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JD GROUP LIMITED - Unaudited Interim Results For The Six Months Ended 31 December 2013

Release Date: 20/02/2014 08:00
Code(s): JDG     PDF:  
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Unaudited Interim Results For The Six Months Ended 31 December 2013

JD GROUP
Incorporated in the Republic of South Africa 
Registration number: 1981/009108/06 
JSE share code: JDG 
ISIN: ZAE000030771 
JSE bond code: JDGCB 
ISIN: ZAE000168415 
("JD Group Limited" or " the Group")
 
UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2013 #

- Revenue increased to R17,1bn - 1H2013: R16,4bn

- Impairment provision increased to R1,6bn  -  FY2013: R966m, Representing 15,2% of loan book FY2013: 9,9%

# Extracted financial information from the unaudited results for the six months ended 31 December 2013.

Financial statements
 
SUMMARISED GROUP STATEMENT OF TOTAL COMPREHENSIVE INCOME 

                                                                             Unaudited        Unaudited           Audited
                                                                            six months       six months         12 months
                                                                                 ended            ended             ended
                                                                           31 December      31 December           30 June
                                                                                  2013             2012              2013
                                                                             R million        R million         R million

Revenue                                                                         17 068           16 359            32 210 
Retail operations
Revenue                                                                         14 593           14 164            27 401
Cost of sales                                                                  (11 284)         (10 784)          (20 974)
Gross retail margin                                                              3 309            3 380             6 427 
Consumer Finance
Revenue                                                                          2 475            2 195             4 809 
Finance costs                                                                     (185)            (149)             (323)
Debtors' costs (note 2)                                                         (1 097)            (345)             (914)
Risk-adjusted consumer finance income                                            1 193            1 701             3 572 
Operating expenses                                                              (4 523)          (4 354)           (8 968)
Administration and other expenses                                               (4 242)           4 095)           (8 123)
Depreciation and amortisation                                                     (260)            (253)             (489)
Capital items (note 3)                                                             (21)              (6)             (356)

Operating (loss)/profit                                                            (21)             727             1 031 
Income from investments                                                             29               25                57 
Finance costs                                                                     (163)             (68)             (216)
Share of (loss)/profit of associate                                                 (4)               1                 - 
(Loss)/profit before taxation                                                     (159)             685               872 
Taxation                                                                            24             (181)             (240)
(Loss)/profit for the period                                                      (135)             504               632 
Other comprehensive income     
Exchange differences on translating foreign operations                              13                -                 3 
Total comprehensive (loss)/income for the period                                  (122)             504               635 
(Loss)/profit for the period attributable to:     
Owners of parent                                                                  (151)             502               606 
Non-controlling interests                                                           16                2                26 
                                                                                  (135)             504               632
Total comprehensive (loss)/income for the period attributable to:     
Owners of parent                                                                  (138)             502               609 
Non-controlling interests                                                           16                2                26 
                                                                                  (122)             504               635 
EBITDA (excluding capital items)                                                   445            1 135             2 199 
Basic (loss)/earnings per share (cents)                                          (67,1)           232,6             276,3 
Headline (loss)/earnings per share (cents)                                       (59,1)           234,4             395,2 
Reconciliation of headline earnings     
(Loss)/profit attributable to owners of parent                                    (151)             502               606 
Capital items (note 3)                                                              21                6               356 
Taxation thereon                                                                    (3)              (2)              (96)
Headline (loss)/earnings                                                          (133)             506               866 
Number of shares in issue (000)                                                229 338          219 830           229 338 
Treasury shares held (000)                                                      (3 657)          (3 657)           (3 657)
Number of shares held outside the Group (000)                                  225 681          216 173           225 681 
Weighted average number of shares in issue (000)
– basic                                                                        225 681          215 839           219 157 
– diluted                                                                      226 297          234 796           237 609 
Diluted headline (loss)/earnings per share (cents)                               (58,9)           227,0             391,1 
Diluted basic (loss)/earnings per share (cents)                                  (66,9)           225,3             275,5 
Operating margin (%)                                                             (0,1%)             4,4%              3,2%
Distribution to shareholders (cents)                                                 -              115               232
– interim                                                                            -              115               115 
– final                                                                            n/a              n/a               117 

