ADCORP HOLDINGS LIMITED - Trading Statement and Operational Update

            
ADR
Trading Statement and Operational Update

ADCORP HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
Registration number: 1974/001804/06
Share code: ADR & ISIN: ZAE000000139
("Adcorp" or "the Group")

TRADING STATEMENT AND OPERATIONAL UPDATE FOR THE SIX MONTHS ENDED 31 AUGUST 2020

Trading statement

In terms of the Listings Requirements of the JSE Limited (JSE), companies are required to
publish a trading statement as soon as there is a reasonable degree of certainty that the
financial results for the period to be reported upon next will differ by at least 20% from the
financial results for the previous corresponding period.

Adcorp advises shareholders, with reasonable certainty, that operating profit, total basic
earnings per share (EPS) and total headline earnings per share (HEPS) for the six months
ended 31 August 2020 will be as follows:

- Operating profit of between R102.1 million and R112.9 million compared to operating profit
  of R86.3 million for the six months ended 31 August 2019 (the Comparative Period),
  representing an increase of between 18% and 31%.

- EPS of between of 30.5 cents per share and 51.1 cents per share compared to a loss per
  share of 413.3 cents for the Comparative Period (representing an increase of between 107%
  and 112%).

- HEPS of between 41.4 cents and 42.4 cents per share compared to HEPS of 5.1 cents per
  share for the Comparative Period (representing an increase of between 712% and 732%).

In addition to the improved operating profit, EPS and HEPS, Adcorp has also improved its
liquidity and debt position. Group net debt has improved to R365 million at 31 August 2020
compared to R683 million at year end 29 February 2020. Included in net debt at 31 August
2020 are the drawn borrowing facilities, cash on hand and deferred accounts payables due
to COVID-19. Net cash on hand increased by R382m to 31st August 2020, after a net
repayment of borrowings of R414m.

As anticipated, Adcorps financial results for the six months ended 31 August 2020 have been
impacted by the economic slowdown and continued trading limitations related to COVID-19.
Adcorp responded appropriately under these circumstances by curtailing costs, significantly
increasing cash collections and extending credit terms.

The preservation of revenue and margin under these abnormal circumstamces has been
challenging. The Groups profits are higher than in the first half of the prior year largely as a
result of rigorous management of operating costs to mitigate the impact of COVID-19. In
addition, shareholders are reminded that the results for the FY2020 half year period were
impacted by significant impairment of the goodwill in some of the Groups resourcing
businesses.
Non-recurring costs of approximately R65.7 million relating to initiatives aimed at building a
lean operating model and increasing efficiencies, were incurred in the first half. The latter
were offset by a significant reduction in operating costs.

Group revenue has declined by 10% to 12% largely due to the interruption of classroom-
based training in South Africa, as well as a substantial reduction in commercial activity and
consequently demand for labour in both our operating geographies. However, operating
profits yielded a pleasing outcome with South Africa increasing by 11% to 22% and Australia
by 79% to 98%.

The liquidity management measures and interventions introduced to mitigate the impact of
COVID-19 continue to remain firmly in place. Particularly pleasing was the impact of improved
collections on accounts receivable in South Africa, which saw cash generated from
operations for the period of R858m (R110m for the six months to 31 August 2019), largely
driven by a decrease in trade and other receivables of approximately R499m. The improved
collections and reduction in the accounts receivable book also significantly reduces the credit
risk for the remaining book. Australia net debt has also improved in the last six months to a
credit position of R5 million, raising the possibility of intercompany loan repayments to the
South African operations going forward.

On the back of the strong generation of cash for the last six months noted above, Adcorp
believes it has made tremendous progress in its initiatives aimed at strengthening the balance
sheet. The Group has stabilised its liquidity position by successfully refinancing long term
borrowings until May 2022. The divestiture of Dare Australia has been concluded 
shareholders are referred to the detailed terms announcement released on SENS on 22
September 2020. The net result of the above initiatives makes it unlikely that the Group will
need to dispose of additional non-core assets other than those already in progress.

Operational update

South Africa

Revenue in the Industrial Services portfolio has decreased by 22% to 24% compared to the
same period in the previous financial year. This decline was largely in Temporary
Employment Services (TES) as the hospitality, automotive and industrials sectors, which
consititute a significant portion of this segment, were the worst affected during lockdown. In
contrast, Functional Outsourcing reported an increase in revenue as it benefitted from
operating in sectors that were mostly deemed as essential services during lockdown levels 4
and 5. Industrial Services reported an increase in EBITDA largely attributed to the focus on
cost savings coupled with a drive to ensure a profitable client mix.

Revenue in the Professional Placements portfolio has decreased by 23% to 25% when
compared to the first half of the previous financial year. The loss in revenue in Paracon can
primarily be attributed to budgetary constraints of major clients which resulted in reduced
contractor hours. In addition, permanent placement requirements were minimal during the
COVID-19 lockdown period and recovery in this area is proving to be slower than anticipated.
Significant cost saving measures were introduced to counter the impact of the loss in
revenue, resulting in an overall reduction of overheads and an increase in EBITDA.

The Training portfolio experienced a significant negative impact on EBITDA due to revenue
contraction of 40% to 42% compared to the same reporting period in the previous financial
year. Training recognised minimal revenue for the months of April, May and June due to the
business being solely reliant on instructor led training pre-COVID-19. In addition, clients cut
back investment in learning and development, and the adoption of the virtual platform offering
has been slower than expected. Although the uptake of virtual training has been slow, it has
allowed the Group to start providing training in geographies outside of South Africa.

Australia

Australia showed resilience notwithstanding a sustained lockdown in certain regions.
Revenue declined by 6% to 8% in AUD (approximately 10% to 12% increase in ZAR) due to
lower permanent recruitment fees, delayed project revenue and a decrease in client demand
for labour as a result of COVID-19. However, EBITDA is higher than the same period in the
previous financial year driven by a focused reduction in operational costs and the benefit of
government relief income. As a result of the increase to bottom line profits, debt has reduced
by approximately 45% as free cash has been utilised to pay down loan facilities, thus
strengthening the Groups financial position and de-gearing the balance sheet.

Adcorp expects to release results for the six months ended 31 August 2020 on or about 25
November 2020 and the results will be presented via webcast in light of the COVID-19
outbreak.

The financial information on which this trading statement is based has not been reviewed, or
reported on, by the Groups external auditors.

Johannesburg
15 October 2020

Sponsor
PSG Capital

Date: 15-10-2020 11:07:00
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