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LEW
LEW
LEW - Lewis Group Limited - Unaudited Interim Results for the six months ended
30 September 2008
LEWIS GROUP LIMITED
(Incorporated in the Republic of South Africa)
Registration number: 2004/009817/06
Share code: LEW
ISIN: ZAE000058236
Unaudited Interim Results for the six months ended 30 September 2008
* Revenue increased by 5.0%
* Headline earnings per share marginally lower by 0.9%
* Cash generated from operations up by 27.8%
* Interim dividend maintained at 144 cents per share
TRADING REVIEW
The board is pleased to report that, despite extremely difficult trading
conditions, headline earnings per share declined marginally by 0.9%, cash
generated from operations has increased by 27.8% and the interim dividend of
144 cents per share has been maintained.
Revenue increased by 5.0% to R 1 803.4 million, with merchandise sales declining
by 0.7% to R 890.3 million. Finance charges earned were affected by the fact
that the National Credit Act excludes the levying of finance charges on
insurance premiums. Insurance revenue reflects the earn out of premiums written
in the buoyant trading period of 2007. The increase in ancillary services is due
to monthly service fees applicable to accounts opened after June 2007 following
the introduction of the National Credit Act
Our core retail business of furniture and appliances (80% of total sales) grew
by 2%. The sound and vision section (20% of total sales), which is a consumer
discretionary spend, declined by 11%.
Lewis division grew revenue by 4.8%, Best Electric`s revenue increased by 11.6%
and Lifestyle Living`s declined by 10.1%.
The group`s prime strategy continues to be that of sourcing exclusive
merchandise which offers the customer genuine value for money. This strategy
has resulted in encouraging increases in the furniture product category,
constituting 54% of group sales. Best Electric has similarly benefited from the
introduction of furniture lines and following a store revamp programme,
additional furniture ranges are displayed and the name changed to Best Home and
Electric. A pilot test under the Lewis brand of a small store concept utilising
electronic catalogues and compact displays has produced encouraging results and
will form part of future expansion plans in high traffic areas.
Lewis will continue to expand cautiously and should benefit from the
consolidation in the industry.
Improved customer segmentation allowed us to target our re-serve strategies and
promotional offers more effectively, enabling our stores to interface with the
most creditworthy current and settled customers.
Gross margin declined from 34.1% to 33.1%, but after adjusting for forward
exchange gains which are reflected under finance costs, the margin declined
from 33.7% to 33.4%.
Operating costs, excluding debtor costs, only increased by 5.2% as a result of
the continued drive for operational efficiency in the business. In particular,
employment costs have increased by 1.2%, reflecting lower staff levels and the
impact of variable remuneration.
DEBTORS
Debtors costs increased from 3% to 4.5% of net debtors in a tightening
collection environment.
Credit scorecards are regularly updated in order to maintain the credit risk
levels. The credit application decline rate is now 24.5% compared to 21.6%.
The doubtful debt provision at 15.5%, compared to 15.4%, is calculated applying
the net present value of the expected cash flows from slow-paying and
non-performing accounts. A detailed analysis of debtors based on payment
performance is shown below.
Extended terms of 30 and 36 months are offered to our top-rated customers. The
performance of these extended-term accounts is better than that of shorter-term
accounts.
SEGMENTAL REPORT
The group operating margin was 22.8%. The segmental analysis of this is:
- retail 12.1%
- risk services (insurance) 36.3%
- financial services 36.9%
Whilst we account separately for retail and financial services, the board
believes that operationally the selling of furniture and the provision of
credit are interdependent. This business model is founded on developing
customer relationships both at the time of the sale and throughout the whole of
the contract period when customers visit stores.
CASH FLOW AND CAPITAL MANAGEMENT
Cash generated from operations for the period under review was R382 million, an
increase of 27.8% over the corresponding period. Good cost control and
inventory management supported the increased cash flow.
Gearing at 23.9% (2007: 25.3%) is within our maximum target of 35%. In terms of
treasury management, we have converted portion of our borrowings from floating
rates to fixed rates and have secured committed long-term finance.
During the period, a further 1.5% of shares were repurchased and dividends paid
increased by 17.7%.
