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ADR
ADR
ADR - Adcorp Holdings - Unaudited Group Results for the six months
ended 31 August 2009
Adcorp Holdings Limited
("Adcorp" or "Adcorp Group" or "the Group")
Registration number 1974/001804/06
Share code: ADR
ISIN number: ZAE000000139
Unaudited Group Results for the six months ended 31 August 2009
Rated South Africa`s top empowered company two years running
- Normalised operating profit down by 10%
- Normalised earnings per share down by 13%
- Cash conversion ratio 88%
- Debtors days at 33 days
- Interim dividend declared of 50 cents per share
Abridged Statement of Comprehensive Income for the six months
ended 31 August
Unaudited Unaudited Audited
six months six months 12 months
to Aug to Aug to February
2009 2008 2009
R`000 R`000 R`000
Revenue 2 412 973 2 285 038 4 837 123
Cost of sales (1 879 778) (1 751 478) (3 724 735)
Gross profit 533 195 533 560 1 112 388
Other income 27 837 13 899 32 695
Administrative expenses (166 862) (150 695) (305 615)
Marketing and selling (223 840) (212 132) (451 956)
expenses
Other operating expenses (83 965) (78 541) (160 910)
Operating profit 86 365 106 091 226 602
Interest received 3 569 5 160 19 782
Interest paid (29 042) (16 550) (52 914)
Share of profits from
associates - 14 18
Profit on sale of property
and equipment 184 331 667
Profit on disposal of
operations and subsidiaries - 12 -
Profit before taxation 61 076 95 058 194 155
Taxation 11 906 29 482 50 082
Profit for the period/year 49 170 65 576 144 073
Other comprehensive income
Exchange differences on
translating foreign
operations - 624 316
Share-based payments 12 597 9 807 18 316
Fair value adjustment of
derivative financial
instrument (505) (1 000) (1 756)
Other comprehensive income
for the period/year, net of
tax 12 092 9 431 16 876
TOTAL COMPREHENSIVE INCOME
FOR THE PERIOD/YEAR 61 262 75 007 160 949
Profit attributable to:
Owners of the parent 49 170 65 576 144 073
Total comprehensive income
attributable to:
Owners of the parent 61 262 75 007 160 949
Earnings per share
Basic (cents) 91,4 127,3 272,8
Diluted (cents) 90,5 126,0 271,8
Distribution to shareholders
Interim dividend (cents) 50 62 62
Final dividend (cents) in
respect of the prior year 160 160 160
Calculation of headline
earnings
Profit for the period/year 49 170 65 576 144 073
Profit on sale of property
and equipment (133) (239) (480)
Profit on disposal of
discontinued operations - (12) -
Headline earnings 49 037 65 325 143 593
Headline earnings per share
Headline earnings per share -
cents 91,2 126,8 271,9
Diluted headline earnings per
share - cents 90,2 125,5 270,9
Weighted average number of
shares - 000`s 53 787 51 520 52 808
Diluted weighted average
number of shares - 000`s 54 351 52 065 53 000
Abridged Cash Flow Statement
for the six months ended 31 August
Unaudited Unaudited Audited
six months six months 12 months
to Aug to Aug to Feb
2009 2008 2009
R`000 R`000 R`000
OPERATING ACTIVITIES
Cash generated by operations before
working capital changes 146 310 154 925 326 827
Increase in working capital (31 531) (17 516) (84 542)
Cash generated by operations 114 779 137 409 242 285
Net interest paid (22 826) (11 390) (28 689)
Taxation paid (11 887) (13 933) (50 713)
Free cash generated by operations 80 066 112 086 162 883
Net dividend (paid)/received (91 801) 11 (126 638)
Cash (outflows)/inflows from
operating activities (11 735) 112 097 36 245
Investing and financing activities
Cash outflows from investing
activities (29 352) (137 608) (231 891)
Cash (outflows)/inflows from
financing activities (21 673) 220 075 195 414
Net (decrease)/increase in cash and
cash equivalents (62 760) 194 564 (232)
Net cash and cash equivalents at
the beginning of the period/year (50 737) (50 505) (50 505)
Net cash and cash equivalents at
the end of the period/year (113 497) 144 059 (50 737)
Free cash generated by operations
