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Increased costs impact South Africa-based Workforce’s profits in H1 2019

South Africa-based Workforce says that its recruitment segment has been hit hard by slow economic growth, the implementation of the National Minimum Wage, and delays in government programmes.

Workforce reported a strong set of financial results for the six months ended June 2019. Revenue increased by 7.7% to R1.53 billion and cash generated from operations increased by 28.5%to R48.5m. EBITDA increased by 5.2% to R80m and EPS decreased by 6.1% to 18.5 cents per share.

Despite growth in revenue and cash from operations, profit after tax was lower, at R41.22m (from R45m over the same period in 2018). This was due to increased costs associated with the National Minimum Wage, it said, while its staffing segment has also been affected.

Workforce stated, “The recently legislated minimum wage requirement in South Africa, which primarily impacts Workforce Staffing’s business, had a minimal effect on turnover, but affected profitability negatively.

“Overall performance was also negatively affected by the overall subdued economic climate, the election effect and a general contraction in government spend on infrastructure.”

According to the group, while it continues to feel the impact of a slow economy, which has shown only “pedestrian growth” in the first half of the year, its recruitment efforts have been hampered by delays in government because of the 2019 national elections.

The group cited the changes in cabinet following the 2019 national elections which subsequently delayed the progress made on new initiatives and various programmes which would have driven employment in various sectors.

The company said, “Workforce continues to feel the pressure of a delayed project approval cycle, especially in the solar sector where we are strongly positioned.

“(The group) is encouraged by the stance taken by the government in the stemming of corruption and a drive to stimulate the country to thrive again. However, the changes in cabinet positions have tended to delay decision making.”

Workforce said it expects these processes will be smoother in the coming six months as the portfolios are bedded down.

South Africa is in the midst of an employment crisis, where 29% of the country’s workforce is unemployed using the narrow definition – jumping to over 41% when including those who have given up looking for work.

The crisis has been exacerbated by a poor economic performance, which has made having large workforces untenable for many companies. The financial services industry, in particular, has made moves to downscale their staff contingents, with the big banks in South Africa looking to retrench many workers.

Government has tried to drive employment through initiatives such as the Employment Tax Incentive (ETI) programme, which encourages businesses to hire youth aged between 18 and 29 by offering a tax incentive.

However, Workforce noted that even this has slowed down due to lower economic activity in the country. Government has extended the programme to 28th February 2029.

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