SUMMARISED GROUP STATEMENT OF FINANCIAL POSITION 
                                                                             Unaudited        Unaudited           Audited
                                                                            six months       six months         12 months
                                                                                 ended            ended             ended
                                                                           31 December      31 December           30 June
                                                                                  2013             2012              2013
                                                                             R million        R million         R million
Assets
Bank balances and cash                                                           1 295            1 067               973 
Taxation                                                                             -               53                34 
Financial assets                                                                     1                -                 3 
Inventories                                                                      4 482            4 246             4 049 
Trade, loan and other receivables (note 4)                                      10 433           10 673            10 804 
Vehicle rental fleet                                                               715              708               455 
Deferred taxation                                                                  390              185               254 
Investments and loans                                                              201               69               128 
Property, plant and equipment                                                    2 694            2 156             2 788 
Intangible assets and goodwill                                                   3 582            3 789             3 646 
Total assets                                                                    23 793           22 946            23 134 
Equity and liabilities     
Bank overdraft                                                                     946               15               182 
Taxation                                                                            44               56                99 
Trade and other payables and provisions                                          6 165            5 883             5 281 
Deferred taxation                                                                  475              662               562 
Non-interest-bearing liabilities                                                   234              224               237 
Interest-bearing liabilities                                                     7 228            7 148             7 632 
Total liabilities                                                               15 092           13 988            13 993 
Ordinary share capital and reserves                                              8 654            8 862             9 056 
Non-controlling interests                                                           47               96                85 
Total equity                                                                     8 701            8 958             9 141 
Total equity and liabilities                                                    23 793           22 946            23 134 
The statement of financial position is presented based on order of liquidity.
Net asset value per share (cents)                                                3 835            4 031             4 013 

SUMMARISED GROUP STATEMENT OF CASH FLOWS
                                                                             Unaudited        Unaudited           Audited
                                                                            six months       six months         12 months
                                                                                 ended            ended             ended
                                                                           31 December      31 December           30 June
                                                                                  2013             2012              2013
                                                                             R million        R million         R million

Cash generated by trading*                                                       1 540            1 168             2 197 
Increase in working capital                                                       (223)            (580)             (296)
Cash generated by operations                                                     1 317              588             1 901 
Increase in gross instalment sale and loan receivables                            (494)          (1 873)           (2 478)
Investment income                                                                   29               25                51 
Dividends paid                                                                    (264)            (501)             (761)
Taxation paid                                                                     (218)            (188)             (412)
Total interest paid*                                                              (348)            (217)             (539)
Net cash flows from operating activities                                            22           (2 166)           (2 238)
Net cash flows from investing activities                                           (61)            (841)           (1 494)
Net cash flows from financing activities                                          (403)           2 536             3 000 
Net decrease in cash and cash equivalents                                         (442)            (471)             (732)
Cash and cash equivalents at beginning of period                                   791            1 523             1 523 
Cash and cash equivalents at end of period                                         349            1 052               791 
* Finance costs of Consumer Finance have been reclassified to total 
interest paid.

SUMMARISED GROUP STATEMENT OF CHANGES IN EQUITY Unaudited
                                                                             Unaudited        Unaudited           Audited
                                                                            six months       six months         12 months
                                                                                 ended            ended             ended
                                                                           31 December      31 December           30 June
                                                                                  2013             2012              2013
                                                                             R million        R million         R million

Balance at beginning of period                                                   9 141            8 936             8 881 
Changes in ordinary share capital and share premium
Proceeds on issue of shares                                                          -                -               448 
Proceeds on disposal of shares by share incentive trust                              -                6                 7 
Change in reserves
(Loss)/profit for the period attributable to owners of the parent                 (151)             502               606 
Share-based payment through
comprehensive income                                                                 -               19               (22)
Share-based payments                                                                 -               (2)               (8)
Dividends paid                                                                    (264)            (501)             (761)
Other reserve movements                                                             13              (11)               (8)
Change in non-controlling interests
Total comprehensive income for the period attributable to non-controlling 
interests                                                                           16                2                26 
Other non-controlling interests movements                                          (54)               7               (28)
Balance at end of period                                                         8 701            8 958             9 141 
Comprising:
Ordinary share capital and share premium                                         4 472            4 024             4 472 
Distributable reserves                                                           4 007            4 364             4 422 
Share-based payment reserve                                                         51              116                52 
Other reserves                                                                     124              358               110 
Non-controlling interests                                                           47               96                85 

