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ADR
ADR
ADR - Adcorp Holdings Limited- Reviewed Group Results For The 14 Months Ended 29
February 2008
Adcorp Holdings Limited
("Adcorp" or "the Group")
Registration number 1974/001804/06
Share code: ADR
ISIN number: ZAE000000139
REVIEWED GROUP RESULTS FOR THE 14 MONTHS ENDED 29 FEBRUARY 2008
Winner of the 2008 Financial Mail/Empowerdex top Empowerment Companies
Salient features:
- EBITDA up by 61%
- Core headline earnings per share up by 30%
- Cash conversion ratio 102%
- Debtors reduced to 30 days
- EBITDA margin up to 6,4%
- Final dividend of 160 cents declared - up 28%
Abridged Income Statement
for the 14 months ended 29 February 2008
Reviewed Reviewed Audited
14 months 14 months 12 months
to Feb to Feb to Dec
2008 2007 2006
R`000 R`000 R`000
CONTINUING OPERATIONS
REVENUE 4 430 105 3 077 504 2 586 280
Cost of sales (3 349 604) (2 301 903) (1 938 874)
GROSS PROFIT 1 080 501 775 601 647 406
Other income 31 620 35 021 31 100
Administrative expenses (401 595) (245 972) (205 404)
Marketing and selling
expenses (448 173) (347 029) (290 689)
Other operating expenses (153 548) (80 341) (64 690)
OPERATING PROFIT 108 805 137 280 117 723
Interest received 7 869 4 864 4 073
Interest paid (29 574) (8 087) (4 932)
Share of profits from
associates 1 512 2 915 2 278
Impairment of intangible
assets - (6 155) (1 155)
Impairment of loans (145) - -
Profit/(loss) on sale of
property and equipment 409 (114) (109)
Profit on disposal of
operations and subsidiaries 48 633 58 330 7 568
Profit before taxation 137 509 189 033 125 446
Taxation 40 855 32 884 27 730
Profit for the period from
continuing operations 96 654 156 149 97 716
DISCONTINUED OPERATIONS
Profit from discontinued
operations 30 314 7 904 7 904
PROFIT FOR THE PERIOD 126 968 164 053 105 620
Profit for the period
attributable to:
Ordinary shareholders 126 968 166 427 107 994
Minority shareholders - (2 374) (2 374)
Profit for the Period 126 968 164 053 105 620
Earnings per share
Basic (cents) 258,5 384,1 251,8
Diluted (cents) 253,4 378,9 248,6
Distribution to ordinary
shareholders
Interim dividend (cents) 55 - 42
Final dividend (cents) in
respect of the prior year 126 126 105
CALCULATION OF HEADLINE
EARNINGS
AND CORE HEADLINE EARNINGS
Profit for the period 126 968 164 053 105 620
Impairments 11 645 6 256 1 256
Minority shareholders` share
of losses - 2 374 2 374
Profit on sale of property
and equipment (290) (250) (254)
Profit on disposal of
discontinued operations (42 233) (58 330) (7 568)
HEADLINE EARNINGS 96 090 114 103 101 428
Adjusted for:
Amortisation of intangible
assets 46 808 4 281 337
Share-based payments and
transaction costs 101 966 6 929 5 928
Lease smoothing 1 399 763 679
Profit on disposal of part
of continuing operations (48 633) - -
Tax effects on above (14 550) (1 463) (295)
CORE HEADLINE EARNINGS 183 080 124 613 108 077
HEADLINE EARNINGS PER SHARE
Headline earnings per share
- cents 195,6 263,3 236,5
Diluted headline earnings
per share - cents 191,8 259,8 233,5
CORE HEADLINE EARNINGS PER
SHARE
Core headline earnings per
share - cents 372,7 287,6 252,0
Diluted core headline
earnings per share - cents 365,4 283,7 248,8
Weighted average number of
shares - 000`s 49 122 43 330 42 882
Diluted weighted average
number of shares - 000`s 50 109 43 920 43 444
Abridged Balance Sheet
as at 29 February 2008
Reviewed Reviewed Audited
29 Feb 28 Feb 31 Dec
2008 2007 2006
R`000 R`000 R`000
Assets
Non-current assets 675 449 418 294 138 372
Property and equipment 57 549 35 516 32 775
Goodwill 402 980 224 047 41 525
Intangible assets 182 270 138 200 44 218
Investment in associates 270 3 826 3 189
Derivative financial
instruments 3 141 - -
Deferred taxation 29 239 16 705 16 665
Current assets 714 485 562 052 511 496
