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LEW - Lewis Group Limited - Audited Results for the year ended 31 March 2009
LEWIS GROUP LIMITED
Registration number: 2004/009817/06
Share code: LEW
ISIN: ZAE000058236
Audited Results for the year ended 31 March 2009
- Revenue increased by 5.9%
- Headline earnings per share down by 7.6%
- Cash flow from operations increased by 20.4%
- Dividend per share maintained
OVERVIEW
The Lewis Group business model continued to demonstrate its resilience as the
group generated strong cash flows and maintained its dividend in the most
demanding trading conditions experienced in the credit retail sector for many
years.
The financial stress on consumers has resulted in an increase in debtor costs
which contributed to headline earnings per share (HEPS) declining 7.6% for the
year.
While Lewis customers have limited exposure to the prevailing high interest
rate environment, steep increases in food and transport costs have continued to
limit discretionary spending in this target market.
TRADING AND FINANCIAL PERFORMANCE
Revenue increased by 5.9% to R3 807.1 million and merchandise sales grew by
1.6% to R1 919.9 million, a pleasing result in the current climate. Revenue has
shown an improving trend towards the latter stages of the financial year and
increased by 6.6% in the second half relative to an increase of 5.0% in the
first six months.
Finance charges earned were R31.7 million higher owing to increasing numbers of
customers selecting longer-term payment options. Insurance revenue no longer
reflects the premium earn-out of insurance written in the buoyant trading
period of 2007 and includes additional reserves required to cover the higher
proportion of longer-term business. Ancillary services rose by R131.6 million,
benefiting from the monthly service and initiation fees on accounts opened post
the introduction of the National Credit Act.
The group`s merchandise strategy of sourcing quality, innovative products which
offer real value for money has continued to be a competitive advantage. This
strategy has resulted in a 4% increase in sales in the higher margin furniture
product category which has grown to 53% of group sales. In the sub-categories,
appliances (27% of sales) increased by 3.8% while the more discretionary sound
and vision merchandise (20% of sales) slowed by 7%.
The Lewis division, which accounts for 82% of merchandise sales, increased
revenue by 5.7%. Best Electric was boosted by the introduction of furniture
ranges into stores and lifted revenue by 9.1%. The chain has been rebranded as
Best Home and Electric to reflect this change in the merchandise offering.
Revenue in Lifestyle Living, which targets higher income earners, was the same
as last year.
Lewis successfully piloted a small store concept which has enabled the chain to
gain access to high traffic areas at lower rentals. This store concept offers
customers key merchandise lines, with the balance of the range available in the
electronic catalogues and display screens in-store. This store format will form
part of the Lewis expansion plans.
Customer loyalty is vital in tough trading conditions and the store-based
customer re-serve model resulted in a high level of repeat business. Store
promotions were increased to achieve this objective. Marketing activity was
increased to attract new customers.
Gross margin inclusive of foreign currency gains was impacted by the
strengthening of the Rand late in the reporting period. Excluding this currency
movement, margins were relatively stable but remain under pressure owing to
higher levels of promotional activity.
The group operating margin was 22.1% (2008: 25.9%), comprising retail at 12.9%
(2008: 14.4%), risk services (insurance) 31.4% (2008: 31.1%) and financial
services 36.7% (2008: 50.2%).
Stock was well managed and the inventory turn improved from 5.5 to 5.8 times.
DEBTORS BOOK
Credit risk management strategies have been consistently applied through the
group`s centralised credit granting process utilising the group`s specifically
designed application and behavioural scorecards. The decline rate of credit
applications has increased from 22.5% in 2008 to 25.4%, evidence of the higher
levels of consumer indebtedness.
The increase in debtors costs from 6.5% to 10.0% of net debtors reflects the
impact of the tougher collections environment.
The doubtful debt provision for the year was 15.7% of net debtors (2008:
13.5%). This is calculated applying the net present value of the expected cash
flows from slow-paying and non-performing accounts. A detailed debtors payment
analysis is shown below. The movement in the doubtful debt provision was well
contained in the second half of the year, increasing by R45 million relative to
an increase of R92 million in the first six months.
In the current environment the group`s store-based collections model is proving
effective as the direct relationship through monthly contact with customers
provides an early indication of payment difficulties.
