Lewis Group Limited (JSE:LEW) News - Results announcement (including Audited Summary Consolidated Financial Statements) 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 AUDITED SUMMARY CONSOLIDATED FINANCIAL STATEMENTS) FOR THE YEAR ENDED 31 MARCH 2022 AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2022 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 2022 (“results announcement”) - the company’s audited consolidated financial statements for the year ended 31 March 2022 (“audited financial statements”) - cash dividend declaration of 218 cents per share. The integrated report for the year ended 31 March 2022 will be released on or before 30 June 2022. 2. Highlights • Merchandise sales increased by 11.5% to R4.4 billion • Revenue increased by 7.9% to R7.3 billion • Gross profit at 40.5% • Debtor costs down 13.6% • Cash generated from operations at R863.3 million • Earnings per share increased by 26.8% to 731 cents • Headline earnings per share increased by 37.7% to 849 cents • Total dividend increased by 25.9% to 413 cents per share 1 3. Results Commentary Introduction The group delivered a solid performance despite the impact of the tightening domestic economy, the July 2021 civil unrest as well as local and international supply chain challenges. The quality of the group’s debtors’ book continued to improve, with collection rates strengthening, the percentage of satisfactory paid accounts increasing and debtor costs continuing to decline. A strong operating performance from the traditional retail brands was adversely impacted by impairment charges which resulted in the group’s operating profit for the year declining by 4% to R667.9 million. Trading and financial performance Merchandise sales increased by 11.5% to R4.4 billion, supported by strong sales during the Black Friday promotions and high levels of stock availability during a period of significant supply chain disruption. After sales in the second and third quarters of the year were impacted by the civil unrest in KwaZulu-Natal and parts of Gauteng, the group posted sales growth of 7.1% in the fourth quarter to March 2022, driven by the traditional retail brands. Sales increased by 18.9% compared to the 12 months ending March 2020, the reporting period before the start of the pandemic. Traditional retail increased sales by 13.3% for the year. Cash retail grew sales by 0.5%, with UFO being particularly impacted by the civil unrest and shipping delays on imported merchandise in the third quarter. Credit sales grew by 16.7% and cash sales by 6.4%, with credit sales accounting for 51.4% (2021: 49.1%) of total merchandise sales. Comparable store sales increased by 9.2%. Sales in the stores outside South Africa, which represent 15.8% of the store base, increased by 11.9% and accounted for 17.9% of the group’s sales. The group’s store footprint increased to 819 following the opening of a net 12 new stores across all brands. Other revenue, consisting of effective interest income, insurance revenue and ancillary services income, increased by 2.8%. Total revenue, comprising merchandise sales and other revenue, increased by 7.9% to R7.3 billion. 2 Despite the cost pressures and disruption in the supply chain, the group’s gross profit margin at 40.5% (2021: 41.8%) remains within the group’s target range of 40% - 42%. Management continues to pursue its strategy of carrying higher inventory levels to ensure that the group has adequate stock cover to meet customer demand and to counter the ongoing challenges in the supply chain. These include the global shortage of shipping containers and severe port congestion. Operating costs excluding debtor costs, impairments and capital items, increased by 10% as business operations normalised post lockdown and by 6.5% when compared to the year ended March 2020. Debtor costs reduced by 13.6% and debtor costs as a percentage of debtors at gross carrying value reduced from 14.3% to 12.3%. Collection rates improved to 79.0% for the year (2021: 71.8%). The level of satisfactory paid customers increased to 79.0% (2021: 74.4%). The debtors’ impairment provision as a percentage of debtors reduced from 42.6% to 40.4% for the current period. Operating profit before impairments and capital items increased by 4.3% to R766.8 million. Owing to the slower trading in UFO in the second half of the year, an impairment of R31.4 million was recognised against goodwill. An impairment of R99.2 million was recognised against the group’s right-of-use assets. Operating profit for the year declined by 4.0% to R667.9 million. Net finance costs declined by R101.6 million, benefiting from favourable year-on-year movements in net interest and foreign exchange losses. Headline