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KEL
KEL
KEL - Kelly Group Limited - Unaudited interim results for the six months ended
31 March 2010
KELLY GROUP LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1999/026249/06)
Share code: KEL
ISIN: ZAE000093373
("Kelly Group" or "the group")
UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 MARCH 2010
* Revenue down 7% in tough market to R1.1 billion
* HEPS 16.05 cents (1H09: 37.14 cents)
* Kelly Industrial, Torque IT and US operations return to growth
* Operating expenditure well contained
* Cash and debtors well managed
* Long-term funding refinanced through new R120 million securitisation facility
* Successful launch of K-log, a new value added service
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited Unaudited Audited
6 months 6 months 12 months
31 March 31 March 30 Sept
2010 2009 % 2009
Notes R000 R000 change R000
Revenue 1 1 096 970 1 177 086 (7) 2 256 968
Cost of sales (865 589) (908 537) (1 766 946)
Gross profit 231 381 268 549 (14) 490 022
Operating
expenses (196 985) (198 160) (375 384)
Depreciation
and amortisation (8 365) (10 286) (16 044)
Operating
profit 26 031 60 103 (57) 98 594
Finance costs (11 379) (11 593) (22 983)
Finance income 2 857 4 621 7 166
Profit before
taxation 17 509 53 131 (67) 82 777
Taxation 2 (2 333) (16 946) (24 013)
Profit for the
period 15 176 36 185 (58) 58 764
- Owners of
parent 14 742 34 056 56 257
- Non-controlling
interests 434 2 129 2 507
Other comprehensive
income (46) 8 965 (2 701)
Total comprehensive income
for the period 15 130 45 150 (66) 56 063
- Owners of
parent 14 696 43 021 53 556
- Non-controlling
- interests 434 2 129 2 507
Basic and fully
diluted
- Earnings per
share (cents) 3 16.04 37.10 (57) 61.27
- Headline
- earnings per
- share (cents) 3 16.05 37.14 (57) 61.71
NOTES
1 Revenue
Placement fees 42 248 64 310 115 234
Temporary staffing 1 000 798 1 060 280 2 034 138
Skills training 38 468 36 339 76 677
Other revenue 15 456 16 157 30 919
1 096 970 1 177 086 2 256 968
2 Taxation
The effective tax rate as calculated above is 13%. Included in the current tax
expense is an amount of R2.4 million paid in respect of STC and foreign
withholding tax, excluding which the effective tax rate is 0%. This is
primarily due to the group taking advantage of substantial learnership
allowances.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited Unaudited Audited
6 months 6 months 12 months
31 March 31 March 30 Sept
2010 2009 2009
R000 R000 R000
Cash generated by
operations before
working capital
changes 35 252 70 439 117 232
Increase in working capital (4 866) (68 703) (11 766)
Cash generated by
operations 30 386 1 736 105 466
Net financing costs (8 522) (6 972) (15 817)
Net dividends paid (20 227) (32 934) (35 355)
Taxation paid (6 273) (17 652) (16 714)
Cash flows from
operating activities (4 636) (55 822) 37 580
Cash flows from
investing activities (12 488) (42 527) (48 878)
Cash flows from
financing activities (1 461) (1 818) (679)
Net decrease in cash
and cash equivalents (18 585) (100 167) (11 977)
Foreign translation
difference on
offshore cash (153) 6 409 (3 220)
Net cash and cash
equivalents at the
beginning of the period 137 800 152 997 152 997
Net cash and cash
equivalents at the
end of the period 119 062 59 239 137 800
RECONCILIATION OF SHARES ISSUED
Unaudited Unaudited Audited
6 months 6 months 12 months
31 March 31 March 30 Sept
2010 2009 2009
000 000 000
Number of shares in
issue 100 000 100 000 100 000
Treasury shares (8 076) (8 179) (8 099)
Closing balance 91 924 91 821 91 901
Weighted average
number of shares before
treasury shares 100 000 100 000 100 000
Weighted average
treasury shares (8 097) (8 201) (8 185)
Weighted average
number of shares
after treasury shares 91 903 91 799 91 815
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unaudited Unaudited Audited
as at as at as at
