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ADR
ADR
ADR - Adcorp Holdings - Unaudited Group Results for the 6 months ended 31
August 2008 and dividend declaration
Adcorp Holdings Limited
("Adcorp" or "the Group"
Registration number 1974/001804/06
Share code: ADR
ISIN number: ZAE000000139
- Core headline earnings per share up by 16%
- Normalised operating profit up by 27%
- Headline earnings per share up by 230%
- Cash conversion ratio 97%
- Debtors days at 29 days
- Interim dividend declared of 62 cents per share up 13%
Unaudited Group Results for the 6 months ended 31 August 2008
Condensed Income Statement
for the 6 months ended 31 August
Unaudited Unaudited Audited
6 months 6 months 14 months
to Aug to Aug to Feb
2008 2007 2008
R`000 R`000 R`000
Continuing operations
Revenue 2 285 038 1 789 665 4 430 105
Cost of sales (1 751 478) (1 344 022) (3 349 604)
Gross profit 533 560 445 643 1 080 501
Other income 13 899 5 926 31 620
Administrative expenses (150 695) (131 942) (401 595)
Marketing and selling
expenses (212 132) (173 741) (448 173)
Other operating expenses (78 541) (146 387) (153 548)
Operating profit 106 091 (501) 108 805
Interest received 5 160 2 537 7 869
Interest paid (16 550) (12 999) (29 574)
Share of profits from
associates 14 175 1 512
Impairment of loans - (145) (145)
Profit/(loss) on sale of 331 (49) 409
property and equipment
Profit on disposal of
operations and subsidiaries 12 48 878 48 633
Profit before taxation 95 058 37 896 137 509
Taxation 29 482 19 200 40 855
Profit for the period from
continuing operations 65 576 18 696 96 654
Discontinued operations
(Loss)/profit from
discontinued operations - (14 779) 30 314
Profit for the period 65 576 3 917 126 968
Profit for the period
attributable to:
Ordinary shareholders 65 576 3 920 126 968
Minority shareholders - (3) -
Profit for the period 65 576 3 917 126 968
Earnings per share
Basic (cents) 127,3 8,0 258,5
Diluted (cents) 126,0 7,9 253,4
Distribution to ordinary
shareholders
Interim dividend (cents) 62 55 55
Final dividend (cents) in
respect of the prior year 160 126 126
Calculation of headline
earnings and core headline
earnings
Profit for the period 65 576 3 917 126 968
Impairments - 6 645 11 645
Minority shareholders` share
- 3 -
Loss/(profit) on sale of
property and equipment (239) 36 (290)
(Profit)/loss on disposal of
discontinued operations (12) 8 219 (42 233)
Headline earnings 65 325 18 820 96 090
Adjusted for:
Amortisation of intangible
assets 25 604 18 232 46 808
Share-based payments 9 807 93 942 101 966
Lease smoothing 411 329 1 399
Profit on disposal of
continuing operations - (48 878) (48 633)
Tax effects on above (7 284) (5 383) (14 550)
Core headline earnings 93 863 77 062 183 080
Headline earnings per share
Headline earnings per share
- cents 126,8 38,4 195,6
Diluted headline earnings
per share - cents 125,5 37,7 191,8
Core headline earnings per
share
Core headline earnings per
share - cents 182,2 157,1 372,7
Diluted core headline
earnings per share - cents 180,3 154,5 365,4
Weighted average number of
shares - 000`s 51 520 49 068 49 122
Diluted weighted average
number of shares - 000`s 52 065 49 881 50 109
Condensed Balance Sheet
as at 31 August
Unaudited Unaudited Audited
Aug Aug Feb
2008 2007 2008
R`000 R`000 R`000
Assets
Non-current assets 857 542 681 832 675 449
Property and equipment 63 353 58 455 57 549
Goodwill 535 739 400 394 402 980
Intangible assets 227 563 199 811 182 270
Investment in associates 284 43 270
Derivative financial
instruments 2 141 - 3 141
Deferred taxation 28 462 23 129 29 239
Current assets 857 871 617 886 714 485
Trade, other receivables and
prepayments 664 962 487 379 565 002
Amounts due from vendor - 750 250
Assets classified as held
for sale 11 - 845
Taxation prepaid 262 4 593 564
Cash resources 192 636 125 164 147 824
Total assets 1 715 413 1 299 718 1 389 934
Equity and liabilities
Capital and reserves 749 729 623 579 668 171
Share capital 1 352 1 270 1 271
Share premium 382 929 282 929 283 070
Treasury shares (690) (821) (701)
Retained earnings 365 934 339 780 384 798
Foreign currency translation
reserve (217) - (688)
BEE shareholders` interest 421 421 421
Non-current liabilities 292 464 246 753 191 429
Other non-current
liabilities 803 3 203 4 230
