Wrap Text
Audited Summarised Consolidated Results for the year ended 31 December 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")
Audited summarised consolidated results
for the year ended 31 December 2017
Highlights
Revenue increased by 11,3% to R2,8 billion
Gross profit has increased by 6,1% to R635 million
EBITDA has decreased marginally by 0,4% to R133,9 million
Profit after tax increased by 7,6% to R98,5 million
Headline earnings per share increased by 7,0% to 42,8 cents
NAV per share has increased by 21,5% to 237 cents per share
Net tangible asset value per share has increased by 18,7% to 159 cents per share
Net interest-bearing debt to total assets is 28% (2016: 27%)
Net interest-bearing debt to total tangible assets is 34% (2016: 32%)
Group statement of financial position
as at 31 December 2017
2017 2016
Notes R'000 R'000
Assets
Non-current assets 251 912 199 060
Property, plant and equipment 6 23 559 18 015
Goodwill 134 480 102 287
Intangible assets 7 44 247 39 130
Deferred tax assets 44 251 36 919
Other financial assets 5 375 2 709
Current assets 744 246 688 090
Trade and other receivables 714 389 610 219
Inventories 3 546 2 742
Taxation 763 -
Cash and cash equivalents 25 548 75 129
Total assets 996 158 887 150
Equity and liabilities
Equity 542 345 446 768
Equity attributable to owners of the parent 543 806 446 491
Stated capital 234 051 241 867
Treasury shares (7 658) (9 330)
Available-for-sale reserve 923 462
Equity-settled employee benefits reserve 6 793 2 337
Retained earnings 309 697 211 155
Non-controlling interests (1 461) 277
Non-current liabilities 38 173 40 349
Financial liabilities 26 407 30 840
Deferred tax liabilities 11 766 9 509
Current liabilities 415 640 400 033
Trade and other payables 136 914 115 231
Financial liabilities 278 726 283 857
Taxation - 945
Total equity and liabilities 996 158 887 150
Group statement of comprehensive income
for the year ended 31 December 2017
2017 2016
Notes R'000 R'000
Revenue 2 807 890 2 523 405
Cost of sales (2 172 461) (1 924 425)
Gross profit 635 429 598 980
Other income 1 032 720
Operating costs (512 887) (461 810)
Fair value adjustments 10 365 (3 466)
Earnings before interest, taxation, depreciation
and amortisation ("EBITDA") 133 939 134 424
Depreciation and amortisation of non-financial assets (26 080) (17 476)
Finance income 1 486 711
Finance costs (23 360) (26 491)
Profit before taxation 85 985 91 168
Taxation 10 819 735
Profit for the year 96 804 91 903
Other comprehensive income/(loss) for the period 461 (224)
Fair value gain on available-for-sale financial assets
to be reclassified
subsequent to profit or loss 461 (224)
Total comprehensive income for the year 97 265 91 679
Profit for the year attributable to:
Owners of the parent 98 542 91 604
Non-controlling interests (1 738) 299
96 804 91 903
Total comprehensive income attributable to:
Owners of the parent 99 003 91 380
Non-controlling interests (1 738) 299
97 265 91 679
Earnings per share (cents per share)
Basic earnings per share 8 43,0 40,1
Diluted earnings per share 8 41,2 38,1
Group statement of changes in equity
for the year ended 31 December 2017
Attributable to owners of the parent
Equity-
settled
Available- employee
Stated Treasury for-sale benefits
capital shares reserve reserve
R'000 R'000 R'000 R'000
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 1 January 2017 241 867 (9 330) 462 2 337
Recognition of share-based payments (7 816) - - 5 227
Buy-back of shares - (3 124) - -
Issue of ordinary shares under employee
share option plan - 4 796 - (771)
Total comprehensive income for the year - - 461 -
Balance at 31 December 2017 234 051 (7 658) 923 6 793
Attributable to owners of the parent
Reverse
acquisition Retained
reserve earnings Total
R'000 R'000 R'000
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 1 January 2017 - 211 155 446 491
Recognition of share-based payments - - (2 589)
Buy-back of shares - - (3 124)
Issue of ordinary shares under employee
share option plan - - 4 025
Total comprehensive income for the year - 98 542 99 003
Balance at 31 December 2017 - 309 697 543 806
Non-
control-
ling Total
interests equity
R'000 R'000
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 1 January 2017 277 446 768
Recognition of share-based payments - (2 589)
Buy-back of shares - (3 124)
Issue of ordinary shares under employee
share option plan - 4 025
