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ADH
ADH
ADH - ADvTECH LIMITED - Interim results for the six months ended 30 June 2008
ADvTECH LIMITED
(Incorporated in the Republic of South Africa)
Registration number: 1990/001119/06
JSE code: ADH ISIN: ZAE000031035
INTERIM RESULTS for the six months ended 30 June 2008
Revenue UP 19%
Operating profit UP 24%
Headline earnings per share UP 30%
Distribution per share UP 40%
CONDENSED CONSOLIDATED INCOME STATEMENT
for the six months ended 30 June 2008
Unaudited Unaudited Audited
6 months 6 months 12 months
Percen- to to to
tage 30 June 30 June 31 Dec
R`000 Note increase 2008 2007 2007
Revenue 19% 563 817 475 050 962 711
Earnings before
Interest,
Taxation,
Depreciation &
Amortisation
(EBITDA)
26% 110 906 87 953 194 030
Operating 24% 88 808 71 767 160 548
profit
Net interest 13 917 7 204 14 321
received
Interest 14 983 9 054 17 452
received
Finance costs (1 066) (1 850) (3 131)
Profit before 30% 102 725 78 971 174 869
taxation
Taxation (30 232) (23 928) (52 851)
Profit for the 32% 72 493 55 043 122 018
period
Attributable
to:
Equity holders 71 635 53 508 119 227
of the parent
Minority 858 1 535 2 791
interest
72 493 55 043 122 018
Earnings per
share
Basic (cents) 30% 18.7 14.4 32.1
Diluted (cents) 33% 18.2 13.7 31.1
Headline 1 71 647 53 434 118 846
earnings
Headline
earnings per
share
Basic (cents) 30% 18.7 14.4 32.0
Diluted (cents) 34% 18.3 13.7 31.0
Number of 393 665 393 665 393 665
shares in issue
(`000)
Diluted number
of shares
(`000) 392 544 389 591 382 979
Weighted
average
number of
shares in issue
(`000) 384 042 371 297 371 970
Net asset value 26% 113.6 90.1 105.4
per share
(cents)
Free operating
cash flow
before capex
per share
(cents) 24% 57.5 46.5 42.1
Distribution 40% 7.0 5.0 16.0
per share
(cents)
CONDENSED CONSOLIDATED BALANCE SHEET
as at 30 June 2008
Unaudited Audited
Unaudited
30 June 30 June 31 Dec
R`000 2008 2007 2007
Assets
Non-current assets 527 361 451 059 478 839
Property, plant and equipment 457 631 404 222 441 347
Intangible assets 34 573 9 337 10 659
Deferred taxation assets 35 157 37 500 26 833
Current assets 334 060 236 512 180 178
Trade and other receivables 94 334 59 164 62 117
Cash and cash equivalents 239 726 177 348 118 061
Total assets 861 421 687 571 659 017
Equity and liabilities
Equity 449 481 357 793 416 180
Attributable to equity holders of 447 367 354 876 414 924
the parent
Minority interest 2 114 2 917 1 256
Non-current interest bearing - 7 956 3 852
liabilities
Current liabilities 411 940 321 822 238 985
Trade and other payables 158 054 128 254 144 351
Taxation 43 768 11 329 29 585
Fees received in advance 210 118 182 239 65 049
Total equity and liabilities 861 421 687 571 659 017
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the six months ended 30 June 2008
Unaudited Unaudited Audited
6 months 6 months 12 months
to to to
30 June 30 June 31 Dec
R`000 2008 2007 2007
Balance at beginning of period 416 180 328 628 328 628
Share-based payment expense 503 991 1 986
Profit for the period 72 493 55 043 122 018
Share options exercised 2 451 1 949 11 697
Share awards - - 2 199
Minority interest distribution - - (2 917)
Total recognised income and 75 447 57 983 134 983
expense for the period
Capital distribution to (42 146) (28 818) (47 431)
shareholders
Balance at end of the period 449 481 357 793 416 180
CONDENSED SEGMENTAL REPORT
for the six months ended 30 June 2008
Unaudited Audited
Unaudited
6 months 6 months 12 months
Percen- to to to
tage 30 June 30 June 31 Dec
R`000 increase 2008 2007 2007
Revenue 19% 563 817 475 050 962 711
Education 14% 465 897 407 182 812 543
Resourcing 44% 97 920 67 868 150 168
Operating profit 24% 88 808 71 767 160 548
Education 16% 87 009 75 051 163 229
Resourcing 47% 20 482 13 966 31 239
Central 11% (18 404) (16 601) (33 498)
