Wrap Text
Unaudited interim results for the six months ended 30 September 2013
LEWIS GROUP LTD
Registration number: 2004/009817/06
Share code: LEW
ISIN: ZAE000058236
UNAUDITED INTERIM RESULTS
for the six months ended 30 September 2013
- REVENUE UP 4.5%
- GROSS PROFIT MARGIN 37.7%
- EARNINGS PER SHARE 429 cents (2013: 421 CENTS)
- INTERIM DIVIDEND 215 cents (2013: 212 CENTS)
Trading environment
Lewis Group delivered a competitive performance
in an extremely difficult environment marked by
declining levels of consumer confidence, high levels of
indebtedness within the unsecured credit market and
rising cost pressures.
This was compounded by widespread instability
in the labour market affecting consumers in the
group's target market. Industrial action, ongoing
retrenchments and rising unemployment have put
pressure on the furniture trade since August 2012.
Trading and financial performance
The impact of the weak trading environment is reflected
in group merchandise sales growth of 1% to R1.17 billion.
Sales for the first quarter to June 2013 were flat, as
reported in the group's trading update of August 2013,
and slightly stronger in the second quarter.
Credit sales for the six months accounted for 72.4%
of total sales compared to 75.2%. The value offering
attracted higher levels of cash customers this period
in the drive to increase sales momentum.
Revenue increased by 4.5% supported by increased
financial services income resulting from a higher
proportion of longer term contracts settling in the
base and higher levels of credit sales during the
previous financial years.
The gross profit margin at 37.7% was consistent
with the previous period despite Rand weakness
during the six-month period. The gross profit margin
was within management's target of 37.5% to 38.5%,
with direct imports accounting for 28% of all
merchandise purchases.
In the current environment of slower sales growth,
management has focused on tight cost disciplines
across the business. Growth in operating costs,
excluding debtor costs, was limited to 3.1%, despite
inflationary cost pressures from a weakening
Rand and other sources. A number of cost
saving initiatives were in operation during the
period, including the transport and delivery fleet
management system aimed at reducing fuel costs
through improved efficiencies.
The operating profit margin of 20.6% (2013: 21.4%)
was impacted by higher debtor costs and muted
sales growth. Operating profit increased by 1% to
R523.4 million. Headline earnings of R372 million was
in line with last year, with headline earnings per share
of 420 cents (2013: 419 cents).
We have maintained a pay out ratio of 55% and an interim
dividend of 215 cents per share (2013: 212 cents) has been
declared.
Inventory was well managed with stock being held at
similar levels to last year.
The gearing ratio of 27.9% (2013: 26.7%) remained
well below management's range of 32% to 34% with
the increase representing the longer term contracts
settling in the debtor base.
Debtor management
The growth in the debtors' book is due mainly to the
increase in the average term of new credit contracts
(33 months).
Debtor costs as a percentage of net debtors moved
from 4.6% to 5.3%, an increase of R73 million. The
credit collection environment has become increasingly
challenging as market conditions deteriorated.
Management initiated a drive to maximise productivity
and efficiency in the collection process to ensure the
health of the debtors' book. The group's store based
collection process remains a key strength in managing
credit risk and debtor costs in the current environment.
Satisfactory paid customers represent 68.6% of total
debtors, down from 69.4% at the financial year end in
March 2013. This slight decline can be largely attributed
to customers being impacted by the widespread labour
market instability. The impairment provision increased
from 17.4% in March 2013 to 19% at September 2013.
Store expansion
Ten outlets all in the smaller format were opened
during the period, bringing the store base to 627 at the
end of September. A further 76 stores were refurbished
and 13 converted to the smaller store format. There are
currently 110 smaller format stores. The group continues to
invest for the future and remains on track to meet the target
of opening 20 to 25 new stores for the 2014 financial year.
Launch of R2 billion bond programme
Lewis Group was assigned an 'A(za)' long-term
credit rating by Global Credit Rating Co. with a
stable outlook and launched a R2 billion domestic
medium-term note (DMTN) programme. The group
successfully raised R500 million in the first issuance
of the programme which was listed on the JSE with
effect from 31 October 2013.
The DMTN programme allows the group to diversify
its sources of funding and reduce the cost of funding.
The proceeds of the issue will be used primarily
to fund operational requirements and to refinance
maturing debt.
