| Wed 25 May 2011, 12:41 | | ADR - Adcorp Holdings Limited - Abridged group results for the year ended 28 |
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ADR
ADR
ADR - Adcorp Holdings Limited - Abridged group results for the year ended 28
February 2011
Adcorp Holdings Limited
("Adcorp" or "Adcorp Group" or "the Group")
Registration number 1974/001804/06
Share code: ADR ISIN number: ZAE000000139
Abridged group results
for the year ended 28 February 2011
Salient features
Revenue up by 7%
Normalised profit for the year up 3%
Headline earnings per share flat
Normalised earnings per share down 8%
Final dividend of 121 cents declared - total dividends up 6%
Cash generated by operations up 28%
Cash conversion ratio 129%
Debtors` days down from 38 days to 36 days
Gearing down from 31% to 12%
Normalised EBITDA margin down from 5.5% to 4.8%
Audited statement of financial position
as at 28 February 2011
Group Company
2011 2010 2011 2010
R`000 R`000 R`000 R`000
Assets
Non-current assets 791 091 801 608 653 863 653 938
Property, plant and
equipment 43 921 53 405 - -
Intangible assets 143 019 179 334 - -
Goodwill 554 398 554 290 - -
Investment in subsidiaries - - 653 069 653 069
Other financial assets - 910 794 869
Deferred taxation 49 753 13 669 - -
Current assets 1 135 582 870 188 757 170 568 171
Trade and other
receivables and
prepayments 740 207 717 047 780 391
Amounts due by subsidiary
companies - - 756 390 567 780
Assets classified as held-
for-sale - 845 - -
Taxation prepaid 14 153 14 703 - -
Cash resources 381 222 137 593 - -
Total assets 1 926 673 1 671 796 1 411 033 1 222 109
Equity and liabilities
Capital and reserves 1 013 311 907 943 862 928 605 502
Share capital 1 546 1 483 1 967 1 904
Share premium 498 696 497 968 498 696 497 968
Treasury shares (13 227) (13 293) - -
Non-distributable reserve - - 119 918 119 918
Foreign currency
translation reserve (2 001) (1 124) - -
Accumulated profit/(loss) 527 876 422 488 242 347 (14 288)
Equity attributable to
equity holders of the
parent 1 012 890 907 522 862 928 605 502
BEE shareholders` interest 421 421 - -
Non-current liabilities 215 097 212 502 60 000 59 912
Other non-current
liabilities 4 462 5 034 - -
Long-term loan - interest
bearing 60 000 59 912 60 000 59 912
Redeemable preference
shares - interest bearing 130 000 130 000 -
-
Obligations under finance
lease 249 2 597 - -
Deferred taxation 20 386 14 959 - -
Current liabilities 698 265 551 351 488 105 556 695
Non-interest-bearing
current liabilities 389 085 327 799 218 616 361 685
Trade and other payables 275 731 249 073 3 327 1 700
Amounts due to subsidiary
companies - - 214 886 359 675
Provisions 102 835 77 850 - -
Taxation 10 519 876 403 310
Interest-bearing current
liabilities 309 180 223 552 269 489 195 010
Current portion of other
non-current liabilities 6 061 2 124 - -
Current portion of long-
term loan 15 000 31 227 15 000 31 227
Current portion of
redeemable preference
shares 2 199 2 362 - -
Bank overdrafts 285 920 187 839 254 489 163 783
Total equity and
liabilities 1 926 673 1 671 796 1 411 033 1 222 109
Audited statement of comprehensive income
for the year ended 28 February 2011
Group Company
2011 2010 2011 2010
R`000 R`000 R`000 R`000
Revenue 5 384 566 5 050 358 - -
Cost of sales (4 264 774) (3 953 341) - -
Gross profit 1 119 792 1 097 017 - -
Other income 51 967 39 353 - -
Administration expenses (378 852) (346 123) (4 524) (2 357)
Marketing and selling
expenses (477 445) (451 326) - (138)
Other operating expenses (157 791) (172 390) - -
Operating profit/(loss) 157 671 166 531 (4 524) (2 495)
Interest received 3 182 12 859 40 058 35 741
Interest paid (31 855) (62 127) (32 (31 112)
093)
Dividends received from
subsidiaries - - 270 000 -
Impairment of investments
and goodwill (1 796) (984) - -
Loss on sale of investment - - - (1 185)
Loss on disposal of
property and equipment (194) (389) - -
Profit before taxation 127 008 115 890 273 441 949
Taxation (11 313) (11 574) (6 185) (13 138)
Profit/(loss) for the year 115 695 104 316 267 256 (12 189)
Other comprehensive income
Exchange differences on
translating foreign
operations (877) (752) - -
