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ADH
ADH
Advtech Limited - Audited results for the year ended 31 December 2005
Advtech Limited
(Incorporated in the Republic of South Africa)
Registration number: 1990/001119/06
JSE code: ADH
ISIN: ZAE 000031035
Audited results for the year ended 31 December 2005
Revenue up 19%
Operating profit before interest up 54%
Headline earnings per share up 39%
Distribution per share up 56%
Free operating cashflow per share up 21%
Abridged income statement for the year ended 31 December 2005
Audited Restated
Percentage 12 12
months to months to
(R"000) Note increase 31 Dec 31 Dec
2005 2004
Continuing operations
Revenue 19% 661 035 554 869
Earnings before Interest,
Taxation, Depreciation
& Amortisation (EBITDA) 44% 112 643 78 363
Operating profit 54% 87 015 56 553
Net investment 117 (354)
revenues/(finance costs)
Investment revenues 5 264 4 043
Finance costs (5 147) (4 397)
Profit before taxation 55% 87 132 56 199
Taxation (27 162) (12 226)
Profit for the year from 36% 59 970 43 973
continuing operations
Discontinued operations
Loss for the year from - (5 738)
discontinued operations
Profit for the year 59 970 38 235
Attributable to:
Equity holders of the parent 57 822 36 789
Minority interest 2 148 1 446
59 970 38 235
Earnings per share
From continuing and
discontinued operations
Basic (cents) 16,0 10,3
Diluted (cents) 15,2 9,9
From continuing operations
Basic (cents) 33% 16,0 12,0
Diluted (cents) 32% 15,2 11,5
Headline earnings per share 2
Basic (cents) 39% 15,7 11,3
Diluted (cents) 37% 14,9 10,9
Number of shares in issue 393 665 393 665
("000)
Diluted number of shares 381 287 370 174
("000)
Weighted average number of 361 891 355 702
shares in issue ("000)
Net asset value per share 18% 72,5 61,4
(cents)
Net cash position/(borrowings) 17,7 (26,4)
(Rm)
Free operating cash flow 21% 28,9 23,8
before capex per share (cents)
Distribution per share (cents) 56% 7,0 4,5
Abridged balance sheet as at 31 December 2005
Audited Restated
(R"000) 31 Dec 31 Dec
2005 2004
Assets
Non-current assets 407 182 375 404
Property, plant and equipment 364 988 328 721
Intangible assets 1 1
Investment 495 495
Deferred taxation assets 41 698 46 187
Current assets 73 017 42 269
Trade receivables and other 37 048 42 052
Cash and cash equivalents 35 969 217
Total assets 480 199 417 673
Equity and liabilities
Equity 286 898 243 079
Attributable to equity holders of the parent 285 541 241 633
Minority interest 1 357 1 446
Non-current liabilities 18 267 22 976
Current liabilities 175 034 151 618
Trade payables and other 125 080 107 169
Bank overdraft - 3 638
Fees received in advance 49 954 40 811
Total equity and liabilities 480 199 417 673
Statement of changes in equity for the year ended 31 December 2005
Shares
held by
Ordinary Share Share Non-
share Share Incentive option distributable
(R"000) Notes capital premium Trust reserve reserves
Balance at 1 3 937 355 (13 026) - 15 944
January 2004 as 100
previously
stated
Net charge
taken directly
to equity
IFRS opening 3.1 404
balance
adjustment -
IFRS 2
IFRS opening 3.2
balance
adjustment -
IAS 16
Operating lease 3.3
adjustment -
IAS 17
Balance at 1 3 937 355 (13 026) 404 15 944
January 2004 - 100
as restated
Net profit for 715
the year - as
restated
As previously
reported
IFRS transition 3.1
adjustment -
IFRS 2
IFRS transition 3.2
adjustment -
IAS 16
Operating lease 3.3
adjustment -
IAS 17
Minority
interest
distribution
Share options 2 316
exercised
Total - - 2 316 715 -
recognised
income and
expense for the
year
Distribution to
shareholders
Balance at 31 3 937 355 (10 710) 1 119 15 944
December 2004 - 100
as restated
Net profit for 568
the year
Minority
interest
distribution
Transfer from (15 944)
NDR to DR
Share options 1 847
exercised
Total - - 1 847 568 (15 944)
recognised
income and
expense for the
year
Distribution to (16
shareholders 329)
Balance at 31 3 937 338 (8 863) 1 687 -
December 2005 771
Attributable
to equity
holders
Accumulated of the Minority Total
(R"000) Notes loss parent interest equity
Balance at 1 (148 837) 213 118 823 213 941
January 2004 as
previously