Trade, other receivables and
prepayments 565 002 485 985 402 404
Amounts due from vendor 250 1 000 -
Assets classified as held
for sale 845 5 387 30 408
Taxation prepaid 564 3 781 3 755
Cash resources 147 824 65 899 74 929
Total assets 1 389 934 980 346 649 868
EQUITY AND LIABILITIES
Capital and reserves 668 171 442 195 310 785
Share capital 1 271 1 154 1 085
Share premium 283 070 129 561 57 630
Treasury shares (701) (1 010) (1 010)
Retained earnings 384 798 312 488 252 998
Foreign currency translation
reserve (688) - -
Minority shareholders`
interest - 2 5
BEE shareholders` interest 421 - 77
Non-current liabilities 191 429 32 781 5 010
Other non-current
liabilities 4 230 3 204 1 586
Redeemable preference shares
- interest-bearing 146 195 - -
Obligation under finance
lease 2 464 - -
Deferred tax 38 540 29 577 3 424
Current liabilities 530 334 505 370 334 073
Non-interest-bearing current
liabilities 325 940 208 704 238 211
Trade and other payables 243 174 139 435 144 328
Amounts due to vendor - 735 709
Provisions 74 785 56 130 51 944
Liabilities classified as
held for sale 348 - 35 119
Taxation 7 633 12 404 6 111
Interest-bearing current
liabilities 204 394 296 666 95 862
Current portion of other non-
current liabilities 2 260 - -
Current portion of
redeemable preference shares 3 805 - -
Bridging loan - 151 000 -
Bank overdraft 198 329 145 666 95 862
Total equity and liabilities 1 389 934 980 346 649 868
Number of ordinary shares in
issue (000`s) 50 831 46 173 43 382
Net asset value per share
(cents) 1 315 958 716
Abridged Cash Flow Statement
for the 14 months ended 29 February 2008
Reviewed Reviewed Audited
14 months 14 months 12 months
to Feb to Feb to Dec
2008 2007 2006
R`000 R`000 R`000
Operating activities
Cash generated by operations
before working capital changes 285 430 178 574 151 062
Increase in working capital (22 159) (148 921) (57 300)
Cash generated by operations 263 271 29 653 93 762
Net interest paid (21 617) (3 190) (852)
Taxation paid (65 956) (39 767) (34 670)
Free cash generated/(utilised)
by operations 175 698 (13 304) 58 240
Net dividend paid (91 441) (58 717) (58 717)
Investing and financing
activities
Cash inflows/(outflows) from
operations 84 257 (72 021) (477)
Cash outflows from investing
activities (492 905) (260 811) (46 464)
Cash inflows from financing
activities 376 644 234 335 9 710
Net decrease in cash and cash
equivalents (32 004) (98 497) (37 231)
Net cash and cash equivalents at
the beginning of the period (18 501) 18 730 18 730
Net cash and cash equivalents at
the end of the period (50 505) (79 767) (18 501)
Free cash generated by
operations per share - cents 357,7 (30,7) 135,8
Abridged Statement of Changes in Equity
for the 14 months ended 29 February 2008
Foreign
currency
Share Share Treasury translation
capital premium shares reserve
R`000 R`000 R`000 R`000
Balance as at 1 January
2006 1 065 48 679 (2 127) -
Issue of ordinary shares
under employee share
option plan 20 8 951 - -
Treasury shares sold - - 927 -
Recognition of share-
based payments - - - -
Dividend distributions - - 190 -
Minority shareholders`
share of losses - - - -
Profit for the year - - - -
Balance as at 31 December
2006 1 085 57 630 (1 010) -
Issue of ordinary shares
under employee share
option plan 11 2 615 - -
Acquisition of BEE
shareholders` and
minority interest - - - -
Issue of ordinary shares
for the acquisition of
subsidiaries 175 222 825 - -
Issue of "A" ordinary
shares in terms of BBBEE
transaction - - (168) -
Foreign currency
translation reserve - - - (688)
Fair value adjustment of
derivative financial
instrument - - - -
Treasury shares sold - - 388 -
Recognition of staff and
BBBEE share-based
payments - - - -
Dividend distributions - - 89 -
Profit for the period - - - -
Balance as at 29 February
