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LEW - Lewis Group - Audited Final Results For The Year Ended 31 March 2007
and dividend declaration
Lewis Group Ltd
Registration number: 2004/009817/06
Share code: LEW
ISIN: ZAE000058236
Audited Final Results
for the year ended 31 March 2007
Highlights
- Merchandise sales up 15.4% to R1 808.8 million
- Normalised operating profit up 18% to R859.9 million
- Normalised operating margin improves to 25.9%
- Normalised headline earnings per share up by 23% (38.9% on IFRS basis)
- Dividend per share up by 18.2%
- Further improvement in the quality of debtors
NORMALISED EARNINGS
March March
2007 % 2006
Normalised income statement Rm change Rm
Revenue 3 323.5 15.6 2 874.5
Cost of merchandise sales (1 194.0) (1 020.6)
Operating costs (1 269.6) (1 125.3)
Normalised operating profit 859.9 18.0 728.6
Normalised operating margin 25.9% 25.3%
Profit before taxation 890.2 744.7
Taxation (291.9) (237.6)
Normalised attributable net profit 598.3 18.0 507.1
Normalised earnings per share (cents) 649.9 24.7 521.2
Normalised headline earnings per share
(cents) 645.4 23.0 524.6
The group`s 2006 results were presented on a normalised basis to reflect the
actual operational performance of the business and excluded a R58.4 million
charge for share-based payments. This charge arose from share allocations to
staff by the former holding company at the time of the listing of the Lewis
Group. The charge resulted in no economic cost or dilutionary effect to
shareholders.
RETAIL TRADING REVIEW
The group has produced another strong trading performance, with consistent
sales growth throughout the year. There has been a further improvement in the
quality of the debtors book and enhanced operating margin.
Revenue increased by 15.6% to R3 323.5 million. Merchandise sales reflected a
similar growth of 15.4%, driven by merchandise initiatives, improvements in the
supply chain, a continued focus on customer retention as well as ongoing new
customer promotional campaigns. Like-for-like sales growth was 11.3%.
Insurance revenue, finance charges and ancillary services grew in line with
merchandise sales.
The merchandise gross margin this year was 34%, compared to 34.9% last year.
Adjusted for the gain on forward exchange contracts reflected under interest
income, the gross margin this year is 34.7% compared to 34.5% last year.
The furniture import programme has been expanded in 2007 and continues to offer
customers a range of exclusive value-for-money products. This resulted in a
shift in the product mix to a higher proportion of furniture sales which now
account for 50% of total sales (2006: 47%).
The stock turn for the year improved from 4.8 to 5.2.
Actual bad debts written off during the year reflected a marginal increase of
4%, notwithstanding the 13.5% increase in gross debtors.
The opening of the 500th store in November 2006 was a notable milestone in
group`s growth strategy. Following the opening of 22 new stores during the
year, the group had a national store base of 508 at year-end.
FINANCIAL PERFORMANCE
Normalised operating profit grew by 18% to R859.9 million, with the normalised
operating margin increasing from 25.3% to 25.9% as a result of improved sales.
The increase in earnings can be summarised as follows:
Increase in IFRS Normalised
Earnings 33.3% 18.0%
Headline earnings 31.5% 16.4%
Earnings per share 40.9% 24.7%
Headline earnings per share 38.9% 23.0%
Fully diluted earnings per share 40.6% 24.4%
Fully diluted headline earnings per share 38.6% 22.8%
The share repurchase programme initiated in September 2005 as part of the
long-term capital management plan has enhanced earnings per share and return on
equity. At 31 March 2007, 7.5% of the shares in issue had been repurchased at
an average market price of R48.37 per share. The group will continue to
repurchase shares at levels which are earnings enhancing. The weighted average
number of shares in issue was 92.1 million for the year compared to
97.3 million last year.
The normalised return on equity for the year improved to 24.8% compared to 23.2%
last year.
