Wrap Text
Unaudited Condensed Interim Financial Results for the Six Months Ended 30 June 2018
Workforce Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 2006/018145/06)
JSE code: WKF
ISIN: ZAE000087847
("Workforce" or "the group")
Unaudited condensed interim financial results for the six months ended 30 June 2018
Highlights
Revenue up 4,2% to R1,4 billion
Gross profit up 6,7% to R333,9 million
Profit for the period up 10,8% to R46,0 million
Headline earnings per share up 8,1% to 20,2 cps
Net asset value per share up 13,2% to 244 cps
Tangible net asset value per share up 4,1% to 137 cps
Net interest-bearing debt to total tangible assets 42% (2017: 36%)
Acquisition of Dyna to boost Training and Consulting segment
Condensed consolidated statement of comprehensive income for the six months ended 30 June 2018
Six months Six months Year to
to 30 June to 30 June Increase/ 31 December
2018 2017 (decrease) 2017
Notes R'000 R'000 % R'000
Revenue 1 422 920 1 366 109 4,2 2 807 890
Cost of sales (1 089 030) (1 053 104) 3,4 (2 172 461)
Gross profit 333 890 313 005 6,7 635 429
Operating costs (265 593) (243 945) 8,9 (511 855)
Fair value adjustments 20 (458) (1 732) 100,0 10 365
Earnings before interest,
taxation, depreciation
and amortisation 67 839 67 328 0,8 133 939
Depreciation and
amortisation of non-
financial assets (13 681) (12 969) 5,5 (26 080)
Operating profit 54 158 54 359 (0,4) 107 859
Finance income 1 235 606 103,8 1 486
Finance costs 20 (12 358) (11 870) 4,1 (23 360)
Profit before taxation 43 035 43 095 (0,1) 85 985
Taxation credit/(expense) 9 2 985 (1 574) (289,6) 10 819
Profit for the period 46 020 41 521 10,8 96 804
Other comprehensive
income/(loss) for the period (46) 375 461
Fair value gains/(losses)
on financial assets to be
reclassified to profit or
loss in subsequent periods (46) 375 461
Total comprehensive income
for the period 45 974 41 896 97 265
Profit for the period
attributable to:
Owners of the parent 45 865 42 461 98 542
Non-controlling interests 155 (940) (1 738)
46 020 41 521 96 804
Total comprehensive
income attributable to:
Owners of the parent 45 819 42 836 99 003
Non-controlling interests 155 (940) (1 738)
45 974 41 896 97 265
Earnings per share (cents) 10
Basic 20,2 18,7 43,0
Diluted 19,7 18,3 41,2
Condensed consolidated statement of financial position at 30 June 2018
As at As at As at
30 June 30 June December
2018 2017 2017
Notes R'000 R'000 R'000
Assets
Non-current assets 334 355 247 732 251 912
Property, plant and equipment 5 22 268 19 784 23 559
Goodwill 6 192 889 141 166 134 480
Intangible assets 7 69 145 48 188 44 247
Deferred tax assets 41 247 35 510 44 251
Other financial assets 8 806 3 084 5 375
Current assets 762 364 679 753 744 246
Trade and other receivables 732 793 651 676 714 389
Inventories 4 989 3 294 3 546
Taxation - - 763
Cash and cash equivalents 24 582 24 783 25 548
Total assets 1 096 719 927 485 996 158
Equity and liabilities
Equity 554 032 489 104 542 345
Share capital and premium 234 051 241 867 234 051
Treasury shares (10 369) (12 454) (7 658)
Available-for-sale reserve 877 837 923
Equity-settled employee
benefits reserve 5 975 5 901 6 793
Retained earnings 324 804 253 616 309 697
Equity attributable to owners
of the parent 555 338 489 767 543 806
Non-controlling interests (1 306) (663) (1 461)
Non-current liabilities 107 611 54 434 38 173
Financial liabilities 93 455 40 278 26 407
Deferred tax liabilities 14 156 14 156 11 766
Current liabilities 435 076 383 947 415 640
Trade and other payables 167 032 145 006 136 914
Financial liabilities 266 431 238 224 278 726
Taxation 1 613 717 -
Total equity and liabilities 1 096 719 927 485 996 158
Condensed consolidated statement of changes in equity for the six months ended 30 June 2018
Attributable to owners of the parent
Equity-
settled
Available- employee
Share Treasury for-sale benefits
capital and shares reserve reserve
premium R'000 R'000 R'000
For the six months ended 30 June 2018
Balance at 1 January 2018 234 051 (7 658) 923 6 793
Recognition of share-based payments
(refer to note 14.1) - - - (818)
Buy-back of shares (refer to note 19) - (2 711) - -
Recognition of IFRS 9 adjustment
(refer to note 17) - - - -
Total comprehensive income for
the period - - (46) -
Balance at 30 June 2018 234 051 (10 369) 877 5 975
For the six months ended 30 June 2017
Balance at 1 January 2017 241 867 (9 330) 462 2 337
Recognition of share-based payments
(refer to note 14.2) - - - 3 564
Buy-back of shares (refer to note 19) - (3 124) - -
Total comprehensive income for
the period - - 375 -
Balance at 30 June 2017 241 867 (12 454) 837 5 901
For the year ended 31 December 2017
Balance at 1 January 2017 241 867 (9 330) 462 2 337
Recognition of share-based payments
(refer to note 14.1) (7 816) - - 5 227
Buy-back of shares (refer to note 19) - (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
Non-
Retained controlling
earnings Total interest Total
R'000 R'000 R'000 R'000
For the six months ended 30 June 2018
Balance at 1 January 2018 309 697 543 806 (1 461) 542 345
Recognition of share-based payments
(refer to note 14.1) - (818) - (818)
Buy-back of shares (refer to note 19) - (2 711) - (2 711)
Recognition of IFRS 9 adjustment
(refer to note 17) (30 758) (30 758) - (30 758)
Total comprehensive income for
the period 45 865 45 819 155 45 974
Balance at 30 June 2018 324 804 555 338 (1 306) 554 032
For the six months ended 30 June 2017
Balance at 1 January 2017 211 155 446 491 277 446 768
Recognition of share-based payments
(refer to note 14.2) - 3 564 - 3 564
Buy-back of shares (refer to note 19) - (3 124) - (3 124)
Total comprehensive income for
