| Wed 6 May 2009, 12:51 | | ADR - Adcorp Holdings - Reviewed Group Results for the year ended 28 February |
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ADR
ADR
ADR - Adcorp Holdings - Reviewed Group Results for the year ended 28 February
2009
Adcorp Holdings Limited
("Adcorp" or "Adcorp Group" or "the Group")
Registration number 1974/001804/06
Share code: ADR
ISIN number: ZAE000000139
Reviewed Group Results for the year ended 28 February 2009
Rated South Africa`s top empowered company two years running
Diluted core headline earnings per share up by 19%
Final dividend declared of 160 cents per share
Normalised operating profit up by 28%
Cash conversion ratio 81%
EBITDA margin up to 6,7%
Debtors at 35 days
Abridged Income Statement
for the year ended 28 February
Reviewed Unaudited Audited
year ended year ended 14 months to
28 February 29 February 29 February
2009 2008 2008
R`000 R`000 R`000
Continuing operations
Revenue 4 837 123 3 938 881 4 430 105
Cost of sales (3 724 735) (2 986 575) (3 349 604)
Gross profit 1 112 388 952 306 1 080 501
Other income 32 695 27 699 31 620
Administrative expenses (305 615) (361 027) (401 595)
Marketing and selling
expenses (451 956) (391 833) (448 173)
Other operating expenses (160 910) (137 897) (153 548)
Operating profit 226 602 89 248 108 805
Interest received 19 782 7 088 7 869
Interest paid (52 914) (26 419) (29 574)
Share of profits from
associates 18 875 1 512
Impairment of loans - (145) (145)
Profit on sale of property
and equipment 667 414 409
Profit on disposal of
operations and subsidiaries - 48 236 48 633
Profit before taxation 194 155 119 297 137 509
Taxation 50 082 35 701 40 855
Profit for the year/period
from continuing operations 144 073 83 596 96 654
Discontinued operations
(Loss)/profit from
discontinued operations - (15 061) 30 314
Profit for the year/period 144 073 68 535 126 968
Profit for the year/period
attributable to ordinary
shareholders 144 073 68 535 126 968
Earnings per share
Basic (cents) 272,8 137,4 258,5
Diluted (cents) 271,8 134,7 253,4
Distribution to 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 year/period 144 073 68 535 126 968
Impairments - 6 645 11 645
Loss on sale of property and
equipment (480) (294) (290)
Loss/(profit) on disposal of
discontinued operations - 8 132 (42 233)
Headline earnings 143 593 83 018 96 090
Adjusted for:
Amortisation of intangible
assets 55 234 42 864 46 808
Share-based payments 18 316 100 966 101 966
Imputed interest charge 4 282 - -
Lease smoothing 374 1 315 1 399
Profit on disposal of part of
continuing operations - (48 236) (48 633)
Tax effects on above (15 409) (13 382) (14 550)
Core headline earnings 206 390 166 545 183 080
Headline earnings per share
Headline earnings per share -
cents 271,9 166,5 195,6
Diluted headline earnings per
share - cents 270,9 163,2 191,8
Core headline earnings per
share
Core headline earnings per
share - cents 390,8 334,0 372,7
Diluted core headline
earnings per share - cents 389,4 327,4 365,4
Weighted average number of
shares - 000`s 52 808 49 868 49 122
Diluted weighted average
number of shares - 000`s 53 000 50 869 50 109
Abridged Balance Sheet
as at 28 February
Reviewed Audited
28 February 29 February
2009 2008
R`000 R`000
Assets
Non-current assets 845 422 675 449
Property and equipment 59 807 57 549
Goodwill 555 208 402 980
Intangible assets 209 087 182 270
Investment in associates 100 270
Derivative financial instruments 1 872 3 141
Deferred taxation 19 348 29 239
Current assets 868 178 714 485
Trade, other receivables and prepayments 685 943 565 002
Amounts due from vendor - 250
Assets classified as held-for-sale 845 845
Taxation prepaid 330 564