Term loan 108 000 - -
Redeemable preference shares
- interest bearing 130 000 190 000 146 195
Obligation under finance
lease 5 448 6 922 2 464
Deferred tax 48 213 46 628 38 540
Current liabilities 673 220 429 386 530 334
Non-interest-bearing current
liabilities 589 805 279 220 325 940
Trade and other payables 281 443 176 912 243 174
Amount due to vendor 85 000 - -
Provisions 100 375 87 024 74 785
Liabilities classified as
held for sale 348 - 348
Shareholders for dividends 93 400 - -
Taxation 29 239 15 284 7 633
Interest-bearing current
liabilities 83 415 150 166 204 394
Current portion of other non-
current liabilities 2 838 1 334 2 260
Current portion of term loan
12 000 - -
Current portion of
redeemable preference shares
20 000 - 3 805
Bank overdraft 48 577 148 832 198 329
Total equity and liabilities
1 715 413 1 299 718 1 389 934
Number of ordinary shares in
issue (000`s) 54 081 50 795 50 831
Net asset value per share
(cents) 1 386 1 228 1 315
Condensed Cash Flow Statement
for the 6 months ended 31 August
Unaudited Unaudited Audited
6 months 6 months 14 months
to Aug to Aug to Feb
2008 2007 2008
R`000 R`000 R`000
Operating activities
Cash generated by operations
before working capital
changes 154 925 122 793 285 430
(Decrease)/increase in
working capital (17 516) 98 284 (22 159)
Cash generated by operations
137 409 221 077 263 271
Net interest paid (11 390) (10 087) (21 617)
Taxation paid (13 933) (22 819) (65 956)
Free cash generated by
operations 112 086 188 171 175 698
Net dividend received/(paid)
11 (63 778) (91 441)
Investing and financing
activities
Cash inflows from operations
112 097 124 393 84 257
Cash outflows from investing
activities (137 608) (262 238) (492 905)
Cash inflows from financing
activities 220 075 193 944 376 644
Net increase/(decrease) in
cash and cash equivalents 194 564 56 099 (32 004)
Net cash and cash
equivalents at the beginning
of the period (50 505) (79 767) (18 501)
Net cash and cash
equivalents at the end of
the period 144 059 (23 668) (50 505)
Free cash generated by
operations per share - cents
217,6 383,5 357,7
Condensed Statement of Changes in Equity
for the 6 months ended 31 August
Share Share Treasury Foreign
currency
capital premium shares translation
reserve
R`000 R`000 R`000 R`000
Balance as at 29 February
2008 1 271 283 070 (701) (841)
Issue of ordinary shares
under employee share
option plan - 153 - -
Issue of ordinary shares 81 99 706 - -
Foreign currency
translation reserve - - - 624
Fair value adjustment of
derivative financial
instrument - - - -
Recognition of share-based
payments - - - -
Dividend distributions - - 11 -
Profit for the year - - - -
Balance as at 31 August
2008 1 352 382 929 (690) (217)
Condensed Segment Report
for the 6 months ended 31 August
Revenue
Aug Aug Feb
2008 2007 2008
R`000 R`000 R`000
Central costs - - -
Staffing 2 171 638 1 682 139 4 191 683
Business process outsourcing 113 400 107 526 238 422
Subtotal 2 285 038 1 789 665 4 430 105
Discontinued - - -
TOTAL 2 285 038 1 789 665 4 430 105
Operating
profit
Aug Aug Feb
2008 2007 2008
R`000 R`000 R`000
Central costs (16 905) (99 597) (118 188)
Staffing 108 845 90 884 205 112
Business process outsourcing 14 151 8 212 21 881
Subtotal 106 091 (501) 108 805
Discontinued - (81) (82)
TOTAL 106 091 (582) 108 723
EBITDA excluding
IFRS share-based
payments and lease smoothing
Aug Aug Feb
2008 2007 2008
R`000 R`000 R`000
Central costs (12 804) (9 913) (24 935)
Staffing 136 479 109 762 253 734
Business process outsourcing 30 220 22 679 55 782
Subtotal 153 895 122 528 284 581
Discontinued - (81) (82)
TOTAL 153 895 122 447 284 499
EBITDA excluding IFRS share-
based payments and
lease smoothing
Aug Aug Feb
2008 2007 2008
% % %
Central costs - - -
Staffing 6,3 6,5 6,1
Business process outsourcing 26,6 21,1 23,4
Subtotal 6,7 6,8 6,4
Discontinued - - -
TOTAL 6,7 6,8 6,4
EBITDA excluding IFRS share-
based payments and
lease smoothing
% contribution to Group profit
Aug Aug Feb
2008 2007 2008
% % %
Central costs (8,3) (8,1) (8,8)
Staffing 88,7 89,6 89,2
Business process outsourcing 19,6 18,5 19,6
Subtotal 100,0 100,1 100,0
Discontinued - (0,1) -
TOTAL 100,0 100,0 100,0
Net asset value
Aug Aug Feb
2008 2007 2008
R`000 R`000 R`000
Central costs (248 362) (128 038) (192 602)
