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ADR
ADR
Adcorp - Reviewed Group Results for the Year Ended 31 December 2005
Adcorp Holdings Limited
("Adcorp" or "the Group")
Registration number 1974/001804/06
Share code: ADR
ISIN number: ZAE000000139
LEADERS IN HUMAN CAPITAL MANAGEMENT AND MARKETING ADVISORY SERVICES
REVIEWED GROUP RESULTS
for the year ended 31 December 2005
SALIENT FEATURES
* Headline earnings per share up by 23%
* Net income up by 36%
* Operating profit margin up to 4,9%
* Debtors days reduced by 3 days to 33 days
* Total dividend in respect of 2005 of 140 cents per share - up 33%
* Return on assets managed up to 34%
INCOME STATEMENT
for the year ended 31 December 2005
Reviewed Restated
2005 2004
R"000 R"000
REVENUE 2 392 510 2 005 659
Cost of sales (1 683 566) (1 400 649)
GROSS PROFIT 708 944 605 010
Other income 20 358 25 532
OPERATING EXPENSES (612 895) (545 049)
Administrative expenses (238 923) (215 047)
Marketing and selling expenses (298 052) (254 781)
Other operating expenses (75 920) (75 221)
NET INCOME 116 407 85 493
Interest received - banks 15 935 18 155
- fair value adjustments - 82
Interest paid - banks (17 212) (20 604)
- fair value adjustments (162) -
Share of profits from associates 3 294 2 222
Impairment of goodwill, (19 112) (1 224)
investments and property
Profit/(loss) on sale of property 3 322 (94)
and equipment
Loss on disposal of operations and (333) (5 565)
subsidiaries
PROFIT BEFORE TAXATION 102 139 78 465
Taxation (35 010) (19 132)
PROFIT FOR THE YEAR 67 129 59 333
Attributable to:
Ordinary shareholders 65 185 56 917
Minority shareholders 1 012 898
BEE shareholders 932 1 518
Profit for the year 67 129 59 333
Earnings per share - cents 156,2 141,2
Diluted earnings per share - cents 154,8 139,8
Distribution to shareholders
- interim prior year (capital - 25
distribution) - cents
- final dividend in respect of 80 54
prior year
- interim dividend - cents 35 -
- proposed final dividend 105 80
Weighted average shares in issue - 41 730 40 302
000"s
Total shares for diluted earnings 42 103 40 711
calculated - 000"s
HEADLINE EARNINGS
as at 31 December 2005
Reviewed Restated
2005 2004
R"000 R"000
RECONCILIATION OF HEADLINE
EARNINGS
Profit for the year 67 129 59 333
Impairment of goodwill, investment 19 112 1 224
and property
Minority shareholders" share in (1 012) (898)
profit
BEE shareholders" share of profits (932) (1 518)
(Profit)/loss on sale of property (3 210) 66
and equipment
Loss on disposal of operations and 333 5 565
subsidiaries
HEADLINE EARNINGS 81 420 63 772
Headline earnings per share - 195,1 158,2
cents
Diluted headline earnings per 193,4 156,6
share - cents
BALANCE SHEET
as at 31 December 2005
Reviewed Restated
2005 2004
R"000 R"000
Assets
Non-current assets 117 946 141 541
Property and equipment 34 667 49 501
Goodwill 42 015 60 802
Intangible assets 13 708 3 140
Investment in associates 4 092 3 550
Deferred taxation 23 464 24 548
Current assets 438 307 349 035
Trade receivables 297 128 230 881
Other receivables 57 434 27 332
Taxation prepaid 8 302 6 821
Cash resources 75 443 84 001
Total assets 556 253 490 576
Equity and liabilities
Equity 252 162 219 015
Share capital 1 065 1 031
Share premium 48 679 34 694
Treasury shares (2 127) (4 205)
Share based payments reserve 2 821 1 318
Retained earnings 199 268 183 107
Minority shareholders" interest 2 379 1 367
BEE shareholders" interest 77 1 703
Non-current liabilities
Non-current interest-bearing 5 541 6 887
liabilities
Current liabilities 298 550 264 674
Current non-interest-bearing 241 837 179 306
liabilities
Current non-interest-bearing 169 513 127 518
liabilities
Amounts due to vendor 2 187 3 500
Provisions 58 523 46 243
Taxation 11 614 2 045
Current interest-bearing 56 713 85 368
liabilities
Current portion of interest- - 23
bearing non-current liabilities
Bank overdraft 56 713 85 345
TOTAL EQUITY AND LIABILITIES 556 253 490 576
Number of ordinary shares in issue 42 614 41 258
- 000"s
Net asset value per share - 000"s 592 531
ABRIDGED CASH FLOW STATEMENT
for the year ended 31 December 2005
Reviewed Restated
