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LEWIS GROUP FINAL AUDITED RESULTS FOR THE 12 MONTHS ENDED 31 MARCH 2005
LEWIS GROUP LIMITED
Registration number: 2004/009817/06
Share code: LEW
ISIN: ZAE000058236
LEWIS GROUP FINAL AUDITED RESULTS
FOR THE 12 MONTHS ENDED 31 MARCH 2005
HIGHLIGHTS
* MERCHANDISE SALES VALUE UP 14%
* MERCHANDISE SALES VOLUMES UP 18%
* OPERATING MARGIN INCREASED TO 23.5% FROM 22.2%
* OPERATING PROFIT UP BY 17% TO R590 MILLION
* HEADLINE EARNINGS UP BY 41% TO R404 MILLION
* FURTHER IMPROVEMENT IN QUALITY OF DEBTORS BOOK
* STRONG OPERATING CASH FLOWS
* GEARING RATIO AT RECORD LOW OF 6%
GROUP INCOME STATEMENT
12 months 12 months
ended ended
31 March 2005 31 March 2004
Rm % Rm
Notes Audited change Audited
Revenue 3 2 511.5 10.4 2 274.7
Cost of sales (1 050.9) (919.6)
Gross profit 1 460.6 1 355.1
Bad debts and impairment
provision 4 (101.6) (115.1)
Depreciation (37.3) (38.7)
Employment costs (409.4) (367.8)
Occupancy costs (89.2) (83.4)
Other operating costs (233.4) (244.5)
Operating profit 589.7 16.6 505.6
Investment income 45.9 34.9
Profit before finance costs 635.6 17.6 540.5
Net finance costs 5 (42.7) (141.7)
Profit before taxation 592.9 48.7 398.8
Taxation (184.0) (111.5)
Net profit attributable to
ordinary shareholders 408.9 42.3 287.3
Reconciliation of headline
earnings
Net profit attributable to
ordinary shareholders 408.9 287.3
Adjusted for
Amortisation of negative
goodwill - (1.0)
Profit on disposal of
property, plant and equipment (4.7) (3.1)
Disposal/impairment of
available-for-sale assets (1.6) 3.5
Taxation effect 1.7 0.9
Headline earnings 404.3 40.6 287.6
Number of ordinary shares (000)
In issue 100 000 100 000
Weighted average 100 000 100 000
Fully diluted weighted
average 100 000 100 000
Earnings per share (cents) 408.9 42.3 287.3
Headline earnings per
share (cents) 404.3 40.6 287.6
Fully diluted earnings per
share (cents) 408.9 42.3 287.3
Fully diluted headline
earnings per share (cents) 404.3 40.6 287.6
GROUP BALANCE SHEET
31 March 2005 31 March 2004
Rm Rm
Note Audited Audited
Assets
Non-current assets
Property, plant and equipment 112.2 115.4
Negative goodwill - (4.2)
Investments - insurance business 171.6 146.2
Deferred taxation 46.8 -
330.6 257.4
Current assets
Investments - insurance business 334.2 296.7
Inventories 160.1 155.3
Trade and other receivables 6 1 750.6 1 751.7
Cash on hand and deposits 55.3 358.8
2 300.2 2 562.5
Total assets 2 630.8 2 819.9
Equity and liabilities
Capital and reserves
Shareholders" equity and reserves 2 059.4 1 310.0
Non-current liabilities
Interest-bearing borrowings 1.7 683.8
Deferred taxation 12.0 28.1
Retirement benefits 36.6 36.0
50.3 747.9
Current liabilities
Trade and other payables 216.3 207.4
Taxation 125.6 82.4
Current portion of interest-bearing
borrowings 7.2 472.2
Overdrafts and short term interest-
bearing borrowings 172.0 -
521.1 762.0
Total equity and liabilities 2 630.8 2 819.9
GROUP STATEMENT OF CHANGES IN EQUITY
Share Non-
capital and distributable Distributable
premium reserves reserves Total
Rm Rm Rm Rm
Balance at 31 March 2003 300.9 17.1 691.3 1 009.3
Net profit attributable to
ordinary shareholders - - 287.3 287.3
Fair value adjustments of
available-for-sale
investments - 26.7 - 26.7
Loss on disposal of
available-for-sale
investments recognised - 3.0 - 3.0
Transfer to contingency
reserve - 1.6 (1.6) -
Foreign currency translation
