| Mon 14 Nov 2011, 7:07 | | LEW - Lewis Group Limited - Unaudited interim results for the six months ended |
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LEW
LEW
LEW - Lewis Group Limited - Unaudited interim results for the six months ended
30 September 2011
LEWIS GROUP LIMITED
Registration number: 2004/009817/06
Share code: LEW
ISIN: ZAE000058236
UNAUDITED INTERIM RESULTS
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2011
- REVENUE UP 6.7%
- GROSS PROFIT MARGIN IMPROVED FROM 35.1% TO 38.5%
- HEADLINE EARNINGS PER SHARE UP 13.9%
- INTERIM DIVIDEND 172 CENTS UP 10.3%
OVERVIEW
Lewis Group encountered a challenging trading environment in the six-month
period to 30 September 2011, marked by inconsistent sales patterns. Revenue for
the period increased by 6.7% to R2.3 billion with merchandise sales increasing
by 3.2% to R1.1 billion.
The group`s gross profit margin improved from 35.1% to 38.5%, contributing to
growth of 13.9% in headline earnings per share.
An interim dividend of 172 cents per share has been declared, an increase of
10.3%.
TRADING AND FINANCIAL PERFORMANCE
Trading was impacted by the shift in the timing of the Easter holidays, the
local government elections and industrial action over a wide front of the
economy. Merchandise sales for the six-month period increased by 3.2% over the
previous year.
Merchandise sales in the flagship Lewis brand, which account for 83% of total
sales, increased by 4%. Best Home and Electric grew sales by 10%, with furniture
comprising 34% of this brand`s sales. Group sales growth was affected by the
rationalisation of the Lifestyle Living brand, including the closure of three
stores this year. During the period, management continued to refine the My Home
business model.
Furniture and appliance sales increased by 5%. Sales of discretionary electronic
goods were 5% lower, off the high base set in 2010. Credit sales as a percentage
of total sales increased to 73.2% from 71.7% owing mainly to targeted customer
promotions and the launch of new furniture and appliance ranges. The group will
benefit from the annuity income from the higher credit sales into the future.
Revenue grew by 6.7%. Insurance income increased by 20.3% owing to the higher
proportion of longer term contracts now in the debtor base. The 15.3% growth in
ancillary services reflects the impact of higher maintenance fee income.
Finance charges declined by 0.8% owing to a lower average interest rate in the
debtors` book.
The increase of 340 basis points in the gross profit margin is attributable to
better buying, the launch of new merchandise ranges and a shift in the
merchandise mix to higher margin furniture sales.
Operating costs, excluding debtor costs, rose by 11.3%. Expenses were impacted
by increased marketing and promotional activity to support sales, as well as
higher electricity costs and increased transport costs.
Operating profit margin at 21.9% was consistent with the previous year and
translated into an operating profit of R498.5 million. Headline earnings per
share grew by 13.9% to 378.7 cents (2011: 332.5 cents), and includes a R12
million gain on forward exchange contracts compared to a R7 million loss in the
previous year.
Cash generated from operations totalled R420 million and gearing at 26.7% (2011:
25.7%) remains well below management`s maximum level of 35%.
DEBTOR MANAGEMENT
Debtor costs increased from 4.8% to 5.1% of net debtors. Collections were
negatively impacted by the holidays in April and the elections in May, but
gathered momentum in the latter stages of the reporting period.
An analysis of the group`s debtors` book based on payment ratings shows that
customers in the "satisfactory paid" category remained constant with the
previous year at 71.6%. Non-performing accounts increased from 13.6% to 14.3%.
These accounts remain on the debtors` book while it is economically viable to
collect the outstanding debt and are covered by an average impairment provision
of 98%.
The group continues to provide for the aggregate amount of insurance charges
that may be impacted by the in duplum rule of the National Credit Act, pending
the outcome of an application for a law change to clarify the position.
STORE EXPANSION
Ten Lewis stores and six Best Home and Electric outlets were opened in the past
six months, bringing the store base to 593 at the end of September 2011. These
Lewis outlets are the smaller format stores with lower cost structures and
higher sales densities. All smaller format stores are performing according to
expectation. The group remains on track to achieve the objective of growing the
store footprint to 700 stores in the medium term.
