A very good afternoon to all stakeholders and other interested parties. Welcome to our annual results presentation for 2025. Joining me this afternoon, our Group CFO, Jacques Bestbier, and also Graham Lillie from Tier One. Our agenda for this afternoon will start with a review of 2025, after which we will do a deep dive into our biggest business asset, the debtor book, followed by the financial results. We will then move on to discuss our targets and outlook. We will have a look at our achievements against the targets that we communicated with the market 12 months ago. We will then move on to discuss new targets, and we will spend time on the outlook. Ladies and gentlemen, please send your questions through during the course of the presentation, and we will gladly answer those right at the end. Ladies and gentlemen, we are delighted to present a much-improved set of results.
I would like to describe this as a milestone year for the Lewis Group. Over the past 10 years or so, the Group faced a number of significant challenges. We had to re-engineer and rebuild our business, and today we can celebrate a number of victories with all our stakeholders. During this period, revenue increased by a strong 13.5%, merchandise grew by 9.2%, our sales that is, gross profit margin settled at 43.4%, and then one of the milestone points for us is a record high satisfactory paying percentage of 83.5%.
Operating profit expanded by 66.9%, our operating profit margin increased by 790 basis points to 22.7%, EPS increased by more than 80%, EPS up more than 60%, and it gives us extreme pleasure to share with the market that we have declared a final dividend of ZAR 5.00, bringing our total dividend for the year to ZAR .8.00, thus rewarding our shareholders with a solid increase of 60%. It's really pleasing to be in a position to share our return on equity. It settled at 15.4%, and management can now say that we've delivered on our commitment to actually get to an ROE of 15% in the medium term. These results were achieved against a background of severe challenges. Not only did we see a really challenging macro environment, but locally, a lot of challenges were also faced. It's not my intention to go through the whole list.
I think we all know exactly how tough the last 12 months have been for all retailers, and I'll rather focus on our achievements during this period. I think it's fair to say that our business model has once again displayed extreme resilience, and I think the big differentiating factor here comes down to the fact that our business model is very unique and very unique on several different levels. The outcome is a strong credit sales growth for the period, much improved quality of the debtors book, margins expanded nicely. We continued to open stores quite aggressively. We did a small acquisition during this period. I'll unpack that a little bit later on in the presentation. We've already spoken about the substantial increase in profits, and then yes, the highlight, much improved returns.
I think it's fair to say that management can now say that our returns have actually reached acceptable levels. Our sales up 9.2%. Worthwhile mentioning that all of our traditional brands, being Lewis, Best, and Beares, all performed well and contributed to this nice increase of 9.2%. In the speciality segment of our business, also happy to share that UFO produced a like-for-like or achieved a like-for-like sales growth of 4%. For the third consecutive year, our debtors book displayed a strong growth during this reporting period, a growth of 14.5%. This supported other revenue, which increased by 19.1%. Gross profit margin, very strong performance in half two, mostly driven by very well-negotiated shipping rates and also an improvement in the exchange rate that came through in half two. Credit sales up very strong, 12.1% on a very strong base.
Credit sales now accounts for 68% of total sales, up from 66% a year ago. Yes, a strong Black Friday drive, together with other very strong discounting promotions, actually kicked cash sales back into play with a nice increase of 3.4%. Ladies and gentlemen, if we look at operating costs, although we closed outside of the target range that we set at the beginning of this year, management is dissatisfied with the expense controls that were exercised in the business, and it is worthwhile noting that the actual increase in operating costs still settled below the increase in revenue. I will unpack percentages further on this topic a bit later on. Our strategic acquisition of the Real Beds brand was properly integrated into the business.
Twelve stores in South Africa came online and started trading for our benefit late in June, and four stores in Botswana then followed during the month of November. The balance sheet remained strong and healthy. Just to mention that we have continued our share purchase program in half one, and we paused the program in half two. A very successful program that we will also discuss in more detail a bit later. Just before we move on, worthwhile highlighting that we have now repurchased almost 48% of shares since we listed the business in 2004. Our store opening target for the year was set at 20 stores. We managed to find well-located retail space at very affordable prices, and we accelerated the store opening program with the outcome displayed on slide number eight.