NOTES

1.  Accounting policies
    The summarised financial information has been prepared in accordance with the framework concepts and the measurement and recognition requirements of International 
    Financial Reporting Standards (IFRS), the SAICA Financial Reporting Guide as issued by the Accounting Practices Committee and the Financial Reporting Pronouncements
    as issued by the Financial Reporting Standards Council, the information required by IAS 34: Interim Financial Reporting, the  JSE Listings Requirements and the 
    requirements of the Companies Act of South Africa. The report has been prepared using accounting policies that comply with IFRS which are consistent with those 
    applied in the financial statements for the 12-month period ended 30 June 2013, except for the adoption of accounting standards and interpretations that became 
    effective during the current period. The adoption of these standards had no material impact on the Group.

                                                                             Unaudited        Unaudited           Audited
                                                                            six months       six months         12 months
                                                                                 ended            ended             ended
                                                                           31 December      31 December           30 June
                                                                                  2013             2012              2013
                                                                             R million        R million         R million
2.  Debtors' costs
    Increase in impairment provision                                               593              161               409
    Bad debts written off                                                          504              184               505
                                                                                 1 097              345               914
3.  Capital items
    Impairment of intangible assets (software)                                       -                -               345 
    Other impairments                                                                5                -                17 
    Net loss/(profit) on disposal of assets                                         16                6                (6)
                                                                                    21                6               356
4.  Trade, loan and other receivables
    Instalment sale and loan receivables                                        10 225            9 126             9 731 
    Less: Impairment provision                                                  (1 559)            (711)             (966)
    Net instalment sale and loan receivables                                     8 666            8 415             8 765 
    Trade and other receivables                                                  1 819            2 318             2 090
    Less: Impairment provision                                                     (52)             (60)              (51)
    Net instalment sale, loan and trade and other receivables                   10 433           10 673            10 804
    Provisions as a percentage of total instalment sale and loan 
    receivables (%)                                                               15,2%             7,8%              9,9%

5.  Diluted earnings and headline earnings per share
    The number of shares for diluted earnings purposes has been calculated after considering the dilutive impact of share options, the cash value to be received in 
    future in respect of unissued shares granted to employees and the effect of the convertible bond.

6.  Related parties
    The Group entered into various transactions with related parties which occurred under terms that are no more favourable than those arranged with independent third 
    parties.

7.  Subsequent events     
    No significant events have occurred in the period between 31 December 2013 and the date of this announcement, save for the rights issue announced on SENS earlier 
    this month.
      



SEGMENTAL ANALYSIS
                                                  RETAIL                   CONSUMER FINANCE                 AUTOMOTIVE                    CORPORATE                        GROUP
                                         31 December   31 December    31 December   31 December       31 December   31 December    31 December   31 December     31 December   31 December                                      
for the six-month period ended                 2013           2012           2013          2012              2013          2012           2013          2012            2013          2012

Revenue                          Rm           6 442          6 899          2 475         2 195             8 485         7 611           (334)^        (346)^        17 068        16 359 
Sale of merchandise              Rm           5 968          6 351              -             -             7 635         6 817              -             -          13 603        13 168 
Operating profit/(loss)          Rm             151            417           (187)          334               232           193           (217)         (217)            (21)          727 
Operating margin                  %             2,3            6,0           (7,6)         15,2               2,7           2,5                                         (0,1)          4,4 
Total assets                     Rm           4 409          4 172         10 485        10 829             6 360         5 957          2 539         1 988          23 793        22 946
Capital expenditure
(excluding rental fleet)         Rm              70            140             22           281                28            14             28           282             148           717
Sale of merchandise on credit    Rm           1 729          2 142                                                                                                     1 729         2 142
Unsecured loan disbursements     Rm                                           453         1 352                                                                          453         1 352
Number of stores                 No.          1 223          1 226                                            121           114                                        1 344         1 340 
^  Elimination of interdivisional origination fees.

for additional information www.jdg.co.za

Commentary

OPERATING ENVIRONMENT
During the period under review, the South African consumer environment continued to be difficult. Subdued consumer demand, prevalent throughout the period, worsened 
during the 2013 festive season, negatively impacting merchandise sales of household goods during the Group's peak trading period.

