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Audited summary consolidated financial statements for the year ended 31 March 2019
LEWIS GROUP LTD
Registration number: 2004/009817/06
Share code: LEW
ISIN: ZAE000058236
Bond code: LEWI
AUDITED SUMMARY CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 March 2019
Highlights
Revenue up 10.4%
Merchandise sales up 22.9%
Gross profit margin 41.2%
Debtor costs reduced by 11.9%
Operating profit up 16.8%
Headline earnings per share up 24.3%
Total dividend up 17% to 234 cents per share
Commentary
Trading and financial performance
The turnaround in the performance of Lewis Group's traditional retail brands continued to gain
momentum, while the group has also started to reap the benefits of its strategy of diversification
across market segments and retail channels.
Merchandise sales increased by 22.9% to R3.5 billion, lifted by the acquisition of United Furniture
Outlets (UFO) which contributed sales of R478 million in its first full year in the group. INspire, the
new omni-channel home shopping retailer, continued to grow month-by-month and generated
sales of R27.2 million in its first 10 months since launch. Excluding the sales from UFO and INspire,
the group's merchandise sales grew by 7.6%. Comparable store sales increased by 6.9%.
Credit sales increased by 8.1% for the year, with growth of 11.3% in the second half, reflecting the
benefits of change in the affordability assessment regulations on the group's traditional retail
brands (Lewis, Best Home and Electric, and Beares).
Cash sales increased by 51.1%, supported by UFO which has enabled the group to access higher
income customers.
Other revenue, consisting of finance charges and initiation fees, insurance premiums and services
rendered, increased by 1.3% (decline of 2.8% after adjustment for interest on credit impaired
accounts), mainly due to lower credit sales in prior years which limited annuity income as well as
the adverse impact of regulatory capping of credit insurance. Other revenue posted positive
growth in the second half and the strengthening trend is expected to continue.
Total revenue, comprising merchandise sales and other revenue, increased by 12.4% (10.4% after
adjusting for interest on credit impaired accounts).
The group's gross profit margin was stable at 41.2% (2018: 41.4%) and remains at the upper level of
management's target range of 38% to 42%.
The growth in operating costs, excluding debtor costs, was contained well below the growth in sales
and increased by 13.7%. Marketing and promotional costs were increased to support sales growth,
including the launch of INspire. Expenses in the traditional retail segment increased by 7.2%.
Operating profit increased by 16.8% to R443.0 million and the group's operating margin increased
to 7.2%, within management's guided range of 5% to 10%. The traditional retail segment
contributed profit of R429.4 million and UFO R40.5 million. INspire posted a start-up loss of
R26.9 million.
Finance costs were R19.7 million lower owing mainly to gains on forward exchange contracts
covering merchandise imports.
Headline earnings increased by 18.4% to R308.4 million (2018: R260.5 million), with headline
earnings per share 24.3% higher at 376.2 cents (2018: 302.6 cents).
The balance sheet remained ungeared at year end and the group has no borrowings. The group
remains highly cash generative with cash and cash equivalents totalling R205 million at year end.
The group increased its total dividend by 17% to 234 cents per share (2018: 200 cents).
Debtor management
Collection rates improved from 74.9% to 76.3% and resulted in an encouraging improvement in the
group's debtor book despite the weak consumer credit environment. Debtor costs continued to
decline and reduced by 11.9% (23.4% after adjustment for interest on credit impaired accounts).
Debtor costs as a percentage of net debtors decreased from 17.2% to 13.3%. The level of
satisfactory paid customers improved to 71.4% from 68.4% last year.
Debtor impairment
IFRS 9 - Financial Instruments is effective for the group for the year ending 31 March 2019,
replacing IAS 39 - Financial Instruments: Recognition and Measurements. The most significant
impact of IFRS 9 on the group relates to the implementation of the forward-looking expected
credit loss impairment model on the measurement of debtors. IAS 39 applied the incurred loss
model. Refer to note 1.2 for further detail on the transition to IFRS 9.
The adoption of IFRS 9 does not impact on the group's credit management practices and
business model and these will continue to be consistently applied as in the past.
Expanding retail presence
The group's store base increased to 784 following the opening of 30 stores and closure of
19 stores during the year. Lewis continues to open smaller format stores which now account for
44% of the brand's stores. During the year, 121 stores across the portfolio were refurbished.
UFO opened 8 stores and closed 3, bringing the store footprint to 36. While the availability of
retail space in upmarket shopping malls is proving to be a challenge to expanding the chain,
5 to 10 new stores are planned for the 2020 financial year.
The store network outside South Africa increased to 120 with the opening of 10 stores in Namibia,
including the first 7 Best Home and Electric stores in the country.
Share repurchase programme
The group repurchased 3.2 million shares during the financial year, at an average market price of
R30.30 per share. At the annual general meeting in October 2018, shareholders granted
management the authority to repurchase up to a further 10% of the issued share capital.
