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ADI
ADI
ADI - Adapt IT Group - Unaudited condensed interim consolidated group results
for the six months ended 31 December 2010
ADAPT IT HOLDINGS LIMITED(Incorporated in the Republic of South Africa)
(Registration number 1998/017276/06)
Share code: ADI
ISIN Code: ZAE000113163
("Adapt IT Group" or "the Group")
UNAUDITED CONDENSED INTERIM CONSOLIDATED GROUP RESULTS FOR THE SIX MONTHS
ENDED 31 DECEMBER 2010
Interim Consolidated Statement of Comprehensive Income
Unaudited Unaudited Audited
6 months ended 6 months ended Period ended
31 December 2010 31 August 2009 30 June 2010
R`000 R`000 R`000
Revenue 85 130 60 567 208 452
Turnover 80 900 59 245 198 986
Cost of
sales (43 435) (35 780) (107 078)
Gross profit 37 465 23 465 91 908
Administrative,
selling and
other costs (33 209) (19 183) (76 820)
Other income 2 220 1 494 3 842
Profit from
operations
(before interest) 6 476 5 776 18 930
Finance income 2 009 1 288 5 623
Finance costs (338) (338) (945)
Loss from
associate - (64) (64)
Profit before
taxation 8 147 6 662 23 544
Taxation (2 649) (1 862) (6 709)
Normal tax (2 326) (1 681) (6 523)
Secondary taxation
on companies (323) (181) (186)
Profit for the
period 5 498 4 800 16 835
Exchange
differences
on translation
of foreign
operations (138) 185 (169)
Other
comprehensive
income for
the period,
net of tax (138) 185 (169)
Total
comprehensive
income for
the period,
net of tax 5 360 4 985 16 666
Profit for the
period
Attributable
to equity
shareholders
of the parent 3 297 4 528 13 100
Attributable to
non-controlling
interests 2 202 272 3 736
5 499 4 800 16 836
Total
comprehensive
income for
the period
Attributable
to equity
shareholders
of the parent 3 227 4 623 13 014
Attributable to
non-controlling
interests 2 133 362 3 652
5 360 4 985 16 666
Headline earnings
Profit
attributable
to ordinary
shareholders 3 297 4 528 13 100
Add loss on
sale of property
and equipment 123 - (245)
Excess of net
assets over
purchase price on
business combination - (1 176) (1 176)
Headline earnings 3 420 3 352 11 679
Number of ordinary
shares in issue (`000) 98 307 95 650 95 697
Weighted average
ordinary shares
in issue (`000) 96 113 95 650 96 085
Headline earnings
per ordinary
share (cents) 3,56 3,50 12,15
Earnings per ordinary
share (cents) 3,43 4,73 13,64
Fully diluted
earnings per
share (cents) 3,43 4,73 13,64
Return on equity (%) 8,87 14,95 35,39
Return on assets (%) 2,41 4,85 10,50
Interim Consolidated Statement of Financial Position
Unaudited Unaudited Audited
December 2010 31 August 2009 30 June 2010
R`000 R`000 R`000
ASSETS
Non-current assets
Property and
equipment 22 470 15 970 22 720
Intangible assets 103 20 109
Goodwill 10 408 10 408 10 408
Investment in
associated company - 74 -
Deferred taxation
asset 8 456 1 214 6 528
41 437 27 686 39 765
Current assets
Trade and other
receivables 80 537 38 231 45 849
Cash and cash
equivalents 14 686 27 411 39 127
95 223 65 642 84 976
Total assets 136 660 93 328 124 741
EQUITY AND
LIABILITIES
Capital reserves
Issued capital 10 8 10
Share premium 8 548 7 188 7 196
Share-based payment
reserve 893 866 893
Foreign currency
translation reserve (156) 185 (86)
Retained earnings 30 736 26 095 34 666
Equity attributable
to ordinary
shareholders 40 031 34 342 42 679
Non-controlling
interest - 4 444 7 825
Total equity 40 031 38 786 50 504
Non-current
liabilities
Deferred taxation
liability 1 844 2 898 2 470
Interest-bearing
borrowings 17 842 - 2 448
Current liabilities
Trade and other
payables 20 110 34 322 31 367
Deferred income 51 521 - 25 844
Interest-bearing
borrowings 5 312 3 577 1 793
