Audited Final Results

RETAIL TRADING REVIEW

The group has produced another strong trading performance, with consistent sales growth throughout the year. There has been a further improvement in the quality of the debtors book and enhanced operating margin.

Revenue increased by 15.6% to R3 323.5 million. Merchandise sales reflected a similar growth of 15.4%, driven by merchandise initiatives, improvements in the supply chain, a continued focus on customer retention as well as ongoing new customer promotional campaigns. Like-for-like sales growth was 11.3%.

Insurance revenue, finance charges and ancillary services grew in line with merchandise sales.

The merchandise gross margin this year was 34%, compared to 34.9% last year. Adjusted for the gain on forward exchange contracts reflected under interest income, the gross margin this year is 34.7% compared to 34.5% last year.

The furniture import programme has been expanded in 2007 and continues to offer customers a range of exclusive value-for-money products. This resulted in a shift in the product mix to a higher proportion of furniture sales which now account for 50% of total sales (2006: 47%).

The stock turn for the year improved from 4.8 to 5.2.

Actual bad debts written off during the year reflected a marginal increase of 4%, notwithstanding the 13.5% increase in gross debtors.

The opening of the 500th store in November 2006 was a notable milestone in the group’s growth strategy. Following the opening of 22 new stores during the year, the group had a national store base of 508 at year-end.

FINANCIAL PERFORMANCE

Normalised operating profit grew by 18% to R859.9 million, with the normalised operating margin increasing from 25.3% to 25.9% as a result of improved sales.

The increase in earnings can be summarised as follows:
Increase in	IFRS	Normalised
Earnings	33.3%	18.0%
Headline earnings	31.5%	16.4%
Earnings per share	40.9%	24.7%
Headline earnings per share	38.9%	23.0%
Fully diluted earnings per share	40.6%	24.4%
Fully diluted headline earnings per share	38.6%	22.8%

The share repurchase programme initiated in September 2005 as part of the long-term capital management plan has enhanced earnings per share and return on equity. At 31 March 2007, 7.5% of the shares in issue had been repurchased at an average market price of R48.37 per share. The group will continue to repurchase shares at levels which are earnings enhancing. The weighted average number of shares in issue was 92.1 million for the year compared to 97.3 million last year.

The normalised return on equity for the year improved to 24.8% compared to 23.2% last year.

DIVISIONAL REVIEW

The three trading divisions all showed pleasing growth off a high base with sales momentum being maintained in the second half of year. The Lewis chain grew 12.4% (10.9% on a like-for-like basis), with excellent results in selected product categories highlighting the benefits of the merchandising strategy.

Best Electric recorded a 23.6% sales increase, benefiting from the opening of 7 new stores. Comparable sales growth was at 7.5% and reflected a slowing of demand of certain electronic goods.

Lifestyle Living posted strong growth of 43.9% (23.7% on a like-for-like basis) as the differentiated merchandise offerings continued to reap dividends. The division is now firmly on a sustainable growth path.

The pilot project for Best Bedding, a specialist bedding and bedroom furniture chain, has performed in line with management’s expectations. Three stores were opened in the second half of the year.

A total of 28 stores will be opened on a phased basis across the trading divisions in the 2008 financial year.

DEBTORS BOOK

The overall condition of the group’s debtors book as measured by the doubtful debt provision continues to improve. The doubtful debt provision is 11.4% of debtors as compared to 12.6% last year and indicates the high quality of the group’s credit risk management and the strength of the decentralised collection process.

Actual bad debts written off during the year reflected a marginal increase of 4%, notwithstanding the 13.5% increase in gross debtors.

The average age of the debtors book of 14.1 months has improved from 14.3 months last year.

The group’s cash sales at 30.7% of total sales remains at a similar level to last year.

CASH FLOW

Lewis continues to generate strong operating cash flows which have funded the following:

• Increased investment in debtors of R295.3 million;
  
• Share repurchases of R213.5 million; and
  
• Dividends paid during the year of R253.0 million.
  

Borrowings have increased by R295.7 million in line with long-term capital management planning and gearing is now 15.6% (2006: 4.6%).

NATIONAL CREDIT ACT (“NCA”)

The group is compliant with the requirements of the NCA which will be implemented on 1 June 2007. The impact of the NCA is expected to be revenue neutral and minimal systems costs have been incurred in complying with the legislation. Our credit granting process, which has been in place for many years, conforms with the requirements of the National Credit Act. The store-based collection process will ensure that Lewis will continue to interface closely with its customers and will be a major advantage in dealing with certain aspects of the National Credit Act.

OUTLOOK

The underlying strength and size of the middle income market will continue to afford growth opportunities. Sales for April 2007 were on budget and the Board remains confident that the group will deliver satisfactory growth in sales and earnings in the year ahead.

CORPORATE GOVERNANCE

The group subscribes to the values of good corporate governance and complies with the Code of Corporate Practices and Conduct as set out in the King II Report on Corporate Governance and the JSE Limited Listings Requirements.

DIRECTORATE

David Nurek, Alan Smart, Hilton Saven, Ben van der Ross and Professor Fatima Abrahams remained as directors during the year. We are pleased to announce the appointment of the group’s chief financial officer, Les Davies, to the Board with effect 1 April 2007.

EXTERNAL AUDITORS’ REVIEW The external auditors, PricewaterhouseCoopers Inc, have audited the group annual financial statements and the abridged financial statements contained herein for the 12 months ended 31 March 2007 and a copy of their unqualified reports are available on request at the company’s registered office.
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:	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