Fair value adjustment of
derivative financial
instrument - (1 064) - -
Taxation - 201 - -
Other comprehensive loss
for the year, net of tax (877) (1 615) - -
Total comprehensive
income/(loss) for the year 114 818 102 701 267 256 (12 189)
Profit/(loss) attributable
to:
Owners of the parent 115 695 104 316 267 256 (12 189)
Total comprehensive
income/(loss) attributable
to:
Owners of the parent 114 818 102 701 267 256 (12 189)
Earnings per share
Basic (cents) 192,5 193,5 - -
Diluted (cents) 188,1 188,7 - -
Distribution to
shareholders during the
year 169 210 - -
Interim dividend (cents) 54 50 - -
Final dividend (cents) in
respect of prior year 115 160 - -
Reconciliation of headline earnings
Group
2011 2010
R`000 R`000
Profit for the year 115 695 104 316
Profit on sale of property, plant and equipment 194 389
Taxation (54) (109)
Impairment of investments and goodwill 1 796 984
Headline Earnings 117 631 105 580
Weighted average number
of shares in issue 60 110 351 53 902 695
Reconciliation of diluted
Number of shares
Ordinary shares 60 110 351 53 902 695
Adcorp Employee Share Scheme 1 409 245 1 369 199
Diluted number of shares 61 519 596 55 271 894
Headline earnings per share-cents 195.7 195.9
Diluted headline earnings per share- cents 191.2 191.0
Audited statement of changes in equity
for the year ended 28 February 2011
Share Share Treasury
capital premium shares
R`000 R`000 R`000
Group
Balance as at 28 February 2009 1 355 384 594 (592)
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
Dividend distributions - - 90
Recognition of BBBEE and staff share- - - -
based payments
Profit for the year - - -
Other comprehensive income for the year - - -
Balance as at 28 February 2010 1 483 497 968 (13 293)
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 -
Treasury shares sold - - 66
Dividend distributions - - -
Recognition of BBBEE and staff share-
based payments - - -
Profit for the year - - -
Other comprehensive income for the year - - -
Balance as at 28 February 2011 1 546 498 696 (13 227)
Company
Balance as at 28 February 2009 1 776 384 594 -
Issue of ordinary shares under employee
share option plan 3 999 -
Issue of shares pursuant to a general
issue of shares for cash 125 112 375 -
Dividend distributions - - -
Recognition of BBBEE and staff share-
based payments - - -
Total comprehensive loss for the year - - -
Balance as at 28 February 2010 1 904 497 968 -
Issue of ordinary shares under employee
share option plan 788 -
3
Capitalisation of share premium - (65 172) -
Ordinary shares issued pursuant to scrip
distribution 60 65 112 -
Dividend distributions - - -
Recognition of BBBEE and staff share-
based payments - - -
Total comprehensive profit for the year - - -
Balance as at 28 February 2011 1 967 498 696 -
Foreign Non-
currency distrib- Accumu-
translation utable lated
reserve reserve profit
R`000 R`000 R`000
Group
Balance as at 28 February 2009 (372) - 418 496
Issue of ordinary shares under
employee share option plan - - -
Buy-back of ordinary shares - - -
Issue of shares pursuant to a
general issue of shares for cash - - -
Treasury shares sold - - -
Dividend distributions - - (118 469)
Recognition of BBBEE and staff share-
based payments - - 19 008
Profit for the year - - 104 316
Other comprehensive income for the
year (752) - (863)
Balance as at 28 February 2010 (1 124) - 422 488
Issue of ordinary shares under
employee share option plan - - -
Capitalisation of share premium - - -
Ordinary shares issued pursuant to
scrip distribution - - -
Treasury shares sold - - 9
Dividend distributions - - (42 216)
Recognition of BBBEE and staff share-
based payments - - 31 900
Profit for the year - - 115 695
Other comprehensive income for the
year (877) - -
Balance as at 28 February 2011 (2 001) - 527 876
Company
Balance as at 28 February 2009 - 119 918 98 493
Issue of ordinary shares under - - -
employee share option plan
Issue of shares pursuant to a - - -
general issue of shares for cash
Dividend distributions - - (119 600)
Recognition of BBBEE and staff share-
based payments - - 19 008
Total comprehensive loss for the
year - - (12 189)
