Wrap Text
Unaudited interim results for the six months ended 30 September 2017
LEWIS GROUP LTD
Registration number: 2004/009817/06
Share code: LEW
ISIN: ZAE000058236
UNAUDITED INTERIM RESULTS
for the six months ended 30 September 2017
MERCHANDISE SALES UP 5%
GROSS MARGIN EXPANDED TO 40.9%
DEBTOR COSTS REDUCED BY 11.5%
HEADLINE EARNINGS PER SHARE 15.8% LOWER
INTERIM DIVIDEND MAINTAINED AT 100 cents PER SHARE
BALANCE SHEET UNGEARED
TRADING AND FINANCIAL PERFORMANCE
The group's performance for the six-month period
to 30 September 2017 shows an improving sales
growth trend, enhanced gross profit margin, tight
expense control and reduced debtor costs in a
challenging trading and collections environment.
The group's core lower to middle income
customer base continues to be impacted by
increasing living costs, high unemployment and
limited prospects in the current low growth
environment in the country. Credit sales continue
to be restricted by the National Credit Regulator's
affordability assessment regulations.
Merchandise sales gained momentum in the
latter months of the period and increased by 5%,
driven by new merchandise ranges and increased
promotional activity across the three trading
brands. Comparable store sales grew by 7.3%.
Stores outside South Africa contributed 24.3%
of merchandise sales. Group credit sales
accounted for 68.8% (H1 2017: 63.4%) of total sales.
Revenue was 3.2% lower as other revenue declined
by 9.8%. This was mainly as a result of lower credit
sales and changes to the insurance offering in
prior periods which has limited annuity income.
The group's gross profit margin strengthened by
40 basis points to 40.9% and is at the upper end
of management's target range of 38% to 42%. The
margin benefited from more competitive pricing
on locally sourced product and margin expansion
in the furniture categories.
Operating costs, excluding debtor costs, continue
to be well managed and increased by 1.8%.
The increase in marketing and promotional costs
supported sales growth.
The operating margin contracted from 10.0% to
7.2% for the period, within management's guided
range. The margin was impacted by the decline
in revenue. Headline earnings declined from
R173 million to R144 million with headline earnings
per share 15.8% lower at 163.9 cents.
Following the repayment of borrowings of
R1.4 billion in the last 18 months, the balance sheet
is ungeared at the end of the period, compared
to gearing of 18.8% in the prior period. The group
remains strongly cash-generative. Cash on hand and
deposits totalled R684 million at reporting date.
The net asset value per share increased from
6 040 cents to 6 315 cents, highlighting the
group's sound financial position.
The group has maintained the interim dividend
at 100 cents per share.
DEBTOR MANAGEMENT
The performance of the debtors book is
considered satisfactory in a challenging
collections environment. Debtor costs declined
by 11.5%. Collection rates improved from 74.6% in
the first half of the 2017 financial year to 76.2% in
the current period. Debtor costs as a percentage
of net debtors decreased from 8.6% to 8.0%. The
level of satisfactory paid customers at 67.7% is in
line with last year's 67.9%.
RETAIL STORE FOOTPRINT
At end September 2017 the group traded out of
744 stores across its three retail brands following
the net closure of 17 stores during the period.
Trading space reduced by 4.2% as the group
continued to open smaller format Lewis stores
and close marginal stores. The Lewis brand trades
out of 207 smaller format stores in its portfolio of
500 stores. The group's 110 stores outside South
Africa account for 15% of the total store base.
SHARE REPURCHASE PROGRAMME
The group implemented a share repurchase
programme and bought back 2.9 million shares
(3% of the issued share capital at the start of
the programme) between 30 May 2017 and
29 September 2017 at a total cost of R94.2 million.
At the annual general meeting on 17 October 2017
shareholders granted authority to repurchase a
further 5% of the company's issued shares.
ACQUISITION OF UNITED FURNITURE OUTLETS
After the end of the reporting period the group
announced the acquisition of United Furniture
Outlets ("UFO") for R320 million, subject to
approval from the competition authorities. UFO
is a cash retailer of luxury household furniture to
the higher income market and has a footprint of
30 stores. The acquisition aligns with the group's
strategy of diversifying and gaining access to
higher income customers and improving its cash-
to-credit sales mix. The business is considered to
be scalable, offering the opportunity to extend
the store footprint across South Africa and into
neighbouring countries and will benefit from the
group's buying power.
CHANGES TO THE BOARD OF DIRECTORS
During the reporting period the following
changes were made to the board of directors.
