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LEW - Lewis Group Limited - Audited Results for the year ended 31 March 2008 and
dividend declaration
LEWIS GROUP LIMITED
Registration number: 2004/009817/06
Share code: LEW
ISIN: ZAE000058236
Audited Results for the year ended 31 March 2008
- Revenue increased by 8.2%
- Operating profit increased by 8.2%
- Earnings per share up by 10.3%
- Headline earnings per share up by 6.9%
- Dividend per share up by 21.4%
TRADING REVIEW
The past year has seen difficult trading conditions testing the resilience of
our business model both in terms of sales and debtor management. It is positive
to note that our core business namely furniture (52% of the business) and
appliances (26% of the business) reflected merchandise sales increases of 9%
and 8.9% respectively. The sound and vision section of the business (22% of the
business) is traditionally a discretionary spend during difficult times and was
most affected, reflecting an 11% decrease. Furthermore, there has been no
significant deterioration in the quality of the debtors book.
Revenue increased by 8.2% to R3 596.4 million, with merchandise sales
increasing 4.5% to R1 889.7 million. Lewis grew its revenue by 7.8% and
merchandise sales by 4.1%. Best Electric`s revenue increased by 11.9% and
merchandise sales by 7.4%. Lifestyle Living`s revenue has grown by 9.1% with a
sales growth of 5.0%.
REVENUE RECOGNITION
Insurance Revenue
The group defers insurance revenue over the period of the contract.
Monarch, the group`s wholly-owned short-term insurance company, provides
insurance products to customers purchasing merchandise on credit to cover the
outstanding debt and other insurable risks.
Monarch reinsures 40% of its insurance book with an independent third-party
reinsurer with the risk transferring to the reinsurer. Monarch retains a premium
reserve of 40% of the ceded premiums which has had the effect of deferring
reinsurance revenue. At 31 March 2008, this reserve totalled R102 million.
The group accounts for the insurance revenue in terms of its contractual
relationships with the parties. Over a two-year contract, the application of
this policy results in 55% of the gross insurance revenue being recognised in
the first year.
The accounting policies relating to insurance and reinsurance revenue is
consistent with prior reporting periods.
Initiation fees
Initiation fees and directly related costs are recognised over the period of the
contract on an effective yield basis.
OPERATING PROFIT
Operating profit increased by 8.2%. Operating margin at 25.9% has been
maintained at the same level as last year under challenging conditions.
SHAREHOLDER RETURNS
Earnings per share and headline earnings per share rose by 10.3% and 6.9%
respectively. The return on equity is 24.4% (2007: 24.8%) and the return on
assets managed is 18.9% (2007: 19%).
DIVIDENDS
The dividend cover which was improved in November 2007, has been maintained.
The total dividend for the year is 323 cents per share, an increase of 21.4%
over the prior year.
DEBTOR COSTS
Debtor costs of 6.5% of net debtors (2007: 5.8%) illustrates the group`s core
strength of debtor management in challenging conditions. Independent
centralised credit-granting and a decentralised store based collection process
has contributed to the quality of the debtors book. The doubtful debt provision
has shown an improvement to 13.5% as compared to 14.9% last year.
The lower doubtful debt provision percentage (calculated on the same basis as
last year)is due to the write-off of older fully provided for accounts.
The introduction of the National Credit Act enabled the business to extend
credit terms for top-rated customers. The condition of the extended term
accounts is similar to that of shorter term accounts. Extended terms provide
additional revenue opportunities.
A detailed analysis of debtors based on payment performance is shown below.
SEGMENTAL REPORT
The group has enhanced its segmental reporting to provide shareholders with a
greater understanding of retail, risk services (insurance) and financial
services divisions. Details are shown below.
The board remains committed to the group`s customer-centric business model
which is based on the premise that the selling of furniture and the granting of
credit is inter-dependent.
CASH FLOW
Operating cash flow during the period funded the following:
Increased working capital requirements of R439.7 million
Share repurchases of R162.4 million
Dividends of R262.7 million
Borrowings increased by R243 million and current gearing is 23.3% compared to
15.6% last year. This is in line with the board`s objectives in regard to the
capital structure of the group.
PROSPECTS
Trading conditions are expected to remain tough while external factors such as
oil prices and food inflation affects the group`s target market. On the
positive side, however, there are no signs of increased unemployment. In
addition, infrastructural spend and job creation in certain sectors remains
encouraging.
