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Outsourcing group Adcorp’s poor H1 results

‘We are in a business which is subject to a number of significant industry headwinds,’ says Adcorp CEO Innocent Dutiro.

NASTASSIA ARENDSE:  Adcorp published its interim numbers with revenue down 2% and operating profit also down. No dividend was declared. Moneyweb’s Warren Thompson had this interview with Innocent Dutiro, the CEO of Adcorp.

INNOCENT DUTIRO:  If we start off with a overall context, I think the business in its four-year history has really grown through a series of acquisitions and in the last three or four years peaked in its performance. Since then there’ve been a number of industry headwinds and also some decisions that were taken internally that have had a negative impact on the performance of the group.

So if I look at where we are now, we are at a situation where, if I go back two to three months, we are in a business which is subject to a number of significant industry headwinds. You would be aware of potential changes to the labour legislation for us, big parts of technology in terms of our interaction with our clients, in terms of the skills that are required into our clients’ organisations, [and] a certain level of commoditisation of our core business, which has had a margin compression.

And if you look back to the period that we’ve just reported on, we’ve incurred some significant losses as some of our clients opted to take their employees full-time, but that has not had a wholesale impact on our entire business. It’s really confined to possibly 18% of our assignees, who are mainly in the investor space. But obviously we await the ruling of the Constitutional Court in February to determine that.

We’ve actually made a calculation as to what that impact is going to be, going forward, and are making some changes into the structure of the organisation to accommodate the worst-case scenario.

In other markets as well where we operate, like in the rest of Africa, the commodity cycle has gone against us and our businesses have incurred losses consistently in the rest of Africa. We have taken a decision to pull back from the continent and the reason is because we don’t think that the course that we took going into the continent was the right approach for our type of business.

We will continue however to go into the continent with our clients. They have South African relationships where that opportunity presents. What we are going to do is go into a completely virgin jurisdiction and set up from scratch and start touting for business in that market. There are some serious complications in terms of our ability to do that.

We are also operating in a depressed economic environment with growing unemployment rates in South Africa, which puts pressure on simply the volume of people that we can assign to our clients, hence the 2% less in revenue.

But coming back to your question, in terms of the changes, obviously the poor performance of the business necessitated an overhaul of the business – and I must explain why I’m making a distinction between the performance of the business and overall business.

In the first place we attracted Venture Capital Partners to come into the business because, if you take a close look at our results for the half year, the operational businesses are actually in a healthy state.

WARREN THOMPSON:  Right.

INNOCENT DUTIRO:  But a number of sectors have impacted on the overall results. There have been significant [losses] in terms of bad debts, which would result from poor implementation of some of our credit policies. Our central costs over the last three years have almost quadrupled in size.

WARREN THOMPSON:  Unfortunately, we have to leave it there. Thanks to Innocent Dutiro.

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