reserve movement - (16.3) - (16.3)
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
Issue of shares 376.0 - - 376.0
Net profit attributable to
ordinary shareholders - - 408.9 408.9
Fair value adjustments of
available-for-sale
investments - 25.5 - 25.5
Profit on disposal of
available-for-sale
investments recognised - (1.4) - (1.4)
Transfer to contingency
reserve - 2.2 (2.2) -
Revaluation surplus
realised on sale of
properties - (0.8) 0.8 -
Deferred taxation release on
revaluation surplus realised - - 0.1 0.1
Foreign currency translation
reserve movement - (2.9) - (2.9)
Dividends paid - - (61.0) (61.0)
Balance at 31 March 2005 676.9 54.7 1 327.8 2 059.4
ABRIDGED GROUP CASH FLOW STATEMENT
12 months 12 months
ended ended
31 March 2005 31 March 2004
Rm Rm
Notes Audited Audited
Cash flow from operating activities
Cash flow from trading 8 610.7 535.9
Working capital movement 9 14.5 (27.0)
Cash generated from operations 625.2 508.9
Dividends and interest received 34.8 49.5
Finance costs (307.8) (18.9)
Taxation paid (207.7) (99.2)
Dividends paid (61.0) -
Cash retained from operating activities 83.5 440.3
Net cash outflow from investing activities (53.0) (59.0)
Net cash outflow from financing activities (506.0) (6.3)
Net (decrease)/increase in cash and cash
equivalents (475.5) 375.0
Cash and cash equivalents at the
beginning of the period 358.8 (16.2)
Cash and cash equivalents at the end
of the period (116.7) 358.8
GROUP SEGMENT REPORT
12 months 12 months
ended ended
31 March 2005 31 March 2004
Rm Rm
Audited Audited
BUSINESS GROUPING
Revenue
Merchandise 2 153.6 1 942.1
Insurance 357.9 332.6
Total 2 511.5 2 274.7
Operating profit
Merchandise 469.0 400.5
Insurance 120.7 105.1
Total 589.7 505.6
GEOGRAPHICAL
Revenue
South Africa 2 243.4 2 026.6
Other 268.1 248.1
Total 2 511.5 2 274.7
KEY RATIOS FOR THE GROUP
12 months 12 months
ended ended
31 March 2005 31 March 2004
Operating efficiency ratios
Gross profit % 58.2% 59.6%
Operating margin % 23.5% 22.2%
Number of stores 475 465
Revenue per store (R000"s) 5 287 4 892
Operating profit per store (R000"s) 1 241 1 087
Number of employees 5 870 5 776
Revenue per employee (R) 427 853 393 818
Operating profit per employee (R) 100 460 87 531
Trading space (sqm) 207 595 205 793
Revenue per sqm (R) 12 098 11 053
Operating profit per sqm (R) 2 841 2 457
Stock turn (times) 5.7 5.1
Current ratio 4.4 3.4
Credit ratios
Cash sales % of total sales 25.1% 18.2%
Bad debts and impairment charge as a % of
gross debtors book 3.8% 4.4%
Debtors impairment provision as a % of
gross instalment receivables 14.4% 15.6%
Total debtors provisions as a % of gross
instalment receivables 35.6% 35.0%
Credit application decline rate 20.5% 22.3%
Average age of book (months) 14.8 15.4
Arrear % (full contractual) 27.3% 28.9%
Shareholder ratios
Net asset value per share (cents) 2 059 1 310
Gearing ratio 6.1% 60.8%
Return on average equity 24.3% 24.8%
Return on average capital employed 18.6% 17.0%
Note: All ratios based on figures at end of year unless otherwise disclosed
NOTES TO THE GROUP FINANCIAL STATEMENTS
1. Basis of accounting
These consolidated 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, except for the
treatment of negative goodwill. In order to comply with AC 140 negative goodwill
is no longer amortised, but recognised immediately to income. 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 of Lewis Stores (Pty) Ltd.
