Johannesburg - JSE-listed
Adapt IT grew turnover 48 percent to R461 million in the first half of the
year.
The company,
which provides specialised software solutions and services to the education, manufacturing,
energy and financial services sectors, says it continues to benefit from its
acquisitive growth strategy.
In the six
months to end December, the group’s income was bolstered with acquisitions,
which accounted for 44 percent of its top line gains.
This follows the
acquisitions of CQS, a specialist in the development and deployment of software
for financial professionals, and EasyRoster, a provider of rostering
optimisation software solutions.
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The
acquisition of CQS was effective from December 2015 and had no contribution in
the prior interim results.
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The purchase
price of R87 million for 100 percent of EasyRoster was funded through a
combination of the issue of 1 million Adapt IT shares with the balance payable
in cash over four years, subject to an earn-out agreement.
That deal was
effective from last August.
“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,” says Adapt IT CEO, Sbu Shabalala.
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Earnings before
interest, tax, depreciation and amortisation (EBITDA) grew 44 percent to R90
million, from R62 million the prior year.
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Adapt IT has
disclosed normalised headline earnings per share (HEPS) for the first time as a
result of the high non-cash expenses in terms of International Financial
Reporting Standards (IFRS) related to its acquisitions.
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These expenses
are mainly amortisation of intangible assets (such as internally developed
software and customer relationships) and notional interest on deferred purchase
considerations, which depend on the achievement of profit warranties.
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Read also: Diversification strategy pays off for Adapt IT
Non-cash
amortisation costs of R13.5 million and notional interest costs of R5.3 million
were expensed, which totalled R18.8 million (2015: R7.7m) for the half year. As
acquisitions will be an ongoing hallmark of Adapt IT, in line with its growth
strategy, it has stated that it will report normalised earnings on an ongoing
basis, as management believes this will add value to the user of the financial
reports. Normalised HEPS grew 20 percent to 34.74 cents (2015: 28.89 cents).
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By comparison,
IFRS HEPS grew 2 percent after taking into account the non-cash expenses
described above, together with higher bank interest. This resulted from the
change in capital structure arising from the R160 million new debt taken on to
fund the CQS acquisition, together with the debt acquired in CQS, which saw
bank interest grow to R10 million from R4.5 million.
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“Using
significant gearing for the first time to acquire CQS was beneficial for our
shareholders, as Adapt IT could quite comfortably take on the debt, avoiding
unnecessary shareholder dilution,” says Shabalala.
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In December
2016, Adapt IT used the general authority granted by its shareholders at the
latest Annual General Meeting to issue shares for cash, raising R84 million of
fresh equity in support of its acquisitive growth strategy. These funds have
been temporarily offset against borrowings until they are applied in due
course.
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“Despite the
challenging market conditions, our outlook remains positive as we continue to
build on the strong, well-diversified foundation, to create a sizeable, leading
ICT business that delivers above ICT sector average growth and returns,” says
Shabalala.
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