Wrap Text
Final audited results for the year ended 31 March 2017
LEWIS GROUP LTD
Registration number: 2004/009817/06
Share code: LEW
ISIN: ZAE000058236
Bond code: LEW01
Bond ISIN No. ZAG000110222
FINAL AUDITED RESULTS
for the year ended 31 March 2017
GROSS MARGIN
41.6%
OPERATING MARGIN
10.1%
HEADLINE EARNINGS PER SHARE
400.1 cents
TOTAL DIVIDEND
200 cents per share
GEARING
2.9%
TRADING AND FINANCIAL
PERFORMANCE
Trading conditions continued to deteriorate during
the year as economic growth slowed, the group's
customer base was adversely impacted by the
affordability assessment regulations, high levels
of unemployment and the protracted drought
affecting the rural economy.
After increasing by 1% in the first half of the reporting
year, merchandise sales slowed in the second
half and ended the year 2% lower. Like-for-like
merchandise sales declined by 9%. Stores outside
South Africa contributed 24.1% of merchandise
sales (LY 17.4%).
Group credit sales account for 65.2%
(2016: 64.3%) of total sales. Credit sales in Beares
account for 56.6% of the brand's sales while 67.2%
of Lewis and Best Home and Electric sales are
on credit.
Revenue at R5.6 billion was 3.3% down on the previous
year owing to a 4.3% decline in other revenue.
The gross profit margin expanded by 360
basis points to 41.6% due to more competitive
procurement of locally sourced product, tight stock
control and an increased sales contribution from
the higher margin furniture category. Furniture
accounted for 56.3% of total sales compared to
54.4% in the prior year.
Operating costs, excluding debtor costs, were well
contained to an increase of only 5.5%. Expenses
were impacted by the integration of the stores
acquired outside South Africa, general compliance
costs including the compliance call centre at head
office and upgrades to the point-of-sale system
in stores.
Slower revenue growth and higher operating
and debtor costs contributed to the group's
operating margin contracting to 10.1%
(2016: 14.1%).
Earnings for the prior year included a once-off
capital gain of R495.6 million as a result of realising
a large portion of the investment portfolio with
Monarch Insurance Company Limited, the group's
insurer, which impacted earnings per share reported
last year.
Headline earnings declined from R552 million to
R355 million with headline earnings per share 35.6%
lower at 400.1 cents.
The group remains strongly cash-generative. Cash
generated from operating and investing activities
was used to repay borrowings of R1 billion and to
fund dividend payments of R357 million.
At the end of the reporting period the group's cash
and cash equivalents totalled R789 million.The net asset
value per share has remained stable at 6 133 cents,
highlighting the strength of the group's balance sheet.
Consequently, the directors declared a final dividend
of 100 cents per share, bringing the total dividend for
the year to 200 cents per share (2016: 517 cents).
DEBTOR MANAGEMENT
The collection performance of the debtors' book
remains stable and debtor cost growth increased
by 6.0% for the year reflecting an improvement
from the 17% growth of last year. Debtor costs as a
percentage of net debtors increased from 17.1% to
19.1% as a result of the higher bad debt experience
and a lower debtor base. The level of satisfactory
paid customers at 68.5% compares to last year's
68.8% despite the deteriorating consumer credit
environment.
RETAIL STORE FOOTPRINT
At year-end the group traded out of 761 stores
across its three retail brands. Overall trading space
was reduced by 2.5% as the group continued to
open smaller format Lewis stores and close marginal
stores. Lewis now has 201 smaller format stores in
its portfolio of 513 stores. During the year 17 stores
were relocated to better trading sites or smaller
premises, and 32 stores were refurbished.
Following the integration of the 56 Ellerines and
Beares stores acquired in Botswana, Lesotho,
Namibia and Swaziland, the group has 116 stores
outside of South Africa, accounting for 15% of the
total store Base.
SHARE REPURCHASES
The Board has resolved to implement a share
repurchase program pursuant to the authority
granted by shareholders at the Annual General
Meeting on 21 October 2016.
PROSPECTS
Trading conditions are not expected to improve in
the short term and in this environment of muted
consumer spending, management will remain
focused on tight expense control, improving
collections productivity, driving sales growth and
sourcing innovative merchandise ranges which
appeal to its target market.
The group's solid balance sheet supported by
its strong cash position and current low levels of
gearing at 2.9% (compared to 25.5% a year ago)
provide a good platform for the group's medium-to
longer-term growth strategies.
