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ADR
ADR
ADR - Adcorp Holdings Limited - Unaudited Group results for the six months
ended 31 August 2010
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 2010
Revenue up 7%
Normalised earnings per share down by 6%
Exceptional cash conversion ratio 199%
Debtors days at 33 days
Financial gearing significantly reduced to 10%
Interim dividend declared of 54 cents per share
Abridged statement of comprehensive income
for the six months ended 31 August 2010
Unaudited Unaudited Audited
six months six months 12 months
to August to August to February
2010 2009 2010
R`000 R`000 R`000
Revenue 2 581 466 2 412 973 5 050 358
Cost of sales (2 046 590) (1 879 778) (3 953 341)
Gross profit 534 876 533 195 1 097 017
Other income 24 840 27 837 39 353
Administrative expenses (171 874) (166 862) (346 123)
Marketing and selling expenses (233 317) (223 840) (451 326)
Other operating expenses (78 423) (83 965) (172 390)
Operating profit 76 102 86 365 166 531
Interest received 735 3 569 12 859
Interest paid (15 414) (29 042) (62 127)
Impairment of investments in
associates and goodwill - - (984)
Profit/(loss) on sale of
property and equipment 236 184 (389)
Profit before taxation 61 659 61 076 115 890
Taxation (5 626) (11 906) (11 574)
Profit for the period/year 56 033 49 170 104 316
Other comprehensive income
Exchange differences on
translating foreign
operations 2 123 - (752)
Fair value adjustment of
derivative financial
instrument - (505) (863)
Other comprehensive income for
the period/year, net of tax 2 123 (505) (1 615)
Total comprehensive income for
the period/year 58 156 48 665 102 701
Profit attributable to:
Owners of the parent 56 033 49 170 104 316
Total comprehensive income
attributable to:
Owners of the parent 58 156 48 665 102 701
Earnings per share
Basic (cents) 95,2 91,4 193,5
Diluted (cents) 92,5 90,5 188,7
Approved dividends to
shareholders
Interim dividend (cents) 54 50 50
Final dividend (cents) in
respect of prior year 115 160 160
Calculation of headline
earnings
Profit for the period/year 56 033 49 170 104 316
(Loss)/profit on sale of
property, plant and equipment (170) (133) 280
Impairment of investments in
associates and goodwill - 984
Headline earnings 55 863 49 037 105 580
Headline earnings per share
Headline earnings per share -
cents 94,9 91,2 195,9
Diluted headline earnings per
share - cents 92,2 90,2 191,0
Weighted average number of
shares - 000`s 58 864 53 787 53 903
Diluted weighted average
number of shares - 000`s 60 566 54 351 55 272
Abridged statement of financial position
as at 31 August 2010
Unaudited Unaudited Audited
August August February
2010 2009 2010
R`000 R`000 R`000
Assets
Non-current assets 776 741 817 386 801 608
Property and equipment 49 511 59 205 53 405
Goodwill 556 170 555 208 554 290
Intangible assets 155 118 186 699 179 334
Investment in associates - 65 -
Derivative financial
instruments and
other financial assets 780 1 040 910
Deferred taxation 15 162 15 169 13 669
Current assets 1 023 947 989 002 870 188
Trade, other receivables and
prepayments 680 381 707 645 717 047
Assets classified as held-for-
sale 845 845 845
Taxation prepaid 28 551 362 14 703
Cash resources 314 170 280 150 137 593
Total assets 1 800 688 1 806 388 1 671 796
Equity and liabilities
Equity attributable to owners
of the parent 974 243 760 690 907 943
Share capital 1 546 1 357 1 483
Share premium 498 696 385 040 497 968
Treasury shares (13 293) (13 431) (13 293)
Retained earnings 485 874 387 675 422 488
Foreign currency translation 999 (372) (1 124)
reserve BEE shareholders`
interest 421 421 421
Non-current liabilities 197 016 235 551 212 502
Other non-current liabilities
- interest bearing 5 462 5 181 5 034
Long-term loan - interest 48 988 71 292 59 912
bearing redeemable preference
shares - interest bearing 130 000 130 000 130 000
Obligation under finance lease 1 773 2 095 2 597
