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ADVTECH LIMITED - UNAUDITED RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2002
ADVTECH LIMITED
REGISTRATION NUMBER: 1990/001119/06
HEADLINE EARNINGS PER SHARE +88%
OPERATING MARGIN +44%
OPERATING PROFIT +20%
OPERATING CASH FLOW R57M
INCOME STATEMENT
FOR THE 6 MONTHS ENDED 30 JUNE 2002
UNAUDITED UNAUDITED AUDITED
6 MONTHS 6 MONTHS 12 MONTHS
% TO 30 JUNE TO 30 JUNE TO 31 DEC
NOTES CHANGE 2002 2001 2001
(R`000) (R`000) (R`000)
TURNOVER -17 240 233 288 046 515 950
-EDUCATION 182 888 167 069 324 653
-RESOURCING 57 346 120 977 191 297
OPERATING
PROFIT BEFORE
DEPRECIATION
AND
AMORTISATION 10 28 683 26 192 57 555
-EDUCATION 28 542 20 030 44 557
-RESOURCING 141 6 162 12 998
DEPRECIATION
AND
AMORTISATION 1 9 466 10 207 20 118
OPERATING
PROFIT 20 19 217 15 985 37 437
NET INTEREST PAID -26 (5 167) (6 984) (11 615)
EQUITY ACCOUNTED
EARNINGS 557 286 798
PROFIT BEFORE
TAXATION 57 14 606 9 287 26 620
TAXATION 1 854 2 110 3 684
ATTRIBUTABLE TO
OUTSIDE
SHAREHOLDERS (2) (347) (303)
HEADLINE EARNINGS 87 12 750 6 830 22 633
EXCEPTIONAL
ITEMS 2 248 763 17 208 29 227
TAXATION EFFECT OF
EXCEPTIONAL ITEMS (226) (2 609) (4 709)
ATTRIBUTABLE TO
ORDINARY SHAREHOLDERS (235 788) (7 769) (1 885)
NUMBER OF SHARES IN
ISSUE (`000) (393 665) 392 804 392 804
WEIGHTED AVERAGE
NUMBER OF SHARES
IN ISSUE (`000) 393 665 392 804 392 804
EARNINGS PER SHARE
(CENTS) (59.9) (2.0) (0.5)
HEADLINE EARNINGS
PER SHARE (CENTS) 88 3.2 1.7 5.8
FULLY DILUTED
ORDINARY SHARES
(`000) 393 665 394 204 393 664
FULLY DILUTED
EARNINGS PER SHARE
(CENTS) (59.9) (2.0) (0.5)
FULLY DILUTED
HEADLINE EARNINGS
PER SHARE (CENTS) 3.2 1.7 5.7
STATEMENT OF CHANGES IN EQUITY
FOR THE 6 MONTHS ENDED 30 JUNE 2002
NON-
DISTRIBU-
SHARE SHARE TABLE RETAINED
CAPITAL PREMIUM RESERVES EARNINGS TOTAL
(R`000) (R`000) (R`000) (R`000) (R`000)
BALANCE AT
BEGINNING OF THE
YEAR 3 928 353 166 20 371 59 552 437 017
CHANGE IN
ACCOUNTING POLICY
-PRIOR YEAR
ADJUSTMENT (1 568) (1 568)
ISSUED TO
VENDORS 9 1 935 1 943
RETAINED EARNINGS
FOR THE YEAR (235 788) (235 788)
DEFERRED TAXATION
ON TRADEMARKS
PREVIOUSLY
WRITTEN-OFF (3 217) (3 217)
MOVEMENT IN
TRANSLATION
RESERVES (64) (64)
BALANCE AT THE
END OF THE YEAR 3 937 355 101 17 090 (177 804) 198 323
BALANCE SHEET
AS AT 30 JUNE 2002
UNAUDITED UNAUDITED AUDITED
6 MONTHS 6 MONTHS 12 MONTHS
TO 30 JUNE TO 30 JUNE TO 31 DEC
