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Adcorp Holdings Limited - Reviewed group results for the year ended 31 December
2004
Adcorp Holdings Limited
(`Adcorp` or `the Group`)
Registration number 1974/001804/06
Share code: ADR ISIN number: ZAE000000139
Adcorp Holdings
Reviewed Group Results for the year ended 31 December 2004
Leaders in human capital management
and marketing advisory services
Salient features
* Headline earnings per share up by 71%
* Operating profit up by 26%
* Cash conversion ratio 99%
* Final dividend declared of 80 cents
* Debtors days down by 2 days
* Gearing reduced to 1%
INCOME STATEMENT
for the year ended 31 December 2004
Reviewed Audited
2004 2003 %
R`000 R`000 change
Turnover 2 005 659 1 667 235 20,3
Cost of sales (1 398 519) (1 143 655)
Gross profit 607 140 523 580 16,0
Other income 25 532 14 087
OPERATING EXPENSES (529 037) (451 932) 17,1
Administrative expenses (194 913) (148 613)
Marketing and selling (254 781) (221 436)
Other operating expenses (79 343) (81 883)
EBITDA 103 635 85 735 20,9
Depreciation (13 831) (13 302)
OPERATING PROFIT BEFORE
AMORTISATION
OF GOODWILL 89 804 72 433 24,0
Amortisation of goodwill (4 397) (4 100)
Loss on sale of property (94) (391)
and equipment
OPERATING PROFIT 85 313 67 942 25,6
Interest received - banks 18 155 18 331
- fair value adjustments 82 269
Interest paid - banks (20 604) (24 435)
Share of profits/(losses) 2 222 (2 058)
from associates
Impairment of investments (1 224) (11 362)
and property
Loss on disposal of (5 565) (31 671)
operations and
subsidiaries
Profit before taxation 78 379 17 016 360,6
Taxation - current (20 168) (24 883)
- prior year - (1 222)
Profit/(loss) after 58 211 (9 089)
taxation
Minority shareholders` (898) 472
share of (profits)/losses
BEE share of super (2 274) (185)
profits after tax
Profit/(loss) 55 039 (8 802)
attributable to ordinary
shareholders
Reconciliation of
headline earnings
Profit/(loss) 55 039 (8 802)
attributable to ordinary
shareholders
Amortisation of goodwill 4 397 4 100
Impairment of investments 1 224 11 362
and property
Loss on sale of property 66 274
and equipment
Loss on disposal of 5 565 31 671
operations and
subsidiaries
Headline earnings 66 291 38 605 71,7
Weighted average number 40 302 40 031
of shares (000`s)
Headline earnings per 164,5 96,4 70,6
share - cents
Earnings/(loss) per share 136,6 (22,0)
- cents
Diluted headline earnings 162,8 94,4 72,5
per share - cents
Diluted earnings/(losses) 135,2 (21,5)
per share - cents
Distributions to
shareholders
- interim capital 25 10
distribution - cents
- final capital 54
distribution in respect
of prior year - cents
- final dividend declared 80 -
2005 - cents
Total distribution to 105 64 64,1
shareholders in respect
of each financial year -
cents
BALANCE SHEET
as at 31 December 2004
Reviewed Audited
2004 2003
R`000 R`000
ASSETS
Non-current assets 134 486 132 791
Property and equipment 44 656 39 055
Intangible assets 3 140 -
Goodwill 61 535 68 310
Investment in associates 3 550 3 059
Vendors for sale of business - 2 148
Deferred taxation 21 605 20 219
Current assets 349 035 294 081
Trade receivables 230 881 187 672
Other receivables 27 332 22 067
Vendors for sale of business - 259
Taxation prepaid 6 821 6 374
Cash resources 84 001 77 709
Total assets 483 521 426 872
EQUITY AND LIABILITIES
Capital and reserves 219 966 186 707
Share capital 1 031 1 007
Share premium 34 694 56 747
Treasury shares (4 205) (4 454)
Accumulated profit 188 446 133 407
Minority shareholders` interest 1 367 603
BEE shareholders` interest 2 459 185
Current liabilities 259 729 239 377
Current non-interest-bearing 174 384 139 536
liabilities
Current non-interest-bearing 144 484 114 321
liabilities
Amount due to vendor for acquisition 5 525 -
of business
Provisions 22 330 20 588
Taxation 2 045 4 627
Interest-bearing current liabilities
Bank overdraft 85 345 99 841
Total equity and liabilities 483 521 426 872
Number of ordinary shares in issue at
31 December (000`s) 41 258 40 035
Net asset value per share - cents 533 466
ABRIDGED CASH FLOW STATEMENT
for the year ended 31 December 2004
Reviewed Audited
2004 2003
R`000 R`000
Cash generated by operations 103 636 86 987
(Increase)/decrease in working capital (14 810) 8 537
Cash generated by operating activities 88 826 95 524
Net interest paid (2 449) (6 104)
Taxation paid (24 764) (25 757)
Capital distribution (31 964) (18 668)
Cash available from operating 29 649 44 995
activities
Cash effects from investment (19 676) (16 491)
activities
Cash effects from financing activities 10 815 (986)
Net increase in cash 20 788 27 518
Net bank borrowings at the beginning (22 132) (49 650)
of the year
Net bank borrowings at the end of the (1 344) (22 132)
year
Included in the 2004 investment activities above is capital expenditure of R20,8
million (2003: R14,6 million).