DIVIDEND DECLARATION
Notice is hereby given that a final gross cash
dividend of 100 cents per share in respect of
the year ended 31 March 2017 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 20%. The dividend for determining the dividend
tax is 100 cents and the dividend tax payable is
20 cents for shareholders who are not exempt. The
net dividend for shareholders who are not exempt
will therefore be 80 cents. The dividend tax rate
may be reduced where the shareholder is a 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 of trade "cum" dividend Tuesday 18 July 2017
Date of trading commences "ex" dividend Wednesday 19 July 2017
Record date Friday 21 July 2017
Date of payment Monday 24 July 2017
Share certificates may not be dematerialised or
rematerialised between Wednesday 19 July 2017
and Friday 21 July 2017, both days inclusive.
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
24 May 2017
EXTERNAL AUDITORS' OPINION
These summary consolidated financial statements
for the year ended 31 March 2017 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.
INCOME STATEMENT
2017 2016
Audited Audited
Notes Rm Rm
Revenue 5 592.1 5 785.0
Merchandise sales 6 2 607.9 2 667.7
Finance charges and initiation fees earned 1 451.8 1 426.3
Insurance revenue 822.3 908.2
Ancillary services 710.1 782.8
Cost of merchandise sales 6 (1 522.4) (1 652.8)
Operating costs (3 504.9) (3 317.2)
Debtor costs 2.2 (1 065.5) (1 005.1)
Employment costs (987.0) (946.3)
Occupancy costs (370.8) (329.1)
Administration and IT (318.4) (274.5)
Transport and travel (202.8) (224.2)
Marketing (199.9) (192.4)
Depreciation and amortisation (90.1) (85.6)
Other operating costs (270.4) (260.0)
Operating profit before investment income 564.8 815.0
Investment income 3.2 104.9 600.6
Profit before finance costs 669.7 1 415.6
Net finance costs (148.4) (136.1)
Interest paid (174.3) (158.4)
Interest received 39.4 14.0
Forward exchange contracts (13.5) 8.3
Profit before taxation 521.3 1 279.5
Taxation 7 (163.3) (318.0)
Net profit attributable to ordinary shareholders 358.0 961.5
Earnings per share (cents) 403.5 1 082.6
Diluted earnings per share (cents) 399.1 1 073.9
STATEMENT OF COMPREHENSIVE INCOME
Net profit for the year 358.0 961.5
Items that may be subsequently reclassified to income
statement:
Movement in other reserves (2.4) (456.7)
Fair value adjustment to available-for-sale investments 9.6 (71.2)
Disposal of available-for-sale investments (0.2) (406.3)
Foreign currency translation reserve (11.8) 20.8
Items that may not be subsequently reclassified to income
statement:
Retirement benefit remeasurements 1.2 (2.3)
Other comprehensive income (1.2) (459.0)
Total comprehensive income for the year attributable to 356.8 502.5
equity shareholders
EARNINGS AND DIVIDENDS PER SHARE
2017 2016
Audited Audited
Rm Rm
1. Weighted Average No. of Shares
Weighted average 88 730 88 811
Diluted weighted average 89 699 89 532
2. Headline Earnings (Rm)
Attributable earnings 358.0 961.5
Profit on disposal of fixed assets (1.6) (2.7)
Profit on disposal of available-for-sale investments (0.2) (406.3)
Gain on acquisition of Beares (1.2) (0.4)
Headline earnings 355.0 552.1
3. Earnings per Share (cents)
Earnings per share 403.5 1 082.6
Diluted earnings per share 399.1 1 073.9
4. Headline Earnings per Share (cents)
Headline earnings per share 400.1 621.7
Diluted headline earnings per share 395.8 616.7
5. Dividends per Share (cents)
Dividends paid per share
Final dividend 2016 (2015) 302.0 302.0
Interim dividend 2017 (2016) 100.0 215.0
402.0 517.0
Dividends declared per share
Interim dividend 2017 (2016) 100.0 215.0
Final dividend 2017 (2016) 100.0 302.0
200.0 517.0
BALANCE SHEET
2017 2016
Audited Audited
Notes Rm Rm
Assets
Non-current assets
Property, plant and equipment 343.5 370.4
Trademarks 66.2 61.4
Goodwill 5.5 –
Deferred taxation 48.9 85.7
Retirement benefit asset 55.0 63.0
Financial assets – insurance investments 3.1 455.9 432.0
975.0 1 012.5
Current assets
Inventories 454.6 444.5
Trade and other receivables 2.1 4 225.8 4 514.3
Reinsurance assets 3.3 152.2 397.3
Insurance premiums in advance 403.2 1 185.4
Taxation 181.1 28.3
Financial assets – insurance investments 3.1 294.9 1 236.5
Cash-on-hand and deposits 788.6 587.2
6 500.4 8 393.5
Total assets 7 475.4 9 406.0
Equity and liabilities
Capital and reserves
Share capital and premium 108.3 92.1
Other reserves 6.2 27.5
Retained earnings 5 330.8 5 329.8
5 445.3 5 449.4
Non-current liabilities
Long-term interest-bearing borrowings 4 700.0 1 375.0
Deferred taxation 91.0 60.8
Retirement benefit liability 101.7 100.2
892.7 1 536.0
Current liabilities
Trade and other payables 271.3 270.2
