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ADR
ADR
ADR - Adcorp - Reviewed Results For Two Months To February 2007 As Required
Following Adcorps` Change Of Year-End From December To February
Adcorp Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 1974/001804/06)
Share code: ADR & ISIN: ZAE000000139
("Adcorp" or "the Company")
Processes. Services. Solved.
Reviewed Group results for the 2 months ended 28 February 2007
Reviewed results for two months to February 2007 as required following Adcorps`
change of year-end from December to February
Abridged income statement
for the 14 months ended 28 February 2007
Reviewed Reviewed Audited
14 months 2 months 12 months
to Feb to Feb to Dec
2007 2007 2006
R`000 R`000 R`000
CONTINUING OPERATIONS
REVENUE 3 077 504 491 224 2 586 280
Cost of sales (2 301 903) (363 029) (1 938 874)
GROSS PROFIT 775 601 128 195 647 406
Other income 35 021 3 921 31 100
Administrative expenses (245 972) (40 568) (205 404)
Marketing and selling expenses (347 029) (56 340) (290 689)
Other operating expenses (80 341) (15 651) (64 690)
OPERATING PROFIT 137 280 19 557 117 723
Interest received 4 864 791 4 073
Interest paid (8 087) (3 155) (4 932)
Share of profits from 2 915 637 2 278
associates
Impairment of goodwill and
trademark (6 155) (5 000) (1 155)
Loss on sale of property and
equipment (114) (5) (109)
Profit on disposal of
operations and subsidiaries 58 330 50 762 7 568
Profit before taxation 189 033 63 587 125 446
Taxation 32 884 5 154 27 730
Profit for the period from
continuing operations 156 149 58 433 97 716
DISCONTINUED OPERATIONS
Profit for the period from
discontinued operations 7 904 - 7 904
PROFIT FOR THE PERIOD 164 053 58 433 105 620
Profit for the period
attributable to:
Ordinary shareholders 166 427 58 433 107 994
Minority shareholders (2 374) - (2 374)
Profit for the PERIOD 164 053 58 433 105 620
Earnings per share
Basic (cents) 384,1 134,9 251,8
Diluted (cents) 378,9 133,0 248,6
Distribution to ordinary
shareholders
Interim dividend (cents) 42 42
Final dividend (cents) in
respect of the prior year 126 126
CALCULATION OF HEADLINE
EARNINGS
AND CORE HEADLINE EARNINGS
Profit for the period 164 053 58 433 105 620
Impairment of goodwill and
trademark 6 256 5 000 1 256
Minority shareholders` share in
interest 2 374 - 2 374
(Profit)/loss on sale of
property and equipment (250) 4 (254)
Profit on disposal of
operations and subsidiaries (58 330) (50 762) (7 568)
HEADLINE EARNINGS 114 103 12 675 101 428
Adjusted for:
Amortisation of intangible 4 281 3 944 337
assets
Share-based payments 6 929 1 000 5 928
Lease smoothing 763 84 679
Deferred tax on above (1 463) (1 168) (295)
CORE HEADLINE EARNINGS 124 613 16 535 108 078
CORE HEADLINE EARNINGS PER
SHARE
Core headline earnings per
share - cents 287,6 38,2 252,0
Diluted core headline earnings
per share - cents 283,7 37,6 248,8
HEADLINE EARNINGS PER SHARE
Headline earnings per share -
cents 263,3 29,3 236,5
Diluted headline earnings per
share - cents 259,8 28,9 233,5
Weighted average shares - 000`s 43 330 43 330 42 882
Diluted weighted average shares
- 000`s 43 920 43 920 43 444
Abridged balance
as at 28 February 2007
Reviewed Audited
28 February 31 December
2007 2006
R`000 R`000
Assets
Non-current assets 418 294 138 372
Property and equipment 35 516 32 775
Goodwill 224 047 41 525
Intangible assets 138 200 44 218
Investment in associates 3 826 3 189
Deferred taxation 16 705 16 665
Current assets 562 052 511 496
Trade, other receivables and prepayments 485 985 402 404
Amounts due from vendor 1 000 -
Assets classified as held for sale 5 387 30 408
Taxation prepaid 3 781 3 755
Cash resources 65 899 74 929
Total assets 980 346 649 868
EQUITY AND LIABILITIES
Capital and reserves 442 195 310 785
Share capital 1 154 1 085
Share premium 129 561 57 630
