Disappointingly, however, the recent fraud uncovered at the schools division head office negatively affected our reported results.


The restructuring of the finance and administrative functions in the schools division led to the uncovering of incidents of fraud amounting to R48.1 million, perpetrated by a financial manager in the division over a three-year period starting in 2015. These activities resulted in an over-statement of revenue, an understatement of costs and the theft of cash. The cash component amounts to R5.0 million. In aggregate, the misstatements and cash loss amount to R48.1 million, resulting in a R35.5 million after tax impact on the reported figures for the periods as reflected below:



The cash component of the fraud was embezzled through collusion between this financial manager and the external service provider. Approximately R2 million of these funds were secured by obtaining a court order to freeze the service provider's bank account and will be reclaimed following the completion of the necessary legal and administrative processes.

A thorough, comprehensive investigation was undertaken by a professional forensic auditing firm, Horwath Forensics SA, and the full extent of the fraud has been documented. Criminal charges were brought against the employee and the colluding external service provider. These charges are being vigorously pursued.

Management deeply regrets the occurrence of these events and their impact on all affected stakeholders. It does, however, underline the importance of the current restructuring initiatives aimed at enhancing the finance structures and improving the systems, controls and reporting processes in order to reduce this type of risk, in addition to improving operational efficiencies.

The correction of the fraud for the preceding two years as well as the current year was accounted for in the 2017 financial results.

The summarised consolidated statement of profit or loss presented above reflects the trading results by removing the effect of the fraud relating to 2015 and 2016 from the 2017 financial year. The 2016 trading profit was adjusted downwards to account for the overstatement caused by the fraud relating to that year and by excluding the benefit of the settlement of the long-standing litigation matter.


Revenue growth of 23% to R4.1 billion (2016: R3.4 billion) resulted from growth in all divisions. While the schools division's organic growth was somewhat muted as enrolments at some of our premium brands were impacted by financial pressures on families and the effects of emigration and "semigration", revenue still increased by 15% to R1.9 billion due to the inclusion of several acquisitions. The tertiary division continued its trend of excellent growth, benefitting mainly from organic growth but also acquisitions, resulting in revenue increasing by 26% to R1.6 billion. Revenue in the resourcing division increased by 40% to R644 million as the division benefited from its strategy to enter alternative markets outside South Africa, where we have experienced significant growth, while the South African brands retained their market share in a stagnant economy.

The strong revenue growth enabled the group to increase trading operating profit by 20% to R671 million (2016: R560 million). Trading operating margins, however, narrowed marginally from 16.8% to 16.4% due to the decrease in the schools division's margins as they brought new capacity into use that has not yet been filled, partially offset by an improvement in the tertiary division's margins.

The schools division's trading operating profit (adjusted for the fraud) increased by 3% from R321 million to R330 million. Despite the division's muted performance, we remain confident that our strategy is appropriate and, together with the plans in place, the division is expecting improved performance going forward. The tertiary division increased operating profit by 44% to R321 million and operating margins from 18% to 20% on the back of operational leverage from strong volume growth. The resourcing division improved operating profit by 59% to R32 million and improved operating margins from 4% to 5%. The division remains highly cash generative.

The higher average net borrowings, due to the acceleration in capital expenditure during the year, resulted in net finance costs increasing. Trading profit for the year increased by 21% while, due to a marginal increase in the weighted average number of shares in issue, the normalised earnings per share increased by 20% to 75.8 cents (2016: 63.3 cents).


The group's commitment to achieving its strategic goal of ambitious yet considered growth led to an investment of R934 million in capital expenditure and acquisitions. The elements that constitute the major activities in the group's investment programme are summarised below.


The main components of the capital expenditure programme were the acquisition of five sites for the future development of schools, the development of greenfield sites for The Bridge, Maragon Mooikloof and Crawford International in Kenya, the expansion of Copperleaf College and Founders Hill College and the fitting out of two Rosebank College Connected campuses in Bloemfontein and Pietermaritzburg and a new hospitality campus in Rosebank.

Through acquisitions and capital expenditure, the capacity of the schools division increased by 6% and we are now able to accommodate 33 000 students. Capacity on existing sites can be increased to accommodate a further 12 000 students while land banked sites will be developed to create capacity for an additional 10 000 students. Plans are in place to roll out the development of this capacity over approximately eight to ten years. In addition, the group continues to seek both greenfield and acquisition opportunities to expand or complement its offering.


The group has an inherently negative working capital model due to fees being payable in advance, while most costs are payable in arrears. Negative working capital amounted to R449 million at year-end (2016: R333 million) with the increase compared to last year mainly due to increased fees received in advance and deposits. Trade receivables continue to be well managed while the increase in other receivables was primarily as a result of deposits on capital projects and VAT refunds due, which have been received subsequent to year-end.

Free operating cash flow before capex grew by 28% to R597 million and amounted to 162% cash conversion. Cash generated by operating activities increased by 23% to R859 million, and together with financing inflows of R313 million, enabled the payments of investments and capex of R934 million, financing costs of R99 million, taxation of R175 million and dividends of R186 million.



Net borrowings have increased to R1.6 billion (2016: R1.1 billion) due to the funding required for capex and to settle the purchase consideration of acquisitions exceeding the net cash inflows from operating activities. The group remains well within its covenants at year-end, with net borrowings equating to approximately 2.0 times (2016: 1.5 times) EBITDA, while gearing increased to 56% (2016: 41%).

The group's inherently strong organic cash flow, which is expected to increase in line with earnings growth, together with the ability to leverage the balance sheet further, positions the group well to fund its future investment programme and enables it to consider significant additional growth opportunities. In this regard, additional banking facilities are currently being put in place to fund the group's investment programme. We will remain prudent by keeping a balance between an appropriate level of gearing to leverage improved returns for shareholders while not overextending the group.


The group has declared a final dividend of 19.0 cents (2016: 19.0 cents) per ordinary share in respect of the year ended 31 December 2017, which together with the interim dividend of 15.0 cents (2016: 13.5 cents) per share brings the total dividend for the year under review to 34.0 cents (2016: 32.5 cents) per share. In determining the level of dividend, the directors have considered the funding required to roll out the group's investment programme while maintaining an interim and final dividend. Taking this into account, and after careful consideration of the cash-generative characteristics of the group and the current debt levels, the directors believe it prudent to increase the dividend cover. The dividend payout ratio has therefore been increased to 2.2 times (2016: 1.9 times) relative to normalised earnings.

With the recent acceleration in the investment programme, which is expected to remain at elevated levels going forward, dividend cover is likely to be increased further in the years ahead as the group looks to preserve cash to fund this programme.


I would like to thank our shareholders and funders who have provided the means and support for us to carry out our expansion programme.

I would also like to thank the financial staff across all our divisions in the group for their commitment to accurate and relevant financial reporting. Your diligence and commitment is critical to our ability to provide high quality information that informs the decision-making of management, the board and our stakeholders.

Didier Oesch
Group financial director