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ADH
ADH
ADH - ADvTECH - Interim results for the six months ended 30 June
2010
ADvTECH GROUP
ADvTECH Limited (Incorporated in the Republic of South Africa)
Registration number: 1990/001119/06
JSE code: ADH & ISIN number: ZAE000031035
("ADvTECH" or "the Group")
Interim results for the six months ended 30 June 2010
Revenue up 7%
Operating profit down 3%
Headline earnings per share down 7%
Free operating cash flow per share up 4%
Distributions per share up 7%
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the six months ended 30 June 2010
Audited
Unaudited Unaudited
Percentag 6 months 6 months 12 months
e to to to
increase/ 30 June 30 June 31
December
R`m Note (decrease 2010 2009 2009
)
Revenue 7% 740,2 693,2 1 376,0
Earnings before
Interest, Taxation,
Depreciation and 2% 133,9 131,3 277,7
Amortisation
(EBITDA)
Operating profit (3%) 100,5 103,3 218,9
before interest
Net interest 6,1 8,4 10,9
received
Interest received 6,4 8,9 11,0
Finance costs (0,3) (0,5) (0,1)
Profit before (5%) 106,6 111,7 229,8
taxation
Taxation (33,6) (33,0) (69,6)
Profit for the (7%) 73,0 78,7 160,2
period
Earnings per share
Basic (cents) (7%) 18.3 19.6 40.1
Diluted (cents) (7%) 18.2 19.6 40.1
Headline earnings 2 72,9 78,6 160,3
Headline earnings
per share
Basic (cents) (7%) 18.2 19.6 40.1
Diluted (cents) (7%) 18.2 19.6 40.1
Number of shares in 400,8 400,8 400,8
issue (million)
Weighted average 399,7 400,9 401,0
number of shares in
issue (million)
Weighted average
number of shares for
purposes of diluted
earnings per share
(million) 401,2 400,9 399,7
Weighted average
number of shares for
purposes of basic 399,7 400,9 399,4
earnings per share
(million)
Net asset value per 14% 157.1 138.4 152.3
share (cents)
Free operating cash
flow before capex
per
share (cents) 4% 58.7 56.2 63.8
Distributions per 7% 8.0 7.5 21.0
share (cents)
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 30 June 2010
Unaudited Unaudited Audited
30 June 30 June 31 December
R`m 2010 2009 2009
Assets
Non-current assets 848,0 776,7 787,9
Property, plant and 646,7 590,0 636,5
equipment
Goodwill 97,6 84,6 80,9
Intangible assets 53,5 53,2 49,8
Deferred taxation assets 50,2 48,9 20,7
Current assets 250,9 249,0 140,8
Trade and other 120,1 119,3 84,9
receivables
Other current assets 12,9 13,0 16,3
Cash and cash equivalents 117,9 116,7 39,6
Total assets 1 098,9 1 025,7 928,7
Equity and liabilities
Equity 629,6 554,8 610,6
Non-current liabilities
Vendor claims - 11,9 -
Current liabilities 469,3 459,0 318,1
Trade and other payables 177,0 165,2 181,8
Taxation 19,8 65,1 35,7
Fees received in advance 272,5 228,7 100,6
Total equity and 1 098,9 1 025,7 928,7
liabilities
SUPPLEMENTARY INFORMATION
for the six months ended 30 June 2010
Unaudited Unaudited Audited
6 months to 6 months to 12 months to
30 June 30 June 31 December
R`m 2010 2009 2009
Capital expenditure - 40,0 55,3 128,9
current period
Capital commitments 108,6 103,2 -
- remainder of the year
- future years - - 122,6
Operating lease 295,1 305,0 356,3
commitments in cash -
future years
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the six months ended 30 June 2010
Unaudited Unaudited Audited
6 months to 6 months to 12 months to
30 June 30 June 31 December
R`m 2010 2009 2009
Balance at beginning of 610,6 508,9 508,9
the period
Total comprehensive income 73,0 77,6 159,4
for the period
Profit for the period 73,0 78,7 160,2
Other comprehensive - (1,1) (0,8)
expenses
Share-based payment 0,7 0,7 1,6
expense
Shares issued for business - 35,6 35,6
acquisition
Share buy-back - (7,6) (7,6)
Shares purchased by the (2,1) (12,5) (12,5)
Share Incentive Trust
Share awards granted - - 2,1
Broad-based scheme shares 1,0 - 0,5
granted
Share options exercised - 2,9 2,9
Capital distributions to (53,6) (50,8) (80,3)
shareholders
Balance at end of the 629,6 554,8 610,6
period
CONDENSED CONSOLIDATED SEGMENTAL REPORT