the period 42 461 42 836 (940) 41 896
Balance at 30 June 2017 253 616 489 767 (663) 489 104
For the year ended 31 December 2017
Balance at 1 January 2017 211 155 446 491 277 446 768
Recognition of share-based payments
(refer to note 14.1) - (2 589) - (2 589)
Buy-back of shares (refer to note 19) - (3 124) - (3 124)
Issue of ordinary shares under
employee share option plan - 4 025 - 4 025
Total comprehensive income for
the year 98 542 99 003 (1 738) 97 265
Balance at 31 December 2017 309 697 543 806 (1 461) 542 345
Condensed consolidated statement of cash flows for the six months ended 30 June 2018
Six months Six months Year to
to 30 June to 30 June 31 December
2018 2017 2017
Notes R'000 R'000 R'000
Cash generated from operations before
net working capital changes 54 258 55 735 107 624
Cash generated from operations 14.1 63 639 66 340 128 860
Finance income 1 235 606 1 486
Finance costs (12 358) (11 163) (23 360)
Taxation paid 1 742 (48) 638
Increase in net working capital 14.2 (22 239) (10 405) (91 706)
Cash flows from operating activities 32 019 45 330 15 918
Cash flows from investing activities (16 315) (46 461) (60 710)
Property, plant and equipment acquired 5 (3 160) (3 508) (12 068)
Proceeds on disposal of property, plant
and equipment 15 565 1 109
Dividends received - - 1 032
Intangible assets acquired 7 (2 536) (2 989) (7 645)
Net cash flow on acquisition of business 14.3 (10 634) (40 529) (43 138)
Cash flows from financing activities (16 670) (49 215) (4 789)
(Decrease) in borrowings (13 959) (46 091) (1 948)
Payment for buy-back of shares (2 711) (3 124) (3 124)
Proceeds on disposal of shares - - 4 796
Settlement of equity-settled share-based
payments - - (4 513)
Net change in cash and cash equivalents (966) (50 346) (49 581)
Cash and cash equivalents at the beginning
of the period 25 548 75 129 75 129
Cash and cash equivalents at the end
of the period 24 582 24 783 25 548
Notes to the condensed consolidated interim financial statements
1. Nature of operations and general information
Workforce Holdings Limited is a holding company. Its subsidiaries provide human capital solutions
that include temporary employment services, permanent placement recruitment, training and skills
development services, contractor on-boarding, health and wellness, disability solutions, financial
services, lifestyle benefits and business process outsourcing solutions.
The unaudited condensed interim financial statements are presented in South African Rand
("ZAR"), which is the functional currency of the group.
The unaudited condensed interim financial statements were approved for issue by the Board of
Directors on 22 August 2018.
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 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 2018
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.
The accounting policies adopted in the preparation of the interim condensed consolidated
financial statements are consistent with those followed in the preparation of the group's annual
consolidated financial statements for the year ended 31 December 2017, except for the adoption
of new standards effective as of 1 January 2018. The group has not early adopted any standard,
interpretation or amendment that has been issued but is not yet effective.
The group applies, for the first time, IFRS 9: Financial Instruments and IFRS 15: Revenue from
Contracts from Customers. The adoption of IFRS 9: Financial Instruments resulted in an adjustment
of the provision for doubtful debt and the opening retained income. As required by IAS 34, the
nature and effect of these changes are disclosed further in note 17.
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.
5. Property, plant and equipment
Motor Computer Industrial Office
vehicles equipment equipment equipment
R'000 R'000 R'000 R'000
Six months to 30 June 2018
Carrying amount at 1 January 2018 4 493 6 525 2 579 4 071
Additions - 1 581 420 533
Disposals - 148 - -
Acquired through business combination - 76 - 73
Depreciation (831) (2 091) (663) (649)
Carrying amount at 30 June 2018 3 662 6 239 2 336 4 028
Six months to 30 June 2017
Carrying amount at 1 January 2017 3 693 4 140 1 872 2 827
Additions - 1 793 568 670
Disposals (281) - - -
Acquired through business combination 417 719 686 985
Depreciation (853) (1 584) (607) (729)
Carrying amount at 30 June 2017 2 976 5 068 2 519 3 753
Year to 31 December 2017
Carrying amount at 1 January 2017 3 693 4 140 1 872 2 827
Additions 3 137 5 128 1 060 1 177
Disposals (317) (22) - (24)
Acquired through business combination 421 718 686 985
Depreciation (2 441) (3 439) (1 039) (894)
Carrying amount 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
Six months to 30 June 2018
Carrying amount at 1 January 2018 561 2 630 2 700 23 559
Additions 242 384 - 3 160
Disposals - - - 148
Acquired through business combination - 344 - 493
Depreciation (72) (786) - (5 092)
Carrying amount at 30 June 2018 731 2 572 2 700* 22 268
Six months to 30 June 2017
Carrying amount at 1 January 2017 130 2 653 2 700 18 015
Additions 220 257 - 3 508
Disposals - - - (281)
Acquired through business combination - - - 2 807
Depreciation (28) (464) - (4 265)
Carrying amount at 30 June 2017 322 2 446 2 700* 19 784
Year to 31 December 2017
Carrying amount at 1 January 2017 130 2 653 2 700 18 015
Additions 534 1 032 - 12 068
Disposals (6) (147) - (516)
Acquired through business combination - - - 2 810
Depreciation (97) (908) - (8 818)
Carrying amount at 31 December 2017 561 2 630 2 700* 23 559
* The carrying value of land and buildings is immaterial hence no depreciation recognised.
