INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2018 Agenda - - PowerPoint PPT Presentation

INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2018

LEWIS GROUP LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2018

Agenda

3

Highlights

4

Diversification strategy

5

Key features

8

Debtor analysis

13 Financial results 19 Targets and outlook 22 Questions

LEWIS GROUP LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2018

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Highlights

Merchandise sales

▲

25.9%

Headline earnings per share

▲

10.7%

Debtor Costs reduced by 20.8% Revenue

▲

9.3%

to R2.9 billion Interim Dividend

▲

5% to

105 c

LEWIS GROUP LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2018

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2014 2015 2017 2018 H1/2019

• 2 main brands
• Acquired Beares
• Doubled store base
• utside of SA to 116
• Acquired UFO in Feb

2018

• Launched Omni-

channel retail in May 2018

• LSM 4 - 7
• LSM 7 – 8
• LSM 4 – 8
• LSM 9 – 10+
• LSM 4 – 10+
• Merchandise Sales

= 46% of Revenue

• Merchandise Sales

= 57% of Revenue

• Foreign Stores

Merchandise sales = 17%

• Foreign Stores

Merchandise sales = 22%

• Furniture sales mix

53%

• Furniture sales mix

61%

• Gearing 23.9%
• Ungeared

Diversification strategy

LEWIS GROUP LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2018

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Key features

• Merchandise sales – up 25.9%
• Cash retail (UFO) R230m
• Omni channel retail (INspire) – R3.8m
• Traditional retail brands – sales growth of 7.8%
• Credit sales growth in Q2 of 9.6%
• Gross profit margin – 39.9% (LY: 41.6%)
• Furniture sales mix 61% (LY: 57%)
• New product ranges and exclusivity supported margin
• Competitive sourcing internationally and locally
• Rest of Africa – solid performance and further expansion
• 116 stores (LY: 110 stores)
• Trading out of 779 store outlets (LY: 744 stores)
• Opened 2 UFO stores
• Small format Lewis stores now account for 43%
• 92 stores refurbished

LEWIS GROUP LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2018

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Key features continued

• Credit application decline rate

38.5% (LY: 37.4%)

• Group credit sales mix

57.1% (LY: 68.8%)

• Debtor costs as a % of net debtors

5.5% (LY: 7.8%)

• Expense control
• High focus area
• Within managements target range of 13% - 15%
• Share repurchase programme
• 1.7 million shares repurchased during the period
• Gearing – ungeared and liquid balance sheet
• Adoption of IFRS9
• Expected loss vs Incurred loss model
• Impact:
• Group retained earnings –R631m (R878m pre-tax)
• Impairment provision(pre-tax) +R803m

LEWIS GROUP LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2018

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Net asset value per share vs Share price (cents)

5650 7450 7620 6460 5800 7740 4700 4150 4220 3211 3719 4225 4828 5481 6012 6128 6153 6127 6534 5922

1000 2000 3000 4000 5000 6000 7000 8000 9000 2010 2011 2012 2013 2014 2015 2016 2017 2018 H1/2019 Share price (March closing) Net asset value

LEWIS GROUP LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2018

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Debtor analysis

• IFRS 9
• Debtor analysis
• Debtor performance

LEWIS GROUP LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2018

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IFRS 9 – Financial instruments

• Lewis Group formally transitioned to IFRS 9 on 1 April 2018
• IFRS 9 (Expected credit loss) replaces IAS39 (Incurred loss)
• Most significant impact relates to implementation of the Expected Credit Loss

(ECL) impairment model on measurement of Receivables

• ECL model is forward looking
• Adopted the more conservative simplified model
• Opening retained earnings at 1 April 2018 have been adjusted by R631m

(R878m pre-tax)

• Impairment provision + R803m (pre-tax)

LEWIS GROUP LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2018

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Debtor analysis – IFRS 9

Customer Grouping 30 September 2018 (IFRS 9) No Customers Gross carrying amount Impairment Provision Total Arrears R 000 Instalments in arrears No R 000 R 000 % 1 R000 2 R 000 3 R 000 > 3 R000

Satisfactory paid

Customers who have paid 70% or more

• f amounts due over the contract period.

408 005 69.9% 3 103 155 57.2% 666 767 28.3% 21.5% 530 205 24.3% 148 582 102 629 75 903 203 091

Slow payers

Customers who have paid 55% to 70%

• f amounts due over the contract period.

91 370 15.6% 959 938 17.7% 571 465 24.2% 59.6% 633 196 29.1% 67 912 64 902 61 756 438 626

Non performing customers

Customers who have paid 55% or less

• f amounts due over the contract period.