NOTES 2002 2001 2001
(R`000) (R`000) (R`000)
EMPLOYMENT OF
CAPITAL
FIXED ASSETS 1 & 3 305 815 294 507 301 284
GOODWILL AND
TRADEMARKS 1 250 943 241 749
DEVELOPMENT COSTS 2 402 2 775 2 609
LOAN TO SHARE
INCENTIVE TRUST 12 686 11 045 11 607
DEBTOR FOR DISPOSAL
OF BUSINESS 5 400 - 6 050
DEFERRED
TAXATION ASSET 37 330 28 942 37 638
INVESTMENTS 1 361 1 742 1 612
CURRENT ASSETS 69 442 114 871 65 435
INVENTORIES 3 916 3 551 4 250
PREPAYMENTS 13 663 10 396 9 071
TAXATION 3 253 7 727 2 870
ACCOUNTS RECEIVABLE 42 749 84 676 38 693
CASH RESOURCES AND
LIQUID INSTRUMENTS 5 861 8 521 10 551
TOTAL ASSETS 434 437 704 825 667 984
CAPITAL EMPLOYED
ORDINARY SHARE
CAPITAL 3 937 3 928 3 928
ORDINARY SHARE
PREMIUM 355 101 353 166 353 166
NON DISTRIBUTABLE
RESERVE 17 090 14 986 20 371
RETAINED EARNINGS (177 804) 52 854 57 984
ORDINARY SHAREHOLDERS
EQUITY 198 323 424 934 435 449
OUTSIDE SHAREHOLDERS
INTEREST 1 830 2 610 2 470
INTEREST BEARING
DEBT 4 84 124 137 609 129 250
VENDOR CLAIMS 10 734 13 024 8 793
FEES IN ADVANCE 69 941 71 244 23 024
CURRENT LIABILITIES 69 485 55 404 68 998
ACCOUNTS PAYABLE 66 986 55 404 68 998
TAXATION 2 499 - -
TOTAL LIABILITIES 434 437 704 825 667 984
NOTES TO THE FINANCIAL STATEMENTS
FOR THE 6 MONTHS ENDED 30 JUNE 2002
UNAUDITED UNAUDITED AUDITED
6 MONTHS 6 MONTHS 12 MONTHS
TO 30 JUNE TO 30 JUNE TO 31 DEC
2002 2001 2001
(R`000) (R`000) (R`000)
1. BUILDINGS ARE NOW DEPRECIATED IN ACCORDANCE WITH AC123. PREVIOUSLY NO
DEPRECIATION WAS CHARGED. ACCORDINGLY, THIS RESULTED IN A CHANGE IN ACCOUNTING
POLICY WHICH AFFECTED PRIOR YEAR COMPARISONS.
2. EXCEPTIONAL ITEMS
(PRE TAX)
RESTRUCTURING COSTS - 1 272 393
LITIGATION COSTS 2 785 3 919 10 175
LOSSES-DISCONTINUED
OPERATIONS 272 7 421 9 035
LOSS/(PROFIT) ON SALE
OF DIVISIONS OR ASSETS 730 (2 555) (4 210)
GOODWILL WRITTEN DOWN 238 153 - -
GOODWILL AMORTISATION 6 824 7 151 13 834
248 764 17 208 29 227
3. SEE NOTE 4
4. INTEREST BEARING DEBT COMPRISES A COMBINATION OF LOAN AGREEMENTS ALL
SUBSTANTIALLY SHORT TERM IN NATURE. NOTWITHSTANDING THIS CLASSIFICATION, THE
LOANS HAVE BEEN SECURED BY COLLATERAL BONDS TO FACILITATE THE REGISTRATION OF
MORTGAGE BONDS OVER THE GROUP`S FIXED PROPERTY.
5. THE FINANCIAL STATEMENTS HAVE BEEN PREPARED IN ACCORDANCE WITH SA GAAP AND
THE ACCOUNTING POLICIES ARE CONSISTENT WITH THOSE APPLIED IN THE PREVIOUS
FINANCIAL PERIOD, OTHER THAN AS DISCLOSED HEREIN.