SUCCESSION PLANNING
The Board advises that Alan Smart, CEO of the Lewis Group, will retire in
September 2009 at normal retirement age. Alan has agreed to remain on as a
non-executive director and the group will accordingly continue to enjoy the
benefits of his extensive experience in the furniture retailing industry.
Johan Enslin, currently Chief Operating Officer, has been appointed as Chief
Executive Officer designate with immediate effect. Johan has 15 years`
experience with Lewis, holding various operational positions. Since 2002, he
has been responsible for all facets of the group`s store operations.
The Board is also pleased to confirm the appointment of Les Davies, Chief
Financial Officer of the group, as Chief Executive Officer of Monarch Insurance
Company Ltd and he will continue as Chief Financial Officer of the group. Les
has 22 years` service with the group and has been a director of Monarch for 14
years.
PROSPECTS
Whilst trading is expected to remain difficult, the upcoming peak trading season
will be supported by strong promotions and inventory to maximise sales
opportunities.
DIVIDEND DECLARATION
Notice is hereby given that an interim cash dividend of 144 cents in respect of
the six months ended 30 September 2008 has been declared payable to holders of
ordinary shares.
The following dates are applicable:
Last date of trade "cum" dividend Friday 16 January 2009
Date trading commences "ex" dividend Monday 19 January 2009
Record date Friday 23 January 2009
Date of payment Monday 26 January 2009
Share certificates may not be dematerialised or rematerialised between Monday
19 January 2009 and Friday 23 January 2009, both days inclusive.
For and on behalf of the board
David Nurek Alan Smart
Chairman Chief Executive Officer
Cape Town
10 November 2008
INCOME STATEMENT
6 months
ended
30 Sept 2008
Rm
Notes Unaudited % Change
Revenue 1 803.4 5.0%
Merchandise sales 890.3
Finance charges earned 394.8
Insurance premiums earned 295.7
Ancillary services 222.6
Cost of merchandise sales (595.8)
Operating costs (796.6)
Employment costs (268.1)
Administration and IT (84.9)
Debtor costs 2 (142.6)
Marketing (67.2)
Occupancy costs (71.8)
Transport and travel (71.1)
Depreciation (27.5)
Other operating costs (63.4)
Operating profit 411.0 (2.7%)
Investment income 32.4
Profit before finance costs 443.4
Net finance costs 3 (38.4)
Profit before taxation 405.0
Taxation (131.7)
Net profit attributable to ordinary
shareholders 273.3 (4.2%)
Reconciliation of headline earnings
Net profit attributable to ordinary
shareholders 273.3
Adjusted for
Surplus on disposal of property,
plant and equipment (2.0)
Surplus on disposal of available-
for-sale assets (1.2)
Taxation 0.7
Headline earnings 270.8 (2.5%)
Number of ordinary shares (000)
In issue 98 058
Weighted average 88 595
Fully diluted weighted average 88 880
Earnings per share (cents) 308.5
Headline earnings per share (cents) 305.7 (0.9%)
Fully diluted earnings per share (cents) 307.5
Fully diluted headline earnings
per share (cents) 304.7 (0.8%)
6 months 12 months
ended ended
30 Sept 2007 31 Mar 2008
Rm Rm
Unaudited Audited
Revenue 1 717.6 3 596.4
Merchandise sales 896.8 1 889.7
Finance charges earned 397.5 794.9
Insurance premiums earned 249.7 564.2
Ancillary services 173.6 347.6
Cost of merchandise sales (590.6) (1 272.1)
Operating costs (704.4) (1 393.9)
Employment costs (265.0) (504.2)
Administration and IT (83.7) (167.0)
Debtor costs (82.7) (190.4)
Marketing (62.0) (107.1)
Occupancy costs (65.0) (135.1)
Transport and travel (60.7) (127.3)
Depreciation (25.4) (40.9)
Other operating costs (59.9) (121.9)
Operating profit 422.6 930.4
Investment income 29.9 71.7