Treasury shares (1 010) (1 010)
Retained earnings 312 488 252 998
Minority shareholders` interest 2 5
BEE shareholders` interest - 77
Non-current liabilities 32 781 5 010
Non-interest-bearing non-current
liabilities 3 204 1 586
Deferred tax 29 577 3 424
Current liabilities 505 370 334 073
Non-interest-bearing current liabilities 208 704 238 211
Trade and other payables 139 435 144 328
Amounts due to vendor 735 709
Provisions 56 130 51 944
Liabilities classified as held for sale - 35 119
Taxation 12 404 6 111
Interest-bearing current liabilities 296 666 95 862
Bank overdrafts 145 666 95 862
Bridging loan 151 000 -
Total equity and liabilities 980 346 649 868
Number of ordinary shares in issue 46 173 43 382
(000`s)
Net asset value per share (cents) 958 716
Abridged cash flow statement
for the 14 months ended 28 February 2007
Reviewed Reviewed Audited
14 months 2 months 12 months
to Feb to Feb to Dec
2007 2007 2006
R`000 R`000 R`000
Operating activities
Cash generated by operations 27 512 151 062
before working capital changes 178 574
Increase in working capital (148 921) (91 621) (57 300)
Cash generated/(utilised) by (64 109) 93 762
operations 29 653
Net interest paid (3 190) (2 338) (852)
Taxation paid (39 767) (5 097) (34 670)
Net dividend paid (58 717) - (58 717)
Cash outflows from operating (71 544) (477)
activities (72 021)
Cash outflows from investing (214 347) (46 464)
activities (260 811)
Cash inflows from financing 224 625 9 710
activities 234 335
Net decrease in cash and cash (61 266) (37 231)
equivalents (98 497)
Net cash and cash equivalents (18 501) 18 730
at the beginning of the period 18 730
Net cash and cash equivalents (79 767) (18 501)
at the end of the period (79 767)
Note to the condensed cash flow
statement
Cash and cash equivalents
Cash and cash equivalents
included in the cash flow
statement comprise the
following balance sheet
amounts:
Cash resources 65 899 65 899 74 928
Bank balances included in
assets held for sale - - 2 433
Bank overdrafts (145 666) (145 666) (95 862)
(79 767) (79 767) (18 501)
Abridged statement of changes in
for the 2 months ended 28 February 2007
Share Share Treasury
capital premium shares
R`000 R`000 R`000
Balance as at 31 December 2006 1 085 57 630 (1 010)
Issue of ordinary shares under
employee share option plan 69 71 931 -
Recognition of share-based payments - - -
Acquisition of BEE shareholders` and
minority interest - - -
Profit for the period - - -
Balance as at 28 February 2007 1 154 129 561 (1 010)
Minority BEE
shareholders` shareholders` Retained
interest interest earnings Total
R`000 R`000 R`000 R`000
Balance as at 31 5 77 252 998 310 785
December 2006
Issue of ordinary
shares under
employee share
option plan - - - 72 000
Recognition of
share-based - - 1 057 1 057
payments
Acquisition of BEE
shareholders` and
minority interest (3 (77) - (80)
Profit for the
period - - 58 433 58 433
Balance as at 28
February 2007 2 - 312 488 442 195
SEGMENT REPORT
for the 14 months ended 28 February 2007
Operating
Revenue profit
14 12
14 months Jan and 12 months months Jan and months
to Feb Feb to Dec to Feb Feb to Dec
2007 2007 2006 2007 2007 2006
Reviewed R`000 R`000 R`000 R`000 R`000 R`000
Central
costs - - - (19 375) (4 454) (14 921)
Staffing 2 932 943 455 869 2 477 074 156 225 21 606 134 619
Business
process
out-
sourcing 144 560 35 354 109 206 430 2 405 (1 975)
Subtotal 3 077 504 491 224 2 586 280 137 280 19 557 117 723
Dis-
continued 113 936 - 113 936 7 442 - 7 442
TOTAL 3 191 440 491 224 2 700 216 144 722 19 557 125 165
EBITDA
EBITDA excluding
excluding IFRS
IFRS share-
share- based
based payments
payments and lease
and lease smoothing
smoothing Margin %
14 Jan and 12 months 14 Jan and 12 months
months Feb months Feb
to Feb 2007 to Dec 2006 to Feb 2007 to Dec