Customers are facing continued pressure on disposable income due to increased living costs and higher debt-to-income levels, impacting spending on furniture and 
household goods.

During the period under review, the Company adopted a more prudent provisioning approach as a result of the deteriorating credit quality in both the secured 
and unsecured lending market. Newly introduced stricter credit granting criteria continued to reduce acceptance rates of credit applications, which further impacted 
sales negatively.

Management continued with the restructuring of the business and cost-cutting initiatives.

The key features of the period's results are as follows:
- Revenue increased by 4,3% to R17,1 billion (1H2013: R16,4 billion)

- Impairment provision on the loan book increased to R1,6 billion, representing 15,2% of the loan book

- A decrease in EBITDA to R445 million (1H2013: R1,1 billion)

- Operating cash flow increased to R1,3 billion (1H2013: R588 million)

- Headline loss per share of 59,1 cents compared to headline earnings per share of 234,4 cents for 1H2013

- Basic loss per share of 67,1 cents compared to basic earnings per share of 232,6 cents for 1H2013

RETAIL
The Retail business generated merchandise sales of R6,0 billion (1H2013: R6,4 billion) and an operating profit of R151 million (1H2013: R417 million). These results 
are contextualised as follows:

Furniture Retail (including Supply Chain Services)
The furniture chains had a particularly challenging six months and reported a reduction in merchandise sales of 14,7%. The external factors contributing to these 
results include reduced consumer expenditure and consumer over-indebtedness. The internal factors which exacerbated the impact of these external factors on the 
results include the distraction caused to the business by the implementation of new IT systems and the knock-on effects on merchandise and inventory planning.

During the reporting period, management embarked on a major restructuring of the business into four clusters focused on the specific consumers and market segments 
they serve. Corporate head office functions, like finance, property management, merchandising and marketing, were decentralised into the respective clusters, 
resulting in increased control and accountability of operations. However, the performance of the Furniture Retail business continues to be negatively impacted by the 
high distribution costs present in the Supply Chain Services component of the business.

Consumer electronics & appliances
The consumer electronics and appliances business, which includes Incredible Connection and HiFi Corp, also experienced challenging operating conditions as a result of 
reduced customer spending and resulted in a reduction in merchandise sales of 13,3%. Gross margins were, however, successfully increased as a result of more conservative 
product discounting practices. 

The consolidation of the back-office functions of the two brands resulted in successfully reducing operating expenses during the period. 

Building materials & DIY
SteinBuild's continued investment in stores, expansion of stock ranges and improved brand awareness resulted in the business taking market share during the past six 
months. SteinBuild reported revenue growth of 51,9% (including Hardware Warehouse) and increased operating margins.

During October 2013, the Hardware Warehouse store footprint was expanded with the opening of two new stores in KwaZulu-Natal and the Eastern Cape. 

CONSUMER FINANCE
The Consumer Finance business reported disappointing results for the period. 

Debtors' cost increased to R1,1 billion, consisting of an increase in the impairment provision of R593 million and bad debts of R504 million written off. 
At 31 December 2013, the impairment provision of R1,6 billion on the loan book (FY13: R996 million) represented approximately 15,2% (FY13: 9,9%) of the book.
Recent changes to credit granting criteria reduce the inherent collection risk on new loans originated. The loan book, before credit impairments, has grown by only 
R494 million (1H2013: R1,9 billion) during the period. Specifically disbursements of unsecured lending decreased by R917 million to R453 million (1H2013: R1,4 billion)
during the period under review.

