Wrap Text
Interim Results for the six months ended 30 June 2016
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
Interim Results for the six months ended 30 June 2016
Accelerated growth Academic excellence
Revenue up 28%
Trading operating profit up 33%
Normalised earnings per share up 24%
Interim dividend per share 13.5 cents
Condensed consolidated statement of profit or loss
for the six months ended 30 June 2016
Unaudited Unaudited Audited
6 months 6 months 12 months to
Percentage to 30 June to 30 June 31 December
R'm Notes increase 2016 2015 2015
Revenue 28% 1 637.8 1 277.7 2 707.7
Earnings before Interest, Taxation, Depreciation and Amortisation (EBITDA) 40% 357.0 254.4 557.9
Operating profit before interest 44% 293.2 203.0 448.3
Net finance costs paid (31.5) (50.6) (119.7)
Interest received 4.2 5.3 7.1
Finance costs (35.7) (55.9) (126.8)
Profit before taxation 72% 261.7 152.4 328.6
Taxation (73.0) (47.8) (102.5)
Profit for the period 80% 188.7 104.6 226.1
Profit for the period attributable to:
Owners of the parent 188.5 104.6 224.9
Non-controlling interest 0.2 - 1.2
188.7 104.6 226.1
Earnings per share (cents)
Basic* 48% 36.3 24.6 50.2
Diluted 47% 36.2 24.6 50.2
Headline earnings 2 189.6 104.4 228.4
Headline earnings per share (cents)
Basic* 48% 36.5 24.6 51.0
Diluted 49% 36.4 24.5 51.0
Normalised earnings 3 165.4 109.2 241.5
Normalised earnings per share (cents)
Basic* 24% 31.9 25.7 53.9
Diluted 24% 31.8 25.7 53.9
Number of shares in issue (million) 530.8 455.0 530.8
Number of shares in issue net of treasury shares (million) 519.4 442.2 519.2
Weighted average number of shares for purposes of basic earnings per share (million)* 519.3 424.4 447.8
Weighted average number of shares for purposes of diluted earnings per share (million)* 520.9 425.7 447.8
Net asset value per share including treasury shares (cents) 53% 443.7 289.8 424.7
Net asset value per share net of treasury shares (cents) 52% 453.4 298.2 434.2
Free operating cash flow before capex per share (cents) 14% 97.2 85.6 75.5
Gross dividends per share (cents) 8% 13.5 12.5 29.5
Condensed consolidated statement of other comprehensive income
for the six months ended 30 June 2016
Unaudited Unaudited Audited
6 months 6 months 12 months to
to 30 June to 30 June 31 December
R'm 2016 2015 2015
Profit for the period 188.7 104.6 226.1
Other comprehensive income, net of income tax
Items that may be reclassified subsequently to profit or loss
Exchange differences on translating foreign operations (1.7) - 11.9
Total comprehensive income for the period 187.0 104.6 238.0
Total comprehensive income for the period attributable to:
Owners of the parent 186.9 104.6 237.1
Non-controlling interest 0.1 - 0.9
187.0 104.6 238.0
* Earnings per share, headline earnings per share and normalised earnings per share for the period ended 30 June 2015 have been adjusted downwards
by 0.7 cents. This is due to the retrospective adjustment of the 2015 rights offer undertaken. The adjustment to the basic and diluted weighted average
number of shares in issue for the period ended 30 June 2015 is an increase of 11.3 million and 11.4 million shares respectively due to the bonus element
contained within the rights offer.
