2014 INTEGRATED ANNUAL REPORT
the future TODAY OUR PURPOSE
We aim to build and grow a high quality organisation in education, training and placement that is widely recognised for passionate commitment and success in enriching people’s lives and future. build We aim to grow a reputation for our ability to make a real difference to the people we serve, for our connectedness and grow partnerships with African and global markets and players, for the relevance, quality and usefulness of our offerings, and for the achieve enterprising and agile way in which we tackle our task. We will achieve this by focusing on our customers and taking a lead from our markets, by our innovative approach, especially in harnessing the power of technology, and by striving for excellence and sustainability in all we do.
Ethics We seek to set an example to our learners, students, candidates and clients through our own ethical conduct. High quality We aim to create and add quality in everything we do. Caring and responsible leadership We take special responsibility for the young people OUR VALUES who are learners, and clients, by our example and by caring for their safety and needs. People centredness Sound education and placement depends on empowered and successful human interaction on a personal level. Sustainability By using resources wisely, and within the means created by our income, we aim to ensure that our establishments continue to serve future generations. CONTENTS
GROUP OVERVIEW
2 Our brands 4 Business model REVENUE OPERATING PROFIT 9% 16% 5 Strategic objectives 8 Scope of operations 9 Performance at a glance 10 Five year financial review 11 Ratios and statistics 12 Acting chairman’s letter 14 Operational report 20 Value added statement The outstanding feature of the year was the accelerated level of investment in laying a strong foundation for future growth. BUSINESS REVIEW
24 SCHOOLS
32 TERTIARY
38 RESOURCING Total number of distinctions 100% MATRIC PASS RATE 2 740 CORPORATE GOVERNANCE
40 Board of directors 43 Group executive committee 44 Corporate governance
52 FINANCIAL STATEMENTS 103 SHAREHOLDERS’ ANALYSIS GROUP OVERVIEW BUSINESS REVIEW CORPORATE GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDERS’ ANALYSIS
OUR BRANDS
SCHOOLS TERTIARY RESOURCING
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BOTSWANA LIMPOPO
Gaborone
GAUTENG Hartebeespoort Pretoria Johannesburg MPUMALANGA NORTH WEST
FREE STATE KWAZULU-NATAL
NORTHERN CAPE Pietermaritzburg Durban
EASTERN CAPE
WESTERN CAPE Cape Town Port Elizabeth
JOHANNESBURG PRETORIA CAPE TOWN ADvTECH Head Office Abbotts College (2) Abbotts College (2) The Independent Institute of Education Centurus College (2) Communicate Personnel Abbotts College (2) Centurus Preparatory (2) Varsity College Crawford College (2) Centurus Pre-Primary (2) Vega Crawford Preparatory (4) Crawford College Crawford Pre-Primary (5) Crawford Preparatory Forbes Lever Baker Crawford Pre-Primary Junior Colleges (7) Communicate Personnel PORT ELIZABETH ADvTECH Academies (Kathstan) College Maravest College (2) Varsity College ADvTECH Academies (Kathstan) Preparatory Maravest Preparatory (2) ADvTECH Academies (Kathstan) Pre-Primary Maravest Pre-Primary (3) Rosebank College (2) Network Recruitment Maravest College Rosebank College (2) DURBAN Maravest Preparatory (2) The Design School Southern Africa Communicate Personnel Maravest Pre-Primary (3) Trinityhouse Preparatory Crawford College (2) The Design School Southern Africa Trinityhouse Pre-Primary Crawford Preparatory (2) Trinityhouse College (2) Vega Crawford Pre-Primary (2) Trinityhouse Preparatory (3) Varsity College Junior Colleges Trinityhouse Pre-Primary (3) Rosebank College Varsity College (2) The Design School Southern Africa Vega Trinityhouse College Brent Personnel Varsity College (2) Cassel&Co Vega Communicate Personnel (2) Inkokheli HR Appointments Insource. ICT HARTEBEESPOORT PIETERMARITZBURG It Edge Varsity College Kapele Appointments Centurus College Network Recruitment (2) Centurus Preparatory Tech-Pro Personnel Centurus Pre-Primary The Working Earth
GABORONE ADvTECH Academies (GIS) College ADvTECH Academies (GIS) Preparatory ADvTECH Academies (GIS) Pre-Primary
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OUR BUSINESS MODEL
The ADvTECH business model, which applies to our businesses in private education and resourcing, is depicted below. The components of our business model are self-reinforcing. Our ability to deliver meaningful outcomes in education and resourcing, which are of profound long-term benefit to society, is contingent on our ability to sustain profitability, which in turn allows us to invest continually in high quality, high value offerings. We need to achieve this in the highly regulated and increasingly competitive private education sector, which continues to show strong demand, and in the resourcing sector, which is highly dependent on the buoyancy of staffing markets.
SUSTA NS IN L >> INVESTMENT IO ON IN BUSINESS SIT G- GROWTH O T >> COMPETITIVE P ER O M RETURNS TO R SHAREHOLDERS P A PURPOSE-DRIVEN P E R U ORGANISATION THAT O L F I A DELIVERS PROFOUND T V A
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>> PEOPLE AND CULTURE >> PARTNERING WITH STAKEHOLDERS >> DISTINCTIVE BRANDS >> TECHNOLOGY ENABLED OFFERINGS >> GREAT SERVICE >> MANAGEMENT AND >> RELEVANT TO MARKET CONTROL SYSTEMS > > CONTINUAL IMPROVEMENT >> GOVERNANCE AND >> SUSTAINABLE PRICING COMPLIANCE
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OUR STRATEGIC OBJECTIVES
1 ACCELERATING OUR INVESTMENT IN GROWTH
The Group has intensified investments in growth opportunities in South Africa and the rest of the African continent. With the growth in private education which is expanding rapidly, we have made significant investment in new projects, staff and infrastructure, as well as strategic acquisitions.
Our first acquisition in Botswana signals the start of our Africa expansion strategy. Our focus is on researching growth opportunities in other parts of Africa, increasing our geographic footprint, and bringing quality education to the rest of the African continent.
Acquisitions made during 2014 and finalised during 2015 Schools opened during 2014
SOUTH AFRICA BOTSWANA
Centurus Colleges Gaborone Crawford Italia Kathstan College International Abbotts Centurion School Boleng Primary Trinityhouse Snuggles Heritage Hill Tiny Town Maravest Group
2 A STEADFAST FOCUS ON QUALITY A key differentiator for the ADvTECH brand is its unwavering dedication to academic excellence. None of the brands in the Group receive a subsidy, therefore it is of utmost importance that our offerings constitute the ‘best in quality’ and also ‘value for money’. Conducting local and international benchmarking remains a priority, because it ensures our students receive the best possible preparation for their eventual entry into the job market.
The following staff development programmes ensure our staff are able to provide quality service in their respective divisions:
ADvTECH’S MANAGEMENT ADvTALENT – THE LEADERSHIP DEVELOPMENT AND A PROGRAMME TO DEVELOPMENT MANAGEMENT PROGRESSION FAST-TRACK HIGH POTENTIAL PROGRAMME PROGRAMMES INDIVIDUALS
Group employees hold the following qualifications: 37 297 285 1 100 DOCTORATES MASTERS DEGREES HONOURS DEGREES BACHELOR’S DEGREES
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OUR STRATEGIC OBJECTIVES CONTINUED
3 USING TECHNOLOGY TO OUR ADVANTAGE ADvTECH’s IT vision is to propel the Group towards a digital future with a customer focus. This means leveraging the cloud, social media and mobile technologies to drive market differentiation, growth, innovation and profitability. The digital evolution in the education and resourcing sectors is significant, and presents exciting opportunities to enhance our service offerings.
Successful technology solutions to date:
PROPRIETARY ADvTECH PEOPLE SYSTEM FOR E-LEARNING LEARNING SOLUTION SYSTEM, ACADEMIC PLATFORMS – MANAGEMENT an advanced MANAGEMENT provided by Star SYSTEM technology-driven (SAM) Schools for students for students HR and Payroll which provides the who are rewriting system foundation for future matric technological development
The following projects are at varying stages of implementation:
DIGITAL SOFTWARE Implementing Offering students IMPROVED CURRICULUM SOLUTIONS to VOICE OVER INCREASED DATA content provided secure remote INTERNET BANDWIDTH SECURITY by Star Schools access to our PROTOCOL at reduced rates networks (VOIP) systems
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4 MAKING A MEANINGFUL CONTRIBUTION TO SOCIETY Businesses can no longer operate on the basis of profit alone. More especially so for a Group like ours, whose ultimate goal is to help elevate the standards of education in society. We therefore remain focused on empowering the communities within which we operate.
The Group has made a positive impact on society in the following ways:
ADvTECH alumni and job candidates 7 100 R84.2 employed make a BURSARIES positive contribution AWARDED DURING million to South Africa’s CSI ACTIVITIES 2014 economy
Although the Group’s impact on the environment is relatively low, we monitor and minimise negative
environmental impacts wherever possible. Normalised emissions reduced from 406 kg CO2 per client in 2013
to 309 kg CO2 per client in 2014.
The Group has implemented the following environmental initiatives:
POWER SAVING PILOT ENVIRONMENTAL DESIGN ENVIRONMENTAL PROJECT PRINCIPLES EDUCATION to reduce energy applied in building or has become an integral part consumption through expanding facilities of the schools curriculum monitoring and adjusting and many of our tertiary peak hour usage brands engage in environmentally focused initiatives
ADvTECH will continue to find ways of minimising our negative impact on the environment, while maximising and growing our positive social impact through increased bursary and scholarship endowments and innovative financing arrangements focused on improving the affordability of our offerings.
2014 INTEGRATED ANNUAL REPORT 7 GROUP OVERVIEW BUSINESS REVIEW CORPORATE GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDERS’ ANALYSIS
SCOPE OF OPERATIONS IN 2014
NUMBER OF EMPLOYEES 4 036 20132013 : :32 3 942240
Employees with Masters Full-time students Full-time tertiary students Degrees 35 150 21 250 297 2013 : 33 400 2013 : 20 200 2013 : 297
Matric candidates Scholars Employees with Doctorates 1 348 13 900 37 2013 : 1 344 2013 : 13 200 2013 : 20
JOB CANDIDATES STAFFING EDUCATION PLACED BRANCHES SITES 3 182 19 63 2013 : 3 350 2013 : 21 2013 : 60
Total number of distinctions 100% MATRIC PASS RATE 2 740 2013 : 2 954
BACHELOR PASSES
Abbotts College CrawfordSchoolsTM Trinityhouse 68% 96% 95% 2013 : 66% 2013 : 98% 2013 : 98%
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PERFORMANCE AT A GLANCE
REVENUE OPERATING PROFIT 9% 16% 2013 : 5% 2013 : 11%
HEADLINE EARNINGS DIVIDENDS PER SHARE PER SHARE 7% 26.0 cents 2013 : 12% 2013 : 25.5 cents
Percentage change 2014 2013
Revenue (R’m) 9% 1 931.8 1 766.3 Earnings before Interest, Taxation, Depreciation and Amortisation (EBITDA) (R’m) 17% 340.8 291.6 Operating profit before interest (R’m) 16% 256.4 221.7 Profit before taxation (R’m) 10% 247.3 224.7 Shareholders’ equity (R’m) 9% 928.8 853.0 Total assets (R’m) 20% 1 960.2 1 632.7
EBITDA margin (%) 17.6 16.5 Net asset value per share (cents) 9% 220.5 202.5 Free operating cash flow before capex per share (cents) (34%) 48.5 73.4 Headline earnings per share (cents) 7% 41.4 38.6 Diluted headline earnings per share (cents) 7% 41.3 38.6 Normalised earnings per share (cents) 12% 43.5 39.0 Diluted normalised earnings per share (cents) 12% 43.4 38.9 Gross dividend (cents) 2% 26.0 25.5
Number of employees (at year-end) 2% 4 036 3 942
2014 INTEGRATED ANNUAL REPORT 9 GROUP OVERVIEW BUSINESS REVIEW CORPORATE GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDERS’ ANALYSIS
FIVE YEAR FINANCIAL REVIEW for the year ended 31 December 2014
2014 2013 2012 2011 2010 R’m R’m R’m R’m R’m
Summarised statements of comprehensive income Revenue 1 931.8 1 766.3 1 687.2 1 605.6 1 470.1 Earnings before Interest, Taxation, Depreciation and Amortisation (EBITDA) 340.8 291.6 267.6 292.3 269.3
Depreciation and amortisation 84.4 69.9 67.6 62.3 66.4
Operating profit before interest and impairment 256.4 221.7 200.0 230.0 202.9 Impairment of tangible and intangible assets – – (1.5) (5.3) – Net (finance costs paid)/interest received (9.1) 3.0 4.0 10.8 9.2
Profit before taxation 247.3 224.7 202.5 235.5 212.1 Taxation 80.2 69.0 64.1 79.2 63.3
Total comprehensive income for the year 167.1 155.7 138.4 156.3 148.8
Headline earnings 167.5 156.0 139.1 161.8 148.6 Summarised statements of financial position Shareholders’ equity 928.8 853.0 793.1 751.2 677.8 Interest bearing debt 550.0 300.0 136.1 70.7 – Other current liabilities 481.4 479.7 406.5 333.1 306.8
1 960.2 1 632.7 1 335.7 1 155.0 984.6
Non-current assets 1 646.0 1 397.6 1 131.8 975.7 852.6 Bank balances and cash 113.8 97.6 73.9 46.8 37.5 Other current assets 200.4 137.5 130.0 132.5 94.5
1 960.2 1 632.7 1 335.7 1 155.0 984.6
Summarised cash flows Cash generated by operating activities 285.7 363.1 332.3 333.7 271.8 Net cash inflow from operating activities 92.7 199.8 186.4 134.4 118.7 Net cash outflow from investing activities (337.7) (340.9) (230.4) (187.2) (122.3) Net cash inflow/(outflow) from financing activities 261.2 180.9 125.7 ( 8.6) 1.5
Net increase/(decrease) in cash and cash equivalents 16.2 39.8 81.7 (61.4) (2.1)
Cash generated by operating Revenue (R’m) Operating profit (R’m) activities (R’m) 1 470 1 606 1 687 1 766 1 932 203 230 200 222 256 272 334 332 363 286
10 11 12 13 14 10 11 12 13 14 10 11 12 13 14
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RATIOS AND STATISTICS for the year ended 31 December 2014
2014 2013 2012 2011 2010
Earnings and distribution Earnings per share (cents) 41.3 38.5 34.4 39.0 37.2 Headline earnings per share (cents) 41.4 38.6 34.6 40.4 37.2 Diluted headline earnings per share (cents) 41.3 38.6 34.6 40.4 37.1 Distributions to shareholders per share (cents) 26.0 25.5 24.0 26.0 21.5
Profitability EBITDA on revenue (%) 17.6 16.5 15.9 18.2 18.3 EBIT on revenue (%) 13.3 12.6 11.9 14.3 13.8 Operating profit on average shareholders' funds (%) 28.8 26.9 25.9 32.2 31.5 Headline earnings on average shareholders' funds (%) 18.8 19.0 18.0 22.6 23.1 Return on funds employed (%) 30.5 35.6 40.7 56.1 56.0
Productivity Payroll costs per R1 000 of revenue (Rand) 496.2 509.9 506.4 498.2 501.3 Revenue per average fixed assets (Rand) 1.4 1.6 1.9 2.1 2.2 Revenue per employee (R'000) 478.6 448.1 417.9 403.0 384.1 Revenue per square metre (Rand) 6 313.1 6 859.4 7 143.1 7 126.5 6 931.2
Finance Current assets to current liabilities 0.3 0.3 0.4 0.4 0.4 Operating cash flow per share (cents) 22.0 47.4 44.2 31.9 29.6 Capital expenditure (R’millions) 316.4 334.5 231.5 187.8 105.2 Free operating cash flow before capex per share (cents) 48.5 73.4 67.4 66.0 54.1 Net asset value per share (cents) 220.5 202.5 188.3 178.5 169.1 Debtors days as at 31 December 29.0 23.0 24.0 24.0 19.6 Net gearing ratio (%) 47.0 23.7 7.8 3.2 –
Other Total shares in issue (millions) 421.3 421.3 421.3 420.8 400.8 Weighted average number of shares in issue (millions) 404.7 404.0 402.3 400.8 399.9 Diluted weighted average number of shares in issue (millions) 405.1 404.3 402.5 400.8 400.2 Employee headcount at year-end 4 036 3 942 4 037 3 984 3 827 Total capacity occupied ('000 m2) 306.0 257.5 236.2 225.3 212.1
Diluted headline earnings per Headline earnings for the year on Distributions to shareholders share (cents) average shareholders’ funds (%) (cents per share) 37.1 40.4 34.6 38.6 41.3 23.1 22.6 18.0 19.0 18.8 21.5 26.0 24.0 25.5 26.0
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2014 INTEGRATED ANNUAL REPORT 11 GROUP OVERVIEW BUSINESS REVIEW CORPORATE GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDERS’ ANALYSIS
ACTING CHAIRMAN’S LETTER TO SHAREHOLDERS
the vigorous and growing demand for The impact of the Group’s investment places in our schools and colleges. 2015 programme, and especially the major enrolments across the Schools and Tertiary achievements of the last year, will inevitably divisions are up by 41% following a year of impact on profitability in the short-term as outstanding success in implementing the the operational J-curve and financing costs Group’s growth strategy. Waiting lists for take effect. The Board is satisfied that the student places and the demand from highly benefits in the medium-term and beyond qualified teachers and lecturers for careers will far outweigh these short-term effects. in the Group remain strong, which bodes A number of material matters were well for our future. the focus of Board attention this year. In financial terms, the Group achieved In addition to the major investments full-year results largely in line with the highlighted above, including the positive trend established in the interim acquisitions of Centurus and Maravest report. Revenue, operating profit and (concluded post the 2014 financial year normalised earnings grew by 9%, 16% and end), the Board continued to monitor, 12% respectively. There were two important encourage and facilitate the roll-out of developments from the half-year. Firstly, the the Group’s R3 billion investment plan. conclusion and implementation of the new An important element of this plan has been investments required the allocation of investment in technology with total significant funds which has depleted our expenditure exceeding R500 million in “war chest” and required the raising of the last five years. material loan finance. The result has been The Group is starting to see significant a more highly geared balance sheet and value being created by the investment an increased interest charge in the second in technology with almost 25 000 tertiary half-year. Nevertheless the Board declared students comprehensively supported on a final dividend of 15 cents per share paid the Student Administration System (SAM) on 20 April 2015 to shareholders registered and approximately 8 000 students accessing on the record date of 17 April 2015. ADvTECH’s Learner Management System Acting chairman: Jeff Livingstone I am pleased to report that other important (LMS). These systems form the foundation measures such as segmental contributions, for distance and blended learning as part of cash flow, return on capital and margins all the Group’s education strategy. The growth Dear Shareholders reflect encouraging and positive results. and practical implementation of technology 2014 has been a momentous year of The segmental analysis reflects a solid and enabled education is clearly evident in the growth and change for the ADvTECH Group. steady performance from Schools as the success of the Tertiary division reaching new After years of planning and preparation, a Division takes up the responsibility of the markets and providing lower fee offerings series of significant new investments and new investments, very strong growth of without sacrificing quality or student acquisitions have been completed. When 75% from Tertiary as the turnaround and achievement. considered together with the outstanding growth strategy continues and a massive ADvTECH experienced unexpected performance of the Group’s existing core improvement in Resourcing in the second leadership changes post the end of the businesses and the positive effects of the half as effective management interventions 2014 financial year. In October 2014, consistent and accelerating pattern of were implemented. Free cash flow former Group CEO Frank Thompson retired investment in recent years, it is clear that amounted to some 117% of earnings which and handed over to his successor, Leslie our prospects have been lifted to a new assists in reducing rapidly the debt finance Maasdorp, after 12 years of distinguished and exciting level. raised; return on funds employed amounted leadership. Frank led the Group with passion to 30.5%, well ahead of the cost of capital, and integrity and built a strong Underpinning the enduring success of while operating margins improved from and cohesive management team that has ADvTECH is the continued excellence 12.6% to 13.3%. These results were achieved established formidable education and achieved by the Group and its students, as the demand for private education staffing brands, now among the most thanks to the delivery of high quality showed resilience in the face of economic recognised in South Africa. The value teaching and learning. All of our key metrics headwinds in South Africa, where weak GDP created for the Group’s shareholders over – ranging from benchmarking, evaluation growth, stagnant job creation and rising this time is reflected in the increase in the during studies, through objective consumer indebtedness are giving cause share price from around 36 cents in independent measurement of graduating for concern. Nevertheless, the quality and mid-2002, when Frank was appointed, to students (such as the Matric results), relevance of the Group’s offering together approximately 1 000 cents at the time of to the tracking of alumni and graduate with accelerated investment in entrenching writing. Leslie, who was appointed to the achievement in their subsequent careers its leading position in existing markets and Board in 2009 and was Chairman from 2010 – demonstrate clearly the quality and value moving into new areas stood the Group in through to his appointment as CEO, of the Group’s offering. This is reflected in good stead. reached a mutual agreement with ADvTECH
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on 23 March 2015 to part ways. Frank has We are proceeding with due care and been appointed to act as Interim CEO consideration of risk as well as reward as until a permanent replacement is found. we assess the opportunities afforded by these new markets. While the Group retains a strong focus on its existing core businesses and continues I wish to extend my thanks to my to invest in growth and in its strong market colleagues on the Board for their hard position, the strategy has been extended to work and wise counsel in what has been include technology- enabled and mid-fee an intense year of setting ADvTECH on this education, other African countries as a next phase in its development. One of the market and a greater role for partnerships. joys and privileges of being a member of These elements help to broaden the Group’s this Board lies in the unique calibre of its ability to address fundamental challenges individual members. I can pay them no in education and jobs. greater tribute than to quote in closing the words of one of them, Professor ADvTECH’s brand offerings are of a Jonathan Jansen, who captures perfectly world-class standard. the exceptional social value this Group Underpinning the Group’s quality education creates and the responsibility we have and staffing services is centralised support to ensure that this continues long into in areas such as academics and scholarship, the future. human resources, technology and facilities “I cannot think of anything more important to management. the future prospects of South Africa than the The Group creates significant value for quality of education. It is both what education society and its transformation. 65% of does – prepare skilled workers for the economy ADvTECH students are classified as – and what it prevents – a growing underclass previously disadvantaged and more than of desperate, crime ready youth, which secures 57% are female. In 2014 the Group’s the future of the young people and future bursaries benefitted over 7 100 individuals leaders and provides the critical capacity to at a total cost of over R82 million. learn and live together in the shadow of our divided past.” As we move forward, our shareholders are being asked to support an ambitious At ADvTECH we are, each day, working to growth strategy that will require significant extend the benefits of education to our investment in the long-term sustainability thousands of pupils and students so that of our business. We have communicated collectively we build a better, more our intention to grow our footprint, for prosperous, enlightened and cohesive which the Board has allocated R3 billion country. It has been a privilege to help over the next six years. As we bed down our lead the Group over the past year, to recent acquisitions, the largest of which extend its positive social impact and were Centurus and Maravest, shareholders help prepare it for further growth. can expect some short-term dilution in Yours sincerely earnings growth, although there are opportunities for cost reduction and operational efficiencies within the significantly expanded Schools division. With the increase in our gearing, the best options for the Group’s capital structure and requirements are being considered, and in due course further announcements will be made in this regard. Looking ahead, further capital investment Jeff Livingstone will be required as we look to diversify our Acting chairman business into selected markets elsewhere in Africa, to build scale in the mid fee segment of the schools market, and develop new technology-enabled offerings. The Board welcomes the emphasis of management on well-considered, and practical plans in these new growth areas.
2014 INTEGRATED ANNUAL REPORT 13 GROUP OVERVIEW BUSINESS REVIEW CORPORATE GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDERS’ ANALYSIS
OPERATIONAL REPORT
Accelerating our investment in growth The outstanding feature of the year was the accelerated level of investment in laying a strong foundation for future growth. The Group’s commitment of R1.7 billion was its largest annual capital outlay to date. This level of investment speaks to our confidence in the growth potential in the private education sector in South Africa and the rest of the continent, and is expected to result in a quantum leap in the Group’s scale. The major elements of the investment programme in the last year are summarised below.
Investment R’m
Kathstan 29 Gaborone International Acting chairman: Jeff Livingstone Group financial director: Didier Oesch School (GIS) 84 Centurus Colleges 712 Overview Maravest** 450 Technology projects 52 Last year’s report highlighted the Tertiary division’s turnaround and improved results, higher Snuggles 12 levels of investment in the Schools division and persistent economic constraints in the Other 172 Resourcing division. Against this backdrop, the Group had capital commitments of Total 1 511 R1.1 billion, which took the Group into a new phase of its growth strategy. * Includes CAPEX and investments plus acquisitions While our focus remains firmly on strengthening our leading market positions in our ** Acquisition approved by shareholders on existing businesses, we have also extended the scope of the Group’s strategy. 29 April 2015.
Our growth objectives encompass technology-enabled education (including distance These investments have already yielded a learning), mid-fee schools and expansion into other African countries. All of these are major acceleration in enrolments of 41% focused on deepening the Group’s fundamental contribution to socio-economic year on year as at February 2015. development, specifically in helping to address the challenges in education and employment in South Africa and elsewhere on the continent. Importantly, the accelerated investment in the Schools division, accompanied by Significant progress was made in implementing the Group’s growth strategy in 2014. once off costs and early stage J-curve Investment in the Schools division yielded some 15 000 new places, growing capacity effects, did not materially reduce the by a notable 73%. The Tertiary division concluded its turnaround strategy with a 75% return on funds employed (ROFE). improvement in operating profit, a powerful driver of the Group’s financial performance for the year. Furthermore, our investment in a technology-enabled teaching strategy gave 8 000 Tertiary students access to distance or blended learning resources through our Learner Management System (LMS).
ADvTECH Group enrolment growth as at February 2015 Student numbers Year-on-year % increase 2014/ 2015/ 2013 2014* 2015** 2013 2014
Schools total enrolments# 13 178 13 886 23 721 5% 71% Schools capacity*** 17 368 20 454 35 412 18% 73% Capacity used 76% 68% 67% Tertiary total enrolments 17 210 20 113 24 332 17% 21% Group total enrolments 30 388 33 999 48 053 12% 41% * February 2014 actuals. ** February 2015 preliminary. *** Comprises planned full capacity of existing campuses only. # The Schools enrolments and capacity includes Maravest, the acquisition approved by shareholders on 29 April 2015.
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The table below illustrates this, and highlights the economic value added (EVA):
ROFE and EVA 2014
Return on Return on Average funds funds funds employed employed Division employed EBIT 2014 2013 Notes
Schools 732 162 22% 29% Reduction following major new investment Tertiary 137 84 61% 53% Strong improvement following turnaround Resourcing (3) 18 ∞ ∞
Group 866 264 31% 36% Remains most satisfactory WACC 11% 13% Cost of capital reduced because of leveraged balance sheet EVA % 20% 23% Rate of EVA remains mostly the same EVA R million 173 100 EVA increased by 73%
These numbers demonstrate the benefit to the Group of accelerating our investment in the growth opportunities in our existing markets and these benefits will be sustained as our investment in new areas gains traction.
Investment programme 2011 – 2014 (%) (R1 086 million) Capacity and year of development 2014 (%) Infrastructural investments made
11 16 8 l Older capacity 7 l Capacity created in 2010 l School properties l Capacity created in 2011 l Tertiary properties 13 4 l Capacity created in 2012 l ICT equipment 4 l Capacity created in 2013 l Other infrastructural equipment 2 67 l Capacity created in 2014 68
Expanding into the rest of Africa An important first step in our African expansion strategy was taken with the acquisition of Gaborone International School (GIS) in Botswana. The country’s stable and growing economy and business-friendly policies met our criteria for considered expansion on the rest of the continent.
2014 INTEGRATED ANNUAL REPORT 15 GROUP OVERVIEW BUSINESS REVIEW CORPORATE GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDERS’ ANALYSIS
OPERATIONAL REPORT CONTINUED
Divisional contribution Divisional review existing schools performed well, showing to Group revenue (%) solid profit growth, and the new projects SCHOOLS are performing in line with expectations.
10 The Schools division’s brands Over and above the investment plan of Abbotts College, highlighted above, we made two other CrawfordSchools™, Junior significant acquisitions: l Schools Divisional contribution Colleges and Trinityhouse • Centurus Colleges, acquired for a cash l Tertiary to Group revenue (%) 47 l Resourcingprovide education from consideration of R712 million, comprises 43 pre-school to Matric. In 2014, three independent premium some 13 900 students attended co-educational schools, located in 10 growing nodes in or near Gauteng. our 45 schools. Currently catering for 3 244 students Our recently established brand, ADvTECH spanning Grades 000 to 12, the schools l Schools Academies, will provide centralised support have existing capacity for 4 800 students. Tertiary 47 l Boarding is offered at the Pecanwood l Resourcing for community based schools as they are 43 added to the ADvTECH Group. These include and Southdowns Colleges, while the recently acquired GIS and Kathstan College, latter also includes valuable tertiary and other schools which are to open in 2016. education infrastructure. Divisional contribution to • The Maravest Group, acquired for Five schools have been acquired and three Group operating profit (%) R450 million in cash and shares, has six additional campuses opened as a result of schools in or near Gauteng, including the close on R3 billion investment plan for three premium schools, two mid-fee 7 the division. GIS in Botswana, a mid-fee schools and one low fee school. This school, caters for students from crèche to transaction not only consolidates Form 4 and has a track record of excellent ADvTECH’s position as the leading Schools academic outcomes, strong student Divisional contribution to l independent schools provider in the l Tertiary demand and profitability. It currently has Group operating profit32 (%) premium school market, but also l Resourcing1 900 students, with sufficient space on 61 provides it with a stronger foothold in the campus to reach a capacity of the digital learning and mid- to low fee 2 300 students. 7 offerings. This acquisition, announced The Schools division grew revenue by 12% in 2014, was concluded post the 2014 in the year, as theTERTIA newly developedRY schools financial year end. It has added more l Schools came on stream and enrolments grew by than 4 445 students to the Schools Tertiary l 5%. Operating profit was flat due to the division and creates new capacity for 32 l Resourcing 61 J-curve of the new schools. The Division’s some 6 900 students.
