| Wed 7 Mar 2007, 12:07 | | ADR - Adcorp - Reviewed Group Results for the year |
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ADR
ADR
ADR - Adcorp - Reviewed Group Results for the year ended 31 December 2006 and
final dividend declaration
Adcorp Holdings Limited
(Registration number 1974/001804/06)
Share code: ADR
ISIN number: ZAE000000139
("Adcorp" or "the Group")
Processes. Services. Solved.
Reviewed group results
for the year ended 31 December 2006
Salient features
- Earnings per share up by 61%
- Headline earnings per share up by 21%
- Final dividend of 126 cents per share - up 20%
Non-core businesses disposed
- High growth core businesses acquired
- Quality and quantity of group earnings greatly enhanced
- 25% BBBEE transaction concluded (conditional)
Income statement
for the year ended 31 December 2006
Reviewed Reviewed Reviewed
Total Continuing Discontinued Audited
December Operations Operations December
2006 2006 2006 2005
R`000 R`000 R`000 R`000
Revenue 2 700 216 2 586 280 113 936 2 359 652
Cost of sales (1 973 819) (1 938 874) (34 945) (1 650 708)
Gross profit 726 397 647 406 78 991 708 944
Other income 31 390 31 100 290 20 358
Administrative
expenses (235 130) (205 404) (29 726) (238 923)
Marketing and
selling expenses (321 060) (290 689) (30 371) (298 052)
Other operating
expenses (76 432) (64 690) (11 742) (75 920)
Operating profit 125 165 117 723 7 442 116 407
Interest received 4 088 4 073 15 2 587
Interest paid (4 940) (4 932) (8) (4 026)
Share of profits
from associates 5 477 2 278 3 199 3 294
Impairment of
goodwill (1 155) (1 155) - (19 112)
Impairment of
investment (101) - (101) -
Profit/(loss) on
sale of property
and equipment 358 (109) 467 3 322
Profit/(loss) on
disposal of
operations
and subsidiaries 7 568 7 568 - (333)
Profit before
taxation 136 460 125 446 11 014 102 139
Taxation (30 840) (27 730) (3 110) (35 010)
profit for the 105 620 97 716 7 904 67 129
year
Profit for the
year
Attributable to:
Ordinary
shareholders 107 994 100 090 7 904 65 185
Minority
shareholders (2 374) (2 374) - 1 012
BEE shareholders - - - 932
Profit for the 105 620 97 716 7 904 67 129
year
Earnings per share
Basic (cents) 251,8 233,4 18,4 156,2
Diluted (cents) 248,6 230,4 18,2 154,8
Proposed final
dividend (cents)
in respect of 2006 126 -
Distribution to
ordinary
shareholders
Interim dividend
(cents) 42 35
Final dividend
(cents) in respect
of the prior year 105 80
Reconciliation of
headline earnings
Profit for the 105 620 97 716 7 904 67 129
year
Impairment of
investment and
goodwill 1 256 1 155 101 19 112
Minority
shareholders`
share in interest 2 374 2 374 - (1 012)
BEE share of super
profits - - - (932)
(Profit)/loss on
sale of property
and equipment (254) 78 (332) (3 210)
(Profit)/loss on
disposal of
operations
and subsidiaries (7 568) (7 568) - 333
Headline earnings 101 428 93 755 7 673 81 420
Headline earnings
per share
Headline earnings
per share (cents) 236,5 195,1
Diluted headline
earnings per share
(cents) 233,5 193,4
Weighted average
shares (000`s) 42 882 41 730
Diluted weighted
average shares
(000`s) 43 444 42 103
Balance sheet
31 December 2006
Reviewed Audited
December December
2006 2005
R`000 R`000
Assets
Non-current assets 138 372 119 723
Property and equipment 32 775 34 667
Goodwill 41 525 42 015
Intangible assets 44 218 13 708
Investment in associates 3 189 4 092
Deferred taxation 16 665 25 241
Current assets 511 496 438 307
Trade, other receivables and prepayments 402 404 354 562
Assets classified as held for sale 30 408 -
Taxation prepaid 3 755 8 302
Cash resources 74 929 75 443
Total assets 649 868 558 030
Equity and liabilities
Capital and reserves 310 785 252 162
Share capital 1 085 1 065
Share premium 57 630 48 679
Treasury shares (1 010) (2 127)
Minority shareholders` interest 5 2 379
BEE shareholders` interest 77 77
Retained earnings 252 998 202 089
Non-current liabilities 5 010 7 318
Non-interest-bearing non-current liabilities 1 585 5 541
Deferred tax 3 425 1 777
Current liabilities 334 073 298 550
