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LEW
LEW
LEW - Lewis Group Limited - Final Audited Condensed Results for the year
ended 31 March 2010
LEWIS GROUP LIMITED
Registration number: 2004/009817/06
Share code: LEW
ISIN: ZAE000058236
Final Audited Condensed Results for the year ended 31 March 2010
REVENUE INCREASED BY 8.0%
OPERATING PROFIT MARGIN 22.1%
OPERATING PROFIT UP 9.0%
EARNINGS PER SHARE UP 5.6%
TOTAL DIVIDEND PER SHARE MAINTAINED AT 323 CENTS
INTRODUCTION
Lewis Group recorded solid growth in revenue and profitability for the year
as the early signs of improving economic conditions started to benefit
consumers. This is reflected in the recovering credit collections
environment in the second half of the year and stabilising debtor costs.
TRADING AND FINANCIAL PERFORMANCE
Revenue increased by 8.0% to R4 111 million and merchandise sales by 6.5% to
R2 046 million. The merchandise strategy of sourcing exclusive and
differentiated furniture ranges has continued to benefit the group. Sales of
the higher margin furniture and appliance category increased by 8.5%.
Furniture now accounts for 55% (2009: 53%) of group sales.
Merchandise sales in Lewis, which comprise 83% of total sales, increased by
7.7%. Best Home and Electric grew sales by 7.8% and sales in Lifestyle
Living declined by 10.4%. Credit sales supported by merchandise initiatives
and local promotions increased to 68.5% from 64.3% of total sales.
Revenue from finance charges rose 9.7% and insurance revenue increased by 6%
owing to the earn-out of longer term contracts. Ancillary services, which
comprise the monthly service and initiation fees charged in terms of the
National Credit Act, increased by 13.1% in line with the growth in credit
sales.
Operating costs, excluding debtor costs, increased by 9.2%. The main
contributors to this increase were union negotiated wage settlements,
increases in variable remuneration on improved trading, IT system upgrades
and Monarch insurance claims.
Gross profit margin improved from 31.3% to 34.9% fully recovering currency
losses reported at the half-year. After adjusting for currency losses, which
are shown separately, the net position improved from 31.9% to 33.4%.
Inventory turn improved from 5.8 to 6.0 times. Efficient stock management
and successful product ranging contributed to this favourable result.
The group operating margin improved to 22.1% (2009: 21.9%), translating into
a 9.0% uplift in operating profit to R907 million, once again reflecting the
resilience of the business model. Earnings per share increased by 5.6% to
672.0 cents per share.
DEBTOR MANAGEMENT
The collection environment was difficult in the first six months. However,
since half-year, collections have improved and debtor costs stabilised.
Debtor costs for the year increased by 28% reflecting an improvement on the
half-year position which was 32% higher.
Since half-year certain non-performing accounts, against which approximately
95% of the balance had been provided by way of an impairment provision, were
written off. The release of the impairment provision in respect of these
accounts compensated for the write-off and the effect on operating profit
was minimal.
Debtor costs for the year are 10.9% of net debtors. This compares to 10% for
last year.
The credit application decline rate at 27.5% is in line with first half
experience, although up on last year`s 25.4%. The group`s centralised credit-
granting process has been a core strength in a difficult credit environment.
The year-end impairment provision moved from 15.7% to 16.0%, improving on
the level of 17.9% reflected at half-year. An analysis of the debtors book,
which is detailed in the accompanying table, reflects the improving trend in
payment performance. Satisfactory paying customers now comprise 72.7% of net
debtors compared to 72.0% last year.
CASH AND CAPITAL MANAGEMENT
The total dividend has been maintained at 323 cents per share for the year,
comprising an interim dividend of 144 cents and final dividend of 179 cents.
Gearing rose to 27.5% as a result of the additional investment in debtors
and the insurance business arising from extended term business. The gearing
ratio remains well below management`s maximum level of 35% and is expected
to decline in the year ahead.
STORE EXPANSION
The store base increased to 548 following the opening of ten Lewis and six
Best Home and Electric branches during the year. The smaller format Lewis
outlets continue to show pleasing results based on sales, productivity and
profitability. Lewis now has nine small format stores.
