Wrap Text
Short- Form
Summary Unaudited Financial Statements for the six months ended 30 September 2023
Lewis Group Limited
Incorporated in the Republic of South Africa
Registration number: 2004/009817/06
Share code: LEW
ISIN: ZAE000058236
Bond Code: LEWI
(the "Group")
SHORT-FORM ANNOUNCEMENT:
SUMMARY UNAUDITED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED
30 SEPTEMBER 2023.
1. Introduction
Shareholders are advised that the following have been distributed:
- unaudited interim results for the six months ended 30 September 2023 ("results
announcement")
- cash dividend declaration of 200 cents per share.
2. Highlights
- Merchandise sales increased by 4.8% to R2.2 billion
- Revenue increased by 8.3% to R3.8 billion
- Gross profit margin increased by 140 bps to 40.7%
- Satisfactory paid accounts at 79.9%
- Debtors' book growth of 10.8%
- Operating profit increased by 7.5% to R309.3 million
- Earnings per share increased by 2.6% at 355 cents
- Headline earnings per share decreased by 6.6% at 372 cents
- Interim dividend increased by 2.6% to 200 cents per share
3. Results Commentary
Introduction
Credit sales continued to grow strongly across the Group's traditional retail brands which
contributed to robust growth in the debtors' book. Despite the economic pressure facing
consumers, the quality of the book has been maintained.
The sustained pressure on disposable income from higher fuel, energy, food and
borrowing costs is reflected in the continued slowdown in the Group's cash sales which
adversely impacted the performance of UFO, the Group's cash retail brand.
The Group adopted IFRS 17 Insurance Contracts in the reporting period with full
retrospective application. This has had no material impact on the earnings for the current
or prior periods.
Trading and financial performance
After growing by 1.1% in the first quarter of the 2024 financial year, merchandise sales
benefited from new product ranges and strong advertising campaigns and increased by
8.5% for the second quarter, contributing to growth of 4.8% to R2.2 billion for the half
year.
Merchandise sales in the traditional retail segment increased by 7.3% while sales in UFO
declined by 14.3%. Comparable store sales grew by 1.9%.
The strong credit sales growth trend of the past two years continued, with credit sales
increasing by 19.5% and cash sales declining by 14.4%. The contribution from credit
sales increased to 64.4% of total merchandise sales from 56.5% in the previous half
year. In the constrained consumer spending environment, the Group has maintained its
strict credit granting criteria and attracted lower risk credit customers, with the application
decline rate settling on 34.8% (H1 2023: 35.8%).
Sales in the stores outside South Africa, which represent 15.9% of the store base,
increased by 4.9% and accounted for 18.7% of the Group's sales.
The Group has capitalised on opportunities to acquire well located trading space to
accelerate the expansion of its store base. The Group opened a net 29 new stores in the
traditional retail segment, including five new stores outside of South Africa. The total
store footprint of 868 includes 138 stores outside of South Africa.
Other revenue, consisting of effective interest income and ancillary services income as
well as insurance revenue (measured in terms of IFRS 17), benefited from the strong
credit sales growth in the recent years and increased by 13.4%.
Total revenue, comprising merchandise sales and other revenue, increased by 8.3% to
R3.8 billion.
The gross profit margin strengthened by 140 basis points to 40.7%, within the Group's
target range of 40% - 42%. The gross margin benefited from the 23% reduction in
inventory as management reduced stock levels closer to historic norms.
Following the adoption of IFRS 17, insurance service expenses of the Group's insurance
business is reported separately for the first time. Operating costs, including insurance
service expenses, were well contained at a 4.2% growth despite significant transport and
energy inflation. The Group received proceeds of R22.7 million for business interruption
losses relating to the 2021 civil unrest, which has been accounted for in operating profit.
The quality of the Group's debtors' portfolio is reflected in the level of satisfactory paid
customers increasing to 79.9% (H1 2023: 78.8%) and the collection rate settling at a
solid 80.9% (H1 2023: 81.7%).
The debtors' impairment provision as a percentage of debtors at gross carrying value
reduced from 38.3% to 36.0%, demonstrating the health of the book and the consistent
performance over the past few years.
Following the strong growth of 10.8% in the debtors' book, the debtors' impairment
provision increased by R147 million. Total debtor costs increased by R192.1 million and
debtor costs as a percentage of debtors at gross carrying value increased from 4.4% to
7.0%.