2005 2004
R"000 R"000
Cash flows from operating
activities
Cash generated from operations 134 481 103 636
Increase in working capital (43 074) (14 810)
Cash generated by operating 91 407 88 826
activities
Net interest paid (1 277) (2 449)
Taxation paid (26 210) (24 764)
Net dividend paid/capital (46 996) (31 964)
distribution
Net cash inflow from operating 16 924 29 649
activities
Cash flows used in investing (11 889) (19 676)
activities
Cash flows from financing 15 039 10 815
activities
Net cash movement 20 074 20 788
Cash and cash equivalents at the (1 344) (22 132)
beginning of the year
Cash and cash equivalents at the 18 730 (1 344)
end of the year
RECONCILIATION OF PREVIOUS SA GAAP TO IFRS
Restated IFRS
12 months transition
to date
31 December 1 January
2004 2004
R"000 R"000
BALANCE SHEET
Changes in equity:
Total equity:
As previously reported - SA GAAP 219 966 186 707
Prior year adjustment in respect (5 899) (5 143)
of leave pay provisions
Operating lease rental timing (3 192) (1 800)
adjustments
Net effect of above adjustments on 958 538
deferred taxation
Restated total equity - SA GAAP 211 833 180 302
Minority shareholders" interest 1 367 603
BEE shareholders" interest 1 703 185
Impairment of goodwill (4 854) (4 854)
Reversal of goodwill amortisation 4 121 -
Adjustment of fixed property 4 845 4 396
residual values
Share based payments (1 318) (355)
Charges against retained earnings 1 318 355
Restated total equity - IFRS 219 015 180 632
INCOME STATEMENT
Profit for the year as previously 58 211
reported - SA GAAP
Prior year adjustment in respect (2 130)
of leave pay provisions
Operating lease rental timing (1 393)
adjustments
Taxation adjustment in respect of 1 036
the above
Restated profit for the year - SA 55 724
GAAP
Share based payments charge (962)
Reversal of fixed property 450
depreciation
Reversal of goodwill amortisation 4 121
Restated profit for the year 59 333
SEGMENT REPORT
for the year ended 31 December 2005
Turnover Net income
2005 2004 2005 2004
Reviewed R"000 R"000 R"000 R"000
Central costs 5 429 9 029 (20 834) (14 124)
Permanent 353 122 252 871 23 244 14 098
recruitment
Flexible 1 850 850 1 518 839 103 517 72 750
staffing
Corporate 81 427 133 855 387 5 182
communications
Marketing 101 682 91 065 10 093 7 587
research
TOTAL 2 392 510 2 005 659 116 407 85 493
Operating profit Contribution to
margin group profit
2005 2004 2005 2004
Reviewed % % % %
Central costs - - (17,9) (16,6)
Permanent 6,6 5,6 20,0 16,5
recruitment
Flexible 5,6 4,8 88,9 85,1
staffing
Corporate 0,5 3,9 0,3 6,2
communications
Marketing 9,9 8,3 8,7 8,9
research
TOTAL 4,9 4,3 100,0 100,0
Net
asset value
2005 2004
Reviewed R"000 R"000
Central costs 98 199 62 319
Permanent 2 918 25 835
recruitment
Flexible 149 710 123 391
staffing
Corporate 1 519 6 336
communications
Marketing (184) 1 134
research
TOTAL 252 162 219 015
ABRIDGED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2005
Share Share Treasury
capital premium shares
Reviewed R"000 R"000 R"000
Balance as at 31 December 2004 1 031 34 694 (4 205)
Prior year adjustments - - -
IFRS restatements to 31 - - -
December 2004
Restated balance as at 31 1 031 34 694 (4 205)
December 2004
Profit for the year - - -
BEE share of super profits - - -
Minority shareholders share of - - -
profits
Shares issued 34 13 985 -
Share based payments - - -
Payments made to BEE - - -
shareholders
Treasury shares sold - - 1 800
Dividend distributions - - 278
Balance as at 31 December 2005 1 065 48 679 (2 127)
Share Minority
based
Retained payments Share-
holders"
earnings reserve interest
Reviewed R"000 R"000 R"000
Balance as at 31 December 2004 188 446 - 1 367
Prior year adjustments (8 133) - -
IFRS restatements to 31 2 794 1 318 -
December 2004
Restated balance as at 31 183 107 1 318 1 367
December 2004
Profit for the year 67 129 - -
BEE share of super profits (932) - -
Minority shareholders share of (1 012) - 1 012
profits
Shares issued - - -
Share based payments - 1 503 -
Payments made to BEE - - -
shareholders
Treasury shares sold (782) - -
Dividend distributions (48 242) - -
