On the acquisition trail as profit soars: Sbu Shabalala – CEO, Adapt IT

‘The energy sector…has obviously yielded the most growth.’

HANNA BARRY: IT and software solution provider Adapt IT, which comes out of KZN’s sugar industry and used to develop IT solutions for Illovo, issued a great set of set of results for the six months to end-December this morning. Operating profit up 65% to R38m and headline earnings per share up 35% to 18.6c.
   Adapt IT chief executive officer Sbu Shabalala joins us now. Sbu, it’s good to have you with us. Welcome.

SBU SHABALALA: Thank you, Hanna, and to your listeners.

HANNA BARRY: Adapt IT, as I said, delivers solutions to a broad range of industries, providing admin management systems in fact for about 60 of the 80 Further Education and Training Colleges, I believe. A good set of results, a really strong set of results. Which sector or software solution would you say has really been the star performer?

SBU SHABALALA: Well, we certainly are pleased with the growth that we’ve achieved in the last six months and, as you’ve seen in our results released, 11% of the growth that we report now has come from our underlying business, and all of our sectors that we operate in, all of our divisions performed quite well. Of note is the energy sector, which has obviously yielded the most growth, especially because we focused on diversifying the energy sector into looking particularly at the supply chain management in FACS, also at particularly the utility sector. And those are good additions to the energy division.
   The financial services sector also yielded some very good growth. Also from a margin perspective the manufacturing sector improved most, with margins from 5% to 15%.

HANNA BARRY: Looking ahead, Sbu, where is future growth going to come from?

SBU SHABALALA: Well, for the past seven years we’ve actually been delivering growth at this rate, and in fact … for the past five years around 37% – and we’ve delivered 38%. So year on year we’ve been able to extract growth in a very tough market, as it’s been in the past few years. And we achieved this, Hanna, by focusing predominantly on the sectors that we understand and also making sure that our solutions are attractive to those sectors – and we therefore innovate and continue to grow the sectors.

HANNA BARRY: Acquisitions have been a key part of that growth strategy. I think Adapt IT has concluded at least one deal a year for the past five years. Where is the next opportunity, Sbu, where are you looking to make the acquisition?

SBU SHABALALA: We always said that we acquire to beef up our existing solutions for our existing sectors, or to strategically enter new sectors where we believe we can have a differentiated sort of provision. And the financial services sector continues to grow, and the manufacturing sector. So those are sectors where we believe a lot of companies are seeking to extract efficiency, and that’s where our solutions focus in ensuring that our clients can at least save some money in these tough economic times.
   But when we look at the energy business, the energy sector, especially the oil and gas space has been quite under pressure due to the fall of the oil price. But again, it creates an opportunity for certainly optimisation of the supply chain for the companies. And therefore we expect growth and to also look at acquisitions of software companies that are going to add some differentiation, even in those sectors.

HANNA BARRY: Thanks to Sbu Shabalala.
   Maudi, this is nice little company. It has performed incredibly well since it listed. In the last year that share price is up more than 58%. Are you a fan?

MAUDI LENTSOANE: Most certainly. This is a small-cap company that has really managed to deliver in producing a set of numbers. That organic growth is what really impresses me. It’s a question of whether they can actually continue to deliver that – on that organic growth. And if they do, they should be able to really do well going forward.

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