3 Description of significant unobservable inputs to valuation
The significant unobservable inputs to valuation used in the fair value
measurements categorised within level 3 of the fair value hierarchy, together with
a quantitive sensitivity analysis at as 30 June 2017 and 2016 are as shown below:
Relationship
Valuation Significant of unobservable
technique unobservable inputs to
and key inputs inputs fair value
Available-for-sale
financial assets
Non-current
financial assets
Listed shares Quoted bid price in N/A N/A
an active market.
Financial
liabilities
Loan on treasury
shares Discounted cash flow Discount rate A slight increase
method was used to of 8.7% determined in the discount
capture the present using the risk rate used in
value of the expected adjusted rate. isolation would
future economic not result in a
benefits that will significant
flow out of the group. decrease in the
fair value.
(See below.)
Contingent
consideration
relating to
business
combination Discounted cash flow Discount rate A slight increase
method was used to of 17.5% determined in the discount
capture the present using capital asset rate used in
value of the expected pricing model. isolation would
future economic not result in a
benefits that will significant
flow out of the group. decrease in the
fair value.
(See below.)
Probability A slight increase
adjusted profits in the discount
with ranges of rate used in
R13 500 000 to isolation would
R40 500 000, and not result in a
R100 000 000 significant
respectively. decrease in the
fair value.
(See below.)
Treasury share loan
A 2% increase or decrease in the discount rate used while holding all other
variables constant would decrease/increase the fair value of the loan by R275 000
(2016: R280 000).
Contingent consideration
A 2% increase or decrease in the discount rate used while holding all other
variables constant would decrease/increase the fair value of the loan by R66 600
(2016: R66 600).
Fair value of other financial assets and financial liabilities
The fair values of all other financial assets and financial liabilities
approximates their carrying values.
17. Reclassification of prior year presentation
Certain reclassifications have been made to the prior period's condensed consolidated
statement of cash flow in order to enhance the comparability to the current period's
financial results. The recognition of share-based payments and the buy-back of shares
which had been reported together, have subsequently been disclosed separately in the
condensed consolidated statement of cash flow, resulting in certain line items being
reclassified in the condensed consolidated statement of cash flows.
Previously
reported Restated
June June Adjust-
2016 2016 ment
R'000 R'000 R'000
Condensed consolidated statement of cash flows
Cash flows from operating activities 7 616 10 070 (2 454)
Cash flows from financing activities 41 160 38 706 2 454
Directors' commentary
Financial results review
Despite deteriorating unemployment levels and a challenging economic environment, the group
has shown an improved performance, albeit modest, in the interim period. Turnover for the first
six months of 2017 reflects an increase of 14.5% to R1,37 billion (2016: R1,19 billion).
Organic turnover grew 8.4%, whilst the remainder of the increase is attributable to
acquired companies.
Although gross profit increased 8.4% there has been a reduction in our gross profit margin
percentages to 22.9% (2016: 24.2%). The acquisition of Oxyon, a high turnover, low margin
business and a reduction in trading volumes in the relatively high margin energy infrastructure
sector has dampened the gross profit margins.
Operating expenses increased by 9.5% to R243,9 million (2016: R222,9 million) resulting in an
improved operating expense to turnover ratio of 17.9% (2016: 18.7%). Organic operating expenses
only increased by 2.4% compared to the comparative period. Debtor's impairments were, however,
at much improved levels compared to the comparative period. Excluding debtor's impairments,
organic operating expenses increased by 6.9% compared to the comparative period. Workforce is
continuing to invest in the future growth of the group in the form of early stage businesses,
technology, human capital, and improved shared services delivery.
EBITDA increased by 4.7% to R69,0 million (2016: R65,9 million). EBITDA to turnover decreased
to 5.1% (2016: 5.5%). The depreciation and amortisation charge increased by 62% to
R12,97 million (2016: R8,0 million) mostly due to amortisation of intangible assets as a result
of the KBC and Oxyon acquisitions.
Our training and healthcare segment has experienced good growth in line with our strategic
intent. Turnover for the first six months in the training and healthcare segment grew by 55%
to R104,9 million (2016: R67,7 million) and EBITDA by 14.4% to R15,1 million (2016:
R13,2 million). The training and healthcare segment now contributes 13.5% (2016: 12.4%) of our
group EBITDA.
