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Adcorp Holdings Limited :Joanne Botha on strong financial performance from Adcorp as it expands its global footprint

Adcorp Holdings Limited :Joanne Botha on strong financial performance from Adcorp as it expands its global footprint

22nd October 2014

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/ MEDIA STATEMENT / The content on this page is not written by Polity.org.za, but is supplied by third parties. This content does not constitute news reporting by Polity.org.za.

Listed workforce management group, Adcorp Holdings Limited, announced today that group revenues increased by 12% to R 6.4 billion for the interim six month period ended 31 August 2014 whilst normalised EBITDA of R299.7 million were 21% ahead of the prior year’s comparative figure. Normalised earnings per share of 191.7 cents were 9% ahead of the prior year’s figure.

Strategy is to expand geographic reach

Adcorp currently operates throughout Africa and the Asia Pacific region where it has been expanding its operations in line with its strategy to internationalise the business by focusing on emerging markets and the Southern Hemisphere.

“Adcorp’s strategy to internationalise the business has been the right strategic move at the right time,” says Adcorp Chief Executive, Richard Pike.

“The group is now regarded by its clients and peers as a player of consequence in the global staffing industry where, in terms of revenues generated, it is now ranked number 31 in the world,” he says.

Pike believes that with its current growth plans and targeted acquisition strategy, Adcorp could soon be knocking on the door of the global staffing Top 10.

“Our goal is to be recognised as a leading, independent workforce management provider of consequence, focused on selective emerging markets and the resource rich Southern Hemisphere where there is a sustained, abundant demand for scarce, technically skilled talent,” says Pike.

Pike maintains that size and geographic reach have become distinct advantages in an industry that is consolidating globally. The group currently places approximately 100 000 contract workers on assignment on any given day across four continents.

Outstanding cash and margin performance

Turning to the group’s financial performance, Pike says: “It is pleasing to note is that the group’s cash performance was substantially better than in the previous year. In this regard, the group’s cash-conversion ratio increased to a very credible 128%.”

Also encouraging is the margin performance of the group whereby the normalised EBITDA margin increased to 4.7%, up from 4.4% in the prior year.

“This improved margin is in part reflective of the enhanced back office efficiencies achieved by the group’s shared service centre which is starting to deliver cost, efficiency and scale advantage,” says Pike.


Blue collar operations performing well

The group’s blue collar businesses continued to perform exceptionally well, delivering strong earnings and margin growth. This despite being negatively affected by the recent strike action which impacted volumes.

The group’s white collar, training and independent contracting businesses were slightly down compared to the prior year.
New SA labour laws now finalised

The new Labour Relations Act (LRA) which sets out revised regulations for the temporary employment services industry in South Africa, has now been signed into law although the implementation date has yet to be gazetted.

Pike comments that, “Arguably, these long anticipated new labour laws have and will continue to benefit the group’s blue collar businesses as employers tend to favour the larger, more sophisticated and reputable providers such as Adcorp who are better positioned to ensure regulatory and legislative compliance.”

African and Asia Pacific expansion bears fruit

The group’s African operations which focus predominantly in the areas of mining, oil, gas, exploration and related infrastructure development; also continued to show good growth.

Adcorp’s Australian operations also turned in a solid performance with independent IT contracting business, Paxus, recording solid growth which is reflective of an improved IT employment market in that country.

“Labour Solutions Australia (LSA), which was acquired by Adcorp in December 2013, has integrated well into the group,” says Pike. “While it is still early days, the business is on track to achieve its potential,” he says.

Indian associate IT solutions business, Nihilent, of which the group owns a 35% stake, was slightly down as a result of the reversal of a provision in the prior year that was no longer required. Excluding the effect of this one-off provision reversal which favoured prior year profits, the business achieved real earnings growth at an operational level.

Offer for Kelly

As previously announced during April 2014, Adcorp acquired approximately 30% of the issued shares in Kelly Group Limited (Kelly) for a consideration of R73.8 million.

Subsequently, Adcorp has made an offer to acquire the remaining shares in Kelly that it does not own. If successful, the proposed transaction is to be effected by way of a scheme of arrangement between Kelly and its shareholders.

The requisite majority of Kelly shareholders required to approve this scheme have voted in its favour with the proposed takeover now subject to approval by the South African competition authorities.

Cost and efficiency initiatives paying off

Pike reported that, “significant effort has been focused on improving operational efficiencies and on controlling costs. In this regard, the group upgraded its ERP system, created a shared service centre and outsourced many of its back office functions to Indian-based Genpact over the past two years”.

He went on to say that: “This strategy is now starting to deliver benefits as evidenced by the group’s increasing margins and a significantly improved expense ratio.”

Conclusion

 

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Pike says that, “The group will continue to strengthen its presence and seek out further opportunities across Africa and the Asia Pacific region where it is growing its footprint and is developing a reputation as a player of consequence in these markets.

 

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“The potential to deliver work assignments across these various geographies is now a reality. In this regard, the group has been successful in pursuing a number of cross-border opportunities which, given our relatively recent expanded geographic reach, we are now uniquely positioned to service. It is anticipated that many more of these cross-border opportunities will be in the offing.

 

“Given the ongoing consolidation in the South African staffing industry, certainty with regard to South African labour legislation, the Group’s focus on the buoyant African and Asia Pacific staffing markets, its strong cash flow generation coupled with the cost and efficiency initiatives which are now starting to deliver; the Group is well positioned for the future,” he concludes.

 

Issued by Meropa Communications

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