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Advtech Limited - Unaudited Results For The Six Months Ended 30
June 2005
ADvTECH LIMITED
(Incorporated in the Republic of South Africa)
Registration number: 1990/001119/06
JSE code: ADH ISIN: ZAE000031035
enriching human capital
unaudited results
for the six months ended 30 June 2005
Headline earnings per share up 43%
Operating profit up 25%
Free operating cash flow before capex per share 26%
abridged income statement
for the six months ended 30 June 2005
Restated Restated
Unaudited Unaudited
Percentage 6 months 6 months Unaudited
to 30 to 30 12 months
June June to 31 Dec
(R`000) Notes increase 2005 2004 2004
Continuing
Operations
Revenue 20% 332 646 276 890 554 869
Earnings
before
Interest,
Taxation,
Depreciation & 21% 48 261 40 036 79 078
Amortisation
(EBITDA)
Profit from 25% 36 691 29 331 57 268
operations
Investment 3 383 1 019 4 043
income -
interest
earned
Finance costs 2 680 2 153 4 677
Profit before 33% 37 394 28 197 56 634
taxation
Taxation 10 899 8 158 12 141
Profit for the 32% 26 495 20 039 44 493
period from
continuing
operations
Discontinuing
Operations
Loss for the - 5 738 5 738
period from
discontinuing
operations
Profit for the 26 495 14 301 38 755
period
Attributable
to:
Equity holders 25 704 13 717 37 309
of the Company
Minority 791 584 1 446
interest
26 495 14 301 38 755
Earnings per - 5 738 5 738
share
From
continuing
operations
Basic (cents) 29% 7,1 5,5 12,1
Diluted 30% 6,8 5,2 11,6
(cents)
From
continuing and
discontinuing
operations
Basic (cents) 7,1 3,9 10,5
Diluted 6,8 3,7 10,1
(cents)
Headline
earnings per
share
Basic (cents) 3 43% 7,0 4,9 11,5
Diluted 43% 6,7 4,7 11,0
(cents)
Number of 393 665 393 665 393 665
shares in
issue (`000)
Diluted number 380 249 371 078 370 174
of shares
(`000)
Weighted 361 948 353 503 355 702
average number
of shares in
issue (`000)
Free operating 26% 31,1 24,6 23,8
cash flow
before capex
per share
(cents)
Net asset 14% 69,7 61,1 68,0
value per
share (cents)
Distribution 4,5 1,0 1,0
per share
(cents)
abridged cash flow statement
for the six months ended 30 June 2005
Restated Restated
Unaudited Unaudited
Percentage 6 months 6 months Unaudited
to 30 to 30 12 months
June June to 31 Dec
(R`000) Notes increase 2005 2004 2004
Cash from 5 79% 53 337 29 874 69 834
operations
Working 29% 73 843 57 370 19 325
capital
changes
Net cash from 46% 127 180 87 244 89 159
operating
activities
Net cash used (38 564) (15 958) (42 474)
in investing
activities
Net cash used (16 433) (25 800) (12 856)
in financing
activities
Net increase 72 183 45 486 33 829
in cash and
cash
equivalents
Cash and cash (11 988) (45 817) (45 817)
equivalents at
beginning of
period
Cash and cash 60 195 (331) (11 988)
equivalents at
end of period
Free operating
cashflow
before capex
per share
(cents)
Net operating 26 495 14 301 38 755
profit after
taxation
Adjust for non
cash
IFRS and lease 957 503 1 004
adjustments
(after
taxation)
IFRS2 - Share 71 98 195
based payments
IAS17 - 886 405 809
Operating
lease
adjustment
Net operating
profit after
taxation
- adjusted for 27 452 14 804 39 759
non cash IFRS
and lease
adjustments
Exceptional (135) 3 553 3 526
items
Plus: 11 570 11 198 22 224
depreciation
and
amortisation
Operating cash 38 887 29 555 65 509
flow after
taxation
Plus: working 73 843 57 370 19 325
capital
changes
Free cash flow 112 730 86 925 84 834
Weighted 361 948 353 503 355 702
average number
of shares in
issue (`000)
Free operating 26% 31,1 24,6 23,8
cash flow
before capex
per share
(cents)
abridged balance sheet
as at 30 June 2005
Restated Restated
Unaudited Unaudited Unaudited
as at as at as at
(R`000) 30 June 2005 30 June 2004 31 Dec 2004
Non-current assets 400 624 355 985 375 534
Intangible assets 1 1 1
