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Lewis - Unaudited Interim Results For The Six Months Ended 30 September 2004
Lewis Group Limited
(Registration number 2004/009817/06)
Share code: LEW
ISIN: ZAE000058236
("Lewis" or "the Group")
- LISTED 4 OCTOBER
- REVENUE UP BY 11%
- OPERATING MARGIN INCREASED TO 22.8%
- OPERATING PROFIT UP BY 25%
- HEADLINE EARNINGS UP BY 55%
- FURTHER IMPROVEMENT IN QUALITY OF DEBTORS" BOOK
- INTERIM DIVIDEND 61 CENTS PER SHARE
GROUP INCOME STATEMENT
6 months 6 months 12 months
ended ended ended
Sept 2004 Sept 2003 Mar 2004
Rm % Rm Rm
Notes Unaudited change Unaudited Audited
Revenue 3 1 185.0 10.9% 1 068.4 2 274.7
Cost of sales (494.3) (431.6) (919.6)
Gross profit 690.7 636.8 1 355.1
Bad and doubtful debts 4 (37.6) (73.7) (115.1)
Depreciation (21.1) (21.0) (38.7)
Employment costs (194.5) (172.6) (367.8)
Occupancy costs (43.1) (40.3) (83.4)
Other operating costs (124.5) (113.1) (244.5)
Operating profit 269.9 24.9% 216.1 505.6
Investment income 20.6 25.4 34.9
Profit before finance costs 290.5 20.3% 241.5 540.5
Finance costs (30.4) (75.2) (141.7)
Profit before tax 260.1 56.4% 166.3 398.8
Tax (78.4) (49.7) (111.5)
Net profit attributable to
ordinary shareholders 181.7 55.8% 116.6 287.3
RECONCILIATION OF HEADLINE EARNINGS
Net profit attributable to
ordinary shareholders 181.7 116.6 287.3
Adjusted for
Amortisation of negative
goodwill - - (1.0)
Profit on disposal of property,
plant and equipment (1.9) (1.4) (3.1)
Loss on disposal/impairment
of available-for-sale assets 1.0 1.6 3.5
Taxation effect 0.4 0.3 0.9
Headline earnings 181.2 54.7% 117.1 287.6
Number of Lewis Group Ltd
ordinary shares (000)
In issue 100 000 100 000 100 000
Weighted average 100 000 100 000 100 000
Fully diluted weighted average 100 000 100 000 100 000
Earnings per share (cents) 181.7 55.8% 116.6 287.3
Headline earnings per share
(cents) 181.2 54.7% 117.1 287.6
GROUP BALANCE SHEET
Sept 2004 Sept 2003 Mar 2004
Rm Rm Rm
Notes Unaudited Unaudited Audited
Assets
Non-current assets
Property, plant and equipment 111.7 113.6 115.4
Negative goodwill - - (4.2)
Investments - insurance business 158.1 135.1 146.2
269.8 248.7 257.4
Current assets
Investments - insurance business 342.8 303.5 296.7
Inventories 173.0 156.5 155.3
Trade and other receivables 5 1 741.9 1 715.9 1 751.7
Cash deposits and cash on hand 58.4 179.8 358.8
2 316.1 2 355.7 2 562.5
Total assets 2 585.9 2 604.4 2 819.9
Equity and liabilities
Capital and reserves
Shareholders" equity and reserves 1 883.1 1 132.1 1 310.0
Non-current liabilities
Interest-bearing borrowings 1.9 682.3 683.8
Deferred tax 21.7 44.4 28.1
Retirement benefits 37.8 35.5 36.0
61.4 762.2 747.9
Current liabilities
Trade and other payables 241.9 230.9 207.4
Tax 40.8 24.7 82.4
Current portion of interest-bearing
borrowings 8.2 415.5 472.2
Overdrafts and short-term interest-
bearing borrowings 350.5 39.0 -
641.4 710.1 762.0
Total equity and liabilities 2 585.9 2 604.4 2 819.9
GROUP CASH FLOW STATEMENT
6 months 6 months 12 months
ended ended ended
Sept 2004 Sept 2003 Mar 2004
Rm Rm Rm
Notes Unaudited Unaudited Audited
Cash flow from operating activities
Cash flow from trading 7 292.1 267.6 535.9
Working capital movement 8 25.2 (20.0) (27.0)
Cash generated from operations 317.3 247.6 508.9
