Wrap Text
Audited summarised condensed results for the year ended 31 December 2018
Workforce Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 2006/018145/06)
(JSE Share Code: WKF ISIN: ZAE000087847)
("Workforce" or "the group")
Audited summarised condensed results
for the year ended 31 December 2018
Financial highlights
- EBITDA increased by 26,9% to R156,9 million (2017: R123,5 million)
- Profit after tax increased by 8,0% to R104 million (2017: R96,8 million)
- Revenue up by 7,4% to R3,0 billion (2017: R2,8 billion)
- Cash flows from operating activities R54,9 million (2017: R11,4 million)
- EPS up by 8,6% to 46,7 cents (2017: 43,0 cents)
- HEPS up by 6,1% to 45,4 cents (2017: 42,8 cents)
- NAV up by 11,4% to 264 cents (2017: 237 cents)
- Days sales outstanding 53 days (2017: 53 days)
- Acquisition during 2018 Dyna group of companies
Commentary
Vision becoming reality
During 2018, Workforce made considerable progress in realising its vision of becoming a diversified
services company with various subsidiaries that provide an extensive range of innovative, integrated
and diversified people solutions to all industry sectors in southern Africa. The group has a strong
commitment to its core areas of competence yet remains cognisant of the need to identify and move
into new areas for growth.
Organisationally, the group realigned its diversification and growth strategy and formed clusters of
the different business activities within the group and placed each cluster under the leadership of a
cluster executive. In addition, a group executive committee was established to support the CEO in
strategic decision-making.
The non-staffing subsidiaries have made remarkable progress in positioning themselves for significant
growth to realise and support this strategy. Especially pleasing was the significant growth achieved
by our training cluster, mostly from organic growth but also aided by an acquisition effective
1 June 2018, which grew their EBITDA contribution to R49,9 million (2017: R19,4 million).
Our non-staffing clusters now represent 37% of total EBITDA contribution to the group's results.
External operating environment
From Workforce's point of view, operating in the current environment was challenging with an economy
which is stagnating at close to zero growth, the shedding of jobs, a shortage of capital and the
beginning of an increasing interest rate cycle internationally.
In addition, Workforce's core businesses operated under uncertainty stemming from the interpretation
of section 198A of the Labour Relations Act, better known as the "deeming provision", which led to
cautiousness in the use of certain of our services. This was finalised following the Constitutional
Court ruling that ultimately endorsed the legitimacy of the Temporary Employment Services ("TES")
industry and supported the concept of the client becoming the employer of the outsourced staff after
a period of three months for the purposes of the Labour Relations Act only.
From a regulatory point of view, we welcomed the introduction of the minimum wage legislation and
although it initially created a degree of uncertainty, we believe it will, in the longer term,
improve the stability of labour in the country and will provide fairer and more sustainable
pay structures.
The Employment Tax Incentive ("ETI") remains a significant contributor to group financial results
and Workforce is pleased that Government has proposed a ten-year extension to 28 February 2029.
This programme incentivises the employment of unemployed youth between the ages of 18 and 29.
Financial performance
EBITDA for the year increased by 26,9% to R156,9 million (2017: R123,5 million), on the back of
a 7,4% increase in revenue to R3 014 million (2017: R2 807 million). As a result, EBITDA as a
percentage of sales increased to 5,2% (2017: 4,4%). The increase in operating margins is mostly
attributable to the significant growth experienced in the training cluster. The training sector
typically operates at a much higher net margin compared to the staffing businesses.
The EBITDA contribution from the training cluster increased to R49,9 million (2017: R19,4 million).
R8,4 million of this contribution was derived from the Dyna group of companies purchased on
1 June 2018, whilst the balance was purely organic.
The staffing and outsourcing cluster experienced a slow year, due to economic and legislative
challenges as outlined above. The net result was a reduction in EBITDA contribution of 6,2% to
R152,3 million (2017: R162,4 million).
The healthcare cluster invested in additional infrastructure and human capital which resulted in an
20% increase in operating expenses. This initiative is yielding results with a growth in EBITDA
contribution of 22,3% to R23,9 million (2017: R19,6 million).
The financial services cluster invested in new resources with EBITDA contribution increasing by 11,2%
to R14,2 million (2017: R12,8 million).
The shared services and central costs improved by 8,0% to R83,5 million (2017: R90,7 million)
attributable to management interventions. Fair value adjustments netted a R5,4 million expense,
mostly as a result of imputed interest recognised as a result of acquisitions.
This amount netted an income of R10,3 million in the previous year, due to adjustments of the
contingent consideration payable on business combinations.
Depreciation and amortisation of non-financial assets remained largely on par with the previous year.
R15,6 million (2017: R10,4 million) of this amount relates to the amortisation of intangible assets
resulting from acquisitions.
Taxation
As with previous financial years, the group's low tax rate arises primarily from the income derived
from the ETI Programme not being taxable, and the learnership allowances claimed in terms of
section 12H of the Income Tax Act. ETI has been provisionally extended to 28 February 2029 whilst the
12H learnership allowance will be in place until 1 April 2022. Ongoing initiatives are under way to
employ more youth, as well as to train more learners. Going forward, the group's tax rate will
continue to be a function of our ability to utilise these two initiatives.
Cash generation
In a financial year which saw South Africa slip into a technical economic recession, with certain
clients experiencing financial pressure, Workforce was nevertheless able to deliver a cash conversion
ratio of 61% (2017: 38%) and generated cash flows from operating activities of R54,9 million.
A noteworthy achievement is the steady improvement in the interest cover ratio since 2015, despite
paying R144,4 million in cash for acquisitions since 2015.
The group's strategy to improve cash flow continues to be driven by initiatives to improve the EBITDA
to sales ratio on a sustainable basis, along with good working capital management. This translates
into a healthy return on capital employed, underpinned by cash generation. The group's days sales
outstanding remained at 53 days (2017: 53 days). Unimpaired overdue debtors as a percentage of the
total debtors' book, after consideration of IFRS 9 adjustments, deteriorated slightly to 9%,
(2017: 3%). Return on total capital employed improved to 18,2% (2017: 16,8%). Various strategies are
being implemented by our cluster heads to improve gross margin management, reduce operating costs
and better manage working capital.
Funding
The group secured an acquisition funding facility of R30 million, which enabled the acquisition of the
Dyna group training businesses in June 2018. Additional funding of R15 million, secured by our
micro-lending book, was obtained during the financial year under review allowing us to expand the
business of Babereki in Botswana. Workforce remains encouraged that external funders support the
group's acquisitive and organic growth strategies.
Gearing
Workforce has a debt to equity ratio of 0,54 compared to the previous year's 0,52. The marginal
difference in this ratio occurred despite the R79,3 million increase in liabilities as a result of
the Dyna group acquisition. Our interest cover ratio improved to 5,14 (2017: 4,17).
Change in accounting standards: IFRS 9
The group applied IFRS 9 for the first time in 2018. The new standard does not change the credit
quality of trade and other receivables, but results in the earlier recognition of credit losses by
the group. IFRS 9 has been applied retrospectively. The net effect of the above change, which was
calculated together with the assistance of a JSE Limited ("JSE") accredited IFRS adviser, was a
reduction of R43 million in opening retained earnings, and a corresponding reduction in the opening
value of our trade and other receivables of R79,3 million, which represents a reduction of 8,4% in
the value of the underlying assets.