TERTIARY
16 the future TODAY
In terms of planned capacity, 62% of the A total of 3 087 Tertiary students graduated provides a good return on capital, has schools are over three quarters full. at 14 ceremonies in 2014. In the South African maintained its leading market share in the Institute of Chartered Accountants’ (SAICA) permanent staffing market and continues The excellent performance from our existing prestigious Part 1 FQE exam, FLB and Varsity to entrench its niche offerings in specialised schools in the year, combined with the College students achieved an 82% pass rate, segments. It has also contained its costs significant investments and acquisitions 12% above the national average. effectively. We remain confident that made, have ramped the Schools division Resourcing is well positioned to benefit into a strong growth phase. A crucial element of our successful tertiary from any improvement in its trading offering is the assistance afforded to Academic excellence remains the hallmark environment. graduates who need support in overcoming of the Group. Matric results were again employment barriers, particularly in their Financial review exceptional in 2014, with 98% of our crucial first step into employment. Our students qualifying for entrance into Group revenue grew by 9% to R1.9 billion, graduate placement programme successfully tertiary institutions. with operating profit up 16% and placed an impressive 2 726 alumni in normalised earnings per share up 12%. TERTIARY first-time career appointments. Alumni HEPS, taking into account several once off feedback indicates that our alumni continue costs relating to acquisitions and the The Tertiary division to attain career success after qualifying. funding required for the acquisitions made encompasses The Independent We continue to actively pursue international in the year, showed a 7% improvement. The Institute of Education (IIE), and local partnerships that add value to our once off costs of R8.4 million for the a registered private higher offerings. Our partnerships include financial year are comprised as follows: education provider, and its institutions such as the Open University (OU) and the University of the Free State (UFS), Abnormal non-recurring costs in 2014 R’m brands are The Design School as well as professional associations, including Acquisition related costs 4.0 Southern Africa, Forbes Lever the Marketing Association of South Africa Baker, Rosebank College, (MASA), Public Relations Institute of South Litigation costs 3.4 Africa (PRISA) and Chartered Institute of Varsity College, The Business Facility initiation costs 1.4 School at Varsity College Management Accountants (CIMA). Less: Taxation effects of adjustments (0.4) and Vega. The IIE was accredited by the British Accreditation Council (BAC) in 2014, thereby Total 8.4 The Division served 20 100 full-time and enhancing the international credentials of its 6 800 part-time and short learning 86 qualifications. To support flexible learning The segmental analysis reflects a solid and programme students on its 18 sites in 2014. opportunities, some existing and new steady performance from the Schools A senate and various specialist advisory qualifications have also been accredited as division as it assumes responsibility for the committees, together with a strong part of our distance learning offering. new investments concluded in 2014; very academic and operational team, provide strong growth of 75% from the Tertiary academic governance, leadership and assure RESOURCING division, which has been successfully the quality of the offerings across the brands. turned around and continues to focus on The success of the Tertiary division’s two-year The Resourcing division growth; and a welcome improvement in turnaround has translated into impressive includes Brent Personnel, the Resourcing division in the second half growth, with revenue up 10% and operating Cassel&Co, Communicate of the year due to the implementation of profit up by a sterling 75% to R84 million. Personnel, Inkokheli HR effective interventions. Free cash flow Appointments, Insource.ICT, generated was some 117% of earnings, The Division has seen strong growth in return on funds employed in the year full-time enrolments, mainly due to offering Network Recruitment, Tech-Pro Personnel and amounted to 30.5%, well ahead of the cost a wider variety of IIE courses and an increase of capital, and operating profit margin in the number of students from other African The Working Earth. improved from 12.6% to 13.3%. countries. This growth shows that the quality The Division’s major activities are in the of our education and the affordability of our While the strength of the Group’s balance fields of “e-recruitment”, permanent staffing, fee structures are widely recognised. sheet underpinned our ability to accelerate recruitment advertising and advertising- The Division is strengthening its marketing our capital expenditure in the last year, the response handling. initiatives and strategic partnerships aimed Group’s borrowings have risen significantly at building its presence and increasing The Division continued to hold its own in after year end to fund the expansion and student enrolments, currently at 5%, from exceptionally difficult staffing markets, acquisition strategy. This necessitated a other African countries. Growth of the constrained by weak economic growth and bridge facility, secured to provide funding mid-fee brand, Rosebank College, has been stagnant job creation nationally. Although flexibility while we closed the various particularly strong. Increased student revenue was down 3%, operating profit was acquisitions, which is payable in October numbers bode well for further growth as the same as the previous year following a 2015. The restructuring of the Group’s returning students re-enrol in subsequent strong second half recovery. The Division, balance sheet is currently under academic years of study. which remains strongly cash generative and consideration.
2014 INTEGRATED ANNUAL REPORT 17 GROUP OVERVIEW BUSINESS REVIEW CORPORATE GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDERS’ ANALYSIS
OPERATIONAL REPORT CONTINUED
While the impact of the investment and talented managers within the Group. These investigate new online sourcing acquisition programme will have an programmes are supported by a Mentoring methodologies. operational J-curve effect in the short-term, Programme, which equips managers with The Group IT function plays an important there are sufficient projects that have the skills to develop high-potential staff role in managing our adoption of new moved into the high growth phase to identified by ADvTALENT. In the past year technology and maintaining the required offset this impact on earnings. The Board 116 mentors (2013: 138) and 205 mentees infrastructure. Through our technology is satisfied that the benefits of these (2013: 98) participated in the programme. investments and by centralising many of investments in the medium-term and Transformation remains a key focus area for the IT services across the Group, we have beyond will far outweigh these short-term the Group both within our organisation and given our students increased access impacts as the J-curve unwinds and the in broader South African society. The Group to devices and associated network strength of free cash flow generation made some progress in the year in growing infrastructure. Importantly, Group IT mitigates the impact of financing costs. its black staff complement to 42%. continues to test and implement new Strategic enablers Furthermore, approximately two thirds of security solutions to address new the students we educate and candidates cybercrime threats and ensures that People we place in employment are black. disaster recovery plans are in place The high quality of our offerings and to support business continuity. our service depends on well-qualified, Technology experienced and enthusiastic people. Disruptive technologies such as social Other projects at an enterprise level are focused on driving operational efficiencies media, mobile, analytics and cloud Attracting and retaining top talent in the and cost savings. Voice Over Internet computing provide us with the opportunity sectors in which we operate is therefore Protocol (VOIP) has been piloted at several to develop innovative teaching and critical. We strive to be an employer of sites to save capital expenditure and learning models, while at the same time choice through our recruitment and operating costs. We have implemented the improving our customer experience retention strategies that emphasise fair ADvTECH People Solution (APS) system, and operational efficiency. employment, competitive remuneration, an advanced HR and payroll system, to appropriate work challenges, recognition In our Schools division, Star Schools has improve legal compliance and data security. and learning opportunities. achieved excellent results providing The system also provides access to The total number of employees as at bridging programmes for students that are information pertaining to employee 31 December 2014 was 4 036 (2013: 3 942), rewriting matric. Star Schools has developed development and performance with 39% of staff employed by the Group a virtual learning ecosystem, which delivers management. Several new modules for at least five years and 16% for ten years online teaching through the Mystar portal. will be implemented in 2015. or more. This is testament to the Group’s Maramedia, part of the Maravest Group, will Making a meaningful status as an employer of choice. strengthen our capability to create and Furthermore, in the 2014 Deloitte “Best contribution to our distribute low-cost digital education communities and broader Company to Work For” survey we achieved content, bringing a new digital learning second place in the Large Company competence to the Division. society category and were awarded the Standard Partnering with our stakeholders of Excellence seal for the fourth Our Tertiary division continues to investigate The Group’s stakeholders include our consecutive year. opportunities in distance and online investors, students and their parents, learning, as well as combinations of these alumni, staff, suppliers, business partners, The Group provides staff with a wide learning models. Notable developments government and policymakers, NGOs and range of skills development and training have been the registration of two new communities. Balancing their needs, being programmes. Skills development distance learning programmes, the Bachelor responsive to their concerns and engaging expenditure for 2014 was R9.5 million of Business Administration (BBA) and with them is crucial to our ability to deliver (2013: R9.3 million). Employees from Bachelor of Public Administration (BPA). on our strategy. Specific examples of the historically disadvantaged backgrounds are The implementation of a proprietary nature and outcomes of our engagements given preference in all the development Learning Management System (LMS) and programmes. Notably, an increasing with key stakeholders are provided our investment in a System for Academic number of interns have been employed throughout this integrated annual report. Management (SAM), which supports some permanently, largely due to the on-the-job 25 000 students, provides the necessary skills training they have received. Generating sustainable technological backbone for future socio-economic benefits ADvTALENT is an overarching initiative development of distance or blended As a leading provider of private education aimed at identifying high-potential learning opportunities. and specialised recruitment services, which individuals and fast-tracking their In our Resourcing division, disruptive centre on the development of human development to meet business demands. technologies are changing the nature of capital, our business is of long-term Key skills development initiatives include the staffing market, with companies using economic and social benefit. The direct a Management Development Programme online job boards and social media economic value created and retained to (MDP) at various levels of seniority which platforms to recruit candidates directly. fund our future growth and development aims to accelerate the development of The Recruitment division continues to is set out in our value added statement.
18 the future TODAY
The Group’s contribution to society, which By providing bursaries and opportunities for Prospects extends to corporate social investment (CSI) previously disadvantaged individuals, we All three Divisions are showing positive in broadening access to quality education, aim to achieve an educated society that is performance trends that augur well for has been recognised by our inclusion in the representative of our country’s diversity. growth in 2015. It is clear the Group’s JSE Socially Responsible Investment (SRI) Of the R84.2 million (2013: R73.7 million) growth prospects have been considerably index for eight consecutive years. invested in CSI activities, R82.2 million strengthened. With a strong foundation in Our contribution to our communities and (2013: R72.2 million) was allocated to place and further investment to come, society at large is dependent on sustaining bursaries and scholarships. shareholders can look forward to higher our growth and profitability. This requires growth rates in the coming years as we that we continue to build strong and Our teacher training bursary scheme, aimed implement our ambitious yet well reputable brands while at the same time at addressing the need for high quality considered strategies. ensuring that we operate within our means teachers in South Africa, benefitted 52 and return value to our shareholders. We student teachers (2013: 54), who are also continue to ensure that the Group’s capital given the opportunity to apply their structure is sound, which is supported by acquired skills practically within the Group’s the annuity nature of much of our revenue. schools. A total of 12 bursary holders
Realising our ambitious growth strategy graduated in 2014, of whom ten were requires thorough planning, appropriate employed within the Schools division. Many investment in and allocation of our financial, of our brands also have their own bursary Jeff Livingstone human, intellectual and environmental programmes in place. Acting chairman resources. Throughout our organisation we have The guiding principle for all our decisions embedded different ways to empower our and actions is our unshakeable employees and students to give back to commitment to good corporate citizenship. their local communities. Specifically, our A powerful expression of this commitment educational interventions within is our Group CSI policy, which focuses the disadvantaged communities are a powerful Didier Oesch activities of our brands to ensure the enabling factor in transforming our society Group financial director greatest possible impact. and promoting equality.
2014 INTEGRATED ANNUAL REPORT 19 GROUP OVERVIEW BUSINESS REVIEW CORPORATE GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDERS’ ANALYSIS
VALUE ADDED STATEMENT for the year ended 31 December 2014
Value added (R million)
Revenue Interest received Cost of providing services 1 931.8 2.8 (552.9) 2013 : 1 766.3 2013 : 6.1 2013 : (502.5)
Total 1 381.7 2013 : 1 269.9
2014 2013 R’m R’m
Value added Revenue 1 931.8 1 766.3 Interest received 2.8 6.1 Cost of providing services (552.9) (502.5)
1 381.7 1 269.9
Value distribution
Employees Net benefits paid to employees 805.3 756.6
Social responsibility Corporate social investment and bursaries 84.2 73.7
Government 230.6 211.5
Government taxes 82.0 69.6 Net VAT received (4.7) (2.1) PAYE 153.3 144.0
Providers of capital 117.6 102.7
Finance costs 11.9 3.1 Distributions to shareholders 105.7 99.6
Reinvested in the Group Retained to sustain and grow the Group 144.0 125.4
1 381.7 1 269.9
20 the future TODAY
Net benefits paid to employees 805.3 EMPLOYEES 2013 : 756.6
Corporate social investment and bursaries 84.2 6% 58% SOCIAL 2013 : 73.7 RESPONSIBILITY
230.6 (R million) 2013 : 211.5 17% 1 381.7 Government taxes 2013 : 1 269.9 82.0 2013 : 69.6 Net VAT received (4.7) 2013 : (2.1) PAYE GOVERNMENT 153.3 2013 : 144.0
117.6 2013 : 102.7 9%
Finance costs 11.9 2013 : 3.1 distribution Value PROVIDERS OF Distributions to shareholders CAPITAL 105.7 2013 : 99.6 10%
Retained to sustain and grow the Group 144.0 REINVESTED IN 2013 : 125.4 THE GROUP
2014 INTEGRATED ANNUAL REPORT 21 GROUP OVERVIEW BUSINESS REVIEW CORPORATE GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDERS’ ANALYSIS
22 the future TODAY
BUSINESS REVIEW
“2014 REPRESENTS A STEP CHANGE FOR ADvTECH. WE ARE DELIGHTED BY THIS PERFORMANCE AS IT IS A STRONG ENDORSEMENT OF OUR UNRELENTING FOCUS ON QUALITY AND STUDENT ACHIEVEMENT, AND OUR GROWTH STRATEGY.”
REVENUE
SCHOOLS
12%
TERTIARY
10%
RESOURCING
3%
2014 INTEGRATED ANNUAL REPORT 23 GROUP OVERVIEW BUSINESS REVIEW CORPORATE GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDERS’ ANALYSIS
SCHOOLS
International trends indicate THREE that diversified and STUDENTS ACHIEVED decentralised schooling ACADEMIC HIGHLIGHTS delivery is an effective way of 10 DISTINCTIONS adding value to a country’s schooling system. Some of the most successful SEVEN 43 2 740 As STUDENTS ACHIEVED STUDENTS ACHIEVED educational systems in FROM THE ENTIRE the world include a strong DIVISION 9 7 DISTINCTIONS DISTINCTIONS private schooling system, which is why the schools AN AVERAGE OF 39 60 in our Division have a crucial STUDENTS ACHIEVED STUDENTS ACHIEVED contribution to make to 2 As PER STUDENT 8 6 the South African DISTINCTIONS DISTINCTIONS education system. There has been a marked increase in the number of WE DEVELOP A parents in South Africa NURTURING LEARNING opting to send their children ENVIRONMENT IN OUR to private schools. SCHOOLS BASED ON INTERNATIONAL STANDARDS OF ACADEMIC EXCELLENCE AND INNOVATIVE TEACHING METHODS.
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Performance overview Promoting academic Revenue for the Division was up 12% largely excellence and innovation due to new schools coming on stream. One of the greatest concerns for a parent is Our existing schools performed well and knowing whether the money they invest in showed continuing profit growth. Whilst their child’s education reflects the quality of our new projects are performing in line with instruction their child receives. The Schools expectations, operating profit was, however, division ensures that quality is defined, relatively flat due to the J-curve of these implemented and monitored in all new schools. academic processes, including training and Our students achieved a 100% pass rate, development of teachers and the research ALUMNI STATISTICS with 98% qualifying for entrance into and implementation of new developments in teaching and learning, both locally and higher education institutions. Altogether, SHOW THAT internationally. 1 348 students from Abbotts College, 98% CrawfordSchools™ and Trinityhouse wrote Our focus on quality academic their Matric examinations at the end of 2014. management includes benchmarking OF OUR STUDENTS assessments such as the Schools It should be noted that our schools offer a International Assessment Test (SIAT), written ARE EMPLOYED variety of Matric assessments, including the by all Trinityhouse and CrawfordSchools™ Independent Examinations Board (IEB) and WITHIN FIVE YEARS OF pupils in Grades 4, 6, 8 and 10 in National Senior Certificate (NSC) systems. Mathematics and English, and the Victoria MATRICULATING. While these accreditation systems differ in Curriculum Assessment Authority (VCAA) their assessment criteria, one certificate assessment written by Crawford Grade 12 cannot be deemed to be inferior or superior students. These internationally renowned to the other. The teaching methods and We benchmark our assessments provide an excellent tool for quality of support and intervention offered quality standards schools and students to benchmark their at all our schools ensure that our Matriculants performance and progress against against obtain results that enable them to access international standards of education and international private an institution of higher education and help us identify areas of strength and ultimately the career of their choosing. education systems. opportunities. Strategic intent In addition, we continue to encourage We develop a nurturing learning our students to enter the International environment in our schools based on Mathematics and Science Olympiad (IMSO). international standards of academic Our view is that it is not about winning excellence and innovative teaching methods. medals but rather that we are exposing Our goal is a balanced, confident child, able our top performers to their international to identify and embrace personal growth counterparts. opportunities now and into the future. In realising our goal, we evaluate not only the Our students also participate in the local most obvious measure of success (Matric Science, Mathematics and Language Olympiads and competitions, where they pass rates), but also how many of our perform exceptionally well. students go on to become productive, gainfully employed members of society. Our teachers are key to upholding our standards of excellence. In training and Our success relies on active collaboration developing our teachers, we recognise the with our stakeholders, which include advantage of having experienced teachers parents, students, employees (teachers, who are committed and well-equipped to administrative and support staff), alumni, facilitate the changing face of learning in the communities we serve and regulatory the 21st Century. Our teachers attend a bodies. Continuous, meaningful number of conferences every year to share engagement with stakeholder groups knowledge and best practice principles. informs our strategic decision-making, IN 2014, WE HOSTED In 2014, we hosted 196 teacher training with key examples provided in this review. events to further develop teachers’ skills, for 196 We continue to invest significantly in example, supporting children and TEACHER TRAINING expanding our network of schools in adolescents with anxiety; education law and EVENTS TO FURTHER South Africa and elsewhere in Africa to policy issues; and protecting learners from drive the growth, profitability and societal cyber-bullying. A total of 761 teachers DEVELOP TEACHERS’ value the Schools division delivers. benefited from these training events. SKILLS.
2014 INTEGRATED ANNUAL REPORT 25 GROUP OVERVIEW BUSINESS REVIEW CORPORATE GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDERS’ ANALYSIS
SCHOOLS CONTINUED
Many of our teachers have also attended therefore important to appoint and develop Reggio schools teach training in Philosophy for Children (P4C) suitably qualified African teachers and children to think, reason, and in the Thinking Schools programmes. teacher assistants. These two international programmes explore and be creative. Staying at the forefront of pedagogy is demonstrate that once children understand By getting to know the demanding but exciting, and includes how to question effectively, they display investigating, trialling and sharing global child, observing their play, exceptional progress in the areas of cognitive, emotional and social best practice with our schools. talking and playing with development. An added benefit is that this One area of focus is examining the use of them, practitioners can approach can easily be incorporated into home language in the classroom. Research plan exciting experiences, different teaching methods. has shown that the acquisition of English linked to the different Altogether, 140 pre-primary teachers skills from Grade 1 is an academic enhancer. learning areas, which At pre-primary level, however, there are attended one or more of the training events are appropriate for that were offered. The workshops were many opportunities for including home followed by demonstration lessons in the language teaching in the curriculum through developmental needs and pre-primary classrooms to encourage activities such as songs and games, and this is interests. Also crucial is teachers to implement environments the approach taken by the Schools division. the organisation of the of enquiry. An excellent example of innovative teaching physical space. Reggio The development of skills, diversity training is the Reggio Emilia approach to education Emilia schools are light at the crucial foundation phases. Our newest and professional development remains a and spacious and have priority for the Group. Our staff complement Crawford Preparatory School, Crawford Italia, should also reflect the diversity of the is among our schools that has implemented designated spaces for communities within which our schools this approach. 75 pre-primary teachers from small or large group operate. This forms an integral part of the the CrawfordSchools™ and Trinity House activities. success of our brands and in supporting brands attended the workshops designed national transformation objectives. It is to promote creativity in the classroom. To nurture innovative and creative thinking our “Dreamflight” project was introduced six years ago. Submissions are invited from our teachers and the most innovative ideas are identified. The teacher/s concerned are offered financial assistance to develop their concepts and share them across our schools. This year has seen a new approach being developed with Crawford North Coast Preparatory which will extend the reach of their CSI activities. A programme on entrepreneurship is being developed which will assist the local community. We continue to explore the use of technology to enrich teaching and learning by finding innovative ways to enhance curricula content and anticipate the classrooms of the future. Using technology is furthermore a cost effective mode of educational delivery and will provide the basis for developing a lower-fee schools model over the medium term. All our interventions demonstrate unequivocally the uncompromising quality of education that has long been associated with the ADvTECH Schools division.
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Expansion projects North Riding addresses the demand Our brands Three new school campuses opened at for the Trinityhouse brand in this area. The success of the brands in our Schools the beginning of the year: Crawford Italia These expansion projects will lead to a division confirms our commitment to (pre-primary and preparatory) in remarkable estimated 71% growth in ensuring education of the highest Bedfordview, Abbotts Centurion (high student numbers in 2015, with more standards, provided at a proportionate school) and Trinityhouse Heritage Hill new schools in the pipeline for existing cost. School fees in schools with more (pre-primary and primary) in Centurion, brands. The increase in numbers has, developed facilities, extramural activities whilst Abbotts College Northcliff relocated however, put pressure on some of the and a lower teacher-to-student ratio will be to a new campus. Division’s portfolios such as human higher than those with more basic facilities and a limited range of additional activities. Seven acquisitions were made in 2014, five resources, marketing and communication, However, whilst each brand has its own of which will come into effect during the and IT systems. To address this, academic identity, challenges and opportunities, they first quarter of 2015. The acquisition of the and operational functions were all offer the uncompromising quality of Centurus and Maravest groups strengthens restructured and streamlined, presenting education that has long been associated our position as a major provider of quality our staff the opportunity to improve their with the ADvTECH Schools division. private education in South Africa. The career prospects through internal Centurus colleges have added 3 246 promotion. There is no shortage of Abbotts College suitable candidates, thanks to the Group’s students and comprise of Pecanwood The year in review College, located near Hartebeespoort Dam; training and development programmes. It has been a year of growth and brand Southdowns College in Irene near Pretoria; Our brands are each headed by brand building for Abbotts College. The unique and Tyger Valley College, located east of managers, who are involved in all aspects Abbotts College ethos, practices and Pretoria. The schools boast world-class of the operational activities of their brand. impact have been more effectively educational facilities, including computer They work closely with the Division’s communicated and the inspiring Matric centres, laboratories, technology centres, services team, facilitating communication results have cemented the brand’s multi-purpose halls, sports fields, multi- and providing expertise and guidance on reputation for high academic standards. purpose courts and swimming pools, and governance structures, processes and offer sound academic, sport and cultural growth plans. programmes which will enhance ADvTECH’s Abbotts Colleges own high standards. We continue to cultivate relationships with and embrace opportunities to partner with produced a solid set of The acquisition of the Maravest group, now Government, despite the difficulties 2014 Matric results: 68% approved by the Competition Commission sometimes encountered. of our students achieved and shareholders, will add over 4 445 students to our Schools division. It has six The building of new schools has presented a total of 378 bachelor’s schools in Gauteng and includes two challenges. Meeting government and degree passes and a mid-fee schools and one low-fee school, municipal requirements in respect of further 162 (29% of marking ADvTECH’s entry into this planning permissions and registration can burgeoning segment of the market. be onerous, with duplication often leading students) obtained a to bottlenecks. The building of new schools higher diploma pass, Of note was the first step towards our has been impeded by such planning delays, meaning that 97% of objective of strategic expansion into geo-technical problems, power outages and Africa, with the acquisition of Gaborone municipal and national regulations such as our students are eligible International School (GIS) in Botswana. having to contribute towards upgrading for further tertiary Expansion beyond the borders of South municipal and national roads. Despite studies. Altogether Africa will no doubt present its own unique unexpected delays and problems, the 568 distinctions were challenges, but the Division is well- Properties team managed to open all sites prepared. The newly formed ADvTECH on time. Valuable lessons were learnt that earned. Academies brand will gain extensive will help streamline the building and experience working in sub-Saharan Africa approval process in future. We acquired the Century Gate property in and specifically Botswana, which will prove the year, moved the Northcliff campus and invaluable in realising this objective. revamped the Claremont campus. The new The Kathstan College acquisition further Centurion campus was successfully expands the Division’s reach, not only in THE SCHOOLS DIVISION opened in 2014. providing mainstream education, but also PLANS TO INVEST introducing a high degree of inclusive education to the Division’s educational R2.5 BILLION offering. The other two acquisitions were IN EXPANSION PROJECTS the Snuggles and Tiny Town nursery OVER THE NEXT schools, broadening the Junior Colleges EIGHT YEARS. offerings. The acquisition of Boleng School and converting it into Trinityhouse
2014 INTEGRATED ANNUAL REPORT 27 GROUP OVERVIEW BUSINESS REVIEW CORPORATE GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDERS’ ANALYSIS
SCHOOLS CONTINUED
Looking ahead transparency and with sensitivity. In The success of the digitally enhanced Future plans include more relevant subject addition, reporting, system and governance education project, which now includes choice offerings and recruiting more changes need to be implemented with Grades 5 to 12 across the brand, can be students from African countries. The latter as little disruption and inconvenience attributed to the collaboration in the thrust may well be partially dependent as possible. classroom between students and teachers. on providing additional residential We believe that such innovative The brand also has a number of new accommodation for students at the approaches, which prepare both teachers greenfield projects in place to open new Cape Town and Pretoria East campuses, and students to embrace the evolution in schools, some of which will operate on the a matter that is under consideration. education and the digital revolution more basis of a low-fee, technologically broadly, is a strong differentiator of the A keenly anticipated intercampus arts supported learning model. CrawfordSchools™ brand. festival is planned, to forge greater interaction between our students CrawfordSchools™ With these exciting developments comes and staff. Excellent student numbers and the the need to continue supporting our reputational and financial stability of the teachers in adapting to the changes in ADvTECH Academies brand has contributed to its continued delivering education, and the Division has success over the past 21 years. the appropriate training and development CrawfordSchools™ prides itself on being a programmes in place to ensure that any modern and innovative educational brand major transition is effectively managed. that thrives on the development and A concomitant requirement is to improve implementation of new methodologies. connectivity and a stable electricity supply on our campuses. The year in review Another digitally enhanced education At the end of the year we had 20 sites and process that has had excellent results is 8 200 students, from Pre-primary to Matric. the use of applications in the teaching of Every school is enriched by its own subjects such as reading, spelling, literacy, community, students and parents, and arithmetic and performing arts. surveys indicate high levels of satisfaction, confirming the strength of the brand’s Our Crawford students also excel in This recently established brand aims to reputation. swimming, hockey and water polo. The provide centralised support and growth introduction of Astroturf hockey fields After several years of collating stakeholder opportunities for the community-based during 2014 resulted in a measurable feedback regarding the National Senior schools, such as the recently added GIS, improvement in the teams’ performances. Certificate (NSC) examination, it was Kathstan and additional schools to open in Many of our students and teams are top decided that CrawfordSchools™ 2016 under the ADvTECH Academies brand. achievers in the hockey and swimming Matriculants will be writing the IEB A-leagues and we boast some Olympic Whilst each school retains its own examinations, with the first cohort writing medal-winning Alumni. curriculum, identity and ethos, what they the examination in 2016. Whilst there is have in common is their focus in catering no tangible difference in quality, we were Culturally, our achievements are numerous to the needs of their immediate happy to meet our parents’ and other with exceptional standards and top communities. stakeholders’ needs in this regard. achievements in various Eisteddfods. Pretoria College won the national debating and ADvTECH Academies provides support in the areas of academics, operations, human resources, marketing and communication, CrawfordSchools™ is renowned for its excellent Matric results, information technology and property and our 609 Matriculants in 2014 performed even better than management. Whilst the brand allows the application of diverse curricula to service last year’s class, despite the new CAPS curriculum. the educational needs of the various They achieved a 96% bachelor’s degree pass rate, communities served by each school, all schools will maintain the Schools with Crawford College La Lucia achieving 100%, and division’s high educational standards. 133 students receiving six or more distinctions. Crawford The immediate challenge is to integrate College Sandton was once again the Top Independent School the formerly individually owned schools in Gauteng, with Crawford College Lonehill placed second and into the ADvTECH Group, which will Crawford College Pretoria third. Crawford College La Lucia was involve changes on multiple levels. the Top Independent School in the Pinetown District. The top Possible concerns associated with the schools now forming part of the larger three independent school candidates in both Gauteng and Group need to be managed with KwaZulu-Natal were Crawford College students.
