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LEW - Lewis Group - Unaudited Interim Results for the six months ended 30
September 2010
LEWIS GROUP
Registration number: 2004/009817/06
Share code: LEW
ISIN: ZAE000058236
Unaudited Interim Results for the six months ended 30 September 2010
MERCHANDISE SALES UP 11.2%
OPERATING PROFIT MARGIN 22%
OPERATING PROFIT UP 10.5%
HEADLINE EARNINGS PER SHARE UP 14.5%
INCREASED INTERIM DIVIDEND 156 cents
OVERVIEW
Lewis Group experienced steadily improving sales and credit collections over the
past six months. Merchandise sales increased by 11.2% and revenue by 9.8%, while
debtor costs as a percentage of net debtors declined from 5.0% to 4.8%. This
improved trading and operating performance resulted in a 14.5% growth in
headline earnings per share.
After maintaining the interim dividend at 144 cents per share for the past two
challenging years, the board is pleased to advise the declaration of an interim
dividend of 156 cents per share, an increase of 8.3%.
TRADING AND FINANCIAL PERFORMANCE
The strategy of sourcing exclusive merchandise continued to benefit the group.
Gross margin adjusted for currency losses, improved from 33.4% at the financial
year-end in March 2010 to 34.4%.
Furniture and appliance sales increased by 11.1% with electronic goods sales up
11.7%. Merchandise sales in Lewis which account for 82.6% of total sales,
increased by 11.2%, with Best Home and Electric sales growing by 16.3%.
Pleasingly, credit sales increased from 68.5% to 71.7% of total sales, driven
mainly by targeted customer promotions at store level and the launch of new
furniture and appliance ranges.
Revenue from ancillary services, comprising monthly service and initiation fees
on credit contracts, increased by 13.1% as a result of the higher credit sales
mix. Insurance revenue grew by 15.4% owing to the higher proportion of longer
term contracts now in the debtor base. Finance charges increased by only 1.1%
reflecting the impact of lower interest rates.
Operating costs, excluding debtor costs, increased by 10.5%. The main
contributors to this increase were higher performance-related employment costs
on improved trading, investment in IT system upgrades, marketing for the launch
of My Home and the operating costs associated with the opening of 21 new stores
during the period.
Operating profit margin improved to 22.0% (2009: 21.8%) and translated into
operating profit growth of 10.5%. Headline earnings per share increased by 14.5%
to 332.5 cents (2009: 290.5 cents).
Inventory has been tightly managed and the improved inventory turn of 5.2 times
is within the target range 5 to 5.5 times.
Cash generated from operations increased by R214 million to R413 million as the
level of investment in longer term business stabilised. Consequently the gearing
ratio improved to 25.7% from 27.4%.
DEBTOR MANAGEMENT
Debtor costs reduced from 5.0% to 4.8% of net debtors as collections continued
to improve over the period.
An analysis of the debtors book, which is detailed in the accompanying table,
shows an improvement of customers in the "satisfactory paid" category which now
comprise 71.6% of net debtors compared to 69.6% last year. The number of
customers reflected in the slow-paying and non-performing categories decreased.
Due to higher capital investment in the longer term contracts, the impairment
provision increased from 17.9% to 18.4% of net debtors.
STORE EXPANSION
The group`s store footprint increased to 565 following the opening of eleven
Lewis and nine Best Home and Electric stores over the past six months. Eight of
the new Lewis outlets are the smaller format stores. The group will be opening
40 to 45 new stores for the 2011 financial year.
The new trading format, My Home, launched successfully during June 2010.
Thirteen Lifestyle Living stores were relaunched as My Home and the first new
store opened in August. Trading performance for the first three months has been
in line with expectations as the brand attracted the desired proportion of
credit-based sales.
PROSPECTS
The outlook for our consumer continues to improve steadily. Higher real wage
increases granted across most sectors of the economy are positive while
retrenchments and job losses in our customer base appear to have stabilised. The
momentum in collections has been encouraging and our store expansion plan is on
track. The festive season trading period will again be strongly supported by
merchandise and promotional activity.