2008 1 271 283 070 (701) (688)
Minority BEE Retained
interest interest earnings Total
R`000 R`000 R`000 R`000
Balance as at 1 January
2006 2 379 77 202 089 252 162
Issue of ordinary shares - - - 8 971
under employee share
option plan
Treasury shares sold - - (188) 739
Recognition of share-
based payments - - 6 079 6 079
Dividend distributions - - (62 976) (62 786)
Minority shareholders`
share of losses (2 374) - 2 374 -
Profit for the year - - 105 620 105 620
Balance as at 31 December
2006 5 77 252 998 310 785
Issue of ordinary shares
under employee share
option plan - - - 2 626
Acquisition of BEE
shareholders` and
minority interest (5) (77) 3 (79)
Issue of ordinary shares
for the acquisition of
subsidiaries - - - 223 000
Issue of "A" ordinary
shares in terms of BBBEE
transaction - 421 - 253
Foreign currency
translation reserve - - - (688)
Fair value adjustment of
derivative financial
instrument - - 1 332 1 332
Treasury shares sold - - 60 448
Recognition of staff and
BBBEE share-based
payments - - 95 268 95 268
Dividend distributions - - (91 831) (91 742)
Profit for the period - - 126 968 126 968
Balance as at 29 February
2008 - 421 384 798 668 171
Abridged Segment Report
for the 14 months ended 29 February 2008, the 14 months ended 28 February 2007
and the 12 months ended 31 December 2006
Operating
Revenue profit
2008 2007 2006 2008 2007 2006
R`000 R`000 R`000 R`000 R`000 R`000
Central
costs - - - (118 188) (23 347) (18 621)
Staffing 4 191 683 2 924 379 2 468 510 205 112 157 348 135 470
Business
process
out-
sourcing 238 422 153 125 117 770 21 881 3 279 874
Subtotal 4 430 105 3 077 504 2 586 280 108 805 137 280 117 723
Discon-
tinued - 113 936 113 936 (82) 7 442 7 442
TOTAL 4 430 105 3 191 440 2 700 216 108 723 144 722 125 165
EBITDA excluding EBITDA excluding
IFRS share-based IFRS share-based
payments and lease payments and lease
smoothing smoothing
2008 2007 2006 2008 2007 2006
R`000 R`000 R`000 % % %
Central
costs (24 935) (18 842) (14 762) 0,0 0,0 0,0
Staffing 253 734 172 550 147 701 6,1 5,9 6,0
Business
process
out-
sourcing 55 782 13 602 6 889 23,4 8,9 5,8
Subtotal 284 581 167 310 139 828 6,4 5,4 5,4
Dis-
continued (82) 9 775 9 775 0,0 8,6 8,6
TOTAL 284 499 177 085 149 603 6,4 5,5 5,5
EBITDA excluding
IFRS share-based
payments and lease smoothing
Contribution % to Group
profit Net asset value
2008 2007 2006 2008 2007 2006
% % % R`000 R`000 R`000
Central
costs (8,8) (10,6) (9,9) (192 602) (125 911) (100 177)
Staffing 89,2 97,4 98,7 784 285 490 499 384 552
Business
process
out-
sourcing 19,6 7,7 4,6 70 109 65 494 23 331
Subtotal 100,0 94,5 93,5 661 793 430 082 307 706
Dis-
continued 0,0 5,5 6,5 6 378 12 113 3 079
TOTAL 100,0 100,0 100,0 668 171 442 195 310 785
Assets carrying value Liability carrying value
2008 2007 2006 2008 2007 2006
R`000 R`000 R`000 R`000 R`000 R`000
Central 9 345 19 296 22 611 201 947 145 207 122 788
costs
Staffing 1 075 825 663 260 545 881 291 539 172 761 161 329
Business
process
out-
sourcing 298 038 285 677 43 178 227 929 220 183 19 847
Subtotal 1 383 208 968 233 611 670 721 415 538 151 303 964
Dis-
continued 6 726 12 113 38 198 348 - 35 119
TOTAL 1 389 934 980 346 649 868 721 763 538 151 339 083
Depreciation and
amortisation Additions to
of intangibles property and equipment
2008 2007 2006 2008 2007 2006
R`000 R`000 R`000 R`000 R`000 R`000
Central
costs 469 457 396 362 66 -
Staffing 40 632 12 279 9 796 23 675 12 366 10 255
Business
process
out-
sourcing 31 310 9 774 5 476 13 452 5 176 4 630
Subtotal 72 411 22 510 15 668 37 489 17 608 14 885
Dis-
continued - 2 162 2 162 - 1 706 1 706
TOTAL 72 411 24 672 17 830 37 489 19 314 16 591
Comments
OVERVIEW
Shareholders are reminded, as announced in March 2007, that the company has
changed its financial year-end from December to February.