Regulatory update
The long awaited report on credit life insurance by the
task team comprising National Treasury, the Finance
Services Board and the National Credit Regulator
due in July, was delayed until September and is now
expected in late November.
In September the National Credit Regulator circulated
draft amendments to the code of conduct to combat
over indebtedness which includes proposals on the
premium rates for credit life insurance.
The broader credit industry plans to convene once
the task team has released its report to progress
matters with the regulators. Lewis remains hopeful
that positive engagement with the regulators will
bring about a resolution to current uncertainty in the
market.
Prospects
New merchandise ranges have been launched ahead
of the all-important festive season trading period.
Strong marketing campaigns have been developed,
directed at creditworthy consumers, through value
for money merchandise offerings.
The current difficult trading conditions are expected
to continue for the remainder of the financial year.
The focus in this environment will remain on driving
quality credit sales growth while containing operating
and debtor costs.
Dividend declaration
Notice is hereby given that an interim gross cash
dividend of 215 cents per share in respect of the six
months ended 30 September 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 215
cents and the dividend tax payable is 32.25 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 182.75 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 company's tax reference number is 9551/419/15/4.
The following dates are applicable to this declaration:
Last date to trade
'cum' dividend Friday, 17 January 2014
Date trading commences
'ex' dividend Monday, 20 January 2014
Record date Friday, 24 January 2014
Date of payment Monday, 27 January 2014
Share certificates may not be dematerialised or
rematerialised between Monday, 20 January 2014 and
Friday, 24 January 2014.
For and on behalf of the Board
David Nurek Johan Enslin
Independent Chief Executive Officer
Non-Executive Chairman
Cape Town
11 November 2013
INCOME STATEMENT
6 months 12 months
6 months ended ended
ended 30 Sept. 31 March
30 Sept. 2012 2013
2013 Restated Restated
Unaudited % Unaudited Audited
Notes Rm Change Rm Rm
Revenue 2 538.9 4.5% 2 428.6 5 187.6
Merchandise sales 1 169.2 1 161.4 2 470.3
Finance charges and initiation
fees earned 580.5 449.3 1 082.6
Insurance revenue 470.7 445.6 994.7
Ancillary services 318.5 372.3 640.0
Cost of merchandise sales (728.6) (723.3) (1 523.1)
Operating Costs (1 286.9) (1 185.0) (2 410.9)
Employment costs (417.5) (390.2) (786.0)
Administration and IT (109.4) (105.4) (202.8)
Debtor costs 2 (314.9) (242.1) (539.6)
Marketing (96.2) (107.9) (191.2)
Occupancy costs (122.9) (112.3) (232.7)
Transport and travel (93.4) (94.8) (185.2)
Depreciation (31.9) (29.9) (55.1)
Other operating costs (100.7) (102.4) (218.3)
Operating profit 523.4 0.6% 520.3 1 253.6
Investment income 56.4 47.2 111.8
Profit before finance costs 579.8 567.5 1 365.4
Net finance costs (46.1) (41.8) (96.3)
Interest paid (53.5) (48.1) (105.2)
Interest received 2.4 5.1 6.9
Forward Exchange Contracts 5.0 1.2 2.0
Profit before taxation 533.7 525.7 1 269.1
Taxation (153.7) (152.0) (357.4)
Net profit attributable to
ordinary shareholders 380.0 1.7% 373.7 911.7
STATEMENT OF COMPREHENSIVE INCOME
6 months 12 months
6 months ended ended
ended 30 Sept. 31 March
30 Sept. 2012 2013
2013 Restated Restated
Unaudited Unaudited Audited
Rm Rm Rm
Net profit for the year 380.0 373.7 911.7
Movements in Other Reserves 39.0 58.5 95.0
Fair value adjustment to available-for-sale
investments 41.0 55.6 103.7
Disposal of available-for-sale investments (6.6) (0.1) (15.3)
Foreign currency translation reserve 4.6 3.0 6.6
Retirement Benefit remeasurements 0.2
