Adapt IT shows resilience in challenging year

JSE-listed Adapt IT, a provider of specialised software and digitally-led business solutions has announced results for the financial year ended June 2021, showing a marginal increase in revenue, up 1% to R1.5 billion.

Revenue growth has been impacted by the continued Covid-19 pandemic, related regulations and lockdown restrictions, it said. “While most Adapt IT divisions did not experience major business disruptions during the lockdown, some were more affected than others, with project delays and the inability of personnel to be onsite negatively affecting revenue in these divisions.”

Headline earnings per share (HEPS) decreased by 16% to 56.21 cents (2020: 66.88 cents), while normalised HEPS increased by 6% to 81.61 cents (2020: 77.03 cents), the group said.

Adapt IT’s board has prioritised the reduction of borrowings and has remained prudent in preserving cash during these unprecedented times, and as such, no dividend has been declared.

“Stringent focus was placed on working capital management and cost control and this focus will remain going forward,” the group said.

Financial performance

The sector and geographic diversification had served the company well as some divisions had outperformed while others had been affected by the Covid-19 pandemic. Segment contributions to revenue were as follows:

  • The Education division delivered excellent revenue growth of 27% compared to the prior period. This was driven primarily by increased demand for eLearning solutions. The division contributed 20% to total revenue and delivered Earnings before interest, tax, depreciation and amortisation (EBITDA) margin of 17% (2020: 20%).
  • The Manufacturing division delivered revenue similar to the prior period. However, it has significantly improved its EBITDA margin to 23% (2020: 16%) as a result of improved operational efficiencies. The division contributed 17% to total revenue.
  • The Financial Services division achieved revenue growth of 7%, contributing 22% to total revenue, with an EBITDA margin of 23% (2020: 24%).
  • The Energy division experienced a decrease in revenue of 46%, contributing just 4% to total revenue. This is mainly due to the decrease in project-based revenue as a result of projects being postponed or cancelled and the inability of Adapt IT’s personnel to be onsite. This negatively impacted this division and resulted in a slower recovery. The EBITDA margin was -4% (2020: 12%), with further operational efficiency projects currently underway. Business development capability will be maintained to drive the sales pipeline.
  • The Communications division’s revenue declined by 3% due to attrition in this team impacting project delivery. It achieved an EBITDA margin of 26% (2020: 34%) and contributed 20% to total revenue.
  • The Hospitality division was impacted by the measures implemented by the government in response to the Covid-19 pandemic in this industry and consequently, revenue declined by 3%. EBITDA margin improved considerably to 11% (2020: 8%) due to the operational efficiencies put in place by the company in response to the Covid-19 pandemic. The division contributed 17% to total revenue.

International revenue contribution was 24%, of which 14% was from 38 African countries outside South Africa and 8% was from Asia Pacific, Europe and the Americas contributed 2%. The annuity revenue ratio increased in the previous reporting period to 66% (2020: 62%).

Cash generated from operations was R382 million (2020: R274 million) representing a cash conversion ratio of 2.25 times.

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

“The unsolicited Huge Group share swap offer closed with 1.9% of Adapt IT shareholders having accepted it. Huge subsequently disposed of all these shares. On 30 June 2021, the shareholder vote in favour of the Volaris deal was carried at 87%.

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

“Adapt IT continues to take advantage of its underlying diversification. This is done by assisting the current client base more effectively as well as cross-selling and carefully expanding on the Pan Africa and the Asia Pacific strategy. With our debt level significantly reduced from two years ago, we are also ready to resume our acquisitive strategy,” said Tiffany Dunsdon, CEO of Adapt IT.


Read: Adapt IT rejects Huge Group takeover bid

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Adapt IT shows resilience in challenging year