JSE-listed Adapt IT's turnover for the past financial year increased 25% to R993.7 million.
This is according to the group's financial results for the year ended 30 June, released today, which showed organic growth was 6%, while acquisitive growth was 19%.
"We have been consistent in pursuing diversification through an organic and acquisitive growth strategy, which has contributed to this positive set of results for Adapt IT in the face of challenging market conditions," says CEO Sbu Shabalala.
Adapt IT says it derives 76% of its turnover from the South African market and it is not surprising that organic growth contributed 6%, compared to 9% a year ago, as its primary market continued to be under pressure.
"Adapt IT derives 14% of its revenue from other African countries and 10% from the Americas, Australasia and Europe. It will continue its diversification into international markets to counter the effects of concentration in the local market," adds Shabalala.
The company is a provider of specialised software solutions and services to the education, manufacturing, energy, financial services and hospitality sectors. It services more than 10 000 customers in 40 countries and has local offices in Durban, Johannesburg, Pretoria and Cape Town, and international offices in Mauritius, Botswana, Ireland, Australia and New Zealand.
It saw earnings before interest, tax, depreciation and amortisation (EBITDA) grow 18% to R194 million, in line with turnover growth, while maintaining a healthy EBITDA margin of 20%.
Adapt IT's headline earnings per share (HEPS) increased 2% to 58.76cps, while normalised HEPS increased 10% to 78.96cps. Normalised headline earnings increased 21.5% to R118.5 million. The group declared an ordinary dividend of 13.7cps.
Adapt IT disclosed normalised headline earnings for the first time in its interim results in February 2017, as a result of the high non-cash expenses recognised in terms of International Financial Reporting Standards due to its acquisitions.
Non-cash acquisition-related expenses are mainly the amortisation of intangible assets (such as internally developed software and customer relationships) and notional interest on deferred purchase considerations, which are based on the achievement of profit warranties.
Non-cash amortisation costs of R21 million and notional interest costs of R9.3 million, which totalled R30.3 million, were expensed for the year, compared to R19.2 million the previous year. The group says that is because acquisitions of this nature will be an ongoing hallmark of the company and it will report normalised earnings on an ongoing basis.
"While the current market conditions are challenging, our outlook remains positive as we continue to pursue a diversified growth strategy aimed at creating a global specialised software business that has annualised turnover of R3 billion by 2020 through a combination of organic revenue growth and strategic acquisitions."
Acquisitive growth
Adapt IT's acquisitive growth was boosted in the year by the acquisition of 100% of EasyRoster, effective 1 August 2016. The acquisition was in line with the company's strategy of targeted acquisitive growth and it says it will augment the group's manufacturing segment.
EasyRoster has 20 years' experience in the development of software tools for operational management, and a national and international customer footprint in over 25 countries. The purchase price of R87 million was funded through a combination of the issue of one million Adapt IT shares, with the balance payable in cash over four years, subject to an earn-out agreement.
On 1 July 2017, following approval of the competition authorities, the acquisition of Micros South Africa for R120 million also became effective. Micros South Africa provides software, hardware, enterprise systems integration, consulting and support to the hospitality industry. The hospitality division is expected to start contributing in the new financial year.
"We are excited to have Micros South Africa join the Adapt IT team of like-minded people with a passion for delivering high-value software solutions to our clients, creating the hospitality division," says Shabalala.
Also on 1 July 2017, Adapt IT sold its business intelligence resourcing business to Uyandiswa Project Management Services.
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