DIVIDEND DECLARATION
Notice is hereby given that a final dividend of 179 cents in respect of the
year ended 31 March 2008 has been declared payable to holders of ordinary
shares.
The following dates are applicable:
Last date of trade "cum" dividend Friday, 18 July 2008
Date trading commences "ex" dividend Monday, 21 July 2008
Record date Friday, 25 July 2008
Date of payment Monday, 28 July 2008
Share certificates may not be dematerialised or rematerialised between Monday,
21 July 2008 and Friday, 25 July 2008, both days inclusive.
For and on behalf of the board
David Nurek Alan Smart
Chairman Chief Executive Officer
Cape Town
19 May 2008
EXTERNAL AUDITOR`S OPINION
The external auditors, PricewaterhouseCoopers Inc, have audited the group`s
annual financial statements and the abridged financial statements contained
herein for the 12 months ended 31 March 2008. A copy of their unqualified
reports are available on request at the company`s registered office.
INCOME STATEMENT
12 months
ended
31 March 2008
Rm
Notes Audited
Revenue 3 596.4
Merchandise sales 1 889.7
Finance charges earned 794.9
Insurance premiums earned 564.2
Ancillary services 347.6
Cost of merchandise sales (1 272.1)
Operating costs (1 393.9)
Employment costs (504.2)
Administration and IT (167.0)
Debtor costs 2 (190.4)
Marketing (107.1)
Occupancy costs (135.1)
Transport and travel (127.3)
Depreciation (40.9)
Other operating costs (121.9)
Operating profit 930.4
Investment income 71.7
Profit before finance costs 1 002.1
Net finance costs 3 (56.8)
Profit before taxation 945.3
Taxation (303.0)
Net profit attributable to ordinary shareholders 642.3
Reconciliation of headline earnings
Net profit attributable to ordinary shareholders 642.3
Adjusted for
Surplus on disposal of property, plant and
equipment (4.5)
Surplus on disposal of available-for-sale
assets (22.1)
Taxation 2.2
Headline earnings 617.9
Number of ordinary shares (000)
In issue 99 158
Weighted average 89 583
Fully diluted weighted average 89 803
Earnings per share (cents) 717.0
Headline earnings per share (cents) 689.8
Fully diluted earnings per share (cents) 715.2
Fully diluted headline earnings per share (cents) 688.1
12 months
ended
31 March 2007
Rm
% Change Audited
Revenue 8.2% 3 323.5
Merchandise sales 1 808.8
Finance charges earned 776.7
Insurance premiums earned 464.7
Ancillary services 273.3
Cost of merchandise sales (1 194.0)
Operating costs (1 269.6)
Employment costs (485.6)
Administration and IT (162.3)
Debtor costs (147.9)
Marketing (106.9)
Occupancy costs (116.7)
Transport and travel (109.2)
Depreciation (38.9)
Other operating costs (102.1)
Operating profit 8.2% 859.9
Investment income 42.7
Profit before finance costs 902.6
Net finance costs (12.4)
Profit before taxation 890.2
Taxation (291.9)
Net profit attributable to ordinary shareholders 7.4% 598.3
Reconciliation of headline earnings
Net profit attributable to ordinary shareholders 598.3
Adjusted for
Surplus on disposal of property, plant and
equipment (3.8)
Surplus on disposal of available-for-sale
assets (1.6)
Taxation 1.3
Headline earnings 4.0% 594.2
Number of ordinary shares (000)
In issue 100 000
Weighted average 92 062
Fully diluted weighted average 92 458
Earnings per share (cents) 10.3% 649.9
Headline earnings per share (cents) 6.9% 645.4
Fully diluted earnings per share (cents) 647.1
Fully diluted headline earnings per share (cents) 642.7
BALANCE SHEET
31 March 2008 31 March 2007
Rm Rm
Note Audited Audited
ASSETS
Non-current assets