stated
Net charge taken (8 177)
directly to
equity
IFRS opening 3.1 (404) - -
balance
adjustment -
IFRS 2
IFRS opening 3.2 (4 724) (4 724) (4 724)
balance
adjustment - IAS
16
Operating lease 3.3 (3 049) (3 049) (3 049)
adjustment - IAS
17
Balance at 1 (157 014) 205 345 823 206 168
January 2004 -
as restated
Net profit for 36 789 37 504 1 446 38 950
the year - as
restated
As previously 39 250
reported
IFRS transition 3.1 (715)
adjustment -
IFRS 2
IFRS transition 3.2 (937)
adjustment - IAS
16
Operating lease 3.3 (809)
adjustment - IAS
17
Minority (823) (823)
interest
distribution
Share options 2 316 2 316
exercised
Total recognised 36 789 39 820 623 40 443
income and
expense for the
year
Distribution to (3 532) (3 532) (3 532)
shareholders
Balance at 31 (123 757) 241 633 1 446 243 079
December 2004 -
as restated
Net profit for 57 822 58 390 2 148 60 538
the year
Minority - (2 237) (2 237)
interest
distribution
Transfer from 15 944 - -
NDR to DR
Share options 1 847 1 847
exercised
Total recognised 73 766 60 237 (89) 60 148
income and
expense for the
year
Distribution to (16 329) (16 329)
shareholders
Balance at 31 (49 991) 285 541 1 357 286 898
December 2005
Segmental report for the year ended 31 December 2005
Percentage Audited Restated
increase/ 12 months to 12 months to
(R"000) (decrease) 31 Dec 2005 31 Dec 2004
Continuing operations
Revenue 19% 661 035 554 869
Education 19% 581 193 486 849
Resourcing 17% 79 842 68 020
Operating profit 54% 87 015 56 553
Education 34% 100 953 75 218
Resourcing 39% 12 349 8 870
Central administration - (22 564) (22 805)
Litigation costs -21% (3 723) (4 730)
Supplementary information for the year ended 31 December 2005
Audited Restated
12 months 12 months to
to
(R"000) 31 Dec 2005 31 Dec 2004
Capital expenditure - current year 68 043 43 510
Capital commitments - future years 92 507 82 416
Operating lease commitments in cash - 123 703 109 952
future years
Abridged cash flow statement for the year ended 31 December 2005
Audited Restated
Percentage 12 months 12 months
to to
(R"000) Note increase 31 Dec 2005 31 Dec 2004
Cash generated by 4 46% 114 025 78 001
operations
Generated by decrease in 17 538 19 322
working capital
Cash generated by 35% 131 563 97 323
operating activities
Net investment 117 (1 709)
revenues/(finance costs)
Taxation paid (6 608) (8 166)
Capital (16 332) (3 522)
distribution/dividends
paid
Net cash inflow from 108 740 83 926
operating activities
Net cash outflow from (61 469) (40 763)
investing activities
Net cash outflow from (7 881) (767)
financing activities
Net increase in cash and 39 390 42 396
cash equivalents
Cash and cash equivalents (3 421) (45 817)
at beginning of the year
Cash and cash equivalents 35 969 (3 421)
at end of the year
Free operating cashflow
before
capex per share (cents)
Net operating profit 59 970 38 235
after taxation
Adjust for non-cash IFRS
and lease adjustments
(after taxation) 1 729 1 524
IFRS 2 - Share based 568 715
payments
IAS 17 - Operating lease 1 161 809
adjustment
Net operating profit
after taxation - adjusted
for non-cash IFRS and 61 699 39 759
lease adjustments
Other non-cashflow income (1 181) 3 525
statement items
Plus: depreciation and 26 455 22 224
amortisation
Operating cash flow after 33% 86 973 65 508
taxation
Plus: working capital 17 538 19 322
changes
Free operating cash flow 104 511 84 830
before capex
Weighted average number 361 891 355 702
of shares in issue ("000)
Free operating cash flow 21% 28,9 23,8
before capex per share
(cents)
Notes to financial statements for the year ended 31 December 2005
1. The financial statements have been prepared using accounting policies that
comply with International Financial Reporting Standards and presented in
compliance with IAS 34 ("Interim Financial Reporting"). The accounting policies
are consistent with those applied in the previous financial year, except for the
changes that are described in Note 3. The audited results, including prior year
opening balances, for the 12 months ended 31 December 2004 have been restated to
reflect the impact of those IFRS statements applicable at 31 December 2005.
