ADCORP HOLDINGS LIMITED - Trading statement and operational update for the half year ended 31 August 2017

Trading statement and operational update for the half year ended 31 August 2017

Adcorp Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 1974/001804/06)
Share code: ADR & ISIN: ZAE000000139
("Adcorp" or "the Company")

TRADING STATEMENT AND OPERATIONAL UPDATE FOR THE HALF YEAR ENDED 31 AUGUST 2017

Trading statement
In terms of the Listings Requirements of the JSE Limited, companies are required to publish a trading
statement as soon as there is a reasonable degree of certainty that the financial results for the period
to be reported upon next will differ by at least 20% from the financial results for the previous
corresponding period.

Adcorp shareholders are therefore advised that the results for the half year ended 31 August 2017
are expected to be as follows:
    . Basic loss per share of between 110 cents and 132 cents per share compared to basic earnings
       per share (“EPS”) of 78.4 cents for the half year ended 31 August 2016; and
    . Headline loss per share of between 38 cents and 45 cents compared to headline earnings per
       share (“HEPS”) of 77.5 cents for the half year ended 31 August 2016.

Trading and Operational Update
Trading across the group has been stable for the period and revenue growth has been relatively flat
when compared to the prior period. Revenue declines in the Support Services and Training businesses
were offset by positive contribution from the Industrial Services, Professional Services (excluding
minor negative impact of exchange rate movement) and Financial Services businesses.

At both an Earnings before Interest, Taxation, Depreciation and Amortization (EBITDA) and Operating
Profit level, before allocation of central costs, the Group recorded a decline of 11% from prior period.

Professional Services business grew EBITDA by 23% from prior period, showing double digit growth
for both the South African and Australian operations. Financial Services also recorded a solid 18%
growth in EBITDA from the prior period.

Industrial Services business showed a decline in earnings of 13% from the prior period, largely as a
result of the wind down of the Fortress business. Excluding the Fortress business, this division grew
its EBITDA by 6% on a like for like basis.

Support Services business showed a decline of 58% in EBITDA from the prior period, largely driven by
loss of volume and one loss-making contract (which has now been favorably renegotiated post the
reporting period). The Training business recorded a decline of approximately R24m in EBITDA to a
loss from the prior period, largely as a result of timing impact on its contracts.

Overall, the core of the business recorded stable to strong performance from the prior period, and
management are focused on a strategic and operational efficiency review of the Support Services
and Training businesses.

Below the EBITDA line reported above, the Group recorded once-off bad debts write-offs
approximately R78.4m, largely emanating from a serious lapse in credit controls in the Fortress
operations, which is being wound down as noted above. The Group is confident that the lapse in
controls have been plugged and the whole credit control has been tightened, which should result in
a reduced debtor’s book going forward.
Central costs have increased by R43 million from prior period, largely driven by the group
restructuring initiatives that the new management have embarked on (see further comments below).
Further, the new team has implemented robust accounting policies to ensure consistency in
reporting between half year and full year numbers.

The Africa operations continue to make losses and a review of the medium to long term prospects
culminated in a decision to exit the business across the rest of Africa. The half year results include
the related impairment adjustment of approximately R65m.

Australian business
For the Australia operations, the six months to end August 2017 have been stable and positive across
all business units. All companies are tracking either on or ahead of budget. On the back of improved
profitability, there has been an acceleration of the pay-down of the Australia borrowings (which arose
from the acquisitions of Dare and Labour Solutions Australia in prior years), which has enabled the
business to finalize a better financial package which now allows payments of the dividends to the
South African operations going forward.

Cash and Debt Position
The group generated approximately R133m more cash from operations than the prior period,
underscoring the steady performance from core operations noted above. There was a net R84m
repayment of borrowings in the period, largely as a result of paydown of Australia borrowings noted
above. Together with investing activities of approximately R30m, the net cash position declined by
approximately by R118m to an overdraft of R19m.

The Group is pleased to announce that it has received firm commitments from funders for a R1 billion
facility, subject to finalization of facilities agreement, which are expected to be finalized by 30
October 2017. This facility will enable the group to consolidate and refinance all its debt (including
the R859m DMTN programme) under terms that are more aligned to the restructure that is in
progress.

Sale of Nihilient
As previously announced to the shareholders through SENS, the Group has concluded the sale of
Nihilent and the cash has now been received. Net proceeds of R307m have been received. The net
profit on the disposal will be approximately R150m. Both the cash proceeds and profit on the disposal
have not been included in the current reporting period as the sale was concluded subsequent to the
reporting period, and will be included in the second half of the year.

Strategic shareholder and new management team
The Group was pleased to announce the introduction of Value Capital Partners as a strategic
shareholder to the Company at the end of June 2017. This has been followed by a wholesale change
of leadership at the Board and executive management level, with the Group welcoming Mrs. Gloria
Serobe, Mr. Innocent Dutiro and Mr. Mark Jurgens as the Chairman of the Board, Chief Executive
Officer and Chief Operating Officer respectively. Ms. CJ Kujenga joined the Group as Chief Financial
Officer on 1 July 2017.

The Group is excited about the above changes and sees it as an opportunity to reposition and
strengthen the Company going forward. The immediate priorities of the new leadership team are as
follows:

   1. To build a strong business that is focused on leveraging its core;
   2. Ensure that the business is lean and agile;
   3. Strengthen the brand; and
   4. Transform the culture.

Despite the economic and legislative challenges faced by the group, central costs had increased
significantly and more than doubled over the last three years. The new leadership team has identified
the need to right-size the group, and some costs related to this restructure are included in the current
half year results.

The financial results on which this trading statement have been based have not been reviewed or
reported on by the Company`s auditors. The financial results of the Company are expected to be
published on or about 30 October 2017.

23 October 2017
Bryanston
Sponsor: Deloitte & Touche Sponsor Services (Pty) Ltd

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