Wrap Text
Preliminary results for the year ended 31 December 2014
ADvTECH Limited
("ADvTECH" or "the Group")
(Incorporated in the Republic of South Africa)
Registration number: 1990/001119/06
JSE code: ADH
ISIN number: ZAE 0000 31035
Income taxation number: 9550/190/71/5
www.advtech.co.za
Preliminary results for the year ended 31 December 2014
A year of outstanding success in implementing the Group's growth strategy.
Revenue up 9%
Operating profit up 16%
Normalised earnings per share up 12%
Dividends per share for the year 26.0 cents
Summarised consolidated statement of comprehensive income
for the year ended 31 December 2014
Audited Audited
Percentage 31 December 31 December
R'm Notes increase 2014 2013
Revenue 9% 1 931.8 1 766.3
Earnings before Interest, Taxation, Depreciation and Amortisation (EBITDA) 17% 340.8 291.6
Operating profit before interest 16% 256.4 221.7
Net (finance costs paid)/interest received (9.1) 3.0
Interest received 2.8 6.1
Finance costs (11.9) (3.1)
Profit before taxation 247.3 224.7
Taxation (80.2) (69.0)
Total comprehensive income for the year 167.1 155.7
Earnings per share (cents)
Basic 7% 41.3 38.5
Diluted 7% 41.2 38.5
Headline earnings 2 167.5 156.0
Headline earnings per share (cents)
Basic 7% 41.4 38.6
Diluted 7% 41.3 38.6
Normalised earnings 3 175.9 157.4
Normalised earnings per share (cents)
Basic 12% 43.5 39.0
Diluted 12% 43.4 38.9
Number of shares in issue (million) 421.3 421.3
Number of shares in issue net of treasury shares (million) 406.4 404.0
Weighted average number of shares for purposes of basic earnings per share (million) 404.7 404.0
Weighted average number of shares for purposes of diluted earnings per share (million) 405.1 404.3
Net asset value per share including treasury shares (cents) 9% 220.5 202.5
Net asset value per share net of treasury shares (cents) 8% 228.5 211.1
Gross dividends per share (cents) 2% 26.0 25.5
Summarised consolidated statement of financial position
as at 31 December 2014
Audited Audited
31 December 31 December
R'm 2014 2013
Assets
Non-current assets 1 646.0 1 397.6
Property, plant and equipment 1 439.0 1 198.6
Proprietary technology systems 53.1 44.0
Goodwill 103.8 98.2
Intangible assets 25.3 27.0
Deferred taxation assets 12.8 17.8
Investment 12.0 12.0
Current assets 314.2 235.1
Trade and other receivables 153.6 111.5
Other current assets 46.8 26.0
Bank balances and cash 113.8 97.6
Total assets 1 960.2 1 632.7
Equity and liabilities
Equity 928.8 853.0
Current liabilities 1 031.4 779.7
Bank loans 550.0 300.0
Trade and other payables 271.2 281.4
Provision - 1.8
Taxation 0.1 3.1
Fees received in advance and deposits 210.1 193.4
Total equity and liabilities 1 960.2 1 632.7
Summarised consolidated statement of changes in equity
for the year ended 31 December 2014
Audited Audited
31 December 31 December
R'm 2014 2013
Balance at beginning of the year 853.0 793.1
Total comprehensive income for the year 167.1 155.7
Dividends declared to shareholders (105.7) (99.6)
Share-based payment expense and awards 3.2 3.0
Share options exercised 11.2 0.8
Balance at end of the year 928.8 853.0
Supplementary information
for the year ended 31 December 2014
Audited Audited
31 December 31 December
R'm 2014 2013
Capital expenditure - current year 316.4 334.5
Capital commitments 1 082.0 1 176.2
Authorised by directors and contracted for 343.1 186.4
Authorised by directors and not yet contracted for 738.9 989.8
Anticipated timing of spend 1 082.0 1 176.2
0 - 2 years 473.4 357.9
3 - 5 years 348.1 306.6
more than 5 years 260.5 511.7
Operating lease commitments in cash - future years 380.8 301.3
Summarised consolidated segmental report
for the year ended 31 December 2014
Percentage Audited Audited
increase/ 31 December 31 December
R'm (decrease) 2014 2013
Revenue 9% 1 931.8 1 766.3
Schools 12% 915.0 818.6
Tertiary 10% 826.9 750.5
Resourcing (3%) 194.0 200.0
Intra Group revenue (4.1) (2.8)
Operating profit before interest 16% 256.4 221.7
Schools 3% 161.6 157.0
Tertiary 75% 84.0 48.0
Resourcing 1% 18.2 18.1
Acquisition related costs (4.0) -
Litigation (3.4) (1.4)
Property, plant and equipment and proprietary technology systems 20% 1 492.1 1 242.6
Schools 21% 1 134.3 940.0
Tertiary 18% 354.1 299.7
Resourcing 28% 3.7 2.9
Summarised consolidated statement of cash flows
for the year ended 31 December 2014
Percentage Audited Audited
increase/ 31 December 31 December
R'm Note (decrease) 2014 2013
Cash generated from operations 4 17% 345.1 295.9
Movement in working capital (59.4) 67.2
Cash generated by operating activities (21%) 285.7 363.1
Net (finance costs paid)/interest received (9.1) 3.0
Taxation paid (78.2) (66.9)
Capital distributions paid (0.1) -