administration
Litigation expenses (279) (649) (422)
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
for the six months ended 30 June 2008
Unaudited Audited
Unaudited
6 months 6 months 12 months
Percen- to to to
tage 30 June 30 June 31 Dec
R`000 Note Increase 2008 2007 2007
Cash generated by 2 113 047 89 240 196 305
operations
Generated by
decrease in/
(utilised to
increase) working
capital
124 512 100 316 (984)
Cash generated by 237 559 189 556 195 321
operating
activities
Net interest 13 917 7 204 14 321
received
Taxation paid (24 376) (21 657) (21 657)
Capital (42 146) (28 818) (47 431)
distribution
Net cash inflow 184 954 146 285 140 554
from operating
activities
Net cash outflow (59 872) (24 401) (74 680)
from investing
activities
Net cash outflow (3 419) (3 973) (7 248)
from financing
activities
Net increase in 121 663 117 911 58 626
cash and cash
equivalents
Cash and cash
equivalents at
beginning
of the period 118 061 59 462 59 462
Net foreign
exchange
differences on
cash and cash
equivalents 2 (25) (27)
Cash and cash 239 726 177 348 118 061
equivalents at end
of the period
Free operating
cash flow before
capex per share
(cents)
Net operating
profit after
taxation 72 493 55 043 122 018
Adjust for non-
cash IFRS and
lease
adjustments 1 854 1 263 2 558
(after taxation)
Net operating
profit after
taxation -
adjusted for non-
cash IFRS and
lease adjustments 74 347 56 306 124 576
Depreciation and 21 820 16 187 33 482
amortisation
Other non-cashflow
income statement
items (after 16 (74) (381)
taxation)
Operating cash 33% 96 183 72 419 157 677
flow after
taxation
Working capital 124 512 100 316 (984)
changes
Free operating 220 695 172 735 156 693
cash flow before
capex
Weighted average
number of shares
in issue (`000) 384 042 371 297 371 970
Free operating
cash flow before
capex
per share (cents) 24% 57.5 46.5 42.1
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the six months ended 30 June 2008
Unaudited Audited
Unaudited
6 months 6 months 12 months
to to to
30 June 30 June 31 Dec
R`000 2008 2007 2007
1. Determination of headline
earnings
Earnings attributable to
equity holders of the
parent per the income 71 635 53 508 119 227
statement
Items excluded from headline 12 (74) (381)
earnings per share
Loss/(profit) on disposal of 16 (130) (561)
assets
Loss on disposal of - 18 18
investment
16 (112) (543)
Taxation effect on (4) 38 162
adjustments
Minority interest of - - -
adjustments
Headline earnings 71 647 53 434 118 846
2. Note to the cash flow
statement
Reconciliation of profit
before taxation to cash
generated by operations
Profit before taxation 102 725 78 971 174 869
Non-cash IFRS and lease
adjustments
(before taxation) 2 405 1 373 2 789
105 130 80 344 177 658
Add back: 7 917 8 896 18 647
Depreciation and 21 820 16 187 33 482
amortisation
Net interest received (13 917) (7 204) (14 321)
Other non-cashflow income 14 (87) (514)
statement items
Cash generated by operations 113 047 89 240 196 305
SUPPLEMENTARY INFORMATION
for the six months ended 30 June 2008
Unaudited Audited
Unaudited
6 months 6 months 12 months
to to to
30 June 30 June 31 Dec
R`000 2008 2007 2007
Capital expenditure - current 37 471 24 063 78 406
period
Capital commitments 101 826 44 290 -
-remainder of the year
-future years - - 170 013
Operating lease commitments in 192 294 119 795 184 003
cash - future years
Directors` comments on results
Overview
The Directors are pleased to report on the further progress made by the Group`s
business units during the six month period to 30 June 2008.
The reality of a quality education as a basis for a well planned career now
seems more important than ever. This is revealed by the increasing admissions
and the growing demand for ADvTECH`s educational product offerings and career
placements during this period under review.