Total comprehensive income for the year (1 738) 97 265
Balance at 31 December 2017 (1 461) 542 345
Group statement of cash flows
for the year ended 31 December 2017
2017 2016
Notes R'000 R'000
Cash generated from operations before net working
capital changes 107 624 109 765
Cash generated from operations 9.1 128 860 136 989
Finance income 1 486 711
Finance costs (23 360) (26 491)
Taxation paid 9.2 638 (1 444)
Increase in net working capital 9.3 (91 706) (40 551)
Cash flows from operating activities 15 918 69 214
Cash flows from investing activities (60 710) (55 994)
Property, plant and equipment acquired - maintaining
operations 6 (12 068) (7 170)
Proceeds on disposal of property, plant and equipment 1 109 789
Dividend income 1 032 720
Intangible assets acquired - maintaining operations 7 (7 645) (8 452)
Net cash flow on acquisition of business combinations 9.4 (43 138) (41 881)
Cash flows from financing activities (4 789) 48 845
(Decrease)/increase in borrowings (1 948) 51 834
Payment for buy-back of shares (3 124) (1 714)
Proceeds on disposal of shares 4 796 -
Settlement of share-based payments 9.5 (4 513) (858)
Dividends paid - (417)
Net change in cash and cash equivalents (49 581) 62 065
Cash and cash equivalents at the beginning of the year 75 129 13 064
Cash and cash equivalents at the end of the year 25 548 75 129
Notes to the group financial statements
for the year ended 31 December 2017
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 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 2017 were compiled under
the supervision of Willie 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 2017.
3. Audit opinion
The consolidated results for the year ended 31 December 2017 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.
Shaun Naidoo was appointed as a Non-Executive Director on 26 June 2017 as a representative
of the company's shareholder Vunani. Shaun replaces Mark Anderson who will remain as an
Alternative Director to Shaun.
There were no other changes to the board during the period under review, up to and including
the date of this report.
4. Posting of integrated annual report and notice of annual general meeting
The integrated annual report for the year ended 31 December 2017 is expected to be
despatched to shareholders on or around 30 March 2018.
5. Events after reporting date
There were no events after reporting date.
2017 2016
Accu- Accu-
mulated mulated
depre- Carrying depre- Carrying
Cost ciation value Cost ciation value
R'000 R'000 R'000 R'000 R'000 R'000
6. Property, plant and
equipment
Motor vehicles 10 005 (5 550) 4 455 9 218 (5 525) 3 693
Computer equipment 28 328 (21 765) 6 563 24 805 (20 665) 4 140
Industrial equipment 8 636 (6 057) 2 579 5 522 (3 650) 1 872
Office equipment 18 265 (14 194) 4 071 15 261 (12 434) 2 827
Leasehold improvements 1 736 (1 175) 561 1 268 (1 138) 130
Training manuals 9 807 (7 177) 2 630 9 854 (7 201) 2 653
Land and buildings 2 700 - 2 700 2 700 - 2 700
79 477 (55 918) 23 559 68 628 (50 613) 18 015
The carrying value of property, plant and equipment can be reconciled as follows:
Motor Computer Industrial Office
vehicles equipment equipment equipment
R'000 R'000 R'000 R'000
Carrying value at 1 January 2016 3 393 2 524 2 026 1 361
Additions 984 3 345 445 2 193
Disposals (637) (23) (16) -
Acquired through business combinations 1 259 43 53 62
Depreciation (1 306) (1 749) (636) (789)
Carrying value at 31 December 2016 3 693 4 140 1 872 2 827
Additions 3 137 5 128 1 060 1 177
Disposals (317) (22) - (24)
Acquired through business combinations 421 718 686 985
Depreciation (2 441) (3 439) (1 039) (894)
Carrying value at 31 December 2017 4 493 6 525 2 579 4 071
Leasehold Training Land and
improvements manuals buildings Total
R'000 R'000 R'000 R'000
Carrying value at 1 January 2016 183 2 989 2 700 15 176
Additions 25 178 - 7 170
Disposals - - - (676)
Acquired through business combinations - - - 1 417
Depreciation (78) (514) - (5 072)
Carrying value at 31 December 2016 130 2 653 2 700 18 015
Additions 534 1 032 - 12 068
Disposals (6) (147) - (516)
Acquired through business combinations - - - 2 810
Depreciation (97) (908) - (8 818)
Carrying value at 31 December 2017 561 2 630 2 700 23 559
All depreciation charges are included in "Depreciation and amortisation of non-financial
assets" in the statement of comprehensive income. No property, plant and equipment have been
impaired during the year (2016: Nil).