Condensed consolidated statement of changes in equity
for the six months ended 30 June 2016
Unaudited Unaudited Audited
6 months 6 months 12 months to
to 30 June to 30 June 31 December
R'm 2016 2015 2015
Balance at beginning of the period 2 254.5 928.8 928.8
Total comprehensive income for the period 187.0 104.6 238.0
Dividends declared to shareholders (90.3) (61.6) (117.1)
Share-based payment expense 2.8 1.7 3.8
Shares issued - 333.4 336.4
Rights issue - - 850.0
Share issue costs - - (15.2)
Share options exercised 1.0 11.9 19.5
Non-controlling interest arising on acquisition - - 10.3
Balance at end of the period 2 355.0 1 318.8 2 254.5
Condensed consolidated segmental report
for the six months ended 30 June 2016
Unaudited Unaudited Audited
Percentage 6 months 6 months 12 months to
increase/ to 30 June to 30 June 31 December
R'm (decrease) 2016 2015 2015
Revenue 28% 1 637.8 1 277.7 2 707.7
Schools 20% 822.3 682.9 1 432.0
Tertiary 20% 592.7 492.4 981.5
Resourcing 116% 224.1 103.9 296.9
Intra group revenue (1.3) (1.5) (2.7)
Operating profit before interest 44% 293.2 203.0 448.3
Schools 25% 164.4 131.8 298.8
Tertiary 57% 100.3 63.8 134.0
Resourcing (30%) 8.5 12.2 29.1
Litigation settlement 23.5 - -
Corporate action costs (0.8) (4.5) (12.2)
Litigation (2.7) (0.3) (1.4)
Property, plant and equipment and proprietary technology systems 10% 2 686.7 2 438.4 2 593.4
Schools 8% 2 089.4 1 939.2 2 032.8
Tertiary 19% 589.9 494.4 552.7
Resourcing 54% 7.4 4.8 7.9
Condensed consolidated statement of financial position
as at 30 June 2016
Unaudited Unaudited Audited
30 June 30 June 31 December
R'm 2016 2015 2015
Assets
Non-current assets 3 981.0 3 727.2 3 894.2
Property, plant and equipment 2 637.0 2 386.0 2 538.6
Proprietary technology systems 49.7 52.4 54.8
Goodwill 1 085.3 1 084.5 1 085.3
Intangible assets 197.0 192.3 203.5
Investment 12.0 12.0 12.0
Current assets 533.8 354.2 408.5
Trade and other receivables 285.2 233.6 193.0
Other current assets 54.5 60.0 39.3
Bank balances and cash 194.1 60.6 176.2
Total assets 4 514.8 4 081.4 4 302.7
Equity and liabilities
Equity 2 355.0 1 318.8 2 254.5
Non-current liabilities 813.2 118.3 899.1
Long-term bank loans 774.8 64.6 801.1
Deferred taxation liability 38.4 53.7 98.0
Current liabilities 1 346.6 2 644.3 1 149.1
Current portion of long-term bank loans 11.7 10.2 16.8
Short-term bank loans 315.0 1 670.0 515.2
Trade and other payables 345.8 328.9 329.1
Taxation 69.2 56.4 11.7
Fees received in advance and deposits 604.9 578.8 276.3
Total liabilities 2 159.8 2 762.6 2 048.2
Total equity and liabilities 4 514.8 4 081.4 4 302.7
Condensed consolidated statement of cash flows
for the six months ended 30 June 2016
Unaudited Unaudited Audited
6 months 6 months 12 months to
Percentage to 30 June to 30 June 31 December
R'm Note increase 2016 2015 2015
Cash generated from operations 4 42% 361.8 255.2 555.8
Movement in working capital 247.8 205.6 1.7
Cash generated by operating activities 32% 609.6 460.8 557.5
Net finance costs paid (31.5) (50.6) (119.7)
Taxation paid (74.9) (47.3) (98.3)
Dividends paid (90.2) (61.5) (116.9)
Net cash inflow from operating activities 413.0 301.4 222.6
Net cash outflow from investing activities (153.2) (1 526.6) (1 340.4)
Net cash (outflow)/inflow from financing activities (241.7) 1 172.0 1 180.2
Net increase/(decrease) in cash and cash equivalents 18.1 (53.2) 62.4
Cash and cash equivalents at beginning of the period 176.2 113.8 113.8
Net foreign exchange differences on cash and cash equivalents (0.2) - -
Cash and cash equivalents at end of the period 194.1 60.6 176.2
Free operating cash flow before capex per share
for the six months ended 30 June 2016
Unaudited Unaudited Audited
6 months 6 months 12 months to
Percentage to 30 June to 30 June 31 December
R'm increase 2016 2015 2015
Profit for the period 188.7 104.6 226.1
Adjusted for non-cash IFRS and lease adjustments (after taxation) 3.6 2.0 (2.8)
Net operating profit after taxation - adjusted for non-cash IFRS and lease adjustments 192.3 106.6 223.3
Depreciation and amortisation 63.8 51.4 109.6
Other non-cash flow items (after taxation) 1.1 (0.2) 3.5
Operating cash flow after taxation 63% 257.2 157.8 336.4
Movement in working capital 247.8 205.6 1.7
Free operating cash flow before capex 39% 505.0 363.4 338.1
Weighted average number of shares for purposes of basic earnings per share (million)* 519.3 424.4 447.8
Free operating cash flow before capex per share (cents) 14% 97.2 85.6 75.5
Supplementary information
for the six months ended 30 June 2016
Unaudited Unaudited Audited
6 months 6 months 12 months to
to 30 June to 30 June 31 December
R'm 2016 2015 2015
Capital expenditure - current period 153.6 202.7 406.1
Capital commitments 1 219.0 1 329.9 1 566.7
Authorised by directors and contracted for 236.8 227.2 256.4
Authorised by directors and not yet contracted for 982.2 1 102.7 1 310.3
Anticipated timing of spend 1 219.0 1 329.9 1 566.7
0 - 2 years 392.8 635.6 598.9
3 - 5 years 315.7 218.6 419.2
more than 5 years 510.5 475.7 548.6
Operating lease commitments in cash - future years 338.6 354.8 383.9
Notes to the condensed consolidated financial statements
for the six months ended 30 June 2016
1. Statement of compliance
The condensed consolidated interim financial statements are prepared in accordance with International Financial Reporting Standard,
IAS 34 Interim Financial Reporting, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial
Pronouncements as issued by Financial Reporting Standards Council and the requirements of the Companies Act of South Africa. The
accounting policies applied in the preparation of these interim financial statements are in terms of International Financial Reporting
Standards and are consistent with those applied in the previous annual financial statements.
