| Tue 23 Nov 2010, 12:15 | | KEL - Kelly Group Limited - Provisional audited results for the year ended 30 |
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KEL
KEL
KEL - Kelly Group Limited - Provisional audited results for the year ended 30
September 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")
PROVISIONAL AUDITED RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2010
* Revenue from group operations increased by 2% to R2.05bn
* EBITDA - R51.8 million after R24.9 million of non-recurring expenses
* HEPS decreased 54% from 61.7 to 28.4 cents
* No dividend proposed
* Debtors` days at 30 days
* Group remains profitable and operations cash generative
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
2010 2009 %
Note R000 R000 change
Revenue 1 2 049 956 2 256 968 (9)
* Group operations 2 049 956 2 005 721 2
* Former subsidiaries
now under joint
control 2 - 251 247 (100)
Cost of sales (1 584 503) (1 766 946)
Gross profit 465 453 490 022 (5)
Operating expenses (413 622) (375 384)
Earnings before interest,
taxation, depreciation and
amortisation (EBITDA) 51 831 114 638 (55)
Depreciation and
amortisation 3 (19 672) (16 044)
Operating profit 32 159 98 594 (67)
Impairment of loan
to joint venture (5 945) -
Share of profit
from joint ventures 2 1 583 -
Profit before
financing costs 27 797 98 594 (72)
Finance costs (24 263) (22 983)
Finance income 9 573 7 166
Profit before taxation 13 107 82 777 (84)
Taxation 4 13 202 (24 013)
Profit for the period 26 309 58 764 (55)
* Attributable to equity
holders in parent 26 078 56 257
Attributable to non-
controlling interests 231 2 507
Other comprehensive
income (2 090) (2 701)
Total comprehensive
income for the period 24 219 56 063 (57)
* Attributable to equity
holders in parent 23 988 53 556
* Attributable to non-
controlling interests 231 2 507
Attributable to equity
holders in parent:
Basic
* Earnings per
share (cents) 28.4 61.3 (54)
Headline earnings
per share (cents) 28.4 61.7 (54)
Fully diluted
* Earnings per
share (cents) 28.2 61.3 (54)
* Headline earnings per share (cents) 28.2 61.7
(54)
Dividend per share
* proposed for following
year (cents) 00.0 21.5
NOTE
1 Revenue
Placement fees 85 094 115 234 (26)
* Group operations 85 094 114 566 (26)
* Former subsidiaries now
under joint control 668 (100)
Temporary staffing 1 822 505 2 034 138 (10)
* Group operations 1 822 505 1 783 560 2
* Former subsidiaries now
under joint control 250 578 (100)
Skills training 81 360 76 677 6
Other revenue 60 997 30 919 97
2 049 956 2 256 968
2 Accounting for joint ventures
The basis for operating the three joint ventures changed during the course of
2010. The change in circumstance resulted in the joint ventures, previously
consolidated, to be accounted for using the equity method prospectively in terms
of IAS 28, Investment in Associates.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
2010 2009
R000 R000
Cash generated by operations before
working capital changes 53 287 117 232
Decrease/(increase) in working capital 8 134 (11 766)
Cash generated by operations 61 421 105 466
Net financing costs (14 690) (15 817)
Net dividends paid (20 227) (35 355)
Taxation paid (7 527) (16 714)
Cash flows from operating activities 18 977 37 580
Cash flows from investing activities (30 341) (48 878)
Cash flows from financing activities (43 510) (679)
Net decrease in cash and cash
equivalents (54 874) (11 977)
Cash held by former subsidiaries now
under joint control 4 305 -
Foreign translation difference on
offshore cash (1 743) (3 220)
Net cash and cash equivalents at the
beginning of the period 137 800 152 997
Net cash and cash equivalents at the
end of the period 85 488 137 800
Reconciliation of shares issued
2010 2009
000 000
Number of shares in issue 100 000 100 000
Treasury shares (8 076) (8 099)
Closing balance 91 924 91 901
Weighted average number of shares
before treasury shares 100 000 100 000
Weighted average treasury shares (8 085) (8 185)
Weighted average number of shares
after treasury shares 91 915 91 815
Dilutive effects of equity-settled
share reserve 520 16
Fully diluted weighted average number
of shares after treasury shares 92 435 91 831
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
2010 2009
Note R000 R000
ASSETS
Non-current assets 255 259 222 437
Property and equipment 18 317 22 022
Goodwill 57 334 57 254
Trademarks 95 175 95 175
Other intangible assets 51 935 38 286
Investment in joint ventures 2 3 082 -
Deferred taxation 4 29 416 9 700
Current assets 369 940 391 747
Inventories 2 391 978
Other financial assets 19 040 -
Trade and other receivables 252 622 245 673
Taxation 6 688 7 296
Cash and cash equivalents 89 199 137 800
TOTAL ASSETS 625 199 614 184
EQUITY AND LIABILITIES
Capital and reserves 238 946 235 346
Share capital and share premium 280 970 280 848
Equity due to change in control of
interest (18 038) (18 038)
Share-based payment reserve 2 483 1 221
Foreign currency translation reserve 10 539 12 629
Accumulated loss (37 885) (44 204)
Attributable to equity holders in
parent 238 069 232 456
Non-controlling interests 877 2 890
Non-current liabilities 122 146 6 422
Interest bearing borrowings 5 119 467 1 479
Deferred taxation 2 679 4 943
Current liabilities 264 107 372 416
Interest bearing borrowings 5 2 979 164 477
Other financial liabilities 158 -
Trade and other payables 153 089 129 960
Accruals for staff benefits 99 161 74 519
Taxation 5 009 3 460
Bank overdraft 3 711 -
TOTAL EQUITY AND LIABILITIES 625 199 614 184
NOTE
3 Depreciation and amortisation
The annual assessment of the residual value and useful life of all purchased and
in-house developed software resulted in an additional depreciation charge of
R2.9 million during the current year.
