Lewis Group Limited · JSE:LEW
Lewis — Investor Presentation (June 2010)
29 slides from Lewis's investor presentation, June 2010
Slide 1: Lewis Group Limited Company Review June 2010
LEWIS GROUP LIMITED COMPANY REVIEW JUNE 2010
Slide 2: Agenda
AGENDA 1. Investment Case 1 2. Year in Review 31 March 2010 3. Debtor Analysis 4. Financial Results 5. Outlook 2
Slide 3: 1. Investment Case
1. INVESTMENT CASE • Solid business model established over past 75 years. • Consistent performance. • Historically high operating margin business with low cost structures. - New N fformatt store t - Introduction of furniture into Best Home & Electric • Strongly cash generative. 3
Slide 4: The Investment Case (Cont'd)
The Investment Case (Cont’d) • Dividend p per share maintained. • Cash returned to shareholders –Two Thirds of 2004 listing market cap (66%). (66%) • Merchandise management and innovation – a prime i focus. f • Stock turn – 6.0 times. 4
Slide 5: The Investment Case (Cont'd)
The Investment Case (Cont’d) • Integrated credit and marketing strategies focus on good paying customers • Develop long term customer relationships at store level. • High level of repeat business. (55% of total sales). • Target Market LSM 4-7. A growing market in South Africa. • Centralised credit g
Slide 6: The Investment Case (Cont'd)
The Investment Case (Cont’d) • Sophisticated credit application, behavioural scorecards and affordability models. models • Customer debt to income ratio (39%) well below national average (78%). • Proven store based collections process. • Experienced management team. 6
Slide 7: 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 S store based 90% % off deliveries executed Warehouses within 24 hours • Immediate Cred
Slide 8: 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 9: 2. Year in Review
2.2.YEAR 2 YEARININ REVIEW REVIEW 99
Slide 10: Year in Review - March 2010
2. YEAR IN REVIEW - MARCH 2010 R4 111m R907m 22.1% 672c 323c + 8.0% + 9.0% 22.1% + 5.6% Maintained Revenue Operating Operating Earnings Dividend P fit Profit Margin M i per Share Sh per Share Sh 10
Slide 11: Operating Profit - History
Operating Profit - History Solid performance over the past 18 years – Compound annual growth of 10.5% 1,000 R907 R883 R860 R832 800 R729 R Millions R594 600 R506 R442 R429 R417 R388 R351 R361 400 R327 R298 R274 R200 R166 200 - 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 200
Slide 12: Year In Review
Year In Review • Improving sales trend – up 6.5%. - Furniture & appliances (82% of business) - up 8.5% - Electronic sales (18% of business) - flat • Improving credit/cash mix – 68.5% (FY09: 64.3%). • Debtor costs 10.9% of net Debtors (FY09: 10.0%). 12
Slide 13: Year In Review (Cont'd)
Year In Review (Cont’d) • Merchandise innovation - new ranging launched. • Gross profit margin improved and currency losses recovered. FY10 FY09 Gross profit 34.9% 31.3% E h Exchange gains/(losses) i /(l ) (1 5%) (1.5%) 0 6% 0.6% All in gross 33.4% 31.9% • Stock turn improved from 5.8 to 6.0 times.