Dividends paid (105.6) (99.4)
Net cash inflow from operating activities 92.7 199.8
Net cash outflow from investing activities (337.7) (340.9)
Net cash inflow from financing activities 261.2 180.9
Net increase in cash and cash equivalents 16.2 39.8
Cash and cash equivalents at beginning of the year 97.6 57.8
Cash and cash equivalents at end of the year 113.8 97.6
Free operating cash flow before capex per share
for the year ended 31 December 2014
Percentage Audited Audited
increase/ 31 December 31 December
R'm (decrease) 2014 2013
Total comprehensive income for the year 167.1 155.7
Adjusted for non-cash IFRS and lease adjustments (after taxation) 3.6 3.6
Net operating profit after taxation - adjusted for non-cash IFRS and lease adjustments 170.7 159.3
Depreciation and amortisation 84.4 69.9
Other non-cash flow items (after taxation) 0.4 0.3
Operating cash flow after taxation 11% 255.5 229.5
Movement in working capital (59.4) 67.2
Free operating cash flow before capex (34%) 196.1 296.7
Weighted average number of shares for purposes of basic earnings per share (million) 404.7 404.0
Free operating cash flow before capex per share (cents) (34%) 48.5 73.4
Notes to the summarised consolidated financial statements
for the year ended 31 December 2014
1. Statement of compliance
The summary consolidated financial statements are prepared in accordance with the requirements of the JSE Limited Listings Requirements for
preliminary reports, and the requirements of the Companies Act of South Africa applicable to summary financial statements. The Listings
Requirements require preliminary reports to be prepared in accordance with the framework concepts and the measurement and recognition
requirements of International Financial Reporting Standards (IFRS), the SAICA Financial Reporting Guides as issued by the Accounting Practices
Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council, and to also, as a minimum, contain the
information required by IAS 34, Interim Financial Reporting. The accounting policies applied in the preparation of the consolidated financial
statements, from which the summary consolidated financial statements were derived, are in terms of IFRS and are consistent with the accounting
policies applied in the preparation of the previous consolidated financial statements.
The preparation of the Group's summary consolidated financial results for the year ended 31 December 2014 was supervised by Didier Oesch CA(SA),
the Group's financial director.
Post-balance sheet events
Acquisitions concluded during 2014 with effective dates subsequent to year end include the Centurus Colleges, Gaborone International School
(Botswana) and the Maravest Group (the latter still being subject to approval by the shareholders). All acquisitions are within the Schools
division and are in line with the published expansion programme. The Group drew down additional amounts from its existing loan facilities
to settle the purchase considerations except for Maravest which is still conditional and provides for settlement in shares. The initial
accounting for these business combinations is incomplete and therefore the disclosure of the acquisition date fair values and related impact
cannot be made at this time.
The directors are not aware of any matter or circumstance occurring between the date of the statement of financial position and the date of this
report that materially affects the results of the Group for the year ended 31 December 2014 or the financial position at that date.
Independent auditor's opinion
These summary consolidated financial statements for the year ended 31 December 2014 have been audited by Deloitte & Touche, who expressed
an unmodified opinion thereon (the auditor also expressed an unmodified opinion on the annual financial statements from which these summary
consolidated financial statements were derived). A copy of the auditor's report on the summary consolidated financial statements and of the
auditor's report on the annual consolidated financial statements are available for inspection at the Company's registered office, together with the
financial statements identified in the respective auditor's reports. The auditor's report does not necessarily cover all the information contained in
this announcement. Shareholders are therefore advised that in order to obtain a full understanding of the nature of the auditor's work, they should
obtain a copy of their report together with the accompanying financial information from the Company's registered office. Any reference to future
performance included in this announcement, has not been reviewed or reported on by the Company's auditors.
