JSE-listed Adapt IT CEO Sbu Shabalala says the company remained resilient during the financial year ended June 30 in a period dominated by global macroeconomic challenges and the Covid-19 pandemic, owing to its sound underlying business model of providing mission critical software to its clients on a long-term basis.

The key focus of managing the impact of the Covid-19 pandemic on the business was ensuring employee safety, providing continuous service to customers, supporting clients who were hardest hit by the pandemic and managing cash flow stringently to ensure no liquidity squeeze.

The tough trading conditions in South Africa were a catalyst for Adapt IT to drive operational improvements through significant cost reductions and containment measures in segments most impacted by Covid-19, the company notes.

Most operational efficiency projects have been completed, which is expected to result in cost savings in future financial periods. The business cost structures where the market landscape has changed have been rightsized for the current market.

“The response of our people to these circumstances has been outstanding, with the business virtualising proactively ahead of the legislated lockdown, minimising impact on service delivery to our customers.

"Additional remote work digital technologies were adopted instantaneously and sustainably. The already advanced state of our migration to cloud platforms was a significant enabler of our success and contributed to the improvement in employee engagement,” Shabalala said.

FINANCIAL PERFORMANCE

Revenue increased by 3% to R1.48-billion, comprising muted organic growth of -2% and growth from acquisitions of 5%.

Shabalala said sector and geographic diversification had served the company well as some divisions had outperformed while others had been hard-hit under the circumstances.

Geographic diversification of revenue has improved from the strengthened pan-African footprint, with a heightened presence in Kenya.

Annuity revenue remains healthy and an improvement on the previous reporting period to 62%.

Earnings before interest, taxes, depreciation and amortisation (Ebitda) improved by 9% to R250-million.

The underperformance in the hospitality and manufacturing segments, where trading conditions were impacted by Covid-19, had a negative impact on Ebitda, while positive contributions were made by the remaining four divisions.

Shabalala said the group had been highly defensive on cost and liquidity management and was pleased with the Ebitda margin having remained steady at 17%, given the pressures experienced.

Earnings a share grew by 13% to 57c, headline earnings per share (HEPS) grew by 29% to 73c and normalised HEPS by 7% to 83c.

Cash generated from operations was R227-million, representing a cash conversion ratio of 1.28 times. Stringent focus was placed on working capital management and cost control and this focus will remain going forward.

Net gearing was reduced to 43% from 66%. The board cited the strong cash generation and ability of the business to service and reduce its debt with operating cash flows as a very pleasing result.

All debt covenants were met at period end.

The board has prioritised the reduction of borrowings and has remained prudent in preserving cash during these unprecedented times. Accordingly, no dividend was declared.

Adapt IT reached Level 1 broad-based black economic empowerment contributor status for the first time.

PROSPECTS

“The South African economy has been hard hit by the Covid-19 pandemic and the associated regulations, but the impact on our segments is mixed, with some presenting new opportunities, like increased e-learning and telecommunications use.

"Adapt IT continues to take advantage of its underlying diversification. This is done by assisting the current client base more effectively, focusing on sales in a cohesive manner and carefully expanding on the pan-Africa and Asia Pacific strategy.

"Furthermore, by remaining focused on cost containment, capital allocation and working capital, Adapt IT aligns itself with stakeholder expectations,” concluded Shabalala.