31 March 31 March 30 Sept
2010 2009 2009
Notes R000 R000 R000
ASSETS
Non-current assets 229 161 226 278 222 437
Property and
equipment 20 548 26 537 22 022
Goodwill 57 254 57 162 57 254
Trademarks 95 175 95 175 95 175
Other intangible
assets 43 973 34 988 38 286
Deferred taxation 12 211 12 416 9 700
Current assets 390 448 377 898 391 747
Inventories 987 1 004 978
Trade and other
receivables 258 612 281 857 245 673
Taxation 9 706 8 559 7 296
Cash and cash
equivalents 121 143 86 478 137 800
TOTAL ASSETS 619 609 604 176 614 184
EQUITY AND LIABILITIES
Capital and reserves 231 215 225 141 235 346
Share capital and
share premium 3 280 970 280 355 280 848
Equity due to change
in control of interest (18 038) (18 038) (18 038)
Share-based payment
reserve 2 065 - 1 221
Foreign currency
translation reserve 12 583 24 295 12 629
Accumulated loss (49 221) (65 713) (44 204)
Attributable to equity
holders in parent 228 359 220 899 232 456
Non-controlling
interests 2 856 4 242 2 890
Non-current
liabilities 3 5 108 161 028 6 422
Interest bearing
borrowings 4 304 161 028 1 479
Deferred taxation 4 804 - 4 943
Current liabilities 383 286 218 007 372 416
Interest bearing
borrowings 4 164 191 3 790 164 477
Trade and other
payables 145 197 105 975 129 960
Accruals for staff
benefits 67 242 76 929 74 519
Taxation 4 575 4 074 3 460
Bank overdraft 2 081 27 239 -
TOTAL EQUITY AND
LIABILITIES 619 609 604 176 614 184
NOTES
3 Change in application of accounting policy
During the first half of the 2009 financial year the group acquired Torque
Holdings (Pty) Ltd. When the prior year interim financial statements were
prepared, the group incorrectly concluded that the outstanding amount due to the
vendors should be treated as a non-current liability called Vendor Liabilities.
This erroneous treatment was rectified and changed during the preparation of the
full year results and the transaction treated as an issue of share capital and
premium (as the amount was to be settled through shares). The comparatives in
this announcement have been restated to reflect the new method. The impact of
this change is:
Old method New method Change
Earnings per share (cents) 37.89 37.10 (0.79)
Headline earnings per
share (cents) 37.93 37.14 (0.79)
Share capital and share
premium (R000) 213 877 225 141 11 264
Non-current liabilities
(R000) 172 292 161 028 (11 264)
Unaudited Unaudited Audited
as at as at as at
31 March 31 March 30 Sept
2010 2009 2009
R000 R000 R000
4 Interest bearing borrowings
Promissory notes issued 162 650 162 820 162 787
Finance leases 1 845 1 998 3 169
164 495 164 818 165 956
Promissory notes were repaid
on 30 April 2010 and
replaced with R120 million
of new long-term funding
5 Commitments
Authorised capital expenditure
Not yet contracted for 9 500 5 700 16 500
RECONCILIATION OF HEADLINE EARNINGS
Unaudited Unaudited Audited
6 months 6 months 12 months
31 March 31 March 30 Sept
2010 2009 2009
R000 R000 R000
Attributable profit
for the period 14 742 34 056 56 257
Loss on sale of property
and equipment (net of tax) 7 36 406
Headline earnings 14 749 34 092 56 663
STATEMENT OF CONSOLIDATED CHANGES IN EQUITY
Share Foreign Equity due
capital currency to change
and translation in control
premium reserve of interest
Notes R000 R000 R000
Balance as at
1 October 2008 269 091 15 330 (18 038)
Acquisition of
Torque IT using
treasury shares 3 11 264 - -
Total comprehensive
income for the period - 8 965 -
Dividends paid - - -
Balance as at
31 March 2009 280 355 24 295 (18 038)
Share-based payment
reserve - - -
Sale of treasury shares 493 - -
Total comprehensive
income for the period - (11 666) -
Dividends paid - - -
Balance as at
30 September 2009 280 848 12 629 (18 038)
Share-based payment
reserve - - -
Sale of treasury shares 122 - -
Total comprehensive
income for the period - (46) -
Dividends paid - - -
Balance as at
31 March 2010 280 970 12 583 (18 038)