Audited Audited
31 December 31 December
R'm 2014 2013
2. Determination of headline earnings
Total comprehensive income for the year 167.1 155.7
Items excluded from headline earnings per share 0.4 0.3
Loss on sale of property, plant and equipment 0.5 0.4
Taxation effects of adjustments (0.1) (0.1)
Headline earnings 167.5 156.0
3. Determination of normalised earnings
Headline earnings per share 167.5 156.0
Items excluded from normalised earnings per share 8.4 1.4
Litigation costs 3.4 1.4
Acquisition and financing related costs 5.4 -
Taxation effects of adjustments (0.4) -
Normalised earnings 175.9 157.4
4. Note to the summarised statement of cash flows
Reconciliation of profit before taxation to cash generated from operations
Profit before taxation 247.3 224.7
Adjusted for non-cash IFRS and lease adjustments (before taxation) 3.8 3.9
251.1 228.6
Adjust: 94.0 67.3
Depreciation and amortisation 84.4 69.9
Net finance costs paid/(interest received) 9.1 (3.0)
Other non-cash flow items 0.5 0.4
Cash generated from operations 345.1 295.9
5. Business combinations
The assets of Snuggles were acquired on 1 January 2014 for a consideration amounting to R12.0 million.
Fair value assets acquired
Intangible assets 0.3
Goodwill 1.7
Property, plant and equipment 10.0
12.0
The assets and liabilities of Tiny Town were acquired on 1 July 2014 for a consideration amounting to R10.5 million.
Fair value assets and liabilities acquired
Intangible assets 1.2
Goodwill 3.9
Property, plant and equipment 6.0
Current liabilities (0.6)
10.5
These acquisitions were made as additions to our Junior Colleges brand in line with our expansion strategy and will provide opportunities for
synergies.
Commentary
Overview
The directors are delighted to present a year of outstanding success in implementing the Group's growth strategy. This is highlighted by the
commitment to invest some R1.7 billion into growth projects that will dramatically increase capacity and enrolments. The significant growth in assets
employed has created a harder working and more demanding capital structure. Consequently, 2014 represents a new base line for evaluating the
performance of the Group. The impact of the investment strategy is forecast to result in a quantum leap in the Group's scale, the key driver being
enrolment growth. This is best illustrated by the following data:
ADvTECH Group enrolment growth as at February 2015
Student numbers Year-on-year % increase
2013 2014* 2015** 2014/2013 2015/2014
Schools total enrolments# 13 178 13 886 23 721 5% 71%
Schools capacity*** 17 368 20 454 35 412 18% 73%
Capacity utilised 76% 68% 67%
Tertiary total enrolments 15 798 20 113 24 332 27% 21%
Group total enrolments 28 976 33 999 48 053 17% 41%
* February 2014 actuals.
** February 2015 preliminary.
*** Comprises planned full capacity of existing campuses only.
# The Schools enrolments and capacity includes Maravest which still requires approval from shareholders.
Excellent performance of our existing schools, combined with the significant new investments and acquisitions, have driven a decisive shift in the
Schools division which is now well into its exciting new growth phase. The two-year turnaround of the Tertiary division has been most successful and
the Division is now delivering strong growth. The Resourcing division has maintained market share and position and produced a strong turnaround in
the second half of the year, achieving almost double the operating profit recorded in the first half. The trend of strong improvement in the Resourcing
division has continued into 2015.
The positive trend established in the first half of the year continued over the full 12 months with revenue up 9% to R1.9 billion, operating profit up 16%
to R256 million and normalised earnings per share up 12% to 43.5 cents. The unusually large deal flow and consequent raising of additional loan
facilities led to significant once-off costs in the second half of the year. Other metrics such as segmental contributions, cash flow, return on capital and
margins are all pleasing.
