Lewis Group Limited · JSE:LEW

Lewis — 10th Annual Merrill Lynch Conference March 2009

24 slides from Lewis's conference presentation, March 2009

  1. Slide 1: Lewis Group Limited 10th Annual Merrill Lynch Conference March 2009

    LEWIS GROUP LIMITED 10TH ANNUAL MERRILL LYNCH CONFERENCE MARCH 2009 1

  2. Slide 2: Agenda

    AGENDA 1. Lewis Group Overview – The Investment Case 2. Debtors Book Review 3. Capital Management 4. Summary Financial Statements – 30 September 2008 5. Outlook 2

  3. Slide 3: Lewis Group Overview – The Investment Case

    1. Lewis Group Overview – The Investment Case ƒ Solid business model established over past 75 years ƒ Consistent performance over many years ƒ Historically high operating margin business ƒ Strong cash conversion ratio ƒ Cash returned to shareholders exceeds 50% of 2004 listing market cap ƒ Merchandi

  4. Slide 4: Lewis Group Overview – The Investment Case (Cont'd)

    Lewis Group Overview – The Investment Case (Cont’d) ƒ Integrated credit and marketing strategies – resulting in a high level of repeat business. (60% of total sales). ƒ Store based customer focus – developing long term relationships ƒ Target Market LSM 4-7. A growing market in South Africa ƒ Low cos

  5. Slide 5: Lewis Group Overview – The Investment Case (Cont'd)

    Lewis Group Overview – The Investment Case (Cont’d) ƒ Proven collection processes ƒ Experienced management team CHALLENGES TO THE INVESTMENT CASE ƒ Lewis’s ability to hold merchandise prices against a background of a weak rand. ƒ Unemployment – although not yet a factor – rising unemployment is a ri

  6. Slide 6: Sustainable Operating Profit

    Sustainable Operating Profit Over the past 16 years – Compound annual growth of 12.6% Operating 20% 22% 23% 27% 27% 27% 28% 27% 24% 15% 18% 21% 22% 24% 25% 26% 26% margin % 6

  7. Slide 7: Other Core Strengths

    Other Core Strengths Convenience Extensive store network Selection Merchandise offers to meet local needs Small store based 90% of deliveries executed Warehouses within 24 hours. Quick Credit decision Anywhere in the country – immediate customer response Store based collection Direct relationship wi

  8. Slide 8: Re-Serve Scheme

    Re-Serve Scheme ƒ Identifies suitability of customer for further credit extension ƒ Fully integrated with debtors system and store operations ƒ Driven by historic payment behaviour & current indebtedness ƒ Customer base is segmented and targeted monthly ƒ Targeted direct mailing with promotional off

  9. Slide 9: 2. Debtors Book Review

    2. Debtors Book Review 9

  10. Slide 10: Debtors – Credit Approval – Collections - Provisions

    Debtors – Credit Approval – Collections - Provisions ƒ The Lewis group model is credit based with 68% of sales on credit. ƒ Over 700 000 individual debtors with a debtors book of R3 billion. ƒ Central credit approval system – with an immediate credit decision. ƒ Advanced application and behavioural

  11. Slide 11: Debtors – Credit Approval – Collections – Provisions Cont'd

    Debtors – Credit Approval – Collections – Provisions Cont’d ƒ Since 2003 provisions calculated in terms of International Accounting standard IAS 39. ƒ IAS 39 requires receivables to be carried at the net present value of the expected cash flow from the debtor. Discounted at the interest rate applica

  12. Slide 12: Well Provisioned Debtors Book

    Well Provisioned Debtors Book 12

  13. Slide 13: Debtor Costs

    Debtor Costs H1/2009 H1/2008 Rm Rm Total Debtor costs 143 83 ƒ Bad debts written off 51 42 92 41 ƒ Provision for Doubtful Debts Debtor costs as a % of net debtors 4.5% 3.0% Credit Application decline rate 24.5% 21.6% 13