per share - cents 148,9 217,6 308,4
Abridged Statement of Financial Position
as at 31 August
Unaudited Unaudited Audited
Aug Aug Feb
2009 2008 2009
R`000 R`000 R`000
Assets
Non-current assets 817 386 857 542 845 422
Property and equipment 59 205 63 353 59 807
Goodwill 555 208 535 739 555 208
Intangible assets 186 699 227 563 209 087
Investment in associates 65 284 100
Derivative financial instruments
and other financial assets 1 040 2 141 1 872
Deferred taxation 15 169 28 462 19 348
Current assets 989 002 857 871 868 178
Trade, other receivables and
prepayments 707 645 664 962 685 943
Assets classified as held for 845 11 845
sale
Taxation prepaid 362 262 330
Cash resources 280 150 192 636 181 060
Total assets 1 806 388 1 715 413 1 713 600
Equity and liabilities
Equity attributable to owners of
the parent 760 690 749 729 803 902
Share capital 1 357 1 352 1 355
Share premium 385 040 382 929 384 594
Treasury shares (13 431) (690) (592)
Retained earnings 387 675 365 934 418 496
Foreign currency translation
reserve (372) (217) (372)
BEE shareholders` interest 421 421 421
Non-current liabilities 235 551 292 464 249 670
Other non-current liabilities 5 181 803 2 700
Long-term loan 71 292 108 000 78 755
Redeemable preference shares -
interest bearing 130 000 130 000 130 000
Obligation under finance lease 2 095 5 448 3 165
Deferred tax 26 983 48 213 35 050
Current liabilities 810 147 673 220 660 028
Non-interest-bearing current
liabilities 380 564 589 805 388 791
Trade and other payables 237 948 281 443 257 918
Amount due to vendor 30 000 85 000 32 353
Provisions 93 878 100 375 83 737
Liabilities classified as held
for sale - 348 -
Shareholders for dividends 213 93 400 -
Taxation 18 525 29 239 14 783
Interest-bearing current
liabilities 429 583 83 415 271 237
Current portion of other non-
current liabilities 1 529 2 838 3 138
Current portion of long-term loan 31 175 12 000 32 871
Current portion of redeemable
preference shares 3 232 20 000 3 431
Bank overdraft 393 647 48 577 231 797
Total equity and liabilities 1 806 388 1 715 413 1 713 600
Number of ordinary shares in
issue (000`s) 53 727 54 081 54 220
Net asset value per share (cents) 1 416 1 386 1 483
Total interest-bearing liabilities of the Group
Unaudited Unaudited Audited
August August February
R`000 2009 2008 2009
Net bank overdraft/(bank 113 497 (144 059) 50 737
balances)
Long-term loan 71 292 108 000 78 755
Redeemable preference shares
- interest-bearing 130 000 130 000 130 000
Obligations under finance 2 095 5 448 3 165
lease
Current portion of other non-
current liabilities 1 529 2 838 3 138
Current portion of long-term 31 175 12 000 32 871
loan
Current portion of redeemable
preference shares 3 232 20 000 3 431
Total interest-bearing 352 820 134 227 302 097
liabilities
Abridged Statement of Changes in Equity for the six months ended 31
August
Foreign
currency
Share Share Treasury translation
capital premium shares reserve
R`000 R`000 R`000 R`000
Balance as at 1 March 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 - -
Dividend distributions - - 109 -
Profit for the year - - - -
Other comprehensive income
for the year - - - 316
Balance as at 28 February
2009 1 355 384 594 (592) (372)
Issue of ordinary shares
under employee share option
plan 2 446 - -
Buy-back of ordinary shares - - (12 907) -
Dividend distributions - - 68 -
Profit for the period - - - -
Other comprehensive income
for the period - - - -
Balance as at 31 August 2009 1 357 385 040 (13 431) (372)
Attributable
to equity BEE share-
Retained holders of holders`
earnings the parent interest Total
R`000 R`000 R`000 R`000
Balance as at 1 March
2008 384 798 667 750 421 668 171
Issue of ordinary
shares under employee
share option plan - 1 821 - 1 821
Issue of ordinary
shares for the
acquisition of
subsidiaries - 99 787 - 99 787
Dividend distributions (126 935) (126 826) - (126 826)
