FIFI PETERS: A number of hot deals involving South African companies [are] being acquired by foreign companies right now. We have Imperial, which is being targeted by Dubai Ports World. Distell is being targeted by Heineken, and we even have Adapt IT, which is the target of Canadian IT software firm Volaris. But here to discuss the deal and Adapt IT’s [annual] results I have the CEO of the company, Tiffany Dunsdon, who will hopefully give us the detail.
Tiffany, thanks so much for your time. Before we get to the numbers, let’s just talk about what your investors are really interested in, and that is the future of Adapt IT. The Volaris deal – where do things currently stand?
TIFFANY DUNSDON: The Volaris deal was approved by shareholders, the scheme of arrangement, with an 87% vote in favour on the June 30, and currently we’re in the process of obtaining regulatory approvals from five competition authorities in Africa, South Africa obviously being the most important. We’ve made good progress with these authorities. Two African authorities have already provided their approval and we’ve made very good progress with the South African competition authority through our advisors. We anticipate receiving their response mid-October.
We are also in the process of fulfilling conditions precedent, and we hope that the transaction will follow its timetable and complete in early December.
FIFI PETERS: So who are the other regulators on the continent that you’re awaiting approval [from]?
TIFFANY DUNSDON: We have already Botswana and Namibia, and we require Zimbabwe and Nigeria to complete approvals.
FIFI PETERS: All right. And you say that you’re expecting everything to be wrapped up by December?
TIFFANY DUNSDON: That’s correct.
FIFI PETERS: From the start, you will know that you were in the eyes of quite a few players, or maybe one other player that didn’t really receive the group’s support by way of the offer that they tabled, and that is the Huge Group. Did you see the fact that the Huge Group sold its 1.9% stake in Adapt, and what do you make of this move? Is it a sign that they’re conceding?
TIFFANY DUNSDON: I think so. It was an unsolicited offer. We didn’t have a strategic engagement with the management of the Huge Group. Our shareholders obviously preferred the Volaris stock, when one looks at the level of support, and accordingly such a small stake was not really strategic … it makes logical sense that Huge would have divested. That makes sense to us…
FIFI PETERS: Tiffany, just talking about the numbers then, while income from your existing clients has grown quite strongly, it is the new business element that seems to be struggling to get off its feet – this despite the fact that we saw an accelerated pace of digital transformation happen in the past year or so. Companies had to, because of the lockdowns – everything needed to be done remotely. So what’s holding your sales back?
TIFFANY DUNSDON: Well, it is a combination of both of those factors that resulted in our results: one cent up on revenue. Where we have found pressure is in the project areas of the business; naturally customers would be withholding or delaying project investment, and also there was a legislated shut down in the hospitality industry, one of our six sectors.
On the flip side there was increased demand for certain digital platform solutions like e-learning in the education sector, for example. So there was a trade off between the type of project work and the type of annuity work that we want. You will see in our results that our annuity revenue percentage increased from 62% to 66%. And this will really be as a result of a revenue mix less on the project side and more on the platform side.
FIFI PETERS: But just in terms of what things are looking like right now, have you seen an improvement with the easing down of lockdown restrictions for your business?
TIFFANY DUNSDON: We have, Fifi. I think post year-end on June 30, it was still quite difficult through July with the civil unrest and some weeks thereafter, but it is mostly certainly picking up now. We are seeing customers wanting to resume normal operations, and their normal pattern of investment into their ICT solutions, and certainly executives are aware now of the imperative of having their digital trading platform pivot to the highest standards.
So projects that were previously delayed are certainly back on the table, and then we are certainly seeing green shoots now.
FIFI PETERS: You haven’t paid a dividend this time around. I understand it is part of the Ts and Cs associated with the current takeover offer from Volaris on the table. How then do you plan on ensuring your shareholders stay happy and hopeful until the deal does cross the finish line?
TIFFANY DUNSDON: Fifi, the condition of the Volaris deal is if we were to award any dividend or capital reduction in the meantime, that would be deducted off the offer price. That would be neutral for shareholders. So I think our shareholders are really most interested in us ensuring that the regulatory approvals go through, and the conditions precedent are fulfilled and that the cash offer made by Volaris certainly must come to fruition for them. So we are focused on that process.
And in any event, I think we’ve reduced our gearing from 45% last year to 17% now.
Should we get to the position which we likely will – that we generate spare cash – we would want to apply that into our acquisitive growth strategy.
Shareholders are not expecting a dividend for the time being, rather preferring that we close the Volaris deal.
FIFI PETERS: Just a parting question on the man that founded the company, Sbu Tshabalala of course, and grew it with the help of the team members and the executive team at Adapt IT, who unfortunately left his position under a cloud. What can you tell us about that situation and how Sbu is?
TIFFANY DUNSDON: Fifi, I can’t speak for Sbu. We worked together for a very long time and obviously he made his decision to resign, and we as the board respect that completely. We don’t speak on his behalf. We obviously…acknowledge the significant contribution he made to the growth of the group and we thank him for that. We wish him very well in his future endeavours.
I guess it remains for us to make sure that the company [goes] forward in a strong position, both with regard to serving customers, looking after its staff, but also protecting the Volaris deal which was under way at the time, in which shareholders have obviously a very significant interest, including Sbu himself. So we wish Sbu well, and we acknowledge his contribution to the company, and we respect his decision.
FIFI PETERS: Right. But he still remains a shareholder of the company?
TIFFANY DUNSDON: Yes, he does.
FIFI PETERS: All right. Remind us again what his holding is?
TIFFANY DUNSDON: His holding is approximately 10%, Fifi.
FIFI PETERS: Okay. Tiffany, thanks so much for engaging us [on] the release of the numbers, and of course the more juicy detail regarding the takeover offer by the Volaris group. December is the date that Adapt IT has a pencilled in, in terms of meeting all regulatory approvals. We shall wait and see if that date is fulfilled.
But for now we’ll leave it there with Tiffany Dunsdon, the new CEO of Adapt IT.