The net book value of motor vehicles held under instalment credit agreements at
31 December 2017 amounted to R3 785 842 (2016: R1 460 340). Motor vehicles acquired under
instalment credit agreements amounted to R3 723 606 (2016: R728 139). The instalment sales
relate solely to motor vehicles.
A 100% interest in KBC Holdings Proprietary Limited ("KBC") was acquired on 1 January 2017,
in order to increase the group's technical training offerings. Property, plant and equipment
to the value of R2 750 000 was acquired as part of the business combination.
Oxyon Human Capital Solutions ("Oxyon") was acquired on 1 February 2017 in order to expand
the group's skilled artisan and technical segments of the engineering industry. Property,
plant and equipment to the value of R19 000 was acquired as part of the
business combination.
A 76% interest in Day-Click Limited ("Day-Click") was acquired on 1 March 2017, in order to
give the group an entry point into the Mauritian market where business opportunities have
been identified. Property, plant and equipment to the value of R37 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.
2017 2016
Accu- Accu-
mulated mulated
amorti- Carrying amorti- Carrying
Cost sation value Cost sation value
R'000 R'000 R'000 R'000 R'000 R'000
7. Intangible assets
Computer software 62 146 (45 081) 17 065 51 162 (35 407) 15 755
Brands 3 209 (3 209) - 3 209 (2 453) 756
Client relationships 31 522 (15 260) 16 262 19 510 (5 443) 14 067
Work in progress 10 920 - 10 920 8 552 - 8 552
107 797 (63 550) 44 247 82 433 (43 303) 39 130
The carrying amounts of intangible assets can be reconciled as follows:
Client
Computer relation- Work in
software Brands ships progress Total
R'000 R'000 R'000 R'000 R'000
Carrying value 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 combinations - - 10 180 - 10 180
Amortisation (6 169) (1 044) (5 191) - (12 404)
Carrying value at 31 December 2016 15 755 756 14 067 8 552 39 130
Additions 5 277 - - 2 368 7 645
Disposals (39) - - - (39)
Acquired through business combinations 2 761 - 12 012 - 14 773
Amortisation (6 689) (756) (9 817) - (17 262)
Carrying value at 31 December 2017 17 065 - 16 262 10 920 44 247
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 (2016: Nil). Computer software is mostly internally
generated.
A 100% interest in KBC was acquired on 1 January 2017, in order to increase the group's
technical training offerings. Intangibles to the value of R14 773 000 was acquired as part
of the business combination.
The group has no further contractual commitments to acquire intangible assets at
reporting date. No restrictions exist over intangible assets.