Daphne Motsepe and Adheera Bodasing
were appointed as non-executive directors
with effect from 1 June 2017. Ben van der
Ross retired as a non-executive director at
the company's annual general meeting on
17 October 2017. The board welcomes the new
directors and thanks Mr Van der Ross for his
outstanding contribution to the group over the
past 13 years.
PROSPECTS
The trading environment is expected to remain
challenging for the rest of the financial year.
Management continues to focus on sales
growth, managing expenses, and reducing
debtor costs.
Following the acquisition of UFO, the group will
be well positioned to service customers across
all market segments.
The important festive trading season will be
supported by strong promotional activity and
new merchandise ranges.
DIVIDEND DECLARATION
Notice is hereby given that a final gross cash
dividend of 100 cents per share in respect of
the six months ended 30 September 2017 has
been declared payable to holders of ordinary
shares. The number of shares in issue as of the
date of declaration is 95 116 220. 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 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, 23 January 2018
Date trading commences "ex" dividend Wednesday, 24 January 2018
Record date Friday, 26 January 2018
Date of payment Monday, 29 January 2018
Share certificates may not be dematerialised or
rematerialised between Wednesday, 24 January
2018 and Friday 26 January 2018, both days
inclusive.
For and on behalf of the Board
David Nurek Johan Enslin Les Davies
Independent Chief executive officer Chief financial officer
Non-executive chairman
Cape Town
13 November 2017
INCOME STATEMENT
Unaudited Unaudited Audited
Six months Six months 12 months
ended ended ended
30 Sept 30 Sept 31 March
2017 2016 2017
Notes Rm Rm Rm
Revenue 2 658.6 2 745.8 5 592.1
Merchandise sales 6 1 294.8 1 233.0 2 607.9
Finance charges and initiation fees earned 678.5 731.9 1 451.8
Insurance revenue 356.4 420.3 822.3
Ancillary services 328.9 360.6 710.1
Cost of merchandise sales 6 (765.8) (733.9) (1 522.4)
Operating costs (1 701.0) (1 736.9) (3 504.9)
Debtor costs 2.2 (444.3) (502.1) (1 065.5)
Employment costs (513.8) (498.0) (987.0)
Occupancy costs (183.4) (183.1) (370.8)
Administration and IT (164.3) (156.5) (318.4)
Transport and travel (99.1) (101.7) (202.8)
Marketing (123.0) (112.9) (199.9)
Depreciation and amortisation (43.6) (48.5) (90.1)
Other operating costs (129.5) (134.1) (270.4)
Operating profit before investment income 191.8 275.0 564.8
Investment income 3.2 32.8 58.0 104.9
Profit before finance costs 224.6 333.0 669.7
Net finance costs (15.7) (80.5) (148.4)
Interest paid (37.7) (96.9) (174.3)
Interest received 21.3 25.9 39.4
Forward exchange contracts 0.7 (9.5) (13.5)
Profit before taxation 208.9 252.5 521.3
Taxation 7 (65.5) (78.2) (163.3)
Net profit attributable
to ordinary shareholders 143.4 174.3 358.0
Earnings per share (cents) 163.7 196.6 403.5
Diluted earnings per share (cents) 162.6 196.3 399.1
STATEMENT OF COMPREHENSIVE INCOME
Unaudited Unaudited Audited
Six months Six months 12 months
ended ended ended
30 Sept 30 Sept 31 March
2017 2016 2017
Rm Rm Rm
Net profit for the year 143.4 174.3 358.0
Items that may be subsequently reclassified
to income statement:
Movement in other reserves 6.0 2.3 (2.4)
Fair value adjustment to available-for-sale
investments 4.6 13.3 9.6
Disposal of available-for-sale investments (0.8) - (0.2)
Foreign currency translation reserve 2.2 (11.0) (11.8)
Items that may not be subsequently
reclassified to income statement:
Retirement benefit remeasurements - - 1.2
Other comprehensive income 6.0 2.3 (1.2)
Total comprehensive income for the year
attributable to equity shareholders 149.4 176.6 356.8
EARNINGS AND DIVIDENDS PER SHARE
Unaudited Unaudited Audited
Six months Six months 12 months
ended ended ended
30 Sept 30 Sept 31 March
2017 2016 2017
Rm Rm Rm
Weighted average number of shares
Weighted average 87 613 88 671 88 730