Cash resources 181 060 147 824
Total assets 1 713 600 1 389 934
Equity and liabilities
Capital and reserves 803 902 668 171
Share capital 1 355 1 271
Share premium 384 594 283 070
Treasury shares (592) (701)
Retained earnings 418 496 384 798
Foreign currency translation reserve (372) (688)
BEE shareholders` interest 421 421
Non-current liabilities 249 670 191 429
Other non-current liabilities 2 700 4 230
Long-term loan 78 755 -
Redeemable preference shares - interest-
bearing 130 000 146 195
Obligation under finance lease 3 165 2 464
Deferred taxation 35 050 38 540
Current liabilities 660 028 530 334
Non-interest-bearing current liabilities 388 791 325 940
Trade and other payables 264 587 243 174
Amount due to vendor 32 353 -
Provisions 77 068 74 785
Liabilities classified as held-for-sale - 348
Taxation 14 783 7 633
Interest-bearing current liabilities 271 237 204 394
Current portion of other non-current
liabilities 3 138 2 260
Current portion of long-term loan 32 871 -
Current portion of redeemable preference
shares 3 431 3 805
Bank overdraft 231 797 198 329
Total equity and liabilities 1 713 600 1 389 934
Number of ordinary shares in issue (000`s) 54 220 50 831
Net asset value per share (cents) 1 483 1 315
Abridged Cash Flow Statement
for the year ended 28 February
Reviewed Unaudited Audited
year ended year ended 14 months to
28 February 29 February 29 February
2009 2008 2008
R`000 R`000 R`000
Cash generated by operations
before working capital
changes 326 827 257 819 285 430
(Increase)/decrease in
working capital (84 542) 71 744 (22 159)
Cash generated by operations 242 285 329 563 263 271
Net interest paid (28 689) (19 278) (21 617)
Taxation paid (50 713) (57 518) (65 956)
Free cash generated by
operations 162 883 252 767 175 698
Net dividend paid (126 637) (91 441) (91 441)
Cash inflows from operations 36 246 161 326 84 257
Cash outflows from investing
activities (231 892) (282 706) (492 905)
Cash inflows from financing
activities 195 414 150 642 376 644
Net (decrease)/increase in
cash and cash equivalents (232) 29 262 (32 004)
Net cash and cash equivalents
at the beginning of the
year/period (50 505) (79 767) (18 501)
Net cash and cash equivalents
at the end of the year/period (50 737) (50 505) (50 505)
Free cash generated by
operations per share - cents 308,4 506,9 357,7
Abridged Statement of Changes in Equity
for the year ended 28 February
Foreign
currency
Share Share Treasury translation
capital premium shares reserve
R`000 R`000 R`000 R`000
Balance as at 1 January 2007 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 share-based
payments - - - -
Dividend distributions - - 89 -
Profit for the period - - - -
Balance as at 29 February
2008 1 271 283 070 (701) (688)
Issue of ordinary shares
under employee share option
plan 3 1 818 - -
Issue of ordinary shares for
the acquisition of
subsidiaries 81 99 706 - -
Foreign currency translation
reserve - - - 316
Fair value adjustment of
derivative financial
instrument - - - -
Recognition of staff and
BBBEE share-based payments - - - -
Dividend distributions - - 109 -
Profit for the year - - - -
Balance as at 28 February
2009 1 355 384 594 (592) (372)
BEE
shareholders Retained
Minority
interest interest earnings Total
R`000 R`000 R`000 R`000
Balance as at 1 January
2007 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 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
Issue of ordinary shares
under employee share option
plan - - - 1 821
Issue of ordinary shares
for the acquisition of
subsidiaries - - - 99 787
Foreign currency
translation reserve - - - 316
Fair value adjustment of
derivative financial
instrument - - (1 756) (1 756)