Slide 14: 3. Debtor Analysis
3. DEBTOR ANALYSIS 14
Slide 15: Debtor Costs
Debtor Costs FY10 FY09 Rm Rm Total Debtor costs 434 339 Bad debts written off 331 202 Impairment Provision 103 137 D bt costs Debtor t as a % off nett debtors d bt 10 9% 10.9% 10 0% 10.0% 15
Slide 16: Impairment Provision
Impairment Provision FY10 FY09 R Rm R Rm Net Debtors before prov prov. 3 971 3 388 Impairment provision 635 533 Impairment provision % 16 0% 16.0% 15 7% 15.7% Credit application decline rate 27.5% 25.4% Impairment provision at 16% well above Debtor costs of 10.9%. 16
Slide 17: Debtor Payment Analysis
Debtor Payment Analysis IMPAIRMENT NCA NUMBER OF CUSTOMERS PROVISION % OVER Debtor's Payment Analysis 2010 2009 2010 2009 24 MONTHS Customers fully up to No. 498,370 497,296 237,124 date including those who Satisfactory paid have paid 70% or more of amounts due over the % 72.7% 72.0% 0% 0% 79.2% con
Slide 18: 4. Financial Results
4. FINANCIAL RESULTS 18
Slide 19: Income Statement
Income Statement FY10 FY09 % Rm Rm Revenue 4 111 3 807 8.0% Merchandise sales 2 046 1 920 6.5% Gross profit % 34.9% 31.3% Operating profit 907 832 9.0% Operating margin % 22.1% 21.9% Attributable earnings 591 561 5.4% EPS (cents) 672 636 5.6% Headline EPS (cents) 643 631 1.9% 19
Slide 20: Segmental Analysis
Segmental Analysis Best Home Lifestyle 2010 Group Lewis Electric Living Revenue (Rm) 4 111 3 470 504 137 Revenue growth (%) 8 0% 8.0% 8 3% 8.3% 10 8% 10.8% (7 7%) (7.7%) Operating profit (Rm) 907 809 96 2 Operating margin FY:10 22.1% 23.3% 19.1% 1.7% FY:09 21.9% 23.0% 20.1% 2.8% Number of stores 548
Slide 21: Business Split
Business Split Risk Financial Retail Services Services Group p Rm Rm Rm Rm 2010 R Revenue 2 319 616 1 176 4 111 Operating profit 336 151 420 907 p g margin Operating g FY:10 14.5% 24.5% 35.8% 22.1% FY:09 12.9% 31.4% 35.9% 21.9% • Supplied for continuity purposes only. Our business is not managed in
Slide 22: Analysis of Costs - Excluding Debtor Costs
Analysis of Costs - Excluding Debtor Costs FY10 FY09 Change Rm Rm % Employment costs 607 542 12.0% Admin and IT 195 176 10.8% Marketing g 134 124 8.1% Occupancy costs 165 151 9.3% Transport/Travel 136 139 (2.2%) Depreciation 46 47 (2.2%) Other operating costs 155 139 11.5% Total 1 438 1 318 9.1% % o
Slide 23: Balance Sheet Overview
Balance Sheet Overview FY10 FY09 Rm Rm Property, plant and equipment 251 225 Investments 894 734 Inventory 210 228 Net Debtors 3 428 2 893 C h Cash 62 55 Total Assets 4 845 4 135 Shareholders equity and reserves Shareholders’ 3 274 2 900 Retirement benefits 52 54 Tax and Deferred Tax 108 40 Creditor
Slide 24: Capital Ratios
Capital Ratios FY10 FY09 ROE – after tax (%) 19.2% 20.1% ROCE – after tax (%) 17.2% 17.7% ROA – before tax (%) 21.9% 23.0% Total Dividend (cents) 323 323 Gearing ratio (%) 27.5% 23.5% • No further share buy back planned • Gearing is well within our max range of 35% 24
Slide 25: Net Cash Position
Net Cash Position FY10 FY09 Insurance Investments 894 734 Cash 62 55 Cash, Bonds, Equities 956 789 Interest Bearing Borrowings 961 737 Net p position ((5)) 52 25
Slide 26: 5. Outlook
5 5. OUTLOOK 26
Slide 27: Outlook
Outlook • Lifestyle re-engineered. 27
Slide 28: Outlook (Cont'd)
Outlook (Cont’d) • The proven business model a competitive advantage. • Management of Debtors book a priority. ¾ We face the challenge of unemployment and the working of short time. ¾ The collections environment continues to improve. ¾ Debtor costs should moderate in the year ahead. 28
Slide 29: Outlook (Cont'd)
Outlook (Cont’d) • Merchandise innovation focused on exclusivity and increased furniture sales. • More aggressive store expansion. expansion - 3 to 4 yr target : 700 stores - FY2011 40 stores - Small store concept • Operating margin three year target. 29