2017 2016
R'000 R'000
8. 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) 98 542 91 604
Weighted average number of ordinary shares in issue ('000) 229 336 228 577
Diluted weighted average number of shares in issue ('000) 238 973 240 643
Basic earnings per share (cents) 43,0 40,1
Diluted earnings per shares (cents) 41,2 38,1
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) 98 542 91 604
Headline earnings adjustment (R'000) (400) (87)
Gain on disposal of property, plant and equipment (R'000) (555) (121)
Tax effects of adjustments (R'000) 155 34
Total headline earnings (R'000) 98 142 91 517
Weighted average number of shares in issue ('000) 229 336 228 577
Headline earnings per share (cents) 42,8 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: 229 336 228 577
Shares deemed to be issued for no consideration in respect of:
Employee options 9 637 12 066
Weighted average number of ordinary shares in the calculation
of diluted earnings per share 238 973 240 643
9. Notes to the statement of cash flows
9.1 Cash generated from operations
Profit before taxation 85 985 91 168
Interest income (1 486) (711)
Other income (1 032) (720)
Finance costs 23 360 26 489
Adjusted for non-cash items:
Gain on disposal of property, plant and equipment (555) (121)
Depreciation and amortisation of non-financial assets 26 080 17 476
Gain arising on financial liability at fair value through
profit or loss (10 385) -
Expense recognised in respect of cash-settled
share-based payment 1 666 -
Expense recognised in respect of equity-settled
share-based payment 5 227 3 408
128 860 136 989
9.2 Taxation paid
Charged to profit or loss 10 819 735
Adjusted for deferred tax (9 210) (2 400)
Movement in taxation balance (971) 221
638 (1 444)
9.3 Working capital changes
Change in trade and other receivables (100 527) (52 182)
Change in inventories (486) 1 369
Change in trade and other payables 9 307 10 262
(91 706) (40 551)
9.4 Net cash flow on acquisition of business combinations
Net cash outflow on the acquisitions of subsidiaries (21 959) (41 881)
Net cash outflow on the acquisitions of subsidiaries - prior
year acquisitions (21 179) -
(43 138) (41 881)
9.5 Equity-settled share-based payments
Employees received shares in settlement of the equity-settled share-based payment
scheme. The employees were given the option of retaining the shares they were granted,
or selling their shares on the open market. The company sold the shares on the
employees behalf and paid to them the proceeds from the sale.
1 January Cash Non-cash 31 December
2017 flows flows 2017
9.6 Changes in liabilities arising from
financing activities
Non-current Treasury share loan 7 711 - (72) 7 783
Interest-bearing borrowings 259 109 1 072 - 258 037
Instalment sales liabilities 2 118 948 - 3 066
268 938 2 020 (72) 268 886
10. Segment reporting
During the reporting period, the group consolidated its five previous reporting segments
into three segments, namely:
- Staffing and Outsourcing: Comprising temporary employment services, permanent
recruitment, executive search, payroll management, HR and IR consulting services,
disability solutions, turnkey staffing solutions and business process outsourcing
solutions;
- Training and Consulting: Comprising accredited short courses, skills programmes, full
qualifications, learnerships, apprenticeships, internships and adult education training
("AET");
- Financial and Healthcare: Comprising funeral cover, hospital cover, day-to-day medical
insurance, lending products, primary healthcare, occupational healthcare, employee
wellness programmes and health risk assessments.
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 a
simpler understanding and communication of the performance of the business.
Due to the above change in reporting segments the prior year segment information has been
restated. Segment information can be analysed as follows for the reporting periods
under review:
Staffing Training Financial
and Out- and and
sourcing Consulting Healthcare
R'000 R'000 R'000
2017
Segment revenues 2 521 071 158 000 127 005
Inter-segment revenue 23 085 17 681 1 474
Cost of sales (2 054 073) (70 119) (45 254)
Inter-segment cost of sales (22 400) (8 566) -
Operating costs (295 249) (60 995) (67 091)
Inter-segment operating costs (685) (9 115) (1 474)
Fair value adjustments - (3 464) 2 205
Other income - 92 940
EBITDA 171 749 23 514 17 805
Depreciation and amortisation of
non-financial assets (3 468) (3 372) (2 936)
Net finance costs (98) 748 (857)
Segment profit/(loss) before tax 168 183 20 890 14 009
Capital expenditure 9 737 8 599 4 845
Segment total assets 519 019 110 711 244 849
Segment total liabilities (111 240) (88 885) (272 158)
Net segment assets/(liabilities) 407 779 21 826 (27 309)
Shared
Services Consoli-
and Central dation
costs entries Total
R'000 R'000 R'000
2017
Segment revenues 1 814 - 2 807 890
Inter-segment revenue - (42 240) -
Cost of sales (3 015) - (2 172 461)
Inter-segment cost of sales - 30 966 -
Operating costs (89 552) - (512 887)