Net 33 stores opened during the period, and then once again, just mentioning the 16 stores that we have acquired. Store revamp program remains ongoing. We believe that we should keep our stores looking fresh and modern, appealing to the target market, and therefore 170 stores were revamped. Our social media strategy made encouraging progress during this reporting period. The Group now enjoys more than 3.7 million Facebook followers. This fosters very high levels of brand awareness and ultimately results in sales. I can just mention that this will continue to be a very big focus area for the Group, and we believe that we can further extend the sales reach that we are currently enjoying through mining these channels for sales leads.
Yeah, ladies and gentlemen, for the entire Lewis team, the recognition received from News24 that came in the form of the very prestigious Company of the Year award was really the cherry on top, the cherry on top of a milestone year. I see this award as recognition for the continued hard work, the dedication, and the resilience of all our employees. It adds great motivation for everybody to continue to improve, and I really like to refer to this reward as fuel for the future. I then move on to talk about returns to shareholders. I believe that we've made very good inroads. If we look at the position in 2021, a dividend of ZAR 3.20 was paid out, and that improved very significantly to the ZAR 8.00 payout for this financial year.
It's also important to focus on the average dividend yield, a very encouraging 10.5% over the past five financial years, and the dividend payout ratio consistently maintained at 55% and above. If you just look at a snapshot of the last eight years, the net asset value per share increased from just below ZAR 65 in 2018 to over ZAR 95 at the end of financial year 2025. During this period, the share price growth did not keep track with the growth in the net asset value per share. Management used this opportunity to go into the market and to buy back. These buybacks were done at discounts that ranged between 36% and 67%. A very successful program clearly unlocking a lot of shareholder value.
More recently, the gap between the net asset value per share and the share price narrowed, and as we explained at our results presentation in November, we have taken a decision to pause this program. This program will also now remain paused until further notice. As we said last time around, at our checkpoints every six months, we will give you an update on the status of our buyback program. We move on to the real milestone slide. Ladies and gentlemen, over the last couple of years, we on a continuous basis communicated our return on equity target to the market. That target was set at 15%, as you well know. As we traveled on this road, we had to explain on a number of occasions exactly what the roadmap looks like to get us to the desired level.
We had some support along the way, but we also had some people that looked at us and thought, "Will you really go from 9% to 15%? Is it indeed possible?" Today, we're happy to share with you that through enhanced profitability, through our strategically executed share buyback program, together with the fact that we continuously returned more than 55% of the attributable line to shareholders, we've actually reshaped the business, the equity base, and the level of profitability in such a way that we can today proudly report an ROE of 13.4%. I must immediately pause to say that for us, this is a milestone year. It's most certainly not the finish line. At the Lewis Group, we do not subscribe to the culture of complacency, and although we celebrate this moment and we know that we've done a lot better, this is not the finish line for us.
We do not see this as a great or as our best performance. For that reason, we are prepared to talk about the future today. In the short term, we believe that we can now cement this position and continue to deliver ROEs north of 15%. In the medium term, our goal as a management team is to further expand our ROEs to 17.5%. Moving on to our debtor analysis. Our debtors book, I already mentioned the point that we have seen three years of very strong growth in the book. During this year, a further growth of 14.5%, adding just over ZAR 1 billion to our book size. Strong collection rates coming through with an increase of 17.4% in collections, resulting in a solid collection rate of 78.9%.
Our arrears in the book reduced from 24.5% - 23.4%, and debtor costs reduced by 2.6%, which is a very pleasing result against the background of a book that has, in fact, grown by 14.5%. All of this resulted in an improved debtor cost position with a reduction from 17.6%. The debtor analysis, when looked at the composition of the book at this point in time, it's fair to say that the book is now in the best shape that it has ever been in. A record high satisfactory paying percentage, moving up from last year's record high levels of 81.3% to 83.5%. It's also important to note that our non-performing accounts are now at a record low, reducing from last year's 5.5% to 4.1%. If we look at the impairment provision, a reduction from 37.5% last year to 37.2%.
Just before we move on, also noteworthy that the total number of customers increased by almost 65,000 customers, and the number of customers that we can sell into that we can. In financial year 2021, satisfactory paying customers accounted for 74.4%. That has now increased by 9.1 percentage points to 83.5%. Also nice to see that this is now the third year in which we maintained our satisfactory paying level above 80%. On the income statement, I only really want to focus on operating costs. For us, just to explain the reasons, we've added 49 stores to our store base. If you look at that as a percentage of the store base, that represents an increase of 5.6%.