Other comprehensive income 39.0 58.5 95.2
Total comprehensive income for the period
attributable to equity shareholders 419.0 432.2 1 006.9
EARNINGS AND DIVIDENDS PER SHARE
6 months 12 months
6 months ended ended
ended 30 Sept. 31 March
30 Sept. 2012 2013
2013 % Restated Restated
Unaudited Change Unaudited Audited
1. Weighted average No. of shares
Weighted average 88 669 88 690 88 749
Diluted weighted average 89 141 89 570 89 612
2. Headline earnings (Rm)
Attributable earnings 380.0 373.7 911.7
Profit on disposal of assets and
investments (7.9) (2.1) (17.3)
Headline earnings 372.1 0.1% 371.6 894.4
3. Earnings per share (cents)
Earnings per share 428.6 1.7% 421.4 1 027.3
Diluted earnings per share 426.3 417.2 1 017.4
4. Headline earnings per share (cents)
Headline earnings per share 419.7 419.0 1 007.8
Diluted headline earnings per share 417.4 414.9 998.1
5. Dividends per share (cents)
Dividends paid per share
Final dividend 2013 (2012) 302.0 270.0 270.0
Interim dividend 2014 (2013) 212.0
302.0 270.0 482.0
Dividends declared per share
Interim dividend 2014 (2013) 215.0 212.0 212.0
Final dividend 2013 302.0
215.0 1.4% 212.0 514.0
BALANCE SHEET
30 Sept 31 Mar
30 Sept 2012 2013
2013 Restated Restated
Unaudited Unaudited Audited
Notes Rm Rm Rm
Assets
Non-current assets
Property, plant and equipment 331.3 324.8 332.6
Deferred taxation 0.5 0.6
Retirement benefit asset 19.8 9.4 22.8
Insurance investments 3 1 332.2 1 147.9 1 238.3
1 683.8 1 482.1 1 594.3
Current assets
Inventories 390.8 389.6 305.8
Trade and other receivables 4 4 933.8 4 357.5 4 840.9
Insurance investments 3 347.6 349.8 465.9
Taxation 31.3
Cash-on-hand and deposits 164.7 108.9 59.5
5 868.2 5 205.8 5 672.1
Total assets 7 552.0 6 687.9 7 266.4
Equity and liabilities
Capital and reserves
Share capital and premium 108.2 107.7 88.4
Other reserves 428.7 347.1 397.8
Retained earnings 4 481.2 4 031.9 4 361.1
5 018.1 4 486.7 4 847.3
Non-current liabilities
Long-term interest bearing borrowings 950.0 850.0 1 250.0
Deferred taxation 152.6 128.5 154.5
Retirement benefits 81.3 63.7 75.3
1 183.9 1 042.2 1 479.8
Current liabilities
Trade and other payables 290.7 287.5 211.7
Reinsurance and insurance liabilities 445.9 414.0 472.1
Taxation 2.8
Short-term interest-bearing borrowings 613.4 454.7 255.5
1 350.0 1 159.0 939.3
Total equity and liabilities 7 552.0 6 687.9 7 266.4
STATEMENT OF CHANGES IN EQUITY 6 months 12 months
6 months ended ended
ended 30 Sept 31 Mar
30 Sept 2012 2013
2013 Restated Restated
Unaudited Unaudited Audited
Rm Rm Rm
Share capital and premium
Opening balance 88.4 95.4 95.4
Share awards to employees 19.8 16.1 33.1
Treasury shares purchased (3.8) (40.1)
108.2 107.7 88.4
Other reserves
Opening balance 397.8 277.9 277.9
Other comprehensive income for the year 39.0 58.5 95.0
Share-based payment 16.0 11.6 22.1
Transfer (to)/from retained earnings (24.1) (0.9) 2.8
428.7 347.1 397.8
Retained Earnings
Opening balance 4 361.1 3 909.7 3 909.7
Net profit attributable to ordinary shareholders 380.0 373.7 911.7
Distribution to shareholders (268.2) (239.8) (428.2)
Share awards to employees (16.4) (14.3) (30.5)
Transfer from/(to) other reserves 24.1 0.9 (2.8)
Profit on sale of own shares 0.6 1.7 1.0
Retirement Benefit remeasurements 0.2
4 481.2 4 031.9 4 361.1
Balance at the end of period 5 018.1 4 486.7 4 847.3
CASH FLOW STATEMENT
6 months 6 months 12 months
ended ended ended
30 Sept. 30 Sept. 31 March
2013 2012 2013
Unaudited Unaudited Audited
Rm Rm Rm
Cash flow from operating activities
Cash flow from trading 723.0 828.9 1 526.6
Change in working capital (264.9) (550.1) (893.8)
Cash generated from operations 458.1 278.8 632.8
Interest and dividends received 50.7 52.1 100.5
Interest paid (48.5) (46.9) (103.2)
Taxation paid (192.1) (167.9) (358.4)
268.2 116.1 271.7
Cash flow from investing activities
