Wrap Text
Final audited results for the year ended 31 March 2014
Lewis Group Ltd
Registration number: 2004/009817/06.
Share codes:
LEW ISIN:ZAE000058236
LEW01 ISIN:ZAE000110222
FINAL AUDITED RESULTS
FOR THE YEAR ENDED 31 MARCH 2014
REVENUE UP
1.8%
GROSS PROFIT MARGIN
36.7%
COST GROWTH, EXCLUDING DEBTOR COSTS
1.6%
HEADLINE EARNINGS PER SHARE
921 cents
CASH GENERATED FROM OPERATIONS UP
47%
TOTAL DIVIDEND MAINTAINED AT
517 cents
Trading environment
Trading conditions in the furniture retail sector
continued to deteriorate over the past year as
consumer spending remained under pressure from
rising costs and high levels of indebtedness.
The group's middle to lower income target market
has also been impacted by widespread labour
unrest, industrial action, retrenchments and high
levels of unemployment.
Lewis Group delivered a competitive performance
for the period and the group's decentralised
business model remains a key differentiator in the
current environment.
Trading and financial performance
Group merchandise sales declined by 2.5% to
R2.41 billion continuing the slowing trend reported
at the interim results and the trading update in
January 2014. Trading became more difficult in
the second half of the year, with sales for the third
quarter declining by 6.3% and by 3.3% in the
fourth quarter.
Revenue increased by 1.8% to R5.28 billion
supported by increased financial services income
owing to the higher proportion of longer term
contracts in the base and selling a wider range
of service contracts. Insurance revenue has been
impacted by the lower priced insurance offering
introduced in May 2013. The gross profit margin of
36.7% compares to 38.3% in 2013.
Management has continued to focus on tight cost
disciplines in the current slower sales environment.
Growth in operating costs, excluding debtor costs,
was well contained to 1.6%, despite inflationary
cost pressures from a weakening Rand and other
sources. Operating costs as a percentage of
revenue at 36.0% was in line with last year's figure
of 36.1%.
The operating profit margin of 21.8% (2013: 24.2%)
was impacted by higher debtor costs and lower
sales growth. Operating profit was 7.9% lower at
R1.15 billion.
Headline earnings totalled R818 million, with
headline earnings per share 8.6% lower at 921 cents
(2013: 1 008 cents).
The directors declared a final dividend of 302 cents
per share, maintaining the total dividend for the
year at 517 cents.
Inventory was well managed with the inventory
turn of 4.7 times (2013: 5.0 times) for the period.
The gearing ratio reduced to 23.9% (2013: 29.8%)
as more longer term contracts settled in the base
and the growth in the book slowed. Operating cash
flow remains strong notwithstanding the challenging
trading environment with cash generated from operations
47% up on last year.
Debtor management
The performance of the debtors' book reflects the
deteriorating credit climate and the increasingly
challenging credit collection environment.
The credit application decline rate increased from
36.5% to 38.4%. Credit sales accounted for 72.3% of
total sales compared to 75.3% in 2013.
The rate of increase in debtor costs remained stable at 30%,
the same level as reported in the interim results.
Debtor costs as a percentage of net debtors moved
from 9.4% to 11.6% and the impairment provision
increased from 17.4% to 18.6%.
Satisfactory paid customers represented 68.3% of
total debtors at year-end compared to 69.4% in
2013. Management believes the credit environment
is unlikely to improve in the short term and could
deteriorate further.
Store expansion
Despite the current slowdown in the consumer
economy the group continues to invest for the
future and opened a net 17 new stores, bringing
the store base to 636 at year-end. All the new
outlets are the smaller format stores with lower
cost structures and higher sales densities. The
group now has 130 of these small format stores.
Total trading space reduced by 2.4% as the
group relocated to smaller stores and reduced
space in large stores when leases were renewed.
Management plans to open 20 to 25 new stores in
the year ahead and is committed to achieving its
medium-term target of 700 stores.
Regulatory update
Section 106 of the National Credit Act has been
amended to give the Minister of Trade and Industry, in
consultation with the Minister of Finance, the power
to prescribe a limit to the cost of credit insurance
in so doing capping credit life and/or asset cover.
The credit industry is awaiting the commencement of a
consultative process with government. Lewis supports
the speedy resolution of this long outstanding matter.
The National Credit Regulator, in consultation with
the broader credit industry, is currently preparing
affordability assessment guidelines for credit
providers aimed at formalising responsible credit
granting. Lewis as a responsible credit provider
fully supports this process.
Prospects
The current difficult trading conditions are
expected to continue into the new financial year.
New merchandise ranges will be launched in June
and innovative acquisition strategies used
to attract new customers to the group's
value-for-money product offerings. The focus in this
challenging environment will remain on driving
credit sales growth, containing costs and improving
collections through higher levels of productivity by
building on the pro-active approach to collections at
store level.
