Dear Shareholder
After 17 consecutive years of positive development in South Africa, it was perhaps inevitable that at some point the economic growth cycle would come to an end. It did so in 2009, fuelled by a significant downturn in foreign markets, a severe global banking crisis and a punishing drop in investment confidence which permeated throughout the world’s investor communities. There is little doubt that the year 2009 will be remembered as one of the most challenging economic periods of modern history.
The watchword for ADvTECH, as for all businesses, became ‘Back to Basics’ and all aspects of the Group’s operations were carefully reviewed as a protective measure in the event of a protracted recession. This review confirmed the resilient nature and core strengths of each business unit and management were able to conclude with confidence that the Group could retain its market leadership and that its sustainability was secure.
Notwithstanding the damaging economic events of the time, the defensive nature of ADvTECH’s principal Education division and the proven application of this division’s business model enabled the Group to continue its growth path and record an increase in its education revenues and operating profits of 20% and 21% respectively.
ADvTECH’s smaller but robust Resourcing division was unfortunately, but not unexpectedly, impacted by the recessionary conditions. While the Division increased its market share and positioned itself with typical purpose and energy, its operating profits declined from R47 million in 2008 to R29 million for the year under review.
Over the last five years, ADvTECH has delivered an annual compound growth rate in earnings of 30% and throughout this period has continued to expand its academic programmes, its teaching capacity, its physical infrastructure and its recruitment network. This has been achieved through healthy organic growth, income enhancing capital expenditure and certain attractive acquisitions. Market recognition of the Group’s accomplishments was highlighted by the Financial Mail and Sunday Times when ADvTECH was included in the Top 20 company rankings for 2009 by both publications.
The Education division, which represents 85% and 89% of the Group in revenue and profits respectively, continued to increase its contribution to South Africa’s education and training capacity as well as the transformation of the Country’s educated and skilled workforce. The Division enrolled approximately 61 000 students during the year, 32 000 of these being full-time students with the remainder studying part-time or attending Short Learning Programmes. 73% of the student body is black, as are many of the Group’s top achievers, including the top achieving matric student.
The academic achievements of the Group’s students, individually and collectively, are testament to the conducive and enabling education environment offered by ADvTECH. The Group’s 1 169 matric candidates again achieved a 100% pass rate, with over 98% of them qualifying for entrance into Higher Education institutions. 113 candidates received six or more distinctions and the 2009 matric class collectively obtained 2 351 distinctions. Included in this number were six bursary students who achieved distinctions in Mathematics after just two years at Abbotts College. 15 graduation ceremonies took place during the year at which 2 468 (2008: 2 156) students from The Independent Institute of Education (IIE) graduated with accredited Higher Education qualifications at certificate, diploma, degree or honours level. Forbes Lever Baker (FLB) and Varsity College undergraduate UNISA students continued to achieve sound results with an overall module pass rate of 72%. In the UNISA CTA examinations FLB and Varsity College students occupied 12 of the top 15 places nationally. At Imfundo 10 500 candidates completed an Adult Basic Education and Training programme which provided meaningful literacy skills. The oldest participant in this programme was 94 years old and was able to read and check her pension statement for the first time in some 30 years as a pensioner. A further 9 000 candidates in the insurance industry wrote the Financial Advisory and Intermediary Services (FAIS) examinations, with a 71% success rate.
ADvTECH’s Resourcing division is primarily focused on the permanent placement of skilled individuals. The recruitment brands have maintained a resolute focus in key market areas notwithstanding extremely difficult trading conditions, especially during the second half of the financial year. Circumstances dictated an intense focus on productivity and a renewed commitment to a lean and efficient operational model. The value and reputation of the brands within the Division enabled the Group to retain its core teams of skilled and experienced managers and consultants, which led to gains in market share and improved positioning in key niche industries. Despite the disappointing financial results this year, the Division is well positioned and prepared to embrace the opportunities that an improving economy will offer. The Resourcing division placed approximately 3 900 (2008: 4 900) people in new careers during the year.
Given the mix of strong growth in the Education division and the market related decline in contribution from the Resourcing division, the Group’s overall financial performance is considered to be highly satisfactory. Revenues increased by 15% to R1.4 billion, operating profit increased by 9% to R219 million with headline earnings per share being at the same level of the previous year due to lower interest earnings and dilution resulting from the issuing of shares to vendors.
Free operating cash flow per share before capital expenditure increased by 21% to 63.8 cents. This is equivalent to the cash conversion of close to 160% of headline earnings per share and underscores the Group’s quality of earnings. Given this positive feature of ADvTECH’s results, the Board was able to approve distributions for the year of 21.0 (2008: 20.0) cents per share, which includes a final distribution of 13.5 (2008: 13.0) cents per share.
ADvTECH continues to provide outstanding quality education and even in today’s uncertain economic environment there is clear evidence of growing demand for such services. As the economy emerges from the recession, it is anticipated that further demand will continue to develop. The Board will be monitoring these developments always with a view to optimising shareholder interests through feasible expansion and acquisition. The Resourcing division is also well placed for the resumption of growth when market conditions return to normal.
During the year Mr Leslie Maasdorp joined the ADvTECH Board of Directors. Mr Maasdorp is a leading South African businessman who has held and continues to hold senior positions in both the public and private sectors. The Board now comprises seven independent non-executive directors, two non-executive directors and two executive directors. The Academic Advisory Council admitted Dr Thomas Oosthuizen and Professor Brenda Gourley as members of the Council. Professor Gourley is also an independent non-executive Director. The Academic Advisory Council now comprises four senior and experienced independent academics with South African and international expertise.
It is an imperative for South Africa’s youth and workforce to embody progressive and advanced levels of education and training. Investment in our human capital, to create a workforce with creativity and skills that see education as a lifelong commitment, is critical in generating products and services with high economic value. The link between education and individual success and independence is well documented. Education provides a higher probability of secure employment, superior remuneration, a life with positive choices, an equal opportunity to compete and the ability to acquire assets and create wealth.
ADvTECH is a quality catalyst in igniting an interest in greater learning for greater success. I can record with some confidence that ADvTECH has a sound and sustainable business, is well managed and is satisfactorily capitalised for future growth and progress.
I would like to thank our management and staff for their immense effort and loyalty during what has been a difficult year for everyone. I would also like to acknowledge the Group’s non-executive directors and members of the Academic Advisory Council for their support, advice and guidance.
Yours sincerely
Motty Sacks
Acting Chairman
