Lewis Group Limited · JSE:LEW
Lewis — 12th Annual Merrill Lynch Conference March 2011
29 slides from Lewis's conference presentation, March 2011
Slide 1: Lewis Group Limited – 12th Annual Merrill Lynch Conference
LEWIS GROUP LIMITED 12TH ANNUAL MERRILL LYNCH CONFERENCE MARCH 2011
Slide 2: Agenda
AGENDA 1. The Investment Case 2. Debtor Analysis 3. Financial Results 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 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. • Cash returned to shareholders –Three Quarters of 2004 listing market cap. (77%). • Merchandise management and innovation. – exclusivity a prime focus – two range launches per annum • Solid stock turn – 5.5 times. 5
Slide 6: 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 focus of government spend. • Centralised credit grant
Slide 7: The Investment Case (Cont’d)
The Investment Case (Cont’d) • Customer debt to income ratio (42%) well below national average (78%). • Proven store based collections process. • Experienced management team. • CHALLENGE TO THE INVESTMENT CASE Unemployment and slow job creation remains a risk. 7
Slide 8: 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 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 tox
Slide 12: Debtors Provisions
Debtors Provisions • The Lewis business model is credit based with 72% of sales on credit. • Over 700 000 individual debtors with a debtors book of R4.3 billion. • Debtor provisions well above debtor costs. 12
Slide 13: Debtor Costs
Debtor Costs H1/2011 H1/2010 Rm Rm Total Debtor costs 206 189 Bad debts written off 48 53 Impairment provision 158 136 Debtor costs as a % of net debtors 4.8% 5.0% 13
Slide 14: Debtors Impairment Provision
Debtors Impairment Provision H1/2011 H1/2010 Rm Rm Net Debtors before prov. 4 312 3 738 Impairment provision 793 668 Impairment provision % 18.4% 17.9% Credit application decline rate 31.1% 27.4% Impairment– Net present value of expected cash flow discounted at interest rate applicable to contract 1
Slide 15: Debtor Payment Analysis
Debtor Payment Analysis NCA IMPAIRMENT OVER NUMBER OF CUSTOMERS PROVISION % 24 MONTHS Debtor's Payment Analysis H1/2011 H1/2010 H1/2011 H1/2010 March 2010 H1/2011 Customers fully up to No. 510 722 491 614 257 431 date including those Satisfactory paid who have paid 70% or more of amounts due % 71.6%
Slide 16: 3. Financial Results
3. FINANCIAL RESULTS 16
Slide 17: Overview of H1/2011 Results
Overview of H1/2011 Results R1 058m 22.0% R469m 332.5c 156c + 11.2% + 20 bps + 10.5% + 14.5% + 8.3% Merchandise Operating Operating Headline Dividend Sales Margin Profit Earnings per per Share Share 17
Slide 18: Income Statement
Income Statement H1/2011 H1/2010 % Rm Rm Revenue 2 136 1 946 9.8% Merchandise sales 1 058 951 11.2% Gross profit margin % 35.1% 33.5% Operating profit 469 424 10.5% Operating margin % 22.0% 21.8% Attributable earnings 296 261 13.1% EPS (cents) 335 297 12.8% Headline EPS (cents) 333 290 14.5% 18
Slide 19: Segmental Analysis
Segmental Analysis Best Home My Home/ H1/2011 Group Lewis Electric Lifestyle * Revenue (Rm) 2 136 1 796 274 66 Revenue growth (%) 9.8% 9.2% 14.7% 5.8% Operating profit (Rm) 469 413 53 3 Operating margin H1:11 22.0% 23.0% 19.3% 4.7% H1:10 21.8% 23.0% 19.3% 1.1% Number of stores 565 444 101 14/6 * Inc
Slide 20: Business Split
Business Split Risk Financial Retail Services Services Group Rm Rm Rm Rm H1/2011 Revenue 1 202 337 597 2 136 Operating profit 159 89 221 469 Operating margin H1:11 13.2% 26.5% 37.0% 22.0% H1:10 12.4% 26.0% 37.5% 21.8% • Supplied for continuity purposes only. Our business is not managed in accordance
Slide 21: Analysis of Costs (Excluding Debtor costs)
Analysis of Costs (Excluding Debtor costs) H1/2011 H1/2010 Change Rm Rm % Employment costs 328 296 11.0% Admin and IT 101 92 10.0% Marketing 81 71 13.8% Occupancy costs 88 78 12.6% Transport/Travel 69 64 7.2% Depreciation 28 27 3.7% Other operating costs 79 72 9.4% Total 774 700 10.5% % of revenue 3
Slide 22: Balance Sheet Overview
Balance Sheet Overview H1/2011 H1/2010 Rm Rm Property, plant and equipment 269 232 Investments 984 803 Deferred tax 9 - Inventory 265 306 Net Debtors 3 611 3 147 Cash 84 67 Total Assets 5 222 4 555 Shareholders’ equity and reserves 3 463 3 049 Retirement benefits 53 55 Tax and Deferred Tax 131 63 Cr
Slide 23: Capital Ratios
Capital Ratios H1/2011 H1/2010 ROE – after tax (%) 17.6% 17.6% ROCE – after tax (%) 15.6% 16.4% ROA – before tax (%) 19.8% 21.0% Interim Dividend declared (cents) 156 144 Gearing ratio (%) 25.7% 27.4% 23
Slide 24: 4. Outlook
4. OUTLOOK 24
Slide 25: Outlook for 2011/12
Outlook for 2011/12 THIRD QUARTER TRADING UPDATE – DECEMBER 2010 Quarter ended Dec. 2010 13.0% Merchandise Sales increase Debtor Collections increase 14.7% 25
Slide 26: Outlook for 2011/12 (Cont’d)
Outlook for 2011/12 (Cont’d) • The proven business model - a competitive advantage • Management of debtor book remains a top priority • Capital management: - No further buy back planned - Maintain gearing within target levels 26
Slide 27: Outlook for 2011/12 (Cont’d)
Outlook for 2011/12 (Cont’d) • Merchandise innovation – a key focus • Store expansion – on track 3 - 4 yr target : 700 stores 40 - 45 stores per year • Operating margin three year target – 26% 27
Slide 28: 5. Questions
5. QUESTIONS (og
Slide 29: Group Ltd
Group Ltd
Lewis Group — 12th Annual Merrill Lynch Conference March 2011 on 6ix