28 the future TODAY
public speaking competition for a second specific requirements of the 21st Century which are moderated and quality assured year. Crawford students participated in the learner. Our staff continuously research and by the VCAA in Australia. IMSO held in Bali, Indonesia. collaborate to introduce creative ways to develop the critical thinking skills of our Junior Colleges This year we launched the second Crawford students from Grade 000 to Grade 12. 2014 has been a successful year for Junior Alumni publication and communication Colleges. platform called “Old Crawfordians”. It In the pre-primary phase, we will continue enabled us to highlight the success of the to focus on developing literacy skills, The year in review Crawford model in producing entrepreneurs, updating the curricula from Grade 000 Changes included the addition of two new leaders and top achievers who are through to Grade 0, embedding the schools, Snuggles in Radiokop and Tiny contributing to their communities and practice of P4C in every classroom and Town in Sandton, and for the first time society in a positive and meaningful way. expanding the Reggio Emilia inspired since 2007, some changes in school practice. principals due to the resignation of one Read more about Crawford principal. However, with a succession plan Alumni success on our website The increased use of Information and www.advtech.co.za. Communications Technologies (ICT) in in place, the changes went smoothly. our schools across all the phases will be A number of principals were promoted Looking forward maintained. We will continue with our to bigger schools and a new principal We anticipate a growth in student numbers, programme to apply new methods of appointed from existing staff. particularly in KwaZulu-Natal and in instruction across all the grades as the The innovative Junior Colleges programmes Gauteng, due to greater demand, filling prerequisite to an effective ICT roll-out. continue to establish the brand’s reputation existing schools. Our programme to Further upgrades to infrastructure are also as a market leader. The Early Year Foundation develop more greenfield sites is also anticipated. Training and support for our Stages (EYFS) curriculum is designed to progressing well with more specific staff in this new approach to teaching and provide each child with the learning skills announcements to be made in 2015. learning is ongoing. vital for development. Meaningful and We continue to be receptive to input from Our Grade 12 students who will be writing directed activity includes a “Financial savvy” our students and based on their feedback the IEB examinations in 2016 will find a component introduced in 2014. This covers investigate, adapt and enrich our stronger alignment to the benefits gained basic financial matters such as saving and methodologies and so accommodate the from writing the preliminary examinations spending, the benefit of giving and knowing
2014 INTEGRATED ANNUAL REPORT 29 GROUP OVERVIEW BUSINESS REVIEW CORPORATE GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDERS’ ANALYSIS
SCHOOLS CONTINUED
the difference between needs and wants. Developing and training staff remains a particularly with babies, are being The Reggio approach provides priority. Staff have been assisted with developed. These include the ‘baby gym’ opportunities for creative thinking and obtaining a relevant qualification through concept and baby sensory rooms, all under exploration. Reinventing storytelling, for UNISA and all staff are given first aid the supervision of a qualified nursing sister. instance, is one component within which training. Ten learnerships were organised Technology in the form of Smart Boards and grandparents are encouraged to participate. in the past two years and successful iPads is used to enhance skills such as gross candidates have obtained an NQF motor coordination, language skills and There are many other additional activities, level 5 qualification. creativity. ranging from Lego competitions, Eisteddfods and art exhibitions, to ‘puzzle-thons’ and Looking forward Trinityhouse science fairs. There is also a ‘Going Green’ Due to known demand in certain areas, An overtly Christian ethos and outstanding component which not only includes further expansion of the brand is being quality of education differentiates the instruction on the value and necessity of considered, particularly in other provinces. Trinityhouse brand. recycling, but also pet care and growing As Junior Colleges operates within a head herb gardens in plastic bottles. An integral office structure, expansion is easier to The year in review component is caring about others and manage. 95% of the Trinityhouse under the name ‘random acts of kindness’ Conversely, legislation requiring all Matriculants who wrote children will, for instance, help make government primary schools to introduce cupcakes to take to hospitals, or host and a pre-primary Grade R has over the years the IEB examination in interact with children from orphanages. reduced the number of enrolments at this 2014 achieved a bachelor’s Each child’s progress is carefully monitored age group. To compensate for this we have degree pass rate, and and to this end, a gross motor specialist visits enrolled more students in the lower grades. 12 students were placed every Junior Colleges school regularly. If any Such external developments, however, are in the top 1% of their gaps are identified, these are immediately seen by the Junior Colleges brand as a subjects. Eight students addressed. There is constant communication stimulus to add even more educational with parents and they are urged to discuss value and remain a leader in early childhood achieved six or more their child’s report with the teacher. development. Areas of specialisation, distinctions.
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Other highlights included five Trinityhouse These surveys will be repeated every Looking forward students winning medals for Mathematics two years to ensure that the changes Some of the pressure on Randpark Ridge and Science at the IMSO. The Trinityhouse implemented are of value to the Pre-Primary will be reduced with the brand had the most participants per school’s stakeholders. purchase of Boleng School. Opening in campus in the qualifying events from the An inter-school best-practice sharing 2015 as Trinityhouse North Riding with ADvTECH Schools division. programme (called ‘building on excellence’) a pre-primary and primary school, we On the sports field, there was acclaim for the coordinated by the Division’s Academics anticipate that it will be a feeder school rugby team, which won both the Beeld and department has proven most helpful to the for Trinityhouse Randpark Ridge Coca-Cola Cups in their respective divisions. teaching staff of Trinityhouse. It is a way for Preparatory and High schools. teachers to evaluate each other’s work and Demand for places at the Heritage Hill Of note is the exceptional growth of the collaborate on implementing best-practice campus in Centurion doubled since its first brand, especially at Little Falls Preparatory, principles, all part of maintaining academic year of operation. There were some problems which recorded 70% growth in student excellence and helping our students to reach with site development, among them a numbers in 2014 and the buildings (currently their full potential. shared with the high school) are now filled to shortage of electricity supply. Heritage Hill capacity. The building of the high school will Community outreach is one of Trinityhouse’s managed to operate with the assistance of commence in 2015. ‘five pillars’. We are leaders in implementing a generator. The matter has since been education-based CSI and Citizenship projects resolved and good growth is expected. The “Deloitte Best Company to Work For” in our surrounding communities. Money is survey reflected Trinityhouse’s continued raised annually to sponsor an orphan to In contrast, growth at Palm Lakes has been improved results in the areas of job attend another independent school in the slow due to competition and economic satisfaction, career development and area, Sparrow Ministries School. Another considerations. However, since Palm Lakes remuneration. Parents, staff and students ongoing project is assisting Matla Combined is situated next to a family estate, it is of the Little Falls schools participated in a School in meeting its needs, through convenient for students in the vicinity. With Consulta survey, which helped the school initiatives such as painting classrooms or the appointment of a full-time high school identify areas of strength, and also guiding teachers in more effective classroom principal and improved sports facilities, highlighted opportunities for improvement. organisation. numbers are expected to increase.
2014 INTEGRATED ANNUAL REPORT 31 GROUP OVERVIEW BUSINESS REVIEW CORPORATE GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDERS’ ANALYSIS
TERTIARY
The demand for private tertiary Performance overview education in South Africa The turnaround strategies introduced in 2013 saw operating profit grow by 75% in remains strong, demonstrating 2014. The number of full-time students the fact that value for money grew from 20 200 to 21 250 in the year, due is a growing need, given the mainly to offering a wider variety of our own IIE courses and reducing the difficult economic dependency on offering UNISA tuition. environment. ADvTECH is The Independent Institute of Education (IIE) committed to providing currently offers 86 accredited qualifications. the best quality tertiary Further qualifications at Honours level, additional degrees in Business and IT education, designed to as well as additional qualifications in teacher meet the needs of our education are planned for the near future. students and to equip them Some existing and new qualifications in the distance model have also being accredited, with the knowledge and in support of an overall strategy to provide skills necessary to secure flexible learning opportunities for students. the job of their choosing, Strategic intent at fees that compare The brands in our Division offer a portfolio favourably to public of tertiary education products that cater to the needs of a wide variety of students. institutions. What each of our offerings has in common, however, is the commitment of the faculty and staff to ensure that every student has the best chance of completing their chosen programme of study within the planned timeframe. Our goal is to give our students both the opportunity to enter the workplace and start earning sooner, and to reduce the amount spent on tertiary education by not having to repeat subjects or courses. We therefore continue to find ways to make quality tertiary education more accessible despite the economic pressure consumers are facing, and to develop and refine courses that meet the changing needs of our students and the organisations that will A TOTAL OF eventually employ them. 3 087 A focus on quality (2013 : 3 484) STUDENTS The use of technology to enrich the quality GRADUATED IN 2014 of teaching and learning remains an important focus area. The tertiary campuses are investing significantly in the relevant hardware, software, reliable connectivity and skills development for effective digitally 2 726 enhanced learning. Several pilot projects are GRADUATES WERE PLACED in place. Some qualifications (the BA in BY OUR GRADUATE Corporate Communications, for instance) PLACEMENT PROGRAMME require all students to have their own portable devices and many learning
32 the future TODAY
activities, including those in class, require accreditation of The IIE by the British Various OHS training and awareness the use of these devices. Lessons learnt have Accreditation Council (BAC), affirming the sessions are planned for 2015 to enhance influenced how the integrated use of fact that our institute meets international our scores and ensure a safe environment technology in and out of the classroom standards. for our staff and students. During 2014, can be rolled out in other programmes. Stakeholder engagement 24 tertiary staff received first aid training. It is anticipated that our investment in It is crucial for the Division that our faculty, An integral part of brand activity is to make Blackboard, a propriety Learning staff and students perform to the best of a difference in the communities within Management System (LMS), known as their ability. To accomplish this, we need which we operate. Special focus committees LTELearn will reap significant dividends. As a to ensure we are meeting their needs – Human Resources, HIV/AIDS, Employment digital platform for teaching and learning it holistically, which requires ongoing Equity, Skills Development, Investors in will improve operational, academic and engagement and consultation. People, Occupational Health and Safety student experiences on all campuses. Great (HESIO) – along with the support of the care has been taken in the redevelopment on-site Student relations managers, partner of course content in keeping with modern In 2014, we held 218 with various organisations to ensure a theories of academic instruction. LTELearn lecturer training positive impact is made in our communities. is designed to provide more student-led, events, up significantly CSI activity-based learning where, through from 30 in 2013. Skills application, interaction and support, The community-focused activities of our students can supplement what they learn development programmes brands are focused on making a tangible in lectures, in ways unique to them. for operational staff difference to their communities, particularly included a professional in projects related to education. Projects in Of particular note is that the system is being 2014 included: implemented in such a manner that the communication workshop • HIV/AIDS awareness days and education. centrally produced content is available to and health awareness • Rosebank College Auckland Park students all sites and groups but still enables lecturers programmes were held for held weekly computer literacy classes for to engage directly on-line with their own girls from the Home of Hope for abused classes. Each module is thus replicated for both staff and students. and abandoned children. the group studying it, in this way meeting • Volunteer students provided assistance the differentiated needs of each of our Occupational health and safety for the annual Special Olympics PGA brands and student groups. We adhere to occupational health and Golf Day. Creating effective interactive digital content safety (OHS) regulations and all four of our • Students from Rosebank College Pretoria, whilst maintaining a high academic standard brands achieved external Health & Safety after being given classroom management and positive learning environment has audit scores above the 90% Group target training, assisted groups with daily required that we implement training and threshold. homework assignments at the Sunnyside support programmes for our lecturers. The Drop-in Centre. Centre of Integrated Teaching and Learning • Varsity College partnered with the (CITLE) and the IIE Central Academic Team OHS SCORES Masixhasane Literacy Project and raised are providing the necessary interventions enough money to distribute four mobile and support in developing lecturing skills multimedia library units to disadvantaged adapted to digitally enhanced learning. VEGA schools. • Vega trained 60 historically disadvantaged The primary focus of the IIE is teaching and 98% students to take on the role of learning, rather than research as is the case Brand Ambassadors for the Joburg in most public tertiary institutions. Lecturers Shopping Festival. are expected to be passionate teachers as VARSITY COLLEGE • Vega collaborated with the Umuzi Photo well as academics with relevant work Club by offering 50 talented students experience. To retain and attract lecturers of 97% selected by Umuzi a year-long learnership this calibre, we have reviewed the Division’s programme at Vega. value proposition and remuneration policies. THE DESIGN SCHOOL OF These regular reviews have guided us in our SOUTHERN AFRICA Read more about our CSI projects efforts to support our lecturers through on our website www.advtech.co.za. implementing cutting-edge IT interventions 95% and technologically enhanced teaching methods. ROSEBANK COLLEGE It is particularly pleasing that our institution is earning international recognition. 91% A significant event in 2014 was the
2014 INTEGRATED ANNUAL REPORT 33 GROUP OVERVIEW BUSINESS REVIEW CORPORATE GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDERS’ ANALYSIS
TERTIARY CONTINUED
Our brands The academic team works alongside the The work of a number of our students was The Independent Institute Unit, and is responsible for the content recognised through several awards, contained in the system. including winning the prestigious national of Education (IIE) PG Bison Competition, the International The IIE’s reputation as a credible institute The Design School Southern Africa Parkett Dietrich Benchmark competition with quality standards equal to international (DSSA) and the Top Young Designer Award at the benchmarks was confirmed when it was The DSSA is a unique brand in the South Sansui Summer Cup. accredited by the British Accreditation African higher education arena, providing The revamp of the DSSA website, an Council (BAC). The BAC is an independent centralised design focused programmes. important recruitment tool, has improved authority that accredits private education A new qualification introduced in 2014 online registration as it links directly with the providers in the UK and other countries. was the BA Honours in Graphic Design, CRM system, improving operational efficiency. The accreditation process is thorough and with the first group of students due to included a verification visit by BAC officials Restructuring the DSSA brand has set graduate in July 2015. in March 2014. this niche brand up for growth and Retaining specialised lecturers has, further success. The value of an IIE qualification is evident in however, presented some challenges. the growth of full-time student numbers, Forbes Lever Baker (FLB) including students from other African To resolve this, the brand has undergone countries, who are recognising the quality restructuring which has yielded positive Our academic results for of our education and the affordability of results as reflected in staff, lecturer and FLB and Varsity College our fee structures compared to programmes student feedback. students were excellent offered elsewhere. Changes included most of the DSSA with an 82% pass rate for Further confirmation of the IIE’s standing is campuses being integrated into Accounting students in the success and accreditation of its Journal Vega sites, thereby enhancing the of Independent Teaching and Learning. It is student experience through access to the Board Exam, 12% the only publication of its kind published additional facilities such as centralised higher than the SAICA by a private education provider that is libraries, career centres and student average. FLB students accredited by the National Department engagement areas. have consistently been of Higher Education and Training. Together with the IIE Central Academic placed in the top 20 The IIE’s structures include the Central Team, the DSSA programme content and nationally in UNISA’s Academic Team which is responsible for the digitally enhanced learning ensuring the quality of all qualifications and experience for teachers and students is Certificate in the Theory programmes offered by ADvTECH’s IIE being re-evaluated and updated to reflect of Accounting (CTA) tertiary brands and their accreditation by industry trends. examination. the appropriate regulatory body. Besides meeting regulatory requirements, the Central Academic Team plays a vital role in ensuring that all programme curricula remain relevant to market demand. This is an important consideration for our graduates who need to be assured of their employability. An additional resource for graduates is our ‘World of Work’ initiative, designed to help first-time job seekers prepare themselves for interviews and the workplace. 2014 saw the establishment of an Integrated Tertiary Systems Unit within the Tertiary division to ensure that all systems and applications used to service students work in an aligned manner. The Unit ensures that synergies are leveraged and effort is not duplicated across our different brands. This team has been responsible for the implementation of the LMS which enhances not only the contact offerings but has also provided the platform for further work in offering distance mode learning.
34 the future TODAY
FLB’s move to the Varsity College Sandton Rosebank College has a commitment to Campus in 2013 gave students access to providing Matriculants, the majority from additional facilities, which include a library, lower income homes, with an affordable career centre and sports facilities. This has education that can change their lives. improved the student experience and made Students are offered a great deal of more effective use of the Division’s support and for many this aspect provides resources. Whilst FLB remains a separate them with the tools to make a positive brand, it is housed in Varsity College’s transition from school to tertiary Accounting faculty. education. Students who are not A material issue for FLB is the growing computer literate, for instance, are given number of competitors emulating the support at no additional cost through successful FLB tuition model. In response, extra tutorial sessions. FLB incorporated a series of revision and booster programmes to provide additional The role of Rosebank College staff is support to students. We believe these of vital importance, as is retaining staff. The larger centres, namely Rosebank College improvements and the integration into The staff turnover, adversely affected by Braamfontein, Pretoria and Durban, are Varsity College campuses, coupled with operational challenges in 2013, has being developed into mega campuses, with excellent lecturers, have secured FLB’s brand reduced from 48% at the end of 2013 to a future Cape Town hub planned. These position. Given the positive changes, the 19% a year later. Improving conditions plans will be a significant focus in 2015. brand’s prospects for growth are bright. of employment has been a priority, as has upskilling, which includes training in The Business School at Rosebank College digitally enhanced learning methods. Varsity College The repositioning of Rosebank College Another initiative was to offer the The Business School at Varsity College has at the end of 2013, together with an 20 heads of department a 13-week traditionally offered a variety of business- aggressive marketing campaign, led to a foundation management programme. focused short learning programmes 60% increase in student numbers in the There was an enthusiastic response even designed to offer working adults the year. Combined with streamlining though the programme was attended in opportunity to build their skills sets through operational costs and outsourcing non-core their own time. convenient part-time studies. A drop in functions such as selling text books, the enrolments led to a product refocus and With significant student numbers comes brand was able to return to profitability. visual rebranding at the beginning of 2014. a number of responsibilities, not least of This is a strong indicator that potential which is the need to make a positive The rebranding is aimed at attracting a young but aspirational market with more employers value the brand’s IIE impact in the communities surrounding focus on junior and middle management qualifications and recognise that our our colleges. Our faculty and students development. A Business School head and a graduates are work-ready. This is enhanced continue to make a tangible difference to national manager have been appointed and by considerable effort being made to their communities in a number of ways. further positions created to better resource develop partnerships with government the School for growth and further product departments and corporates and we have A novel way of offering a bursary at development. more than 700 potential employers listed each campus is done at registration on the Rosebank College database. when students are invited to make a The updated and new programmes contribution to a ‘Live the dream’ wall. include two Management Development At the end of registration, a bursary Programmes. These composite programmes winner is selected. can be broken down into shorter learning 1 633 programmes, allowing students financial Looking ahead GRADUATES PLACED and academic flexibility. THROUGH THE The role of digitally enabled teaching and It is anticipated that the part-time division GRADUATE EMPLOYMENT learning is a key factor for Rosebank College’s planned growth. To achieve this, will grow rapidly as it combines a more PROGRAMME (2013 : 858) campuses in metropolitan areas are being accessible price point with the convenience merged and satellite campuses in of weekend and evening study. The year in review provincial areas are being considered. The brand has worked hard to convey its A further innovation was travelling to Many of our lecturers core message to potential students: that communities in branded vehicles and maintain full-time jobs in- Rosebank College offers affordability, quality mobile units to interview potential between lecturing at The and employment opportunities. students and enabling them to register, Business School, providing Furthermore, close contact is maintained saving them time and money. We plan with the brand’s top 20 feeder schools for to develop a digital process for course practical experience to each of its five campuses. application, registration and payment. our students.
2014 INTEGRATED ANNUAL REPORT 35 GROUP OVERVIEW BUSINESS REVIEW CORPORATE GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDERS’ ANALYSIS
TERTIARY CONTINUED
Varsity College The year in review academic excellence. One of our bursary A significant strategic shift has been the recipients achieved the top provincial Varsity College maintains introduction of our own degrees awarded results in the UFS LLB degree. The bursary its reputation for academic by the IIE and reduced reliance on degrees programme initiated by Varsity College, SAICA success with students again offered under the auspices of UNISA. The and Deloitte for the UNISA BACC degree is achieving a module pass first IIE BCom and BACC degree cohorts now in its fourth year, with 26 carefully completed their studies at the end of 2014. selected full-time students registered at the rate of over 80% in 2014. This is a significant milestone for both the IIE Durban North campus. Five students from and Varsity College. A further general the first cohort have completed their Our academic success can be attributed BA degree and two specialist BCom degrees undergraduate degrees. Varsity College is to quality teaching and relevant course (one in Law and one in Economics) have working with other local auditing firms to content that provides practical application. been accredited and will be offered from encourage them to participate in this Small classes and the appropriate use of 2015 and 2016 respectively, as will a successful programme in 2015 and beyond. technology enhances the offering. Varsity distance learning BCom degree through The Business School. The market demand for College is geared towards retaining students the IIE qualifications Varsity and our integrated support systems provide The LLB degree offered in partnership with students with the opportunity to realise their the University of the Free State is another College offers is evidenced academic potential. successful initiative now in its third year. It by student numbers in Students on every campus have access to is a unique and progressive example of a 2014: approximately 11 500 public-private partnership that broadens a Career Centre, a facility designed to assist full-time and 5 400 part- access to aspiring law students around the them in developing a variety of employable country. Positive discussions to extend this time and Short Learning skills and helping them to find part-time partnership were held during 2014. work during their studies and full-time Programmes (SLP) employment upon graduation. Campus life Students also benefit from Varsity College’s students. also includes sporting programmes and other student-oriented programmes, most With most Varsity College campuses almost appropriate social responsibility projects to notably a substantial bursary programme filled to capacity, new campuses and help make students socially aware, and with R30 million invested each year. expansion of existing campuses are part of more importantly, to make a positive impact Endowments are made in a number of our annual planning. In 2014, the Durban in the communities within which we operate. categories, including leadership and North campus underwent a large-scale expansion, doubling the teaching, recreational and parking facilities. Environmental considerations played an important role in this expansion. For instance, numerous Lux lighting meters were installed and the parking area was designed to be a ‘green’ area. Rainwater storage allows for the watering of the grounds and sports fields. Looking forward Varsity College recognises that technology is changing the context of learning. We have adopted new modes of delivery which offer the potential of expanding into new markets and building further value adds into our existing contact learning environment through the use of technology. A strong proponent of Open Education Practices and incubator for many innovative projects incorporating digitally enhanced learning, Varsity College designed and offered a self-paced Massive Open Online Course (MOOC). The first Varsity College MOOC was a Work Readiness Programme offered in July 2014 on the Blackboard Open Education website, which is free to interns, graduates and exit level students. A second self-paced MOOC aimed at developing Web and Digital Literacies is scheduled in 2015.
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We plan to open three new campuses improvements. With the expertise of Focus story within the next five years and to undertake Group Properties and the IT division, Africa’s ten most promising inventors. significant expansions at the existing ones. hardware, software and connectivity were Read more online at www.advtech.co.za. updated as part of the effective learning Varsity College’s student-centric learning Looking forward environment on offer to students. and teaching strategy has proved to be a Plans are underway to accredit additional successful methodology, as evidenced by The Vega website was revamped to a more IIE degrees for 2015, adding to Vega’s niche the effective combination of relevant user-friendly version and communicates product offering and value proposition. content, face-to-face classes, multimedia the brand’s value proposition, whilst also 2015 will see the first materials and online engagement. improving the online application group of Masters degree Focus story functionality allowing for easy registration. Varsity College’s ‘Sports Life’ programme. students graduating – an Read online at www.advtech.co.za. Some highlights exciting development for A number of our students/graduates were Vega winners or finalists in several prestigious ADvTECH and Vega. The With the appointment of a joint Managing national and international competitions. planned introduction of director for Vega and the DSSA, both brands Awards included two winners in the annual three more undergraduate focused on the improvement of efficiencies D&AD Awards (a major event in the world degrees – BCom in Strategic and addressed strategic issues to realign of design and advertising) and one in the with their core values and brand equity. Pendoring Awards. Two recent graduates Brand Management, were involved in campaigns that won BCom in Digital Marketing The year in review awards at the 2014 Loerie Awards. and BA in Strategic Brand Three of the four campuses, namely Pretoria, Durban and Cape Town, have been Academic achievements included an Communication – will add to relocated to more suitable premises for the Honours student having a paper accepted the specialist qualifications 2015 academic year. The new properties for the Salzburg Global Seminar, a platform we offer. were specifically chosen for their location, for developing creative ideas for solving security, functionality, surrounding global problems. A Vega graduate released The Vega brand anticipates accelerated environment and opportunities for a book titled ‘Connect with the Continent growth with a successful and sought-after niche product. Acquisition opportunities expansion and the facilities have been – Understanding key consumer trends in the creative, design and multimedia designed to be conducive to a creative across the African Continent right now’. industries are being explored. mindset. We had several opportunities to interact The Randburg campus is being revamped with business, from offering a programme with reconfigurations and design to a senior management team, to Academic results exclude supplementary improvements to modernise the learning showcasing the work of Vega graduates exam results. spaces and accommodate technological to potential employers.
2014 INTEGRATED ANNUAL REPORT 37 GROUP OVERVIEW BUSINESS REVIEW CORPORATE GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDERS’ ANALYSIS
RESOURCING
The South African resourcing Performance overview Training topics include Business sector consists of three large ADvTECH Resourcing delivered a Development, Client Relations Management satisfactory performance for 2014 in a and Time Management. In addition, and a growing number of difficult recruitment market and in an one-on-one training is offered to identify small to medium-sized economy where job creation has not been any gaps in a consultant’s knowledge and agencies. Most of these achieved for the past few years. The Division assess further training needs. The consistent remains the largest player in the Permanent quality of the Division’s training specialise in temporary and recruitment space for finance and IT, and its programmes is recognised by the industry. contract placements, while engineering brands enjoyed good results Such interventions are crucial to retaining the brands in our Division for the year. our staff, a priority given the importance focus primarily on placing While operating profits achieved were of maintaining the relationships they build very similar to those in the prior period, with our clients. permanent candidates in sales revenues decreased by 3% compared select niche markets. This to the 2013 period. The Division is model has proven to be implementing initiatives to position itself for growth in other African countries, although successful, with our brands the South African market remains the building a solid reputation primary market for recruiting operations. for finding and referring the Strategic intent best candidates within The South African job market has specific professional contracted in recent years, resulting in disciplines. fewer employment opportunities being available for an increasing number of job Across the Division, we meet the resourcing seekers. This intensifies competition and needs of clients who require specialised undermines pricing power among skills and experience in sectors such as recruitment agencies. In addition, the finance, information technology, barriers to entry in the recruitment industry engineering, human resource management, are minimal, leading to more recruitment logistics and supply chain management. operations, differing in size and specialisations, entering the market. Our response to this pressure is to ensure that there is no compromise on the rigour of NUMBER OF PLACEMENTS our screening methods, the quality of the candidates we refer and the professional 3 182 way in which we approach every placement opportunity. This is balanced against the need to contain costs and operate as efficiently as possible. Our strategic focus therefore remains the 59% placement of permanent staff in the OF PLACEMENTS FELL WITHIN position best suited to their skills and THE BLACK DEMOGRAPHIC knowledge within specialised sectors. PROFILE Our brands have evolved into dominant players in their respective fields, due mainly to our commitment to establishing and maintaining strong relationships with employer groups (our clients). We ensure that our staff are trained and developed on a continuous basis, keeping them informed of the latest changes in the recruitment landscape and deepening their specialised understanding of the sectors we serve.
38 the future TODAY
A focus on quality operate, such as SAICA (South African Network Recruitment The brands within our Division are Institute of Chartered Accountants), SAIPA Network Recruitment has three separate accredited members of the Association of (South African Institute for Professional independent brands, namely Network Personnel Services Organisation (APSO), the Accountants), CIMA (Chartered Institute Engineering Recruitment, Network IT Institute of Personnel Service Consultants of Management Accountants) and SAICE Recruitment and Network Finance (IPSC), the Confederation of Associations in (South African Institution of Civil Recruitment. They also offer a mentoring the Private Employment Sector (CAPES) and Engineering). programme to support new candidates and clients during the crucial first three months the Information Technology Association Our Brands (ITA). These accreditations, in addition to of a new appointment. Brent Personnel lending credibility to our operations, ensure Tech-Pro Personnel that our brands remain at the forefront of Brent Personnel is the longest-running Since its formation in 1997, this brand has developments in their sectors. brand in our Division, having been in operation for 36 years. It specialises in played an active role in the development of Our focus on providing a quality service to sourcing and placement of candidates the Supply Chain Management discipline in our clients depends on placing candidates in the finance sector as well as executive South Africa. The brand has developed ties with international recruitment firms, that are most suited to their unique needs, professionals. Potential candidates are enabling it to access intellectual capital and in the shortest possible time. To achieve tested in a wide range of competencies, facilitate placements in an increasingly this, our brands sometimes collaborate including computer literacy, speed and globalised market. to find and refer the best candidate. This accuracy, and various financial disciplines. means that our regular clients have the Highly skilled consultants conduct benefit of a wider network of candidates, Kapele Appointments (Pty) Ltd in-depth interviews with all candidates, Kapele Appointments (Pty) Ltd, established without the added effort of having to deal where their skills and experience are with more than one recruitment agency. in 2002, is a BEE company within the confirmed through competency-based Resourcing division, providing contingency Our extensive network of 283 000 high questioning techniques. recruitment, advertising response handling calibre candidates enables us to effectively on behalf of a client and e-Recruitment and efficiently place candidates suited to Cassel&Co solutions within the public and private our clients’ specialist requirements. Cassel&Co specialises in placing candidates in sectors. Kapele Appointments has been In 2014, we leveraged a paid partnership the finance and accounting sectors. The brand rated as an SMME and certified as a Level 1, with electronic professional networking site has intimate knowledge of the entry and AAA+ rated Black Empowered Entity by LinkedIn to enhance our ability to find movement of talented professionals in these Empowerdex. 30% equity ownership is held candidates with specialised skills. With the areas of specialisation and takes pride in its in trust for management and staff of Kapele changing landscape of recruitment, it ability to find and place the right candidate. Appointments and 70% is held by ADvTECH Resourcing (Pty) Ltd. remains imperative for us to explore new Communicate Personnel ways of embracing technology in the Communicate Personnel is one of the Inkokheli HR Appointments pursuit of recruiting excellence. We also longest established recruitment brands in research and analyse ways of expanding Inkokheli HR Appointments is the only South Africa and has eight operational sites recruitment brand in South Africa to focus our specialist brands through organic nationwide. The brand offers innovative solely on the recruitment and placement of growth and acquisitions. placement solutions for a wide variety of professionals in the human resource sector. Stakeholder engagement recruitment assignments in the IT, Finance, ‘Inkokheli’ is a Xhosa word meaning ‘leader’, In addition to accredited membership Engineering and Supply Chain/Freight selected because of the specialist role the brand has taken in building solid relationships of relevant industry bodies, ADvTECH industries. with leaders in the human resources arena. Resourcing is represented on the two Insource.ICT most credible industry bodies for the Insource.ICT, incorporating IT.Edge, is a The Working Earth recruitment industry, APSO and CAPES. leading Information and Communication The Working Earth was established in 2000. Such representation ensures that the Technology (ICT) recruitment brand, with Areas of expertise cover recruitment Division is close to and contributes to the separate permanent, contracting and advertising, response handling and development of policies and practices specialist placement divisions. The e-Recruitment, the latter being offered which may influence the future Permanent division places only permanent through a self-administered web-based sustainability of the industry. An example staff, albeit across all areas of ICT. The application process incorporating a is the formal submissions made by these Specialist division focuses on ICT screening assessment exercise. The Working bodies via BUSA on the implications of recruitment in niche areas only, including Earth is South Africa’s only recruitment impending changes to labour related the software development lifecycle, Java advertising specialist that links advertising legislation, much of which became law developers, business analysts, architects, to electronic response handling using the in 2014/early 2015. power of the Internet. project managers, enterprise resource The various brands within the Resourcing planning (ERP) and telecommunications. The brand Vertex-Kapele, which comprised an division are also active in developing Insource.ICT has an established and in-house recruitment advertising agency and relationships with associations relevant to actively managed database of candidates also managed response handling, merged the various niche areas in which they and places staff throughout South Africa. with The Working Earth in early 2014.
