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LEW
LEW
Lewis Group - Unaudited interim results for the six months ended 30
September 2006
Lewis Group
Registration number: 2004/009817/06
Share code: LEW
ISIN: ZAE000058236
Unaudited interim results for the six months ended 30 September 2006
Highlights
Revenue up 16.0%
Operating Profit (normalised) up 19.2%
Operating margin 23.9% (2005: 23.2%)
Headline earnings per share
- IFRS basis increased by 73.1%
- Normalised increased by 26.5%
Dividend up 31.8%
Normalised ROE 23% (2005: 21%)
NORMALISED EARNINGS
Last year"s full year and six month results have been presented on
normalized basis and exclude the charge of R58.4 million, for share-based
payments.
This charge arose from shares made available for no consideration at the
time of listing by the former holding company and resulted in no economic
cost or dilutionary effect to current shareholders. The charge had no
impact on operating performance, net asset value, cash position or gearing
of the group.
Normalised income statement
Sept. Sept. March
2006 % 2005 2006
Rm change Rm Rm
Revenue 1 545.1 16.0 1 332.2 2 874.5
Cost of merchandise sales (548.2) (467.3) (1 020.6)
Operating costs (628.1) (555.5) (1 125.3)
Normalised operating profit 368.8 19.2 309.4 728.6
Profit before taxation 392.2 323.3 744.7
Taxation (131.4) (103.3) (237.6)
Normalised attributable
net profit 260.8 18.5 220.0 507.1
Normalised headline earnings 258.8 19.2 217.2 510.4
Normalised earnings
per share (cents) 280.1 25.9 222.5 521.2
Normalised headline
earnings per share (cents) 278.0 26.5 219.7 524.6
TRADING REVIEW
The Board is pleased to report solid sales growth, improved profitability
and an increased dividend distribution for the six month period ended 30
September 2006.
Revenue increased by 16.0% to R1 545 million. Merchandise sales grew by
15.2% to R834 million supported by our strategic merchandise initiatives
and a continued drive to regain settled customers as well as ongoing new
customer promotional campaigns. Like for like sales growth was 11.5%.
Insurance revenue earned grew by 14.0% despite additional statutory
insurance provisions. Finance charges increased by 17.6% and services
rendered increased by 19.7% due to strong sales.
Normalised operating profit grew by 19.2% to R369 million, with the
normalised operating margin increasing from 23.2% to 23.9% reflecting
improved operating efficiencies.
The lower doubtful debt provision at 12.9% of Debtors (2005: 14.2%) despite
a substantial increase in debtors of R335 million for the year to September
reflects the quality of the debtors book.
The gross margin for the period was 34.3% as compared to 35.5%. This
reduction is attributable to strong promotional activity to retain and
recruit new customers. During the past year, 25 000 new customers were
activated.
The group continued to focus on enhancing the merchandise offering to
attract new and settled customers while retaining existing customers
through the re-serve system. Our merchandise procurement strategy, both
locally and overseas, is to provide exclusivity of product and design,
enhanced quality and genuine value-for-money.
A very pleasing shift during the six months was the change in product mix
with furniture sales accounting for 51% of total sales (2005: 48%).
Earnings per share and return on equity have been enhanced by the share
repurchase program initiated in September 2005. At 30 September 2006, 7.5%
of shares in issue have been repurchased at an average market price of
R48.37 per share. The group will continue to repurchase shares up to 10% of
share capital, where appropriate. The weighted average shares in issue were
93 million this period compared to 99 million last period.
The interim dividend has increased by 31.8% to 116 cents as a result of a
reduction in the dividend cover implemented at year end.
DIVISIONAL REVIEW
The Lewis chain continued its solid sales performance with growth of 12.0%
(10.8% on a like-for-like basis). Merchandise initiatives in selected
product categories produced excellent results.
Best Electric experienced a 25.2% sales increase benefiting from new store
openings. Like for like sales growth of 6.3% was as a result of a slowdown
in home theatre sales off last year"s high base of 41% growth.