As such, the financial results presented herewith, are for the 14-month period
ended 29 February 2008.
Operationally, the 2007/08 financial period saw strong profit growth recorded
for the Adcorp Group.
Core headline earnings per share for the 14-month period ended 29 February 2008
of 372,7 cents (2007: 287,6 cents) were some 29,6% ahead of core headline
earnings per share for the same period last year whilst earnings before
interest, tax, depreciation and amortisation ("EBITDA") of R284,5 million were
60,7% ahead of the R177,1 million EBITDA reported for the prior fourteen month
period.
The restructuring process which commenced in 2006 to focus the business
activities of the Group solely in the areas of staffing and business process
outsourcing (BPO) has not only been achieved in a relatively short timeframe
but, the quality of the acquisitions and the ease of integration of these
businesses into the Adcorp Group coupled with the advantageous disposal of
certain non-core assets, has greatly added to the strong profit growth for the
year.
In terms of recent acquisitions, the acquisition of Capital Outsourcing Group
and FMS Marketing Services were concluded in the period under review as
previously advised to shareholders.
Also pleasing to note is that there were once again, strong performances with
regard to the Group`s two key financial imperatives namely, margin management
and cash generation.
With regard to margin management, the EBITDA margin for the period increased,
compared to the prior year level of 5,5%, to the current level of 6,4% whilst
the conversion ratio of cash generated by operating activities to operating
profit, excluding International Financial Reporting Standards ("IFRS")
adjustments, was 102% (2007: 19%). R263 million cash was generated by operating
activities.
Earlier in the year, the Group announced a broad based black economic
empowerment (BBBEE) transaction that significantly bolstered the empowerment
credentials of the Group whilst also creating an opportunity for all Adcorp
employees to share in the Group`s financial fortunes.
The BEE transaction has bedded down well and has added a new and beneficial
aspect to the Group.
In this regard, the Adcorp Group recently won the 2008 Financial
Mail`s/Empowerdex Top Empowerment Companies Award.
The BEE shareholders hold 16,8 million Adcorp "A" ordinary shares of which a
percentage will vest in 2017 depending on the amount of notional debt that has
been repaid at that date. Based on the amount of the notional debt that had been
paid down as at 29 February 2008 and using the share price on that date the
theoretical number of shares that would have vested is 1,7 million. This
translates into 3,3% dilution which if included in the diluted core headline
earnings per share, would reduce this figure to 353,4 cents per share.
The implementation of the new Microsoft Dynamics AX ERP system is expected to
"go live" in June 2008 with the first site being Capacity. Implementation into
other Group operations will continue according to the project roll-out plan over
the next months.
It is anticipated that the new ERP system will contribute positively to the
extent, relevance and quality of management information as well as to operating
productivity.
Whilst there have been a number of economic and infrastructural shocks to the
South African economy recently, demand for our products and services remains
relatively strong.
The staffing operations of the Group performed well and ahead of expectation. In
particular, the permanent recruitment businesses turned in a stellar performance
on the back of a buoyant recruitment market.
Although the permanent recruitment operations have historically proved somewhat
vulnerable to the economic cycle, the acute skills shortage, affirmative action
and public sector employment should see the continued growth of employment
opportunities in this part of the business.
In addition, given the development by the Group of certain new channels to
market, there is significant opportunity to gain market share in this segment of
the business.
The flexible staffing operations have traditionally shown a resilience in the
past to perform well in uncertain economic times and it is expected that this
trend will continue in the current economic climate.
