How Adcorp bounced back After govern­ment amended the Labour Re­la­tions Act, re­cruit­ment com­pany Adcorp found it­self in a tough spot a year ago. We talk to CEO Richard Pike about how the group re­struc­tured to re­gain a pos­i­tive po­si­tion go­ing for­ward.

Finweek English Edition - - COVER STORY -

ayear 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 three­month 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.

Pike has been largely re­spon­si­ble for driv­ing Adcorp’s in­ter­na­tional ex­pan­sion.

Adcorp’s head of­fice in Jo­han­nes­burg

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