Reinsurance and insurance liabilities 3.4 618.8 1 550.4
Short-term interest-bearing borrowings 4 247.3 600.0
1 137.4 2 420.6
Total equity and liabilities 7 475.4 9 406.0
STATEMENT OF CHANGES IN EQUITY
2017 2016
Audited Audited
Rm Rm
Share capital and premium
Opening balance 92.1 110.8
Cost of own shares acquired (treasury shares) – (53.0)
Share awards to employees 16.2 34.3
108.3 92.1
Other reserves
Opening balance 27.5 492.4
Other comprehensive income for the year (2.4) (456.7)
Share-based payment (4.0) 10.3
Transfer of share-based payment reserve to retained earnings on (14.9) (18.5)
vesting
6.2 27.5
Retained earnings
Opening balance 5 329.8 4 845.4
Net profit attributable to ordinary shareholders 358.0 961.5
Distribution to shareholders (356.9) (459.0)
Share awards to employees (16.2) (34.3)
Transfer from other reserves 14.9 18.5
Retirement benefit remeasurements 1.2 (2.3)
5 330.8 5 329.8
Balance as at 31 March 2017 5 445.3 5 449.4
CASH FLOW STATEMENT
2017 2016
Audited Audited
Notes Rm Rm
Cash flow from operating activities
Cash flow from trading 540.9 1 104.7
Operating profit before investment income 564.8 815.0
Adjusted for:
Share-based payments (4.0) 10.3
Depreciation and amortisation 90.1 85.6
Movement in debtors impairment provision 27.0 239.3
Movement in other provisions (144.7) (46.2)
Other movements 7.7 0.7
Changes in working capital: 573.9 (154.3)
Decrease/(increase) in inventories 11.6 (6.6)
Decrease/(increase) in trade and other receivables 322.8 (242.0)
Increase in trade payables 143.8 35.3
Decrease in insurance premiums in advance 782.2 300.1
Decrease in reinsurance assets 245.1 84.5
Decrease in reinsurance and insurance liabilities (931.6) (325.6)
Cash generated from operations 1 114.8 950.4
Interest received 144.0 99.3
Dividends received – 19.7
Interest paid (187.8) (150.1)
Taxation paid (254.8) (330.3)
816.2 589.0
Cash utilised in investing activities
Net disposals of insurance business investments 931.1 79.6
Purchase of insurance investments (2 253.8) (1 574.8)
Disposals of insurance investments 3 184.9 1 654.4
Acquisition of property, plant and equipment (61.3) (104.3)
Purchase of businesses 9 (107.6) (101.1)
Proceeds on disposal of property, plant and equipment 7.6 12.7
769.8 (113.1)
Cash flow from financing activities
Dividends paid (356.9) (459.0)
Proceeds from borrowings – 1 150.0
Repayments of borrowings (1 027.7) (700.0)
Purchase of own shares – (53.0)
(1 384.6) (62.0)
Net increase in cash and cash equivalents 201.4 413.9
Cash and cash equivalents at the beginning of the year 587.2 173.3
Cash and cash equivalents at the end of the year 788.6 587.2
1. Basis of Reporting
The summary consolidated financial statements are prepared in accordance with the requirements
of the JSE Limited (JSE) for summary financial statements, and the requirements of the Companies
Act applicable to summary financial statements. The JSE requires summary financial statements to
be prepared in accordance with the framework concepts and the measurement and recognition
requirements of International Financial Reporting Standards (IFRS) and SAICA Financial Reporting
Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued
by the Financial Reporting Standards Council and to also, as a minimum, contain the information
required by IAS 34 Interim Financial Reporting.
The accounting policies applied in the preparation of the consolidated financial statements from
which the summary consolidated financial statements were derived are in terms of International
Financial Reporting Standards and are consistent with those accounting policies applied in the
preparation of the previous consolidated annual financial statements.
These financial statements are a summary of the group's audited annual financial statements for
the year ended 31 March 2017. The audited annual financial statements were prepared by the
group's Finance Department under the supervision of the Chief Financial Officer, Mr. L A Davies
CA(SA). A copy of the full set of the audited financial statements is available for inspection at the
company's registered office.
2017 2016
Audited Audited
Rm Rm
2. Trade and other receivables
2.1 Trade receivables
Instalment sale and loan receivables 6 107.1 6 482.6
Unearned provisions (525.9) (606.3)
Provision for unearned maintenance income (320.0) (376.5)
Provision for unearned finance charges and unearned initiation fees (205.9) (229.8)
Net instalment sale and loan receivables 5 581.2 5 876.3
Provision for impairment (1 560.6) (1 533.6)
4 020.6 4 342.7
Other receivables 205.2 171.6
4 225.8 4 514.3
Debtors' impairment provision as % of net debtors 28.0% 26.1%
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 six to 36 months.