Balance as at 28 February 2010 - 119 918 (14 288)
Issue of ordinary shares under
employee share option plan - - -
Capitalisation of share premium - - -
Ordinary shares issued pursuant to
scrip distribution - - -
Dividend distributions - - (42 521)
Recognition of BBBEE and staff share-
based payments - - 31 900
Total comprehensive profit for the
year - - 267 256
Balance as at 28 February 2011 - 119 918 242 347
Attributable
to equity BEE
holders share-
of the holders`
parent interest Total
R`000 R`000 R`000
Group
Balance as at 28 February 2009 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
Dividend distributions (118 379) - (118 379)
Recognition of BBBEE and staff share- 19 008 - 19 008
based payments
Profit for the year 104 316 - 104 316
Other comprehensive income for the
year (1 615) - (1 615)
Balance as at 28 February 2010 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
Treasury shares sold 75 - 75
Dividend distributions (42 216) - (42 216)
Recognition of BBBEE and staff share-
based payments 31 900 - 31 900
Profit for the year 115 695 - 115 695
Other comprehensive income for the
year (877) - (877)
Balance as at 28 February 2011 1 012 890 421 1 013 311
Company
Balance as at 28 February 2009 604 781 - 604 781
Issue of ordinary shares under
employee share option plan 1 002 - 1 002
Issue of shares pursuant to a
general issue of shares for cash 112 500 - 112 500
Dividend distributions (119 600) - (119 600)
Recognition of BBBEE and staff share-
based payments 19 008 - 19 008
Total comprehensive loss for the
year (12 189) - (12 189)
Balance as at 28 February 2010 605 502 - 605 502
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
Dividend distributions (42 521) - (42 521)
Recognition of BBBEE and staff share-
based payments 31 900 - 31 900
Total comprehensive profit for the
year 267 256 - 267 256
Balance as at 28 February 2011 862 928 - 862 928
Audited statement of cash flows
for the year ended 28 February 2011
Group Company
2011 2010 2011 2010
R`000 R`000 R`000 R`000
Operating activities
Profit before taxation and
dividends 127 115 890 3 441 949
008
Adjusted for:
Dividends received for
subsidiaries - - 270 000 -
Depreciation 24 079 26 423 - -
Impairment of assets, loans
and goodwill 1 796 984 - -
Amortisation of intangible
assets 44 143 68 771 - -
Amortisation of financial
assets 910 260 - -
Loss/(profit) on disposal of
property and equipment 194 389 - -
Loss on sale of investment - - - 1 185
Fair value adjustments - 2 647 - -
Share-based payments expense
31 900 19 008 - -
Non-cash portion of
operating lease rentals 800 (984) - -
Interest paid 31 855 59 480 32 093 31 112
Interest received (3 182) (12 859) (40 058) (35 741)
Cash generated/(utilised) by
operating activities before
working capital changes
259 503 280 009 265 476 (2 495)
Increase in trade and other
receivables and prepayments (13 512) (31 856) (389) (391)
Increase/(decrease) in trade
and other payables and
provisions 41 863 (14 732) 1 627 1 700
Net movement in
preacquisition and fellow
subsidiaries` intercompany
accounts - (8 665) (301 804) 82 294
Cash generated/(utilised) by
operations 287 854 224 756 (35 090) 81 108
Interest paid (31 855) (59 480) (32 093) (31 112)
Interest received 3 182 12 859 40 058 35 741
Taxation paid (32 632) (58 258) (6 092) (13 024)
Dividend paid (42 216) (118 379) (42 216) (119 510)
Net cash
generated/(utilised) by
operating activities 184 333 1 498 (75 433) (46 797)
Investing activities
Additions to property,
equipment and intangible
assets (24 014) (44 643) - -
Proceeds from sale of
property and equipment 3 323 2 705 - -
Acquisition of businesses (2 874) (4 998) - -
Net movement on loan from
associate - 35 - 35
Vendor loan payments - (35 000) - -
Net cash
(utilised)/generated by
investing activities (23 565) (81 901) - 35
Financing activities
Issue of shares 866 113 533 866 113 502
Share buy-back - (12 822) - -
Long-term loan raised 75 000 - 75 000 -
Long-term loan repaid (91 139) (20 487) (91 139) (20 487)
Decrease in non-current
interest-bearing liabilities 53 670 - -
Net cash generated by
financing activities (15 220) 80 894 (15 273) 93 015
Net increase/(decrease) in
