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KEL
KEL
KEL - Kelly Group - Unaudited interim results for the six months ended 31 March
2011
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 2011
* Progress made in transformation strategy, cost control and technology
advancements
* Revenue from group operations increased by 4% to R1.02 billion
* HEPS 13.5 cents (1H10 16.0 cents)
* R30 million additional funding secured through existing securitisation
facility
* Debtors well managed at 31 days
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited Unaudited Audited
6 months 6 months 12 months
31 March 31 March 30 Sept
2011 2010 % 2010
Note R000 R000 change R000
Revenue 1 1 023 517 983 001 4 2 049 956
Cost of sales (793 296) (759 990) (1 584 503)
Gross profit 230 221 223 011 3 465 453
Operating expenses (201 794) (192 684) (413 622)
Earnings before
interest, tax,
depreciation and
amortisation
(EBITDA) 28 427 30 327 (6) 51 831
Depreciation and
amortisation (10 273) (8 353) (19 672)
Operating profit 18 154 21 974 (17) 32 159
Impairment of loan
to joint venture - - (5 945)
Share of (loss)/
profit from
joint ventures 2 (371) 796 1 583
Profit before
financing costs 17 783 22 770 (22) 27 797
Finance costs (10 442) (9 433) (24 263)
Finance income 3 359 2 511 9 573
Profit before
taxation 10 700 15 848 (32) 13 107
Taxation 3 1 064 (1 644) 13 202
Profit for the
period 11 764 14 204 (17) 26 309
- Attributable to
equity holders in
parent 12 486 14 742 26 078
- Attributable to
non-controlling
interests (722) (538) 231
Other comprehensive
loss (553) (46) (2 090)
Total comprehensive
income for the period 11 211 14 158 (21) 24 219
- Attributable to
equity holders in
parent 11 933 14 696 23 988
- Attributable to
non-controlling
interests (722) (538) 231
Basic
- Earnings per
share (cents) 13.5 16.0 (16) 28.4
- Headline
earnings per
share (cents) 13.5 16.0 (16) 28.4
Fully diluted
- Earnings per
share (cents) 13.5 15.9 (16) 28.2
- Headline
earnings per
share (cents) 13.5 15.9 (16) 28.2
NOTES
1. Revenue
Placement fees 34 889 42 205 (17) 85 094
Temporary staffing 914 725 873 205 5 1 822 505
Skills training 44 629 38 468 16 81 360
Other revenue 29 274 29 123 1 60 997
1 023 517 983 001 2 049 956
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. As such, the comparative figures for the
six months ended 31 March 2010, have been restated on this basis.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited Unaudited Audited
6 months 6 months 12 months
31 March 31 March 30 Sept
2011 2010 2010
Note R000 R000 R000
Cash generated by
operations before
working capital changes 28 973 31 183 53 287
(Increase)/decrease
in working capital (28 040) (21 192) 8 134
Cash generated by operations 933 9 991 61 421
Net financing costs (7 083) (6 922) (14 690)
Net dividends paid - (20 227) (20 227)
Taxation paid (9 619) (5 699) (7 527)
Cash flows from operating
activities (15 769) (22 857) 18 977
Cash flows from investing
activities (10 058) (12 466) (30 341)
Cash flows from financing
activities 4, 5 53 720 (1 461) (43 510)
Net increase/(decrease)
in cash and cash
equivalents 27 893 (36 784) (54 874)
Cash held by former
subsidiaries now under
joint control - 4 305 4 305
Foreign translation
difference on offshore cash (407) (152) (1 743)
Net cash and cash
equivalents at the
beginning of the period 85 488 137 800 137 800
Net cash and cash
equivalents at the
end of the period 112 974 105 169 85 488
RECONCILIATION OF SHARES ISSUED
Unaudited Unaudited Audited
6 months 6 months 12 months
31 March 31 March 30 Sept
2011 2010 2010
000 000 000
Number of shares in issue 100 000 100 000 100 000
Treasury shares (1 576) (8 076) (8 076)
Closing balance 98 424 91 924 91 924
Weighted average number of
shares before treasury 100 000 100 000 100 000
Weighted average treasury
shares (7 310) (8 097) (8 085)
Weighted average number of
shares after treasury shares 92 690 91 903 91 915
Dilutive effects of equity-
settled share reserve 12 668 520
Fully diluted weighted
average number of shares
after treasury shares 92 702 92 571 92 435
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unaudited Unaudited Audited
6 months 6 months 12 months
31 March 31 March 30 Sept
2011 2010 2010
Note R000 R000 R000
ASSETS
Non-current assets 260 115 229 616 255 259
Property and equipment 15 579 20 498 18 317
Goodwill 57 334 57 254 57 334
Trademarks 95 175 95 175 95 175
Other intangible assets 56 895 43 973 51 935
Investment in joint
ventures 2 212 2 296 3 082
Deferred taxation 3 34 920 10 420 29 416
Current Assets 414 856 374 988 369 940
Inventories 2 108 987 2 391
Other financial assets 22 547 1 028 19 040
Trade and other receivables 249 580 256 314 252 622
Taxation 11 548 9 409 6 688
Cash and cash equivalents 129 073 107 250 89 199
TOTAL ASSETS 674 971 604 604 625 199
EQUITY AND LIABILITIES
Capital and reserves 276 058 228 467 238 946
Share capital and share
premium 4 305 709 280 970 280 970
Equity due to change in
control of interest (18 038) (18 038) (18 038)
Share-based payment reserve 3 645 2 065 2 483
Foreign currency translation
reserve 9 986 12 583 10 539
Accumulated loss (25 399) (49 221) (37 885)
Attributable to equity
holders in parent 275 903 228 359 238 069
Non-controlling interests 2 155 108 877