2014 INTEGRATED ANNUAL REPORT 39 GROUP OVERVIEW BUSINESS REVIEW CORPORATE GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDERS’ ANALYSIS
BOARD OF DIRECTORS
Livingstone, Jeffrey: 62 Boulle, Christopher: 43 Gourley, Brenda Acting chairman Independent non-executive director (Professor): 71 Independent non-executive director Acting chairperson of the Audit Committee, Independent non-executive director Chairperson of the Remuneration Member of the Audit, Risk, Remuneration and Litigation Committees, Member of the Member of the Audit Committee, Deputy and Litigation Committees Risk Committee chairperson of the Transformation, Social and Ethics Committee, Chairperson of the BCom, CA(SA), HDip Tax Law BCom, LLB, LLM Risk Committee Jeff is a practising Chartered Accountant Chris is a commercial, corporate finance, CTA (Wits), MBL (UNISA), FCGI and Chairman of Light & Livingstone Inc., tax and trust attorney. His experience as a Registered Accountants and Auditors. He Professor Gourley is an accountant by non-executive director of listed companies qualified as a Chartered Accountant in 1976 profession with a long career in business spans more than a decade and he currently after completing his articles at PKF. He and academia. She was previously Vice serves as a director of a number of completed the Higher Diploma in Tax Law chancellor of the University of KwaZulu- companies listed on the JSE and is also in 1981. Jeff provides a wide range of Natal, South Africa, and Vice chancellor trustee of various trusts, including the professional services and has acted as a and CEO of The Open University, ADvTECH Limited Share Incentive Trust. director of and consultant to several public United Kingdom. He joined the Board as alternate director to and private companies. He joined the Board Hymie Levin in September 2011, and was Over the years, she has held a range of in 2008, and stepped in as Acting chairman appointed as a director in March 2013. positions on various boards and trusts, in August 2014 upon the appointment of in different parts of the world in both the Leslie Maasdorp as Chief executive officer public and private sectors including two designate. Jeff remains a member of the terms of office as Chair of the Association Audit Committee but has stepped down as of Commonwealth Universities. Her Chairman of that Committee. appointments currently include governor and member of the Audit committee of the University of Brighton, governor of the University of the World, New York, USA, councillor of The City and Guilds Institute, London and trustee of the Royal Anniversary Trust. She also chairs the Council for Education in the Commonwealth. She has received recognition in the form of prizes, fellowships and awards as well as honorary degrees from 12 universities on four continents. In October 2014 she was recipient of the 2014 UNISA Chancellor’s Calabash Award as an Outstanding Educator in recognition of her contribution to higher education, especially in open distance learning. Professor Gourley joined the Board in 2008.
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Jansen, Jonathan Masie, Stafford: 40 Nyati, Mteto: 50 (Professor): 58 Independent non-executive director Independent non-executive director Independent non-executive director Stafford was born and commenced his Member of Audit and Risk Committees Chairperson of the Transformation, Social education in South Africa before BSc Mechanical Engineering (KZN) and Ethics Committee undertaking studies in Computer Science at Tel Aviv University. He has been involved in Mteto was born and completed his early PhD (Stanford), MSc (Cornell), BEd, HEd the IT industry for nearly 20 years, with an education in the Transkei. He graduated (UNISA), BSc (UWC) association with pre-eminent IT companies from the University of KwaZulu-Natal and Jonathan is Rector and Vice chancellor such as Dimension Data, Novell and Google. completed further studies at Yale University. of the University of the Free State and His passion for technology led to him He has spent the last 18 years in the IT President of the South African Institute holding senior executive positions at industry, first with IBM, both in South Africa of Race Relations. He holds Honorary Novell USA and subsequently at Novell and abroad, IBM Global Technology Services Doctorate of Education degrees from the South Africa, and being responsible for and, more recently, Microsoft South Africa as University of Edinburgh, Cleveland State establishing Google’s presence in South Managing director focusing on education, University and, more recently, the University Africa. After leaving Google in 2009, he skills for employability and enterprise of Vermont in recognition of his dedication established his own business and is now development. During the second half of to social justice and the process of an entrepreneur with a particular interest in 2014 he joined MTN as Group chief reconciliation. He is a Fellow of the early stage start-up businesses in the enterprise officer. He was the joint winner American Educational Research Association IT industry. He is active as a business school in 2013 of IT Personality of the Year. Mteto and the Academy of Science for the lecturer, participant in several radio joined the Board in January 2014. Developing World. He is a prominent author broadcasts and speaker on the influence and speaker on educational matters around of technology on modern day life, society the world. He joined the Board in 2004. and education. Stafford joined the Board in January 2014.
2014 INTEGRATED ANNUAL REPORT 41 GROUP OVERVIEW BUSINESS REVIEW CORPORATE GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDERS’ ANALYSIS
BOARD OF DIRECTORS CONTINUED
Oesch, Didier: 49 Zinn, Shirley Executive director, Group financial director (Professor): 53 BCompt (Hons), CA(SA) Independent non-executive director
Didier qualified as a Chartered Accountant Member of Remuneration and in 1991 after completing his articles at Transformation, Social and Ethics Committees Betty & Dickson. He gained considerable experience with the Nampak Group in BA, HDipEd (UWC), BEd (Hons) (Unisa), MEd various financial positions culminating in (UWC), EdM and EdD (Harvard) a four-year term in Europe as Financial director of Nampak Plastics Europe. Didier Shirley was previously Deputy global head joined ADvTECH as Group financial manager of Human Resources at Standard Bank and and was appointed a member of Exco and HR Director at Nedbank, and now consults Group financial director in 2005. to various large companies on a variety of matters relating to the optimisation of HR strategy, transformation and leadership development. She was awarded the Top Woman in Business and Government and Top Executive in Corporate South Africa by Topco Media in 2008. She is a director and trustee of a number of companies and trusts, including DHL (where she is Chairperson), DHL Foundation, Boston Consulting Group and the Starfish Greatheart Foundation. Shirley joined the Board in October 2012.
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EXECUTIVE COMMITTEE
Thompson, Frank Oesch, Didier Isaakidis, Alex Honey, Lenn Interim CEO Group financial director Chief executive officer, Chief executive officer, Schools division Resourcing division
Douglas, Roy Coughlan, Felicity Francesconi, Odette Shipalana, Eric Chief executive officer, Director, The Independent Managing director, Human resources executive Tertiary division Institute of Education Varsity College
van Zyl, Steven van Niekerk, Gideon ICT executive Properties director
2014 INTEGRATED ANNUAL REPORT 43 GROUP OVERVIEW BUSINESS REVIEW CORPORATE GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDERS’ ANALYSIS
CORPORATE GOVERNANCE
Introduction The ADvTECH Group remains committed to the principles of effective corporate governance and ethical leadership in all its business activities and supports the values espoused in the King Report on Corporate Governance for South Africa, 2009 (King III). It complies substantially with the principles contained in the Code of Corporate Practices forming part of King III. A register in terms of King III, indicating instances of non-compliance, can be found on the website at www.advtech.co.za. The Board acknowledges its responsibility to ensure that the principles of good corporate governance are observed, and the directors, collectively and individually, acknowledge their responsibilities in terms of the JSE Limited Listings Requirements. nominations to the Board. One third of all • JC Livingstone resigned as Chairman of The Board also acknowledges its role in non-executive directors retire by rotation the Audit Committee and was appointed leading by example and setting the tone annually, and any director appointed by as Acting chairman of the Board with for ethical behaviour and compliance with the Board is subject to election by the effect from 11 August 2014; With effect from the same date, CH Boulle corporate governance best practice shareholders at the first General Meeting • was appointed as Acting chairman of throughout the Group. It therefore of shareholders held after their initial the Audit Committee; continuously reassesses its principles and appointment. No director or prescribed • FR Thompson retired as a director and policies against King III, and makes changes officer holds any fixed-term contract and Chief executive officer with effect from as and when appropriate to ensure that the executive directors and prescribed 24 October 2014. they remain relevant. officers have standard employment contracts, requiring no more than three Subsequent to year-end, ADvTECH and Board of directors months’ notice on termination. LW Maasdorp reached a mutual agreement ADvTECH has a unitary Board structure. to part ways with effect from 23 March 2015. SC Masie and M Nyati were appointed as At year-end the Board consisted of two FR Thompson has returned as interim CEO independent non-executive directors of the executive and seven non-executive directors. for a limited period. Board with effect from 9 January 2014, which Subsequent to year-end ADvTECH and appointment was confirmed at the Annual The Board has established a number of LW Maasdorp reached a mutual agreement General Meeting held on 27 May 2014. Committees to assist in more effectively to part ways with effect from 23 March 2015. HR Levin retired as a director at that fulfilling its duties and responsibilities: The majority of the directors are independent meeting and did not make himself Audit Committee as defined by King III. The Acting chairman is • eligible for re-election. • Risk Committee an independent non-executive director and • Remuneration Committee (RemCom) the roles of Chairman and CEO are separate, At the end of 2013, FR Thompson • Transformation, Social and Ethics each with clearly defined responsibilities. announced his intention to retire as Committee (TSEC) Details of the directors with brief curricula CEO of the Group during the year • Litigation Committee vitae can be found on the website at under review. • Nominations Committee (NomCom) www.advtech.co.za or on pages 40 to 42. LW Maasdorp (previously Chairman of the Members of the Board are appointed to the The Board has reviewed the independence Board) was appointed as Chief executive Committees based on their areas of expertise of directors and is satisfied that they all show officer designate with effect from and experience. One of the members is independence of judgement and mind. It is 11 August 2014 and subsequently as appointed as Chairperson of that Committee. satisfied that there are no relationships or Chief executive officer with effect from In appropriate circumstances, a deputy circumstances, including length of service, 24 October 2014. This appointment resulted Chairperson may also be appointed. likely to affect their judgement. in a number of additional changes to Each Committee operates within specific the Board: The Board as a whole considers and is written terms of reference under which responsible for the appointment of new • LW Maasdorp resigned as Chairman certain functions of the Board are delegated directors, although they are assisted in this of the Board and as a member of the with defined purposes, duties and reporting task by the Nominations Committee which Remuneration and Litigation Committees procedures. These terms of reference are evaluates suitable candidates and submits with effect from 11 August 2014; reviewed regularly.
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The membership of the Committees is as follows: Audit Litigation Director Executive/non-executive director Com Risk Com RemCom TSEC Com NomCom CH Boulle Independent non-executive Chair Member Chair Chair Member (Acting) BM Gourley Independent non-executive Member Chair Deputy Chair Member JD Jansen Independent non-executive Chair Member JC Livingstone Independent non-executive – Member Member Member Member Member Acting chairman LW Maasdorp Executive – Chief executive officer* Invitee Member Invitee Member Invitee Member SC Masie Independent non-executive Member M Nyati Independent non-executive Member Member Member JDR Oesch Executive – Group financial director Invitee Member SA Zinn Independent non-executive Member Member Member * Resigned 23 March 2015.
The following tables record meetings attended by each member of the Board and Committees:
Board Audit Com Risk Com RemCom
Number Number Number Number Number Number Number Number of of of of of of of of meetings possible meetings possible meetings possible meetings possible attended meetings attended meetings attended meetings attended meetings
CH Boulle 6 6 3 3 3 3 7 7 BM Gourley 6 6 3 3 3 3 – – JD Jansen 4 6 – – – – – – HR Levin1 – 2 – – – – – – JC Livingstone2 6 6 3 3 3 3 7 7 LW Maasdorp3 57 6 – – 2 2 27 5 SC Masie4 6 6 – – – – – – M Nyati5 6 6 1 2 1 1 – – JDR Oesch 6 6 – – 3 3 – – FR Thompson6 5 5 – – 2 2 – – SA Zinn 5 6 – – – – 5 5
TSEC Litigation Com NomCom
Number Number Number Number Number Number of of of of of of meetings possible meetings possible meetings possible attended meetings attended meetings attended meetings
CH Boulle – – 4 4 2 2 BM Gourley 2 2 – – 2 2 JD Jansen 1 2 – – – 2 HR Levin1 – – – – – – JC Livingstone2 – – 3 4 2 2 LW Maasdorp3 1 2 2 4 18 2 SC Masie4 – – – – 1 2 M Nyati5 – – – – 1 2 JDR Oesch – – – – – – FR Thompson6 1 1 – – 1 1 SA Zinn 1 2 – – 1 2 Note 1: On extended sabbatical during 2014. Retired as director with effect from 27 May 2014. Note 2: Resigned as Chairman of Audit Committee and appointed as Acting chairman of Board with effect from 11 August 2014. Note 3: Resigned as Chairman of Board and member of Remuneration and Litigation Committees with effect from 11 August 2014. Resigned 23 March 2015. Note 4: Appointed as Director with effect from 9 January 2014. Note 5: Appointed as Director with effect from 9 January 2014. Appointed as member of Audit Committee with effect from 27 May 2014. Note 6: Retired as Director (and therefore all Committees) with effect from 24 October 2014. Appointed as interim CEO on 23 March 2015. Note 7: Recused from attendance on 8 July 2014. Note 8: Recused from attendance on 4 June 2014.
2014 INTEGRATED ANNUAL REPORT 45 GROUP OVERVIEW BUSINESS REVIEW CORPORATE GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDERS’ ANALYSIS
Attendance by directors and committee LW Maasdorp reached a mutual agreement incentives, thereby rewarding fairly while members was in person or by teleconference to part ways with effect from 23 March 2015. motivating staff to greater efforts; or other electronic means. FR Thompson has stepped in as interim • Entrench a high performance culture by CEO for a limited period. Six Board meetings were held during the rewarding achievement against financial year under review. Each of the Group’s three operating pre-determined measurable hurdles; Divisions (Schools, Tertiary and Resourcing) • Provide alternative long-term incentive The Board and its Committees are furnished have formal management structures which schemes in the form of the Share with full information ahead of each meeting, meet on a regular basis to ensure the Incentive Scheme and the Long-Term ensuring that all relevant facts are brought maintenance of standards and best practice Incentive Bonus Scheme; to the attention of directors. in respect of corporate governance and • Align performance of individuals with the A formal evaluation of the Board is internal controls. Company strategy; and conducted regularly. An external • Allow review of policies and assessment of the Board’s functioning was Remuneration Committee remuneration to allow for appropriate conducted by Ernst & Young during the All members of the Remuneration adjustments as society changes. year under review. The assessment largely Committee (RemCom) are independent confirmed that the Board operates non-executive directors. Remuneration report effectively. Certain recommendations RemCom meets as and when required. Guaranteed remuneration consists of a were made and action is being taken Because a new Chief executive officer cost-to-company package, which includes to implement the recommended needed to be appointed, RemCom met benefits such as medical aid and retirement improvements. As the Board is relatively seven times during the year under review. funding. Employees who are not on medical small and all directors participate actively, aid are offered free accident insurance, the Board has not found it necessary to The Committee determines and approves including funeral cover. conduct formal assessments of the the remuneration policy for all employees. individual directors. The CEO and Group HR executive attend Performance remuneration in the form of the meetings by invitation, but do not incentives and bonuses is included in Group Executive Committee participate in any deliberations regarding certain employment categories, the The Board retains overall accountability for their own remuneration. objective being to recognise, reward and and is responsible to all stakeholders for the Remuneration policy retain high performing employees. proper management and effective control Depending on the seniority and of the Group. The Board has delegated RemCom seeks to entrench a culture of high responsibility of the individual concerned, authority to run the day-to-day affairs of the performance by aligning the Group’s the incentive opportunity ranges from 5% Group to the CEO and Exco. Exco facilitates remuneration philosophy with the business to 100% of the guaranteed cost-to- the effective control of all the Group’s objectives, values and strategy. It also ensures company remuneration package. The Group operational activities, acting as a medium of that remuneration practices are based on the has disclosed the remuneration of the communication and co-ordination between principles of sound governance. An essential prescribed officers who are also the three the various business units, Group companies feature of this is the independence of and the Board. Exco is responsible for RemCom in determining the policy on highest paid employees who are not also making recommendations to the Board remuneration and bonuses of all staff and directors. with regard to the Group’s policies and individually for executive management. In implementing the remuneration policy: strategies and for monitoring their implementation in accordance with the Remuneration is required to be benchmarked • All staff receive a cost-to-company Board’s directives. It plays a role in regularly against the market and aligned with guaranteed package; monitoring risks applicable to the Group Group performance. This aims to ensure that • Executive staff and senior management packages remain competitive. Remuneration, and reporting on these, together with also receive performance remuneration by its structure and level, seeks to attract and recommendations and reports about action consisting of short-term and long-term retain outstanding individuals, recognise to be taken, to the Board. This includes the incentives; loyalty and dedication, and provide incentives insurance review and formal risk analysis Bonus payments are linked to individual for exceptional performance. This is achieved • on an annual basis. staff members’ KPIs which are agreed through a combination of guaranteed Exco has access to the expertise of Board remuneration, incentive rewards of a long and with management at the beginning of members and meets with the Board at least short-term nature, and conditions of service. each year. In the case of executive staff, once annually to ensure that they share a During the year, RemCom approved an the structure of the KPIs are also reviewed common vision for the future of the Group. Integrated Remuneration Policy which seeks and approved by RemCom; and The Chief operating officers (COOs), who to combine and calibrate all forms of • The Group employs a detailed individual have been appointed as Chief executive remuneration. During the forthcoming year, hurdle structure for the setting and officers of their relative Divisions subsequent each divisional CEO will be tasked with payment of executive bonuses including to year-end, attend at least two Board developing a divisional Integrated CEO (in 2014 there was a change of meetings annually. Remuneration Policy for their respective CEO and accordingly reduced bonus At year-end, Exco consisted of two Division. parameters were applied) and CFO. These executive directors, three COOs (who are are set and calibrated for each individual The remuneration policy seeks to: also identified as prescribed officers of the according to their specific area of Company) and four senior executives. • Achieve a balance between guaranteed responsibility and performance targets Subsequent to year-end ADvTECH and remuneration and long- and short-term for that area.
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CEO: Maximum bonus opportunity of • Each award in terms of the Share Incentive Remuneration is structured according 100% of annual package. Actual paid: 19%. Scheme extends over a period of six years, to the following framework: Line management: Maximum bonus with three opportunities (at the end of General staff opportunity of 80% of annual package. year two, four and six) to exercise the Actual paid: 34%. options; To encourage a high performance culture, Staff management: Maximum bonus • The Long-Term Incentive Bonus Scheme each employee has agreed key performance opportunity of 80% of annual package. extends over a period of five years and is indicators (KPIs) and, where applicable, performance objectives. This creates a direct Actual paid: 37%. payable at various rates dependant on link between performance and remuneration. Compound Annual Growth Rate (CAGR) The bonus opportunities for 2014 were Appropriate recognition is given to the achieved in the final year; and divided into categories and hurdles are qualifications of professional staff. summarised in the table below: • The number of shares available for use in terms of the Share Incentive Scheme The remuneration of teachers and academic • The executive bonus scheme for 2014 are limited: no more than 80 167 636 staff is benchmarked against state and other identified three areas of performance shares may be acquired by the trust, and comparable institutions. Guidelines are then – Group performance, divisional only 40 083 818 shares may be used to established for basic cost-to-company performance and performance within incentivise staff after adoption of the new remuneration and, where appropriate, each executive’s area of responsibility; trust deed in 2010. This represents 20% incentives for exceptional performance. • Annual awards are made in terms of the and 10% of the shares in issue in 2010 The remuneration of resourcing staff is long-term incentive schemes. Only senior respectively. No one participant may based on an incentive structure linked to management is eligible in terms of the acquire more than 12 025 145 shares in scheme and awards are made having rigorous quality standards, with consultants terms of the scheme, which represented and supervisors receiving performance regard to seniority and performance at 3% of the shares in issue in 2010. the time when the award is made. related packages which include a significant portion of variable pay. Remuneration of resourcing staff is reviewed quarterly and CEO Line Staff adjusted in appropriate circumstances.
Group HEPS 2014 growth Senior staff and management <10% 0% 0% 0% The remuneration structure for senior staff and 13% 18% 4.5% 4.5% management encompasses three elements: >20% 40% 10% 10% • a guaranteed cost-to-company package; Group HEPS CAGR over five years * 0% 0% 0% • annual incentive remuneration based * 11% 7.2% 7.2% on predetermined KPIs; and * 40% 15% 25% • long-term incentive remuneration in the form of an opportunity to participate in Group revenue growth either the ADvTECH Limited Share <3% 0% 0% 0% Incentive Scheme, or the more recently 12% 6% 3% 1.5% established Long-Term Incentive >14% 10% 5% 2.5% Bonus Scheme.
Divisional EBIT contribution growth Executive leadership ** 0% Executive leadership is offered a similar ** 12% remuneration structure to that of senior ** 20% staff and management. Annual incentive remuneration, however, is based on a Divisional EBIT CAGR over five years growth combination of individual KPIs and the * 0% performance of the business unit for which * 12% the executive is responsible as well as Group * 20% performance. The bonus earned by the executive concerned is based on the extent Divisional and personal special KPA delivery 10% 10% 42.5% to which agreed targets approved by Total bonus opportunity 100% 80% 80% RemCom at the beginning of the financial year under review were achieved. Stretch Group performance 90% 30% 37.5% targets are set for executives at demanding Divisional performance 40% levels to encourage growth, taking KPA 10% 10% 42.5% cognisance of the operating environment Current performance 50% 35% 12.5% and strategic objectives, including growth 5-year sustained performance 40% 35% 25% of the business, transformation of the Group and staff turnover. KPA 10% 10% 42.5% * These categories are derived from the CAGR that implementing annual targets provided over time. For the 2014 financial year, executive ** These targets are set against targeted growth rates and budgets applicable for that particular year. bonuses, which were accrued at year-end and paid in March 2015 after approval
2014 INTEGRATED ANNUAL REPORT 47 GROUP OVERVIEW BUSINESS REVIEW CORPORATE GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDERS’ ANALYSIS
of the annual financial statements, revised fees will be placed before shareholders and invitees as considered appropriate by amounted to 46% (2013: 52%) of the at the Annual General Meeting to be held the Chairman of the Audit Committee. maximum bonus opportunity. on 28 July 2015. The Committee is responsible for the Share Incentive Scheme Remuneration payable to directors must appointment of the auditors, agreeing The Group has continued to offer share continuously be assessed and adjusted, fees payable to them and settling on the options to executives and senior if necessary. terms of their engagement, and provides management. An award of two million recommendations to the Board with shares was made to the CEO on Audit Committee regard to: As required by the Act, shareholders elected commencement of service with the Group • Ensuring compliance with applicable the members of the Audit Committee at but forfeited upon termination of his legislation and the requirements of the Annual General Meeting held on employment. RemCom approved the award regulatory authorities; 27 May 2014. All members of the Committee of an additional 2 071 000 (2013: 1 837 000) • Matters relating to financial accounting, are independent as defined by the Act. share options during the year under review accounting policies, reporting and BM Gourley has a relative who was in to management; further details are set out disclosure; on page 83. full-time employment with the Group until • Internal and external audit policy; 31 March 2014. Exemption from the Long-Term Incentive Bonus Scheme • Activities, scope, adequacy and provisions of Section 94 was obtained from effectiveness of the internal audit The Long-Term Incentive Bonus Scheme the Companies Tribunal in July 2013 to was established in 2013 to run alongside function and audit plans; allow her appointment as a member of the • Reviewing and approving external audit the Share Incentive Scheme. The amount Committee. It is recorded that her relative of the bonus offered takes account of the plans, findings, problems, reports and fees; did not hold a senior management post, fundamentally different nature of the • Reviewing and providing guidance on and that BM Gourley’s accounting incentive instrument. Participants may the Group’s overall exposure to IT risks; qualifications and wide experience in the participate either in the Share Incentive • Compliance with the Group’s values; administration of tertiary institutions made Scheme or the Bonus Scheme, but not • Ensuring that non-audit services will not her eminently suitable for this appointment. both. Participants will be entitled to receive be obtained from the external auditors where the provision of such services a percentage of their individual bonus The Board has recommended that could impair audit independence; and amount depending on the compounded the following directors be appointed to • Reviewing and recommending the annual growth rate of headline earnings per the Audit Committee at the Annual approval of interim and annual results. share (HEPS) achieved by the Group over General Meeting: a three-year period. Awards in terms of this The Audit Committee fulfilled its scheme have been made to 105 key • CH Boulle responsibilities in terms of its mandate employees, with the first payment being • BM Gourley during the year under review. due in 2017. • M Nyati Both the external and internal auditors have Directors As the establishment of the Audit unrestricted access to the Audit Committee, Senior management recommends the fees Committee is a statutory requirement, which ensures that their independence is in to be paid to non-executive directors to the its duties and responsibilities are a no way impaired. At least once annually Board and guarantees that no person is combination of statutory duties and such (but generally prior to every meeting) the involved in any decisions relating to his other oversight of the financial function and Chairman meets independently with or her own remuneration. As is evident from reporting thereof as may be mandated by representatives of internal and external audit. the report on directors’ attendance, it is the Board. This includes assisting the Board Time is also set aside at least once annually clear that all members are fully engaged. in discharging its responsibilities to (but generally at the end of every meeting) Directors’ contribution to the Group is not safeguard the Group’s assets, ensure that for the Committee to meet independently of limited to their attendance at Board proper accounting records are maintained, executive management with representatives meetings, and their responsibilities and oversee the financial reporting process of the internal and external auditors. liabilities continue whether or not they and ensure compliance with accounting The Audit Committee has considered attend a specific meeting. The fees payable policies, Group policies, legal requirements and is satisfied with the continued to non-executive directors were approved and internal controls. appropriateness of the expertise and by special resolution of the shareholders experience of the Group financial director at the Annual General Meeting held on The Group’s internal audit function is headed and the finance function. 27 May 2014, as required by the Act. by the Group’s internal audit manager. The Audit Committee monitors, supervises and Risk Committee During the year under review, the approach evaluates the effectiveness of the internal to non-executive director remuneration audit function. While the Risk Committee has assumed has been reviewed by management. responsibility for monitoring and overseeing It is proposed that, with effect from 2015, The Audit Committee met three times the management of risk within the Group, non-executive director remuneration during the year under review. These the Board, Exco and the internal audit consists of two separate components – meetings were attended by the internal and department continue to review and assess a base portion and an additional amount external auditors, the CEO, CEO designate the integrity and the quality of risk control which will depend on the individual (at the August meeting) and Group financial systems and ensure that risk policies and director’s attendance at meetings. The director, as well as other Board members strategies are effectively managed.
