| Tue 22 Nov 2011, 12:15 | | KEL - Kelly Group Limited - Condensed Provisional Reviewed Results for the |
|
KEL
KEL
KEL - Kelly Group Limited - Condensed Provisional Reviewed Results for the
year ended 30 September 2011
KELLY GROUP LIMITED
(Incorporated in the Republic of South Africa)
Registration number: 1999/026249/06
Share code: KEL
ISIN: ZAE000093373
("Kelly Group", "the company" or "the group")
CONDENSED PROVISIONAL REVIEWED RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2011
* Revenue down 3% to R1.99 billion (2010: R2.05 billion)
* EBITDA of R35 million (2010: R52 million)
* Operating profit of R16 million (2010: R32 million)
* HEPS 13.3 cents (2010: 28.4 cents)
* New leadership and sharpened client focus
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
R000 Note 2011 2010 % change
Revenue 1 1 988 618 2 049 956 (3)
Cost of sales (1 552 096) (1 584 503)
Gross profit 436 522 465 453 (6)
Operating expenses (401 154) (413 622)
Earnings before
interest, tax,
depreciation and
amortisation (EBITDA) 35 368 51 831 (32)
Depreciation and
amortisation (19 782) (19 672)
Operating profit 15 586 32 159 (52)
Impairments 2 (33 191) (5 945)
Share of profit from
joint ventures 17 1 583
(Loss)/profit before
financing costs (17 588) 27 797 (163)
Finance costs (21 881) (24 263)
Finance income 6 959 9 573
(Loss)/profit before
taxation (32 510) 13 107 (348)
Taxation 3 10 764 13 202
(Loss)/profit for
the year (21 746) 26 309 (183)
Attributable to
equity holders of
the parent (22 057) 26 078
Attributable to
non-controlling
interests 311 231
Other comprehensive
income/(loss) 4 384 (2 090)
Total comprehensive
(loss)/income for the
year (17 362) 24 219 (172)
Attributable to
equity holders
of the parent (17 673) 23 988
Attributable to
non-controlling
interests 311 231
Attributable to equity
holders in parent:
Basic
(Loss)/earnings
per share (cents) (23.0) 28.4 (181)
Headline earnings
per share (cents) 13.3 28.4 (53)
Fully diluted
(Loss)/earnings
per share (cents) (23.0) 28.2 (182)
Headline earnings
per share (cents) 13.3 28.2 (53)
Note
1. Revenue
Placement
Fees 68 104 85 094 (20)
Temporary staffing 1 775 276 1 822 505 (3)
Skills training 93 639 81 360 15
Other revenue 51 599 60 997 (15)
1 988 618 2 049 956
2. Impairments
The impairment balance includes the impairment of goodwill amounting to
R32.0 million (2010: RNil). This follows impairment testing, which is
performed annually on all goodwill and trademark assets held within the
group.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
R000 Note 2011 2010
Cash generated by operations
before working capital changes 40 489 53 287
(Increase)/decrease in working
capital and other movements (57 819) 8 134
Cash (utilised by)/generated
from operations (17 330) 61 421
Net financing costs (14 922) (14 690)
Net dividends paid - (20 227)
Taxation paid (13 149) (7 527)
Cash flows from operating
activities (45 401) 18 977
Cash flows from investing
activities (24 292) (30 341)
Cash flows from financing
activities 4, 5 54 440 (43 510)
Net decrease in cash and cash
equivalents (15 253) (54 874)
Cash held by former subsidiaries
now under joint control - 4 305
Foreign translation
difference on offshore cash 2 952 (1 743)
Net cash and cash equivalents
at the beginning of the year 85 488 137 800
Net cash and cash equivalents
at the end of the year 73 187 85 488
RECONCILIATION OF SHARES ISSUED
000 2011 2010
Number of shares in issue 100 000 100 000
Treasury shares (1 558) (8 076)
Closing balance 98 442 91 924
Weighted average number of shares
before treasury shares 100 000 100 000
Weighted average treasury shares (4 042) (8 085)
Weighted average number of
shares after treasury shares 95 958 91 915
Dilutive effects of equity-settled
share reserve 2 520
Fully diluted weighted average number
of shares after treasury shares 95 960 92 435
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
R000 Note 2011 2010
ASSETS
Non-current assets 244 963 255 259
Property and equipment 13 599 18 317
Goodwill 2 25 346 57 334
Trademarks 95 175 95 175
Other intangible assets 60 293 51 935
Investment in joint ventures 601 3 082
Deferred taxation 3 49 949 29 416
Current assets 425 876 369 940
Inventories 1 543 2 391
Intra-group loan receivables 18 691 19 040
Trade and other receivables 282 751 252 622
Taxation 7 510 6 688
Cash and cash equivalents 115 381 89 199
TOTAL ASSETS 670 839 625 199
EQUITY AND LIABILITIES
Capital and reserves 248 206 238 946
Share capital and share premium 4 305 779 280 970
Accumulated loss (59 942) (37 885)
Other components of equity 1 181 (5 016)
Attributable to equity holders
of the parent 247 018 238 069
Non-controlling interests 1 188 877
Non-current liabilities 161 751 122 146
Interest-bearing borrowings 5 149 896 119 467
Provisions and accruals for
staff benefits 6 9 302 -
Deferred taxation 2 553 2 679
Current liabilities 260 882 264 107
Interest-bearing borrowings 5 2 181 2 979
Intra-group loan payables 3 357 158
Trade and other payables 129 016 153 089
Provisions and accruals for
staff benefits 6 82 406 99 161
Taxation 1 728 5 009
Bank overdraft 42 194 3 711
TOTAL EQUITY AND LIABILITIES 670 839 625 199
Note
3. Taxation
The taxation charge in the statement of comprehensive income reflects a
credit of R10.4 million for the current year. This credit arose off the
back of substantial learnership allowances accessed by the group through its
skill development initiatives. The allowances exceed the taxable income and
contribute to deferred tax assets that will be utilised in future periods.
