27 May - 7 min read

Results announcement (including summary audited financial statements) for the year ended 31 March 2021

Results announcement (including summary audited financial statements) for the year ended 31 March 2021

Lewis Group Limited
Incorporated in the Republic of South Africa
Registration number: 2004/009817/06
Share code: LEW
ISIN: ZAE000058236
Bond Code: LEWI


SHORT-FORM ANNOUNCEMENT:
RESULTS ANNOUNCEMENT (INCLUDING SUMMARY AUDITED FINANCIAL
STATEMENTS) FOR THE YEAR ENDED 31 MARCH 2021
AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2021

1. Introduction

Shareholders are advised that the following have been distributed:

   -   the company’s full announcement being the highlights, results commentary (which
       includes the cash dividend declaration referred to below) and the summary
       audited consolidated financial results for the year ended 31 March 2021 (“results
       announcement”)
   -   the company’s audited consolidated financial statements for the year ended 31
       March 2021 (“audited financial statements”)
   -   cash dividend declaration of 195 cents per share.

The integrated report for the year ended 31 March 2021 will be released on or before 30
June 2021.

2. Highlights

   -   Revenue increased by 4.2% to R6.7 billion
   -   Merchandise sales increased by 6.7% to R3.9 billion
   -   Gross profit margin at 41.8%
   -   Operating profit up 174.2% to R696 million
   -   Cash generated from operations at R915 million
   -   Earnings per share increased by 148.3% to 576 cents
   -   Headline earnings per share up 136.9% to 616 cents
   -   Total dividend at 328 cents per share




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3. Results Commentary

Introduction
Lewis Group delivered a strong operational performance despite the first quarter of the
financial year being adversely impacted by the Covid-19 trading restrictions.

Buoyant merchandise sales following the lockdown, together with the improving quality of
the debtors’ book and prudent cost management, contributed to the group increasing
operating profit by 174.2% for the year.

The board has declared a final dividend of 195 cents per share (2020: 65 cents),
increasing the total dividend for the year by 77.3% to 328 cents per share.

Trading and financial performance
Merchandise sales recovered strongly after stores reopened in June 2020. After declining
by 4.9% in the first half of the year, sales grew by 17.0% in the second half to post an
annual increase of 6.7% to R3.9 billion. Excluding April and May 2020 when the group
lost approximately R360 million in merchandise sales due to lockdown, merchandise
sales increased by 18.2%.

The growth was driven by cash sales which increased by 25.9%, with credit sales
declining by 7.9%, as a result of the hard lockdown period. This contributed to cash sales
accounting for 50.9% (2020: 43.1%) of total merchandise sales.
Sales were also supported by new ranges introduced in the second half of the year and
high levels of stock availability. The group took a strategic decision not to cancel any
merchandise orders when the country went into lockdown which ensured that stores
were well stocked to meet the post lockdown demand.
During the year the group opened 24 and closed 11 stores, increasing the store base by
13 to 807. A net 10 Beares stores were opened while UFO expanded its store footprint in
the Eastern Cape and opened its first store in the Western Cape.

Other revenue, consisting of interest income and initiation fees, insurance revenue and
ancillary services income, increased by 1.0%, with interest income being impacted by the
lower interest rate environment.

Total revenue, comprising merchandise sales and other revenue, increased by 4.2% to
R6.7 billion.

The gross profit margin expanded by 80 basis points to 41.8% and is at the upper end of
the group’s target range of 38% - 42%.




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Operating costs, excluding debtor costs, continued to be tightly managed and reduced by
2.9%, with lower transport and administration costs in the Covid-19 operating
environment. Marketing expenditure reduced significantly owing to limited activity during
lockdown and revised marketing strategies adopted post lockdown.

Debtor costs reduced by 19.5% over the prior year when an additional Covid-19 debtors’
impairment provision of R189.5 million was raised. This reflects the improving quality of
the debtors’ book which is being supported by enhanced collection practices.

The higher gross profit, good expense management and reduced debtor costs
contributed to operating profit increasing by 174.2%, with the operating profit margin
improving from 6.9% to 17.7% for the year.

Net finance costs increased by R95.7 million owing to a year-on-year movement of R71.4
million in forward exchange contracts (losses of R42.1 million in 2021; gains of R29.3
million in 2020) and once-off interest received from the SA Revenue Service of R20
million in the comparative period.

Headline earnings increased by 126.4% to R463.0 million, with headline earnings per
share (HEPS) increasing 136.9% to 616 cents, reflecting the benefit of the share buy-
back programme. This is in line with the earnings forecast range provided in the group’s
trading statement released on SENS on 12 May 2021.

Inventory levels were 28% higher at year end as management took a conscious decision
to ensure adequate stock levels to counter challenges in the supply chain which include a
global shortage of shipping containers and severe port congestion.