Non-interest-
bearing borrowings - 13 745 10 315
Total equity and
liabilities 136 660 93 328 124 741
Net asset value (R`000) 40 031 38 786 50 504
Net asset value per
ordinary share (cents) 40,72 40,55 52,77
Liquidity ratio (times) 1,23 1,20 1,85
Solvency ratio (times) 1,41 1,71 1,68
Market price per share
Close (cents) 61 45 49
High (cents) 62 58 58
Low (cents) 45 40 31
Capital expenditure
for the period 1 254 546 1 244
Capital expenditure
authorised 1 778 5 249 4 614
Interim Consolidated Statement of Cash Flows
Unaudited Unaudited Audited
6 months ended 6 months ended Period ended
31 December 2010 31 August 2009 30 June 2010
R`000 R`000 R`000
CASH FLOWS FROM
OPERATING
ACTIVITIES
Profit from
operations
(before
interest and
dividends) 6 476 5 776 18 895
Adjustment for:
Provision for
leave pay (317) 1 167 1 463
Impairment loss - - 74
Non-cash flow items - - (1 169)
Share-based payment
expense - 63 90
Excess of net
asset value over
purchase price - (1 176) -
Loss/(profit) on sale
of equipment 123 - (319)
Depreciation and
amortisation 1 441 848 3 014
Cash generated
from
operations,
before working
capital changes 7 723 6 678 22 048
Working capital
changes:
Increase in
receivables (34 688) (5 416) (12 312)
Increase/(Decrease)
in payables 14 420 (4 832) 11 598
Cash (used in)/
generated from
operations (12 545) (3 570) 21 334
Taxation paid (4 522) (2 072) (5 537)
Net interest income 1 671 950 4 678
Dividend paid
to shareholders (3 264) (1 778) (1 744)
Net cash (outflow)/
inflow from operating
activities (18 660) (6 470) 18 731
CASH FLOW FROM
INVESTING
ACTIVITIES
Acquisition of
equipment (1 254) (546) (9 607)
Proceeds on
disposal of property
and equipment 11 62 438
Increase
in investment
in associate - - 64
Acquisition of
subsidiary (19 127) (16 000) (16 000)
Net cash
outflow from
investing
activities (20 370) (16 484) (25 105)
CASH FLOW FROM
FINANCING
ACTIVITIES
Proceeds from
borrowings 19 127 13 000 17 115
Issue of company
shares - - 10
Repayment of
borrowings (4 399) (4 316) (11 305)
Elimination of
shareholder loan - - (1 430)
Net cash
inflow from
financing activities 14 728 8 684 4 390
Net decrease in
cash resources (24 302) (14 270) (1 984)
Exchange
differences
on translation (138) 185 (169)
Cash resources
at beginning of
period 39 126 14 556 14 556
Cash resources
on acquisition
of subsidiaries - 26 940 26 723
Cash resources
at end of period 14 686 27 411 39 126
Interim Consolidated Statement of Changes in Equity
Share-based
Share Share Retained payment
capital premium earnings reserve
R`000 R`000 R`000 R`000
Balance at
28 February 2009 8 7 188 23 345 803
Profit for the period - - 4 528 -
Other comprehensive
income - - - -
Total comprehensive
income 8 7 188 27 873 803
Recognition of
share-based payment - - - 63
Acquisition of
subsidiary - - - -
Dividends - - (1 778) -
Balance at
31 August 2009 8 7 188 26 095 866
Balance at
30 June 2010 10 7 196 34 666 893
Profit for the period - - 3 297 -
Other comprehensive
income - - - -
Total comprehensive
income 10 7 196 37 963 893
Issue of shares - 1 352 - -
Acquisition of
non-controlling
interest in
subsidiary - - (3 963) -
Dividends - - (3 264) -
Balance at
31 December 2010 10 8 548 30 736 893
Foreign Attributable Non- Total
currency to equity controlling equity
translation holders of interest
reserve the parent
R`000 R`000 R`000
Balance at
28 February 2009 - 31 344 1 415 32 759
Profit for the period - 4 528 272 4 800
Other comprehensive
income 185 185 - 185
Total comprehensive
income 185 36 057 1 687 37 744
Recognition of
share-based payment - 63 - 63
Acquisition of
subsidiary - - 2 757 2 757