Outlook
From what is set out above, the management of Workforce believe that the group is in the process of
establishing a structure that will enable sustainable growth in all the segments of the business and
which will enable Workforce Holdings Limited to act as a holding company of investments in different
segments within the people services sector of the economy. We look forward to the numerous
infrastructure projects, both in South Africa and in neighbouring countries, in which Workforce is
able to become a meaningful, relevant and significant player.
Technology developments will set us apart in the acquisition of contracts and benefit the group in
the management of our clients' business in terms of productivity and welfare.
We remain optimistic that the group will fare well in the current economy, hopeful of a smooth
election and leadership transition to follow. This will stabilise the country's political environment,
diminish uncertainty and in this context, the outlook is for satisfactory growth for the group.
Appreciation
We would like to thank all members of staff and their management as well as executive and
non-executive directors for their significant contribution to the management of the company and
its growth. We could not have achieved the year that we have, with all the difficult circumstances
that prevailed, without the people involved in our business.
John Macey Ronny Katz Willie van Wyk
Independent chairman Chief executive officer Financial director
26 March 2019
Group statement of financial position
as at 31 December 2018
2018 2017
Notes R'000 R'000
Assets
Non-current assets 350 687 251 912
Property, plant and equipment 7 20 266 23 559
Goodwill 191 230 134 480
Intangible assets 8 74 128 44 247
Deferred tax assets 58 757 44 251
Other financial assets 6 306 5 375
Current assets 783 521 744 246
Trade and other receivables 734 787 714 389
Inventories 4 965 3 546
Taxation 2 221 763
Cash and cash equivalents 9 41 548 25 548
Total assets 1 134 208 996 158
Equity and liabilities
Equity 603 020 542 345
Equity attributable to owners of the parent 605 829 543 806
Stated capital 234 051 234 051
Treasury shares (11 158) (7 658)
Fair value through other comprehensive income 752 923
Foreign exchange differences on translation of foreign operations 549 -
Equity-settled employee benefits reserve 9 288 6 793
Retained earnings 372 347 309 697
Non-controlling interests (2 809) (1 461)
Non-current liabilities 107 933 38 173
Financial liabilities 87 585 26 407
Deferred tax liabilities 20 348 11 766
Current liabilities 423 255 415 640
Trade and other payables 141 535 136 914
Financial liabilities 281 720 278 726
Total equity and liabilities 1 134 208 996 158
Group statement of comprehensive income
for the year ended 31 December 2018
Restated
2018 2017
Notes R'000 R'000
Revenue 3 014 446 2 807 890
Cost of sales (2 323 153) (2 172 461)
Gross profit 691 293 635 429
Other income 278 1 032
Operating costs (534 634) (512 887)
Earnings before interest, taxation, depreciation and
amortisation ("EBITDA") 156 937 123 574
Fair value adjustments (5 360) 10 365
Depreciation and amortisation of non-financial assets (25 179) (26 080)
Finance income 2 829 1 486
Finance costs (25 626) (23 360)
Profit on sale of subsidiary 2 822 -
Profit before taxation 106 423 85 985
Taxation (1 854) 10 819
Profit after tax 104 569 96 804
Other comprehensive income after tax
Items that are reclassified to profit or loss: 549 -
Exchange differences on translating foreign operations 549 -
Items that are not reclassified to profit or loss: (171) 461
Fair value gain through other comprehensive income financial assets (171) 461
Total comprehensive income for the year 104 947 97 265
Profit for the year attributable to:
Owners of the parent 105 917 98 542
Non-controlling interests (1 348) (1 738)
104 569 96 804
Total comprehensive income attributable to:
Owners of the parent 106 295 99 003
Non-controlling interests (1 348) (1 738)
104 947 97 265
Earnings per share (cents per share)
Basic earnings per share 10 46,7 43,0
Diluted earnings per share 10 45,7 41,2
Group statement of changes in equity
for the year ended 31 December 2018
Attributable to owners of the parent
Foreign Equity-
Share currency settled
capital Fair trans- employee
and Treasury value lation benefits Retained
premium shares reserve reserve reserve earnings Total
R'000 R'000 R'000 R'000 R'000 R'000 R'000
Balance at
1 January 2017 241 867 (9 330) 462 - 2 337 211 155 446 491
Recognition of
share-based payments (7 816) - - - 5 227 - (2 589)
Buy-back of shares - (3 124) - - - - (3 124)
Issue of ordinary shares
under employee share
option plan - 4 796 - - (771) - 4 025
Total comprehensive
income for the year - - 461 - - 98 542 99 003
Balance at
1 January 2018 as
previously reported 234 051 (7 658) 923 - 6 793 309 697 543 806
Recognition of IFRS 9
adjustment
(refer to note 14) - - - - - (43 267) (43 267)
Balance at
1 January 2018 restated 234 051 (7 658) 923 - 6 793 266 430 500 539
Recognition of
share-based payments - - - - 2 495 - 2 495
Buy-back of shares - (3 500) - - - - (3 500)
Sale of subsidiary
(refer to note 16) - - - - - 1 383 1 383
Total comprehensive
income for the year - - (171) 549 - 104 534 104 912
Balance at
31 December 2018 234 051 (11 158) 752 549 9 288 372 347 605 829
Non-
controlling Total
interests equity
R'000 R'000
Balance at
1 January 2017 277 446 768
Recognition of share-based payments - (2 589)
Buy-back of shares - (3 124)
Issue of ordinary shares under employee share option plan - 4 025
Total comprehensive income for the year (1 738) 97 265
Balance at 1 January 2018 as previously reported (1 461) 542 345
Recognition of IFRS 9 adjustment (refer to note 14) - (43 267)
Balance at 1 January 2018 restated (1 461) 499 078
Recognition of share-based payments - 2 495
Buy-back of shares - (3 500)
Sale of subsidiary (refer to note 16) 1 439 2 822
Total comprehensive income for the year (2 787) 102 125
Balance at 31 December 2018 (2 809) 603 020
Group statement of cash flows
for the year ended 31 December 2018
Restated
2018 2017
Notes R'000 R'000
Cash generated from operations before net working capital changes 135 425 103 111
Cash generated from operations 11.1 158 858 128 860
Finance income 2 829 1 486
Finance costs (25 626) (23 360)
Settlement of share-based payments - (4 513)
Taxation paid 11.2 (636) 638
Increase in net working capital 11.3 (80 496) (91 706)
Cash flows from operating activities 54 929 11 405
Cash flows from investing activities (69 258) (57 611)
Property, plant and equipment acquired - maintaining operations 7 (6 742) (8 969)
Proceeds on disposal of property, plant and equipment 132 1 109
Dividend income 278 1 032
Intangible assets acquired - maintaining operations 8 (13 670) (7 645)
Net cash flow on acquisition of business combinations 11.4 (49 256) (43 138)
Cash flows from financing activities 30 329 (3 375)
Repayment of borrowings (2 086) (5 535)
Proceeds from borrowings 35 915 488
Payment for buy-back of shares (3 500) (3 124)
Proceeds on disposal of shares - 4 796
Net change in cash and cash equivalents 16 000 (49 581)
Cash and cash equivalents at the beginning of the year 25 548 75 129
Cash and cash equivalents at the end of the year 41 548 25 548
Notes to the summarised consolidated results
for the year ended 31 December 2018
1. Nature of operations and general information
Workforce Holdings Limited ("the company") is a holding company incorporated in South Africa.
