Publications
Partners
A year ago Adcorp, the country’s largest workforce management company, was staring down the barrel of a gun. Last year the government amended the Labour Relations Act (LRA) so that employees placed by labour brokers are deemed permanent after three months.
The amendment, heavily pushed by trade unions, created uncertainty in the market, according to Richard Pike, Adcorp’s CEO.
“The reaction from companies that rely heavily on temporary workers was either to engage many of them on a permanent basis, or stop hiring altogether.”
This impacted Adcorp, which generates 65% of its business worldwide from contract workers.
“We jumped into action immediately in an effort to recover these lost volumes, and by the end of the financial year, we managed to recover 82% of profits lost due to the uncertainty created by this new legislation,” says Pike.
“We introduced a programme to cut costs and recover volumes from new areas of the business. We emerged much stronger as a result of this and we engaged more with our clients, which was a positive development.”
The LRA amendments were clarified in a Labour Court ruling in September last year. The court ruled that after the initial three- month contracting period, the labour broker retains the employment contract and that the client becomes a concurrent employer.
This means the employee has recourse against both the labour broker and employer in the event of any disputes under the LRA.
The initial uncertainty surrounding the new legislation cost Adcorp 20 000 lost placements, of which it managed to recover 7 000 by the end of the year.
“We plan to get this number back to 20 000 as quickly as possible,” adds Pike. “Contract workers form a vital part of any modern economy. You need that flexibility. In the US, roughly 40% of all workers are now contracted, as opposed to 30% 10 years ago. Many people, particularly in sectors such as IT, prefer to work on a contract rather than a permanent employment basis. They do not want to contribute to the company medical aid and other funds because they believe they can arrange their affairs better on their own.”
Adcorp recently released its results for the year to February, posting a 17% increase in revenues, which tallied R15.6bn for the 12-month period.
Normalised earnings per share (EPS) were 365.3c, 4% better than the previous year. Headline EPS were flat at 299.6c.
Pike has been largely responsible for driving Adcorp’s international expansion. The group earns 30% of its revenues abroad, compared with 5% in 2012.
It is now ranked as the fourth-largest recruitment firm in the world outside the US and Europe.
“Our international expansion was as much offensive as it was defensive. It certainly helped that we are now able to earn a sizeable amount of revenue in hard currency, which protected us against rand weakness, but the main motivation for expanding abroad was to offer a better service to our clients. In this industry, clients prefer to have one service provider in multiple countries. We are able to compete internationally by continuing to grow our presence across different geographies,” Pike explains.
Its international operation comprises the Australian IT specialist company, Paxus; blue-collar placement business, Labour Solutions Australia (LSA); and its most recent Australian acquisition, Dare, which focuses on the oil and gas industry.
Paxus had a decent year, posting real earnings growth in Australian dollars, while LSA’s earnings were slightly lower, partly due to an increase in costs invested to position the business optimally for growth.
“Dare has integrated well into the group and has identified a number of potentially lucrative cross-selling and collaborative opportunities with other businesses within the Adcorp Group,” says Pike.
The group has established a presence in Singapore, which now serves as the hub for its international expansion.
It is also in the process of raising about $100m (R1.55bn), which will give it the necessary war chest to further expand its international operations.
“We remain firmly committed to SA, and all our intellectual capital comes from here,” adds Pike.
“Singapore is the world’s fourth-largest capital market, and is also very centrally located in Asia, where 54% of the world’s employees will be living by 2030. So it is vitally important for us to have a presence there.”
The group’s expanding geographical footprint, particularly in Africa and Australia, is a key selling point for multinational clients with operations in multiple countries.
These are tough times for recruiters, but Pike believes the group has the capital to meet its international growth targets, as well as a cost-competitive business model that will stand it in good stead in the coming year.
“We don’t expect market conditions to improve substantially in the foreseeable future, but we have undergone a major restructuring within the group, which puts us in a good position going forward,” he says.
This article originally appeared in the 9 June 2016 edition of finweek. Buy and download the magazine here.
