May 19, 2009
Revenue grows 6% despite tough times
The passing of the National Credit Act nearly two years ago limited the number of customers who were overextended and many had now paid off earlier debt and were eligible for more credit, Alan Smart, the chief executive of furniture retailer the Lewis Group, said yesterday.
However, 25.4 percent of credit applications were declined, compared with 22.5 percent in the previous year.
The group lifted revenue by 6 percent to R3.8 billion in the year to March despite “demanding trading conditions”. It maintained its dividend unchanged at R3.23 a share.
The directors said revenue showed “an improving trend” in the second half, when it rose 6.6 percent.
But debtor costs rose from 6.5 percent to 10 percent of net debtors, including R202million worth of bad debt that had to be written off and doubtful debt provisions rising to R137m. As a result, headline earnings a share fell 7.6 percent to R6.371.
Smart said this was a comparatively small part of the total debtors book of R3.5bn. The worst had passed, with the majority of doubtful debtors still paying, but “a little slower”.
Noting that Lewis’s client base was not the high end, he said most customers were affected not by higher interest rates but by higher food and transport costs. The group concentrated on providing necessities. “If customers’ beds or refrigerators pack up, they have to be replaced.”
The group had remained “strongly cash generative”, with a 20.4 percent increase in cash generated by operations to R 670m, mainly through efficient cost and working capital management.
Its store-based collections model was proving effective, as direct monthly contact with customers gave an early indication of payment difficulties.
Rising numbers of retrenchments remained a major risk.
“While trading conditions are expected to remain difficult, the improving trend in revenue growth and slowing bad debt provision in recent months provide encouraging signs. Sales for the first six weeks of our financial year have continued to improve on the positive trend.”
The group was continuing its “cautious expansion” with 20 to 25 new stores to be opened.
Analysts’ comments were largely favourable. Paul Bosman of PSG said the group had contained the proportion of bad and doubtful debt well, enabling it to reduce its provisions from 13.5 percent to 6 percent in the year under review. It had succeeded in collecting a much higher proportion than some of its competitors.
Mark Ansley of Cadiz said the results were very good in the present environment, as it had managed to raise sales.
The shares rose 0.9 percent to close at R43.30 yesterday.