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 2014 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 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 11 July 2014
Date trading commences
"ex" dividend Monday 14 July 2014
Record date Friday 18 July 2014
Date of payment Monday 21 July 2014
Share certificates may not be dematerialised or
rematerialised between Monday 14 July 2014 and
Friday 18 July 2014.
External auditor's opinion
These summary consolidated financial statements
for the year ended 31 March 2014 have been audited
by PricewaterhouseCoopers Inc., who expressed
an unmodified opinion thereon. The auditor also
expressed an unmodified opinion on the annual
financial statements from which these summary
consolidated financial statements were derived.
A copy of the auditor's report on the summary
consolidated financial statements and of the
auditor's report on the annual consolidated financial
statements are available for inspection at the
company's registered office, together with the
financial statements identified in the respective
auditor's reports.
For and on behalf of the Board
David Nurek Johan Enslin
Independent Chief executive officer
non-executive chairman
Les Davies
Chief financial officer
Cape Town
28 May 2014
FINAL AUDITED RESULTS
FOR THE YEAR ENDED 31 MARCH 2014
Income statement
2014 2013
Restated
Audited Audited
Notes Rm % change Rm
Revenue 5 281.7 1.8% 5 187.6
Merchandise sales 2 409.1 2 470.3
Finance charges and initiation fees
earned 1 208.9 1 082.6
Insurance revenue 975.5 994.7
Ancillary services 688.2 640.0
Cost of merchandise sales (1 524.4) (1 523.1)
Operating costs (2 603.3) (2 410.9)
Employment costs (818.9) (786.0)
Administration and IT (217.1) (202.8)
Debtor costs 2 (702.4) (539.6)
Marketing (173.1) (191.2)
Occupancy costs (245.2) (232.7)
Transport and travel (192.6) (185.2)
Depreciation (58.5) (55.1)
Other operating costs (195.5) (218.3)
Operating profit 1 154.0 (7.9%) 1 253.6
Investment income 125.8 111.8
Profit before finance costs 1 279.8 1 365.4
Net finance costs (102.7) (96.3)
Interest paid (116.8) (105.2)
Interest received 6.5 6.9
Forward Exchange Contracts 7.6 2.0
Profit before taxation 1 177.1 1 269.1
Taxation (334.9) (357.4)
Net profit attributable to ordinary
shareholders 842.2 (7.6%) 911.7
Statement of comprehensive income
2014 2013
Restated
Audited Audited
Net profit for the year 842.2 911.7
Movement in other reserves (recycled to income statement
on disposal): 60.9 95.0
Fair value adjustment to available-for-sale investments 71.5 103.7
Disposal of available-for-sale investments (23.9) (15.3)
Foreign currency translation reserve 13.3 6.6
Retirement benefit remeasurements 30.5 0.2
Other comprehensive income 91.4 95.2
Total comprehensive income for the year attributable to equity
shareholders 933.6 1 006.9
Earnings and dividends per share
2014 2013
% change Restated
Audited Audited
1. Weighted average no. of shares
Weighted average 88 762 88 749
Diluted weighted average 89 614 89 612
2. Headline earnings (Rm)
Attributable earnings 842.2 911.7
Profit on disposal of assets and
investments (24.6) (17.3)
Headline earnings 817.6 894.4
3. Earnings per share (cents)
Earnings per share 948.8 (7.6%) 1 027.3
Diluted earnings per share 939.8 1 017.4
4. Headline earnings per share (cents)
Headline earnings per share 921.1 (8.6%) 1 007.8
Diluted headline earnings per share 912.4 998.1
5. Dividends per share (cents)
Dividends paid per share
Final dividend 2013 (2012) 302.0 270.0
Interim dividend 2014 (2013) 215.0 212.0
517.0 482.0
Dividends declared per share
Interim dividend 2014 (2013) 215.0 212.0
Final dividend 2014 (2013) 302.0 302.0
517.0 0.6% 514.0
Balance sheet
2014 2013
Restated
Audited Audited
Notes Rm Rm
Assets
Non-current assets
Property, plant and equipment 327.3 332.6
Deferred taxation 0.6 0.6
Retirement benefit asset 79.7 22.8
Insurance investments 3 1 415.0 1 238.3
1 822.6 1 594.3
Current assets
Inventories 324.6 305.8
Trade and other receivables 4 5 078.9 4 840.9
Insurance investments 3 283.7 465.9
Cash on hand and deposits 480.1 59.5
6 167.3 5 672.1
Total assets 7 989.9 7 266.4
Equity and liabilities
Capital and reserves
Share capital and premium 109.2 88.4
Other reserves 436.1 397.8
