On the back of an “extremely positive” 12 months to February 28, diversified workforce management and business process outsourcing company Adcorp increased its headline earnings a share by 58% to 298.5c, benefiting from the first full-year inclusion of Labour Solutions Australia (LSA) and the first three-month inclusion of the newly acquired Kelly Group.

Normalised earnings a share of 436.8c for the year were 14% ahead of the prior year’s 384.3c as a result of continued increased contributions from the  blue- and white-collar businesses and the acquisitive effect of Kelly and LSA’s inclusion.

Group revenues increased by 13% year-on-year to R13.3-billion, while earnings before interest, taxes, depreciation and amortisation of R668.5-million were 23% ahead of the prior year’s comparable figure. 

The group declared a final dividend of 88c for the period.

LABOUR LAW AMBIGUITY
Looking to its South African businesses, Adcorp outlined in a results statement on Tuesday that the revised Labour Relations Act had been passed into law and had created an element of ambiguity in the labour market as employers grappled with their interpretation of and developed appropriate responses.

“In some instances, this has advantaged the group in that we have been able to assist clients and gain volumes accordingly while, in others, particularly in the white-collar contracting space, volumes have been negatively impacted as clients have opted to take contract workers on permanently,” it noted.

Meanwhile, despite the uncertain environment and generally slow response of clients to these legislative changes, the group’s contracting businesses continued  to perform “well” in the financial year under review, delivering strong earnings and margin growth.

Reiterating its R248-million acquisition of Kelly Group over the period, Adcorp said management focus was now on the integration of the operations of Kelly with those of Adcorp.

“In this regard, a project team has been established to ensure that this integration happens systematically, professionally and delivers the best possible business outcome,” it stated.

INTERNATIONAL BUSINESSES
The group reported that its international operations now contributed one-third of normalised profit, with a target to increase this to 45% in the new financial year.

The group’s African operations, which focused predominantly in the areas of  mining, oil, gas, exploration and related infrastructure development, continued to show good operational growth, while Australian independent information technology (IT) contracting business Paxus performed in line with expectations and was currently benefiting from an improved IT employment market.

Indian associate IT solutions business Nihilent, in which the group owned a 35% stake, performed “exceptionally well”, although year-on-year profit  growth was negatively affected owing to the reversal of a provision in the prior year that was no longer required.

Excluding the effect of this one-off provision reversal, which favoured prior year profits, the business  achieved strong earnings growth at an operational level.

Newly acquired LSA had, meanwhile, been largely integrated into the group and was performing in line with expectations.

“LSA is an important component of the group’s Asia-Pacific portfolio and is  positioned as the launchpad for our blue-collar ambitions in Australia, said Adcorp.

PROSPECTS
Adcorp expected the new South African labour laws to negatively impact on volumes in South Africa in the short term, particularly with regard to the white-collar contracting business, where certain clients had indicated  their preference away from contract workers.

Accordingly, management was focused on minimising the profit effect of these anticipated volume declines by reducing related operating costs to rightsize those operations likely to be affected by reduced  volumes.

“With some exceptions, the group’s South African blue-collar, professional  services, training and financial services businesses are generally expected to be relatively unaffected by the recent changes to labour laws  and are well positioned for growth,” it stated.

Internationally, Adcorp would focus on promoting intergroup cross-selling opportunities and further enhancing cost and operational efficiencies.