Property, plant and equipment 200.6 182.9
Investments - insurance business 505.4 461.1
Deferred taxation - 102.9
706.0 746.9
Current assets
Investments - insurance business 159.5 199.3
Inventories 230.4 230.3
Trade and other receivables 4 2 615.6 2 187.7
Taxation 29.6 -
Cash on hand and deposits 66.8 35.7
3 101.9 2 653.0
Total assets 3 807.9 3 399.9
EQUITY AND LIABILITIES
Capital and reserves
Shareholders` equity and reserves 2 730.0 2 527.2
Non-current liabilities
Deferred taxation 14.4 25.4
Retirement benefits 57.7 67.6
72.1 93.0
Current liabilities
Trade and other payables 302.4 287.7
Taxation - 61.7
Overdrafts and short-term
interest-bearing borrowings 703.4 430.3
1 005.8 779.7
Total equity and liabilities 3 807.9 3 399.9
STATEMENT OF CHANGES IN EQUITY
12 months 12 months
ended ended
31 March 2008 31 March 2007
Rm Rm
Audited Audited
Share capital and premium 149.1 311.4
Opening balance 311.4 524.9
Cost of own shares acquired (162.4) (213.5)
Share awards to employees 0.1 -
Other reserves 128.4 156.5
Opening balance 156.5 92.0
Fair value adjustments of available-for-
sale investments, net of tax (27.5) 54.0
Disposal of available-for-sale
investments recognised (21.3) (1.4)
Share-based payment 6.7 4.0
Transfer of share-based payment reserve to
retained income on vesting (0.9) (1.7)
Transfer to contingency reserve
from retained earnings 9.0 4.2
Foreign currency translation reserve 5.9 5.4
Retained earnings 2 452.5 2 059.3
Opening balance 2 059.3 1 688.5
Net profit attributable to shareholders 642.3 598.3
Profit on sale of own shares 21.8 6.8
Transfer of share-based payment reserve from
other reserves on vesting 0.9 1.7
Cost of share awards to employees (0.1) -
Transfer to contingency reserve (9.0) (4.2)
Distribution to shareholders (262.7) (231.8)
Balance at end of year 2 730.0 2 527.2
ABRIDGED CASH FLOW STATEMENT
12 months 12 months
ended ended
31 March 2008 31 March 2007
Rm Rm
Notes Audited Audited
Cash generated from operations 5 556.2 591.5
Dividends and interest received 61.0 58.7
Finance costs (68.2) (30.0)
Taxation paid (290.4) (403.2)
Cash retained from
operating activities 258.6 217.0
Net cash outflow from
investing activities (97.3) (66.6)
Net cash outflow from financing
activities 6 (404.3) (439.3)
Net decrease in cash and cash
equivalents (243.0) (288.9)
Cash and cash equivalents at the
beginning of the year (393.6) (104.7)
Cash and cash equivalents at the
end of the year (636.6) (393.6)
SEGMENTAL REPORT
Risk Financial
Retail Services Services Total
Rm Rm Rm Rm
Primary Segments Audited Audited Audited Audited
2008
Revenue 2 141.0 564.3 891.1 3 596.4
Operating profit 307.3 175.4 447.7 930.4
Operating margin % 14.4% 31.1% 50.2% 25.9%
Total assets 421.7 688.1 2 698.1 3 807.9
Total current liabilities 114.7 139.9 751.2 1 005.8
2007
Revenue 2 044.9 464.7 813.9 3 323.5
Operating profit 321.7 183.4 354.8 859.9
Operating margin % 15.7% 39.5% 43.6% 25.9%
Total assets 384.8 685.4 2 329.7 3 399.9
Total current liabilities 151.9 125.9 501.9 779.7
South Africa BLNS* Total
Rm Rm Rm
Geographical Audited Audited Audited
2008
Revenue 3 218.1 378.3 3 596.4
2007
Revenue 2 982.9 340.6 3 323.5
* Botswana, Lesotho, Namibia and Swaziland
ABRIDGED NOTES TO THE FINANCIAL STATEMENTS
1. Basis of accounting
These consolidated financial statements are prepared in accordance with
International Financial Reporting Standards, specifically IAS 34 on interim
financial reporting, and the accounting policies applied are consistent with the
prior year.
