Wrap Text
Audited results for the year ended 31 March 2013
LEWIS GROUP LTD
Registration number: 2004/009817/06
Share code: LEW
ISIN: ZAE000058236
FINAL AUDITED RESULTS
FOR THE YEAR ENDED 31 MARCH 2013
- Revenue up 6.8%
- Gross profit margin 38.3%
- Debtor costs up 3.3%
- Operating profit margin 24.0%
- Headline earnings per share up 13.6%
- Total dividend up 16.3%
Overview
Lewis Group posted a resilient performance in
challenging retail trading conditions over the
past year. The group has benefited from its
decentralised collection model which resulted in a
marginal increase in debtor costs.
Tight control of operating expenses and debtor
costs, together with increasing credit sales, lifted
the groups operating profit margin by 50 basis
points to 24.0%. This contributed to an increase of
13.6% in headline earnings per share.
We are pleased to report that the company
once again covered the impact of the dividend
withholding tax of 15% on behalf of its
shareholders. A final dividend of 302 cents per
share has been declared, bringing the total
dividend for the period to 514 cents, an increase of
16.3% over the previous year.
The group has delivered on its targets by achieving
or exceeding the financial and operating goals set
for the year.
Target Achieved
Gross profit margin (%) 36 38 38.3
Operating costs as a % of revenue 36 37 36.2
Debtor costs as a % of net debtors 9.5 10.5 9.4
Operating profit margin (%) 23 24 24.0
Inventory turn (times) 5 5.5 5.0
Gearing ratio (%) 28 32 29.9
Trading and financial performance
Merchandise sales increased by 4.4% to R2.5
billion, reflecting the current tight consumer
economy and the impact of widespread labour
instability during the year. Sales of the higher
margin furniture and appliance category increased
by 4% with sales of electronic goods growing at
6.6%. Furniture sales account for 54.3%
(2012: 54%) of total merchandise sales.
Credit sales increased from 71.4% to 75.3% of
total sales with the continued focus on attracting
credit customers through exclusive merchandise
offerings and targeted customer promotions.
Credit sales have shown an increasing trend in
recent years, growing from 68.5% in 2010. The
group will continue to benefit from the resultant
annuity income into the future.
Revenue in Lewis, which comprises 83% of group
revenue, increased by 5.8%. Best Home and Electric
grew revenue by 12.8% and My Home by 9.9%. The
growth in insurance income, finance charges and
ancillary services is attributable to the higher level of
credit sales and the increasing proportion of longer
term (36 month) accounts in the debtor base.
The gross profit margin at 38.3% benefited from
the established import programme and the
strategy of sourcing innovative and exclusive
merchandise locally and internationally.
Tight cost disciplines contained the growth in
operating costs, excluding debtor costs, to 7.3%.
Expenses include the expansion of the store base,
the refurbishment of 111 stores, higher insurance
claims and increased investment in staff training
to improve productivity. Transport costs were well
contained following the introduction of a transport
management system. Savings were also made in
the area of IT and communication costs.
Operating profit increased by 9.5% to R1.2 billion
resulting in the operating profit margin improving
from 23.5% in 2012 to 24.0% in 2013. Headline
earnings increased by 14% to R890 million, with
headline earnings per share growing 13.6% to 1 003
cents (2012: 883 cents).
Inventory levels were well managed, with the
inventory turn at 5.0 times for the period.
Net borrowings increased by R450 million to fund
primarily the growth in the debtors book.
The gearing ratio of 29.9% (2012: 23.3%) at
year-end is well within managements target
range of 28% - 32%.
Debtor management
In a challenging collection environment the growth
in debtor costs was contained to 3.3%. Debtor
costs as a percentage of net debtors improved
from 10.8% in 2012 to 9.4% in 2013, exceeding the
target of 9.5% to 10.5%.
Satisfactory paid customers represent 69.4% of
total debtors for 2013. This is in line with the 69.7%
reported at the half year but below the 2012 figure
of 72.1%. This decline can be largely attributed to
customers being impacted by the widespread
labour unrest experienced during the year.