Non-current liabilities 152 247 5 108 122 146
Interest bearing borrowings 5 149 577 304 119 467
Deferred taxation 2 670 4 804 2 679
Current liabilities 246 666 371 029 264 107
Interest bearing borrowings 5 1 849 164 191 2 979
Other financial liabilities - - 158
Trade and other payables 141 508 140 214 153 089
Accruals for staff benefits 82 508 60 692 99 161
Taxation 4 702 3 851 5 009
Bank overdraft 16 099 2 081 3 711
TOTAL EQUITY AND
LIABILITIES 674 971 604 604 625 199
NOTES
3. Taxation
The taxation charge in the income statement reflects a credit of R1.1 million
for the six months ended 31 March 2011. The credit has arisen from substantial
learnership allowances accessed by the group through its skills development
initiatives. The allowances are forecast to exceed taxable income over the 2011
year, and have contributed to deferred tax assets that will be utilised in
future periods.
4. Share capital and share premium
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 has resulted in a higher number of shares used in the
calculation of earnings and headline earnings per share, but has had no material
dilutory effect on earnings per share for the period under review.
5. Interest bearing borrowings
Promissory notes issued 150 430 162 650 120 353
Finance leases 996 1 845 2 093
151 426 164 495 122 446
R30 million additional promissory notes were issued to Investec on 31 March
2011.
These bear interest at a fixed rate of 10.02%, and bring the total borrowing to
R150 million.
The entire amount is repayable on 30 April 2013, is secured by a cession of
South African trade receivables amounting to R197 million, and bears interest at
a blended fixed funding rate (inclusive of structuring fees) of 11.1%.
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
continues to oppose the matter, and has made provision for the estimated
exposure.
RECONCILIATION OF HEADLINE EARNINGS
Unaudited Unaudited Audited
6 months 6 months 12 months
31 March 31 March 30 Sept
2011 2010 2010
R000 R000 R000
Attributable profit for the
period 12 486 14 742 26 078
(Profit)/loss on disposed
property and equipment (net
of tax) (5) 7 7
Headline earnings 12 481 14 749 26 085
STATEMENT OF CONSOLIDATED CHANGES IN EQUITY
Share Equity
Capital Foreign due to
and currency change in
share translation control of
premium reserve interest
Note R000 R000 R000
Balance 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 - (46) -
Dividends paid - - -
Balance at
31 March 2010 280 970 12 583 (18 038)
Share-based payment
reserve - - -
Total comprehensive
income for the period - (2 044) -
Balance at
30 September 2010 280 970 10 539 (18 038)
Share-based payment
reserve - - -
Sale of treasury shares 24 739 - -
Total comprehensive
income for the period - (553) -
Balance at
31 March 2011 305 709 9 986 (18 038)
STATEMENT OF CONSOLIDATED CHANGES IN EQUITY (continued)
Share-
based Accu-
payment mulated
reserve loss Subtotal
Note R000 R000 R000
Balance at
1 October 2009 1 221 (44 204) 232 456
Reversal of non-
controlling interests - - -
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 at
31 March 2010 2 065 (49 221) 228 359
Share-based payment
reserve 418 - 418
Total comprehensive
income for the period - 11 336 9 292
Balance at
30 September 2010 2 483 (37 885) 238 069
Share-based payment
reserve 1 162 - 1 162
Sale of treasury shares - - 24 739
Total comprehensive
income for the period - 12 486 11 933
Balance at
31 March 2011 3 645 (25 399) 275 903
STATEMENT OF CONSOLIDATED CHANGES IN EQUITY (continued)
Non-
controlling
interests Total
R000 R000
Balance at 1 October 2009 2 890 235 346
Reversal of non-controlling interests (1 776) (1 776)
Share-based payment reserve - 844
Sale of treasury shares - 122
Total comprehensive income for the period (538) 14 158
Dividends paid (468) (20 227)
Balance at 31 March 2010 108 228 467
Share-based payment reserve - 418
Total comprehensive income for the period 769 10 061
Balance at 30 September 2010 877 238 946
Share-based payment reserve - 1 162
Sale of treasury Shares - 24 739
Total comprehensive income for the period (722) 11 211
Balance at 31 March 2011 155 276 058
CONDENSED CONSOLIDATED SEGMENTAL ANALYSIS
Revenue Operating profit
6 months 6 months
at 31 March at 31 March
2011 2010 2011 2010
R000 R000 R000 R000
Staffing, skills and
value added services 773 257 783 032 22 585 33 769
USA 250 260 199 969 5 304 438
Central costs - - (9 735) (12 233)
Total 1 023 517 983 001 18 154 21 974
CONDENSED CONSOLIDATED SEGMENTAL ANALYSIS (continued)
Total Total
assets liabilities
at 31 March at 31 March
2011 2010 2011 2010
R000 R000 R000 R000
Staffing, skills and value
added services 353 009 274 477 144 635 138 128
USA 85 132 64 263 51 866 31 754
Central costs 236 830 265 864 202 412 206 255
Total 674 971 604 604 398 913 376 137
COMMENTS
Performance overview
Our results for the second quarter mirrored the experience of the first quarter
with more of our businesses performing well, and meeting or exceeding
expectations, while some continue to fall short of the mark. Overall the group
exceeded prior year revenue by 4%. Prudent provisioning, for what we believe to
be the full exposure of the class action lawsuit in the USA, adversely impacted
the bottom line and resulted in EBITDA being down 6%.