Credit risk of Trade Receivables
Credit risk is the risk of suffering financial loss, should any of the group's customers and counterparties
fail to fulfil their contractual obligations with the group. The main credit risk faced is that customers
will not meet their payment obligations in terms of the sale agreements concluded.
Credit granting
The group has developed advanced credit-granting systems to properly assess the customer. The
credit underwriting process flows through the following stages:
- Credit scoring: this involves the gathering of appropriate information from the client, use of
credit bureaus and third parties such as employers. These input variables are run through
the various credit scorecards. Lewis deals with its new customers and existing customers
differently when credit scoring takes place.
The process differs as follows:
– For new customers, application risk scorecards predict the risk with the emphasis for such
an evaluation on information from credit bureaus and third-party information.
– For existing customers, behavioural scorecards have been developed to assess the risk
through predictive behaviour with the emphasis on the customer's payment record with
Lewis, bureau and other information being considered.
- Assessing client affordability: this process involves collecting information regarding the
customer's income levels, expenses and current debt obligations. Lewis has its own priority
expense model based on surveys conducted with customers in addition to the National
Credit Regulator's expense table.
- Determining the credit limit for the customer: the customer's risk score determined by the
scorecard together with the expense assessment and outstanding obligations are used to
calculate a credit limit within the customer's affordability level.
The credit granting systems enable the group to determine its appetite for risk. In determining
the acceptable level of risk, the potential loss is weighed up against the revenue potential using
the predictive behavioural models inherent in the credit-granting system. The group monitors
any variances from the level of risk that has been adopted and adjusts the credit-granting process
on a regular basis.
The group manages its risk effectively by assessing the customer's ability to service the proposed
monthly instalment. However, collateral exists in that ownership of merchandise is retained until the
customer settles the account in full.
Impairment Provision
The customer's payment profile is managed using payment ratings. Payment ratings are determined on an
individual customer level and aggregated over all the customer's sub-accounts. Payment ratings measure
the customer's actual payments received over the lifetime of the account relative to the instalments due
in terms of the contract. These payment ratings are used to categorise and report on customers at the
store level to follow up the slow paying and non-performing customers. There are 13 payment rating
categories a customer can fall into following the monthly assessment.
The payment rating is integral to the calculation of the debtor's impairment provision. Impaired receivables
are carried at their net present value of the estimated future cash flows from such accounts, discounted
at the original effective interest rate implicit in the credit agreement. Estimated future cash flows are
projected utilising the payment ratings.
The management of the debtor book and the determination of the impairment provision utilises the
payment rating as a leading indicator. Past customer behaviour as reflected in the payment ratings
determine future expected collections for the purpose of the impairment provision. The impairment
provision being the result of the payment ratings is a key indicator to the ultimate cash recovery expected
for each individual customer.
The impairment calculation is performed on a monthly basis taking into account the payment behaviour
of the debtors book, having regard to the payment rating and age of the debtors account.
Various profiles of the impairment provision are prepared monthly. The credit risk systems (the system
that monitors the customer's payment behaviour post-credit granting) also produces customer payment
data. The aforementioned and the key indicators are monitored by senior management to analyse and
assess the state of the debtors book. Daily collection statistics are also collated to identify trends early.
The key indicators that are reviewed include, inter alia, the following:
- Number of satisfactory paid customers. While the expectation is that the gross receivables would
be the key indicator, this is not the case as there is a distortion created by the slow-paying and
non-performing customer's balances growing faster than satisfactory paid customers. The key
operational objective is to have as many satisfactory paid customers as possible as it is the group's
expectation that these customers will settle their accounts, albeit that certain categories of satisfactory
paid customers may settle past their contractual term. Satisfactory paid customers are the source of
future repeat business which is one of the core strengths of the business model.
- The level of impairment provision applicable to the payment rating and the trend thereof over the
months. This is correlated with collection statistics and customer payment data produced by the
credit risk systems.
Contractual Arrears
The key aspect of the arrears calculation is Lewis's policy not to reschedule arrears nor to amend the
terms of the original contract. In other words, the contractual arrears calculated is the actual arrears in
terms of the originally signed agreement.
From the onset of the agreement, contractual arrears is calculated by comparing payments made life-
to-date with the originally calculated instalments due life-to-date, causing a customer who is paying
less than the required contracted instalment to immediately fall into arrears. Once the customer
exceeds the term of the agreement by paying less than the required contracted instalments, the full
balance owing will be in arrears. The group does not consider arrears the leading indicator, but rather
payment ratings for the reasons mentioned above.