Deferred tax 10 793 26 983 14 959
Current liabilities 629 429 810 147 551 351
Non-interest-bearing current
liabilities 399 729 380 564 327 799
Trade and other payables 276 985 237 948 249 073
Amount due to vendor - 30 000 -
Provisions 102 554 93 878 77 850
Shareholders for dividends 424 213 -
Taxation 19 766 18 525 876
Interest-bearing current
liabilities 229 700 429 583 223 552
Current portion of other non-
current liabilities 6 040 1 529 2 124
Current portion of long-term
loan 30 916 31 175 31 227
Current portion of redeemable
preference shares 2 299 3 232 2 362
Bank overdraft 190 445 393 647 187 839
Total equity and liabilities 1 800 688 1 806 388 1 671 796
Number of ordinary shares in
issue (000`s) 61 821 53 727 58 777
Net asset value per share
(cents) 1 576 1 416 1 545
Abridged statement of cash flows
for the six months ended 31 August 2010
Unaudited Unaudited Audited
Six months six months 12 months
August August February
2010 2009 2010
R`000 R`000 R`000
Operating activities
Cash generated by operations
before working capital changes 131 400 146 310 280 009
Decrease/(increase) in working
capital 93 801 (31 531) (55 253)
Cash generated by operations 225 201 114 779 224 756
Net interest paid (14 679) (22 826) (46 621)
Taxation paid (7 927) (11 887) (58 258)
Free cash generated by
operations 202 595 80 066 119 877
Net dividend paid (9 123) (91 801) (118 379)
Cash inflows/(outflows) from
operating activities 193 472 (11 735) 1 498
Investing and financing
activities
Cash outflows from investing
activities (12 132) (29 352) (81 901)
Cash (outflows)/inflows from
financing activities (7 369) (21 673) 80 894
Net increase/(decrease) in
cash and cash equivalents 173 971 (62 760) 491
Net cash and cash equivalents
at the beginning of the
year/period (50 246) (50 737) (50 737)
Net cash and cash equivalents
at the end of the year/period 123 725 (113 497) (50 246)
Free cash generated by
operations per share - cents 344,2 148,9 222,4
Total interest-bearing liabilities of the Group
as at 31 August 2010
Unaudited Unaudited Audited
Six months six months 12 months
August August February
2010 2009 2010
R`000 R`000 R`000
Net (bank balances)/overdraft (123 725) 113 497 50 246
Other long term loan 5 462 5 181 5 034
Long-term loan 48 988 71 292 59 912
Redeemable preference share 130 000 130 000 130 000
Obligations under finance
lease 1 773 2 095 2 597
Current portion of other non-
current liabilities 6 040 1 529 2 124
Current portion of long-term
loan 30 916 31 175 31 227
Current portion of redeemable
preference shares 2 299 3 232 2 362
Total interest-bearing
liabilities 101 753 358 001 283 502
Abridged statement of changes in equity
for the six months ended 31 August 2010
Foreign
currency
Share Share Treasury translation
capital premium shares reserve
R`000 R`000 R`000 R`000
Balance as at 1 March 2009 1 355 384 594 (592) (372)
Issue of ordinary shares
under employee share option
plan 3 999 - -
Buy back of ordinary shares - - (12 822) -
Issue of shares pursuant to
a general issue of shares
for cash 125 112 375 - -
Treasury shares sold - - 31 -
Recognition of BBBEE and
staff share-based payments - - - -
Dividend distributions - - 90 -
Profit for the year - - - -
Other comprehensive income
for the year - - - (752)
Balance as at 28 February
2010 1 483 497 968 (13 293) (1 124)
Issue of ordinary shares
under employee share
option plan 3 788 - -
Capitalisation of share
premium - (65 172) - -
Ordinary shares issued
pursuant to scrip
distribution 60 65 112 - -
Recognition of BBBEE and
staff share-based payments - - - -
Dividend distributions - - - -
Profit for the year - - - -
Other comprehensive income
for the year - - - 2 123
Balance as at 31 August 2010 1 546 498 696 (13 293) 999
Attribut-
able to
equity BEE
holders share-
Retained of the holders`
earnings parent interest Total
R`000 R`000 R`000 R`000
Balance as at 1 March 2009 418 496 803 481 421 803 902
Issue of ordinary shares