6. Goodwill
Total
R'000
Six months to 30 June 2018
Carrying amount at 1 January 2018 134 480
Acquired through business combination 58 409
Carrying amount at 30 June 2018 192 889
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
Year to 31 December 2017
Carrying amount at 1 January 2017 102 287
Acquired through business combination 32 193
Carrying amount at 31 December 2017 134 480
7. Intangible assets
Training
course
Computer accredi-
software Brands tations
R'000 R'000 R'000
Six months to 30 June 2018
Carrying amount at 1 January 2018 17 065 - -
Additions 565 - -
Acquired through business combination 3 - 20 276
Amortisation (2 695) - (344)
Carrying amount at 30 June 2018 14 938 - 19 932
Six months to 30 June 2017
Carrying amount at 1 January 2017 15 755 756 -
Additions 965 - -
Acquired through business combination 2 761 - -
Amortisation (3 639) (501) -
Carrying amount at 30 June 2017 15 842 255 -
Year to 31 December 2017
Carrying amount at 1 January 2017 15 755 756 -
Additions 5 277 - -
Disposals (39) - -
Acquired through business combination 2 761 - -
Amortisation (6 689) (756) -
Carrying amount at 31 December 2017 17 065 - -
Client
relation- Work in
ships progress Total
R'000 R'000 R'000
Six months to 30 June 2018
Carrying amount at 1 January 2018 16 262 10 920 44 247
Additions - 1 971 2 536
Acquired through business combination 10 672 - 30 951
Amortisation (5 550) - (8 589)
Carrying amount at 30 June 2018 21 384 12 891 69 145
Six months to 30 June 2017
Carrying amount at 1 January 2017 14 067 8 552 39 130
Additions - 2 024 2 989
Acquired through business combination 12 012 - 14 773
Amortisation (4 564) - (8 704)
Carrying amount at 30 June 2017 21 515 10 576 48 188
Year to 31 December 2017
Carrying amount at 1 January 2017 14 067 8 552 39 130
Additions - 2 368 7 645
Disposals - - (39)
Acquired through business combination 12 012 - 14 773
Amortisation (9 817) - (17 262)
Carrying amount at 31 December 2017 16 262 10 920 44 247
8. Segment analysis
The group's segment analysis is based on the following three core business segments:
- 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, adult education training ("AET") and
contractor on-boarding;
- 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.
Staffing Training Financial
and out- and and
sourcing consulting healthcare
R'000 R'000 R'000
Six months to June 2018
Segment revenues 1 249 049 102 117 71 658
Inter-segment revenues 12 057 7 463 862
Cost of sales (1 016 204) (49 672) (26 530)
Inter-segment cost of sales (11 264) - -
Operating costs (153 884) (31 837) (38 548)
Inter-segment operating costs (792) (7 464) (862)
Fair value adjustments - (885) 450
EBITDA 78 962 19 722 7 030
Depreciation and amortisation
of non-financial assets (698) (1 532) (1 364)
Net finance costs (340) 723 (978)
Segment profit/(loss) before tax 77 924 18 913 4 688
Capital expenditure 1 841 32 283 1 105
Segment total assets 538 686 130 681 229 608
Segment total liabilities (124 037) (96 867) (274 697)
Net segment assets 414 649 33 814 (45 089)
Six months to June 2017
Segment revenues 1 229 474 96 358 40 277
Inter-segment revenues - 8 566 -
Cost of sales (1 005 396) (33 388) (13 453)
Inter-segment cost of sales - (8 566) -
Operating costs (132 236) (47 877) (22 052)
Fair value adjustments - - -
EBITDA 91 842 15 093 4 772
Depreciation and amortisation
of non-financial assets (1 817) (2 308) (968)
Net finance costs 197 186 (618)
Segment profit/(loss) before tax 90 222 12 971 3 186
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)
Year to 31 December 2017
Segment revenues 2 521 071 158 000 127 005
Inter-segment revenues 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
Six months to June 2018
Segment revenues 96 - 1 422 920
Inter-segment revenues - (20 382) -
Cost of sales 3 376 - (1 089 030)
Inter-segment cost of sales - 11 264 -
Operating costs (41 324) - (265 593)
Inter-segment operating costs - 9 118 -
Fair value adjustments (23) - (458)
EBITDA (37 875) - 67 839
Depreciation and amortisation
of non-financial assets (4 335) (5 752) (13 681)
Net finance costs (10 528) - (11 123)
Segment profit/(loss) before tax (52 738) (5 752) 43 035
Capital expenditure 1 911 - 37 140
Segment total assets 401 383 (203 639) 1 096 719
Segment total liabilities (115 915) 68 830 (542 686)
Net segment assets 285 468 (134 809) 554 033
Six months to June 2017
Segment revenues - - 1 366 109
Inter-segment revenues - (8 566) -
Cost of sales (867) (1 053 104)
Inter-segment cost of sales - 8 566 -
Operating costs (41 780) - (243 945)
Fair value adjustments (1 732) - (1 732)
EBITDA (44 379) - 67 328
Depreciation and amortisation
of non-financial assets (3 010) (4 866) (12 969)
Net finance costs (11 029) - (11 264)
Segment profit/(loss) before tax (58 418) (4 866) 43 095
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
Year to 31 December 2017
Segment revenues 1 814 - 2 807 890
Inter-segment revenues - (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
9. Taxation
The effective tax rate of (7%) (2017: 3,7%) for the period was based on the anticipated weighted
average tax rate for the full financial year. The low tax rate is due to the tax deductions of
learnership allowances as well as having earned tax-free employment incentive income.
10. Earnings per share
Six months Six months Year to
to 30 June to 30 June 31 December
2018 2017 2017
Basic earnings per share
Profit attributable to equity shareholders
of the parent company (R'000) 45 865 42 461 98 542
Weighted average number of shares
in issue ('000) 227 230 226 979 229 336
Diluted weighted average number of
shares in issue ('000) 232 008 232 370 238 973
Basic earnings per share (cents) 20,2 18,7 43,0
Diluted earnings per share (cents) 19,7 18,3 41,2
Headline earnings per share
The earnings used in the calculation of
headline earnings per share are as follows:
Profit attributable to equity shareholders
of the parent company (R'000) 45 865 42 461 98 542
Headline earnings adjustment (R'000) (125) (202) (400)
- Gain on disposal of property, plant and equipment (173) (281) (555)
- Tax effect of adjustments 48 79 155
Total headline earnings (R'000) 45 740 42 259 98 142
Weighted average number of shares in issue ('000) 227 230 226 979 229 336
Headline earnings per share (cents) 20,1 18,6 42,8
The weighted average number of ordinary shares
for the purpose of diluted earnings per share
reconciles to the weighted average number of
ordinary shares used in the calculation of basic
earnings per share as follows: 227 230 226 979 229 336
Shares deemed to be issued for no consideration
in respect of:
Employee options 4 778 5 391 9 637
Weighted average number of ordinary shares in
the calculation of diluted earnings per share 232 008 232 370 238 973
11. Dividends
No dividend was declared relating to the period under review.
12. Changes to the board
With effect from 1 July 2018:
- Philip Froom resigned as chief executive officer of the group;
- Mr Ronald Katz, executive chairman of the group, assumed the role of chief executive officer; and
- Mr John Macey, the head independent non-executive director, assumed the role of chairman
of the group.
Subsequent to the reporting period, Ms Inshaaf Ross was appointed as a non-executive director
with effect from 13 August 2018.