The Group's 2014 performance together with the 2015 enrolments highlight the resilient demand for premium private education despite the
economic slowdown. The consistent achievement of academic excellence across the brands, led by The Independent Institute of Education, underpins
ADvTECH's enduring success. Matric results were again excellent with 98% of the 1 348 candidates qualifying for tertiary entrance and
CrawfordSchoolsTM students achieving 3.2 distinctions per candidate on average. Similar excellent results were achieved in the Tertiary division,
including the announcement of 3 087 new graduates. For instance, in the SAICA Part 1 FQE, FLB and Varsity College students achieved an 82% pass
rate, 12% above the National average in this prestigious examination. The Group's alumni continue to attain career success after qualifying. Through
our graduate placement programme 2 726 alumni were placed in their first jobs.
While the Group retains a strong focus on its existing core businesses and continues to invest in growing its leading market position, the strategy has
been extended to include technology-enabled education (including distance learning), mid-fee schools, expansion into Africa and a greater emphasis
on partnerships in both public and private sectors. All of these imperatives are focused on deepening the Group's contribution to addressing
fundamental challenges and opportunities in education and job creation.
Schools division on upward growth trajectory
The Schools division grew enrolments by 5% and revenue by 12%, mostly as a result of new schools coming on stream. Existing schools performed
well, showing continued profit growth. While the new projects are performing in line with expectations, operating profit was relatively flat due to the
J-curve of the new schools. In terms of the ongoing R3 billion investment plan, five schools were acquired and three new campuses were opened. In
addition, with effect from 2015, the Group acquired the businesses of Centurus and Maravest.
Centurus Colleges, acquired for a cash consideration of R712 million, comprises three independent premium co-educational schools, located in
growing nodes in or near Gauteng. Currently 3 244 students are enrolled spanning Grades 000 to 12 with existing capacity for 4 800 students. Boarding
is offered at the Pecanwood and Southdowns Colleges, and the latter includes valuable tertiary education infrastructure.
The Maravest Group, to be acquired for R450 million in shares, has six schools in Gauteng and includes two mid-fee schools and one low fee school,
marking ADvTECH's entry into these fast-growing market segments. Still subject to shareholder approval, this acquisition will add 4 445 students to the
Schools division and create capacity for some 6 900 students.
Gaborone International School (GIS) in Botswana represents the Division's first foray outside South Africa and signals the Group's intention to grow into
new markets elsewhere in Africa. GIS is a mid-fee school and caters from crèche to Form 4 with a track record of excellent academic outcomes, strong
student demand and profitability. It currently has 1 900 students, with sufficient space on the existing campus to reach a capacity of 2 300 students.
In terms of planned capacity, 62% of the schools are more than 75% full. Measured by number of campuses, half of the schools are in their rapid
growth phase.
Strong recovery in Tertiary division
The two-year turnaround of the Tertiary division has been successful and it is now delivering impressive growth. Revenue increased by 10% and
operating profit was up by a sterling 75% to R84 million. The strong growth in full-time enrolments is mainly due to offering a wider variety of our own
Independent Institute of Education (IIE) courses and an increase in the number of students from other African countries, who recognise the quality of
our education and the affordability of our fee structures. Growth in the mid-fee brand, Rosebank College, has been particularly strong. Increased
student numbers bode well for future growth as returning students re-enrol in further academic years of study.
The IIE - which was accredited by the British Accreditation Council (BAC) in 2014 - offers 86 accredited qualifications, now with enhanced international
credentials. To support flexible learning opportunities, some existing and new qualifications have also been accredited through the distance learning
model.
It is particularly pleasing to report that the Group's significant technology investments over the past few years are bearing fruit. Almost 25 000 students
are comprehensively supported on the Student Administration System (SAM) and approximately 8 000 students access ADvTECH's Learner
Management System (LMS). These systems form the foundation for distance and blended learning as part of the Group's education strategy. The
growth and practical implementation of technology enabled education is clearly evident in the success of the Tertiary division reaching new markets
and providing lower fee offerings without sacrificing quality or student achievement.
Resourcing division holding its own
The Resourcing division continued to hold its own in exceptionally difficult staffing markets, constrained by weak economic growth and stagnant job
creation. Although revenue was down 3%, operating profit was flat on the previous year following a strong second half recovery. The Division, which
remains strongly cash generative and provides a good return on capital, has maintained its leading market share in the permanent staffing market and
continues to entrench its niche offerings in specialised segments. It has also contained its costs effectively. The Division is well positioned to benefit
from any improvement in trading conditions.