earnings increased by 21.2% to R561 million, with headline earnings per share (HEPS) increasing 37.7% to 849 cents, reflecting the positive leverage effect from the group’s aggressive share repurchase programme. This is in line with the earnings forecast range provided in the group’s trading statement released on SENS on 18 May 2022. The board has increased the total dividend by 25.9% to 413 cents per share (2021: 328 cents), based on a 55% payout ratio. Cash generated from operations totalled R863.3 million (2021: R914.6 million) and the group held cash resources of R308.1 million at year end (2021: R447.0 million). The group’s balance sheet remains robust with the net asset value increasing by 10.4% to R75.27 per share. The gearing ratio at year end was 15.3% (2021: 7.4%) 3 Update on impact of civil unrest By year end 52 of the group’s 57 stores damaged in the civil unrest during July 2021 had reopened, with the remaining 5 stores trading from temporary premises while repairs are being undertaken. The group’s material damage insurance claim amounted to approximately R78.8 million (excluding VAT), including stock losses of R48.1million and R30.7 million for damaged assets. A total of R71.9 million of the claim has been received and recognised as insurance recoveries in the results for the reporting period. Share repurchase programme The group repurchased 8.7 million shares at a cost of R353.2 million during the year, at an average price of R40.34 per share. Since the commencement of the current share repurchase programme in 2017, the group has bought back 26 million shares at an average price of R31.82 per share. At the annual general meeting in October 2021, shareholders granted management the authority to repurchase a further 10% of the issued share capital and the group had utilised 48% of this mandate by year end. Outlook The current challenging retail trading conditions are expected to continue in the short -to medium -term, with increasing pressure on consumer disposable income through rising interest rates, transport costs, energy and food prices. Electricity load shedding will continue to disrupt trade and impact sales patterns. In this constrained environment, management aims to increase market share through innovative marketing strategies, supported by new merchandise ranges across all brands and high levels of stock availability. The sales and collections momentum for the fourth quarter of the 2022 financial year has continued into the start of the new financial year. The group will continue to expand its store base with the planned opening of a net 16 new stores, including 12 traditional retail and 4 UFO stores, and the revamp of a further 150 stores. Dividend declaration Notice is hereby given that a final gross cash dividend of 218 cents per share in respect of the year ended 31 March 2022 has been declared payable to holders of ordinary shares. The number of shares in issue as of the date of declaration is 62 840 903. 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 218 cents and the dividend tax payable is 43.6 cents for shareholders who are not exempt. The net dividend for shareholders who are not exempt will therefore be 174.4 cents. The dividend tax rate may be reduced where the shareholder is tax resident in a foreign jurisdiction which has 4 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 19 July 2022 Date trading commences "ex" dividend 20 July 2022 Record date 22 July 2022 Date of payment 25 July 2022 Share certificates may not be dematerialised or rematerialised between 20 July 2022 and 22 July 2022, 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 26 May 2022 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 2022. 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 11 to 16 of the audited financial statements. Refer https://www.lewisgroup.co.za/wp-content/uploads/2022/05/Annual-Financial- Statements-for-the-year-ended-31-March-2022.pdf 5 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/2022/jse/isse/LEW/FY22.pdf and on the group’s website www.lewisgroup.co.za as follows: Results announcement: Refer https://www.lewisgroup.co.za/wpcontent/uploads/2022/05/Audited-Final-Results-for-the- year-ended-31-March-2022.pdf Audited financial statements: Refer https://www.lewisgroup.co.za/wp- content/uploads/2022/05/Annual-Financial-Statements-for-the-year-ended-31-March- 2022.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 26 May 2022 Sponsor The Standard Bank of South Africa Limited Debt Sponsor Absa Bank Limited, acting through its Corporate and Investment Banking division 6 Date: 26-05-2022 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on, information disseminated through SENS.