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ADCORP HOLDINGS LIMITED - Unaudited results for the six months ended 31 August 2019

Release Date: 16/10/2019 17:45
Code(s): ADR     PDF:  
Wrap Text
Unaudited results for the six months ended 31 August 2019

Adcorp Holdings Limited
(Adcorp or Adcorp Group or the Group)
Registration number 1974/001804/06
Share code: ADR, ISIN: ZAE000000139

Short form announcement 
Unaudited Group results for the six months ended 31 August 2019

Salient features
- Revenue for the period decreased by 10% to R7 billion (H1 2018: R8 billion)
- EBITDA for the period decreased by 29% to R151 million (H1 2018: R212 million)
- Loss after tax of R447 million compared to a net profit after tax of R99 million in the prior half year period
- Loss per share of 413,3 cents per share compared to an earnings per share of 90,2 cents per share in the prior
  half year period
- Headline earnings per share of 5,1 cents compared to 88,3 cents per share in the prior half year period
- Days sales outstanding (DSO) improved to 51 days from 52 days
- Cash generated by operations declined by 69% to R110 million (H1 2018: R358 million)
- The gearing ratio increased to 50% from 35% 
- A final dividend of R106 million (relating to the financial year ended 28 February 2019) has been paid to all
  shareholders on 19 August 2019. No dividend has been declared for the six-months period ended 31 August 2019 
  (2018: Nil).

Overview
The Group is disappointed to report, for the half year ended 31 August 2019, a net loss of R447 million 
compared to a R99 million profit for the same period last year. The decline in performance can be attributed 
to a combination of challenges in our trading environments, unsatisfactory operating performance and impairments 
amounting to R452 million.

Group revenue declined by R784 million during the period. The largest contributors to this decline were the 
Industrial Services (R291 million decline) and Support Services (R210 million decline) businesses in 
South Africa, and the Industrial Services (R263 million decline) business in Australia.

A large portion of the revenue decline in the South African Industrial Services and Support Services 
businesses was a result of a combination of the poor macroeconomic conditions and the final effects of the 
July 2018 Constitutional Court ruling on the “deeming” provision in the Labour Relations Act (LRA) flowing 
through our client base. As the market leader in the South African staffing industry, it goes without saying 
that we are directly impacted by South Africa’s economic and employment woes. In the first half of this year, 
unemployment increased to 29%, business confidence fell to the lowest level in over two decades and the 
post-election economic relief, which many of our corporate clients were holding out for, has not materialised. 
This has resulted in our clients rebasing their business projections, leading to higher than anticipated 
volume reduction in our South African Industrial Services and Support Services businesses. In addition to 
these cyclical factors, the Support Services business has been impacted by technological disruption in areas
such as call centre staffing. In both these businesses, we are stepping up our level of interaction with 
clients, refining our value proposition and reducing our costs-to-serve. The most significant impact on 
the half year results was not so much the decline in our revenue, but a decline in our gross margins which 
was not matched by a timely response to rationalise our related fixed cost base. We believe these 
interventions are reasonably within management control, and remedial measures have already commenced. 

We are encouraged by the positive performance in our Training business, which has more than doubled in 
earnings, as we adopt a more commercial focus and rationalise the business.

Financial Services revenue decreased by 22% primarily due to the fact that prior year numbers include 
revenue for the FNDS 3000 business that was sold in Q1 of FY2019. Revenue in the Financial Services 
division has also been negatively impacted by the reduction of TES headcount which affects the Employee 
Benefits business. Excluding these factors, revenue for the FMS part of the business was up 12% and 
continues to perform well. 

The revenue decline in the Australian Industrial Services division was largely as a result of drought 
conditions and floods that materially impacted the Labour Solutions Australia (LSA) business, which 
primarily provides staff to the agricultural sector. We have already started seeing some recovery in 
this business in the second half, but the events further highlight the urgent need to diversify the 
LSA business and this remains a key strategic focus.

In light of the deterioration in financial performance, management undertook a review of the significant 
goodwill and intangible assets balance. We have impaired R452 million worth of goodwill in Paracon, Blu, 
Cynergy, DAV and LSA given the significant slowdown in these businesses over the period under review. 
Despite the impairment, these businesses remain cash generative and profitable. The impairment is primarily 
an accounting requirement, and management do not believe that this reflects a permanent loss of value or 
decline in the long-term prospects of the businesses.