The restructuring affected the share capital of Lewis Group Limited but it had
no impact on the equity of the consolidated Lewis Group as in substance, no
transaction occurred. The shareholders" equity and reserves, and the results
disclosed for the Lewis Group are therefore those of Lewis Stores (Pty) Ltd and
its subsidiaries.
31 March 2005 31 March 2004
Rm Rm
Audited Audited
3. Revenue
Merchandise sales 1 351.9 1 190.4
Finance charges earned 605.0 602.1
Insurance premiums earned 357.9 332.6
Fees for services rendered 196.7 149.6
2 511.5 2 274.7
4. Bad debts and impairment provision
Bad debts, bad debt recoveries and
repossession losses 125.3 131.2
Movement in impairment provision (23.7) (16.1)
101.6 115.1
5. Net finance costs
Interest paid:
- Fellow subsidiary 32.8 136.2
- Bank and other loans 16.9 14.6
- Other 5.1 4.3
Interest received:
- Bank (12.0) (13.2)
- Other (0.1) (0.2)
42.7 141.7
6. Trade and other receivables
Instalment sale and loan receivables 2 677.1 2 630.4
Provision for unearned finance charges,
unearned insurance premiums and unearned
maintenance income (568.8) (511.9)
Impairment provision (385.4) (409.1)
Net instalment sale and loan receivables 1 722.9 1 709.4
Other receivables 27.7 42.3
1 750.6 1 751.7
The credit terms of instalment sale and
loan receivables range from 6 to 24 months.
Amounts due from instalment sale and loan
receivables after one year are reflected as
current, as they form part of the normal
operating cycle.
7. Material capital commitments
There were no material capital commitments
contracted for or authorised and contracted
at the end of the year under review.
8. Cash flow from trading
Operating profit 589.7 505.6
Adjusted for:
Depreciation and amortisation 37.3 37.7
Profit on sale of property, plant and
equipment (4.7) (3.1)
Movement in debtors impairment provision (23.7) (16.1)
Movement in retirement benefits provisions 0.6 2.3
Movement in other provisions 11.5 9.5
610.7 535.9
9. Working capital movement
Increase in inventory (5.5) (28.9)
Decrease/(increase) in trade and other
receivables 21.9 (28.6)
(Decrease)/increase in trade and other
payables (1.9) 30.5
14.5 (27.0)
COMMENTARY
The Lewis Group is pleased to announce its maiden final results as a listed
entity for the financial year ending 31 March 2005.
TRADING ENVIRONMENT
The retail trading environment is one of the most positive experienced by
furniture and appliance retailers in the past three decades. It is particularly
encouraging that the factors that have contributed to the buoyant trading
environment are not only cyclical but also structural in nature increasing the
likelihood of sustainable levels of growth. The rapid growth of the emerging
middle class and the related increase in spending power of this class, which is
the main target market of Lewis Group, has significant benefits for the Group.
Consumer confidence and expenditure have been stimulated by the favourable
macroeconomic environment as a result of a decline in interest rates during the
year, the ongoing reductions in income tax and above-inflation wage increases.
Household debt continues to remain at its lowest levels in recent history. The
Minister of Finance is once again to be commended for his efforts to reduce the
income tax burden of middle income South Africans, and we welcome the further
tax relief of over R7 billion which was granted in the parliamentary budget in
February this year. Furthermore, segments of the Lewis Group"s target market
have also benefited from the development of water and electricity infrastructure
in previously under-serviced areas as well as the delivery of an increasing
number of houses for first time owners.
FINANCIAL PERFORMANCE
The Group"s performance over the past year was particularly pleasing.