Retained earnings 4 796.5 4 361.1
5 341.8 4 847.3
Non-current liabilities
Long-term interest-bearing borrowings 1 000.0 1 250.0
Deferred taxation 173.5 154.5
Retirement benefit liability 92.9 75.3
1 266.4 1 479.8
Current liabilities
Trade and other payables 227.9 211.7
Reinsurance and insurance liabilities 388.7 472.1
Taxation 7.1 –
Short-term interest-bearing borrowings 758.0 255.5
1 381.7 939.3
Total equity and liabilities 7 989.9 7 266.4
Statement of changes in equity
2014 2013
Restated
Audited Audited
Rm Rm
Share capital and premium
Opening balance 88.4 95.4
Cost of own shares acquired (treasury shares) (10.7) (40.1)
Share awards to employees 31.5 33.1
109.2 88.4
Other reserves
Opening balance 397.8 277.9
Other comprehensive income for the year 60.9 95.0
Share-based payment 27.0 22.1
Transfer (to)/from retained earnings (49.6) 2.8
436.1 397.8
Retained earnings
Opening balance 4 361.1 3 909.7
Net profit attributable to ordinary shareholders 842.2 911.7
Distribution to shareholders (459.3) (428.2)
Share awards to employees (28.1) (30.5)
Transfer from/(to) other reserves 49.6 (2.8)
Profit on sale of own shares 0.5 1.0
Retirement benefit remeasurements 30.5 0.2
4 796.5 4 361.1
Balance as at 31 March 2014 5 341.8 4 847.3
Cash flow statement
2014 2013
Audited Audited
Rm Rm
CASH FLOW FROM OPERATING ACTIVITIES
Cash flow from trading 1 360.2 1 526.6
Change in working capital (429.3) (893.8)
Cash generated from operations 930.9 632.8
Interest and dividends received 104.1 100.5
Interest paid (109.2) (103.2)
Taxation paid (326.9) (358.4)
598.9 271.7
CASH FLOW FROM INVESTING ACTIVITIES
Net disposals/(additions) to insurance investments 87.6 (183.8)
Acquisition of property, plant and equipment (59.1) (85.7)
Proceeds on disposal of property, plant and equipment 6.8 12.4
35.3 (257.1)
CASH FLOW FROM FINANCING ACTIVITIES
Dividends paid (459.3) (428.2)
(Decrease)/Increase in long-term borrowings (250.0) 600.0
Increase/(Decrease) in short-term borrowings 650.0 (200.0)
Purchase of own shares (10.7) (40.1)
Proceeds on sale of own shares 3.9 3.8
(66.1) (64.5)
Net increase/(decrease) in cash and cash equivalents 568.1 (49.9)
Cash and cash equivalents at the beginning of the year (96.0) (46.1)
Cash and cash equivalents at the end of the year 472.1 (96.0)
ANALYSIS OF BORROWINGS AND FACILITIES
Borrowings
Long-term 1 000.0 1 250.0
Short-term 750.0 100.0
1 750.0 1 350.0
Cash and cash equivalents
Short-term facilities utilised 8.0 155.5
Cash on hand (480.1) (59.5)
(472.1) 96.0
Net borrowings 1 277.9 1 446.0
Unutilised facilities:
Banking facilities 1 272.1 704.0
Domestic Medium-Term Note Programme 1 500.0 –
Banking facilities and Domestic Medium-Term Note
Programme 4 050.0 2 150.0
Segmental report
Reportable segment Best Home
Lewis and Electric My Home Group
Rm Rm Rm Rm
2014
Revenue 4 400.0 755.6 126.1 5 281.7
Operating profit 962.8 175.9 15.3 1 154.0
Operating margin 21.9% 23.3% 12.1% 21.8%
Segment assets 4 421.1 715.3 128.8 5 265.2
2013 – Restated
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 information contained in these abridged financial statements has been extracted
from the group's 2014 audited annual financial statements which has been prepared in
accordance with the recognition and measurement principles of International Financial Reporting
Standards (IFRS) including IAS34 (Interim Financial Reporting), and in compliance with
the Listings Requirements of the JSE.
The accounting policies applied are consistent with those applied in the annual
financial statements for the year ended 31 March 2013 except for:
1.1 Adoption of IAS 19 (Employee benefits)
With effect 1 April 2013, the group adopted IAS19 Employee Benefits (revised 2011)
and the consequent revision of IFRIC 14. The most significant changes arising from the
adoption of this statement and the accompanying interpretation are the following:
- the elimination of the "corridor" method under which the actuarial gains and losses
were only recognised in the income statement when they exceeded 10% of the funds
opening obligation or plan assets. In terms of the revised IAS19, these actuarial gains
and losses are fully accounted for in other comprehensive income in the period in
which they arise.