Outlook
The strong sales growth trend experienced in the second half is expected to continue into the new
financial year.
The changes in the affordability assessment regulations, which enabled self-employed and
informally employed individuals to again apply for credit, will continue to benefit sales into the
new year.
Other revenue is expected to recover in line with the turnaround in the performance of the
traditional business. Management expects the growth rate in other revenue to move closer to the
growth in credit sales over the next two to three years.
The group's diversification strategy is expected to continue to support sales growth. UFO is
proving to be a sound acquisition, with new stores trading well and extensive expansion
opportunities. INspire is gaining traction and is anticipated to reach break-even point in the
forthcoming financial year.
Dividend declaration
Notice is hereby given that a final gross cash dividend of 129 cents per share in respect of the year
ended 31 March 2019, has been declared payable to holders of ordinary shares. The number of
shares in issue as of the date of declaration is 80 296 046. 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 129 cents and the dividend tax payable is 25.8 cents for shareholders who are not
exempt. The net dividend for shareholders who are not exempt will therefore be 103.2 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 16 July 2019
Date trading commences "ex" dividend Wednesday 17 July 2019
Record date Friday 19 July 2019
Date of payment Monday 22 July 2019
Share certificates may not be dematerialised or rematerialised between Wednesday 17 July 2019
and Friday 19 July 2019, both days inclusive.
For and on behalf of the board
Hilton Saven Johan Enslin Jacques Bestbier
Independent Chief executive officer Chief financial officer
Non-executive
Chairman
Cape Town
22 May 2019
AUDITORS OPINION
These summary consolidated financial statements for the year ended 31 March 2019 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.
The auditor's report does not necessarily report on all of the information contained in this announcement/financial
results. Shareholders are therefore advised that in order to obtain a full understanding of the nature of the auditor's
engagement they should obtain a copy of the auditor's report together with the accompanying financial information from the
issuer's registered office.
Income statement
for the year ended 31 March 2019
2019 2018
Audited Audited
Notes Rm Rm
Revenue 6 137.2 5 556.8
Retail revenue 4 4 242.3 3 524.2
Merchandise sales 3 519.9 2 865.0
Ancillary services 722.4 659.2
Insurance revenue 647.2 671.0
Effective interest income 1 247.7 1 361.6
Cost of merchandise sales 7 (2 069.3) (1 677.8)
Operating costs (3 624.9) (3 499.7)
Debtor costs 2.2 (733.1) (957.3)
Employment costs (1 149.5) (1 059.1)
Occupancy costs (444.8) (373.2)
Administration and IT (348.3) (328.8)
Transport and travel (241.7) (205.0)
Marketing (298.3) (246.6)
Depreciation and amortisation (78.6) (85.9)
Other operating costs (330.6) (243.8)
Operating profit before investment income 443.0 379.3
Investment income 3.2 50.3 62.4
Profit before finance costs 493.3 441.7
Net finance costs (29.5) (49.2)
Interest paid (69.8) (87.6)
Interest received 23.0 38.9
Forward exchange contracts 17.3 (0.5)
Profit before taxation 463.8 392.5
Taxation 10 (154.3) (128.4)
Net profit attributable to ordinary shareholders 309.5 264.1
Earnings per share (cents) 377.5 306.8
Diluted earnings per share (cents) 368.7 301.3
Statement of comprehensive income
for the year ended 31 March 2019
2019 2018
Audited Audited
Rm Rm
Net profit for the year 309.5 264.1
Items that may be subsequently reclassified to income statement:
Movement in other reserves (10.1) 9.9
Fair value adjustments (15.3) 22.8
Changes in the fair value of debt instruments at fair value through
other comprehensive income FVOCI debt**/available-for-sale*
investments (21.3) 31.6
Tax effect 6.0 (8.8)
Disposals 0.2 (1.3)
Disposal of FVOCI debt/available-for-sale investments 0.3 (1.7)
Tax effect (0.1) 0.4
Foreign currency translation reserve 5.0 (11.6)
Items that may not be subsequently reclassified to income
statement: (4.1) 42.6
Retirement benefit remeasurements (5.7) 59.1
Tax effect 1.6 (16.5)
Other comprehensive income (14.2) 52.5
Total comprehensive income for the year attributable to equity
shareholders 295.3 316.6
* IAS 39 classification for the previous reporting period.