  14. Slide 14: Doubtful Debt Provision

    Doubtful Debt Provision H1/2009 H1/2008 Rm Rm Net Debtors before DD Prov. 3 154 2 724 Doubtful Debt Provision 488 419 Doubtful Debt Provision % 15.5% 15.4% 14

  15. Slide 15: Debtors Payment Analysis

    Debtors Payment Analysis NUMBER OF CUSTOMERS DOUBTFUL DEBT PROVISION H1/2009 H1/2008 H1/2009 H1/2008 MARCH '08 Customers fully upto} yg | 545.474 544 864 date including those who have paid 70% or| Satisfactory paid 0% 0% 0% more of amounts due % 72.5% 75.2% over the contract period Customers who hav

  16. Slide 16: Analysis of NCA Business

    Analysis of NCA Business NUMBER OF CUSTOMERS NCA NCA 24 Months Over 24 Months Customers fully up to date No. 250,705 117,996 . including those who have paid Satisfactory paid 70% or more of amounts due over the contract period % 85.3% 86.4% Customers who have paid slow payers between 70% and 65% of

  17. Slide 17: 3. Capital Management

    3. Capital Management H1/2009 Gearing ratio 23.9% Share Buy back to date 11.2% Dividend cover (x) 2.0 Return on Equity - average* 19.8% Return on Capital Employed - average* 17.2% Return on Assets – average* 15.4% * After-tax 17

  18. Slide 18: Income Statement

    Income Statement H1/2009 H1/2008 % Rm Rm Revenue 1 803 1 718 5.0% Merchandise sales 890 897 (0.7%) Gross profit % 33.1% 34.1% Operating profit 411 423 (2.7%) Operating margin % 22.8% 24.6% Attributable earnings 273 285 (4.2%) EPS (cents) 309 317 (2.6%) Headline EPS (cents) 306 309 (0.9%) 18

  19. Slide 19: Segmental Analysis

    Segmental Analysis Risk Financial Retail Services Services Total Rm Rm Rm Rm H1/2009 Revenue 1 020 295 488 1 803 Operating profit 124 107 180 411 Operating margin 12.1% 36.3% 36.9% 22.8% H1/2008 Revenue 1 018 250 450 1 718 Operating profit 141 77 205 423 Operating margin 13.8% 31.0% 45.5% 24.6% 19

  20. Slide 20: Cash Flow

    Cash Flow H1/2009 H1/2008 Cash flow from trading 539 501 Change in working capital (157) (202) Cash generated from operations 382 299 + 27.8% 20

  21. Slide 21: Balance Sheet Overview

    Balance Sheet Overview H1/2009 H1/2008 Rm Rm Property, plant and equipment 211 184 Investments 707 680 Tax and Deferred tax 11 94 Inventory 269 311 Net Debtors after Doubtful Debts 2 752 2 328 Cash 99 57 Total Assets 4 049 3 654 Shareholders’ equity and reserves 2 788 2 511 Retirement benefits 60 69

  22. Slide 22: Analysis of Costs

    Analysis of Costs (Excluding Debtor costs) H1/2009 H1/2008 Change Rm Rm % Employment costs 268 265 1.2% Admin and IT 85 84 1.4% Marketing 67 62 8.4% Occupancy costs 72 65 10.5% Transport/Travel 71 61 17.1% Depreciation 28 25 8.3% Other operating costs 63 60 5.8% Total 654 622 5.2% % of revenue 36.3%

  23. Slide 23: 5. Outlook

    5. Outlook 23

  24. Slide 24: Outlook for 2009/10

    Outlook for 2009/10 ƒ Industry developments – competitor brand reductions and store closures ƒ The proven Lewis model will be maintained ƒ Innovative merchandise offers - increased furniture sales ƒ Expand selectively – 25 to 30 stores ƒ Further improve operating efficiencies 24

Lewis Group — 10th Annual Merrill Lynch Conference March 2009 on 6ix