Lifestyle Living posted strong growth of 50.9% (36.3% on a like-for-like
basis) as a result of its differentiated merchandise offerings.
The Board has approved the opening of a specialist bedding chain which
leverages off the group"s competencies and infrastructure. A pilot store
program will commence in November 2006.
A total of 24 stores covering all trading divisions will be opened on a
phased basis this financial year.
DEBTORS
The debtor book has increased by R335 million in the year to September. The
overall doubtful debt provision is R396 million compared to R390 million
for September 2005. The doubtful debt provision at 12.9% of debtors
reflects an improvement on 14.2% for September 2005 and indicates the
quality and strength of our credit scoring and debt collection processes.
The average age of the debtor book has improved to 14.0 months from 14.5
months. The full contractual arrear percentage has dropped to 22.5% (2005:
25%).
The group"s cash and short-term sales at 31.5% of total sales remains at a
similar level to that of the previous period.
The continuous enhancements and improvements in our centralised credit
granting and decision support systems assist us in our drive to further
improve the quality of credit granted. The introduction of a behavioural
scorecard this year has further enhanced our credit decision systems.
The National Credit Act will be implemented on 1 June 2007. The revenue
effect of the Act is anticipated to be neutral. The group has advanced
store and credit scoring systems which are in the process of being adapted
to address the key requirements of the National Credit Act.
CASH FLOW
Lewis continues to generate significant operating cash flows which have
funded the following:
Increased working capital requirements of R100 million.
Share repurchases of R213 million
Dividends paid during the period of R127 million.
Borrowings have increased by R277 million and current gearing is 17% as
compared to 7% last period.
OUTLOOK FOR THE GROUP
The recent interest rate increases will have a slow down effect on the
overall economy. The group however continued to trade at satisfactory
levels in October. We believe that the underlying strength and size of the
middle income market will continue to afford growth opportunities. The
Board is confident that the proven operational and merchandise strategies
of the group will produce satisfactory returns.
DECLARATION OF INTERIM DIVIDEND NO. 5
The Board has approved an interim dividend which represents a 2.25 times
dividend cover (2005: 2.5 times cover).
Notice is hereby given that an interim dividend of 116 cents per share in
respect of the six months ending 30 September 2006 has been declared
payable to the holders of ordinary shares recorded in the books of the
company on Friday 26 January 2007. The last day to trade cum dividend will
therefore be Friday 19 January 2007 and Lewis shares will trade ex-dividend
from Monday 22 January 2007. Payment of the dividend will be made on Monday
29 January 2007. Share certificates may not be dematerialised or
rematerialised between Monday 22 January 2007 and Friday 26 January 2007,
both days inclusive.
For and on behalf of the Board
David Nurek Alan Smart
Chairman Chief Executive Officer
Cape Town
13 November 2006
GROUP INCOME STATEMENT
6 months 6 months 12 months
ended ended ended
30 Sept 30 Sept 31 March
2006 2006 2006
Rm % Rm Rm
Notes Unaudited change Unaudited Audited
Revenue 1 545.1 16.0 1 332.2 2 874.5
Merchandise sales 834.4 724.0 1 567.8
Finance charges