We have also invested quite a lot, so we can share with the market that this increase in expenses is largely driven by the growth that we have seen in the store base and that it is also performance related. It is interesting to note that if you look at operating costs as a percentage of revenue, last year we settled at 34.6%, and this year it is slightly lower, 34.5%. After absorbing this increase in costs, our operating profit increased by almost 67% and attributable earnings by a very nice 73%. Spoken about the fact that we have acquired the Specialist Bed business, this acquisition resulted in strategic reorganization of our segments, and in future we will report, as you see on page 20, we will have a traditional segment and we will also report on our specialty segment.
As always, contained in the traditional segment, you'll find our mainstay brand Lewis together with Beares and Best Home and Electric. This segment performed exceptionally well during the period, with merchandise sales expanding by 8.5% and operating margin increasing from 18.8% to 25.2%. Speciality, the biggest part of this segment at this point in time is still UFO that contributed around about 75% of sales in this segment. Happy to share with you that UFO has now returned to a position of contributing to profits again. A lot of work has been done in that business to cut the cost base, and we are hopeful that with the introduction of new lines soon in August-September, that sales momentum will continue to actually increase in that business. Already alluded to the fact that UFO also increased sales on a like-for-like basis by 4%.
If we look at the operating margin in this business, happy to share with you that our medium-term goal is to run our speciality segment at operating margins of at least 10%, and we believe that we'll get there in the medium term. On the balance sheet, I would like to touch on inventory, our stockholding levels. These levels are now back to budgeted levels. You will recall that we've seen quite a steep increase when we reported half-year results. This was mainly as a result of bringing merchandise purchases and the more especially so imports forward. In time for Black Friday and Christmas trade, the strategy worked really well, supported sales, and subsequently we've now normalized stockholding levels at the year-end at ZAR 766 million. I also want to touch on borrowings. Borrowings increased by ZAR 279 million for the year.
I want to mention that the current level of borrowings is well within the board's risk appetite and also well below management's ceiling of 25%. Let's unpack borrowings a little bit further. During the year, we've seen a net increase in borrowings of ZAR 329 million, and that's easily explained by just focusing on one of our items, which is our investment in the. To highlight that our interest cover ratio improved from an already healthy 7.5 times last year to 9.4 times. Just to complete the points, if we look at our net increase in borrowings over the last four years, you will note that that increase speaks to ZAR 1.3 billion, whereas the investment in the book during that period exceeded ZAR 2.4 billion. So solid investments made in a book that's really performing well.
Key ratios also now paint an encouraging picture with EPS up more than 80%, EPS up more than 60%, our ROE up from 9.3% a year ago to 15.4%. All the other ratios also now starting to look a lot better with return on assets up from 10% to 15%. I have spoken about the borrowings ratio. We just look at the gearing ratio, which includes lease liabilities, up from 31.7% to 36.6%, still well below our ceiling of 50%. The good news, a solid 60% increase in our total dividend declared. Move on to the outlook. Let's spend some time on our targets. We have set a gross profit target range for the year of 40% to 42%. We nicely exceeded the upper end of that target due to a very strong second half performance, and I have touched on the reasons.
We finally settled on 43.4% target range for this year, once again 40% to 42%. One must keep an eye on international shipping rates once again, and then also a close eye on the competitive landscape. I've touched on the increase in operating costs, maybe just to talk a bit about the target range. The target range of 7% to 11% has been set. I can also mention that there will be a little bit of pressure once again coming through store expansion and growth. We plan to open a minimum of 40 new stores during this period, roughly adding 4% to the store base, and we also want to open as many of these stores as early as possible in the new financial year. Satisfactory paid at 83.5%, well above the upper end of our range.
That motivated us to adjust our target range for 2026, and that speaks to a range of 78% to 82%, and I can mention that we will be very disappointed if we do not settle towards the middle or upper end of that target range. Debtor costs finally settled in the middle of the target range and a narrower range for the new year with the upper end that speaks to 16%. Our operating margin increased handsomely to 22.7%, far exceeding the upper end of our target range that was set at 16%. A definite step change for the business, and therefore the upper end of last year's target range now becomes the bottom end of our new target range, which has been set at 16% to 20%.
