Lewis Group Limited · JSE:LEW
Lewis — Annual Merrill Lynch Conference March 2014
29 slides from Lewis's conference presentation, March 2014
Slide 1: Annual Merrill Lynch Conference March 2014
Annual Merrill Lynch Conference March 2014
Slide 2: Agenda
Agenda 1 THE INVESTMENT CASE 2 DEBTOR ANALYSIS 3 OVERVIEW OF RESULTS 4 REGULATORY UPDATE 5 OUTLOOK 2
Slide 3: Operating Profit History
O PERATING P ROFIT H ISTORY Solid operating performance over the past 13 years – Compound annual growth of 12.7% R1,400 R1 248 R1,200 R1 139 R1 052 R1,000 R907 R860 R883 R832 R800 R729 R594 R600 R506 R429 R361 R400 R298 R200 R0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Operati
Slide 4: Investment Case
I NVESTMENT C ASE • Robust business model established over the past 80 years • Consistent performance • Historically high operating margin business with low cost structures - Small format Lewis Stores - Best Home & Electric allied furniture lines • Dividend payout ratio – 55% 4
Slide 5: Investment Case
I NVESTMENT C ASE • Merchandise management and innovation - exclusivity a prime focus - two range launches per annum • Solid stock turn • Integrated credit and marketing strategies focus on good paying customers • Develop long term customer relationships at store level 5
Slide 6: Investment Case
I NVESTMENT C ASE • High level of repeat business (55% of total sales) • Target market LSM 4-7. A focus of government spend • Centralised credit granting processes • Sophisticated credit application, behavioural scorecards and affordability models • Proven store based collection process • Experience
Slide 7: Investment Case
I NVESTMENT C ASE Challenges to the Investment case • Level of indebtedness of consumers • Unemployment and slow job creation • Regulatory environment 7
Slide 8: Core Strengths
CORE STRENGTHS • Re-serve model → ± 55% of sales from repeat business • In store promotions → Building customer relationships and loyalty • Convenience → Extensive store network • Selection → Merchandise offers to meet local needs • Small storerooms positioned → 90% of deliveries executed close to s
Slide 9: Debtor Analysis
Debtor Analysis 9
Slide 10: Debtors
D EBTORS • The Lewis business model is credit based with 70 – 75% of sales on credit • 700 000 individual debtors with a debtors book of R6.3 billion • Debtor provisions well above debtor costs 10
Slide 11: Five Year History – Debtor Costs vs Impairment Provision
F IVE YEAR HISTORY – D EBTOR COSTS VS I MPAIRMENT PROVISION 20.0% 18.0% 18.0% 17.4% 16.0% 16.8% 15.7% 16.0% 14.0% 12.0% 10.0% 10.9% 10.8% 10.0% 10.2% 9.4% 8.0% 6.0% 4.0% 2.0% 0.0% 2009 2010 2011 2012 2013 Impairment % Debtor costs % 11
Slide 12: Debtor Costs
D EBTOR COSTS H1/2014 H1/2013 Rm Rm Total Debtor costs (+30%) 315 242 Bad debts written off 184 35 Impairment Provision 131 207 Debtor costs as a % of net debtors 5.3% 4.6% 12
Slide 13: Debtor Payment Analysis
D EBTOR PAYMENT A NALYSIS DISTRIBUTION OF IMPAIRMENT NUMBER OF CUSTOMERS PROVISION Debtor's Payment Analysis H1/2014 H1/2013 H1/2014 H1/2013 March 2013 No. 474 253 479 486 Rm 28.2 35.1 27.5 Customers fully up to date including those who have paid 70% or more of Satisfactory amounts due over the cont
Slide 14: Overview of Results
Overview of Results 14
Slide 15: Overview of Interim Results – H1 2014
OVERVIEW OF I NTERIM R ESULTS – H1 2014 R2 539 m R441 m R523 m 429c 215c + 4.5% 37.7% 20.6% +1.7% + 1.4% Revenue Gross Operating Earnings Interim Profit Profit per share Dividend Margin LY R2 429 m LY R438 m LY R520 m LY 421c LY 212c 15