DIVISIONAL REVIEW
The three trading divisions all showed pleasing growth off a high base with
sales momentum being maintained in the second half of year. The Lewis chain
grew 12.4% (10.9% on a like-for-like basis), with excellent results in selected
product categories highlighting the benefits of the merchandising strategy.
Best Electric recorded a 23.6% sales increase, benefiting from the opening of 7
new stores. Comparable sales growth was at 7.5% and reflected a slowing of
demand of certain electronic goods.
Lifestyle Living posted strong growth of 43.9% (23.7% on a like-for-like basis)
as the differentiated merchandise offerings continued to reap dividends. The
division is now firmly on a sustainable growth path.
The pilot project for Best Bedding, a specialist bedding and bedroom furniture
chain, has performed in line with management`s expectations. Three stores were
opened in the second half of the year.
A total of 28 stores will be opened on a phased basis across the trading
divisions in the 2008 financial year.
DEBTORS BOOK
The overall condition of the group`s debtors book as measured by the doubtful
debt provision continues to improve. The doubtful debt provision is 11.4% of
debtors as compared to 12.6% last year and indicates the high quality of the
group`s credit risk management and the strength of the decentralised collection
process.
Actual bad debts written off during the year reflected a marginal increase of
4%, notwithstanding the 13.5% increase in gross debtors.
The average age of the debtors book of 14.1 months has improved from 14.3
months last year.
The group`s cash sales at 30.7% of total sales remains at a similar level to
last year.
CASH FLOW
Lewis continues to generate strong operating cash flows which have funded the
following:
- Increased investment in debtors of R295.3 million;
- Share repurchases of R213.5 million; and
- Dividends paid during the year of R253.0 million.
Borrowings have increased by R295.7 million in line with long-term capital
management planning and gearing is now 15.6% (2006: 4.6%).
NATIONAL CREDIT ACT ("NCA")
The group is compliant with the requirements of the NCA which will be
implemented on 1 June 2007. The impact of the NCA is expected to be revenue
neutral and minimal systems costs have been incurred in complying with the
legislation. Our credit granting process, which has been in place for many
years, conforms with the requirements of the National Credit Act. The store-
based collection process will ensure that Lewis will continue to interface
closely with its customers and will be a major advantage in dealing with
certain aspects of the National Credit Act.
OUTLOOK
The underlying strength and size of the middle income market will continue to
afford growth opportunities. Sales for April 2007 were on budget and the Board
remains confident that the group will deliver satisfactory growth in sales and
earnings in the year ahead.
CORPORATE GOVERNANCE
The group subscribes to the values of good corporate governance and complies
with the Code of Corporate Practices and Conduct as set out in the King II
Report on Corporate Governance and the JSE Limited Listings Requirements.
DIRECTORATE
David Nurek, Alan Smart, Hilton Saven, Ben van der Ross and Professor Fatima
Abrahams remained as directors during the year. We are pleased to announce the
appointment of the group`s chief financial officer, Les Davies, to the Board
with effect 1 April 2007.
DECLARATION OF FINAL DIVIDEND NO. 6
The Board has approved a final dividend which represents 2.25 times dividend
cover. The dividend has been calculated on earnings attributable to
shareholders.
Notice is hereby given that a final dividend of 150 cents per share in respect
of the year ended 31 March 2007 has been declared payable to the holders of
ordinary shares recorded in the books of the company on Friday 20 July 2007.
The last day to trade cum dividend will therefore be Friday 13 July 2007 and
Lewis shares will trade ex-dividend from Monday 16 July 2007. Payment of the
dividend will be made on Monday 23 July 2007. Share certificates may not be
dematerialised or rematerialised between Monday 16 July 2007 and Friday 20 July
2007, both days inclusive.
For and on behalf of the Board
David Nurek Alan Smart
Chairman Chief Executive Officer
Cape Town
21 May 2007
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 2007 and a copy of their unqualified
reports are available on request at the company`s registered office.
