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Affordabilty Regulations and Economy Impact Lewis Group

November 16, 2016

Cape Town – Slowing economic conditions and the impact of the affordability assessment regulations severely impacted Lewis Group’s performance for the six months to September 2016, contributing to headline earnings for the half year declining from R287 million to R173 million. Headline earnings per share were 39.6% lower.

The group declared a dividend of 100 cents per share.

Chief executive officer Johan Enslin said the National Credit Regulator’s affordability regulations require customers to provide their three latest salary advices or bank statements when applying for credit.

“This is proving a major challenge for many customers in our lower to middle income target market who are self-employed or work in the informal sector. The regulations are restricting access to credit and consequently our credit sales growth.”

Merchandise sales grew by 1% while comparable store sales declined by 9.2%. Group credit sales declined by 2.3% and accounted for 63.4% of total sales compared to 65.9% last year. Revenue for the six months was 2% lower at R2.7 billion.

The gross profit margin strengthened by 410 basis points to 40.5%. The margin expansion was driven by a shift in the product mix, with the higher margin furniture category increasing to 58.3% of total sales compared to 54.7% in the previous six months. “Improved pricing on new product ranges and competitively priced merchandise sourced from local suppliers also supported the margin,” he said.

Debtor cost growth slowed to 7.3%. Despite the deteriorating consumer credit environment the level of satisfactory paid customers at 67.9% was similar to the previous year.

Enslin said the portfolio of 56 Ellerines and Beares stores acquired in Botswana, Lesotho, Namibia and Swaziland have been successfully integrated into the group’s operations.

“These stores are showing encouraging sales performance and we expect them to make a solid contribution to the group’s revenue and profitability in the medium-term,” he said.

The group now has 118 stores outside of South Africa, accounting for 15% of the total store base of 780.

Discussing the outlook for the remainder of the financial year, Enslin said trading conditions are not expected to improve as consumers are facing increasing pressures on disposable income.

“We are, however, positive about the group’s medium to long-term prospects as the business remains cash generative with low levels of gearing, reflecting the strength of the balance sheet,” he said.

Issued by Tier 1 Investor Relations on behalf of Lewis Group