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Management of risk is regarded as an Nomination Committee of effective internal control systems in order integral aspect of every manager’s The Nomination Committee (NomCom) to provide reasonable assurance that the responsibility within the Group. The Group’s consists of all the non-executive directors Group’s financial and non-financial objectives major assets are insured against loss and and the CEO, and is chaired by the are achieved. The internal control and risk this, together with the disaster recovery Chairman of the Board. management process is ongoing and has plan, will ensure that the business, from remained in place up to the date of approval an information technology and operational In line with its mandate, NomCom meets on of the annual financial statements. viewpoint, continues with the least amount an ad hoc basis to nominate, evaluate and of disruption. recommend possible new appointments The internal audit coverage plan, which is to the Board. The Committee was very subject to approval by the Audit Committee The Board is satisfied that there is an involved in the selection of the new and updated annually, covers all major risk ongoing process for identifying, evaluating Chief executive officer during 2014. areas as identified and assessed by Internal and managing the significant risks faced Audit and the Group’s risk management by the Group. Internal control process. This ensures that the audit coverage Litigation Committee The Board is responsible for ensuring that is focused on and identifies areas of high risk. appropriate internal control systems are The Litigation Committee has been Internal Audit provides a written assessment implemented and maintained to ensure charged with overseeing and providing of the system of internal financial controls that the Group’s assets are safeguarded and management with guidance in relation to and risk management to the Board and the managed in order to minimise potential all major litigation which occurs outside Audit Committee on an annual basis. losses arising from possible fraud and the ordinary course of business. Nothing has come to the attention of the other illegal acts. Legal proceedings in respect of substantial Board to indicate that any material breach Internal control is implemented through the claims against Andry Welihockyj, of these controls has occurred during the proper delegation of responsibility within a Marina Welihockyj and Meridian, a company year under review. clearly defined approval framework, controlled by them, are still in progress. Ethical standards Every effort is being made to bring these through accounting procedures and Compliance with ethical standards of matters to a satisfactory conclusion in the adequate segregation of duties. The Group’s interest of the Group and its stakeholders. internal accounting controls and systems behaviour is of primary importance to the are designed to provide reasonable Group; this has found expression in the The Litigation Committee has advised the assurance as to the integrity of the Group’s Group’s values – “Through our own ethical Board that legal counsel remains satisfied financial statements and to safeguard, verify conduct, practices and policies we seek to set with the merits of the Group’s claims and and maintain accountability for all its assets. an example to our candidates, learners, that the Group has no additional exposure students and clients”. Integrity is fundamental Internal audit monitors the operation of the other than for legal costs in these matters. to the manner in which the Group conducts internal controls and systems and reports its business, and permeates its approach to The Litigation Committee meets on an their findings and recommendations to all activities. These values are communicated ad hoc basis, as and when required. It met management and the Board. Corrective to all personnel during induction and four times during the year under review. action is taken to address control emphasised regularly. TSEC monitors and deficiencies and improve systems where Transformation, Social and Ethics oversees the Group’s adherence to these opportunities are identified. The Board, ethical standards. Group personnel are Committee (TSEC) operating through its Audit Committee, required at all times to act with the utmost The Act requires that a social and ethics provides oversight of the financial reporting integrity and objectivity and in compliance committee be established. Because process and internal control systems. transformation is regarded as a high priority with both the letter and the spirit of the law by the Board, it has elected to combine the Internal audit and Group policies. mandate of the Social and Ethics The Group’s Internal Audit Department has a A culture of ethics is integrated at all levels Committee with that of the previously specific mandate from the Audit Committee within the Group, with the Board accepting existing Transformation Committee. to independently appraise the adequacy responsibility for ensuring that it is promoted TSEC monitors and oversees the Group’s and effectiveness of the Group’s internal throughout the Group. The Group espouses progress on various issues relating to controls, governance and risk management these principles not because it is required to transformation at every level, social and processes. The Department, headed by the do so by any legislative requirements, but ethical aspects, and, where appropriate, Group internal audit manager, reports to the simply because it is “the right thing to do”. provides management with guidance in Group financial director on an administrative this regard. basis but has direct access to the CEO and Accounting and auditing the Chairperson of the Audit Committee. The Board places strong emphasis on The COOs are required to attend the majority The Group internal audit manager’s achieving the highest level of financial of meetings of TSEC during the year. This conditions of service and remuneration are management, accounting and reporting ensures that social and ethical matters, as reviewed by the Audit Committee to further well as matters pertaining to transformation, to shareholders. The Board is committed ensure the independence of the function. remain high on management’s agenda. This to complying with International Financial approach seeks to entrench the Group’s The Board and Exco are ultimately Reporting Standards (IFRSs), the Act and ethical approach to business. responsible for overseeing the establishment the JSE Limited Listings Requirements.
2014 INTEGRATED ANNUAL REPORT 49 GROUP OVERVIEW BUSINESS REVIEW CORPORATE GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDERS’ ANALYSIS
The directors are responsible for ensuring decisions. The Group is constantly reviewing JSE Limited Listings Requirements, the Group that Group companies maintain adequate its current technology and investigating adheres to two closed periods in each records in order to report on the financial opportunities to utilise technology and financial year. The first commences at the position of the Group and the results of integrate it into its strategy and processes. end of June until the publication of the activities with accuracy and reliability. Security, disaster recovery and data interim results, and the second commences Financial reporting procedures are applied management are essential focuses of at the end of December, the Group’s financial at all levels in the Group to meet this the ICT department. year-end, until the final audited results for the responsibility. The external auditors are Going concern year are released. Further closed periods are responsible for independently auditing declared as and when appropriate. and reporting on these financial statements The Board has reviewed the assumption of in accordance with IFRSs. the financial forecast and has concluded Dealing in the Company’s shares by that the business will be a going concern directors and members of Exco requires It is the directors’ responsibility to prepare for the next financial year. The Board’s prior clearance from the Chairman, and the financial statements that fairly present: statement in this regard is contained in Company secretary retains a record of such dealings and approvals. Certain employees • The state of affairs as at the end of the the directors’ statement of responsibility who are likely to have access to price- financial year under review; on page 53. sensitive information require clearance • Profit or loss for the year; from the CEO before trading in the • Cash flows for the year; and Company secretary Company’s shares. • Other material non-financial information. All directors have access to the advice and services of the Company secretary, Related party transactions The external auditors, Deloitte & Touche, SK Saunders, whose appointment is in were given unrestricted access to all accordance with the Act. Although an Members of the Board are required to financial records and related data, including employee of the Company, she is not a disclose any conflict of interest which they minutes of all meetings of shareholders, the director. As an admitted attorney with more may have at Board meetings, and in any Board of directors, Exco and Committees of event are required to make disclosure of any than 20 years of practical experience as a the Board. The directors believe that all potential conflicts of interest on an annual company secretary, she is considered to be representations made to the independent basis. During the year under review, no a fit and proper person with appropriate auditors during their audit are valid and material contracts involving directors’ skills and experience for the post. appropriate. interests were entered into. The Company secretary provides guidance The external auditors provide an and advice to the Board on matters of ethics Directors independent assessment of systems of and good corporate governance, and CH Boulle is a senior partner at HR Levin internal financial control to the extent Attorneys, which has provided occasional necessary for the audit, and express an ensures compliance with other statutory requirements. legal services to the Group in the past (2014: independent opinion on whether the nil; 2013: R249 015). They are neither the only financial statements are fairly presented. The Board is satisfied that an arm’s length nor the Group’s lead firm of legal advisors. Employment equity relationship does exist between the Company secretary and itself in that the JDR Oesch has been awarded CrawfordSchools™ bursaries for his children The Group continues to subscribe to the Company secretary has no separate in terms of the Group’s bursary policy. philosophy of employee upliftment and has relationship of any nature with any of the dedicated resources to both training and directors which could lead to conflicts of Prescribed officers development programmes to achieve interest and dilution of the Company The Board has identified the divisional CEOs, transformation of its workforce. All secretary’s independence. employees are encouraged to develop to RJ Douglas, DL Honey and A Isaakidis, as their full potential both for their own benefit The Company secretary works with the prescribed officers in terms of the Act. and for that of the Group. The ADvTALENT Board to ensure compliance with the rules They are also members of Exco. and Mentoring Programmes form the of the JSE Limited Listings Requirements. DL Honey has been awarded cornerstone of the Group’s approach. The Company secretary oversees the CrawfordSchools™ bursaries for his children Further information on these programmes induction of new directors and assists the in terms of the Group’s bursary policy. His can be found on the website at Chairman and the CEO in formulating the brother, E Honey, is a director of Adams & www.advtech.co.za. annual Board plan and other related Adams Attorneys, which firm provides legal matters. The details of the Company services in respect of intellectual property ICT Governance secretary appear on page 60 of this report. to the Group. The Board is responsible for ICT governance and ensuring that ICT strategy is aligned Insider trading Exco with the Group’s strategic objectives, and The Group has a written policy on insider S van Zyl, a member of Exco, has been adopting and implementing an ICT control trading, adopted by the Board, which states awarded CrawfordSchools™ bursaries for his framework. The ICT Steercom assists with that no director, executive, manager or any children in terms of the Group’s bursary the implementation of ICT strategies and employee who is likely to come into policy. O Francesconi, also a member of policies. All Exco members are members possession of price-sensitive information may Exco, has been awarded CrawfordSchools™ of the ICT Steercom to ensure that the deal directly or indirectly in the Company’s and Varsity College bursaries for her children Committee is able to make appropriate shares during closed periods. In line with the in terms of the Group’s bursary policy.
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FINANCIAL STATEMENTS
2014 INTEGRATED ANNUAL REPORT 51 GROUP OVERVIEW BUSINESS REVIEW CORPORATE GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDERS’ ANALYSIS
CONTENTS
FINANCIAL STATEMENTS 53 Directors’ responsibility for financial reporting 53 Certificate by Group company secretary 54 Independent auditor’s report 55 Audit Committee report 56 Directors’ report 61 Group segmental report 62 Group statement of comprehensive income 63 Group statement of changes in equity 64 Group statement of financial position 65 Group statement of cash flows 66 Notes to the Group financial statements 94 Company statement of comprehensive income 94 Company statement of changes in equity 95 Company statement of financial position 96 Company statement of cash flows 97 Notes to the Company financial statements 103 Shareholders’ analysis 104 Shareholders’ diary
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DIRECTORS’ RESPONSIBILITY FOR FINANCIAL REPORTING
The directors of the Company are responsible for the maintenance controls, procedures and systems has occurred during the year of adequate accounting records and the preparation and integrity under review. of the annual financial statements and related information. The The annual financial statements are prepared on a going concern financial statements have been prepared in accordance with basis. Nothing has come to the attention of the directors to indicate International Financial Reporting Standards (IFRSs) and the that the Group and Company will not remain a going concern for requirements of the Companies Act, No 71 of 2008, as amended, the foreseeable future. and the JSE Limited Listings Requirements. The Group’s external auditors, Deloitte & Touche, have audited the financial statements The preparation of the Group’s consolidated financial results for and their unmodified report appears on page 54. the year ended 31 December 2014 was supervised by JDR Oesch CA(SA), the Group’s financial director. The directors are also responsible for the systems of internal control. These are designed to provide reasonable, but not The annual financial statements set out on pages 55 to 102 were absolute, assurance as to the reliability of the financial statements, approved by the Board of directors on 20 March 2015 and are and to adequately safeguard, verify and maintain accountability signed on its behalf by: of assets, and to prevent and detect material misstatement and loss. The systems are implemented and monitored by suitably trained personnel with an appropriate segregation of authority and duties. Nothing has come to the attention of the directors to JC Livingstone JDR Oesch indicate that any material breakdown in the functioning of these Acting chairman Group financial director
CERTIFICATE BY GROUP COMPANY SECRETARY
I certify that ADvTECH Limited has lodged with the Companies and Intellectual Property Commission (CIPC) all such returns as are required of a public company in terms of the Companies Act, No 71 of 2008, as amended, and that all such returns are true, correct and up to date.
SK Saunders Group company secretary
2014 INTEGRATED ANNUAL REPORT 53 GROUP OVERVIEW BUSINESS REVIEW CORPORATE GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDERS’ ANALYSIS
INDEPENDENT AUDITOR’S REPORT to the shareholders of ADvTECH Limited
We have audited the consolidated and separate financial Opinion statements of ADvTECH Limited set out on pages 61 to 102, which In our opinion, the consolidated and separate financial statements comprise the statements of financial position as at 31 December present fairly, in all material respects, the consolidated 2014, and the statements of comprehensive income, statements and separate financial position of ADvTECH Limited as at of changes in equity and statements of cash flows for the year 31 December 2014, and its consolidated and separate financial then ended, and the notes, comprising a summary of significant performance and its consolidated and separate cash flows for accounting policies and other explanatory information. the year then ended in accordance with International Financial Directors’ responsibility for the Reporting Standards and the requirements of the Companies Act of South Africa. consolidated financial statements The Company’s directors are responsible for the preparation and Other reports required by the fair presentation of these consolidated and separate financial Companies Act statements in accordance with International Financial Reporting As part of our audit of the consolidated and separate financial Standards and the requirements of the Companies Act of South statements for the year ended 31 December 2014, we have read Africa, and for such internal control as the directors determine the Directors’ report, the Audit Committee’s report and the is necessary to enable the preparation of the consolidated and Company Secretary’s certificate for the purpose of identifying separate financial statements that are free from material whether there are material inconsistencies between these reports misstatement, whether due to fraud or error. and the audited consolidated and separate financial statements. These reports are the responsibility of the respective preparers. Auditor’s responsibility Based on reading these reports we have not identified material Our responsibility is to express an opinion on these consolidated inconsistencies between these reports and the audited and separate financial statements based on our audit. We consolidated and separate financial statements. However, we conducted our audit in accordance with International Standards have not audited these reports and accordingly do not express on Auditing. Those standards require that we comply with ethical an opinion on these reports. requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated and separate financial statements are free from material misstatement. Deloitte & Touche An audit involves performing procedures to obtain audit evidence Registered Auditor about the amounts and disclosures in the financial statements. Per: S Nelson The procedures selected depend on the auditor’s judgment, Partner including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making 20 March 2015 those risk assessments, the auditor considers internal control National Executive: LL Bam*, Chief Executive; AE Swiegers*, relevant to the entity’s preparation and fair presentation of the Chief Operating Officer; GM Pinnock*, Audit; DL Kennedy, financial statements in order to design audit procedures that are Risk Advisory; NB Kader*, Tax; TP Pillay, Consulting; K Black*, appropriate in the circumstances, but not for the purpose of Clients & Industries; JK Mazzocco*, Talent & Transformation; expressing an opinion on the effectiveness of the entity’s internal MJ Jarvis*, Finance; M Jordan*, Strategy; S Gwala, Managed control. An audit also includes evaluating the appropriateness of Services; TJ Brown*, Chairman of the Board; MJ Comber*, accounting policies used and the reasonableness of accounting Deputy Chairman of the Board. estimates made by management, as well as evaluating the overall * Partner and Registered auditor. presentation of the financial statements. A full list of partners and directors is available on request. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. B-BBEE rating: Level 2 contributor in terms of the Chartered Accountancy Profession Sector Code. Member of Deloitte Touche Tohmatsu Limited.
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AUDIT COMMITTEE REPORT
The Audit Committee presents its report for the financial year review, and approved by the shareholders at the Annual General ended 31 December 2014. The Audit Committee is an independent Meeting in May 2014. JC Livingstone resigned as Chairman of statutory committee, with further duties being delegated to the the Audit Committee to take up appointment as the Acting Committee by the Board. This report covers both sets of duties. chairman of the Company; CH Boulle was appointed as Acting Terms of reference approved by the Board and adopted by the chairman of the Audit Committee in his place. Both changes Committee set out the Committee’s functions and responsibilities. took effect on 11 August 2014. The Board has proposed that the following non-executive directors be appointed as Committee The Committee has discharged all its responsibilities and carried members by the shareholders at the Annual General Meeting on out all its functions as contained in its terms of reference and as a date to be confirmed: CH Boulle, BM Gourley, JC Livingstone required by the Companies Act, No 71 of 2008, as amended (the and M Nyati. The Committee meets at least three times every Act). In particular, the Committee: year as required by its terms of reference. Meetings are attended • reviewed the interim and annual financial statements and by the internal and external auditors, the CEO and Group recommended them for adoption by the Board; financial director, as well as other Board members and invitees as • approved the annual audit plan of internal audit; considered appropriate by the Committee’s chairman. Details of • received and reviewed reports from both internal and external the number of meetings held and attendance by Committee auditors, which included commentary on the effectiveness of members can be found on page 45. the internal control environment, systems and processes and, The Committee is satisfied that the Group financial director, where appropriate, made recommendations to the Board; JDR Oesch CA(SA), has appropriate expertise and experience. • reviewed the independence of the external auditors Deloitte & Touche, and recommended them for re-appointment as The Audit Committee terms of reference provide for confidential auditors for the 2015 financial year, with S Nelson as the meetings between Committee members and the internal designated auditor at the Annual General Meeting; auditors and external auditors without executive management • determined the fees to be paid to the external auditors and being present. The internal and external auditors have unrestricted their terms of engagement; access to the Committee. determined the nature and extent of non-audit services which • The Committee has evaluated the annual financial statements may be provided by the external auditors and pre-approved for the year ended 31 December 2014 and is satisfied that it the contract terms for the provision of non-audit services by complies in all material respects with the requirements of the the external auditors; and Act and International Financial Reporting Standards. • received and dealt appropriately with any complaints, from within or outside the Group, relating to the accounting practices On behalf of the Audit Committee and internal audit of the Group, to the content or auditing of its financial statements, the internal financial controls, or any related matter. The Committee members are all non-executive directors and satisfy the requirements of independence as required by the Act. Details of membership of the Committee can be found on CH Boulle page 45. The Committee was recommended by the Board of Acting chairman: Audit Committee directors to hold office in respect of the financial year under 20 March 2015
2014 INTEGRATED ANNUAL REPORT 55 GROUP OVERVIEW BUSINESS REVIEW CORPORATE GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDERS’ ANALYSIS
DIRECTORS’ REPORT for the year ended 31 December 2014
Your directors have pleasure in presenting their report on the Compliance with King III activities of the Group and Company for the year ended The ADvTECH Group is committed to the principles of effective 31 December 2014. corporate governance and complies substantially with the Nature of business principles of King III. A detailed analysis of the Group’s compliance with these principles can be found on the website at The ADvTECH Group is one of the largest diversified education, www.advtech.co.za. training and placement groups in South Africa. ADvTECH Limited (registration number 1990/001119/06) is listed in the Specialised Special resolutions adopted by Consumer Services sector of the JSE Limited (JSE). The Schools subsidiary companies division offers quality pre-primary, primary and secondary Special resolutions in terms of section 45 of the Companies Act, education, while the Tertiary division offers quality education on No 71 of 2008, as amended (the Act), were passed by subsidiaries diploma, degree and postgraduate levels. The Resourcing of the Company with general authority to provide financial division is a significant force in niche areas of the placement assistance to related and inter-related companies. industry, especially in IT, Finance and Engineering. No other special resolutions of a significant nature were passed Financial results by subsidiaries. The results for the year ended 31 December 2014 are set out herein. Directorate Share capital Details of directors appear on pages 40 to 42 of this report. The Company’s authorised share capital remains unchanged SC Masie and M Nyati were appointed as independent non- during the year under review: executive directors of the Board with effect from 9 January 2014. Number of shares in issue at 31 December 2013 421 282 422 Their appointment was confirmed by shareholders at the Annual General Meeting on 27 May 2014. Number of shares in issue at 31 December 2014 421 282 422 Following FR Thompson’s announcement in December 2013 There were no repurchases of shares in the Company by the that he intended to retire as Chief executive officer (CEO) of the Group during the year. All shares are fully paid up and none are Group by the end of the year under review, the Board undertook encumbered. a search for a new CEO. After an exhaustive search, LW Maasdorp (previously Chairman of the Board) was appointed as CEO Dividends designate with effect from 11 August 2014 and subsequently as JSE code: ADH ISIN number: ZAE 0000 31035 CEO with effect from 24 October 2014. This appointment resulted in a number of further changes to the Board: The board is pleased to announce the declaration of a final gross dividend of 15.0 cents (2013: 15.0 cents) per ordinary share in • LW Maasdorp resigned as Chairman of the Board and as respect of the year ended 31 December 2014. This brings the full member of the Remuneration and Litigation Committees with year dividend to 26.0 cents (2013: 25.5 cents) per share. effect from 11 August 2014; • JC Livingstone resigned as Chairman of the Audit Committee This is a dividend as defined in the Income Tax Act, No 58 of and was appointed as Acting chairman of the Board with 1962, as amended, and is payable from income reserves. The effect from 11 August 2014; and South African dividend taxation (DT) rate is 15% and no credits • CH Boulle was appointed as Acting chairman of the Audit in terms of Secondary Taxation on Companies (STC) were available Committee with effect from 11 August 2014; and for utilisation. The net amount payable to shareholders who are • FR Thompson resigned as a director and Chief executive not exempt from DT is 12.75 cents per share, while it is 15.0 cents officer with effect from 24 October 2014. per share to those shareholders who are exempt from DT. The • Subsequent to year-end ADvTECH and LW Maasdorp have total dividend amount payable is R63 million. reached a mutual agreement to part ways on 23 March 2015. Post-balance sheet events SA Zinn was appointed as a member of the Remuneration Committee with effect from 17 March 2014 and M Nyati was The directors are not aware of any matter or circumstance appointed as a member of the Audit Committee and the Risk occurring between the date of the statement of financial Committee with effect from 27 May 2014. position and the date of this report that materially affects the results of the Group for the year ended 31 December 2014 or the In accordance with the provisions of the Company’s financial position at that date. Refer to major acquisitions for Memorandum of Incorporation (MoI), CH Boulle, BM Gourley information on non-adjusting post-balance sheet events. and JC Livingstone retire by rotation at the forthcoming Annual General Meeting, and, being eligible, have offered themselves for re-election. Brief biographical notes in respect of each director can be found on pages 40 to 42 of this report.
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Interests and emoluments of directors and prescribed officers Interests of directors and prescribed officers As at 31 December 2014, the directors’ and prescribed officers’ beneficial and non-beneficial, direct and indirect interests in the issued share capital of the Company were 3% (2013: 7%) in aggregate. The apparently significant change in the interests of directors and prescribed officers in the Company is a result of the resignations of FR Thompson (3%) and HR Levin (2%) as directors and the subsequent exclusion of their interests from this disclosure. The interests of directors and prescribed officers is as follows: Beneficial Non-beneficial Direct Indirect Direct Indirect 2014 2013 2014 2013 2014 2013 2014 2013 Directors CH Boulle 3 044 3 044 – – – – – – BM Gourley – – – – – – – – JD Jansen – – – – – – – – HR Levin# – 9 766 327 – – – 93 573 – – JC Livingstone – – – – – – – – LW Maasdorp$ 309 337 – – – – – – – SC Masie – – – – – – – – M Nyati – – – – – – – – JDR Oesch 1 407 979 1 240 000 – – – – 32 000 32 000 FR Thompson* – 12 496 856 – – – – – SA Zinn – – – – – – – – Prescribed officers RJ Douglas 40 000 – – – – – – – DL Honey 7 576 842 7 000 621 – – – – 1 500 1 000 A Isaakidis 1 264 270 870 937 – – – – – – Totals 10 601 472 31 377 785 – – – 93 573 33 500 33 000
# Resigned 27 May 2014 as at date of resignation he held 9 766 327 shares. $ Resigned 23 March 2015. * Retired 24 October 2014 as at date of retirement he held 12 367 169 shares.
At the date that this financial report was prepared, none of the current directors or prescribed officers of the Group has disposed of any of the shares held by them as at 31 December 2014.
2014 INTEGRATED ANNUAL REPORT 57 GROUP OVERVIEW BUSINESS REVIEW CORPORATE GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDERS’ ANALYSIS
DIRECTORS’ REPORT for the year ended 31 December 2014 (continued)
Directors’ and prescribed officers’ share options The directors and prescribed officers held the following share options at 31 December 2014: Share options Share options as at granted during Share options exercised 31 December 2013 the year during the year Share Market Benefit options price at arising on as at Exercise Exercise exercise exercise 31 December price price date of options 2014 Number (cents) Number (cents) Number (cents) (R) Number Directors LW Maasdorp# 2 000 000 819 2 000 000 JDR Oesch 120 000 375 120 000 814 526 500 – 200 000 560 133 333 813 337 332 66 667 275 000 575 275 000 90 000 580 30 000 894 94 200 60 000 120 000 664 120 000 125 000 820 125 000 FR Thompson* 1 300 000 560 – 420 000 575 – 185 000 580 – 175 000 664 – Prescribed officers R Douglas 450 000 580 150 000 882 452 723 300 000 120 000 664 120 000 125 000 820 125 000 A Isaakidis 120 000 375 120 000 825 540 000 – 350 000 560 233 333 825 618 332 116 667 275 000 575 275 000 120 000 580 40 000 890 124 000 80 000 120 000 664 120 000 125 000 820 125 000 DL Honey 600 000 560 400 000 819 1 036 000 200 000 183 334 575 183 334 120 000 580 40 000 890 124 000 80 000 120 000 664 120 000 100 000 820 100 000 3 383 334 2 475 000 1 266 666 3 853 087 4 591 668
The share option exercise terms are detailed in note 16 on pages 82 to 83. # Resigned 23 March 2015. * Retired 24 October 2014.
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Directors’ and prescribed officers’ emoluments Emoluments paid to directors and prescribed officers of the Group (excluding gains on share options exercised) for the year ended 31 December 2014, are set out below: Provident Expense fund Consulting Total Total Fees Salary Bonus* allowances contributions fees 2014 2013 R R R R R R R R Executive LW Maasdorp# 1 119 837 10 086 94 987 1 224 910 – FR Thompson$ 2 607 942 750 000 215 420 351 638 3 925 000 5 358 333 JDR Oesch 1 849 020 1 300 000 150 000 254 875 3 553 895 2 745 244 Total executive 5 576 799 2 050 000 375 506 701 500 8 703 805 8 103 577 Prescribed officers RJ Douglas 2 236 851 1 250 000 180 000 308 148 3 974 999 3 408 333 DL Honey 1 991 858 400 000 175 992 266 202 2 834 052 2 738 587 A Isaakidis 1 990 440 1 016 000 223 464 242 693 3 472 597 3 311 698 Total prescribed officers 6 219 149 2 666 000 579 456 817 043 10 281 648 9 458 618 Non-executive CH Boulle 478 723 478 723 395 000 BM Gourley 560 400 100 000 660 400 470 000 JD Jansen 352 000 352 000 305 000 HR Levin** – – – JC Livingstone 554 376 554 376 430 000 LW Maasdorp# 322 355 322 355 460 000 SC Masie*** 253 000 253 000 – M Nyati*** 322 000 322 000 – SA Zinn 343 575 343 575 270 000 Total non-executive 3 186 429 100 000 3 286 429 2 330 000 * The Company bonus plan approved by the Board and its Remuneration Committee makes provision for a bonus payment on the attainment of agreed profits as well as a payment for achievement of individual objectives. # Resigned as Chairman and non-executive director and appointed Chief executive officer designate with effect from 11 August 2014; appointed Chief executive officer with effect from 24 October 2014. Resigned with effect from 23 March 2015. $ Retired as director with effect from 24 October 2014. ** On extended sabbatical. Resigned with effect from 27 May 2014. *** Appointed as directors with effect from 9 January 2014. No directors’ fees were paid to executive directors during 2014. Major acquisitions There were no major acquisitions made during the year under review, although acquisitions concluded during 2014 with effective dates subsequent to year end include Centurus Colleges, Gaborone International School and the Maravest Group (the latter acquisition still being conditional). The Group concluded two minor acquisitions during the year under review – Snuggles and Tiny Town by the Junior Colleges group (refer to note 32 in the financial statements). Kathstan College (in Benoni) and Boleng Pre-primary and Primary School (in Northriding) were acquired subsequent to the year end. All acquisitions are within the Schools division and are in line with the published expansion programme. The acquisitions of Centurus Colleges, Gaborone International School, Kathstan College and Boleng School were all effective from January 2015. The initial accounting for these business combinations are incomplete. The disclosure of the acquisition date fair values and related impact cannot be made at this time. Centurus Colleges ADvTECH acquired 100% of the shares in Centurus Colleges for a cash purchase price of R712.0 million. Centurus Colleges own and operate three independent premium co-educational schools, namely Pecanwood College, Southdowns College and Tyger Valley College. Each school includes pre-preparatory, preparatory and high school phases and boarding is offered at Pecanwood College and Southdowns College. The spacious campuses are comprehensively resourced with teaching, extramural and sporting infrastructure. The Southdowns campus also includes significant tertiary education infrastructure. R1.0 billion was drawn down on the bridge facility on 13 January 2015 to settle the purchase consideration and replace the vendor’s existing loans.
