Lewis Group Limited · JSE:LEW
Lewis — Investor Presentation (June 2009)
27 slides from Lewis's investor presentation, June 2009
Slide 1: Lewis Group Limited Company Review June 2009
LEWIS GROUP LIMITED COMPANY REVIEW June 2009 1
Slide 2: Agenda
AGENDA 1. The Investment Case 2. Debtor Analysis 3. Summary Financial Results – Year Ended 31 March 2009 4. Outlook 5. Questions 2
Slide 3: 1. The Investment Case
1. The Investment Case • Solid business model established over past 75 years. • Biggest single furniture brand in South Africa. • Consistent performance. • Historically high operating margin business. • Strongly cash generative. • Low cost structures. 3
Slide 4: The Investment Case (Cont'd)
The Investment Case (Cont’d) • Dividend per share maintained. • Cash returned to shareholders exceeds 50% of 2004 listing market cap. • Merchandise innovation – a prime focus. • New format Lewis store. • Introduction of furniture range to Best Home & Electric. • Stock turn – 5.8 times. 4
Slide 5: The Investment Case (Cont'd)
The Investment Case (Cont’d) • Integrated credit and marketing strategies – resulting in a high level of repeat business. (55% of total sales). • Store based customer focus – developing long term relationships. • Target Market LSM 4-7. A growing market in South Africa. • Centralised credit granting
Slide 6: The Investment Case (Cont'd)
The Investment Case (Cont’d) • Proven store based collections – direct relationship with customer. • Experienced management team. CHALLENGES TO THE INVESTMENT CASE • Extremely challenging past year for credit retail. • Unemployment – although not yet a factor – remains a risk. 6
Slide 7: Operating Profit - History
Operating Profit - History Over the past 16 years – Compound annual growth of 10.7% 1,000 R930 R860 R840 800 R729 R Millions R594 600 R506 R417 R442 R429 R388 R361 400 R327 R351 R274 R298 R200 R166 200 - 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Year Operat
Slide 8: Core Strengths
Core Strengths Re-serve model → ± 55% of sales from repeat business In store promotions → Building customer loyalty Convenience → Extensive store network Selection → Merchandise offers to meet local needs Small store based → 90% of deliveries executed Warehouses within 24 hours Immediate Credit deci
Slide 9: Re-serve Scheme
Re-serve Scheme • Identifies suitability of customer for further credit extension. • Fully integrated with debtors system and store operations. • Driven by historic payment behaviour & current indebtedness. • Customer base is segmented and targeted monthly. • Targeted direct mailing with promotional
Slide 10: 2. Debtor Analysis
2. DEBTOR ANALYSIS Group Ltd
Slide 11: Debtors Provisions
Debtors Provisions • The Lewis group model is credit based with 64% of sales on credit. • Over 690 000 individual debtors with a debtors book of R3.4 billion. • Debtor provisions well above debtor costs. • Since 2003 debtor provision calculated in terms of International Accounting standard IAS 39. 1
Slide 12: Debtors Provisions (Cont'd)
Debtors Provisions (Cont’d) • 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 applicable to the contract. • Provision calculated monthly for each individual customer utilising the payment behaviour (good or
Slide 13: Debtor Analysis
Debtor Analysis FY09 FY08 Rm Rm Net debtors 3 388 2 939 Bad debts written off 202 172 17.3% Doubtful debts provision – Balance Sheet 533 396 34.6% Doubtful debt provision as a % of net Debtors 15.7% 13.5% Bad debts as a % of net Debtors 6.0% 5.9% Debtor costs as a % of net Debtors 10.0% 6.5% Credit