under employee share option
plan - 1 002 - 1 002
Buy back of ordinary shares - (12 822) - (12 822)
Issue of shares pursuant to
a general issue of shares
for cash - 112 500 - 112 500
Treasury shares sold - 31 - 31
Recognition of BBBEE and
staff share-based payments 19 008 19 008 - 19 008
Dividend distributions (118 469) (118 379) - (118 379)
Profit for the year 104 316 104 316 - 104 316
Other comprehensive income
for the year (863) (1 615) - (1 615)
Balance as at 28 February
2010 422 488 907 522 421 907 943
Issue of ordinary shares
under employee share
option plan - 791 - 791
Capitalisation of share
premium - (65 172) - (65 172)
Ordinary shares issued
pursuant to scrip
distribution - 65 172 - 65 172
Recognition of BBBEE and
staff share-based payments 16 476 16 476 - 16 476
Dividend distributions (9 123) (9 123) - (9 123)
Profit for the year 56 033 56 033 - 56 033
Other comprehensive income
for the year - 2 123 - 2 123
Balance as at 31 August 2010
485 874 973 822 421 974 243
Abridged Segment Report
for the six months ended 31 August 2010
Revenue Internal revenue
Aug Aug Feb Aug Aug Feb
2010 2009 2010 2010 2009 2010
R`000 R`000 R`000 R`000 R`000 R`000
Central
costs - - 238 - - -
Staffing 2 456 931 2 315 160 4 808 871 10 259 11 542 19 292
Business
process
outsourcing 124 535 97 813 241 249 18 662 19 182 -
Total 2 581 466 2 412 973 5 050 358 28 921 30 724 19 292
EBITDA excluding
share based payments
Operating profit and lease smoothing
Aug Aug Feb Aug Aug Feb
2010 2009 2010 2010 2009 2010
R`000 R`000 R`000 R`000 R`000 R`000
Central
costs (18 371) (18 431) (29 621) (12 138) (13 290) (23 030)
Staffing 76 600 90 325 160 643 104 639 124 236 225 747
Business
process
outsourcing 17 873 14 471 35 509 38 767 35 234 77 032
Total 76 102 86 365 166 531 131 268 146 180 279 749
EBITDA excluding
EBITDA margin share based payments
excluding share and lease smoothing
based payments and Contribution % to
lease smoothing Group profit
Aug Aug Feb Aug Aug Feb
2010 2009 2010 2010 2009 2010
% % % % % %
Central costs 0,0 0,0 0,0 (9,2) (9,1) (8,2)
Staffing 4,3 5,4 4,7 79,7 85,0 80,7
Business process
outsourcing 31,1 36,0 31,9 29,5 24,1 27,5
TOTAL 5,1 6,1 5,5 100,0 100,0 100,0
Net asset values Asset carrying value
Aug Aug Feb Aug Aug Feb
2010 2009 2010 2010 2009 2010
R`000 R`000 R`000 R`000 R`000 R`000
Central (158 679) (343 524) (161 254) 14 111 17 567 11 695
costs
Staffing 1 012 244 988 972 961 636 1 473 416 1 477 084 1 371 245
Business
process
outsourcing 120 678 115 242 107 561 313 161 311 737 288 856
Total 974 243 760 690 907 943 1 800 688 1 806 388 1 671 796
Depreciation and
amortisation of
Liability carrying value intangibles
Aug Aug Feb Aug Aug Feb
2010 2009 2010 2010 2009 2010
R`000 R`000 R`000 R`000 R`000 R`000
Central costs 172 790 361 091 172 949 467 201 786
Staffing 461 172 488 112 409 609 19 952 29 114 56 204
Business
process
outsourcing 192 483 196 495 181 295 17 890 18 246 38 204
Total 826 445 1 045 698 763 853 38 309 47 561 95 194
Interest income Interest expense
Aug Aug Feb Aug Aug Feb
2010 2009 2010 2010 2009 2010
R`000 R`000 R`000 R`000 R`000 R`000
Central (7 965) 5 289 2 559 12 269 (13 921) 2 104
costs
Staffing 5 796 (4 088) 6 094 (26 451) (14 825) (63 381)
Business
process
outsourcing 2 904 2 368 4 206 (1 232) (296) (850)
Total 735 3 569 12 859 (15 414) (29 042) (62 127)
Taxation Additions to property
Expense/(income) and equipment
Aug Aug Feb Aug Aug Feb
2010 2009 2010 2010 2009 2010
R`000 R`000 R`000 R`000 R`000 R`000
Central costs 1 127 9 245 13 136 90 2 552 341
Staffing 4 473 3 355 (4 063) 5 628 7 256 16 557
Business process
outsourcing 26 (694) 2 501 3 061 3 173 10 664
Total 5 626 11 906 11 574 8 779 12 981 27 562
Normalised earnings
for the six months ended 31 August 2010
Normalised earnings exclude 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 period
ended 31 August 2010, the prior period comparative as well as the prior year
comparative.