Improved cash generation resulted in net finance costs decreasing marginally by 3.6% (2016:
R13,5 million), despite funding the KBC and Oxyon acquisitions from debt.
Cash flow
Cash flows from operating activities vastly improved to R45,3 million (2016: R10 million).
The reason for this improvement is better collections on trade receivables which includes lower
sales volumes from energy infrastructure projects, and a differential in the timing of the
invoicing cycle compared to the previous year, which necessitated a lower net investment in
working capital. Days sales outstanding ("DSO") decreased to 50 days (2016: 49 days) whilst
overdue debtors older than 90 days remained at 8% (2016: 8%) of the total book.
Operating segments
During the reporting period the group consolidated its five previous reporting segments into
three segments, namely:
- Staffing and outsourcing;
- Training and healthcare; and
- Financial and lifestyle.
These segments better represent the current core trading of the group and allows for a simpler
understanding and communication of the performance of the business.
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).
As a result, the group's tax rate remains low at 3.7% (2016: 8.6%).
Earnings per share increased by 3.9% to 18,7 cents per share (2016: 18,0 cents) and headline
earnings per share increased by 5.1% to 18,6 cents per share (2016: 17,7 cents per share).
Acquisitions
Acquisitions are defined as all acquisitions where intangible assets resulting from the
respective acquisitions are still being amortised and/or where imputed interest as a result of
the acquisition is still being expensed in the current period. These entities currently include
Prisma Training Solutions (acquired during 2015), Quyn and Gcubed (acquired during 2016), KBC
Holdings (acquired 1 January 2017), Oxyon Human Capital Solutions (acquired 1 February 2017)
and Day Click Mauritius (acquired 1 March 2017). EBITDA contribution from acquisitions
increased to R14,2 million (2016: R13,4 million). Whilst the newly acquired companies KBC and
Oxyon performed ahead of expectations, Prisma and Quyn had a challenging first six months of
the year, in part due to their exposure to the mining sector and delays in infrastructure spend
projects, respectively.
Contribution to earnings per share from acquisitions currently remains marginal due to
intangible amortisation and intangible interest charges to the income statement, as required
by IFRS.
Gearing
Net interest-bearing debt to total assets improved to 0,28 (2016: 0,34) and Net
interest-bearing debt to total tangible assets improved to 0,36 (2016: 0,41), despite payments
of R40,5 million (2016: R26,9 million) for acquisitions. Included in interest-bearing debt are
contingent amounts owing to vendors of acquisitions amounting to R55,5 million
(2016: R63,7 million).
Directors
Mr Shaun Naidoo was appointed as a non-executive director on 26 June 2017 as a representative
of the company's shareholder Vunani. Shaun replaces Mr Mark Anderson who will remain on the
board as an alternate director to Shaun.
Outlook
The recent Labour Appeal Court judgement relating to the Temporary Employment Service ("TES")
industry has attracted much press coverage with its perceived negative implications for TES
providers. What is relevant is that there has been an Application for Leave to Appeal this
judgement lodged with the Constitutional Court. This action suspends this judgement and
reinstates the initial Labour Court ruling, which found that a temporary employee working
longer than three months and earning less than R205 433 annually is deemed to be an employee
of both the TES provider and the TES provider's client and that these parties are jointly and
severally liable for any employment related obligations relating to that employee.
The TES industry is confident that the Constitutional Court will uphold the initial ruling
and it is estimated that we will have clarity in this regard within the next 12 months.
Notwithstanding the challenging economic and labour environment, management continues to
identify growth opportunities within the segments the group operates in and remains
committed to its diversification and acquisition strategies.
Events after reporting date
Management is not aware of any material events which have occurred subsequent to the
reporting period.
RS Katz PM Froom WP van Wyk
Chairman Chief Executive Officer Group Financial Director
Johannesburg
23 August 2017
Executive Directors
PM Froom, RS Katz, WP van Wyk
Non-Executive Directors
JR Macey, S Naidoo, S Thomas, K Vundla and M Anderson (Alternate to S Naidoo)
Designated Adviser
Merchantec Capital
Company secretary
S van Schalkwyk
Registered office
The registered office, which is also the principal place of business, is
11 Wellington Road, Parktown, 2193
PO Box 11137, Johannesburg, 2193
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
www.workforce.co.za
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