Recognition of staff and
BBBEE share-based payments - - 18 316 18 316
Dividend distributions - - (126 935) (126 826)
Profit for the year - - 144 073 144 073
Balance as at 28 February
2009 - 421 418 496 803 902
Abridged Segment Report
for the year ended 28 February
Revenue
year ended
14 months
2009 2008 2008
R`000 R`000 R`000
Central costs - - -
Staffing 4 604 249 3 735 814 4 191 683
Business process outsourcing 232 874 203 067 238 422
Subtotal 4 837 123 3 938 881 4 430 105
Discontinued - - -
TOTAL 4 837 123 3 938 881 4 430 105
Operating profit
year ended
14 months
2009 2008 2008
R`000 R`000 R`000
Central costs (29 528) (113 462) (118 188)
Staffing 236 479 183 234 205 112
Business process outsourcing 19 651 19 476 21 881
Subtotal 226 602 89 248 108 805
Discontinued - (81) (82)
TOTAL 226 602 89 167 108 723
EBITDA excluding IFRS share- EBITDA excluding IFRS
based payments and lease share-based payments
smoothing and lease smoothing
year ended 14 months year ended 14 months
2009 2008 2008 2009 2008 2008
R`000 R`000 R`000 % % %
Central costs (22 245) (20 855) (24 935) 0,0 0,0 0,0
Staffing 295 715 228 885 253 734 6,4 6,1 6,1
Business
process
outsourcing 52 578 49 069 55 782 22,6 24,2 23,4
Subtotal 326 048 257 099 284 581 6,7 6,5 6,4
Discontinued - (81) (82) 0,0 0,0 0,0
TOTAL 326 048 257 018 284 499 6,7 6,5 6,4
EBITDA excluding IFRS share-
based payments and lease
smoothing contribution% to Net asset
Group profit value
year ended 14 months year ended
2009 2008 2008 2009 2008
% % % R`000 R`000
Central costs (6,8) (8,2) (8,8) (217 388) (192 602)
Staffing 90,7 89,1 89,2 843 653 784 286
Business process 16,1 19,1 19,6 177 637 70 109
outsourcing
Subtotal 100,0 100,0 100,0 803 902 661 793
Discontinued 0,0 0,0 0,0 - 6 378
TOTAL 100,0 100,0 100,0 803 902 668 171
Assets Liability
carrying value carrying value
year ended year ended
2009 2008 2009 2008
R`000 R`000 R`000 R`000
Central costs 8 092 9 345 225 480 201 947
Staffing 1 335 722 1 075 825 492 069 291 539
Business process
outsourcing 369 786 298 038 192 149 227 929
Subtotal 1 713 600 1 383 208 909 698 721 415
Discontinued - 6 726 - 348
TOTAL 1 713 600 1 389 934 909 698 721 763
Depreciation and
amortisation Additions to
of intangibles property and equipment
year ended 14 months year ended 14 months
2009 2008 2008 2009 2008 2008
R`000 R`000 R`000 R`000 R`000 R`000
Central costs 381 408 469 341 296 362
Staffing 51 048 38 149 40 632 16 557 21 564 23 675
Business
process 29 327 27 012 31 310 10 664 12 906 13 452
outsourcing
Subtotal 80 756 65 569 72 411 27 562 34 766 37 489
Discontinued - - - - - -
TOTAL 80 756 65 569 72 411 27 562 34 766 37 489
Comments
Normalised earnings
IFRS non-cash flow adjustments have significantly impacted the reported results.
The table below sets out the normalised earnings for the year ended 28 February
2009 as well as the prior year comparative figures.
Year to Year to
28 February 29 February %
R`000 2009 2008 change
Revenue 4 837 123 3 938 881 23
Cost of sales (3 724 735) (2 986 575) 25
Gross profit 1 112 388 952 306 17
Other income 32 695 27 699 18
Administrative, marketing, selling
and operating expenses (844 557) (745 693) 13
Operating profit 300 526 234 312 28
Net interest paid (28 850) (19 331) 49
Share of profits from associates 18 875 -
Profit before taxation 271 694 215 856 26
Taxation (65 304) (49 311) 32
Profit for the year 206 390 166 545 24
Core headline earnings per share -
cents 390,8 334,0 17
Diluted core headline earnings per
share - cents 389,4 327,4 19
OVERVIEW
The Adcorp Group once again produced a solid financial performance for the year
ended 28 February 2009, despite tougher overall trading conditions.
