Underperforming energy segment hurts Adapt IT profit

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

JSE-listed software services firm Adapt IT has announced a cautious outlook for the year ahead in light of the market challenges it faces.

This as tougher market conditions made it difficult to grow to the level of the company’s ambition.

Profit for the year ended 30 June declined to R76.4 million, from R122.1 million the previous year. Adapt IT has as a result deferred its dividend decision until the end of the year.

The year ended with a 5% organic growth and 9% from acquisitions. However, the company is satisfied that revenue from continuing operations increased by 14% to R1.4 billion from R1.26 billion in 2018.

Earnings before interest, tax, depreciation and amortisation (EBITDA) from continuing operations improved by 3% to R229 million compared to the 2018 figure of R223 million. The underperformance in the energy segment had a significant impact on the results, with its EBITDA reducing by R20 million.

Steady margin

Adapt IT CEO Sbu Shabalala says the group was extremely pleased with the EBITDA margin remaining steady at 16%, given the pressures experienced in the market.

“While the results for the year under review showed moderate top-line growth, I am pleased to say that in a year of global macro-economic challenges, Adapt IT made great strides in positioning itself for the next growth phase, with a strategic focus on geographic positioning, strengthening sales capabilities and ensuring all the divisions are streamlined,” says Shabalala.

The listed company, which provides specialised software and digitally-led business solutions to the education, manufacturing, financial services, energy, communications and hospitality sectors, says it has realigned its teams, and “enhanced group culture will facilitate better cross-selling and standardise processes that are critical for sustainability”.

Adapt IT’s education division delivered an increase in revenue of 24%, contributing 15% to total revenue; the manufacturing division achieved revenue growth of 26% year-on-year, contributing 21% to total revenue; financial services grew 11% from continuing operations, contributing 19% to total revenue.

According to the results, the energy division experienced a 30% decrease in revenue from a decrease in project revenue after several years of strong project revenue, contributing 9% to total revenue; the communications division reportedly grew 69% inclusive of the two acquisitions, contributing 16% to total revenue; and the hospitality division remained flat in line with expectations and contributed 20% of total revenue. 

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

He explains that because of 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,” he says.

Flicker of good news

Shabalala is optimistic about the future, saying the South African market has already started to slowly pick up 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 the group has at its disposal will assist in ensuring the operations take advantage of these green shoots,” he says.

The company says the public sector is also an attractive space for Adapt IT and 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”.

Strategic acquisitions made during the financial year by the company, geographic diversification and attractive technologies were also cited as having assisted the group in achieving the 9% acquisitive growth.

The acquisitions included are the results of the LGR Telecommunication group for 11 months, Strive Software for 10 months, Conor Solutions for six months and Wisenet group for four months.

Additionally, Adapt IT says it strengthened its Pan-African footprint, resulting in the continental region contributing 15% to revenue with a heightened presence in Kenya.

Furthermore, Adapt IT says growth in Asia Pacific also more than doubled with the successful acquisition of the Australian-based Wisenet group and its integrated applications for training and education institutions, further cementing Adapt IT’s presence in Australia and enhancing the group’s offerings in the education 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 all of this is done bearing good capital allocation in mind,” says Shabalala.

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