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Johannesburg - Lewis Group pointed to affordability assessment regulations which adversely impacted its customer base, high levels of unemployment and the protracted drought affecting the rural economy as trading conditions continued to deteriorate for the year ended 31 March.

Last year, the National Credit Regulator issued affordability regulations requiring customers to provide their three latest salary advices or bank statements when applying for credit. Lewis chief executive officer, Johan Enslin, then said this was proving a major challenge for many customers in the lower to middle income target market who were self-employed or worked in the informal sector, saying that the regulations were restricting access to credit and consequently the group's credit sales growth.

The South African furniture retailer said merchandise sales slowed in the second half of the year and ended the year two percent lower after increasing by one percent in the first half of the year. Revenue at R5.6 billion was 3.3 percent down on the previous year. Lewis said slower revenue growth and higher operating and debtor costs contributed to its operating margin contracting to 10.1 percent.

Lewis said expenses were impacted by the integration of the stores acquired outside South Africa, general compliance costs, including the compliance call centre at head office, and upgrades to the point-of-sale system in stores. Following the integration of the 56 Ellerines and Beares stores acquired in Botswana, Lesotho, Namibia and Swaziland, the group has 116 stores outside of South Africa, accounting for 15 percent of the total store base.

At year-end, Lewis Group traded out of 761 stores across its three retail brands. Lewis now has 201 smaller format stores in its portfolio of 513 stores. Earnings for the prior year included a once-off capital gain of R495.6 million as a result of realising a large portion of the investment portfolio with Monarch Insurance Company Limited, the group's insurer, which impacted earnings per share reported last year.

Headline earnings declined from R552 million to R355 million, with headline earnings per share (HEPS) 35.6 percent lower at 400.1 cents. But the group said it remained strongly cash-generative. Cash generated from operating and investing activities was used to repay borrowings of R1 billion and to fund dividend payments of R357 million.

Lewis directors declared a final dividend of 100 cents per share, bringing the total dividend for the year to 200 cents per share, compared to 517 cents in 2016.


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