The registered address and principle place of business is disclosed under corporate information
in the integrated annual report. The principal activities of the group are human capital
solutions that include temporary employment services, permanent placement recruitment, training
and skills development, contractor on-boarding, healthcare and wellness, disability solutions,
financial services, lifestyle benefits and business process outsourcing solutions.
2. Basis of preparation
The summary group financial statements are prepared in accordance with the requirements of the
JSE Listings Requirements for preliminary financial statements and the requirements of the
Companies Act applicable to summary financial statements. The summary financial statements were
prepared in accordance with the framework concepts and the measurement and recognition
requirements of International Financial Reporting Standards ("IFRS") and the SAICA Financial
Reporting Guides as issued by the Accounting Practices Committee ("APC") and the Financial
Pronouncements as issued by the Financial Reporting Standard Council ("FRSC"), and to also, as a
minimum, contain the information required by IAS 34 Interim Financial Reporting.
The summarised consolidated results for the year ended 31 December 2018 were compiled under
the supervision of Willie van Wyk, the group financial director. The summarised consolidated
results have been prepared in accordance with the IFRS and have been applied consistently with
the accounting policies in the annual financials statements for the year ended 31 December 2018.
3. Audit opinion
The group annual financial statements for the year ended 31 December 2018 have been audited by
the group's auditors, Crowe JHB, and their unqualified audit report is available for inspection
at the registered office of the group. This summarised report is extracted from audited
information but is not itself audited. The directors take full responsibility for the preparation
of these consolidated results and the financial information has been correctly extracted from the
underlying annual financial statements.
4. Posting of integrated annual report and notice of annual general meeting
The integrated report for the year ended 31 December 2018 will be available on the group's website
at www.workforce.co.za on 29 March 2019.
Audited summarised condensed results for the year ended 31 December 2018 including notice of
annual general meeting is expected to be mailed to shareholders on 29 March 2019.
5. Events after reporting date
A dividend of R3 399 689 was declared before the financial statements were authorised for issue
but not recognised as a distribution to owners during the period under review.
Dividend declaration
A dividend of 1,5 cents per ordinary share was declared as follows for the year ended
31 December 2018:
2019
Declaration date Tuesday, 26 March
Last day to trade cum dividend Monday, 6 May
Ex dividend date Tuesday, 7 May
Record date Friday, 10 May
Payment date Monday, 13 May
Share certificates may not be dematerialised or rematerialised during the period Tuesday,
7 May 2019 to Friday, 10 May 2019, both days inclusive.
In terms of the Listings Requirements of the JSE Limited the following additional information
is disclosed:
- This is a dividend as defined in the Income Tax Act, 1962, and is payable from income reserves;
- The South African dividend tax ("DT") rate is 20%;
- The DT to be withheld by the company amounts to 0,3 cents per share;
- Therefore, the net dividend payable to shareholders who are not exempt from DT is 1,2 cents per
share, while the gross dividend of 1,5 cents per share is payable to those shareholders who are
exempt from DT;
- The issued share capital of the company at the declaration date comprises 243 731 343 ordinary
shares including 17 085 379 treasury shares. The issued share capital, excluding treasury shares,
at the declaration date is comprised of 226 645 964 shares;
- The company's registration number is 2006/018145/06; and
- The company's income tax reference number is 9210/286/16/8.
6. Principal accounting policies
The group has adopted all the new, revised or amended accounting pronouncements as issued by the
International Accounting Standards Board ("IASB") which were effective for the group from
1 January 2018. The following standards had an impact on the group:
- IFRS 9: Financial Instruments ("IFRS 9"); and see note 14
- IFRS 15: Revenue from Contracts with Customers ("IFRS 15"). See note 14.
2018 2017
Accumulated Carrying Accumulated Carrying
Cost depreciation value Cost depreciation value
R'000 R'000 R'000 R'000 R'000 R'000
7. Property, plant and equipment
Computer equipment 10 067 (5 319) 4 748 28 328 (21 765) 6 563
Industrial equipment 7 248 (4 765) 2 483 8 636 (6 057) 2 579
Land and buildings 2 700 - 2 700 2 700 - 2 700
Leasehold improvements 866 (247) 619 1 736 (1 175) 561
Motor vehicles 5 540 (2 596) 2 944 10 005 (5 550) 4 455
Office equipment 7 216 (3 097) 4 119 18 265 (14 194) 4 071
Training manuals 5 405 (2 752) 2 653 9 807 (7 177) 2 630
39 402 (18 776) 20 266 79 477 (55 918) 23 559
The carrying value of property, plant and equipment can be reconciled as follows:
Computer Industrial Land and Leasehold
equipment equipment buildings improvements
R'000 R'000 R'000 R'000
Carrying value at 1 January 2017 4 140 1 872 2 700 130
Additions 5 166 1 060 - 534
Disposals (22) - - (6)
Acquired through business combinations 718 686 - -
Depreciation (3 439) (1 039) - (97)
Carrying value at 31 December 2017 6 563 2 579 2 700 561
Additions 2 537 1 247 - 242
Disposals (21) (5) - -
Acquired through business combinations 76 - - -
Depreciation (4 407) (1 338) - (184)
Carrying value at 31 December 2018 4 748 2 483 2 700 619
Motor Office Training
vehicles equipment manuals Total
R'000 R'000 R'000 R'000
Carrying value at 1 January 2017 3 693 2 827 2 653 18 015
Additions 3 099 1 177 1 032 12 068
Disposals (317) (24) (147) (516)
Acquired through business combinations 421 985 - 2 810
Depreciation (2 441) (894) (908) (8 818)
Carrying value at 31 December 2017 4 455 4 071 2 630 23 559
Additions 88 1 666 962 6 742
Disposals (62) (1) - (89)
Acquired through business combinations - 73 - 149
Depreciation (1 537) (1 690) (939) (10 095)
Carrying value at 31 December 2018 2 944 4 119 2 653 20 266
All depreciation charges are included in "Depreciation and amortisation of non-financial assets"
in the statement of comprehensive income. No property, plant and equipment has been impaired
during the year (2017: Nil).
The net book value of motor vehicles held under instalment credit agreements at 31 December 2018
amounted to R2 402 542 (2017: R3 785 842). Motor vehicles acquired under instalment credit
agreements amounted to R Nil (2017: R3 099 000). The instalment sales relate primarily to
motor vehicles.
A 100% interest in Dyna group was acquired on 1 June 2018, in order to expand the group's skilled
artisan and technical segments in the engineering industry. Property, plant and equipment to the
value of R149 000 was acquired as part of the business combination.
