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LEW
LEW
LEW - Lewis Group Limited - Final audited results for the year ended
31 March 2011
LEWIS GROUP LIMITED
Registration number: 2004/009817/06
Share code: LEW
ISIN: ZAE000058236
FINAL AUDITED RESULTS FOR THE YEAR ENDED 31 MARCH 2011
MERCHANDISE SALES UP 12%
GROSS PROFIT IMPROVED FROM 34.9% TO 36.3%
OPERATING PROFIT MARGIN 23%
HEADLINE EARNINGS PER SHARE UP 21.6%
FINAL DIVIDEND 207 CENTS UP 15.6%
OVERVIEW
Lewis Group posted a strong trading performance for the year with steadily
improving sales and credit collections. The ongoing focus on merchandise
innovation benefited the group through increased credit sales and gross profit.
Merchandise sales for the reporting period increased by 12% and revenue rose by
11.4% to R4.6 billion.
Headline earnings per share increased by 21.6%. This was mainly due to the
improvement in the gross profit margin from 34.9% to 36.3% and the decline in
debtor costs as a percentage of net debtors from 10.9% to 10.2%.
After maintaining the total dividend at 323 cents per share for the past two
challenging years, the board is pleased to advise a 15.6% increase in the final
dividend to 207 cents, bringing the total dividend for the year to
363 cents, returning to a 50% payout of earnings.
TRADING AND FINANCIAL PERFORMANCE
The merchandise strategy of sourcing exclusive and differentiated furniture
ranges was enhanced with a second launch of merchandise in October 2010, which
contributed to the increase in the gross margin.
Furniture and appliance sales increased by 12.1% and electronic goods sales by
11.9%. Merchandise sales in the flagship Lewis brand, which comprise 84.2% of
total sales, increased by 12.6% and Best Home and Electric improved sales by
17.9%. Credit sales as a percentage of total sales grew from 68.5% in 2010 to
71.4% this year.
The higher credit sales mix resulted in a 13.5% increase in revenue from
ancillary services which comprise monthly service and initiation fees on credit
contracts. Insurance revenue grew by 22.2% owing to the higher proportion of
longer term contracts in the debtor base. Finance charges increased by only 1.4%
reflecting the impact of lower interest rates.
Operating costs, excluding debtor costs, increased by 11.8%, impacted by the
higher performance-related employment cost, the launch of My Home and the higher
occupancy and employment costs associated with the opening of 40 new stores
during the period. Operating costs as a percentage of revenue at 35.1% is well
within management`s target range of 35% to 36%.
Operating profit margin increased to 23.0% (2010: 22.1%) and resulted in a 16.0%
growth in operating profit which reached the R1 billion mark. Headline earnings
per share grew by 21.6% to 781.1 cents (2010: 642.6 cents).
Inventory continues to be tightly managed with a stock turn of 5.7 times.
Cash generated from operations increased by R300 million through improved
trading and strong debtor collections. The group`s gearing ratio improved to
26.8% from 27.5%, well below management`s maximum level of 35%.
DEBTOR MANAGEMENT
The improving quality of the book is reflected in the decline in debtor costs
from 10.9% to 10.2%. Collections gained momentum throughout the year as the
economic health of our customer base continued to improve.
An analysis of the group`s debtors book based on payment ratings shows an
improvement in the percentage of customers in the "satisfactory paid" category
to 74.5% compared to 72.7% last year. The number of customers classified in the
slow-paying and non-performing categories showed a commensurate decline.
STORE EXPANSION
The group achieved its goal of opening 40 stores, bringing the store base to 582
at year-end. During the period 21 Lewis, 15 Best Home and Electric and 4 My Home
stores were opened, with 17 of the new Lewis outlets being smaller format
stores.
PROSPECTS
There are encouraging signs of a sustainable improvement in spending in the
Lewis target market. Consumer confidence is improving and demand for credit is
growing, supported by higher real wage increases granted to the public sector
and trade union groups, stabilising unemployment, continuing infrastructure
spend and service delivery.
However, management remains cautious on the pace of the economic recovery in an
environment where job creation is key to sustained growth and consumers are
experiencing increasing fuel, electricity and utility costs.
The store expansion programme will continue and 40 new outlets are planned for
the year ahead, with the focus on small stores with lower cost structures and
higher sales densities.
DIVIDEND DECLARATION
Notice is hereby given that a final cash dividend of 207 cents in respect of the
year ended 31 March 2011 has been declared payable to holders of ordinary
shares.