Cash generated from operations increased by R291.4 million to R914.6 million despite
the impact of lockdown in the first two months of the reporting period.

The group’s balance sheet remains robust and at year end the group had no borrowings,
with a gearing ratio of 7.4% resulting from lease liabilities.



Performance of debtor book
The health of the debtors’ book continued to improve during the year. The level of
satisfactory paid customers increased from 70.5% in 2020 to 74.4% in 2021, while
collection rates recovered steadily after lockdown. After losing approximately R250
million in customer account collections when stores were closed in April and May 2020,
collections improved to 73.2% for the second quarter, 75.6% for the third quarter and
79.4% for the fourth quarter, averaging 71.8% for the year (2020: 74.5%).




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The debtors’ impairment provision as a percentage of debtors declined from 44.1% in
2020 to 42.6% for the current year. Debtor costs as a percentage of debtors at gross
carrying value reduced from 17.6% to 14.3%.

Share repurchase programme
The group repurchased 5.4 million shares during the financial year at an average market
price of R20.92 per share. Since the commencement of the current share repurchase
programme in 2017, the group has bought back 17.3 million shares at an average price
of R27.38 per share. At the annual general meeting in October 2020, shareholders
granted management the authority to repurchase a further 10% of the issued share
capital. By 31 March 2021, the group had repurchased shares accounting for 4.6% of the
shares in issue.

Outlook
The sales momentum reported for the second half of the 2021 financial year has
continued into the new year, supported by good stock availability.

However, trading conditions are expected to become increasingly challenging in the
months ahead. The potential impact of a third wave of Covid-19 infections, together with
Covid relief grants being discontinued, could result in further economic pressure on the
group’s customer base.
The group plans to open 15 to 20 stores in the new financial year, mainly in the Beares
and UFO chains.




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Dividend declaration
Notice is hereby given that a final gross cash dividend of 195 cents per share in respect
of the year ended 31 March 2021 has been declared payable to holders of ordinary
shares. The number of shares in issue as of the date of declaration is 71 535 913. The
dividend has been declared out of income reserves and is subject to a dividend tax of
20%. The dividend for determining the dividend tax is 195 cents and the dividend tax
payable is 39 cents for shareholders who are not exempt. The net dividend for
shareholders who are not exempt will therefore be 156.00000 cents. The dividend tax
rate may be reduced where the shareholder is tax resident in a foreign jurisdiction which
has a Double Tax Convention with South Africa and meets the requirements for a
reduced tax rate. The company's tax reference number is 9551/419/15/4.

The following dates are applicable to this declaration:

  Last date to trade "cum" dividend                                   20 July 2021
  Date trading commences "ex" dividend                                21 July 2021
  Record date                                                         23 July 2021
  Date of payment                                                     26 July 2021


Share certificates may not be dematerialised or rematerialised between 21 July 2021 and
23 July 2021, both days inclusive


For and on behalf of the board


Hilton Saven              Johan Enslin                    Jacques Bestbier
Independent               Chief Executive Officer         Chief Financial Officer
non-executive
chairman

Cape Town
27 May 2021




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4. Auditors Report in Audited Financial Statements

Our independent auditors, PricewaterhouseCoopers, have expressed an unmodified
audit opinion on the audited financial statements for the year ended 31 March 2021.

The independent auditors report includes a section on key audit matters. The key audit
matters are:
   - Expected credit losses on trade receivables.
   - Valuation of the right-of-use assets and lease liabilities in terms of IFRS 16
      ‘Leases’

   The full independent auditor’s report is set out on pages 4 to 9 of the audited financial
   statements.

   Refer https://www.lewisgroup.co.za/wp-content/uploads/2021/05/Annual-Financial-
   Statements-31-March-2021.pdf


5. Short Form Announcement

This short-form announcement is the responsibility of the company’s directors and is a
summary of the results announcement and does not contain full or complete details.

The results announcement and the audited financial statements can be downloaded from
https://senspdf.jse.co.za/documents/2021/jse/isse/LEW/FY21.pdf and on the group’s
website www.lewisgroup.co.za as follows:

Results announcement: Refer https://www.lewisgroup.co.za/wp-
content/uploads/2021/05/Audited-Final-Results-for-the-year-ended-31-March-2021.pdf

Audited financial statements: Refer https://www.lewisgroup.co.za/wp-
content/uploads/2021/05/Annual-Financial-Statements-31-March-2021.pdf

The full results announcement may be requested at the company’s registered office, at
no charge, during normal business hours. Any investment decision in relation to the
company’s shares should be based on the full announcement.

Cape Town
27 May 2021

Sponsor
UBS South Africa (Pty) Ltd

Debt Sponsor
Absa Bank Limited, acting through its Corporate and Investment Banking division



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Date: 27-05-2021 07:05:00
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