Posted: 2006-11-06 23:56 JD Group earnings up 18%  Presenter: Lindsay Williams Guest(s): David Sussman JD Group revenue is up 20% to just under R12-billion, operating profit is up by 15% to R2-billion, and headline earnings per share are up 18% for the year ended 31 August 2006. Cash generated by operations is R1.5-billion. With JD Group chairman David Sussman LINDSAY WILLIAMS: David, a good set of numbers - was there any difference between the first half of the year and the second half with the interest rate increases? DAVID SUSSMAN: Absolutely. The second half of the year was much tougher than the first half - it’s become a tough slog to achieve budget, and that has persisted into the new financial year. Quite frankly it’s quite clear that the consumer faced with this proliferation of credit cards must be feeling the pinch… LINDSAY WILLIAMS: Yes, it’s quite a sobering thing when a company like JD Group comes out with numbers like this and says: “it’s been a tough slog.” Do you think the slog is going to continue, or do you think people are going to adapt to the changing economic conditions in South Africa? DAVID SUSSMAN: I think that we are definitely in for a period of consolidation - I think this proliferation of credit will precipitate its own fallout, but once we get over that I think things will carry on. LINDSAY WILLIAMS: When you say “precipitate its own fallout” do you mean that the consumers are going to suffer, or the people offering the credit cards are going to suffer? DAVID SUSSMAN: I think both. The one thing that we can’t be accused of is reckless lending - you just have to look at our bad debt write-offs, our arrears, and the length of our debtors book. We can’t be accused by the regulator of reckless lending - so we will stick to our guns, we will remain prudent in our credit granting, and we will continue to reject in the region of 20% to 22% of all credit applications - and we will wait for these times to pass. I’ve been around long enough to know that nothing is forever… LINDSAY WILLIAMS: You say that you reject 20% to 22% of applications - has that always been the case, or has it changed recently when you noticed that credit from the SA Reserve Bank was going to become tighter? DAVID SUSSMAN: No, I think that it’s been fairly consistent over the year. LINDSAY WILLIAMS: The National Credit Act (NCA) is coming in to force - some of it is already in force, but I think the main bulk of it becomes law in 2007 - what have you done to prepare for that? DAVID SUSSMAN: We’ve already spent R6-million on software development, and we will spend another R18-million within this financial year - we should be ready for testing on 1 February 2006, and 1 March we start rolling out - by the end of May it’s all systems go. So we will be ready for the introduction of the NCA. LINDSAY WILLIAMS: The NCA then is something you have already budgeted for - have you budgeted for the quite sharp increase in bad debts I’m seeing across the banks and retailers? Are you experiencing the same sort of thing? DAVID SUSSMAN: No, in fact our bad debt write-offs are lower than the previous year - but one must bear in mind that they lag arrears. You have seen a marginal increase in arrears, so I think you can expect bad debts to start climbing. LINDSAY WILLIAMS: What was the figure I saw in your numbers that suggested bad debts were rising? Did I misread something? DAVID SUSSMAN: No, it think you saw the arrears - that went up marginally to R36-million. On a growth in the book of just in excess of R900-million that’s nothing untoward. The quality of our receivables remains absolutely intact, but it is an indicator of what’s to come. LINDSAY WILLIAMS: Who’s been doing well? I see Incredible Connection seems to have been bedded down beautifully and is going from strength to strength? DAVID SUSSMAN: They’re top of the pops. Hi-Fi Corporation had to take a step back - as I mentioned the last time Classic Business Day interviewed me, we had to spend money on their infrastructure - they had become a victim of their own success, and their volume sales had grown exponentially. Everything has been done - they are now ready to fly, and they are flying. LINDSAY WILLIAMS: The rest of the traditional furniture business - also cooking? DAVID SUSSMAN: Not to the same extent. The credit side of our business has definitely slowed down. LINDSAY WILLIAMS: From here where do you go? You’re upgrading Hi-Fi Corporation’s infrastructure, and you’re obviously going to continue to keep pace with consumer trends and consumer cycles - where do you see it going from here? DAVID SUSSMAN: I think the most exciting development within the group is splitting retail from financial services in the credit chains - in order to enhance our retailing skills we are absolutely determined to satisfy the end consumer, and to live up to their expectations. I think that’s going to make a big difference to our business. LINDSAY WILLIAMS: Do you think you will adapt, and change your credit to cash split at all because of what’s happening at the moment - with the trend you see emerging? DAVID SUSSMAN: That is not a function of our doing - clearly Incredible Connection and Hi-Fi Corporation are cash businesses, and the amount of cash sales in the credit chains seems to have stabilised and that will probably persist. tr/met Comments Related to this transcript: Comment on this transcript... 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