The preparation of the condensed consolidated interim financial results for the six months ended 30 June 2016 was supervised by
Didier Oesch CA(SA), the group's financial director.
These interim results have not been audited or reviewed.
No financial instruments were required to be restated to fair value.
Unaudited Unaudited Audited
6 months 6 months 12 months to
to 30 June to 30 June 31 December
R'm 2016 2015 2015
2. Determination of headline earnings
Profit for the period attributable to owners of the parent 188.5 104.6 224.9
Items excluded from headline earnings per share 1.1 (0.2) 3.5
Loss/(profit) on sale of property, plant and equipment 1.5 (0.3) 4.9
Taxation effects of adjustments (0.4) 0.1 (1.4)
Headline earnings 189.6 104.4 228.4
3. Determination of normalised earnings
Headline earnings 189.6 104.4 228.4
Items excluded from normalised earnings per share (24.2) 4.8 13.1
Litigation costs 2.7 0.3 1.4
Corporate action costs 0.8 4.5 12.2
Litigation settlement
- Settlement received (18.0) - -
- Reversal of provision for counterclaim (5.5) - -
- Reversal of interest on provision for counterclaim (5.5) - -
Taxation effects of adjustments 1.3 - (0.5)
Normalised earnings 165.4 109.2 241.5
4. Note to the condensed statement of cash flows
Reconciliation of profit before taxation to cash generated from operations
Profit before taxation 261.7 152.4 328.6
Adjust for non-cash IFRS and other adjustments (before taxation) 3.3 1.1 (7.0)
265.0 153.5 321.6
Adjust: 96.8 101.7 234.2
Depreciation and amortisation 63.8 51.4 109.6
Net finance costs paid 31.5 50.6 119.7
Other non-cash flow items 1.5 (0.3) 4.9
Cash generated from operations 361.8 255.2 555.8
5. Events after reporting period
Effective 1 July 2016 ADvTECH acquired 100% of Capsicum Culinary Studio (Pty) Ltd and 51% of Oxbridge Academy (Pty) Ltd.
On 20 July 2016 ADvTECH issued 13.6 million shares at 14.01 per share amounting to R190 million to the International Finance Corporation
(IFC), a member of the World Bank Group.
Commentary
Overview
The directors are pleased to announce excellent results, continuing the trend of strong performance from the business as it pursues its growth strategy. Both
the schools and tertiary divisions performed well with revenue growth and operating profit up, respectively. The resourcing division profits declined due to
the uncertain economy, though revenue increased as a result of the recent acquisitions.
The condensed consolidated statement of profit or loss excluding the benefit of the settlement of the long standing litigation matter with the Welihockyj's
presented below reflects the excellent trading results.
Unaudited Unaudited Audited
6 months 6 months 12 months to
Percentage to 30 June to 30 June 31 December
R'm increase 2016 2015 2015
Revenue 28% 1 637.8 1 277.7 2 707.7
Earnings before Interest, Taxation, Depreciation and Amortisation (EBITDA) 31% 333.5 254.4 557.9
Operating profit before interest 33% 269.7 203.0 448.3
Net finance costs paid (37.0) (50.6) (119.7)
Interest received 4.2 5.3 7.1
Finance costs (41.2) (55.9) (126.8)
Profit before taxation 53% 232.7 152.4 328.6
Taxation (71.5) (47.8) (102.5)
Profit for the period 54% 161.2 104.6 226.1
Group revenue increased by 28% while trading operating profit grew by 33% indicating continued operating margin improvement.
