Lewis’s strides on disclosure
FURNITURE retailer Lewis Group has made huge strides on the disclosure front, with its annual report providing critical insights into its operations and the quality of its debtors book.
FURNITURE retailer Lewis Group has made huge strides on the disclosure front, with its just released annual report providing critical insights into its operations and the quality of its debtors book.
The report includes its first detailed breakdown of its debtors book and a frank discussion of the effect of the tougher regulatory environment. However, an analysis of the information on its debtors has already prompted concerns that Lewis has not made sufficient provision against R641m of arrears it categorises as “satisfactory paid”. The total value of the underlying loans in this category is R3.8bn.
Lewis’s total book is valued at R5.9bn and the total provision for bad debt against this is R1.5bn. The bulk of this provision (slightly more than R1.3bn) relates to the “nonperforming accounts” category, which customers who have paid 65% or less of the amount due.
The impairment provision on the R641m arrears in “satisfactory” accounts is just R38m, and is to cover the in duplum rule, which limits the interest that can accrue on arrears. The notes to the accounts explain the decision to write off debts takes into account recent payment behaviour, payment ratings and age of the account.
Shareholder activist Dave Woollam welcomes the much improved disclosure on the debtors book, which, he says, now makes it possible for shareholders to get a better understanding of the company’s most important asset. But he is concerned that Lewis is being too lax with the treatment of arrears in the “satisfactory” accounts.
“The one thing we’ve learnt from ... the collapse of African Bank is that firms have to take a firm stand with provisions.” Woollam, who says more than 40% of the total book is in arrears, is adamant the firm has not made sufficient provisions.
After a public spat with Woollam at 2015’s annual general meeting, Lewis undertook a review of the accounting policies attacked by Woollam. The policies, which relate to accounting for insurance, reinsurance and maintenance contracts, have been changed.
The corporate governance report includes a useful and frank description of the many difficulties that faced the company in financial 2016. It was referred to the National Credit Regulator for alleged breaches of the National Credit Act. In April 2016 the regulator again referred Lewis to the tribunal, this time for alleged breaches of the act relating to club fees and extended maintenance contracts charged to customers. Lewis is also opposing this referral.
Lewis was also served with summonses by current and previous customers for alleged breaches of the act in relation to delivery charges and extended maintenance charges.
Most recently, four Lewis directors — Johan Enslin, Les Davies, David Nurek and Hilton Saven — have been the subjects of a section 165 action taken by Woollam. He wants the four directors declared delinquent. The board is fighting the action, the first of its kind taken against listed company directors. It is due to be heard in the High Court in Cape Town on 18 August.
The one thing we’ve learnt from … African Bank is that companies have to take a firm stand with provisions