cash and cash equivalents 145 548 491 (90 706) 46 253
Net cash and cash
equivalents at the beginning
of the year (50 246) (50 737) (163 783) (210 036)
Net cash and cash
equivalents at the end of
the year 95 302 (50 246) (254 489) (163 783)
Audited segment report
for the year ended 28 February 2011
Group Central Costs
Central Shared
costs services
Revenue
- 2011 (R`000) - 22 366
- 2010 (R`000) 238 19 706
Internal revenue
- 2011 (R`000) - -
- 2010 (R`000) - -
Operating profit/(loss)
- 2011 (R`000) (48 873) 57
- 2010 (R`000) (38 860) 4 886
EBITDA excluding share-based payments and
lease smoothing
- 2011 (R`000) (36 111) 2 736
- 2010 (R`000) (32 200) 6 218
EBITDA margin excluding share-based payments
and lease smoothing
- 2011 (%) - -
- 2010 (%) - -
EBITDA excluding share-based payments and
lease-smoothing contribution % to Group
EBITDA
- 2011 (%) (14,0) 1,1
- 2010 (%) (11,5) 2,2
Depreciation and amortisation
- 2011 (R`000) 1 097 -
- 2010 (R`000) 839 94
Interest income
- 2011 (R`000) (13 686) 806
- 2010 (R`000) 2 559 466
Interest expense
- 2011 (R`000) 21 719 (6)
- 2010 (R`000) 2 104 (44)
Taxation expense/(income)
- 2011 (R`000) 6 185 5 650
- 2010 (R`000) 13 136 4 114
Asset carrying value
- 2011 (R`000) 65 285 30 708
- 2010 (R`000) 11 628 25 404
Liabilities carrying value
- 2011 (R`000) 269 364 34 169
- 2010 (R`000) 172 949 15 252
Additions to property, plant and equipment
- 2011 (R`000) 167 2 521
- 2010 (R`000) 3 086 2 158
Staffing
Blue collar White collar
Revenue
- 2011 (R`000) 3 861 945 1 329 000
- 2010 (R`000) 3 555 060 1 321 327
Internal revenue
- 2011 (R`000) 14 812 31 526
- 2010 (R`000) 5 135 14 157
Operating profit/(loss)
- 2011 (R`000) 141 445 26 125
- 2010 (R`000) 131 466 25 627
EBITDA excluding share-based payments and
lease smoothing
- 2011 (R`000) 181 370 46 590
- 2010 (R`000) 190 026 46 667
EBITDA margin excluding share-based
payments and lease smoothing
- 2011 (%) 4,7 3,5
- 2010 (%) 5,3 3,5
EBITDA excluding share-based payments and
lease-smoothing contribution % to Group
EBITDA
- 2011 (%) 70,1 18,0
- 2010 (%) 67,9 16,7
Depreciation and amortisation
- 2011 (R`000) 21 027 24 560
- 2010 (R`000) 43 219 27 202
Interest income
- 2011 (R`000) 6 669 4 427
- 2010 (R`000) 2 627 3 997
Interest expense
- 2011 (R`000) (41 228) (1 771)
- 2010 (R`000) (45 854) (7 495)
Taxation expense/(income)
- 2011 (R`000) 3 180 (2 891)
- 2010 (R`000) (542) (3 259)
Asset carrying value
- 2011 (R`000) 1 218 479 333 281
- 2010 (R`000) 1 112 536 303 393
Liabilities carrying value
- 2011 (R`000) 194 238 246 599
- 2010 (R`000) 209 629 212 011
Additions to property, plant and
equipment
- 2011 (R`000) 8 134 1 659
- 2010 (R`000) 7 962 6 402
BPO, Training
and Financial Emergent
services Business Total
Revenue
- 2011 (R`000) 168 702 2 553 5 384 566
- 2010 (R`000) 154 027 - 5 050 358
Internal revenue
- 2011 (R`000) 38 833 - 85 171
- 2010 (R`000) - - 19 292
Operating profit/(loss)
- 2011 (R`000) 43 941 (5 024) 157 671
- 2010 (R`000) 43 412 - 166 531
EBITDA excluding share-based
payments and lease smoothing
- 2011 (R`000) 68 959 (4 951) 258 593
- 2010 (R`000) 69 038 - 279 749
EBITDA margin excluding share-
based payments and lease
smoothing
- 2011 (%) 40,9 - 4,8
- 2010 (%) 44,8 - 5,5
EBITDA excluding share-based
payments and lease-smoothing
contribution % to Group EBITDA
- 2011 (%) 26,7 (1,9) 100,0
- 2010 (%) 24,7 - 100,0
Depreciation and amortisation
- 2011 (R`000) 21 518 20 68 222
- 2010 (R`000) 23 840 - 95 194
Interest income
- 2011 (R`000) 4 966 - 3 182
- 2010 (R`000) 3 210 - 12 859
Interest expense
- 2011 (R`000) (10 150) (419) (31 855)
- 2010 (R`000) (10 838) - (62 127)
Taxation expense/(income)
- 2011 (R`000) 699 (1 510) 11 313
- 2010 (R`000) (1 875) - 11 574
Asset carrying value
- 2011 (R`000) 272 983 5 937 1 926 673
- 2010 (R`000) 218 836 - 1 671 796
Liabilities carrying value
- 2011 (R`000) 168 169 823 913 362
- 2010 (R`000) 154 012 - 763 853
Additions to property, plant
and equipment
- 2011 (R`000) 3 563 118 16 162
- 2010 (R`000) 3 506 - 23 114
Note
No segmental information is provided in respect of geographical analysis as the
Group operates mainly in South Africa.