Diluted weighted average 88 167 88 776 89 699
Headline earnings (Rm)
Attributable earnings 143.4 174.3 358.0
Disposal of fixed assets 1.0 (0.4) (1.6)
Profit on disposal of
available-for-sale investments (0.8) - (0.2)
Gain on acquisition of Beares - (1.2) (1.2)
143.6 172.7 355.0
Earnings per share (cents)
Earnings per share 163.7 196.6 403.5
Diluted earnings per share 162.6 196.3 399.1
Headline earnings per share (cents)
Headline earnings per share 163.9 194.8 400.1
Diluted headline earnings per share 162.9 194.5 395.8
Dividends per share
Dividends paid per share (cents)
Final dividend 2017 (2016) 100.0 302.0 302.0
Interim dividend 2018 (2017) - - 100.0
100.0 302.0 402.0
Dividends declared per share (cents)
Interim dividend 2018 (2017) 100.0 100.0 100.0
Final dividend 2018 (2017) - - 100.0
100.0 100.0 200.0
BALANCE SHEET
Unaudited Unaudited Audited
Six months Six months 12 months
ended ended ended
30 Sept 30 Sept 31 March
2017 2016 2017
Notes Rm Rm Rm
ASSETS
Non-current assets
Property, plant and equipment 319.7 362.5 343.5
Trademarks 64.4 68.3 66.2
Goodwill 5.5 8.9 5.5
Deferred taxation 26.4 61.5 48.9
Retirement benefit asset 55.0 63.0 55.0
Financial assets - insurance investments 3.1 456.3 449.9 455.9
927.3 1 014.1 975.0
Current assets
Inventories 530.8 449.6 454.6
Trade and other receivables 2.1 4 203.7 4 472.3 4 225.8
Reinsurance assets 3.3 97.6 269.8 152.2
Insurance premiums in advance 200.3 739.1 403.2
Taxation 166.0 206.4 181.1
Financial assets - insurance investments 3.1 244.3 818.1 294.9
Cash-on-hand and deposits 684.2 836.3 788.6
6 126.9 7 791.6 6 500.4
Total assets 7 054.2 8 805.7 7 475.4
EQUITY AND LIABILITIES
Capital and reserves
Share capital and premium 14.1 108.0 108.3
Other reserves 20.0 20.0 6.2
Retained earnings 5 386.8 5 235.0 5 330.8
5 420.9 5 363.0 5 445.3
Non-current liabilities
Long-term interest-bearing borrowings 4 600.0 1 100.0 700.0
Deferred taxation 81.7 69.3 91.0
Retirement benefit liability 106.8 107.7 101.7
788.5 1 277.0 892.7
Current liabilities
Trade and other payables 410.9 376.7 271.3
Reinsurance and insurance liabilities 3.4 399.1 1 044.9 618.8
Short-term interest-bearing borrowings 4 34.8 744.1 247.3
844.8 2 165.7 1 137.4
Total equity and liabilities 7 054.2 8 805.7 7 475.4
STATEMENT OF CHANGES IN EQUITY
Unaudited Unaudited Audited
Six months Six months 12 months
ended ended ended
30 Sept 30 Sept 31 March
2017 2016 2017
Rm Rm Rm
Share capital and premium
Opening balance 108.3 92.1 92.1
Cost of own shares acquired (treasury shares) (94.2) - -
Share awards to employees - 15.9 16.2
14.1 108.0 108.3
Other reserves
Opening balance 6.2 27.5 27.5
Other comprehensive income for the year 6.0 2.3 (2.4)
Share-based payment 7.8 5.1 (4.0)
Transfer of share-based payment reserve to
retained earnings on vesting - (14.9) (14.9)
20.0 20.0 6.2
Retained earnings
Opening balance 5 330.8 5 329.8 5 329.8
Net profit attributable to ordinary
shareholders 143.4 174.3 358.0
Distribution to shareholders (87.4) (268.1) (356.9)
Share awards to employees - (15.9) (16.2)
Transfer of share-based payment reserve
to retained earnings on vesting - 14.9 14.9
Retirement benefit remeasurements - - 1.2
5 386.8 5 235.0 5 330.8
Balance as at the end of period 5 420.9 5 363.0 5 445.3
CASH FLOW STATEMENT
Unaudited Unaudited Audited
Six months Six months 12 months
ended ended ended
30 Sept 30 Sept 31 March
2017 2016 2017
Rm Rm Rm
Cash flow from operating activities
Cash flow from trading 286.3 352.8 540.9
Operating profit before investment income 191.8 275.0 564.8
Adjusted for:
Share-based payments 7.8 5.1 (4.0)
Depreciation and amortisation 43.6 48.5 90.1
Movement in debtors impairment provision 64.9 86.4 27.0
Movement in other provisions (28.2) (67.7) (144.7)
Other movements 6.4 5.5 7.7
Changes in working capital: 88.8 274.8 573.9
(Increase)/decrease in inventories (89.0) 15.9 11.6
(Increase)/decrease in trade
and other receivables (40.6) 17.7 322.8
Increase in trade payables 180.6 172.9 143.8