Slide 16: Income Statement
I NCOME STATEMENT H1/2014 H1/2013 Rm Rm % Revenue 2 539 2 429 4.5% Merchandise Sales 1 169 1 161 0.7% Gross profit margin % 37.7% 37.7% Operating profit (R mil) 523 520 0.6% Operating margin % 20.6% 21.4% Attributable earnings (R mil) 380 374 1.7% EPS (cents) 429 421 1.7% Headline EPS (cents) 420 41
Slide 17: Segmental Analysis
S EGMENTAL A NALYSIS My H1/2014 Group Lewis Best Home Revenue (Rm) 2539 2 116 362 61 Revenue growth (%) 4.5% 3.8% 10% (1.8%) Operating profit (Rm) 523 441 75 7 Operating margin H1:14 20.6% 20.9% 20.8% 11.0% H1:13 21.4% 22.1% 20.0% 6.3% Number of stores H1:14 627 486 128 13 17
Slide 18: Analysis of Costs – Excluding Debtor Costs
A NALYSIS OF COSTS – EXCLUDING D EBTOR COSTS H1/2014 H1/2013 Change Rm Rm % Employment costs 418 390 7.0% Admin and IT 109 105 3.7% Marketing 96 108 (10.9%) Occupancy costs 123 112 9.4% Transport/Travel 93 95 (1.4%) Depreciation 32 30 6.8% Other operating costs 101 103 (1.7%) Total 972 943 3.1% % of
Slide 19: Balance Sheet Overview
BALANCE S HEET OVERVIEW H1/2014 H1/2013 Rm Rm Property, plant and equipment 331 325 Investments 1680 1 498 Inventory 391 390 Net Debtors 4934 4 357 Cash 165 109 Total assets 7 501 6 679 Shareholders’ equity and reserves 5 018 4 487 Retirement benefits - net 62 54 Tax and Deferred Tax 121 131 Credito
Slide 20: Bond Programme
B OND P ROGRAMME • R2bn unsecured domestic medium term note programme • Global Credit Rating Co. assigned an A(za) long term credit rating – stable outlook • R500 mil raised across three year bond/six month CP • Guaranteed by Lewis Stores (Pty) Ltd – major subsidiary • Aim of the programme is to: *
Slide 21: Capital Ratios
C APITAL R ATIOS H1/2014 H1/2013 ROE – after tax (%) 15.4% 17.0% ROCE – after tax (%) 12.8% 14.4% ROA – before tax (%) 15.6% 17.8% Interim Dividend declared (cents) 215 212 Gearing ratio (%) 27.9% 26.7% 21
Slide 22: Regulatory Update
Regulatory Update 22
Slide 23: Regulatory Update
R EGULATORY U PDATE Task Team – NCR, FSB and Treasury National Credit Act Amendment Bill Cap on both credit life insurance and asset cover Broader credit industry expect further deliberations with the Regulators in due course 23
Slide 24: Regulatory Update
R EGULATORY U PDATE No detail on pricing cap has yet been discussed Possible effect of 10% to 12% on group profit Positive engagement and a speedy resolution to current uncertainty in the market is necessary 24
Slide 25: Outlook
Outlook 25
Slide 26: Outlook
O UTLOOK THIRD QUARTER TRADING UPDATE – DECEMBER 2013 Sales Revenue 3rd quarter 6.3% 1.5% Year to date (9 months) 2.3% 2.1% Debtor Costs (in line with H1) +30% - 9 months to December (R 589m) 26
Slide 27: Outlook
O UTLOOK • Proven business model is a competitive advantage • Management of the debtors book – a top priority • Merchandise – a key focus • Regulatory environment • Challenging trading environment as labour unrest continues 27
Slide 28: Outlook
O UTLOOK Financial and operating targets Actual Target H1/2014 2014 Gross Profit margin (%) 37.7% 37.5 – 38.5 Operating costs as a % of revenue 38.3% 36 – 37 Debtor costs as a % of net debtors 5.3% 10.5 – 11.5 Operating Profit margin (%) 20.6% 23.5 – 24.5 Gearing (%) 27.9% 30 – 34 28
Slide 29: Questions
Questions 29
Lewis Group — Annual Merrill Lynch Conference March 2014 on 6ix