Six months to Six months to Year to
31 August 31 August 28 February %
R`000 2010 2009 2010 change
Revenue 2 581 466 2 412 973 5 050 358 7
Cost of Sales (2 046 590) (1 879 778) (3 953 341) (9)
Gross Profit 534 876 533 195 1 097 017 -
Other income 24 840 27 837 39 353 (11)
Administrative,
marketing, selling
and operating
expenses (483 614) (474 667) (969 839) (2)
Operating profit 76 102 86 365 166 531 (12)
Adjusted for:
Depreciation 13 039 13 483 26 423 (3)
Amortisation of
intangible assets 25 270 34 078 68 771 (26)
Share-based
payments 16 476 12 597 19 008 31
Lease smoothing 381 (343) (984) -
EBITDA (excluding
share based
payments and lease
smoothing) 131 268 146 180 279 749 (10)
Adjusted for:
Depreciation (13 039) (13 483) (26 423) 3
Amortisation of
intangibles other
than those acquired
in a business
combination (5 228) (5 026) (9 598) (4)
Normalised
operating profit 113 001 127 671 243 728 (11)
Net interest paid (14 679) (22 826) (46 622) 36
Normalised profit
before taxation 98 322 104 845 197 106 (6)
Taxation (11 345) (19 944) (27 158) 43
Normalised profit
for the period/year 86 977 84 901 169 948 2
Normalised
effective tax rate 12% 19% 14%
Normalised earnings
per share - cents 147,8 157,8 315,3 (6)
Diluted normalised
earnings per share
- cents 143,6 156,2 307,5 (8)
Weighted average no
of shares - 000`s 58 864 53 787 53 903
Diluted weighted
average no of
shares - 000`s 60 566 54 351 55 272
Comments
Overview
Trading results for the six-month interim period ended
31 August 2010 continue to reflect a relatively sluggish trading environment.
In this regard, normalised earnings for the period of 147,8 cents per share
(2009: 157,8 cents per share) were some 6% down on normalised earnings per
share for the same period last year.
The white collar flexible staffing and permanent recruitment businesses
showed a healthy recovery, albeit off a relatively low base, whilst the
business process outsourcing operations continued to show solid growth.
Reported profits from the blue collar flexible staffing businesses were
slightly down compared to the prior year comparative period which was largely
in line with expectations.
The nursing and recruitment advertising businesses had a particularly
difficult trading period. As a result, this has necessitated certain cost
cutting and restructuring initiatives with regard to these businesses which
should see an improvement in the second half of the financial year.
The cash performance of the Group during the period under review was
outstanding with cash generated by operations for the period topping R225,2
million (2009: R114,8 million) resulting in a cash conversion ratio of cash
generated by operations to normalised operating profit of 199% (2009: 90%).
Debtors` days outstanding were significantly reduced from the February 2010
year-end level of 38 days to the interim level of 33 days. Due to this
stellar cash performance coupled with the February 2010 capital raising
exercise and a better than expected uptake of August 2010`s scrip
distribution, the Group has de-geared dramatically from a gearing high of 47%
at 31 August 2009 to the current interim gearing level of 10%. With a
significantly strengthened balance sheet, the Group is well positioned for
the future.
During the period under review, the Group acquired Gold Fields External
Training Services (GFETS) (Pty) Limited for an amount of R5 million. GFETS
has a specific focus in the area of artisan and mining related training.
Although a relatively small acquisition in financial terms, it is significant
in strategic terms given the Group`s focus on bolstering its training
capabilities.
The ongoing public debate concerning the future of labour broking remains
unresolved. Whilst the Parliamentary Portfolio Committee on Labour announced
earlier in the year that there would be no ban on the practice of labour
broking but rather, certain additional laws would be introduced to regulate
the industry, still no draft legislation has been tabled after undertakings
from the Department of Labour to do so over a year ago. This has had the
intolerable effect of relegating the entire staffing industry to a state of
limbo for an unacceptably prolonged period with little indication as to the
precise nature of these proposed regulations and when we can expect them.
Undoubtedly, the confusion created by this situation has had a negative
effect on flexible staffing volumes.
Financial overview
Normalised EBITDA of R131,3 million for the six months ended 31 August 2010
is 10% below the R146,2 million for the comparative prior period.
