Downturn in Adapt IT’s annual profit

JSE-listed software services group Adapt IT reported a rare slide in profitability for the year ended June 30, 2019 and has deferred a decision on a dividend payment to shareholders to after the end of the calendar year.

Profit for the year was R76.4 million, down from R122.1 million in 2018, while normalised headline earnings per share from continuing operations fell by 6% to 76.2c.

The weaker bottom-line performance came despite a 14% improvement in revenue from continuing operations to more than R1.4 billion. Revenue growth was made up of an improved 5% organic growth in continuing operations and 9% from acquisitions.

“Despite the ongoing poor trading conditions, the majority of segments delivered double-digit organic growth,” the group said yesterday. “Underperformance in the energy segment had a significant impact on the results, with its earnings before interest, tax, depreciation and amortisation [Ebitda] reducing by R20 million.”

Once-off impacts on earnings included an impairment of R8 million on a fixed property held for sale and a negative foreign exchange movement yearon-year of R11 million.

“A net increase in loss allowances of R4 million pursuant to the adoption of IFRS 9 also impacted earnings,” it said. However, annuity revenue “remains healthy and there is an improvement on the previous reporting period to 61% (2018: 58%)”.

Ebitda from continuing operations improved 3% to R229 million.

Standout performers included the education division, where revenue rose 24%, contributing 15% to total revenue; the manufacturing division, with revenue growth of 26%, contributing 21% to total revenue; and the financial services division, which grew 11%.

During the year, 15.5 million (10%) of issued ordinary shares were repurchased for R96 million. Interest-bearing borrowings increased to R501 million (2018: R214 million). The cash interest expense increased from R23 million to R38 million due to funding working capital, the share buyback programme and acquisitions, which were funded exclusively through cash.

“We also incurred once-off capital expenses of R44 million for hospitality business hosting licences for an average of five years. Net gearing is unusually high at 65% and will be reduced.”

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