4. Share capital and share premium
As previously advised, 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.
5. Interest-bearing borrowings
Promissory notes issued 151 219 120 353
Finance leases 858 2 093
152 077 122 446
As previously advised, R30 million additional promissory notes were issued
to Investec Bank Limited 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 R191 million, and bears interest at a
blended fixed funding rate (inclusive of structuring fees) of 11.2%.
6. Provisions and accruals for staff benefits
As previously advised, the group`s US subsidiary, M Squared Consulting Inc.,
was defending a class action law suit brought by a group of former employees
relating to alleged liability for certain employee benefits. The maximum
amount to be paid is US$2 million, which will be paid over the next four
years. During the year the subsidiary increased its provision by US$0.75
million to fully reserve for the US$2 million ceiling.
RECONCILIATION OF HEADLINE EARNINGS
R000 2011 2010
Attributable (loss)/profit for
the period (22 057) 26 078
Loss on disposed property, equipment
and intangible assets (net of tax) 2 830 7
Impairment of goodwill 31 988 -
Headline earnings 12 761 26 085
STATEMENT OF CONSOLIDATED CHANGES IN EQUITY
Foreign Equity
Share currency due to Share-
capital trans- change in based
and lation control payment
share re- of inte- re-
R000 Note premium serve rests serve
Balance as at
1 October 2009 280 848 12 629 (18 038) 1 221
Reversal of
non-controlling
interests - - - -
Share-based
payment reserve - - - 1 262
Sale of
treasury shares 122 - - -
Total
comprehensive
income for
the year - (2 090) - -
Dividends paid - - - -
Balance as at
1 October 2010 280 970 10 539 (18 038) 2 483
Share-based
payment reserve - - - 1 813
Sale of
treasury shares 4 24 809 - - -
Total
comprehensive
loss for
the year - 4 384 - -
Balance as at
30 September 2011 305 779 14 923 (18 038) 4 296
STATEMENT OF CONSOLIDATED CHANGES IN EQUITY (continued)
Non-
control-
Accu- ling
mulated Sub- inte-
R000 Note loss total rests Total
Balance as at
1 October 2009 (44 204) 232 456 2 890 235 346
Reversal of
non-controlling
interests - - (1 776) (1 776)
Share-based
payment reserve - 1 262 - 1 262
Sale of
treasury shares - 122 - 122
Total
comprehensive
income for the
year 26 078 23 988 231 24 219
Dividends paid (19 759) (19 759) (468) (20 227)
Balance as at
1 October 2010 (37 885) 238 069 877 238 946
Share-based
payment reserve - 1 813 - 1 813
Sale of treasury
shares 4 - 24 809 - 24 809
Total
comprehensive
loss for the
year (22 057) (17 673) 311 (17 362)
Balance as at
30 September 2011 (59 942) 247 018 1 188 248 206
CONDENSED CONSOLIDATED SEGMENTAL ANALYSIS
Revenue Operating profit
R000 2011 2010 2011 2010
Staffing, skills
and value added
services 1 512 914 1 581 979 24 943 63 679
USA 475 704 467 977 9 610 1 210
Central costs - - (18 967) (32 730)
Total 1 988 618 2 049 956 15 586 32 159
CONDENSED CONSOLIDATED SEGMENTAL ANALYSIS (continued)
Total assets Total liabilities
R000 2011 2010 2011 2010
Staffing, skills
and value added
services 352 394 343 759 127 284 157 263
USA 104 358 89 961 62 990 59 103
Central costs 214 087 191 479 232 359 169 887
Total 670 839 625 199 422 633 386 253
COMMENTS
Performance overview
2011 turned out to be another challenging year for the staffing industry and
the Kelly Group. Notwithstanding the difficult conditions and significant
internal changes required to position the group going forward, the group`s
substantial revenue base remains intact totalling close to R2 billion for
the year.