Borrowings and gearing, both well below our ceiling, and I must just once again mention that the ceiling that we do set, the less than 25% on borrowings and the less than 50% on gearing, is in fact year-end targets. You might see some fluctuation during the year as the business dictates, things like, for instance, bringing stock in earlier, but at year-end you should actually apply your checkpoint logic, and those are the year-end ceilings. Ladies and gentlemen, the retail landscape will most definitely remain challenging over the next 12 months. In our planning, we do not count on any sort of economic recovery or growth for support.
We believe that we will continue to make market share gains by focusing on bringing exclusive value for money merchandise to the market, and we believe that we've got very good and solid marketing strategies that will actually take our offering to customers in a cost-effective manner. This, together with the fact that we will continue to aggressively expand our store footprint, should put us in a position to continue to make market share gains. There is still an increased demand for credit in the market. In this instance, we will be falling back on the 590,000 satisfactory paying customers to extend the credit to those customers. We will also be actively mining the 3.7 million Facebook followers to ensure that more of those customers come and spend their money in our stores.
Together with this, we also fully realize that it is not only about marketing merchandise and expanding the store footprint. It is about living by one of our principles. We like to refer to the Ubuntu principle that speaks to the fact that I am because we are. For that reason, we take considerable pride in the fact that we continue to support communities that support us. We make good investments, significant investments into local communities, but it does not stop there, ladies and gentlemen. We also invest in the training of our staff on a continuous basis to make sure that we get our own people ready to take up bigger positions and to grow their career paths within our organization.
We believe that these principles lead to the building of a sustainable business, a sustainable business that can continue to create shareholder value, and a sustainable business that can also continue to bring enhanced shareholder returns to the table. Spoken about the fact that we are confident and bullish in our store opening program and that we'll see at least 40 new stores coming online, and 20 of those will be in the area of Specialist Bed stores. In summary, ladies and gentlemen, Lewis is excited about the future. I know that we've got the people and the plans and the strategies to get us to the next milestone. With that, I'd like to thank you, and we will now open the floor for questions.
Thanks, Johan. First question is from Jo Streicher from OIG.
He says, "Congrats on the impressive results." Jo asks, "How sustainable are margins at the current levels? It seems like GP margins strengthen due to factors out of your control. Would you be able to give us an indication of how sensitive GP margins are to changes in shipping rates?"
Jo, thank you. Thank you very much for the compliment and for your question. If we look at the GP target range that we have set for the year, that upper end of the range was set at 42%. We handsomely exceeded that. One of the biggest benefits that supported us was a strategic decision to actually bring our merchandise lines that we import, and that speaks to 35% of total sales, to bring that merchandise in earlier.
That offered earlier in the year, that offered us the opportunity to actually price accordingly and, where possible, to actually pass some of the cost pressures onto consumers. I think the target range for this year speaks to our thinking. Once again, a target range that he set at exactly the same levels, once again aiming to settle somewhere between 40% and 42%. One must also remember that there are several levers to pull in a business like this. At certain times, it is important to adjust pricing to attract more customers into your stores. Hopefully, if you pull that lever, Jo, at the appropriate time, that will then result in additional merchandise sales that will compensate for slightly lower margins. On a look-through basis, what can one expect during the next financial year?
I think I alluded to the fact that it's important for us to basically protect the gains that we have made, and that obviously goes right through to the bottom line, to the profitability of the group. I believe that we will be successful to actually continue to grow profits, to protect the improved ROE position. As I said in the presentation, we believe that we can cement that position at levels of above 15%. To make that a reality, one basically needs to continue to move forward and to grow the business. It's not only about that GP line, it's about finding the correct balance to continue to gain market share in a profitable manner.
Thanks, Johan. There's a question from Cobus Cilliers from All Weather Capital.
He says, "Congratulations on a remarkable set of results." Talking about space and store growth, he asks, "Which brands and in which provinces are the biggest opportunities?"