CASH FLOW AND CAPITAL MANAGEMENT
The group has remained strongly cash generative, with a 20.4% increase in cash
generated from operations to R669.7 million. This can be attributed to
efficient cost and working capital management.
Gearing at 23% remains the same as last year.
A final cash dividend of 179 cents per share was declared, bringing the total
dividend for the year to 323 cents per share, the same level as 2008.
Cash returned to shareholders in dividends and share buy-backs has totalled
R1.6 billion since the group`s listing on the JSE in 2004, equivalent to 57% of
the group`s market capitalisation of R2.8 billion at the time of listing.
CEO SUCCESSION
As previously advised, Alan Smart, the chief executive officer of the group,
will be retiring in September 2009.
Alan will continue to serve on the board as a non-executive director which will
ensure that the business retains his extensive furniture retailing experience.
Johan Enslin, the chief executive officer designate, will succeed Alan with
effect from 1 October 2009 and will be appointed to the board as an executive
director.
PROSPECTS
Continued government and private sector infrastructure spend bodes well for
ongoing job creation and retention in several sectors of the Lewis target
market. However, rising retrenchments and unemployment remains one of the major
risks facing the South African economy in the year ahead. The group`s national
store base and diverse customer profile should limit the impact of unemployment
affecting a particular sector of the economy or geographic region.
While the group will continue to focus on organic growth from existing stores,
a cautious expansion programme will see 20 to 25 stores opened across the three
trading brands. Lewis is also well positioned to benefit from increased
customer traffic as a result of store and brand consolidation among
competitors.
Trading conditions are expected to remain difficult in the year ahead. However,
the improving trend in revenue growth and the slowing bad debt provision in
recent months provide encouraging signs. Sales for the first six weeks of the
new financial year continued to improve on the positive trend of recent months.
DIVIDEND DECLARATION
Notice is hereby given that a final cash dividend of 179 cents in respect of
the year ended 31 March 2009 has been declared payable to holders of ordinary
shares.
The following dates are applicable:
Last date of trade "cum" dividend Friday, 17 July 2009
Date trading commences "ex" dividend Monday, 20 July 2009
Record date Friday, 24 July 2009
Date of payment Monday, 27 July 2009
Share certificates may not be dematerialised or rematerialised between Monday,
20 July 2009 and Friday, 24 July 2009, both days inclusive.
For and on behalf of the board
David Nurek Alan Smart
Chairman Chief Executive Officer
Cape Town
18 May 2009
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 2009. 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 2009 31 March 2008
Rm Rm
Notes Audited % Change Audited
Revenue 3 807.1 5.9% 3 596.4
Merchandise sales 1 919.9 1 889.7
Finance charges earned 826.6 794.9
Insurance premiums
earned 581.4 564.2
Ancillary services 479.2 347.6
Cost of merchandise sales (1 318.3) (1 272.1)
Operating costs (1 648.5) (1 393.9)
Employment costs (538.4) (504.2)
Administration and IT (173.1) (167.0)
Debtor costs 2 (338.8) (190.4)
Marketing (124.0) (107.1)
Occupancy costs (150.5) (135.1)
Transport and travel (138.8) (127.3)
Depreciation (45.8) (40.9)
Other operating costs (139.1) (121.9)
Operating profit 840.3 (9.7%) 930.4
Investment income 76.9 71.7
Profit before
finance costs 917.2 1 002.1
Net finance costs 3 (86.5) (56.8)
Profit before taxation 830.7 945.3
Taxation (263.7) (303.0)
Net profit
attributable to
ordinary shareholders 567.0 (11.7%) 642.3
Reconciliation of
headline earnings
Net profit attributable to