Group revenue of R1.99 billion was 3% down compared to 2010. Revenue from
high margin permanent placements contracted by 20% to R68.1 million and now
comprises less than 4% of total group revenue compared to 8% in 2008. The
group also recorded a decline of 3% in annuity revenue derived from
outsourcing. The group now manages just over 17 000 associates on average
in any given month but it managed to maintain gross margins in a market
where clients demand more for less.
The 3% decline in total revenue directly contributed to a 52% reduction in
operating profit, which totalled R15.6 million for the year. After
accounting for R33.2 million of impairment charges (mainly impairment of
goodwill), finance charges and taxation, the group recorded a net loss of
R21.7 million for the year
Skill development reflected healthy growth of 15% and is now the second
largest revenue contributor to the group. The USA subsidiaries also
continued on their strong growth path and increased revenue by 9% in US
Dollar terms. This growth was offset by a relatively strong Rand that
traded at R6.60 to the US Dollar before weakening to the R8.00 mark at the
end of the financial year. K-log doubled its revenue, albeit off a low
base, and continued on its rapid growth path.
Operating costs decreased by 3% and real savings were achieved in all
categories of expenses except for occupancy costs, which reflects the effect
of the 35% electricity tariff increase.
The Kelly division came under real pressure for the first time since the
global financial crisis in 2008. The brand remains the most significant
contributor to the group, and a 7% decline in revenue and 37% in earnings
before interest and tax (EBIT) weighed heavily on the group`s results. The
focus on managing large headcount contracts eroded its traditional business
and core competency of contingent work and permanent placements, on which
the brand was built over 40 years ago, and its underperformance was
exacerbated by an ever increasing inward focus with no new significant
contracts won over a period of time. The division was subsequently
restructured to ensure that both markets are best served through dedicated
service teams located in key geographical areas.
PAG, historically a key revenue and profit contributor, was restructured
following a change in leadership at the end of 2010. The division recorded
an EBIT loss of R0.9 million this year following ongoing declines in
revenues, and an increasing cost base during 2010. However, it has returned
five months of consecutive profits in the latter half of this year, built on
a renewed focus of specialisation and reduced cost structures.
M Squared Consulting Inc., Torque IT, Kelly Industrial and InnStaff all
performed well in challenging market conditions.
M Squared Consulting Inc. continued to grow its revenue base in a very
challenging American economy, increasing operating profit by 314% to US$1.7
million after having fully provided for the settlement of the class action
lawsuit (refer to note 6).
InnStaff, through its strong value proposition, delivery model and
positioning in the market, managed to grow revenue by 1% despite the fact
that R6.8 million of non-recurring revenue from the Soccer World Cup had to
be replaced in an industry sector, in which bed nights have been under
increasing pressure. Similarly Kelly Industrial continues to gain market
share through strong operational delivery for which clients reward them with
increasing share of wallet.
Torque IT continues to meet and exceed expectations, target and prior year
comparatives, this year being no exception.
The group successfully rolled out its new Recruitment Management System
(RMS) during the last quarter of the year. This system change has been the
single biggest intervention in the group since the listing and not without
its challenges and distractions. This roll out most definitely detracted
from the performance of the group in Q4 but we are happy to report that it
is now bedded down and part of our day-to-day operations. This application
which serves as a common recruitment platform with fully integrated
candidate database, timekeeping and productivity management capabilities
will stand the group in good stead for growing revenue, reducing cost and
risk and enhancing the customer and candidate experience.
Dividend
No dividend declaration is proposed based on the decline in profitability
and the need to fund future growth.
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 IAS34.
In addition they have been prepared in the manner required by the South
African Companies Act as well as the Listings Requirements of the JSE.
These financial results have been prepared under the supervision of Ferdie
Pieterse CA (SA), the group financial director.
The group`s independent auditors have reviewed the group`s results and their
unqualified report is available for inspection at the company`s registered
office.
Accounting policies
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 2011 as were applied in the preparation of the
group`s annual financial statements for the year ended 30 September 2010.
Changes to directors
The group welcomed Gareth Tindall as the new CEO on 1 July 2011 following
the resignation of Grenville Wilson as CEO on 30 June 2011.
Prospects
While the board expects industry conditions to remain tough over the next
trading period, we are confident that under the new leadership and renewed
client focus, the group will recover its market position and profitability
over time underpinned by a change in the corporate culture. A sharpened
external focus supported by operational improvements and enabling technology
will benefit the group going forward.
For and on behalf of the board
MM Ngoasheng GJ Tindall
Chairman Chief executive
21 November 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
Tindall (chief executive), Y Dladla, M Ilsley, ME Monage, B Ngonyama, F
Pieterse, CJ Roodt and PJJ van der Walt.
Company secretary: KH Fihrer
Date: 22/11/2011 12:15:01 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or
implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