Cobus , so yes, thank you very much. At least 50% of our store growth during this next financial year will come under the speciality segment. These will be Specialist Bed set stores that will be opened. I can give that a little bit more color by adding that during last month, we have actually increased our Real Bed store base from the 16 stores that we acquired to 26, so 10 new store openings in the month. It is a focus of the property team to actually go and find quality retail space in the correct positions as quickly as we can because there is no reason to wait with our expansion plans.
The remainder of the stores will then be opened under the traditional brands, and there's still opportunity for us right across South Africa and even in the BL&E countries to expand under all three of the traditional brands as well.
Quick question from Leo Altini from Integrated Management Systems, Investments. Well done on another convincing set of results. Please, could you give some commentary on the competitive landscape, taking into account the likes of Pepco entering the furniture business and aggressively pursuing a fintech strategy? Do you see them and other players as a potential threat to your growth and margin targets?
Leo, thank you. Thank you for your question. As we know, at this point in time, Pepco is still waiting on Competition Tribunal approval to go ahead and to integrate the 400 stores from ShopRite into their fold.
It is a space that needs to be watched very carefully. Obviously, one must always be very cognizant of what merchandise your competitors have got on their floors, and obviously all of the other good retail things that flow from that, like for instance, pricing and so forth, and any other changes that they might be making. At this point in time, we as a Lewis Group are very satisfied with our market positioning. I think the addition of Specialist Bed stores will also put us in a position to attract more cash customers into our fold, and we believe that this also puts us in a very good position to maybe compete with our competitors in areas where they had it a little bit easier in the past. We do not underestimate, and we continue to monitor closely.
Thanks, Johan. The next question from David Fraser from Peregrine Capital.
He says, "Given your 2026 targets, particularly relating to your operating margin reduction targets, it appears that it'll be tough to grow earnings at all this year over the current base. Is this your current expectation?"
As things stand at this point in time, we are most definitely budgeting to grow earnings. Is off a high base, but as things stand today, and after what we've seen so far for this financial year, for the first two months, I strongly believe that we've got the offering and the business model to continue to grow earnings. Obviously, not at the sort of rate that we have seen during this year, but we're most certainly not planning to go backwards.
A question from Rudi van Niekerk from Merchant West Investments. Congratulations on great results. You referred to sales growth to be driven by market share growth.
In your opinion, what is your current market share in South Africa?
Yes, it's very, very difficult to actually put a number to market share. As you know, at this point in time, the publicly available information can only be described as limited. It's basically ourselves, Pepco, and ShopRite. You have a whole host of independents. What we can say, we are very satisfied with the actual level of growth that we've seen in credit customers. If we also compare our credit contribution, those numbers are visible to that of our competitors. What has happened to those numbers over the last five years, it's very clear that we have made quite significant market share gains in that area of the business, and extending credit to actually facilitate the sale is still the backbone of our business.
We have a question from Francois de Silvestri from Titanium Capital. Congratulations to management on a strong set of results. Following weakening jobs data in Q1 2025, are you seeing any impact on paying customers thus far? Which provinces, market sectors are you concerned about?
Yeah, thank you for your question. No strain coming through in the debtors book at this point in time. I mean, maybe now is a good time to just touch on what we've seen after year-end. We're satisfied with our sales and collection performance for the months of April and May so far. It's obviously something that one needs to stay really close to. If we look at sectors at this point in time, I think after Mr.
Trump's latest actions, if I can call it that, it's very important to keep an eye on what will happen to the motor industry in South Africa, maybe also the agricultural industry as one moves forward. At this point in time, no additional strain in our customer base. Collection rates are holding up, and we are very satisfied with the performance of the book.
A question from Matthew from Mtombo Wealth. Do you anticipate cash generation to remain relatively subdued over the next year, given your planned further investment in the debtors book?
Sure. Matthew, thank you. No, we do not expect it to be subdued. We expect the book to generate strong cash flow going forward.
Obviously, there are a lot of moving parts, but at the end of the day, I think the overarching answer lies in the borrowing ceiling, where we are quite comfortable that we will not exceed that ceiling come next year-end.
Thanks, Johan. No further questions coming through than we've asked.
Ladies and gentlemen, to just once again say thank you very much for your attendance today. If there's any follow-up questions, as always, you're more than welcome to actually request a meeting through Graham, and we will then gladly meet you.