DIVIDEND DECLARATION
Notice is hereby given that an interim cash dividend of 156 cents in respect of
the six months ended 30 September 2010 has been declared payable to holders of
ordinary shares.
The following dates are applicable:
Last date to trade "cum" dividend Friday, 14 January 2011
Date trading commences "ex" dividend Monday, 17 January 2011
Record date Friday, 21 January 2011
Date of payment Monday, 24 January 2011
Share certificates may not be dematerialised or rematerialised between Monday,
17 January 2011 and Friday, 21 January 2011.
For and on behalf of the board.
David Nurek Johan Enslin
Chairman Chief Executive Officer
Cape Town
8 November 2010
CONDENSED UNAUDITED INTERIM RESULTS
INCOME STATEMENT
6 months
ended
30 Sept
2010
Rm %
Notes Unaudited change
Revenue 2136.0 9.8%
Merchandise sales 1 057.8
Finance charges earned 450.1
Insurance premiums earned 336.7
Ancillary services 291.4
Cost of merchandise sales (686.9)
Operating costs (980.2)
Employment costs (328.2)
Administration and IT (101.4)
Debtor costs 2 (206.0)
Marketing (81.0)
Occupancy costs (88.2)
Transport and travel (68.9)
Depreciation (27.4)
Other operating costs (79.1)
Operating profit 468.9 10.5%
Investment income 30.5
Profit before finance costs 499.4
Net finance costs 3 (57.5)
Profit before taxation 441.9
Taxation (146.4)
Net profit attributable to ordinary shareholders 295.5 13.1%
Reconciliation of headline earnings
Net profit attributable to ordinary shareholders 295.5
Adjusted for
Surplus on disposal of property, plant and equipment (3.9)
Surplus on disposal of available-for-sale assets 0.6
Taxation 0.9
Headline earnings 293.1 14.7%
Number of ordinary shares(000)
In issue 98 058
Weighted average 88 152
Diluted weighted average 88 857
Earnings per share (cents) 335.2 12.8%
Headline earnings per share (cents) 332.5 14.5%
Diluted earnings per share (cents) 332.6
Diluted headline earnings per share (cents) 329.9
6 months 12 months
ended ended
30 Sept 31 March
2009 2010
Rm Rm
Unaudited Audited
Revenue 1 946.0 4 110.6
Merchandise sales 951.3 2 045.5
Finance charges earned 445.3 907.1
Insurance premiums earned 291.8 616.0
Ancillary services 257.6 542.0
Cost of merchandise sales (632.4) (1 330.6)
Operating costs (889.4) (1 872.8)
Employment costs (295.7) (607.4)
Administration and IT (92.2) (194.7)
Debtor costs (188.5) (434.2)
Marketing (71.2) (134.3)
Occupancy costs (78.3) (165.1)
Transport and travel (64.3) (135.9)
Depreciation (26.9) (46.3)
Other operating costs (72.3) (154.9)
Operating profit 424.2 907.2
Investment income 31.5 77.5
Profit before finance costs 455.7 984.7
Net finance costs (69.1) (121.2)
Profit before taxation 386.6 863.5
Taxation (125.3) (272.1)
Net profit attributable to ordinary shareholders 261.3 591.4
Reconciliation of headline earnings
Net profit attributable to ordinary shareholders 261.3 591.4
Adjusted for
Surplus on disposal of property, plant and equipment (3.0) (6.5)
Surplus on disposal of
available-for-sale assets (3.8) (23.6)
Taxation 1.0 4.2
Headline earnings 255.5 565.5
Number of ordinary shares(000)
In issue 98 058 98 058
Weighted average 87 951 88 002