Normalised earnings
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 unaudited normalised earnings for the year ended 28
February 2011 as well as the prior year comparative figures.
The unaudited pro forma financial information below has been prepared for
illustrative purposes only to provide information on how the normalised earnings
adjustments might have impacted on the financial results of the Group. Because
of its nature, the unaudited pro forma financial information may not be a fair
reflection of the Group`s results of operation, financial position, changes in
equity or cash flows.
The underlying information used in the preparation of the unaudited pro forma
financial information has been prepared using the accounting policies that
comply with International Financial Reporting Standards. These are consistent
with those applied in the published unaudited interim consolidated results of
the Group for the period ended 31 August 2010.
Since there are no significant subsequent post balance sheet events, no
adjustments have been made to the pro forma financial information.
The directors of the Group are responsible for the compilation, contents and
preparation of the unaudited pro forma financial information contained in the
announcement. Their responsibility includes determining that: the unaudited pro
forma financial information has been properly compiled on the basis stated; the
basis is consistent with the accounting policies of the Group; and the pro forma
adjustments are appropriate for the purposes of the unaudited pro forma
financial information disclosed in terms of the JSE Listings Requirements.
The unaudited pro forma financial information should be read in conjunction with
the Deloitte & Touche independent reporting accountants` report thereon, which
is available for inspection at Adcorp`s registered office.
Note Year to Year to
28 Feb 28 Feb %
2011 2010 change
R`000 R`000
Revenue 1 5 384 566 5 050 358 7
Cost of sales 1 (4 264 774) (3 953 341) 8
Gross Profit 1 1 119 792 1 097 017 2
Other income 1 51 967 39 353 32
Administrative marketing,
selling and operating (1 014 088) (969 839) 5
expenses
Operating profit 1 157 671 166 531 (5)
Adjusted for:
Depreciation 2 24 079 26 423 (9)
Amortisation of 2
intangible assets 44 143 68 771 (36)
Share-based payments 2 31 900 19 008 68
Lease smoothing 3 800 (984) 181
EBITDA (excluding share-
based payments and lease 258 593 279 749 (8)
smoothing)
Adjusted for:
Depreciation 2 (24 079) (26 423) (9)
Amortisation of
intangibles other than
those acquired in a 3 (10 459) (9 598) 9
business combination
Normalised operating 224 054 243 728 (8)
profit
Net interest paid 2 (28 673) (46 622) 38
Normalised profit before
taxation 195 381 197 106 (1)
Taxation 4 (20 968) (27 158) 23
Normalised profit for the 174 413 169 948 3
year
Normalised effective tax 11% 14%
rate
Normalised earnings per 5
share - cents 290,2 315,3 (8)
Diluted normalised 5
earnings per share - 283,5 307,5 (8)
cents
Weighted average No of 3
shares - 000`s 60 110 53 903 12
Diluted weighted average 3
No of shares - 000`s 61 520 55 272 11
Notes:
1 As per the audited statement of comprehensive income for the year ended 28
February 2011.
2 As per the notes to the audited statement of comprehensive income included
in the annual financial statements for the year ended 28 February 2011.
3 As per the notes to the audited annual financial statements for the year
ended 28 February 2011.