Profit for the year 144 073 144 073 - 144 073
Other comprehensive
income for the year 16 560 16 876 - 16 876
Balance as at 28
February 2009 418 496 803 481 421 803 902
Issue of ordinary
shares under employee
share option plan - 448 - 448
Buy-back of ordinary
shares - (12 907) - (12 907)
Dividend distributions (92 083) (92 015) - (92 015)
Profit for the period 49 170 49 170 - 49 170
Other comprehensive
income for the period 12 092 12 092 - 12 092
Balance as at 31 August
2009 387 675 760 269 421 760 690
Segment Report for the six months ended 31 August
Revenue
Aug Aug Feb
2009 2008 2009
R`000 R`000 R`000
Central costs - - -
Staffing 2 315 160 2 171 638 4 604 249
Business process outsourcing 97 813 113 400 232 874
Subtotal 2 412 973 2 285 038 4 837 123
Discontinued - - -
TOTAL 2 412 973 2 285 038 4 837 123
Internal revenue
Aug Aug Feb
2009 2008 2009
R`000 R`000 R`000
Central costs - - -
Staffing 11 542 18 976 13 481
Business process outsourcing 19 182 10 326 1 497
Subtotal 30 724 29 302 14 978
Discontinued - - -
TOTAL 30 724 29 302 14 978
Operating profit
Aug Aug Feb
2009 2008 2009
R`000 R`000 R`000
Central costs (18 431) (16 905) (29 528)
Staffing 90 325 108 845 236 479
Business process outsourcing 14 471 14 151 19 651
Subtotal 86 365 106 091 226 602
Discontinued - - -
TOTAL 86 365 106 091 226 602
Normalised operating profit
before interest and tax
Aug Aug Feb
2009 2008 2009
R`000 R`000 R`000
Central costs (13 491) (13 015) (22 626)
Staffing 115 112 128 931 280 342
Business process outsourcing 26 050 25 997 42 810
Subtotal 127 671 141 913 300 526
Discontinued - - -
TOTAL 127 671 141 913 300 526
Normalised operating profit before
interest and tax
Aug Aug Feb
2009 2008 2009
% % %
Central costs 0,0% 0,0% 0,0%
Staffing 5,0% 5,9% 6,1%
Business process outsourcing 26,6% 22,9% 18,4%
Subtotal 5,3% 6,2% 6,2%
Discontinued 0,0% 0,0% 0,0%
TOTAL 5,3% 6,2% 6,2%
Normalised operating profit
before interest and tax
contribution % to Group profit
Aug Aug Feb
2009 2008 2009
% % %
Central costs (10,6%) (9,2%) (7,5%)
Staffing 90,2% 90,9% 93,3%
Business process outsourcing 20,4% 18,3% 14,2%
Subtotal 100,0% 100,0% 100,0%
Discontinued 0,0% 0,0% 0,0%
TOTAL 100,0% 100,0% 100,0%
Net asset values
Aug Aug Feb
2009 2008 2009
R`000 R`000 R`000
Central costs (343 524) (128 362) (217 388)
Staffing 988 972 744 748 843 653
Business process outsourcing 115 242 126 954 177 637
Subtotal 760 690 743 340 803 902
Discontinued - 6 389 -
TOTAL 760 690 749 729 803 902
Assets carrying value
Aug Aug Feb
2009 2008 2009
R`000 R`000 R`000
Central costs 17 567 4 863 8 092
Staffing 1 477 084 1 352 307 1 335 722
Business process outsourcing 311 737 351 506 369 786
Subtotal 1 806 388 1 708 676 1 713 600
Discontinued - 6 737 -
TOTAL 1 806 388 1 715 413 1 713 600
Liability carrying value
Aug Aug Feb
2009 2008 2009
R`000 R`000 R`000
Central costs 361 091 133 225 225 480
Staffing 488 112 607 559 492 069
Business process outsourcing 196 495 224 552 192 149
Subtotal 1 045 698 965 336 909 698
Discontinued - 348 -
TOTAL 1 045 698 965 684 909 698
Depreciation and amortisation
of intangibles
Aug Aug Feb
2009 2008 2009
R`000 R`000 R`000
Central costs 201 210 381
Staffing 29 114 23 687 51 048
Business process outsourcing 18 246 14 096 29 327
Subtotal 47 561 37 993 80 756
Discontinued - - -
TOTAL 47 561 37 993 80 756
Additions to
property and equipment
Aug Aug Feb
2009 2008 2009
R`000 R`000 R`000
Central costs 2 552 24 341
Staffing 7 256 9 076 16 557
Business process outsourcing 3 173 7 382 10 664
Subtotal 12 981 16 482 27 562
Discontinued - - -
TOTAL 12 981 16 482 27 562
Comments
Normalised earnings
Normalised earnings excludes the amortisation of intangibles arising on
business combinations as well as share based payments and lease smoothing
adjustments. The table below sets out the normalised earnings for the six
months ended 31 August 2009 as well as the prior period comparative
figures.
