| Wed 23 Feb 2011, 11:45 | | KEL - Kelly Group - Chief Executive`s Newsletter |
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KEL
KEL
KEL - Kelly Group - 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" or "the group")
CHIEF EXECUTIVE`S NEWSLETTER
Despite continued difficult trading conditions, the first quarter saw top and
bottom line growth across most of the Kelly Group`s revenue generating streams
and geographic locations, pointing towards a better performing business in what
is traditionally the toughest quarter of the year.
Financial overview
We closed the first quarter of the year with revenue of R527.4 million, up 6% on
the same quarter last year and continued to focus on cost curtailment and
efficiency drives throughout the group.
The South African staffing businesses posted combined revenue of R371.2 million,
representing a decline of 0.6% when compared to Q1`10`s R373.5 million.
This result was achieved in an environment where revenue from permanent
placements was down 10% compared to the same quarter last year. Fortunately,
the pace of contraction from this business area continues to slow when compared
to Q1`10`s 40.5%, Q2`10`s 30.4% and Q3`10`s 27.4% reduction in permanent
revenue. However, key indicators continue to return erratic datapoints and we
do not expect a dramatic turnaround in this sector in the near future.
Temp to perm conversions also remained unpredictable and largely dependent on
individual customer staffing strategies. Revenue from this source was down
26.7% compared to the same quarter last year but, while disappointing in
absolute terms, it also meant that our annuity revenue base was not eroded as
dramatically as in previous quarters.
Annuity revenue generated from outsourced business was R349.6 million compared
to R348.1 million in Q1`10 off the back of an average managed headcount of
around 22 000. Unfortunately outsourced margins remained under pressure as a
result of clients implementing their own cost cutting drives.
Torque IT produced a robust set of results given the current market conditions
and posted a revenue growth of 19.3% compared to the same quarter last year.
The group`s US-based operations continued to outperform expectations and
recorded revenue growth of 43% in US Dollar terms, which translated into a 32.5%
revenue growth in Rand terms with the Rand/Dollar exchange rate appreciating by
almost 9% over the same period. We are pleased to report that this operation
posted the highest profit in any given month since the onset of the recession in
the US during this quarter.
Labour-broking debate
The debate over job creation, decent work and labour-broking started afresh in
December last year when the Minister of Labour published four draft amendment
bills for public comment. They are amendments to the Labour Relations Act, the
Basic Conditions of Employment Act, the Employment Equity Act and the Employment
Services Bill.
The proposed bills are problematic in a number of respects. In their current
form, they are inconsistent, contradictory and confusing. Among other things,
the bills propose that temporary positions should be declared permanent; they
also propose equal pay for equal work between temporary and permanent staff and
categorically ignore the ILO notion of equal pay for work of equal value; and
the triangular employment relationship is repealed.
Contrary to popular opinion, these proposed changes to the labour laws will not
only affect the temporary employment services industry but will also have far-
reaching implications for all businesses in that the changes seek to address all
forms of a-typical employment. If passed in their current form, the bills will
severely impact on business`s flexibility and ability to compete in local and
international markets and will affect the livelihood of hundreds of thousand of
temporary and contract workers.
Government conceded as much at the National Economic Development and Labour
Council (NEDLAC) negotiations in January 2010 and agreed that the bills are
problematic in their current form. It now intends publishing a final draft of
these bills, based on the NEDLAC negotiations and hopes to present them to
parliament by November 2011. Speaking at the council, Business Unity South
Africa (BUSA) made it clear that any future proposed labour law will need to
take into account that a flexible workforce is a growing worldwide phenomenon.
A realistic outcome to the labour law amendments will more than likely be
greater regulation of the temporary employment industry, a position which the
Kelly Group through the Confederation of Associations in the Private Employment
Services (CAPES) has always endorsed. This development bodes well for business
and temporary workers and our confidence that these problematic bills will be
scrapped in favour of more pragmatic ones has been greatly increased.
The group has started a series of client roadshows, the first of which happened
in Johannesburg on 18 February, intended to keep our clients informed of
developments as the labour law process unfolds.
Corporate actions
On 16 February 2011, the Kelly Group disposed of 6.5 million surplus shares from
its Share Appreciation Rights Scheme Trust and invested the proceeds in the
Group`s operations. These shares were previously treated as treasury shares and
the disposal thereof will result in a higher number of shares used in the
calculation of earnings and headline earnings per share but have no material
dilutory effect.
EPS Cents As reported Full dilutory effect
BASIC
Atributable 28.4 28.3
Headline 28.4 28.4
DILUTED
Attributable 28.2 28.2
Headline 28.2 28.2
Prospects
The economy has now recorded five quarters of consecutive growth without any
real improvement in employment levels. Clients continue to seek innovative ways
to improve efficiency and to grow the top and bottom line without increasing
overheads. The investment of the group in new enabling technologies, such as
the people resource planning system K-log, continues to build traction and gain
market acceptance and should become a major revenue source and opportunity
generator for the group.
In addition, we are buoyed by the Government`s intention to create five million
jobs over an extended period of time as well as President Zuma`s pledge in his
State of the Nation Address that 2011 will be the year of job creation. We look
forward to the Finance Minister`s Budget Speech, scheduled for today, to see how
this goal will be further expanded on and how the Kelly Group, with over 40
years` experience of managing large and diverse workforces, can benefit.
Interim results announcement
Our results for the six months ending 30 March will be published in May. 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 and media
relations office at kellygroup@dpapr.com for an invitation.
Yours sincerely
Grenville Wilson
Chief executive
Sandton
23 February 2011
Merchant bank and sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
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