The directors have determined that the residual value of the buildings is equal to or exceeds the
carrying value, therefore no depreciation has been provided for this category.
The group has no further contractual commitments to acquire property, plant and equipment at
reporting date.
2018 2017
Accumulated Carrying Accumulated Carrying
Cost amortisation value Cost amortisation value
R'000 R'000 R'000 R'000 R'000 R'000
8. Intangible assets
Brands 82 (6) 76 3 209 (3 209) -
Client relationships 42 194 (27 842) 14 352 31 522 (15 260) 16 262
Computer software 74 733 (45 069) 29 664 62 146 (45 081) 17 065
Training course accreditations 20 620 (2 406) 18 214 - - -
Development costs 11 822 - 11 822 10 920 - 10 920
149 451 (75 323) 74 128 107 797 (63 550) 44 247
The carrying amounts of intangible assets can be reconciled as follows:
Training
Client Computer course Development
Brands relationships software accreditations costs Total
R'000 R'000 R'000 R'000 R'000 R'000
Carrying value at
1 January 2017 756 14 067 15 755 - 8 552 39 130
Additions - - 1 677 - 2 368 4 045
Disposals - - (39) - - (39)
Acquired through
business combinations - 12 012 2 761 - - 14 773
Additions from internal
development - - 3 600 - - 3 600
Amortisation (756) (9 817) (6 689) - - (17 262)
Carrying value at
31 December 2017 16 262 17 065 - 10 920 44 247
Additions 82 - 1 355 - 12 233 13 670
Additions from internal
development - - 11 331 - (11 331) -
Acquired through
business combinations - 10 672 3 20 620 - 31 295
Amortisation (6) (12 582) (90) (2 406) - (15 084)
Carrying value at
31 December 2018 76 14 352 29 664 18 214 11 822 74 128
The above amortisation expense is included in "Depreciation and amortisation of non-financial
assets" in the statement of comprehensive income. No intangible assets have been impaired during
the year (2017: Nil). Computer software is mostly internally generated.
A 100% interest in Dyna group was acquired on 1 June 2018, in order to expand the group's skilled
artisan and technical segments in the engineering industry. Intangibles to the value of
R31 295 000 was acquired as part of the business combination.
The group has no further contractual commitments to acquire intangible assets at reporting date.
No restrictions exists over intangibles assets.
9. Cash and cash equivalents
Cash and cash equivalents include the following components:
2018 2017
R'000 R'000
Cash at bank and in hand 41 525 25 488
Short-term deposits 23 60
41 548 25 548
10. Earnings per share
Basic earnings per share
The earnings and weighted average number of ordinary shares used in the
calculation of basic earnings per share are as follows:
2018 2017
R'000 R'000
Profit attributable to equity shareholders of the parent company (R'000) 105 917 98 542
Weighted average number of ordinary shares in issue ('000) 226 856 229 336
Diluted weighted average number of shares in issue ('000) 231 634 238 973
Basic earnings per share (cents) 46,7 43,0
Diluted earnings per shares (cents) 45,7 41,2
The weighted average number of ordinary shares for the purpose
of diluted earnings
per share reconciles to the weighted average number of ordinary shares
used in the calculation of basic earnings per share as follows:
Weighted average number of ordinary shares in issue ('000) 226 856 229 336
Shares deemed to be issued for no consideration in respect of:
Employee options 4 778 9 637
Weighted average number of ordinary shares in the calculation of
diluted earnings per share 231 634 238 973
Headline earnings per share
The earnings used in the calculation of headline earnings per share
are as follows:
Profit attributable to equity shareholders of the parent company (R'000) 105 917 98 542
Headline earnings adjustment (R'000) (2 822) (400)
Gain on disposal of property, plant and equipment (R'000) - (555)
Sale of subsidiary (R'000) (2 822) -
Tax effects of adjustments (R'000) - 155
Total headline earnings (R'000) 103 095 98 142
Weighted average number of shares in issue ('000) 226 856 229 336
Headline earnings per share (cents) 45,4 42,8
11. Notes to the statement of cash flows
11.1 Cash generated from operations
Profit before taxation 106 423 85 985
Interest income (2 829) (1 486)
Other income (278) (1 032)
Finance costs 25 626 23 360
Adjusted for non-cash items:
Gain on disposal of property, plant and equipment - (555)
Depreciation and amortisation of non-financial assets 25 179 26 080
Loss/(gain) arising on financial liability at fair value through
profit or loss 5 360 (10 385)
Foreign exchange differences on translation of foreign operations 549 -
Expense recognised in respect of cash-settled share-based payment (3 667) 1 666
Expense recognised in respect of equity-settled share-based payment 2 495 5 227
158 858 128 860
11.2 Taxation paid
Charged to profit or loss (1 854) 10 819
Adjusted for deferred tax 2 256 (9 210)
Movement in taxation balance (1 038) (971)
(636) 638
11.3 Working capital changes
Change in trade and other receivables (80 047) (100 527)
Change in inventories (1 419) (486)
Change in trade and other payables 970 9 307
(80 496) (91 706)
11.4 Net cash flow on acquisition of business combinations
Net cash outflow on the acquisitions of business combination
- refer to note 13.1.5 (28 888) (21 959)
Net cash outflow on the acquisitions of subsidiaries (20 368) (21 179)
(49 256) (43 138)
11.5 Equity-settled share-based payments
Employees received shares in settlement of the equity-settled share-based payment scheme.
The employees were given the option of retaining the shares they were granted, or selling
their shares on the open market. The company sold the shares on the employees' behalf and
paid to them the proceeds from the sale.
1 January Cash Non-cash 31 December
2018 flows flows 2018
11.6 Changes in liabilities arising from
financing activities
Non-current treasury share loan 7 783 - 262 8 045
Interest-bearing borrowings 258 037 (7 652) - 250 385
Instalment sales liabilities 3 066 (721) - 2 345
268 886 (8 373) 262 260 775
12. Segment reporting
During the reporting period, the group re-organised its segments and formed six business clusters
comprising the different business activities, and placed each cluster under an independent
management team. As the formation of these clusters has been in transition since late last year,
our financial segmental reporting for the 2018 year will not reflect the new cluster structure
identically, but is structured as follows:
- Staffing and outsourcing (includes recruitment and Africa) - comprising temporary employment
services, functional outsourcing, permanent recruitment, executive search, specialist staffing,
payroll management, HR and IR consulting and turnkey staffing solutions.
- Training - comprising accredited short courses, skills programmes, full qualifications,
learnerships and apprenticeship programmes, adult education training and contractor on-boarding.
- Financial services - comprising death and disability cover, funeral cover, hospital cover,
day-to-day medical insurance and financial and mobile products and services.
- Healthcare - comprising recruitment and placement of medical professionals for hospitals and
frail-care homes, primary and occupational healthcare services, employee health and wellness
programmes and health risk assessment.
These reporting segments better represent the current core trading of the group and allows for
simple understanding and communication of the performance of the business.
These segments are monitored and strategic decisions are made on the basis of adjusted segment
operating results.
Due to the above change in reporting segments, the prior year's segment information has
been restated.
