Adapt IT defers dividend decision as profits slide

JSE-listed software services group Adapt IT reported a rare slide in profitability for the year ended 30 June 2019 and has deferred a decision on a dividend payment to shareholders to after the end of the calendar year.

Profit for the year was R76.4-million, down from R122.1-million in 2018, while normalised headline earnings per share from continuing operations fell by 6% to 76.2c.

The weaker bottom-line performance came despite a 14% improvement in revenue from continuing operations to more than R1.4-billion. Revenue growth was made up of an improved 5% organic growth in continuing operations and 9% from acquisitions.

“Despite the ongoing poor trading conditions, the majority of segments delivered double-digit organic growth,” the group said on Monday. “Under-performance in the energy segment had a significant impact on the results, with its earnings before interest, tax, depreciation and amortisation (Ebitda) reducing by R20-million.”

Once-off impacts on earnings included an impairment of R8-million on a fixed property held for sale and a negative foreign exchange movement year-on-year of R11-million.

“A net increase in loss allowances (provision for doubtful debts) of R4-million pursuant to the adoption of IFRS 9 (accounting standards) also impacted earnings,” it said. However, annuity revenue “remains healthy and an improvement on the previous reporting period to 61% (2018: 58%)”.

Ebitda from continuing operations improved by 3% to R229-million.

Performers

Standout performers in the 2019 financial year included the education division, where revenue rose by 24%, contributing 15% to total revenue; the manufacturing division, with revenue growth of 26%, contributing 21% to total revenue; and the financial services division, which grew 11% from continuing operations.

“The group experienced an unprecedented downward trajectory in its share price due to a fair amount of negativity within its peer group,” it said, no doubt in reference, at least in part, to the troubles at EOH Holdings. “Given the poor economic climate, the availability of acquisition opportunities at accretive valuations was limited. Under these conditions, complementary acquisitions, together with the share buyback, were the best application of capital to maximise shareholder returns,” it added.

During the year 15.5 million (10%) of issued ordinary shares were repurchased for R96-million. Interest-bearing borrowings increased to R501-million (2018: R214-million). The cash interest expense increased from R23-million to R38-million due to funding working capital, the share buyback programme and acquisitions, which were funded exclusively through cash.

“We also incurred once-off capital expenses of R44-million for hospitality business hosting licences for an average of five years. Net gearing is unusually high at 65% and will be reduced in the forthcoming year, to be closer aligned to the preferred net gearing ratio of 50%.”

Adapt IT said it is “prudent” to defer a decision on a dividend payment until after the interim period (which ends in December), when cash flows are “generally stronger from a ‘seasonality’ perspective”.

“While the results for the year under review showed moderate top-line growth, I am pleased to say that in a year of global macroeconomic challenges, Adapt IT made great strides in positioning itself for the next growth phase, with a strategic focus on geographic positioning, strengthening sales capabilities and ensuring that all the divisions are streamlined,” CEO Sbu Shabalala said in a statement.

Shabalala described the 2019 financial year as a “period of consolidation, bedding down the operations at the new Johannesburg campus, fortifying the leadership team and focusing on governance”.  This, he said, has “realigned the teams, enhanced group culture, will facilitate better cross-selling and standardise processes that are critical for sustainability.”

He said the South African market has “started to slowly pick up after a prolonged period of uncertainty”.

“This presents a flicker of good news as the strong customer focus, sector specialisation, skills and software that the group has at its disposal will assist in ensuring the operations take advantage of these green shoots.”  — © 2019 NewsCentral Media