2014 INTEGRATED ANNUAL REPORT 59 GROUP OVERVIEW BUSINESS REVIEW CORPORATE GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDERS’ ANALYSIS
DIRECTORS’ REPORT for the year ended 31 December 2014 (continued)
Pecanwood College was established in 2005 and is situated in Preparatory in Honeydew, and Maragon Avianto which opened the Broederstroom area adjoining the Pecanwood Golf Estate at the beginning of 2015. Two mid fee schools, Maragon Olympus and Country Club on the Hartebeespoort Dam. Southdowns and Maragon Raslouw, are situated in Pretoria East and Centurion College was established in 2006 and adjoins the Southdowns respectively. In addition, Maravest has a management contract Estate in Irene, Centurion. Tyger Valley College was established in with Edendale, a low fee school in Pretoria North. 2006 and is situated in the east of Pretoria on Lynwood Road The Maravest Group adds a further 4 445 students from extension. Grades 0000 to 12. With the exception of Maragon Avianto, the Centurus Colleges have added a further 3 244 students from schools are established and all are profitable. Plans are in place to Grades 000 to 12 to the Schools division in 2015. The Centurus increase enrolments to 6 300 students by 2020. Colleges are in a rapid growth phase and enrolments are The Maravest Group includes Maramedia, which creates and expected to reach 4 200 students by 2018. distributes digital curriculum content for schools and home The acquisition diversifies the existing Schools division portfolio schooling. This provides some exciting opportunities for the and provides ADvTECH with a meaningful presence in the areas Group to extend its use of technology, especially within the where they are located. Schools division. The transaction was approved by the Competition Commission The acquisition is subject to approval by the shareholders. in December 2014, and, as all other conditions had been fulfilled, Kathstan College ADvTECH therefore assumed control of the schools from the Kathstan College is located in Benoni and was the first school to beginning of 2015. be acquired by the new ADvTECH Academies brand. It was Gaborone International School (GIS) established in 1988, offering education for 375 students in the As announced at the beginning of December 2014, ADvTECH pre-primary, primary and secondary phases. The Group believes acquired the Gaborone International School (GIS) in Botswana that the acquisition of Kathstan College will further diversify the for BWP70 million (about R84 million). This is ADvTECH’s first interests of the Schools division. acquisition outside of South Africa and is in line with the Group’s Boleng Pre-Primary and Primary School strategy of investing in established school brands and developing The Group acquired a small independent school called Boleng a footprint in Africa. Pre-primary and Primary school. The school, which has been GIS was founded in 1993 and acquired by the previous owner in rebranded Trinityhouse Northriding, forms one of a cluster 2007. GIS follows the Cambridge education syllabus and caters for of schools on the western side of Johannesburg, including students from crèche to Form 4. GIS has a track record of excellent Trinityhouse Randpark Ridge and Trinityhouse Little Falls. academic outcomes, strong student demand and profitability. Auditors It currently has 1 900 students, with sufficient space on the existing Deloitte & Touche continued in office as auditors of the Company campus to reach capacity of 2 300 students. The transaction has and its subsidiaries during the year under review. been approved by the Botswana Competition Authority. The Audit Committee has nominated Deloitte & Touche for re- GIS will fall into the newly established ADvTECH Academies appointment as auditors of the Group and, at the Annual General brand. These schools service their local communities and retain Meeting, shareholders will be requested to re-appoint them as their own identity and ethos, whilst operating autonomously the independent external auditors of the Company and its and maintaining their own brands. They are expected to offer a subsidiaries, and to confirm S Nelson as the lead independent range of curricula and a variety of fee options. external auditor. Maravest Group Company secretary The Group has concluded agreements for the acquisition of the The Company secretary is SK Saunders and her address, as well Maravest Group, which will strengthen ADvTECH’s position as as the address of the registered office of the Company, is: the leading private school provider in the premium school market while also providing an entry point into the mid fee and Business address Postal address low fee markets. ADvTECH House PO Box 2369 Inanda Greens Office Park Randburg The Maravest Group includes nursery, pre-primary, preparatory 54 Wierda Road West 2125 and high school phases through a number of models. Wierda Valley Email address: It owns and operates three premium independent schools, Sandton [email protected] being the well-established Maragon Ruimsig and Charterhouse 2196
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GROUP SEGMENTAL REPORT for the year ended 31 December 2014
Percentage Audited Audited increase/ 2014 2013 (decrease) R’m R’m Revenue 1 931.8 1 766.3 Schools 12% 915.0 818.6 Tertiary 10% 826.9 750.5 Resourcing (3%) 194.0 200.0 Intra Group revenue (4.1) (2.8) EBITDA 340.8 291.6 Schools 9% 208.5 191.4 Tertiary 47% 116.9 79.5 Resourcing 3% 22.8 22.1 Acquisition related costs (4.0) – Litigation (3.4) (1.4) Depreciation and amortisation 84.4 69.9 Schools 36% 46.9 34.4 Tertiary 4% 32.9 31.5 Resourcing 15% 4.6 4.0 Operating profit before interest 256.4 221.7 Schools 3% 161.6 157.0 Tertiary 75% 84.0 48.0 Resourcing 1% 18.2 18.1 Acquisition related costs (4.0) – Litigation (3.4) (1.4) Profit before taxation 247.3 224.7 Schools (2%) 142.7 146.1 Tertiary 49% 95.6 64.4 Resourcing 14% 17.8 15.6 Acquisition and financing related costs (5.4) – Litigation (3.4) (1.4) Property, plant and equipment and proprietary technology systems 1 492.1 1 242.6 Schools 21% 1 134.3 940.0 Tertiary 18% 354.1 299.7 Resourcing 28% 3.7 2.9 Current assets 314.2 235.1 Schools 38% 111.3 80.4 Tertiary 36% 176.3 129.6 Resourcing 6% 26.6 25.1 Total assets 1 960.2 1 632.7 Schools 21% 1 291.2 1 070.6 Tertiary 21% 625.6 519.1 Resourcing 1% 43.4 43.0 Current liabilities 1 031.4 779.7 Schools 65% 702.3 424.6 Tertiary 4% 309.8 298.8 Resourcing (66%) 19.3 56.3 Capital expenditure 316.4 334.5 Schools (14%) 221.1 256.9 Tertiary 22% 92.5 76.0 Resourcing 75% 2.8 1.6
2014 INTEGRATED ANNUAL REPORT 61 GROUP OVERVIEW BUSINESS REVIEW CORPORATE GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDERS’ ANALYSIS
GROUP STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 December 2014
Audited Audited 2014 2013 Notes R’m R’m Revenue 4 1 931.8 1 766.3 Staff costs 5 (958.6) (900.6) Rent and occupancy costs (164.8) (161.9) Other operating expenses (467.6) (412.2) Earnings before Interest, Taxation, Depreciation and Amortisation (EBITDA) 340.8 291.6 Schools 208.5 191.4 Tertiary 116.9 79.5 Resourcing 22.8 22.1 Acquisition related costs (4.0) – Litigation (3.4) (1.4)
Depreciation and amortisation 5 (84.4) (69.9) Operating profit before interest 5 256.4 221.7 Net (finance costs paid)/interest received (9.1) 3.0 Interest received 6.1 2.8 6.1 Finance costs 6.2 (11.9) (3.1)
Profit before taxation 247.3 224.7 Taxation 7 (80.2) (69.0) Total comprehensive income for the year 167.1 155.7 Earnings per share Basic (cents) 8 41.3 38.5 Diluted (cents) 8 41.2 38.5
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GROUP STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2014
Shares held by Share the Share Share Share option Incentive Retained Total capital premium reserve Trust earnings equity Notes R’m R’m R’m R’m R’m R’m Balance at 1 January 2013 4.2 117.3 9.2 (97.0) 759.4 793.1 Total comprehensive income for the year 155.7 155.7 Dividends declared to shareholders 11 (99.6) (99.6) Share-based payment expense 5, 16 2.9 2.9 Share awards granted 0.1 0.1 Share options exercised – 0.8 0.8 Balance at 31 December 2013 4.2 117.3 12.1 (96.1) 815.5 853.0 Total comprehensive income for the year 167.1 167.1 Dividends declared to shareholders 11 (105.7) (105.7) Share-based payment expense 5, 16 3.2 3.2 Share options exercised (1.6) 12.8 11.2 Balance at 31 December 2014 4.2 117.3 13.7 (83.3) 876.9 928.8
2014 INTEGRATED ANNUAL REPORT 63 GROUP OVERVIEW BUSINESS REVIEW CORPORATE GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDERS’ ANALYSIS
GROUP STATEMENT OF FINANCIAL POSITION as at 31 December 2014
Audited Audited 2014 2013 Notes R’m R’m ASSETS Non-current assets Property, plant and equipment 12 1 439.0 1 198.6 Proprietary technology systems 13 53.1 44.0 Goodwill 14 103.8 98.2 Intangible assets 15 25.3 27.0 Deferred taxation assets 17 12.8 17.8 Investment 18 12.0 12.0 1 646.0 1 397.6 Current assets Inventories 19 1.3 1.7 Trade and other receivables 20 153.6 111.5 Prepayments 45.5 24.3 Bank balances and cash 21 113.8 97.6 314.2 235.1 Total assets 1 960.2 1 632.7
EQUITY AND LIABILITIES Capital and reserves Share capital 23.1 4.2 4.2 Share premium 23.2 117.3 117.3 Share option reserve 13.7 12.1 Shares held by the Share Incentive Trust 16 (83.3) (96.1) Retained earnings 876.9 815.5 Total equity 928.8 853.0 Current liabilities Bank loans 24 550.0 300.0 Trade and other payables 25 269.8 280.0 Provision 26 – 1.8 Taxation 0.1 3.1 Fees received in advance and deposits 210.1 193.4 Shareholders for capital distribution 0.8 0.9 Shareholders for dividend 0.6 0.5 1 031.4 779.7 Total equity and liabilities 1 960.2 1 632.7
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GROUP STATEMENT OF CASH FLOWS for the year ended 31 December 2014
Audited Audited 2014 2013 Notes R’m R’m Cash flows from operating activities Cash generated from operations 29.1 345.1 295.9 Movement in working capital 29.2 (59.4) 67.2 Cash generated by operating activities 285.7 363.1 Net (finance costs paid)/interest received (9.1) 3.0 – interest received 6.1 2.8 6.1 – finance costs 6.2 (11.9) (3.1) Taxation paid 29.3 (78.2) (66.9) Capital distributions paid 29.4 (0.1) – Dividends paid 29.5 (105.6) (99.4) Net cash inflow from operating activities 92.7 199.8 Cash flows from investing activities Additions to investment – (12.0) Additions to property, plant and equipment – to maintain operations 29.6 (72.5) (73.3) – to expand operations 29.7 (227.5) (260.8) Additions to proprietary technology systems 13 (16.4) (0.4) Business combinations cash flows 32 (22.5) – Proceeds on disposal of property, plant and equipment 1.2 5.6 Net cash outflow from investing activities (337.7) (340.9) Cash flows from financing activities Movement in bank loans 250.0 180.0 Cash movement in shares held by Share Incentive Trust 11.2 0.9 Net cash inflow from financing activities 261.2 180.9 Net increase in cash and cash equivalents 16.2 39.8 Cash and cash equivalents at beginning of the year 97.6 57.8 Cash and cash equivalents at end of the year 21 113.8 97.6
2014 INTEGRATED ANNUAL REPORT 65 GROUP OVERVIEW BUSINESS REVIEW CORPORATE GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDERS’ ANALYSIS
NOTES TO THE GROUP FINANCIAL STATEMENTS for the year ended 31 December 2014
1. General information • IAS 19: Employee Benefits (Amendments to Defined ADvTECH Limited is a limited company incorporated in Benefit Plans: Employee Contributions whereby the South Africa. requirements in IAS 19 for contributions from employees or third parties are linked to service have been amended); The principal business activities are the provision of • IAS 24: Related Party Disclosures (Annual Improvements education, training and staff placement within South Africa. 2010 – 2012 Cycle: Amendments to the definitions and 2. Adoption of new and revised standards disclosure requirements for key management personnel); During the current year, the Group adopted the following • IAS 27: Consolidated and Separate Financial Statements standards which are effective for annual reporting periods (Requirement to account for interests in “Investment beginning on or after 1 January 2014: Entities” at fair value under IFRS 9 Financial Instruments, or IAS 39 Financial Instruments: Recognition and Measurement, IFRS 1: First-time Adoption of International Financial • in the separate financial statements of a parent); Reporting Standards (Annual Improvements 2011 – 2013 IAS 32: Financial Instruments: Presentation (Annual Improve Cycle: Amendments to the Basis of Conclusion to clarify • the meaning of “effective IFRSs”); ments 2009 – 2011 Cycle: Amendments to clarify the tax • IFRS 2: Share-based Payment (Annual Improvements 2010 effect of distribution to holders of equity instruments); – 2012 Cycle: Amendments added the definitions of • IAS 36: Impairment of Assets (Amendments to address performance conditions and service conditions and the disclosure of information about the recoverable amended the definitions of vesting conditions and amount of impaired assets if that amount is based on fair market conditions); value less costs of disposal); • IFRS 3: Business Combinations (Annual Improvements 2010 • IAS 38: Intangible Assets (Annual Improvements 2010 – – 2012 Cycle: Amendments to the measurement 2012 Cycle: Amendments to the Revaluation method – requirements for all contingent consideration assets and proportionate restatement of accumulated depreciation); liabilities including those accounted for under IFRS 9); • IAS 39: Financial Instruments: Recognition and Measurement • IFRS 3: Business Combinations (Annual Improvements 2011 (Amendments for novation of derivatives the continuation – 2013 Cycle: Amendments to the scope paragraph for of hedge accounting); the formation of a joint arrangement); • IAS 40: Investment Property (Annual Improvements 2011 – • IFRS 8: Operating Segments (Annual Improvements 2010 – 2013 Cycle: Amendments to clarify the interrelationship 2012 Cycle: Amendments to some disclosure require between IFRS and IAS 40 when classifying property as ments regarding the judgments made by management investment property or owner occupied property); and in applying the aggregation criteria, as well as those to • IFRIC Interpretation 21: Levies. certain reconciliations); • IFRS 10: Consolidated Financial Statements (IFRS 10 These have no financial impact on the Group. exception to the principal that all subsidiaries must be 3. Significant accounting policies consolidated. Entities meeting the definition of 3.1 Statement of compliance “Investment Entities” must account for investments The financial statements have been prepared in accordance in subsidiaries at fair value under IFRS 9 Financial Instruments, or IAS 39 Financial Instruments: Recognition with the requirements of the JSE Listings Requirements and Measurement); and with International Financial Reporting Standards • IFRS 12: Disclosures of Interests in Other Entities (New (IFRSs), the SAICA Financial Reporting Guides as issued disclosure required for Investment Entities (as defined in by the Accounting Practices Committee and Financial IFRS 10); Reporting Pronouncements as issued by the Financial • IFRS 13: Fair value Measurement (Annual Improvements Reporting Standards Council as well as the requirements of 2010 – 2012 Cycle: Amendments to clarify the measurement the Companies Act of South Africa. requirements for those short-term receivables and 3.2 Basis of preparation payables); The financial statements have been prepared on the IFRS 13: Fair value Measurement (Annual Improvements • historical cost basis, except for the revaluation of certain 2011 – 2013 Cycle: Amendments to clarify that the financial instruments. portfolio exceptions applies to all contracts within IAS 39 or IFRS 9); The principal accounting policies adopted are set out below. • IAS 16: Property, Plant and Equipment (Annual Improvements These were consistently applied in the previous year. 2010 – 2012 Cycle: Amendments to the Revaluation method – proportionate restatement of accumulated depreciation);
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3.3 Segmental reporting When the Group loses control of a subsidiary, the profit or The Group’s operating segments are determined by loss on disposal is calculated as the difference between (i) reference to the level of operating results regularly the aggregate of the fair value of the consideration reviewed by the Chief operating decision maker to make received and the fair value of any retained interest and (ii) decisions about resources to be allocated and for which the previous carrying amount of the assets (including discrete financial information is available. Operating goodwill), and liabilities of the subsidiary as well as any segments which exhibit similar long-term financial non-controlling interests. When assets of the subsidiary are performance and have similar economic characteristics are carried at revalued amounts or fair values and the related amalgamated. cumulative gain or loss has been recognised in other comprehensive income and accumulated in equity, the The revenue earned by the Schools and Tertiary segments amounts previously recognised in other comprehensive are derived from educational services and that of the income and accumulated in equity are accounted for as if Resourcing segment from placement fees. All sources of the Company had directly disposed of the relevant assets revenue are earned within South Africa. (i.e. reclassified to profit or loss or transferred directly to Interest received, finance costs and taxation are assessed retained earnings as specified by applicable IFRSs). The fair by the Chief operating decision maker at a total Group value of any investment retained in the former subsidiary level and not considered separately at a segmental level. at the date when control is lost is regarded as the fair value 3.4 Basis of consolidation on initial recognition for subsequent accounting under IAS 39 Financial Instruments: Recognition and Measurement The consolidated financial statements incorporate the financial statements of the Company and entities (including or, when applicable, the cost on initial recognition of an special purpose entities) controlled by the Company (its investment in an associate or a jointly controlled entity. subsidiaries). Control is achieved when the Company: 3.5 Business combinations • has power over the investee; Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a is exposed, or has rights, to variable returns from its • business combination is measured at fair value, which is involvement with the investee; and calculated as the sum of the acquisition-date fair values of • has the ability to use its power to affect its returns. the assets transferred by the Group, liabilities incurred by Income and expenses of subsidiaries acquired or disposed the Group to the former owners of the acquiree and the of during the year are included in the consolidated equity interests issued by the Group in exchange for statement of comprehensive income from the effective control of the acquiree. Acquisition-related costs are date of acquisition and up to the effective date of disposal, generally recognised in profit or loss as incurred. as appropriate. Total comprehensive income of subsidiaries At the acquisition date, the identifiable assets acquired and is attributed to the owners of the Company. the liabilities assumed are recognised at their fair value at When necessary, adjustments are made to the financial the acquisition date, except that: statements of subsidiaries to bring their accounting policies • deferred tax assets or liabilities and liabilities or assets into line with those used by other members of the Group. related to employee benefit arrangements are recognised All intra-group transactions, balances, income and expenses and measured in accordance with IAS 12 Income Taxes are eliminated in full on consolidation. and IAS 19 Employee Benefits respectively; Changes in the Group’s ownership interests in subsidiaries • liabilities or equity instruments related to share-based that do not result in the Group losing control over the payment arrangements of the acquiree or share-based subsidiaries are accounted for as equity transactions. The payment arrangements of the Group entered into to carrying amounts of the Group’s interests and the non- replace share-based payment arrangements of the controlling interests are adjusted to reflect the changes in acquiree are measured in accordance with IFRS 2 Share- their relative interests in the subsidiaries. Any difference based Payment at the acquisition date; and between the amount by which the non-controlling interests • assets (or disposal groups) that are classified as held for are adjusted and the fair value of the consideration paid or sale in accordance with IFRS 5 Non-current Assets Held received is recognised directly in equity and attributed to for Sale and Discontinued Operations are measured in owners of the Company. accordance with that standard.
2014 INTEGRATED ANNUAL REPORT 67 GROUP OVERVIEW BUSINESS REVIEW CORPORATE GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDERS’ ANALYSIS
NOTES TO THE GROUP FINANCIAL STATEMENTS for the year ended 31 December 2014 (continued)
Goodwill is measured as the excess of the sum of the gain or loss, if any, is recognised in profit or loss. Amounts consideration transferred, the amount of any non-controlling arising from interests in the acquiree prior to the acquisition interests in the acquiree, and the fair value of the acquirer’s date that have previously been recognised in other previously held equity interest in the acquiree (if any) over comprehensive income are reclassified to profit or loss the net of the acquisition-date amounts of the identifiable where such treatment would be appropriate if those interests assets acquired and the liabilities assumed. If, after were disposed of. reassessment, the net of the acquisition-date amounts If the initial accounting for a business combination is of the identifiable assets acquired and liabilities assumed incomplete by the end of the reporting period in which exceeds the sum of the consideration transferred, the amount the combination occurs, the Group reports provisional of any non-controlling interests in the acquiree and the fair amounts for the items for which the accounting is value of the acquirer’s previously held interest in the acquiree incomplete. Those provisional amounts are adjusted during (if any), the excess is recognised immediately in profit or the measurement period (see above), or additional assets loss as a bargain purchase gain. or liabilities are recognised, to reflect new information Non-controlling interests that are present ownership obtained about facts and circumstances that existed at the interests and entitle their holders to a proportionate share acquisition date that, if known, would have affected the of the entity’s net assets in the event of liquidation may amounts recognised at that date. be initially measured either at fair value or at the non- Business combinations that took place prior to 1 January 2010 controlling interests’ proportionate share of the recognised were accounted for in accordance with the previous version amounts of the acquiree’s identifiable net assets. The of IFRS 3. choice of measurement basis is made on a transaction-by- 3.6 Goodwill transaction basis. Other types of non-controlling interests Goodwill arising on the acquisition of a subsidiary or a are measured at fair value or, when applicable, on the basis jointly controlled entity represents the excess of the cost of specified in another IFRS. acquisition over the Group’s interest in the net fair value of When the consideration transferred by the Group in a the identifiable assets, liabilities and contingent liabilities of business combination includes assets or liabilities resulting the subsidiary or jointly controlled entity recognised at the from a contingent consideration arrangement, the contingent date of acquisition. Goodwill is initially recognised as an consideration is measured at its acquisition-date fair asset at cost and is subsequently measured at cost less any value and included as part of the consideration transferred accumulated impairment losses. in a business combination. Changes in the fair value of For the purpose of impairment testing, goodwill is allocated the contingent consideration that qualify as measurement to each of the Group’s cash-generating units expected to period adjustments are adjusted retrospectively, with benefit from the synergies of the combination. Cash- corresponding adjustments against goodwill. Measure generating units to which goodwill has been allocated are ment period adjustments are adjustments that arise from tested for impairment annually, or more frequently when additional information obtained during the “measurement there is an indication that the unit may be impaired. If the period” (which cannot exceed one year from the acquisition recoverable amount of the cash-generating unit is less date) about facts and circumstances that existed at the than the carrying amount of the unit, the impairment loss acquisition date. is allocated first to reduce the carrying amount of any The subsequent accounting for changes in the fair value goodwill allocated to the unit and then to the other assets of the contingent consideration that do not qualify as of the unit pro rata on the basis of the carrying amount of measurement period adjustments depends on how each asset in the unit. An impairment loss recognised for the contingent consideration is classified. Contingent goodwill is not reversed in a subsequent period. Goodwill consideration that is classified as equity is not remeasured is assessed at each statement of financial position date for at subsequent reporting dates and its subsequent impairment. settlement is accounted for within equity. Contingent On disposal of a subsidiary or a jointly controlled entity, the consideration that is classified as an asset or a liability is attributable amount of goodwill is included in the remeasured at subsequent reporting dates in accordance determination of the profit or loss on disposal. with IAS 39, or IAS 37 Provisions, Contingent Liabilities and Any excess of the cost of acquisition over the Group’s share Contingent Assets, as appropriate, with the corresponding of the net fair value of the identifiable assets, liabilities and gain or loss being recognised in profit or loss. contingent liabilities of the entity recognised at the date of When a business combination is achieved in stages, the acquisition is recognised as goodwill. Goodwill is included Group’s previously held equity interest in the acquiree is within the carrying amount of the investment and is remeasured to fair value at the acquisition date (i.e. the assessed for impairment as part of the investment. Any date when the Group obtains control) and the resulting excess of the Group’s share of the net fair value of the
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identifiable assets, liabilities and contingent liabilities over are retranslated at the rates prevailing on the statement of the cost of acquisition, after reassessment, is recognised financial position date. immediately in profit or loss. Exchange differences arising on the settlement of monetary 3.7 Revenue recognition items, and on the retranslation of monetary items, are Revenue is measured at the fair value of the consideration recognised in profit or loss for the period. received or receivable and represents amounts receivable 3.10 Borrowing costs for goods and services provided in the normal course of Borrowing costs directly attributable to the acquisition, business, net of discounts and value added taxes. construction or production of qualifying assets, which are Sale of goods is recognised when goods are delivered and assets that necessarily take a substantial period of time to title has passed. get ready for their intended use or sale, are added to the cost Revenue from a contract to provide services is recognised of those assets, until such time as the assets are substantially by reference to stage of completion. ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings Interest income is accrued on a time basis, by reference pending their expenditure on qualifying assets is deducted to the principal amount outstanding and at the effective from the borrowing costs eligible for capitalisation. interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the All other borrowing costs are recognised in profit or loss in expected life of the financial asset to that asset’s net carrying the period in which they are incurred. amount. 3.11 Retirement benefit costs Dividend income from investments is recognised when The Group operates pension and provident funds to which the shareholders’ rights to receive payment have been employees from certain defined divisions belong. Both established. funds are defined contribution plans and do not require to be actuarially valued. 3.8 Leasing Leases are classified as finance leases whenever the terms These plans are governed by the Pension Fund Act of 1956. of the lease transfer substantially all the risks and rewards Current contributions to the pension and provident funds of ownership to the lessee. All other leases are classified as are expensed when they become payable. operating leases. The Group has no liabilities in respect of post-retirement Operating lease payments are recognised as an expense medical aid contributions or benefits. on the straight-line basis over the term of the lease. 3.12 Share-based payments In the event that lease incentives are received to enter into The Group issues equity-settled share-based payments to operating leases, such incentives are recognised as a liability. certain employees. Equity-settled share-based payments are The aggregate benefit of incentives is recognised as a measured at fair value (excluding the effect of non-market- reduction of rental expenses on the straight-line basis, except based vesting conditions) at the grant date. The fair value where another systematic basis is more representative of the determined at the grant date of the equity-settled share- time pattern in which economic benefits from the leased based payments is expensed on the straight-line basis over asset are consumed. the vesting period with a corresponding movement in the 3.9 Foreign currencies share reserve, based on the Group’s estimate of the shares The individual financial statements of each Group entity that will eventually vest and adjusted for the effect of non- are presented in the currency of the primary economic market-based vesting conditions. environment in which the entity operates (its functional Fair value is measured using the Bermudan Binomial model. currency). For the purpose of the consolidated financial The expected life used in the model has been adjusted, statements, the results and financial position of each entity based on management’s best estimate, for the effects of are expressed in currency units, which is the functional non-transferability, exercise restrictions and behavioural currency of the Company, and the presentation currency considerations. for the consolidated financial statements. 3.13 Taxation In preparing the financial statements of the Group and Income taxation expense represents the sum of the taxation individual entities, transactions in currencies other than the currently payable and deferred taxation. entity’s functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates Current taxation of the transactions. At each statement of financial position The taxation currently payable is based on taxable profit for date, monetary items denominated in foreign currencies the year. Taxable profit differs from profit as reported in the
2014 INTEGRATED ANNUAL REPORT 69 GROUP OVERVIEW BUSINESS REVIEW CORPORATE GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDERS’ ANALYSIS
NOTES TO THE GROUP FINANCIAL STATEMENTS for the year ended 31 December 2014 (continued)
statement of comprehensive income because it excludes The annual rates for this purpose are: items of income or expense that are taxable or deductible Buildings 2% in other years and it further excludes items that are never Computer equipment 25% taxable or deductible. The Group’s liability for current Computer software 33.3% taxation is calculated using taxation rates that have been Furniture, fittings and equipment 10% – 20% enacted or substantively enacted by the statement of Motor vehicles 20% financial position date. Video equipment 33.3% Leasehold improvements Period of lease Deferred taxation Deferred taxation is recognised on differences between Assets held under finance leases are depreciated over the the carrying amounts of assets and liabilities in the financial shorter of their expected useful lives on the same basis as statements and the corresponding taxation base used owned assets or the term of the lease. in the computation of taxable profit. Deferred taxation The gain or loss arising on the disposal of an item of property, liabilities are generally recognised for all taxable temporary plant and equipment is determined as the difference between differences and deferred taxation assets are recognised to the sale proceeds and the carrying amount of the asset the extent that it is probable that taxable profits will be and is recognised in profit or loss. available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised Borrowing costs incurred relating to the development of properties and software are capitalised and included in the if the temporary differences arise from goodwill or from cost of these assets until completion, less any identified the initial recognition (other than in a business combination) impairment loss. The capitalisation rate used to determine of other assets and liabilities in a transaction that affects the borrowing cost capitalised is the prevailing average neither the taxable profit nor the accounting profit. borrowing rate. Depreciation of these assets, on the same The carrying amount of deferred taxation assets is reviewed basis as other property and software assets, commences at each statement of financial position date and reduced to when the assets are ready for their intended use. the extent that it is no longer probable that sufficient 3.15 Intangible assets taxable profits will be available to allow all or part of the asset to be recovered. Intangible assets are reported at cost less accumulated amortisation and accumulated impairment losses. Deferred taxation assets and liabilities are measured at the Amortisation is charged on the straight-line basis over the taxation rates that are expected to apply in the period in estimated useful lives. The estimated useful life and which the liability is settled or the asset realised, based on amortisation method are reviewed at the end of each taxation rates (and taxation laws) that have been enacted annual reporting period, with the effect of any changes in or substantively enacted by the statement of financial estimate being accounted for on a prospective basis. position date. Deferred taxation is charged or credited to 3.16 Impairment of tangible and intangible assets, profit or loss, except when it relates to items charged or excluding goodwill credited directly to equity, in which case the deferred taxation is also dealt with in equity. At each statement of financial position date, the Group reviews the carrying amounts of its tangible and intangible Deferred taxation assets and liabilities are offset when assets to determine whether there is any indication that there is a legally enforceable right to set off current those assets have suffered an impairment loss. If any such taxation assets against current taxation liabilities and when indication exists, the recoverable amount of the asset is they relate to income taxes levied by the same taxation estimated in order to determine the extent of the impairment authority and the Group intends to settle its current loss if any. Where it is not possible to estimate the recoverable taxation assets and liabilities on a net basis. amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which 3.14 Property, plant and equipment the asset belongs. Property, plant and equipment are stated at historical cost less accumulated depreciation and accumulated The recoverable amount is the higher of fair value less impairment. Land is not depreciated. Depreciation is costs to sell and value in use. In assessing value in use, the calculated on the straight-line basis at rates that will reduce estimated future cash flows are discounted to their present the cost of the assets to their estimated residual values value using a pre-taxation discount rate that reflects current market assessments of the time value of money over their expected useful lives. and the risks specific to the asset.
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If the recoverable amount of an asset (or cash-generating Available-for-sale financial assets (AFS financial assets) unit) is estimated to be less than its carrying amount, the AFS financial assets are non-derivatives that are either carrying amount of the asset (cash-generating unit) is designated as AFS or are not classified as (a) loans and reduced to its recoverable amount. An impairment loss is receivables, (b) held-to-maturity investments or (c) financial recognised immediately as an expense, unless the relevant assets at fair value through profit or loss. asset is carried at a revalued amount, in which case the The Group has investments in unlisted shares that are not impairment loss is treated as a revaluation decrease. traded in an active market but that are also classified as AFS Where an impairment loss subsequently reverses, the financial assets and stated at fair value at the end of each carrying amount of the asset (cash-generating unit) is reporting period (if the directors consider that the fair value increased to the revised estimate of its recoverable amount, can be reliably measured). but so that the increased carrying amount does not exceed AFS equity investments that do not have a quoted market the carrying amount that would have been determined price in an active market and whose fair value cannot be had no impairment loss been recognised for the asset reliable measured are measured at cost less any identified (cash-generating unit) in prior years. A reversal of an impairment losses at the end of each reporting period. impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, Dividends on AFS equity instruments are recognised in in which case the reversal of the impairment loss is treated profit or loss when the Group’s right to receive the dividends as a revaluation increase. is established.
