Page 6 - HGR 2017
P. 6


Negative ratings
for Lewis

  Global Credit Ratings                      initiatives to address the weak demand      stable, with the total level of non-per-
                                             conditions, operating margins are pro-      forming gross receivables reported at a
 has accorded negative                       jected to continue to slide to 5-year low   fairly flat 34% (FY16: 33%). That said, note
                                             of between 5% to 8%, trending well below    is taken of the R272 million increase in
 credit ratings to Lewis                     levels of over 20% historically.            bad debts in FY17, indicating the finan-
                                                                                         cial duress of consumers. Management
Group Ltd. based on the                        Cash flows from operations remain         are expecting a modest improvement in
                                             sound, although this may deteriorate        debtor costs, although these are likely to
  following key criteria:                    over the medium term if Lewis is unable     continue to weigh on profitability going
                                             to initiate sufficient new credit sales or  forward.
The ratings take cognisance of Lewis’        generate cash flows from alternative
solid market position in the speciality      initiatives.                                  GCR also takes note of lengthy pending
retail category, and demonstrated ability                                                legal disputes that could have potential
to maintain sound gross profit margins         Positive rating factors draw from the     negative financial and longer- term repu-
through the cycle. This, however, is offset  significant redemption of outstanding       tational ramifications.
by its narrow business focus and thus its    debt evidenced in FY17, with subsequent
limited adaptability to a very challeng-     proceeds from the insurance asset sales       Potential upward rating movements
ing operating landscape. Accordingly, the    used to reduce leverage to very low lev-    would only likely materialise on the back
negative outlook takes into account the      els, with net debt to EBITDA reported at    of notable improvements in the oper-
constrained performance across Lewis’        24%. In an effort to optimise the balance   ating environment, with the company
key brands and the risk that the group       sheet further in the face of the weak       demonstrating a sustained improvement
may not be able to stabilise and grow        trading environment, the group plans to     in trading and earnings growth over
earnings over the medium term, beyond        become ungeared by year-end FY18 and        the medium term, while maintaining
expected weakness in FY18.                   pay down all existing term obligations      conservative gearing and good liquid-
                                             by year-end FY19. At the same time,         ity. The ratings could be downgraded if
  Revenues have stagnated, whilst            current committed undrawn revolving         GCR comes to expect that revenues and
prolonged earnings weakness has              credit facilities total R800 million (and   earnings will not recover from projected
manifested in the wake of the depressed      are expected to increase to R1.1billion     FY18 levels, and/or if financial policies
domestic economy and notable changes         by FY19) to allow for flexibility when the  become more aggressive. Should regula-
to credit laws. Whilst the group will        market recovers or to pursue suitable       tory changes or adverse legal findings
continue to pursue incremental initia-       acquisitions.                               materially impact on the business this
tives to lower costs and drive expansion                                                 could also pressurise the ratings.”
                                               Asset quality has remained relatively

Electrolux retains industry leadership in
Dow Jones Sustainability Indices

Electrolux has been named                    RobecoSAM.                                  Sustainability Affairs at Electrolux.
Industry Leader of the Household               “This year, Electrolux strategic          “Our purpose – shape living for
Durables category in the Dow Jones                                                       the better – is both about acting
Sustainability World Index (DJSI World).     framework has been updated with a           sustainably in everything we do, and
It is the eleventh consecutive year that     company purpose and a mission that          focusing our efforts on what we can
Electrolux receives this recognition in      clearly show sustainability will remain     do to enable consumers to live more
the assessment, which is published by        a key strategic driver in the coming        enjoyably and sustainably.”
                                             years,” said Henrik Sundström, Head of

   1   2   3   4   5   6   7   8   9   10   11