** Fair value through other comprehensive income ("FVOCI") - IFRS 9 Classification for the current reporting period.
Earnings and dividends per share
for the year ended 31 March 2019
2019 2018
Audited Audited
Weighted average number of shares
Weighted average ('000) 81 990 86 073
Diluted weighted average ('000) 83 950 87 670
Headline earnings
Attributable earnings (Rm) 309.5 264.1
Profit on disposal of fixed assets (Rm) (1.1) (2.4)
Profit on disposal of available-for-sale investments (Rm) - (1.2)
Headline earnings 308.4 260.5
Earnings per share
Earnings per share (cents) 377.5 306.8
Diluted earnings per share (cents) 368.7 301.3
Headline earnings per share
Headline earnings per share (cents) 376.2 302.6
Diluted headline earnings per share (cents) 367.4 297.1
Dividends per share
Dividends paid per share
Final dividend 2018 (2017) (cents) 100.0 100.0
Interim dividend 2019 (2018) (cents) 105.0 100.0
205.0 200.0
Dividends declared per share
Interim dividend 2019 (2018) (cents) 105.0 100.0
Final dividend 2019 (2018) (cents) 129.0 100.0
234.0 200.0
Balance sheet
for the year ended 31 March 2019
2019 2018
Audited Audited
Restated
Notes Rm Rm
Assets
Non-current assets
Property, plant and equipment 298.9 301.8
Intangible assets 122.3 117.8
Goodwill 187.6 187.6
Deferred taxation 195.4 10.9
Retirement benefit asset 79.0 91.1
Financial assets - insurance investments 3.1 276.1 471.0
1 159.3 1 180.2
Current assets
Inventories 665.8 579.7
Trade and other receivables 2.1 3 315.6 4 200.0
Insurance premiums in advance - 75.6
Taxation 102.9 136.5
Financial assets - insurance investments 3.1 340.7 135.4
Cash-on-hand and deposits 204.7 608.4
4 629.7 5 735.6
Total assets 5 789.0 6 915.8
Equity and liabilities
Capital and reserves
Share capital and premium 0.9 425.0
Treasury shares 9 (0.5) (480.2)
Other reserves 48.4 42.6
Retained earnings 4 827.3 5 461.1
4 876.1 5 448.5
Non-current liabilities
Long-term interest-bearing borrowings 5 - -
Deferred taxation 43.2 121.0
Retirement benefit liability 87.2 89.8
130.4 210.8
Current liabilities
Trade and other payables 521.8 379.2
Payments in advance 158.0 168.9
Reinsurance and insurance liabilities 102.7 176.8
Short-term interest-bearing borrowings 5 - 531.6
782.5 1 256.5
Total equity and liabilities 5 789.0 6 915.8
Statement of changes in equity
for the year ended 31 March 2019
2019 2018
Audited Audited
Notes Rm Rm
Share capital and premium
Opening balance 425.0 588.5
Cost of own shares acquired (99.0) (163.5)
Treasury shares cancelled 9 (477.7) -
Transfer of cost of cancelled shares 9 152.6 -
0.9 425.0
Treasury shares
Opening balance (480.2) (480.2)
Share awards to employees 8.1 -
Cost of own shares acquired (6.1) -
Treasury shares cancelled 9 477.7 -
(0.5) (480.2)
Other reserves
Opening balance 42.6 6.2
Other comprehensive income for the year
Changes in fair value of FVOCI debt/available-for-sale investments (15.3) 22.8
Disposal of FVOCI debt/available-for-sale investments 0.2 (1.3)
Foreign currency translation reserve 5.0 (11.6)
Share-based payment 36.2 26.5
Transfer of share-based payment reserve to retained earnings
on vesting (20.3) -
48.4 42.6
Retained earnings
Opening balance as previously reported 5 461.1 5 325.9
IFRS 9 Transitional adjustments (604.8) -
IFRS 15 Transitional adjustments (26.0) -
Opening balance (Restated) 4 830.3 5 325.9
Net profit attributable to ordinary shareholders 309.5 264.1
Distribution to shareholders (168.0) (171.5)
Transfer of cost of cancelled shares 9 (152.6) -
Transfer of share-based payment reserve to retained earnings
on vesting 20.3 -
Retirement benefit remeasurements (4.1) 42.6
Share awards to employees (8.1) -
4 827.3 5 461.1
Balance as at 31 March 4 876.1 5 448.5
Cash flow statement
for the year ended 31 March 2019
2019 2018
Audited Audited
Notes Rm Rm
Cash flow from operating activities
Cash flow from trading 8.1 501.8 606.3
Changes in working capital 8.2 150.7 101.9
Cash flow from operations 652.5 708.2
Interest received other than from trade receivables 73.0 99.5
Interest paid (69.8) (88.1)
Taxation paid (128.1) (58.5)
527.6 661.1
Cash utilised in investing activities
Net disposals of insurance business investments (31.1) 176.0
Purchase of insurance investments (293.3) (81.5)
Disposals of insurance investments 262.2 257.5
Acquisition of property, plant and equipment (88.6) (44.4)
Purchase of businesses (16.5) (234.6)
Proceeds on disposal of property, plant and equipment 9.6 12.4
(126.6) (90.6)
Cash flow from financing activities
Dividends paid (168.0) (171.5)
Repayments of borrowings (502.8) (422.2)
Purchase of own shares (105.1) (163.5)
(775.9) (757.2)
Net decrease in cash and cash equivalents (374.9) (186.7)
Cash and cash equivalents at the beginning of the year 579.6 766.3
Cash and cash equivalents at the end of the year 204.7 579.6
Notes to the summary financial statements
for the year ended 31 March 2019
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, 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 IFRS
and are consistent with those accounting policies applied in the preparation of the previous
consolidated annual financial statements except as disclosed in note 1.2.