A new trading brand, My Home, will be launched in June 2010 and is targeted
at aspirational customers in the LSM 7 - 8 categories. My Home will adopt
the successful Lewis business model utilising the group`s well-established
credit infrastructure. The focus will be on differentiating the merchandise
offering through exclusive and innovative ranging to attract customers who
would use in-store credit facilities. Thirteen Lifestyle Living stores will
be converted to My Home and a conservative expansion plan followed based on
the performance of the new chain.
PROSPECTS
While trading conditions are showing early signs of improvement, the
environment is expected to remain challenging in the year ahead as the
country emerges from recession. Job creation remains key to stimulating
economic growth among the Lewis target market.
Debtor costs appear to have peaked and should moderate in the year ahead as
the credit collections environment continues to improve.
A more aggressive store expansion programme will see the group open 40 to 45
new stores in the year ahead.
DIVIDEND DECLARATION
Notice is hereby given that a final cash dividend of 179 cents in respect of
the year ended 31 March 2010 has been declared payable to holders of
ordinary shares.
The following dates are applicable:
Last date to trade "cum" dividend Friday, 16 July 2010
Date trading commences "ex" dividend Monday, 19 July 2010
Record date Friday, 23 July 2010
Date of payment Monday, 26 July 2010
Share certificates may not be dematerialised or rematerialised between
Monday, 19 July 2010 and Friday, 23 July 2010, both days inclusive.
For and on behalf of the board.
David Nurek Johan Enslin
Chairman Chief Executive Officer
Cape Town
19 May 2010
EXTERNAL AUDITORS` OPINION
The external auditors PricewaterhouseCoopers Inc., have audited the group`s
annual financial statements and the abridged financial statements contained
herein for the 12 months ended 31 March 2010. A copy of their unqualified
reports are available on request at the company`s registered office.
INCOME STATEMENT
12 months
ended
31 March
2010
Rm
Notes Audited
Revenue 4 110.6
Merchandise sales 2 045.5
Finance charges earned 907.1
Insurance premiums earned 616.0
Ancillary services 542.0
Cost of merchandise sales (1 330.6)
Operating costs (1 872.8)
Employment costs (607.4)
Administration and IT (194.7)
Debtor costs 2 (434.2)
Marketing (134.3)
Occupancy costs (165.1)
Transport and travel (135.9)
Depreciation (46.3)
Other operating costs (154.9)
Operating profit 907.2
Investment income 77.5
Profit before finance costs 984.7
Net finance costs 3 (121.2)
Profit before taxation 863.5
Taxation (272.1)
Net profit attributable to ordinary shareholders 591.4
Reconciliation of headline earnings
Net profit attributable to ordinary shareholders 591.4
Adjusted for
Surplus on disposal of property, plant and equipment (6.5)
Surplus on disposal of available-for-sale investments (23.6)
Tax effect 4.2
Headline earnings 565.5
Number of ordinary shares (000)
In issue 98 058
Weighted average 88 002
Diluted weighted average 88 330
Earnings per share (cents) 672.0
Headline earnings per share (cents) 642.6
Diluted earnings per share (cents) 669.5
Diluted headline earnings per share (cents) 640.2
12 months
ended
31 March
2009
Rm
% Audited
change Restated
Revenue 8.0% 3 807.1
Merchandise sales 1 919.9
Finance charges earned 826.6
Insurance premiums earned 581.4
Ancillary services 479.2
Cost of merchandise sales (1 318.3)
Operating costs (1 656.5)
Employment costs (542.0)
Administration and IT (176.0)
Debtor costs (338.8)
Marketing (124.0)
Occupancy costs (150.5)
Transport and travel (138.8)
Depreciation (47.3)
Other operating costs (139.1)
Operating profit 9.0% 832.3
Investment income 76.9
Profit before finance costs 909.2
Net finance costs (86.5)
Profit before taxation 822.7
Taxation (261.5)
Net profit attributable to ordinary shareholders 5.4% 561.2
Reconciliation of headline earnings
Net profit attributable to ordinary shareholders 561.2
Adjusted for
Surplus on disposal of property, plant and equipment (3.6)
Surplus on disposal of available-for-sale assets (2.6)
Tax effect 1.2
Headline earnings 1.7% 556.2
Number of ordinary shares (000)
In issue 98 058
Weighted average 88 209
Diluted weighted average 88 633
Earnings per share (cents) 5.6% 636.2
Headline earnings per share (cents) 1.9% 630.5
Diluted earnings per share (cents) 633.2
Diluted headline earnings per share (cents) 627.5
STATEMENT OF COMPREHENSIVE INCOME
12 months
12 months ended
ended 31 March
31 March 2009