The group remains adequately provided with
a 17.4% impairment provision (2012: 18%). This
marginal reduction is largely as a result of the
write-off of fully provided for debt mediation
accounts for the first time this year.
The growth in the debtors book is due mainly to
the higher level of credit sales and the increase in
the average term of new credit contracts from
28 months to 33 months.
Store expansion
During the past year 12 Lewis and 11 Best Home
and Electric outlets were opened, bringing the
store base to 619 at year-end. All the new Lewis
outlets are the smaller format stores with lower
cost structures and higher sales densities. The
group also took the opportunity to relocate to
smaller premises and reduce space in large stores
when leases came up for renewal.
Regulatory environment
A task team comprising of the National Credit
Regulator, the Financial Services Board and
the National Treasury has been established to
investigate the credit insurance industry. Lewis
supports engagement with the regulators to
bring about a speedy resolution to the current
uncertainty in the market.
Prospects
The disposable income of our target market
remains under pressure and consumer confidence
is falling. In this challenging trading environment,
management will continue to focus on sourcing
exclusive value-for-money merchandise and
supporting this merchandise offer with strong
marketing activity to attract credit customers.
Containing expense growth and debtor costs will
remain a top priority.
The group remains confident in its business model
and will continue to invest for future growth by
expanding the retail footprint by 20 to 25 new
stores in the year ahead.
Dividend declaration
Notice is hereby given that a final gross cash
dividend of 302 cents per share in respect of
the year ended 31 March 2013 has been declared
payable to holders of ordinary shares.
The number of shares in issue as of the date of
declaration is 98 057 959.
The dividend has been declared out of income
reserves and is subject to a dividend tax of 15%.
The dividend for determining the dividend tax is
302 cents and the dividend tax payable is 45.3
cents for shareholders who are not exempt. No
STC credits have been utilised. The net dividend
for shareholders who are not exempt will therefore
be 256.7 cents. The dividend tax rate may be
reduced where the shareholder is tax resident
in a foreign jurisdiction which has a Double Tax
Convention with South Africa and meets the
requirements for a reduced rate.
The companys tax reference number is
9551/419/15/4.
The following dates are applicable to this
declaration:
Last date to trade
"cum" dividend Friday 12 July 2013
Date trading commences
"ex" dividend Monday 15 July 2013
Record date Friday 19 July 2013
Date of payment Monday 22 July 2013
Share certificates may not be dematerialised
or rematerialised between Monday, 15 July 2013 and
Friday 19 July 2013, both days inclusive.
External auditors opinion
The external auditors, PricewaterhouseCoopers
Inc., have audited the groups annual financial
statements and the abridged financial statements
contained herein for the 12 months ended
31 March 2013. A copy of their unqualified reports
are available on request at the companys
registered office.