earned 369.0 313.9 674.4
Insurance
premiums earned 212.8 186.6 400.4
Services rendered 128.9 107.7 231.9
Cost of
merchandise
sales 2 (548.2) (467.3) (1 020.6)
Operating costs (628.1) 2.3 (613.9) (1 183.7)
Employment costs (237.1) (214.4) (439.9)
Share-based
payments (1.4) (58.4) (58.7)
Administration
and IT (79.7) (76.2) (152.3)
Debtor costs 3 (70.7) (50.7) (115.5)
Marketing (52.9) (48.5) (89.1)
Occupancy costs (55.5) (46.8) (98.3)
Transport and
travel (54.8) (48.6) (98.4)
Depreciation (23.0) (21.5) (35.0)
Other operating
costs (53.0) (48.8) (96.5)
Operating profit 368.8 46.9 251.0 670.2
Investment income 20.1 19.2 28.9
Profit before
finance
income/costs 388.9 270.2 699.1
Net finance
income/(costs) 4 3.3 (5.3) (12.8)
Profit before
taxation 392.2 48.1 264.9 686.3
Taxation (131.4) (103.3) (237.6)
Net profit
attributable to
ordinary
shareholders 260.8 61.4 161.6 448.7
Reconciliation
of headline
earnings
Net profit
attributable to
ordinary
shareholders 260.8 161.6 448.7
Adjusted for:
Surplus on
disposal of
property, plant
and equipment (2.4) (2.5) (6.0)
Disposal/impairment
of available-
for-sale assets (0.3) (1.2) (5.8)
Impairment of
available-for-sale assets - - 12.3
Taxation effect 0.7 0.9 2.8
Headline earnings 258.8 63.0 158.8 452.0
Number of
ordinary shares
(000)
In issue 100 000 100 000 100 000
Weighted average 93 100 98 878 97 300
Fully diluted
weighted average 93 421 99 004 97 501
Earnings per
share (cents) 280.1 71.4 163.4 461.2
Headline
earnings per
share(cents) 278.0 73.1 160.6 464.5
Fully diluted
earnings per
share(cents) 279.2 163.2 460.2
Fully diluted
headline
earnings
per share (cents) 277.0 160.4 463.6
GROUP BALANCE SHEET
30 Sept 2006 30 Sept 2005 31 March 2006
Rm Rm Rm
Note Unaudited Unaudited Audited
ASSETS
Non-current assets
Property, plant
and equipment 174.4 156.0 163.2
Investments -
insurance business 495.9 433.6 478.0
Deferred taxation 98.7 86.7 89.7
769.0 676.3 730.9
Current assets
Investments -
insurance business 133.9 97.8 111.9
Inventories 243.8 248.5 212.6
Trade and other
receivables 5 1 989.1 1 779.9 1 896.5
Cash on hand and
deposits 33.9 88.4 28.1
2 400.7 2 214.6 2 249.1
Total assets 3 169.7 2 890.9 2 980.0
EQUITY AND
LIABILITIES
Capital and
reserves
Shareholders"
equity and
reserves 2 247.4 2 130.8 2 305.4
Non-current
liabilities
Interest-bearing
borrowings - 1.7 1.0
Deferred taxation 16.7 16.1 20.9
Retirement benefits 77.6 74.2 75.8
94.3 92.0 97.7
Current liabilities
Trade and other
payables 334.8 335.2 283.5
Taxation 75.9 97.1 159.8
Current portion of
interest-bearing
borrowings 1.8 0.8 0.8
Overdrafts and
short-term
interest-bearing
borrowings 415.5 235.0 132.8
828.0 668.1 576.9
Total equity and
liabilities 3 169.7 2 890.9 2 980.0
GROUP STATEMENT OF CHANGES IN EQUITY
Share
capital and Other Distributable
premium reserves reserves Total
Rm Rm Rm Rm
Balance at 30
September 2005 584.8 57.0 1 489.0 2 130.8
Net profit
attributable to
ordinary
shareholders - - 287.1 287.1
Fair value
adjustments of
available-for-sale
investments, net of tax - 32.1 - 32.1
Profit on disposal of
available-for-sale
investments
recognised, net of tax - (3.8) - (3.8)
Available-for-sale
asset impaired - 12.3 - 12.3
Share-based payment - 0.3 - 0.3
Treasury shares
purchased (59.9) - - (59.9)
Transfer to
contingency reserve - 3.6 (3.6) -
Foreign currency
translation reserve
movement - (9.5) - (9.5)
Dividends paid - - (84.0) (84.0)
Balance at 31 March
2006 524.9 92.0 1 688.5 2 305.4
Net profit
attributable to
ordinary
shareholders - - 260.8 260.8
Fair value