Six months Six months %
R`000 August 2009 August 2008 change
Revenue 2 412 973 2 285 038 6
Cost of sales (1 879 778) (1 751 478) (7)
Gross profit 533 195 533 560 0
Other income 27 837 13 899 100
Administrative, marketing, selling
and operating expenses (474 667) (441 368) (8)
Operating profit 86 365 106 091 (19)
Adjusted for:
Depreciation 13 483 11 982 (13)
Amortisation of intangible assets 34 078 26 011 (31)
Share-based payments 12 597 9 807 (28)
Lease smoothing (343) 411 183
EBITDA (excl share based payments
and lease smoothing) 146 180 154 302 (5)
Adjusted for:
Depreciation (13 483) (11 982) (13)
Amortisation of intangibles other
than those acquired in
a business combination (5 026) (407) (1 135)
Normalised operating profit 127 671 141 913 (10)
Net interest paid (22 826) (11 390) (100)
Share of profits from associates - 14 (100)
Profit before taxation 104 845 130 537 (20)
Taxation (19 944) (36 766) 46
Profit for the period 84 901 93 771 (9)
Normalised earnings per share -
cents 157,8 182,0 (13)
Diluted normalised earnings per
share - cents 156,2 180,1 (13)
Overview
Trading results for the six-month interim period ended 31 August 2009
reflect the impact of the generally tougher economic conditions.
In this regard, normalised earnings for the period of 157,8 cents per
share (2008: 182,0 cents per share) were some 13,3% down on normalised
earnings per share for the same period last year.
Whilst trading conditions have tightened since the commencement of the
financial year, the blue-collar flexible staffing and business process
outsourcing (BPO) operations of the Group continued to perform relatively
well for the period under review.
This positive result for these operations is despite the blue-collar
flexible staffing operations incurring a foreign exchange translation
loss of R7 million during the period under review due to the recent
significant strengthening of the Rand/US Dollar exchange rate relating to
various US Dollar-denominated projects on the African continent.
The blue-collar flexible staffing operations which contribute in excess
of 50% of the Group`s profitability have proved to be relatively
resilient given the current tough economic conditions as clients opt for
the labour cost flexibility afforded by the option that contract labour
provides.
In this regard, whilst volumes have been under pressure as consumer
demand has declined in certain sectors such as manufacturing, volume
gains have been made in previously untapped market segments such as
mining where the need for labour flexibility has become a necessary
ingredient for survival.
Also making a positive contribution to the blue-collar operations has
been Staff-U-Need which was acquired in August 2008. The business has
integrated well into the Group and is performing in line with
expectations.
The financial performances of the white-collar flexible staffing
businesses as well as the permanent recruitment operations, however, have
been negatively affected by sustained downward volume and margin pressure
as a direct result of the economic downturn.
Whilst volumes appear to be stabilising in terms of the white-collar
flexible staffing operations albeit at significantly lower levels than in
buoyant markets, it is far more difficult to make predictions with regard
to the Group`s permanent recruitment operations where volumes have yet to
stabilise.
The "cash-to-cash cycle" of the business was well managed over the first
six months despite a particularly tough collections environment.
Normalised operating profit margins averaged 5,3% compared to the prior
period average of 6,2%.
This has been achieved by way of a sustained focus on improving operating
margins despite the adverse margin impact of the volume and margin
declines of the white-collar flexible staffing and permanent recruitment
businesses, the foreign exchange translation loss mentioned above as well
as additional operating expenses incurred in the delivery of a far
greater number of learnerships than the prior period, the benefits of
which are reflected in a reduced taxation charge.
The margin at 5,3% is 0,9% below that achieved in the same period last
year, however, if exchange losses resulting from the strengthening of the
Rand are excluded this percentage would have been 5,6%.
During the twelve month period ended February 2010 the Group expects to
initiate and facilitate 5 000 learnerships in terms of the Skills
Development Act compared to 3 000 learnerships in the comparative prior
period. In this regard, the Group is a major provider of skills
development in the South African market. The overall impact of this is to
reduce the effective tax rate to 12,3% (2008: 23,9%).
