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South Africa – Adcorp’s revenue rises in turbulent labour market

18 October 2013

South Africa’s largest staffing firm Adcorp (ADR: JNB) reported revenue for the six months to 31 August 2013 of ZAR 5.7 billion (USD 579 million), an increase of +41% compared with ZAR 4 billion (USD 406 million) a year ago.

Gross profit for the period also recorded an improvement, rising by +21% to ZAR 888.4 million (USD 90.2 million) from ZAR 737.5 million (USD 74.9 million) during the first half of 2012. However, net income for the period was ZAR 25.9 million (USD 2.6 million), a significant drop of -74.3% from ZAR 100.5 million (USD 10.2 million) a year ago. Affecting the results is a once-off share based payment charge relating to the implementation of the new 10-year Broad Based Black Economic Empowerment (BBBEE) transaction, which was approved by Adcorp’s shareholders at a general meeting in May.

Commenting on the report, the Board advised: “Much of the momentum achieved by the business in the past financial year has been carried through to the current reporting period despite less than buoyant underlying trading conditions. The South African labour market continues to be characterised by unrest, strikes, above inflationary wage demands, and trade union infighting. Whilst these trends are negative for overall employment prospects in a country already burdened by alarmingly high levels of unemployment, it does potentially favour contracting and outsourcing as alternatives to direct employment.”Blue collar staffing revenue, Adcorp’s biggest revenue stream, reported a +11.9% rise from ZAR 2.6 billion (USD 264 million) in 2012 to ZAR 2.9 billion (USD 294.4 million) this year. White collar staffing, in contrast, reported a -3.1% fall in revenue, year-on-year, from ZAR 691.6 million (USD 70.2 million) to ZAR 670.6 million (USD 68.1 million) in 2013.

The company’s second largest revenue stream was Independent Contracting, which recorded a big year-on-year increase of +214%, rising to ZAR 1.95 billion (USD 198 million) from ZAR 620.5 million (USD 63 million) last year. Adcorp’s BPO, Training, and Financial Services staffing segment reported growth of +28.1% to ZAR 138.8 million (USD 14.1 million) from ZAR 108.4 million (USD 11 million). Revenue for the smallest staffing segment, Emergent Business, rose to ZAR 6.5 million (USD 660,000) from ZAR 4.1 million (USD 415,000), equating to an increase of +60.4%.

Geographically, South Africa remains Adcorp’s biggest market. Revenue for the region during the first half of 2013 was ZAR 5.7 billion (USD 578.7 million), an increase of +3.9% from ZAR 4 billion (USD 406.1 million) a year ago. Revenue from the rest of the world rose substantially to ZAR 1.65 billion (USD 167.5 million) from ZAR 154.5 million (USD 15.7 million) during the period.

Looking forward, the Board commented: “The staffing industry has seen various substantial changes and evolving macro trends over the recent past. These include generally increasing tensions between employers and employees, the introduction of more restrictive and complex legislation; as well as the move of large employers to more cost effectively manage the efficiency of their workforce by appointing large, sophisticated service providers with the skill, geographic reach and financial strength to provide an all-encompassing staffing solution.”  

“Adcorp is well positioned to become a Southern Hemisphere and an emerging market, independent player of consequence. Given the favourable macro environment and the Group’s strong strategic response to these emerging, global industry trends, Adcorp is particularly well positioned for the future.”

In trading today, the company’s share price fell by -1.63% to ZAR 33.15 (USD 3.37), an increase of +22.6% compared with a year ago. Based on its current share price, the company has a market value of ZAR 3.05 billion (USD 309.7 million).  


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