PROSPECTS
Sales and collections for the first month of the new reporting period are
showing signs of gradual improvement.
While customers` disposable income is coming under renewed pressure from higher
transport, electricity and other utility costs, the response to the launch of
new and exclusive merchandise ranges during the latter part of October has been
encouraging. The stores are well stocked with competitively priced merchandise
for the Christmas season, supported by strong marketing and promotional
campaigns.
DIVIDEND DECLARATION
Notice is hereby given that an interim cash dividend of 172 cents in respect of
the six months ended 30 September 2011 has been declared payable to holders of
ordinary shares.
The following dates are applicable:
Last date to trade "cum" dividend Friday, 13 January 2012
Date trading commences "ex" dividend Monday, 16 January 2012
Record date Friday, 20 January 2012
Date of payment Monday, 23 January 2012
Share certificates may not be dematerialised or rematerialised between Monday,
16 January 2012 and Friday, 20 January 2012.
For and on behalf of the board.
David Nurek Johan Enslin
Chairman Chief Executive Officer
Cape Town
14 November 2011
CONDENSED UNAUDITED INTERIM RESULTS
INCOME STATEMENT
6 months 6 months 12 months
ended ended ended
30 Sep 30 Sep 31 Mar
2011 2010 2011
Rm % Rm Rm
Notes Unaudited change Unaudited Audited
Revenue 2 278.7 6.7% 2 136.0 4 577.7
Merchandise sales 1 091.2 1 057.8 2 290.3
Finance charges earned 446.4 450.1 919.6
Insurance premiums earned 405.2 336.7 752.4
Ancillary services 335.9 291.4 615.4
Cost of merchandise sales (670.9) (686.9) (1 458.6)
Operating costs (1 109.3) (980.2) (2 066.6)
Employment costs (360.0) (328.2) (693.5)
Administration and IT (106.1) (101.4) (208.1)
Debtor costs 2 (247.4) (206.0) (458.9)
Marketing (97.9) (81.0) (156.5)
Occupancy costs (98.0) (88.2) (186.1)
Transport and travel (83.4) (68.9) (147.5)
Depreciation (27.2) (27.4) (46.5)
Other operating costs (89.3) (79.1) (169.5)
Operating profit 498.5 6.3% 468.9 1 052.5
Investment income 34.6 30.5 82.0
Profit before
finance costs 533.1 499.4 1 134.5
Net finance costs 3 (30.6) (57.5) (91.9)
Profit before taxation 502.5 441.9 1 042.6
Taxation (165.1) (146.4) (330.7)
Net profit attributable
to ordinary shareholders 337.4 14.2% 295.5 711.9
Reconciliation of
headline earnings
Net profit attributable
to ordinary shareholders 337.4 295.5 711.9
Adjusted for
Surplus on disposal of property,
plant and equipment (3.2) (3.9) (7.2)
Disposal of
available-for-sale assets (0.4) 0.6 (19.2)
Tax effect 0.9 0.9 3.4
Headline earnings 334.7 14.2% 293.1 688.9
Number of ordinary
shares (000)
In issue 98 058 98 058 98 058
Weighted average 88 392 88 152 88 194
Diluted weighted average 89 272 88 857 89 185
Earnings per share (cents) 381.7 13.9% 335.2 807.2
Headline earnings
per share (cents) 378.7 13.9% 332.5 781.1
Diluted earnings
per share (cents) 377.9 332.6 798.2
Diluted headline
earnings per share (cents) 374.9 329.9 772.4
STATEMENT OF COMPREHENSIVE INCOME
6 months 6 months 12 months
ended ended ended