Decrease in insurance premiums in advance 202.9 446.3 782.2
Decrease in reinsurance asset 54.6 127.5 245.1
Decrease in reinsurance and
insurance liabilities (219.7) (505.5) (931.6)
Cash generated from operations 375.1 627.6 1 114.8
Interest received 54.1 83.9 144.0
Interest paid (37.0) (106.4) (187.8)
Taxation paid (38.6) (230.4) (254.8)
353.6 374.7 816.2
Cash utilised in investing activities
Net disposals of insurance business
investments 55.4 419.0 931.1
Purchase of insurance investments (22.5) (1 992.1) (2 253.8)
Disposals of insurance investments 77.9 2 411.1 3 184.9
Acquisition of property, plant and equipment (20.8) (38.3) (61.3)
Purchase of businesses (refer note 9) - (111.0) (107.6)
Proceeds on disposal of property,
plant and equipment 1.5 3.7 7.6
36.1 273.4 769.8
Cash flow from financing activities
Dividends paid (87.4) (268.1) (356.9)
Repayments of borrowings (347.3) (150.0) (1 027.7)
Purchase of own shares (94.2) - -
(528.9) (418.1) (1 384.6)
Net (decrease)/increase in cash
and cash equivalents (139.2) 230.0 201.4
Cash and cash equivalents
at the beginning of the year 788.6 587.2 587.2
Cash and cash equivalents at the end of year 649.4 817.2 788.6
NOTES TO THE FINANCIAL STATEMENTS
1. BASIS OF REPORTING
The summary consolidated interim 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 these consolidated
interim financial statements are in terms of International Financial
Reporting Standards and consistent with those applied in the consolidated
annual financial statements for the year ended 31 March 2017 ("previous
year"). 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).
Unaudited Unaudited Audited
Six months Six months 12 months
ended ended ended
30 Sept 30 Sept 31 March
2017 2016 2017
Rm Rm Rm
2. TRADE AND OTHER
RECEIVABLES
2.1 Trade receivables
Instalment sale
and loan receivables 6 090.2 6 372.6 6 107.1
Unearned provisions (510.0) (550.8) (525.9)
Provision for unearned
maintenance income (304.1) (338.6) (320.0)
Provision for unearned
finance charges and unearned
initiation fees (205.9) (212.2) (205.9)
Net instalment sale
and loan receivables 5 580.2 5 821.8 5 581.2
Provision for impairment (1 625.5) (1 620.0) (1 560.6)
3 954.7 4 201.8 4 020.6
Other receivables 249.0 270.5 205.2
4 203.7 4 472.3 4 225.8
Debtors' impairment provision
as a percentage of net
debtors (%) 29.1 27.8 28.0
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 three
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 customers 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 customers 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 customers 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 satisfactorily 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.
Debtors analysis
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 Number of Gross Impairment Total Instalments in arrears
customers receivables provision arrears 1 2 3 4 >4
Customer grouping Period Total R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000
Satisfactory paid
Customers who have paid Sept 2017 Number 409 445 3 457 430 20 437 561 863 153 413 107 496 80 648 61 171 159 135
70% or more of amounts % 67.7 56.8 1.3
due over the contract period.
The provision in this category Sept 2016 Number 442 103 3 616 595 37 673 629 534 167 576 119 407 89 852 67 936 184 763
results from in duplum 67.9 56.9 2.3
provision. March 2017 Number 422 070 3 507 921 27 609 596 271 162 822 114 395 86 010 65 285 167 759
% 68.5 57.4 1.8
Slow payers
Customers who have paid 65% Sept 2017 Number 52 312 522 647 195 250 324 376 37 633 36 471 34 665 32 541 183 066
to 70% of amounts due over the % 8.6 8.6 12.0
contra ct period. The provision
in this category for the current Sept 2016 Number 53 090 540 194 187 597 324 927 36 791 35 727 33 884 31 618 186 907
period ranges from 13% to 68% % 8.2 8.5 11.6
(September 2016: 14% to March 2017 Number 52 078 538 715 192 890 321 871 37 240 36 064 33 849 31 573 183 145
66%) of amounts due and includes % 8.4 8.9 12.4
an in duplum provision.
