Lewis Group Limited · JSE:LEW
Lewis — J.P. Morgan EMEA Equity Conference 2006
35 slides from Lewis's conference presentation, Jan 27, 2006
Slide 1: Company Overview
COMPANY OVERVIEW • J P MORGAN, EMEA EQUITY CONFERENCE, LONDON 26TH & 27TH JANUARY 2006 • ONE-ON-ONE PRESENTATIONS 1
Slide 2: Agenda
AGENDA 1. S.A. Macro Economic Overview 2. Group Overview 3. Summary of Lewis Business Model 4. Strategic Framework 5. The Current Year in Review 6. Challenges and Prospects 7. Questions Annexure – Summary H1/06 Interim Financial Information 2
Slide 3: 1. S.A. Macro Economic Overview
1. S.A. MACRO ECONOMIC OVERVIEW 3
Slide 4: Macro Economic Overview
MACRO ECONOMIC OVERVIEW • Strong rand resulting in stable inflation and interest rates likely to continue, favouring credit based consumer spending. • Government infrastructure spend and lower tax rates • Outlook for food inflation and unemployment is positive • Structural change sustained through:
Slide 5: 2. Group Overview
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Slide 6: Lewis Group Overview
LEWIS GROUP OVERVIEW • Leading retailer of furniture, household and electrical goods and financial services • Strong market position targeting the rapidly growing LSM 4-7 customer categories • Sales mainly on credit with associated financial products • Best of breed systems and superior operating ef
Slide 7: Lewis Group Structure
LEWIS GROUP STRUCTURE (400 stores) (58 stores) (17 stores) Largest single furniture retail brand in SA Strong brand awareness 450 400 400 25 2 0 .5 350 20 309 300 15 1 1 .8 250 1 0 .7 1 0 .6 1 0 .4 199 10 6 .7 200 6 .3 6 .3 5 .7 147 142 4 .3 150 5 100 0 Joshua Doore Morkels OK Town Talk Russells Ell
Slide 8: Extensive Store Network – Strong Market Position
EXTENSIVE STORE NETWORK – STRONG MARKET POSITION Western Cape 86 Free State 62 Eastern Cape 54 Mpumalanga 52 Gauteng 46 North West 35 Kwa-Zulu Natal 32 Limpopo 31 Northern Cape 29 Namibia 17 Botswana 15 Swaziland 10 Lesotho 6 TOTAL March ’05 475 LSM 10 LSM 9 LSM 8 LSM 7 LSM 6 LSM 5 LSM 4 LSM 3 LSM 2
Slide 9: Customer-Centric Business Model
CUSTOMER - CENTRIC BUSINESS MODEL CONVENIENCE CHOICE ♦ Established furniture retailer ♦ Differentiated product range ♦ Extensive store network and well- ♦ Exclusive quality products positioned stores ♦ Value for money ♦ Rapid delivery times ♦ Well-established supply chain ♦ Centralised sourcing ♦ St
Slide 10: Credit Book Overview
CREDIT BOOK OVERVIEW • Over 700,000 active customers • R2.6 billion debtors book • Sales: 38% new / 62% existing customers • Process average 31,000+ new applications pm • Average 22% credit application decline rate • 60 years of retail credit management in SA • Employ best-of-breed international cre
Slide 11: Superior Credit Approval Processes
SUPERIOR CREDIT APPROVAL PROCESSES 11
Slide 12: 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 off
Slide 13: 3. Summary of Lewis Business Model
3. SUMMARY OF LEWIS BUSINESS MODEL 13
Slide 14: Lewis: Solid, Stable, Sustainable & Prudent
LEWIS: SOLID, STABLE, SUSTAINABLE & PRUDENT • Intense focus on merchandise offerings • Target market focus – volume market (LSM4 – 7)/EMC • Strong merchandise volume growth • Loyal customer base • Well provisioned debtors book with declining bad debt % • Culture of cost control 14
Slide 15: Lewis: Solid, Stable, Sustainable & Prudent (Cont'd)
LEWIS: SOLID, STABLE, SUSTAINABLE & PRUDENT (Cont’d) •Operating profit – sector leading •Extremely strong cash flows •Consistent performance over many years •Experienced management team •Leading edge IT systems – stable and scalable •Strong balance sheet with low gearing •Growth strategy well on tra
Slide 16: Well Provisioned Debtors Book
WELL PROVISIONED DEBTORS BOOK Provisioning (Balance Sheet) Bad Debts (Income Statement) 12% 10.8% 40% 35.0% 35.6% 34.2% 10% 35% 30.3% 30% 28.3% 7.9% 8% 25% 6.4% 6% 20% 16.2% 15.6% 4.4% 14.4% 3.8% 15% 4% 10.5% 10.4% 10% 2% 5% 0% 0% 2001 2002 2003 2004 2005 2001 2002 2003 2004 2005 Total debtor provis
Slide 17: Sustainable Operating Profit
SUSTAINABLE OPERATING PROFIT 700 25.0% 600 20.0% 500 R Millions Percentage 15.0% 400 Operating profit (R m) 300 Average Prime Interest Rate 10.0% 200 5.0% 100 - 0.0% 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Year 17
Slide 18: Peer Analysis
