Cash Retail
Incredible Connection and Hi-Fi Corporation make up the Group’s Cash Retail division, delivering revenue of R3,98 billion (2008: R4,01 billion). Operating profit is down 5,2% on the prior year at R218 million (2008: R230 million) due to a very poor trading performance at Hi-Fi Corporation.
Incredible Connection extended its track record with an excellent performance, reporting an 11% increase in revenue with its operating profit up 27% on 2008. These results demonstrate the resilience of the business model despite adverse market conditions. With no single consolidated competitor, its strong supplier orientation, extensive product range and specialised employees, enable Incredible Connection to extend its leadership position in the local marketplace. Incredible Connection will continue to grow organically by opening new stores in areas which have good growth potential. Incredible Connection is also committed to evolving its model to ensure its relevance with the introduction of an extended warranty product, a new e-commerce site and an on-site service. In 2009, we introduced an updated store format, designed to enhance our customers’ in store experience. The new store format is being aggressively rolled out to entrench our market leadership.
Hi-Fi Corporation is experiencing a complete makeover. We embarked on a strategy to reposition the brand and its merchandise as well as to modernise and upgrade the store format. The brand reported an 11,5% decline in revenue and its performance was negatively impacted by inventory write offs resulting in a 76,4% reduction in operating profit. The programme initiated in 2008, to procure all merchandise through the local supply channel, was carried through and all products are now supported and guaranteed by local distributors. Hi-Fi Corporation also redefined its brand strategy to penetrate the branded, specialised consumer electronics market, from entry level to top of the range products across all categories. During the year a new management team was put in place to facilitate this strategy. By the end of November 2009, 11 of the 36 retail outlets will have been upgraded to the new store format, with all 11 stores now carrying the new focused range of merchandise. There are positive early indications that Hi-Fi Corporation is now on solid ground for future growth.
International Retail
Abra, the Group’s retail chain based in Poland, continues to grow its footprint and perform well. It opened seven new retail outlets during the year, bringing its network to 69 stores. The chain delivered solid revenue growth of 11,7% with operating profit improving by 18,8% in Polish currency. The rand strength during the year dampened its revenue growth to 5,4%, however, its operating profit was 18,4% up in rand terms.
Abra is evaluating opportunities to introduce a franchise business model to facilitate further expansion and the Group is confident in the brand’s ability to extend its growth track record. The objective of pursuing acquisition opportunities in central and eastern Europe was put on hold due to the economic downturn in the region.
Financial Services
The performance of the Financial Services division mirrored the experience in the traditional retail environment, with the impact of lower loan volumes offset to a degree by the increase in the average loan value.
Revenue of R3,0 billion (2008: R3,1 billion) was in line with last year. Although the division took a conscious decision to reduce its insurance rates by 25% during the year, the introduction of service fees in terms of the National Credit Act did compensate for the lower insurance income.
The separation of the Financial Services division into a standalone operation enabled a better control of expenses. Despite the reduction in operating expenses, the 20,5% increase in debtors costs, meant that the Financial Services division reported a 43,6% decline in operating profit to R351 million (2008: R622 million). Even though the performance of the debtors book was poor, we remain convinced that the centralisation of debtors will improve collections in the year ahead. The introduction of new loan and insurance products to our customer base and an improvement in the trading environment, augurs well for us achieving our benchmark return on capital employed of 25% by 2011.
New Business Development
The New Business Development division, consisting of Maravedi and Blake, is of critical strategic importance to the Group.
Maravedi performed in line with expectation and continues to make good progress towards its strategic imperative of introducing new financial products into the Group’s target market. We increased our stake from 42,7% to 90,5% during the year. In addition to launching a broker channel, Maravedi opened two pilot retail outlets under its own brand. Unsecured loans and additional insurance products have been introduced. Subsequent to year end, Maravedi has taken over the Incredible Connection and Hi-Fi Corporation debtors books. A private label credit card will be introduced in the new year.
Blake delivered a stable performance for the year under review and assisted in accelerating the roll out of the Group’s centralised contact centre. This world-class inbound and outbound contact centre based in Durban, remains a key strategic investment for the Group. We increased our stake from 27,5% to 70% during the year.
The way forward
JD Group is well on course with implementing the strategy initiated in 2008. The pleasing operating performance of the business on a like for like basis in 2009, provides confirmation that our strategic direction will unlock the potential of JD Group. In the year ahead, we will be focused on optimising and consolidating the business model to drive the long term value of the business.
The Group is committed to extending the progress made in 2009 towards achieving the specific performance targets in each of the divisions. By leveraging the successes and achievements during the year under review, JD Group is positioned to achieve these benchmarks.
Grattan Kirk_Chief executive officer