The BPO operations of the Group performed ahead of expectation and contribute a
high quality of earnings to the Group.
FINANCIAL OVERVIEW
IFRS non cash flow adjustments have had a significant impact on the figures
presented for the 14 months ended February 2008 and are mainly the result of
share based payments arising from the BBBEE transaction concluded in May 2007 as
well as the amortization of intangibles from the new acquisitions.
The apparent decrease in headline earnings per share from 263,3 cents per share
to 195,6 cents per share is the direct result of these IFRS adjustments and is
not reflective of the performance of the Group. In order to give a true
reflection of how the Group actually performed, non cash flow IFRS adjustments
have been eliminated from core headline earnings per share. Core headline
earnings for the 14 months to February 2008 amounted to 372,7 cents per share
which is a 29,6% increase over the core headline earnings for the comparative
period of 287,6 cents per share.
The increases in goodwill, intangible assets and share premium in the balance
sheet compared with the previous period result from the acquisitions of FMS
Marketing Services and Capital Outsourcing Group both of which are performing
very well.
Free cash flow amounted to 357,7 cents per share for the 14 months period under
review compared with a negative 30,7 cents per share for the prior comparative
period. This significant improvement is mainly the result of an eight day
reduction in debtors days at the end of February 2008 compared with February
2007.
In terms of IAS 34 the following additional disclosures are made:
FMS Marketing Solutions was purchased with effect from 1 January 2007. The loss
from this entity included in group profit for the 14 months to February 2008 is
R2,5 million. This loss has been arrived at after deduction of the interest
attributable to the borrowings required to fund the cash portion of the purchase
price as well as the amortisation charges arising from the valuation of the
intangible assets acquired.
Capital Outsourcing was purchased with effect from 1 June 2007. The profit from
this entity included the group profit for the nine months to February 2008 is
R16,1 million. This profit has been arrived at after deduction of the interest
attributable to the borrowings required to fund the cash portion of the purchase
price as well as the amortisation charges arising from the valuation of the
intangible assets acquired. Had Capital Outsourcing been acquired with effect
from 1 January 2007 on the same basis as above, the amount of profit that would
have been included in group profits would have been R15,5 million.
OUTLOOK
Given the resilient nature of the flexible staffing business, the unique
opportunities that exist in the permanent recruitment space and the annuity base
and high quality prospects for the BPO operations, the Group expects to continue
to deliver positive organic earnings growth in the financial year ahead.
ACCOUNTING POLICIES
Adcorp prepares its accounts in accordance with International Financial
Reporting Standards. The accounting policies are consistent with the prior year
annual financial statements, except for the adoption of IFRS 7 relating to
disclosure of financial instruments. This report is prepared in accordance with
IAS 34 Interim Financial Reporting.
DECLARATION OF FINAL DIVIDEND
Notice is hereby given that a final dividend of 160 cents per share (2006: 126
cents per share) was declared on
7 May 2008 payable to shareholders recorded in the register of the company at
the close of business on the record date appearing below. The salient dates
pertaining to the final dividend are as follows:
Last day to trade cum final dividend: Friday 22 August 2008
First day to trade ex final dividend: Monday 25 August 2008
Record date: Friday 29 August 2008
Payment date: Monday 1 September 2008
No share certificates may be dematerialised or rematerialised between Monday 25
August and Friday 29 August 2008 both days inclusive.
Dividend cheques will be posted and electronic payments made, where applicable,
to certified shareholders on the payment date. Dematerialised shareholders will
have their account with Central Securities Depository Participant or broker
credited on the payment date.
POST BALANCE SHEET EVENTS
Adcorp recently announced the acquisition of the business of Staff U Need (Pty)
Limited and Dithomo (Pty) Limited which specialises in providing labour
solutions to the metal and engineering industries. The business has a specific
focus in providing both skilled and semi-skilled labour to the power generating
industry including Eskom.
REVIEW OF RESULTS
The results have been reviewed by the independent auditors, Deloitte & Touche. A
copy of their unmodified review 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 Chief Financial
Officer Officer
7 May 2008
Executive directors RL Pike, C Bomela, FD Burd, PC Swart
Independent non-
executive directors 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 (Pty)
Limited
www.adcorp.co.za
Date: 07/05/2008 12:13:01 Produced by the JSE SENS Department.
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