31 March 2008 31 March 2007
Rm Rm
Audited Audited
2. Debtor costs
Bad debts, bad debt recoveries and
repossession losses 172.1 138.4
Movement in doubtful debts provision 18.3 9.5
190.4 147.9
3. Net finance costs
Interest paid: 68.2 29.6
- Bank and loans 68.1 26.9
- Other 0.1 2.7
Interest earned: (6.5) (4.0)
- Bank (5.7) (2.7)
- Other (0.8) (1.3)
Forward exchange contracts (4.9) (13.2)
56.8 12.4
4. Trade and other receivables
Instalment sale and loan receivables 3 539.8 3 317.0
Provision for unearned finance charges (72.1) (389.3)
Provision for unearned initiation fees (46.9) -
Provision for unearned maintenance income (191.6) (183.4)
Provision for unearned insurance premiums (290.5) (214.3)
Net instalment sale and loan receivables 2 938.7 2 530.0
Provision for doubtful debts (395.8) (377.5)
2 542.9 2 152.5
Other receivables 72.7 35.2
2 615.6 2 187.7
The credit terms of instalment sale and loan receivables range from 6 to 36
months (2007: 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. Cash generated from operations
Operating profit 930.4 859.9
Adjusted for:
Share-based payment 6.7 4.0
Depreciation 40.9 38.9
Surplus on disposal of property, plant and
equipment (4.5) (3.8)
Movement in provision for doubtful debts 18.3 9.5
Movement in retirement benefits provision (9.9) (8.2)
Movement in other provisions 14.0 11.1
Changes in working capital:
Increase in inventories (1.9) (20.1)
Increase in trade and other receivables (440.3) (295.3)
Increase/(Decrease) in trade and other
payables 2.5 (4.5)
556.2 591.5
6. Net cash outflow from financing activities
Purchase of own shares (162.4) (213.5)
Dividends paid (262.7) (231.8)
Proceeds on sale of own shares 21.8 6.8
Repayment of finance lease liability (1.0) (0.8)
(404.3) (439.3)
KEY RATIOS
12 months 12 months
ended ended
31 March 2008 31 March 2007
Operating efficiency ratios
Merchandise gross profit % 32.7% 34.0%
Operating margin % 25.9% 25.9%
Number of stores 525 508
Number of employees (average) 6 696 6 310
Trading space (sqm) 220 236 215 076
Inventory turn 5.5 5.2
Current ratios 3.1 3.4
Credit ratios
Cash and short term credit sales % of total sales 33.1% 30.7%
Debtors costs as a % of the net debtors book 6.5% 5.8%
Doubtful debt provision as a % of net
debtors book 13.5% 14.9%
Arrear instalments on slow-paying and
non-performing accounts as a percentage of net
debtors book 19.3% 19.0%
Doubtful debt provision coverage on non-
performing accounts (note 3) 69.6% 81.2%
Credit applications decline rate 22.5% 20.1%
Shareholder ratios
Net asset value per share (cents) 3 058 2 774
Gearing ratio 23.3% 15.6%
Dividend cover 2.0 2.25
Return on average equity 24.4% 24.8%
Return on average capital employed 21.4% 22.5%
Return on average assets managed (after-tax) 18.9% 19.0%
Notes:
1. All ratios are based on figures at the end of the year unless otherwise
disclosed.
2. The net asset value has been calculated using 89 286 000 shares in issue
(2007: 91 092 000).
3. The lower doubtful debt provision percentage(calculated on the same basis as
last year) is due to the write-off of older fully provided for accounts.
ACCOUNTS RECEIVABLE ANALYSIS
The company applies a payment rating assessment to each customer individually,
which categorises customers into 13 payment categories. This assessment is
integral to the calculation of doubtful debts. The 13 payment categories has
been summarised into four main groupings of customers. In the year under
review, there has been no significant deterioration in the payment ratings of
our customers.
An analysis of the debtors book based on the payment ratings is set out below:
Number of Customers
Debtors Payment Analysis 2008 2007
Satisfactory paid No 534 286 542 142
Customers fully up to date including % 75.1% 76.4%
those who have paid 70% or more of
amounts due over the contract period
Slow payers No 51 759 47 959
Customers who have paid between % 7.3% 6.8%
70% and 65% of amounts due over
the contract period
Non-performing customers No 47 130 44 463
Customers who have paid between % 6.6% 6.3%
65% and 55% of amounts due over
the contract period
Non-performing customers No 78 413 74 654
Customers who have paid 55% or % 11.0% 10.5%
less of amounts due over the
contract period
711 588 709 218
Doubtful Debt
Provision %
Debtors Payment Analysis 2008 2007
Satisfactory paid
Customers fully up to date including 0% 0%
those who have paid 70% or more of
amounts due over the contract period
Slow payers
Customers who have paid between 17% 19%
70% and 65% of amounts due over
the contract period
Non-performing customers
Customers who have paid between 42% 50%
65% and 55% of amounts due over
the contract period
Non-performing customers
Customers who have paid 55% or 86% 100%
less of amounts due over the
contract period
13.5% 14.9%
The lower doubtful debt provision percentage (calculated on the same basis as
last year) is due to the write-off of older accounts.
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: MG McConnell
Registered office: 53A Victoria Road, Woodstock, 7925
Transfer secretaries: Computershare Investor Services (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: 19/05/2008 09:00:01 Supplied by www.sharenet.co.za
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