The group's trading cycle, consistent with prior financial periods, ends on the fifth day after
the month being reported on, unless such day falls on a Sunday, in which case it ends on the
fourth day. The financial results have been consistently prepared on this basis in prior years
and each financial year reflects one year's trading performance, including the current and
comparative year being reported on.
These financial statements are a summary of the group's audited annual financial statements
for the year ended 31 March 2019. The audited annual financial statements were prepared by
the group's Finance Department under the supervision of Mr. J Bestbier CA(SA). A copy of
the full set of the audited financial statements is available for inspection at the company's
registered office.
1.2 Changes in accounting policies and restatements
1.2.1 Adoption of IFRS 9
The group has adopted IFRS 9 with effect from 1 April 2018. The group has elected not
to restate its comparative information as permitted by IFRS 9. Accordingly, the impact
of IFRS 9 has been applied retrospectively with an adjustment to the group's opening
retained earnings on 1 April 2018. Therefore comparative information in the prior period
annual financial statements has not been amended for the impact of IFRS 9.
The major changes in accounting policies arising from the adoption of IFRS 9 can be
summarised as follows:
- The impairment of financial assets has been significantly amended by IFRS 9. The
main impact being that IFRS 9 introduces an expected credit loss model when
assessing the impairment of financial assets. The group has elected to use the
simplified model for trade receivables while the general model applies to all other
assets.
- The classification of financial instruments from IAS 39 to IFRS 9 categories. This has
had no impact in the opening reserves of the group or the carrying values of the
financial instruments.
The adjustment to opening retained earnings for the transition to the expected credit
loss model (impairment of trade receivables) as at 1 April 2018 is as follows:
Rm
Decrease in trade receivables (841.9)
Attributable deferred tax 237.1
Decrease in retained earnings as at 1 April 2018 (604.8)
Interest income
The following change to the effective interest recognition policy was also required
following the adoption of IFRS 9:
Interest income is calculated by applying the effective interest rate to the gross
carrying value of financial assets, except for financial assets that have subsequently
become credit-impaired (or "stage 3"), for which interest income is calculated by
applying the effective interest rate to their amortised cost (i.e. gross carrying value less
impairment provision).
1.2.2 Adoption of IFRS 15
The group has adopted IFRS 15 with effect 1 April 2018. In adopting IFRS 15,
comparative financial information has not been restated and the impact of transitioning
to IFRS 15 is reflected as an adjustment to opening retained earnings as at 1 April 2018.
The following change to the accounting policy was required as a consequence of
transitioning to IFRS 15:
Refund obligation
It is a policy to sell goods with the right of return in terms of current consumer
legislation. Such sales are cancelled where the right of return is exercised. Under
IFRS 15, a refund liability for the expected refunds is recognised as an adjustment to
revenue and trade and other payables. The corresponding right to recover the product
from the customer is an adjustment to cost of sales and inventory.
The adjustment to opening retained earnings as at 1 April 2018 is as follows:
Rm
Gross amount (36.1)
Increase in trade and other payables (62.6)
Increase in inventory 26.5
Attributable deferred tax 10.1
Decrease in retained earnings as at 1 April 2018 (26.0)
1.2.3 Restatements
The following restatements were made:
Where customers have settled their accounts or where customers have paid in advance
of Lewis performing under the maintenance contract, there was a remaining period
under the said maintenance contract for which Lewis still had to provide a service.
Previously, the gross carrying value of trade receivables was incorrectly reduced to the
extent of the remaining unearned maintenance income. This has been restated to
payments in advance and disclosed under current liabilities.
Where customers have paid in advance for goods still to be delivered under the sales
contract, this was previously included in trade and other payables. This has been
restated as payments in advance and diclosed under current liabilities.
The restatements have the following impact on trade receivables, trade and other
payables and payments in advance for the year ending 31 March 2018:
Trade Trade Payments in
receivables payables advance
March 2018 - previously reported 4 068.9 417.0 -
March 2018 - effect of change 131.1 (37.8) 168.9
March 2018 - restated 4 200.0 379.2 168.9
2019 2018
Audited Audited
Restated
Rm Rm
2. Trade and other receivables
2.1 Trade receivables
Trade receivables 5 527.8 5 608.7
Provision for impairment (2 323.1) (1 619.5)
Trade receivables (net) 3 204.7 3 989.2
Due within 12 months 2 012.9 2 571.8
Due after 12 months 1 191.8 1 417.4
Other receivables 110.9 210.8
Total trade and other receivables 3 315.6 4 200.0
Debtors' impairment provision as percentage
of net debtors (%) 42.0 28.9
Amounts due from trade receivables after one year are reflected as current, as they
form part of the normal operating cycle. The credit terms of trade receivables range
from 6 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
credit worthiness of customers. 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 is 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 affordability 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 continuously monitors any variances from the level of risk
that has been adopted.