SEGMENT REPORT
for the year ended 31 December 2004
Turnover
2004 2003
Reviewed R`000 R`000
Permanent recruitment 252 871 235 172
Flexible staffing 1 518 839 1 179 229
Corporate communications 133 855 157 965
Marketing research 91 065 86 432
Central costs 9 029 8 437
Total 2 005 659 1 667 235
SEGMENT REPORT
for the year ended 31 December 2004
Operating profit Operating profit
before goodwill margin
before goodwill
2004 2003 2004 2003
Reviewed R`000 R`000 % %
Permanent 14 684 4 328 5,8 1,8
recruitment
Flexible 76 016 51 596 5,0 4,4
staffing
Corporate 5 362 18 721 4,0 11,9
communications
Marketing 7 838 11 088 8,6 12,8
research
Central costs (14 096) (13 300) - -
Total 89 804 72 433 4,5 4,3
SEGMENT REPORT
for the year ended 31 December 2004
Contribution to Net
group profit asset value
2004 2003 2004 2003
Reviewed % % R`000 R`000
Permanent 16,4 6,0 28 277 7 885
recruitment
Flexible 84,6 71,2 126 677 71 065
staffing
Corporate 6,0 25,9 5 117 4 548
communications
Marketing 8,7 15,3 1 882 4 583
research
Central costs (15,7) (18,4) 58 013 98 626
Total 100,0 100,0 219 966 186 707
ABRIDGED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2004
Share Share Treasury
capital premium shares
Reviewed R`000 R`000 R`000
Balance 31 December 2003 1 007 56 747 (4 454)
Shares issued 24 10 120 -
Treasury shares sold - - 40
Capital distribution paid - (32 173) 209
July and November 2004
Profit attributable to - - -
ordinary shareholders
Balance 31 December 2004 1 031 34 694 (4 205)
ABRIDGED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2004
Accumulated
profit Total
Reviewed R`000 R`000
Balance 31 December 2003 133 407 186 707
Shares issued - 10 144
Treasury shares sold - 40
Capital distribution paid - (31 964)
July and November 2004
Profit attributable to 55 039 55 039
ordinary shareholders
Balance 31 December 2004 188 446 219 966
Comments
OVERVIEW
2004 was a particularly good year for the Group. Operating profit increased by
25,6% compared to the prior year whilst headline earnings per share were 70,6%
higher than for the same period.
These positive results were achieved following a period of significant
repositioning and restructuring carried out during 2002 and 2003.
The success of the Group can largely be attributed to management`s adoption of a
simple, highly focused strategic agenda centred primarily around cash generation
and margin management.
Following on from these pleasing results, the Group is now well positioned to
achieve further, strong organic growth for the foreseeable future.
The Permanent Recruitment division had an outstanding year. Operating profit of
R14,7 million was some 239,3% ahead of that reported in the prior financial
year.
The recruitment environment in South Africa has improved substantially in line
with the growth of the South African economy. In particular, the demand for
staff in the financial services, retail, engineering, telecommunications and
public sectors continues to be strong. In addition, the repositioning of this
division to attract exclusive, managed staffing assignments has also contributed
positively to the financial successes of the division.
The Flexible Staffing division which is the most dominant contributor to Group
profitability, once again, produced an outstanding financial performance growing
operating profit by some 47,3% over the year to a level of R76,0 million.
The division provides jobs for between 25 000 and 30 000 employees at any point
in time with its biggest markets being the financial services,
telecommunications, healthcare, retail, office support, call centre, technical
and semi-skilled sectors of the job market.
The Corporate Communications division which is a relatively minor contributor to
overall Group profitability contributing some 6,0% of operating profit, had a
particularly difficult year.
Both of the divisional brands namely, Graphicor and Simeka TWS, came off
exceptionally strong performances in the prior year which made the prospects for
growth in 2004 all the more difficult.
Graphicor met expectations whilst SImeka TWS experienced a tough year due
largely to the conclusion of a public sector contract which it serviced over the
past three years and which represented more than 50% of its business.
Marketing Research also reported a lower profit performance than in the prior
year largely as a result of an exceptional performance in the prior year boosted
by a number of `one-off` assignments that were not repeated in the year under
review.
Our BEE deals concluded in 2003 resulted in super profits attributable to the
BEE partners of R2,3 million after tax. BEE and transformation remain ongoing
challenges for the Group and receive management`s constant attention.