Income statement
For the For the
year ended year ended
31 March 2013 31 March 2012
Rm % Rm
Notes Audited Change Audited
Revenue 5 187.6 6.8% 4 857.3
Merchandise sales 2 470.3 2 365.4
Finance charges and
initiation fees earned 1 082.6 1 055.4
Insurance revenue 994.7 868.5
Ancillary services 640.0 568.0
Cost of merchandise sales (1 523.1) (1 446.3)
Operating Costs (2 416.9) (2 271.9)
Employment costs (792.0) (732.9)
Administration and IT (202.8) (220.7)
Debtor costs 2 (539.6) (522.3)
Marketing (191.2) (184.5)
Occupancy costs (232.7) (207.3)
Transport and travel (185.2) (177.9)
Depreciation (55.1) (48.5)
Other operating costs (218.3) (177.8)
Operating profit 1 247.6 9.5% 1 139.1
Investment income 111.8 91.9
Profit before finance costs 1 359.4 1 231.0
Net finance costs (96.3) (63.2)
Interest paid (105.2) (82.2)
Interest received 6.9 3.8
Forward Exchange Contracts 2.0 15.2
Profit before taxation 1 263.1 1 167.8
Taxation (355.7) (367.2)
Net profit attributable to
ordinary shareholders 907.4 13.3% 800.6
Statement of comprehensive income
For the For the
year ended year ended
31 March 2013 31 March 2012
Rm Rm
Audited Audited
Net profit for the year 907.4 800.6
Fair value adjustment to
available-for-sale investments 103.7 72.9
Disposal of available-for-sale
investments (15.3) (17.2)
Foreign currency translation reserve 6.6 1.5
Other comprehensive income 95.0 57.2
Total comprehensive income for
the year attributable to ordinary
shareholders 1 002.4 857.8
Earnings and dividends per share
For the For the
year ended % year ended
31 March 2013 Change 31 March 2012
1. Weighted average no. of shares
Weighted average 88 749 88 463
Diluted weighted average 89 612 89 446
2. Headline earnings (Rm)
Attributable earnings 907.4 800.6
Profit on disposal of assets and
investments (17.3) (19.9)
Headline earnings 890.1 780.7
3. Earnings per share (cents)
Earnings per share 1 022.4 13.0% 905.0
Diluted earnings per share 1 012.6 895.1
4. Headline earnings per share (cents)
Headline earnings per share 1 002.9 13.6% 882.5
Diluted headline earnings per share 993.3 872.8
5. Dividends per share (cents)
Dividends paid per share
Final dividend 2012 (2011) 270.0 207.0
Interim dividend 2013 (2012) 212.0 172.0
482.0 379.0
Dividends declared per share
Interim dividend 2013 (2012) 212.0 172.0
Final dividend 2013 (2012) 302.0 11.9% 270.0
514.0 16.3% 442.0
Balance sheet
31 March 2013 31 March 2012
Rm Rm
Notes Audited Audited
Assets
Non-current assets
Property, plant and equipment 332.6 311.9
Deferred taxation 0.6 16.1
Retirement benefit asset 6.0
Insurance investments 3 1 238.3 1 005.3
1 577.5 1 333.3
Current assets
Inventories 305.8 281.4
Trade and other receivables 4 4 840.9 4 064.5
Insurance investments 3 465.9 373.3
Cash on hand and deposits 59.5 77.9
5 672.1 4 797.1
Total assets 7 249.6 6 130.4
Equity and liabilities
Capital and reserves
Share capital and premium 88.4 95.4
Other reserves 397.8 277.9
Retained earnings 4 348.4 3 901.3
4 834.6 4 274.6
Non-current liabilities
Long-term interest-bearing borrowings 1 250.0 650.0
Deferred taxation 149.4 111.4
Retirement benefit liability 76.3 63.6
1 475.7 825.0
Current liabilities
Trade and other payables 211.7 237.1
Reinsurance and insurance liabilities 472.1 348.7
Taxation 21.0
Short-term interest-bearing borrowings 255.5 424.0
939.3 1 030.8
Total equity and liabilities 7 249.6 6 130.4
Statement of changes in equity
For the For the
year ended year ended
31 March 2013 31 March 2012
Rm Rm
Notes Audited Audited
Share capital and premium
Opening balance 95.4 93.5
Cost of own shares acquired
(treasury shares) (40.1)
Share awards to employees 33.1 1.9
88.4 95.4
Other reserves
Opening balance 277.9 207.1
Other comprehensive income for the year 95.0 57.2
Share-based payment 22.1 19.0
Other movements 2.8 (5.4)
397.8 277.9
Retained earnings
Opening balance 3 901.3 3 427.5
Net profit attributable to ordinary
shareholders 907.4 800.6
Distribution to shareholders (428.1) (335.5)
Share awards to employees (30.4) (1.9)
Other movements (1.8) 10.6
4 348.4 3 901.3