Balance as at 31 December 2005 199 268 2 821 2 379
BEE
Share-
holders"
interest Total
Reviewed R"000 R"000
Balance as at 31 December 2004 2 459 223 792
Prior year adjustments (756) (8 889)
IFRS restatements to 31 - 4 112
December 2004
Restated balance as at 31 1 703 219 015
December 2004
Profit for the year - 67 129
BEE share of super profits 932 -
Minority shareholders share of - -
profits
Shares issued - 14 019
Share based payments - 1 503
Payments made to BEE (2 558) (2 558)
shareholders
Treasury shares sold - 1 018
Dividend distributions - (47 964)
Balance as at 31 December 2005 77 252 162
COMMENTS
OVERVIEW
2005 proved to be another very successful year for the Adcorp Group. Operating
profit increased by 36,2% compared with the prior year whilst headline earnings
per share were 23,3% higher for the same period.
Following the repositioning strategy and operational plan embarked upon by the
Group in 2001, Adcorp has now delivered three consecutive years of double digit
profit growth.
The foundation of the original 2001 repositioning strategy was to place the
Group on a sound financial and operational footing. As such, it was recognised
that cash and margin management were the key value drivers of the business and
required a single minded focus.
Simply put, the philosophy has been to grow profit and to convert this profit
into cash.
The Permanent Recruitment division of the Group recorded another outstanding
year. Operating profit of R23,2 million was some 64,9% ahead of that reported in
the prior financial year.
The recruitment environment in South Africa continues to perform well in line
with strong 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.
The demand for equity candidates is also a major driver in the recruitment
industry. As such, the balance in the market has shifted somewhat away from a
constraint in new employment positions to a constraint in candidate
availability.
The Flexible Staffing division recorded operating profit of R103,5 million which
is 42,2% ahead of the operating profit of R72,8 million recorded for the same
period last year.
This division is the most dominant contributor to Group profitability and, once
again, produced an outstanding financial performance.
The division provides jobs for between 30 000 and 35 000 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.
Whilst a relatively small division in the greater Adcorp Group, the Corporate
Communications division experienced a difficult year in 2005.
Although the graphic design and annual report operations produced a reasonable
profit, the division produced an overall modest operating profit of R0,4 million
due to losses incurred in the public relations business.
A number of management changes have been made and the division is now well
poised from a position of transformation and empowerment, delivery capability,
cross-company synergy, and market profile.
The challenge in 2006 is to ensure that the plan is effectively implemented and
that the new sales drive delivers the additional required level of revenues to
put the division back on to a profitable footing.
The Marketing Research division, trading as Research Surveys, had a very good
year.
Operating profit of R10,1 million for 2005 grew by a factor of 33,0% compared to
operating profit of R7,6 million for 2004.
This improved performance is reflective of the dominant position Research
Surveys now enjoys in the consumer research industry as well as a strong South
African economy, particularly in the fast moving consumer goods (FMCG) sector.
During the year, the decision was taken to commence with an upgrade of the
management information systems of the Flexible Staffing division and to
implement the Microsoft developed "Axapta" ERP system.
This upgrade has been necessitated due to the rapid growth and changing nature
of the Flexible Staffing businesses, the age and complexity of the existing
systems as well as the need for timely, relevant operational information given
the strong focus on margin management and the untapped potential that can be
achieved by focusing on operational excellence.