Profit before finance costs 452.5 1 002.1
Net finance costs (25.2) (56.8)
Profit before taxation 427.3 945.3
Taxation (142.1) (303.0)
Net profit attributable to ordinary
shareholders 285.2 642.3
Reconciliation of headline earnings
Net profit attributable to ordinary
shareholders 285.2 642.3
Adjusted for
Surplus on disposal of property,
plant and equipment (2.4) (4.5)
Surplus on disposal of available-
for-sale assets (6.7) (22.1)
Taxation 1.7 2.2
Headline earnings 277.8 617.9
Number of ordinary shares (000)
In issue 99 158 99 158
Weighted average 90 056 89 583
Fully diluted weighted average 90 488 89 803
Earnings per share (cents) 316.7 717.0
Headline earnings per share (cents) 308.5 689.8
Fully diluted earnings per share (cents) 315.2 715.2
Fully diluted headline earnings per share (cents) 307.0 688.1
BALANCE SHEET
30 Sept 2008 30 Sept 2007 31 Mar 2008
Rm Rm Rm
Notes Unaudited Unaudited Audited
ASSETS
Non-current assets
Property, plant and
equipment 210.7 183.6 200.6
Investments -
insurance business 529.1 492.8 505.4
Deferred taxation - 68.4 -
739.8 744.8 706.0
Current assets
Investments -
insurance business 178.0 187.1 159.5
Inventories 269.2 310.6 230.4
Trade and other
receivables 4 2 752.0 2 327.9 2 615.6
Taxation 11.2 26.1 29.6
Cash on hand and
deposits 98.8 57.8 66.8
3 309.2 2 909.5 3 101.9
Total assets 4 049.0 3 654.3 3 807.9
EQUITY AND
LIABILITIES
Capital and reserves
Shareholders`
equity and reserves 2 787.9 2 511.2 2 730.0
Non-current
liabilities
Interest-bearing
borrowings 100.0 - -
Deferred taxation 21.1 22.3 14.4
Retirement benefits 60.5 69.3 57.7
181.6 91.6 72.1
Current liabilities
Trade and other
payables 5 415.0 357.8 302.4
Overdrafts and
short-term
interest-bearing
borrowings 664.5 693.7 703.4
1 079.5 1 051.5 1 005.8
Total equity and liabilities 4 049.0 3 654.3 3 807.9
STATEMENT OF CHANGES IN EQUITY
6 months 6 months 12 months
ended ended ended
30 Sept 2008 30 Sept 2007 31 Mar 2008
Rm Rm Rm
Unaudited Unaudited Audited
Share capital and premium 97.8 149.0 149.1
Opening balance 149.1 311.4 311.4
Cost of own shares acquired (51.3) (162.4) (162.4)
Share awards to employees - - 0.1
Other reserves 123.4 151.7 128.4
Opening balance 128.4 156.5 156.5
Fair value adjustments of
available-for-sale
investments,net of tax (11.7) (3.5) (27.5)
Disposal of
available-for-sale
investments recognised (1.0) (6.7) (21.3)
Share-based payment 4.6 3.1 6.7
Transfer of share-based
payment reserve to retained
income on vesting - - (0.9)
Transfer of contingency
reserve from retained
earnings 2.4 3.3 9.0
Foreign currency translation
reserve 0.7 (1.0) 5.9
Retained earnings 2 566.7 2 210.5 2 452.5
Opening balance 2 452.5 2 059.3 2 059.3
Net profit attributable to
shareholders 273.3 285.2 642.3
Profit on sale of own shares 1.1 3.4 21.8
Transfer of share-based
payment reserve on vesting - - 0.9
Cost of share awards to
employees - - (0.1)
Transfer to contingency
reserve (2.4) (3.3) (9.0)
Distribution to shareholders (157.8) (134.1) (262.7)
Balance at end of the period 2 787.9 2 511.2 2 730.0
ABRIDGED CASH FLOW STATEMENT
6 months 6 months 12 months
ended ended ended
30 Sept 2008 30 Sept 2007 31 Mar 2008
Rm Rm Rm
Notes Unaudited Unaudited Audited
Cash generated from
operations 6 382.0 299.0 556.2
Dividends and
interest received 35.4 25.8 61.0
Finance costs (42.6) (27.8) (68.2)
Taxation paid (105.4) (195.4) (290.4)
Cash retained from
Operating activities 269.4 101.6 258.6
Net cash outflow
from investing activities (90.5) (49.8) (97.3)
Net cash outflow from
financing activities 7 (108.0) (294.1) (404.3)
Net increase/(decrease)
in cash and cash
equivalents 70.9 (242.3) (243.0)
Cash and cash
equivalents at the
