Weak economy takes its toll on Adapt IT

Listed technology group Adapt IT reported a slight decline in revenue and flat earnings in the six months ended 31 December 2018 as the weak South African economy took its toll.

Headline earnings per share climbed by just 1% (5% normalised) on the back of a decline in revenue from R676-million to R667-million. Adapt IT generates 78% of its turnover in South Africa, with 14% coming from the rest of Africa.

“There was no organic growth from continuing operations due to the challenging economic environment persisting in the South African market, particularly low project turnover in the energy and hospitality sectors,” the group said on Tuesday.

Acquisitive growth was 4%. One positive was earnings before interest, tax, depreciation and amortisation (Ebitda) from continuing operations, which increased by 10% to R118-million, representing an improvement in the Ebitda margin to 18% from 16% a year ago.

“Annuity turnover is a healthy 58% over the period and the five-year compound annual growth rate for turnover was 21%,” it said. Cash generated from operations grew by 105% to R58.3-million (2017: R28,5 million).

It is Adapt IT’s policy not to pay a dividend at the half-year.

It said it raised funds from Standard Bank in December 2018 to fund future working capital requirements and acquisitions. Proceeds from the facility were also applied to settle monies owed to Investec.

Acquisitions

During the first six months of the financial year, Adapt IT bought Strive Software for R12.5-million, which was consolidated effective 1 September 2018. “This serves to augment the education division’s offerings by facilitating diversification into the private college market.”

It also bought the remaining 30% minority shareholding of CQS Confirmations, a subsidiary originally acquired with the CQS business, for a consideration of R15.7-million, which was effective 1 December 2018.

It acquired Conor Solutions for R80-million. This business provides software to the telecommunications industry focused on mobile technologies. Conor was consolidated with effect from 31 December 2018 and had no contribution to comprehensive income in the latest results.

Adapt IT repurchased three million (1.9%) of its issued ordinary shares in the open market for R22.3-million at an average price of R7.33/share during the reporting period. It held 10.8 million treasury shares at the end of 2018.

“Despite the current market conditions, our medium and longer-term outlook is optimistic as we continue to build upon the strong foundation we have established to create a sizeable, scalable, leading ICT business.”

Adapt IT said it is “well diversified” across industry sectors and geographies and will continue to extend geographic reach across Africa and the rest of the world. “Foreign markets represent 22% of turnover while software and services are delivered to 24 other African countries. This expansion is a key factor in diversifying market risk and growing hard-currency revenue streams.

“While most of the group’s revenue is generated from South Africa, the outlook is to continue to diversify the business into the rest of Africa and global markets.”

Adapt IT’s shares were trading 1.7% lower shortly after the market opened in Johannesburg on Tuesday at R6.26 apiece. In the past year, the shares have lost 33% of their value. Over three years, they have fallen by 48.6%.  — © 2019 NewsCentral Media