Non-performing accounts
Customers who have paid Sept 2017 Number 45 632 550 218 248 575 359 017 33 350 31 744 30 622 29 533 233 768
between 55% and 65% of % 7.5 9.0 15.3
amounts due over the contract
period. The provision in this Sept 2016 Number 49 167 585 809 248 481 372 092 34 396 32 708 31 563 30 298 243 127
category for the current period % 7.6 9.1 15.3
ranges from 23% to 79% March 2017 Number 47 981 576 347 258 823 366 979 34 413 32 902 31 201 29 727 238 736
(September 2016: 24% to 78%) % 7.8 9.4 16.6
of amounts due.
Non-performing accounts
Customers who have paid 55% Sept 2017 Number 97 792 1 559 939 1 161 281 1 107 034 71 012 69 576 68 415 67 372 830 659
or less of amounts due over the % 16.2 25.6 71.4
contract period. The provision
in this category for the current Sept 2016 Number 106 643 1 629 870 1 146 198 1 125 994 73 369 72 060 71 016 70 022 839 527
period ranges from 34% to 100% % 16.3 25.5 70.8
(September 2016: 33% to 100%) March 2017 Number 94 118 1 484 119 1 081 237 1 057 905 67 299 66 090 64 564 63 075 796 877
of amounts due. % 15.3 24.3 69.2
Sept 2017 605 181 6 090 234 1 625 543 2 352 290 295 408 245 287 214 350 190 617 1 406 628
Gross debtor analysis Sept 2016 651 003 6 372 468 1 619 949 2 452 547 312 132 259 902 226 315 199 874 1 454 324
March 2017 616 247 6 107 102 1 560 559 2 343 026 301 774 249 451 215 624 189 660 1 386 517
Gross Unearned Net Impairment
receivables provision receivable provision Impairment
Period R'000 R'000 R'000 R'000 %
September 2017 6 090 234 (509 994) 5 580 240 1 625 543 29.1
Net debtor analysis September 2016 6 372 468 (550 728) 5 821 740 1 619 949 27.8
March 2017 6 107 102 (525 900) 5 581 202 1 560 559 28.0
An in duplum provision of R21.8 million (2016: R39.8 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 22.6% (2016: 22.3%) and the average term of the sale is 32.9 months
(2016: 32.9 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.
Unaudited Unaudited Audited
Six months Six months 12 months
ended ended ended
30 Sept 30 Sept 31 March
2017 2016 2017
Rm Rm Rm
2.2 Debtor costs
Bad debts, repossession losses
and bad debt recoveries 379.4 415.7 1 038.5
Movement in debtors' 64.9 86.4 27.0
impairment provision
Closing balance 1 625.5 1 620.0 1 560.6
Opening balance (1 560.6) (1 533.6) (1 533.6)
444.3 502.1 1 065.5
Debtor costs as a percentage
of net instalment sale and
loan receivables (%) 8.0 8.6 19.1
Unaudited Unaudited Audited
Six months Six months 12 months
ended ended ended
30 Sept 30 Sept 31 March
2017 2016 2017
Rm Rm Rm
3. INSURANCE
3.1 Insurance investments
Financial assets
- insurance investments
Listed investments
Fixed income securities
- available-for-sale 456.3 449.9 455.9
Unlisted Investments
Money market
- available-for-sale 244.3 818.1 294.9
700.6 1 268.0 750.8
Analysed as follows:
Non-current 456.3 449.9 455.9
Current 244.3 818.1 294.9
700.6 1 268.0 750.8
Movement for the year
Beginning of the year 750.8 1 668.5 1 668.5
Additions to investments 22.5 1 992.1 2 253.8
Disposals of investments (77.9) (2 411.1) (3 184.6)
Fair value adjustment 5.2 18.5 13.1
End of the year 700.6 1 268.0 750.8
Fair value hierarchy
The following table presents the assets recognised and subsequently
measured at fair value:
Level 1 Level 2 Total
Rm Rm Rm
30 September 2017
Available-for-sale assets:
Insurance investments:
Fixed income securities - 456.3 456.3
Money market - 244.3 244.3
- 700.6 700.6
30 September 2016
Available-for-sale assets:
Insurance investments:
Fixed income securities - 449.9 449.9
Money market - 818.1 818.1
- 1 268.0 1 268.0
31 March 2017
Available-for-sale assets:
Insurance investments:
Fixed income securities - 455.9 455.9
Money market - 294.9 294.9
- 750.8 750.8
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 are categorised as Level 2 based
on management's current assessment of all active markets for debt
instruments.