Combined impairment and contractual arrears table
The table reflects the following:
- A summary of the four main groupings of payment ratings describing
payment behaviour. The payment ratings categorise individual
customers into 13 payment categories. For purposes of this table,
the payment ratings have been summarised into four main groupings.
- For each of the four main groupings of payment ratings, the following
is disclosed:
- Number of customers.
- Gross receivables. Note that unearned provisions have not been
allocated to this amount.
- Impairment provision allocated to each grouping.
- Contractual arrears for each grouping have been categorised by
number of instalments in arrears.
Gross Debtor Analysis
March 2017
Instalments in arrears
Number of Gross Impairment Total 1 2 3 4 >4
Customers Receivables Provision Arrears
Total R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000
Satisfactory paid March 2017 No 422 070 3 507 921 27 609 596 271 162 822 114 395 86 010 65 285 167 759
Customers fully up-to-date including those who have paid 70% or % 68.5% 57.4% 1.8%
more of amounts due over the contract period. The provision in this March 2016 No 459 390 3 775 137 38 319 641 286 175 898 121 896 90 493 67 565 185 434
category results from in duplum provision. % 68.8% 58.2% 2.5%
Slow payers March 2017 No 52 078 538 715 192 890 321 871 37 240 36 064 33 849 31 573 183 145
Customers fully up-to-date including those who have paid 65% to 70% % 8.4% 8.9% 12.4%
of amounts due over the contract period. The provision in this category March 2016 No 54 507 558 758 176 249 313 201 37 684 36 322 33 604 30 913 174 678
ranges from 14% to 67% of amounts due and includes an in duplum % 8.1% 8.7% 11.5%
provision.
Non-performing accounts March 2017 No 47 981 576 347 258 823 366 979 34 413 32 902 31 201 29 727 238 736
Customers who have paid between 55% and 65% of amounts due over % 7.8% 9.4% 16.6%
the contract period. The provision in this category ranges from March 2016 No 50 690 589 858 241 999 353 286 35 071 33 189 31 195 29 501 224 330
25% to 79% of amounts due. % 7.6% 9.1% 15.8%
Non-performing accounts March 2017 No 94 118 1 484 119 1 081 237 1 057 905 67 299 66 090 64 564 63 075 796 877
Customers who have paid 55% or less of amounts due over the % 15.3% 24.3% 69.2%
contract period. The provision in this category ranges from 35% to March 2016 No 103 495 1 558 864 1 077 046 1 068 377 70 458 68 649 66 504 64 447 798 319
100% of amounts due. % 15.5% 24.0% 70.2%
Total March 2017 616 247 6 107 102 1 560 559 2 343 026 301 774 249 451 215 624 189 660 1 386 517
March 2016 668 082 6 482 617 1 533 613 2 376 150 319 111 260 056 221 796 192 425 1 382 761
Unearned provisions March 2017 (525 900)
March 2016 (606 354)
Net instalment sale and loan receivables March 2017 5 581 202 28.0%
March 2016 5 876 263 26.1%
An in duplum provision of R 29.1 million (2016: R 39.8 million) has been provided.
Interest rate risk
Interest rates charged to customers are fixed at the date the contract is entered into.
Consequently, there is no interest rate risk associated with these contracts during the term of
the contract.
The average effective interest rate on instalment sale and loan receivables is 22.5% (2016:
22.2%) and the average term of the sale is 32.6 months (2016: 32.8 months).
Fair Value
In terms of paragraph 29(a) of IFRS 7, disclosure of fair value is not required as trade receivables
form part of a normal operating cycle and the carrying value of trade receivables is a reasonable
approximation of fair value.
2.2 Debtor costs 2017 2016
Audited Audited
Rm Rm
Bad debts, repossession losses and bad debt recoveries 1 038.5 765.8
Movement in debtors' impairment provision 27.0 239.3
Closing balance 1 560.6 1 533.6
Opening balance (1 533.6) (1 294.3)
1 065.5 1 005.1
Debtor costs as a % of net instalment sale and loan receivables 19.1% 17.1%
2017 2016
Audited Audited
Rm Rm
3. Insurance
3.1 Insurance investments
Financial assets – insurance investments
Listed investments
Fixed income securities – available-for-sale 455.9 432.0
Unlisted investments
Money market – available-for-sale 294.9 1 236.5
750.8 1 668.5
Analysed as follows:
Non-current 455.9 432.0
Current 294.9 1 236.5
750.8 1 668.5
Movement for the year
Beginning of the year 1 668.5 1 842.6
Additions to investments 2 253.8 1 574.8
Disposals of investments (3 184.6) (1 654.4)
Fair value adjustment 13.1 (94.5)
End of the year 750.8 1 668.5
Fair value hierarchy
The following table presents the assets recognised and subsequently measured at fair value:
Level 1 Level 2 Total
2017 Rm Rm Rm
Available-for-sale assets:
Insurance investments:
Fixed income securities 455.9 455.9
Money market 294.9 294.9
750.8 750.8
2016
Available-for-sale assets:
Insurance investments:
Fixed income securities 432.0 432.0
Money market 1 236.5 1 236.5
432.0 1 236.5 1 668.5
The categorisation of the valuation techniques used to value the assets at fair value are as set out in IFRS 13.
