ADvTECH achieved steady financial results for the year ended December 2009, a period characterised by significant financial and economic challenges for consumers in South Africa. These results flowed from continued strong growth in the Education division which was offset by a significant but market related decline in the contribution from the Resourcing division. The increase in demand for ADvTECH’s education services throughout this period is testament to the value placed on the quality of the Group’s education offering. The strength of the Group’s business model and the annuity nature of the revenue stream underpin ADvTECH’s long-term sustainability.
Education
In line with the Group’s model of longer-term sustainability, the Education division maintained a programme of investing in human resources, IT capability and physical infrastructure. These investments have contributed to both the quality and scale of ADvTECH’s educational offering. As a result the Group was able to offer education to 60 800 learners, up from 46 500 last year. A key element of this growth was the 7% increase in full-time students to 32 400. These services were offered across 57 sites (2008: 52). A significant increase in student numbers was achieved in Imfundo, mainly as a consequence of the Adult Basic Education and Training contract carried out for the Department of Labour, which saw 10 500 students completing Basic Literacy training.
The Group’s schools still focus primarily on the state and provincial matriculation exams, although the IEB matriculation exams are offered at Trinityhouse. All necessary teaching and quality arrangements are in place to ensure that competitive world-class schooling is offered. ADvTECH students are tested against a variety of international benchmarks which verify that the curriculum, standard of education and level of attainment are all at appropriate levels.
At post-schooling level, the role of the Academic Advisory Council, Senate and the various specialist advisory committees have supported The Independent Institute of Education (IIE) in achieving a 17% increase in the number of accredited programmes. This further strengthened the Group’s position as South Africa’s leading Private Higher Education Institution with 41 accredited programmes across 24 sites of delivery.
The IIE continues to play a leadership role in the education sector. During 2009 two sector forums and a regional guest speaker series were held and well attended by education stakeholders, including representatives from public and private sectors, NGOs and regulators. The IIE also maintained close formal and informal links directly with regulators and departmental officials.
Our year end examination results and benchmarking evaluations were once again excellent. Perhaps the real value of these results is measured by the progress and success of alumni in their subsequent education and careers, which ADvTECH continues to monitor through representative surveys. Attention given to this area has increased and since 2007 several thousand alumni have been contacted formally, generating useful longitudinal and cross-sectional data.
In 2009 a further 652 IIE graduates were surveyed on a statistically valid basis. While satisfactory employment success continues to be achieved, the 2009 sample revealed to some extent the career challenges facing most young graduates in a difficult economy and the overall employment rate has declined compared to the trend of the last three years. 63% of the employed alumni had found positions directly related to their field of study within four months of graduating. Satisfyingly, 73% of the IIE graduates surveyed had completed their qualifications in the minimum prescribed period and more than 80% of graduates indicated that they would recommend their campus to others.
Research conducted at South African universities shows that matriculants from the ADvTECH Group are amongst the most successful students. The University of the Witwatersrand (Wits) tracked the performance of students from its top 20 feeder schools over a three year period (2004 to 2006). 30% of the 342 Crawford College Sandton students enrolled at Wits during this time received prizes and awards for excelling academically. In 2009 Yusuf Randera- Rees (a 2000 Crawfordian) and Bonolo Mathibela (a 2004 Crawfordian) were awarded Rhodes Scholarships, while Adam Golding (a 2001 Crawfordian), was recently awarded a Fullbright Scholarship to further his studies in Music. The Group continues to hire its own graduates with a current alumni headcount of 322, representing almost 9% of the workforce.
Resourcing
The Group’s resourcing business experienced a pronounced fall off in demand coupled with a lengthening of the staff procurement cycle during the first quarter of 2009. Thus, after a promising start to the year volumes fell away, especially in the second half of the year when compared to the very buoyant second half of 2008. These conditions necessitated rigorous cost containment measures and intense focus on quality and productivity. This led to some downsizing in parts of the business, although not material in overall terms.
Notwithstanding these conditions, the Division was able to retain core leadership and skills and thereby strengthen its position as the leading provider of IT staff. In addition the Division secured market leadership in permanent staff placements in the Finance and HR categories as well as making gains in other key target markets. These developments position the Division well for a revival in the staffing markets when this occurs.
Financial
I am pleased, under the circumstances, to be able to report a 15% increase in revenue to R1.4 billion and a 9% increase in operating profit to R219 million. Reduced interest earnings and the dilution resulting from the issue of shares to vendors translated into diluted HEPS of 40.1 cents (2008: 40.0 cents).
The strong cash flow reported on below enabled the declaration of a 5% increase in distributions per share for the full year.