for the six months ended 30 June 2010
Unaudited Unaudited Audited
Percentage 6 months 6 months 12 months
to to to
increase/ 30 June 30 June 31 December
R`m (decrease) 2010 2009 2009
Revenue 7% 740,2 693,2 1 376,0
Education 9% 635,2 583,2 1 169,9
Resourcing (5%) 105,9 111,2 208,3
Intra Group (0,9) (1,2) (2,2)
revenue
Operating (3%) 100,5 103,3 218,9
profit before
interest
Education (2%) 105,1 107,5 231,4
Resourcing 10% 17,6 16,0 28,8
Central 8% (21,7) (20,1) (41,2)
administration
Litigation (0,5) (0,1) (0,1)
expenses
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
for the six months ended 30 June 2010
Unaudited Audited
Unaudited
Percentage 6 months 6 months 12 months
to to to
increase/ 30 June 30 June 31 December
R`m Note (decrease) 2010 2009 2009
Cash generated 4 2% 137,2 134,9 284,2
from operations
Movement in 125,9 115,8 30,6
working capital
Cash generated by 5% 263,1 250,7 314,8
operating
activities
Net interest 6,1 8,4 10,9
received
Taxation paid (78,9) (37,7) (75,5)
Capital (53,0) (49,3) (80,2)
distributions
paid
Net cash inflow 137,3 172,1 170,0
from operating
activities
Net cash outflow (65,2) (119,0) (155,7)
from investing
activities
Net cash 6,2 19,8 (18,5)
inflow/(outflow)
from financing
activities
Net increase/
(decrease) in
cash and cash
equivalents 78,3 72,9 (4,2)
Cash and cash 39,6 43,8 43,8
equivalents at
beginning of the
period
Cash and cash 117,9 116,7 39,6
equivalents at
end of the period
Free operating
cash flow before
capex per share
(cents)
Profit for the 73,0 78,7 160,2
period
Adjusted for non-
cash IFRS and
lease adjustments
(after taxation) 2,5 2,8 5,0
Net operating 75,5 81,5 165,2
profit after
taxation -
adjusted for non-
cash IFRS and
lease adjustments
Depreciation and 33,4 28,0 58,8
amortisation
Other non-cash (0,1) (0,1) 0,1
flow income
statement items
(after taxation)
Operating cash (1%) 108,8 109,4 224,1
flow after
taxation
Movement in 125,9 115,8 30,6
working capital
Free operating 4% 234,7 225,2 254,7
cash flow before
capex
Weighted average 399,7 400,9 399,4
number of shares
in issue for
purposes of basic
earnings per
share (million)
Free operating
cash flow before
capex per share
(cents) 4% 58.7 56.2 63.8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the six months ended 30 June 2010
1. Statement of compliance
The financial statements have been prepared using accounting
policies that comply with International Financial Reporting
Standards and in the manner required by the Companies Act of
South Africa 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. These
interim results have not been audited.
Unaudited Unaudited Audited
6 months 6 months 12 months
to to to
30 June 30 June 31 December
R`m 2010 2009 2009
2. Determination of
headline earnings
Profit for the period 73,0 78,7 160,2
Items excluded from (0,1) (0,1) 0,1
headline earnings per
share
(Profit)/loss on sale of (0,1) (0,1) 0,2
property, plant and
equipment
Taxation effects on - - (0,1)
adjustments
Headline earnings 72,9 78,6 160,3
3. Determination of total
comprehensive income
Profit for the period 73,0 78,7 160,2
Other comprehensive
expenses
Cash flow hedge - (1,1) (0,8)
revaluation
Loss arising during the - (1,1) -
period
Reclassification - - (0,8)
adjustment for amounts
transferred to the
initial carrying amount
of hedged items
Total comprehensive 73,0 77,6 159,4
income for the period
4. Note to the statement of
cash flows
Reconciliation of profit
before taxation to cash
generated from
operations
Profit before taxation 106,6 111,7 229,8
Adjust for non-cash IFRS 3,3 3,6 6,3
and lease adjustments
(before taxation)
109,9 115,3 236,1
Adjust: 27,3 19,6 48,1
Depreciation and 33,4 28,0 58,8
amortisation
Net interest received (6,1) (8,4) (10,9)
Other non-cash flow - - 0,2
income statement items
Cash generated from 137,2 134,9 284,2
operations
5. Business combination
The Design School
Southern Africa was
acquired on 1 January
2010 for consideration
amounting to R24,1
million.