All government and corporate bonds were transferred from Level 1 to Level 2 based on management's
current assessment of all active markets for debt instruments. There were no other significant transfers
between Level 1 and Level 2.
3.2 Investment income 2017 2016
Audited Audited
Rm Rm
Interest – insurance business 104.6 85.3
Dividends from listed investments – insurance business – 19.7
Realised gain on disposal of insurance investments 0.3 495.6
104.9 600.6
The move from term to monthly insurance policies will significantly reduce the capital required by the
group's insurance subsidiary. Consequently, to limit the risk, the insurance subsidiary sold in the prior year
the equity and a large portion of the bond portfolio realising a capital gain of R495.6 million which was
included in investment income, in the 2016 financial year.
3.3 Reinsurance assets
Reinsurer's share of unearned premiums 123.8 364.0
Opening balance 364.0 456.1
Recognised in income statement (240.2) (92.1)
Reinsurer's share of insurance premiums 28.4 33.3
Opening balance 33.3 25.7
Recognised in income statement (4.9) 7.6
Total reinsurance assets 152.2 397.3
3.4 Reinsurance and insurance liabilities
Unearned premiums 412.1 1 090.8
Opening balance 1 090.8 1 345.6
Income statement movement (678.7) (254.8)
Due to reinsurers 0.3 98.4
Other reinsurance and insurance liabilities 206.4 361.2
Opening balance 361.2 396.0
Income statement movement (154.8) (34.8)
Total reinsurance and insurance liabilities 618.8 1 550.4
4. Borrowings, banking facilities and cash
Interest-bearing borrowings
Long-term
Banking facilities 700.0 1 375.0
Short-term
Banking facilities 225.0 300.0
Domestic Medium Term Note Program – 300.0
925.0 1 975.0
Cash and cash equivalents
Bank overdrafts 22.3 –
Cash on hand (788.6) (587.2)
(766.3) (587.2)
Net borrowings 158.7 1 387.8
Unutilised facilities
Banking facilities 2 116.3 1 337.2
Domestic Medium Term Note Program 2 000.0 1 700.0
4 116.3 3 037.2
Available facilities 4 275.0 4 425.0
Interest rate profile
Interest rate profile of borrowings is as follows:
– Bank borrowings at interest rates linked to 3-month JIBAR.
The weighted average interest rate at the end of the reporting
period is 9.6 % (2016: 9.4%) 925.0 1 675.0
– Three-year floating note issued under the group's Domestic Medium
Term Note program at 158 basis points above the 3-month JIBAR. – 300.0
925.0 1 975.0
Capital management
Net borrowings 158.7 1 387.8
Shareholder's Equity 5 445.3 5 449.4
Gearing ratio 2.9% 25.5%
5. Reportable segments
Primary Best Home
Lewis and Electric Beares Group
Rm Rm Rm Rm
2017
Revenue 4 137.0 725.4 729.7 5 592.1
Operating profit before investment income 424.2 111.0 29.6 564.8
Operating margin 10.3% 15.3% 4.1% 10.1%
Segment assets 3 357.2 578.7 539.3 4 475.2
2016
Revenue 4 564.7 793.3 427.0 5 785.0
Operating profit before investment income 700.4 143.0 (28.4) 815.0
Operating margin 15.3% 18.0% (6.7%) 14.1%
Segment assets 3 759.8 624.1 403.3 4 787.2
Geographical South
Africa Namibia BLS (*) Group
Rm Rm Rm Rm
2017
Revenue 4 559.0 526.3 506.8 5 592.1
2016
Revenue 4 986.4 382.3 416.3 5 785.0
(*) Botswana, Lesotho and Swaziland
2017 2016
Audited Audited
Rm Rm
6. Gross profit
Merchandise sales 2 607.9 2 667.7
Cost of merchandise sales 1 522.4) (1 652.8)
Merchandise gross profit 1 085.5 1 014.9
Gross profit percentage 41.6% 38.0%
2017 2016
Audited Audited
Rm Rm
7. Taxation
Taxation charge
Normal taxation
Current year 100.3 338.9
Prior year 0.8 (2.1)
Deferred taxation
Current year 61.3 (18.7)
Prior year 0.9 –
Rate change – (0.1)
Taxation per income statement 163.3 318.0
Tax rate reconciliation
Profit before taxation 521.3 1 279.5
Taxation calculated at a tax rate of 28% (2016: 28%) 146.0 358.3
Differing tax rates in foreign countries 6.3 5.4
Disallowances 14.5 11.2
Exemptions (5.2) (54.7)
Prior years 1.7 (2.2)
Taxation per income statement 163.3 318.0
Effective tax rate 31.3% 24.9%
8. Regulatory matters
Referrals by National Credit Regulator to National Consumer Tribunal
First referral
In July 2015, the National Credit Regulator ("NCR") referred both Lewis Stores ("Lewis") and Monarch
to the National Consumer Tribunal ("NCT") for alleged breaches of the National Credit Act ("NCA") in
relation to the sale of loss of employment insurance and disability cover to customers who were pensioners
or self-employed persons. Following the notification of the referral, an internal investigation identified
approximately 15% of cases where loss of employment insurance policies were invalidly sold to pensioners
and self-employed customers as a result of human error at store level. Lewis is currently refunding the
premiums and interest totalling approximately R67.7 million to the affected customers. To date, Lewis has
reimbursed approximately 93% of amounts due.
