JD Group full year earnings dip

This was on the back of a 2.4% decline in revenue to R12.6 billion, with the trading environment once again being impacted by lower discretionary income.

The group declared a final dividend of 41 cents per share versus 57 cents per share for the previous year, bringing the total dividend for the year to 152 cents versus 303 cents previously.

The group's gross profit margin was down from 30.1% to 28.6% due to a highly competitive trading environment in the second half of the year, with traditional retail bearing the brunt.

"The furniture chains were forced to cut prices to maintain market share, significantly reducing margins by 2% year-on-year. While this division contained costs to a creditable 2.1% increase on 2007, this was not enough to offset the lower margin, with a resultant decrease in operating profit from R531 million to R111 million.

Worthy of mention in the traditional retail division are the two entry-level chains, Price 'n Pride and Barnett's, which fared significantly better than the other chains," JD said.

The group's cash retail division, comprising Incredible Connection and Hi-Fi Corporation, delivered revenue growth of 4% to R4 billion from R3.9 billion in 2007. However, operating profit was down 15% on the prior year.

Incredible Connection performed exceptionally well, growing its market share, with top line sales up 17.3% and an operating margin at 8.4%. Hi-Fi Corporation was subjected to increased competition exacerbated by lower consumer demand but, although top line sales declined by 5.4% year-on-year, there was a slight improvement in gross margin. Reported operating profit was an acceptable 6%, albeit down on last year.

Abra, the flagship of international division, based in Poland, performed well above expectations. The increased store base now provides the necessary critical mass to yield improved economies of scale. Revenue increased by 60% to R800 million which, combined with a superior return on sales of 6%, drove operating profit up R27 million to R49 million and provided the group with Rand hedge benefits.

"In line with muted consumer demand, Financial Services was affected by lower new business inflows during the year. Revenue declined by 7% to R3.1 billion (2007: R3.3 billion) with operating profit decreasing by 23% to R623 million (2007: R808 million).

"Bad debt write offs and impairment provisions increased by 8.8% year-on-year, causing a 20% decline in operating margin. Maravedi, our joint venture with Absa and Thebe, continued to grow its receivables and, whilst its financial performance has been pedestrian, it has introduced a number of new products into the market over the past year. Blake performed exceptionally well and is poised for strong organic growth."

The balance sheet reflects net gearing of R158 million compared with R76 million at 31 August 2007. The group remains highly cash generative with over 163% of operating profits being converted into cash. This, despite cash generated by operations decreasing from R1.551 billion to R1.303 billion. Working capital was particularly well managed over the past 12 months.

During the year R526 million was used to buy back and cancel 5 million shares. The group also holds 7.4 million treasury shares as a hedge against options in issue. The gearing ratio of 3.3%, compared with 1.5% last year, remains extremely conservative and increases the group's resilience to the adverse economic and credit environment.

Looking ahead, JD Group said the ong-term outlook remains positive, despite the current difficult trading conditions.

"The question remains as to when the consumer demand cycle will turn. Top line sales in the Traditional Retail division have improved in the two months subsequent to the year-end. Bad debts have shown a 15% decline over the same period and it is particularly pleasing to see arrears in Rand terms showing a reduction.

"Notwithstanding our very conservative expectation for top line growth in the year ahead, we expect a pleasing improvement in earnings. Not only will management continue to focus on margin improvement, but the completion of the separation of Financial Services from Traditional Retail will bring increased efficiencies and financial benefits in 2009," the group said.

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