Property, plant and 355 996 312 015 328 721
equipment
Investment 495 495 495
Deferred taxation 44 132 43 474 46 317
assets
Non-current liabilities (22 888) (9 771) (22 976)
Bank loans (20 000) (6 497) (20 000)
Obligations under (2 888) (3 274) (2 976)
finance leases
Net cash on hand/(short- 60 195 (331) (11 988)
term borrowings)
Net current liabilities (184 949) (129 442) (97 359)
Current assets 48 333 54 225 42 052
Current liabilities (233 282) (183 667) (139 411)
Net assets 252 982 216 441 243 211
EQUITY
Attributable to equity 252 191 215 857 241 765
holders of the Company
Minority interest 791 584 1 446
Total equity 252 982 216 441 243 211
Gearing - 5% 15%
segmental report
for the six months ended 30 June 2005
Restated Restated Unaudited
Unaudited 6 Unaudited 6 12 months
months to months to to
(R`000) Percentage 30 June 30 June 2004 31 Dec
increase 2005 2004
Continuing
Operations
Revenue 20% 332 646 276 890 554 869
Education 20% 292 738 243 704 486 849
Resourcing 20% 39 908 33 186 68 020
Profit from 25% 36 691 29 331 57 268
operations
Education 26% 47 006 37 272 75 218
Resourcing 34% 5 328 3 987 8 870
Central 20% (12 170) (10 122) (22 090)
administration
Litigation 92% (3 473) (1 806) (4 730)
costs
supplementary information
for the six months ended 30 June 2005
Restated Restated
Unaudited Unaudited Unaudited
6 months to 6 months to 12 months to
(R`000) 30 June 2005 30 June 2004 31 Dec 2004
Capital expenditure - 39 634 14 210 43 510
current period
Capital commitments - 41 895 20 657 -
remainder of the year
- future-years 2 200 27 143 82 416
Operating lease 103 216 96 384 109 952
commitments in cash -
future-years
statement of changes in equity
for the six months ended 30 June 2005
Attributable to equity holders of the Company
Shares
held
(R`000) Notes Ordinary Share by Share Share
Share Premium Incentive option
Capital Trust reserve
GAAP reported 3 937 355 100 (13 026)
balance at 1
January 2004
IFRS opening 4.1 & 4.2 157
balance
adjustment
Operating lease 4.3
adjustment
IFRS balance at 3 937 355 100 (13 026) 157
1 January 2004
Net profit for 4.1 279
the year
As previously
reported
IFRS
transition and
lease
adjustments
Outside
shareholders
distribution
Share options 2 316
exercised
Distribution to
shareholders
Balance at 31 3 937 355 100 (10 710) 436
December 2004
Net profit for 4.1 101
the period
Outside
shareholders
distribution
Transfer from
NDR to DR
Share options 950
exercised
Distribution to (16 329)
shareholders
Balance at 30 3 937 338 771 (9 760) 537
June 2005
Non- Outside
distributable Accumulated Shareholders`
(R`000) reserve Reserves Loss Total
GAAP reported 15 944 (148 837) 823 213 941
balance at 1
January 2004
IFRS opening (4 834) (4 677)
balance adjustment
Operating lease (3 048) (3 048)
adjustment
IFRS balance at 1 15 944 (156 719) 823 206 216
January 2004
Net profit for the 37 309 1 446 39 034
year
As previously 39 250 -
reported
IFRS transition (1 941) -
and lease
adjustments
Outside (823) (823)
shareholders
distribution
Share options 2 316
exercised
Distribution to (3 532) (3 532)
shareholders
Balance at 31 15 944 (122 942) 1 446 243 211
December 2004
Net profit for the 25 704 791 26 596
period
Outside (1 446) (1 446)
shareholders
distribution
Transfer from NDR to DR (2 794) 2 794 -
Share options exercised 950
Distribution to shareholders (16 329)
Balance at 30 June 2005 13 150 (94 444) 791 252 982
notes to financial statements
for the six months ended 30 June 2005
1. The interim report complies with International Accounting
Standard 34 - Interim Financial Reporting and South African
Statement of Generally Accepted Accounting Practice, AC127, with
the same title as well as with Schedule 4 of the South African
Companies Act and the disclosure requirements of the JSE Limited`s
listings requirements.