Diluted weighted average 87 951 88 330
Earnings per share (cents) 297.1 672.0
Headline earnings per share (cents) 290.5 642.6
Diluted earnings per share (cents) 297.1 669.5
Diluted headline earnings per share (cents) 290.5 640.2
STATEMENT OF COMPREHENSIVE INCOME
6 months 6 months 12 months
ended ended ended
30 Sept 30 Sept 31 March
2010 2009 2010
Rm Rm Rm
Unaudited Unaudited Audited
Net profit for the period 295.5 261.3 591.4
Fair value adjustments of
available-for-sale investments 41.0 46.1 87.1
Fair value adjustments of
available-for-sale investments 51.0 52.6 99.4
Tax effect (10.0) (6.5) (12.3)
Disposal of available-for-sale
investments recognised 0.4 (3.7) (21.3)
Disposal of available-for-sale investments 0.6 (3.8) (23.6)
Tax effect (0.2) 0.1 2.3
Foreign currency translation reserve (2.1) (3.6) (7.4)
Total comprehensive income for the period 334.8 300.1 649.8
BALANCE SHEET
30 Sept 30 Sept 31 March
2010 2009 2010
Rm Rm Rm
Notes Unaudited Unaudited Audited
Assets
Non-current assets
Property, plant and equipment 268.7 231.6 251.1
Deferred taxation 8.6 - 13.0
Investments - insurance business 813.3 624.5 716.0
1 090.6 856.1 980.1
Current assets
Inventories 265.1 305.9 210.0
Trade and other receivables 4 3 611.0 3 147.8 3 427.6
Investments - insurance business 171.1 178.1 178.1
Cash on hand and deposits 84.2 67.4 62.2
4 131.4 3 699.2 3 877.9
Total assets 5 222.0 4 555.3 4 858.0
Equity and liabilities
Capital and reserves
Shareholders` equity and reserves 3462.9 3 049.3 3 273.7
Non-current liabilities
Interest-bearing borrowings 350.0 350.0 350.0
Deferred taxation 88.4 58.7 84.5
Retirement benefits 52.8 54.7 51.8
491.2 463.4 486.3
Current liabilities
Trade and other payables 5 601.4 485.1 450.0
Taxation 43.0 5.0 36.6
Overdrafts and short-term
interest-bearing borrowings 623.5 552.5 611.4
1 267.9 1 042.6 1 098.0
Total equity and liabilities 5 222.0 4 555.3 4 858.0
STATEMENT OF CHANGES IN EQUITY
6 months 6 months 12 months
ended ended ended
30 Sept 30 Sept 31 March
2010 2009 2010
Rm Rm Rm
Unaudited Unaudited Audited
Share capital and premium 93.5 97.8 93.5
Opening balance 93.5 97.8 97.8
Cost of own shares acquired - - (4.3)
Other reserves 215.3 142.4 171.3
Opening balance 171.3 107.4 107.4
Other comprehensive income:
Fair value adjustments of
available-for-sale investments 41.0 46.1 87.1
Disposal of available-for-sale
investments recognised 0.4 (3.7) (21.3)
Foreign currency translation reserve (2.1) (3.6) (7.4)
Share-based payment 8.9 5.0 10.9
Transfer from share-based payment
reserve to retained income on vesting (8.4) (11.3) (11.5)
Transfer to contingency reserve from
retained earnings 4.2 2.5 6.1
Retained earnings 3 154.1 2 809.1 3 008.9
Opening balance 3 008.9 2 695.1 2 695.1
Net profit attributable to shareholders 295.5 261.3 591.4
Profit on sale of own shares 3.4 1.4 1.4
Transfer of share-based payment reserve
on vesting 8.4 11.3 11.5
Transfer to contingency reserve (4.2) (2.5) (6.1)
Distribution to shareholders (157.9) (157.5) (284.4)
Balance at end of period 3 462.9 3 049.3 3 273.7
CASH FLOW STATEMENT
6 months 6 months 12 months
ended ended ended
30 Sept 30 Sept 31 March
