Your uncle has let you down

2014-09-14 15:00

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As the unsecured credit bubble continues to deflate this year,the largest JSE-listed furniture retailer made a shocking announcement

The furniture retail industry is taking a monumental knock as the unsecured credit bubble continues to deflate this year.

JD Group, the largest of the JSE-listed furniture retailers, this week announced a shocking escalation of its bad debts – and provisions for further bad debts.

These “debtors’ costs” shot up from R914?million last year to R3.3?billion in the financial year to the end of June, according to financial statements released on Tuesday.

The new debtors’ costs add up to more than an entire year’s credit sales at the company that owns many of South Africa’s best known durable goods retailers including Joshua Doore, Bradlows, Barnetts, Electric Express, Morkels, Price ‘n Pride, Russells, Supreme, HiFi Corp and Incredible Connection.

Part of the jump is due to the company now making provisions for 59% of all its accounts that are more than three months overdue.

Before, JD Group had only covered 33% of these nonperforming loans.

The effect was a loss of R1.9?billion for the year compared with profit of R632?million a year earlier.

The gigantic impairment echoes the similarly large write-offs made by smaller competitor Ellerines, which was ultimately placed in business rescue last month.

That rescue process this week resulted in the feared result: potentially large job losses.

The company said the plan devised by the business rescue practitioners involves closing an undisclosed number of its 1?040 stores as well as restructuring the warehousing and logistics operations supporting the stores.

That’s if Ellerines can find a funder to save it from liquidation, adds the statement.

Ellerines employs about 7?060 people and there have been no firm decisions about how many of them face the chop, the business rescuers told City Press.

That job number is already significantly lower than the 7?800 Ellerines employees reported a few months ago.

Unlike Ellerines, JD Group has a supportive controlling shareholder in the listed investment group Steinhoff International Holdings.

Earlier this year, Steinhoff pumped R1?billion into JD Group by buying new shares and increasing its interest in the group from 56% to 85%.

Ellerines is owned by African Bank Investments Limited (Abil), which has been placed under curatorship by the reserve bank after going broke.

The plan for getting JD Group back on its feet involves selling the financial services company embedded in the company’s stores, which provides the loans that make 63% of all its furniture sales possible.

The buyer is an unnamed “international consumer finance provider”.

A big part of the shocking revaluation of JD Group’s loan book stems from that buyer imposing a more stringent set of measures of “good” debt.

Financial services make up a large part of the retail business.

The interest JD Group charged on goods sold on credit amounted to R2.2?billion last year, which is the income the new provider is taking on.

But JD Group will keep most of its insurance division, which earned about R1.5?billion last year in premiums from insurance contracts mixed up with the loans customers take on.

This kind of insurance is becoming increasingly controversial as it is often useless and sneakily disguised in credit contracts, especially by furniture retailers.

The plan for getting JD Group back on its feet involves selling the financial services company embedded in the company’s stores, which provides the loans that make 63% of all its furniture sales possible

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