The group`s South African operations` combined revenue of R773 million was 1%
down on the comparative period despite revenue growth of 18% from its skills
training business Torque IT.
The prevailing economic climate combined with the uncertainty brought about by
the ongoing debate around proposed changes to labour legislation continued to
take its toll on the recruitment sector with the SA staffing operations
contracting by 2%. Revenue derived from permanent placements and conversions
reduced by 17% and 19% respectively while annuity revenue derived from
outsourced business declined by 4% as a result of a 3% reduction in the group`s
managed headcount and some gross margin pressure.
Kelly Industrial continued to perform well in what remains the least affected
sector of the economy, blue-collar recruitment, with both revenue and EBITDA
increasing by 11%. InnStaff also managed to gain market share in the
hospitality sector and increased its annuity revenue by 10% on the back of
managed headcount growth of 4%.
K-log, the group`s people resource planning (PRP) service, almost doubled its
revenue when compared to 2010 and is now the second largest value added service
revenue contributor. EBITDA breakeven has been achieved within 24 months of
launching this business and the application is used to manage 17 000 heads, a
34% increase since 1 October 2010.
In the US, the group`s operations increased revenue in US Dollar terms by 35%
following strong growth as the US economy recovers and unemployment eases.
However, an appreciation of the Rand against the Dollar of 8% during this period
offset some of this growth.
Overall, operating expenditure increased by 5% whilst net financing costs
increased by 2% for the first half of the reporting period.
On 31 March 2011 the group concluded a second tranche of funding using its
securitisation structure. The group raised R30 million of funds at fixed rates
50bps below the initial R120 million tranche funding rates. This tranche will
be repayable with the initial tranche on 30 April 2013. Post the finalisation
of this transaction the group`s debt to equity ratio increased from 51% to 54%.
The quality of the debtors book and strong cash collection resulted in the group
ending the half-year 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 31 DSO.
Dividend
In line with the group`s policy no dividend has been declared for the interim
period.
Directors
We welcomed Mike Ilsley as a new non-executive director on 13 October 2010 while
Rolf Hartmann resigned on 22 November 2010.
Succession
During the past financial year, the board of the Kelly Group initiated a process
to find a successor for the CEO, Grenville Wilson. Following the successful
conclusion of this process, Gareth Tindall has been appointed the new CEO with
effect from 1 July 2011.
Gareth was previously an executive director of Dimension Data SA, CEO of Hertz
SA and the commissioner of the Southern African PGA Tour. The board welcomes
the opportunity to have an executive with the ability, experience and background
of Gareth to lead the Kelly Group. We look forward to working with Gareth
during the next stage of development of our group.
Grenville resigns as a director and CEO effective 30 June 2011 but will continue
as an employee until the end of the company`s current financial year on 30
September 2011 to facilitate a smooth handover. Grenville successfully led the
group for a period of six years. In particular, the board wishes to thank
Grenville for restoring the company to profitability prior to listing and the
strategic transformation since listing.
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 2, the unaudited interim results for the six months ended 31
March 2010 have been restated, due to the joint ventures now being accounted for
in terms of IAS 28 Investment in Associates.
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 2011 as were applied in the preparation of the group`s
annual financial statements for the year ended 30 September 2010.
Prospects
Although the board expects trading conditions to remain depressed during the
second half of the financial year, the business should benefit from an
aggressive focus on costs, and the ongoing investment in productivity enhancing
technology.
For and on behalf of the board
MM Ngoasheng GJ Wilson
Chairman Chief executive
16 May 2011
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: 16/05/2011 09:00:03 Produced by the JSE SENS Department.
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