The Group auditors, Deloitte & Touche, have completed the audit of the Annual
Financial Statements on which this preliminary announcement has been based.
Their unqualified report is available at the registered office of the company.
Audited Restated
Percentage 12 months 12 months
to to
(R"000) increase 31 Dec 31 Dec 2004
2005
2. Determination of headline
earnings
Earnings attributable to
ordinary shareholders
per income statement 57 822 36 789
Profit on disposal of assets (1 181) ( 100)
and businesses
Loss from discontinued - 3 626
operation
Headline earnings 56 641 40 315
Headline earnings previously 42 776
disclosed
Difference 2 461
After taxation effect of 937
accelerated depreciation
(IFRS - IAS 16)
After taxation effect of 715
share incentive scheme (IFRS
2)
After taxation effect of 809
operating lease adjustment
(IAS 17)
2 461
Reconciliation of headline
earnings per share (HEPS)
(cents)
HEPS as per GAAP requirements 37% 16,4 12,0
IAS 16 adjustment (0,3) (0,3)
IFRS 2 adjustment (0,1) (0,2)
IAS 17 adjustment (0,3) (0,2)
HEPS as per IFRS requirements 39% 15,7 11,3
3.New accounting policies and IAS17 (Operating leases) Restatement
3.1IFRS 2 - Share-based payment
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 year is
set out in the table below.
The Share Incentive Trust owns 26.8m shares, sufficient to cover 82% of
outstanding share options. Consequently the dilution of economic substance for
shareholders arising from the exercising of the options will be limited to 2% of
earnings as the majority of the actual costs to the Group have already been
borne.
Audited Restated
12 months 12 months to
to
(R"000) 31 Dec 31 Dec 2004
2005
Summary of the after taxation adjustments
arising from the above:
Balance sheet
Opening accumulated loss - at transition 404
date
Share option reserve (568) (1 119)
Income statement 568 715
Staff costs - share options 568 715
3.2 IAS 16 - Property, plant and equipment
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 is different
from the useful life and the depreciation method of another significant part of
that same item. The statement also deals with the residual values of assets,
that is the estimated amount that an entity would currently obtain from the
disposal of the asset, after deducting the estimated costs of disposal, if the
asset were already of the age and in the condition expected at the end of its
useful life. The application of this statement resulted in accelerated
depreciation being charged to the current year"s Income Statement, to the
previous year"s Income Statement and in the restatement of the opening balance
accumulated loss for 2004.
Audited Restated
12 months 12 months
to to
(R"000) 31 Dec 31 Dec 2004
2005
Summary of the after taxation adjustments
arising from the above:
Balance sheet
Opening accumulated loss - at transition 4 724
date
Accumulated depreciation (986) (5 661)
Income statement 986 937
Depreciation 986 937
3.3 IAS 17 - Leases
In accordance with Circular 7/2005 of the 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.
Audited Restated
12 months 12 months
to
(R"000) 31 Dec 2005 31 Dec 2004
Summary of the after taxation adjustments
arising from the above:
Balance sheet
Opening accumulated loss - at transition 3 049
date
Deferred taxation assets 474 1 653
Operating lease provision (1 635) (5 511)
Income statement 1 161 809
Operating lease expense 1 635 1 156
Taxation credit (474) (347)
4. Notes to the cash flow statement
Audited Restated
12 months 12 months
to to
(R"000) 31 Dec 2005 31 Dec 2004
Reconciliation of profit before taxation
to cash generated by operations
Profit before taxation (from continuing 87 132 56 199
operations)
Less: Loss before taxation (from - 8 206
discontinued operations)
Loss after taxation (from discontinued - 5 738
operations)
Taxation credit (from discontinued - 2 468
operations)
Profit before taxation (from continuing 87 132 47 993
and discontinued operations)
Adjust for non cash IFRS and lease 3 189 2 808
adjustments (before taxation)
Sub total 90 321 50 801
Add back: 23 704 27 200
Depreciation on property, plant and
equipment
(net of IAS 16 adjustment) 25 471 21 770
(Net investment revenues)/finance costs (117) 376
Other non cashflow income statement items (1 650) 5 054
Cash generated by operations 114 025 78 001
Directors" comment on results
Overview
ADvTECH"s two principal business units, independent education and human
resourcing, although fundamentally different in nature, have become a compatible
and manageable combination of enterprises. Both businesses delivered solid
results for the year ended 31 December 2005. Consistent progress and re-
investment in each division over the past three years has established a secure
platform and has served to enhance and widen the market appeal of the Group"s
operational brands. In the Education division in particular, continued
infrastructure expansion and broader and more elevated academic service
offerings have proved to be two economically complementary ingredients of the
Group"s strategy and financial model.