In this regard, diluted core headline earnings for the year of 389,4 cents per
share (2008: 327,4 cents per share) were some 19% ahead of diluted core headline
earnings per share for the comparable prior year.
This result has been achieved due to the relatively strong positioning of the
Group with regard to the relevance of its product and service offerings as well
as the efficiency of its operations in relatively challenging economic times.
The strong blue collar bias of the flexible staffing operations, the ongoing
skills shortage, the sustainably differentiating value-adding product and
service offerings, the blue-chip client base, selective industry exposure,
proactive leadership focused on continuous productivity and efficiency
improvement initiatives coupled with certain recent quality acquisitions, have
all contributed to a financial performance that has been far more robust than
general South African economic and employment data would suggest.
In this regard, the blue collar flexible staffing, permanent recruitment and
business process outsourcing (BPO) operations of the Group continued to perform
well and to deliver strong earnings growth.
The financial performance of the white collar flexible staffing businesses,
however, was negatively affected by sustained volume and margin pressure
emanating principally from the retail banking sector. In response, these
businesses implemented timely downsizing and cost cutting initiatives in order
to limit the negative impact on Group profitability.
The EBITDA margin improved to an average 6,7% compared to the prior year average
of 6,5%. This has been achieved by way of a sustained focus on improving
operating margins as well as an improved mix of business, despite the adverse
margin impact of the white collar flexible staffing businesses.
Debtors days outstanding slipped to an average 35 days outstanding compared to
the previous year end level of 30 days outstanding due primarily to late payment
by three large public sector clients which skewed the result. The collectability
of these balances is not considered to be at risk but rather, is the result of
inefficiencies and processing problems on the client side. Were these debtors to
be excluded from the calculation, average debtor days outstanding would have
been 32 days, generally indicating a healthy collections pattern within the
Group.
As reported to shareholders earlier in the year, the acquisition of Staff-U-Need
became unconditional at the end of July 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. The business has
integrated well into the Adcorp Group and is performing in line with
expectations.
Other relatively recent acquisitions of the past two years, namely Capital
Outsourcing Group and FMS Marketing Solutions are performing well and according
to expectations. Employrite, which focuses on the automotive industry, had a
difficult year due to the severe downturn in that industry. The impact of this
on the Group was, however, limited due to its relatively small contribution to
Group profits.
The implementation of the new Microsoft Dynamics AX ERP system has been
successful with the majority of Group companies having now gone live on the
system. The system will contribute positively to the quality, extent and
relevance of management information as well as to operating efficiencies.
There has been much public debate recently, emanating principally from the trade
union movement, with regard to the prospect of further regulation governing the
a-typical or contract labour market.
The debate has primarily focused on the need to eradicate certain exploitative
labour broking practices carried on by various operatives within the industry as
well as the entrenchment of the principle of "decent work" as defined by the
International Labour Organisation (ILO).
Adcorp has taken an active role in these deliberations and is generally
supportive of certain of the recommendations which, if dealt with appropriately,
could be positive for the staffing industry as a whole.
The industry plays a leading role in the South African economy in terms of job
creation by way of introducing a significant number of first-time job seekers
into the formal job market as well as by playing a leading role in the up-
skilling of thousands of employees through the formal learnership process.
Given a scarcity of reliable employment data, Adcorp, in conjunction with the
Sunday Times, recently initiated an "Employment Index" which was first published
in March 2009. It is the intention to publish this index on a quarterly basis
thus facilitating a better, holistic understanding of the complex South African
employment environment.
For the second year running the Adcorp Group was recently voted the most
empowered company listed on the JSE in terms of the Financial Mail Top
Empowerment Company Survey for 2009. In terms of this survey, Adcorp was the
only company ranked as a Level 2 contributor.
FINANCIAL OVERVIEW
International Financial Reporting Standards ("IFRS") adjustments have had a
significant impact on the figures presented for the year ended February 2009
mainly due to the non-cash flow amortisation of intangibles arising from
acquisitions made during the past two years. The comparative year ending 29
February 2008 has been similarly affected but, in addition, non-cash flow share
based payments arising from the BBBEE deal concluded in May 2007 further
impacted these profits. In order to make the figures comparable, non-cash flow
IFRS adjustments have been eliminated in "Core headline earnings" for the
current year as well as the prior financial year and period.