2007 2007 2006
Reviewed R`000 R`000 R`000 % % %
Central (14 870) (3 808) (11 062) 0,0% 0,0% 0,0%
costs
Staffing 171 517 24 577 146 940 5,8% 5,4% 5,9%
Business
process
out- 10 628 6 713 3 915 7,4% 19,0% 3,6%
sourcing
Subtotal 167 275 27 482 139 793 5,4% 5,6% 5,4%
Dis- 9 809 - 9 809 8,6% 0,0% 8,6%
continued
TOTAL 177 084 27 482 149 602 5,5% 5,6% 5,5%
EBITDA
excluding IFRS
share-based
payments and
lease
smoothing
Contri-bution
% to Group Net asset
profit value
14 months Jan and Feb 12 months Feb Dec
to Feb 2007 2007 to Dec 2007 2006
2006
Reviewed % % % R`000 R`000
Central
costs (8,4%) (13,9%) (7,4%) 147 929 193 577
Staffing 96,9% 89,4% 98,2% 194 239 105 417
Business
process
out-
sourcing 6,0% 24,4% 2,6% 101 366 23 230
Subtotal 94,5% 100,0% 93,4% 443 534 322 224
Dis-
continued 5,5% 0,0% 6,6% (1 339) (11 439)
TOTAL 100,0% 100,0% 100,0% 442 195 310 785
Asset Liability
carrying value carrying value
Feb Dec Feb Dec
2007 2006 2007 2006
Reviewed R`000 R`000 R`000 R`000
Central costs 293 137 316 365 145 208 122 788
Staffing 366 999 268 232 172 760 162 815
Business
process
outsourcing 321 549 41 590 220 183 18 361
Subtotal 981 685 626 187 538 151 303 964
Discontinued (1 339) 23 681 - 35 119
TOTAL 980 346 649 868 538 151 339 083
Deprec-
iation
and Additions
amorti-
sation
of intan- to
gibles PPE
14 months 12 months 14 Jan and 12 months
Jan months Feb
to Feb and Feb to Dec to Feb 2007 to Dec
2007 2007 2006 2007 2006
Reviewed R`000 R`000 R`000 R`000 R`000 R`000
Central
costs 457 61 396 66 66 -
Staffing 12 369 2 483 9 886 12 163 1 874 10 289
Business
process
out-
sourcing 9 683 4 298 5 385 4 619 23 4 596
Subtotal 22 509 6 842 15 667 16 848 1 963 14 885
Dis-
continued 2 162 - 2 162 1 706 - 1 706
TOTAL 24 671 6 842 17 829 18 554 1 963 16 591
COMMENTS
Background to published results
As previously reported, the Adcorp Group recently changed its financial
year-end from December to February. This change in reporting period implies
that the next complete reporting period for the Group will be for the 14-
month period ending 29 February 2008.
Following consultation with the JSE Limited and in compliance with
reporting regulations contained in the Companies Act, Adcorp is required to
report to shareholders for the following periods leading up to 29 February
2008:
- 2 months ended February 2007
- 14 months ended February 2007
- 8 months ending August 2007
- 14 months ending February 2008
In line with these requirements, the results appearing in this announcement
represent the two-month period ended February 2007. These results have then
been added to the published results in respect of the 12 months ended
December 2006 to provide the trading results for the 14 month period ended
February 2007.
Given that the two month period under review is extremely short in the
context of the businesses of Adcorp and that certain of these businesses
are also affected by a measure of cyclicality, it is difficult to draw any
significant trading conclusions from these results and, as such,
shareholders are advised to refer to the published financial results of the
Group for the year ended 31 December 2006 and the 2006 Adcorp Annual Report
in order to extract more meaningful financial trends.
It is important to note, however, that during the period under review, the
acquisition of FMS Marketing Solutions was concluded as was the disposal of
Research Surveys as previously reported to shareholders.
In addition, during the period under review, Adcorp reacquired a 25%
empowerment shareholding in Adcorp Flexible Staffing Solutions for an
amount of R22,8 million. An intangible asset of R5 million, which was to be
acquired by Graphicor and Simeka TWS as part of the enterprise development
management buy-out arrangement, has been impaired as its realisation is in
doubt.