Inter-segment operating costs - 11 274 -
Fair value adjustments 11 624 - 10 365
Other income - - 1 032
EBITDA (79 129) - 133 939
Depreciation and amortisation of
non-financial assets (5 866) (10 435) (26 080)
Net finance costs (21 667) - (21 874)
Segment profit/(loss) before tax (106 662) (10 435) 85 985
Capital expenditure 2 103 12 012 37 296
Segment total assets 312 728 (191 149) 996 158
Segment total liabilities (21 992) 40 462 (453 813)
Net segment assets/(liabilities) 290 736 (150 687) 542 345
Staffing Training Financial
and Out- and and
sourcing Consulting Healthcare
R'000 R'000 R'000
2016
Segment revenues 2 301 670 88 375 132 998
Inter-segment revenue 14 348 16 361 4 026
Cost of sales (1 833 073) (44 012) (44 755)
Inter-segment cost of sales (13 974) - (4 026)
Operating costs (288 739) (34 409) (71 970)
Fair value adjustment - (3 464) -
Other income - - 720
EBITDA 180 232 22 851 16 993
Depreciation and amortisation of
non-financial assets (3 804) (863) (3 042)
Net finance costs 528 (29) (1 573)
Segment profit/(loss) before tax 176 956 21 959 12 378
Capital expenditure 21 613 1 591 4 014
Segment total assets 408 122 79 401 224 837
Segment total liabilities (59 754) (64 249) (240 117)
Net segment assets/(liabilities) 348 368 15 152 (15 280)
Shared
Services Consoli-
and Central dation
costs entries Total
R'000 R'000 R'000
2016
Segment revenues 362 - 2 523 405
Inter-segment revenue - (34 735) -
Cost of sales (2 585) - (1 924 425)
Inter-segment cost of sales - 18 000 -
Operating costs (83 427) 16 735 (461 810)
Fair value adjustment - - (3 464)
Other income - - 720
EBITDA (85 650) - 134 426
Depreciation and amortisation of
non-financial assets (4 875) (4 891) (17 476)
Net finance costs (24 706) - (25 780)
Segment profit/(loss) before tax (115 231) (4 891) 91 170
Capital expenditure - - 27 218
Segment total assets 174 790 - 887 150
Segment total liabilities (76 262) - (440 382)
Net segment assets/(liabilities) 98 528 - 446 768
Directors' commentary
Background and our purpose
Workforce Holdings is a leading trusted provider of employment, training, healthcare, wellness
and financial services and lifestyle benefits to individuals and their employers, covering all
industry sectors through the economy.
Our purpose is to make a meaningful and sustainable difference to people's lives - to uplift
them, to find employment for people and empower them with appropriate training, healthcare and
financial services and lifestyle benefits. These are key objectives and goals of our South
African government too.
We continued to make a meaningful and sustainable difference in people's lives. We are proud to
be providing permanent employment to 1 343 employees, remunerating 34 241 assignees weekly,
training 137 000 people annually, facilitating 4 600 learnership and internship programmes,
insuring over 36 277 lifestyle benefit policies and conducting over 71 396 medical examinations
through our 26 operating brands, network of 103 branches and 18 training centres across
South Africa.
The year under review and external operating environment
2017 was a year characterised by a volatile political environment, low economic growth and
investment and a continued deterioration in unemployment levels. Notwithstanding the tough
trading environment, the group's results continued to show improvement, albeit modest, on
previous years and again highlighted the resilience of our integrated and diversified
business model.
Government's promised infrastructure development plan continued to be subject to indefinite
delays, resulting in less demand for our services. We are hopeful, however, that 2018 will
experience the early stages of project development in this regard.
Another significant external factor affecting our staffing and outsourcing segment, is the
ongoing legal labour legislation dispute, which currently awaits a ruling by the Constitutional
Court, following the Labour Appeal Court's ruling in July 2017. This relates to section 198A
of the Labour Relations Amendment Act, 6 of 2014, and interpretation of the "deeming provision"
and the definition of who the "employer" is in the employment relationship of an assignee. An
assignee, in this instance, is only someone working longer than three months and earning less
than R205 433 annually. We remain confident together with our Temporary Employment Services
("TES") industry body, the Confederation of Associations in the Private Employment Sector
("CAPES"), that the initial ruling in the Labour Court will be upheld and that assignees will
continue to be deemed to be an employee of both Workforce and our clients. There always
naturally remains the risk of clients initially adopting a "wait and see approach" prior to
investing further in assignees with TES providers despite our engagement and ongoing
communication with clients. Regardless of initial reactions, we are confident that the TES
industry will be sustained. We have various robust solutions to continue to provide our clients
with our services regardless of the ruling of the Constitutional Court.