The new system is expected to be fully implemented early in 2007 and is
anticipated to cost in the region of R27 million to complete the project. R10,6
million of this cost has already been incurred in the 2005 financial year and
will be depreciated once the system is commissioned.
Being a service based business, it has been management"s philosophy to maintain
balance sheet flexibility and to deploy financial resources to best financial
advantage in order to maximise returns for shareholders. The Group, therefore,
opts to lease business premises in preference to owning such premises.
Accordingly, Adcorp took the decision to sell its fixed property consisting
primarily of its head office building situated in Melville, Johannesburg.
Consequently, the building was sold towards the end of the 2005 financial year
for an amount of R21,3 million.
The funds from this sale have been earmarked to fund the new management
information system referred to above, such that the Group"s cash flows and
consequential dividend returns to shareholders remain largely unaffected.
The major strategic priorities of the Group for 2006 are to exploit our core
strengths, optimise Group synergy, drive operational excellence and enhance the
Group"s broad-based black economic empowerment (BBBEE) profile whilst
operationally, all businesses remain strongly focused on cash and margin
management.
FINANCIAL OVERVIEW
This report has been prepared in accordance with International Financial
Reporting Standards (IFRS). The transition date to IFRS was 1 January 2004 and
the figures for the year ended 31 December 2004 have been restated accordingly.
Changes in our accounting policies were disclosed in our interim results
announcement of 17 August 2005.
Headline earnings per share increased by 23,3% compared with 2004 while the
increase in earnings per share was 10,6% above last year. The reason for the
lower increase in earnings per share is the impairment of goodwill of R19,1
million. Of this, R14,0 million was precipitated by the reduced profit prospects
of Graphicor, the Communications Division company which has been beset by
management and staff problems. The balance is primarily due to The Production
Management Institute of SA, a training company, where R4,1 million was impaired
as a result of this company"s slow return to accepted levels of profitability.
The increase in margin of 0,6% is a pleasing upward trend and has contributed
approximately R14,0 million additional profit in the current year.
Net cash at 31 December 2005, was R18,7 million compared with an overdraft of
R1,3 million at the end of 2005. Working capital requirements increased by R28,3
million over the same period last year mainly as a result of December 2005
turnover being significantly higher than that of December 2004. The full impact
of this was offset by a reduction in debtors days from 36 to 33 days.
The increase in central costs compared with 2004 is mainly due to additional
expenses incurred in complying with corporate governance and accounting
requirements.
OUTLOOK
Prospects for the Group remain positive and the growth trend achieved over the
past three years is expected to continue.
Given the anticipated expansion of existing market opportunities together with
the inherent potential in unlocking operational productivity coupled with
favourable economic conditions, prospects for sustained, real growth remain good
for the foreseeable future.
DECLARATION OF FINAL DIVIDEND
Notice is hereby given that a final dividend of 105 cents per share (2004: 80
cents per share) was declared on 8 March 2006 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 day to trade cum final dividend Friday, 31 March 2006
First day to trade ex final dividend Monday, 3 April 2006
Record date Friday, 7 April 2006
Payment date Monday, 10 April 2006
No share certificates may be dematerialised or rematerialised between Monday, 3
April and Friday, 7 April 2006, both days inclusive.
Dividend cheques will be posted and electronic payments made, where applicable,
to certificated shareholders on the payment date. Dematerialised shareholders
will have their account with Central Securities Depository Participant or broker
credited on the payment date.
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, 28 Sloane Street, Bryanston.
By order of the board
Dr F van Zyl Slabbert RL Pike FD Burd
Chairman Chief Executive Group Financial
Officer Director
8 March 2006
Executive directors
RL Pike, HW Barenblatt, C Bomela, FD Burd, M Liphosa, RB McGregor, PC Swart
Independent
Dr F van Zyl Slabbert, SO Shonhiwa, F Khanyile,
Non-executive directors
GM Negota, S Sebotsa
Alternate directors
TEM Ratshitanga, SE Zungu
Company secretary
L Sudbury
Transfer secretaries
Ultra Registrars (Pty) Limited, 11 Diagonal Street, Johannesburg, 2001
Sponsor
Deloitte & Touche Sponsor Services (Pty) Limited
Date: 08/03/2006 12:57:25 PM Produced by the JSE SENS Department
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