Non-interest-bearing current liabilities 238 211 241 837
Trade and other payables 144 328 169 513
Amounts due to vendor 709 2 187
Provisions 51 944 58 523
Liabilities classified as held for sale 35 119 -
Taxation 6 111 11 614
Interest-bearing current liabilities 95 862 56 713
Bank overdrafts 95 862 56 713
Total equity and liabilities 649 868 558 030
Number of ordinary shares in issue (000`s) 43 382 42 614
Net asset value per share (cents) 716 592
Condensed cash flow statement
for the year ended 31 December 2006
Reviewed Audited
31 December 31 December
2006 2005
R`000 R`000
Operating activities
Cash generated by operations before working
capital changes 150 383 134 814
(Increase) in working capital (56 621) (42 097)
Cash generated by operations 93 762 92 717
Net interest paid (852) (1 277)
Taxation paid (34 670) (26 210)
Net dividend paid (58 717) (46 996)
Cash retained by operations (477) 18 234
Cash flows from investing activities (46 464) (12 222)
Cash flows from financing activities 9 710 14 062
Net (decrease)/increase in cash and cash
equivalents (37 231) 20 074
Net cash and cash equivalents at the
beginning of the period 18 730 (1 344)
Net cash and cash equivalents at the end of
the period (18 501) 18 730
Note to the condensed cash flow statement
Cash and cash equivalents
Cash and cash equivalents included in the
cash flow statement comprise the following
balance
sheet amounts:
Cash resources 74 929 75 443
Bank balances included in assets held for 2 432 -
sale
Bank overdrafts (95 862) (56 713)
(18 501) 18 730
Condensed statement of changes in equity
for the year ended 31 December 2006
Minority
Share Share Treasury shareholders`
capital premium shares interest
R`000 R`000 R`000 R`000
Balance as at 31 December
2005 1 065 48 679 (2 127) 2 379
Issue of ordinary shares
under employee share option
plan 20 8 951 - -
Treasury shares sold - - 927 -
Recognition of share-based
payments - - - -
Receipts/(payments) of
dividends - - 190 -
Minority shareholders` share
of profits - - - (2 374)
Profit for the year - - - -
Restated balance as at 31
December 2006 1 085 57 630 (1 010) 5
BEE
shareholders` Retained
interest earnings Total
R`000 R`000 R`000
Balance as at 31 December 2005 77 202 089 252 162
Issue of ordinary shares under
employee share option plan - - 8 971
Treasury shares sold - (188) 739
Recognition of share-based - 6 079 6 079
payments
Receipts/(payments) of dividends - (62 976) (62 786)
Minority shareholders` share of
profits - 2 374 -
Profit for the year - 105 620 105 620
Restated balance as at 31 December
2006 77 252 998 310 785
Note: Share-based payments reserve now included in retained earnings column
Segment report
for the year ended 31 December 2006
Operating Operating
Revenue profit profit margin
2006 2005 2006 2005 2006 2005
Reviewed R`000 R`000 R`000 R`000 % %
Central
costs - - (24 (20 834) - -
890)
Staffing 2 586 280 2 176 543 142 126 761 5,5 5,8
613
Discontinued 113 936 183 109 7 442 10 480 6,5 5,7
Total 2 700 216 2 359 652 125 116 407 4,6 4,9
165
Contribution to Net asset Asset
group profit value carrying
value
2006 2005 2006 2005 2006 2005
Reviewed % % R`000 R`000 R`000 R`000
Central costs (19,9) (17,9) 195 200 201 220 318 577 282 232
Staffing 114,0 108,9 127 023 73 792 307 610 249 124
Discontinued 5,9 9,0 (11 438) (22 23 681 26 674
850)
Total 100,0 100,0 310 785 252 162 649 868 558 030
Liabilities Additions to
carrying Depre- PPE
value ciation
2006 2005 2006 2005 2006 2005
Reviewed R`000 R`000 R`000 R`000 R`000 R`000
Central 123 377 81 012 1 531 1 214 106 1 413
costs
Staffing 180 587 175 332 13 799 11 506 14 779 13 586
Discontinu 35 119 49 524 2 162 2 528 1 706 3 519
ed
Total 339 083 305 868 17 492 15 248 16 591 18 518
Note: Revenue shown above is external revenue
Comments
Overview
The Adcorp Group continues to deliver strong profit growth with headline
earnings increasing some 25% to R101,4 million (2005: R81,4 million) whilst
headline earnings per share of 236,5 cents for the year ended 31 December 2006
(2005: 195,1 cents) increased some 21,2% compared to last year.
