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Adcorp Holdings Limited - Reviewed Group Results For The Year Ended 31 December
2003
Adcorp Holdings Limited
("Adcorp" or "the Group")
Registration number 1974/001804/06
Share code: ADR ISIN number: ZAE000000139
REVIEWED GROUP RESULTS FOR THE YEAR ENDED 31 December 2003
Salient features
- Cash generated by operating activities up by 48%
- Headline earnings ongoing operations up by 21%
- Operating profit from ongoing operations up by 19%
- Debtors days down by 6 days
- Proposed final capital distribution of 54 cents per share
Leaders in human capital management and marketing advisory services
INCOME STATEMENT
for the year ended 31 December 2003
Reviewed Audited
2003 2002
R"000 R"000
Turnover 1 692 077 1 523 381
Cost of sales (1 143 655) (1 025 156)
Operating costs (462 687) (416 552)
EBITDA 85 735 81 673
Depreciation (13 302) (14 965)
OPERATING PROFIT BEFORE GOODWILL 72 433 66 708
Amortisation of goodwill (4 100) (5 159)
OPERATING PROFIT 68 333 61 549
Interest received 18 600 12 543
Interest paid (24 435) (17 794)
BEE share of super profits (185) -
Share of (losses)/profits from (2 058) 1 665
associates
Impairments to investments and (11 362) (1 212)
property
Loss on sale of assets (391) (83)
Loss on disposal of operations (31 671) (74 706)
and subsidiaries
Profit/(loss) before taxation 16 831 (18 038)
Taxation - current (23 606) (18 803)
- prior year under provision (1 669) -
Loss after taxation (8 444) (36 841)
Minority shareholders" share of 472 (190)
losses/(profits)
Losses attributable to ordinary (7 972) (37 031)
shareholders
Reconciliation of headline
earnings
Losses attributable to ordinary (7 972) (37 031)
shareholders
Impairments to investments and 11 362 1 212
property
Loss on sale of assets 274 58
Loss on disposal of operations 31 671 74 706
and subsidiaries
Amortisation of goodwill 4 100 5 159
Headline earnings 39 435 44 104
Number of shares in issue - 40 031 39 936
weighted (000"s)
Headline earnings per share - 99 111
cents
Headline earnings per share on 128 106
ongoing operations only - cents
Diluted headline earnings per 98 110
share - cents
Loss per share - cents (20) (93)
Diluted loss per share - cents (20) (92)
Dividend per share - cents
Paid - 28
Capital distribution - final 37 -
prior year
- interim 10 -
Distribution of capital proposed 54 37
BALANCE SHEET
as at 31 December 2003
Reviewed Audited
2003 2002
R"000 R"000
ASSETS
Non-current assets 132 702 175 871
Property, plant and equipment 39 055 40 432
Goodwill 68 310 89 098
Investments and loans 3 059 20 208
Vendor for sale of business 2 059 4 702
Deferred taxation 20 219 21 431
Current assets 278 329 258 843
Other current assets 197 179 200 216
Vendor for sale of business 259 231
Cash at bank 77 709 54 523
Taxation prepaid 3 182 3 873
Total assets 411 031 434 714
EQUITY AND LIABILITIES
Capital and reserves 194 983 221 755
Share capital 1 007 1 064
Share premium 56 747 106 930
Treasury shares (4 454) (35 894)
Non-distributable reserve - 971
Distributable reserves 141 683 148 684
Minority interest 603 394
Non-current liabilities
Interest-bearing long-term - 1 002
liabilities
Current liabilities 215 445 211 563
Non-interest-bearing current
liabilities
Non-interest-bearing current 85 699 76 803
liabilities
Provisions 26 108 25 038
Taxation 3 797 5 549
Interest-bearing current
liabilities
Bank overdraft 99 841 104 173
Total equity and liabilities 411 031 434 714
Number of ordinary shares in issue 40 031 40 029
Net asset value per share - cents 487 554
As at 31 December 2003 capital commitments amounted to R15,9 million (2002:R14
million) and operating lease commitments to R90,7 million (2002:R64,6 million).