beginning of the period (636.6) (393.6) (393.6)
Cash and cash
equivalents at the
end of the period (565.7) (635.9) (636.6)
SEGMENTAL REPORT
Risk Financial
Retail services services Total
Rm Rm Rm Rm
Primary Segments Unaudited Unaudited Unaudited Unaudited
For 6 months ended 30
September 2008:
Revenue 1 019.7 295.7 488.0 1 803.4
Operating profit 123.8 107.2 180.0 411.0
Operating margin % 12.1% 36.3% 36.9% 22.8%
Total assets 456.0 729.6 2 863.4 4 049.0
Total liabilities 235.4 166.1 859.6 1 261.1
For 6 months ended 30
September 2007:
Revenue 1 017.6 249.7 450.3 1 717.6
Operating profit 140.4 77.3 204.9 422.6
Operating margin % 13.8% 31.0% 45.5% 24.6%
Total assets 483.2 698.2 2 472.9 3 654.3
Total liabilities 220.6 152.1 770.4 1 143.1
South Africa BLNS* Total
Rm Rm Rm
Geographical Unaudited Unaudited Unaudited
For 6 months ended 30 September 2008:
Revenue 1 589.9 213.5 1 803.4
For 6 months ended 30 September 2007:
Revenue 1 534.5 183.1 1 717.6
*Botswana, Lesotho, Namibia and Swaziland
ABRIDGED NOTES TO THE FINANCIAL STATEMENTS
1. Basis of accounting
These consolidated financial statements are prepared in accordance with
International Financial Reporting Standards, specifically IAS 34 Interim
Financial Reporting, and the accounting policies applied are consistent with
the prior year.
30 Sept 2008 30 Sept 2007 31 Mar 2008
Rm Rm Rm
Unaudited Unaudited Audited
2. Debtor costs
Bad debts, bad debt
recoveries and repossession
losses 50.7 41.6 172.1
Movement in doubtful debts
provision 91.9 41.1 18.3
142.6 82.7 190.4
3. Net finance costs
Interest paid 45.2 23.4 68.2
Interest earned (4.2) (2.6) (6.5)
Forward exchange contracts (2.6) 4.4 (4.9)
38.4 25.2 56.8
4. Trade and other receivables
Instalment sale and loan
receivables 3 738.1 3 368.7 3 539.8
Provision for unearned
finance charges and
initiation fees (74.6) (213.1) (119.0)
Provision for unearned
maintenance income (191.4) (186.8) (191.6)
Provision for unearned
insurance premiums (318.4) (245.0) (290.5)
Net instalment sale and loan
receivables 3 153.7 2 723.8 2 938.7
Provision for doubtful debts (487.7) (418.6) (395.8)
2 666.0 2 305.2 2 542.9
Other receivables 86.0 22.7 72.7
2 752.0 2 327.9 2 615.6
The credit terms of instalment sale and loan receivables range from 6 to 36
months (2007: 6 to 36 months). Amounts due from instalment sale and loan
receivables after one year are reflected as current, as they form part of the
normal operating cycle.
5. Trade and other payables
Trade payables 152.3 131.6 59.6
Accruals and other payables 119.7 110.9 107.3
Due to reinsurers 108.6 86.9 102.7
Insurance provisions 34.4 28.4 32.8
415.0 357.8 302.4
6. Cash generated from operations
Operating profit 411.0 422.6 930.4
Adjusted for:
Share-based payment 4.6 3.1 6.7
Depreciation 27.5 25.4 40.9
Surplus on disposal of
property, plant and
equipment (2.0) (2.4) (4.5)
Movement in provision for
doubtful debts 91.9 41.1 18.3
Movement in retirement
benefits provision 2.8 1.7 (9.9)
Movement in other provisions 3.4 9.1 14.0
539.2 500.6 995.9
Changes in working capital (157.2) (201.6) (439.7)
Increase in inventories (39.0) (82.1) (1.9)
Increase in trade and other
receivables (227.6) (182.3) (440.3)
Increase in trade and other
payables 109.4 62.8 2.5
382.0 299.0 556.2
7. Net cash outflow from financing activities
Purchase of own shares (51.3) (162.4) (162.4)
Dividends paid (157.8) (134.1) (262.7)
Proceeds on sale of own shares 1.1 3.4 21.8
Increase in long-term
interest-bearing
borrowings 100.0 - -
Repayment of finance lease
liability - (1.0) (1.0)
(108.0) (294.1) (404.3)
KEY RATIOS
6 months 6 months 12 months
ended ended ended
30 Sept 2008 30 Sept 2007 31 Mar 2008
