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 PERFORMANCETrading was impacted by the shift in the timing of 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 MANAGEMENTDebtor 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 EXPANSIONTen 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.
PROSPECTSSales 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
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.
Registration number: 2004/009817/06.
Share code: LEW.
ISIN: ZAE000058236