adjustments of
available-for-sale
investments, net of tax - 10.6 - 10.6
Profit on disposal of
available-for-sale
investments
recognised, net of tax - (0.3) - (0.3)
Share-based payment - 1.4 - 1.4
Treasury shares
purchased (213.4) - - (213.4)
Profit on sale of
own shares - - 3.1 3.1
Transfer to
contingency reserve - 1.5 (1.5) -
Foreign currency
translation reserve
movement - 6.5 - 6.5
Dividends paid - - (126.7) (126.7)
Balance as at 30
September 2006 311.5 111.7 1 824.2 2 247.4
ABRIDGED GROUP CASH FLOW STATEMENT
6 months 6 months 12 months
ended ended ended
30 Sept 2006 30 Sept 2005 31 March 2006
Rm Rm Rm
Notes Unaudited Unaudited Audited
Cash generated
from operations 7 326.6 304.0 593.2
Dividends and
interest received 30.0 21.0 41.3
Finance costs (6.9) (8.3) (18.7)
Taxation paid (224.3) (170.3) (244.4)
Cash retained
from operating
activities 125.4 146.4 371.4
Net cash outflow
from investing
activities (65.3) (7.0) (45.5)
Net cash outflow
from financing
activities 8 (337.0) (169.3) (313.9)
Net movement in
cash and cash
equivalents (276.9) (29.9) 12.0
Cash and cash
equivalents at
the
beginning of the
period (104.7) (116.7) (116.7)
Cash and cash
equivalents at
the end
of the period (381.6) (146.6) (104.7)
GROUP SEGMENT REPORT
6 months 6 months 12 months
ended ended ended
30 Sept 2006 30 Sept 2005 31 March 2006
Rm Rm Rm
Unaudited Unaudited Audited
BUSINESS GROUPING
Revenue
Merchandise 1 332.3 1 145.6 2 474.0
Insurance 212.8 186.6 400.5
Total 1 545.1 1 332.2 2 874.5
Operating profit
Merchandise 279.8 231.8 564.9
Insurance 89.0 77.6 163.7
Total* 368.8 309.4 728.6
GEOGRAPHICAL
Revenue
South Africa 1 382.4 1 187.9 2 575.0
Botswana, Lesotho, Namibia
And Swaziland 162.7 144.3 299.5
Total 1 545.1 1 332.2 2 874.5
* the operating profit excludes the share-based payment of R58.4 million
in 2006.
NOTES TO THE GROUP INTERIM FINANCIAL STATEMENTS
1. Basis of accounting
These consolidated interim financial statements are prepared in accordance
with International Financial Reporting Standards ("IFRS"), specifically IAS
34 on interim financial reporting, and are consistent with those applied
for the year ended 31 March 2006 and the six months ended 30 September
2005.
30 Sept 2006 30 Sept 2005 31 March 2006
Rm Rm Rm
Unaudited Unaudited Audited
2. Cost of merchandise sales
Purchases 579.4 560.0 1 077.4
Movement in inventory (31.2) (92.7) (56.8)
Cost of merchandise sales 548.2 467.3 1 020.6
Merchandise gross profit 286.2 256.7 547.2
3. Debtor costs
Bad debts, bad debt
recoveries and
repossession losses 42.6 46.4 132.9
Movement in doubtful debts
provision 28.1 4.3 (17.4)
70.7 50.7 115.5
4.Net finance (income)/costs
Interest paid:
- Bank and loans 6.9 5.8 12.7
- Forward exchange contracts - 2.5 6.0
6.9 8.3 18.7
Interest received:
- Bank (1.3) (3.0) (5.9)
- Forward exchange contracts (8.9) - -
(10.2) (3.0) (5.9)
(3.3) 5.3 12.8
5. Trade and other
receivables
Instalment sale and loan
receivables 3 069.8 2 734.7 2 921.4
Provision for unearned
finance charges
and unearned maintenance
income (528.8) (452.8) (508.0)
Provision for doubtful debts (396.1) (389.7) (368.0)
Provision for
unearned insurance
premiums (192.5) (159.8) (184.8)
Unearned insurance premiums (311.8) (263.9) (300.9)
Less: re-insurer"s
share of unearned
premiums 119.3 104.1 116.1
1 952.4 1 732.4 1 860.6
Net instalment sale
and loan receivables
Other receivables 36.7 47.5 35.9
1 989.1 1 779.9 1 896.5
The credit terms of instalment sale and loan receivables range from 6 to 24
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.