Furthermore, in compliance with paragraph 3.59 of the JSE Listings Requirements, shareholders
are advised that Mr Mark Anderson has resigned as alternate director with immediate effect due
to other responsibilities.
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 reduction of the relevant wage expense in terms of IAS 20: Accounting for
government grants and disclosure of government assistance. The Employment Tax Incentive
income earned in for 2018 was R33 113 000 (2017: R29 714 000) (2017 December: R66 595 000).
The ETI programme remains in place until February 2019. Early indications are that this
programme is likely to continue subsequent to this proposed period-end.
14. Notes to the condensed consolidated statement of cash flows
Six months Six months Year to
to 30 June to 30 June 31 December
2018 2017 2017
R'000 R'000 R'000
14.1 Cash generated from operations
Profit before taxation 43 035 43 095 85 985
Finance income (1 235) (606) (1 486)
Finance costs 12 358 9 431 23 360
Dividends received - - (1 032)
Adjustment for non-cash items:
(Gain) on disposal of property, plant and equipment (173) (281) (555)
Depreciation and amortisation of non-financial assets 13 681 12 969 26 080
(Loss)/gain arising on financial liability at fair
value through profit or loss 458 1 732 (10 385)
(Reversal)/expense recognised in respect of
cash-settled share-based payment (3 667) - 1 666
(Reversal)/expense recognised in respect of
equity-settled share-based payment (818) - 5 227
63 639 66 340 128 860
14.2 Working capital changes
Change in trade and other receivables (20 553) (26 874) (100 527)
Change in trade and other receivables in respect
of IFRS 9 adjustment (refer to note 17) (30 758) - -
Change in inventories (1 443) (275) (486)
Change in share-based payment - 3 564 -
Change in trade payables 30 515 13 180 9 307
(22 239) (10 405) (91 706)
14.3 Net cash flow on acquisition of business
Net cash inflow on the acquisition of subsidiaries
- current year (refer to note 15.1.5) 5 239 - -
Net cash outflow on the acquisition of subsidiaries
relating to contingent consideration - prior year's
acquisition (15 873) (40 529) (43 138)
(10 634) (40 529) (43 138)
15. Business combinations
15.1.1 Business acquired
Portion of Conside-
business ration
Date of acquired transferred
Principal activity acquisition % R'000
Dyna Training This entity designs, conceptualises,
and Industrial formulates and produces training
Development programmes and related materials
(Pty) Ltd and owns all the intellectual property
that is licensed to the training
providers within the Dyna group
and Dyna franchises. 1 June 2018 100 31 170
Dyna Training This entity is a franchise involved
(Pty) Ltd in marketing and selling the Dyna
training programmes in the
Western Cape territory. 1 June 2018 100 9 916
Dyna Training This entity is a franchise involved
Namibia in marketing and selling the Dyna
(Pty) Ltd training programmes in Namibia
and the remaining Southern African
Development Community territory,
excluding South Africa. 1 June 2018 100 23 300
NQ Plus This entity undertakes all the
Networks training assessment and moderation
(Pty) Ltd functions for the Dyna group and
its franchises as well as conducting
training learnerships. 1 June 2018 100 16 632
81 017
Workforce has obtained control of the above mentioned entities by acquiring 100% of the equity
and voting rights in each of these entities. The Dyna group was acquired in order to grow
Workforce's training segment by providing leadership, supervisory and management training
programmes in addition to the existing training programmes currently offered.
15.1.2 Consideration to be transferred
Dyna
Industrial Dyna
Training and Dyna Training
Development Training Namibia
R'000 R'000 R'000
Cash 13 506 4 297 10 097
Contingent consideration arrangement 17 661 5 619 13 203
Total 31 167 9 917 23 301
NQ Plus
Networks Total
R'000 R'000
Cash 7 208 35 108
Contingent consideration arrangement 9 425 45 909
Total 16 633 81 017
15.1.3 Contingent consideration
Dyna
Industrial Dyna
Training and Dyna Training
Development Training Namibia
R'000 R'000 R'000
Legal and acquisition costs 199 117 159
Second payment 1 485 873 1 184
Third payment 2 659 1 563 2 120
Fourth payment 4 020 2 362 3 205
Top-up payment 5 111 3 004 4 075
Total additional amount 13 474 7 919 10 743
Less: Interest raised on future payments (4 996) (2 936) (3 983)
8 478 4 983 6 760
NQ Plus
Networks Total
R'000 R'000
Legal and acquisition costs 204 679
Second payment 1 518 5 060
Third payment 2 718 9 060
Fourth payment 4 109 13 696
Top-up payment 5 224 17 414
Total additional amount 13 773 45 909
Less: Interest raised on future payments (5 106) (17 021)
8 667 28 888
Under the contingent consideration arrangement for the Dyna group companies, Workforce is
obliged to pay an amount of up to R5 060 886 subject to the Dyna group companies achieving an
agreed upon operating profit for the 12 months ending 31 May 2019, an amount of up to R9 060 112
subject to the acquired Dyna group companies achieving an agreed upon operating profit for the
12 months ending 31 May 2020 and an amount of up to R13 695 622 subject to the acquired
Dyna group companies achieving an agreed upon operating profit for the 12 months ending
31 May 2021. In the event that the aggregate operating profit for the three-year period exceeds
R42 016 084, an additional payment of up to R17 413 968 may also be payable. All these
payments are calculated using agreed upon formulae. The directors believe that these payments
are probable.