The Group"s revenue grew by 10.4% to R2 512 million (2004: R2 275 million).
Merchandise sales increased by 13.6% compared to last year while volumes
increased by 17.9%. Like for like merchandise sales increased by 9.6%.
Furniture sales, which account for 49% of total sales, increased by 19% in Rand
terms and 16% in unit sales. Sales of electronic and white appliances increased
by 10% in Rand terms and 20% in unit sales. The overall price deflation for the
year was 4%.
Cash sales have increased to 25% of total merchandise sales as compared to 18%
in the previous financial year. Cash sales have been stimulated by price
deflation in electronic and white appliances. Higher income earners who were not
traditionally customers of the Group are now buying goods for cash owing to the
competitive pricing of branded goods.
The gross profit margin was 58.2% compared to 59.6% in 2004 mainly as a result
of lower finance charges and insurance premiums written as a consequence of the
higher proportion of cash sales and lower interest rate environment.
The bad debts and impairment charge in the year continued to improve and
decreased to 3.8% (2004: 4.4%) of the gross debtors book. Our efficient
collection procedures and advanced credit risk systems, combined with the
current favourable credit environment, contributed to this performance.
The Group continued to manage costs tightly during the year with total costs
increasing by only 5%. Employment costs grew by 11% and reflects higher
commissions and incentives paid on increased turnovers. The inclusion of
Lifestyle Living for a full year also contributed to the increase in overall
costs. The management of costs will continue to be one of the priorities of the
Group.
Operating profit margin increased to 23.5% (2004: 22.2%) and continues to
demonstrate the benefits of management"s focus on sustained revenue growth,
operating efficiencies, credit management and cost control. This is in keeping
with the high sustainable operating margins achieved over many years.
Investment income has increased as a consequence of the higher market value of
gilts held by the insurance subsidiary, Monarch Insurance Company Limited, which
have been accounted for at fair value through the income statement in accordance
with AC133.
Finance costs declined by R99 million owing to the capital restructuring of the
Group in anticipation of the listing and excellent cash collections. Prior to
the restructuring, Lewis had an inter-company loan with GUS Holdings BV (GUS) of
R1 174 million. In July 2004 the loan and the interest accruing was repaid from
available cash resources and third party debt. The balance of the loan to GUS of
R376 million was capitalised.
The taxation charge is R184 million (2004: R112 million). The Group"s effective
tax rate is currently 31% (2004: 28%).
Attributable profit and headline earnings per share have increased by 42.3% and
40.6% respectively.
In line with the dividend policy of three times cover adopted by the Group"s
Board, a final dividend of 74 cents per share has been declared and together
with the interim dividend of 61 cents per share resulted in a total dividend for
the year of 135 cents per share.
Balance Sheet review
Current assets have declined by R262 million, mainly as a consequence of cash
and cash equivalents being utilised for the repayment of the loan to GUS.
Current insurance investments increased by R38 million, mainly due to the cash
generated by the insurance subsidiary and the increasing market value of gilts
resulting from the buoyant bond market.
Inventory turn has improved to 5.7 times (2004: 5.1 times). Further improvements
in inventory management are anticipated in the 2006 year as the benefits of the
implementation of a new inventory management system begin to be realised.
The gross debtors book has remained flat, despite the increase in revenue due to
strong cash collections and lower credit sales. The continued improvement of the
debtors book has resulted in a reduction of the impairment provision. Unearned
finance, premium and maintenance reserves have increased as a result of the
increased revenue from these categories during the current year.
Long term interest-bearing borrowings declined by R682 million due to the
repayment of the loan to GUS. The Group"s gearing has declined substantially
from 60.8% in 2004 to 6.1% at year end.
Current liabilities have decreased by R241 million, mainly as a consequence of
the repayment of the GUS loan.
Cash Flow
The Group continued to generate strong cash flow from operations which increased
by 23% to R625 million. The increase can be attributed to good debt collections
and tight working capital management.