30 Sep 30 Sep 31 Mar
2011 2010 2011
Rm Rm Rm
Unaudited Unaudited Audited
Net profit for the period 337.4 295.5 711.9
Fair value adjustments: (0.2) 41.0 38.1
Fair value adjustments of
available-for-sale investments 2.0 51.0 42.8
Tax effect (2.2) (10.0) (4.7)
Disposals recognised: (0.3) 0.4 (17.8)
Disposal of available-for-sale investments (0.4) 0.6 (19.2)
Tax effect 0.1 (0.2) 1.4
Foreign currency translation reserve 2.4 (2.1) (4.1)
Total comprehensive income for the period 339.3 334.8 728.1
BALANCE SHEET
30 Sep 30 Sep 31 March
2011 2010 2011
Rm Rm Rm
Notes Unaudited Unaudited Audited
Assets
Non-current assets
Property, plant and equipment 297.8 268.7 278.7
Deferred taxation 22.4 8.6 20.1
Investments - insurance business 5 879.6 813.3 857.1
1 199.8 1 090.6 1 155.9
Current assets
Inventories 307.7 265.1 256.3
Trade and other receivables 4 3 982.2 3 611.0 3 835.0
Investments - insurance business 5 295.1 171.1 240.2
Cash on hand and deposits 111.2 84.2 84.3
4 696.2 4 131.4 4 415.8
Total assets 5 896.0 5 222.0 5 571.7
Equity and liabilities
Capital and reserves
Shareholders` equity and
reserves 3 899.2 3 462.9 3 728.1
Non-current liabilities
Long-term interest-bearing
borrowings 6 400.0 350.0 400.0
Deferred taxation 91.4 88.4 85.1
Retirement benefits 63.7 52.8 59.4
555.1 491.2 544.5
Current liabilities
Trade and other payables 7 645.9 601.4 567.0
Taxation 42.8 43.0 49.1
Short-term interest-bearing
borrowings 6 753.0 623.5 683.0
1 441.7 1 267.9 1 299.1
Total equity and liabilities 5 896.0 5 222.0 5 571.7
CASH FLOW STATEMENT
6 months 6 months 12 months
ended ended ended
30 Sep 30 Sep 31 Mar
2011 2010 2011
Rm Rm Rm
Notes Unaudited Unaudited Audited
Cash generated from operations 8 419.4 413.1 777.0
Dividends and interest received 35.5 32.7 66.0
Finance costs (31.9) (59.1) (95.1)
Taxation paid (169.5) (141.9) (328.0)
Cash retained from operating
activities 253.5 244.8 419.9
Cash outflow from investing
activities 9 (118.5) (80.4) (227.3)
Cash outflow from financing
activities 10 (28.1) (154.5) (292.1)
Net increase in cash and cash
equivalents 106.9 9.9 (99.5)
Cash and cash equivalents at
the beginning of the period (348.7) (249.2) (249.2)
Cash and cash equivalents at
the end of the period (241.8) (239.3) (348.7)
STATEMENT OF CHANGES IN EQUITY
6 months 6 months 12 months
ended ended ended
30 Sep 30 Sep 31 Mar
2011 2010 2011
Rm Rm Rm
Unaudited Unaudited Audited
Share capital and premium 96.9 93.5 93.5
Opening balance 93.5 93.5 93.5
Share awards to employees 3.4 - -
Other reserves 215.0 215.3 207.1
Opening balance 207.1 171.3 171.3
Other comprehensive income:
Fair value adjustments of
available-for-sale investments (0.2) 41.0 38.1
Disposal of available-for-sale
investments recognised (0.3) 0.4 (17.8)
Foreign currency translation reserve 2.4 (2.1) (4.1)
Share-based payment 9.9 8.9 18.4
Transfer from share-based payment
reserve to retained income on vesting (6.0) (8.4) (8.4)
Transfer to contingency reserve from
retained earnings 2.1 4.2 9.6
Retained earnings 3 587.3 3 154.1 3 427.5
Opening balance 3 427.5 3 008.9 3 008.9