ordinary shareholders 567.0 642.3
Adjusted for:
Surplus on disposal
of property, plant
and equipment (3.6) (4.5)
Surplus on disposal
of available-for-sale assets (2.6) (22.1)
Taxation 1.2 2.2
Headline earnings 562.0 (9.0%) 617.9
Number of ordinary
shares (000)
In issue 98 058 99 158
Weighted average 88 209 89 583
Fully diluted
weighted average 88 633 89 803
Earnings per share (cents) 642.8 (10.3%) 717.0
Headline earnings per share (cents) 637.1 (7.6%) 689.8
Fully diluted
earnings per share (cents) 639.7 715.2
Fully diluted
headline earnings per share (cents) 634.1 688.1
BALANCE SHEET
31 March 2009 31 March 2008
Rm Rm
Notes Audited Audited
ASSETS
Non-current assets
Property, plant and equipment 229.7 200.6
Investments - insurance business 535.1 505.4
764.8 706.0
Current assets
Investments - insurance business 199.1 159.5
Inventories 228.0 230.4
Trade and other receivables 4 2 943.7 2 615.6
Taxation - 29.6
Cash on hand and deposits 54.8 66.8
3 425.6 3 101.9
Total assets 4 190.4 3 807.9
EQUITY AND LIABILITIES
Capital and reserves
Shareholders` equity and reserves 2 939.9 2 730.0
Non-current liabilities
Long-term interest-bearing
borrowings 100.0 -
Deferred taxation 53.0 14.4
Retirement benefits 53.9 57.7
206.9 72.1
Current liabilities
Trade and other payables 5 404.1 302.4
Taxation 2.5 -
Short-term interest-bearing
borrowings 637.0 703.4
1 043.6 1 005.8
Total equity and liabilities 4 190.4 3 807.9
STATEMENT OF CHANGES IN EQUITY
12 months 12 months
ended ended
31 March 2009 31 March 2008
Rm Rm
Audited Audited
Share capital and premium 97.8 149.1
Opening balance 149.1 311.4
Cost of own shares acquired (51.3) (162.4)
Share awards to employees - 0.1
Other reserves 107.4 128.4
Opening balance 128.4 156.5
Fair value adjustments of
available-for-sale investments, net of tax (40.0) (27.5)
Disposal of available-for-sale investments
recognised 2.4 (21.3)
Share-based payment 10.6 6.7
Transfer of share-based payment reserve to
retained income on vesting (0.2) (0.9)
Transfer to contingency reserve 1.8 9.0
Foreign currency translation reserve 4.4 5.9
Retained earnings 2 734.7 2 452.5
Opening balance 2 452.5 2 059.3
Net profit attributable to ordinary
shareholders 567.0 642.3
Profit on sale of own shares 1.1 21.8
Transfer of share-based payment reserve to
retained income on vesting 0.2 0.9
Cost of share awards to employees - (0.1)
Transfer to contingency reserve (1.8) (9.0)
Distribution to shareholders (284.3) (262.7)
Balance at end of year 2 939.9 2 730.0
ABRIDGED CASH FLOW STATEMENT
12 months 12 months
ended ended
31 March 2009 31 March 2008
Rm Rm
Notes Audited Audited
Cash generated from operations 6 669.7 556.2
Interest and dividends received 96.3 61.0
Interest paid (108.5) (68.2)
Taxation paid (185.6) (290.4)
Cash retained from
operating activities 471.9 258.6
Net cash outflow from
investing activities (183.0) (97.3)
Net cash outflow from
financing activities 7 (234.5) (404.3)
Net increase/(decrease) in cash
and cash equivalents 54.4 (243.0)
Cash and cash equivalents at the
beginning of the year (636.6) (393.6)
Cash and cash equivalents at the
end of the year (582.2) (636.6)
SEGMENTAL REPORT
Risk Financial
Retail Services Services Total
Rm Rm Rm Rm
Primary Segments Audited Audited Audited Audited
2009
Revenue 2 213.6 581.4 1 012.1 3 807.1
Operating profit 286.1 182.8 371.4 840.3
Operating margin 12.9% 31.4% 36.7% 22.1%
Total assets 426.4 754.6 3 009.4 4 190.4
Total current liabilities 163.6 195.1 684.9 1 043.6
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
South Africa BLNS* Total
Rm Rm Rm
Geographical Audited Audited Audited
2009
Revenue 3 364.0 443.1 3 807.1
2008
Revenue 3 218.1 378.3 3 596.4
* Botswana, Lesotho, Namibia and Swaziland
ABRIDGED 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"), specifically IAS 34 Interim Financial Reporting. The accounting
policies applied are consistent with the prior year.
