Adapt IT underlines South Africa challenges in muted earnings

Adapt IT on Tuesday (9 March) reported a 2% drop in revenue for the six months ended December 2020, to R707 million, due to ongoing challenging and weaker trading conditions particularly in South Africa – which remains the group’s primary market, constituting 73% of total revenue.

Profit from operations, however, improved by a percent, to R79.83 million.

“The Covid-19 global pandemic caused repeated shutdowns or slowdowns in certain of our client segments resulting in project volume decline and delays, with project based revenue suffering longer lead times,” it said.

Earnings before interest, tax, depreciation and amortisation (EBITDA) was R128 million, marginally down from R129 million in 2019.

The impacts on earnings in the current period included an increase in bonus provision of R16 million, a negative foreign exchange movement of R10 million, and an increase in the allowance for expected credit losses of R7 million resulting from client segments most impacted by Covid-19, it said.

Headline earnings per share (HEPS) increased by 44% to 20.69 cents from 14.40 cents and normalised HEPS increased by 16% to 32 cents from 27.70 cents.

Adapt IT provides specialised software and digitally-led business solutions  predominantly in the education, manufacturing, financial services, energy, communications and hospitality industries.

The education division delivered revenue growth of 15% compared to the prior comparative period. This was driven primarily through increased demand for eLearning solutions, the group said. This division contributed 19% to total revenue and delivered EBITDA margin of 18%.

The manufacturing division experienced a 7% decrease in revenue due to project volume declines and delays, however delivered an EBITDA margin of 16%, Adapt IT said. The manufacturing division contributed 17% to total revenue.

Financial services achieved revenue growth of 8%, contributing 20% to total revenue and delivered a 20% EBITDA margin (2019: 18%).

The energy division experienced a 32% decrease in revenue as a result of the drop in project revenue, contributing 5% to total revenue, Adapt IT said. EBITDA margin was 1% (2019: 12%) with further operational efficiency projects currently underway.

The communications division grew 3%, achieving an EBITDA margin of 25% (2019: 31%) and contributing 21% to total revenue.

Adapt IT pointed out that its hospitality division was significantly impacted by the measures implemented by government in this industry to respond to Covid-19, with revenue down by 14%.

EBITDA margin improved considerably to 14% (2019: 9%) with the acceleration of the operational efficiency projects to respond to Covid-19. The hospitality division contributed 18% of total revenue.

Looking ahead, the group said that the South African economy has been hard hit by the Covid-19 pandemic and the associated regulations. The impact on Adapt IT’s segments is mixed, with some presenting new opportunities, such as the increased drive to eLearning, amongst others.

Read: Adapt IT sees improved earnings

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Adapt IT underlines South Africa challenges in muted earnings