Strong enrolment growth highlighted in the table below translated into revenue increases of 20% in both the schools and tertiary divisions. The bulk of
enrolment growth in the previous year was driven by planned and organic expansion.
ADvTECH enrolment growth as at end February
2014 2015 % increase 2016 % increase
Schools total enrolments 13 541 23 721 75% 25 062 6%
Tertiary full qualification enrolments 20 113 24 332 21% 29 138 20%
Group total 33 654 48 053 43% 54 200 13%
A decrease in financing costs following the rights issue in 2015 and a steady effective taxation rate increased trading profit after taxation by 54% to
R161 million. Due to the increased number of shares in issue, the normalised earnings per share increased by 24% to 31.9 cents (2015: 25.7 cents).
Cash generated by operating activities, including the benefit of the litigation settlement, amounting to R610 million enabled the payment of capex of
R154 million, finance costs of R32 million, taxation of R75 million and dividends of R90 million, while free operating cash flow grew by 39% to R505 million.
The debtors' book has been well managed and we continue to place a strong emphasis on collections while being mindful and understanding of the consumer in this
challenging economic climate. Following the rights issue late in 2015, net borrowings has reduced to R907 million whilst the net asset value increased to
453.4 cents (2015: 298.2 cents) per share.
Continual upward growth trajectory for schools division
Contributing 50% of group revenue the schools division increased revenue by 20% to R822 million. Operating profit grew by 25% to R164 million with the
operating margin increasing from 19% to 20%. The division continues to reap the benefits of recent acquisitions with the Maravest contributions being
included for the first half of the year compared to being reflected for only two months in the corresponding period last year.
Being a leader in the premium independent schools sector, the schools division has also had success in the expansion into the mid-fee segments. The
division now consists of 81 (2015: 76) schools across 43 campuses under the brands: Abbotts College, ADvTECH Academies, Centurus Colleges,
CrawfordSchools(TM), Junior Colleges, Maravest Group and Trinityhouse.
Following on from the acquisition of Summit College, which is yet to be consolidated in the group's results, and the opening of Founders Hill College in
January 2016, as well as Copperleaf College which will open under the ADvTECH Academies umbrella in January 2017. The overall growth for the division
including the new schools and acquisitions is expected to continue at a steady pace in line with our growth strategy.
Schools capacity as at the end of February
2014 2015 2016
Students enrolled ('000) 13.5 23.7 25.1
Existing building capacity ('000) 16.0 28.2 29.9
% Existing building capacity utilised 84% 84% 84%
Ultimate potential site capacity ('000) 20.5 35.4 38.0
% Ultimate potential site capacity utilised 66% 67% 66%
The table above demonstrates the sustained increase in capacity being created in order to cater for continued demand for places in our schools. This also
illustrates the extent of capacity that is to be added to existing sites to reach their ultimate capacity.
Tertiary division reaps benefits and continues to grow
The tertiary division contributed 36% of group revenue growing by 20% to R593 million through organic student growth. Operating profit grew 57% to R100
million with operating margin increasing from 13% to 17%, continuing its significant improvement.
The tertiary division includes the Independent Institute of Education (IIE) which operates Rosebank College, Vega, The Design School Southern Africa, Varsity
College (including The Business School at Varsity College) and Forbes Lever Baker (FLB). The division has a national urban footprint of 20 DHET registered
campuses with an institutional structure that ensures academic leadership and governance.
The successful launch of the digitally enabled Rosebank College Campus in Polokwane presented an exciting new format of blended learning making quality
qualifications accessible to more students. This platform is scalable and introduces opportunities for distance learning into new markets.
With this strong performance, the tertiary division is now well placed to enable the second phase of its growth strategy which is to introduce new niche
qualifications that provide career opportunities and growth into the distance education sector.
Resourcing division maintains market share in a static economy
The resourcing division contributed 14% to group revenue and grew by 116% to R224 million as a result of acquisitions. Due to the tough trading environment
operating profit declined by 30% to R9 million with operating margins down from 12% to 4%, mainly due to the inclusion of the acquisitions which is a lower
margin business model. However, the division continued to hold its own, retaining its market share in existing brands despite the stagnant economy and the
growing unemployment rate in South Africa, while increasing its presence through the acquisitions.