Financial
Group revenue grew by 9% to R1.9 billion, with operating profit up 16% and normalised earnings per share up 12%. HEPS which includes several
once-off costs relating to acquisitions and the funding required for the acquisitions concluded in the year, were up 7%.
The segmental analysis reflects a solid and steady performance from the Schools division as it assumes responsibility for the new investments, strong
growth of 75% from the Tertiary division as the turn around has been completed and a welcome improvement in the Resourcing division in the
second half of the year as effective interventions were implemented. Movement in working capital was affected by lower capital creditors as well as
advertising, finance costs and VAT related prepayments. Trade receivables increased in line with revenue by 9%. Nevertheless, free cash flow generated
was 117% of earnings, return on funds employed in the year amounted to 30.5%, well ahead of the cost of capital, and operating profit margin improved
from 12.6% to 13.3%.
While the strength of the Group's balance sheet underpinned our ability to accelerate our capital expenditure in the last year, the Group's borrowings
have risen significantly after year end to fund the expansion and acquisition strategy. This necessitated raising a bridge facility, which becomes payable
in October 2015. The restructuring of the Group's balance sheet is currently under consideration.
While the impact of the investment and acquisition programme will have an operational J-curve effect in the short-term, there are sufficient projects
that have moved into the high growth phase to offset their impact on earnings. The Board is satisfied that the benefits of these investments in the
medium-term and beyond will far outweigh their short-term impact as the J-curve unwinds and the strength of free cash flow generation mitigates
the impact of financing costs.
Declaration of final dividend no 11
The Board is pleased to announce the declaration of a final gross dividend of 15.0 cents (2013: 15.0 cents) per ordinary share in respect of the year
ended 31 December 2014. This brings the full year dividend to 26.0 cents (2013: 25.5 cents) per share.
This is a dividend as defined in the Income Tax Act, 1962, and is payable from income reserves. The South African dividend taxation (DT) rate is 15%
and no credits in terms of Secondary Taxation on Companies (STC) were available for utilisation. The net amount per share payable to shareholders
who are not exempt from DT is 12.75 cents per share, while it is 15.0 cents per share to those shareholders who are exempt from DT.
There are 421 282 422 ordinary shares in issue; the total dividend amount payable is R63 million.
The salient dates and times applicable to the dividend referred to above are as follows:
2015
Declaration date Friday, 20 March
Announcement date Monday, 23 March
Last day to trade in order to participate in the dividend Friday, 10 April
Trading commences ex dividend Monday, 13 April
Record date Friday, 17 April
Payment date Monday, 20 April
Share certificates may not be dematerialised or rematerialised between Monday, 13 April 2015 and Friday, 17 April 2015, both days inclusive.
Directorate
As announced at half-year, Leslie Maasdorp was appointed as CEO designate with effect from 11 August 2014. He was appointed as CEO with effect
from 24 October 2014, on which date Frank Thompson retired as a director and CEO. In light of Leslie Maasdorp's appointment as CEO, he resigned as
Chairman of the Board and Jeff Livingstone, who has been an independent non-executive director since 2008, was appointed Acting chairman.
ADvTECH and Leslie Maasdorp have however reached a mutual agreement to part ways on 23 March 2015.
Stafford Masie and Mteto Nyati were appointed as non-executive directors with effect from 9 January 2014. Chris Boulle was appointed as Acting
chairman of the Audit Committee with effect from the same date.
Prospects
All three trading Divisions are showing positive performance trends that augur well for further growth in 2015. It is clear that growth prospects have
been considerably strengthened and with a strong foundation in place and further investments to come, Group shareholders can look forward to
higher growth rates in the coming years as we implement ambitious yet well considered strategies.
On behalf of the Board
Jeff Livingstone Didier Oesch
Acting chairman Group financial director
23 March 2015
Directors: JC Livingstone* (Acting chairman), JDR Oesch (Financial), CH Boulle*, BM Gourley*, JD Jansen*, SC Masie*, M Nyati*, SA Zinn*
*Non-executive
Group company secretary: SK Saunders.
Registered Office: ADvTECH House, Inanda Greens, 54 Wierda Road West, Wierda Valley, Sandton 2196.
Transfer Secretaries: Link Market Services SA (Pty) Ltd, Rennie House, 19 Ameshoff Street, Braamfontein 2017.
Sponsor: Bridge Capital Advisors (Pty) Ltd, 27 Fricker Road, Illovo 2196.
Date: 23/03/2015 08:29:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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