Slide 14: Debtor Payment Analysis
Debtor Payment Analysis NUMBER OF CUSTOMERS DOUBTFUL DEBT PROVISION % Debtor's Payment Analysis 2009 2008 2009 2008 Customers fully up to date No. 497,296 534,286 including those who have Satisfactory paid paid 70% or more of amounts due over the % 72.0% 75.1% 0% 0% contract period Customers who hav
Slide 15: Analysis of NCA Business
Analysis of NCA Business NUMBER OF CUSTOMERS NCA NCA Analysis of NCA Business 24 Months Over 24 Months Customers fully up to date No. 269,491 175,940 including those who have paid Satisfactory paid 70% or more of amounts due over % 81.5% 83.7% the contract period No. 20,732 10,895 Customers who have
Slide 16: 3. Summary Financial Results
3. SUMMARY FINANCIAL RESULTS 16 16
Slide 17: The Year In Review March 2009
The Year In Review March 2009 R3807m 22.1% R670m 637.1c 323c + 5.9% 22.1% + 20.4% - 7.6% Maintained Revenue Operating Cash Flow Headline Dividend Margin from Earnings per Operations per Share Share 17
Slide 18: Income Statement
Income Statement FY09 FY08 % Rm Rm Revenue 3 807 3 596 5.9% Merchandise sales 1 920 1 890 1.6% Gross profit % 31.3% 32.7% Operating profit 840 930 (9.7%) Operating margin % 22.1% 25.9% Attributable earnings 567 642 (11.7%) EPS (cents) 643 717 (10.3%) Headline EPS (cents) 637 690 (7.6%) 18
Slide 19: Trading Performance
Trading Performance Best Lifestyle Group Lewis Electric Living Revenue growth 5.9% 5.7% 9.1% (0.5%) Merchandise sales % contribution 100% 81.7% 11.8% 6.5% Merchandise sales growth 1.6% 1.7% 3.6% (2.8%) No. of stores – total 535 427 88 20 19
Slide 20: Segmental Analysis
Segmental Analysis Risk Financial Retail Services Services Total Rm Rm Rm Rm 2009 Revenue 2 214 581 1 012 3 807 Operating profit 286 183 371 840 Operating margin 12.9% 31.4% 36.7% 22.1% 2008 Revenue 2 141 564 891 3 596 Operating profit 307 175 448 930 Operating margin 14.4% 31.1% 50.2% 25.9% 20
Slide 21: Analysis of Costs
Analysis of Costs (Excluding Debtor Costs) 2009 2009 Like for Change Like % Change % In terms of IAS18, initiation fees and directly related costs are Employment costs 6.8% 3.6% recognised over the period of the contract on Admin and IT 3.7% 0.7% an effective yield basis. Marketing 15.9% 4.9% Occupa
Slide 22: Balance Sheet Overview
Balance Sheet Overview FY09 FY08 Rm Rm Property, plant and equipment 230 201 Investments 734 665 Tax and Deferred tax - 30 Inventory 228 230 Net Debtors after Doubtful Debts 2 944 2 615 Cash 54 67 Total Assets 4 190 3 808 Shareholders’ equity and reserves 2 940 2 730 Retirement benefits 54 58 Tax an
Slide 23: Capital Ratios
Capital Ratios FY09 FY08 Rm Rm Gearing ratio 23.2% 23.3% Share repurchases 51 162 Total dividend (cents) 323 323 ROE – after tax 20.0% 24.4% ROCE – after tax 17.7% 21.4% ROA – before tax 22.9% 27.8% 23
Slide 24: 4. Outlook
4. OUTLOOK > PF, CS INVVIT | f f IN TA, » | Ay 2)
Slide 25: Outlook for 2009/10
Outlook for 2009/10 • The proven business model will remain our competitive advantage. • Merchandise innovation – increased furniture sales. • We expect an improvement in gross profit. • Management of Debtor book will continue to be a top priority. 25
Slide 26: Outlook for 2009/10 (Cont'd)
Outlook for 2009/10 (Cont’d) • Expand selectively – 20 to 25 stores. • Capital management: ¾ No further buy back planned ¾ Maintain gearing at current levels • Benefit from competitor brand reduction and store closures. • Continued improvement in sales post year end. 26
Slide 27: 5. Questions
5. QUESTIONS 27 27