No 'distinction' for ADvTECH's earnings

Chief executive Frank Thompson said on Monday (18 March) that this was a temporary challenge and that investors should watch how a large capital investment of R1.1bn over five years in private schools would boost ADvTECH's profits.

"The directors are pleased with these results‚ which should be seen in light of the difficult circumstances experienced during the year," he said. "In this environment‚ a strong financial position and professional management is critical to the success of our operations‚" Thompson added.

ADvTECH's revenue increased 5% to R1.7bn over the period but operating profit decreased by 13% to R200m at a margin of 11.9%. The margin was 14.3% in 2011.

The tertiary division reported flat revenue and a decline of 64% in operating profit last year.

Thompson said‚ as reported at its financial half year‚ this was caused primarily by the shortfall in tertiary enrolments.

"Significant corrective action has been taken with one-off costs of about R4m being incurred. It will take some time for the benefits to flow through to the bottom line‚" he said.

The group says it maintained its growth momentum through having a balanced portfolio and a sustainable business strategy.

"Our balance sheet remains sound and strong cash flow generated from operations is fuelling our planned long-term expansion‚" he said.

Thompson said one highlight for the tertiary division was the launch of a joint venture with the University of Free State to provide a four year LLB programme at Varsity College.

Commenting on the R1.1bn capital investment in the schools division which was announced last year‚ he said ADvTECH expected to spend about R319m in the next two years‚ about R356 in the two years after that and about R500m the year after that.

"So‚ the R1.1bn would grow slightly. One needs to understand that we are rolling-out the capital over a few years and we would probably have to adjust what we need each year. You don't build a whole school in one go and here we have at least ten schools on the drawing board‚" he said.

Kagiso Asset Management analyst Simon Anderssen said the moderate growth strategy offered better value for investors than competitor Curro's unproven expansion plans.

Curro focuses on lower-end education services when compared with ADvTECH.

Last year‚ Curro invested R223m in the expansion of capacity at its existing campuses and developed four new Curro schools.