Balance as 31 March 2013 4 834.6 4 274.6
Cash flow statement
For the For the
year ended year ended
31 March 2013 31 March 2012
Rm Rm
Audited Audited
Cash flow from operating activities
Cash flow from trading 1 526.6 1 358.3
Change in working capital (893.8) (385.9)
Cash generated from operations 632.8 972.4
Interest and dividends received 100.5 76.6
Interest paid (103.2) (67.0)
Taxation paid (358.4) (377.4)
271.7 604.6
Cash utilised in investing activities
Net additions to insurance investments (183.8) (194.1)
Acquisition of property, plant and equipment (85.7) (87.8)
Proceeds on disposal of property, plant and
equipment 12.4 10.2
(257.1) (271.7)
Cash flow from financing activities
Dividends paid (428.1) (335.5)
Increase in long-term borrowings 600.0 250.0
(Decrease) / increase in short-term borrowings (200.0) 50.0
Purchase of own shares (40.1)
Proceeds on sale of own shares 3.7 5.2
(64.5) (30.3)
Net (decrease) / increase in cash and cash
equivalents (49.9) 302.6
Cash and cash equivalents at the beginning of
the year (46.1) (348.7)
Cash and cash equivalents at the end of the
year (96.0) (46.1)
Analysis of borrowings and banking facilities
Borrowings
Long-term 1 250.0 650.0
Short-term 100.0 300.0
1 350.0 950.0
Cash and cash equivalents
Short-term facilities utilised 155.5 124.0
Cash on hand (59.5) (77.9)
96.0 46.1
Net borrowings 1 446.0 996.1
Unutilised facilities 704.0 753.9
Total banking facilities 2 150.0 1 750.0
Segmental report
Best Home My
Lewis and Electric Home Group
Reportable Segment Rm Rm Rm Rm
2013
Revenue 4 318.8 736.9 131.9 5 187.6
Operating profit 1 047.7 185.3 14.6 1 247.6
Operating margin 24.3% 25.1% 11.1% 24.0%
Segment assets 4 230.9 675.9 120.3 5 027.1
2012
Revenue 4 083.8 653.5 120.0 4 857.3
Operating profit 985.1 145.6 8.4 1 139.1
Operating margin 24.1% 22.3% 7.0% 23.5%
Segment assets 3 624.5 535.3 104.6 4 264.4
Notes to the financial statements
1. Basis of reporting
The information contained in these abridged financial statements has been
extracted from the groups 2013 audited annual financial statements which has
been prepared in accordance with the recognition and measurement principles
of International Financial Accounting Standards (IFRS) including IAS 34 (Interim
Financial Reporting), and in compliance with the Listing Requirements of the JSE.
The accounting policies applied are consistent with those applied in the annual
financial statements for the year ended 31 March 2012 except for the following
reclassifications made:
- initiation fee income has been reclassified from ancillary services to finance
charges earned. This reclassification has no impact on total revenue for both
the current and comparative period.
- insurance provisions and amounts due to reinsurers have been reclassified from
trade and other payables to reinsurance and insurance liabilities on the face of
the balance sheet.
In terms of IAS 8 (Accounting policies), the comparative information has been restated.
31 March 2013 31 March 2012
Rm Rm
Audited Audited
2. Debtor costs
Bad debts repossession losses and bad debt
recoveries 417.6 405.4
Movement in impairment provision 122.0 116.9
539.6 522.3
3. Insurance investments - available for sale
Listed
Listed shares 583.3 442.9
Fixed income securities 655.0 562.4
Unlisted
Money market 465.9 373.3
1 704.2 1 378.6
Investments are classified as available-for-sale and are reflected at fair value. Changes
in fair value are reflected in the statement of comprehensive income.
4. Trade and other receivables
Instalment sale and loan receivables 6 958.3 5 871.1
Provision for unearned finance charges and
unearned maintenance income (280.8) (280.9)
Provision for unearned initiation fees (129.8) (109.8)
Provision for unearned insurance premiums (829.2) (622.2)
Net instalment sale and loan receivables 5 718.5 4 858.2
Provision for impairment (997.2) (875.2)
4 721.3 3 983.0
Other receivables 119.6 81.5
4 840.9 4 064.5
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 credit
terms of instalment sale and loan receivables range from 6 to 36 months.