The group manages its risk effectively by assessing the customer's ability to service the
proposed monthly instalment.
Impairment provision
The customer's payment profile is managed by 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 customer's at the store
level to follow up the slow paying and non-performing customers.
In accordance with IFRS 9, the group has elected to measure the impairment allowance
equal to the lifetime expected credit losses ("ECL"). The lifetime ECL is calculated by
determining cash flows on a probability weighted basis and discounting these at the
effective interest rate in the contract, including initiation fees. The discounted cash flow
is compared to the balance owing at point of assessment to determine the ECL.
The probability weighted cash flows are calculated using the debtor book population's
payment behaviour in combination with a transition matrix. The transition matrix and
payment performance for each payment state has been developed utilising customer
payment history. The transition matrix predicts the population's payment behaviour and
probability of the account being in a particular payment state and transitioning into
future payment states. The key states in the transitional matrix are the customer's
lifetime payment rating, time on book and contractual term. For modelling purposes,
cash flows are forecast until the account is written off or settled.
The impairment provision applicable to each payment rating and the trending thereof,
is evaluated with collection rates and customer payment data produced by the credit
risk information systems.
The key indicators that are reviewed include, inter alia, the following:
- Number of satisfactorily 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 each payment rating and the trend
thereof. The impairment calculation is performed on a monthly basis taking into
account the payment behaviour of the debtors book having regard to the customer's
lifetime payment rating, time on book and contractual term.
Contractual arrears
The key aspect of the arrear calculation is Lewis' 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
arrear. 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 main groupings of payment ratings describing payment behaviour.
- For each of the main groupings of payment ratings, the following is disclosed:
- Number of customers;
- Gross receivables or gross carrying value;
- Impairment provision allocated to each grouping; and
- Contractual arrears for each grouping have been categorised by number of
instalments in arrears.
The table referred to above is set out below:
Debtor analysis 31 March 2019
Gross Instalments in arrears
Number of carrying Impairment Impairment Total
customers value provision provision arrears 1 2 3 >3
Customer grouping Total R'000 R'000 % R'000 R'000 R'000 R'000 R'000
Satisfactory paid
Customers who have paid 70%
or more of amounts due over the 418 355 3 282 938 593 578 18.1 534 435 156 625 105 396 76 314 196 100
contract period. % 71.4 59.4 25.6
Slow payers
Customers who have paid 55%
to 70% of amounts due over the 88 969 959 418 612 172 63.8 606 735 68 541 65 290 60 511 412 393
contract period. % 15.2 17.4 26.4
Non-performing accounts
Customers who have paid less
than 55% of amounts due over 78 426 1 285 439 1 117 328 86.9 987 580 63 762 62 451 60 902 800 465
the contract period. % 13.4 23.3 48.1
Gross debtor analysis 585 750 5 527 795 2 323 078 42.0 2 128 750 288 928 233 137 197 727 1 408 958
Credit impaired debtors as at 31 March 2019
No payment in
Non- In duplum Debt counselling 3 consecutive months
performing
accounts Satisfactory Slow pay Satisfactory Slow pay Satisfactory Slow pay Total
Credit impaired categories R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000
Gross carrying value as at 31 March 2019 1 285 439 13 182 43 748 35 277 70 006 45 259 70 650 1 563 561
Impairment provision (1 117 328) (5 578) (30 605) (7 661) (39 764) (9 842) (39 900) (1 250 678)
Amortised cost 168 111 7 604 13 143 27 616 30 242 35 417 30 750 312 883
1 April 2018 (transition to IFRS 9)
Number Gross Instalments in arrears
of carrying Impairment Impairment Total
customers value provision provision arrears 1 2 3 >3
Customer grouping Total R'000 R'000 % R'000 R'000 R'000 R'000 R'000
Satisfactory paid Customers who
have paid 70% or more of amounts 401 183 3 063 886 675 971 22.1 549 506 155 673 105 593 77 633 210 607