Net profit attributable to shareholders 337.4 295.5 711.9
Profit on sale of own shares 2.8 3.4 3.5
Share awards to employees (1.1) - -
Transfer of share-based payment reserve
on vesting 6.0 8.4 8.4
Transfer to contingency reserve (2.1) (4.2) (9.6)
Distribution to shareholders (183.2) (157.9) (295.6)
Balance at the end of the period 3 899.2 3 462.9 3 728.1
SEGMENTAL REPORT
Best Home
and
Lewis Electric My Home Total
Reportable segments Rm Rm Rm Rm
For 6 months ended 30 September 2011
(unaudited)
Revenue 1 917.2 305.1 56.4 2 278.7
Operating profit 435.9 63.9 (1.3) 498.5
Operating profit margin 22.7% 20.9% (2.3%) 21.9%
Segment assets 3 556.6 525.2 105.2 4 187.0
For 6 months ended 30 September 2010
(unaudited)
Revenue 1 796.0 273.7 66.3 2 136.0
Operating profit 413.1 52.7 3.1 468.9
Operating profit margin 23.0% 19.3% 4.7% 22.0%
Segment assets 3 245.6 453.3 84.4 3 783.3
For the 12 months ended 31 March 2011
(audited)
Revenue 3 853.5 588.5 135.7 4 577.7
Operating profit 919.7 126.0 6.8 1 052.5
Operating profit margin 23.9% 21.4% 5.0% 23.0%
Segment assets 3 422.3 491.5 102.3 4 016.1
NOTES TO THE FINANCIAL STATEMENTS
1. Basis of accounting
The group`s interim financial statements have been 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 applied
are consistent with those applied in the annual financial statements for the
year ended 31 March 2011. The comparatives in the cash flow statement for
September 2010 have been reclassified to exclude the short-term portion of long-
term borrowings from cash and cash equivalents.
30 Sept 30 Sept 31 March
2011 2010 2011
Rm Rm Rm
Unaudited Unaudited Audited
2. Debtor costs
Bad debts, bad debt recoveries and
repossession losses 49.5 47.9 336.0
Movement in debtors` impairment provision 197.9 158.1 122.9
247.4 206.0 458.9
3. Net finance costs
Interest paid 43.9 51.9 87.1
Interest earned (1.3) (1.6) (3.2)
(Gains)/losses on forward exchange contracts (12.0) 7.2 8.0
30.6 57.5 91.9
4. Trade and other receivables
Instalment sale and loan receivables 5 822.4 5 133.4 5 454.7
Provision for unearned finance charges
and unearned maintenance income (281.3) (231.6) (271.4)
Provision for unearned initiation fees (105.2) (91.9) (102.6)
Provision for unearned insurance premiums (600.4) (498.2) (562.6)
Net instalment sale and loan receivables 4 835.5 4 311.7 4 518.1
Debtors` impairment provision (956.2) (793.5) (758.3)
Net trade receivables 3 879.3 3 518.2 3 759.8
Other receivables 102.9 92.8 75.2
3 982.2 3 611.0 3 835.0
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
23.1% (2010: 26.2%) and the average term of a sale is 28.1 months (2010: 27.8
months)
5. Investments - insurance business
Listed:
Equities 369.2 333.6 365.2
Fixed income securities 510.4 479.7 491.9
Unlisted:
Money market investments 295.1 171.1 240.2
1 174.7 984.4 1 097.3
Analysed as follows:
Non-current 879.6 813.3 857.1
Current 295.1 171.1 240.2
1 174.7 984.4 1 097.3
Investments are classified as available-for-sale and are reflected at fair
value. Changes in fair value are reflected in the statement of comprehensive
income.