In terms of IFRS financial reporting requirements, a substantial portion of
the purchase price in excess of the underlying net asset value of the
shares acquired in a business is required to be allocated as "intangible
assets" which is then required to be amortised and included in the
calculation of headline earnings over periods of between two and seven
years in the case of Adcorp. The balance of the purchase consideration in
excess of the net asset value acquired is capitalised to the balance sheet
as "goodwill" which is not amortised.
Given the service orientated nature of the recent acquisitions of FMS
Marketing Solutions and the acquisition of Employrite which was concluded
in November 2006, the net asset values of these businesses are relatively
small implying a significant intangible asset value which has been
independently valued at an amount of R105,4 million. The amount amortised
in the calculation of headline earnings in respect of these assets for the
two month period ended 28 February 2007 is R3,9 million before reversal of
the deferred tax liability.
In addition, IFRS standards require that a deferred tax liability be
accounted for with respect to these intangible assets and that the contra
"debit" relating to the creation of this deferred tax liability be
capitalised or "added" to the goodwill of the business acquired.
As such, a deferred tax liability of R27,1 million has been created in
respect of FMS Marketing Solutions and goodwill has been inflated by a
similar amount indicating an apparent purchase consideration in respect of
FMS Marketing Solutions of R252,1 million excluding transactional costs as
opposed to the actual purchase consideration of R225,0 million. In order to
understand the movement in the balance sheet one needs to reduce goodwill
by the relevant portion of deferred tax liability.
Clearly, these IFRS accounting entries bear no resemblance to the cash
implications of these transactional activities and are therefore of limited
relevance. Headline earnings have been adjusted to remove the impact of
these non-cash IFRS adjustments and the net result is shown as "Core
headline earnings" and appears below the income statement presented above.
In addition, operating margins have been negatively impacted by these and
other, non-cash IFRS adjustments.
The impact of these adjustments on operating margins has been eliminated in
the segment report in the section headed "EBITDA excluding IFRS share-based
payments and lease smoothing". In addition the segment report has been re-
categorised into Staffing and Business Process Outsourcing in line with the
operating and reporting structure of the Group.
Cash utilised by operations of R64,1 million during the first two months of
this year was mainly due to a seasonal aberration and has subsequently been
normalised. The movement in investing and financing activities in the cash
flow statement was primarily as a result of the purchase of FMS Marketing
Solutions which was funded by way of a bridging loan together with the
issue of shares. Also included in financing activities was the proceeds on
the disposal of Research Surveys amounting to R57,6 million.
Taking into account the factors outlined above, Adcorp is pleased with the
performance of the Group in terms of these reviewed results for the two
month period ended February 2007 and is confident that the Group will
continue to report strong earnings for the 14-month period to February
2008.
ACCOUNTING POLICIES
This financial report is prepared in accordance with IAS 34 Interim
Financial Reporting. In the application of its accounting policies Adcorp
applies International Financial Reporting Standards which are consistent
with the prior year annual financial statements.
SUBSEQUENT EVENTS
Various events have taken place since 28 February 2007 a summary of which
appears below:
- Acquisition of Capital Outsourcing Group for R238 million
- Disposal of Career Junction for R53 million
- New BBBEE transaction approved by shareholders in May 2007
- In relation to the litigation statement contained in the results
announcement of Adcorp for the year ended 31 December 2006 as well as the
note included in the 2006 annual report, Kelly Group Limited has withdrawn
its legal action against Adcorp and has agreed to withdraw all allegations
against the company.
REVIEW OF RESULTS
The results for the two-month period ended 28 February 2007 have been
reviewed by the independent auditors, Deloitte & Touche. A copy of their
unmodified report is available for inspection at the registered office of
the company, 28 Sloane Street, Bryanston.
By order of the board
Dr F van Zyl Slabbert RL Pike FD Burd
Chairman Chief Executive Officer Chief Financial Officer
24 July 2007
Bryanston
Executive directors RL Pike, C Bomela, FD Burd, PC Swart
Independent non-executive directors F Khanyile, Dr F van Zyl Slabbert,
PK Ward,
Non-executive directors LM Mojela, MR Ramaite, T Ramano
Alternate director GP Duda
Company secretary L Sudbury
Transfer secretaries Link Market Services SA (Pty)
Limited, 11 Diagonal Street,
Johannesburg, 2001
Sponsor Deloitte & Touche Sponsor
Services (Proprietary) Limited
Date: 24/07/2007 14:58:33 Produced by the JSE SENS Department.
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