due over the contract period. % 68.4 55.0 27.9 24.1
Slow payers Customers who have
paid 55% to 70% of amounts due 97 251 1 049 782 608 716 58.0 665 893 72 167 69 010 64 474 460 242
over the contract period. % 16.5 18.9 25.1 29.2
Non-performing accounts
Customers who have paid less than 88 430 1 455 670 1 137 347 78.1 1 062 130 67 452 66 131 64 513 864 034
55% of amounts due over the
contract period. % 15.1 26.1 47.0 46.6
Gross debtor analysis 586 864 5 569 338 2 422 034 43.5 2 277 529 295 292 240 734 206 620 1 534 883
Credit impaired debtors as at 1 April 2018
No payment in
Non- In duplum Debt counselling 3 consecutive months
performing
accounts Satisfactory Slow pay Satisfactory Slow pay Satisfactory Slow pay Total
Credit impaired categories R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000
Gross carrying value as at 1 April 2018 1 455 670 5 378 26 244 32 567 75 005 52 448 83 327 1 730 639
Impairment provision (1 137 347) (3 184) (16 341) (10 364) (43 978) (14 204) (45 155) (1 270 573)
Amortised cost 318 323 2 194 9 903 22 203 31 027 38 244 38 172 460 066
31 March 2018 (IAS 39) (Restated)
Instalments in arrears
Number of Gross Impairment Total
customers receivables provision arrears 1 2 3 >3
Customer grouping Total R'000 R'000 R'000 R'000 R'000 R'000 R'000
Satisfactory paid
Customers who have paid 70% or 401 183 3 521 017 18 039 549 506 155 673 105 593 77 633 210 607
more of amounts due over the
contract period. % 68.4 57.9 1.1
Slow payers
Customers who have paid 65% to 51 311 522 578 196 021 308 975 37 594 36 230 33 546 201 605
70% of amounts due over the
contract period. % 8.7 8.6 12.1
Non-performing accounts
Customers who have paid between 45 940 563 339 262 519 356 918 34 573 32 780 30 928 258 637
55% and 65% of amounts due over
the contract period. % 7.8 9.3 16.2
Non-performing accounts
Customers who have paid 55% 88 430 1 471 294 1 142 920 1 062 130 67 452 66 131 64 513 864 034
or less of amounts due over the
contract period. % 15.1 24.2 70.6
Gross debtor analysis 586 864 6 078 228 1 619 499 2 277 529 295 292 240 734 206 620 1 534 883
Unearned provision (469 549)
Gross carrying value 5 608 679 28.9%
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 22.8%
(2018: 22.7%) and the average term of the sale is 32.8 months (2018: 32.8 months).
Fair value
In terms of paragraph 29(a) of IFRS 7, the carrying amounts reported in the balance
sheet approximates fair value.
2019 2018
Audited Audited
Rm Rm
2.2 Debtor costs
Bad debts 894.9 958.7
Bad debts before credit impairment adjustment 1 005.3 958.7
Credit impairment adjustment (110.4) -
Bad debt recoveries (62.8) (60.3)
Movement in debtors' impairment provision (99.0) 58.9
Closing balance 2 323.1 1 619.5
Transition to IFRS 9 (802.6) -
Opening balance (1 619.5) (1 560.6)
733.1 957.3
Debtor costs as a percentage of trade receivables (%) 13.3 17.5
Included in bad debts in the current year is a reduction relating to credit impaired
accounts. Interest income is recognised by applying the effective interest rate to the
amortised cost (gross carrying value less impairment provision), resulting in lower
bad debts.
2019 2018
Audited Audited
Rm Rm
3. Insurance
3.1 Insurance investments
Financial assets - insurance investments
Listed investments
Fixed income securities
- FVOCI debt/available-for-sale investments 276.1 471.0
Unlisted investments
Money market
- FVOCI debt/available-for-sale investments 340.7 135.4
616.8 606.4
Analysed as follows:
Non-current 276.1 471.0
Current 340.7 135.4
616.8 606.4
Movement for the year
Beginning of the year 606.4 750.8
Additions to investments 293.3 81.5
Disposals of investments (261.9) (255.7)
Fair value adjustment (21.0) 29.8
End of the year 616.8 606.4
A register of listed investments is available for inspection at the company's registered
office.
Fair value hierarchy
The following table presents the assets recognised and subsequently measured at fair
value:
Level 2 Total
Rm Rm
2019
Insurance investments:
Fixed income securities - FVOCI debt 276.1 276.1
Money market - FVOCI debt 340.7 340.7
616.8 616.8
2018
Insurance investments:
Fixed income securities - available-for-sale 471.0 471.0
Money market - available-for-sale 135.4 135.4
606.4 606.4
The categorisation of the valuation techniques used to value the assets at fair value are
as set out in IFRS 13.