Fair value of assets
acquired
Intangible assets 7,4
Goodwill 16,7
Purchase price 24,1
Commentary
Overview
The directors report satisfactory results for the six months ended
30 June 2010, with a small earnings decline contrasting with a
pleasing advance in both free operating cash flow and net asset
value per share. These results have been achieved against a
background of a continued recession and job losses which posed a
challenging operating environment. The Education division continued
to display solid growth in core revenues while the Resourcing
division made a welcome return to profit growth.
Driven by a 9% increase in revenue from the education business Group
revenue increased by 7% (2009: 23%), notwithstanding a decline of 5%
in revenue from the Resourcing division. There was no material
impact from acquisitions in the period.
Operating profit declined by 3% to R101 million (2009: R103 million)
in this period. The enrolling of new students and securing of
revenue streams has not matched fully the roll out of new
infrastructure flowing from the Group`s ongoing investment in
capacity to enable future growth. These investments generally have
to be planned several years in advance and, as a result, rental
costs increased by 18% and depreciation and amortisation by 19%. Net
interest received on the Group`s sizeable cash balances declined by
27% as a result of reduced interest rates. The effective taxation
rate increased to 31.5% compared to the previous period`s 29.5% and
the normal tax rate of 28.0%. This is the result of non-deductible
expenses, which are mainly non-cash accounting adjustments relating
to depreciation and amortisation. Accordingly, profit for the period
declined by 7% to R73 million (2009: R79 million). Basic and diluted
headline earnings per share declined by 7% to 18.2 cents (2009: 19.6
cents). The strength of the Group`s underlying operations and cash
flow enabled the directors to declare an increased capital
distribution of 8.0 cents (2009: 7.5 cents) per share.
Education
The Education division is a leader in the independent education
sector and operates under the academic direction and guidance of The
Independent Institute of Education (IIE), which encompasses 26
registered Higher Education campuses as well as 31 school sites. The
education brands include Abbotts College, CrawfordSchoolsTrade Mark,
College Campus, Forbes Lever Baker, Junior Colleges, Rosebank
College, Trinityhouse, Varsity College, Vega (incorporating The
National College of Photography), Imfundo (incorporating Corporate
College International), and the recently acquired Design School
Southern Africa, a specialist school of design at undergraduate
level.
The Education division achieved organic growth of 8% compared to the
15% for the previous comparable period. The slowdown in organic
growth occurred both as a result of the impact of the recession in
sectors of the tertiary brands which attract a portion of revenue
through discretionary spending on education and because of delays in
the roll-over and award of tenders for adult basic education. The
Education division contributed 86% (2009: 84%) to Group revenue,
with revenue increasing by 9% to R635 million (2009: R583 million).
Operating profit declined by 2% to R105 million (2009: R108 million)
with the operating margin declining slightly as a result of the
abovementioned factors.
Resourcing
The Resourcing division`s activities include recruitment, placement,
temporary staffing, response handling and HR contracting. Its
portfolio of brands includes Brent Personnel, Cassel & Company,
Communicate Personnel, Insource.ICT, IT Edge, Network Recruitment,
Pro Rec Recruitment, Tech-Pro Personnel, Inkokheli HR Appointments,
Vertex-Kapele and The Working Earth.
Revenue in the Resourcing division was affected by the tough
employment market and as a consequence of corrective action taken in
regard to underperforming branches but this was more than offset by
expense savings achieved in the same period. The Resourcing division
contributed 14% (2009: 16%) to Group revenue, with revenue declining
by 5% to R106 million (2009: R111 million). However, operating
profit improved by 10% to R18 million (2009: R16 million) and
resulted in an improved operating margin over the period. This
improvement is a reflection of the Division`s unremitting focus in
its key niche markets which service areas of high demand scarce
skills.
Central administration and litigation
Central administration costs increased in line with inflation by 8%
to R22 million (2009: R20 million).
Legal proceedings against Marina and Andry Welihockyj remain in
progress with the discovery and trial preparation phases well under
way. Increased activity in this regard is expected to result in a
modest increase in the level of litigation expenditure.
The Group`s legal counsel remains satisfied with the merits of the
claims in this matter and that, save for legal costs, the Group has
no further exposure.