The following dates are applicable:
Last date to trade "cum" dividend Friday, 15 July 2011
Date trading commences "ex" dividend Monday, 18 July 2011
Record date Friday, 22 July 2011
Date of payment Monday, 25 July 2011
Share certificates may not be dematerialised or rematerialised between Monday,
18 July 2011 and Friday, 22 July 2011.
For and on behalf of the board.
David Nurek Johan Enslin
Chairman Chief Executive Officer
Cape Town
23 May 2011
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 twelve months ended 31 March 2011. A copy of their unqualified
reports are available on request at the company`s registered office.
INCOME STATEMENT
12 months
ended
31 March
2011
Rm
Notes Audited
Revenue 4 577.7
Merchandise sales 2 290.3
Finance charges earned 919.6
Insurance premiums earned 752.4
Ancillary services 615.4
Cost of merchandise sales (1 458.6)
Operating costs (2 066.6)
Employment costs (693.5)
Administration and IT (208.1)
Debtor costs 2 (458.9)
Marketing (156.5)
Occupancy costs (186.1)
Transport and travel (147.5)
Depreciation (46.5)
Other operating costs (169.5)
Operating profit 1 052.5
Investment income 82.0
Profit before finance costs 1 134.5
Net finance costs 3 (91.9)
Profit before taxation 1 042.6
Taxation (330.7)
Net profit attributable to ordinary shareholders 711.9
Reconciliation of headline earnings:
Net profit attributable to ordinary shareholders 711.9
Adjusted for
Surplus on disposal of property, plant and equipment (7.2)
Surplus on disposal of available-for-sale assets (19.2)
Tax effect 3.4
Headline earnings 688.9
Number of ordinary shares (000)
In issue 98 058
Weighted average 88 194
Diluted weighted average 89 185
Earnings per share (cents) 807.2
Headline earnings per share (cents) 781.1
Diluted earnings per share (cents) 798.2
Diluted headline earnings per share (cents) 772.4
12 months
ended
31 March
2010
% Rm
change Audited
Revenue 11.4% 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 (434.2)
Marketing (134.3)
Occupancy costs (165.1)
Transport and travel (135.9)
Depreciation (46.3)
Other operating costs (154.9)
Operating profit 16.0% 907.2
Investment income 77.5
Profit before finance costs 984.7
Net finance costs (121.2)
Profit before taxation 863.5
Taxation (272.1)
Net profit attributable to ordinary shareholders 20.4% 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 assets (23.6)
Tax effect 4.2
Headline earnings 21.8% 565.5
Number of ordinary shares (000)
In issue 98 058
Weighted average 88 002
Diluted weighted average 88 330
Earnings per share (cents) 20.1% 672.0
Headline earnings per share (cents) 21.6% 642.6
Diluted earnings per share (cents) 19.2% 669.5
Diluted headline earnings per share (cents) 20.7% 640.2
STATEMENT OF COMPREHENSIVE INCOME
12 months 12 months
ended ended
31 March 31 March
2011 2010
Rm Rm
Audited Audited
Net profit for the year 711.9 591.4
Fair value adjustments of
available-for-sale investments 38.1 87.1
Fair value adjustments of
available-for-sale investments 42.8 99.4
Tax effect (4.7) (12.3)
Disposal of available-for-sale
investments recognised (17.8) (21.3)
Disposal of available-for-sale investments (19.2) (23.6)
Tax effect 1.4 2.3
Foreign currency translation reserve (4.1) (7.4)
Total comprehensive income for the year 728.1 649.8
BALANCE SHEET
31 March 31 March
2011 2010
Rm Rm
Notes Audited Audited
Assets
Non-current assets
Property, plant and equipment 278.7 251.1
Deferred taxation 20.1 13.0
Investments - insurance business 5 857.1 716.0
1 155.9 980.1
Current assets
Inventories 256.3 210.0
Trade and other receivables 4 3 835.0 3 427.6
Investments - insurance business 5 240.2 178.1
Cash on hand and deposits 84.3 62.2
4 415.8 3 877.9
Total assets 5 571.7 4 858.0
Equity and liabilities
Capital and reserves
Shareholders` equity and reserves 3 728.1 3 273.7
Non-current liabilities
Long-term interest-bearing borrowings 6 400.0 350.0
Deferred taxation 85.1 84.5
Retirement benefits 59.4 51.8
544.5 486.3
Current liabilities
