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Leadership change pays off for Adcorp

Australian market ripe for expansion says CEO.

NOMPU SIZIBA: JSE-listed workplace solutions company Adcorp Holdings released their annual results today [Monday]. For the year ended February 2019 the company reported a 34% increase in Ebitda to R518 million. Earnings per share rose to 240 cents/share from a loss of 517 cents/share in the prior period. The company says it’s on track with fulfilling its strategic imperatives.

Well, to tell us more I’m joined on the line by Innocent Dutiro, the CEO at Adcorp. Thanks very much for joining us, Innocent. You’ve turned your numbers around into the positive, with your earnings up. Just tell us about the strategy that you set for yourselves, and how much this has played a role in the latest outcome?

INNOCENT DUTIRO: Thank you and good evening to your listeners. I took over this role about 19 months ago and I walked into a business that had been a successful, iconic company in the human-capital space in South Africa. But it had hit upon hard times. So when we looked at the business we saw three things that we needed to do.

The first thing was to fix a number of businesses that were brought in, and then to stabilise the business in its entirety, and focus on growth. Over the 18-month period we’ve reached a point where the businesses are now stable, and what you’ve seen in our results is us creating a platform from where we hope to grow – and grow in a number of areas.

Traditionally our business has been focused on identifying and sourcing talent on behalf of our clients on a temporary, contract or  permanent basis. But we interact with probably up to 500 clients that we work with between Australia and South Africa, and we understand the talent space and we see an opportunity for ourselves to expand beyond just the recruitment or contract space. We have had a business that has not been doing well, but represented an opportunity for us to start making an impact on the skills shortage, particularly in the South African market.

NOMPU SIZIBA: I wanted to ask you – one of the things in your strategy is to target cost savings of about R200 million. That was a target you set about 18 months ago as a company. How have you been cutting costs, and have you met those targets?

INNOCENT DUTIRO: As part of our fix that I mentioned, we obviously saw a cost base that was too high in our business. And that came out of a lot procedures that were duplicated. Our business has grown through acquisitions, but insufficient attention was paid to realising the synergies between the different acquisition targets. So what we did is we started integrating our back-office processes, rationalising those processes and reducing costs. So we’ve actually delivered the R200 million target that we set ourselves and we see probably another R100 million coming out over the next 18 to 24 months, as we take more technology into our businesses to support our back-office processes, and continue to grow on a top-line basis.

NOMPU SIZIBA: Innocent, in the South African market, how have you been impacted by case law that was well publicised last year, which basically says that people can’t be temporary workers for a given length of time? How has that impacted your business, if at all?

INNOCENT DUTIRO: First of all, I think there’s general confusion in the market as to what the Constitutional Court said. The Constitutional Court said that, if you have been assigned as a temporary employee, after three months our client is deemed to be the employer for the purposes of the Labour Relations Act. The last bit of that judgment, which says “for the purposes of the Labour Relations Act” is actually quite important, because it does not say you move to become a permanent employee of the client. It means that, should there be any labour dispute, the client is then liable. So our contracts are not impacted by that ruling. We still continue to payroll the individuals, provide them with conditions of employment and employee benefits. We still have our contract with our client, but should there be unfair dismissal and any other labour-related issues, then our client is deemed to be liable.

Read: A bruising blow for labour brokers

NOMPU SIZIBA: Right.

INNOCENT DUTIRO: There has been some impact, but not as much as the public perceives. Some clients have decided to take on their temporary employees, and some have moved them permanently to ourselves, where we are now running processes on behalf of our clients on an outsource basis.

If you look at our revenue numbers, particularly in our industrial services, there has been a marginal drop. But some of that drop has been us moving away from unprofitable business.

NOMPU SIZIBA: Innocent, please tell us where your next expansion is going to be. Which sectors or industries are you looking at, both in South Africa and Australia?

INNOCENT DUTIRO: We are looking to reposition our training business and play a greater role in the skills-development space in South Africa. We have quite a large training business in the IT space. We’ve got an artisan-training business, and we think that artisans will be crucial for the development of our economy going forward. We also are going to grow our outsourcing business, branching off into consulting to support our clients as they look at the future of work and things like employer branding and talent management.

Then 35% of our profits and revenues come out of our Australia businesses. We are currently reviewing our Australia strategy and looking to expand in that space. Our business is currently, by revenue, the seventh-largest in the staffing industry in Australia.

NOMPU SIZIBA: Innocent, very nice talking to you and thank you for your time.

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