1 - Adcorp
Sector: Support Services. Revenue: R4,4bn (Dec 08); Total BEE score: 88,71%; Ownership: 22; Pref proc: 18
Never say die! That seems to be the spirit that propelled recruitment and training group Adcorp to become a premium black economic empowerment (BEE) contributor.
For the second time in a row, Adcorp is crowned as the most empowered entity on the JSE in the FM's Top Empowerment Companies (TEC) survey. The group scooped the top spot with a total BEE score of 81,69% last year. This time around, it has produced a whopping 88,71%, making it the one and only level 2 BEE contributor on the JSE under TEC's methodology. Level 2 BEE status refers to total BEE scores between 85% and 95%.
Adcorp CEO Richard Pike says the group's current BEE credentials came out of a long and hard process. "It has been a long journey."
Adcorp has had to watch a number of its key BEE initiatives go poof. The group never gave up. It kept coming back and seems to have finally got the right combination. From an ownership point of view, Adcorp's first BEE move brought in partners at subsidiary level - Adcorp Flexible Staffing Solutions in 2003 and Adcorp Communication Solutions (ACS) in 2004.
A rethink of the group's strategic direction resulted in the disposal of ACS, which went with its BEE structure, in 2006. The group moved the Flexible Staffing Solutions' BEE partnership into holding level with an eye on strengthening the relations for the long term. The BEE partners - a consortium including Sandile Zungu - bailed out in 2007.
The relentless Adcorp replaced the Zungu consortium with a R512m transaction that transferred 15% of its shares to a new consortium made up of Women Investment Portfolio Holdings (Wiphold) and Simeka Group. At the same time the group transferred 10% of its shares to its employees.
Adcorp now sits with a 33% black economic interest and voting rights, which yield a total ownership score of 22. The ownership element of the broad-based BEE scorecard offers a maximum of 20 points plus three additional bonus points for excellent performers. The bonus points are reserved for the inclusion of the most vulnerable groups in society, women and new BEE groups. That is what Adcorp did to earn the two bonus points.
"The group took a decision in the 1990s, before my time, that BEE is a business imperative," says Pike. It has never looked back. The approach is paying off. The bestowing of BEE awards to Adcorp is just an added bonus. The real benefits are visible on the bottom line.
Adcorp's business comes from sectors of the economy that are heavy on BEE requirements. A significant portion of the group's clients are public-sector entities, which are supposed to be the main drivers of BEE implementation through uncompromising preferential procurement policies. The private-sector clients are also drawn from sectors that have strong transformation charters like the financial services sector, mining and construction.
Figures for the year ended August last year show Adcorp's revenue growing by 44% to R4,4bn. Revenue was quoted at R1,5bn in 2002. Operating profit rocketed by 73% to R258m last year. Shareholders are happy. The group has produced consistent increases in its return on assets, from 26,3% in 2002 to 42% last year.
Prospects are looking good despite market turmoil and the slowing economy. Adcorp is well positioned to take advantage of market conditions due to its unrivalled ability to search for talent, says Pike.
Though industry is shedding jobs, Pike notes that certain critical areas of the economy are still going strong because of the country's more than R1 trillion infrastructure development plan. "For the first time since the inception of the staffing industry, the demand for talent exceeds the supply in a number of disciplines," says Pike. As such, the frontiers for competition in certain segments of the industry have shifted away from securing job vacancies to the identification of scarce talent. This arguably represents the most fundamental shift this industry has experienced in its history and tends to favour larger providers such as Adcorp, he says.
All of these factors, coupled with the group's strong BEE credentials, position the group to take advantage of current market conditions and opportunities, says Pike.
He remains confident despite concerns that BEE deals - especially those concluded in the past two years - are in serious trouble. The collapsing asset prices spell disaster for many BEE transactions. These transactions are normally overgeared - more than 100% in many cases. As a result they cannot withstand the pressures of declining asset prices and squeezed operating margins. "I'm confident that our deal will weather the storm," says Pike.
The transaction resulted in a Wiphold trio joining the Adcorp board: Louisa Mojela, Gugu Duda and Tryphosa Ramona. Robinson Ramaite of Simeka Group also joined the board, together with Campbell Bomela, who has served on the Adcorp board as executive director since 2006. That produced 50% black representation at board level.
Adcorp still needs to put more effort into transforming its top management. The group scored 5,5 out of 10 in the management element of the scorecard. It managed 10,8 out of 15 in employment equity and 12,3 out of 15 in skills development. On preferential procurement, Adcorp claimed 18 points from a possible 20 and took all 15 points available in enterprise development.