Dividends and interest received 26.8 23.4 49.5
Finance costs (305.4) (2.2) (18.9)
Tax paid (128.3) (73.2) (99.2)
Cash (utilised by)/retained from
operating activities (89.6) 195.6 440.3
Net cash flow from investing activities (56.6) (32.8) (59.0)
Net cash flow from financing activities (504.7) (5.8) (6.3)
Net (decrease)/increase in cash and
cash equivalents (650.9) 157.0 375.0
Cash and cash equivalents at beginning
of period 358.8 (16.2) (16.2)
Cash and cash equivalents at end of
period (292.1) 140.8 358.8
GROUP STATEMENT OF CHANGES IN EQUITY
Share Non-
capital and distributable Distributable
premium reserves reserves Total
Rm Rm Rm Rm
Balance at 30 September
2003 300.9 23.8 807.4 1 132.1
Net profit attributable to
ordinary shareholders - - 170.7 170.7
Fair value adjustments of
available-for-sale
investments - 16.8 - 16.8
Loss on disposal of
available-for-sale
investments recognised - 1.5 - 1.5
Transfer to contingency
reserve - 1.1 (1.1) -
Foreign currency translation
reserve movement - (11.1) - (11.1)
Balance at 31 March 2004 300.9 32.1 977.0 1 310.0
Negative goodwill derecognised
in terms of AC 140 - - 4.2 4.2
Restated balance at 1 April
2004 300.9 32.1 981.2 1 314.2
Net profit attributable to
ordinary shareholders - - 181.7 181.7
Fair value adjustments of
available-for-sale
investments - 10.4 - 10.4
Loss on disposal of available-
for-sale investments
recognised - 0.8 - 0.8
Transfer to contingency
reserve - 0.4 (0.4) -
Shares issued as part of
capital and debt
restructure 376.0 - - 376.0
Balance at 30 September
2004 676.9 43.7 1 162.5 1 883.1
GROUP SEGMENT REPORT
6 months 6 months 12 months
ended ended ended
Sept 2004 Sept 2003 Mar 2004
Rm Rm Rm
Unaudited Unaudited Audited
Business Grouping
Revenue
Merchandise 1 017.4 905.4 1 942.1
Insurance 167.6 163.0 332.6
Total 1 185.0 1 068.4 2 274.7
Operating profit
Merchandise 212.3 162.1 400.5
Insurance 57.6 54.0 105.1
Total 269.9 216.1 505.6
Geographic
Revenue
South Africa 1 052.9 947.6 2 026.6
Other 132.1 120.8 248.1
Total 1 185.0 1 068.4 2 274.7
NOTES TO THE GROUP INTERIM FINANCIAL STATEMENT
1. Basis of accounting
These consolidated interim financial statements are prepared in accordance with
South African Statements of Generally Accepted Accounting Practice (SA GAAP) and
are consistent with those applied for the year ended 31 March 2004 and the
period ended 30 September 2003, except for the treatment of negative goodwill.
Previously recognised negative goodwill has been treated in accordance with the
transitional provisions of AC 140 and derecognised to retained income on 1 April
2004.
2. Holding company
In anticipation of the listing Lewis Group Limited acquired the entire issued
share capital of Lewis Stores (Pty) Ltd from the GUS plc group and, in return,
issued its entire share capital to the GUS plc group. The shares were issued at
the IPO price of R28 per share and the effect of the transaction was to
interpose Lewis Group Limited as the holding company. The restructuring affected
the share capital of Lewis Group Limited, but it had no impact on the
consolidated Lewis Group, from a Lewis shareholders" point of view. The
shareholders" equity and reserves, and the results disclosed are those of Lewis
Stores (Pty) Ltd and its subsidiaries.