Group revenue increased by 19% compared to 15% for the previous comparative
period. All segments of the Group contributed to this growth, with a particular
highlight being the outstanding performance of the Group`s resourcing business,
where ADvTECH`s specialised placement networks provide high quality staff to
service the market demand.
The Group`s education model dictates a maintained focus on academic excellence,
primarily for the purpose of ensuring the gainful employment of its graduates or
for the preparation for their future study. We are proudly able to record that
in the schools division, over 95% of the Group`s almost 14 000 matriculants have
continued their studies at South African universities, or at international
institutions such as Harvard and Oxford. More than two thirds of graduates
leaving our Higher Education institutions are employed within one year of
graduation, with a further 20% of graduates in this sector continuing with post
graduate study. In the resourcing division, post placement research has found
that some 90% of ADvTECH placement candidates are integrated effectively into
their new workplaces.
During the period under review, the Group concluded agreements for the
acquisitions of the Trinityhouse schools as well as for three smaller businesses
in the recruitment field, IT Edge, Tech-Pro and The Working Earth. The aggregate
cost of these acquisitions amounts to approximately R140 million and is being
funded out of the Group`s own resources. While these acquisitions are expected
to be earnings enhancing in future, they have no material impact on earnings in
this reporting period. The National College of Photography, which was acquired
with effect from the commencement of the current year, has been successfully
integrated into Vega and made a pleasing contribution.
Profit for the period increased by 32% to R72.5 million (2007: R55.0 million),
resulting in an increase of 30% in basic headline earnings per share to 18.7
cents (2007: 14.4 cents) and an increase of 34% in diluted headline earnings per
share to 18.3 cents (2007: 13.7 cents). The beneficial consequences of these
earnings are revealed in the cash flow statement and the Group`s sound balance
sheet. The distribution per share in this period has been increased by 40% from
5.0 cents to 7.0 cents.
Education
The Education division is a leader in the independent education sector and
operates under the academic direction of the Independent Institute of Education
(IIE) which encompasses 19 registered Higher Education campuses as well as our
various school sites. The IIE superintendence includes the brands Abbotts
College, CrawfordSchoolsTrade Mark, College Campus, Junior College, Rosebank
College, Trinityhouse, Varsity College, Vega - The Brand Communications School,
The National College of Photography and the adult education and skills unit,
Imfundo, which incorporates Corporate College International.
The Education division increased revenue by 14% to R465.9 million (2007: R407.2
million) and operating profit by 16% to R87.0 million (2007: R75.1 million). The
operating margin improved from 18.4% to 18.7% reflecting the benefits of greater
capacity and scale.
Resourcing
The Resourcing division`s activities include recruitment, placement, temporary
staffing, response handling and HR contracting. The portfolio of brands includes
Brent Personnel, Cassel & Company, Communicate Personnel, Insource.ICT,
Inkokheli Appointments, Network Recruitment, Pro-Rec Recruitment, Vertex-Kapele,
IT Edge, Tech-Pro and The Working Earth.
Revenue for the six months increased by 44% to R97.9 million (2007: R67.9
million) and operating profit increased by 47% to R20.5 million (2007: R14.0
million). Demand for skills remains high and this well managed division once
again continued to gain market share.
Central administration
Given that the Group`s management infrastructure and resources for the next
phase of growth are now largely in place, the reduced pace of growth in central
administration costs was not unexpected. These costs increased by 11% to R18.4
million (2007: R16.6 million).
Litigation
Legal proceedings against Marina and Andry Welihockyj remain in process.
The Group`s legal counsel remains satisfied with the merits of the claims in
this matter and that, save for the legal costs, the Group has no further
exposure.
Basis of preparation
The financial statements have been prepared using accounting policies that
comply with International Financial Reporting Standards and are presented in
accordance with IAS 34 ("Interim Financial Reporting"). The accounting policies
and methods of computation are consistent with those applied in the previous
year.
Balance sheet and cash flow
Free cash flow before capex for the period remains strong at 57.5 cents per
share (2007: 46.5 cents). This has resulted in a further strengthening of the
Group balance sheet with the net asset value per share increasing by 26% to
113.6 cents (2007: 90.1 cents). The increase in Intangible assets to R34.6
million (2007: R9.3 million) resulted from the acquisitions of The National
College of Photography, IT Edge and Tech-Pro.