INCOME STATEMENT
12 months 12 months
ended ended
31 March 2007 31 March 2006
Rm Rm
Notes Audited Audited
Revenue 3 323.5 2 874.5
Merchandise sales 1 808.8 1 567.8
Finance charges earned 776.7 674.4
Insurance premiums earned 464.7 400.4
Ancillary services 273.3 231.9
Cost of merchandise sales 2 (1 194.0) (1 020.6)
Operating costs (1 269.6) (1 183.7)
Employment costs (481.6) (439.9)
Share-based payments (4.0) (58.7)
Administration and IT (162.3) (152.3)
Bad debts written off (138.4) (132.9)
Doubtful debt charge (9.5) 17.4
Marketing (106.9) (89.1)
Occupancy costs (116.7) (98.3)
Transport and travel (109.2) (98.4)
Depreciation (38.9) (35.0)
Other operating costs (102.1) (96.5)
Operating profit 859.9 670.2
Investment income 42.7 28.9
Profit before finance costs 902.6 699.1
Net finance costs 3 (12.4) (12.8)
Profit before taxation 890.2 686.3
Taxation (291.9) (237.6)
Net profit attributable to
ordinary shareholders 598.3 448.7
Reconciliation of headline
earnings
Net profit attributable to
ordinary shareholders 598.3 448.7
Adjusted for
Surplus on disposal of property,
plant and equipment (3.8) (6.0)
Surplus on disposal of
available-for-sale assets (1.6) (5.8)
Impairment of available-for-sale
assets - 12.3
Taxation 1.3 2.8
Headline earnings 594.2 452.0
Number of ordinary shares (000)
In issue 100 000 100 000
Weighted average 92 062 97 300
Fully diluted weighted average 92 458 97 501
Earnings per share (cents) 649.9 461.2
Headline earnings per share (cents) 645.4 464.5
Fully diluted earnings per share
(cents) 647.1 460.2
Fully diluted headline earnings
per share (cents) 642.7 463.6
BALANCE SHEET
31 March 2007 31 March 2006
Rm Rm
Note Audited Audited
ASSETS
Non-current assets
Property, plant and equipment 182.9 163.2
Investments - insurance business 461.1 478.0
Deferred taxation 102.9 89.7
746.9 730.9
Current assets
Investments - insurance business 199.3 111.9
Inventories 230.3 212.6
Trade and other receivables 4 2 187.7 1 896.5
Cash on hand and deposits 35.7 28.1
2 653.0 2 249.1
Total assets 3 399.9 2 980.0
EQUITY AND LIABILITIES
Capital and reserves
Shareholders` equity and reserves 2 527.2 2 305.4
Non-current liabilities
Interest-bearing borrowings - 1.0
Deferred taxation 25.4 20.9
Retirement benefits 67.6 75.8
93.0 97.7
Current liabilities
Trade and other payables 287.7 283.5
Taxation 61.7 159.8
Current-portion of
interest-bearing borrowings 1.0 0.8
Overdrafts and short-term
interest-bearing
borrowings 429.3 132.8
779.7 576.9
Total equity and liabilities 3 399.9 2 980.0
STATEMENT OF CHANGES IN EQUITY
Share
capital and Other
premium reserves
Rm Rm
Balance at 1 April 2005 676.9 52.3
Net profit attributable to ordinary
shareholders - -
Fair value adjustments of
available-for-sale investments, net of tax - 61.4
Disposal of available-for-sale
investments recognised - (4.8)
Available-for-sale asset impaired - 12.3
Share-based payment - 58.7
Transfer of share-based payment
reserve to retained income on vesting - (69.2)
Cost of treasury shares acquired
Share repurchase programme (151.9) -
Share trust (0.3) -
Cost of share awards to employees 0.2 -
Profit on sale of own shares - -
Transfer to contingency reserve - 5.0
Foreign currency translation reserve
movement - (23.7)
Dividends paid - -
Balance at 31 March 2006 524.9 92.0
Net profit attributable to ordinary
shareholders - -
