| Wed 24 Feb 2010, 11:00 | | KEL - Kelly Group Limited - CEO Newsletter |
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KEL
KEL
KEL - Kelly Group Limited - CEO Newsletter
KELLY GROUP LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1999/026249/06)
Share code: KEL
ISIN: ZAE000093373
("the group")
CEO NEWSLETTER
The three months to December - the first quarter of our financial year - turned
out to be as tough as we anticipated when we published our 2009 results. The
market remained uncertain about the timing and extent of the economic recovery,
and the apparently encouraging employment numbers from Statistics SA, which
showed that the official jobless rate improved marginally from 24.5% to 24.3%
during this quarter, are not that meaningful when seen in context. The 89 000
new jobs created during this period according to Statistics SA are insignificant
when compared to the 870 000 real jobs lost over the full year and in addition,
most of these new jobs were unskilled posts in the informal non-farming sector
of the economy.
Financial overview
Our results for the first quarter were a mixed bag, with some of our businesses
performing well, and meeting or exceeding expectations, while others were slow
off the mark. Revenue for the quarter of R556.8 million was down 8.6% year on
year.
The South African staffing business remained under pressure, posting negative
variances against most 2009 comparatives. Permanent placements revenue, down
41.2% against Q109, remains the biggest performance inhibitor. The decrease in
volumes as well as average placement fees in this sector confirm that new jobs
are not yet being created.
On the other hand, our outsourced business was a relatively strong performer,
with its annuity revenue slipping only 1.37% below the Q109 level. The group
managed to maintain its headcount with the decline recorded being less than 1%
but yielded some margin, ending the quarter on 23.57% against Q109`s 24.7%. It
is worth noting that this was achieved in an environment where a number of
clients converted temporary employees to permanent staff, some pre-emptively to
negate any adverse effect potential changes to the labour legislation might
have, and others to secure scarce resources. This conversion factor created a
revenue windfall in the first quarter but will have a negative impact on annuity
income going forward if temporary headcounts are not replaced.
Torque IT produced a particularly pleasing performance for the quarter,
improving their results by 13.9% year on year and exceeding expectations.
Our US operations continue to improve their performance month by month in a very
difficult market. Revenue, however, was down 29.7% in ZAR and 6.9% in US$
against the same period last year. The fact that the ZAR appreciated by 20%
year on year over this period obviously had a direct bearing on the ZAR revenue.
Leveraging technology
We continue to aggressively market K-log, our online workforce management,
productivity and time and attendance tool. Its most significant application to
date is the telecoms project which will see all temporary employees engaged by
this client on the system, regardless of the TES supplier. The project is still
in its pilot phase but should be generating material annuity revenue from Q2.
Our Talent Ocean project is also progressing well and the system is now fully
functional for in house use, having exceeded all development targets. Its first
external client will use the application as a white label product for in-house
recruitment. Development has been expanded and expedited without incurring
additional costs and we expect that before the end of 2010 a number of legacy
applications, for which we currently pay licensing fees, will be replaced by
updated applications that are functionality rich, more efficient and tailored to
the needs of clients and candidates.
Prospects
We are cautiously optimistic that market conditions will improve in the course
of this year. The economy is no longer shedding jobs, as it did for most of
2009, and the marginal growth achieved in the last quarter of 2009 signalled the
technical end of the recession as well as the prospect of better times ahead.
At this early stage, however, the domestic and global recovery remains fragile,
and the volatility in the business confidence indices reflect the continuing
uncertainty in the market place. Only once there has been a sustained
improvement in the key indicators will we be able to provide forecasts regarding
our own performance with a reasonable degree of certainty.
In the short term, our expectations have, however, been buoyed by the fact that
December and January, traditionally slow months, have seen an increase in the
number of orders received for permanent placements across a range of sectors and
industries. These are higher than in any month during the previous quarter or
the comparable months in 2008. In addition the pipeline for the US business is
the strongest it has been since October 2008 with a number of prospects being
pursued and converted into revenue.
We continue to focus on improving efficiencies, driving costs down and the
aggressive pursuit of new business. In addition, we are well placed through our
product offering and service orientation to maximise the opportunities afforded
by the 2010 World Cup.
Interim results announcement
Our interim results for the six months ended 31 March will be published in May.
There will be a presentation on the results in Johannesburg and in Cape Town.
If you would like to attend either of these please contact our investor
relations office at kellygroup@dpapr.com for an invitation.
Yours sincerely
Grenville Wilson
Chief executive
Sandton
24 February 2010
Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
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