84 568 14.5% 1 358 540 25.1% 1 119 257 47.5% 82.4% 1 013 893 46.6% 65 006 64 349 63 654 820 884 Totals 583 943 5 420 633 2 357 489 43.5% 2 177 294 281 500 231 881 201 313 1 462 601

LEWIS GROUP LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2018

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Debtor costs vs. Impairment provision + IFRS9 (Rm)

2 422 532.7 635.4 758.3 875.2 997.2 1 129.5 1 294.3 1 533.6 1 560.6 1 619.5 338.8 434.2 458.9 522.3 539.6 702.4 858.1 1 005.0 1 065.5 957.0 R 0 R 500 R 1 000 R 1 500 R 2 000 R 2 500 R 3 000 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 IFRS9 (Rm) Impairment Provision (Rm) Debtor Costs (Rm)

LEWIS GROUP LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2018

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Debtor performance

H1/2019 H1/2018 Collections Collections from instalment sales Rm 2 011 1 990 Actual collections achieved As a % of one contract instalment per customer per month 77.2% 76.2% Contractual arrears Rm 2 177 2 352 % of gross debtors 37% 38.6% Debtor Costs Debtor costs (excluding credit impairment adjustment (-20.8%) Rm 352 444

• Bad debts written off(including recoveries)

Rm 416 379

• Debtors impairment provision

Rm (64) 65

• Credit impairment adjustment

Rm (51)

• Total Debtor costs (-32.2%)

301 444 Debtor costs as a % of net debtors 5.5% 7.8%

LEWIS GROUP LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2018

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Financial results

• Income statement
• Segmental analysis
• Analysis of costs
• Balance sheet overview
• Capital ratios

LEWIS GROUP LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2018

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Income statement

H1/2019 Rm

H1/2018 Rm %

Revenue (Rm)

2 905 2 659 9.3%

Merchandise sales (Rm)

1 631 1 295 25.9%

Gross profit margin (%)

39.9% 41.6%

Operating profit (Rm)

194 191 1.4%

Operating profit margin (%)

6.7% 7.2%

Attributable earnings (Rm)

150 143 5.2%

EPS (cents)

182 163 11.5%

Headline EPS (cents)

181 163 10.7%

LEWIS GROUP LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2018

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Segmental analysis

Group

Traditional retail Cash retail Omni channel

Revenue (Rm)

2 905 2 667 234 4

Merchandise Sales

1 631 1 396 231 4

Operating profit (Rm)

193.8 186.8 21.6 (14.6)

Operating margin H1:19

H1:18 6.7% 7.2% 7.0% 7.2% 9.2% n/a

• n/a

Number of stores H1:19

H1:18 779 744 746 744 33

LEWIS GROUP LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2018

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Analysis of costs (excluding debtor costs)

H1/2019 Rm H1/2018 Rm Change % Employment costs 565 514 10% Admin and IT 170 164 3.7% Marketing 161 134 20.1% Occupancy costs 221 183 20.8% Transport and travel 116 99 17.2% Depreciation 38 44 (13.6%) Other operating costs 159 130 22.3% Total 1 430 1 268 12.8% Expenses in traditional retail increased by 5.5%

LEWIS GROUP LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2018

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Balance sheet overview

H1/2019 Rm H1/2018 Rm Property, equipment, goodwill and trademarks 608 390 Inventory 751 523 Insurance investments 576 701 Trade and other receivables 3 347 4 341 Insurance and reinsurance assets 17 298 Tax and deferred assets 294 113 Cash on hand 544 683 Total assets 6 137 7 049 Shareholders’ equity and reserves 4 838 5 415 Trade and other payables 674 548 Insurance and reinsurance liabilities 122 399 Interest-bearing borrowings 502 635 Net retirement benefits 1 52 Total equity and liabilities 6 137 7 049

LEWIS GROUP LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2018

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Capital ratios

H1/2019 H1/2018 ROE – after tax (%) 6.2% 5.2% ROCE – after tax (%) 5.4% 5.0% ROA – before tax (%) 7.2% 6.4% Gearing ratio (%) Ungeared Ungeared Interim dividend declared (cents) 105c 100c

LEWIS GROUP LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2018

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Targets and Outlook

LEWIS GROUP LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2018

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Financial and operating targets

Performance indicators Actual H1/2019 Target 2019 Gross profit margin (%) 39.9 38 – 42 Operating profit margin (%) 6.7 5 – 10 Increase in operating costs (%)

• Traditional retail

5.5

3 - 5

• Including UFO and INspire

12.9

13 – 15

Credit sales as a % of total sales 57.1 56 – 60 Satisfactory paid customers (%) 69.9 67 – 70 Debtor costs as a % of net debtors 5.5

(H1/18 7.8)

15 – 18

Year end target

Gearing Ungeared Ungeared

LEWIS GROUP LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2018

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Outlook

• Share repurchase programme to continue
• Trading conditions expected to remain challenging
• Opportunity to sell to informally employed and self-employed customers
• Continued to invest in the future by expanding UFO and building the

INspire business

• Well prepared for the festive trading period

LEWIS GROUP LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2018

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Questions

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