PEER ANALYSIS Lewis Ellerines JD Group Highest operating margin Mar-05 Aug-05 Aug-05 • Trading space (sqm) 207,595 808,557 633,081 • Number of stores 475 1,221 963 • Number of staff 5,870 16,415 16,459 • Number of retail brands 3 12 9 • Revenue (Rm) 2,512 4,394 9,933 • Gross debtors book 2,677 3,695
Slide 19: 4. Strategic Framework
4. STRATEGIC FRAMEWORK Group Ltd 19
Slide 20: Growth Strategy
GROWTH STRATEGY Develop Organic New branch Balance Sheet Acquisitions ancillary sales growth expansion Optimisation products Driving margins, operating efficiencies and cash flows Increasing shareholders’ wealth through sustainable growth 20
Slide 21: 5. The Current Year in Review
5. THE CURRENT YEAR IN REVIEW 21
Slide 22: Financial Highlights – H1/06 Interims
FINANCIAL HIGHLIGHTS – H1/06 INTERIMS R724m 35.5% R309m 23.2% 220c 88c R304m 14.5% % 14.6% % 23.4% 44.0% % Merchandise Merchandise Normalised Normalised Normalised Dividends Cash Sales Gross Profit Operating Operating Headline per share Generated by Margin Profit* Profit* Margin Earnings* Operations
Slide 23: 6. Challenges & Prospects
6. CHALLENGES & PROSPECTS 23
Slide 24: Challenges Going Forward
CHALLENGES GOING FORWARD External • Interest rate stability • Rand/Dollar • National Credit Bill Internal • Change in sales mix 24
Slide 25: Prospects
PROSPECTS • Health of SA consumer is good • Lewis well positioned in the market • Further expansion opportunities in all three divisions • Pleasing sales growths since 1 October to date • Merchandise - innovative sourcing • Strong cash flows continue • Headline earnings growth (normalised) for FY06
Slide 26: 7. Questions
7. QUESTIONS Visit our website on www.lewisgroup.co.za 26
Slide 27: Annexure: Summary H1/06 Interim Financial Information
ANNEXURE SUMMARY H1/06 INTERIM FINANCIAL INFORMATION 27
Slide 28: Income Statement Overview
INCOME STATEMENT OVERVIEW H1/06 H1/05* FY05* % Rm Rm Rm Trading revenue 1 332.2 1 186.6 12.3 2 511.2 Merchandise sales 724.0 632.5 14.5 1 351.9 Gross profit 256.7 213.8 20.1 466.9 Gross profit % 35.5% 33.8% 34.5% Operating profit * Normalised 309.4 270.0 14.6 593.5 * Share-based payment Operating ma
Slide 29: Analysis of Revenue and Product Range
ANALYSIS OF REVENUE AND PRODUCT RANGE PRODUCT RANGE Audiovisual 28% Furniture 48% (H1/05: 27%) (H1/05: 52%) REVENUE MIX Services Insurance rendered premiums 8% earned 14% Appliance 24% (H1/05: 8%) (H1/05: 14%) (H1/05:21%) Finance charges earned 24% (H1/05: 25%) Merchandise sales 54 % (H1/05: 53%) 29
Slide 30: Rand/Unit Analysis
RAND/UNIT ANALYSIS Electronic and Total Furniture Electrical Appliances Units 22% (18%) 9% (16%) 32% (20%) Rands 15% (14%) 8% (19%) 22% (10%) Notes: • Rounded off • FY05 ( ) 30
Slide 31: Analysis of Bad Debts Written Off
ANALYSIS OF BAD DEBTS WRITTEN OFF H1/06 H1/05 FY05 Rm Rm Rm Bad and doubtful debts - net 50.7 37.6 101.6 B & D, Repos, Recoveries 46.4 48.1 125.3 Impairment provision 4.3 (10.5) (23.7) Bad debt as a % of gross debtors book 1.9% 1.4% 3.8% Arrears – full contractual 25.0% 27.6% 25.7% 31
Slide 32: Debtors Provisions
DEBTORS PROVISIONS Provisioning (Balance Sheet) 40% 36.6% 36.6% 34.2% 35.0% 35.6% 35% 30.3% 30% 28.3% 25% 20% 16.2% 15.6% 14.4% 14.2% 15% 10.5% 10.4% 10% 5% 0% FY2001 FY2002 FY2003 FY2004 FY2005 H1/06 Total debtor provision as % of gross debtors Doubtful debts provision as % of gross debtors H1/05 P
Slide 33: Balance Sheet Overview
BALANCE SHEET OVERVIEW H1/06 H1/05 FY05* % Rm Rm Rm Property, plant and equipment 156.0 159.5 159.5 - Investments - Long term 433.6 381.9 400.6 - Investments - Short term 97.8 119.0 105.2 (7.0) Inventory 248.5 168.5 155.8 59.5 Debtors - Gross 2 782.2 2 649.3 2 704.8 2.9 Debtors - Provisions (1 002.3
Slide 34: Capital Structure and Ratios
CAPITAL STRUCTURE AND RATIOS H1/06 H1/05 FY05* Rm Rm Rm 2 130.8 1 880.7 2 059.6 Shareholders’ Funds ======= ======= ======= 1.7 1.9 1.7 Interest-bearing borrowings - Long term 235.8 358.7 179.2 - Short term (88.4) (58.4) (55.3) Net short-term (cash)/overdraft ------ -------- ------- Net interest-bea
Slide 35: Cash Flow Overview
CASH FLOW OVERVIEW Cash Flow from Operations Strong and Sector Leading Cash Convention Ratio at 102% * 350 317 304 300 248 250 R millions 200 150 100 50 0 H1/04 H1/05 H1/06 Years * Per UBS SA (Pty) Ltd 35
Lewis Group — J.P. Morgan EMEA Equity Conference 2006 on 6ix