4 Taxation
The taxation charge in the income statement reflects a credit of R13.2 million
for the current year. This credit arose off the back of substantial learnership
allowances accessed by the group through its skills development initiatives.
The allowances exceed the taxable income and contributed to deferred tax assets
to the value of R29.4 million that will be utilised in future periods.
5 Interest bearing borrowings
Promissory notes issued 120 353 162 787
Finance leases 2 093 3 169
122 446 165 956
Promissory notes were repaid on 30 April 2010 and replaced with R120 million of
new long-term funding. The new notes mature on 30 April 2013 and bear interest
at a fixed rate of 10.27%.
6 Legal matter
As previously advised, the group`s US subsidiary, M Squared Consulting Inc, is
defending a class action law suit brought by a group of former employees
relating to alleged liability for certain employee benefits. The subsidiary is
opposing the matter. Provision has been made for an amount equivalent to the
estimated costs to defend this matter.
RECONCILIATION OF HEADLINE EARNINGS
2010 2009
R000 R000
Attributable profit for the period 26 078 56 257
Loss on disposed property and
equipment (net of tax) 7 406
Headline earnings 26 085 56 663
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Equity
due
to
Foreign change
Share currency in
capital trans- control
and share lation of
premium reserve interest
Note R000 R000 R000
Balance as at 1 October 2008 269 091 15 330 (18 038)
Acquisition of Torque IT
using treasury shares 11 264 - -
Share-based payment reserve - - -
Sale of treasury shares 493 - -
Total comprehensive income
for the period - (2 701) -
Dividends paid - - -
Balance as at 1 October 2009 280 848 12 629 (18 038)
Reversal of non-controlling
interests 2 - - -
Share-based payment reserve - - -
Sale of treasury shares 122 - -
Total comprehensive income
for the period - (2 090) -
Dividends paid - - -
Balance as at
30 September 2010 280 970 10 539 (18 038)
Consolidated statement of changes in equity (continued)
Share-based
payment Accumulated
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
Share-based payment reserve 1 221 - 1 221
Sale of treasury shares - - 493
Total comprehensive income
for the period - 56 257 53 556
Dividends paid - (33 055) (33 055)
Balance as at 1 October 2009 1 221 (44 204) 232 456
Reversal of non-controlling
interests - - -
Share-based payment reserve 1 262 - 1 262
Sale of treasury shares - - 122
Total comprehensive income
for the period - 26 078 23 988
Dividends paid - (19 759) (19 759)
Balance as at
30 September 2010 2 483 (37 885) 238 069
Consolidated statement of 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
Share-based payment reserve - 1 221
Sale of treasury shares - 493
Total comprehensive income for the
period 2 507 56 063
Dividends paid (2 300) (35 355)
Balance as at 1 October 2009 2 890 235 346
Reversal of non-controlling interests (1 776) (1 776)
Share-based payment reserve - 1 262
Sale of treasury shares - 122
Total comprehensive income for the
period 231 24 219
Dividends paid (468) (20 227)
Balance as at 30 September 2010 877 238 946
CONSOLIDATED SEGMENTAL ANALYSIS
Operating
Revenue profit
2010 2009 2010 2009
R000 R000 R000 R000
Staffing, Skills
Development and
Value Added
Services 1 581 979 1 808 070 63 679 113 796
USA 467 977 448 898 1 210 8 479
Central costs - - (32 730) (23 681)
Total 2 049 956 2 256 968 32 159 98 594
Consolidated segmental analysis (continued)
Total Total
assets liabilities
2010 2009 2010 2009
R000 R000 R000 R000
Staffing, Skills
Development and
Value Added Services 343 759 237 537 157 263 140 744
USA 89 961 71 628 59 103 31 745
Central costs 191 479 305 019 169 887 206 349
Total 625 199 614 184 386 253 378 838
COMMENTS
Performance overview
A fragile local economy combined with a jobless recovery weighed on the group`s
ability to bounce back strongly in 2010. Operating profit of R32.2 million was
67% down on the prior year, while net profit after tax and EPS for the year also
declined by 55% and 54% respectively.