31 March 2009 31 March 2008
Rm Rm
Audited Audited
2. Debtor costs
Bad debts, repossession losses and bad debt
recoveries 201.9 172.1
Movement in doubtful debts provision 136.9 18.3
338.8 190.4
3. Net finance costs
Interest paid 108.5 68.2
Interest earned (11.5) (6.5)
Forward exchange contracts (10.5) (4.9)
86.5 56.8
4. Trade and other receivables
Instalment sale and loan receivables 4 007.2 3 539.8
Provision for unearned finance charges and
unearned maintenance income (181.1) (263.7)
Provision for unearned initiation fees (78.3) (46.9)
Provision for unearned insurance premiums (360.0) (290.5)
Net instalment sale and loan receivables 3 387.8 2 938.7
Provision for doubtful debts (532.7) (395.8)
2 855.1 2 542.9
Other receivables 88.6 72.7
2 943.7 2 615.6
The credit terms of instalment sale and loan receivables range from 6 to 36
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. Trade and other payables
Trade payables 84.8 59.6
Accruals and other payables 142.9 107.3
Due to reinsurers 105.3 102.7
Insurance provisions 71.1 32.8
404.1 302.4
6. Cash generated from operations
Operating profit 840.3 930.4
Adjusted for:
Share-based payment 10.6 6.7
Depreciation 45.8 40.9
Surplus on disposal of property, plant and
equipment (3.6) (4.5)
Movement in provision for doubtful debts 136.9 18.3
Movement in retirement benefits provision (3.8) (9.9)
Movement in other provisions 30.4 14.0
1 056.6 995.9
Changes in working capital: (386.9) (439.7)
Decrease/(Increase) in inventories 4.1 (1.9)
Increase in trade and other receivables (460.6) (440.3)
Increase in trade and other payables 69.6 2.5
669.7 556.2
7. Net cash outflow from financing
activities
Purchase of own shares (51.3) (162.4)
Dividends paid (284.3) (262.7)
Proceeds on sale of own shares 1.1 21.8
Increase in long-term borrowings 100.0 -
Repayment of finance lease liability - (1.0)
(234.5) (404.3)
KEY RATIOS
12 months 12 months
ended ended
31 March 2009 31 March 2008
Operating efficiency ratios
Merchandise gross profit % 31.3% 32.7%
Operating margin % 22.1% 25.9%
Number of stores 535 525
Number of permanent employees (average) 6 480 6 696
Trading space (sqm) 223 102 220 236
Inventory turn 5.8 5.5
Current ratios 3.3 3.1
Credit ratios
Cash and short-term credit sales % of total sales 35.7% 33.1%
Bad debts as a % of net debtors 6.0% 5.9%
Debtor costs as a % of the net debtors 10.0% 6.5%
Doubtful debt provision as a % of net debtors 15.7% 13.5%
Arrear instalments on satisfactory accounts
as a percentage of net debtors 9.5% 10.6%
Arrear instalments on slow-paying and
non-performing accounts as a percentage
of net debtors 20.9% 19.3%
Doubtful debt provision on non-performing accounts 71.3% 69.6%
Credit applications decline rate 25.4% 22.5%
Shareholder ratios
Net asset value per share (cents) 3 348 3 058
Gearing ratio 23.2% 23.3%
Dividend cover 1.8 2.0
Return on average equity (after-tax) 20.0% 24.4%
Return on average capital employed
(after-tax) 17.7% 21.4%
Return on average assets managed (pre-tax) 22.9% 27.8%
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 87 820 000 shares in issue
(2008: 89 286 000).
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.
An analysis of the debtors book based on the payment ratings is set out below:
Number of Customers
Debtors Payment Analysis 2009 2008
Satisfactory paid No 497 296 534 286
Customers fully up to date including % 72.0% 75.1%
those who have paid 70% or more of
amounts due over the contract period
Slow payers No 57 042 51 759
Customers who have paid between % 8.2% 7.3%
70% and 65% of amounts due over
the contract period
Non-performing customers No 50 300 47 130
Customers who have paid between % 7.3% 6.6%
65% and 55% of amounts due over
the contract period
Non-performing customers No 86 448 78 413
Customers who have paid 55% or % 12.5% 11.0%
less of amounts due over the
contract period
691 086 711 588
Doubtful Debt
Provision %
Debtors Payment Analysis 2009 2008
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 20% 17%
70% and 65% of amounts due over
the contract period
Non-performing customers
Customers who have paid between 42% 42%
65% and 55% of amounts due over
the contract period
Non-performing customers
Customers who have paid 55% or 88% 86%
less of amounts due over the
contract period
15.7% 13.5%
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
Registration number: 2004/009817/06
Share code: LEW
ISIN: ZAE000058236
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: 18/05/2009 07:15:01 Supplied by www.sharenet.co.za
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