Comprising permanent and temporary staffing solutions as well as recruitment advertising, e-Recruitment, payroll solutions and advertising response handling
the resourcing division's portfolio of brands include: Brent Personnel, Cassel & Company, CA Global, Africa HR Solutions Ltd, Contract Accountants, Communicate
Personnel, Inkokheli HR Appointments, Insource.ICT, IT Edge, Network Recruitment, Tech-Pro Personnel and The Working Earth.
Corporate events after the reporting period
The International Finance Corporation's (IFC) R320 million investment in ADvTECH demonstrates support for the group's expansion in Sub-Saharan Africa to
increase its schools and tertiary education programs. The IFC acquired a 2.5% equity stake in ADvTECH through the issue of shares for R190 million and a further
1.6% of ADvTECH's shares in the market bringing its combined holdings to around 4% of the group. This investment is part of a partnership aimed at supporting
ADvTECH's existing plans for considered expansion into new African markets.
The tertiary division acquired Capsicum Culinary School and a stake in Oxbridge Academy with effect from 1 July 2016, strengthening our position in the tertiary
sector.
Capsicum Culinary Studio is the largest culinary school of its kind in South Africa offering local and international accredited programmes and endorsed by the
highly acclaimed City & Guilds and World Association of Chefs Societies, with approximately 600 full-time students across six campuses nationally. Through this
acquisition ADvTECH can now provide further career development opportunities and much needed skills to the South African market.
ADvTECH has acquired a 51% stake in Oxbridge Academy which is positioned in the rapidly growing distance learning sector, in which 40% of tertiary students
are engaged. This partnership introduces a wide variety of qualifications and 20 000 distance education students to the group and provides a platform on which
to expand our distance education offering.
Declaration of interim dividend no 14
The group's expansion plans that will continue to roll out over the next few years require significant funding. With this in mind, the board believe it to be prudent
to increase the dividend cover as previously signalled and has therefore decided to announce the declaration of an interim gross dividend of 13.5 cents
(2015: 12.5 cents) per ordinary share in respect of the half year ended to 30 June 2016.
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%. The net
amount per share payable to shareholders who are not exempt from DT is 11.475 cents per share, while it is 13.5 cents per share to those shareholders who are
exempt from DT.
There are 544 386 530 ordinary shares in issue. The total dividend amount payable is R73 million.
The salient dates and times applicable to the dividend referred to above are as follows:
2016
Publication of declaration and finalisation information Monday, 22 August
Last day to trade in order to participate in the dividend Tuesday, 6 September
Trading commences ex-dividend Wednesday, 7 September
Record date Friday, 9 September
Payment date Monday, 12 September
Share certificates may not be dematerialised between Wednesday, 7 September 2016 and Friday, 9 September 2016, both days inclusive.
Directorate
There have been no changes to the directorate for the six months ended 30 June 2016.
CC Koopman was appointed as company secretary with effect from 1 August 2016.
Prospects
As mentioned at year-end, the board and management have agreed a stretch target of 100 cents normalised earnings per share by 2018. Given approved
investment and the new opportunities identified, the board believes this is achievable provided there is no further deterioration in the operating climate.
These results are in line with the achievement of this stretch target. The group continues to make good progress in growing its leading market position,
increasing its presence in mid-fee schools, identifying acquisition and partnership opportunities in both South Africa and the rest of the continent, and expansion
of our delivery model through technology-enabled education including blended and distance learning.
On behalf of the board
Chris Boulle Roy Douglas Didier Oesch
Chairman Chief executive officer Group financial director
22 August 2016
Directors: CH Boulle* (Chairman), RJ Douglas (CEO), JDR Oesch (Financial), BM Gourley*, JD Jansen*, SC Masie*, KDM Warburton*, SA Zinn*
*Non-executive
Group company secretary: CC Koopman
Registered office: ADvTECH House, Inanda Greens, 54 Wierda Road West, Wierda Valley, Sandton 2196.
Transfer secretaries: Link Market Services South Africa (Pty) Ltd, Rennie House, 19 Ameshoff Street, Braamfontein 2017.
Sponsor and corporate advisors: Bridge Capital Advisors (Pty) Ltd, 27 Fricker Road, Illovo 2196.
Date: 22/08/2016 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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