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Adapt IT looks for African growth

Paula Gilbert
By Paula Gilbert, ITWeb telecoms editor.
Johannesburg, 22 Aug 2016
CEO Sbu Shabalala says Adapt IT is intensifying its efforts outside of SA while the local market remains under pressure.
CEO Sbu Shabalala says Adapt IT is intensifying its efforts outside of SA while the local market remains under pressure.

Adapt IT plans to grow its international business more in the next year, as tough conditions in South Africa push it to look for opportunities further afield.

"We are in a strong position, especially from a diversification perspective, because we are now very diversified outside of South Africa and that is where we really see opportunities going forward. We will be intensifying our efforts outside of the SA market while the market here remains under pressure," CEO Sbu Shabalala told ITWeb in a telephonic interview.

This after the Durban-based IT firm posted another strong set of full year results last week - with headline earnings per share for the year to 30 June 2016 rising 36% year-on-year. Turnover grew 38%, to R796 million, of which organic growth was 9% and acquisitive growth was 29%. Operating profit for the year also grew 58%, to R136 million.

Shabalala says he is really proud of the strong overall performance of the business, particularly in a really tough market.

"The South African market is growing at 0% but our organic growth drive paid off with 9% growth. We don't expect an immediate turnaround [in the SA economy]. The turnaround will be slow but our strategy is quite resilient in ensuring that as the market turns, we will be better positioned to take advantage of the SA market," says Shabalala.

The company provides specialised software solutions and services to the education, manufacturing, energy and financial services sectors. Adapt IT has customers in 38 countries across Africa, Australasia, Europe and North America.

However, SA is still the company's key market - bringing in 73% of overall turnover. Around 13% comes from other African countries and the remaining 14% is split between the Americas, Australasia and Europe.

"As a business, we are diversifying. The demand for our software is not only limited to SA; we are extending that offshore, but most of our people are still based in SA even though we service customers globally," says Shabalala.

Adapt IT now covers the whole SADC region and has customers in 22 African countries. Shabalala says a focus point is now to proximate the business' presence on the continent to be able to service those customers.

"We opened an office in Botswana in the last year to drive the great growth we are seeing from that country. We are also looking at developing a bigger presence in the East African market, particularly in Kenya because there is a thriving ICT market there, to ensure we can be closer to some of our clients there. Then, in time, we will look at other regions as well. But we are already covering a large number of countries and doing all of that from SA at the moment."

He says the group's international business is run from Mauritius and he believes there is a lot more growth to come from the international markets outside of Africa. Shabalala sees potential in the Australasian market - where the group has already done a few small acquisitions - as well as "a lot of opportunity" in both North and South America.

Purposeful purchases

"We are always on an acquisition drive," financial director Tiffany Dunsdon told ITWeb telephonically.

She says the company is always open to acquisition opportunities if it finds suitable, complementary businesses on offer.

"We always look at acquisitions based on merit rather than determining a geography upfront. What we are really looking for is the software intellectual property that we can globalise - so it really doesn't matter where the acquisition is, so long as the software can be taken globally by the group," explains Dunsdon.

Shabalala says Dunsdon's role has recently been realigned to focus on mergers and acquisitions (M&A) as the company strives to find suitable businesses to integrate.

"We are also beefing up our team and readying ourselves for what is to come - because we expect growth," he says.

This includes the recent appointment of Nombali Mbambo as the group's new CFO. Mbambo is a chartered accountant who previously worked in key roles at Alexander Forbes, Absa Capital and Unilever before joining Adapt IT in March 2016 as CFO-elect. She officially took up the role of executive director and CFO on 18 August.

"[Mbambo's appointment] is particularly to make sure we don't lose focus on our organic growth drive. Because as a business we see a lot of value in exporting our software to other markets and that is what is driving growth and acquiring customers both inside and outside South Africa - that is our first priority," says Shabalala.

He says the company is excited about boosting its growth in international markets.

"We will be making some investments to start our presence in new markets and creating a channel for our products - that is going to drive our foreign business growth.

"But we are also excited about the SA market because most of the M&A opportunities that we see are in consolidation that is happening in the local market. We are seeing a lot of SA businesses seeking to join forces with Adapt IT to take advantage of the channels we have created over the years," he concludes.

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