Adapt IT Profits Fall, Defer Dividend

The South African market has started to slowly pick up after a prolonged period of uncertainty and remains the largest market that Adapt IT services.

ADAPT IT
ADAPT IT

Adapt IT reported a 6% drop in headline earnings per share (HEPS) from continuing operations to 57 cents for the year ended 30 June 2019.

HEPS is South Africa’s main profit gauge.

The JSE-listed services group also announced on Monday it has deferred a dividend decision until after the 31 December 2019 interim reporting date to reduce the net gearing ratio in the short-term

“The board has taken a decision that it is prudent to defer a dividend decision until after the interim period when cash flows of the group are generally stronger from a ‘seasonality’ perspective,” the company informed investors.

The group profit for the year was down R76.4-million versus R122.1-million in 2018.

Adapt IT CEO, Sbu Shabalala said that given the difficult economic climate locally and abroad, the year was used as a period of consolidation, bedding down the operations at the new Johannesburg campus, fortifying the leadership team, and focusing on governance – a period of introspection, so to speak.

“This has realigned the teams, enhanced group culture, will facilitate better cross-selling and standardise processes that are critical for sustainability,” he explained.

Adapt IT CEO, Sbu Shabalala.
Adapt IT CEO, Sbu Shabalala.

“Adapt IT has been consolidated in the Johannesburg campus for 16 months and is already experiencing an immensely positive employee engagement across the organisation.”

While revenue from continuing operations increased by 14% to R1,438 billion compared to R1,264 billion in 2018. Revenue growth comprised an improved 5% organic growth from continuing operations and 9% from acquisitions.

Shabalala added that through strategic acquisitions made during the financial year, geographic diversification and attractive technologies assisted the group in achieving the 9% acquisitive growth mentioned above.

Earnings before interest, tax, depreciation and amortisation (EBITDA) from continuing operations improved by 3% to R229 million. Shabalala said the group was extremely pleased with the EBITDA margin remaining steady at 16%, given the pressures experienced in the market.

Cash generated from operations was R179 million representing a cash conversion ratio of 1,08 times.

Having given consideration to the level of net gearing, which is unusually high at 65% and will be reduced in the forthcoming year to be closer to the preferred net gearing ratio of 50%, the board took a decision that it is prudent to defer a dividend decision until after the interim period when cash flows of the group are generally stronger.

Prospects

The South African market has started to slowly pick up after a prolonged period of uncertainty and remains the largest market that Adapt IT services.

“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,” said Shabalala.

The public sector also is an attractive space for Adapt IT as the sector becomes more accountable, and with an improved focus on governance; the group believes a careful approach will suffice in protecting it against the risks often associated with this sector.

“Adapt IT is poised to take advantage of its underlying diversification. This can be done by mining the current client base more effectively, focusing on sales in a cohesive manner, carefully expanding on the Pan Africa and Asia Pacific strategy and ensuring that all of this is done bearing good capital allocation in mind,” said Shabalala.

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