CASH FLOW STATEMENT
FOR THE SIX MONTHS ENDED 30 JUNE 2002
UNAUDITED UNAUDITED AUDITED
6 MONTHS 6 MONTHS 12 MONTHS
TO 30 JUNE TO 30 JUNE TO 31 DEC
2002 2001 2001
(R`000) (R`000) (R`000)
OPERATING PROFIT BEFORE
DEPRECIATION AND
AMORTISATION 28 683 26 192 57 555
EXCEPTIONAL ITEMS
AFFECTING CASHFLOW 3 057 5 191 15 393
EQUITY ACCOUNTED
EARNINGS AND OTHER (571) (285) (3 450)
CASH GENERATED BY
OPERATIONS 26 197 21 286 45 612
NET INTEREST PAID (5 167) (6 984) (11 615)
TAXATION PAID (2 422) - (3 414)
DIVIDEND PAID (6) (11 062) (11 29)
WORKING CAPITAL CHANGES 37 955 15 750 48 253
CASH FLOWS FROM
OPERATING ACTIVITIES 56 556 18 990 67 107
CASH FLOWS FROM
INVESTING ACTIVITIES (14 511) 10 553 (40 587)
CASH FLOWS FROM
FINANCING ACTIVITIES (46 736) (34 406) (29 351)
NET DECREASE IN CASH (4 690) (4 863) (2 831)
CASH AT BEGINNING OF YEAR 10 551 13 384 13 270
CASH DISPOSED - - 112
CASH AT END OF PERIOD 5 861 8 521 10 551
SUPPLEMENTARY INFORMATION
CAPITAL EXPENDITURE
-CURRENT PERIOD 15 630 16 503 35 163
CAPITAL COMMITMENTS
-REMAINDER OF THE YEAR 7 800 20 700 -
-FUTURE YEARS - 2 400 9 974
OPERATING LEASE COMMITMENTS
FUTURE YEARS 95 137 106 019 101 787
CONTINGENT LIABILITIES 4 685 10 284 8 493
COMMENTS
GENERAL REVIEW
SHAREHOLDERS WILL BE MINDFUL OF THE DIFFICULT CONDITIONS PREVAILING DURING THE
COMPARABLE REPORTING PERIOD LAST YEAR WHERE, APART FROM A PRE-OCCUPATION WITH
DESTABILISING SHAREHOLDER ACTIVITY, THE GROUP`S OPERATIONAL PERFORMANCE
REFLECTED, INTER ALIA, THE HARMFUL COMMERCIAL AND MANAGEMENT CONSEQUENCES OF
CERTAIN IMPRUDENT PRIOR ACQUISITIONS.
THE BOARD OF DIRECTORS WAS RECONSTITUTED DURING JULY 2001, AND SINCE THAT TIME
HAS MANAGED, TOGETHER WITH A REMOTIVATED AND IN CERTAIN RESPECTS NEW EXECUTIVE
TEAM, TO RESTORE CONTROL WITHIN THE GROUP PARTICULARLY IN ITS CORE OPERATIONS.
DESPITE A DECLINE IN OVERALL TURNOVER OF 17% IN THIS PERIOD DUE MAINLY TO THE
DISPOSAL AND/OR TERMINATION OF NON CONTRIBUTING BUSINESSES, OPERATING PROFIT
INCREASED BY 20% TO R19,22 MILLION, SATISFACTORILY INCREASING HEADLINE EARNINGS
PER SHARE BY 88% FROM 1.7 CENTS PER SHARE TO 3.2 CENTS PER SHARE.
AS A RESULT OF IMPROVED ASSET MANAGEMENT AVERAGE, INTEREST-BEARING DEBT REDUCED
IN THE PERIOD. IN THE PREVIOUS HALF YEAR THERE WAS AN OVERCHARGE ON INTEREST OF
R1,3 MILLION, WHICH WAS RECOVERED IN THE SECOND HALF OF LAST YEAR. INTEREST
PAID DECREASED IN THE PERIOD UNDER REVIEW BY 26%. THIS, TOGETHER WITH A LOWER
TAX CHARGE, TRIGGERED A POSITIVE IMPROVEMENT IN HEADLINE EARNINGS OF R5,9
MILLION.