Operating efficiency ratios
Merchandise gross profit % 33.1% 34.1% 32.7%
Operating margin % 22.8% 24.6% 25.9%
Number of stores 529 517 525
Number of employees (average) 6 420 6 654 6 696
Trading space (sqm) 221 284 217 215 220 236
Inventory turn 4.7 4.0 5.5
Current ratios 3.1 2.8 3.1
Credit ratios
Cash and short-term credit
sales % of total sales 34.2% 32.0% 33.1%
Debtors costs as a % of the
net debtors book 4.5% 3.0% 6.5%
Doubtful debt provision as a
% of net debtors book 15.5% 15.4% 13.5%
Arrear instalments on
satisfactory accounts as a
percentage of net debtors 10.2% 10.7% 10.6%
Arrear instalments on slow
paying and non-performing
accounts as a percentage of
net debtors 21.7% 20.7% 19.3%
Doubtful debt provision on
non-performing accounts 70.4% 78.0% 69.6%
Credit applications decline
rate 24.5% 21.6% 22.5%
Shareholder ratios
Net asset value per share
(cents) 3 175 2 834 3 058
Gearing ratio 23.9% 25.3% 23.3%
Dividend cover 2.0 2.0 2.0
Return on average equity 19.8% 22.6% 24.4%
Return on average capital
employed 17.2% 19.6% 21.4%
Return on average assets
managed (after-tax) 15.4% 17.2% 18.9%
Notes:
1. All ratios are based on figures at the end of the period unless otherwise
disclosed.
2. The net asset value has been calculated using 87 819 000 shares
(2007: 88 604 000).
ACCOUNTS RECEIVABLE ANALYSIS
The company applies a payment rating assessment to each customer individually,
which categorises customers into 13 payment categories. This assessment is
integral to the calculation of doubtful debts. The 13 payment categories has
been summarised into four main groupings of customers.
An analysis of the debtors book based on the payment ratings is set out below:
Number of Customers
Sept Sept
Debtors` Payment Analysis 2008 2007
Satisfactory paid
Customers fully up to date including
those who have paid 70% or more of No 515 471 544 864
amounts due over the contract period % 72.5% 75.2%
Slow payers
Customers who have paid between
70% and 65% of amounts due over No 52 899 47 920
the contract period % 7.4% 6.6%
Non-performing customers
Customers who have paid between
65% and 55% of amounts due over No 48 683 45 545
the contract period % 6.9% 6.3%
Non-performing customers
Customers who have paid 55% or
less of amounts due over the No 93 497 86 508
contract period % 13.2% 11.9%
710 550 724 837
Doubtful Debt
Provision %
Sept Sept Mar
Debtors` Payment Analysis 2008 2007 2008
Satisfactory paid
Customers fully up to date including
those who have paid 70% or more of
amounts due over the contract period 0% 0% 0%
Slow payers
Customers who have paid between
70% and 65% of amounts due over
the contract period 18% 17% 17%
Non-performing customers
Customers who have paid between
65% and 55% of amounts due over
the contract period 42% 46% 42%
Non-performing customers
Customers who have paid 55% or
less of amounts due over the
contract period 85% 95% 86%
15.5% 15.4% 13.5%
Executive directors: AJ Smart (Chief Executive Officer), LA Davies (Chief
Financial Officer)
Independent non-executive directors: DM Nurek (Chairman), H Saven,
BJ van der Ross, Professor F Abrahams
Company secretary: MG McConnell
Registered office: 53A Victoria Road, Woodstock, 7925
Registration number: 2004/009817/06
Share code: LEW
ISIN: ZAE000058236
Transfer secretaries: Computershare Investor Services (Pty) Ltd,
70 Marshall Street, Johannesburg, 2001; PO Box 61051, Marshalltown, 2107
Auditors: PricewaterhouseCoopers Inc.
These results are also available on our website: www.lewisgroup.co.za
10 November 2008
Sponsor: UBS South Africa (Pty) Ltd
Date: 10/11/2008 09:00:01 Produced by the JSE SENS Department.
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