3.17 Inventories Loans and receivables Inventories are stated at the lower of cost and net realisable Loans and receivables are measured at amortised cost value. Costs comprise direct costs and other costs that using the effective interest method less any impairment. have been incurred in bringing the inventories to their Interest income is recognised by applying the effective present location and condition. Cost is calculated using the interest rate, except for short-term receivables where the weighted average method. Net realisable value represents recognition of interest would be immaterial. Appropriate the estimated selling price and costs to be incurred in allowances for estimated irrecoverable amounts are marketing, selling and distribution. recognised in profit or loss when there is objective evidence 3.18 Provisions that the asset is impaired. The allowance recognised is measured as the difference between the asset’s carrying Provisions are recognised when the Group has a present amount and the present value of estimated future cash legal or constructive obligation as a result of a past event, flows discounted at the effective interest rate computed at and it is probable that the Group will be required to settle initial recognition. that obligation. Provisions are measured at the directors’ best estimate of the expenditure required to settle the Cash and cash equivalents obligation at the statement of financial position date, and Cash and cash equivalents are measured at amortised are discounted to present value where the effect is material. cost and comprise cash on hand net of outstanding bank overdrafts and demand deposits and other short-term Onerous contracts highly liquid investments that are readily convertible to a Present obligations arising under onerous contracts are known amount of cash and are subject to an insignificant recognised and measured as provisions. An onerous contract risk of changes in value. is considered to exist where the Group has a contract under which the unavoidable costs of meeting the obligations Other financial liabilities under the contract exceed the economic benefits expected Loans and other payables are carried at amortised cost to be received from the contract. using the effective interest rate method if the time value of 3.19 Share purchases money is significant. Trade payables are generally carried at The ADvTECH Limited Share Incentive Trust purchases the original invoiced amount. Interest is recognised as an shares in the Company to be used for the settlement of its expense when incurred. obligations under its share incentive schemes. When such 3.21 Derivative financial instruments purchases occur, these amounts are offset against share The Group enters into foreign exchange contracts to capital. manage its foreign exchange risk. 3.20 Financial instruments Derivatives are initially recognised at fair value at the date Financial assets and financial liabilities are recognised on the derivative contract is entered into and are subsequently the Group’s statement of financial position when the remeasured to their fair value at each statement of financial Group becomes a partner to the contractual provisions of position date. The resulting gain or loss is recognised in the instrument. They are measured initially at fair value, profit or loss immediately unless the derivative is designated being the transaction price. The subsequent accounting and effective as a hedging instrument, in which event the treatment depends on the classification of an instrument timing of the recognition in profit or loss depends on the as set out below: nature of the hedge relationship.
2014 INTEGRATED ANNUAL REPORT 71 GROUP OVERVIEW BUSINESS REVIEW CORPORATE GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDERS’ ANALYSIS
NOTES TO THE GROUP FINANCIAL STATEMENTS for the year ended 31 December 2014 (continued)
The Group designates certain derivatives as either hedges 3.22 Critical accounting judgements and key sources of of the fair value of recognised assets or liabilities or firm estimation uncertainty commitments (fair value hedges), hedges of highly probable Valuation of equity compensation benefits forecast transactions or hedges of foreign currency risk of Management classifies its share-based payment scheme firm commitments (cash flow hedges). as an equity-settled scheme. In applying its judgement, A derivative is presented as a non-current asset or non- management consulted with external expert advisers current liability if the remaining maturity of the instrument in the accounting and share-based payment advisory is more than 12 months and it is not expected to be realised industry. The critical estimates as used in the Bermudan or settled within 12 months. Other derivatives are presented Binomial model are detailed in note 16 to the Group financial as current assets or current liabilities. statements. This includes estimated option exercise behaviour, as well as anticipated forfeiture rates. Hedge accounting The Group designates certain hedging instruments, which Impairment of assets include derivatives, embedded derivatives and non- An assessment of impairment at a cash-generating unit derivatives in respect of foreign currency risk, as either fair level for tangible and intangible assets, as well as individual value hedges or cash flow hedges. assessments of goodwill and financial assets (including related provisions), is performed at the end of each reporting Hedges of foreign exchange risk on firm commitments are period. Individual impairment assessments of assets are accounted for as cash flow hedges. At the inception of the performed annually based on technical, economic and hedge relationship, the entity documents the relationship business circumstances. between the hedging instrument and the hedged item, along with its risk management objectives and its strategy Allowance for doubtful debts for undertaking various hedge transactions. Furthermore, An assessment of impairment of trade receivables is at the inception of the hedge and on an ongoing basis, the performed at the end of each reporting period based on Group documents whether the hedging instrument that is various factors including the ageing of the receivables, used in a hedging relationship is highly effective in offsetting projected future settlements based on prior period history changes in fair values or cash flows of the hedged item. and other pertinent information. Management judgement Movements in the hedging reserve in equity are also is required on estimating such information. detailed in the statement of other comprehensive income. Deferred taxation assets Cash flow hedges Deferred taxation assets are recognised to the extent it is The effective portion of changes in the fair value of the probable that taxable income will be available in future derivatives that are designated and qualify as cash flow against which these can be utilised. Future taxable profits hedges is deferred in equity. The gain or loss relating to are estimates based on business plans which include the ineffective portion is recognised immediately in profit estimates and assumptions regarding economic growth, or loss. interest, inflation, taxation rates and competitive forces. Amounts deferred in equity are recycled in profit or loss in Contingent liabilities the period when the hedged item is recognised in profit or Management applies its judgement based on facts and loss, in the same line of the statement of comprehensive advice it receives from its legal and other advisers in income as the recognised hedged item. However, when assessing if an obligation is probable, more likely than not or the forecast transaction that is hedged results in the remote. This judgement is used to determine whether the recognition of a non-financial asset or a non-financial potential obligation is recognised as a liability, disclosed as a liability, the gains or losses previously deferred in equity are contingent liability or ignored for financial statement transferred from equity and included in the initial purposes. measurement of the cost of the asset or liability. Purchase price allocation relating to business Hedge accounting is discontinued when the Group combinations revokes the hedging relationship, the hedging instrument The Group exercises judgement in determining the purchase expires or is sold, terminated, or exercised, or no longer price allocation in respect of intangible assets and resulting qualifies for hedge accounting. Any cumulative gain or loss goodwill relating to the business combinations. The free cash deferred in equity at the time remains in equity and is flow method is used and the key assumptions involved were recognised when the forecast transaction is ultimately growth rates, discount rates and attrition rates. recognised in profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was deferred in equity is recognised immediately in profit or loss.
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3.23 Standards and interpretations not yet effective At the date of the authorisation of these financial statements, the following standards and interpretations were in issue but not yet effective: IFRS 7 Financial Instruments: Disclosure (Deferral of mandatory effective date of IFRS 9 and Annual period beginning on amendments to transition disclosures) or after 1 January 2015 IFRS 7 Financial Instruments: Disclosure (Amendments resulting from September 2014 Annual period beginning on Annual Improvements to IFRSs) or after 1 January 2016 IFRS 9 Financial Instruments (New standard) Annual period beginning on or after 1 January 2018 IFRS 10 Consolidated Financial Statements (Amendments on Sale or Contribution of Assets Annual period beginning on between an investor and its associate or joint venture) or after 1 January 2016 IFRS 10 Consolidated Financial Statements (Amendments related to the application of the Annual period beginning on investment entities exceptions) or after 1 January 2016 IFRS 11 Joint Arrangements (Amendments adding new guidance on how to account for the Annual period beginning on acquisition of an interest in a joint operation that constitutes a business which specify or after 1 January 2016 the appropriate accounting treatment for such acquisitions) IFRS 12 Disclosure of Interests in Other Entities (Amendments related to the application of the Annual period beginning on investment entities exceptions) or after 1 January 2016 IFRS 14 Regulatory Deferral Accounts (New standard) Annual period beginning on or after 1 January 2016 IFRS 15 Revenue from Contracts from Customers (New standard) Annual period beginning on or after 1 January 2017 IAS 1 Presentation of Financial Statements (Amendments arising under the Disclosure Annual period beginning on Initiative) or after 1 January 2016 IAS 16 Property, Plant and Equipment (Amendments to IAS 16 and IAS 38 to clarify the basis Annual period beginning on of calculation of depreciation and amortisation, as being the expected pattern of or after 1 January 2016 consumption of the future economic benefits of an asset) IAS 19 Employee Benefits (Amendments resulting from 2012 – 2014 Annual Improvements Annual period beginning on Cycle) or after 1 January 2016 IAS 27 Separate Financial Statements (Amendments relating to equity method in separate Annual period beginning on financial statements) or after 1 January 2016 IAS 28 Investments in Associates and Joint Ventures (Amendments on Sale or Contribution of Annual period beginning on Assets between an investor and its associate or joint venture) or after 1 January 2016 IAS 28 Investments in Associates and Joint Ventures (Amendments related to the application of Annual period beginning on the investment entities exceptions) or after 1 January 2016 IAS 34 Interim Financial Reporting (Amendments resulting from 2012 – 2014 Annual Improve Annual period beginning on ments Cycle) or after 1 January 2016 IAS 38 Intangible Assets (Amendments to IAS 16 and IAS 38 to clarify the basis for the calculation Annual period beginning on of depreciation and amortisation, as being the expected pattern of consumption of or after 1 January 2016 the future economic benefits of an asset)
None of the standards and interpretations that have been published, but not yet effective, are expected to have a significant impact on the amounts recorded in the financial statements.
2014 INTEGRATED ANNUAL REPORT 73 GROUP OVERVIEW BUSINESS REVIEW CORPORATE GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDERS’ ANALYSIS
NOTES TO THE GROUP FINANCIAL STATEMENTS for the year ended 31 December 2014 (continued)
Audited Audited 2014 2013 Notes R’m R’m 4. Revenue Tuition fees 1 741.8 1 534.3 Placement fees 176.5 178.3 Sale of goods and services 17.6 56.5 Intra Group revenue (4.1) (2.8) 1 931.8 1 766.3 5. Operating profit before interest Operating profit before interest is stated after taking the following into account: Auditors’ remuneration 4.3 4.4 – Current year audit fee 4.1 4.0 – Other services 0.2 0.4
Amortisation of proprietary technology systems 13 7.3 6.5 Amortisation of intangible assets 15 3.2 4.1 Depreciation 12 73.9 59.3 – Land and buildings 16.9 10.3 – Computer equipment 21.3 18.4 – Computer software 0.6 0.2 – Furniture, fittings and equipment 15.4 13.8 – Motor vehicles 3.4 3.3 – Video equipment 0.2 0.3 – Leasehold improvements 16.1 13.0
Total depreciation and amortisation 84.4 69.9
Operating lease charges 90.1 95.0 – Premises 89.2 93.9 – Equipment 0.9 1.1 Professional fees 10.1 9.2 Loss on sale of property, plant and equipment 0.5 0.4 Directors’ emoluments 12.0 10.4 – For services as directors 3.2 2.2 – For managerial and other services 8.8 8.2 Pension and provident fund contributions 58.9 53.4 Share-based payment expense 16 3.2 2.9 Staff costs 884.5 833.9 Total staff costs 958.6 900.6
Number of staff (at year-end) 4 036 3 942 Number of staff covered by retirement plans (at year-end) 2 508 2 461
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Audited Audited 2014 2013 Notes R’m R’m 6. Net (finance costs paid)/interest received 6.1 Interest received Call accounts 2.0 4.7 Current accounts 0.7 1.1 Other 0.1 0.3 2.8 6.1 6.2 Finance costs Bank loans (8.9) (2.5) Bank loans facility fees (2.2) (0.4) South African Revenue Service (0.2) – Unwinding of discount on provision 26 (0.3) (0.2) Other (0.3) – (11.9) (3.1) Net (finance costs paid)/interest received (9.1) 3.0 7. Taxation 7.1 Taxation expense comprises Current taxation – current year 75.4 63.1 – prior year (over)/under provision (0.2) 1.1 Deferred taxation – current year 17 3.5 6.4 – prior year under/(over) provision 17 1.5 (1.6) Total taxation expense 80.2 69.0 Estimated taxation losses for the Group carried forward at year-end were R2.1 million (2013: R4.8 million). Deferred taxation assets have been raised for the full value of the estimated taxation losses in the Group. 7.2 Reconciliation of taxation Profit before taxation 247.3 224.7 Taxation at 28% 69.2 62.9 Permanent differences 9.7 6.6 Disallowable expenditure – depreciation on buildings 5.4 4.1 – other 4.5 2.8 Taxation allowances (0.2) (0.3) Current taxation – prior year (over)/under provision (0.2) 1.1 Deferred taxation – prior year under/(over) provision 1.5 (1.6) Taxation expense recognised in profit 80.2 69.0
2014 INTEGRATED ANNUAL REPORT 75 GROUP OVERVIEW BUSINESS REVIEW CORPORATE GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDERS’ ANALYSIS
NOTES TO THE GROUP FINANCIAL STATEMENTS for the year ended 31 December 2014 (continued)
Audited Audited 2014 2013 R’m R’m 8. Earnings per share The calculation of basic and diluted earnings per share attributable to equity holders is based on the following data: Earnings Earnings for the purpose of basic and diluted earnings per share 167.1 155.7 Number of shares Weighted average number of shares in issue at year-end (’m) 421.3 421.3 Less: Weighted average number of shares held by the Share Incentive Trust (’m) (16.6) (17.3) Weighted average number of shares for purposes of basic earnings per share (’m) 404.7 404.0 Effect of dilutive potential ordinary shares (’m) 0.4 0.3 Weighted average number of shares for purposes of diluted earnings per share (’m) 405.1 404.3 Earnings per share Basic (cents) 41.3 38.5 Diluted (cents) 41.2 38.5
Audited 2014 Audited 2013 R’m R’m Gross Net Gross Net 9. Headline earnings per share Earnings Earnings for the purpose of basic and diluted earnings per share 167.1 155.7 Items excluded from headline earnings per share Loss on sale of property, plant and equipment 0.5 0.4 0.4 0.3 Earnings for the purpose of headline earnings per share 167.5 156.0
Audited Audited 2014 2013 R’m R’m Number of shares Weighted average number of shares in issue at year-end (’m) 421.3 421.3 Less: Weighted average number of shares held by the Share Incentive Trust (’m) (16.6) (17.3) Weighted average number of shares for purposes of basic headline earnings per share (’m) 404.7 404.0 Effect of dilutive potential ordinary shares (’m) 0.4 0.3 Weighted average number of shares for purposes of diluted headline earnings per share (’m) 405.1 404.3 Headline earnings per share Basic (cents) 41.4 38.6 Diluted (cents) 41.3 38.6
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Audited 2014 Audited 2013 R’m R’m Gross Net Gross Net 10. Normalised earnings per share Earnings Earnings for the purpose of basic and diluted headline earnings per share 167.5 156.0 Items excluded from normalised earnings per share 8.8 8.4 1.4 1.4 Litigation costs 3.4 3.4 1.4 1.4 Acquisition and financing related costs Acquisition related costs 4.0 4.0 – – Facility initiation costs 1.4 1.0 – –
Earnings for the purpose of normalised earnings per share 175.9 157.4
Audited Audited 2014 2013 R’m R’m Number of shares Weighted average number of shares in issue at year-end (’m) 421.3 421.3 Less: Weighted average number of shares held by the Share Incentive Trust (’m) (16.6) (17.3) Weighted average number of shares for purposes of basic normalised earnings per share (’m) 404.7 404.0 Effect of dilutive potential ordinary shares (’m) 0.4 0.3 Weighted average number of shares for purposes of diluted normalised earnings per share (’m) 405.1 404.3 Normalised earnings per share Basic (cents) 43.5 39.0 Diluted (cents) 43.4 38.9 11. Dividends declared Final dividend No 9 paid on 14 April 2014: 15.0 cents per share 63.2 59.0 (2013: No 7: 14.0 cents per share) Interim dividend No 10 paid on 22 September 2014: 11.0 cents per share 46.3 44.2 (2013: No 8: 10.5 cents per share) Dividend attributable to treasury shares (3.8) (3.6) Total dividends 105.7 99.6 On 20 March 2015 the directors declared a gross dividend No 11 of 15.0 cents per share payable on 20 April 2015 to share holders registered on the record date, being 17 April 2015. Analysis of dividends per share declared in respect of current year’s earnings: Interim 11.0 10.5 Final 15.0 15.0 26.0 25.5
2014 INTEGRATED ANNUAL REPORT 77 GROUP OVERVIEW BUSINESS REVIEW CORPORATE GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDERS’ ANALYSIS
NOTES TO THE GROUP FINANCIAL STATEMENTS for the year ended 31 December 2014 (continued)
Cost Acquisitions through business 1 Jan 2014 Additions combinations Disposals 31 Dec 2014 R’m R’m R’m R’m R’m 12. Property, plant and equipment Land and buildings 1 042.8 198.9 16.0 – 1 257.7 Computer equipment 153.9 25.3 – (4.7) 174.5 Computer software 9.6 0.2 – – 9.8 Furniture, fittings and equipment 156.4 24.0 – (3.2) 177.2 Motor vehicles 26.1 4.3 – (0.5) 29.9 Video equipment 2.5 0.4 – – 2.9 Leasehold improvements 219.5 46.9 – (12.2) 254.2 1 610.8 300.0 16.0 (20.6) 1 906.2
Accumulated depreciation and impairment Acquisitions through business 1 Jan 2014 Depreciation combinations Disposals 31 Dec 2014 R’m R’m R’m R’m R’m Land and buildings 60.4 16.9 – – 77.3 Computer equipment 114.7 21.3 – (4.1) 131.9 Computer software 7.1 0.6 – – 7.7 Furniture, fittings and equipment 119.2 15.4 – (2.9) 131.7 Motor vehicles 17.9 3.4 – (0.5) 20.8 Video equipment 2.0 0.2 – – 2.2 Leasehold improvements 90.9 16.1 – (11.4) 95.6 412.2 73.9 – (18.9) 467.2
Net book value 31 Dec 2014 31 Dec 2013 R’m R’m Land and buildings 1 180.4 982.4 Computer equipment 42.6 39.2 Computer software 2.1 2.5 Furniture, fittings and equipment 45.5 37.2 Motor vehicles 9.1 8.2 Video equipment 0.7 0.5 Leasehold improvements 158.6 128.6 1 439.0 1 198.6
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12. Property, plant and equipment (continued) Included in land and buildings is an amount of R21.1 million (2013: R58.4 million) which relates to buildings that are still in progress. Included in leasehold improvements is an amount of R10.3 million (2013: R13.4 million ) which relates to improvements that are still in progress. Included in computer software is an amount of R0.5 million (2013: R2.0 million) which relates to systems that are still under development. The amount of borrowing costs capitalised to current year additions amounted to R3.9 million (2013: R0.8 million) at a capitalisation rate of 7.1% (2013: 6.8%). The Group valued its fixed property during 2013. The valuation was conducted by the Quadrant Property Group, a group of independent sworn valuators. Their valuation based on present land use amounted to R1 718.9 million, a premium of R736.5 million or 75% over book value as at December 2013. Valuations are done on a triennial basis with the next valuation due in 2016. Land and buildings having a net book value of R793.4 million (2013: nil) have been pledged as security for the banking facilities (refer to note 24). Cost 1 Jan 2013 Additions Disposals Reallocation 31 Dec 2013 R’m R’m R’m R’m R’m Land and buildings 803.8 244.6 (5.6) – 1 042.8 Computer equipment 134.6 22.1 (2.8) – 153.9 Computer software 8.1 2.4 (0.9) – 9.6 Furniture, fittings and equipment 142.5 17.5 (3.7) 0.1 156.4 Motor vehicles 24.4 2.1 (0.4) – 26.1 Video equipment 2.1 0.4 – – 2.5 Leasehold improvements 176.0 45.0 (1.4) (0.1) 219.5 1 291.5 334.1 (14.8) – 1 610.8
Accumulated depreciation and impairment 1 Jan 2013 Depreciation Disposals Reallocation 31 Dec 2013 R’m R’m R’m R’m R’m Land and buildings 50.7 10.3 (0.6) – 60.4 Computer equipment 99.0 18.4 (2.7) – 114.7 Computer software 7.7 0.2 (0.8) – 7.1 Furniture, fittings and equipment 108.7 13.8 (3.4) 0.1 119.2 Motor vehicles 15.0 3.3 (0.4) – 17.9 Video equipment 1.7 0.3 – – 2.0 Leasehold improvements 78.9 13.0 (0.9) (0.1) 90.9 361.7 59.3 (8.8) – 412.2
Net book value 31 Dec 2013 31 Dec 2012 R’m R’m Land and buildings 982.4 753.1 Computer equipment 39.2 35.6 Computer software 2.5 0.4 Furniture, fittings and equipment 37.2 33.8 Motor vehicles 8.2 9.4 Video equipment 0.5 0.4 Leasehold improvements 128.6 97.1 1 198.6 929.8
2014 INTEGRATED ANNUAL REPORT 79 GROUP OVERVIEW BUSINESS REVIEW CORPORATE GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDERS’ ANALYSIS
NOTES TO THE GROUP FINANCIAL STATEMENTS for the year ended 31 December 2014 (continued)
Audited Audited 2014 2013 Notes R’m R’m 13. Proprietary technology systems Cost Balance at beginning of the year 62.8 62.4 Additions 16.4 0.4 Balance at end of the year 79.2 62.8 Accumulated amortisation Balance at beginning of the year 18.8 12.3 Amortisation expense 5 7.3 6.5 Balance at end of the year 26.1 18.8 Carrying amount At beginning of the year 44.0 50.1 At end of the year 53.1 44.0 The System for Academic Management forms the bulk of the amount above. Useful lifes of between six and ten years are used in the calculation of amortisation on a straight-line basis. 14. Goodwill Cost Balance at beginning of the year 98.2 98.2 Additional amounts recognised from business combinations occurring during the year 32 5.6 – Balance at end of the year 103.8 98.2 Accumulated impairment losses Balance at beginning of the year – – Impairment losses recognised in the year – – Balance at end of the year – – Carrying amount At beginning of the year 98.2 98.2 At end of the year 103.8 98.2 The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired. When testing goodwill for impairment, the recoverable amounts of the cash-generating units (CGU) are determined using value-in-use calculations taking into account estimated discount rates and growth rates.
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14. Goodwill (continued) A terminal value is calculated based on conservative growth rates. Notwithstanding the conservative assumptions used in the assessments, no impairments are required. The assumptions used are as follows: Indefinite life Period of intangible projected Growth Discount Goodwill asset cash flows rate rate Cash-generating unit R’m R’m Years % % Schools 26.0 10.8 3 3.6 12.08 Tertiary 70.4 – 3 4.9 12.08 Resourcing 7.4 – 3 9.0 12.08 103.8 10.8
The assumptions used in 2013 are as follows: Indefinite life Period of intangible projected Growth Discount Goodwill asset cash flows rate rate Cash-generating unit R’m R’m Years % % Schools 20.4 10.8 3 5.6 12.08 Tertiary 70.4 – 3 8.4 12.08 Resourcing 7.4 – 3 4.0 12.08 98.2 10.8 As the Group integrates the acquired customers into existing platforms as part of the business model, the Group aggregates the CGU’s into the core business segments and has used these segments as CGU’s for the purpose of performing the value-in-use calculations. The directors were satisfied that there were no impairment indicators.
2014 INTEGRATED ANNUAL REPORT 81 GROUP OVERVIEW BUSINESS REVIEW CORPORATE GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDERS’ ANALYSIS
NOTES TO THE GROUP FINANCIAL STATEMENTS for the year ended 31 December 2014 (continued)
Customer Brand Total bases values audited Notes R’m R’m R’m 15. Intangible assets Cost Balance at 1 January 2013 and 1 January 2014 44.7 19.5 64.2 Additions through business combinations 32 0.9 0.6 1.5 At 31 December 2014 45.6 20.1 65.7 Accumulated amortisation and impairment Balance at 1 January 2013 29.3 3.8 33.1 Amortisation expense 5 3.2 0.9 4.1 Balance at 1 January 2014 32.5 4.7 37.2 Amortisation expense 5 2.3 0.9 3.2 At 31 December 2014 34.8 5.6 40.4 Carrying amount As at 31 December 2013 12.2 14.8 27.0 As at 31 December 2014 10.8 14.5 25.3 The following useful lives are used in the calculation of amortisation on a straight-line basis: Customer bases 4 to 13.4 years Brand values 5 to 10 years, indefinite life The brand value of Trinityhouse has a life span in excess of 20 years and therefore an indefinite period of amortisation was selected. The carrying amount of this asset is R10.8 million (2013: R10.8 million). Refer to note 14 for details of the assumptions applied in assessing the indefinite useful life intangible asset for impairment. 16. ADvTECH share incentive scheme Certain employees and directors are eligible to participate in the scheme. The option offer value is the closing price at which shares are traded on the JSE Limited on the trading day immediately preceding the offer date. Share options accepted by participants are exercisable at intervals of two, four and six years after the offer date. On exercise of the options, the participant pays the Share Incentive Trust an amount equal to the offer price multiplied by the number of options exercised. If a participant leaves the employ of the Group prior to exercising the options, the options lapse. Variations to the vesting periods are possible with the written consent of the Remuneration Committee of the Board and the Trustees of the Trust. Weighted Exercise average price of estimated Fair Expiry date outstanding contractual value at year ending options life grant date Date options granted (cents) (years) (cents) 21 October 2013 31 Dec 2019 664 4.3 176 26 September 2014 31 Dec 2020 819 4.5 235 2 October 2014 31 Dec 2020 820 4.2 235
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Weighted Weighted Number average Number average of share exercise of share exercise options price options price (cents) (cents) Reconciliation of options 2014 2013
16. ADvTECH share incentive scheme (continued) Options outstanding on 1 January 9 284 334 568 8 186 000 532 Add – Options granted during the year 2 000 000 819 – – – Options granted during the year 2 071 000 820 1 837 000 664 Less – Exercised (2 291 665) 490 (154 666) 575 – Lapsed (388 667) 601 (584 000) 534 Options outstanding at 31 December 10 675 002 679 9 284 334 568 As at 31 December 2014 there were 65 (2013: 49) participants (including executive directors) in the ADvTECH share incentive scheme. Number of shares Loan receivable R’m Reconciliation of shares owned 2014 2013 2014 2013 Shares owned by the Trust as at 1 January 17 158 954 17 320 620 96.1 97.0 Add – Share awards forfeited – 23 000 – 0.1 Less – Share awards to staff 2013 – (30 000) – (0.2) – Options exercised during the year (2 291 665) (154 666) (12.8) (0.8) Shares owned by the Trust at 31 December 14 867 289 17 158 954 83.3 96.1 The groups of persons to whom the shares will be allocated by the Trust have been identified. The loan receivable from the Share Trust is unsecured, interest free and has no fixed terms of repayment. The loan is eliminated on a Group basis but is reflected in the Company annual financial statements. The fair values relating to the share option expense were calculated using the Bermudan Binomial model. The inputs into the model of options granted during the year were as follows: 2014 2013 Weighted average exercise price (cents) 820 664 Expected volatility 25% 25% Expected life 5.8 years 5.8 years Risk free rate 8% 7% Expected dividend yield 3% 4% Expected volatility was determined by calculating the historical volatility of the Company’s share price over the previous six years. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. The broad-based scheme allocated shares to all employees based on a predefined period of employment. This scheme ran for a period of five years commencing September 2007. All shares issued per the broad-based scheme have fully vested but the Company still holds 584 550 (2013: 663 850) shares on behalf of the employees. The Group recognised total expenses of R3.2 million (2013: R2.9 million) related to share-based payment transactions during the year.
2014 INTEGRATED ANNUAL REPORT 83 GROUP OVERVIEW BUSINESS REVIEW CORPORATE GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDERS’ ANALYSIS
NOTES TO THE GROUP FINANCIAL STATEMENTS for the year ended 31 December 2014 (continued)
Audited Audited 2014 2013 R’m R’m 17. Deferred taxation assets Opening deferred taxation assets 17.8 22.6 (3.5) (6.4) Current year temporary differences (3.8) (6.6) Movement in deferred taxation assets relating to taxation losses 0.3 0.2 Prior year (under)/over provision (1.5) 1.6 Balance at end of the year 12.8 17.8
The balance comprises: Deferred and prepaid expenditure (2.2) (0.6) Allowance for future expenditure (S24C) (34.1) (28.9) Fees received in advance 44.5 38.7 Commercial building allowance (16.4) (10.3) Allowance for doubtful debts 17.4 12.6 Leave pay accrual 3.4 2.6 Property, plant and equipment (13.8) (12.8) Estimated taxation losses carried forward 0.5 1.3 Lease smoothing 8.9 9.3 Bonus provision 4.6 5.9 12.8 17.8
Deferred taxation accounted for in the statement of comprehensive income: Deferred and prepaid expenditure (1.6) 3.8 Allowance for future expenditure (S24C) (4.3) (4.5) Fees received in advance 5.8 5.5 Commercial building allowance (6.1) (4.5) Allowance for doubtful debts 4.9 (1.6) Leave pay accrual 0.8 (0.2) Property, plant and equipment (1.0) (7.0) Movement in taxation losses (0.9) 0.2 Lease smoothing (0.4) (0.7) Bonus provision (0.7) 2.6 (3.5) (6.4) 18. Investment Available-for-sale investment Shares 12.0 12.0 The Group holds 15% of the ordinary share capital of Star Schools (Pty) Ltd, a company involved in schooling, matric re-writes and the supply of educational study guides. The directors of the Company do not consider that the Group is able to exercise significant influence over Star Schools (Pty) Ltd as the other 85% of the ordinary share capital is held by two other shareholders, who also manage the day-to-day operations of that Company. The Group has an option to acquire up to 49% of the shares in Star Schools (Pty) Ltd after 31 December 2014, and the balance of the shares in Star Schools (Pty) Ltd after 31 December 2017 at a price to be determined at the time in accordance with the agreement, based on the average annual profit after taxation for the preceding 24 months in each instance.