Unaudited Unaudited Audited
Six months Six months 12 months
ended ended ended
30 Sept 30 Sept 31 March
2017 2016 2017
Rm Rm Rm
3.2 Investment income
Interest - insurance business 31.7 58.0 104.6
Realised gain on disposal
of insurance investments 1.1 - 0.3
32.8 58.0 104.9
3.3 Reinsurance assets
Reinsurer's share of unearned
premiums 67.5 234.6 123.8
Opening balance 123.8 364.0 364.0
Recognised in income
statement (56.3) (129.4) (240.2)
Reinsurer's share of insurance
provisions 30.1 35.2 28.4
Opening balance 28.4 33.3 33.3
Recognised in income
statement 1.7 1.9 (4.9)
Total reinsurance assets 97.6 269.8 152.2
3.4 Reinsurance and insurance
liabilities
Unearned premiums 243.5 710.2 412.1
Opening balance 412.1 1 090.8 1 090.8
Recognised in income
statement (168.6) (380.6) (678.7)
Due to reinsurers 0.8 50.0 0.3
Other reinsurance and
insurance liabilities 154.8 284.7 206.4
Opening balance 206.4 361.2 361.2
Recognised in income
statement (51.6) (76.5) (154.8)
Total reinsurance
and insurance liabilities 399.1 1 044.9 618.8
4. BORROWINGS, BANKING
FACILITIES AND CASH
Interest-bearing borrowings
Long-term
Banking facilities 600.0 1 100.0 700.0
Short-term
Banking facilities and bond - 725.0 225.0
Bank overdrafts 34.8 19.1 22.3
34.8 744.1 247.3
Cash and cash equivalents
Cash on hand (684.2) (836.3) (788.6)
Net borrowings (49.4) 1 007.8 158.7
Unutilised facilities
Banking facilities 2 199.4 1 567.2 2 116.3
Domestic Medium Term Note
Programme 2 000.0 1 700.0 2 000.0
4 199.4 3 267.2 4 116.3
Available facilities 4 150.0 4 275.0 4 275.0
Interest rate profile
Interest rate profile of borrowings
is as follows:
Bank borrowings at interest rates
linked to three-month JIBAR. The
weighted average interest rate at
the end of the reporting period is
9.28% (2016: 9.60%) 600.0 1 825.0 925.0
600.0 1 825.0 925.0
Capital management
Net borrowings (49.4) 1 007.8 158.7
Shareholder's equity 5 420.9 5 363.0 5 445.3
Gearing ratio (%) (0.9) 18.8 2.9
Best Home
Lewis & Electric Beares Group
Rm Rm Rm Rm
5. REPORTABLE
SEGMENTS
Primary
For the six months
ended 30 September
2017 (Unaudited)
Revenue 1 930.7 348.5 379.4 2 658.6
Operating profit 113.9 56.4 21.5 191.8
before investment
income
Operating margin (%) 5.9 16.2 5.7 7.2
Segment assets 3 455.0 581.1 449.4 4 485.5
For the six months
ended 30 September
2016 (Unaudited) 2 046.8 353.6 345.4 2 745.8
Operating profit
before investment
income 217.8 55.2 2.0 275.0
Operating margin (%) 10.6 15.6 0.6 10.0%
Segment assets 3 571.4 605.8 474.2 4 651.4
For the twelve
months ended
31 March 2017
(Audited)
Revenue 4 137.0 725.4 729.7 5 592.1
Operating profit 424.2 111.0 29.6 564.8
before investment
income
Operating margin (%) 10.3 15.3 4.1 10.1
Segment assets 3 357.2 578.7 539.3 4 475.2
South
Africa Namibia BLS* Group
Rm Rm Rm Rm
Geographical
For the six months
ended 30 September
2017 (Unaudited)
Revenue 2 159.3 258.6 240.7 2 658.6
For the six months
ended 30 September
2016 (Unaudited)
Revenue 2 234.1 267.1 244.6 2 745.8
For the twelve
months ended
31 March 2017
(Audited)
Revenue 4 559.0 526.3 506.8 5 592.1
* Botswana, Lesotho and Swaziland
Unaudited Unaudited Audited
Six months Six months 12 months
ended ended ended
30 Sept 30 Sept 31 March
2017 2016 2017
Rm Rm Rm
6. GROSS PROFIT
Merchandise sales 1 294.8 1 233.0 2 607.9
Cost of merchandise sales (765.8) (733.9) (1 522.4)
Merchandise gross profit 529.0 499.1 1 085.5
Gross profit percentage (%) 40.9 40.5 41.6
7. TAXATION
Taxation charge
Normal taxation
Current year 53.7 52.4 100.3
Prior year - - 0.8
Deferred taxation
Current year 11.8 25.8 61.3
Prior year - - 0.9
Taxation per income statement 65.5 78.2 163.3
Tax rate reconciliation
Profit before taxation 208.9 252.5 521.3
Taxation calculated at a tax rate
of 28% (2016: 28%) 58.5 70.7 146.0
Differing tax rates in foreign
countries 3.5 4.2 6.3
Disallowances 3.5 3.3 14.5
Exemptions - - (5.2)
Prior years - - 1.7
Taxation per income statement 65.5 78.2 163.3
Effective tax rate (%) 31.4 31.0 31.3
8. REGULATORY MATTERS
8.1 Pending matters
The details and history of these matters has been set out in note 13 to
the annual financial statements for the year ended 31 March 2017.