Trade and other payables 7 567.0 450.0
Taxation 49.1 36.6
Short-term interest-bearing borrowings 6 683.0 611.4
1 299.1 1 098.0
Total equity and liabilities 5 571.7 4 858.0
CASH FLOW STATEMENT
12 months 12 months
ended ended
31 March 31 March
2011 2010
Rm Rm
Note Audited Audited
Cash generated from operations 8 777.0 478.1
Dividends and interest received 66.0 59.9
Finance costs (95.1) (127.2)
Taxation paid (328.0) (214.2)
Cash retained from operating activities 419.9 196.6
Net cash outflow from investing activities (227.3) (126.3)
Net cash outflow from financing activities (292.1) 162.7
Net (decrease)/increase in cash and cash
equivalents (99.5) 233.0
Cash and cash equivalents at the
beginning of the year (249.2) (482.2)
Cash and cash equivalents at the
end of the year (348.7) (249.2)
STATEMENT OF CHANGES IN EQUITY
12 months 12 months
ended ended
31 March 31 March
2011 2010
Rm Rm
Audited Audited
Share capital and premium 93.5 93.5
Opening balance 93.5 97.8
Cost of own shares acquired - (4.3)
Other reserves 207.1 171.3
Opening balance 171.3 107.4
Other comprehensive income:
Fair value adjustments of available-for-sale
investments 38.1 87.1
Disposal of available-for-sale investments recognised
(17.8) (21.3)
Foreign currency translation reserve (4.1) (7.4)
Share-based payment 18.4 10.9
Transfer of share-based payment reserve to retained
income on vesting (8.4) (11.5)
Transfer to contingency reserve 9.6 6.1
Retained earnings 3 427.5 3 008.9
Opening balance 3 008.9 2 695.1
Net profit attributable to ordinary shareholders 711.9 591.4
Profit on sale of own shares 3.5 1.4
Transfer of share-based payment reserve to retained
income on vesting 8.4 11.5
Transfer to contingency reserve (9.6) (6.1)
Distribution to shareholders (295.6) (284.4)
Balance at the end of the year 3 728.1 3 273.7
SEGMENTAL REPORT
Best Home
Lewis and Electric
Reportable segments Rm Rm
2011
Revenue 3 853.5 588.5
Operating profit 919.7 126.0
Operating margin 23.9% 21.4%
Segment assets 3 422.3 491.5
2010
Revenue 3 470.3 503.4
Operating profit 808.7 96.2
Operating margin 23.3% 19.1%
Segment assets 3 072.8 410.4
My Home Total
Reportable segments Rm Rm
2011
Revenue 135.7 4 577.7
Operating profit 6.8 1 052.5
Operating margin 5.0% 23.0%
Segment assets 102.3 4 016.1
2010
Revenue 136.9 4 110.6
Operating profit 2.3 907.2
Operating margin 1.7% 22.1%
Segment assets 62.4 3 545.6
NOTES TO THE FINANCIAL STATEMENTS
1. Basis of accounting
The results for the 12 months to 31 March 2011 are prepared in accordance with
the recognition and measurement principles of International Financial Reporting
Standards, including IAS 34 (Interim Financial Reporting) and in compliance with
the Listings Requirements of the JSE Limited. The accounting policies are
consistent with those applied in the annual financial statements for the year
ending 31 March 2010 except for:
The short-term portion of long-term borrowings has been excluded from cash and
cash equivalents in the cash flow statement. Comparatives have been reclassified
accordingly.
31 March 31 March
2011 2010
Rm Rm
Audited Audited
2. Debtor costs
Bad debts, repossession losses and bad debt recoveries 336.0 331.5
Movement in debtors` impairment provision 122.9 102.7
458.9 434.2
3. Net finance costs
Interest paid 87.1 94.7
Interest earned (3.2) (6.0)
Losses on forward exchange contracts 8.0 32.5
91.9 121.2
4. Trade and other receivables
Instalment sale and loan receivables 5 454.7 4 705.2
Provision for unearned finance charges and unearned
maintenance income (271.4) (207.5)
Provision for unearned initiation fees (102.6) (88.5)
Provision for unearned insurance premiums (562.6) (438.2)
Net instalment sale and loan receivables 4 518.1 3 971.0
Debtors` impairment provision (758.3) (635.4)
3 759.8 3 335.6
Other receivables 75.2 92.0
3 835.0 3 427.6
The credit terms of instalment sale and loan receivables range from 6 to 36
months (2010: 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.