With this background, the Directors are pleased to report a 19% increase in
Group revenue to R661 million, a 54% increase in operating profit to R87 million
and a 39% increase in headline earnings per share to 15,7 cents. Operating
margins improved from 10% to 13%, as a result of sound overhead control and
efficiencies arising from productive utilisation of more functional new and
extended capacities. Particular attention was paid to the Group"s working
capital management during the year. The success of this effort resulted in the
Group, for the first time, remaining in a positive cash position throughout the
year, despite significant cash outlay on new infrastructure. As forecast, the
effective taxation rate for the year has increased. The increased rate of 31%
(2004 - 22%) is above the normal rate of 29%, mainly due to the non-recognition
of certain leasehold depreciation for tax purposes.
ADvTECH"s progress and status on transformation has recently been assessed in
terms of the JSE Limited Social Responsibility Investment Index.
The report discloses satisfactory advances in all relevant features of the
Group"s labour equity, empowerment and transformation.
Divisional review
Education
The Education division houses the Group"s educational brands and institutions,
including well-known brands, Abbotts, CCI, College Campus, CrawfordSchools,
Imfundo, Junior College, Rosebank College, Varsity College and Vega, as well as
the Group"s academic flagship, the Independent Institute of Education (IIE).
Collectively, these provide a full range of educational services from pre-school
through to matriculation, diploma, degree and post-graduate levels, including
adult basic education, training and learnership programmes. The division
encompasses some 59 sites and campuses across South Africa.
The division has sustained its record of high academic achievement and has
broadened its provision of training and education opportunities to previously
disadvantaged South Africans. In 2005, approximately 66% of learners were from
previously disadvantaged communities (PDC), and the Group has been acknowledged,
inter alia, for its significant contribution to the achievements of PDC students
in matric mathematics at higher grade. The Education division delivered a sound
and sustainable financial performance during the year, with an enrolment
increase of 7% and margins improving as new capacity was brought into use. The
division increased revenue by 19% to R581 million and profit from operations by
34% to R101 million. These results have enabled Advtech to re-invest a
significant proportion of its revenues to provide for new and improved academic
resources and infrastructure.
Negotiations were concluded during the year to terminate the lease agreement on
the school property owned by the Durban Hebrew Schools Association (DHSA). This
termination will become effective on 31 December 2006, whereafter continuing
Crawford students will be admitted to the Crawford School in La Lucia and the
DHSA will reopen their school under new management.
Scholastic achievement remains central to the Group"s mandate in education and
the success of the Education division is essentially measured by the academic
performance of learners enrolled at our institutions. The academic results for
2005 were excellent, and the Education division is proud to have contributed a
highly motivated and educated graduate pool for the South African job market.
Resourcing
The Resourcing division includes well-known brands such as Brent, Cassel,
Communicate, Insource, Kapele, Mast Bookshop, Network and Pro-Rec. The
division"s major activities are recruitment, placement, temporary staffing and
contracting together with other smaller businesses.
Over the last three years the Recruitment management team has devoted great
effort to training and developing an enterprising and professional consultant
capacity, integrated with balanced client services support and industry specific
research. This pattern of conduct has proved to be an invaluable model in
today"s buoyant economy. The divisional results clearly reflect the advantages
of such growth and opportunity, particularly in the focused niche markets of
finance, IT and engineering. The division increased revenue by 17% to R80
million and profit from operations by 39% to R12 million.
Adoption of International Financial Reporting Standards (IFRS) and SAICA
Circular 7/2005
The financial statements for the year ended 31 December 2005 are the first
audited annual financial statements of the Group to be prepared in accordance
with IFRS. ADvTECH"s transition date is 1 January 2004 and the Group"s balance
sheet, income statement and comparative figures have been restated to reflect
the impact of IFRS statements applicable as 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:
Income statement Opening
for the
12 months
to December
retained
earnings
1 January
(R"000) 2005 2004 2004
IFRS - accelerated depreciation (IAS16) 986 937 4 724
IFRS 2 - share based payments 568 715 404
Operating lease adjustment 1 161 809 3 049
(IAS17)/Circular 7/2005
Total reduction in retained earnings 2 715 2 461 8 177
None of the adjustments are substantial and they have no cash flow effect.
