South African recruitment and outsourcing company Workforce Holdings (WKF: JSE) reported revenue today for the six months ended 30 June 2023 of ZAR 2.14 billion (USD 115.2 million), up 7% compared to last year. However, EBITDA halved and pre-tax profit in H1 2022 turned to pre-tax loss in H1 2023.

The group said the first six months were challenging due to several factors including, low levels of economic activity, loadshedding, high interest rates, lack of client confidence, and decreased demand for personnel services. Overhead costs increased by 12% because of burgeoning inflation rates and operating expenses which were geared for growth that did not occur due to the prevailing economic climate.

Revenue by segment

Within the Staffing and Outsourcing cluster, the group noted the macroeconomic climate affected the temporary and flexible staffing sector, resulting in reduced volumes and margin pressure given the poor economic growth.

African operations have been focused on relatively stable sectors like mining, oil and gas, hospitality and tourism and manufacturing, which continue to deliver good returns.

In Chile, the cluster has successfully replicated its South African business model, and the client base is growing, with some 30 clients already secured. Staffing operations are facing margin pressure and are having to renegotiate margins mid-contract in some instances.

Within Recruitment, part of the Staffing and Outsourcing cluster, the first half of this year was challenging, given the various issues facing the South African economy that have caused a difficult business environment.

The TES (temporary employment services) segment of the business continues to perform well and is generating good margins. Looking ahead, the Recruitment cluster has a positive outlook provided strong candidates are willing to take advantage of the opportunities offered by new corporate clients. The cluster continues to recruit high-calibre candidates, but needs stability in the economy to thrive, it added.

The Training and Education cluster successfully improved its cash collections and debtors’ management during the first six months of the financial year, resulting in a strong cash position.

The Financial Services cluster continued to show a positive progression in 2023, building on its improvement in the preceding year. This can be directly attributed to strategic shifts in management structures and the continuous enhancement of operational systems, bolstered by the successful integration of the GetSavvi acquisition into the cluster’s operations.

The occupational Healthcare and employee wellness business within this cluster experienced positive organic growth since the Covid-19 pandemic subsided, with existing clients resuming their wellness programmes and new clients having been acquired.

Looking ahead the group said, “Our projections for the second six months of the year indicate that lower operating costs and a seasonally better second half of the financial year will result in overall improved profitability for the group. We anticipate that the challenging business environment will continue for the balance of the year and into 2024, but believe that we are better-structured to withstand the headwinds.”

“Our expansion into Africa and beyond is showing positive signs and we believe this to be an important development and opportunity for the Workforce group in the future,” the company stated. “Our diversification policy that we continue to implement through the different investment clusters, will continue to develop and significantly contribute to group profitability and to our risk management initiatives in the medium term.”

Workforce Holdings shares last traded at ZAR 143.00 (USD 7.70), no change on the day and 19.17% above the 52 week low of ZAR 120.00 (USD 6.46) set on 15 June 2023. The company has a market cap of ZAR 348.54 million (USD 18.76 million).