The group has the following pending matters:
Referrals by National Credit Regulator to the National Consumer
Tribunal ("NCT"):
First referral (July 2015): in relation to the sale of loss of employment
insurance and disability cover to customers who were pensioners or self-
employed persons.
Second referral (April 2016): relating to club fees and extended
maintenance contracts charged to customers
High Court summonses (February/April 2016):
These were summonses issued at the direction of Summit Financial
Partners by 28 plaintiffs, being existing or previous customers of Lewis,
relating to delivery charges and extended maintenance contracts.
Section 165 of Companies Act:
First demand (May 2016): Mr Woollam addressed a letter to the Lewis
Board demanding that Lewis commence proceedings to declare certain
directors delinquent.
8.2 Progress
Since issuing the financial statements for the year ended 31 March 2017, the
following progress has been made:
Second referral: On 25 May 2017, the NCT issued its ruling in Lewis's
favour dismissing the referral. The NCR have appealed the ruling and the
appeal is due to be heard on 17 April 2018.
High Court summonses: On 4 August 2017, the plaintiff's application
for leave to amend particulars of their claim was dismissed with a cost
order being granted in favour of Lewis. The plaintiffs have again sought
to amend the particulars of their claim and Lewis has objected thereto.
Accordingly, the plaintiffs second application for leave to amend will be
heard in due course.
First demand: The heads of argument for the appeal have been filed.
No date for the hearing has been allocated.
Unaudited Unaudited Audited
Six months Six months 12 months
ended ended ended
30 Sept 30 Sept 31 March
2017 2016 2017
Rm Rm Rm
9. PURCHASE OF BUSINESSES
Trademarks - 8.4 8.4
Goodwill - 8.9 5.5
Property, plant and equipment - 3.7 3.7
Inventory - 23.2 23.2
Trade receivables - 73.1 73.1
Accounts payable - (3.5) (3.5)
Deferred tax - (1.6) (1.6)
Gain on acquisition of Beares - (1.2) (1.2)
Total consideration - 111.0 107.6
In the prior year, 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 are trading under the Lewis or
Beares brands.
10. POST-BALANCE SHEET EVENTS
On 18 October 2017, Lewis Stores Proprietary Limited ("Lewis Stores"), a
wholly-owned subsidiary of the group, has concluded an agreement with the
shareholders ("Vendors") of United Furniture Outlets Proprietary Limited ("UFO")
in terms of which, amongst other things, Lewis Stores will acquire the entire
issued ordinary share capital and all shareholders' claims against UFO from the
Vendors ("Acquisition").
The Acquisition consideration ("Consideration") is a cash amount of
R320 million (plus interest if applicable). R16 million of the Consideration will be
deferred subject to confirmation of the net asset value of UFO at the effective
date.
The Acquisition is subject to the fulfilment (or waiver where applicable) by no later
than 90 business days after the signature date, of certain conditions precedent
(which are usual for a transaction of this nature), including:
- the approval of the Competition Tribunal of the Acquisition;
- the approval of the Takeover Regulation Panel of the Acquisition; and
- certain of UFO´s lessors and third party funders providing consent to the
change in ownership of UFO.