We are pleased to report 2% revenue growth, to R2 050 million, from operations
controlled by the group. Revenue from high-margin permanent placements remained
under pressure and was down 26% to R85.1 million as the formal economy continued
to shed jobs (158 000 in the period - Stats SA). Annuity revenue derived from
our outsourced business marginally increased by 2% at similar gross margins to
2009 while skills development reflected healthy growth of 6%. Rand appreciation
materially offset the 26% revenue growth in dollar terms recorded by our US
operations and resulted in a 4% increase in ZAR terms.
Contributing to the decline in the bottom line was operating expenditure that
increased by 10%. This higher than anticipated growth rate was precipitated by
additional expenditure incurred in the establishment and ongoing operation of
new business ventures (K-log and TalentOcean). In addition, R24.9 million of
non-recurring items also contributed to this increase. Excluding the effect of
the costs mentioned above, the organic business reflected a modest 4% growth in
operating expenditure.
Other items of a non-recurring nature (additional depreciation, impairment of
assets) which are separately disclosed in the notes to the financial statements
amounted to R8.9 million and also impacted the bottom line.
Business units that performed above expectations in 2010 include Torque IT,
Kelly Industrial as well as M Squared Consulting.
Torque IT managed to grow its revenue by 6% and net profit before tax by 136%
and exceeded expectations in an extremely tough market for skills development
companies. Other skills development initiatives within the group, more
specifically our learnership drive, benefitted the group directly as well as
indirectly. During the year the group managed to conclude 1 075 learnerships at
an exit rate of 82%, well above the industry average of 38%. This enabled the
group to access tax allowances in excess of R70 million while enhancing the
skill set of our associates/staff that in turn benefit customers and the group.
This initiative by Government creates a sustainable platform for job creation
and skills enhancement that is beneficial to all parties.
A refocus of Kelly Industrial during 2008, that included forced reductions in
headcount as well as leadership changes, is now bearing fruit as revenue grew by
4.0% and EBIT by 38.9% during the year.
Our USA operations remained profitable and generated operating profit of US$0.2
million in tough trading conditions. This result was achieved despite expenses
of US$1.7 million incurred in defending the ongoing class action lawsuit and
detracted from what is more than a satisfactory set of results. We continue on
a strong growth path and prospects are further buoyed by initiatives introduced
by the new leadership team to bolster revenue and margins, diversify the client
base and contain costs. Our partnership with Kelly Services Inc, still in its
infancy, has already proven to be beneficial and contributed to us securing two
lucrative contracts that span the continent.
We closely monitor business units that are returning less than satisfactory
results and have implemented the necessary corrective action.
We continue to drive our initiatives to diversify revenue streams through the
introduction of new Value Added Services such as K-log and TalentOcean and are
encouraged by the progress made during 2010 we remain acutely aware of the tough
environment in which we continue to operate. To this end we have implemented
austerity measures that include the delayed roll-out of some projects,
curtailing headcount growth and reductions in discretionary spend across the
entire group.
Dividend
No dividend declaration is proposed based on the decline in profitability and
the need to fund future growth.
Changes to directors
Executive
PM Mdwaba removed 24 August 2010
Non-Executive
J Gnodde resigned 22 February 2010
K Molewa resigned 23 February 2010
B Ngonyama appointed 23 February 2010
M Ilsley appointed 13 October 2010
RM Hartmann resigned 22 November 2010
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.
The group`s independent auditors have audited the group`s results and their
unqualified report is available for inspection at the company`s registered
office.
Accounting policies
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 items noted above, the same
accounting policies, presentation and measurement principles have been followed
in the preparation of the condensed financial information for the year ended 30
September 2010 as were applied in the preparation of the group`s annual
financial statements for the year ended 30 September 2009.
Prospects
Continued job losses in the formal sector locally and general high levels of
unemployment across most global economies all point to trading conditions that
will more likely than not remain depressed for the foreseeable future with
margins and volumes under continued pressure.
The group has addressed leadership challenges and other issues that were
distracting and time consuming in the past year. We look forward to a year
focussed on operations, cost containment and growth opportunities in what we
view to be a challenging market.
MM Ngoasheng GJ Wilson
Chairman Chief executive
23 November 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)
Auditors: Grant Thornton
Directors: MM Ngoasheng (chairman), MW McCulloch (deputy chairman), GJ Wilson
(chief executive), Y Dladla, M Ilsley, ME Monage, B Ngonyama, F Pieterse, CJ
Roodt and PJJ van der Walt.
Company secretary: KH Fihrer
Date: 23/11/2010 12:15:01 Produced by the JSE SENS Department.
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