Staffing 864 748 530 706 784 286
Business process outsourcing 126 954 213 743 70 109
Subtotal 743 340 616 411 661 793
Discontinued 6 389 6 747 6 378
TOTAL 749 729 623 158 668 171
Assets carrying value
Aug Aug Feb
2008 2007 2008
R`000 R`000 R`000
Central costs 4 863 6 545 9 345
Staffing 1 352 307 1 003 183 1 075 825
Business process outsourcing 351 506 283 257 298 038
Subtotal 1 708 676 1 292 985 1 383 208
Discontinued 6 737 6 733 6 726
TOTAL 1 715 413 1 299 718 1 389 934
Liability carrying value
Aug Aug Feb
2008 2007 2008
R`000 R`000 R`000
Central costs 133 225 134 583 201 947
Staffing 607 559 472 477 291 539
Business process outsourcing 224 552 69 514 227 929
Subtotal 965 336 676 574 721 415
Discontinued 348 (14) 348
TOTAL 965 684 676 560 721 763
Depreciation and amortisation
of intangibles
Aug Aug Feb
2008 2007 2008
R`000 R`000 R`000
Central costs 210 202 469
Staffing 23 373 15 337 40 632
Business process outsourcing 14 003 13 218 31 310
Subtotal 37 586 28 757 72 411
Discontinued - - -
TOTAL 37 586 28 757 72 411
Additions to
property and equipment
Aug Aug Feb
2008 2007 2008
R`000 R`000 R`000
Central costs 24 66 362
Staffing 9 076 12 366 23 675
Business process outsourcing 7 382 5 176 13 452
Subtotal 16 482 17 608 37 489
Discontinued - 1 706 -
TOTAL 16 482 19 314 37 489
Comments
Reporting period
As a result of the change in Adcorps` year-end, Adcorp published results for
the 2 months to 28 February 2007 as well as for the 8 months to 31 August
2007.
Adcorp is now back to a twelve month reporting cycle and these interim results
are for the 6 months to 31 August 2008.
The comparative period has been arrived at by deducting the published 2
months` results to 28 February 2007 from the 8 months to 31 August 2007.
Normalised earnings
The table below sets out the normalised earnings for the 6 months to 31 August
2008 as well as the comparative period. IFRS non-cash flow adjustments have
significantly impacted both periods and these adjustments have been eliminated
below for ease of comparison.
6 months 6 months
to Aug to Aug
2008 2007 %
R`000 R`000 Change
Revenue 2 285 038 1 789 665 28
Cost of sales (1 751 478) (1 344 022) 30
Gross profit 533 560 445 643 20
Other income 13 899 5 926 135
Admin, marketing and
operating expenses (405 546) (339 546) 19
Operating profit 141 913 112 023 27
Net interest paid (11 390) (10 462) 9
Share of profits from
associates 14 175
Profit before taxation 130 537 101 736 28
Taxation (36 674) (24 596) 49
Profit for the period from 22
continuing operations 93 863 77 140
Loss for the period from
discontinued operations - (81)
Profit for the period 93 863 77 059 22
Minority ahareholders` share - 3
Profit for the period
attributable to ordinary
shareholders 93 863 77 062 22
Core headline earnings per
share 182,2 157,1 16
Overview
The Adcorp Group, once again, produced a solid financial performance for the
six-month interim period ended 31 August 2008.
In this regard, core headline earnings for the period of 182,2 cents per share
(2007: 157,1 cents per share) were some 16% ahead of core headline earnings
for the same period last year.
While trading conditions have tightened since the commencement of the year,
the blue collar flexible staffing, permanent recruitment and business process
outsourcing (BPO) operations of the Group have continued to perform well and
to deliver strong earnings growth.
The financial performance of the white collar flexible staffing businesses,
however, has been negatively affected by sustained margin and volume pressure
emanating principally from the retail banking sector which traditionally
contributes around 15% of Group turnover. In response, these businesses have
implemented downsizing and cost-cutting initiatives in order to limit the
negative impact on Group profitability.
The "cash-to-cash cycle" of the business has once again been well managed over
the first six months and debtors days outstanding were contained to well
within target levels. The conversion ratio of cash generated by operating
activities to operating profit was 97% while debtors days outstanding as at 31
August 2008 were 29 days (31 August 2007: 33 days).
The Ebitda margin averaged 6,7% compared to the prior period average of 6,8%.