Segment information can be analysed as follows for the reporting periods under review:
Staffing
and Financial
outsourcing Training services Healthcare
R'000 R'000 R'000 R'000
2018
Segment revenues 2 437 008 230 909 101 873 244 461
Inter segment revenue 27 894 16 187 - 1 582
Cost of sales (2 001 994) (111 317) (39 364) (174 508)
Inter-segment cost of sales (25 875) - - (62)
Operating costs (282 880) (69 833) (48 242) (45 938)
Inter-segment operating costs (1 958) (16 186) - (1 582)
Other income 128 141 - 23
EBITDA 152 323 49 901 14 267 23 976
Fair value adjustment - (885) 884 -
Depreciation and amortisation
of non-financial assets (2 742) (3 082) (1 221) (1 511)
Finance income 853 1 908 42 24
Finance costs (2 573) (1 549) (12 413) (2 241)
Profit on sale of subsidiary - - - -
Segment profit/(loss) before tax 147 861 46 293 1 559 20 248
Capital expenditure 2 446 3 761 143 1 494
Segment total assets 447 020 89 475 240 358 23 202
Segment total liabilities (43 166) (48 302) (298 921) (2 706)
Net segment assets/(liabilities) 403 855 41 173 (58 562) 20 497
Shared
Services
and Consoli-
Central dation
costs entries Total
R'000 R'000 R'000
2018
Segment revenues 195 - 3 014 446
Inter segment revenue - (45 663) -
Cost of sales 4 030 - (2 323 153)
Inter-segment cost of sales - 25 937 -
Operating costs (87 741) - (534 634)
Inter-segment operating costs - 19 726 -
Other income (14) - 278
EBITDA (83 530) - 156 937
Fair value adjustment (5 359) - (5 360)
Depreciation and amortisation
of non-financial assets (1 030) (15 594) (25 179)
Finance income 2 - 2 829
Finance costs (6 850) - (25 626)
Profit on sale of subsidiary - 2 822 2 822
Segment profit/(loss) before tax (96 767) (12 772) 106 423
Capital expenditure 12 719 31 293 51 856
Segment total assets 519 538 (185 386) 1 134 208
Segment total liabilities (191 726) 53 632 (531 188)
Net segment assets/(liabilities) 327 812 (131 754) 603 020
Staffing
and Financial
outsourcing Training services Healthcare
R'000 R'000 R'000 R'000
2017
Segment revenues 2 357 165 169 400 83 778 195 733
Inter-segment revenue 23 085 17 681 1 474 -
Cost of sales (1 928 908) (73 374) (29 207) (137 958)
Inter-segment cost of sales (22 400) (8 566) - -
Operating costs (266 799) (76 621) (41 740) (38 175)
Inter-segment operating costs (685) (9 115) (1 474) -
Other income 940 92 - -
EBITDA 162 398 19 497 12 831 19 600
Fair value adjustment - (3 465) 2 206 -
Depreciation and amortisation
of non-financial assets (2 583) (3 372) (1 838) (1 960)
Finance income 547 869 38 11
Finance costs (1 242) (2 605) (991) (480)
Segment profit/(loss) before tax 159 120 10 924 12 246 17 171
Capital expenditure 9 737 8 599 1 891 2 954
Segment total assets 519 019 110 711 220 262 24 587
Segment total liabilities (116 768) (88 885) (262 785) (3 845)
Net segment assets/(liabilities) 402 251 21 826 (42 523) 20 742
Shared
Services
and Consoli-
Central dation
costs entries Total
R'000 R'000 R'000
2017
Segment revenues 1 814 - 2 807 890
Inter-segment revenue - (42 240) -
Cost of sales (3 014) - (2 172 461)
Inter-segment cost of sales - 30 966 -
Operating costs (89 552) - (512 887)
Inter-segment operating costs - 11 274 -
Other income - - 1 032
EBITDA (90 752) - 123 574
Fair value adjustment 11 624 - 10 365
Depreciation and amortisation
of non-financial assets (5 866) (10 435) (26 080)
Finance income 21 - 1 486
Finance costs (18 042) - (23 360)
Segment profit/(loss) before tax (103 015) (10 435) 85 985
Capital expenditure 2 103 12 012 37 296
Segment total assets 312 728 (191 149) 996 158
Segment total liabilities (21 992) 40 462 (453 813)
Net segment assets/(liabilities) 290 736 (150 687) 542 345
Geographical information
The group's revenue from external customers and information regarding its segment assets
(non-current assets excluding financial instruments, deferred tax assets and other financial
assets) by geographical location are immaterial.
Information about major customers
No single customers contributed 10% or more to the group's revenue in either 2018 or 2017.
13. Business combinations
13.1.1 Business acquired
Consid-
Portion of eration
business trans-
Date of acquired ferred
2018 Principle activity acquisition % R'000
Dyna Training This entity designs, conceptualises,
and Industrial formulates and produces training
Development programmes and related materials
Proprietary and owns all the intellectual
Limited property that it licensed to the
training providers within the Dyna
group and Dyna franchises. 1 June 2018 100 30 532
Dyna Training This entity is a franchise involved
Proprietary in marketing and selling the Dyna
Limited training programmes in the Western
Cape territory. 1 June 2018 100 9 713
Dyna Training This entity is a franchise involved
Namibia in marketing and selling the Dyna
Proprietary training programmes in Namibia and
Limited the remaining SADC territory,
excluding South Africa. 1 June 2018 100 22 822
NQ Plus Networks This entity undertakes all the
Proprietary training assessment and moderation
Limited functions for the Dyna group and its
franchises as well as conducting
training learnerships. 1 June 2018 100 16 291
79 358
Workforce has obtained control of the above mentioned entities by acquiring 100% of the
equity and voting rights in each of these entities. The Dyna group was acquired in order
to grow Workforce's training segment by providing leadership, supervisory and management
training programmes in addition to the existing training programmes currently offered.
Dyna
Industrial Dyna
Training and Dyna Training NQ Plus
Development Training Namibia Networks Total
R'000 R'000 R'000 R'000 R'000
13.1.2 Consideration transferred
Cash 13 129 4 177 9 815 7 006 34 127
Contingent consideration 17 401 5 536 13 008 9 286 45 231
Total 30 530 9 713 22 823 16 292 79 358
13.1.3 Contingent consideration
Second payment 1 947 620 1 456 1 039 5 062
Third payment 3 486 1 109 2 606 1 860 9 061
Fourth payment 5 269 1 676 3 938 2 812 13 695
Top-up payment 6 699 2 131 5 008 3 575 17 413
Total additional amount 17 401 5 536 13 008 9 286 45 231
Interest raised on future
payments 1 239 1 237 1 239 1 239 4 954
18 640 6 773 14 247 10 525 50 185
Under the contingent consideration arrangement for the Dyna group companies, Workforce
is obliged to pay an amount of up to R5 060 886 subject to the Dyna group of companies
achieving an agreed upon operating profit for the 12 months ending 31 May 2019, an amount
of up to R9 060 112 subject to the acquired Dyna group of companies achieving an agreed
upon operating profit for the 12 months ending 31 May 2020 and an amount of up to
R13 695 622 subject to the acquired Dyna group of companies achieving an agreed upon
operating profit for the three-year period exceeding R42 016 084, an additional payment
of up to R17 413 968 may also be payable. These payments are all calculated using agreed
upon formulae. The directors believe that these payments are probable.