STATEMENT OF CONSOLIDATED CHANGES IN EQUITY (continued)
Share-
based Accu-
payment mulated
reserve loss Subtotal
R000 R000 R000
Balance as at
1 October 2008 - (67 406) 198 977
Acquisition of
Torque IT using
treasury shares - - 11 264
Total comprehensive
income for the period - 34 056 43 021
Dividends paid - (32 363) (32 363)
Balance as at
31 March 2009 - (65 713) 220 899
Share-based payment
reserve 1 221 - 1 221
Sale of treasury
shares - - 493
Total comprehensive
income for the period - 22 201 10 535
Dividends paid - (692) (692)
Balance as at
30 September 2009 1 221 (44 204) 232 456
Share-based payment
reserve 844 - 844
Sale of treasury shares - - 122
Total comprehensive
income for the period - 14 742 14 696
Dividends paid - (19 759) (19 759)
Balance as at
31 March 2010 22 065 (49 221) 228 359
STATEMENT OF CONSOLIDATED CHANGES IN EQUITY (continued)
Non-
controlling
Interests Total
R000 R000
Balance as at 1 October 2008 2 683 201 660
Acquisition of Torque IT
using treasury shares - 11 264
Total comprehensive income
for the period 2 129 45 151
Dividends paid (570) (32 934)
Balance as at 31 March 2009 4 242 225 141
Share-based payment reserve - 1 221
Sale of treasury shares - 493
Total comprehensive income
for the period 378 10 912
Dividends paid (1 730) (2 421)
Balance as at 30 September 2009 2 890 235 346
Share-based payment reserve - 844
Sale of treasury shares - 122
Total comprehensive income
for the period 434 15 130
Dividends paid (468) (20 227)
Balance as at 31 March 2010 2 856 231 215
CONDENSED CONSOLIDATED SEGMENTAL ANALYSIS
Revenue Operating profit
6 months 6 months
31 March 31 March
2010 2009 2010 2009
R000 R000 R000 R000
Staffing, skills
and value added
services 897 001 922 993 37 826 68 273
International
operations 199 969 254 093 438 4 535
Central costs - - (12 233) (12 705)
Total 1 096 970 1 177 086 26 031 60 103
CONDENSED CONSOLIDATED SEGMENTAL ANALYSIS (continued)
Total assets Total liabilities
As at As at
31 March 31 March
2010 2009 2010 2009
R000 R000 R000 R000
Staffing, skills
and value
added services 289 482 98 907 150 385 123 390
International
operations 64 263 88 042 31 754 40 410
Central costs 265 864 417 227 206 255 215 235
Total 619 609 604 176 388 394 379 035
COMMENTS
Performance overview
The recession continued to take its toll on the recruitment sector, which tends
to lag the broader economy in terms of recovery. Nevertheless, the Kelly Group
limited the continuing effects of an extremely depressed trading environment
with revenue and EBITDA for the six months to March contracting by 7% and 51%
respectively. Net profit after tax and EPS for the six months were also down by
58% and 57% respectively.
The group`s South African operations` combined revenue of R897 million was 2.8%
down on the comparative period despite revenue growth of 5.9% from its skills
training business Torque IT. Revenue of a non-recurring nature derived from
permanent placements and conversions reduced by 35.4% and 28.1% respectively
when compared to 2009. Annuity revenue derived from outsourced business
declined by 5.9% as a result of a 3.0% reduction in the group`s managed
headcount and a decrease from 28.0% to 26.5% in its gross margins.
Kelly Industrial performed well in what was the least affected sector of the
economy, blue-collar recruitment. Revenue was down by 2.9% to R135.8 million
but EBIT increased by R617 000 (16.6%) to R4.3 million off the back of
significant productivity gains and cost containments.
In the US, the group`s operations increased revenue in US Dollar terms by 4.1%
following nine consecutive months of growth. However, an appreciation of the
Rand against the Dollar of 23.5% during this period more than offset revenue
growth in US Dollar terms. The group looks forward to real and sustainable
growth in this operation with a deal pipeline that is the strongest since the
third quarter of 2007.
