JD Group blames loss on consumers

JD Group's figures show the company is in need of urgent recapitalisation according to analysts. Image: David Castillo Dominici Free Digital Photos

The company‚ whose brands include‚ Joshua Doore‚ Barnetts and Russells said the disposable incomes of customers were under pressure because of increased living costs and higher debt-to-income levels.

A headline loss per share of 59.1c for the six months to December was reported from headline earnings per share of 234.4c a year earlier. No dividend was declared‚ based on its performance.

JD Group‚ which provides unsecured loans, came under fire with analysts reiterating that it had not set aside enough to cover the bad debts on its books.

The company‚ majority-owned by Steinhoff Holdings‚ increased bad debt provisions by 66% to R1.6bn‚ a move said by some analysts to be way too little too late.

"It's disgraceful. I raised these issues in November at the AGM. They assured me that things were hunky dory‚ that the provisions were okay. A debtors' book can't deteriorate in six months. By November they should have known that their interims were going to be in tatters. Furthermore‚ the 12-month figures for June last year were overstated. The audit committee must take responsibility for that‚" said shareholder activist Theo Botha.

Bad debts spiral

The group's impairment provision represents around 15.2% of its loan book, up from 9.9% a year earlier. Bad debts of R504m were written off‚ a nearly three-fold increase from the R184m it wrote off a year earlier.

Simon Anderssen‚ Kagiso Asset Management investment analyst‚ said the problem was that JD Group had pushed aggressively into unsecured credit at the end of the cycle‚ at a time that larger‚ more experienced lenders were scaling back.

"The group took on too much risk and did not provide adequately for future default‚" he said.

The company's unsecured book is 30% of the total debtors' book‚ and the non-performing loan ratio on the unsecured book has ballooned from 29% to 53%.

JD Group is proceeding with a rights issue of between R1.3bn and R1.5bn.

Recapitalisation

Director at 36One Asset Management‚ Cy Jacobs‚ said JD Group needed a huge recapitalisation‚ and R1.5bn "won't touch sides".

"We believe the business requires much higher provisions‚ more write-offs‚ and should bring some of that capitalised information technology software through the income statement as an expense. This business needs a proper reorganisation. We have serious concerns about the sustainability of the current business model. They need to close far more stores and aggressively cut infrastructure," said Jacobs

"Lewis has run a much tighter ship‚ Abil has closed stores at Ellerines and realigned their business and even with that they have written off billions‚" he added.

When questioned on the group's provisions and the market's concerns‚ Peter Griffiths‚ JD Group's acting chief executive‚ said: "The increase in the provisions are a reflection of the poor market that we are trading in. We have considered this carefully; we have taken a prudent approach."

In an ominous sign‚ Bennie van Rooy‚ chief executive of JD Group consumer finance‚ resigned last week.