Johannesburg - Edcon reported a slight rise in core profit on Friday, reflecting sluggish consumer spending coinciding with growing worries over its ability to pay down a pile of debt.
Taken private in a highly leveraged buyout by Bain Capital in 2007, Edcon said EBITDA, or core profit, rose 4.2 percent to R1.2 billion rand in the quarter to the end of December.
Concerns are growing about Edcon's ability to repay bondholders after Morgan Stanley published a note in September supporting a short position of the company's debt, saying the capital structure was “unsustainable”.
Rating agencies, Moody's and Standard & Poor, cut Edcon's debt further into junk territory, citing poor outlook for consumer spending in South Africa.
Net debt increased by 12 percent to R21 billion during the quarter, pushing up its net refunding costs by more than 20 percent.
“Edcon continues to assess ways to improve its capital structure and actively manage its future liquidity needs,” chief executive Jürgen Schreiber said in a statement.
Edcon is in the middle of a cost-saving drive that may result in job cuts at its head office, a move that would reduce operating costs and help it improve margins further as consumer spending remains sluggish.
Reuters