Lewis Group Limited · JSE:LEW
Lewis — Annual Merrill Lynch Conference 2012
27 slides from Lewis's conference presentation, March 2012
Slide 1: Lewis Group Limited Annual Merrill Lynch Conference
LEWIS GROUP LIMITED ANNUAL MERRILL LYNCH CONFERENCE MARCH 2012
Slide 2: Agenda
AGENDA 1 The Investment Case 1. 2. Debtor Analysis 3 Fi 3. Financial i lRResults l 4. Outlook 2
Slide 3: 1. The Investment Case
1. THE INVESTMENT CASE 3
Slide 4: The Investment Case
1. The Investment Case • Solid business model established over the past 75 years. • Consistent performance. • Historically high operating margin business with low cost structures. – Small format Lewis store – Best Home & Electric allied furniture lines 4
Slide 5: The Investment Case (Cont'd)
The Investment Case (Cont’d) • Dividend per share – 50% payout. payout • Merchandise management g and innovation. – exclusivity a prime focus – two range launches per annum • Solid stock turn – 5 times. • Integrated credit and marketing strategies focus on good paying g p y g customers. 5
Slide 6: The Investment Case (Cont'd)
The Investment Case (Cont’d) • Develop long long-term term customer relationships at store level. • High level of repeat business. (55% of total sales) • Target T t Market M k t LSM 4-7. 4 7 A ffocus off governmentt spend. d • Centralised credit granting processes processes. • Sophisticated credit a
Slide 7: The Investment Case (Cont'd)
The Investment Case (Cont’d) • Customer debt to income ratio (44%) well below national average (78%). • Proven store store-based based collections process process. • Experienced management team. • CHALLENGE TO THE INVESTMENT CASE Unemployment and slow job creation remains a risk. risk 7
Slide 8: Operating Profit – History
Operating Profit – History Solid operating performance over the past 19 years – Compound annual growth of 10.8% 1 200 R1 053 1 000 R907 R860 R883 R832 800 R729 R Miillions R594 600 R506 R417 R442 R429 R388 R351 R361 400 R327 R274 R298 R200 R166 200 - 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 0
Slide 9: 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 10: Re-serve Scheme
Re-serve Scheme • Identifies qualifying current customers for further credit extension. • F ll integrated Fully i t t d with ith debtors d bt system t and d store t operations. ti • Driven by historic payment behaviour & total indebtedness. • Customer base segmented and targeted monthly. • Promotion
Slide 11: 2. Debtor Analysis
* aX me om eh eee es SS, 2. DEBTOR ANALYSIS Group Ltd fil
Slide 12: Debtors Provisions
Debtors Provisions • The Lewis business model is credit credit-based based with 73% of sales on credit. • 700 000 individual debtors with a debtors book of R4.9 billion. • Debtor provisions well above debtor costs costs. 12
Slide 13: Debtor Costs H1
Debtor Costs H1 H1/2012 H1/2011 Rm Rm Total debtor costs 247 206 Bad debts written off 49 48 Impairment provision 198 158 Debtor costs as a % of net 5 1% 5.1% 4 8% 4.8% debtors 13
Slide 14: Debtors Impairment Provision
Debtors Impairment Provision H1/2012 H1/2011 R Rm R Rm Net debtors before provision 4 835 4 312 Impairment provision 956 793 Impairment provision % 19.8% 18.4% Credit application decline rate 32 4% 32.4% 31 1% 31.1% Impairment – Net present value of expected cash flow discounted at interest rate app
Slide 15: Debtor Payment Analysis
Debtor Payment Analysis Impairment provision allocated on number of customers in the four summary categories NCA IMPAIRMENT OVER NUMBER OF CUSTOMERS PROVISION % 24 MONTHS Debtor's Payment Analysis H1/2012 H1/2011 H1/2012 H1/2011 March 2011 H1/2012 Customers fully up to No. 512 825 510 722 269 970 da
Slide 16: 3. Financial Results
3. FINANCIAL RESULTS Group Ltd 183}
Slide 17: Overview of H1/2012 Results
Overview of H1/2012 Results R2 279m R499m 38.5% 378.7c 172c + 6.7% + 6.3% + 340 bps + 13.9% Revenue Operating Operating Headline Dividend Profit Margin Earnings per per Share Share 17
Slide 18: Income Statement H1
Income Statement H1 H1/2012 H1/2011 Rm Rm % Revenue 2 279 2 136 6.7% Merchandise sales 1 091 1 058 3.2% Gross profit margin % 38.5% 35.1% O Operating i profit fi 499 469 6 3% 6.3% Operating profit margin % 21.9% 22.0% Attributable earnings 337 296 14 2% 14.2% EPS (cents) 382 335 13.9% Headline EPS (
Slide 19: Segmental Analysis H1
Segmental Analysis H1 Best Home My Home/ M H / H1/2012 Group Lewis Electric Lifestyle Revenue (Rm) 2 279 1 917 305 56 Revenue growth (%) 6.7% 6.7% 11.5% (15.0%) Operating profit (Rm) 499 436 64 (1) Operating margin H1:12 21.9% 21 9% 22.7% 22 7% 20.9% 20 9% (2.3%) (2 3%) H1:11 22.0% 23.0% 19.3% 4.7%
Slide 20: Analysis of Costs
Analysis of Costs (Excluding debtor costs) H1/2012 H1/2011 Change Rm Rm % Employment costs 360 328 9.7% Admin and IT 106 101 4.7% Marketing 98 81 20.9% Occupancy costs 98 88 11.0% Transport/Travel 83 69 20.3% Depreciation 28 28 0.0% Other operating costs 89 79 12.7% Total 862 774 11.3% % off revenue
Slide 21: Balance Sheet Overview
Balance Sheet Overview H1/2012 H1/2011 Rm Rm Property, plant and equipment 298 269 Insurance investments 1 175 984 Inventory 308 265 Net debtors 3 982 3 611 Cash 111 84 Total assets 5 874 5 213 Shareholders’ equity and reserves 3 899 3 463 Retirement benefits 64 53 Tax and Deferred Tax 112 122 Credi
Slide 22: Capital Ratios H1
Capital Ratios H1 H1/2012 H1/2011 ROE – after tax (%) 17 6% 17.6% 17 6% 17.6% ROCE – after tax (%) 14.6% 15.6% ROA – before tax (%) 18.6% 19.8% Interim dividend declared (cents) 172 156 Gearing ratio % 26.7% 25.7% 22
Slide 23: 4. Outlook
4. OUTLOOK (ag
Slide 24: Outlook for 2012/13
Outlook for 2012/13 THIRD QUARTER TRADING UPDATE – DECEMBER 2011 Merchandise sales 3rd quarter increase 5.5% Debtor costs (cum 9 months to December) ece be ) +16% 6% 24
Slide 25: Outlook for 2012/13 (Cont'd)
Outlook for 2012/13 (Cont’d) • The p proven business model – a competitive p advantage • Management of debtor book remains a top p priority y • Merchandise innovation – a key y focus 25
Slide 26: Outlook for 2012/13 (Cont'd)
Outlook for 2012/13 (Cont’d) • Store expansion – Medium-term target : 700 stores – 20 – 25 stores next year • Operating margin medium-term target – 26% 26
Slide 27: Questions
5. QUESTIONS (ems Group Ltd pay