The Group`s normalised EBITDA margin was 5,1% as opposed to the 6,1% in the
prior comparative period but in line with the EBITDA margin achieved in the
second half of the previous financial year. Margins were negatively affected
by continued pricing pressure in both the white collar flexible staffing
operations as well in the typically lower margin blue collar businesses.
The Group`s overall normalised effective tax rate has been significantly
reduced to 12% (2009: 19%) due to the tax benefits received arising from the
facilitation of registered learnerships in compliance with the Skills
Development Act as well a significantly lower charge of secondary tax on
companies ("STC") due to the recent scrip distribution.
As reported above, with effect from 1 July 2010, the Group acquired Gold
Fields External Training Services (GFETS) (Pty) Limited for an amount of R5
million, which was funded out of the group`s cash resources. In terms of IAS
34 requirements, the profit from GFETS included in Group profits for the
interim period ended August 2010 is R0,9 million. Since the purchase price
exceeded the net asset value as at the effective date, the excess purchase
consideration has been allocated to goodwill. Had the effective date of
inclusion been 1 March 2010, a profit of R2,7 million would have been
included in Group profits.
Capital structure
Following the scrip distribution referred to and as a result of excellent
working capital management, the Group`s gearing has significantly reduced to
10% being lower than the Group`s long-term gearing objective of 30%. The
Group is extremely well capitalised for the future.
Furthermore, during the period under review, the Group has agreed with its
bankers regarding the terms and conditions for the extension of the
preference share agreement for a further three years.
Outlook
Employment trends have tended to lag the slow recovery in the South African
economy. There are, however, some encouraging signs that employment is
starting to pick up, albeit in a relatively modest fashion.
Strategically, the Group is focused on managing its costs, driving economies
of scale, delivering value for its clients and increasing the level of
sophistication and technological advancement it applies in its day to day
operations. In addition, the Group has a strong and robust balance sheet.
As such, the Group is well positioned to take advantage of a future upswing
in employment trends.
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 period annual financial
statements and deal with new disclosure requirements by IFRS, specifically
IAS 1 (Presentation of Financial Statements) and IFRS 8 (Operating Segments).
This report is prepared in accordance with IAS 34 (Interim Financial
Reporting).
Contingent liabilities and commitments
The bank has guaranteed R11,6 million (2009: R8 million) on behalf of the
Group to creditors. As at the balance sheet date, the Group has outstanding
operating lease commitments totalling R46,2 million (2009: R48 million in non
cancellable property leases.
Subsequent events
No subsequent events have come to the attention of the directors.
Changes to the Board of Adcorp
During the period under review, Mr Mfundiso Johnson Ntabankulu ("JJ") Njeke
assumed the role of Chairman of the Board with effect 1 July 2010.
Additionally Ms Gugulethu Patricia ("Gugu") Dingaan was appointed as a non-
executive director on 16 August 2010 and Ms Louisa Mojela, formerly a non-
executive director, assumed the role of alternate director as of same date.
Declaration of interim dividend
Notice is hereby given that an interim dividend of 54 cents per share (2009:
50 cents per share) was declared on 13 October 2010 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 in order to be eligible
for the dividend (CUM dividend) Friday, 5 November 2010
Shares trade EX the dividend Monday, 8 November 2010
Record date Friday, 12 November 2010
Payment date Monday, 15 November 2010
Ordinary share certificates may not be dematerialised or rematerialised
between Monday, 8 November 2010 and Friday, 12 November 2010, both days
inclusive.
All times provided in this announcement are South African local times. The
above dates and times are subject to change. Any changes will be released on
SENS and published in the South African press.
Where applicable, dividends in respect of certificated shares will be
transferred electronically to shareholders` bank accounts on the payment
date. In the absence of specific mandates, dividend cheques will be posted to
shareholders. Ordinary shareholders who hold dematerialised shares will have
their accounts at their CSDP or broker credited/updated on Monday, 15
November 2010.
By order of the board
JJ Njeke RL Pike AM Sher
Chairman Chief Executive Chief Financial
Officer Officer
13 October 2010
Executive directors C Bomela, RL Pike, AM Sher,
PC Swart
Independent non-executive JJ Njeke, A Alback, M Mthunzi,
directors TDA Ross
Non-executive directors G Dingaan, MR Ramaite, T Ramano
Alternate director LM Mojela
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
Consistently rated one of South Africa`s Top Empowered Companies
Date: 13/10/2010 14:18:06 Produced by the JSE SENS Department.
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