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- Workforce solutions provider Adcorp saw its annual profit jump by 200%, despite a decline in revenue.
- Its profit was bolstered by improved margins and a lower cost of funding, thanks to a reduction in its debt burden.
- Adcorp's share price jumped by 6% in response to the results.
The JSE-listed workforce solutions provider Adcorp's share price rallied 6% on Monday after the company's profit climbed by almost 200% in the year to end February. It also declared a dividend.
This was despite a 1.7% fall in its revenue to R11.5 billion compared to the previous financial year.
The company said its revenue was negatively affected by the strategic exit of low-margin contracts, the July unrest, flooding in Australia and the impact of Covid-19 in key markets.
Adcorp assigns about 43 000 contingent or temporary staff daily for its clients. Furthermore, it does training in a number of disciplines. Its brands include Quest, Paracon, Labour Solutions Australia, talentCRU, and Torque IT.
Its total headline earnings per share climbed by almost 191% to 99.4 cents.
According to the group, the increase was due to improved margins, improved quality of earnings, prudent cost control and lower cost of funding due to debt reduction and active cash management.
Cash generated from operations was down 71.6% to R260 million. Its net cash position, however, improved by 505% to R198 million.
A dividend of 47 cents per share was declared, after no dividend was declared in the previous financial year.
The group points out that the prior financial year was "a fairly anomalous one" given the impact of Covid-19, market conditions and several once off income and cost items.
At the start of the financial year, the constrained Covid-19 business environment caused companies to continue cutting costs and rationalise employees, and put projects on hold, therefore impacting the demand for contingent labour, according to Adcorp.
Adcorp expects the slow recovery in South Africa to persist through its 2023 financial year and remains concerned about rising inflation, high unemployment and ongoing infrastructure and service delivery failures.
Nevertheless, it claims it has seen early signs of some recovery in permanent and contingent demand.
According to the research team at Merchantec Capital, given the sluggish domestic economy, particularly post-pandemic, Adcorp's results reflect a resilient performance with revenue being affected by the strategic exit of lower margins contracts and lower job placements in key sectors, with the latter reflecting the stalling of the economic recovery.
"Despite this, the group's headline earnings per share improved significantly owning to its internal efforts that include a massive fall in interest-bearing debt which then translated into squeezed finance costs," the research team responded to Fin24.
"With the inflation rate up and a tightening of Monetary Policy, the GDP growth is expected to remain slow, thus impacting sentiment in the jobs market."
In its view, it is unlikely that the Adcorp group will continue this trend considering slow economic growth and recent market turmoil in the North.
By late afternoon on Monday the share price was up 6% to R5.83 a share.