Dyna
Industrial Dyna
Training and Dyna Training NQ Plus
Development Training Namibia Networks Total
R'000 R'000 R'000 R'000 R'000
13.1.4 Assets acquired and
liabilities recognised
at the date of
acquisition
Non-current assets 20 815 8 266 2 618 126 31 825
Property, plant and
equipment 33 74 9 33 149
Intangible assets 20 622 8 063 2 609 - 31 294
Deferred tax asset 160 129 - 93 382
Current assets 2 418 968 1 654 1 947 6 987
Trade and other
receivables 649 263 142 271 1 325
Loans and other
receivables - - - 1 1
Loan to shareholder - - - 2 2
Taxation - - 420 - 420
Cash and cash
equivalents 1 769 705 1 092 1 673 5 239
Non-current liabilities (6 845) (2 665) (2 372) (1 051) (12 933)
Shareholders' loans (1 071) (386) (1 641) (1 051) (4 149)
Operating lease
liabilities - (21) - - (21)
Deferred tax liability (5 774) (2 258) (731) - (8 763)
Current liabilities (1 466) (763) (21) (1 021) (3 271)
Trade and other payables (606) (598) (21) (665) (1 890)
Taxation (860) (165) - (289) (1 314)
Provisions - - - (67) (67)
Total 14 922 5 806 1 879 1 22 608
The receivables acquired (principally trade receivables) in this transaction with a fair
value of R1 325 000 for Dyna group is equivalent to the gross contractual amount.
All contractual cash flows are expected to be collected.
Dyna
Industrial Dyna
Training and Dyna Training NQ Plus
Development Training Namibia Networks Total
R'000 R'000 R'000 R'000 R'000
13.1.5 Net cash outflow on
acquisition of
subsidiaries
Consideration paid in cash 13 129 4 177 9 815 7 006 34 127
Less: Cash and cash
equivalent
balances acquired (1 769) (705) (1 092) (1 673) (5 239)
Total 11 360 3 472 8 723 5 333 28 888
13.1.6 Goodwill arising on
acquisition
Consideration transferred 30 530 9 713 22 823 16 292 79 358
Less: Fair value of
identifiable
net assets acquired (14 922) (5 806) (1 879) (1) (22 608)
Goodwill arising on
acquisition 15 608 3 907 20 944 16 291 56 750
Goodwill arose on the acquisition of the Dyna group because the cost of the combination
included a control premium. In addition, the consideration paid for the combination
effectively included amounts in relation to the benefit of the expected synergies,
revenue growth and future market share. These benefits are not recognised separately
from goodwill because they do not meet the recognition criteria for identifiable
intangible assets. None of the goodwill in the Dyna group acquisition is expected to be
deductible for tax purposes.
Impact of acquisitions on the results of the group
Revenue from the above acquisition amounted to R16 441 628 and profit before tax of
R8 474 556 for the period under review. Had these business combinations been effective at
1 January 2018, the revenue of the group from operations would have been R24 583 563 and
profit before tax would have been R8 912 486.
14. Changes in accounting policies
Adoption of new and revised International Financial Reporting Standards ("IFRS")
New and amended standards adopted by the group
IFRS 9: Financial Instruments ("IFRS 9")
The group has adopted IFRS 9 with a date of application of 1 January 2018 which resulted in
changes in accounting policies. The company has applied transitional relief and opted not to
restate prior periods.
IFRS 9 replaces IAS 39: Financial Instruments: Recognition and Measurement (IAS 39). It makes
major changes to the previous guidance on the classification and measurement of financial assets
and introduces an "expected credit loss" model for the impairment of financial assets.
While there have been no changes to the measurement of the financial instruments with the
application of IFRS 9, the naming conventions have changed.
The table below depicts the original measurement categories under IAS 39 and the new measurement
categories under IFRS 9 for each class of the group's financial assets and liabilities as
at 1 January 2018:
IAS 39
Classification
Financial instrument Measurement R'000
Other financial assets: Available-for-sale
listed shares 2 770
Other financial assets: Fair value through
investment in cell captive profit and loss 2 605
Trade and other receivables Loans and receivables 714 389
Cash and cash equivalents Loans and receivables 25 548
Trade and other payables Other financial liabilities 141 535
IFRS 9
Classification
Financial instrument Measurement R'000
Other financial assets: Financial assets at fair value
listed shares through other comprehensive income 2 770
Other financial assets: Financial assets at fair value
investment in cell captive through profit and loss 2 605
Trade and other receivables Financial assets at amortised cost 685 438
Cash and cash equivalents Financial assets at amortised cost 25 548
Trade and other payables Financial liabilities at amortised cost 141 535
The adoption of IFRS 9 has impacted the way impairment of financial assets is calculated by the
introduction of the expected credit loss model. This affects the group's loans as well as its
trade receivables and advances measured at amortised cost.
Impairment of financial assets
IFRS 9's impairment requirements use more forward-looking information to recognise expected credit
losses ("ECL") - the ECL model. This replaces IAS 39's incurred loss model. Instruments within the
scope of the new requirements included loans and other debt type financial assets measured at
amortised cost, debt instruments measured at fair value through other comprehensive income
("FVOCI") and trade receivables measured under IFRS 15.
Recognition of credit losses is no longer dependent on the company first identifying a credit loss
event. Instead, the company considers a broader range of information when assessing credit risk
and measuring expected credit losses, including past events, current conditions, reasonable and
supportable forecasts that affect the expected collectability of the future cash flows of
the instrument.
Measurement of the expected credit losses is determined by a probability weighted estimate of
credit losses over the expected life of the financial instrument.
Trade and other receivables
The company makes use of a simplified approach in accounting for trade and other receivables and
records the loss allowance as lifetime (ECLs). These are the expected shortfalls in contractual
cash flows, considering the potential for default at any point during the life of the financial
instrument. The company uses its historical experience, external indicators and forward-looking
information to calculate the expected credit losses using a provision matrix.
The company assesses impairment of trade receivables on a portfolio basis grouping those that
possess shared credit risk characteristics. These have then been grouped based on the days past
due. The company has therefore concluded that the expected loss rates calculated on the trade
receivables are a reasonable approximation of the loss rates.
The group makes use of the general approach in accounting for the expected credit losses on
advances. The group assesses the ECLs on the advances through the use of a three-stage approach.
ECLs are determined for the next 12 months in stage 1, and over the lifetime of the advance
in stages 2 and 3.
At 1 January 2018 the life time expected loss provision for trade receivables and advances is
as follows:
Accounts
Amounts in R'000 receivable Advances Total
IFRS 9 loss provision 48 023 93 273 141 296
IAS 39 loss provision 19 072 62 515 81 587
Difference* 28 951 30 758 59 709
Tax effect of difference 7 830 8 612 16 442
Nett difference 21 121 22 146 43 267
* In our interim results, the amount recorded in the retained earnings due to the impairment
provision application was R30 758 000. During the year our impairment process was refined and
improved. The difference between the amount recorded as an adjustment in our interim results
and in our annual financial statements is due to the improved method of determining the
expected losses.