2019 2018
Audited Audited
Rm Rm
3.2 Investment income
Interest - insurance business 50.0 60.7
Realised gain on disposal of insurance investments 0.3 1.7
50.3 62.4
2019 2018
Audited Audited
Rm Rm
4. Revenue
4.1 Revenue 6 137.2 5 556.8
Retail revenue - revenue from contracts with customers 4 242.3 3 524.2
Merchandise sales 3 519.9 2 865.0
Ancillary services 722.4 659.2
Insurance revenue 647.2 671.0
Effective interest income 1 247.7 1 361.6
Finance charges and initiation fees earned 1 358.1 1 361.6
Credit impairment adjustment (110.4) -
Omni-
Traditional Cash Channel Total
Rm Rm Rm Rm
4.2 Retail revenue
2019
Merchandise sales
- Cash 1 002.9 478.4 0.5 1 481.8
- Credit 2 011.4 - 26.7 2 038.1
Ancillary services
- At a point in time 156.0 8.6 0.2 164.8
- Over time 556.8 - 0.8 557.6
3 727.1 487.0 28.2 4 242.3
2018
Merchandise sales
- Cash 915.5 64.9 - 980.4
- Credit 1 884.6 - - 1 884.6
Ancillary services
- At a point in time 143.7 1.1 - 144.8
- Over time 514.4 - - 514.4
3 458.2 66.0 - 3 524.2
2019 2018
Audited Audited
Rm Rm
5. Borrowings, banking facilities and cash
Interest-bearing borrowings
Long-term
Banking facilities - -
Short-term
Banking facilities - 502.8
Bank overdrafts - 28.8
- 531.6
Cash-on-hand and deposits (204.7) (608.4)
Net borrowings (204.7) (76.8)
Unutilised facilities
Banking facilities 1 500.0 1 618.4
Domestic medium term note programme 2 000.0 2 000.0
3 500.0 3 618.4
Available facilities 3 704.7 3 541.6
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 9.1% (2018: 9.1%). - 502.8
- 502.8
Cash and cash equivalents
Cash-on-hand and deposits 204.7 608.4
Bank overdrafts - (28.8)
204.7 579.6
Capital management
Net debt (204.7) (76.8)
Shareholder's equity 4 876.1 5 448.5
Gearing ratio (%) (4.2) (1.4)
Omni-
Traditional Cash retail(1) Channel Group
Rm Rm Rm Rm
6. Reportable segments
Primary
2019
Revenue 5 619.5 487.0 30.7 6 137.2
Operating profit before investment income 429.4 40.5 (26.9) 443.0
Operating margin (%) 7.6 8.3 (87.6) 7.2
Segment assets 3 696.3 136.1 38.1 3 870.5
2018 (Restated)
Revenue 5 490.8 66.0 - 5 556.8
Operating profit before investment income 383.5 (4.2) - 379.3
Operating margin (%) 7.0 (6.4) - 6.8
Segment assets 4 458.9 110.0 - 4 568.9
(1) In 2018, reflects only two months trading since its acquisition by the group.
Change in segments
During the year, the group changed its operating segments to reflect the new strategic
direction of the group, especially with regard to the acquired businesses and the
development of new business ventures. The operating segments are as follows:
- Traditional business which consists of credit-focused brands of Lewis, Best Home and
Electric and Beares.
- Cash business, UFO.
- Omni-Channel business, being newly launched INspire.
In accordance with IFRS 8, the comparatives have been prepared as if these reportable
segments were in place in the prior periods.
South Africa Namibia BLE* Group
Rm Rm Rm Rm
Geographical
2019
Revenue 5 131.2 491.6 514.4 6 137.2
2018
Revenue 4 551.2 497.6 508.0 5 556.8
* Botswana, Lesotho and Eswatini.
2019 2018
Audited Audited
Rm Rm
7. Gross profit
Merchandise sales 3 519.9 2 865.0
Cost of merchandise sales (2 069.3) (1 677.8)
Merchandise gross profit 1 450.6 1 187.2
Gross profit percentage (%) 41.2 41.4
2019 2018
Audited Audited
Restated
Rm Rm
8. Cash flow from operations
8.1 Cash flow from trading 501.8 606.3
Operating profit before investment income 443.0 379.3
Adjusted for:
Share-based payments 36.2 26.5
Depreciation and amortisation 78.6 85.9
Movement in debtors impairment provision (99.0) 58.9
Movement in other provisions 23.3 47.8
Other movements 19.7 7.9
Included in cash flow from trading is interest received on trade receivables of R1 358.1 million.
8.2 Changes in working capital 150.7 101.9
Increase in inventories (63.6) (27.3)
Decrease in trade and other receivables 146.5 82.9
Increase/(decrease) in trade payables 77.2 (23.4)
(Decrease)/increase in payments in advance (10.9) 31.9
Decrease in insurance premiums in advance 75.6 327.6
Decrease in reinsurance asset - 152.2
Decrease in reinsurance and insurance liabilities (74.1) (442.0)
The 2018 comparatives for changes in trade and other receivables, trade payables and payments in advance
have been updated for the restatement set out in note 1.3.
9. Cancellation of treasury shares
Lewis Stores (Pty) Ltd ("Lewis Stores"), previously held 9 216 928 ordinary shares in Lewis
Group Ltd ("the company"), which comprised approximately 9.95% of the issued ordinary
shares of the company. On 4 June 2018, Lewis Stores made a distribution in specie of the
treasury shares to the company, in its capacity as the holding company of Lewis Stores. On
completion of the distribution, the treasury shares have reverted to the authorised, but
unissued share capital of the company with effect from 4 June 2018. There are no longer any
treasury shares in issue held by the company's subsidiaries, except for the Share Trust, as
defined by the Companies Act of 2008.
