Reduced consumer spending knocks JD Group
CHALLENGING conditions in the furniture retail market, linked to reduced consumer spending, hit the industry’s growth, furniture group JD Group said yesterday.
JD Group, which is 86 percent owned by international furniture and industrial giant Steinhoff, said despite pressure on disposable income and overall indebtedness of consumers, it had increased revenue from continuing operations by 10.5 percent to R17 billion, while gross margins were largely maintained.
Shares fell 2.38 percent to close at R28.70 yesterday.
In the six months to December, the group, which owns brands such as Russells, Hi-Fi Corporation, Morkels and Joshua Doore among others, saw its debtor’s costs increase by 287 percent to R426 million from R110m for the half year to December 2013.
Operating profits rose 16.3 percent to R356m.
Net debt for the group rose by 10 percent to R6bn at the end of December from R5.5bn at the end of June, due to the related-party loan from the Steinhoff Group.
During the reporting period, JD Group was able to sell its consumer finance division, excluding insurance operations, to RCS Cards in December. The group also sold its lossmaking consumer finance business to a BNP Paribas unit for R4.6bn, which owns RCS Cards. The sale was approved by shareholders last week.
JD Group previously said it had sold the consumer finance books as it was trying to curb further deterioration in the division that had suffered a R2.1bn loss in the year to June as its customers had taken on more debt and became poorer.
The group will now focus on sales of furniture, electronics and appliances with RCS Cards providing JD Group customers access to credit for 10 years.
In terms of the International Financial Reporting Standards, the disposal group was written down to its net realisable asset value of R4.7bn.
JD Group said the proceeds would be used to reduce the group’s interest bearing debt, thereby improving its gearing.
The group’s retail division reported growth in merchandise sales of 3.4 percent to R6.2bn.
Merchandise sales were up 7.8 percent within the the furniture retail chains.
“This growth was achieved de- spite more stringent credit granting criteria being applied, reducing the credit sales mix in furniture retail from 64.9 percent to 59.7 percent,” JD Group said.
Steinbuild, which specialises in building materials, increased sales by 10.1 percent.
However, the group’s consumer electronics and appliances retail division experienced challenging trading conditions as a result of competitive pricing in the market.
The group’s automotive division, Unitrans Auto, reported a strong performance with sales up by 15.4 percent to R8.8bn, contributing 58.8 percent of the group’s total merchandise sales.
Operating profits for this division was up 14.6 percent to R266m.
JD Group attributed the strong performance at its automotive division to effective execution of management’s strategy to focus on traditional automotive brands, which are predominately manufactured locally.
“Other market factors contributing to the period’s results include interest rates remaining low and preemptive buying by consumers in light of expected price increases resulting from the weakening rand.”