Operating profit of R125,2 million was some 7,5% ahead of the R116,4 million
operating profit reported last year whilst earnings per share of 251,8 cents
compared to the 156,2 cents reported in the prior year. Earnings per share were
affected by the net, non-trading impact of a R7,6 million profit on the disposal
of portion of the Group`s Marketing Research division (The Customer Equity
Company), which was disposed of with effect from 31 December 2006 as well as the
Corporate Communications division which was disposed of with effect from 1 March
2006.
Also pleasing to note is that there were once again, strong performances with
regard to the Group`s two key financial imperatives namely, margin management
and cash generation.
With regard to margin management, operating margins for the period decreased
slightly compared to the prior year level of 4,9% to the current level of 4,6%.
This was mainly due to mix resulting from high growth in lower margin blue
collar business. The conversion ratio of cash generated by operating activities
to operating profit was 74,9% (2005: 79,6%). R93,8 million cash was generated by
operating activities.
During 2006, the decision was taken to focus Adcorp`s activities solely in the
area of human capital management and to exit the Group`s marketing research,
public relations and graphic design businesses.
As such, the 2006 financial year was an extremely busy one which involved
redefining the Group`s span of activities, disposing of non-core businesses and
buying replacement, core businesses that will significantly bolster Adcorp in
the future.
As a result, Adcorp has positioned itself as a leading provider of both staffing
solutions and business process outsourcing whereby our activities are now
focused primarily on attracting, retaining and developing appropriate people
talent and on optimising our client`s business processes and people
productivity.
In terms of repositioning the Group accordingly, Adcorp has now successfully
disposed of Simeka TWS, Graphicor and Research Surveys, as well as its 25%
minority stake in Career Junction (conditional upon signing of agreement). In
redeploying the approximately R140 million funds realised through the sale of
these businesses, the Group has acquired blue collar staffing businesses,
Capital Outsourcing Group (subject to the Competition Commission and
shareholders` approval) and Employrite as well as value-added employee benefit
solutions business, FMS Marketing Solutions.
The total cost of these acquisitions has been approximately R501 million which
will be funded by a combination of cash realised through the sale of non-core
businesses, debt and the issue of shares.
The profits of Employrite were included in the Group results from December 2006,
while FMS Marketing Solutions will be included in the results with effect from 1
January 2007. The results of Capital Outsourcing Group will be included with
effect from 1 May 2007 subject to approval of the transaction by the Competition
Commission as well as approval by shareholders to issue additional Adcorp
shares.
In addition, Adcorp recently announced a broad-based black economic empowerment
(BBBEE) transaction that will significantly bolster the empowerment credentials
of the Group and will also create an opportunity for all Adcorp employees to
share in the Group`s financial fortunes. In terms of this new empowerment
initiative, the empowerment shareholding structures of the Flexible Staffing
division and the disposed Communications division have been unwound thus
consolidating all of the Group`s empowerment shareholding in the new structure.
Having redefined the Group as detailed above, the decision has also been taken
to significantly streamline the senior executive management structure as well as
to downsize the board of Adcorp.
Given this repositioning and restructuring, the future prospects for the Adcorp
Group have been significantly enhanced.
The permanent recruitment operations of the Group performed well, other than for
a significant one-off contract in 2005, which was not repeated in 2006 and has
skewed year-on-year comparison.
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 affirmative action 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 operations also had a strong year despite of Quest having
a difficult start to the year following various management disruptions including
the death of their CEO.
The division now provides jobs for approximately 50 000 employees at any point
in time with its biggest markets being the financial services,
telecommunications, retail, office support, call centre, technical and semi-
skilled sectors of the job market. As nearly all of the group companies contain
both permanent and flexible elements it has been decided to combine these
divisions for future reporting. In addition under the new structure both
permanent and flexible staffing will report to the same director.
The Group is currently developing a new Microsoft Dynamics AX ERP system which
will be implemented during 2007. The upgrade has been necessitated by 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.
Accounting policies
Adcorp prepares its accounts in accordance with International Financial
Reporting Standards. The accounting policies are consistent with the prior year
annual financial statements with the exception of the capitalisation of
borrowing costs. Borrowing costs of R1,6 million related to the Dynamics AX ERP
system were capitalised. This financial report is prepared in accordance with
IAS 34 Interim Financial Reporting.
Financial overview
The Group performed well with headline earnings per share up 21,2% compared with
the same period last year. Earnings per share of 251,8 cents (2005: 156,2
cents) increased by 61,2% which was primarily the result of impairments in 2006
being R18,0 million lower than in 2005. Added to this was the profit on disposal
of businesses in the current year amounting to R7,6 million.
