Lewis Group Declares Dividend Despite Major Impact of COVID-19 on Annual Earnings

Lewis Group delivered a solid trading and operational performance for the year to March 2020 before being impacted by COVID-19 and the national lockdown which contributed to headline earnings per share declining by 30.8% to 260 cents.

COVID-19 adjustments reduced profit before taxation by R339 million and headline earnings by R224 million. This includes an increase in the debtors impairment provision of R123 million as a result of lost collections in March due to store closures during lockdown, a further increase of R190 million in the debtors impairment provision for the potential economic disruption of COVID-19 and its impact on future customer account payments and an impairment charge of R27 million for the possible future impact of COVID-19 in terms of the IFRS 16 lease accounting standard.

Despite the financial effects of the pandemic and the resultant lower earnings, the directors have shown confidence in the group’s prospects by declaring a total dividend of 185 cents per share for the year (2019: 234 cents), a dividend payout ratio of 79%.

Chief executive Johan Enslin said the group’s business model proved resilient during the lockdown trading restrictions. “The strength of our balance sheet and cash position ensured that we did not need to access any bank funding during the lockdown period, despite all our stores being closed for an extended period,” he said.

After increasing merchandise sales by 6.9% for the first 11 months of the year, the group lost crucial trading days over the March month-end period at the start of the lockdown on 27 March 2020. This resulted in losing merchandise sales of approximately R80 million and customer account collections of R180 million. Merchandise sales growth for the 12 months therefore slowed to 4.7%.

Other revenue, consisting of finance charges and initiation fees, insurance premiums and services rendered, increased by 5.8%. Total revenue, comprising merchandise sales and other revenue, increased by 5.2% to R6.5 billion for the year.

The group’s gross profit margin at 41.0% (2019: 41.2%) remains at the upper end of management’s target range of 38% to 42%.

The credit health of the group’s customer base pre-lockdown is reflected in the decline of R41 million in net bad debts for the year. Net bad debts as a percentage of debtors reduced to 13.9% from 15.1% in the prior year.

Collection rates increased to 77.3% for the first 11 months of the year to February 2020. Owing to the loss of key trading days at the end of March due to lockdown, the collection rate for the year slowed to 74.5%.

Cash generated from operations totalled R636 million and the group’s gearing ratio was 12% at year end.

The store footprint was expanded to 794 following the opening of 19 and closure of 9 stores during the year. The group plans to open 20 new stores in the 2021 financial year.

Discussing trading patterns post year end, Enslin said sales have been strong following the reopening of stores from 1 June 2020 when the country moved to lockdown level 3. Merchandise sales for June increased by 22.3% and July by 16.8%.

“The current sales momentum is being supported by pent up demand from savings accumulated during lockdown.”

“We are expecting consumer spending to contract in a post COVID-19 recessionary environment. Customers in our traditional lower to middle income target market are also vulnerable to the rising levels of unemployment in the country due to the impact of the pandemic,” he added.

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