Sept 2004 Sept 2003 Mar 2004
Rm Rm Rm
Unaudited Unaudited Audited
3. Revenue
Merchandise sales 632.5 547.3 1 190.4
Finance charges earned 292.5 285.7 602.1
Insurance premiums earned 167.6 163.0 332.6
Services rendered 92.4 72.4 149.6
1 185.0 1 068.4 2 274.7
4. Bad and doubtful debts
Bad debts, bad debt recoveries and
repossession losses 48.1 55.4 131.2
Movement in impairment provision (10.5) 18.3 (16.1)
37.6 73.7 115.1
5. Trade and other receivables
Instalment sale receivables 2 599.5 2 595.3 2 630.4
Debtors" impairment provision (398.6) (430.5) (409.1)
Provision for unearned finance charges,
unearned insurance premiums and unearned
maintenance income (508.9) (489.9) (511.9)
Net instalment sale receivables 1 692.0 1 674.9 1 709.4
Other receivables 49.9 41.0 42.3
1 741.9 1 715.9 1 751.7
The credit terms of instalment sale receivables range from 6 - 24 months.
Amounts due from instalment sale receivables after one year are reflected as
current, as they form part of the normal operating cycle.
6. Material capital commitments
There were no material capital commitments contracted for or authorised and
contracted at the end of the periods under review.
7. Cash flow from trading
Operating profit 269.9 216.1 505.6
Adjusted for:
Depreciation and amortisation 21.1 21.0 37.7
Profit on sale of property, plant
and equipment (1.9) (1.4) (3.1)
Movement in debtors" provisions (13.5) 18.2 (16.1)
Movement in retirement benefit
provisions 1.8 1.8 2.3
Movement in other provisions 14.7 11.9 9.5
292.1 267.6 535.9
8. Working capital movement
Increase in inventory (19.1) (36.4) (28.9)
Decrease/(increase) in trade and other
receivables 23.4 (41.1) (28.6)
Increase in trade and other payables 20.9 57.5 30.5
25.2 (20.0) (27.0)
KEY RATIOS FOR THE GROUP
6 months 6 months 12 months
ended ended ended
Sept 2004 Sept 2003 Mar 2004
Operating efficiency ratios
Gross profit % 58.3% 59.6% 59.6%
Operating margin % 22.8% 20.2% 22.2%
Number of stores 472 446 465
Revenue per store (Rm) 2.5 2.4 4.9
Operating profit per store (Rm) 0.6 0.5 1.1
Number of employees 5 825 5 650 5 776
Revenue per employee (R) 203 433 189 097 393 819
Operating profit per employee (R) 46 335 38 248 87 535
Trading space (sqm) 206 786 197 647 205 793
Revenue per sqm (R) 5 730 5 405 11 053
Operating profit per sqm (R) 1 305 1 093 2 457
Stock turn (times) (annualised) 5.0 4.7 5.1
Current ratio 3.6 3.3 3.4
Credit ratios
Cash sales % of total sales 23% 17% 18%
Bad and doubtful debt charge as percentage
of gross debtors" book 1.4% 2.8% 4.4%
Debtors impairment provision as a % of
gross instalment receivables 15.3% 16.6% 15.6%
Total debtors" provisions as a % of
gross instalment receivables 34.9% 35.5% 35.0%
Decline rate % 20.4% 23.5% 22.3%
Average age of book (months) 13 15 14
Arrear % (full contractual) 29.4% 29.6% 28.2%
Shareholder ratios
Net asset value per share (cents) 1 883 1 132 1 310
Gearing ratio 16.0% 84.5% 60.9%
ROE (annualised, average shareholders"
equity) 22.8% 21.8% 24.8%
ROCE (annualised, average capital
employed) 17.2% 15.6% 17.0%
Note: all ratios based on figures at end of period unless otherwise disclosed.
COMMENTARY
Lewis listed on the JSE Securities Exchange, South Africa, on 4 October 2004 at
a listing price of R28.00 per share. Prior to listing, Lewis Stores (Pty) Ltd
was a wholly-owned subsidiary of GUS plc, a FTSE 100 company listed on the
London Stock Exchange.
Founded in 1934, the Lewis brand has become the largest single brand, by number
of stores, in the southern African retail furniture industry. We are a leading
retailer in southern Africa, selling furniture, household and electrical goods
mainly on credit.
Lewis is pleased to announce its maiden interim results as a listed company for
the six-month period ended 30 September 2004.
TRADING ENVIRONMENT
Consumer and retail confidence was buoyant during the period. The favourable
macro-economic environment was driven by low interest and inflation rates, low
household debt and a strong rand which impacted favourably on imported goods.
All these factors increased the affordability of the merchandise for consumers.
The growth in the middle-income consumer group, Lewis"s main target market,
together with past income tax cuts, above-inflation wage increases, the housing
boom and the effects of delivery of water and electricity infrastructure to
previously unserviced segments of the population have further benefited
merchandise sales.
