Wrap Text
GCR places Lewis Group's National Scale Issuer Rating of A+(ZA) on a Positive Outlook
LEWIS GROUP LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2004/009817/06)
JSE share code: LEW
ISIN: ZAE000058236
Bond Code: LEWI
("Lewis Group"; "Lewis"; the "group"; or "the Company")
GCR PLACES LEWIS GROUP'S NATIONAL SCALE ISSUER RATING OF A+(ZA)
ON A POSITIVE OUTLOOK BASED ON A RESILIENT COMPETITIVE POSITION
AND ROBUST EARNINGS GROWTH
Lewis Group is pleased to advise that on 14 July 2025, Global Credit Ratings ("GCR")
affirmed Lewis Group's long- and short-term national scale issuer ratings at A+(ZA)
and A1(ZA), respectively. The Outlook has been placed on Positive from Stable.
The ratings are as follows:
National long-term issuer rating: A+(za)
National short-term issuer rating: A1(za)
Outlook: Positive
The announcement released by the GCR stated the following:
The change in outlook to Positive reflects Lewis Group's resilient business model,
which has facilitated strong credit-based sales growth, bolstering earnings
performance and supporting a robust liquidity position across the economic cycle. The
group's low leverage and financial flexibility are expected to absorb the pressures of
its growing credit book.
Lewis' competitive position is underpinned by a particularly strong market share in the
lower LSM consumer segment, where its value positioning in consumer durable
products and consumer finance division remains appealing even through weak
economic cycles. The group has an extensive store network, comprising of well-
established traditional brands, as well as a growing portfolio of specialised retailers in
the homeware space that are positioned near high-density urban and rural hubs. Lewis
opened net 33 new stores during the financial year 2025, ending 31 March 2025,
including the acquisition of Real Beds (16 new stores), raising the store count to 918
across the portfolio. Whilst Lewis has diversified somewhat into the higher-income
segment and cash sales through the UFO and Real Beds brands, the ratings remain
constrained by its relatively smaller size and narrow sales concentration compared
with broader retail peers in a highly competitive market. The group also has limited
geographic breadth and is thus vulnerable to the macroeconomics of South Africa,
specifically discretionary consumer spending and the credit cycle.
GCR has given greater weighting to the competitive advantage inferred by Lewis'
expertise in credit sales, which has supported 9% growth in merchandise sales,
despite the weak consumer environment. Thus, credit sales accounted for 68% of
merchandise sales in financial 2025 from 66% in financial 2024 and 60% in financial
2023. Moreover, income from financial services (including optional microinsurance
products), contributes 35% of total revenue from around 30% historically.
Lewis's strong financial profile is underpinned by sustained earnings growth,
notwithstanding fluctuations in the business cycle. Lewis reported record earnings in
financial 2025, with revenue increasing by 13.5% to ZAR9.3 billion (USD 522 million),
driven by strong merchandise sales and financial services income from an expanded
credit book. EBITDA increased significantly to ZAR1.5 billion (financial 2024: ZAR1.1
billion), supported by the additional income from credit sales and stronger collection
practices. In this regard, non-performing accounts reduced to 7% of the debtors book
(financial 2024: 8.4%), while satisfactory paid accounts rose to a high of 77.9%
(financial 2024: 76.7%). Accordingly, the overall operating margin widened to 12.6%
(GCR Calculated) compared to 9.2% in financial 2024. Cost pressures from the supply
chain eased due to improved shipping conditions, while also benefiting from a
favourable movement in the ZAR/US Dollar exchange rate. Lewis remains well-
positioned to defend its market share and generate sustainable operating cash flows
over the medium term. The operating margin may narrow slightly from the financial
2025 high, but it should remain above 10%, and we expect real growth in EBITDA.
The group's leverage profile remains strong despite a greater utilisation of short-term
bank funding to facilitate the expansion of the credit book. Lewis' gross debt rose to
ZAR2.0 billion in financial 2025, including lease liabilities, from ZAR805 million in
financial 2021, when the debt was solely attributed to lease liabilities. The group has
wide access to financing from four major local banks, including ZAR700 million in
committed RCF facilities and ZAR1.4 billion in callable facilities, of which ZAR1.1
billion was drawn at financial 2025. Despite the increase, net debt to EBITDA,
including lease liabilities, remained conservative at 1.2x in financial 2025 (financial
2024: 1.4x), reflecting the strong profitability, while net interest coverage (GCR
calculated incl. lease liabilities) remained stable at 8.0x (financial 2024: 8.0x).
Operating cash flow to total debt decreased to 28% (financial 2024: 27%) from
historical levels above 55%. We expect cash flow coverage to remain softer at 28%-
35%, as we anticipate that credit sales will continue to grow faster than cash sales in
the medium term. However, net debt to EBITDA and interest coverage are expected
to remain at current levels, and to maintain ample headroom against financial
covenants.
The GCR calculated liquidity coverage is expected to be above 2x over the next 24
months. Liquidity is underpinned by the large debtors book, from which Lewis collects
in excess of ZAR500 million per month. In addition, the group has approximately
ZAR1.1 billion in unutilised non-committed and committed facilities to support their
sources of liquidity. This is sufficient to cover the budgeted capital expenditure
requirements of ZAR140 to ZAR150 million and short-term maturing debt obligations
of ZAR 1.1 billion. The group has also paused the share buyback programme to retain
cash for organic growth.
Outlook statement
The Positive outlook reflects GCR's expectation that the ongoing expansion of the
retail network, combined with strong credit sales, should ensure that earnings continue
to grow, even from the current high base, and support a robust leverage and liquidity
profile.
Rating triggers
A rating upgrade could follow continued growth in earnings, along with sustained
strong profitability. GCR would also expect Lewis to sustain the high collection rates
on its debtors book, which is critical to ensuring moderate leverage metrics and high
liquidity coverage are reported.
Downward movement could follow a significant deterioration in revenue and
profitability, which could stem from a more challenging operating environment and
weakening debtors' book. If financial policy turns more aggressive through business
growth and/or shareholder returns, or if liquidity weakens, this could also place
pressure on the ratings.
The information contained in this announcement has not been reviewed or reported
on by the Company's external auditors.
Cape Town
15 July 2025
Sponsor: The Standard Bank of South Africa Limited
Debt Sponsor: Absa Bank Limited, acting through its Corporate and Investment
Banking Division
Date: 15-07-2025 07:05:00
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