Retailer Spar’s debt woes were in the spotlight yesterday after it posted its interims and said it had breached debt covenants with banks, due to the weakening of the rand and translation of foreign debt into reporting South African currency.
Its financiers had wavered the breached covenants and been very supportive, it said.
For the six months ended March 31, 2023 the group said diluted headline earnings per share declined by 30.2% to 447.7 cents as it reported lower sales in South Africa and Switzerland. Turnover for the group increased by 7.9% to R72.9 billion.
Spar said on March 31, 2023, owing to the weakening of the rand and translation of foreign debt into reporting currency (ZAR), coupled with lower than expected profitability due to cost increases that could not be restricted in line with lower-than-expected turnover growth, there was a breach of the group’s leverage (pre-IFRS 16 net debt/Ebitda) covenant.
Speaking at the retailer’s results presentation, Spar’s executive chairman, Mike Bosman, said the projections and forecasts of the company had suggested that it would still be constrained in September, unless there had been a dramatic turnaround in the working capital.
“We have presented that to the Irish banks, and certain European bankers have already been supportive of that… In fact, we’ve received the support from start to beyond September of 2023. But as a formality, we will approach all of the banks again in September and again, request their support at this point,” he said.
Bosman said: “The other important thing, which we really want everybody to understand clearly, is that we hold most overseas debt… This debt is cheap.”
Spar said the group’s net debt for covenant purposes totalled R12.8 billion. As of September 30, 2022 the group’s net debt totalled R9.8bn.
“The increase in net debt of R3bn between year-end and the interim period-end reflects the increase in the net overdraft position in South Africa of R1.7bn, predominantly relating to the working capital cash-flow impact of SAP go-live challenges at the KZN (KwaZulu-Natal distribution centre, and financial support extended to SPAR Poland,” it said.
The increase in net debt, also reflected an increase in foreign-denominated borrowings of R1.3bn due to the foreign exchange impact upon translation of the foreign-denominated borrowings into reporting currency, and increased foreign debt to fund capital expenditure in Switzerland as well as acquisitions in Ireland.
“Group net debt includes group borrowings of R8.5bn (2022: R7.6bn). Most of the group borrowings are foreign currency denominated, with 60.4% Euro-denominated and 37.8 Swiss franc-denominated in ZAR terms,” it said.
The ailing retailer has not been only battling debt. It also doesn’t have a leader and has been losing market share from other retailers such as Pick n Pay and Shoprite.
Bosman said the retailer would give an update in about a month’s time about the appointment of a new South Africa Spar CEO. He said Spar didn’t want to rush into making an appointment.
Spar’s former CEO, Brett Botten, announced in January that he would retire after close to two years at the helm.
The retirement of Botten, 57, came at a time when the retail faced allegations from independent retailers who use the Spar brand that it engaged in “fictitious” and “fraudulent” loans, as well as racial bias.
In December, Spar denied the financial allegations were symptomatic of “dodgy accounting” or that it discriminated against some of its retailers based on race or store location.
At the time, the group did not give a reason for Botten’s retirement.
By 5pm the share price was down 2.02% at R101.05.
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