JD Group posts headline loss

Headline earnings showed a modest increase of 2% over the previous period if the once-off tax settlement and restructuring costs were eliminated, the group said.

Revenue was up 2% at R6,8 billion. Profit before tax was down 23% at R415 million, but taxation charges amounted to R436 million.

The group said the results reflect the severity of this business cycle.

Revenue growth was principally due to the inclusion of Blake and Maravedi for the first time as well as the exceptional performance from Incredible Connection and Abra, it said.

Gross margin was slightly up on the previous year at 31%.

The increase in expenses of 8% on 2008 is almost entirely due to the inclusion of Blake and Maravedi as well as store growth at Abra and Incredible Connection.

The Group incurred R84 million of restructuring costs primarily driven by the centralisation of debtors collections. If these costs are excluded, it would have shown a like-for-like reduction in expenses on the prior year.

The group settled its outstanding contingent liabilities with SARS as disclosed in the 2008 Annual Report for an amount of R325 million.

These contingent liabilities, relating to outstanding tax structures, have over the years resulted in a considerable amount of speculation and uncertainty, it said.

This contingency would have increased over time to R970 million including two structures that were not assessed, but were included in the settlement.

Against this background, and in order to remove the uncertainty and exposure to these contingent liabilities, the group resolved the matter with SARS.

As a result, the board has decided not to declare an interim dividend for the first six months of the 2009 financial year in order to facilitate the payment.

The group generated an operating profit before debtors costs of R1,031 billion. While 4% down on 2008, if the restructuring costs of R84 million are excluded, operating profit grew by 4%.

Total debtors costs remain a concern with a 13% increase over 2008, it said.

"After showing such a positive start to the six months, it is very disappointing to report such an increase in total debtors costs.

We are confident that the efficiencies gained from centralising collections will bear fruit in the near future. The indebtedness of the consumer remains a concern and this clearly impacts on bad debts and Traditional Retail's ability to generate more sales," it said.

The group said it is now firmly settled in its new structure with five distinct business divisions covering traditional and cash retail, financial services, international and new business development.

The traditional retail business, comprising the group's eight branded furniture and appliance stores, produced a profit of R246 million off a slightly reduced turnover. This was achieved through stringent cost management.

The cash division, made up of Incredible Connection and Hi-Fi Corporation managed a slight growth in turnover and maintained a profit of R125 million in line with the comparative period last year. Both brands maintain a strong customer focus, which supports their growth plans. Each brand will be opening a number of new stores in the current financial year, reflecting growing market shares in this segment.

The financial services division was severely impacted by lower new business inflows as well as a substantial increase in debtors' costs. As a result, operating profit declined 48% to R123 million.

"Admittedly, this was exacerbated by the added costs of the restructuring, but it also reflects the current indebtedness of the consumer. With debt collection now centralised a stronger performance from this division is expected in the next six months," the group said.

The new business development division, comprising Blake and Maravedi, is of strategic importance to the group's future plans and, while not making a material impact on the group's profits at this stage, are expected to contribute significantly to the group's strategy of becoming a significant financial services provider to the middle mass market.

The group's balance sheet and cash flow remain strong, with gearing at 13.5% and with 124% of trading profit being converted into cash.

Commenting on the results, Chairman David Sussman said he was proud of the efforts made by management and staff to cope with the vagaries of the business cycle.

"We have been through a substantial restructuring, which has not been easy, especially in the current climate, and management and staff have worked hard to achieve a substantially more focused group." he said.

"We are now well poised to compete with the best; service levels are improving and we anticipate an improvement in like-on-like earnings for the next six months," he concluded.

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