ABRIDGED CASH FLOW STATEMENT
for the year ended 31 December 2003
Reviewed Audited
2003 2002
R"000 R"000
Cash generated by operations 86 987 81 673
Decrease/(increase) in working 5 948 (18 722)
capital
Cash generated by operating 92 935 62 951
activities
Net interest paid (6 104) (5 251)
Taxation paid (25 757) (39 752)
Capital distribution (18 668) (11 233)
Cash available from operating 42 406 6 715
activities
Cash effects from investment (13 902) (44 866)
activities
Cash effects from financing (986) 19
activities
Net increase/(decrease) in cash 27 518 (38 132)
Net borrowings at the beginning of (49 650) (11 518)
the year
Net borrowings at the end of the year (22 132) (49 650)
Included in the 2003 investment activities above is capital expenditure of R14,6
million.
SEGMENTAL REPORT
for the year ended 31 December 2003
Turnover
2003 2002
Reviewed R"000 R"000
Central costs 29 174 1 568
Permanent 235 172 199 937
recruitment
Flexible staffing 1 144 767 1 008 088
Education and 34 462 81 122
training
Corporate 157 965 156 016
communications
Marketing research 90 537 76 650
Total 1 692 077 1 523 381
for the year ended 31 December 2003
Operating profit Operating profit
before goodwill margin
before goodwill
2003 2002 2003 2002
Reviewed R"000 R"000 % %
Central costs (15 496) (7 188) 0,0 0,0
Permanent 4 637 3 954 2,0 2,0
recruitment
Flexible staffing 57 372 54 768 5,0 5,4
Education and (3 889) (5 608) (11,3) (6,9)
training
Corporate 18 721 13 868 11,9 8,9
communications
Marketing research 11 088 6 914 12,2 9,0
Total 72 433 66 708 4,3 4,4
for the year ended 31 December 2003
Contribution to Net
group profit asset value
2003 2002 2003 2002
Reviewed % % R"000 R"000
Central costs (21,4) (10,8) 106 902 124 577
Permanent 6,4 5,9 7 885 12 982
recruitment
Flexible staffing 79,2 82,1 87 607 84 451
Education and (5,4) (8,4) (16 542) (29 065)
training
Corporate 25,8 20,8 4 548 21 313
communications
Marketing research 15,3 10,4 4 583 7 497
Total 100,0 100,0 194 983 221 755
ABRIDGED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2003
Share Share
capital premium
Reviewed R"000 R"000
Balance 31 December 2002
- as previously stated 1 064 106 930
- consolidation of share
trust
- AC133 adoption
- Restated 1 064 106 930
Shares issued 16
Capital distribution July (18 940)
and October 2003
Treasury shares cancelled (57) (31 259)
Realisation of non-
distributable reserves
Loss for the year per
income statement
Balance 31 December 2003 1 007 56 747
for the year ended 31 December 2003
Non-distri- Distri-
Treasury butable butable
shares reserves reserves Total
Reviewed R"000 R"000 R"000 R"000
Balance 31 December 2002
- as previously stated (31 316) 971 147 027 224 676
- consolidation of share (4 578) 2 608 (1 970)
trust
- AC133 adoption (951) (951)
- Restated (35 894) 971 148 684 221 755
Shares issued 16
Capital distribution July 124 (18 816)
and October 2003
Treasury shares cancelled 31 316 -
Realisation of non- (971) 971 -
distributable reserves
Loss for the year per (7 972) (7 972)
income statement
Balance 31 December 2003 (4 454) - 141 683 194 983
COMMENTS
Trading overview
Following a period of significant restructure and repositioning carried out
during 2002 and 2003, the Group has settled down extremely well, the financial
performance of the ongoing operations is pleasing and the Group is now well
positioned for the future.