Dividends - (1 778) - (1 778)
Balance at
31 August 2009 185 34 342 4 444 38 786
Balance at
30 June 2010 (86) 42 679 7 825 50 504
Profit for the period - 3 297 2 202 5 499
Other comprehensive
income (70) (70) (68) (138)
Total comprehensive
income (156) 45 906 9 959 55 865
Issue of shares 1 352 - 1 352
Acquisition of
non-controlling
interest in
subsidiary - (3 963) (9 959) 13 922
Dividends - (3 264) - (3 264)
Balance at
31 December 2010 (156) 40 031 - 40 031
Notes to the Interim Consolidated Financial Statements for the Six Months
Ended 31 December 2010
Corporate information and basis of preparation
The interim condensed consolidated Financial Statements of the Group for the
six months ended 31 December 2010 were prepared in accordance with IAS 34
Interim Financial Reporting, the Companies Act, 1973, (Act 61 of 1973) as
amended
and the Listing Requirements of the JSE Limited.
The interim condensed consolidated Financial Statements do not include all the
information and disclosures required in the Annual Financial Statements and
should
be read in conjunction with the Group`s Annual Financial Statements as at
30 June 2010.
The interim results have not been audited or reviewed by the Group`s auditors.
The Adapt IT Group is incorporated and domiciled in South Africa.
Change in accounting policy
The accounting policies applied in the preparation of these interim condensed
consolidated Financial Statements are in accordance with International Financial
Reporting Standards (IFRS) and are consistent with those applied in the Annual
Financial Statements for the year ended 30 June 2010, except for the following
new
Standards which have been issued, but which had no material impact on the
results
and financial position of the Group.
IFRS 2 Share-based payments
The IASB issued an amendment to IFRS 2 in January 2008 that defines vesting
conditions
and prescribes the treatment for an award that is cancelled. The amendment is
effective
for financial years beginning on or after 1 January 2010.
IAS 32 Financial Instruments: Presentation (Amendments) Classification of Rights
Issue
The purpose of the amendment is to clarify the classification of instruments
that give
the holders the right to acquire an entity`s own equity instruments at a fixed
price
(rights issue), when that price is stated in a currency other than the entity`s
functional currency. The amendment is effective for annual periods beginning on
or
after 1 February 2010.
Subsequent events
The Directors are not aware of any material matter or circumstance arising since
the
end of the interim period up to the date of this report.
Dividends
Ordinary dividend number 8 of 3,41 cents per share was paid to shareholders on
22
October 2010. It is the Group policy to consider declaration of dividends at the
end
of the financial period and not at the interim reporting date.
Change of financial year end
As previously communicated to shareholders, the Group`s financial year end was
changed
from 28 February to 30 June. For comparative purposes, these interim
consolidated
Financial Statements reflect the current six month period to 31 December 2010
and the comparative six month period to 31 August 2009.
Business combinations
Acquisition of non-controlling interest in ApplyIT
On 30 November 2010, the Group acquired the remaining 22,7% interest of the
voting
shares of ApplyIT. A purchase consideration of R0,72 million was paid to the
non-controlling shareholders. The non-controlling interest value was R1,4
million and
the difference of R0,69 million had been recognised in the retained earnings
within
equity.