Net disposals/(additions) to insurance
investments 72.2 (35.6) (183.8)
Acquisition of property, plant and equipment (40.5) (48.9) (85.7)
Proceeds on disposal of property, plant and
equipment 11.6 8.8 12.4
43.3 (75.7) (257.1)
Cash flow from financing activities
Dividends paid (268.2) (239.8) (428.1)
(Decrease)/increase in long-term borrowings (300.0) 200.0 600.0
Increase/(Decrease) in short-term borrowings. 300.0 (300.0) (200.0)
Proceeds on sale of own shares 4.0 3.5 (40.1)
Purchase of treasury shares (3.8) 3.7
(264.2) (340.1) (64.5)
Net increase/(decrease)in cash and cash
equivalents 47.3 (299.7) (49.9)
Cash and cash equivalents at the beginning of
the period (96.0) (46.1) (46.1)
Cash and cash equivalents at the end of the
period (48.7) (345.8) (96.0)
Analysis of borrowings and banking facilities
Borrowings
Long-term 950.0 850.0 1 250.0
Short-term 400.0 100.0
1 350.0 850.0 1 350.0
Cash and cash equivalents
Short-term facilities utilised 213.4 454.7 155.5
Cash-on-hand (164.7) (108.9) (59.5)
48.7 345.8 96.0
Net borrowings 1 398.7 1 195.8 1 446.0
Unutilised facilities 751.3 954.2 704.0
Total banking facilities 2 150.0 2 150.0 2 150.0
SEGMENTAL REPORT
Best Home
Lewis and Electric My Home Group
Reportable Segment Rm Rm Rm Rm
For the six months ended
30 September 2013 (unaudited)
Revenue 2 115.5 362.3 61.1 2 538.9
Operating profit 441.3 75.3 6.8 523.4
Operating margin 20.9% 20.8% 11.0% 20.6%
Segment assets 4 361.0 702.8 131.3 5 195.1
For the six months ended
30 September 2012 (unaudited)
Revenue 2 037.4 328.9 62.3 2 428.6
Operating profit 450.7 65.7 3.9 520.3
Operating margin 22.1% 20.0% 6.3% 21.4%
Segment assets 3 916.7 587.4 106.2 4 610.3
For the twelve months ended
31 March 2013 (restated audited)
Revenue 4 318.8 736.9 131.9 5 187.6
Operating profit 1 053.0 186.1 14.5 1 253.6
Operating margin 24.4% 25.3% 11.0% 24.2%
Segment assets 4 230.9 675.9 120.3 5 027.1
NOTES TO THE FINANCIAL STATEMENTS
1. Basis of Reporting
The group's interim financial statements have been prepared in accordance
with the recognition and measurement principles of International Financial
Reporting Standards (IFRS) including IAS 34 (Interim Financial Reporting), and
in compliance with the Listing Requirements of the JSE. The accounting policies
are consistent with those applied in the annual financial statements for the year
ended 31 March 2013 except for:
1.1 Change in Accounting for Employee Benefits
On 1 January 2013 the group adopted IAS 19 Employee Benefits (revised 2011).
The most significant change being the elimination of the corridor method under
which the recognition of actuarial gains or losses were deferred. In terms of the
revised IAS 19, unrecognised actuarial gains and losses are recognised in other
comprehensive income. The adoption of this standard has resulted in the group
restating its previously reported financial results.
In terms of IAS 8 (Accounting Policies), the relevant comparative information has
been restated and the effect on the financial statements is as follows:
6 months 12 months
6 months ended ended
ended 30 Sept. 31 March
30 Sept. 2012 2013
2013 Restated Restated
Unaudited Unaudited Audited
Rm Rm Rm
Increase in profit before taxation 6.0
Increase in taxation (1.7)
Effect on net profit after taxation 4.3
Increase in earnings per share (cents) 4.9 cents
Increase in diluted earnings per share (cents) 4.8 cents
Increase in opening retained earnings 12.7 8.4 8.4
Increase in retirement benefit asset 16.8 9.4 16.8
Decrease in retirement benefit liability (1.0) (2.1) (1.0)
Increase in deferred taxation 5.1 3.1 3.4
1.2 Reclassification
Unearned finance charges have been reclassified with unearned initiation fees (previously
grouped with unearned maintenance income) in accounts receivable (refer note 4 below)
to be in line with the revenue disclosures in the income statement.