As the accounting for financial liabilities remains largely the same under IFRS 9 compared to
IAS 39, the company financial liabilities were not impacted by the adoption of IFRS 9.
IFRS 15: Revenue from contracts from customers ("IFRS 15")
IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue
is recognised. It replaces IAS 18: Revenue, IAS 11: Construction contracts and related
interpretations. Under IFRS 15, revenue is recognised when a customer obtains control of the goods
or services. Determining the timing of the transfer of control at a point in time
requires judgements.
IFRS 15 introduced a five-step approach to revenue recognition. The requirement to recognise the
significant financing component separately from the transaction price did impact the contracts for
the sale of goods where the contracts exceed a period of 12 months. The group has elected to apply
the practical expedient model not to separate the significant financing components from contracts
where the expected period between the contract recognition and payment is less than 12 months for
all other contracts. The standard requires the group to recognise the performance obligation over
time or at a point in time, which did not affect the group's recognition, except as noted in the
table below.
The group has adopted IFRS 15 using the cumulative effect method (without practical expedients),
with the effect of initially applying this standard recognised at the date of initial application
(ie 1 January 2018). Accordingly, the information presented for 2017 has not been restated - ie
it is presented as previously reported under IAS 18 and related interpretations. Additionally,
the disclosure requirements in IFRS 15 have not generally been applied to comparative figures.
The impact on the group is as follows:
Revenue type Transfer of control Changed from IAS 18
Services Over time or point in time
dependent on the No
service being delivered.
Customer loans Over time No
Sale of goods Point in time for delivery Yes, significant financing component
of handsets and over adjustments now separated
time for financing services from the revenue.
as interest is earned.
Revenue now separated to be recognised at a point in time when the handset is delivered and over
time for the financing provided on the sales.
15. Financial instruments
Recognition and derecognition
Financial instruments are recognised when the group becomes a party to the contractual
provisions of the financial instrument. Financial assets and financial liabilities are initially
measured at fair value. Transaction costs that are directly attributable to the acquisition or
issue of financial instruments (other than those at fair value through profit or loss) are added
to or deducted from the fair value of the financial assets or financial liabilities, as
appropriate, on initial recognition. Transaction costs directly attributable to the acquisition
of financial assets or financial liabilities at fair value through profit or loss.
All regular way purchases or sales of financial assets are recognised and derecognised on a trade
date basis. Regular way purchases or sales are purchases or sales of financial assets that
require delivery of assets within the time frame established by regulation or convention in
the marketplace.
Financial assets are derecognised when the contractual rights to the cash flows from the
financial asset expire, or when the financial asset and substantially all the risks and rewards
are transferred. Where the group neither transfers nor retains substantially all the risks
and rewards of ownership and continues to control the transferred asset, the group recognises
its retained interest in the financial asset and an associated liability for amounts it may have
to pay. A financial liability is derecognised when it is extinguished, discharged, cancelled
or expires.
15.1 Financial assets
Classification and initial measurement of financial assets
Financial assets, are classified into the following categories:
- Amortised cost;
- Fair value through profit or loss ("FVTPL"); and
- Fair value through other comprehensive income ("FVTOCI").
The classification is determined by both:
- The group's business model for managing the financial asset; and
- The contractual cash flow characteristics of the financial asset.
All income and expenses relating to financial assets that are recognised in profit or
loss are presented within finance costs or finance income.
Subsequent measurement
Financial assets at amortised cost
Financial assets are measured at amortised cost where the group's business model is to
hold the financial assets and collect its contractual cash flows and the contractual
terms of the financial assets give rise to cash flows that are solely payments of
principal and interest on the principal amount outstanding.
After initial recognition, these are measured at amortised cost using the effective
interest method.
Discounting is omitted where the period between the service and the expected payment
date is less than 12 months and the effect of discounting is immaterial. The group's
advances, trade and receivables and cash and cash equivalents fall into this category
of financial instruments.
Cash and cash equivalents comprise cash on hand, together with other short-term, highly
liquid investments that are readily convertible into known amounts of cash and which are
subject to an insignificant risk of changes in value.
Advances
Advances are non-derivative financial assets with fixed payments that are not quoted in
the active market. The advances arise when the group provides money or goods directly to
a debtor through the lending services and sale of goods. These advances are in the form
of personal unsecured loans and are paid back in fixed equal instalments. Origination
fees and monthly service fees that are integral to the effective interest rate are
capitalised to the value of the loan and amortised to profit or loss over the contractual
life of the loan using the effective interest rate method.
Advances are measured at amortised cost using the effective interest rate method, less
any impairment losses through the use of an allowance account whereby the amount of the
losses are recognised in profit or loss.
The significant financing component on the sale of goods is recognised using the effective
interest method over the period of the contract.
Financial assets at fair value through profit or loss ("FVTPL") - mandatory
The group holds an investment in an unconsolidated structured entity in the form of a
cell captive.
This investment does not fall within the business model to "hold to collect" or "hold to
collect and sell" and its contractual cash flows are not solely payments of principal
and interest. It is therefore accounted for as a financial asset mandatorily measured
at FVTPL.
Assets in this category are measured at fair value with gains or losses recognised in
profit or loss.
Financial assets at fair value through other comprehensive income ("FVTOCI")
The group has elected to designate its equity investments in listed shares at FVTOCI.
This is an irrevocable election permitted where the instruments meet the definition of
equity under IAS 32: Financial Instruments: Presentation and are not held for trading.
Dividends received on these investments are recognised in profit or loss. Any gains or
losses recognised in other comprehensive income ("OCI") will not be reclassified to
profit or loss upon derecognition of the asset.
Impairment of financial assets
The group recognises an allowance for ECLs for all debt instruments not held at fair
value through profit or loss.
ECLs are probability weighted estimates based on the difference between the contractual
cash flows due in accordance with the contract and all the cash flows that the group
expects to receive, discounted at an approximation of the original effective
interest rate.
The carrying amount of the financial asset is reduced by the impairment loss directly for
all financial assets, with the exception of trade receivables and advances, where the
carrying amount is reduced through the use of an allowance account. When the trade
receivable is considered uncollectable, it is written off against the allowance account.
Subsequent recoveries of amounts previously written off are credited to profit and loss.
Changes to the carrying amount of the allowance account are recognised in profit and loss.
Trade and other receivables
The group uses an allowance account to recognise its credit losses on trade and other
receivables. It applies the simplified approach of recognising lifetime ECLs for the
trade receivables. The group applied a practical expedient in measuring the expected
credit loss, using a provision matrix in determining the impairment. This matrix uses the
historical credit loss, adjusted for factors that are specific to the debtors, general
economic conditions and an assessment of both the current and forecast conditions at the
reporting date. Historically, the recoverability of the accounts receivable has been
impacted by large losses in some of the acquired entities. We believe that these
historical losses have been cleared and do not expect the high loss rates to continue.