2. This unaudited interim report has been prepared using
accounting policies that comply with South African Statements of
Generally Accepted Accounting Practice and International Financial
Reporting Standards. The accounting policies are consistent with
those applied in the previous financial period, except for the
changes which are described in Note 4. The audited results for the
12 months ended 31 December 2004 have been restated as unaudited
due to the IFRS adjustments not having been audited by the
external auditors.
Restated Restated
Unaudited Unaudited Unaudited
6 months 6 months 12 months
to to to
(R`000) Percentage 30 June 30 June 31 Dec
increase 2005 2004 2004
3. Determination of
headline earnings
Profit attributable 25 704 13 717 37 309
to ordinary
shareholders per
Income Statement
Exceptional items (135) 3 553 3 526
after taxation
(included in
income)/expensed
Headline earnings 25 569 17 270 40 835
Headline earnings 18 240 42 776
previously disclosed
Difference 970 1 947
After taxation effect 467 937
of accelerated
depreciation (IFRS -
IAS16)
After taxation effect 98 195
of share incentive
scheme (IFRS2)
After taxation effect 405 809
of operating lease
adjustment (IAS17)
970 1941
Reconciliation of
Headline earnings per
share (HEPS)
HEPS as per GAAP 40% 7,3 5,2 12,0
requirements in 2004
(2005 estimated)
IAS16 adjustment (0,1) (0,2) (0,3)
IFRS2 adjustment (0,0) (0,0) (0,0)
IAS17 adjustment (0,2) (0,1) (0,2)
HEPS as per IFRS 43% 7,0 4,9 11,5
requirements
4. New accounting policies adopted
4.1 IFRS 2 - Share-based payments
In terms of IFRS all share-based awards granted after 7 November
2002 result in a deemed charge to the Income Statement on a
straight line basis over the term of the award. The effect of
these adjustments for the current reporting period is set out in
the table below.
The Share Incentive Trust owns 30,7 million shares, sufficient to
cover 98% of outstanding share options. Consequently there will be
no material dilution of economic substance for shareholders
arising from the exercising of the options as the actual costs to
the Group have already been borne.
Unaudited 6 Restated Restated
months to Unaudited 12 Unaudited
months to Opening
Balance
(R`000) 30 June 2005 31 Dec 2004 Prior years
Summary of the
after taxation
adjustments of
the above:
Balance Sheet
Opening 110
accumulated loss
Deferred taxation 30 84 47
asset
Provision for (101) (279) (157)
share option cost
Income Statement 71 195 -
Finance cost - 101 279 -
share options
Taxation credit (30) (84) -
4.2 IAS 16 - Accelerated depreciation of separately identifiable
assets
Under SA GAAP, an item of property, plant and equipment was
depreciated as a single unit. IAS 16 requires each part of an item
of property, plant and equipment with a cost significant in
relation to the total cost of the item to be depreciated
separately. A significant part of an item of property, plant and
equipment may have a useful life and a depreciation method that
are different from the useful life and the depreciation method of
another significant part of that same item. The application of
this statement resulted in accelerated depreciation being charged
to the current period`s Income Statement, to the previous year`s
Income Statement and in the restatement of the opening balance
accumulated loss for 2004.
Restated
Restated Unaudited
Unaudited 6 Unaudited 12 Opening
months to months to Balance
(R`000) 30 June 2005 31 Dec 2004 Prior years
Summary of the
after taxation
adjustments of the
above:
Balance Sheet
Opening 4 724
accumulated loss
Accumulated (309) (937) (4 724)
depreciation
Income Statement 309 937 -
Depreciation 309 937 -
4.3 IAS 17 - Operating Leases - expense on a straight line basis
In accordance with Circular 7/2005 of SAICA in respect of the
accounting treatment of operating leases, ADvTECH is now reporting
all operating lease payments as an expense on a straight line
basis over the period of the lease, notwithstanding the true
underlying nature of the lease arrangements which have not
changed.