2. Debtor Costs
Bad debts, repossession losses and bad debt recoveries 184.2 34.9 417.6
Movement in impairment provision 130.7 207.2 122.0
314.9 242.1 539.6
3. Insurance investments available-for-sale
Listed
Listed shares 636.3 505.0 583.3
Fixed income securities 695.9 642.9 655.0
Unlisted
Money market 347.6 349.8 465.9
1 679.8 1 497.7 1 704.2
Investments are classified as available-for-sale and 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 7 195.0 6 423.9 6 958.3
Provision for unearned maintenance income (219.4) (221.8) (214.6)
Provision for unearned initiation fees and unearned
finance charges (219.2) (177.6) (196.0)
Provision for unearned insurance premiums (824.3) (721.4) (829.2)
Net instalment sale and loan receivables 5 932.1 5 303.1 5 718.5
Provision for impairment (1 127.8) (1 082.4) (997.2)
4 804.3 4 220.7 4 721.3
Other receivables 129.5 136.8 119.6
4 933.8 4 357.5 4 840.9
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 21.3%
(2013: 21.8%) and the average term of the sale is 32.6 months (2013: 32.3 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 %
Sept Sept Sept Sept March
2013 2012 2013 2012 2013
Satisfactory paid: No. 474 253 479 486 Rm 28.2 35.1 27.5
Customers fully up to date % 68.6% 69.7% % 2.5% 3.2% 2.8%
including those who have
paid 70% or more of amounts
due over the contract period.
The provision in this category
results from the in duplum
rule.
Slow payers: No. 54 771 53 059 Rm 113.3 103.0 111.4
Customers fully up to date % 7.9% 7.7% % 10.0% 9.5% 11.2%
including those who have
paid 65% to 70% of amounts
due over the contract
period. The provision in
this category ranges from
11% to 78% of amounts due
and includes an in duplum
provision (2013: 9% to 79%)
Non-performing customers No. 53 021 48 268 Rm 183.2 154.5 177.9
Customers fully up to date % 7.7% 7.0% % 16.3% 14.3% 17.8%
including those who have
paid 55% to 65% of amounts
due over the contract
period. The provision in this
category ranges from 20%
to 90% of amounts due and
includes an in duplum provision
(2013: 19% to 87%)
Non-performing customers No. 109 431 106 953 Rm 803.1 789.8 680.4
Customers fully up to date % 15.8% 15.6% % 71.2% 73.0% 68.2%
including those who have
paid 55% or less of amounts
due over the contract period.
The provision in this category
ranges from 28% to 100% of
amounts due and includes
an in duplum provision (2013:
27% to 100%)
Total 691 476 687 766 1 127.8 1 082.4 997.2
Debtors impairment as a %
of net debtors 19.0% 20.4% 17.4%
Key ratios
6 months 6 months 12 months
ended ended ended
30 Sept 30 Sept 31 March
2013 2012 2013
Operating efficiency ratios
Gross profit margin % 37.7% 37.7% 38.3%
Operating profit margin % 20.6% 21.4% 24.2%
Number of stores 627 610 619
Number of permanent employees (average) 7 598 7 297 7 398
Trading space (sqm) 223 501 228 151 226 866
Inventory turn 3.9 3.8 5.0
Current ratios 4.3 4.5 6.0
Credit ratios
Credit sales % 72.4% 75.2% 75.3%
Debtor costs as a % of the net debtors 5.3% 4.6% 9.4%
Debtors' impairment provision as a % of net
debtors 19.0% 20.4% 17.4%
Arrear instalments on satisfactory accounts as a
percentage of net debtors 8.4% 9.1% 8.6%
Arrear instalments on slow-paying and non-
performing accounts as a percentage of net
debtors 23.1% 24.6% 21.1%
Credit applications decline rate 39.0% 36.7% 36.5%
Shareholder ratios
Net asset value per share (cents) 5 650 5 054 5 481
Gearing ratio 27.9% 26.7% 29.8%
Dividend payout ratio 55.5% 55.5% 55.5%
Return on average equity (after-tax) 15.4% 17.0% 20.0%
Return on average capital employed (after-tax) 12.8% 14.4% 16.8%
Return on average assets managed (pre-tax) 15.6% 17.8% 20.4%
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 88 811 000 shares in issue
(2012: 88 769 000).
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: 11/11/2013 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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