The implementation of the new Microsoft Dynamics AX ERP system is now
substantially complete. The new ERP 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 with regard to the prospect of
further regulation governing the a-typical, contract labour or temporary
employment services (TES) market.
The matter is currently being debated at the National Economic and
Development Council (Nedlac) and it is likely that certain additional
regulations will be enacted to protect vulnerable workers and to promote
the concept of "decent work".
Whilst it is still uncertain as to the exact nature of this impending
legislation, 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.
Financial overview
Normalised operating profit of R127 671 for the six months ended August
2009 is 10% below the R141 913 for the comparative period primarily as a
result of the economic conditions discussed earlier in this commentary.
Normalised earnings for the period under review at 157,8 cents per share
(2008: 182,0 cents per share) reflects a decrease of 13,3% while earnings
per share at 91,4 cents is 28,2% below that of the previous period.
Debtors days reduced from 35 days at end February 2009 to 33 days at end
August 2009 (2008: 29 days). The public sector continues to owe long
outstanding monies however most overdue debts, mentioned in the previous
reported results, have subsequently been collected. The cash conversion
ratio at 88% is slightly below the Groups` target of 90%. Further
affecting the cash flow is the high cost of interest in the current
period, however R2,6 million of this is imputed interest and therefore
does not have a cashflow implication. The final dividend for the previous
year was paid in the second half whereas in the current year the final
dividend was paid in the first half which skews the comparison.
In terms of IFRS 8 (Operating Segment), which is applicable effective for
the first time from this reporting period, it is required that the
segment report should reflect segment information in exactly the same
format as that used by management for internal purposes. As a result,
Normalised Operating Profit which excludes the amortisation of
intangibles arising on business combinations as well as share based
payments and lease smoothing adjustments, is now shown in the segment
report. Both Normalised Earnings and EBITDA are shown in the "normalised
earnings table".
Outlook
The relatively defensive nature of the Group`s portfolio with its
overweight exposure to blue-collar flexible staffing is an advantage to
the Group, while there remain other potentially lucrative pockets of
opportunity which the Group will continue to explore.
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 and deal with new disclosures requirements by
IFRS, specifically IAS 1 (Presentation of Financial Statements) and IFRS
8 (Operating Segments). This report is prepared in accordance with IAS
34.
Contingent liabilities and commitments
The bank has guaranteed R8 million on behalf of the Group to creditors.
As at the balance sheet date the Group has outstanding commitments
totalling R48 million in non cancellable property leases.
Buy-back of ordinary shares
In the February 2009 published results shareholders were advised that,
given the value in the share price, Adcorp would investigate buying back
ordinary shares. Subsequent to this Adcorp has purchased 532 493 Adcorp
shares for a total cost of R12,9 million which is an average of R24,06
per share.
Subsequent events
As at 31 August 2009, R30 million was owing to the Staff U Need (Pty) Ltd
vendors and this amount was paid on 1 October 2009.
Changes to the board of Adcorp
After 15 years as Chairman of Adcorp Holdings Limited, Dr Van Zyl
Slabbert will be retiring as Chairman of the Group with immediate effect.
His retirement has been necessitated due to health considerations. Due to
the relative suddenness of his retirement, a replacement independent
Chairman has yet to be appointed.
In the interim, Ms Louisa Mojela will serve as acting Chairman until such
time as an appointment has been made.
TDA Ross joined the board of Adcorp as an independent non- executive
director with effect from 1 September 2009.
Declaration of interim dividend
The board of directors has decided to reduce the interim dividend in line
with the lower profits which is considered prudent in these uncertain
times.
Accordingly notice is hereby given that an interim dividend of 50 cents
per share (2008: 62 cents per share) was declared on 14 October 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 interim dividend are as follows:
Last day to trade cum final dividend Friday, 6 November 2009
First day to trade ex final dividend Monday, 9 November 2009
Record date Friday, 13 November 2009
Payment date Monday, 16 November 2009
No share certificates may be dematerialised or rematerialised between
Monday, 9 November 2009 and Friday, 13 November 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.
LM Mojela RL Pike
Acting Chairman Chief Executive Officer
FD Burd
Chief Financial Director
14 October 2009
Executive directors RL Pike, C Bomela, FD Burd,
PC Swart
Independent non-executive A Alback, TDA Ross
directors
Non-executive directors 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
Date: 14/10/2009 13:28:01 Produced by the JSE SENS Department.
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