| Tue 10 Aug 2010, 12:00 | | KEL - Kelly Group Limited - Chief Executive`s newsletter |
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KEL
KEL
KEL - Kelly Group Limited - Chief Executive`s newsletter
KELLY GROUP LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1999/026249/06)
ISIN: ZAE000093373
Share Code: KEL
("the Kelly Group")
CHIEF EXECUTIVE`S NEWSLETTER
The third quarter has seen a general improvement in trading conditions but it
still remains to be seen whether this is sustainable. On the one hand some
economic indicators, such as consumer spending, are up but on the other soaring
wage increases, more than double the inflation rate in certain instances,
continue to inhibit the labour market.
Financial overview
We closed the third quarter with revenue of R575.4 million for the three month
period, up 8.4% on Q3`09, and the best quarter for the group, from a revenue
perspective, for the 2010 financial year to date. However, ongoing investment
in new strategic initiatives reduced profit and we did not achieve a similar
growth rate in EBIT.
Our South African operations performed better in what remained a tough and
unpredictable trading environment. The combined revenue from all staffing
activities was R420 million for the quarter, reflecting a growth of 3.2% over
the corresponding quarter in 2009 (Q3`09: R407.5 million).
Revenue of R15.9 million generated from permanent placements was 27.4% down on
Q3`09. Compared to previous revenue decreases, such as Q1`10`s 40.5% and
Q2`10`s 30.4%, the negative employment trend is improving but growth prospects
in this segment remain distant as the economy continues to shed jobs.
Conversion revenue for this quarter exceeded Q3`09 by 21.7% but while this
contribution helped overall top-line growth, the attendant reduction in
outsourced headcount will adversely impact our annuity stream going forward.
Annuity revenue from outsourced business had a relatively strong quarter,
increasing revenue by 4.96% and headcount by 7.04% over the comparable quarter
last year. This was due to a general increase in activity as well as
opportunities emanating from and relating to the 2010 FIFA World Cup.
Torque IT produced satisfactory results, given current market conditions, and
posted growth of 3.2% on Q3`09 and 7.3% quarter-on-quarter, continuing the
growth trend established in the first half of 2010.
Our US operations have continued to exceed expectations and achieved revenue
growth of 45.0% in dollar terms over Q3`09. Unfortunately rand strength over
the same period eroded these gains and revenue in rand terms was 37.2% up on the
comparable quarter last year.
Strategic initiatives
We sustained our focus on the development of technology-driven, online value-
added services and products, such as K-log and Talent Ocean, which continue to
gain market share and user acceptance. System enhancements on both these
products, as a result of user requests across an expanding client base, have
added to their marketability.
We successfully launched the mobile application of K-log, our workforce
management and human capital accounting tool, during the World Cup and
demonstrated our ability to effectively manage large groups of workers (as many
as 1 500 per match) outside normal staffing parameters while, at the same time,
reducing administrative costs and enhancing the speed of payment and invoicing.
We are also in the process of developing our own recruitment software called
Talent Ocean Recruitment Management System and we expect the application to run
parallel to our existing core legacy system from September this year with a view
to replacing it during the second quarter of 2011.
Level 2 contributor to meaningful BEE
The Kelly Group was awarded an AAA rating by Empowerdex, the independent BEE
rating agency, making us a level 2 contributor to meaningful broad-based
empowerment in South Africa. Our clients can now claim 125% of their
procurement with the Kelly Group in their own BEE credentials.
The high rating was attributable to the group`s 32.6% black ownership (an A-
score) as well as our skills development, preferential procurement, enterprise
development and socio-economic development which all received full marks and A-
scores. Management and control and employment equity were rewarded with B-
scores. In total, the Kelly Group received an overall 88.75 out of a possible
100.
Global partnering agreement with Kelly Services Inc
We signed a three-year global partnering agreement with Michigan-based Kelly
Services Inc, in terms of which we will extend our portfolio of services to
Kelly Services` clients in Africa and the Middle East while Kelly Services will
offer its services to our clients in the rest of the world. This partnership
allows both parties to improve their ability to serve their clients outside
their traditional geographical areas and to strengthen customer relationships.
In addition, Kelly Services will engage M Squared Consulting to provide high-
level consulting and contract services to its clients throughout the United
States. The agreement also allows both parties to bid jointly for any global
requests for proposals.
Kelly Services Inc is a leader in providing workforce solutions, offering a
comprehensive array of outsourcing and consulting services as well as world-
class staffing on a temporary, temporary-to-hire and direct-hire basis. Serving
clients around the globe, Kelly Services provides employment to 480 000
employees annually. Its revenue in 2009 was US$4.3 billion.
Customer Focus Award at the 2010 National Business Awards
The Kelly Group was presented with the prestigious Customer Focus Award at Topco
Media`s annual National Business Awards ceremony. The judging panel, which
consisted of senior managers and executives from some of South Africa`s largest
blue-chip companies, acknowledged the Kelly Group for the numerous customer-
focused awards our brands had accumulated during the 2009 year as well as the
sustainably high results in our customer satisfaction surveys.
Prospects
It is encouraging that this has been the best quarter this year for us thanks to
a general improvement in trading results across the group. Business areas that
have performed relatively well since the beginning of 2010 continue to do so and
other areas have also started to show an improvement. In addition, the pipeline
for our US operations remains strong and prospective business in South Africa
has improved to pre-2009 levels.
However, a continued retraction of the market, although at a slower pace, echoes
sentiments in market surveys and the press that the country is embarking on a
jobless recovery. This and a number of systemic risks in the broader local and
global economy make any sort of forecast difficult.
Nevertheless, process and productivity enhancements during the past nine to 12
months, as well as the development of new revenue-generating products and the
aggressive pursuit of new business should put us in prime position to capitalise
on any upswing in the market.
Year end results announcements
Our results for the year ending 30 September will be published in November.
There will be a presentation on the results in Johannesburg and 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
10 August 2010
Merchant bank and sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Date: 10/08/2010 12:00:01 Produced by the JSE SENS Department.
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