FINANCIAL OVERVIEW
In the six months ended 30 September 2004, revenue increased by 11% to R1 185
million. Merchandise sales grew by 16% to R633 million.
Operating profit grew by 25% to R270 million. After investment income, profit
before finance costs increased by 20% to R291 million.
The tax rate for the period was 30.1% compared with 29.9% in the same period
last year.
Headline earnings increased by 55% to R181.2 million. The increase in headline
earnings resulted from lower finance costs due to the capital restructuring
shortly before the date of the IPO, lower bad and doubtful debt charges flowing
from further improvements in the quality of the debtors" book, and positive
trading.
Cash generated by operations grew by 28% to R317 million and gearing dropped
from 85% to 16%.
Income statement
Revenue increased by 11% to R1 185 million. This was driven by merchandise sales
which grew by 16% to R633 million (10% on a like-for-like basis). The Lewis
chain grew its merchandise sales by 11% to R558 million, Best Electric grew
sales by 18% to R55 million and Lifestyle Living, which was acquired in October
2003, posted merchandise sales of R20 million. Cash sales increased to 23% of
merchandise sales compared to 17% in the corresponding period.
Insurance premiums and finance charges earned grew marginally by 2.8% and 2.4%
to R168 million and R293 million respectively. The growth of both of these lines
of revenue was slower than the growth in merchandise sales due to a lower
proportion of sales on credit during the period. Finance charges earned were
affected by the decrease in interest rates.
Gross profit increased by 8.5% to R691 million and the gross profit margin
decreased from 59.6% to 58.3% mainly as a result of the lower finance charges
earned. The merchandise margin remained at similar levels to the corresponding
period.
Operating costs, excluding bad and doubtful debts, increased by 10% to R383
million, with approximately half of this increase due to the inclusion of
Lifestyle Living in the current period"s results. Excluding the Lifestyle Living
costs, operating costs increased in line with inflation, despite the higher
growth in revenue. This has been achieved through a continued focus on cost
controls and improving efficiencies.
Bad and doubtful debt charges declined by R36 million as a result of continuing
improvements to Lewis"s credit management system - credit granting and debt
collection - combined with the current favourable South African credit
environment. Of the R36 million reduction in bad debts, R29 million can be
attributed to a reduction in the debtors impairment provision.
Operating profit for the period was R270 million, a growth of 25%. Lewis"s
operating margin increased from 20.2% to 22.8%, aided by the tight control on
costs and reduction in bad debts.
Finance costs declined by R45 million as a result of the capital restructuring
and lower interest rates.
Balance sheet
Insurance investments, both long and short-term, have increased by 13% in value
since the year-end mainly as a result of the improved investment environment.
The increase in merchandise sales and inclusion of Lifestyle Living resulted in
an 11% increase in the inventory levels from the corresponding period; this was
partly funded by a 5% increase in trade and other payables. Stock turn of 5.0
times, on an annualised basis, has increased slightly from September 2003.
Net instalment sale receivables increased by 1% to R1 692 million. The lower
increase in net instalment sale receivables relative to revenue growth is due to
an increase in the proportion of cash sales and an improvement in debt
collection. Total debtors provisions have dropped from 35.5% at September 2003
to 34.9% of gross instalment receivables at the end of the reporting period and,
at the same time, the impairment provision has decreased from 16.6% to 15.3% of
gross instalment debtors.
In anticipation of the listing, Lewis Stores (Pty) Ltd"s balance sheet was
restructured. Prior to the restructuring, Lewis had an inter-company loan with
the GUS plc group of R1 175 million bearing interest at Prime. During July 2004,
the entire loan was repaid with R376 million of the loan being capitalised, R328
million being refinanced from local borrowings at lower interest rates and the
remaining balance being repaid out of existing cash resources.
Cash flow
Lewis continued to generate significant cash with cash flow generated by
operations increasing by 28% to R317 million. The improved cash flow was as a
result of increased operating profits, the improved rate of debt collection and
increased cash sales.
Interest payable to GUS of R298 million, including accrued interest from prior
years, was paid in the current period and this combined with higher tax payments
caused a cash outflow from operating activities of R89.6 million.