The average effective interest rate on instalment sale and loan receivables is
24.1% (2010: 27.8%) and the average term of the sale is 27.9 months (2010: 27.7
months).
5. Investments - insurance business
Listed shares 365.2 308.1
Fixed income securities 491.9 407.9
Money market 240.2 178.1
1 097.3 894.1
Analysed as follows:
Non-current 857.1 716.0
Current 240.2 178.1
1 097.3 894.1
6. Borrowings
Unsecured long-term borrowings at interest rates linked
to the 3 month JIBAR 400.0 350.0
Unsecured short-term borrowings at interest rates linked
to the 3 month JIBAR and at money market rates 683.0 611.4
1 083.0 961.4
7. Trade and other payables
Trade payables 72.7 64.1
Accruals and other payables 178.1 134.4
Due to reinsurers 144.8 121.1
Insurance provisions 171.4 130.4
567.0 450.0
8. Cash generated from operations
Operating profit 1 052.5 907.2
Adjusted for:
Share-based payment 18.4 10.9
Depreciation 46.5 46.3
Surplus on disposal of property, plant and equipment (7.2) (6.5)
Movement in debtors` impairment provision 122.9 102.7
Movement in retirement benefits provision 7.6 (2.1)
Movement in other provisions 54.9 71.5
1 295.6 1 130.0
Changes in working capital: (518.6) (651.9)
(Increase)/decrease in inventories (51.0) 17.0
Increase in trade and other receivables (534.4) (644.3)
Increase/(decrease) in trade and other payables 66.8 (24.6)
777.0 478.1
KEY RATIOS
12 months 12 months
ended ended
31 March 31 March
2011 2010
Operating efficiency ratios
Gross profit margin % 36.3% 34.9%
Operating profit margin % 23.0% 22.1%
Number of stores 582 548
Number of permanent employees (average) 6 842 6 668
Trading space (sqm) 231 184 225 891
Inventory turn 5.7 6.0
Current ratios 3.4 3.5
Credit ratios
Credit sales % 71.4% 68.5%
Bad debts as a % of net debtors 7.4% 8.3%
Debtor costs as a % of the net debtors 10.2% 10.9%
Debtors` impairment provision as a % of net debtors 16.8% 16.0%
Arrear instalments on satisfactory accounts as a
percentage of net debtors 10.1% 9.3%
Arrear instalments on slow-paying and non-performing
accounts as a percentage of net debtors 19.9% 19.8%
Debtors` impairment provision on non-performing
accounts 78.8% 74.9%
Credit applications decline rate 31.5% 27.5%
Shareholder ratios
Net asset value per share (cents) 4 225 3 719
Gearing ratio 26.8% 27.5%
Dividend cover 2.0 1.9
Return on average equity (after-tax) 20.3% 19.2%
Return on average capital employed (after-tax) 17.2% 17.2%
Return on average assets managed (pre-tax) 21.8% 21.9%
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 88 237 000 shares in issue
(2010: 87 030 000).
3. Total assets exclude 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
Debtor`s Payment Analysis 2011 2010
Satisfactory paid
Customers fully paid up to date
including those who have paid 70% No. 521 304 498 370
or more of amounts due over the % 74.5% 72.7%
contract period.
Slow payers
Customers who have paid between No. 55 439 58 476
65% and 70% of amounts due over % 7.9% 8.5%
the contract period.
Non-performing customers
Customers who have paid between No. 44 436 48 446
55% and 65% of amounts due over % 6.4% 7.1%
the contract period.
Non-performing customers
Customers who have paid 55% No. 78 174 80 417
or less of amounts due over the % 11.2% 11.7%
contract period.
699 353 685 709
Impairment provision %
Debtor`s Payment Analysis 2011 2010
Satisfactory paid
Customers fully paid up to date
including those who have paid 70% 1% 0%
or more of amounts due over the
contract period.
Slow payers
Customers who have paid between
65% and 70% of amounts due over 27% 23%
the contract period.
Non-performing customers
Customers who have paid between
55% and 65% of amounts due over 44% 43%
the contract period.
Non-performing customers
Customers who have paid 55%
or less of amounts due over the 98% 94%
contract period.
16.8% 16.0%
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: 23/05/2011 07:05:23 Produced by the JSE SENS Department.
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