Organic growth lifts revenue for Workforce; group continues to look for acquisitions to enhance diversity

Highlights for the six-months ended 30 June 2018

• Revenue up 4.2% to R1,4 billion
• Gross profit up 6.7% to R333,9 million
• Profit for the period up 10.8% to R46,0 million
• Headline earnings per share up 8.1% to 20,2 cps
• Net asset value per share increased by 13.2% to 244 cps
• Tangible net asset value per share up 4.1% to 137 cps
• Net interest-bearing debt to total tangible assets 42% (2017: 36%)
• Acquisition of Dyna to boost Training & Consulting segment
• Training & Consulting segment EBITDA increased by 30.7% to R19.7 million

Thursday, 23 August 2018, Johannesburg – Workforce Holdings Limited a diversified services group today released interim results for the six months ended 30 June 2018. The Workforce subsidiaries provide human capital solutions to employers, covering all industry sectors. The group’s services include temporary employment services, training and skills development, business process outsourcing, contractor on-boarding, permanent placement recruitment, healthcare, wellness, disability solutions, financial services and lifestyle benefits.

Set against a backdrop of challenging conditions that impacted the macro, political and economic climate in South Africa, the Group still achieved earnings growth, albeit at a lower rate than the average annual growth rate of 17.9% over the last five periods under review.

CEO, Ronny Katz, said that the Constitutional Court ruling in the “Assign” case, delivered in July this year, had represented a landmark event for the temporary employment services (TES) industry in South Africa.

“Not only did it clarify the legislation but gave direction to all parties involved as to their rights and obligations in terms of the Labour Relations Act. This will go a long way towards stabilising the sector, and we are pleased with the outcome.”
Katz added that the two other factors in the make-up of the Group’s earnings that could be seen as unsustainable related to the employment tax incentive (ETI) and the tax breaks in terms of section 12H benefits derived from learnerships.

“The ETI is due to come to an end on 28 February 2019, but there is currently a draft tax amendment bill before parliament, which still has to be debated, for its extension for several years going forward. We are hopeful this will be passed in due course.”

He said that in so far as the learnerships and their benefits under section 12H of the Income Tax Act are concerned, these were extended during the year for three years until the end of 31 March 2022, opening several long-term opportunities for the Group’s training segment.

Financial review

Revenue for the first six months of 2018 was up by 4.2%, driven mostly by organic growth. The relatively low growth was due to limited economic growth across the country, said Katz. Adding that the Group believes that the second half is going to reflect improved growth rate opportunities.

Gross profit margin increased by 6.7%, representing gross profit of 23.5% (2017: 22.9%). The increase was mainly the result of the higher margin training segment now carrying a more substantial weighting relative to the overall results.

Operating costs increased by 8,9% to R265,6 million (2017: R243,9 million). This is mainly due to an increase in the doubtful debt provision charge to the income statement primarily because of IAS 36 being replaced by IFRS 9. The bad debt charge in 2017 was also unusually low.

Normalising for the doubtful debt effect, operating costs grew by 4,2%, with EBITDA up slightly by 0,8% to R67,8 million (2017: R67,3 million).

Depreciation and amortisation increased by 5,5% to R13,7 million (2017: R12,9 million), R6,2 million (2017: R5,6 million) of which is due to the amortisation of intangible assets created because of the seven acquisitions made since 2015.

Net finance costs remained relatively flat at R11,1 million (2017: R11,3 million).

No dividend was declared relating to the period under review.

Operational review

Staffing and Outsourcing segment

Turnover in this segment, which was negatively affected by the lack of confidence in the economy, the uncertainly prior to the Constitutional Court judgement and poor economic growth, increased by 2.6%, with EBITDA decreasing 14,1% to R78,9 million (2017: R91,8 million). It was also impacted by the increased debtors’ impairment because of the implementation of IFRS 9, as well as having had a low base in the preceding year.

Outlook for the segment is that with clarity now provided by the Constitutional Court ruling, real efforts are being made to invigorate sales.

Training and Consulting segment

This segment experienced good improvement, with turnover increasing by 4,5% and EBITDA by 29,11% to R19,7 million (2017: R15,1 million).

Revenue growth for the segment was almost entirely organic in nature as Workforce only acquired the Dyna Training Group (“Dyna”) effective 1 June 2018, so it had a limited impact on the results. The maximum purchase price for this acquisition was a cash amount of R79,4 million.

“We are bullish on the outlook for the segment and we are pleased with the Dyna acquisition. We will continue to look at other opportunities to enhance further organic and acquisitive growth. The Prisma and KBC acquisitions have been bedded down and are proving to be successful,” said Katz.

Financial and Healthcare segment

The segment experienced excellent growth, with revenue increasing by 80,1% and EBIDTA by 47,3% to R7,0 million (2017: R4,7 million) during the six months under review.

“Our outlook is positive, with a few significant contracts having been closed. The operationalisation of potentially lucrative deals recently closed in the rest of Africa is a priority for the coming six months.”

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