Restated
Unaudited
Unaudited 6 Restated Opening
months to Unaudited 12 Balance
months to
(R`000) 30 June 2005 31 Dec 2004 Prior years
Summary of the after
taxation adjustments of
the above:
Balance Sheet
Opening accumulated 3 048
loss
Deferred taxation asset 380 347 1 307
Rental provision (1 266) (1 156) (4 355)
Income Statement 886 809 -
Rent 1 266 1 156 -
Taxation credit (380) (347) -
5. Notes to the cash flow statement
Restated Restated
Unaudited Unaudited Unaudited
6 months to 6 months to 12 months to
(R`000) 30 June 2005 30 June 2004 31 Dec 2004
Reconciliation of
profit before taxation
to cash from
operations
Profit before taxation 37 394 28 197 56 634
(from continuing
operations)
Loss before taxation - 8 188 8 206
(from discontinuing
operations)
Loss after taxation - 5 738 5 738
(from discontinuing
operations)
Taxation credit (from - 2 450 2 468
discontinuing
operations)
Profit before taxation 37 394 20 009 48 428
Adjust for non cash 1 676 1 186 2 372
IFRS and lease
adjustments (before
taxation)
IAS16 adjustment 309 468 937
IFRS2 adjustment 101 140 279
IAS17 adjustment 1 266 578 1 156
Sub total 39 070 21 195 50 800
Add back: 10 484 16 760 27 200
Depreciation net of 11 723 10 730 21 770
profit and loss on
disposal of property,
plant and equipment
(Net investment (1 046) 955 376
income)/finance costs
(excluding IFRS2
adjustment)
Exceptional items (as (193) 5 075 5 054
previously disclosed
under GAAP)
Sub total 49 554 37 955 78 000
Taxation 3 783 (8 081) (8 166)
refunded/(paid)
Cash from operations 53 337 29 874 69 834
(Directors` comment on results)
Overview
The directors are pleased to report another strong set of results
for the Group for the six months to 30 June 2005. The continuing
improvement in the financial and operating performance enabled
headline earnings per share to grow by 43% to 7,0 cents and free
cash flow per share to grow by 26% to 31,1 cents. The balance
sheet reflects a net cash position of R40,2 million compared to
net borrowings of R6,8 million in June 2004. Despite the capital
distribution of 4,5 cents per share in June, net asset value per
share increased by 14% to 69,7 cents.
The Education division increased revenue by 20%, mainly through
increases in enrolments, which reflects the growing recognition
and appeal of the Group`s educational services and new
infrastructure. The Resourcing division similarly increased
revenue by 20%. Group operating profit increased by 25% to R36,7
million, resulting in an improvement in the overall operating
margin from 10,6% to 11,0%.
Net interest earned of R0,7 million (2004 - expense of R1,1
million) and an increased tax charge of R10,9 million (2004 - R8,2
million) saw the Group deliver a 32% increase in profit from
continuing operations to R26,5 million. The effective tax rate
remained in line with the normal tax rate of 29% and is expected
to remain at that level for the full year.
Adoption of International Financial Reporting Standards (IFRS)
The Group`s financial statements for the year ending 31 December
2005 will be the first set of audited annual financial statements
to comply with IFRS. Advtech`s transition date is 1 January 2004.
The Group`s opening IFRS balance sheet has accordingly been
restated to reflect those IFRS statements to be applicable at 31
December 2005.
The main (after tax) adjustments to the opening retained earnings,
the 2004 income statement and the current year income statement
are:
2005 2004 Opening
Income Income Retained
Statement Statement earnings
6 months 12 months 1 January
(R`000) to June to December 2004
IFRS - 309 937 4 724
accelerated
depreciation
(IAS16)
Operating lease 886 809 3 048
adjustment
(IAS17)
IFRS2 - share 71 195 110
based payments
Total reduction 1 266 1 941 7 882
in retained
earnings
A feature of the retained earnings adjustments is the `recycling`
of previously reported profits into the future, i.e. the reversal
of these provisions into income recognised in future years.
None of the adjustments are substantive and they have no cash flow
effect. They are not recognised for tax purposes and the tax
effect is an increase of R2,2 million in the Group`s deferred tax
asset.
All of these adjustments are correct in terms of current IFRS
practice in South Africa. Accounting statements and reporting
requirements are, however, subject to ongoing review and further
changes in financial reporting requirements can be expected.
Having regard to the expected changes, the numbers for prior
periods may not be comparable. It is recommended that for an
appropriate comparison of performance shareholders should focus on
cash flow.