For the year ended 28 February 2009 diluted core headline earnings amounted to
389,4 cents per share which equates to a 19% increase year on year compared with
327,4 cents per share for the comparative year. Core headline earnings for the
current year were 390,8 cents per share which is a 17% increase compared with
the 334,0 cents per share for the prior year. Headline earnings per share at
271,9 cents represents an increase of 63% over the 166,5 cents for the previous
year, however this percentage has been impacted by IFRS adjustments.
The reduction in cash generated by operations of R242,3 million compared with
R329,6 million for the prior year was largely due to non-payment by three large
public sector clients as mentioned above. The resultant cash conversion ratio
was 81%. Group borrowings, including the preference share loan, as at 28
February 2009 of
R302,1 million compared with R205,2 million for the previous year, resulted in
an increase in the Group`s gearing from 31% to 38%.
Staff-U-Need ("SUN") was acquired with effect from 27 July 2008 and, as
previously advised, was funded by a combination of borrowings and shares issued.
As at 28 February 2009, R35 million is owing to the SUN vendors and this amount
will be paid in September 2009 dependent on certain hurdles being met. In terms
of IAS 34 requirements the profit from this entity included in Group profits for
the year ended February 2009 is R21,0 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 SUN 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 for the year would have
been R23,7 million.
OUTLOOK
The extent and duration of the recent, extreme turbulence in the world`s major
economies and its likely impact on the South African economy remains unclear.
The strategy of the Group during these uncertain times is to protect top line
business as far as possible, realise the full potential of a number of promising
internal productivity and efficiency initiatives, focus on cash generation,
retain our top people talent, positively influence industry regulation and seek
out quality acquisitions.
Despite a troubled global and local economic outlook for the foreseeable future,
certain mitigating factors should position the Group relatively well to weather
the storm.
The defensive nature of the Group 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.
In addition, these conditions provide a unique opportunity to build a more
robust, sustainable, market leading and dominant business model positioned
advantageously for an economic upswing.
BASIS OF PREPARATION
Adcorp prepares its accounts in accordance with International Financial
Reporting Standards, South African Companies Act and the JSE Listings
Requirements. The accounting policies are consistent with the prior year annual
financial statements. This report is prepared in accordance with IAS 34.
CONTINGENT LIABILITIES AND COMMITMENTS
The bank has guaranteed R8,75 million on behalf of the Group to creditors. As at
the balance sheet date the Group has outstanding commitments totalling R65
million in non cancellable property leases.
Declaration of final dividend
The board of directors has decided to hold the final dividend at the same level
as for the previous year resulting in a total dividend increase for the 2009
year of 3%. The board has further decided to explore the opportunity of buying
back shares considering the relatively attractive values currently available in
the market.
Notice is hereby given that a final dividend of 160 cents per share (2008: 160
cents per share) was declared on 6 May 2009 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, 24 July 2009
First day to trade ex final dividend Monday, 27 July 2009
Record date Friday, 31 July 2009
Payment date Monday, 3 August 2009
No share certificates may be dematerialised or rematerialised between Monday, 27
July 2009 and Friday, 31 July 2009 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.
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
6 May 2009
Executive directors RL Pike, C Bomela, FD Burd, PC Swart
Independent non-
executive directors A Alback
Non-executive directors Dr F van Zyl Slabbert, LM Mojela, MR Ramaite,
T Ramano
Alternate non-executive
director GP Duda
Company secretary L Sudbury
Transfer secretaries Link Market Services SA (Pty) Ltd, 11
Diagonal Street, Johannesburg, 2001
Sponsor Deloitte & Touche Sponsor Services (Pty) Ltd
www.adcorp.co.za
SA`s top empowered company listed on the JSE in terms of the Financial Mail`s
Top Empowerment Companies Survey rated by Empowerdex for 2008 and 2009
Date: 06/05/2009 12:51:23 Produced by the JSE SENS Department.
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