Fair value adjustments of
available-for-sale investments, net of tax - 54.0
Disposal of available-for-sale
investments recognised - (1.4)
Share-based payment - 4.0
Transfer of share-based payment
reserve to retained income on vesting - (1.7)
Cost of treasury shares acquired (213.5) -
Profit on sale of own shares - -
Transfer to contingency reserve - 4.2
Foreign currency translation reserve
movement - 5.4
Dividends paid - -
Balance at 31 March 2007 311.4 156.5
Retained
earnings Total
Rm Rm
Balance at 1 April 2005 1 330.4 2 059.6
Net profit attributable to ordinary
shareholders 448.7 448.7
Fair value adjustments of
available-for-sale investments, net of tax - 61.4
Disposal of available-for-sale
investments recognised - (4.8)
Available-for-sale asset impaired - 12.3
Share-based payment - 58.7
Transfer of share-based payment
reserve to retained income on vesting 69.2 -
Cost of treasury shares acquired
Share repurchase programme - (151.9)
Share trust - (0.3)
Cost of share awards to employees (0.2) -
Profit on sale of own shares 2.3 2.3
Transfer to contingency reserve (5.0) -
Foreign currency translation reserve
movement - (23.7)
Dividends paid (156.9) (156.9)
Balance at 31 March 2006 1 688.5 2 305.4
Net profit attributable to ordinary
shareholders 598.3 598.3
Fair value adjustments of
available-for-sale investments, net of tax - 54.0
Disposal of available-for-sale
investments recognised - (1.4)
Share-based payment - 4.0
Transfer of share-based payment
reserve to retained income on vesting 1.7 -
Cost of treasury shares acquired - (213.5)
Profit on sale of own shares 6.8 6.8
Transfer to contingency reserve (4.2) -
Foreign currency translation reserve
movement - 5.4
Dividends paid (231.8) (231.8)
Balance at 31 March 2007 2 059.3 2 527.2
ABRIDGED CASH FLOW STATEMENT
12 months 12 months
ended ended
31 March 2007 31 March 2006
Rm Rm
Notes Audited Audited
Cash generated from operations 6 591.5 593.2
Dividends and interest received 58.7 41.3
Finance costs (30.0) (18.7)
Taxation paid (403.2) (244.4)
Cash retained from
operating activities 217.0 371.4
Net cash outflow from
investing activities (66.6) (45.5)
Net cash outflow from
financing activities 7 (439.3) (313.9)
Net (decrease)/increase in cash
and cash equivalents (288.9) 12.0
Cash and cash equivalents at the
beginning of the year (104.7) (116.7)
Cash and cash equivalents at the
end of the year (393.6) (104.7)
SEGMENTAL REPORT
12 months 12 months
ended ended
31 March 2007 31 March 2006
Rm Rm
Audited Audited
BUSINESS GROUPING
Trading revenue
Merchandise 2 858.8 2 474.0
Insurance 464.7 400.5
Total 3 323.5 2 874.5
Operating profit
Merchandise 676.5 564.9
Insurance 183.4 163.7
Total* 859.9 728.6
GEOGRAPHICAL
Revenue
South Africa 2 982.9 2 575.0
Botswana, Lesotho, Namibia and Swaziland 340.6 299.5
Total 3 323.5 2 874.5
* The operating profit excludes the share-based payments of R58.4 million in
2006 relating to the vesting of share awards and options resulting from the
disposal of the GUS PLC Group of its controlling interest.
NOTES TO THE FINANCIAL STATEMENTS
1. Basis of accounting
These consolidated financial statements are prepared on a historical cost
basis, except for certain financial instruments which have been recognised at
fair value, and in accordance with International Financial Reporting Standards
("IFRS").