Because these adjustments are not deductible from a current taxation
perspective, the Group"s deferred taxation asset has increased by R2,1 million.
Accounting statements and reporting requirements are subject to ongoing review
and further changes in financial reporting requirements can be expected. With
regard to such changes which may arise in the future, the numbers for prior
periods may not be comparable.
Corporate action
During the year the Group sold Mast Publications to management and disposed of a
number of small nursery schools within Junior College. None of the disposals is
expected to have any material impact on the Group results.
Litigation
Legal proceedings against Marina and Andry Welihockyj are still in process.
Despite the continuing tactics and strategy of the Welihockyj"s to deliberately
delay proceedings, preliminary issues and objections raised by them were heard
during the year with a series of judgements, including costs orders, granted in
favour of Advtech. The non-executive directors" litigation sub-committee has
advised the Board that legal counsel remains satisfied with the merits of the
Group"s claims against the Welihockyj parties. Legal costs are expensed as
incurred and amounted to R 3,7 million. (2004 - R 4,7 million).
Distribution to shareholders
The Board has resolved to declare a distribution to shareholders by way of
capital distribution out of share premium of 7,0 cents per share (2004 - 4,5
cents) in respect of the year ended 31 December 2005. The authority to make this
payment to shareholders was obtained at the annual general meeting held on 17
May 2005.
Set out in the table below are the pro forma financial effects of the
distribution on the Company"s earnings per share, headline earnings per share,
net asset value per share and net tangible asset value per share based on the
Company"s audited financial results for the year ended 31 December 2005. These
may not fairly present ADvTECH"s financial position, changes in equity, results
of operations or cash flow. The effect of the above will not be dissimilar to
the effect of a dividend payment made on the same terms. The pro forma financial
information is the responsibility of the directors of ADvTECH.
Before the After the Percentage
distribution1 distribution change
Earnings per share (cents) 16,0 15,62 (2,5%)
Headline earnings per 15,7 15,32 (2,5%)
share (cents)
Weighted average number of 361 891 361 891 -
shares in issue (`000)
Net asset value per share 72,5 66,03 (9,0%)
(cents)
Net tangible asset value 72,5 66,03 (9,0%)
per share (cents)
Number of shares in issue 393 665 393 665 -
(`000)
Notes:
1. Extracted from the audited financial results for the year ended 31 December
2005.
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 2005; and
interest, at an average after tax rate of 5% per annum (before tax rate of 7%
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 31 December 2005.
Set out in the table below are the salient dates and
times applicable to the distribution:
2006
Last day to trade in order to participate in the Wednesday, 12 April
distribution on
Trading commences ex distribution on Thursday, 13 April
Record date on Friday, 21 April
Payment date Monday, 24 April
Share certificates may not be dematerialised or rematerialised between Thursday,
13 April 2006 and Friday, 21 April 2006, both days inclusive.
Staff
ADvTECH increased its staff complement during the year by 9% to 2 560 with the
majority being professional educators. More than 200 staff are qualified at
Masters or Doctoral levels. ADvTECH personnel at all levels have made an immense
contribution to this year"s Group academic, operational and financial
achievements. Their professionalism, diligence and loyalty are greatly
appreciated by all stakeholders.
Prospects
Education and training must rank as one of the most important imperatives in
South Africa. Given the recurring annual growth in student enrolments
experienced by the Group over the past three years, and the intensifying demands
for trained personnel in a growing economy, the ADvTECH Group is well positioned
to facilitate and provide such services and respond to the opportunities
presented. Enrolments for 2006 have, to date, followed a consistent trend and in
the absence of any material adverse change in economic conditions, the Board
would expect to report improved earnings and cash flow for the next reporting
period.
Michael Sacks Frank Thompson
Chairman Chief Executive Officer
Johannesburg
27 March 2006
Directors: MI Sacks* (Chairman), FR Thompson (CEO), JDR Oesch (Financial), JNP
Booyens, BD Buckham*, JJ Deeb, CN Duff, DK Ferreira*, DL Honey, JD Jansen*, HR
Levin* *Non Executive Alternate Director: A Isaakidis Group Company
Secretary: SC O"Connor
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: 27/03/2006 12:12:53 PM Produced by the JSE SENS Department
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