Financial performance
Our 11,3% increase in revenue arose from organic revenue growth of 4,6% with the remaining
growth in revenue attributable to acquisitions. Our gross profit, however, only increased by
6,1% as gross margins reduced from 23,7% to 22,6%. The reduction in gross margins arose as a
result of a reduction in the relatively high margin energy infrastructure sector coupled with
the acquisition of Oxyon, a high turnover, low margin business.
Operating expenses increased by 11,1% resulting in an unchanged operating expense to turnover
ratio of 18,3% (2016: 18,3%). Organic operating expenses only increased by 2,9%. Debtor's
impairments were, however, at much improved levels compared to the comparative period.
Excluding debtor's impairments, organic operating expenses increased by 8,8% compared to the
comparative period. Our management of operating expenses in the period under review was
commendable given that Workforce continues to invest in the future growth of the group in the
form of early stage businesses, technology, human capital, and improved shared services
delivery.
Fair value adjustments of R10,4 million (2016: (R3,4 million)) include the revaluation of the
cell captive and adjustments of the contingent consideration payable on business combinations.
EBITDA decreased marginally to R133,9 million (2016: R134,4 million). EBITDA to turnover
reduced to 4,8% (2016: 5,3%).
The depreciation and amortisation charge increased by 49% to R26,1 million (2016: R17,5 million)
mostly due to amortisation of intangible assets as a result of the KBC and Oxyon acquisitions.
Net finance cost marginally decreased by 15,2% to R21,8 million (2016: R25,8 million), in
spite of R43,1 million spent on acquisitions during the financial year.
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 employment tax incentive remains a significant contributor to our financial results.
This programme, which incentivises the employment of youth for new projects, currently continues,
pending any extension, until February 2019.
The group also continues to invest and benefit from learnership programmes, with the learnership
tax allowances been extended until 1 April 2022. The increased tax credit for the year of
R10,8 million (2016: R735 000) is due to the fact that the fair value gain on adjustment of
liabilities is a capital item and hence not taxable.
Cash flow
Cash flow from operating activities reduced to R16 million (2016: R69,2 million), mostly as a
result of a substantial increase in working capital. This increase is also attributable to:
- Increased turnover;
- A longer billing cycle in December compared to the previous financial year;
- The fact that the Oxyon business was bought excluding tangible assets, hence the build in the
debtors' book is defined as operating cash flow and not investment cash flow; and
- Deterioration in days sales outstanding to 53 days (2016: 46 days) due to the above.
Furthermore, the fair value adjustment is a non-cash flow item impacting cash conversion.
Improving cash generation is a key focus of management.
Balance sheet and gearing
Net interest-bearing debt to total tangible assets increased to 28% (2016: 27%), in spite
of net cash flow on acquisition of business combinations totalling R43,1 million. Net
interest-bearing debt to total tangible assets also improved marginally to 34% (2016: 32%).
Group structure
During the reporting period, we consolidated our previous five reporting segments into three
segments which we believe better represent the current core trading of the group and allows
for a simpler understanding and communication of the performance of the business. The new
segmental structure is now reflected as (i) Staffing and Outsourcing, (ii) Training and
Consulting and (iii) Financial and Healthcare.
The Staffing and Outsourcing segment accounts for 81% of EBITDA prior to central costs
(2016: 82%). The acquisitions of Prisma Training Solutions Proprietary Limited ("Prisma") in
2015 and KBC in 2017 have contributed to our diversification strategy with the Training and
Consulting segment now accounting for 11% of total EBITDA (2016: 10,2%). The Financial and
Healthcare segment contributed 8% to EBITDA (2016: 7,8%).