31 March 31 March
2007 2006
Rm Rm
Audited Audited
2. Cost of merchandise sales
Purchases 1 211.7 1 077.4
Movement in inventory (17.7) (56.8)
Cost of merchandise sales 1 194.0 1 020.6
Gross profit 614.8 547.2
3. Net finance costs
Interest paid: 29.6 12.7
- Bank and loans 26.9 12.5
- Other 2.7 0.2
Interest earned: (4.0) (5.9)
- Bank (2.7) (5.9)
- Other (1.3) -
Forward exchange contracts (13.2) 6.0
12.4 12.8
4. Trade and other receivables
Instalment sale and loan receivables 3 317.0 2 921.4
Provision for unearned finance charges and
unearned maintenance income (572.7) (508.0)
Provision for doubtful debts (377.5) (368.0)
Provision for unearned insurance premiums (214.3) (184.8)
Unearned insurance premiums (346.7) (300.9)
Less: re-insurer`s share of unearned premiums 132.4 116.1
Net instalment sale and loan receivables 2 152.5 1 860.6
Other receivables 35.2 35.9
2 187.7 1 896.5
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.
5. Material capital commitments
There were no material capital commitments contracted for or authorised and
contracted at the end of the year under review.
6. Cash generated from operations
Operating profit 859.9 670.2
Adjusted for:
Share-based payment 4.0 58.7
Depreciation 38.9 35.0
Surplus on disposal of property, plant and equipment (3.8) (6.0)
Movement in provision for doubtful debts 9.5 (17.4)
Movement in retirement benefits provision (8.2) 3.4
Movement in other provisions 11.1 9.8
Changes in working capital:
Increase in inventories (20.1) (62.0)
Increase in trade and other receivables (295.3) (152.2)
(Decrease)/Increase in trade and other payables (4.5) 53.7
591.5 593.2
7. Net cash outflow from financing activities
Purchase of treasury shares (213.5) (152.2)
Dividends paid (231.8) (156.9)
Other 6.0 (4.8)
(313.9)
KEY RATIOS
12 months 12 months
ended ended
31 March 2007 31 March 2006
Operating efficiency ratios
Merchandise gross profit % 34.0% 34.9%
Normalised operating margin % 25.9% 25.3%
Number of stores 508 490
Revenue per store (R000`s) 6 542 5 866
Normalised operating profit per store
(R000`s) 1 693 1 487
Number of employees (average) 6 310 5 879
Revenue per employee (R000`s) 527 489
Normalised operating profit per employee
(R000`s) 136 124
Trading space (sqm) 215 076 210 201
Revenue per sqm (R) 15 453 13 675
Normalised operating profit per sqm (R) 3 998 3 466
Inventory turn 5.2 4.8
Current ratios 3.3 3.9
Credit ratios
Cash and short-term credit sales % of total
sales 30.7% 29.9%
Debtors costs as a % of the gross debtors
book 4.5% 4.0%
Doubtful debt provision as a % of gross
instalment receivables 11.4% 12.6%
Total debtors provisions as a % of gross
instalment receivables 35.1% 36.3%
Credit applications decline rate 20.1% 22.4%
Average age of book (months) 14.1 14.3
Arrear % (full contractual) 21.0% 22.0%
Shareholder ratios
Net asset value per share (cents) 2 774 2 425
Gearing ratio 15.6% 4.6%
Normalised return on average equity 24.8% 23.2%
Normalised return on average capital
employed 22.5% 22.1%
Notes:
1. All ratios are based on figures at the end of the year unless otherwise
disclosed.
2. Where a ratio is referred to as normalised, the earnings used in that
ratio will exclude the share-based payment of R58.4 million in 2006.
3. The net asset value has been calculated using 91 092 000 shares
in issue (2006: 95 069 000).
Executive directors: AJ Smart (Chief Executive Officer),
LA Davies (Chief Financial Officer)
Independent non-executive
directors: DM Nurek (Chairman), H Saven,
BJ van der Ross, Professor F Abrahams
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: 21/05/2007 09:00:01 Supplied by www.sharenet.co.za
Produced by the JSE SENS Department.
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