Adapt IT shows resilience in a difficult year

Adapt IT, a JSE-listed provider of specialty software and digitally-driven business solutions, reported results for the fiscal year ended June 2021, showing marginal revenue growth, up 1 % to 1.5 billion rand.

Revenue growth has been affected by the continuation of the Covid-19 pandemic, related regulations and lockdown restrictions, he said. “While most of Adapt’s IT divisions did not experience major business disruptions during the lockdown, some were more affected than others, with project delays and inability of staff to be on site negatively affecting the revenues of these divisions. “

Net earnings per share (HEPS) fell 16% to 56.21 cents (2020: 66.88 cents), while standardized HEPS rose 6% to 81.61 cents (2020: 77.03 cents) , the group said.

Adapt IT’s board of directors has prioritized reducing borrowing and has remained cautious in preserving cash flow in these unprecedented times, and as such no dividends have been declared.

“Particular attention has been paid to working capital management and cost control and this focus will remain in the future,” the group said.

Financial performance

Sector and geographic diversification had served the company well as some divisions had outperformed while others had been affected by the Covid-19 pandemic. Sectoral contributions to turnover were as follows:

• The Education division recorded excellent revenue growth of 27% compared to the previous period. This is mainly due to the increase in demand for e-learning solutions. The division contributed 20% of total revenue and generated a profit margin before interest, taxes, depreciation and amortization (EBITDA) of 17% (2020: 20%).

• The Manufacturing division achieved a turnover similar to that of the previous period. However, it significantly improved its EBITDA margin to 23% (2020: 16%) thanks to improved operational efficiency. The division contributed 17% of total sales.

• The Financial Services division achieved 7% revenue growth, contributing 22% to total revenue, with an EBITDA margin of 23% (2020: 24%).

• The Energy division saw its turnover decline by 46%, contributing only 4% to total turnover. This is mainly due to the decrease in project income due to postponement or cancellation of projects and the inability of Adapt IT staff to be on site. This had a negative impact on this division and resulted in a slower recovery. The EBITDA margin was -4% (2020: 12%), with other operational efficiency projects currently underway. The business development capacity will be maintained to drive the sales pipeline.

• The revenue of the Communications division decreased by 3% due to the attrition of this team having an impact on the delivery of projects. It achieved an EBITDA margin of 26% (2020: 34%) and contributed 20% of total revenue.

• The Hospitality division was impacted by the measures put in place by the government in response to the Covid-19 pandemic in this industry and as a result, turnover decreased by 3%. The EBITDA margin significantly improved to 11% (2020: 8%) thanks to the operational efficiencies put in place by the company in response to the Covid-19 pandemic. The division contributed 17% of total sales.

The international contribution to income was 24%, of which 14% came from 38 African countries excluding South Africa and 8% came from Asia-Pacific, Europe and the Americas accounted for 2%. The annuity income ratio increased over the previous reporting period to 66% (2020: 62%).

Cash generated from operations was 382 million rand (2020: 274 million rand), representing a cash conversion ratio of 2.25 times.

“Apart from Covid-19, the weak economy and the impact of social unrest that has plagued many South African businesses, the past eight months have seen Adapt IT grapple with two corporate activities and has a change of CEO.

“Huge Group’s unsolicited share swap offer closed with 1.9% of Adapt IT shareholders accepting it. Huge then ceded all of those shares. As of June 30, 2021, the shareholder vote in favor of the Volaris transaction was raised to 87%.

“There are several conditions precedent to be met and the agreement is now in the final regulatory approval processes which are expected to be implemented in December 2021,” the group said.

“Adapt IT continues to benefit from its underlying diversification. This is done by more effectively assisting the current customer base as well as cross-selling and carefully developing the Pan-African and Asia-Pacific strategy. With our debt level significantly reduced from two years ago, we are also poised to resume our acquisition strategy, ”said Tiffany Dunsdon, CEO of Adapt IT.

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