15.1.4 Assets acquired and liabilities recognised at the date of acquisition
Dyna
Industrial Dyna
Training and Dyna Training
Development Training Namibia
R'000 R'000 R'000
Non-current assets
Property, plant and equipment 377 74 9
Intangible assets 3 8 063 2 609
Deferred tax 20 279 129 -
Current assets - - -
Trade and other receivables 649 263 142
Loans and other receivables - - -
Loans to shareholder - - -
Taxation - - 420
Cash and cash equivalents 1 769 705 1 092
Non-current liabilities - - -
Shareholders loans (1 071) (386) (1 641)
Operating lease liabilities - (21) -
Deferred tax (5 774) (2 258) (731)
Current liabilities - - -
Trade and other payables (606) (598) (22)
Taxation (860) (165) -
Provisions - - -
Total 14 923 5 806 1 879
NQ Plus
Networks Total
R'000 R'000
Non-current assets
Property, plant and equipment 33 493
Intangible assets - 30 951
Deferred tax 93 382
Current assets - -
Trade and other receivables 271 1 324
Loans and other receivables 1 1
Loans to shareholder 2 2
Taxation - 420
Cash and cash equivalents 1 673 5 239
Non-current liabilities - -
Shareholders loans (1 051) (4 149)
Operating lease liabilities - (21)
Deferred tax - (8 762)
Current liabilities - -
Trade and other payables (663) (1 890)
Taxation (289) (1 314)
Provisions (67) (67)
Total 1 22 608
The receivables acquired (principally trade receivables) in this transaction with a fair value of
R1 324 000 for Dyna group 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
Dyna
Industrial
Training Dyna
and Dyna Training
Development Training Namibia
R'000 R'000 R'000
Consideration paid in cash 13 506 4 297 10 097
Less: Cash and cash equivalent balance acquired (1 769) (705) (1 092)
Total 11 737 3 593 9 005
Goodwill arising on acquisition
Maximum consideration transferred 31 167 9 917 23 301
Less: Fair value of identifiable net assets (14 923) (5 806) (1 879)
Goodwill arising on acquisition 16 245 4 111 21 422
NQ Plus
Networks Total
R'000 R'000
Consideration paid in cash 7 208 35 108
Less: Cash and cash equivalent balance acquired (1 673) (5 239)
Total 5 535 29 869
Goodwill arising on acquisition
Maximum consideration transferred 16 633 81 017
Less: Fair value of identifiable net assets (1) (22 608)
Goodwill arising on acquisition 16 632 58 409
Goodwill arose on the acquisition of the Dyna group because the cost of the combination
included a control premium. In addition, the consideration paid for the combination effectively
included amounts in relation to the benefit of 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 Dyna
group 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 R1 445 658 and profit before tax of R637 037.
Had these business combinations been effective at 1 January 2018, the revenue of the group
from operations would have been R10 210 785 and profit before tax would have been R3 624 541.
15.2 Contingent consideration relating to acquisitions in previous years
Refer to note 16.2.4 for details of changes in the recognised amounts of the contingent
consideration liability.
16. Financial assets and financial liabilities
16.1.1 Set out below is an overview of financial assets held by the group at 30 June 2018,
31 December 2017 and 30 June 2017
Six months Six months Year to
to 30 June to 30 June 31 December
2018 2017 2017
R'000 R'000 R'000
Financial assets at amortised cost 757 375 676 459 739 937
Trade and other receivables 732 793 651 676 714 389
Cash and cash equivalents 24 582 24 783 25 848
Financial assets at fair value through other
comprehensive income
Quoted equity shares 2 724 2 684 2 770
Financial assets at fair value through
profit and loss
Investment in cell captive 6 082 400 2 605
Total 763 154 679 543 745 312
Total current 757 375 676 459 739 937
Total non-current 8 806 3 084 5 375
16.1.2 Set out below is an overview of financial liabilities held by the group as at 30 June 2018,
31 December 2017 and 30 June 2017
Six months Six months Year to
to 30 June to 30 June 31 December
2018 2017 2017
R'000 R'000 R'000
Financial liabilities at amortised cost
Trade and other payables 167 032 145 006 136 914
Interest-bearing borrowings 243 266 196 753 258 037
Financial liabilities at fair value through
profit or loss
Contingent consideration 96 631 55 518 9 048
Loan on treasury shares 7 711 7 711 7 783
Total 418 009 404 988 402 734
Total current 421 185 364 710 385 375
Total non-current 93 455 40 278 26 407
16.2 Fair value measurement
Fair values
All financial assets and liabilities carried at amortised costs have carrying values which
approximate their fair values.
16.2.2 The following table provides the fair value measurement hierarchy of the group's financial
assets and financial liabilities as at 30 June 2018, 30 June 2017 and 31 December 2017
Quoted
prices
in active
markets
Date of Total Level 1
valuation R'000 R'000
As at 30 June 2018
Financial assets
Quoted equity shares 30 June 2018 2 724 2 724
Cell captive 30 June 2018 3 055 -
Financial liabilities
Loan on treasury shares 30 June 2018 7 711 -
Contingent consideration relating to
business combination 30 June 2018 96 631 -
As at 30 June 2017
Financial assets
Quoted equity shares 30 June 2017 2 684 2 684
Cell captive 30 June 2017 400 -
Financial liabilities
Loan on treasury shares 30 June 2017 7 711 -
Contingent consideration relating to
business combination 30 June 2017 55 518 -
As at 31 December 2017
Financial assets
Quoted equity shares 31 December 2017 2 770 2 770
Cell captive 31 December 2017 2 605 -
Financial liabilities
Loan on treasury shares 31 December 2017 7 783 -
Contingent consideration relating to
business combination 31 December 2017 9 048 -
Significant
Significant unobser-
observable vable
inputs inputs
Level 2 Level 3
R'000 R'000
As at 30 June 2018
Financial assets
Quoted equity shares - -
Cell captive - 3 055
Financial liabilities
Loan on treasury shares - 7 711
Contingent consideration relating to
business combination - 96 631
As at 30 June 2017
Financial assets
Quoted equity shares - -
Cell captive - 400
Financial liabilities
Loan on treasury shares - 7 711
Contingent consideration relating to
business combination - 55 518
As at 31 December 2017
Financial assets
Quoted equity shares - -
Cell captive - 2 604
Financial liabilities
Loan on treasury shares - 7 783
Contingent consideration relating to
business combination - 9 048
16.2.3 Description of significant unobservable inputs to valuation
The significant unobservable inputs used in the fair value measurements of financial instruments
within level 3 of the fair value hierarchy, together with a quantitative sensitivity analysis as at
30 June 2018 and 2017 are shown below:
Financial assets
Investment in cell captive
Valuation technique
Net asset value is used as a valuation where the underlying assets and liabilities have been
assessed to represent the fair value of the investment. Due to the nature of the investment,
specifically the significant composition of liquid assets and liabilities, the net value is seen
to be the most appropriate representation of fair value.
Significant unobservable inputs
Fair values of the cell captive's underlying assets and liabilities.
Sensitivity of the input to fair value
A 2% increase or decrease in the fair value of the underlying assets and liabilities should not
result in a change in the fair value.
Financial liabilities
Contingent consideration relating to business combination
Valuation technique
Discounted cash flow method was used to capture the present value of the expected future
economic benefits that will flow out of the group. Discount rate of 17,5% determined using the
capital asset pricing model.
