Emigration, financial pressure affect ADvTECH’s profitability

JSE-LISTED ADvTECH said yesterday that a consistent rise in the number of families emigrating had a negative effect on enrolled numbers in its schools division.

This has led to the group reporting muted results in the division, rising only by 5 percent in operating profit for the six months to end June, while the group reported an overall 28 percent increase.

Chief executive Roy Douglas said that the difficult economic climate and unsettled socio-political environment had a more significant effect on school enrolment numbers than had been anticipated.

“We have seen a consistent rise in the number of families emigrating and this trend had a particularly negative effect on enrolled numbers as we lose students in grades where it is difficult to replace,” Douglas said. He said the group had also seen withdrawals and exclusions as a result of financial pressures.

“Although we don’t foresee short-term relief from the socio-economic uncertainty, we are confident we will see a return to higher levels of profitability as growth projects and restructuring efforts deliver results,” he said.

Despite the challenges in the schools division, the group reported an increase of 22 percent in revenue to R2 billion, up from R1.64bn while operating profit rose 28 percent to R344 million, up from R269.7m, with the group attributing the performance to its diversified portfolio.

The group operates three divisions: schools, tertiary and resourcing. The resourcing performed extremely well during the period and managed to lift its operating profit by 111 percent to R18m and revenue by 38 percent to R309m. The tertiary division also reported encouraging growth with operating profit gaining 56 percent to R157m and revenue up by 33 percent to R789m while the schools revenue rose by 10 percent to R904m.

The group declared interim dividend of 15 cents a share.

Nolwandle Mthombeni, an investment analyst at Mergence Investment Managers, said the overall result was very good and boosted mainly by the tertiary division. “The diversity of having both schooling and tertiary offering has made ADvTECH more defensive,” Mthombeni said. She said the school division should be able to deliver double digit growth on the back of fee increases as enrolment increases.

“The weak earnings is a function of the less than satisfactory enrolment growth. Given the fact that ADvTECH operates in the higher fee segment it is likely that lack of affordability is hindering the enrolment growth. That coupled with limitations in reducing costs and teachers’ salaries are largely fixed in nature means that profit growth will be low,” Mthombeni said.

ADvTECH shares remained flat to close at R16.80 on the JSE yesterday,