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ADCORP HOLDINGS LIMITED - Summarised consolidated results for the year ended 29 February 2020 and cautionary announcement

Release Date: 29/06/2020 10:44
Code(s): ADR     PDF:  
 
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Summarised consolidated results for the year ended 29 February 2020 and cautionary announcement

Adcorp Holdings Limited
Incorporated in the Republic of South Africa
Registration number: 1974/001804/06
Share code: ADR
ISIN: ZAE000000139
("Adcorp" or "Adcorp Group" or "the Group")

SHORT FORM ANNOUNCEMENT
Summarised consolidated results for the year ended 29 February 2020 and cautionary announcement

Salient features

•   Revenue from continuing operations decreased by 10% to R13 billion (2019: R14.5 billion restated*)
•   Operating profit from continuing operations decreased by 49% to R195 million (2019: R379 million restated*)
•   Cash generated by operations decreased by 57% to R213 million (2019: R500 million)
•   Days Sales Outstanding ("DSO") deteriorated to 54 days (2019: 52 days)
•   Gearing ratio increased to 58% (2019: 27%)
•   Earnings per share decreased to 561 cents loss per share (2019: 240 cents earnings per share)
•   Headline earnings per share decreased to a loss of 6.2 cents (2019: 245 cents earnings per share)
•   No dividend declared for the year ended 29 February 2020 (2019: 96.1 cents)

*Restated to classify Dare Holdings Proprietary Limited - Australia as an asset held for sale in accordance with
IFRS 5 (Discontinued operations).

Financial overview
The year ended 29 February 2020 was a particularly challenging one for the Adcorp Group given a tough trading
environment, compounded by internal operational difficulties. In South Africa, the staffing industry continued to face
challenges presented by a contracting economy and rising unemployment, while in Australia a series of natural
disasters and political uncertainty depressed the demand for labour.

Adcorp’s revenue from continuing operations decreased across all segments including Australia which resulted in a
consolidated Group revenue decline of 10% from R14.5 billion to R13 billion. In South Africa, the economic constraints
experienced by clients in the Temporary Employment Services ("TES") segment also negatively impacted margins
due to downward pressure on pricing. The Professional Services division was impacted by a decline in demand as
clients curtailed spending in response to macroeconomic pressures. Revenue in the Training division contracted
largely by design, given the resultant focus on higher margin business. Trading has remained stable for the Financial
Services division.

Revenue in the Australia business, excluding Dare declined by 8% due to the drought, flooding and fires which
materially impacted Labour Solutions Australia (“LSA”). LSA primarily provides staff to the adversely affected
agricultural sector. Volumes were also impacted in the balance of the Australian portfolio due to weaker economic
activity. Although placement volumes stabilised in the second half of the year, this was insufficient to recover the
revenue lost in H1.

The Group EBITDA from continuing operations for the year decreased by 26% to R341 million compared to R458
million in the prior year.

In light of the deterioration in financial performance, management undertook a review of the significant goodwill and
intangible assets balance. The Group has impaired R558 million of goodwill in the resourcing-based cash-generating
units in both South Africa and Australia given the significant slowdown in these businesses over the past year.
Efforts to right-size the business and ensure an efficient operating structure and processes have continued to yield
positive results. The implementation of phase two of the cost-optimisation programme has delivered net savings of
R144 million in operating expenses for FY2020 compared to FY2019.

Cautionary announcement
A rigorous assessment of the Group’s strategic position in Australia prompted a comprehensive portfolio review,
culminating in a decision by the Adcorp board of directors ("the Board") to explore opportunities to exit this geography.
Pursuant to this decision, shareholders are advised that Adcorp has entered into advanced negotiations regarding
the disposal of Dare Australia, which if successfully concluded may have a material effect on the price of the Group’s
securities. Accordingly, shareholders are advised to exercise caution when dealing in Adcorp’s securities until a full
announcement is made.

Outlook
The key focus for the Adcorp Group in the 2021 financial year will be internal stabilisation, pursuit of incremental
profitable top line growth, margin enhancement and cost vigilance. The extent of the impact of the COVID-19
pandemic (“COVID-19”) on the business and future financial results remains uncertain. The Group continues to
manage liquidity judiciously and implement the necessary actions to ensure business continuity.

The TES sector has continued to grow in recent years albeit at a slower rate, given the impact of the Constitutional
Court ruling on the “deeming” provision in the Labour Relations Act (“LRA”). TES remains a pillar of job creation for
the South African economy particularly for first time job seekers and the youth. In addition, flexibility and staffing
solutions will be a key requirement for some industries as they look to remain operational in the year ahead, whilst
navigating the unprecedented challenges arising from COVID-19.

Despite the disappointing results and the uncertainty presented by COVID-19, the Board remains optimistic about
the Group’s value proposition consequent to a rigorous strategic process that has been embarked upon under new
leadership. Adcorp remains South Africa’s largest workplace solutions provider and continues to use its capabilities
and market position to make a positive impact on society, by increasing employability and connecting people with
job opportunities.

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/2020/jse/isse/ADR/ye2020.pdf and on the
Group’s website at https://www.adcorpgroup.com/adcorpbooklet2020/. 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. The auditors’
unmodified opinion along with their key audit matters and the consolidated annual financial statements are available
for inspection at https://www.adcorpgroup.com/adcorpfinancialresults2020/.



Johannesburg
29 June 2020

Sponsor:
Nedbank Corporate and Investment Banking, a division of Nedbank Limited

Date: 29-06-2020 10:44:00
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