Lewis Group Limited · JSE:LEW
Lewis — Annual Merrill Lynch Conference 2013
27 slides from Lewis's conference presentation, March 2013
Slide 1: Lewis Group Limited Annual Merrill Lynch Conference March 2013
LEWIS GROUP LIMITED ANNUAL MERRILL LYNCH CONFERENCE MARCH 2013
Slide 2: Agenda
Agenda 1. The Investment Case 2. Debtor Analysis 3. Financial Results 4. Outlook 5. Questions 2
Slide 3: 1. The Investment Case
1. The Investment Case Lome Group Ltd
Slide 4: Operating Profit - History
Operating Profit - History Solid operating performance over the past 12 years – Compound annual growth of 13% 1,200 R1,139 R1,052 1,000 R883 R907 R860 R832 800 R729 R594 600 R506 R Millions R429 R361 400 R298 200 - 2001 2011 2002 2003 2004 2005 2006 2007 2008 2009 2010 2012 Year Operating profit (R
Slide 5: The Investment Case
1. The Investment Case • Solid business model established over past 75 years. • Consistent performance. • Historically high operating margin business with low cost structures. - Small format Lewis store - Best Home & Electric allied furniture lines 5
Slide 6: The Investment Case (Cont’d)
The Investment Case (Cont’d) • Dividend per share – 54% payout. • 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. 6
Slide 7: The Investment Case (Cont’d)
The Investment Case (Cont’d) • Develop long term customer relationships at store level. • 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
Slide 8: The Investment Case (Cont’d)
The Investment Case (Cont’d) • Customer debt to income ratio (49%) well below national average. • Proven store based collections process. • Experienced management team. • CHALLENGE TO THE INVESTMENT CASE Unemployment and slow job creation remains a risk. 8
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. • Fully integrated with debtors system and store operations. • Driven by historic payment behaviour & total indebtedness. • Customer base segmented and targeted monthly. • Promotional offers targeted via direct m
Slide 11: 2. Debtor Analysis
2. Debtor Analysis Group Ltd 11
Slide 12: Debtors
Debtors • The Lewis business model is credit based with 72% - 75% of sales on credit. • 700 000 individual debtors with a debtors book of R5.3 billion. • Debtor provisions well above debtor costs. 12
Slide 13: Debtor Costs
Debtor Costs H1/2013 H1/2012 Rm Rm Total Debtor costs 242 247 Bad debts written off 35 49 Impairment provision 207 198 Debtor costs as a % of net debtors 4.6% 5.1% 13
Slide 14: Debtor Impairment Provision
Debtor Impairment Provision H1/2013 H1/2012 Rm Rm Net Debtors before provision 5 303 4 835 Impairment provision 1 082 956 Impairment provision % 20.4% 19.8% Credit application decline rate 36.7% 32.4% 14
Slide 15: Debtor Payment Analysis
Debtor Payment Analysis Impairment provision allocated on number of customers in the four summary categories . IMPAIRMENT NUMBER OF CUSTOMERS PROVISION % Debtor's Payment Analysis H1/2013 H1/2012 H1/2013 H1/2012 March 2012 Customers fully up to date No. 479 486 512 825 including those who have Satis
Slide 16: 3. Financial Results
3. Financial Results 16
Slide 17: Overview of Results
1. Overview of Results R2 429 m R438 m R520 m 419c 212c + 6.6% 37.7% 21.4% +10.6% + 23.3% Revenue Gross Operating Headline Interim Profit Profit Earnings Dividend Margin per share LY 2 279 m LY 420 m LY 499 m LY 379c LY 172c 17
Slide 18: Income Statement
Income Statement H1/2013 H1/2012 Rm Rm % Revenue 2 429 2 279 6.6% Merchandise Sales 1 161 1 091 6.4% Gross profit margin % 37.7% 38.5% Operating profit (R mil) 520 499 4.4% Operating margin % 21.4% 21.9% Attributable earnings (R mil) 374 337 10.8% EPS (cents) 421 382 10.4% Headline EPS (cents) 419 3
Slide 19: Segmental Analysis
Segmental Analysis My H1/2013 Group Lewis Best Home Revenue (Rm) 2 429 2 038 329 62 Revenue growth (%) 6.6% 6.3% 7.8% 10.5% Operating profit (Rm) 520 450 66 4 Operating margin H1:13 21.4% 22.1% 20.0% 6.3% H1:12 21.9% 22.7% 20.9% (2.3%) Number of stores H1:13 610 472 125 13 19
Slide 20: Analysis of Costs
Analysis of Costs Excluding Debtor Costs H1/2013 H1/2012 Change Rm Rm % Employment costs 390 360 8.4% Admin and IT 105 106 (0.7%) Marketing 108 98 10.3% Occupancy costs 112 98 14.7% Transport/Travel 95 83 13.6% Depreciation 30 28 9.8% Other operating costs 103 89 14.6% Total 943 862 9.4% % of revenu
Slide 21: Balance Sheet Overview
Balance Sheet Overview H1/2013 H1/2012 Rm Rm Property, plant and equipment 325 298 Investments 1 498 1 175 Inventory 390 308 Net Debtors 4 357 3 982 Cash 109 111 Total assets 6 679 5 874 Shareholders’ equity and reserves 4 478 3 899 Retirement benefits 66 64 Tax and Deferred Tax 128 112 Creditors 70
Slide 22: Capital Ratios
Capital Ratios H1/2013 H1/2012 ROE – after tax (%) 17.0% 17.6% ROCE – after tax (%) 14.6% 14.6% ROA – before tax (%) 17.8% 18.6% Interim Dividend declared (cents) 212 172 Gearing ratio (%) 26.7% 26.7% 22
Slide 23: 4. Outlook
4. Outlook 23
Slide 24: Outlook for 2013/14
Outlook for 2013/14 THIRD QUARTER TRADING UPDATE – DECEMBER 2012 Merchandise Sales - 3rd quarter increase 2.7% - Year to date (9 months) 4.8% Debtor Costs (cum 9 months to December) +5.4% (R23m) 24
Slide 25: Outlook for 2013/14 (Cont’d)
Outlook for 2013/14 (Cont’d) • The proven business model – a competitive advantage • Management of debtor book – a top priority • Merchandise – a key focus • Regulatory environment 25
Slide 26: Outlook
Outlook Medium- 2013 term • Financial and operating targets Gross Profit margin (%) 36 – 38 36 – 38 Operating costs as a % of revenue 36 – 37 35 – 36 Debtor costs as a % of net debtors 9.5 – 10.5 8 Operating Profit margin (%) 23 – 24 26 Inventory turn (times) 5 – 5.5 5 – 5.5 Gearing (%) 28 – 32 < 35
Slide 27: 5. Questions
Group Ltd 5. Questions 27