2010 2009 2010
Rm Rm Rm
Notes Unaudited Unaudited Audited
Cash generated from operations 6 413.1 199.0 478.1
Dividends and interest received 32.7 30.4 59.9
Finance costs (59.1) (71.8) (127.2)
Taxation paid (141.9) (108.2) (214.2)
Cash retained from operating
activities 244.8 49.4 196.6
Net cash outflow from
investing activities (80.4) (46.2) (126.3)
Net cash (outflow)/inflow from
financing activities 7 (154.5) 93.9 (37.3)
Net increase in cash and cash
equivalents 9.9 97.1 33.0
Cash and cash equivalents at
the beginning of the period (549.2) (582.2) (582.2)
Cash and cash equivalents at
the end of the period (539.3) (485.1) (549.2)
SEGMENTAL REPORT
Best My Home/
Home and Lifestyle
Lewis Electric Living Total
Reportable segments Rm Rm Rm Rm
For 6 months ended
30 September 2010 (unaudited)
Revenue 1 796.0 273.7 66.3 2 136.0
Operating profit 413.1 52.7 3.1 468.9
Operating profit margin 23.0% 19.3% 4.7% 22.0%
Segment assets 3 245.6 453.3 84.4 3 783.3
For 6 months ended
30 September 2009 (unaudited)
Revenue 1 644.6 238.7 62.7 1 946.0
Operating profit 377.5 46.0 0.7 424.2
Operating profit margin 23.0% 19.3% 1.1% 21.8%
Segment assets 2 913.5 383.9 77.9 3 375.3
For the 12 months ended
31 March 2010 (audited)
Revenue 3 470.3 503.4 136.9 4 110.6
Operating profit 808.7 96.2 2.3 907.2
Operating profit margin 23.3% 19.1% 1.7% 22.1%
Segment assets 3 072.8 410.4 62.4 3 545.6
NOTES TO THE FINANCIAL STATEMENTS
1. Basis of accounting
The group`s interim financial statements have been prepared in accordance with
IAS 34 (Interim Financial Reporting), the requirements of the South African
Companies Act and in compliance with the Listings Requirements of the JSE
Limited. The accounting policies applied are consistent with those applied in
the preparation of the previous year`s financial statements ending 31 March 2010
and are in accordance with International Financial Reporting Standards ("IFRS").
30 Sept 30 Sept 31 March
2010 2009 2010
Rm Rm Rm
Unaudited Unaudited Audited
2. Debtor costs
Bad debts, bad debt recoveries and
repossession losses 47.9 53.0 331.5
Movement in debtors` impairment provision 158.1 135.5 102.7
206.0 188.5 434.2
3. Net finance costs
Interest paid 51.9 42.0 94.7
Interest earned (1.6) (2.7) (6.0)
Losses on forward exchange contracts 7.2 29.8 32.5
57.5 69.1 121.2
4. Trade and other receivables
Instalment sale and loan receivables 5 133.4 4 409.9 4 705.2
Provision for unearned finance charges
and unearned maintenance charges (231.6) (192.5) (207.5)
Provision for unearned initiation fees (91.9) (81.9) (88.5)
Provision for unearned insurance premiums (498.2) (397.9) (438.2)
Net debtors 4 311.7 3 737.6 3 971.0
Debtors` impairment provision (793.5) (668.2) (635.4)
Net trade receivables 3 518.2 3 069.4 3 335.6
Other receivables 92.8 78.4 92.0
3 611.0 3 147.8 3 427.6
The credit terms of instalment sale and loan receivables range from 6 to 36
months (2009: 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.
The average effective interest rate on instalment and loan receivables is 26.2%
(2009: 29.4%) and the average term of a sale is 27.8 months (2009: 27.9 months).
