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Adcorp, SA’s biggest listed recruitment group, has a net cash pile for the first time in five years, bolstered by a shift to online training and asset sales, putting it in a stronger position to navigate challenges posed by a fourth Covid-19 wave and an uneven recovery of the labour market. 

Though the group sees more upside potential than downside risk in its second half, it is concerned about a “jobless recovery” in parts of SA’s economy, CEO John Wentzel told Business Day.

“Our sense right now is that we are seeing a mixed recovery,” said Wentzel. “In some cases the labour force is not being absorbed in the same way it was before the pandemic,” he said.

This appeared to be affecting industries highly dependent on electricity, such as mining and some parts of manufacturing, said Wentzel, though SA’s fast-moving consumer goods had bounced back quite strongly from civil unrest that hit SA in July, while SA’s fintech and financial services industries had also proved resilient.

SA’s unemployment rate pushed to a record 34.4% in the second quarter of 2021. There is concern that third-quarter figures will reflect the effect of July’s  unrest.

Revenue from continuing operations fell 5.4% to R5.8bn in the group’s half-year to end-August, but after-tax profit from those businesses more than doubled to R27.4m. This followed a tough few months in 2020, but the group said it also reflected its focus on its higher-margin contracts, while exiting less profitable ones.

Lockdowns and civil unrest did adversely effect operations, and revenue easing 0.6% in SA was attributable to 0.7% and 4% slides in the group’s industrial and professional portfolios.

The group’s industrial business in SA largely maintained prior-period revenue. This business comprises contingent staffing, or contract work, and functional outsourcing. The latter continued to see rising demand and higher profit margins, said Adcorp.

Headline earnings, the primary measure of profit that strip out certain items from total operations, fell almost a fifth to R32.6m.

The group used R182.27m in proceeds from the sale of its financial services business, Adcorp Support Services, to pay down debt, leaving it with an unrestricted net cash pile of almost R100m.

Group interest-bearing borrowings fell to R250m, excluding leases, from R629.2m previously, but Adcorp opted not to pay an interim dividend. Wentzel said the company would review its capital allocation strategy at year-end, and was acting cautiously given the potential effects of a fourth wave.

Recruitment specialist Adcorp says the slow recovery in economic activity in SA and Australia has weighed on its business but the firm has still managed to improve its financials on a continuing operations basis with interim headline earnings per share more than doubling to 27.2c. Alishia Seckam spoke to Adcorp CEO John Wentzel for more detail

Adcorp operates in SA, as well as Australia, where it generates about 41% of its revenue. The Australian market was under pressure, with revenue falling 11.3%, given that in the prior matching period the group benefited from a government wage subsidy programme aimed at preserving jobs, though a stronger rand also had an effect in its 2021 half year. Operating profit from continuing operations in Australia rose 10.3%, the group said. 

The training division makes up only 2% of group revenue, but grew 41% year on year. This division is weighing disproportionately on operating profits and in the prior matching period posted a R32m operating loss, before financing effects, compared with R101m profit for the total group.

The training division’s operating loss was cut by a third. Adcorp said the group had introduced successful online training models and higher-margin products, such as high-end IT training in areas such as cyber security or advanced coding.

Losses booked by the training division were a reflection of how the group’s property costs were allocated, said Wentzel, as 30% of the group’s head office space at its Woodmead building had been set aside for classrooms for training. Covid-19 had, however, put severe strain on rentals, and left classrooms empty, but Adcorp was happy with the underlying profitability of its training business, he said.

In afternoon trade on Thursday, Adcorp was trading 5.36% higher at R5.90, though this is not an unusually large move for the group, which is valued at R649m on the JSE. The stock has halved since the beginning of 2020.

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