2010 Rm
Rm Audited
Audited Restated
Net profit for the year 591.4 561.2
Fair value adjustments of available-for-sale
investments 87.1 (40.0)
Fair value adjustments of available-for-sale
investments 99.4 (47.6)
Tax effect (12.3) 7.6
Disposal of available-for-sale investments
recognised (21.3) 2.4
Disposal of available-for-sale investments (23.6) 2.6
Tax effect 2.3 (0.2)
Foreign currency translation reserve (7.4) 4.4
Total comprehensive income for the year 649.8 528.0
BALANCE SHEET
31 March
31 March 2009
2010 Rm
Rm Audited
Notes Audited Restated
Assets
Non-current assets
Property, plant and equipment 251.1 225.1
Deferred tax 13.0 -
Investments - insurance business 716.0 535.1
980.1 760.2
Current assets
Inventories 210.0 228.0
Trade and other receivables 4 3 427.6 2 893.4
Investments - insurance business 178.1 199.1
Cash on hand and deposits 62.2 54.8
3 877.9 3 375.3
Total assets 4 858.0 4 135.5
Equity and liabilities
Capital and reserves
Shareholders` equity and reserves 3 273.7 2 900.3
Non-current liabilities
Long-term interest-bearing borrowings 350.0 100.0
Deferred taxation 84.5 37.7
Retirement benefits 51.8 53.9
486.3 191.6
Current liabilities
Trade and other payables 5 450.0 404.1
Taxation 36.6 2.5
Short-term interest-bearing borrowings 611.4 637.0
1 098.0 1 043.6
Total equity and liabilities 4 858.0 4 135.5
CASH FLOW STATEMENT
12 months 12 months
ended ended
31 March 31 March
2010 2009
Rm Rm
Notes Audited Audited
Cash generated from operations 6 478.1 669.7
Dividends and interest received 59.9 96.3
Finance costs (127.2) (108.5)
Taxation paid (214.2) (185.6)
Cash retained from operating
activities 196.6 471.9
Net cash outflow from investing
activities (126.3) (183.0)
Net cash outflow from financing
activities 7 (37.3) (234.5)
Net increase in cash and cash
equivalents 33.0 54.4
Cash and cash equivalents at the
beginning of the year (582.2) (636.6)
Cash and cash equivalents at the end
of the year (549.2) (582.2)
STATEMENT OF CHANGES IN EQUITY
12 months
12 months ended
ended 31 March
31 March 2009
2010 Rm
Rm Audited
Audited Restated
Share capital and premium 93.5 97.8
Opening balance 97.8 149.1
Cost of own shares acquired (4.3) (51.3)
Other reserves 171.3 107.4
Opening balance 107.4 128.4
Other comprehensive income:
Fair value adjustments of available-for-sale
investments 87.1 (40.0)
Disposal of available-for-sale investments
recognised (21.3) 2.4
Foreign currency translation reserve (7.4) 4.4
Share-based payment 10.9 10.6
Transfer of share-based payment reserve to
retained income on vesting (11.5) (0.2)
Transfer to contingency reserve 6.1 1.8
Retained earnings 3 008.9 2 695.1
Opening balance 2 695.1 2 418.7
As previously reported 2 452.5
Prior year adjustment (33.8)
Net profit attributable to ordinary
shareholders 591.4 561.2
Profit on sale of own shares 1.4 1.1
Transfer of share-based payment reserve to
retained income on vesting 11.5 0.2
Transfer to contingency reserve (6.1) (1.8)
Distribution to shareholders (284.4) (284.3)
Balance at end of year 3 273.7 2 900.3
SEGMENTAL REPORT
Best Home
Lewis and Electric
Rm Rm
Reportable segments
2010
Revenue 3 470.3 503.4
Operating profit 808.7 96.2
Operating profit margin 23.3% 19.1%
Segment assets 3 072.8 410.4
2009
Revenue 3 204.5 454.3
Operating profit 737.0 91.2
Operating profit margin 23.0% 20.1%
Segment assets 2 671.9 341.5
Lifestyle
Living Total
Rm Rm
Reportable segments
2010
Revenue 136.9 4 110.6
Operating profit 2.3 907.2
Operating profit margin 1.7% 22.1%
Segment assets 62.4 3 545.6
2009
Revenue 148.3 3 807.1
Operating profit 4.1 832.3
Operating profit margin 2.8% 21.9%
Segment assets 69.7 3 083.1
NOTES TO THE FINANCIAL STATEMENTS
1 Basis of accounting
The results for the 12 months to 31 March 2010 are prepared in accordance
with the recognition and measurement principles of International Financial
Reporting Standards, including IAS 34 (Interim Financial Reporting), and in
accordance with the Listings Requirements of the JSE Limited. The accounting
policies are consistent with those applied in the annual financial
statements for the prior year except for:
1.1 Change in accounting for deferred costs on initiation fees
The group previously deferred costs on the basis that the costs were
directly related to the initiation fee earned. An amendment to IAS 18
(Revenue Recognition) replaced the term "direct costs" with "transaction
costs" as defined in paragraph 9 of IAS 39. This later definition requires
costs to be incremental ie costs that would not have been incurred, had the
financial asset not been acquired.