Impairments and capital items totalled R12.5 million, mainly due to an impairment
recognised against right-of-use assets (relating to lease agreements), compared to R33.6
million in the prior half year.
Operating profit for the half year increased by 7.5% to R309.3 million.
Net finance costs increased by R44.8 million to R62.3 million mainly due to higher
borrowing costs and foreign exchange gains being R20.5 million lower than the
comparative period.
Earnings were 6.2% lower at R194.8 million while earnings per share increased by 2.6%
to 355 cents per share, supported by the positive leverage effect from the Group's share
repurchase programme. Headline earnings decreased by 14.6% and headline earnings
per share decreased by 6.6% to 372 cents. The weighted average number of shares in
issue reduced by 8.6% relative to the comparable period.
The board has increased the interim dividend by 2.6% to 200 cents per share, a payout
ratio of 55.6% (H1 2023: 55.4%).
The Group's balance sheet remains strong with a net asset value of R4.6 billion. The
borrowings ratio (gearing ratio excluding lease liabilities), increased to 13.4% from 4.1%
mainly due to the ongoing investment in the growth of the debtors' book.
Share repurchase programme
The Group repurchased 3.1 million shares at a cost of R124.3 million in the first six
months of the financial year, at an average price of R40.63 per share. Since listing, the
Group has bought back 45.8 million shares at a cost of R1.8 billion and an average price
of R39.20 per share.
At the annual general meeting (AGM) in October 2022, shareholders granted
management the authority to repurchase a further 10% of the issued share capital and
the Group had utilised 7.8% of this mandate by 30 September 2023. A new mandate to
repurchase a further 10% of the outstanding shares was granted at the AGM in October
2023.
Outlook
Consumer spending will remain depressed in the months ahead due to increasing
economic pressures while load shedding and congestion at the local ports are likely to
continue to negatively impact economic growth.
The consumer demand for credit is expected to continue, with the Group planning to
utilise the strength of its loyal customer base and differentiated merchandise offering to
gain market share.
Appealing festive season promotions are planned across all brands, supported by new
merchandise ranges, high levels of stock availability and strong marketing campaigns.
The right sizing of UFO and the implementation of extensive cost saving measures
resulted in the business reporting an operating profit for the half year. Management
remains focused on improving UFO's performance through exclusive merchandise
offerings and improved social media marketing strategies.
The Group continues to invest for longer-term growth. The new stores opened in the first
half are trading well and a further 10 stores are planned to open across the traditional
retail brands in the second half of the year.
Dividend declaration
Notice is hereby given that an interim gross cash dividend of 200 cents per share in
respect of the six months ended 30 September 2023 has been declared payable to
holders of ordinary shares. The number of shares in issue as of the date of declaration is
54 038 262.The dividend has been declared out of income reserves and is subject to a
dividend tax of 20%. The dividend for determining the dividend tax is 200 cents and the
dividend tax payable is 40 cents for shareholders who are not exempt. The net dividend
for shareholders who are not exempt will therefore be 160 cents. The dividend tax rate
may be reduced where the shareholder is tax resident in a foreign jurisdiction which has
a Double Tax Convention with South Africa and meets the requirements for a reduced
tax rate. The company's tax reference number is 9551/419/15/4.
The following dates are applicable to this declaration:
Last date to trade "cum" dividend 16 January 2024
Date trading commences "ex" dividend 17 January 2024
Record date 19 January 2024
Date of payment 22 January 2024
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Share certificates may not be dematerialised or rematerialised between 17 January 2024
and 19 January 2024, both days inclusive
For and on behalf of the board
Hilton Saven Johan Enslin Jacques Bestbier
Independent Chief executive officer Chief financial officer
non-executive
chairman
Cape Town
30 November 2023
4. Short Form Announcement
This short-form announcement is the responsibility of the company's directors and is a
summary of the unaudited interim results announcement and does not contain full or
complete details. The unaudited interim results announcement can be downloaded from
https://senspdf.jse.co.za/documents/2023/jse/isse/LEW/HY24.pdf and on the group's
website www.lewisgroup.co.za. The full results announcement may be requested at the
company's registered office, at no charge, during normal business hours. Any investment
decision in relation to the company's shares should be based on the full announcement.
Cape Town
30 November 2023
Sponsor
The Standard Bank of South Africa Limited
Debt Sponsor
Absa Corporate and Investment Bank, a division of Absa Bank Limited
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Date: 30-11-2023 07:05:00
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