11. STANDARDS NOT YET EFFECTIVE
11.1 IFRS 9 Financial Instruments
IFRS 9 (Financial Instruments) replaces IAS 39 (Financial Instruments: Recognition
and Measurement) will become effective for the group for the year ending 31
March 2019. The impact of IFRS 9 on the group will be in respect of:
- revised requirements for classification and measurement of financial
instruments; and
- an expected credit loss impairment model for financial instruments.
With respect to classification and measurement of financial instruments, the
group does not expect a significant impact on the results and financial position,
although it will ultimately depend on the composition of financial instruments on
the balance sheet at the date of initial adoption.
In terms of IFRS 9, the group has the option to select the general model or the
simplified model to determine its expected credit losses ("ECL"). The group is likely
to adopt the simplified model which recognises the expected credit losses over the
lifetime of trade receivables on initial recognition.
The IFRS 9 ECL impairment model is expected to increase the level
of balance sheet impairments that are currently held in terms of
IAS 39. Revenue recognition policies may be impacted by the adoption of
IFRS 9 as certain revenue streams may have to be accounted as part of the
effective interest rate on a yield to maturity basis.
The group has established an implementation committee with representation
from all relevant departments. The key focus of the committee is on considering
impairment methodologies, predictive credit quality and cash flow models and output
validation, testing and analysis.
The impact of the IFRS 9 ECL requirements can be only reliably determined on the
date of transition to IFRS 9. This impact is primarily dependent on the finalisation
of the group's impairment methodologies, conclusion of external audit procedures,
credit quality and size of the group's trade receivables and the forward-looking
economic expectations, on adoption of the standard.
11.2 IFRS 15 and IFRS 16
IFRS 15 (Revenue from Contracts with Customers) replaces IAS 18 (Revenue)
and will be effective for the group for the year ending 31 March 2019. The
current analysis indicates that the adoption of IFRS 15 is not expected to have a
significant impact on the group's results or financial position.
IFRS 16 (Leases) replaces IAS 17 (Leases) with respect to lessees and is effective
for the group for the year ending 31 March 2020. The current analysis is that IFRS
16 will result in the recognition on the balance sheet of a right of use asset and a
corresponding liability for the expected future lease payments.
The final impact for the above standards can only be reliably determined on their
adoption.
11.3 IFRS 17
IFRS 17 which replaces IFRS 4, applies to insurance contracts and reinsurance contracts.
The standard will apply to the group for the year ending 31 March 2022. Management has not
yet performed an assessment of the potential impact of the implementation of this new standard.
KEY RATIOS
Unaudited Unaudited Audited
Six months Six months 12 months
ended ended ended
30 Sept 30 Sept 31 March
2017 2016 2017
Operating efficiency ratios
Gross profit margin (%) 40.9 40.5 41.6
Operating profit margin (%) 7.2 10.0 10.1
Number of stores 744 780 761
Number of
permanent employees (average) 8 180 8 767 8 619
Trading space (sqm) 237 728 260 934 248 271
Inventory turn 2.9 3.6 3.3
Current ratios 7.3 3.6 5.7
Credit ratios
Credit sales (%) 68.8 63.4 65.2
Debtor costs as % of the net debtors (%) 8.0 8.6 19.1
Debtors' impairment provision
as a percentage of net debtors (%) 29.1 27.8 28.0
Arrear instalments on satisfactory
accounts as % of gross debtors (%) 9.2 9.9 9.8
Arrear instalments on slow-paying
and non-performing accounts as a
percentage of gross debtors (%) 29.4 28.6 28.6
Credit applications decline rate (%) 37.4 40.5 38.7
Shareholder ratios
Net asset value per share (cents) 6 315 6 040 6 133
Gearing ratio (%) (0.9) 18.8 2.9
Dividend payout ratio (%) 66.3 55.0 54.7
Return on average equity (after-tax) (%) 5.2 6.4 6.6
Return on average capital employed
(after-tax) (%) 5.0 6.4 6.7
Return on average assets managed
(pre-tax) (%) 6.4 7.6 8.3
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 85 848 000 shares in issue(2016: 88 499 000).
3. Total assets exclude the deferred tax asset and the reinsurance asset.
Executive directors: J Enslin (Chief executive officer), LA Davies (Chief financial officer). Independent non-executive directors: DM Nurek (Chairman), H Saven,
Professor F Abrahams, AJ Smart, D Motsepe, A Bodasing. Company secretary: PB Croucher 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: 13/11/2017 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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