2005 Annual Report - JB Hi Fi

Chairman’s and Chief Executive Officer’s Report
Dear fellow shareholder,
The company achieved revenue growth
of 53.4%, EBIT growth of 62.1% and NPAT
growth of 49.8% for the year ended 30 June
2005. During the year, an additional ten
JB Hi-Fi stores and one Clive Anthonys
store were opened.
Result
JB Hi-Fi Limited (referred to below as “the
company”) has delivered another record
result with sales up 53.4% on the prior year.
This was achieved through a combination of
strong comparative stores sales, the maturing
of the eight stores opened last year and the
opening of eleven new stores during the
year. Second half sales slowed signifi cantly
with the effect most acutely felt in the Clive
Anthonys business with its greater exposure to
the housing sector with sales of whitegoods,
cooking appliances and air conditioning.
Margin declined slightly by 43 base
percentage points to 23.0% over the
year. Whilst competition remains intense,
the company’s positioning as a discounter,
together with its improved buying, has
insulated it from any signifi cant margin
pressure. Product mix, in particular the
popularity of relatively low margin portable
audio players (such as the Apple iPod),
has also contributed to the slight decline.
The company continued to focus on cost
control with operating expenditure falling
as a percentage of revenue to 17.1% (last
year 17.8%). This continues to reinforce the
company’s ability to deliver on its every day
low pricing strategy and makes it increasingly
diffi cult for competitors to offer similar pricing.
Cost reduction together with stable margins
has enabled the company to increase its EBIT
margin by 31 base percentage points to 5.3%.
Cashfl ow used in operations was $3.4 million
refl ecting both timing of supplier payments
around balance date (overall creditor days has
not materially changed) and an increase in
inventory to support the eleven new stores.
Mature stores continue to generate signifi cant
cash which with a conservative level of debt
fi nances the new store opening program.
Debt remains at conservative levels with
interest cover of 6.5 times and a fi xed charges
cover ratio of 3.1 times. Return on Equity of
33.1% refl ects the low capital intensity of the
business model.
Review of Operations
Ten new JB Hi-Fi stores were opened during
the year with a high proportion of these being
in shopping centres. JB Hi-Fi is relatively
unique in its ability to successfully bring “big
box categories” such as TVs and audio to
shopping centres. The high level of foot traffi c
through the centres reduces the company’s
reliance on advertising and provides a boost
to convenience categories such music,
movies, games and accessories.
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