Significant unobservable inputs
Discount rate of 17,5% determined using the capital asset pricing model.
Probability adjusted profits with ranges of R13 500 000 to R40 500 000 and R100 000 000
respectively.
Sensitivity of the input to fair value
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 R72 800 (2017: R66 600).
A slight change in the probability adjusted profits in isolation would not result in a significant
change in the fair value.
Treasury share loan
Valuation technique
Discounted cash flow method was used to capture the present value of the expected future economic
benefits that will flow out of the group.
Significant unobservable inputs
A risk adjusted discount rate of 8,2%.
Sensitivity of the input to fair value
A 2% increase in the discount rate used while holding all other variables constant would
decrease/increase the fair value of the loan by R200 000 (2017: R275 000).
16.2.4 Reconciliation of level 3 fair value measurements
Investment
in cell Treasury Contingent
captive share loan consideration Total
R'000 R'000 R'000 R'000
As at 30 June 2018
Opening balance 2 605 (7 783) (9 048) (14 226)
Unrealised gain in profit or loss 450 72 3 066 3 588
Additions - - (45 909) (45 909)
Payments - - (44 740) (44 740)
Closing balance 3 055 (7 711) (96 631) (101 287)
As at 30 June 2017
Opening balance 400 (7 711) (17 406) (24 717)
Unrealised gain in profit or loss - - 6 844 6 844
Additions - - - -
Payments - - 66 080 66 080
Closing balance 400 (7 711) 55 518 48 207
As at 31 December 2017
Opening balance 400 (7 711) (17 406) (24 717)
Unrealised gain/(loss) in profit
or loss 2 205 (72) 6 844 8 977
Additions - - (21 326) (21 326)
Payments - - 22 840 22 840
Closing balance 2 605 (7 783) (9 048) (14 226)
17. Changes to the group's accounting policies
IFRS 9: Financial Instruments
IFRS 9: Financial Instruments replaces IAS 39: Financial Instruments: Recognition and
Measurement for annual periods beginning on or after 1 January 2018, bringing together all three
aspects of the accounting for financial instruments: classification and measurement; impairment;
and hedge accounting.
The group applied prospectively, with the initial application date of 1 January 2018. The group
has recognised the difference between the previous carrying amount of financial instruments at
amortised cost after applying IFRS 9 at the carrying amount of financial assets at amortised cost
at the beginning of the annual reporting period that includes the date of initial application in the
opening retained earnings.
The effect of adopting IFRS 9 is as follows:
Impact on the statement of financial position (increase/(decrease) as at 1 January 2018:
R'000
Assets
Current assets
Trade and other receivables (30 758)
Equity
Retained earnings 30 758
Except for certain trade receivables, under IFRS 9, the group initially measures a financial asset
at its fair value plus, in the case of a financial asset not at fair value through profit or loss,
transaction costs. Under IFRS 9, debt financial instruments are subsequently measured at fair
value through profit or loss ("FVPL"), amortised cost, or fair value through other comprehensive
income ("FVOCI"). The classification is based on two criteria: the group's business model for
managing the assets; and whether the instruments' contractual cash flows represent "solely
payments of principal and interest" on the principal amount outstanding (the "SPPI criterion").
The new classification and measurement of the group's debt financial assets are as follows:
Debt instruments at amortised cost for financial assets that are held within a business model
with the objective to hold the financial assets in order to collect contractual cash flows that
meet the SPPI criterion. This category includes the group's trade and other receivables, and
loans included under other non-current financial assets.
Debt instruments at FVOCI, with gains or losses recycled to profit or loss on derecognition.
Financial assets in this category are the group's quoted debt instruments that meet the SPPI
criterion and are held within a business model both to collect cash flows and to sell. Under
IAS 39, the group's quoted debt instruments were classified as available-for-sale ("AFS")
financial assets.
Other financial assets are classified and subsequently measured, as follows:
Equity instruments at FVOCI, with no recycling of gains or losses to profit or loss on
derecognition. This category only includes equity instruments, which the group intends to hold
for the foreseeable future and which the group has irrevocably elected to so classify upon initial
recognition or transition. The group classified its unquoted equity instruments as equity
instruments at FVOCI. Equity instruments at FVOCI are not subject to an impairment assessment
under IFRS 9. Under IAS 39, the group's unquoted equity instruments were classified as
AFS financial assets.
Financial assets at FVPL comprise derivative instruments and quoted equity instruments which
the group had not irrevocably elected, at initial recognition or transition, to classify at FVOCI. This
category would also include debt instruments whose cash flow characteristics fail the SPPI
criterion or are not held within a business model whose objective is either to collect contractual
cash flows, or to both collect contractual cash flows and sell. Under IAS 39, the group's quoted
equity securities were classified as AFS financial assets. Upon transition the AFS reserve
relating to quoted equity securities, which had been previously recognised under accumulated
OCI, was reclassified to retained earnings.
The assessment of the group's business models was made as of the date of initial application,
1 January 2018, and then applied retrospectively to those financial assets that were not
derecognised before 1 January 2018. The assessment of whether contractual cash flows on
debt instruments are solely comprised of principal and interest was made based on the facts
and circumstances as at the initial recognition of the assets.
The accounting for the group's financial liabilities remains largely the same as it was under
IAS 39. Similar to the requirements of IAS 39, IFRS 9 requires contingent consideration liabilities
to be treated as financial instruments measured at fair value, with the changes in fair value
recognised in the statement of profit or loss.
The adoption of IFRS 9 has fundamentally changed the group's accounting for impairment
losses for financial assets by replacing IAS 39's incurred loss approach with a forward-looking
expected credit loss ("ECL") approach.
ECLs are based on the difference between the contractual cash flows due in accordance with
the contract and all the cash flows that the group expects to receive. The shortfall is then
discounted at an approximation to the asset's original effective interest rate.
For contract assets and trade and other receivables, the group has applied the standards
simplified approach and has calculated ECLs based on lifetime expected credit losses. The
group has established a provision matrix that is based on the group's historical credit loss
experience, adjusted for forward-looking factors specific to the debtors and the economic
environment.
The group considers a financial asset in default when contractual payments are 30 days past due.
However, in certain cases, the group may also consider a financial asset to be in default when
internal or external information indicates that the group is unlikely to receive the outstanding
contractual amounts in full before taking into account any credit enhancements held by the
group. The adoption of the ECL requirements of IFRS 9 resulted in increases in impairment
allowances of the group's debt financial assets. The increase in allowance resulted in
adjustment to retained earnings.