Financial
The directors are pleased to report that, notwithstanding the
decline in earnings, there has been continued growth in free
operating cash flow before capex, which amounted to R235 million
(2009: R225 million). At the same time the balance sheet has
continued to strengthen with net asset value increasing by 14% to
R630 million (2009: R555 million) and cash on hand amounting to R118
million (2009: R117 million). It is pleasing to note that debtors
are at the same level as last year notwithstanding the growth in
revenue. This reflects the Group`s continued emphasis on tight
control over working capital. Fees in advance have increased to R273
million (2009: R229 million), which can be considered a positive
indicator in regard to cash flow and, to some extent, revenues.
Cash generated by operating activities of R263 million (2009: R251
million) has enabled the Group to fund investment activities of R65
million (2009: R119 million) and pay a capital distribution of R53
million (2009: R49 million) from its own resources.
Capital reduction out of share premium ("distribution")
The Board has resolved to declare an interim distribution to
shareholders by way of a capital reduction out of share premium of
8.0 cents (2009: 7.5 cents) per share for the period ended 30 June
2010. The authority to make this payment to shareholders was
obtained at the Annual General Meeting held on 18 May 2010.
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 tangible net asset value per share based on the Group`s
unaudited financial results for the period ended 30 June 2010 are
set out in the table below. The pro-forma financial effects have
been prepared for illustrative purposes only and, because of their
nature, may not provide a true reflection of the Group`s financial
position or results.
Before the After the Percentage
Distribution1 distribution change
Earnings per share 18.3 18.12 (1%)
(cents)
Headline earnings per 18.2 18.02 (1%)
share (cents)
Weighted average number
of shares for purposes
of basic earnings per 399,7 399,7
share (million)
Net asset value per 157.1 149.13 (5%)
share (cents)
Net tangible asset value
per share (cents) 119.4 111.43 (7%)
Number of shares in 400,8 400,8
issue (million)
Notes:
1. Extracted from the unaudited financial results for the period
ended 30 June 2010.
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 2010; and
- interest, at an average before taxation rate of 6.6% 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 2010.
Set out in the table below are the salient dates and times
applicable to the distribution:
2010
Last day to trade in order to participate in Friday, 10 September
the distribution
Trading commences ex distribution Monday, 13 September
Record date Friday, 17 September
Payment date Monday, 20 September
Share certificates may not be dematerialised or rematerialised
between Monday, 13 September 2010 and Friday, 17 September 2010,
both days inclusive.
Directorate
Mr Michael Sacks retired as non-Executive Chairman in December 2007,
and pending the completion of the Board`s nomination processes for a
replacement, Mr Sacks continued to act in that capacity. The Board
is pleased to advise shareholders that Mr Leslie Maasdorp will be
appointed as Chairman of the Group with effect from 1 September 2010
when Mr Sacks resigns as a member of the Board.
Mr Brian Buckham, who founded the Group in 1978 and has served as
Executive Chairman for some 15 years and as a director for 23 years
in total, has announced his retirement as a director with effect
from 1 September 2010. Mr Buckham was responsible for the
originating vision which resulted in the creation of ADvTECH and led
the Group in many of the strategic investments which form its core
today.
The Board expresses its sincere appreciation of the significant
commitment and contribution made by Messrs Sacks and Buckham.
Prospects
The Group`s management, cash flow and balance sheet remain strong
and enable the well-proven business model and longer term investment
planning to be sustained. Management will continue to manage
resources and expenditure carefully without compromise to quality
and service.
ADvTECH remains dedicated to a strategy of investing in quality
education service provision. The Group`s high academic standards and
the growth in demand for the educational offerings continue to
provide confidence in the Group`s sustainability. The Resourcing
division has demonstrated its ability to address the challenges of a
difficult market and this, together with its niche market focus,
bodes well for the future.
The Group`s core businesses have continued to demonstrate clearly
their sustainability and resilience under trying conditions. Certain
revenues and activities have understandably been affected by the
challenges of the recession and affordability. The Board is
confident that the Group`s underlying strength and strategic
positioning will stand it in good stead.
On behalf of the Board
Motty Sacks Frank Thompson
Chairman Chief Executive Officer
23 August 2010
Directors: MI Sacks* (Chairman), FR Thompson (CEO), JDR Oesch
(Financial), BD Buckham*, DK Ferreira*, BM Gourley*, JD Jansen*, HR
Levin*, JC Livingstone*, LW Maasdorp*, F Titi* *Non-Executive
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, 27 Fricker Road, Illovo,
2196.
www.advtech.co.za
Date: 23/08/2010 09:05:22 Produced by the JSE SENS Department.
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