- the revised IFRIC 14 defines the retirement benefit asset ceiling as the maximum
economic benefit arising from a future unconditional right to a refund and from
reductions in future contributions in excesss of the minimum funding requirement.
In terms of IAS 8 (Accounting Policies), the relevant comparative information has been
restated and the effect on the financial statements is as follows:
12 months 12 months
ended ended
31 March 2014 31 March 2013
Restated
Audited Audited
Rm Rm
Increase in profit before taxation 14.1 6.0
Increase in taxation (4.0) (1.7)
Effect on net profit after taxation 10.1 4.3
Increase in earnings per share (cents) 11.4 cents 4.9 cents
Increase in diluted earnings per share (cents) 11.3 cents 4.8 cents
Increase in opening retained earnings 12.7 8.2
Increase in retirement benefit asset 73.3 16.8
Decrease in retirement benefit liability (0.8) (1.0)
Increase in deferred taxation liability 20.8 5.1
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 570.1 417.6
Movement in impairment provision 132.3 122.0
702.4 539.6
3. Insurance investments – available for sale
Listed
Listed shares 701.9 583.3
Fixed income securities 713.1 655.0
Unlisted
Money market 283.7 465.9
1 698.7 1 704.2
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.
In terms of the fair value hierarchy set out in IFRS 13, listed and unlisted investments are
categorised as Level 1 and Level 2 respectively.
4. Trade and other receivables
Instalment sale and loan receivables 7 314.4 6 958.3
Provision for unearned maintenance income (211.0) (214.6)
Provision for unearned finance charges and
unearned initiation fees (230.6) (196.0)
Provision for unearned insurance premiums (802.7) (829.2)
Net instalment sale and loan receivables 6 070.1 5 718.5
Provision for impairment (1 129.5) (997.2)
4 940.6 4 721.3
Other receivables 138.3 119.6
5 078.9 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 21.1%
(2013: 21.5%) and the average term of the sale is 32.5 months (2013: 32.7 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
2014 2013 2014 2013
Satisfactory paid
Customers fully up to date No. 463 048 478 093 Rm 22.9 27.5
including those who have paid 70% % 68.3% 69.4% % 2.0% 2.8%
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. 56 876 58 155 Rm 121.3 111.4
including those who have paid 65% % 8.4% 8.5% % 10.8% 11.2%
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
(2013: 12% to 79%)
Non-performing customers
Customers who have paid 55% No. 51 640 55 202 Rm 180.0 177.9
to 65% of amounts due over % 7.6% 8.0% % 15.9% 17.8%
the period of the contract. The
provision in this category ranges
from 23% to 90% of the amounts
due (2013: 23% to 90%)
Non-performing customers
Customers who have paid 55% No. 106 545 97 093 Rm 805.3 680.4
or less of amounts due over % 15.7% 14.1% % 71.3% 68.2%
the period of the contract. The
provision in this category ranges
from 33% to 100% of the amounts
due (2013: 33% to 100%)
Total No. 678 109 688 543 Rm 1 129.5 997.2
Debtors impairment provision as a
% of net debtors 18.6% 17.4%
Key ratios
12 months 12 months
ended ended
31 March 31 March
2014 2013
Restated
Audited Audited
Operating efficiency ratios
Gross profit margin % 36.7% 38.3%
Operating profit margin % 21.8% 24.2%
Number of stores 636 619
Number of permanent employees (average) 7 590 7 398
Trading space (sqm) 221 336 226 866
Inventory turn 4.7 5.0
Current ratio 4.5 6.0
Credit ratios
Credit sales % 72.3% 75.3%
Bad debts as a % of net debtors 9.4% 7.3%
Debtor costs as a % of the net debtors 11.6% 9.4%
Debtors' impairment provision as a % of net debtors 18.6% 17.4%
Arrear instalments on satisfactory accounts as a percentage
of net debtors 8.6% 8.6%
Arrear instalments on slow-paying and non-performing
accounts as a percentage of net debtors 22.6% 21.1%
Credit applications decline rate 38.4% 36.5%
Shareholder ratios
Net asset value per share (cents) 6 012 5 481
Gearing ratio 23.9% 29.8%
Dividend payout ratio 60.2% 55.5%
Return on average equity (after-tax) 16.5% 20.0%
Return on average capital employed (after-tax) 13.6% 16.8%
Return on average assets managed (pre-tax) 16.8% 20.4%
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 88 851 000 shares in issue
(2013: 88 435 000).
3. Total assets exclude the deferred tax asset.
Executive directors: J Enslin (Chief executive officer), LA Davies (Chief financial officer). Independent non-executive directors: DM Nurek (Chairman), H Saven, BJ van der Ross, Professor F Abrahams, ZBM Bassa,
MSP Marutlulle, AJ Smart. 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
28 May 2014
Date: 28/05/2014 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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