Acquisition of non-controlling interest in ITS Holdings
On 31 December 2010, the Group acquired the remaining non-controlling interest
of 49%
of the shares in ITS, that it did not already own. The purchase consideration of
R19,9 million was paid to the non-controlling interest shareholders. The net
carrying
value of the assets of ITS (excluding goodwill) at the initial acquisition date
was
R5,6 million and the carrying value of the additional interest acquired was
R8,5 million, which was acquired for R13,2 million. The difference between the
purchase consideration and the carrying value of the interest acquired has been
recognised in retained earnings within equity.
The fair value of the identifiable net assets and liabilities of ITS as at the
date of
acquisition were:
Fair value Previous
Recognised carrying
on acquisition value
Unaudited Unaudited
R`000 R`000
Property, plant and equipment 13 839 13 839
Deferred taxation 7 557 7 557
Trade receivables 65 373 65 373
Cash 13 103 13 103
99 872 99 872
Taxation 4 033 4 033
Shareholders` loans 15 661 15 661
Deferred 51 521 51 521
Trade payables 11 212 11 212
82 425 82 427
Net assets 17 444
Portion of consideration
applicable to shareholders`
loan acquired (6 658)
Portion of consideration
applicable to net
asset value 13 201
49% of net assets above (8 547)
Excess on acquisition of 49%
recognised directly
in equity 4 654
Interest-bearing borrowings
Non-current and current liabilities
Included under non-current and current liabilities are interest-bearing
borrowings
from Investec Private Bank, which were taken out to fund the purchase of the
remaining
non-controlling interest of 49% in ITS and an interest-bearing borrowing from
IBM Global Finance to fund certain capital expenditure.
Segment information
For management purposes, the Group is organised into the following segments:
Adapt IT - implementation and maintenance of ERP and niche software, systems
integration and information management solutions;
Apply IT - design, development and implementation of safety, health,
environment,
quality and plant operations management software solutions;
ITS - design, development and implementation of higher education and further
education
and generic software solutions; and
Other - includes Group head office activities.
Management monitors the operating results of its business units separately for
the purpose
of making decisions about resource allocation and performance assessment.
Monthly
management meetings are held to evaluate segment performance against budget and
forecast.
The following tables present revenue and profit information regarding the
Group`s operating
segments for the six months ended 31 December 2010 and 31 August 2009
respectively:
Six months ended
31 December 2010 Adapt IT ITS Apply IT Other
R R R R
Revenue
Third party 34 756 43 552 6 285 983
Intersegment - - (344) 0
Total revenue 34 756 43 552 5 941 983
Revenue includes
sales to customers,
hardware and
software sales
Segment profit/(loss)
before tax 2 834 6 529 203 (1 317)
Six months ended
31 August 2009
Revenue
Third party 42 885 11 979 5 482 894
Intersegment - - - -
Total revenue 42 885 1 979 5 482 894
Revenue includes
sales to customers,
hardware and
software sales
Segment profit/(loss)
before tax 4 819 717 86 (136)
Adjustments Total
and
eliminations
R R
Revenue
Third party (102) 85 474
Intersegment - (344)
Total revenue (102) 85 130
Revenue includes
sales to customers,
hardware and
software sales
Segment profit/(loss)
before tax (102) 8 147
Six months ended
31 August 2009
Revenue
Third party (673) 60 567
Intersegment - -
Total revenue (673) 60 567
Revenue includes
sales to customers,
hardware and
software sales
Segment profit/(loss)
before tax 1 176 6 662
The following table
presents segment
assets of the Group`s
operating segments
as at 31 December 2010 and
31 August 2009
Adapt IT ITS Apply IT Other
R R R R
Segment assets
- 31 December 2010 67 548 125 874 2 589 48 601
- 31 August 2009 45 645 86 701 6 004 34 439
Adjustments
and
eliminations Total
- 31 December 2010 (107 952) 136 660
- 31 August 2009 (79 461) 93 328
Interim Report to Stakeholders for the Six Months Ended 31 December 2010
FINANCIAL REVIEW
Adapt IT Holdings Limited changed its financial year end to 30 June as of the
previous year, (reporting for a 16-month period) therefore, the last reported
comparable six-month period was to 31 August 2009.