There is no impact on the statement of comprehensive income and statement of cash flows and
the basic and diluted EPS.
18. Related parties
During the period, the group entered into related-party transactions in the ordinary course of
business, the substance of which are similar to those disclosed in the group's annual financial
statements for the year ended 31 December 2017.
19. Treasury shares
Six months Six months Year to
to 30 June to 30 June 31 December
2018 2017 2017
R'000 R'000 R'000
Balance at the beginning of the year (7 658) (9 330) (9 330)
Share buy-back (2 711) (3 124) (3 124)
Shares distributed - - 4 796
(10 369) (12 454) (7 658)
20. Reclassification of prior year presentation
Certain reclassifications have been made to the prior period's condensed consolidated statement
of comprehensive income in order to enhance the comparability to the current period's financial
results. The recognition of fair value adjustments have subsequently been disclosed separately in
the condensed consolidated statement of comprehensive income, resulting in certain line items
being reclassified.
Previously
reported Restated
30 June 30 June
2017 2017 Adjustment
R'000 R'000 R'000
Condensed consolidated statement of
comprehensive income
Fair value adjustments - 1 732 (1 732)
Earnings before interest, taxation, depreciation
and amortisation 69 060 67 328 1 732
Finance costs 13 602 11 870 1 732
Profit before taxation 43 095 43 095 -
Directors' commentary
Background and purpose
Workforce Holdings Limited is a diversified services group. Its subsidiaries provide human capital
solutions to employers, covering all industry sectors. The group's services include temporary
employment services, training and skills development, business process outsourcing, contractor
on-boarding, permanent placement recruitment, healthcare, wellness, disability solutions, financial
services and lifestyle benefits.
The six months under review
Our review of the group's trading in the first half of 2018 must be seen against the backdrop of
very challenging factors that affected the macro, political and economic climate in South Africa.
The economy remained very strained in the post Zuma era with low economic growth, lack of
foreign and local capital investments and the continued failure by government to proceed with
investment in terms of the national development plan. These factors, accompanied by extremely
low levels of business confidence, impacted our business results.
Nonetheless, we are pleased to report that despite these difficult circumstances, the group has
been able to grow its earnings, albeit at a lower rate. We don't anticipate much change until such
time as the 2019 election has taken place, after which we foresee greater investment in the
economy and a revival of investment in infrastructure projects, to which our group is quite sensitive.
At a macro and micro level, the Constitutional Court ruling in the "Assign" case which was delivered
in July 2018 was a landmark event for the temporary employment services ("TES") industry in
South Africa. It clarified legislation which came into effect in 2015 and has given direction to all
the stakeholders as to their respective rights and obligations in terms of the Labour Relations Act.
It is our view that the Constitutional Court enunciated on the following key principles:
(a) The affected worker becomes the deemed employee of the client after three months'
employment through a TES for the purposes of the Labour Relations Act only. (This does not
mean that employees become permanent or that there is a transfer of employment.);
(b) Fixed term contracts are still legitimate;
(c) The tripartite relationship between TES, client and employee continues to exist, as long as
the client and the TES have an ongoing contractual relationship; and
(d) The court recognised the importance of and the continued existence of the TES. There was no
ban on labour brokers.
The results of this we believe to be a much more certain environment for all parties, and as a
result of this certainty, we hope that there will be an increase of the use of our diversified service
offering.
Two other factors in the make-up of our earnings which could be deemed to be unsustainable
are the employment tax incentive ("ETI") and the tax breaks in terms of section 12H which is
derived from learnerships.
The ETI is due to come to an end on 28 February 2019. In mitigation thereof, we can report that
there is currently a draft bill before parliament, which must still be debated on, for the extension of
the ETI for several years going forward.
In so far as the learnerships and their benefits under section 12H Income Tax Act are concerned,
these were extended during the year for a further period of three years until the end of 31 March
2022, opening up a number of long-term opportunities for our training division.
Going forward we recognise that our group is an important employer of youth and a provider of
training interventions with strong abilities and experience in this field. As such, we should be in a
position to utilise the various government incentives that are aimed at enabling historically
disadvantaged individuals to access the economy.
We are developing a revised organisational structure which is aimed at improving our depth of
management and ensuring we recognise and develop the talent employed in our group and more
fully utilise the skills that are not only within the group but also in the companies that we have
acquired.
The structure consists of the appointment of an executive committee ("EXCO") reporting to the
Chief Executive Officer and to the board. This EXCO will be responsible for strategies and their
execution.
To reflect the changed nature of the group resulting from the diversification policies we have
adopted over the past four years, we are forming clusters to manage the different business
segments as well as their support. We are appointing cluster heads who will, together with their
own executive committees, be fully responsible for the running and development of their cluster.
They will report to the group CEO and the group EXCO.
This restructuring should be completed over the next few months.
A number of other highlights to mention relate to some of these clusters.
As outlined above, the staff outsourcing cluster experienced a difficult six months as result of
legislative, political and economic factors and produced results that were disappointing.
Our training cluster showed a significant contribution to the group profits, as a result of both
acquisitions and organic growth with good margins. We anticipate further strong performance
going forward.
We concluded a new acquisition effective 1 June 2018, namely the Dyna Training Group. We will
continue to look at other opportunities which have been offered to us. The Prisma and KBC
acquisitions have been bedded down and are proving to be areas of continued growth and good
investments.
Our financial services cluster has shown improved results with much more stability in collections.
We also introduced new bespoke software programmes with good results. Because of the stability
that we have attained we are looking forward to improved contributions to the group profits.
Our cluster of businesses in permanent recruitment and the white-collar arena, continues to
struggle. The changes we have made hopefully will bear fruit in the second half of the year.
The medical and healthcare cluster returned good results in the group and we anticipate that their
business model, which focuses on the provision of outsourced medical and nursing staff, employee
health and wellness programmes and occupational healthcare and screening, could show
significant growth over the next number of years.
Africa development
We strongly believe that our product range across all the clusters will find significant market share
in a number of southern African countries and Mauritius. With this in mind, we have in the last few
years commenced operations in Mozambique, Botswana, Namibia, Zimbabwe and Mauritius.
Whilst to date we have not shown any return on this investment, we are seeing several orders
coming through which we are confident will turn into tangible results in the short term.
Finally, we are also looking at the structure of our group support services and to achieve a more
streamlined, efficient and cost-effective solution.
