| Tue 18 Nov 2003, 10:14 | | Trading statement for the year ended 31 August 200 |
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JD Group Limited - Trading statement for the year ended 31 August 2003
JD Group Limited (`JD" or `the Group")
Registration number 1981/009108/06
JSE code: JDG NSX code: JDL ISIN: ZAE000030771
To meet market expectations regarding our results we publish these financial
highlights, which are unaudited and have not been reviewed.
The profit announcement will be published by 8 December 2003 and audited annual
financial statements will be mailed to shareholders by 12 December 2003.
"Harvesting as we sow"
This year"s results confirm our strategic decisions to close Score, reposition
Price "n Pride and change our approach towards the management of the debtor"s
book - all this, whilst not losing sight of the intrinsic power of our brands in
increasing our market share. The recent Markinor/Sunday Times top brands survey
revealed that 4 of the top 10 furniture brands are JD brands, with the Group"s
core market strength being in the metropolitan areas.
Operating environment
Strong growth in durable and semi-durable goods sales was reported in the South
African retail sector during 2003. This was largely due to downward pricing
pressure resulting from the stronger rand. In addition, household debt as a
percentage of disposable income remains low compared to levels reported a few
years ago. The lower interest rates have increased consumer discretionary
income. The cut in personal tax rates over the past two years, wage increases
and falling inflation levels have further accelerated the growth in disposable
income, particularly in the middle to upper new universal LSM groups. Growth
into 2004 is expected to gain momentum with all these factors in place.
Our top line growth is not simply a result of the impact of the above
conditions, but rather highlights the strength of our brands and our ability to
maximise opportunities as they present themselves.
Financial Overview
Revenue and operating income are expected to increase substantially over the
last year. The results of Profurn have been consolidated for the 5 months since
acquisition.
Headline earnings and respective earnings per share ratios are expected to
increase substantially on the prior year which is in line with analysts"
expectations.
The groups expected cash generated from operations as well as cash and cash
equivalents are substantially stronger than the prior year with the groups
gearing ratio expected to be below 30%.
The Group"s balance sheet reflects the strong trading experienced as well as the
consolidation of the Profurn business. Provisions are considered adequate. At
time of the acquisition of Profurn, we advised the investor community that,
should there be a release of acquired provisions such release would be disclosed
separately.
Operational Review
Over the two years to 31 August 2003, a significant repositioning of the Group
took place. Fast changing demographics within the environment necessitated this
re-engineering. We can now face the future with a much greater degree of
confidence.
The majority of the work done in repositioning the chains was taken in the
previous year whilst the durable goods market was somewhat depressed.
This past year has seen the Group reap some of the rewards of these efforts. We
are now ideally positioned to benefit from the upturn in consumer demand, and to
take full advantage of the improvement in the economic environment.
During the year under review, following the Profurn acquisition, we rationalised
the store base from 1 234 stores to 981 and discontinued Protea as a brand.
These changes are in line with our stated strategy of focusing our efforts on
the middle-income market. Our ability to execute this strategy has been
demonstrated by the successes achieved to date at Price "n Pride.
Profurn
In March 2003, we acquired Profurn. It is a generally accepted fact that the
furniture sector, was and remains, overtraded. However, it was not this alone
that prompted us to make the Profurn acquisition. Were it not for the success of
Price "n Pride"s repositioning, we would not have considered acquiring Protea
and Barnetts. While Morkels is still a respected brand, we need to restore it to
its former glory. Hi-Fi Corporation added a new dimension to our Group. It was
with all these factors in mind that we made this acquisition.
The only component in Profurn that did not fit the JD vision was Supreme,
trading outside of southern Africa. As a result we have closed or downsized
certain of the operations and will continue with this process.
Our biggest challenge in this acquisition is IT. All the business units at
Profurn operated on different IT platforms. In 18 to 24 months, the process of
standardising the IT systems should be completed. We should then be able to
confirm that the anticipated synergistic savings of R70 million are being
realised.
The speed and efficiency of the integration bears testimony to the strength and
excellence of our people. The time spent on the very detailed due diligence
facilitated a swift and smooth implementation.