Revenue grew by 40% to R85,1 million, (R60,6 million) whilst profit from
operations
was 12% higher at R6,5 million (R5,8 million).
The interim Earnings Per Share (EPS) were lower than the comparable period at
3,43
cents per share (4,73 cps), with Headline EPS (HEPS) higher at 3,56 cps (3,50
cps).
The interim EPS was lower than the comparative period, mainly due to the impact
of
the change in year end (due to the timing of certain annual licence fee income),
once-off discount on the initial ITS acquisition in 2009, as well as the non-
recurring
costs relating to buying-out non-controlling shareholders at ITS Holdings (Pty)
Ltd
and ApplyIT (Pty) Ltd. The positive impact on earnings from the
minority buy-outs will only reflect in the results going forward.
Strategy and outlook
During the first half of the year, the Group continued to pursue its long-term
strategy of delivering sustainable, above average returns to shareholders, by
focusing
on a combination of organic growth in the established and new sectors of the ICT
market.
Having completed the acquisition of a 100% stake in all existing subsidiaries,
the
Group seeks further significant earnings, enhancing acquisitions.
The Group will also continue to focus on improving profit margins and seek
greater
operational efficiencies, whilst engaging positively with all its stakeholders
to
meet their expectations. Customers` IT expenditure continued to reflect the
challenging economic environment, although, the diverse client-base of the Group
ensured that the
business continues to grow through work for existing customers.
The ICT market, and indeed the economic environment, is still fragile and
challenging.
However, Adapt IT is well-positioned to take advantage of the anticipated
recovery, as
evidenced by several new clients having been won in past months. The full
ownership of
all subsidiary companies enhances the Group earnings going forward, whilst
improving
the balance sheet for further growth.
Change of company secretary
The Board would like to thank Mr RL Moodley for his services as Company
Secretary over
the years. Statucor (Pty) Ltd has been appointed as the new Company Secretary.
Appreciation
We express our thanks to our long-standing and new customers, suppliers,
partners and
service providers for their continued support and loyalty to the Group. We also
thank
the Adapt IT Group employees for their continuous dedication and hard work in
serving
our customers.
Dr AB Ravno Sbu Shabalala
Chairman Chief Executive Officer
14 February 2011
Directors
*Dr AB Ravno (Chairman), Sbu Shabalala (Chief Executive Officer),
T Dunsdon (Commercial Director), Siboniso Shabalala (Financial Director),
*W Shuenyane, *B Ntuli,*P September, *M Nhlapo
*Independent Non-Executive Director
Registered office
5 Rydall Vale Park, La Lucia Ridge,Durban, 4051
PO Box 5207, Rydall Vale Park, La Lucia, 4019
Company secretary
Statucor (Pty) Ltd
Transfer secretary
Computershare Investor Services (Pty) Ltd
70 Marshall Street, Johannesburg, 2001
PO Box 61051, Marshalltown, 2107
Sponsor
Merchantec Capital
2nd Floor, North Block, Hyde Park Office Tower, Johannesburg, 2196
PO Box 41480, Craighall, 2024
Auditors
Ernst & Young Inc.
1 Pencarrow Crescent, Pencarrow Park, La Lucia Ridge, Durban North, 4051
PO Box 859, Durban, 4000
Website
www.adaptit.co.za
Date: 14/02/2011 17:49:01 Produced by the JSE SENS Department.
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