6. Borrowings
Unsecured long-term borrowings at interest
rates linked to the 3 month JIBAR 400.0 350.0 400.0
Unsecured short-term borrowings at interest
rates linked to the 3 month JIBAR 753.0 623.5 683.0
Demand loans 353.0 323.5 433.0
Current portion of fixed-term borrowings 400.0 300.0 250.0
1 153.0 973.5 1 083.0
7. Trade and other payables
Trade payables 90.7 140.6 72.7
Accruals and other payables 215.8 174.8 178.1
Due to reinsurers 150.7 132.2 144.8
Insurance provisions 188.7 153.8 171.4
645.9 601.4 567.0
8. Cash generated from operations
Operating profit 498.5 468.9 1 052.5
Adjusted for:
Share-based payment 9.9 8.9 18.4
Depreciation 27.2 27.4 46.5
Surplus on disposal of property, plant and
equipment (3.2) (3.9) (7.2)
Movement in debtors` impairment provision 197.9 158.1 122.9
Movement in retirement benefits provision 4.3 1.0 7.6
Movement in other provisions 29.3 30.7 54.9
763.9 691.1 1 295.6
Changes in working capital: (344.5) (278.0) (518.6)
Increase in inventories (59.4) (61.0) (51.0)
Increase in trade and other receivables (342.7) (343.6) (534.4)
Increase in trade and other payables 57.6 126.6 66.8
419.4 413.1 777.0
9. Cash outflow from investing activities
Net additions to insurance business investments 75.4 39.3 160.4
Acquisition of property, plant and equipment 48.9 46.4 78.6
Proceeds on disposal of property, plant and
equipment (5.8) (5.3) (11.7)
118.5 80.4 227.3
10. Cash outflow from financing activities
Dividends paid 183.2 157.9 295.6
Proceeds on sale of own shares (5.1) (3.4) (3.5)
Increase in long-term borrowing - - (50.0)
(Increase)/decrease in short-term borrowings (150.0) - 50.0
28.1 154.5 292.1
DEBTORS` 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 Impairment provision %
Debtors` payment categories Sep 2011 Sep 2010 Sep 2011 Sep 2010 Mar 2011
Satisfactory paid
Customers fully paid up
to date including those
who have paid 70% No. 512 825 510 722
or more of amounts % 71.6% 71.6% 1% 0% 1%
due over the contract
period.
Slow payers
Customers who have
paid between 70%
and 65% of amounts No. 53 625 55 380
due over the contract % 7.5% 7.8% 28% 25% 27%
period.
Non-performing
customers
Customers who have
paid between 65%
and 55% of amounts No. 46 847 50 302
due over the contract % 6.6% 7.0% 44% 44% 44%
period.
Non-performing
customers
Customers who have
paid 55% or less of No. 102 492 97 062
amounts due over the % 14.3% 13.6% 98% 98% 98%
contract period.
715 789 713 466 19.8% 18.4% 16.8%
The debtors` impairment provision is allocated to the summary categories based
on the number of customers.
KEY RATIOS
6 months 6 months 12 months
ended ended ended
30 Sep 30 Sep 31 March
2011 2010 2011
Operating efficiency ratios
Gross profit margin % 38.5% 35.1% 36.3%
Operating profit margin % 21.9% 22.0% 23.0%
Number of stores 593 565 582
Number of permanent employees (average) 6 981 6 785 6 842
Trading space (sqm) 231 290 228 290 231 184
Inventory turn 4.7 5.2 5.7
Current ratio 3.3 3.3 3.4
Credit ratios
Credit sales % 73.2% 71.7% 71.4%
Debtor costs as a % of net debtors 5.1% 4.8% 10.2%
Debtors` impairment provision as a % of
net debtors 19.8% 18.4% 16.8%
Arrear instalments on satisfactory
accounts as a percentage of
net debtors 10.1% 9.4% 10.1%
Arrear instalments on slow-paying and
non-performing accounts
as a percentage of net debtors 23.9% 22.6% 19.9%
Debtors` impairment provision on
non-performing accounts 81.2% 79.7% 78.8%
Credit applications decline rate 32.4% 31.1% 31.5%
Shareholder ratios
Net asset value per share (cents) 4 404 3 924 4 225
Gearing ratio 26.7% 25.7% 26.8%
Dividend cover 2.0 1.9 2.0
Return on average equity (after-tax) 17.6% 17.6% 20.3%
Return on average capital employed
(after-tax) 14.6% 15.6% 17.2%
Return on average assets managed (pre-tax) 18.6% 19.8% 21.8%
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 88 538 000 shares in issue
(2010: 88 238 000).
3. The total assets exclude the deferred tax asset.
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
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
Registered office: 53A Victoria Road, Woodstock, 7925
These results are also available on our website: www.lewisgroup.co.za
Date: 14/11/2011 07:07:13 Produced by the JSE SENS Department.
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