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Summary unaudited consolidated financial results for the six months ended 30 September 2019 and cash dividend
Lewis Group Limited
Incorporated in the Republic of South Africa
Registration number: 2004/009817/06
Share code: LEW
ISIN: ZAE000058236
Bond Code: LEWI
Bond ISIN No. ZAG000110222
SHORT-FORM ANNOUNCEMENT
Summary unaudited consolidated financial results for the six months ended 30
September 2019 and cash dividend declaration
Revenue up 6.1%
Merchandise sales up 6.4%
Gross profit margin up 40 bps to 40.3%
Operating profit up 25.7% (up 8.9% excluding the impact of IFRS 16)
Earnings per share up 18.3% to 215 cents
Headline earnings up 14.4% to R171 million
Headline earnings per share up 18.9% to 215 cents
Interim dividend up 14.3% to 120 cents per share
Commentary
Trading and financial performance (including IFRS 16 in current year)
The group has adopted the new lease accounting standard IFRS 16 on a modified
retrospective basis and comparative information has therefore not been restated. Refer
to note 1.2 for detail on the impact of IFRS16 on the group.
Revenue increased by 6.1% to R3.1 billion, with merchandise sales up 6.4% and other
revenue increasing by 5.8%. The gross profit margin expanded by 40 basis points to
40.3%. Operating cost increased by 5.2% and debtor costs reduced by 0.4%.
Operating profit increased by 25.7% to R243.5 million and the operating margin
strengthened by 120 basis points to 7.9%. Net finance costs were R21.6 million higher
mainly due to the recognition of interest on the IFRS 16 lease liability. The group reported
a 13.7% increase in net profit to R171.1 million for the six months.
Trading and financial performance (excluding IFRS 16 in current year)
The commentary presented below constitutes pro-forma financial information in terms of
the JSE Listings Requirements. The applicable criteria on the basis of which this pro-
forma financial information has been prepared is set out in the commentary contained in
the full announcement.
1
After recording strong sales growth for the first quarter, growth slowed in the second
quarter, resulting in merchandise sales increasing by 6.4% to R1.7 billion for the six
months. Comparable store sales grew by 2.8% for the period.
The group’s traditional retail brands Lewis, Best Home and Electric, and Beares
increased sales by 3.7% for the first six months. UFO grew by 8.8% and INspire, the
omni-channel home shopping retailer, generated sales of R35.7 million for the six months
(H1 2019: R3.8 million for the five months since inception). Stores outside South Africa,
which comprise 15.4% of the store base, accounted for 17.3% of total sales.
Credit sales increased by 8.1% and continued to benefit from the change in the
affordability assessment regulations. Cash sales grew by 4.1%.
Other revenue, consisting of finance charges and initiation fees, insurance premiums and
services rendered, increased by 5.8%.
Total revenue, comprising merchandise sales and other revenue, increased by 6.1%.
The group’s gross profit margin benefited from the introduction of new merchandise
ranges and increased by 40 basis points to 40.3% (H1 2019: 39.9%).
Operating costs, excluding debtor costs, grew by 7.5%, within management’s guided
range of 6% to 8%. In-store promotions and marketing activity were increased to support
sales growth in the current challenging consumer environment.
Operating profit increased by 8.9% to R211.0 million and the group’s operating margin
expanded by 10 basis points to 6.8%. The traditional retail segment contributed R201.6
million and UFO R22.6 million. INspire posted a loss of R13.2 million and is no longer
expected to reach breakeven by the end of the 2020 financial year. The INspire business
model is being refined by developing the various sales channels and increasing collection
rates to improve profitability.
Net finance costs reflected an improvement of R14.9 million and can be attributed to a
saving in interest paid following the repayment of borrowings.
Net profit increased by 16.4% to R175.2 million (H1 2019: R150.4 million).
On a comparable basis, the group remains ungeared and has no borrowings. On an
IFRS 16 basis, the gearing ratio is at 11.9% owing to lease liabilities of R813.0 million
now being reflected on the balance sheet.
The interim dividend was increased by 14.3% to 120 cents per share (H1 2019: 105),
with a dividend payout ratio of 55%.
Improving health of debtor book
The credit health of the group’s customer base continued to improve despite the weak
consumer credit environment, with collection rates increasing from 77.2% to 79.6%. This
contributed to debtor costs declining by 0.4%.
2
The level of satisfactory paid customers improved to 74.2% from 69.9% at end
September 2018, the highest level reported since September 2008.
Owing to the improving quality of the debtor book, the impairment provision reduced to
39.8% from 43.5% at 30 September 2018.
Store footprint
Following the opening of 9 stores and closure of 6 stores over the past six months, the
group’s store base increased to 787. This includes 121 stores in the neighbouring
countries of Namibia, Botswana, Eswatini and Lesotho. A further 107 stores across the
portfolio were refurbished and 4 stores relocated to improve trading positions.
Share repurchase programme
The group repurchased 1.9 million shares during the first half of the financial year, at an
average market price of R32.33 per share. Since the commencement of the current
share repurchase programme the group bought back 10.6 million shares at an average
price of R30.69 per share. At the annual general meeting in October 2019 shareholders
granted management the authority to repurchase a further 10% of the issued share
capital.
Outlook
Against the background of the weak macroeconomic environment in South Africa, trading
conditions are not expected to improve in the short to medium term. The group’s strategy
of diversification across target markets and sales channels is expected to continue
offering resilience in the constrained consumer spending climate. A net six new stores
are planned for the second half of the year.
Marketing activity is being accelerated to drive sales growth, with all the group’s brands
planning to expand participation in Black Friday 2019. The group is also planning for
robust festive season trading which will be supported by strong promotional campaigns
and new merchandise ranges.
Dividend declaration
Notice is hereby given that a final gross cash dividend of 120 cents per share in respect
of the 6 months ended 30 September 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 120 cents and the dividend
tax payable is 24 cents for shareholders who are not exempt. The net dividend for
shareholders who are not exempt will therefore be 96 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.
3
The following dates are applicable to this declaration:
Last date of trade “cum” dividend Tuesday 21 January 2020
Date trading commences “ex” dividend Wednesday 22 January 2020
Record date Friday 24 January 2020
Date of payment Monday 27 January 2020
Share certificates may not be dematerialised or rematerialised between
Wednesday 22 January 2020 and Friday 24 January 2020, 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
This short-form announcement is the responsibility of the company’s directors and is a
summary of the detailed interim results announcement and does not contain full or
complete details. The announcement can be downloaded from
https://senspdf.jse.co.za/documents/2019/jse/isse/LEW/FY20H1.pdf and on the group’s
website www.lewisgroup.co.za. The full announcement may be requested at the
company’s registered office, at no charge, during normal business hours. Any investment
decision in relation to the company’s shares should be based on the full announcement.
Cape Town
20 November 2019
Sponsor
UBS South Africa (Pty) Ltd
Debt Sponsor
Absa Bank Limited, acting through its Corporate and Investment
Banking division
4
Date: 20/11/2019 07:05:00
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