Operating profit from ongoing operations increased by 19% compared to the prior
year whilst headline earnings per share from these operations was 21% higher
than for the same period in the prior year.
Some of the successes of this repositioning include the fact that the Group
structure has been greatly simplified resulting in a far more manageable
business, all non-performing assets have either been fixed or disposed of whilst
the strong focus on cash generation has been highly successful.
Debtors days of 38 days were reduced from the prior year level of 44 days which
together with other factors contributed to the Group generating cash from
operating activities of R92,9 million (2002: R62,9 million) which is 48% higher
than for the corresponding prior year period.
Pleasing to note are the improved performances of the permanent recruitment and
training divisions which, having experienced particularly difficult trading
conditions over the recent past, have both benefited from the restructuring and
repositioning of these divisions.
The flexible staffing, corporate communications and marketing research divisions
of the Group once again achieved solid trading performances.
BLACK ECONOMIC EMPOWERMENT
The need to raise the black economic empowerment profile of the Group has been
realised following the conclusion of two significant empowerment transactions at
operational level involving the introduction of a consortium comprising the
Black Management Forum Investments Company Limited and Zungu Investments Company
Limited as 25% shareholders in the Flexible Staffing operations, whilst a
consortium comprising Black Management Forum Investment Company Limited and
Tshirundu Investment Holdings (Pty) Limited acquired a 25% stake in the
Corporate Communications operations. Together with the 9% BEE shareholding in
Adcorp, these two divisions now have an effective 34% BEE shareholding.
These transactions have been made possible by way of an innovative structure
enabling the empowerment partners to participate in the fruits of their
endeavours right from the inception of the deals with an option to convert their
investment in the respective divisions directly into the Adcorp listed entity
after a five-year period.
FINANCIAL OVERVIEW
The loss per share of 20 cents compared with 93 cents in 2002, resulted from the
final stages of the restructure of non-profitable operations which commenced in
2002. Headline earnings per share for the Group at 99 cents are lower than the
111 cents for the previous year due to trading losses incurred by the closed
operations of R7,9 million and Astbury Jones of R1,5 million. In addition the
current year includes a tax charge in respect of an under provision in 2002
amounting to R1,7 million.
The effective tax rate in 2003 is 37,8% based on operating profit less interest.
This is high due to the trading losses on disposed operations together with the
fact that deferred tax has not been raised in respect of certain tax losses
incurred by ongoing operations.
The impairment in 2003 of R11,4 million relates mainly to the Sandton Group
where both the loan and investment were fully impaired as reported at the half
year.
The R31,7 million loss on disposal of operations arose from the liquidation of
Astbury Jones (Pty) Limited, as well as the disposal of the property company
Endenburg (Pty) Limited and the closure of Perm Staffing operations D/ability
(Pty) Limited and Finexec, a division of Emmanuals Staffing (Pty) Limited. In
addition the training sector disposed of Warwick Institute (Pty) Limited and
various other small training divisions as already reported.
Below is an analysis showing the operating profit of the group"s ongoing
operations:
Operating profit Operating profit
before goodwill margin
2003 2002 2003 2002
Ongoing operations R"000 R"000 % %
Central costs (15 383) (7 188) - -
Permanent 6 666 3 954 2,9 2,1
recruitment
Flexible staffing 57 652 54 816 5,2 5,4
Education and 1 081 (5 266) 4,3 (14,4)
training
Corporate 18 721 13 868 11,9 8,9
communications
Marketing research 11 088 6 914 12,2 9,0
Total ongoing 79 825 67 098 4,8 4,6
operations
Total (7 392) (390) (16,6) (0,7)
closed/disposed
operations
Total 72 433 66 708 4,3 4,4
If closed operations are excluded, the margin for 2003 is 4,8% compared with
4,6% for the previous year with the main segment under margin pressure being
flexible staffing. Losses in Gobodo_Grey and The Oval Office caused the low
margin percentage in permanent recruitment, however these operations are now
making a positive contribution.