These credit losses are the expected shortfalls in contractual cash flows, contractual
cash flows, considering the potential for default at any point during the life of the
financial instrument. In calculating, the company uses its historical experience, external
indicators and forward-looking information to calculate the expected credit losses using a
provision matrix.
Advances
The group uses an allowance account to record its credit losses on advances. It applies
the general impairment approach in determining the ECLs. ECLs are recognised in
two stages. For credit exposures for which there has not been a significant increase in
credit risk since initial recognition, ECLs are provided for credit losses that result
from default events that are possible within the next 12 months (a 12-month ECL).
For those credit exposures for which there has been a significant increase in credit risk
since initial recognition, a loss allowance is required for credit losses expected over
the remaining life of the exposure, irrespective of the timing of the default
(a lifetime ECL).
Due to the nature of the advances, the group considers an advance in default when they
are handed over to the legal process. However, in certain cases, the group may also
consider an advance to be in default when internal or external information indicates
that the group is unlikely to receive the outstanding contractual amounts in full before
taking into account any credit enhancements held by the group. An advance is written off
when there is no reasonable expectation of recovering the contractual cash flows.
The group has established a policy to perform an assessment, at the end of each
reporting period, of whether an advance's credit risk has increased significantly since
initial recognition, by considering the change in the risk of default occurring over the
remaining life of the financial instrument.
Based on the above process, the group groups its advances into stage 1, stage 2 and
stage 3, as described below(the advances can alternate between stages):
- Stage 1: When advances are first recognised, the group recognises an allowance based
on 12-month ECLs. Stage 1 advances also include facilities where the credit risk has
improved, and the advance has been reclassified from Stage 2. The advances included
within Stage 1 are those for temporary employees that are currently working, and
the payments are paid from their salaries consistently.
- Stage 2: When a loan has shown a significant increase in credit risk since origination,
the group records an allowance for the life time ECLs. Stage 2 loans also include
facilities, where the credit risk has improved, and the loan has been reclassified
from Stage 3. The advances included within this stage are those that the group still
manages on a portfolio basis. Based on the history of the group, these might include
advances where the client has not made payments, mainly due to non-employment. This is
considered to increase the credit risk of the client, but advances are still expected
to be recovered through a debt management process.
- Stage 3: Loans considered credit-impaired. The group records an allowance for the life
time ECLs.
The advances can move between stages based on their performance, ie an advance
in Stage 2 in the current year can move to a Stage 1 loan in the next period if the
lender's risk decreases, for example, the lender recovers and makes regular
payments again.
The entity considers a financial instrument defaulted and therefore Stage 3
(credit-impaired) for ECL calculations in all cases when the borrower enters the legal
stage of the advance management process. At this time the loans are managed individually.
The ECL calculations are performed on a portfolio basis, grouping the advances into those
with similar credit risks and within those portfolios, using statistics derived from a
five-year historical past performance of that portfolio, validated by external borrowers
and taking into account any changes to collection procedures and projected future
market conditions.
15.2 Financial liabilities
Financial liabilities at amortised cost
The company's financial liabilities include trade and other payables.
Financial liabilities are measured at fair value, and where applicable, adjusted for
transaction costs.
Subsequently, financial liabilities are measured at amortised cost using the effective
interest method.
All interest-related charges and, if applicable, changes in an instrument's fair value
that are reported in profit or loss are included within finance costs or finance income.
15.3 Fair value estimation
A number of the group's accounting policies and disclosures require the measurement of
fair values. The group uses valuation techniques that are appropriate in the
circumstances and for which sufficient data are available to measure fair value,
maximising the use of relevant observable inputs and minimising the use of
unobservable inputs.
The classification into different levels is based on the extent that quoted prices are
used in the calculation of fair value and the levels have been defined as follows:
- Level 1: fair value based on quoted prices (unadjusted) in active markets for identical
assets or liabilities;
- Level 2: fair value based on inputs other than quoted prices included within level 1
that are observable for the asset or liability, either directly (that is, as prices) or
indirectly (that is, derived from prices); or
- Level 3: fair value based on inputs for the asset or liability that are not based on
observable market data (that is, unobservable inputs).
Investment
in cell Contingent
captive consideration Total
Reconciliation of level 3 fair value measurements
As at 31 December 2018
Opening balance 2 605 (25 562) (22 957)
Gain/(loss) in profit or loss* 211 (8 403) (8 192)
Additions - (79 358) (79 358)
Release on liability - 46 351 46 351
Closing balance 2 816 (66 972) (64 136)
As at 31 December 2017
Opening balance 400 (17 406) (17 006)
Gain/(loss) in profit or loss 2 205 6 844 9 049
Additions - (21 326) (21 326)
Release on liability - 6 326 6 326
Closing balance 2 605 (25 562) (22 957)
* Included in fair value adjustments in profit or loss.
16. Disposal of subsidiary
On 22 August 2018, the group disposed of its interest in Qunu Staffing Proprietary Limited.
The net assets of Qunu Staffing Proprietary Limited at the date of disposal were as follows:
R'000
Property, plant and equipment 82
Trade receivables 3 333
Cash and bank balances 48
Deferred tax asset 802
Trade payables (7 092)
Gain on disposal 2 827
Total consideration -
There were no disposals of subsidiaries made in 2017. The impact of Qunu Staffing Proprietary
Limited on the group's results in the current year is a loss of R854 361.
17. Reclassification of prior year presentation
Certain reclassification has been made to the prior period's condensed consolidated statement of
comprehensive income in order to enhance the comparability to the current period's financial
results. The recognition of fair value adjustments has subsequently been disclosed separately in
the group statement of comprehensive income and the group statement of cash flows resulting in
certain line items being reclassified.
Previously
reported Restated
31 December 31 December
2017 2017 Adjustment
R'000 R'000 R'000
Group statement of comprehensive income
Fair value adjustments 10 365 - 10 365
Earnings before interest, taxation, depreciation and
amortisation ("EBITDA") 133 939 123 574 10 365
Fair value adjustments - 10 365 (10 365)
Depreciation and amortisation of non-financial assets (26 080) (26 080) -
Finance income 1 486 1 486 -
Finance costs (23 360) (23 360) -
Profit before taxation 85 985 85 985 -
Group statement of cash flows
Cash flows from operating activities 15 918 11 405 4 513
Cash flows from investing activities (60 710) (57 611) (3 099)
Cash flows from financing activities (4 789) (3 375) (1 414)
Net change in cash and cash equivalents (49 581) (49 581) -
Cash and cash equivalents at the end of the year 25 548 25 548 -
Executive directors
RS Katz
WP van Wyk
Non-executive directors
JR Macey
KN Vundla
S Thomas
I Ross
S Naidoo
Designated Adviser
Merchantec Proprietary Limited trading as Merchantec Capital
Company secretary
S van Schalkwyk
Registered office
The registered office, which is also its
principal place of business, is:
11 Wellington Road
Parktown
2193
PO Box 11137
Johannesburg
2000
Transfer secretaries
Link Market Services (South Africa) Proprietary Limited
11 Diagonal Street
Johannesburg
2001
Commercial bankers
ABSA Business Bank
Company registration number
2006/018145/06
Website
www.workforce.co.za
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