OPERATIONAL REVIEW
The focus during the past year has been on improving the merchandise offering
and more targeted marketing to attract new customers while continuing to retain
existing customers through the Re-serve system. Upgraded merchandise ranges were
added in response to our customers" demands and the changing customer
demographics. Further improvements in our credit granting/scorecard were
implemented.
During the year 4 new Lewis stores were opened and 4 closed resulting in 400
stores at year end. Best Electric comprised 58 stores after opening 12 new
stores and closing 1. The Lifestyle Living chain was successfully migrated into
the Lewis systems. During the year 3 stores were opened and 4 closed with a
total of 17 stores at year end. The Lifestyle portfolio of stores is currently
being evaluated, in line with the strategy at acquisition.
Operating profit per square metre increased by 15.6% to R2 841 per square metre
and operating profit per employee increased by 14.7% to R100 460 per employee
underlying the benefits of Lewis" business model.
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 that in the prior year.
In addition, Lewis was rated number one by manufacturers and suppliers in the
category `White/electrical goods retailers/wholesalers" in the Professional
Management Review award (PMR) for 2004.
STRATEGY
Lewis has continued to focus on its key strategic business initiatives of:
* Generating sustainable revenue growth through:
- Increasing sales from existing stores using innovative merchandising and
marketing strategies; and
- Expanding the store base;
* Acquisitions that complement and add value to our business;
* Optimisation of our balance sheet; and
* Developing ancilliary products through strategic partnerships.
CORPORATE GOVERNANCE
The Group, at all levels, subscribes to the values of good corporate governance
and substantially complies with the Code of Corporate Practices and Conduct as
set out in the King II Report on Corporate Governance and the JSE Securities
Exchange South Africa Listings Requirements.
PROSPECTS
Consumer confidence is expected to remain buoyant in the year ahead as the
economy currently shows little sign of slowing down. The interest rate and
inflation environment are expected to remain fairly stable in the year ahead and
the social and economic climate prevailing in South Africa in recent years has
contributed to the overall retail sector and we expect this to continue. The
transformation process in South Africa over the past 10 years has increased the
size of the middle income market and Lewis is ideally positioned to service that
market. The Government"s large-scale capital expenditure on infrastructure
development that is planned over the next few years is expected to directly
benefit the Lewis Group"s target market.
These factors, coupled with the Group"s continued focus on its business model
should result in real growth in revenue and merchandise sales. The Board
believes that real growth in headline earnings should be achieved in the year
ahead, although not necessarily at the same high levels experienced in 2005.
DECLARATION OF FINAL DIVIDEND NO. 2
In terms of the Board"s dividend policy of three-times-cover, a final dividend
of 74 cents per share has been declared for the twelve months ended 31 March
2005. In accordance with settlement procedures of STRATE, the following dates
will apply to the final dividend:
Last day to trade cum dividend Friday, 15 July 2005
Trading ex dividend commences Monday, 18 July 2005
Record date Friday, 22 July 2005
Dividend payment date Monday, 25 July 2005
Share certificates may not be dematerialised or rematerialised between Monday,
18 July 2005 and Friday, 22 July 2005 both dates inclusive.
For and on behalf of the Board
David Nurek Alan Smart
Chairman Chief Executive Officer
Cape Town
16 May 2005
EXTERNAL AUDITORS" REVIEW
The external auditors, PricewaterhouseCoopers Inc, have audited the Group annual
financial statements and the abridged financial statements contained herein for
the 12 months ended 31 March 2005 and a copy of their unqualified reports are
available on request at the company"s registered office.
Executive director: AJ Smart (Chief Executive Officer)
Non-executive directors: DM Nurek* (Chairman), H Saven*,
B van der Ross*, DA Tyler+
*Independent, +British
Company secretary: PB Croucher
Registered office: 53A Victoria Road, Woodstock, 7925
Registration number: 2004/009817/06
Share code: LEW
ISIN: ZAE000058236
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: 16/05/2005 02:25:16 PM Supplied by www.sharenet.co.za
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