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JD Group - Solid results for the 12 months ended 31 August 2005
JD Group Limited
(Incorporated in the Republic of South Africa)
(Registration number 1981/009108/06)
(Share code: JDG ISIN: ZAE000030771)
("JDG")
Press release
Date: 3 November 2005
JD Group - Solid results for the 12 months ended 31 August 2005
JD Group, the listed furniture and related goods retailer and mass consumer
financier, has reported strong results for the year ended 31 August 2005.
Revenue increased 10% to R9, 9 billion, with the sale of merchandise rising by
10% to R6, 8 billion (like-on-like growth of 12%). Merchandise sales again
accounted for 68% of total revenue, with the balance being finance charges,
financial and other services. Southern African revenue dominated at 98% of total
revenue, although management notes that Polish operation Abra"s revenue
increased by 9% in zloty terms, with indications of a long-awaited turnaround
emerging through a 41-strong store base.
Credit sales were up slightly at 51, 1% of total merchandise sales, reflecting a
13% increase in merchandise sales from the group"s credit chains.
The group"s average product margin reduced slightly to 31, 6% due to lower
margins in Hi-Fi Corporation and only a small increase at the group"s credit
chains. Stock markdowns due to product deflation were considerably lower at R40
million. Management says retail prices of electrical goods declined by 7% with
the strength of the rand and a decline in US dollar prices, which affected Hi-Fi
Corporation and the electrical goods component of the group"s southern African
credit chains. Furniture inflation was 2, 5% for the year and overall deflation
4, 1%.
Finance charges earned were flat at R1, 454 billion in a declining interest rate
environment. Financial services, which includes all the group"s insurance
offerings, increased by 15% to R1, 258 billion.
Synergistic savings reduced operating expenses marginally to R3, 442 billion.
Operating income was up 40% to R1, 8 billion with margin improving to 17, 7%
from 13, and 9%. Headline earnings increased to R1, 2 billion (2004: R865
million) and basic headline earnings per share rose by 36% to 704, 7 cents.
Net instalment sale receivables grew by 10% to R5 billion. Total provisions as a
percentage of gross instalment sale receivables were down slightly at 28%. The
group continues to insure its South African instalment sale receivables.
Bad debts written off decreased from 10, 4% to 6, 4% of gross receivables, with
arrears down a similar percentage to 8, 6% of gross receivables, or down from
R798 million to R600 million year on year. The average length of the book is
down to 13, 5 months from 14, 3 months in 2004.
Inventories increased by 10, 6% in line with the anticipated growth in the sale
of merchandise.
JD Group currently has no net gearing. Cash generated by trading increased to
R1, 9 billion (2004: R1, 5 billion). Working capital cash requirements increased
from R38 million to R543 million, mainly due to the increase in instalment sale
receivables.
A final dividend per share of 167 cents was declared for the year, bringing the
total to 352 cents (up from 240 cents for 2004).
Commenting on the operating environment, executive chairman David Sussman notes,
"Much has been said about the buoyancy in the retail market. Growth in
disposable income resulting from low interest rates and low inflation has
provided a very strong tailwind in consumer spending, reflected in company
results across the board. The question is just how robust and for how long this
tailwind will persist. Current trends suggest a drop off in velocity but if the
momentum persists we would be more than satisfied. Trading after the year end in
our credit chains is ahead of expectations, while Hi-Fi Corporation, faced with
price deflation of 9%, continues to match year-on-year sales." Sussman
highlighted the increased number of new customers being served by the group"s
chains.
Sussman believes nothing suggests consumers are over extended in credit. "In
fact, the performance of our receivables shows the opposite. Gross receivables
have grown by R570 million, accounting largely for the increase in working
capital. This growth is despite arrears falling below 9% and unprecedented
collection rates. Bad debts written off were in line with our expectation."
The National Credit Bill was approved by Parliament on 13 October 2005. However,
the regulations are still to be determined. There is no doubt that this new bill
will require changes to our information technology software. While much has been
said about the bill"s intention to protect the consumer from over indebtedness,
no responsible corporate providing credit has ever done so with the intention of
overburdening the consumer. The bill seeks to eliminate this practice, which in
itself should have no negative impact on business. Compliance with the new bill
will most certainly add to our costs.
Sussman says the group"s strategy of differentiation between brands (eight in
South Africa, catering for most income segments) is gaining momentum and that
the focus will now shift to entrenching the culture of each chain in the people
employed by those brands. "This group has never been more focused and determined
to unlock the potential of its people. It is only through the development of our
people that we can hope to better serve our target market."
The group will renovate at least 20% of its 963-store base each year and will
set aside some R60 million per annum for the next four years for this purpose.
JD Group now administers over 1, 7 million current customer accounts. During the
year, 90 stores were renovated, 13 closed, 24 new stores opened, and 25
relocated. Included in store closures are the seven stores in Mozambique sold in
February 2005.
Prior to year end and subject to competition authority approval, JD announced
its acquisition of the Connection Group for an estimated R420 million. Sussman
says this will give the group access to a fast-growing segment of the local
retail market. Connection Group sells computer hardware, software and
photographic equipment through 34 Incredible Connection and 27 Photo Connection
stores. "The Connection Group has the potential to double its store base and
will help us expand our product offering in the other chains."
Other expansion opportunities include the formation of a new financial services
group, Maravedi, with Absa Bank and Thebe Investment Corporation. Sussman says
Maravedi will provide the mass market with improved access to financial
products. This venture is still in the test phase and roll out has now been
expanded to 51 outlets. The group"s 27, 5% stake in Blake & Associates, a
company with comprehensive debtors management capabilities and a 1 000-seat call
centre near Durban, augments its direct marketing initiatives to existing and
new customer bases.
Commenting on prospects, Sussman says, "The ongoing challenge for South Africa
is to sustain an increased growth rate. There is no doubt that the political
will exists to help achieve the targeted growth rate. However, the ultimate
long-term stability of our democracy will stand or fall on the creation of jobs
and the alleviation of poverty. We have every confidence that delivery will gain
momentum as we get closer to 2010. There is cause for optimism and the next few
years should provide an environment conducive to above-average growth for the
group."
For further Information, contact Jan Bezuidenhout on 011 408 0205
Ends
Date: 03/11/2005 01:02:20 PM Produced by the JSE SENS Department