FINANCIAL OVERVIEW
Turnover for the Group grew by 20,3% compared with 2003 whilst operating profit
produced a 25,6% increase over the previous year. Contributing to this pleasing
result was a 0,2% improvement in margin (4,5% in 2004; 4,3% in 2003) which added
some R3 million to profit before tax. Net interest paid for the year was R3,7
million lower than in 2003 while associates made a positive contribution of R2,2
million.
The Group cash position is strong with a net overdraft of R1,3 million as at 31
December 2004 compared with a R22,1 million net overdraft at the same time last
year. The current cash portion represents a gearing ratio of 0,6%. The
continuing focus on cash management resulted in a reduction in debtors days
which dropped from 38 days in 2003 to 36 days in 2004. The 7,0% decrease in cash
generated by operating activities is largely due to the growth in turnover and
additional working capital requirements.
The lower tax rate in 2004 is the result of tax benefits in respect of
learnerships implemented by the Flexible Staffing division in terms of the
Skills Development Act.
As advised in the 2004 interim results, trade and other receivables in the 2003
balance sheet have been separated in order to provide additional disclosure
while items previously offset between other receivables and current non-interest
bearing liabilities have been disclosed separately. The net current assets
however remain unchanged and comparatives for these line items have been
restated. In addition, the opening accumulated profit for 2003 has been reduced
by R7,4 million after tax in respect of a misstatement which occurred during the
period 2000 to 2002. The majority of this misstatement occurred in 2001 where
creditors were understated with a corresponding overstatement of profit. Below
is a comparison of the restated 2003 balance sheet items which have been
affected by the above corrections and adjustments.
2003 as
2003 previously
restated reported
R`000s R`000s
Current assets
Trade and other receivables - 197 090
Trade receivables 187 672 -
Other receivables 22 067 -
Taxation prepaid 6 374 3 182
Capital and reserves
Accumulated profit 133 407 140 853
BEE shareholders` interest 185 -
Current non-interest-bearing
liabilities
Current non-interest-bearing 114 321 91 947
liabilities
Provisions 20 588 19 860
Net asset value per share - cents 466 485
The audited 2003 figures in the balance sheet, segment report and abridged
statement of changes in equity have been adjusted where applicable to
incorporate the above changes.
DECLARATION OF DIVIDEND
On 9 March 2005, the board declared a dividend of 80 cents per share which
together with the interim capital distribution of 25 cents per share, results in
a total distribution in respect of the 2004 financial year of 105 cents per
share. The salient dates relating to the dividend will follow in due course.
BOARD OF DIRECTORS
During the year three appointments were made to the Adcorp board being Campbell
Bomela, George Negota and Thendo Ratshitanga, alternate to George Negota. There
were two resignations, namely Neil Lilford and Viccy Baker.
OUTLOOK
Prospects for the Group remain sound. All underlying businesses are contributing
positively and the industries they serve are generally performing well.
Operationally, all businesses are strongly focused on cash and margin
management.
Given the inherent potential in unlocking margin opportunity within the Group
coupled with the expansion of existing market opportunities together with
favourable economic conditions, prospects for real growth are good for the next
year.
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 has thus, in this regard,
implemented the requirements of the King II Report.
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,
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 2003 other than for the adoption of AC140 Business
Combinations which is applicable to new acquisitions on or after 31 March 2004.
In November 2004 the Group acquired a business which in terms of AC140 resulted
in intangible assets of R3,1 million and goodwill of R0,5 million. This goodwill
is not amortised and the intangible assets will be amortised over their useful
lives.
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 RL Pike FD Burd
Chairman Chief Executive Group Financial
Officer Director
9 March 2005
Executive directors RL Pike, HW Barenblatt, FD Burd, M Liphosa, RB McGregor, PC
Swart
Non-executive directors C Bomela, F Khanyile, G Negota, S Sebotsa, SO Shonhiwa,
Dr F van Zyl Slabbert
Alternate director T Ratshitanga, SE Zungu
Company secretary A Warwick
Adcorp Holdings Limited
(`Adcorp` or `the Group`)
Registration number 1974/001804/06
Share code: ADR ISIN number: ZAE000000139
Transfer secretaries Ultrashare Registrars (Pty) Limited
11 Diagonal Street, Johannesburg 2001
Sponsor Deloitte & Touche Sponsor Services (Pty) Limited
Adcorp `tops` in Financial Mail Top Empowerment Companies 2005 Survey
1st in Services Sector of JSE Securities Exchange 16th overall on JSE
Securities Exchange
`. . . the group`s high score is less about excellence in one area and more
about an overall balance in all the factors of empowerment` - Financial Mail,
Top Empowerment Companies, 2005
Date: 09/03/2005 09:59:57 AM
Produced by the JSE SENS Department
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