EDUCATION DIVISION
THE EDUCATION DIVISION RECORDED A 42% INCREASE IN EARNINGS BEFORE INTEREST, TAX,
DEPRECIATION AND AMORTISATION (EBITDA) OVER THE PREVIOUS YEAR ON A TURNOVER
INCREASE OF 9%. ALL BUSINESS UNITS WITHIN THIS DIVISION RESPONDED POSITIVELY TO
THE RENEWED AND REFRESHING MANAGEMENT INTERVENTIONS, PARTICULARLY THE CRAWFORD
SCHOOLS, BOND SA, VARSITY COLLEGE AND VEGA.
STUDENT ENROLMENTS INCREASED AT THE COMMENCEMENT OF THE YEAR WHICH ENABLED A
BETTER UTILISATION OF FACILITIES AND A MORE RAPID RECOVERY OF FIXED COST
CHARGES. MANAGEMENT AND ADMINISTRATION IN THIS DIVISION WAS FURTHER
RATIONALISED AND INTEGRATED, GIVING RISE TO SAVINGS IN OVERHEAD AND YIELDING
IMPROVED OPERATING MARGINS.
RESOURCING DIVISION
THE RECRUITMENT MARKETS HAVE GENERALLY BEEN UNDER PRESSURE BOTH IN SOUTH AFRICA
AND AUSTRALIA AND THE RESULTS, ALTHOUGH DISAPPOINTING, ARE CONSISTENT WITH THE
EXPECTATIONS INDICATED FOR THIS PERIOD IN THE 2001 ANNUAL REPORT. THE
RESOURCING DIVISION FORTUNATELY DEMANDS RELATIVELY LOW CAPITAL APPROPRIATIONS
AND BUSINESS ACTIVITY IS LARGELY DICTATED BY PREVAILING ECONOMIC CONDITIONS.
THE RESULTS IN THIS PERIOD WERE ALSO NEGATIVELY IMPACTED BY THE UNTIMELY
TERMINATION OF CERTAIN VENDOR SERVICE AGREEMENTS.
NOTWITHSTANDING THE ABOVE, ADVTECH`S BRANDS ENJOY ESTABLISHED MARKET POSITIONS
AND AN IMPROVEMENT IN THIS DIVISION IS ALREADY EVIDENT AS A RESULT OF
APPROPRIATE MANAGEMENT INTERVENTIONS AND GREATER PEOPLE HARMONY.
NET GEARING AND CASH FLOW
SIGNIFICANT PROGRESS HAS BEEN MADE IN IMPROVING CASH FLOWS AND IN REDUCING THE
LEVELS OF WORKING CAPITAL REQUIRED. NET CASH INFLOWS FROM OPERATING ACTIVITIES
WAS R57 MILLION COMPARED WITH A NET CASH INFLOW OF R19 MILLION LAST YEAR.
WORKING CAPITAL UTILISATION REDUCED BY R39,2 MILLION, THE GROUP`S NET GEARING
REDUCED TO 39% (2001 : 73%).
GOODWILL
WHILST MOST OF THE GROUP`S ESTABLISHED BRANDS AND BUSINESS UNITS HAVE MEANINGFUL
WORTH AND ENJOY SIGNIFICANT GOODWILL RESPECTIVELY, HAVING REGARD TO THE VARIABLE
AND INCONSISTENT VALUES PREVIOUSLY ATTRIBUTABLE TO THE GOODWILL OF EACH BUSINESS
UNIT, THE BOARD RESOLVED TO ADOPT AN EXTREMELY CONSERVATIVE POLICY AND WRITE
DOWN GOODWILL TO A NOMINAL R1000. (2001 : R250,943 MILLION).
