South African recruitment and outsourcing company Workforce Holdings (WKF: JSE) reported revenue last week for the year ending 30 June 2017 of ZAR 1.4 billion (USD 104.6 million), up 14.5% and up 8.4% organically compared to last year.

Gross margins declines from 24.4% to 22.9% were explained by a reduction in trading volumes in the relatively high margin energy infrastructure sector. The group stated that while these customers have mostly been replaced, this new business was concluded at slightly lower margins. Operating profit fell by 3.2% compared to the previous year.

The group acquired KBC Holdings Proprietary Limited in January 2017. KBC is involved in the provision of induction training, safety, health and environmental training, contractor onboarding and contractor management services. Workforce stated that it was acquired to complement the group’s existing technical training offerings and its temporary employment service business.

“Acquisitions continue to be an important source of growth and diversification for Workforce and we remain committed to our acquisition strategy,” Philip Froom, Group CEO of Workforce, said. “We are pleased with our improved cash generation, which we will continue to drive and whilst Workforce is cost conscious we still intend to invest in the future growth of the group in the form of green field businesses, technology, human capital and improved shared services.”

During the period the five reporting segments were consolidated into three to better represent the current core trading activities of the group and provide a simpler understanding of the operating entities comprising Workforce. The three segments are Staffing and Outsourcing, Training and Healthcare, and Financial and Lifestyle.

“Our Training and Healthcare segment, fueled by recent acquisitions, has experienced good growth in line with our strategic intent,” said Froom. Turnover for the first 6 months in the Training and Healthcare segment grew by 55% to ZAR 104.9 million (USD 8.0 million).

Workforce also stated, “The recent Labour Appeal Court judgement relating to the Temporary Employment Service (“TES”) industry has attracted much press coverage with its perceived negative implications for TES providers. Due to an Application for Leave to Appeal the judgement lodged with the Constitutional Court, the judgement is suspended and the initial Labour Court ruling is reinstated. It  found that a temporary employee working longer than three months and earning less than R205,433 (USD 15,700) annually is deemed to be an employee of both the TES provider and the TES provider’s client and that these parties are jointly and severally liable for any employment related obligations relating to that employee.

The TES industry is expecting that the Constitutional Court will uphold the initial ruling and it is estimated that there will be clarity in this regard within the next 12 months.

 “Although the economy and labour market is currently challenging we continue to identify growth opportunities organically and acquisitively across the operating segments of our group,” Froom said.

In trading last week Workforce Holdings shares traded at ZAR 170.0 (USD 13.0), down 2.8% on the day. Based on its current share price the company has a market value of ZAR 414.3 million (USD 31.7 million).