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Audited Audited 2014 2013 R’m R’m 19. Inventories Books 0.3 0.9 Other 1.0 0.8 1.3 1.7 20. Trade and other receivables Amounts receivable from tuition fees 164.6 131.4 Amounts receivable for placement fees 11.8 13.3 Amounts receivable from the sale of goods and services 1.3 2.2 Trade receivables 177.7 146.9 Allowance for doubtful debts (83.1) (60.1) 94.6 86.8 Other receivables 59.0 24.7 153.6 111.5 There are no customers who individually represent more than 5% of the total balance of trade receivables net of allowance for doubtful debts. Ageing of past due trade receivables but not impaired 30 days 14.6 14.9 60 days 13.8 10.5 90 days 9.9 7.3 120+ days 44.7 33.9 Total 83.0 66.6 Movement in the allowance for doubtful debts Balance at beginning of the year 60.1 67.9 Impairment losses recognised on receivables 32.5 35.0 Impairment losses reversed (9.5) (42.8) Balance at end of the year 83.1 60.1 The concentration of credit risk is limited due to the customer base being large and unrelated. This allowance for doubtful debts has been determined by reference to past default experience. The directors consider that the carrying amount of trade and other receivables approximates their fair value. Ageing of impaired trade receivables 30 days 0.1 0.2 60 days 0.7 1.0 90 days 1.2 1.0 120+ days 81.1 57.9 Total 83.1 60.1
2014 INTEGRATED ANNUAL REPORT 85 GROUP OVERVIEW BUSINESS REVIEW CORPORATE GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDERS’ ANALYSIS
NOTES TO THE GROUP FINANCIAL STATEMENTS for the year ended 31 December 2014 (continued)
Audited Audited 2014 2013 R’m R’m 21. Cash and cash equivalents Bank balances 113.5 97.3 Cash 0.3 0.3 113.8 97.6 Bank balances and cash comprise cash held by the Group and short-term bank deposits with an original maturity of three months or less. The carrying value of these assets approximates their fair value. The carrying amounts of the Group’s bank balances are denominated in South African Rands.
Foreign Foreign Rand Rand Foreign currency currency equivalent equivalent currency 2014 2013 2014 2013 Nature of monetary item ’m ’m R’m R’m 22. Foreign currency exposure Trade credit British Pounds – 0.01 – 0.1
Audited Audited 2014 2013 R’m R’m 23. Share capital and share premium 23.1 Share capital Authorised 500 000 000 shares of 1 cent each (2013: 500 000 000 shares of 1 cent each) 5.0 5.0
Number Share Number Share of shares capital of shares capital 2014 2014 2013 2013 ’m R’m ’m R’m Issued Balance at 1 January 421.3 4.2 421.3 4.2 Balance at 31 December 421.3 4.2 421.3 4.2 In terms of the ordinary resolution passed at the Annual General Meeting, 3 935 878 (2013: 3 935 878) of the unissued shares are under the control of the directors subject to the provisions of the Companies Act and the requirements of the JSE Limited. Audited Audited 2014 2013 R’m R’m 23.2 Share premium Balance at 1 January 117.3 117.3 Balance at 31 December 117.3 117.3
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Audited Audited 2014 2013 R’m R’m 24. Bank loans Revolving credit facility 350.0 300.0 Bridge facility 200.0 – 550.0 300.0 These facilities are secured by mortgage bonds over properties having a net book value of R793.4 million. Refer to note 12. Revolving credit facility This represents the R350 million revolving credit facility that is available to the Group for a three year period commencing on 5 December 2012. The Group also has options to extend this facility for up to a further two years and at 31 December 2014 these options have been exercised. The facility utilised bears interest at the following rates on a proportionate basis: • 0.00% – 33.33% of utilisation JIBAR + 1.50% • 33.34% – 66.66% of utilisation JIBAR + 1.75% • 66.67% – 100.00% of utilisation JIBAR + 2.00% The Group has the option to make draw-downs for periods of 30, 60 and 90 days and can elect to roll these for further periods. Bridge facility This is a one year facility amounting to R1.350 billion which came into effect on 27 October 2014 and attracts interest at JIBAR + 1.50%. This facility was obtained in order to finance the acquisitions referred to in the directors report on pages 59 to 60. The directors are currently considering the Group’s capital structure and the refinancing of this facility. The directors are confident of the Group’s ability to secure funds to settle this obligation as and when it falls due as detailed in note 33. Refer to note 31 for details on securities. 25. Trade and other payables Trade payables and accruals 246.7 259.7 Leave pay accrual 12.1 9.3 Vendor claims 11.0 11.0 269.8 280.0 Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The directors consider that the carrying amount of trade payables, including the leave pay accrual, approximates their fair value. The average credit period on purchases is two months. No interest is charged on trade payables for the first 60 days from date of invoice. The Group has financial risk management policies in place to ensure that payables are paid within the credit time frame.
2014 INTEGRATED ANNUAL REPORT 87 GROUP OVERVIEW BUSINESS REVIEW CORPORATE GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDERS’ ANALYSIS
NOTES TO THE GROUP FINANCIAL STATEMENTS for the year ended 31 December 2014 (continued)
Audited Audited 2014 2013 R’m R’m 26. Provision Onerous lease – 1.8
Onerous Total lease audited Note R’m R’m Balance as at 1 January 2014 1.8 1.8 Reduction arising from payments (2.1) (2.1) Unwinding of discount 6.2 0.3 0.3 Balance at 31 December 2014 – – The provision for onerous lease represented the present value of future lease payments and related expenses that the Group was obligated to make under a non-cancellable onerous operating lease contract, less revenue expected to be earned on the lease, including estimated future sub-lease revenue, where applicable. The unexpired term of the lease is nil years (2013: 0.7 years).
Audited Audited 2014 2013 R’m R’m 27. Commitments 27.1 Capital commitments Capital expenditure approved by the directors: Contracted but not provided for 343.1 186.4 Not contracted 738.9 989.8 1 082.0 1 176.2 Capital commitments will be financed through existing facilities and working capital. Anticipated timing of spend: 0 – 2 years 473.4 357.9 3 – 5 years 348.1 306.6 more than 5 years 260.5 511.7 1 082.0 1 176.2 27.2 Operating lease commitments in cash Commitments under non-cancellable operating leases are as follows: Premises: Due within one year 88.9 72.9 Due within two to five years 222.5 155.7 Due thereafter 69.2 72.2 380.6 300.8 Equipment: Due within one year 0.1 0.3 Due within two to five years 0.1 0.2 0.2 0.5 380.8 301.3 The operating leases relate to premises and equipment with various lease terms.
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28. Financial instruments Financial risk management objectives and policies The Group’s principal financial instruments comprise investment, bank and cash equivalents and various items such as trade receivables and payables that arise directly from operations. All financial instruments are categorised as loans and receivables except for investments which are categorised as available-for-sale. The main purpose of these instruments is to finance the Group’s operations. Capital risk management The Group manages its capital to ensure that subsidiaries/divisions will be able to continue as going concerns while maximising the return to stakeholders through optimisation of the debt and equity balance. The Group’s overall strategy remains unchanged. The capital structure of the Group consists of bank and cash equivalents and equity, comprising issued capital, share premium, reserves and retained earnings. Capital projects are timed to coincide with additional capacity required to ensure facilities are utilised on completion.
Liquidity risk Cash balances are monitored daily and surplus funds are placed on short-term deposits. Bank overdraft, bridge and revolving credit facilities available at 31 December 2014 amounted to R1 782.2 million (2013: R387.6 million) of which R550.0 million (2013: R300.0 million) has been utilised at year end. The bank overdraft facility expires within a year whereas the bridge facility is available for a one year period ending October 2015 and the revolving credit facility is available to the Group until December 2017. These are considered adequate to finance operations. Refer to note 24.
Credit risk The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by international credit rating agencies. The Group’s credit risk is primarily attributable to its trade receivables. The amounts presented in the statement of financial position are shown net of allowances for doubtful debts. The Group has no concentration of credit risk, with exposure spread over a large number of counterparties and customers. The Group’s maximum credit risk exposure relates to the trade receivables of R177.7 million (2013: R146.9 million) and bank and cash balances of R113.8 million (2013: R97.6 million).
Interest risk The Group is exposed to interest risk on the bridge and revolving credit facilities and bank balances as these attract interest at a floating interest rate. The Group’s exposures to interest rate are managed as stipulated in the liquidity risk. If interest rates varied by 1% higher or lower and all other variables were held constant the Group’s profits would have increased or decreased by R1.4 million (2013: R0.9 million).
Foreign currency risk management The Group undertakes certain transactions denominated in foreign currencies. Hence, exposure to exchange rate fluctuations arises. Material foreign exchange exposures are hedged with a corresponding foreign exchange contract.
2014 INTEGRATED ANNUAL REPORT 89 GROUP OVERVIEW BUSINESS REVIEW CORPORATE GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDERS’ ANALYSIS
NOTES TO THE GROUP FINANCIAL STATEMENTS for the year ended 31 December 2014 (continued)
Audited Audited 2014 2013 Notes R’m R’m 29. Notes to the statement of cash flows 29.1 Cash generated from operations Profit before taxation 247.3 224.7 Adjust for non-cash IFRS and lease adjustments (before taxation) 3.8 3.9 251.1 228.6 Adjust: 94.0 67.3 Depreciation and amortisation 5 84.4 69.9 Net finance costs paid/(interest received) 6 9.1 (3.0) Loss on sale of property, plant and equipment 5 0.5 0.4
345.1 295.9 29.2 Movement in working capital Decrease/(increase) in inventories 0.4 (1.2) Increase in trade and other receivables and prepayments (63.3) (6.3) (Decrease)/increase in trade and other payables and provisions (12.6) 50.3 Increase in fees received in advance and deposits 16.1 24.4 (Increase)/decrease in working capital (59.4) 67.2 29.3 Taxation paid Balance at beginning of the year (3.1) (5.8) Current charge 7.1 (75.2) (64.2) Balance at end of the year 0.1 3.1 Cash amount paid (78.2) (66.9) 29.4 Capital distributions paid Balance at beginning of the year (0.9) (0.9) Balance at end of the year 0.8 0.9 Cash amount paid (0.1) – 29.5 Dividends paid Balance at beginning of the year (0.5) (0.3) Declared during the year 11 (105.7) (99.6) Balance at end of the year 0.6 0.5 Cash amount paid (105.6) (99.4)
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Audited Audited 2014 2013 Note R’m R’m
29. Notes to the statement of cash flows (continued) 29.6 Additions to property, plant and equipment to maintain operations Land and buildings (34.6) (24.6) Computer equipment (16.5) (19.2) Computer software (0.1) (2.4) Furniture, fittings and equipment (14.8) (15.5) Motor vehicles (2.6) (1.6) Video equipment (0.4) (0.4) Leasehold improvements (3.5) (9.6) (72.5) (73.3)
29.7 Additions to property, plant and equipment to expand operations Land and buildings (164.3) (220.0) Computer equipment (8.8) (2.9) Computer software (0.1) – Furniture, fittings and equipment (9.2) (2.0) Motor vehicles (1.7) (0.5) Leasehold improvements (43.4) (35.4) (227.5) (260.8) 29.8 Additions to property, plant and equipment through business combinations Land and buildings (16.0) – 32 (16.0) – 30. Related party transactions The parent and ultimate controlling party of the Group is ADvTECH Limited. Transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. Directors and prescribed officers Details regarding directors’ emoluments, interest and share options are disclosed in the Directors’ report on pages 58 to 59. 31. Group securities In terms of the Group’s banking arrangement, ADvTECH Limited, ADvTECH Resource Holdings (Pty) Ltd, ADvTECH Resourcing (Pty) Ltd, Kapele Appointments (Pty) Ltd and The Independent Institute of Education (Pty) Ltd have issued to its bankers unlimited cross guarantees including cessions of loan accounts on behalf of each other’s overdraft, bridge and revolving credit facilities. These facilities are also secured by mortgage bonds over properties having a net book value of R793.4 million. As at 31 December 2014 the total amount utilised amounted to R550.0 million (2013: R300.0 million).
2014 INTEGRATED ANNUAL REPORT 91 GROUP OVERVIEW BUSINESS REVIEW CORPORATE GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDERS’ ANALYSIS
NOTES TO THE GROUP FINANCIAL STATEMENTS for the year ended 31 December 2014 (continued)
Audited 2014 Notes R’m 32. Business combinations The assets and liabilities of the following entities were acquired: Snuggles was acquired on 1 January 2014 for consideration amounting to R12.0 million. The principal business activity is the provision of education. Non-current assets acquired Intangible assets 0.3 Goodwill 1.7 Property, plant and equipment 10.0 12.0 Tiny Town was acquired on 1 July 2014 for consideration amounting to R10.5 million. The principal business activity is the provision of education. Non-current assets acquired Intangible assets 1.2 Goodwill 3.9 Property, plant and equipment 6.0 Current liabilities acquired Current liabilities (0.6) 10.5
Total intangible assets 15 1.5 Total goodwill 14 5.6 Total property, plant and equipment 12, 29 16.0 Total current liabilities (0.6) Total consideration paid 22.5 Revenue of R6.7 million and profit after taxation of R1.1 million has been included in the consolidated statement of comprehensive income for the abovementioned entities. These acquisitions were made as additions to our Junior Colleges brand in line with our expansion strategy and will provide appointments for synergies.
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33. Going concern The annual financial statements of the Group and Company are prepared on a going concern basis. Nothing has come to the attention of the directors to indicate that the Group will not remain a going concern for the foreseeable future. The directors are confident of the Group’s ability to secure funds to settle the short-term bank loans as reflected in note 24, as well as the facilities amounting to R1.0 billion which were drawn down subsequent to year-end. The bridge facility is to be settled in October 2015 through three possible Take Out Arrangements summarised as follows: • A rights issue or other capital raising event; • Long-term debt facilities if preferable to equity raising; or • A Domestic Medium Term Programme. Management and the Board is in the process of investigating the most favourable take out option but is confident that all of the options are achievable and have engaged advisers to assist in determining the optimal financing structure going forward. Post year-end proposals have been received from banks on more permanent financing arrangements which the Board is considering. The key factors supporting the Group’s ability to replace the short-term financing with permanent financing options include: • the strength of the Group’s statement of financial position; • the fact that there is sufficient security available to secure long-term debt should this be required; and • the Group is expecting to continue to generate cash flows from operations to meeting any future debt and interest obligations. 34. Subsequent events Details regarding major acquisitions that concluded subsequent to year end are disclosed in the Director’s report on pages 59 to 60. The directors are not aware of any matter or circumstance between the date of the statement of financial position and the date of these financial statement that materially affects the results of the Group and Company for the year ended 31 December 2014 or the financial position at that date.
2014 INTEGRATED ANNUAL REPORT 93 GROUP OVERVIEW BUSINESS REVIEW CORPORATE GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDERS’ ANALYSIS
COMPANY STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 December 2014
Audited Audited 2014 2013 Notes R’m R’m Dividends received from subsidiaries 50.0 125.0 Staff costs 1 (3.8) (2.7) Other operating income 5.3 3.4 Operating profit before interest 1 51.5 125.7 Net finance costs (0.7) (0.4) Interest received 2.1 0.1 – Finance costs 2.2 (0.8) (0.4)
Profit before taxation 50.8 125.3 Taxation 3 (0.3) (0.1) Total comprehensive income for the year 50.5 125.2
COMPANY STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2014
Share Share Share option Retained Total capital premium reserve earnings equity R’m R’m R’m R’m R’m Balance at 1 January 2013 4.2 117.3 (6.5) 108.4 223.4 Total comprehensive income for the year 125.2 125.2 Dividends declared to shareholders* (99.6) (99.6) Share options exercised – – Balance at 31 December 2013 4.2 117.3 (6.5) 134.0 249.0 Total comprehensive income for the year 50.5 50.5 Dividends declared to shareholders* (105.7) (105.7) Share options exercised (1.6) (1.6) Balance at 31 December 2014 4.2 117.3 (8.1) 78.8 192.2
* Refer to note 11 of the Group annual financial statements.
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COMPANY STATEMENT OF FINANCIAL POSITION as at 31 December 2014
Audited Audited 2014 2013 Notes R’m R’m ASSETS Non-current assets Property, plant and equipment 4 0.1 – Investments in subsidiaries at cost 5 161.0 161.0 Loan to Share Incentive Trust* 83.3 96.1 Deferred taxation assets 6 0.3 0.6 244.7 257.7
Current assets Loans to subsidiaries 5 76.5 76.5 Trade and other receivables 7 4.5 3.0 Prepayments 0.1 0.2 81.1 79.7 Total assets 325.8 337.4
EQUITY AND LIABILITIES Capital and reserves Share capital 8.1 4.2 4.2 Share premium 8.2 117.3 117.3 Share option reserve (8.1) (6.5) Retained earnings 78.8 134.0 Total equity 192.2 249.0 Current liabilities Trade and other payables 9 3.5 0.7 Loans from subsidiaries 5 128.7 86.3 Shareholders for capital distribution 0.8 0.9 Shareholders for dividend 0.6 0.5 133.6 88.4 Total equity and liabilities 325.8 337.4
* Refer to note 16 of the Group annual financial statements.
2014 INTEGRATED ANNUAL REPORT 95 GROUP OVERVIEW BUSINESS REVIEW CORPORATE GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDERS’ ANALYSIS
COMPANY STATEMENT OF CASH FLOWS for the year ended 31 December 2014
Audited Audited 2014 2013 Notes R’m R’m Cash flows from operating activities Cash generated from operations 12.1 1.5 0.7 Movement in working capital 12.2 1.4 (5.2) Cash generated/(utilised) by operating activities 2.9 (4.5) Net finance costs (0.7) (0.4) – interest received 2.1 0.1 – – finance costs 2.2 (0.8) (0.4) Capital distributions paid 12.3 (0.1) – Dividends paid 12.4 (105.6) (99.4) Net cash outflow from operating activities (103.5) (104.3) Cash flows from investing activities Additions to property, plant and equipment – to maintain operations 12.5 (0.1) – Effects of share options exercised on the share option reserve (1.6) – Movement in the loan to the Share Incentive Trust 12.8 0.9 Net cash inflow from investing activities 11.1 0.9 Cash flows from financing activities Increase in net loans from subsidiaries 92.4 103.4 Net cash inflow from financing activities 92.4 103.4
Net increase in cash and cash equivalents – – Cash and cash equivalents at beginning of the year – – Cash and cash equivalents at end of the year – –
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NOTES TO THE COMPANY FINANCIAL STATEMENTS for the year ended 31 December 2014
Audited Audited 2014 2013 Note R’m R’m 1. Operating profit before interest Operating profit before interest is stated after taking the following into account:
Auditors’ remuneration 0.6 0.5 – Current year audit fee 0.5 0.4 – Prior year under provision 0.1 0.1
Directors’ emoluments – for services as directors 3.2 2.2 Staff costs 0.6 0.5 Total staff costs 3.8 2.7 2. Net finance costs 2.1 Interest received Call accounts 0.1 – 2.2 Finance costs Revolving credit facility fees (0.8) (0.4) Net finance costs (0.7) (0.4) 3. Taxation 3.1 Taxation expense comprises Deferred taxation – current year 6 0.3 0.1 Total taxation expense 0.3 0.1 Estimated taxation losses for the Company carried forward at year-end was R1.5 million (2013: R2.5 million). Deferred taxation assets have been raised for the full value of the estimated taxation losses in the Company. 3.2 Reconciliation of taxation Profit before taxation 50.8 125.3
Taxation at 28% 14.2 35.1 Permanent differences (13.9) (35.0) Disallowable expenditure 0.1 – Non-taxable income (14.0) (35.0)
Taxation expense recognised in profit 0.3 0.1
2014 INTEGRATED ANNUAL REPORT 97 GROUP OVERVIEW BUSINESS REVIEW CORPORATE GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDERS’ ANALYSIS
NOTES TO THE COMPANY FINANCIAL STATEMENTS for the year ended 31 December 2014 (continued)
Cost 1 Jan 31 Dec 2014 Additions Disposals 2014 R’m R’m R’m R’m 4. Property, plant and equipment Computer equipment – 0.1 – 0.1 – 0.1 – 0.1
Accumulated depreciation 1 Jan 31 Dec 2014 Depreciation Disposals 2014 R’m R’m R’m R’m Computer equipment* – – – – – – – –
Net book value 31 Dec 31 Dec 2014 2013 R’m R’m
Computer equipment 0.1 – 0.1 –
* Nil due to rounding.
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Interest of Holding Company Proportion held Loans directly or receivable/ Issued share capital indirectly Shares (payable) 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 2014 2013 2014 2013 2014 2013 2014 2013 Principal R R % % R’m R’m R’m R’m activity 5. Investments in and loans to and from subsidiaries Direct: The Independent Institute of Education (Pty) Ltd 2 2 100 100 101.2 101.2 (128.7) (86.3) 1 ADvTECH Resource Holdings (Pty) Ltd 3 150 023 3 150 023 100 100 59.8 59.8 70.0 70.0 2 Indirect: ADvTECH Resourcing (Pty) Ltd 10 10 100 100 6.5 6.5 3 ADvTECH Training (Pty) Ltd 2 2 100 100 4 Bryan Hattingh Independent Services (Pty) Ltd 1 1 100 100 4 Business Learning Systems (Pty) Ltd 1 000 1 000 100 100 4 Elezean Institute (Pty) Ltd 100 100 50 50 1/5 Kapele Appointments (Pty) Ltd 100 100 70 70 3 Resource Development International (Pty) Ltd 200 200 100 100 4 Strategic Connection (Pty) Ltd 100 100 100 100 4 The Design School Southern Africa (Pty) Ltd 1 1 100 100 4 161.0 161.0 (52.2) (9.8)
1 Independent provider of education. 2 Investment Holding Company. 3 Recruitment, placement and temporary staffing Company. 4 Dormant Company. 5 Dormant in the second half of the year.
Results of subsidiaries so far as they concern members of the Company: Aggregate profit after taxation R167.1 million (2013: R155.7 million). All companies are incorporated in the Republic of South Africa. The loans are interest free and there are no fixed terms of repayment. The inter-company loans do not carry any credit risk as the underlying entities are profitable and generate sufficient cash to meet their obligations.
2014 INTEGRATED ANNUAL REPORT 99 GROUP OVERVIEW BUSINESS REVIEW CORPORATE GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDERS’ ANALYSIS
NOTES TO THE COMPANY FINANCIAL STATEMENTS for the year ended 31 December 2014 (continued)
Audited Audited 2014 2013 R’m R’m 6. Deferred taxation assets Opening deferred taxation assets 0.6 0.7 (0.3) (0.1) Current year temporary differences 0.1 (0.1) Movement in deferred taxation assets relating to taxation losses (0.4) –
Balance at end of the year 0.3 0.6
The balance comprises: Deferred and prepaid expenditure – (0.1) Estimated taxation losses carried forward 0.3 0.7 0.3 0.6
Deferred taxation accounted for in the statement of comprehensive income: Deferred and prepaid expenditure 0.1 (0.1) Movement in taxation losses (0.4) – (0.3) (0.1) 7. Trade and other receivables Other receivables 4.5 3.0 Other receivables consist of inter-company receivables. The inter-company receivables are unsecured, interest free and have no fixed terms of repayment. The inter-company receivables do not carry any credit risk as the underlying entities are profitable and generate sufficient cash to meet their obligations. The directors consider that the carrying amount of other receivables approximates their fair value. 8. Share capital and share premium 8.1 Share capital Authorised 500 000 000 shares of 1 cent each (2013: 500 000 000 shares of 1 cent each) 5.0 5.0
Number Share Number Share of shares capital of shares capital 2014 2014 2013 2013 ’m R’m ’m R’m Issued Balance at 1 January 421.3 4.2 421.3 4.2 Balance at 31 December 421.3 4.2 421.3 4.2 The unissued shares are under the control of the directors subject to the provisions of the Companies Act and the requirements of the JSE Limited.
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Audited Audited 2014 2013 R’m R’m
8. Share capital and share premium (continued) 8.2 Share premium Balance at 1 January 117.3 117.3 Balance at 31 December 117.3 117.3 9. Trade and other payables Trade payables and accruals 3.5 0.7 Trade payables and accruals principally comprise amounts outstanding for ongoing costs. The directors consider that the carrying amount of trade payables approximates their fair value. The average credit period on purchases is two months. The Company has financial risk management policies in place to ensure that payables are paid within the credit time frame. 10. Financial instruments Financial risk management objectives and policies The Company’s principal financial instruments comprise various items such as trade receivables and payables that arise directly from operations. These items have been classified as loans and receivables. The main purpose of these instruments is to finance the Company’s operations. Capital risk management The Company manages its capital to ensure that subsidiaries/divisions will be able to continue as going concerns while maximising the return to stakeholders through optimisation of the debt and equity balance. The Company’s overall strategy remains unchanged. The capital structure of the Company consists of equity, comprising issued capital, share premium, reserves and retained earnings. Capital projects are timed to coincide with additional capacity required to ensure facilities are utilised on completion. 11. Contingent liabilities In terms of the Group’s banking arrangement, the Company has issued to its bankers unlimited cross guarantees including cession of loan accounts on behalf of The Independent Institute of Education (Pty) Ltd, ADvTECH Resourcing (Pty) Ltd, ADvTECH Resource Holdings (Pty) Ltd and Kapele Appointments (Pty) Ltd for bridging, overdraft and revolving credit facilities, which at 31 December 2014 were utilised and amounted to R550.0 million (2013: R300.0 million). (See note 24 and 31 of the Group financial statements).
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NOTES TO THE COMPANY FINANCIAL STATEMENTS for the year ended 31 December 2014 (continued)
Audited Audited 2014 2013 Note R’m R’m 12. Notes to the statement of cash flows 12.1 Cash generated from operations Profit before taxation 50.8 125.3 Adjust for non-cash items (50.0) (125.0) 0.8 0.3 Net finance costs 2 0.7 0.4 1.5 0.7 12.2 Movement in working capital Increase in trade and other receivables and prepayments (1.4) (1.2) Increase/(decrease) in trade and other payables 2.8 (4.0) Decrease/(increase) in working capital 1.4 (5.2) 12.3 Capital distributions paid Balance at beginning of the year (0.9) (0.9) Balance at end of the year 0.8 0.9 Cash amount paid (0.1) – 12.4 Dividends paid Balance at beginning of the year (0.5) (0.3) Declared during the year (105.7) (99.6) Balance at end of the year 0.6 0.5 Cash amount paid (105.6) (99.4) 12.5 Additions to property, plant and equipment to maintain operations Computer equipment (0.1) – (0.1) – 13. Related party transactions ADvTECH Limited performed certain administrative services for The Independent Institute of Education (Pty) Ltd and for ADvTECH Resourcing (Pty) Ltd for which management fees of R6.8 million (2013: R4.0 million) and R1.7 million (2013: R1.0 million) respectively were charged and paid, being an appropriate allocation of costs incurred by the relevant administrative departments. Refer to directors’ report for directors’ remuneration on pages 58 to 59.
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SHAREHOLDERS’ ANALYSIS at 31 December 2014
Number of % of Number of % of total Range of shareholding shareholders shareholders shares shares 1 to 10 000 3 449 76.1% 7 973 886 1.9% 10 001 to 100 000 781 17.2% 24 971 183 5.9% 100 001 to 500 000 176 3.9% 40 826 728 9.7% 500 001 to 1 000 000 41 0.9% 29 975 343 7.1% more than 1 000 000 83 1.9% 317 535 282 75.4% 4 530 100.0% 421 282 422 100.0% To the best knowledge of the directors and after reasonable enquiry, as at 31 December 2014, the spread of shareholders was as follows: Shareholder spread ADvTECH Share Incentive Scheme 1 0.0% 14 867 289 3.5% Directors (including prescribed officers and subsidiary directors) 9 0.2% 11 600 472 2.8% Non-public shareholding 10 0.2% 26 467 761 6.3% Public shareholding 4 520 99.8% 394 814 661 93.7% Total of all shareholders 4 530 100.0% 421 282 422 100.0%
Major shareholders According to the information available to the Company after reasonable enquiry, the following shareholders are directly or indirectly interested in 5% or more of ADvTECH’s share capital: Shares held Number % Coronation Fund Managers 109 501 983 26.0% Kagiso Asset Management 51 308 542 12.2% Old Mutual Investment Group 29 259 317 6.9% BD Buckham 23 587 611 5.6%
Share information 2014 2013 2012 2011 2010 Closing price at period end (cents) 870 657 620 620 595 JSE market price high (cents) 966 725 703 630 640 JSE market price low (cents) 658 600 561 540 505 Total number of transactions on JSE 19 877 12 610 8 402 6 481 5 306 Total number of shares traded 86 044 866 119 944 745 89 283 288 105 998 458 74 704 485 Total value of shares traded (R) 694 794 222 789 563 625 527 358 137 604 571 019 439 713 207 Average price per share (cents) 807 659 602 572 589 Shares in issue * 421 282 422 421 282 422 421 282 422 420 880 090 400 838 181 Percentage volume traded to shares in issue 20% 28% 21% 25% 19% PE ratio 21.1 17.1 18.0 15.9 16.0
* Shares in issue per JSE as at 31 December 2014.
2014 INTEGRATED ANNUAL REPORT 103 GROUP OVERVIEW BUSINESS REVIEW SUSTAINABILITY REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDERS’ ANALYSIS
SHAREHOLDERS’ DIARY
2015 Record date to determine which shareholders are eligible to receive the annual report Friday, 19 June Annual report posted Monday, 29 June Last date to trade to be eligible to participate and vote at Annual General Meeting Friday, 10 July Last date to be recorded as shareholder Friday, 17 July Proxy forms to be received by 10h00 Friday, 24 July Annual General Meeting to be held at 10h00 Tuesday, 28 July Results of Annual General Meeting published on SENS Tuesday, 28 July Interim results for the six months ended 30 June 2015 Monday, 24 August
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