Bad debts, little demand for credit dampen JD profits

Lihle Z Mtshali

Lihle Z Mtshali

South Africa's largest furniture retailer, the JD Group, says an increase in bad debts and dampened demand for credit have resulted in a R5billion decline in its operating profit.

At the release of its annual results yesterday, the group said: "The adverse turn in the credit cycle has resulted in an increase in arrears and a material increase in default levels."

Bad debts written off increased by 45percent to R641million.

Gina Schoeman, an economist at Macquarie First South Securities, said: "Interest rates have been hiked so much that we are not surprised that the retail sector has been affected adversely."

The JD Group, owners of Joshua Doore, Morkels, Bradlows, Price 'n Pride, Hi-Fi Corporation and Incredible Connection, increased its revenue by 8percent to R23,9billion but operating profit fell 24percent to R1,5billion.

David Sussman, JD Group chairman, said: "2007 was a very challenging year for the JD Group and we have been tested to the full on various fronts.

"There is every indication that we are at the turning point in the credit cycle and we should see the next growth phase kicking in during the second quarter of the 2008 calendar year."

The group said its retail chains, which rely on credit offerings, showed negative sales growth of 1,1percent over the past year as record household debt and tougher credit laws meant less people bought their furniture on credit.