Adcorp Holdings Ltd. reported revenue of ZAR 6.46 billion (USD 342.2 million), up 10.2% over the previous year according to the group’s unaudited interim results for the six months ending 31 August 2023.

Revenue growth was primarily attributed to the positive performance of the Contingent Staffing divisions in both South Africa and Australia.

Gross profit increased by 0.1% over the year. Profit before taxation decreased by 8.8%, primarily due to reduced gross margins across many of the group’s brands in the first half of the financial year.

Contingent Staffing grew in revenue and gross profit, continuing its positive trend. The division saw a renewed focus on the mining, renewable energy, and hospitality sectors. The division's diverse client base remains resilient despite macroeconomic challenges. In South Africa this performance was delivered despite the negative impact of extensive load shedding which dampened revenue growth.

Functional Outsourcing revenue was lower than in the comparative period, mainly due to the persistent macroeconomic challenges in South Africa. However, new contracts are expected to commence in the second half of the financial year and the division has entered new higher-margin sectors to boost performance.

The Professional division saw revenue growth but faced margin pressures. Strategic initiatives are underway to optimise costs and enhance efficiency to address this.

In Australia, Paxus revenue was marginally behind the comparative period, on an Australian dollar basis, as permanent placement demand fell and the IT market experienced further softening, but targeted strategies are in place to revitalise growth, ensuring the brand remains robust and competitive. Continuing its strong performance on the back of investment made during FY2023, Labour Solutions Australia revenue for H1 was significantly higher than the comparative period.

CEO John Wentzel said, “In the face of macro-economic challenges, Adcorp Group has not only demonstrated resilience but also a relentless drive to adapt and grow. We will continue with our comprehensive approach to cost containment and effective working capital management in order to ensure the group’s ongoing stability and profitability. Our recent performance is a testament to our team's dedication and strategic vision. I am proud of what we've achieved.”

Looking ahead, the group said the outlook for its South African operations has worsened due to persistent high levels of load shedding, compounded by infrastructure failure, sector-specific impacts and a high inflationary and interest environment. These challenges have soured the business mood, with clients hesitant to expand operations in the current economic climate. Meanwhile, GDP growth is expected to be marginal, continuing to impede job creation. Adcorp anticipates these factors will lead to lower demand, negatively impacting performance.

Adcorp said that while the outlook in Australia has softened due to cost-of-living pressures and rising interest rates, the business environment remains favourable. The labour market has moderated, but sectoral demand variations provide a cushion while inflation continues declining.

Adcorp added that its challenge lies in investing in profitable growth while controlling costs and preserving robust cash flow.

“Despite the margin pressure experienced across all sectors, primarily due to a decline in permanent placements and subdued demand for higher-margin services, the group remains confident in its ability to navigate these challenges,” Adcorp stated. “A series of strategic initiatives are underway to optimise cost structures, diversify revenue streams, and enhance operational efficiency. Leveraging innovative solutions and data analytics, the group aims to bolster profit margins by identifying growth opportunities and implementing cost-saving measures.”

Adcorp Holdings shares closed yesterday at ZAR 469.00 (USD 24.86), no change on the day and 44.31% above the 52-week low of ZAR 325.00 (USD 17.23) set on 19 May 2023. The company has a market cap of ZAR 515.69 million (USD 27.3 million).