Despite the operating difficulties reflected in the half year results, Adcorp remains South Africa’s largest 
staffing provider with a blue-chip client base that includes South Africa’s leading companies in 
telecommunications, financial services, energy, manufacturing and general industrials. The bulk of our 
volume reductions have been driven by clients pulling back on their volumes. We, therefore, remain focused 
on delivering high quality service to our clients to ensure that we remain our clients’ top choice when 
the cycle eventually turns.

Outlook
Despite the disappointing financial and operational performance for the half year period under review, the 
business is fundamentally sound and will be able to meet all its commitments and deliver on its strategic 
plans, albeit over a longer timeframe.

In South Africa, our focus over the short term will be the implementation of tactical interventions to claw 
back on the losses incurred in the first half of this year. We have also begun simplifying the grouping of 
our different business units in line with our go-to-market strategies to ensure that businesses that serve 
the same client base and have similar processes operate under the same pillar and benefit from synergies and 
collaboration. As noted above, we anticipate our businesses to be agile in responding to revenue and margin 
pressures through rightsizing their cost bases as well as offering better customer propositions. The Group 
will also be spending more time on customer centric activities compared to the past two years, which have been 
dominated by internal restructure efforts.

A key focus of the strategic transformation is the realignment of our Training business so that we can 
effectively leverage our assets, which include numerous accreditations and campuses across the country, to 
deliver value in reskilling and upskilling of South Africa’s workforce. Developments in our Training business 
are exciting as we work with an increasing number of our clients to deliver demand-led requirements that 
enhance their workforce skills requirements in a growing age of digital through our IT Certification business, 
TorqueIT. The need for skilled artisans is an imperative for our South African market and we are harnessing 
our capabilities within our businesses, Adcorp Technical Training (ATT) and Production Management Institute 
(PMI), to partner with our clients in the heavy industrials, mining and logistics industries.

While we are seeing a marginal uplift in headcount volumes in our LSA business, we do not expect a full recovery 
in the current financial year. Diversification away from agriculture had already been identified as an area of 
focus and we are investigating our options in this regard within Australia. Paxus, which had been impacted by 
a slowdown in volumes in response to the May general elections in Australia, is anticipating a stronger second 
half of the financial year.

Positioning ourselves to remain competitive as we support our clients as they navigate their human capital and 
workplace needs remains a priority for the business, and we remain committed to unlocking value for our 
shareholders while we provide a positive impact in the countries and communities where we work.

This short form announcement is the responsibility of the directors and is only a summary of the information 
contained in the full announcement and does not contain full or complete details. The full announcement is 
available on the JSE website at https://senspdf.jse.co.za/documents/2019/jse/isse/adr/ie2019.pdf and on 
the Group’s website at https://www.adcorpgroup.com/investor-news/fy2020-unaudited-adcorp-group-interim-results. 
Copies of the full announcement may also be requested from the Group’s registered office and at the office 
of the Group’s sponsors during office hours 08:00 to 16:00, Monday to Friday at no cost at the contact 
details below. Any investment decision should be based on the contents of the full announcement available 
on the JSE’s website and the Group’s website.

On behalf of the Board

GT Serobe             CJ Kujenga
Chairman              Interim Chief Executive Officer

16 October 2019

Executive director: CJ Kujenga (CFO/Interim CEO)

Independent non-executive directors: 
SN Mabaso-Koyana, FS Mufamadi, H Singh, MW Spicer, R van Djik

Non-executive directors: 
GT Serobe (Chairman), GP Dingaan, C Maswanganyi, S Sithole, MM Nkosi

Physical address: 
Adcorp Place, 102 Western Service Road, Gallo Manor Ext 6, 2191. Telephone: 010 800 0000

Interim Company Secretary: 
FluidRock Governance Group (Pty) Ltd

Transfer secretaries: 
4 Africa Exchange Registry (Pty) Ltd, Cedar Woods House, Ballywoods Office Park, 
33 Ballyclare Drive, Bryanston, 2191

Sponsor: 
Nedbank Corporate and Investment Banking, a division of Nedbank Limited, 3rd Floor, Block F, 
135 Rivonia Road, Sandown, Sandton, 2196

Date: 16/10/2019 05:45:00
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