Financial performance
Revenue grew by a modest 4,2%, mostly from organic growth. The relatively low growth can be
attributed to limited economic growth across the country. Gross profit margin increased by 6,7%,
representing gross profit of 23,5% (2017: 22,9%). The increase is mainly due to the higher margin
training segment, which now carries a more substantial weighting relative to the overall group
results.
Operating costs increased by 8,9% to R265,6 million (2017: R243,9 million). The difference is
largely the result of a substantial increase in the doubtful debt provision charge to the income
statement due primarily to IAS 36, which was an incurred loss model, being replaced by IFRS 9,
which is a forward-looking expected credit loss approach. The bad debt charge in 2017 was
unusually low. Normalising for the doubtful debt effect, operating costs grew by 4,2%.
EBITDA increased slightly by 0,8% to R67,8 million (2017: R67,3 million).
Depreciation and amortisation increased by 5,5% to R13,7 million (2017: R12,9 million),
R6,2 million (2017: R5,6 million) of which is attributable to the amortisation of intangible assets
created as a result of the seven acquisitions made since the 2015 financial year.
Net finance cost remained relatively flat at R11,1 million (2017: R11,3 million).
Taxation
The group continued to benefit from the government's employment tax incentive programme
("ETI") 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 the financial
results. The ETI programme, which focuses on employment of youth for new projects, remains in
place until February 2019. Early indications are that this programme is likely to continue subsequent
to this proposed period end. These two items are the reason for the taxation credit of R3,0 million,
as published.
Net result
The net result is an increase of 8% in earnings per share to 20,2 cents per share (2017: 18,7 cents
per share).
Cash
Cash flows from operating activities for the period under review amounted to R32,0 million (2017:
R45,3 million). The difference to the comparative period is due to timing differences in cash flows.
Days sales outstanding ("DSO") is calculated at 52 days compared to the December 2017 DSO
of 53 days.
Balance sheet and gearing
The substantial increase in goodwill and property, plant and equipment as well as non-current
liabilities is mainly attributed to the acquisition of the Dyna group of companies as described in
the condensed consolidated interim financial statements. The increase in the net interest-bearing
debt to total asset ratio of 32% (2017: 28%) is also attributable to this event.
Segmental review
Staffing and Outsourcing segment
Turnover in this segment increased by 2,6%, with EBITDA decreasing 14,1% to R78,9 million
(2017: R91,8 million). The segment was negatively affected by the uncertainty regarding the
Constitutional Court judgment and overall poor economic growth. It was further impacted by an
increased debtors' impairment due to the implementation of IFRS 9, as well as having had a low
base in the preceding year.
The outlook for the segment is that with clarity now provided on the legislative front, real efforts
are currently being made to invigorate sales.
Training and Consulting segment
This segment experienced good improvement, with turnover increasing by 4,5% and EBITDA by
29,11% to R19,7 million (2017: R15,1 million). This growth was almost exclusively organic as Dyna
was only acquired on 1 June 2018, and thus had a limited impact on the results.
Our outlook is very bullish on this segment and Workforce endeavours to further enhance it through
organic and acquisitive growth.
Financial and Healthcare segment
This segment experienced excellent growth, with revenue increasing by 80,1%. EBITDA increased
by 47,3% to R7,0 million (2017: R4,7 million) during the six months under review.
The outlook for the segment remains positive with a few significant contracts having been closed.
The operationalisation of potentially lucrative deals recently closed in the rest of Africa is a key
priority for the coming six months.
Business combinations
Effective 1 June 2018, Workforce obtained control of the Dyna group of companies ("Dyna"), an
award-winning provider of management and supervisory skills development programmes and
learnerships throughout southern Africa. The maximum purchase price for the acquisition was a
cash amount of R79,4 million.
The effect on basic earnings per share of all acquisitions made since 2015 is still limited, due to
IFRS entries necessitated by the acquisition events. This effect will start dissipating as from 2019
and start contributing significantly to basic earnings per share as well as net cash flows.
Workforce is endeavouring to acquire more businesses in the foreseeable future, expanding its
core value offering and contributing further to its diversification efforts. The entrepreneurs who join
Workforce because of these acquisitions are having a significantly positive impact on our culture
and talent pool.
Post balance sheet events
During August 2018, our existing bankers granted a R30 million loan towards the acquisition of
Dyna, as well as an additional amount of R30 million to fund the expansion of our financial loan
business.
Board of directors
The group and Mr Philip Froom, reached an amicable separation agreement effective 30 June
2018. We wish to thank Mr Froom for his valued contribution to the group and wish him every
success with his future endeavours.
With effect from 1 July 2018, Mr Ronald (Ronny) Katz, the previous executive chairman of the
group, assumed the role of chief executive officer.
Accordingly, Mr John Macey, the previous lead independent non-executive director, became
chairman effective 1 July 2018 and Ms Kyansambo Vundla then became chairperson of the audit
and risk committee effective 1 July 2018. With effect from 13 August 2018, Ms Inshaaf Ross was
appointed as a non-executive director and a member of the social and ethics committee on
13 August 2018, representing a major shareholder on the board.
In compliance with paragraph 3.59 of the Listings Requirements on JSE Limited, the board of
directors of Workforce ("the board"), hereby notifies its shareholders that Mr Mark Anderson
resigned as alternate director with immediate effect due to other responsibilities.
Appreciation
We take this opportunity to extend our appreciation to all our stakeholders, including our
shareholders, clients and suppliers.
We thank the executive and non-executive directors for the work they have put in to the affairs of
the group. We greatly value their commitment and advice.
Appreciation is also extended to the entire management team and staff of all the operating
divisions as well as their contractors. They are the core of all activities and successes within
Workforce Holdings and we thank them for their ongoing resilience and dedication in making
Workforce a great place to be.
Finally, we thank our professional advisors for their advice and support to the affairs of the group.
For and on behalf of the board
John Macey
Chairman
Ronny Katz
CEO
Willie van Wyk
Financial Director
Johannesburg
22 August 2018
Executive directors
RS Katz, WP van Wyk
Non-executive directors
J Macey (chairman)
K Vundla
S Thomas
S Naidoo
I Ross
Designated adviser
Merchantec Capital
Company secretary
S van Schalkwyk
Registered office
The registered office, which is also its principal place of business, is 11 Wellington Road, Parktown, 2193
Transfer secretaries
Link Market Services South Africa Proprietary Limited
11 Diagonal Street, Johannesburg, 2001
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