Central costs for 2002 were understated due to the reversal of provisions no
longer required. Certain changes in cost allocations also impacted central costs
in 2003.
Gearing in the Group is considerably lower at 11,4% in 2003 compared with 22,4%
in the previous year. This has been achieved through a strong focus on cash
management, particularly in the collection of debtors which also contributed
significantly to the reduction in net bank overdraft from R49,6 million in 2002
to R22,1 million in 2003.
DISTRIBUTION OF CAPITAL
The board has proposed a final capital distribution of 54 cents per share
subject to shareholder approval. Together with the interim capital distribution
of 10 cents per share, the total proposed capital distribution in respect of the
2003 financial year is 64 cents per share.
A circular will be sent to shareholders shortly requesting the necessary
approval for the final capital distribution.
BOARD OF DIRECTORS
During the year three appointments were made to the Adcorp board being Neil
Lilford, Bhekokuhle Sibiya and Siyabonga Zungu (alternate to B Sibiya). There
were no resignations.
OUTLOOK
Following the process of successful restructuring and repositioning, the
financial performance of the Group"s ongoing operations provides a solid base on
which to build for the future. The challenge now is to position the Group for
significant growth in the future.
CORPORATE GOVERNANCE
The board of directors is fully committed and places a strong emphasis on
effective corporate governance. Adcorp fully supports the Code of Corporate
Practices and Conduct and endorses the need to conduct its business with the
highest standards of corporate practice. The board is thus, in this regard,
implementing the requirements of the King II Report and expects to be fully
compliant by the end of the 2004 financial year.
SUBSEQUENT EVENTS
No events material to the understanding of the results have occurred between the
financial year-end and the date of this report.
ACCOUNTING POLICIES AND PRESENTATION
The report has been prepared in accordance with South African Statements of
Generally Accepted Accounting Practice relating to preliminary reporting, more
specifically AC127. The accounting policies and methods of computation are
consistent with those applied in the annual financial statements for the year
ended 31 December 2002 other than for the adoption of AC133 - Recognition and
Measurement of Financial Instruments.
The group consolidated the Adcorp Empowerment Share Trust in compliance with
AC132 and the Companies Act, No 61 of 1973. Comparative numbers have been
restated to take into effect the consolidation of the trust.
The impact of the above changes on the results of the group is summarised as
follows:
Pre-tax Tax Net
R"000 R"000 R"000
Included in opening retained income
- AC133 Adoption (951) - (951)
- Consolidation of share trust 2 608 - 2 608
Included in loss after taxation for
the year 2003
- AC133 Adoption 269 - 269
Net impact 1 926 - 1 926
The interest of the BEE partners in the profits of the Group as discussed under
the heading "Black Economic Empowerment" above, was treated as an obligation as
the rights in the allocation of the profits had vested by the year-end and thus
were accrued for under short-term liabilities and not minority interest.
REVIEW OF RESULTS
The results have been reviewed by the joint independent auditors, Deloitte &
Touche and Charter Financial and Auditing Inc. A copy of their unqualified
review report is available for inspection at the registered office of the
company, The Atrium, corner Rustenburg Road and 7th Avenue, Melville.
By order of the board
Dr F van Zyl Slabbert R L Pike F D Burd
Chairman Chief Executive Group Financial
Officer Director
10 March 2004
Executive directors RL Pike, FD Burd, VC Baker,
M Liphosa
Non-executive directors HW Barenblatt, RB McGregor,
NF Lilford,
B Sibiya, PC Swart
Independent non- Dr F van Zyl Slabbert,
executive directors SO Shonhiwa,
F Khanyile, S Sebotsa
Alternate director SE Zungu
Company secretary MC Millar
Transfer secretaries Computershare Limited,
70 Marshall Street,
Johannesburg, 2001
Sponsor Deloitte & Touche Sponsor
Services (Pty) Limited
Date: 10/03/2004 02:00:15 PM Produced by the JSE SENS Department
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