In September 2016, the NCT delivered its judgment in the abovementioned matter. The main findings
of the NCT were:
1. dismissed the NCR's application against Monarch;
2. found that the offering of loss of employment insurance by Lewis to pensioners or self-employed consumers
was unreasonable and therefore constituted prohibited conduct under the NCA;
3. found that the offering of disability insurance by Lewis to pensioners would be unreasonable, unless
further enquiry and clarification was obtained and recorded, which makes it clear that such consumers
requested such insurance cover;
4. found that the offering of disability insurance by Lewis to self-employed persons was not unreasonable;
5. found that there is no clear basis on which the unreasonableness of the disability and loss of employment
insurance has the effect of deceiving consumers;
6. ordered that an independent audit be done of all credit agreements entered into by Lewis since 2007, for
purposes of determining whether any pensioners or self-employed consumers were sold loss of employment
insurance and whether any pensioners were sold disability insurance. If so, Lewis is to reimburse such
consumers with any premiums and any interest charged on their accounts as a result of such insurance
premiums. Consumers who no longer have open accounts with Lewis are to be traced and reimbursed.
On completion of the independent audit, the NCT will set the matter down for hearing on the quantum
of the administrative penalty to be imposed.
Lewis appealed the judgment in October 2016. As a consequence of the appeal, the refund of disability
insurance premiums and interest and the independent audit has been suspended pending the outcome
of the appeal. The appeal is set down for determination on 2 May 2018. However, as indicated above,
Lewis will be continuing to refund loss of employment insurance premiums and interest to customers.
Second referral
In April 2016, the NCR referred Lewis Stores to the NCT for alleged breaches of the NCA relating to club
fees and extended maintenance contracts charged to its customers. Lewis has opposed the second referral
and filed a comprehensive answering affidavit disputing the NCR's allegations. The second referral was heard
by a tribunal of the NCT on 6 April 2017. Judgement was reserved and has not yet been handed down.
High Court summonses
In February 2016 Lewis was served with a summons issued in the name of 15 plaintiffs and in April 2016 a
second summons was served by 13 plaintiffs, all plaintiffs being existing or previous customers of Lewis. The
summonses were issued at the direction of Summit Financial Partners. The total quantum of both claims is
R85 082 plus interest. The plaintiffs' claims are for damages as a consequence of alleged breaches of the
NCA in relation to delivery charges and extended maintenance contracts. Lewis disputes liability on the
merits and various other grounds and is contesting the action. The plaintiffs in both matters have applied
to the Western Cape High Court for leave to amend their summonses. Lewis is opposing the application
which has been set down to be heard on 13 June 2017.
Section 165 of Companies Act
First demand
In May 2016, Mr. David Woollam addressed a letter to the Lewis board of directors demanding that Lewis
commences with proceedings to declare Johan Enslin, Les Davies, David Nurek and Hilton Saven, delinquent
directors in accordance with the provisions of section 165 of the Companies Act. The directors of the Board
of Lewis, who had not been made the subject of the demand, considered the demand, and consulted
the group's attorneys. Having done so, the directors were satisfied that the demand of Mr. Woollam
was frivolous, vexatious and of no merit and they resolved that Lewis launch proceedings in terms of
section 165(3) of the Companies Act to set the demand aside.
In October 2016, the Court handed down judgement in Lewis' favour and set aside, in terms of
section 165(3) of the Companies Act, Mr. Woollam's demand and awarded Lewis costs against Mr. Woollam.
In November 2016, Mr. Woollam filed an application for leave to appeal the judgement. Mr. Woollam's
application for leave to appeal was refused by the Western Cape High Court. Mr. Woollam applied for
special leave to appeal to the Supreme Court of Appeal and leave to appeal was granted by the Supreme
Court of Appeal on 23 March 2017.