(Operations)
Education
Advtech`s Education division is a leader in the private education
sector. The division includes such leading brands as Abbotts,
CrawfordSchools, College Campus, Rosebank College, Varsity
College, Vega - The Brand Communications School and our adult
education and skills unit, Imfundo. The division provides
comprehensive education services from infancy through schooling,
Further and Higher education to adult education and skills
development.
The division increased revenue by 20% to R292,7 million and profit
from operations by 26% to R47,0 million, reflecting an improvement
in the divisional operating margin from 15,3% to 16,1%. The
division also began to realise the benefits of the increased
capacity and new infrastructure.
A solid improvement in enrolments was achieved across all campuses
with a particular highlight being the encouraging commencing
enrolments in Imfundo.
A further strengthening of the Group`s academic expertise and
governance has arisen through the work of the Independent
Institute of Education and the Group`s commitment to the
regulatory and developmental processes of the Department of
Education.
Resourcing
The Resourcing division comprises mainly the Group`s recruitment,
placement, temporary staffing and contracting activities. The
recruitment brand portfolio includes Brent, Cassel, Communicate,
Insource, Kapele, Network and Pro-Rec.
The division increased revenue by 20% to R39,9 million and profit
from operations by 34% to R5,3 million, highlighting an
improvement in operating margin from 12,0% to 13,4%. The most
significant contribution towards this performance came from the
Group`s Recruitment business in an increasingly more positive
economic environment.
Central administration and litigation
Central administration costs increased in line with revenue as
further qualified staff were recruited to strengthen management
and sharpen the Group`s strategic focus. Litigation expenses
amounted to R3,5 million, this amount being applicable to the
Group`s continuing legal dispute with the Welihockyj`s. The board
is resolute in proceeding in this matter and is pleased to report
recent preliminary issue judgements granted in Advtech`s favour.
(Balance sheet and cash flow)
The Group`s balance sheet is sound and ungeared. Improved working
capital management and the seasonal nature of the Group`s cash
flow generated a reduction in working capital of R73,8 million, a
particular feature being an increase of R49,6 million (27%) in
current liabilities due mainly to organic growth in fees in
advance and trade payables. This, together with cash generated
from operations of R53,3 million, has enabled the Group to fund
its capex programme of R39,6 million (2004 - R14.2 million) and
pay a capital distribution of R16,3 million (2004 - dividend of
R3,5 million) from its own accumulated resources.
The weighted average number of shares in issue after consolidation
of the Share Incentive Trust increased from 353,5 million to 361,9
million as a result of employee share options being exercised. The
actual number of shares in issue was unaltered at 393,7 million.
(Dividend)
The Group policy is to make one distribution to shareholders per
annum, after completion of the annual financial results.
Accordingly, no interim distribution is proposed.
(Directorate)
Professor Dolina Dowling has resigned as an alternate director
although she remains a senior member of management responsible,
inter alia, for Bond South Africa. There have been no other
changes to the Board`s composition and responsibilities.
(Prospects)
All Advtech`s operational units are profitable and, after a period
of reorganisation and strategic refocus, the sound business model
will ensure continued sustainable growth. The Group`s debt free
status also enables Advtech to consider an orderly expansion of
its education networks and further growth through acquisition
opportunities that may present themselves.
Accordingly, in the absence of any material adverse change in
economic conditions, the Group expects to deliver improved results
and cash flow for the full year.
HF BROWN FR THOMPSON
Chairman Chief Executive Officer
Johannesburg
31 August 2005
Directors: HF Brown* (Chairman), FR Thompson (CEO), JNP Booyens,
JJ Deeb (Financial), CN Duff, DL Honey, BD Buckham*, DK Ferreira*,
JD Jansen*, HR Levin*, MI Sacks*, Alternate Director: A Isaakidis
*Non Executive Group Company Secretary: MJ Lammle
Registered office: 364 Kent Avenue, Ferndale, Randburg 2194 PO
Box 2369, Randburg 2125
Transfer secretaries: Ultra Registrars (Pty) Ltd, 11 Diagonal
Street, Johannesburg 2001
Sponsor: Bridge Capital Services (Pty) Ltd
www.advtech.co.za
Date: 31/08/2005 12:59:20 PM
Produced by the JSE SENS Department
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