The dividend in specie in the statement of changes in equity relates to the distribution of the
company's own shares as a dividend from its subsidiary entity. This is accounted for as a
transaction in equity as gains or losses on own shares are not recognised in profit or loss.
The Lewis Employee Incentive Scheme Trust effectively holds 15 842 shares, all of which will
be utilised to cover share awards granted to executives.
2019 2018
Audited Audited
Rm Rm
10. Taxation
Taxation charge
Normal taxation
Current year 107.0 93.5
Prior year 36.7 (0.6)
Deferred taxation
Current year 23.3 29.8
Prior year (27.7) (6.8)
Withholding tax 15.0 12.5
Taxation per income statement 154.3 128.4
Tax rate reconciliation
Profit before taxation 463.8 392.5
Taxation calculated at a tax rate of 28% (2018: 28%) 129.9 109.9
Differing tax rates in foreign countries 3.5 4.5
Disallowances 7.9 22.8
Exemptions (11.0) (13.9)
Prior years 9.0 (7.4)
Withholding tax 15.0 12.5
Taxation per income statement 154.3 128.4
Effective tax rate (%) 33.3 32.7
11. New Standards and Interpretations not yet effective
IFRS 16
IFRS 16 (Leases) replaces IAS 17 with effect from the year ending 31 March 2020. IFRS 16 will
result in most leases being recognised in the balance sheet, as the distinction between
operating and finance leases has been removed. Under the new standard, an asset
representing the right to use the leased item and a financial liability, to pay rentals, will be
recognised. The only exceptions are short-term and low-value leases.
The group has set up a project team which has reviewed all of the group's leasing
arrangements over the last year in light of the new lease accounting rules in IFRS 16 and
is in the process of quantifying the effect. The new standard will primarily affect the accounting
for operating leases relating to retail stores. As at the reporting date the group has non-cancellable
operating lease commitments of R656.2 million.
IFRS 17
IFRS 17 (Insurance Contracts) which replaces IFRS 4, applies to insurance contracts and
reinsurance contracts. The standard will apply to the group for the year ending 31 March
2023. Management has not yet performed an assessment of the potential impact of the
implementation of this new standard.
12. Post balance sheet events
There were no significant post balance sheet events that occurred between the year end and
the date of approval of the financial statements by the directors.
Key ratios
for the year ended 31 March 2019
2019 2018
Operating efficiency ratios
Gross profit margin (%) 41.2 41.4
Operating profit margin (%) 7.2 6.8
Number of stores 784 773
Number of permanent employees (average) 8 101 8 093
Trading space (sqm) 254 590 258 463
Inventory turn* (times) 3.1 2.8
Current ratio* 5.9 3.8
Credit ratios
Credit sales (%) 57.9 65.8
Debtor costs as a percentage of the net debtors* (%) 13.3 17.2
Debtors' impairment provision as a percentage of net debtors* (%) 42.0 43.5
Arrear instalments on satisfactory paid accounts
as a percentage of gross debtors (%) 8.8 9.2
Arrear instalments on slow-paying and non-performing
accounts as a percentage of gross debtors (%) 26.2 28.8
Credit applications decline rate (%) 37.4 37.1
Shareholder ratios
Net asset value per share* (cents) 6 081 5 778
Gearing ratio* (%) (4.2) (1.6)
Dividend payout ratio (%) 61.1 71.1
Return on average equity (after-tax)* (%) 6.4 5.1
Return on average capital employed (after-tax)* (%) 6.5 5.1
Return on average assets managed (pre-tax)* (%) 8.5 6.6
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 80 194 000 shares in issue (2018: 83 384 000).
3. Total assets exclude the deferred tax asset and the reinsurance asset.
4. Net debtors represents the gross carrying value i.e. after unearned provisions. Gross debtors is before
unearned provisions.
5. Ratios marked with an asterisk calculated assuming that IFRS 9, IFRS 15 and restatements were implemented
as at 31 March 2018.
Corporate information
Non-executive directors: Hilton Saven (Independent non-executive chairman),
Fatima Abrahams, Adheera Bodasing, Daphne Motsepe,
Alan Smart, Duncan Westcott.
Executive directors: Johan Enslin (chief executive officer)
Jacques Bestbier (chief financial officer)
Company secretary: Ntokozo Makomba
Transfer secretaries: Computershare Investor Services (Pty) Ltd; 7 Rosebank Towers,
15 Biermann Ave, Rosebank, Johannesburg, 2196; PO Box 61051,
Marshalltown, 2107.
Auditors: PricewaterhouseCoopers Inc.
Sponsor: UBS South Africa (Pty) Ltd.
Debt Sponsor: ABSA BANK Limited, acting through its Corporate &
Investment Banking Division
Registered office: 53A Victoria Road, Woodstock, 7925.
Registration number: 2004/009817/06.
Share code: LEW
ISIN: ZAE000058236
Bond code: LEWI
These results are also available on our website: www.lewisgroup.co.za
Date: 22/05/2019 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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