Second demand
In August 2016, Mr. Woollam addressed a further letter ("the second demand") to the Lewis board of
directors demanding that Lewis commences with proceedings to declare the abovementioned directors,
delinquent directors in accordance with the provisions of section 165 of the Companies Act. The directors
of the board of Lewis, who had not been made the subject of the second demand, considered such
demand, and consulted the group's attorneys. Having done so, the directors were satisfied that the
demand of Mr. Woollam was once again frivolous, vexatious and of no merit and they resolved that Lewis
launch proceedings in terms of section 165(3) of the Companies Act to set the demand aside. These
proceedings were launched in September 2016. Given that Mr. Woollam had no evidence to substantiate
his allegations contained in the demand, he sought to withdraw the demand prior to the hearing of the
application and filed a rule 6(5) notice. The essence of the rule 6(5) notice was that Mr. Woollam contended
that there was no demand capable of being set aside by the Court pursuant to the application, and that
the application was accordingly moot. On 27 February 2017, the Court was required to decide whether
Mr. Woollam's demand was capable of being withdrawn. On 1 March 2017, the Court delivered its
judgement and made the following order:
1. The withdrawal by Woollam of the demand was noted.
2. Woollam is liable for Lewis's costs of suit in the application up to 30 January 2017, such costs to include
the fees of two counsel where such were engaged, but excluding the costs attendant on the drafting of
an affidavit filed by Lewis on 30 January 2017.
3. Lewis is liable for half of Woollam's costs of suit incurred from 30 January 2017 up to and including the
hearing of 27 February 2017, such costs to include the fees of two counsel where such were engaged.
Shareholders will note that Mr. Woolllam has been ordered to bear the bulk of the costs relating to the
application.
Rm Rm
9. Purchase of businesses
Trademarks 8.4 6.0
Goodwill 5.5 –
Property, plant and equipment 3.7 3.1
Inventory 23.2 26.5
Trade receivables 73.1 77.5
Accounts payable (3.5) (6.2)
Deferred tax (1.6) (5.4)
Gain on acquisition of Beares (1.2) (0.4)
Total consideration 107.6 101.1
During the current period, the group's subsidiaries in Namibia and Swaziland have acquired on 8 May
2016 and 8 April 2016 respectively the businesses trading under the Ellerines and Beares brands from the
relevant in-country subsidiaries of Ellerines Services Proprietary Limited (subsidiary of Ellerines Furnishers
Proprietary Limited in business rescue). The businesses, which are individually and collectively immaterial,
consisted of 26 stores, the Ellerines and Beares brands, trade receivables, inventory and fixed assets.
The purchase consideration was paid by cash and assumption of liabilities. The stores will trade either
under the Lewis or Beares brands.
In the prior year, the group's subsidiaries in Lesotho and Botswana have acquired on 8 December 2015 and
8 March 2016 respectively the businesses trading under the Ellerines and Beares brands from the relevant
in-country subsidiaries of Ellerines Services Proprietary Limited (subsidiary of Ellerines Furnishers Proprietary
Limited in business rescue). The purchase consideration was paid by cash and assumption of liabilities.
KEY RATIOS
for the year ended 31 March 2017
2017 2016
Operating efficiency ratios
Gross profit margin % 41.6% 38.0%
Operating profit margin % 10.1% 14.1%
Number of stores 761 760
Number of permanent employees (average) 8 619 8 409
Trading space (sqm) 248 271 254 566
Inventory turn 3.3 3.7
Current ratios 5.7 4.0
Credit ratios
Credit sales % 65.2% 64.3%
Debtor costs as a % of the net debtors 19.1% 17.1%
Debtors' impairment provision as a % of net debtors 28.0% 26.1%
Arrear instalments on satisfactory accounts as a percentage
of gross debtors 9.8% 9.9%
Arrear instalments on slow-paying and non-performing
accounts as a percentage of gross debtors 28.6% 26.8%
Credit applications decline rate 38.7% 39.3%
Shareholder ratios
Net asset value per share (cents) 6 133 6 158
Gearing ratio 2.9% 25.5%
Dividend payout ratio 54.7% 52.7%
Return on average equity (after-tax) 6.6% 17.6%
Return on average capital employed (after-tax) 6.7% 14.7%
Return on average assets managed (pre-tax) 8.3% 15.8%
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 88 790 000 shares in issue (2016 – 88 499 000).
3. Total assets exclude the deferred tax asset and the reinsurance asset.
These results are also available on our website: www.lewisgroup.co.za
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, AJ Smart.
Company secretary: MG McConnell. Transfer secretaries: Computershare Investor Services (Pty) Ltd; Rosebank Towers,
15 Biermann Ave, Rosebank, Johannesburg, 2196; 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
Date: 24/05/2017 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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