Private education group AdvTech has managed to grow its numbers amid the tough economic environment in SA but, as challenges continue at home, is expanding into other African markets that present more attractive growth opportunities.
This expansion, together with the performance from its tertiary division, helped the group to deliver an 11% increase in revenue to R4.4 billion for the year to end-December 2018, while operating profit was up 14% to R725 million.
AdvTech says in its results statement released on Monday that the “tough economic climate and socio-political environment” in SA continue to weigh on growth. The company is, however, making significant expansion through acquisitions in other African markets like Kenya to counter the impact.
The group’s overall enrolment numbers rose 11% to 70 456 in the latest reporting period, and this was mainly attributed to acquisitions made in African markets outside of SA. It says that at home, increased levels of withdrawals owing to emigration is a trend that has continued into 2019.
In the school’s division, AdvTech opened the Crawford International School in Nairobi, Kenya, which it says has received interest and contributed 189 enrolments during the period. The acquisition of Makini, also in Kenya, added seven schools, three campuses and boarding facilities in Nairobi and Kisumu to the portfolio, boosting student numbers by 3 197.
AdvTech’s school’s division increased revenue by 15% to R2.9 million, representing 46% of group revenue. It increased operating profit by 5% to R330 million but says that operating profit from schools in the rest of Africa declined due to the costs incurred ahead of the opening of the international school.
While the group touts the Kenya expansion as a success, it admits the investment has had a negative impact on margins. The group saw higher average net borrowings during the period, resulting from significant capital expenditure incurred in part by the acquisition of Makini, which led to an increase in financing costs.
In commenting on the expansion, AdvTech CEO Roy Douglas says the schools division has almost doubled in the last few years. “We moved into a phase of consolidation, rationalisation and focusing on integration of acquisitions.” He says the group is confident that the initiatives will pay dividends in the longer term.
Meanwhile, AdvTech’s tertiary portfolio, which includes Varsity College, Rosebank College and Vega, grew revenue by 10% to R1.7 billion despite pressures at home. This makes for a 39% contribution to overall group revenue. The division’s operating profit rose 23% to R395 million off the back of operational leverage from volume growth that saw the operating margin improve from 21% to 23%.
Three new campuses opened during 2018, including two digitally enabled; Rosebank College Connected sites in Pietermaritzburg and Bloemfontein. The Rosebank College portfolio now consists of mega campuses in Johannesburg, Pretoria and Durban with a mega campus in the pipeline for Cape Town in 2020.
AdvTech says the acquisition of Monash South Africa for R343 million, which was concluded during 2018 and is subject to regulatory approval, will be implemented come year-end considering all conditions are fulfilled. Should the offer go through successfully, it will take AdvTech’s higher education student complement to more than 40 000 students.
The group’s resourcing division, another contributing factor to the overall performance, increased operating profit by 22% to R39 million. AdvTech says the division’s results can be attributed in part to the diversification strategy.
While the company expects challenges to continue in the SA market due to the depressed economic environment, Douglas says he is confident about the outlook for the business going forward. “The demand for quality education continues and the business is in a strong position to meet this demand as we continually identify opportunities both in South Africa and on the rest of the continent.”
The company announced a final gross dividend of 15 cents per share. This brings the full year dividend to 30.0 cents per share. AdvTech’s share price was down 0.88% to R12.23 at 3:55pm on Monday.