The R505 million cash outflow from financing activities is attributable mainly
to the capital repayment of the GUS loan utilising existing cash resources and
overdraft facilities.
OPERATIONAL REVIEW
Sales were strong in both the furniture and electrical categories. The
electronics section (TVs, home theatre and DVDs) although achieving
substantially more unit sales, was affected by price deflation.
During the period two new Lewis stores were opened and two closed resulting in
400 stores at period end. Best Electric comprised 55 stores after opening nine
new stores and closing one. The Lifestyle Living chain was successfully migrated
onto the Lewis systems. During the period one of the 18 stores was closed. The
Lifestyle portfolio of stores is currently being evaluated, in line with the
strategy at acquisition.
The annual "Markinor and Sunday Times top brand review" placed the Lewis brand
in second position, in the category of consumer awareness of furniture retail
brands. This rating was the same as in the prior year.
In addition, Lewis was rated no.1 by manufacturers and suppliers in the category
`White/electrical goods retailers/wholesalers" in the Professional Management
Review award (PMR) for 2004.
Group revenue and operating profit per square metre increased, from the
corresponding six month period, by 6% to R5 700 and 19% to R1 300 per square
metre respectively, and revenue and operating profit per employee increased by
8% to R203 000 and 21% to R46 000 per employee respectively.
STRATEGY
Lewis has continued to focus on its key strategic business initiatives of:
* generating revenue growth through:
* increasing sales from existing stores using innovative merchandising and
marketing strategies;
* expanding the store base;
* driving operational efficiencies; and
* delivering on its customer-focused business model which is based on
convenience, choice, credit and loyalty.
Over the year from 30 September 2003, the Group increased its number of stores
from 446 to 472, adding 9 000 sqm (4.7%) of trading space.
New merchandise ranges continue to be added in response to our customers"
demands and the changing customer demographics.
Operating profit margins increased from 20.2% to 22.8%, driven mainly by further
improvements in the quality of the debtors" book, improved efficiencies and cost
savings.
Lewis"s listing has had an excellent motivational effect on the business with
all staff members, employed at the IPO date, receiving an allocation of shares
which will be funded by the GUS plc group.
PROSPECTS
Revenue and merchandise sales have, since September 2004, continued to show real
growth in line with our expectations, despite the high base in the prior year.
While the lower interest rate environment and the slight shift towards cash
sales will affect income earned from finance charges, the board is confident of
delivering meaningful headline earnings growth for the full year ending 31 March
2005.
DECLARATION OF INTERIM DIVIDEND NO. 1
In terms of the board"s dividend policy of three-times-cover, an interim
dividend of 61.0 cents per share has been declared for the six months ended 30
September 2004. In accordance with settlement procedures of STRATE, the
following dates will apply to the interim dividend:
Last day to trade cum dividend Friday, 21 January 2005
Trading ex dividend commences Monday, 24 January 2005
Record date Friday, 28 January 2005
Dividend payment date Monday, 31 January 2005
Share certificates may not be dematerialised or rematerialised between Monday,
24 January 2005 and Friday, 28 January 2005 both dates inclusive.
DIRECTORATE
David Nurek, Alan Smart and David Tyler, who were previously board members of
the wholly-owned operating company, Lewis Stores (Pty) Ltd, were appointed to
the Lewis board along with Hilton Saven and Ben van der Ross during the period.
All the directors were appointed effective 22 June 2004 except David Nurek who
was appointed effective 15 July 2004.
For and on behalf of the board
DM Nurek AJ Smart
Non-Executive Chairperson Chief Executive Officer
Cape Town
15 November 2004
Directors: Executive: AJ Smart (Chief Executive Officer)
Non-Executive: DM Nurek* (Chairperson), H Saven*, B van der Ross*, DA Tyler#
* Independent, + British
Company Secretary: A Meerburg
Registered office: 53A Victoria Road, Woodstock, 7925
Transfer secretaries: Computershare Investor Services 2004 (Pty) Ltd,
70 Marshall Street, Johannesburg, 2001. PO Box 61051, Marshalltown, 2107
Auditors: PricewaterhouseCoopers Inc.
Sponsor: UBS South Africa (Pty) Ltd
These results are also available on our website: www.lewisgroup.co.za
Date: 15/11/2004 04:00:13 PM Supplied by www.sharenet.co.za
Produced by the JSE SENS Department
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