These results were driven by a sound performance in the Education division coupled with modest growth in central administration costs which increased by 9% (2008: 13%). Overall, operating margin declined marginally. In Education the margin increased fractionally to just under 20%, whilst in Resourcing, the margin was severely compromised by the abovementioned economic conditions.
Revenue in the Education division increased by 20% to R1.2 billion and operating profit by 21% to R231 million. This growth reflects continued real growth in student numbers and the benefit of economies of scale. As a result of the challenging trading environment due to the economic downturn, the Resourcing division had a difficult year with revenue declining by 7% overall and 23% in the second six months to R208 million for the year. This impacted heavily on the Division’s operating profit which declined for the year by 39% to R29 million. Notwithstanding this result, the Resourcing division continued to contribute to the Group’s performance with operating profit at a level equivalent to that of 2007, strong positive cash flows and significant gains in market position.
Free operating cash flow before capex per share increased by 21% to 63.8 (2008: 52.9) cents per share. A further improvement in working capital management enabled the Group to generate this result despite the lower rate of operating profit growth. The increase in net trade and other current assets of 12% was lower than the 15% increase in revenue and reflects the result of continued focus on the management and collection of receivables.
Sound cash generation enabled ADvTECH to fund from its own resources capital expenditure of R129 million (2008: R98 million), acquisitions of R57 million (2008: R143 million), corporate taxation of R75 million (2008: R49 million) and capital distributions of R80 million (2008: R69 million). This enabled the Group to maintain its sound financial position with an ungeared balance sheet and an 18% increase in net asset value per share.
The nature of the Group’s working capital model in education is based on payments of fees received in advance, compared to the usual models of arrear payments for services rendered. This model gives rise to circumstances at year end where current liabilities exceed current assets. This preferred low risk state of affairs resolves itself in the course of trading during the year.
Investment
In 2009 the Group invested R186 million (2008: R241 million) in capital expenditure and acquisitions. This included a significant ongoing investment in management information systems and the creation of new capacity in the education brands, notably Abbotts College and CrawfordSchoolsTM. The Group also invested R57 million in the already reported acquisition of Forbes Lever Baker, which gave rise to the increase in goodwill and intangible assets. In early 2010 ADvTECH acquired The Design School Southern Africa for a consideration of approximately R25 million, subject to the fulfilment of certain conditions. Although small in Group terms, this acquisition brings exciting new capacity and capability into the Vega brand. The reduction in capital commitments to R123 million (2008: R158 million) is the result of project planning timetables and the focus on projects already in hand as noted above.
Transformation
ADvTECH’s role in education, training and staffing in itself makes a significant contribution to the transformation of South African society. 73% of students and over 50% of placements are black. The Group maintained steady progress in its black staff complement as a whole as well as in its senior management structures. The Board Transformation Committee continues to guide the Group’s progress against the relevant Department of Trade and Industry codes and the JSE Limited’s Socially Responsible Investment index, of which ADvTECH has been a constituent for the past four years.
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 legal costs, the Group has no further exposure.
Staff
Difficult economic circumstances increase the demands placed on our staff at all levels. This is the result not only of the greater effort required to produce satisfactory results, but also because these circumstances apply as strongly to our students, candidates and their families. As a result, the demands on our staff to act as leaders, mentors and rolemodels increase even further. Thus, it is in a year such as this that the true worth of good people is tested. I am pleased to report that the people of ADvTECH have succeeded handsomely in meeting these requirements.
For years we have striven to attract and retain excellent staff, develop and grow them to meet the Group’s needs and their aspirations as well as ensure that they are appropriately rewarded. Initiatives such as a ‘high performance culture’ and ‘Great Place to Work’ continue to be used as a means to achieve our staffing goals. We participated again in the Deloitte ‘Best Company to Work For‘ Survey to assist in measuring our progress. The results of this survey reflect continuing and maturing improvement of our position as an employer of choice.
During the year our staff complement increased to 3 779 (2008: 3 643).
I place on record my thanks to the people of ADvTECH for their remarkable dedication and loyalty this year. Their contribution is of great value to the Group as well as to our thousands of students, candidates, clients, their families and the communities which we serve.
Prospects
The South African economy is likely to show some marginal improvement during 2010 and consequently the Board is hoping for a better business environment than was the case in 2009. The Education division has demonstrated its resilience under difficult conditions, and under improved conditions it is anticipated that the growth trend will continue. The Resourcing division has strengthened its position in its chosen niche markets, simultaneously renewing its commitment to maintain its robust approach to service excellence. This Division is therefore well placed to respond to opportunities presented by a better employment market in 2010.
Accordingly, provided the recovery materialises, student enrolments continue as expected, and barring unforeseen adverse conditions, the Group expects to be able to report improved performance for the ensuing year.
Frank Thompson
Chief Executive Officer