Segmental review
Staffing and Outsourcing segment
Turnover of the Staffing and Outsourcing segment increased by 9,5% but the gross margin
percentage decreased from 20,3% to 18,5%. The reduction in margin is as a result of the
conclusion of a significant high margin infrastructure contract in 2017, the acquisition of
Oxyon, a high turnover, low margin business and the poor performance of our white-collar
permanent recruitment businesses.
Our core business, Workforce Staffing, improved EBITDA despite the conclusion of one of its
major infrastructure project contracts described above. Workforce Staffing has an encouraging
pipeline of new business that hopefully augers well for 2018.
The continued delay in government infrastructure spending resulted in a disappointing
performance from the Quyn group of companies ("Quyn") acquired in 2016. Government's renewed
investment on its delayed infrastructure development projects and the entry of independent power
producers ("IPPs") in the electricity sector however present exciting opportunities for Quyn
moving forward.
Our Allmed Healthcare Professionals and Nursing Emergencies brands in the nursing and healthcare
staffing sector experienced solid growth in 2018 with increasing market share and new clients.
We continued to invest in our new "green shoot" businesses locally and in Africa. Although these
businesses are loss making, lots of progress and momentum is being achieved, resulting in
improved financial performance and promising progress into 2018.
Training and Consulting segment
The Training and Consulting segment increased revenues by 78,8% to R158,0 million and EBITDA by
2,9% to R23,5 million for the reporting period.
The substantial increase in turnover is attributable to KBC. KBC trains over 120 000 inductees
annually through eight training facilities in the country, including two "walk-in" centres based
on client sites and one fully inclusive onsite contractor on-boarding hub.
EBITDA was constrained in 2017 in this segment as Prisma, acquired in 2015, experienced a
challenging year with a lack of committed spend and investment by the mining sector.
Training Force performed well with pleasing growth. In addition to being a leader in the
learnerships and apprenticeships area, Training Force are growing their training reach with a
variety of focused skills programmes and short courses.
Our Training and Consulting cluster is a strategic growth area for the group.
Financial and Healthcare segment
The Financial and Healthcare segment turnover decreased by 4,5% to R127,0 million with EBITDA
increasing by 4,7% to R17,8 million.
Babereki Employee Support Services (incorporating Dreams Direct and Debtworx), tightened its
credit vetting criteria during 2017, resulting in less loans advanced and less products sold.
This resulted in lower growth in profitability in this segment but improved cash utilisation.
Compliance remains a key focus of our Babereki and Debtworx businesses.
Despite market challenges, collection performance improved in 2017. The gross advances book
was R251 million (2016: R225 million).
Companies are recognising the positive impact employee wellness has on a business, from reducing
absenteeism to improved levels of productivity and quality of life. We experienced encouraging
growth in our employee wellness programmes and now cover over 45 320 lives through our Employee
Assistance Programme ("EAP") call centre and additional value-added products are being offered
via this channel.
Acquisitions
During the period under review, we announced the acquisition of 100% of the shares of KBC, the
acquisition of the business of Oxyon and the acquisition of a 76% stake in Day-Click.
KBC was acquired with effect from 1 January 2017 and we are pleased to report that it has
performed ahead of expectations as described in our training and consulting segment review above.
The Oxyon acquisition was effective 1 February 2017 and has contributed positively to the
group's profitability. Oxyon is a temporary employment service provider and permanent recruiter
concentrating on higher level technical and artisanal skills in the engineering industry. The
Oxyon acquisition resulted in an operating cash flow investment by Workforce to fund the client
debtors' book as we purchased the business of Oxyon and not the company itself.
Day-Click, based in Mauritius, was effective 1 March 2017 and is at this stage not material in
financial terms. We do, however, see Mauritius as an exciting business opportunity within its
own borders as well as it being a possible base to further expand our other African operations
as they increase in size and scale.
Our previous acquisitions, comprising Prisma, Quyn and Gcubed Boutique Recruitment all faced
challenging trading conditions during 2017. Prisma was unable to continue the momentum it had
enjoyed in 2016 against the backdrop of curtailed training spend in the mining sector, caused by
the uncertainty and slowdown in the industry, and recorded a decline in its profits. The
continued delays in renewable energy and other infrastructure projects also hampered Quyn whose
profitability also fell short of expectations.