LITIGATION
THE GROUP HAS SIGNIFICANT CLAIMS PENDING AGAINST TWO VENDORS FOR, INTER ALIA,
MATERIAL BREACHES OF CONTRACT. ONE OF THE SIGNIFICANT CLAIMS IS FOR R85 MILLION
AGAINST MR GRAEME CRAWFORD AND IS BEING PREPARED FOR ARBITRATION IN OCTOBER
2002, WHEREAS IT IS CONSIDERED THAT THE DEFENDANTS IN THE OTHER MATTER HAVE
ADOPTED A PROCESS OF DELAY. PROCEEDINGS IN RESPECT OF CLAIMS AGGREGATING
APPROXIMATELY R130 MILLION AGAINST MR ANDRY WELIHOCKYJ, MRS MARINA WELIHOCKYJ
AND A COMPANY CONTROLLED BY THEM ARE IN PROCESS.LEGAL COUNSEL HAVE ADVISED THE
BOARD THAT NOTWITHSTANDING THE DELAYS, THEY REMAIN SATISFIED WITH THE MERITS OF
THE GROUP`S CLAIMS, AND THAT THE COMPANY HAS NO ADDITIONAL EXPOSURE OTHER THAN
FOR FUTURE LEGAL COSTS IN THESE MATTERS. LEGAL COSTS OF R2,8 MILLION (2001 :
R3,9 MILLION) WERE INCURRED DURING THE PERIOD UNDER REVIEW.
PROSPECTS
THE GROUP`S ANNUAL RESULTS ARE LARGELY DEPENDENT UPON AN IMPROVED PERFORMANCE BY
THE RECRUITMENT DIVISION IN THE SECOND HALF OF THE YEAR. THE EDUCATION DIVISION
HOWEVER IS EXPECTED TO POST AN IMPROVEMENT IN PERFORMANCE SUBSTANTIALLY BASED ON
THE INCREASES IN STUDENT ENROLMENTS WHICH ARE ALREADY IN PLACE.
UNDER THESE CIRCUMSTANCES IT IS DIFFICULT TO FORECAST THE GROUP RESULT TO
DECEMBER. HOWEVER, IT SHOULD BE NOTED THAT THE 87% INCREASE IN HEADLINE
EARNINGS ACHIEVED IN THE FIRST HALF WAS OFF A LOW BASE AND THUS IS UNLIKELY TO
BE SUSTAINED AT THE SAME LEVEL FOR THE FULL YEAR.
GENERALLY THE BUSINESSES IN THE GROUP ARE NOW WELL MANAGED AND IN THE ABSENCE OF
ANY MATERIAL ADVERSE CHANGES IN THE ECONOMY, THE GROUP EXPECTS AN IMPROVEMENT IN
THE COMPARABLE HEADLINE EARNINGS PER SHARE AND CASH FLOW FOR THE YEAR TO 31
DECEMBER 2002.
ON BEHALF OF THE BOARD
HF BROWN, CHAIRMAN
FR THOMPSON, CHIEF EXECUTIVE OFFICER
19 AUGUST 2002
DIRECTORATE:
HF BROWN* (CHAIRMAN)(CA(SA)); FR THOMPSON (CEO) (B COM, B ACC, CA(SA)); JNP
BOOYENS (FINANCIAL) (B COM(HONS), CA(SA));
C BOMELA* (B COM, MBA); BD BUCKHAM*; CN DUFF; DK FERREIRA* (BA LLB, MA(OXON),
MSC(LONDON)); DL HONEY (B COM(HONS), MBA);
HR LEVIN*(B COM, LLB, LLM, H DIP TAX LAW, H DIP CO LAW); MI SACKS* (CTA, CA(SA),
AICPA(ISR)).
* NON-EXECUTIVE
COMPANY SECRETARY: L GOMES (ACIS)
TRANSFER SECRETARIES: COMPUTERSHARE SERVICES (PTY) LTD, 11 DIAGONAL STREET,
JOHANNESBURG 2001
Date: 19/08/2002 12:43:00 PM Produced by the JSE SENS Department
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