5. Trade and other payables
Trade payables 140.6 132.0 64.1
Accruals and other payables 174.8 155.9 134.4
Due to reinsurers 132.2 112.4 121.1
Insurance provisions 153.8 84.8 130.4
601.4 485.1 450.0
6. Cash generated from operations
Operating profit 468.9 424.2 907.2
Adjusted for:
Share-based payment 8.9 5.0 10.9
Depreciation 27.4 26.9 46.3
Surplus on disposal of property, plant and
equipment (3.9) (3.0) (6.5)
Movement in debtors` impairment provision 158.1 135.5 102.7
Movement in retirement benefits provision 1.0 0.8 (2.1)
Movement in other provisions 30.7 23.1 71.5
691.1 612.5 1 130.0
Changes in working capital: (278.0) (413.5) (651.9)
(Increase)/decrease in inventories (61.0) (85.0) 17.0
Increase in trade and other receivables (343.6) (393.5) (644.3)
Increase/(decrease) in trade and other
payables 126.6 65.0 (24.6)
413.1 199.0 478.1
7. Net cash (outflow)/inflow from
financing activities
Purchase of own shares - - (4.3)
Distribution to shareholders (157.9) (157.5) (284.4)
Proceeds on sale of own shares 3.4 1.4 1.4
Increase in long-term interest-bearing
borrowings - 250.0 250.0
(154.5) 93.9 (37.3)
DEBTORS`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 debtors` impairment provision. The 13 payment
categories have 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
Sept Sept
2010 2009
Debtors` payment categories
Satisfactory paid
Customers fully paid up to date
including those who have paid
70% or more of amounts due No. 510 722 491 614
over the contract period % 71.6% 69.6%
Slow payers
Customers who have paid
between 65% and 70% of
amounts due over the contract No. 55 380 57 539
period. % 7.8% 8.2%
Non-performing customers
Customers who have paid
between 55% and 65% of
amounts due over the contract No. 50 302 52 949
period. % 7.0% 7.5%
Non-performing customers
Customers who have paid 55%
or less of amounts due over the No. 97 062 103 795
contract period. % 13.6% 14.7%
713 466 705 897
Impairment provision %
Sept Sept Mar
2010 2009 2010
Debtors` payment categories
Satisfactory paid
Customers fully paid up to date
including those who have paid
70% or more of amounts due No.
over the contract period % 0% 0% 0%
Slow payers
Customers who have paid
between 65% and 70% of
amounts due over the contract No.
period. % 25% 21% 23%
Non-performing customers
Customers who have paid
between 55% and 65% of
amounts due over the contract No.
period. % 44% 41% 43%
Non-performing customers
Customers who have paid 55%
or less of amounts due over the No.
contract period. % 98% 89% 94%
18.4% 17.9% 16.0%
The debtors` impairment provision is allocated to the summary categories based
on the number of customers.
KEY RATIOS
6 months 6 months 12 months
ended ended ended
30 Sept 30 Sept 31 March
2010 2009 2010
Operating efficiency ratios
Gross profit margin % 35.1% 33.5% 34.9%
Operating profit margin % 22.0% 21.8% 22.1%
Number of stores 565 539 548
Number of permanent employees (average) 6 785 6 652 6 668
Trading space (sqm) 228 290 223 993 225 891
Inventory turn 5.2 4.4 6.0
Current ratio 3.3 3.5 3.5
Credit ratios
Credit sales % 71.7% 68.5% 68.5%
Debtor costs as a % of net debtors 4.8% 5.0% 10.9%
Debtors` impairment provision as a % of net
debtors 18.4% 17.9% 16.0%
Arrear instalments on satisfactory accounts
as a percentage of net debtors 9.4% 8.8% 9.3%
Arrear instalments on slow-paying and
non-performing accounts as a percentage
of net debtors 22.6% 23.0% 19.8%
Debtors` impairment provision on
non-performing accounts 79.7% 72.9% 74.9%
Credit applications decline rate 31.1% 27.4% 27.5%
Shareholder ratios
Net asset value per share (cents) 3 924 3 461 3 719
Gearing ratio 25.7% 27.4% 27.5%
Dividend cover 1.9 1.9 1.9
Return on average equity (after-tax) 17.6% 17.6% 19.2%
Return on average capital employed
(after-tax) 15.6% 16.4% 17.2%
Return on average assets managed
(before-tax) 19.8% 21.0% 21.9%
Notes:
1. All ratios are based on figures at the end of the period unless otherwise
disclosed.
2. The net asset value has been calculated using 88 238 000 shares
(2009: 88 100 000).
3. The total assets excludes the deferred tax asset.
Executive directors: J Enslin (Chief Executive Officer),
L A Davies (Chief Financial Officer)
Non-executive directors: D M Nurek (Chairman) (Ind.), H Saven (Ind.),
B J van der Ross (Ind.), Professor F Abrahams (Ind.), Z B M Bassa (Ind.),
M S P Marutlulle (Ind.), A J Smart
Company secretary: M G McConnell
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
Registered office: 53A Victoria Road, Woodstock, 7925
These results are also available on our website:
www.lewisgroup.co.za
Date: 08/11/2010 07:05:07 Supplied by www.sharenet.co.za
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