In accordance with the amendment to IAS 18, the group`s accounting policy
for deferred costs on initiation fees has been changed. In terms of IAS 8
(Accounting Policies), the relevant comparative information has been
restated and the effect on the financial statements is as follows:
31 March
31 March 2009
2010 Rm
Rm Audited
Audited Restated
Decrease in profit before taxation 8.8 8.0
Decrease in taxation (2.5) (2.2)
Effect on net profit after taxation 6.3 5.8
Decrease in earnings per share (cents) 7.2 6.6
Decrease in diluted earnings per share (cents) 7.1 6.5
Decrease in opening retained earnings 39.6 33.8
Decrease in property, plant and equipment 6.1 4.6
Decrease in trade and other receivables 57.6 50.3
Decrease in deferred taxation 17.8 15.3
1.2 Adoption of Revised IAS 1 (Presentation of Financial Statements)
The presentation of the financial statements has been amended in line with
the revised IAS 1 to include a Statement of Comprehensive Income. In
addition to net profit, the Statement of Comprehensive Income includes fair
value adjustments on insurance investments and movements in foreign currency
translation reserve. These were previously reflected in the Statement of
Changes in Equity.
1.3 Adoption of IFRS 8 (Operating Segments)
In terms of IFRS 8 which replaced IAS 14 (Segment Reporting), operating
segments are components of the group about which separate financial
information is available and evaluated regularly by the chief operating
decision makers (identified as the Chief Executive Officer and the Chief
Financial Officer) for the purpose of allocating resources and evaluating
performance. Accordingly, the group now discloses segmental information for
the three brands, namely Lewis, Best Home and Electric and Lifestyle Living.
Previously, the segmental information was presented on the basis of retail,
finance and risk segments.
In addition, an amendment to IFRS 8 has been adopted which permits
disclosure of the assets regularly reported to the chief operating decision
makers.
Accordingly, segment assets reflect net trade receivables and inventory for
each of the brands.