The average effective interest rate on instalment sale and loan receivables is 21.5%
(2012: 22.3%) and the average term of the sale is 32.7 months (2012: 28.3 months).
Debtors analysis
The company assesses each customer individually on a monthly basis and
categorises customers into 13 payment categories. This assessment is integral
to the calculation of the debtors impairment provision and incorporates both
payment behaviour and the age of the account. 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.
Distribution of
No. of Customers Impairment Provision
2013 2012 2013 2012
Satisfactory paid:
Customers fully up to date No. 478 093 491 478 Rm 27.5 35.1
including those who have paid % 69.4% 72.1% % 2.8% 4.0%
70% or more of the amounts due
over the contract period. The
provision in this category results
from an in duplum provision
Slow payers:
Customers fully up to date No. 58 155 55 791 Rm 111.4 104.1
including those who have paid % 8.5% 8.2% % 11.2% 11.9%
65% to 70% of amounts due
over the contract period. The
provision in this category ranges
from 12% to 79% of amounts
due and includes an in duplum
provision (2012: 7% to 72%)
Non-performing customers
Customers who have paid 55% No 55 202 45 978 Rm 177.9 137.2
to 65% of amounts due over % 8.0% 6.7% % 17.8% 15.7%
the period of the contract. The
provision in this category ranges
from 23% to 90% of the amounts
due (2012: 19% to 86%)
Non-performing customers
Customers who have paid 55% No. 97 093 88 265 Rm 680.4 598.8
or less of amounts due over % 14.1% 13.0% % 68.2% 68.4%
the period of the contract. The
provision in this category ranges
from 33% to 100% of the amounts
due (2012: 28% to 100%)
Total No. 688 543 681 512 Rm 997.2 875.2
Debtors impairment provision
as a % of net debtors 17.4% 18.0%
Key ratios
For the For the
year ended year ended
31 March 2013 31 March 2012
Operating efficiency ratios
Gross profit margin % 38.3% 38.9%
Operating profit margin % 24.0% 23.5%
Number of stores 619 602
Number of permanent employees (average) 7 398 7 062
Trading space (sqm) 226 866 229 542
Inventory turn 5.0 5.1
Current ratios 6.0 4.7
Credit ratios
Credit sales % 75.3% 71.4%
Bad debts as a % of net debtors 7.3% 8.3%
Debtor costs as a % of the net debtors 9.4% 10.8%
Debtors impairment provision as a % of net debtors 17.4% 18.0%
Arrear instalments on satisfactory accounts as a
percentage of net debtors 8.6% 10.3%
Arrear instalments on slow-paying and non-
performing accounts as a percentage of net debtors 21.1% 21.9%
Credit applications decline rate 36.5% 33.0%
Shareholder ratios
Net asset value per share (cents) 5 467 4 828
Gearing ratio 29.9% 23.3%
Dividend payout ratio 55.5% 54.1%
Return on average equity (after-tax) 19.9% 20.0%
Return on average capital employed (after-tax) 16.7% 16.7%
Return on average assets managed (pre-tax) 20.3% 21.1%
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 88 435 000 shares in issue
(2012: 88 536 000).
3. Total assets exclude the deferred tax asset.
Executive directors: J Enslin (Chief Executive Officer), LA Davies (Chief Financial Officer).
Non-executive directors: DM Nurek (Chairman) (Ind.), H Saven (Ind.), BJ van der Ross (Ind.),
Professor F Abrahams (Ind.), ZBM Bassa (Ind.), MSP Marutlulle (Ind.), AJ Smart (Ind.).
The Company secretary: MG 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.
Registration number: 2004/009817/06.
Share code: LEW.
ISIN: ZAE000058236
These results are also available on our website: www.lewisgroup.co.za
Date: 22/05/2013 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
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