During the period under review, JD Group sold its investment in Blake & Associates.

AUTOMOTIVE
Despite the motor industry strikes and disposable income of customers remaining under pressure, Unitrans Auto reported good results. Merchandise sales increased by 
12,0% and gross margins were maintained during the period. Operating profit increased by 20,2% to R232 million. 

Hertz delivered an improved performance during the six months under review.

STATEMENT OF FINANCIAL POSITION AND CASH FLOW
The statement of financial position reflects net gearing of R6,9 billion. 

JD Group maintained its diversified funding structure and successfully renegotiated the Group's debt covenants to be more suited to the nature of the business. 
All financial ratios remain within the Group's covenants.

The Board has approved a rights issue of between R1,3 billion and R1,5 billion, to be fully underwritten by Steinhoff International Holdings Limited on terms and 
conditions to be agreed. This increase of the Group's equity base is appropriate for enhancing its prospects for profitable growth from a solid capital structure. 
Further details will be communicated to shareholders.

Operating cash flow increased to R1,3 billion (1H2013: R588 million) with R223 million invested in working capital (1H2013: R580 million).

PROSPECTS
The Automotive division, Consumer electronics & appliances and SteinBuild should continue to perform well. Management is confident that the restructuring initiatives 
and rightsizing of logistics will allow the Furniture Retail business to capitalise on its market share. 

Given the deterioration of the collection rates since July 2013, the Group has adopted a more prudent provisioning approach. In terms of this approach the statistical 
calculation has been changed and no longer uses a 24-month historic recovery rate, but bases the provision on a 12-month recovery rate that better reflects the current
collection environment.

In addition, the Group:
- introduced stricter credit granting criteria; and
- implemented changes to the collections strategy.

CHANGES TO THE BOARD
In terms of 3.59(a), (b) and (c) of the Listings Requirements of the JSE Limited, shareholders are advised that:
- Mr David Sussman, the Chief Executive Officer of JD Group, is on compassionate leave for an indefinite period
- Peter Griffiths has been appointed by the Board as Acting Chief Executive Officer with immediate effect on 19 February 2014.
- Mr Bennie van Rooy, the Chief Executive Officer of JD Consumer Finance, resigned with immediate effect on 19 February 2014.
 
DIVIDEND
The Board has resolved that, based on the performance of the Group during the past six months, no interim dividend will be declared.

By order of the Board

Vusi Khanyile
Independent Chairman

Peter Griffiths
Acting Chief Executive Officer

Jan van der Merwe
Chief Financial Officer

20 February 2014

EXECUTIVE DIRECTORS PM Griffiths (Acting Chief Executive Officer), ID Sussman*, JHN van der Merwe (Chief Financial Officer), KR Chauke 
INDEPENDENT NON-EXECUTIVE DIRECTORS VP Khanyile (Independent Chairman), N Bodasing, MP Matlwa, SH Müller, JH Schindehütte
NON-EXECUTIVE DIRECTORS Dr D Konar, MJ Jooste, DM van der Merwe, AB la Grange (Jnr), AB la Grange (Snr) 
COMPANY SECRETARY JMWR Pieterse Press announcement prepared by JHN van der Merwe CA(SA) 

* on compassionate leave

Registered office 
11th Floor, 
JD House, 27 Stiemens Street, 
Braamfontein, 
Johannesburg, 
2001 
(PO Box 4208, Johannesburg, 2000) 

telephone +27 11 408 0408 

TRANSFER SECRETARIES 
Computershare Proprietary Limited, 
70 Marshall Street, 
Johannesburg, 
2001 

telephone +27 11 370 5000 
facsimile +27 11 688 5238 

SPONSOR PSG Capital Proprietary Limited, 
First Floor, 
Building 8, 
Inanda Greens Business Park, 
54 Wierda Road West, 
Wierda Valley, 
Sandton, 
2196 

telephone +27 11 032 7400 
facsimile +27 11 784 4755 

INDEPENDENT AUDITOR Deloitte & Touche


www.jdg.co.za


Date: 20/02/2014 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
 the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, 
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
 information disseminated through SENS.

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