4 The taxation expense has been adjusted for the adjusted items above.
5 Per share calculation is based on normalised earnings.
Overview
The Adcorp Group has achieved much over the past financial year, although the
year was not without its challenges. In particular, an economic environment
struggling to re-energise and regain confidence following the recent global
financial crisis as well as the sustained political and regulatory pressure on
the temporary employment services industry made for a difficult operating
environment. Considered in this context, the Group`s performance and successes
over the past year are most encouraging.
Group revenues of R5,4 billion (FY2010: R5,1 billion) were 7% ahead of the prior
year whilst headline earnings per share of 195,7 cents (FY2010: 195,9 cents)
were flat.
Normalised earnings per share of 290,2 cents (FY2010: 315,3 cents) which
excludes non-trading IFRS accounting adjustments for the amortization of
intangible assets arising on business combinations as well as share-based
payments and lease-smoothing, were 8% down on last year`s earnings.
Normalised after tax profits for the year of R174 million (2010: R170 million)
were 3% ahead of the prior year.
A highlight of the Group`s financial performance has been cash management. In
this regard, the Group converted 129% (FY2010: 92%) of operating profit into
cash compared to a Group target of 90% by dropping outstanding debtors` days to
36 (FY2010: 38 days). Borrowings have been maintained at significantly and
sustainably lower levels than last year, saving the Group considerable charges
on the interest line.
Free cash generated by operations per share of 376,9 cents (2010: 222,4 cents)
reflected a significant 69% increase compared to the prior year figure
reflecting management`s focused attention on cash management.
The blue-collar flexible-staffing businesses namely, Capital Outsourcing Group,
Capacity and Staff-U-Need continue to provide the `engine room` for the Group.
Both Capital Outsourcing Group and Capacity continued to perform well off a high
base of achievement in the prior year. Both businesses were able to gain market
share in the wake of the ongoing debate regarding labour broking whereby, a
number of clients have consolidated their supply of labour with larger,
reputable suppliers.
Staff-U-Need which focuses on the supply of specialised blue-collar skills to
the power generation industry was negatively impacted by maintenance and payment
delays with regard to their major client which saw a year-on-year decline in
profitability for this operation.
The white-collar flexible-staffing operations of the Group together with the
permanent recruitment businesses, together recorded good year-on-year profit
growth with the exception of Emmanuels which recorded a loss. This solid
performance which has continued into the new financial year has been the result
of market share gains as well as a more buoyant recruitment market, particularly
with regard to scarce skills.
The operations of white-collar flexible-staffing brands, Quest and Emmanuels,
have recently been merged which will facilitate significant cost savings for the
Group in the future, stemming losses from Emmanuels and resulting in greater
profitability for the combined entities.
The Business Process Outsourcing (BPO) and training operations experienced mixed
fortunes with FMS Marketing Solutions having lost a sizeable client but with
training reporting significant year-on-year growth. The prospects for the
training operations are extremely positive given the current prevailing skills
shortage, the focus of Government on pushing the training agenda and the unique
and highly relevant business model of our training operations.
The nursing staffing operations of the Group recorded a loss for the year under
review but, given remedial management action taken in this regard, it is
unlikely that these losses will be repeated in the new financial year.
Whilst operating margins have generally been under pressure, this margin
pressure has been compensated in the overall result by way of focusing on cost
control, offering appropriate and affordable financial services products to
contractors and, increasing the number of learnerships offered. In this way, the
revenue stream related to each contractor is optimised, not only by way of
traditional basic service fees but, also by tapping into these alternative
revenue streams.
The loss making recruitment advertising business has been disposed of. Although
a relatively small disposal in financial terms
(R5 million), it has the effect of stemming losses from this sunset operation
which was principally focused on the placement of print recruitment
advertisements focused mainly on the public sector where margins have been under
extreme pressure and volumes are erratic.
During the period under review, the Group acquired Gold Fields External Training
Services (GFETS) for an amount of R5 million which has now been successfully
integrated into the training operations of PMI and renamed Adcorp Technical
Training. Post-acquisition profits from Adcorp Technical Training are slightly
ahead of expectation. Given the strategic positioning of this business with its
specific focus on artisan training, the acquisition further strengthens the
Group`s positioning as a leading provider of scarce technical skills.