The operating margin percentage decreased from 4,9% in 2005 to 4,6% in the
current year which was largely due to an increase of R3,45 million in non-cash
flow IFRS adjustments. If these adjustments were excluded the margin would have
been 4,8% which is very much in line with 2005 and is a good result given that
the growth experienced in 2006 was spearheaded by the blue collar market sector
which typically carries lower margins.
In the balance sheet the assets and liabilities shown as being held for sale are
in respect of Research Surveys, as the sale of this business is only effective
in 2007, although its associate, The Customer Equity Company was sold in
December 2006. The increase in intangible assets to R44,2 million (2005: R13,7
million) was mainly attributable to capital expenditure on the new Dynamics AX
ERP system as well as intangibles identified in the Employrite acquisition.
During the 2006 year the Group utilised net cash resources totalling R37,2
million driven mainly by the cash payment for the Employrite acquisition
amounting to R38 million. Debtors days moved out to 36 days (2005: 33 days)
which has contributed to the increase in working capital of R56,6 million. The
collection of debtors remains very much an area of focus.
Change in year-end
Given the significant changes to the Group structure as reported and given the
fact that the Group`s largest activity involves the contracting and
administration of a significant number of individuals who are tax assessed
according to a tax year that ends in February each year, the decision has been
taken to change the company`s financial year-end to February.
As such, the financial results presented for the ensuing financial period will
be for a 14-month period commencing on 1 January 2007 and ending on 29 February
2008. Interim results for this period will be disclosed for the eight- month
period ending 31 August 2007.
Post-balance sheet events
Various events have taken place since 31 December 2006 a summary of which
appears below:
- Acquisition of FMS Marketing Solutions (Pty) Limited for R225 million -
effective from 1 January 2007
- The 25% empowerment shareholding in Adcorp Flexible Staffing Solutions
previously owned by a consortium comprising the Black Management Forum
Investment Company Limited, Zungu Investment Company (Pty) Limited and Vunani
Capital Holdings (Pty) Limited was re-acquired by Adcorp in January 2007 for an
amount of R22,8 million.
- Conditional purchase of Capital Outsourcing Group (Pty) Limited for R238
million
- Disposal of Research Surveys for R57,6 million - effective from 1 January 2007
- Conditional disposal of Adcorp`s 25% shareholding in Career Junction (Pty)
Limited for R53,9 million
- New BBBEE shareholding transaction proposed
- Restructuring of Adcorp`s board of directors following the new proposed BBBEE
transaction
Litigation
Kelly Group (SA) (Pty) Limited ("Kelly") has served a joint summons on Adcorp
and other parties amounting to R40,5 million following the acquisition by Adcorp
of FMS Marketing Solutions (Pty) Limited. The summons relates to Kelly`s lack of
success in pursuing the same acquisition opportunity. Adcorp has obtained a
legal opinion on the matter which suggests that Kelly`s claim is without any
substance. As such Adcorp and the other parties are defending the action.
Outlook
Given the significant repositioning and restructuring of the Adcorp Group that
has taken place over the past 12 months, the focus of management is now to
consolidate and integrate the new acquisitions and
reporting structure.
Although significantly bigger than before, the Group is now far more focused
than ever in a high growth industry with fewer reporting entities and a simpler,
streamlined management structure.
Based on this strong positioning together with the prospect of a far greater
BBBEE profile, 2007 should be both a successful and exciting year for the Adcorp
Group.
Declaration of final dividend
Notice is hereby given that a final dividend of 126 cents per share (2005: 105
cents per share) was declared on 7 March 2007 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, 6 July 2007
First day to trade ex final dividend Monday, 9 July 2007
Record date Friday, 13 July 2007
Payment date Monday, 16 July 2007
No share certificates may be dematerialised or rematerialised between Monday, 9
July and Friday, 13 July, 2007 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 independent auditors, Deloitte & Touche. A
copy of their unmodified 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 Chief Financial
Officer Officer
7 March 2007
Executive directors RL Pike, C Bomela, FD Burd, PC Swart
Independent Dr F van Zyl Slabbert, F Khanyile
non-executive directors
Company secretary L Sudbury
Transfer secretaries Link Market Services SA (Pty) Limited, 11 Diagonal
Street, Johannesburg, 2001
Sponsor Deloitte & Touche Sponsor Services (Proprietary) Limited
Date: 07/03/2007 12:07:08 Produced by the JSE SENS Department.