This has been achieved by way of a sustained focus on improving operating
margins as well as an improved mix of business emanating from the restructured
Group, despite the adverse margin impact of the white collar flexible staffing
businesses.
As reported to shareholders earlier in the year, the acquisition of Staff-U-
Need became unconditional in August 2008. Given the specific focus of the
business on the power generation and engineering industries, it is expected to
be an important contributor to the Group in the future. Although a relatively
recent acquisition, the business has integrated well into the Adcorp Group.
Other relatively recent acquisitions made in the past 18 months, namely
Capital Outsourcing Group, FMS Marketing Solutions and Employrite are all
performing well and according to expectations.
The implementation of the new Microsoft Dynamics AX ERP system continues to
roll out according to a systematic plan with a number of Group operations
having now gone live on the system. It is anticipated that the entire Group
will be live on the system by the end of the first quarter of the next
financial year. However, the system should be finally commissioned by the end
of February 2009. The new ERP system will contribute positively to the
quality, extent and relevance of management information as well as to
operating efficiencies.
Financial overview
Headline earnings per share at 126,8 cents is 230% above that for the
comparative period. This has been positively impacted as a result of non-cash
flow IFRS adjustments arising mainly from share-based payments which flowed
from the BBBEE deal concluded in 2007 as well as the amortisation of
intangibles from acquisitions made during 2007 and 2008. If these are
eliminated, core headline earnings per share is 182,2 cents (2007: 157,1
cents) which is 16% above that for the same period last year.
Cash flow for the Group was pleasing with a decrease in debtors days from 33
last year to 29 in the current year. The net increase in cash and cash
equivalents was R195 million for the six months of which R112 million was
generated by operations. Capital raising activities over and above payments
for acquisitions made, resulted in a net inflow of R83 million in the period.
Subsequent to the end of the period dividend payments and investing activities
resulted in an outflow of R143 million.
The acquisition of Staff-U-Need was finalised during the period. Adcorp placed
3,2 million shares in the market and borrowed R120 million to fund this
acquisition. As at 31 August 2008 there was still R85 million owing to the
vendors of which R50 million was paid in September 2008, the balance being due
in September 2009. A preliminary allocation of the purchase consideration has
been done and this will be finalised prior to year end.
Staff-U-Need was purchased with effect from 30 July 2008. In terms of IAS 34
requirements, the profit from this entity included in Group profit for the
month of August 2008 is R3,4 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 estimated amortisation
charges arising from the valuation of the intangible assets acquired. Had
Staff-U-Need been acquired with effect from 1 March 2008 on the same basis as
above, the amount of profit that would have been included in Group profits
would have been R13,8 million.
Accounting policies
The financial report is prepared in accordance with IAS 34 Interim Financial
Reporting. Adcorp prepares its accounts in accordance with International
Financial Reporting Standards. The accounting policies applied are consistent
with the prior year annual financial statements.
Capital commitments
The Group is committed to expenditure of R6,7 million for the implementation
of software.
Subsequent events
There have been no material subsequent events since 31 August 2008.
Outlook
From a macro-economic perspective, the recent, extreme turbulence in the
world`s major capital markets is likely to impact negatively on both local and
global economic growth. As such, trading conditions could potentially get
tougher over the next six to 12 months. However, even within this testing
economic environment, there are still potentially lucrative pockets of
opportunity which the Group will continue to explore.
The defensive nature of the Group`s portfolio with its overweight exposure to
blue collar flexible staffing, the sizeable ongoing infrastructural spend in
the country which consumes these workers, the persistent skills shortage,
internal productivity projects and certain potentially lucrative market
opportunities should all combine to stand the Adcorp Group in relatively good
stead.
As such, the positive core headline earnings growth trend of the interim
period is expected to continue for the remainder of the financial year.
Declaration of dividend
Notice is hereby given that an interim dividend of 62 cents per share (2007:
55 cents per share) was declared on 22 October 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 interim dividend are
as follows:
Last day to trade cum interim dividend Friday, 28 November 2008
First day to trade ex interim dividend Monday, 1 December 2008
Record date Friday, 5 December 2008
Payment date Monday, 8 December 2008
No share certificates may be dematerialised or rematerialised between Monday,
1 December 2008 and Friday, 5 December 2008, both days inclusive.
Dividend cheques will be posted and electronic payments made, where
applicable, to certificated shareholders on the payment date. Dematerialised
shareholders will have their account with their Central Securities Depository
Participant or broker credited on the payment date.
By order of the board
Dr F van Zyl Slabbert RL Pike FD Burd
Chairman Chief Executive Chief Financial
Officer Officer
22 October 2008
Executive directors RL Pike, C Bomela, FD Burd, PC Swart
Independent non-executive Dr F van Zyl Slabbert, PK Ward
directors
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
Date: 22/10/2008 11:30:11 Produced by the JSE SENS Department.
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