Industry developments
Following a protracted debate on the future of the Temporary Employment Services
("TES") or Labour Broking industry whereby certain factions in the trade union
movement as well as in Government have been calling for a ban of the practice,
four draft Bills were released by the Department of Labour for public comment on
17 December 2010 as follows:
- Labour Relations Amendment Bill
- Basic Conditions of Employment Amendment Bill
- Employment Equity Amendment Bill
- Employment Services Bill
Whilst these Bills are an attempt to significantly regulate the TES industry, if
implemented, they would have far reaching implications for all employers in
South Africa. As such, they have elicited much heated debate and controversy as
well as a groundswell of opinion calling for their withdrawal.
It is clear that, should this raft of proposed laws be promulgated, they would
be in direct conflict with the Government`s primary, stated objective of job
creation.
As such, a total rethink is required with regard to labour market policy in
South Africa and, to this extent, the Department of Labour has agreed to engage
with business and labour at Nedlac to progress this debate.
The likely outcome, therefore, is that the proposed labour law amendments are
likely to be centred on regulation rather than on the banning of TES.
Given the lengthy process involved in the negotiations, it is unlikely that any
revised labour legislation will be passed this year and that the process will
spill over into 2012. In the interim, it is not anticipated that there will be
any immediate or material, negative impact on the business of Adcorp.
In the longer term, we remain confident that the ultimate regulation of the
industry will be to the ultimate benefit of the reputable and legitimate players
in this industry.
Financial overview
Normalised EBITDA of R259 million for the year ended 28 February 2011 was 8%
below the R280 million for the comparative period.
EBITDA margins declined to 4,8% (2010: 5,5%) reflecting continuing pricing
pressure as well as a mix swing in favour of lower margin blue collar business.
Margins have also been impacted due to greater expenditure on learnerships, the
benefits of which are reflected in the lower effective tax rate of 11% (2010:
14%) due to specific tax deductions related to these learnerships in terms of
the Income Tax Act.
Whilst it is not the Group`s intention to entrench an enduring dependency on
these tax incentives on an indefinite basis, given the critical imperative of
the country to rapidly develop skills across its workforce as well as to up-
skill and enhance the potential employability of a sizeable unemployed
constituency, it is likely that these incentives will continue and possibly
increase for the foreseeable future.
Debt collection is a critical part of the business and an ongoing focus area for
management. The cash- to-cash cycle remains a high priority and in this regard,
days settlement outstanding ("DSO") totalled 36 days (FY2010: 38 days). This
excellent result was achieved despite the continued challenging collections
environment, particularly with regard to the public sector where some sizeable
balances repeated the pattern of being unpaid as at year-end. Subsequent to the
financial year end date, a significant amount of the outstanding public sector
debt was collected, bringing collections back to within targeted levels.
The R288 million of cash generated by operations was higher compared to the R225
million generated for the prior year. Despite the lower level of profitability,
a significant improvement in the management of working capital resulted in R28
million being released from working capital when compared to the consumption of
R55 million in the prior year.
Lower levels of interest, taxation and dividends paid were in line with
management`s expectations given the collective effects of the corporate debt
restructuring, improved working capital management, lower secondary tax on
companies ("STC") and the lower cash dividend paid arising from the high
percentage take up of the scrip distribution conducted in August 2010.
As previously reported to stakeholders, the Group undertook a limited shares for
cash issue in February 2010. The consequences thereof were reflected in the
Group`s statement of financial position as at 28 February 2010. Following on
from this, the Group experienced an 87% take up of the scrip distribution
alternative as referred to below. This resulted in an amount approximating
R65 million being conserved within the Group.
Acquisition of business
As referred above, the acquisition of Adcorp Technical Training was concluded
with effect 1 July 2010. As such, it has been included in Group profits for 8
months of this financial year. In terms of IAS 34 requirements the profit before
tax from this entity included in Group profits for the year ended February 2011
is R4,3 million. Had the business combination been effective from 1 March 2011,
the revenue of the Group would have been R5 403 million and net profit before
tax would have totalled R129 million. The directors of the Group consider these
numbers to represent an approximate measure of the performance of the combined
Group on an annualized basis and to provide a reference point for comparison in
future periods.
Year to
28 Feb
2011
R`000
Total purchase consideration 5 000
Less: Cash and cash equivalents acquired (2 126)
Cash outflow on acquisition of business 2 874
In complying with the IFRS statement on purchase
accounting(IFRS 3), the Group determined the fair value of
the assets and liabilities acquired on the acquisition of
the business as follows:
Property, plant and equipment 1 106
Trade and other receivables 10 524
Cash and cash equivalents 2 126
Trade and other payables (7 656)
Provisions (2 126)
Taxation (898)
Deferred taxation 43
3 119
Resulting goodwill on acquisition 1 881
Total consideration 5 000
The Group has declared a final dividend of 121 cents per share (2010: 115* cents
per share). When considered with the interim dividend declared of 54 cents per
share (2010: 50 cents per share), the total dividends for the year under review
totalled 175 cents per share (2010: 165 cents per share).