6. Material capital commitments
There were no material capital commitments contracted for or authorised
and contracted at the end of the period under review.
7. Cash generated from
operations
Operating profit 368.8 251.0 670.2
Adjusted for:
Depreciation and
amortisation 23.0 21.5 35.0
Share-based payments 1.4 58.4 58.7
Surplus on disposal of
property, plant
and equipment (2.4) (2.5) (6.0)
Movement in provision for
doubtful debts 28.1 4.3 (17.4)
Movement in retirement
benefits provision 1.8 1.8 3.4
Movement in other provisions 5.1 3.4 9.8
Changes in working capital:
Increase in inventory (31.8) (94.4) (62.0)
Increase in trade and other
receivables (114.2) (47.8) (152.2)
Increase in trade and other
payables 46.8 108.3 53.7
326.6 304.0 593.2
8. Net cash outflow from
financing activities
Purchase of treasury shares (213.4) (92.0) (152.2)
Dividends paid (126.7) (72.9) (156.9)
Other 3.1 (4.4) (4.8)
(337.0) (169.3) (313.9)
KEY RATIOS FOR THE GROUP
6 months 6 months 12 months
ended ended ended
30 Sept 2006 30 Sept 2005 31 March 2006
Returns
Normalised return on
average equity 23.0% 21.0% 23.2%
Normalised return on
average capital
employed 20.2% 19.4% 22.1%
Margins
Merchandise gross profit % 34.3% 35.5% 34.9%
Normalised operating margin % 23.9% 23.2% 25.3%
Productivity ratios
Number of stores 493 478 490
Revenue per store (R000"s) 3 134 2 787 5 866
Normalised operating profit
per store(R000"s) 748 647 1 487
Number of employees (average) 6 126 5 818 5 879
Revenue per employee(R000"s) 252 229 489
Normalised operating profit
per employee(R000"s) 60 53 124
Trading space (sqm) 211 362 206 501 210 201
Revenue per sqm (R) 7 310 6 451 13 675
Normalised operating profit
per sqm (R) 1 745 1 498 3 466
Stock turn (annualised) 4.5 3.8 4.8
Credit ratios
Cash and short term credit
sales % of total sales 31.5% 30.8% 29.9%
Debtor costs as a % of the
gross debtors book 2.3% 1.9% 4.0%
Doubtful debts provision as
a % of gross instalment
receivables 12.9% 14.2% 12.6%
Total debtors provisions as
a % of gross instalment
receivables 36.4% 36.6% 36.3%
Credit applications decline
rate 20.7% 24.6% 22.4%
Average age of book (months) 14.0 14.5 14.3
Arrear % (full contractual) 22.5% 25.0% 22.0%
Solvency and liquidity
Dividend cover 2.25 2.50 2.25
Gearing ratio 17.1% 7.0% 4.6%
Current ratios 2.9 3.3 3.9
Cash conversion ratio 88.6% 98.3% 81.4%
Net asset value per share
(cents) 2 470 2 212 2 425
Notes:
1. All ratios are based on figures at the end of the period unless
otherwise disclosed.
2. Where a ratio is referred to as normalised, the earnings used in that
ratio
will exclude the share-based payment of R58.4 million in 2006.
3. Employees reflect only permanent employees.
Executive director: AJ Smart (Chief Executive Officer)
Independent
non-executive
directors: DM Nurek (Chairman), H Saven,
B van der Ross, Professor F Abrahams
Company secretary: PB Croucher
Registered office: 53A Victoria Road, Woodstock, 7925
Registration number: 2004/009817/06
Share code: LEW
ISIN: ZAE000058236
Transfer secretaries: Computershare Investor Services 2004
(Pty) Ltd, 70 Marshall Street,
Johannesburg, 2001
PO Box 61051, Marshalltown, 2107
Auditors: PricewaterhouseCoopers Inc.
Sponsor: UBS South Africa (Pty) Ltd
Date: 13/11/2006 10:39:40 AM Produced by the JSE SENS Department
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