Lewis Group Ltd.’s board faced a barrage of questions from shareholders and activists over its financial statements, bad debt and insurance policies, a week after the South African furniture retailer said it will challenge a referral to the country’s Consumer Tribunal.
Friday’s annual meeting in Cape Town saw investors including Dave Woollam of credit lobby group Summit Financial Partners query provisions made by Lewis for impairments and warranties. Shareholders also clashed with Chairman David Nurek over attempts to stop them asking questions.
“A greater proportion of the debtors’ book is poorly performing and is not adequately provided for,” Woollam said at the meeting. “There is a gross misrepresentation of the financial statements.”
Lewis shares have slumped 31 percent since the National Credit Regulator’s July 9 announcement that it was referring the retailer to the tribunal with the recommendation that it be fined for mis-selling insurance. Public Investment Corp., the owner of a 15 percent stake in the company, subsequently asked for Lewis to investigate its accounting practices.
“All our fees and charges are within the permissible limits,” Nurek said. “The company and its auditors are satisfied that the accounts fairly present the position of the company. We see no purpose served in a pointless debate between us today on differing views as to how the financial statements are prepared.”
Allegations made by Woollam that Lewis failed to provide adequately for bad debt, conduct proper affordability assessments on potential customers and properly account for warranties had no substance, he said.
“The purpose of your exercise is not to gain information,” Nurek told Woollam. “The purpose of your exercise is to embarrass the company.”
Lewis is opposing the referral to the tribunal and last week filed an answering affidavit that raised challenges to the procedures followed by the regulator. The company said the sale of retrenchment insurance to pensioners and the self-employed was due to “human error” and it would refund customers about 46 million rand ($3.6 million) in premiums and 23 million rand in interest.
“The average refund must be about 1,000 rand,” said Clark Gardner, chief executive officer of Summit Financial Partners. “That’s 46,000 breaches. How’s that human error?”
Lewis CEO Johan Enslin declined to respond in detail because the case was before the regulator.
“We will be discussing the matter and the detail and what actually caused this error to happen in our stores when we get the opportunity in front of the tribunal,” Enslin said. “Where we make mistakes, we fix those.”
After making provision for the insurance refund, revenue rose 7.7 percent in the four months through July, the company said in a statement on Friday. Debtor costs climbed 12.5 percent and the company generated almost 70 percent of sales on credit.