Cash generated by operating activities of R237.6 million (2007: R189.6 million)
enabled the Group to fund capital expenditure of R37.5 million and pay a capital
distribution of R42.1 million from its own resources. Part of this cash flow
accumulation is seasonal and, given the nature of the Group`s business model and
investment plans, a portion of the cash resources will be utilised during the
second half of the year.
It is expected that the Group will remain ungeared at year end. Trade
receivables reported at period end were affected by lower than expected
collections in the month of June 2008. Collections in July 2008 improved
considerably and the shortfall in collections for June 2008 has substantially
been recovered.
Capital reduction out of share premium ("distribution")
The Board has resolved to declare an interim distribution to shareholders by way
of capital distribution out of share premium of 7.0 cents per share (2007: 5.0
cents) for the period ended 30 June 2008. The authority to make this payment to
shareholders was obtained at the Annual General Meeting held on 20 May 2008.
Set out in the table below are the pro-forma financial effects of the
distribution on the Group`s earnings per share, headline earnings per share, net
asset value per share and net tangible asset value per share based on the
Group`s unaudited financial results as at and for the period ended 30 June 2008.
The pro-forma financial effects have been prepared for illustrative purposes
only and, because of their nature, they may not give a true reflection of the
Group`s financial position or results. The pro-forma financial information is
the responsibility of the Company`s directors.
Before the After the Percentage
distribution(1) distribution change
Earnings per share (cents) 18.7 18.4(2) (2%)
Headline earnings per 18.7 18.4(2) (2%)
share (cents)
Weighted average number of 384 042 384 042 -
shares in issue (`000)
Net asset value per share 113.6 106.8(3) (6%)
(cents)
Tangible net asset value 104.9 98.0(3) (7%)
per share (cents)
Number of shares in issue 393 665 393 665 -
(`000)
Notes:
1. Extracted from the unaudited financial results for the period ended 30 June
2008.
2. The earnings and headline earnings per share figures in the "After the
distribution" column have been based on the following assumptions:
- the distribution was made on 1 January 2008; and
- interest, at an average before tax rate of 11.6% per annum, was forfeited on
the cash distributed.
3. The net asset value and net tangible asset value per share figures in the
"After the distribution" column have been based on the assumption that the
distribution was made on 30 June 2008.
Set out in the table below are the salient dates and times applicable to the
distribution on:
2008
Last day to trade in order to participate Friday, 12 September
in the distribution
Trading commences ex distribution on Monday, 15 September
Record date on Friday, 19 September
Payment date on Monday, 22 September
Share certificates may not be dematerialised or rematerialised between Monday,
15 September 2008 and Friday, 19 September 2008, both days inclusive.
Directorate
On 16 May 2008 Professor Brenda Gourley was appointed as an independent non-
executive director.
Mr Michael Sacks, who retired as chairman on 31 March 2008, agreed to continue
as a non-executive director and to act as chairman until a new incumbent has
been appointed.
Prospects
In the Group`s schooling and tertiary education businesses, solid enrolments
have once again been achieved which provides a secure foundation for a positive
year of trading by the education division. Good work is being done to manage
costs carefully in order to optimise returns. In recruitment, due to the
continuing demand for scarce skills, early indications are that the market will
maintain its momentum for the remainder of the year.
Accordingly, provided there are no material adverse developments in trading
conditions, the Group expects to deliver improved results and cash flow for the
full year.
Michael Sacks Frank Thompson
Chairman Chief Executive Officer
Johannesburg
25 August 2008
Directors: MI Sacks* (Chairman), FR Thompson (CEO), JDR Oesch (Financial), JNP
Booyens, BD Buckham*, JJ Deeb, CN Duff,
DK Ferreira*, BM Gourley*, DL Honey, JD Jansen*, HR Levin*,
ER Shipalana, F Titi*
*Non Executive?
Alternate Directors: FJ Coughlan, A Isaakidis
Group Company Secretary: SC O`Connor
Registered office: ADvTECH House, Inanda Greens, 54 Wierda Road West, Wierda
Valley, Sandton, 2196
Transfer secretaries: Link Market Services SA (Pty) Ltd,
11 Diagonal Street, Johannesburg, 2001
Sponsor: Bridge Capital Advisors (Pty) Ltd
Date: 25/08/2008 09:00:03 Produced by the JSE SENS Department.
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