It is seldom that one has the opportunity to state that there is not a single
component of our business that has not shown a marked improvement. At the time
of the acquisition, concerns were raised that Profurn would cloud the
performance of the existing JD chains. Our ongoing determination to seek and
achieve excellence in all our operations is clearly demonstrated in these
results.
JD Group/Nedcor Alliance
Whilst the results are disappointing, we nevertheless remain positive about the
potential inherent in our alliance relationship with Nedcor. This is
particularly in light of the recently launched Financial Services Charter and
the opportunities that the charter provides to extend financial services to a
broader base of the market. The JD Group store infrastructure will play an
important role in this regard. In addition to the term loan, home loan and basic
assurance products sold through the "in-store points of presence", the product
range will be expanded to include term deposit accounts in the year ahead. With
an expanded range of products in place, the alliance will be in a position to
capitalise on the low cost banking distribution that has been established in
selected JD Group stores in recent years.
Poland
We are delighted to note that Abra, our middle income soft and case goods
retailer operating in Poland, is now well on its way to achieving the expected
returns initially planned. The under-performance of the Polish operations was
primarily attributable to the conditions in the Polish economy. The strong zloty
has contributed to high levels of unemployment. However, with Poland set to join
the EU in May 2004, we expect broad based economic upliftment to be stimulated.
Abra is ideally positioned to benefit from this upturn.
With our new Polish management team in place, we are confident that the
potential of Abra will be maximised.
We can now increase our network of stores with confidence that Abra has the
infrustructure that will enable us to make a meaningful contribution to earnings
by 2005. We anticipate opening a further 17 stores over the near term, bringing
the total number of stores to 43.
United Kingdom
BoConcept in the UK offered us an opportunity to invest in a unique concept. We
continue to believe in the potential of the brand and in the value to be
extracted from this chain.
The performance of BoConcept over the past year has however been severely
constrained by supply chain problems originating from the franchisor Club 8 and
various ways of addressing this issue are under consideration. Accordingly, the
BoConcept rollout is being restricted until we feel comfortable that Club 8 can
meet its obligations as required by the service level agreement. The performance
of our existing store base, notwithstanding the above mentioned hurdle and the
fact that we have as a result been reluctant to do any real marketing, proves
that BoConcept as a retail format has its place in the competitive trading
conditions in the UK. There is no reason why, once our supply chain has been
improved, we should not revert to our original vision of substantially
increasing our store base.
Africa
The Group"s strategy has never been to expand into the rest of Africa. The
Profurn stores beyond South Africa"s boundaries are therefore being reviewed on
a country-by-country basis. To date, we have ceased operations in the Ivory
Coast, Zambia and Tanzania.
Strategic Review and Objectives
Our strategy will see JD continuing to maximise the strengths of its brands. We
expect to see an ongoing improvement in all aspects of our business in the year
ahead. We will replicate the successful upward repositioning of Price "n Pride
at Barnetts. The introduction of major appliances at Hi-Fi Corporation is
already a success and we expect to complete the roll out of the broader product
offering in the forthcoming year.
A process of differentiation has been embarked upon in order to maximise the
potential of each brand and limit any internal competition or overlap. We remain
committed to our stated strategy of diversifying our earnings through the
provision of financial services and expanding our offshore operations.
The JD Group provides employment for almost 16 000 people. We accept the
obligation of creating an atmosphere in the workplace that is conducive to
unlocking the inherent potential of every individual. Our pursuit of excellence
is ongoing. It is only through our people that we can hope to achieve this
excellence. After all, the promise of realising our full potential is far more
exciting than being confined to the boundaries of accepted success.
Outlook
2004 represents our 21st year in business. We have come of age. We have the
energy and determination to strive to greater heights.
Prevailing economic conditions allow for a feeling of optimism. Should current
trends in trading volumes continue, the year ahead should deliver a rewarding
result for all stakeholders. Our main concern for the year ahead, is the impact
that a stronger rand will have on employment levels.
Cautionary announcement
The above estimates have not been reviewed by the company"s auditors and
therefore shareholders are advised to trade with caution in their shares until
the audited results are published by 8 December 2003.
I David Sussman Gerald Volkel
Executive Chairman Financial Director
Johannesburg
17 November 2003
Sponsor
JP Morgan
Date: 18/11/2003 09:51:07 AM Produced by the JSE SENS Department
