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ADvTECH interims underline diversified group strength

Higher numbers of school leavers a concern, and ‘the one area that we are trying to improve on is our Academy brand’ says CEO Roy Douglas.

NASTASSIA ARENDSE:  Private education group ADvTECH delivered interim numbers today, with revenue up 22% to R2 billion, and headline earnings per share up 6%. But they did note the higher numbers of South African families that are emigrating is hurting enrolment numbers at its schools.

I had a conversation with Roy Douglas, CEO of ADvTECH, to look at the different business units. Take me through the numbers that you delivered, the key drivers.

ROY DOUGLAS:  We are very pleased with the results in terms of being up 22% in our trading, profit being up 28% – at normalised earnings level that’s 23%. So overall we think it’s a really good set of results, and underlines the diversified strength of the group. So it was very pleasing.

Obviously it featured excellent results from our tertiary division, where revenue was up 33% and profits up some 56%. And our resourcing business too in a very tough environment has delivered a set of stellar results with revenue up 38% and profit up by 111%. So we are very pleased overall with those results.

The schools division was a little muted and there are some specific reasons as to why we certainly are feeling the effects of the socio-economic circumstances at the moment. But we have a lot of plans in place and we are still optimistic about the future in that sense.

NASTASSIA ARENDSE:  In terms of the growth areas, you mentioned that the Western Cape was an area you were looking at, where you felt your presence was not where you wanted it to be. In which areas now, when you look at South Africa as a whole, are you seeing opportunities?

ROY DOUGLAS:  You are quite right. We have in fact highlighted the Western Cape as being weak for us in terms of our geographic representation, and we continue to look to improve our position. In that regard we have announced the acquisition of Elkanah School in Cape Town and I’m pleased to say that the Competition Commission approvals have now been given. So that will now become a formalised transaction and part of the group in the second part of this year.

And also Glenwood, of course, which is in the George Area; that’s an acquisition which we’ve made. So we have made strides to improve our presence there. We are also looking at a number of new sites and we’ve certainly upped our efforts to improve our representation in the Western Cape.

I think aside from that, which continues to be quite an important priority for us, we look really at the growth nodes. Obviously I think we’ve got a good representation in KwaZulu-Natal. And in the Gauteng region, of course, which probably has the largest share of growth again, we have a solid presence.

But probably the one area that we are trying to improve on is our ADvTECH Academies brand, which has shown good growth and in fact our enrolments there have exceeded our expectation and we are looking for opportunities to roll out more of the ADvTECH Academies brand into the Gauteng region in particular, as well as, of course, into the Western Cape and KwaZulu-Natal. So that’s a new brand for us.

NASTASSIA ARENDSE:  In terms of your growth targets, going towards 2018, are you still on track? I do remember you mentioning that for the next three years you have certain targets which you want to meet.

ROY DOUGLAS:  Yes, indeed. We have put out an ambitious set of targets of R1 earnings per share by 2018 – and ja, we are still on track. This set of results I think underpins that target and that ambition. There is no doubt that the environment is tough, and that is a stretched target. But we are confident that the plans that we have, that we can execute those effectively, and that that’s still a realistic target for us to be aiming towards. So we certainly are still looking to deliver on that target.

NASTASSIA ARENDSE:  In terms of the rise of online learning, and perhaps even as well your blended offering that you piloted in Polokwane, how is that going with regard to perhaps rolling it out even further?

ROY DOUGLAS:  Indeed it’s going extremely well. The first set of academic results from that Polokwane pilot experiment of our digitally enabled campus has been very pleasing. Of course it is a new methodology in the delivery of quality education offerings. It’s not only the students, who quite honestly probably adapt a lot quicker, but of course the lecturers have to become familiar with the new system, which is a combination of both online learning and online interaction for both students and staff, as well as face-to-face delivery.

So overall we are very pleased with the results in Polokwane, and in fact that’s encouraged us. We’ll be opening two new campuses in 2018, one in Pietermaritzburg and one in Bloemfontein, and then with a continued rapid rollout into some other provincial centres in 2019. I think we are looking at opening a further two campuses then. So it is a format. We are very encouraged by the results and the response that we’ve had, and we are intending to roll that out quite aggressively into the future.

NASTASSIA ARENDSE:  Beyond our borders what’s the performance looking like there?

ROY DOUGLAS:  We continue to explore a variety of opportunities. I think we are very encouraged by the opportunities that we have found. I’m not in a position to be able to talk on any of those at this point in time, because of course we are still very much involved in negotiations and nothing is actually finalised until the contracts are signed and the ink is dry. But I think what we are pleased with is the variety of opportunities that we are seeing and that gives us great encouragement. So the process of negotiation and interaction is always a long one. We’re in new geographies, we are being careful and considered in our investments, but we are very excited by the opportunities and the number of opportunities and variety of opportunities that we are finding.**

So we will continue to work hard at those and hopefully in the near future we’ll be able to provide a little more detail. But it is exciting.

NASTASSIA ARENDSE:  One of the things that I picked up while going though your Sens announcement, looking at the schools division, you mentioned that there seems to be a consistent rise in the number of families who are emigrating. When you look at the business as a whole and the different divisions, which of the pile of divisions concern you?

ROY DOUGLAS:  The problem is that the underlying level of demand – in other words, the new students that have enrolled, have been very much in line with our expectations. What has shifted and changed is the number of leavers that we’ve had from the system, and primarily due to emigration and relocation. That certainly is a trend that has increased quite significantly to the extent that it’s had quite an impact on our net enrolments. The problem with those leavers is that of course whereas we recruit into well-known entry points in the school system at the pre-primary, primary and senior school levels, the problem with leavers is that they can occur at any grade. And often it’s difficult to replace those students at what I call “not the traditional” entry points. Once a child leaves, although we have some leavers and some arrivals, if you lose students from those upper grades, those sort of non-traditional entry points, if you like, it becomes very difficult to replace. And that’s had an impact on us.

We run a portfolio of brands, a variety of offerings that are focused very specifically on different target markets, and we’ve certainly seen some shifts. But at the upper end we certainly are seeing higher levels of emigration and that’s combined also with of course the massive pressures that consumers are under at the moment.

We certainly have seen a rise in the number of students that are excluded or have had to withdraw for financial reasons, and I think that’s just an unfortunate effect of the current socio-economic climate that we are operating in.

NASTASSIA ARENDSE:  Going forward, what will you and your team be focusing on?

ROY DOUGLAS:  We’ve got a variety of initiatives. I think obviously we are very excited about the response to the ADvTECH Academy brand. They have enrolments that exceeded our expectations, so we are looking at opportunities to roll out ADvTECH Academies.

With the acquisitions and mergers that significantly grew our schools business, there remain a number of integration and merger benefits, primarily around transaction processing. The process of integrating schools into our portfolio of course is a complex one, but there are still a number of opportunities that we are able to explore and to take advantage of in the sense of consolidation of transaction processing. And then actually focusing each of the brands on its very specific market and providing the resources and skills that they require in order to be able to optimise their market positions is something else that we are focusing on.

So we are looking to increase the number of enrolments of those traditional entry points to offset some of the departures that we experience at later grades. In the past we understood what that ratio was and, because it’s shifted now with the higher level of leavers, it’s appropriate that we should look to be perhaps taking on more students at those traditional entry levels, providing more classes, which hopefully would compensate and offset for some of the departures at later stages, if that’s the trend.

NASTASSIA ARENDSE:  Roy Douglas, thank you so much for your time.

 

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