JSE-listed software services group Adapt IT said on Wednesday that it is not contemplating a rights offer “at this stage” as it moves to reduce its net debt to a more comfortable level.
Instead, the historically acquisitive company will suspend all acquisitions until it is able to reduce net interest-bearing debt to the targeted 50% of equity (from about 66% now).
“The board believes that the company is able to reduce its debt in the ordinary course of business to the targeted level,” it said in a statement on the JSE’s stock exchange news service before markets opened.
Adapt IT said on 24 February that it was reviewing its capital structure with a view to reducing its gearing — or the proportion of its debt to equity.
CEO Sbu Shabalala said in an interview with TechCentral that the group’s net gearing at the end of December 2019 was 66%, higher than its preferred target of 50%, owing to a planned capital raising that did not proceed due to the decline in the share price.
Though the debt remains serviceable thanks to strong cash generation, Adapt IT hired independent advisers to help it with a review of its capital structure.
A rights offer was one among many options that could be considered, Shabalala said at the time, though he emphasised no decision had been made.
Instead of focusing on acquisition-led growth, Adapt IT has turned its gaze inward to extract efficiencies, which helped it defend its operating margins, Shabalala said. He expected a stronger financial performance in the second half, based on historically performance. — © 2020 NewsCentral Media