Overall, operating expenditure decreased by 0.6% and is indicative of the
group`s culture of efficiency and cost management.
Net financing costs increased by 22.2% for the first half of the reporting
period. Reduced cash and cash equivalents combined with a declining interest
rate cycle resulted in interest earned decreasing by 38.1%, which had a direct
bearing on increased net funding costs.
On 30 April 2010 the group settled R160 million in outstanding promissory notes
using R40 million of its own funds and the proceeds of the new R120 million
securitisation structure. The new three-year, fixed-rate securitisation
structure secures the group`s medium term funding requirements at a competitive
rate and also improves the risk profile of the group through reduced long-term
debt and gearing.
The quality of the debtors book and strong cash collection resulted in the group
ending the quarter at 31 days sales outstanding (DSO) and a total provision for
doubtful debts of R2.4 million (1.3% of the total book). This compares well
with the corresponding period where the group ended on 34 DSO. In addition it
secured repayments and commitments on 40% of the R2.4 million reflected as
doubtful debt.
Dividend
In line with the group`s policy no dividend is declared relating to the period
under review.
Directors
Non-executive directors John Gnodde and Kholofela Molewa resigned and we
welcomed Babalwa Ngonyama as a new non-executive director.
Basis of preparation
The condensed financial results included in this announcement have been prepared
in accordance with the measurement and recognition criteria of International
Financial Reporting Standards ("IFRS") and have been prepared in accordance with
the presentation and disclosure requirements of IAS 34, Interim Financial
Reporting.
Accounting policies
As stated in note 3, the results for the unaudited results for the six months
ended 31 March 2009 have been restated. The group has implemented the revised
IAS 1, Presentation of Financial Statements and IFRS 8 Operating Segments. The
changes to both standards are of a presentation and disclosure nature only.
With the exception of the implementation of the new standards, the same
accounting policies, presentation and measurement principles have been followed
in the preparation of the condensed financial information for the six months
ended 31 March 2010 as were applied in the preparation of the group`s annual
financial statements for the year ended 30 September 2009.
Prospects
The experience that recruitment activity lags the broader economy is not
different in the current cycle where two consecutive quarters of growth have not
yet translated into real activity and improved results for the group. Detailed
analysis of the group`s results relating to the first half of the 2010 financial
year does not yield a clear trend or pattern that would indicate the much
anticipated slow but consistent growth in employment numbers. The same can be
said for the domestic and global recovery inhibited by further surprises such as
the Greek debt crisis and risk of global contagion. Economic uncertainty
prevails and is supported by mixed financial indicators which directly impact
economic decision making.
The group remains cautious and we do not expect any significant changes in
formal job creation in the South African economy in the short term, however we
are well positioned to take advantage of any upswing if and when it should
occur.
On the positive side however and as mentioned, certain of the operations have
shown growth in the first half and K-log has started to bring in annuity revenue
streams.
In addition, the group continues to focus on improving efficiencies, driving
costs down and the aggressive pursuit of new business.
For and on behalf of the board
MM Ngoasheng GJ Wilson
Chairman Chief executive
17 May 2010
Sandton
Our website is regularly updated to supply you with the latest information on
the company. For further information contact: investor and media relations
Helen McKane on Tel: 011 728 4701, Fax: 011 728 2547, e-mail:
kellygroup@dpapr.com
www.kellygroup.co.za
Registered office: 6 Protea Place, cnr Fredman Drive, Sandton
Transfer secretaries: Computershare Investor Services (Proprietary) Limited
Sponsor: Rand Merchant Bank (A division of FirstRand Bank Limited)
Directors: MM Ngoasheng (chairman), MW McCulloch (deputy chairman), GJ Wilson
(chief executive), PM Mdwaba (deputy chief executive), Y Dladla, RM Hartmann, ME
Monage, B Ngonyama, F Pieterse, CJ Roodt and PJJ van der Walt.
Company secretary: KH Fihrer
Date: 17/05/2010 12:15:01 Produced by the JSE SENS Department.
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