2 Debtor costs
Bad debts, repossession losses and bad debt recoveries 331.5 201.9
Movement in impairment provision (doubtful debts) 102.7 136.9
434.2 338.8
3 Net finance costs
Interest paid 94.7 108.5
Interest earned (6.0) (11.5)
Losses/(Gains) on forward exchange contracts 32.5 (10.5)
121.2 86.5
4 Trade and other receivables
Instalment sale and loan receivables 4 705.2 4 007.2
Provision for unearned finance charges and unearned
maintenance income (207.5) (181.1)
Provision for unearned initiation fees (88.5) (78.3)
Provision for unearned insurance premiums (438.2) (360.0)
Net instalment sale and loan receivables 3 971.0 3 387.8
Provision for impairment (doubtful debts) (635.4) (532.7)
3 335.6 2 855.1
Other receivables 92.0 38.3
3 427.6 2 893.4
The credit terms of instalment sale and loan receivables range from 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 64.1 84.8
Accruals and other payables 134.4 142.9
Due to reinsurers 121.1 105.3
Insurance provisions 130.4 71.1
450.0 404.1
6 Cash generated from operations
Operating profit 907.2 832.3
Adjusted for:
Share-based payment 10.9 10.6
Depreciation 46.3 47.3
Surplus on disposal of property, plant and equipment (6.5) (3.6)
Movement in debtors` impairment provision 102.7 136.9
Movement in retirement benefits provision (2.1) (3.8)
Movement in other provisions 71.5 30.4
1 130.0 1 050.1
Changes in working capital: (651.9) (380.4)
Decrease in inventories 17.0 4.1
Increase in trade and other receivables (644.3) (454.1)
(Decrease)/Increase in trade and other payables (24.6) 69.6
478.1 669.7
7 Net cash outflow from financing activities
Purchase of own shares (4.3) (51.3)
Distribution to shareholders (284.4) (284.3)
Proceeds on sale of own shares 1.4 1.1
Increase in long-term interest-bearing borrowings 250.0 100.0
(37.3) (234.5)
KEY RATIOS
12 months 12 months
ended ended
31 March 31 March
2010 2009
Operating efficiency ratios
Gross profit margin % 34.9% 31.3%
Operating profit margin % 22.1% 21.9%
Number of stores 548 535
Number of permanent employees (average) 6 668 6 480
Trading space (sqm) 225 891 223 102
Inventory turn 6.0 5.8
Current ratio 3.5 3.2
Credit ratios
Cash and short-term credit sales % of total sales 31.5% 35.7%
Bad debts as a % of net debtors 8.3% 6.0%
Debtor costs as a % of net debtors 10.9% 10.0%
Debtors` impairment provision as a % of net
debtors 16.0% 15.7%
Arrear instalments on satisfactory accounts as a
percentage of net debtors 9.3% 9.5%
Arrear instalments on slow-paying and
non-performing accounts as a percentage of net
debtors 19.8% 20.9%
Debtors` impairment provision on non-performing
accounts 74.9% 71.3%
Credit applications decline rate 27.5% 25.4%
Shareholder ratios
Net asset value per share (cents) 3 719 3 303
Gearing ratio 27.5% 23.5%
Dividend cover 1.9 1.8
Return on average equity (after-tax) 19.2% 20.1%
Return on average capital employed (after-tax) 17.2% 17.7%
Return on average assets managed (pre-tax) 21.9% 23.0%
Notes:
1. All ratios are based on figures at the end of the year unless otherwise
disclosed.
2. The net asset value has been calculated using 88 030 000 shares in issue
(2009: 87 820 000).
3. The ratios for the prior year have been restated for the change in
accounting policy.
4. The total assets excludes the deferred tax asset.
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 the debtors` impairment
provision. The 13 payment categories have 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
Debtors Payment Analysis 2010 2009
Satisfactory paid
Customers fully paid up to date including No. 498 370 497 296
those who have paid 70% or more of % 72.7% 72.0%
amounts due over the contract period.
Slow payers
Customers who have paid between 65% No. 58 476 57 042
and 70% of amounts due over the contract % 8.5% 8.2%
period.
Non-performing customers
Customers who have paid between 55% No. 48 446 50 300
and 65% of amounts due over the contract % 7.1% 7.3%
period.
Non-performing customers
Customers who have paid 55% or less of No. 80 417 86 448
amounts due over the contract period. % 11.7% 12.5%
685 709 691 086
Impairment provision %
Debtors Payment Analysis 2010 2009
Satisfactory paid
Customers fully paid up to date including
those who have paid 70% or more of 0% 0%
amounts due over the contract period.
Slow payers
Customers who have paid between 65%
and 70% of amounts due over the contract 23% 20%
period.
Non-performing customers
Customers who have paid between 55%
and 65% of amounts due over the contract 43% 42%
period.
Non-performing customers
Customers who have paid 55% or less of
amounts due over the contract period. 94% 88%
16.0% 15.7%
The debtors` impairment provision is allocated to the summary categories
based on the number of customers.
Executive directors: J Enslin (Chief Executive Officer), L A Davies (Chief
Financial Officer)
Non-executive directors: D M Nurek (Chairman) (Ind.), H Saven (Ind.),
B J van der Ross (Ind.), Professor F Abrahams (Ind.), Z B M Bassa (Ind.),
M S P Marutlulle (Ind.), A J Smart
Company secretary: M G 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.
Sponsor: UBS South Africa (Pty) Ltd
These results are also available on our website: www.lewisgroup.co.za
Date: 19/05/2010 07:05:06 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
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