Given government's renewed outlook on the mining industry as well as its planned spend on
infrastructure projects, the outlook for the coming year for both Prisma and Quyn is looking
favourable and their respective management teams remain committed to delivering growth in revenue
and profitability for 2018.
Our acquisition strategy is still a key pillar for our growth and we have commenced the 2018
financial year with clearly defined objectives and some exciting acquisition opportunities within
our various operational segments. We will continue to pursue acquisitions that will enhance the
group and its value offering whilst mitigating business risk.
Funding
During the year under review, communication with shareholders, the capital markets and all our
stakeholders was deliberately enhanced. We successfully increased and improved our terms of our
borrowing facilities in 2017 with our existing bankers.
Diversification of our shareholder base and an improvement in the liquidity of our equity shares
on the AltX is recognised and constantly being considered.
Directors
Shaun Naidoo was appointed as a Non-Executive Director on 26 June 2017 as a representative of
the company's shareholder Vunani. Shaun replaces Mark Anderson who will remain on the board as
an Alternate Director to Shaun.
Outlook
The TES industry has significant milestone events in the next 12 months including:
- The Constitutional Court ruling on the "deeming provision";
- The introduction of the National Minimum Wage in May 2018; and
- ETI expiry, pending an extension or replacement, on 28 February 2019.
We are actively engaging with our clients to determine and assist them with any implications
and opportunities arising from the introduction of the national minimum wage. From a regulatory
point of view, we welcome the introduction of the minimum wage legislation during 2018 and
although it may initially create a degree of uncertainty, we believe it will, in the longer
term, improve the stability of labour in the country and will provide fairer and more
sustainable pay structures.
The State of the Nation address in February 2018 highlighted the understood plight of youth in
the job market and we are hopeful that the employment tax incentive, a significant and material
component of our group's results, will be either extended or at least replaced in 2019.
Although we operate in a complex regulatory environment it is important to note that the TES
industry enable just short of 10% of all employment in South Africa. Many of the assignees
Workforce place into employment are the "vulnerable". In other words, the youth, people with
disabilities and the unemployed or first-time job seekers.
In addition, we provide accredited training courses and learnership programmes, training
thousands of people each year through our 18 training centres nationally. Although we are
driven commercially, we are proud of the meaningful societal impact we make.
Workforce is a significant player in the markets in which we operate.
Government aims to transform the economy through job creation and increased infrastructure
investment. Many initiatives and partnerships between government and business are under way to
spur growth. These include the "YES Initiative" - a three-year programme to create one million
youth internships - being negotiated by government, business and labour, and through the entry
of independent power producers ("IPPs"). The IPPs are private investors who build solar and wind
power generation plants and sell the electricity to Eskom. Government plans to continue with the
IPP's programme and extend the model to other sectors. The YES Initiative should result in more
business for at least our training segment and government's renewed investment on its delayed
infrastructure development plans should result in further demand for our group's staffing
services. These all represent significant opportunities for our group.
The world of work is constantly changing. In an increasingly competitive environment, companies
need to be flexible and as a result, they tend to focus more on their core activities,
increasingly outsourcing human capital management activities.
We continue to also strategically diversify our business. South Africa experiences significant
skills shortages and our training segment is a key area for both organic and acquisitive growth.
We are positive and are looking forward to the challenges and exciting opportunities that
2018 presents.
Appreciation
We commend and thank all our divisional directors, management and staff of the group who
continued to show commitment, perseverance and determination in a particularly challenging
operating environment. A warm thank you is also extended to all our assignees, trainees,
learners and interns for their reliable support and commitment. To our customers, who continue
to demonstrate faith in our ability to provide the vital component of human capital solutions
into their organisations, we thank you for your loyal support.
Finally, we would like to thank our fellow board members for their support and counsel in our
business and their valuable input to the strategies of the group, it is much appreciated.
Ronny Katz Philip Froom Willie van Wyk
Executive Chairman Chief Executive Officer Financial Director
15 March 2018
Executive Directors
RS Katz (Executive Chairman)
PM Froom (Chief Executive Officer)
WP van Wyk (Financial Director)
Non-Executive Directors
S Naidoo (Alternative: 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
www.workforce.co.za
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