*cash dividend in lieu of the scrip distribution
Changes to the board of Adcorp
During the year 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 the same date.
Outlook and prospects
Whilst, on the face of it, the labour market in which we primarily operate
appears to be relatively stagnant due to an inability of the economy to create
jobs on any meaningful scale, coupled with the regulatory challenges faced by
the temporary employment services industry, these factors both contribute to
providing the Adcorp Group with major opportunities.
There are undoubtedly certain good pockets of opportunity which the Group is
able to take advantage of with regard to the placement of scarce skills, the
training of such skills, the opportunity to present alternative innovative value
propositions to clients and the opportunities provided by the labour broking
debate to engage clients at a strategic level as opposed to merely at a
transactional level.
The greater the level of legislative complexity and regulation, the more it
favours a Group such as Adcorp which has the sophistication, reputation, know-
how and financial capability to deal with such complexity.
These opportunities coupled with the adoption of technology as an enabler in the
staffing space whereby, the Adcorp Group leads the way in this regard, all
contribute to a high level of optimism with regard to the future prospects of
the Group.
Strategically, the Group is focused on managing its costs, driving economies of
scale, delivering value for its clients, seeking out beneficial acquisitions 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 particularly well positioned for the
future.
Basis of preparation
Adcorp prepares its accounts in accordance with International Financial
Reporting Standards (IFRS), South African Companies Act 61 of 1973 (as amended)
and the JSE Listings Requirements. The accounting policies are consistent with
the prior year annual financial statements. This SENS announcement contains the
information as required by IAS34 (Interim Financial Reporting).
Contingent liabilities and commitments
The bank has guaranteed R11,6 million (2010: R12,2 million) on behalf of the
Group to creditors. As at the balance sheet date the Group has outstanding
operating lease commitments totalling R73,8 million (2010: R69,7 million) in non
cancellable property leases.
Subsequent events
Given the intricacies of the Group`s working capital cycle, the directors
believe that the optimal mix between committed long-term and short-term
borrowings facilities remains two-thirds as to one-third. Consequently, despite
the net cash position of R95 million as at 28 February 2011 (2010: R50 million
overdrawn), the Group obtained an additional R100 million long term debt
facility, subsequent to the year end, in order to compensate for the reduction
of short term facilities that took effect on 28 February 2011.
The Group has agreed in principle to proceed with the acquisition of iSolve
Business Solutions ("iSolve"), subject to the fulfillment of various conditions
precedent. iSolve is an information technology infrastructure consulting and
development business and the maximum purchase price payable by the Group has
been agreed as R27 million.
Declaration of Final Dividend
Notice is hereby given that a final dividend of 121 cents per share (2010: 115
cents per share) was declared on 25 May 2011 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 final dividend are as
follows:
Last date to trade "cum" dividend Friday, 8 July 2011
Date trading commences "ex" dividend` Monday, 11 July 2011
Record date Friday, 15 July 2011
Date of payment Monday, 18 July 2011
Ordinary share certificates may not be dematerialised or rematerialised between
Monday, 11 July 2011 and Friday, 15 July 2011, 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, 18 July 2011.
Auditor`s Opinion
The results have been audited by the independent auditors, Deloitte & Touche. A
copy of their unmodified audit report is available for inspection at the
registered office of the company, 28 Sloane Street, Bryanston.
By order of the board
JJ Njeke RL Pike AM Sher
Chairman Chief Executive Officer Chief Financial Officer
25 May 2011
Executive directors C Bomela, RL Pike, AM Sher, PC Swart
Independent non- JJ Njeke (Chairman), A Alback, M Mthunzi,
executive directors TDA Ross
Non-executive directors G Dingaan, MR Ramaite, T Ramano
Company secretary L Sudbury
Transfer secretaries Link Market Services SA (Pty) Ltd,
13th Floor, 19 Ameshoff Street, Braamfontein
Sponsor Deloitte & Touche Sponsor Services (Pty) Ltd
Date: 25/05/2011 12:41:01 Produced by the JSE SENS Department.
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