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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| H&t Group Plc | LSE:HAT | London | Ordinary Share | GB00B12RQD06 | ORD 5P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -7.00 | -1.64% | 420.00 | 415.00 | 420.00 | 427.00 | 416.00 | 426.00 | 70,009 | 16:35:13 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Finance Services | 220.78M | 21.08M | 0.4793 | 8.70 | 183.43M |
From Apr 2019 to Apr 2024
TIDMHAT
RNS Number : 5855G
H&T Group PLC
05 March 2015
Preliminary Results
for the year ended 31 December 2014
H&T Group ("H&T" or the "Group"), is pleased to announce its preliminary results for the year ended
31 December 2014.
John Nichols, Chief Executive of H&T Group, said:
"The market has evolved rapidly over the last two years and has severely impacted many businesses in the sector. H&T has focused on strengthening its balance sheet, controlling costs and driving retail revenues to de-risk the business and protect earnings in the short term.
We have simultaneously enhanced our capabilities and customer offering through brand, product and systems development. With a strong operational infrastructure in place, a robust balance sheet and an evolving suite of products, we are well placed to return to profitable growth."
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Financial highlights (GBPm 2014 2013 Change
unless stated) %
Gross profit 45.7 49.9 -8.4%
Profit before tax 5.5 6.7 -17.9%
Diluted EPS 11.78p 13.40p -12.1%
Net debt 9.7 20.7 -53.1%
Proposed full year dividend 4.8p 4.8p 0.0%
Key performance indicators 2014 2013 Change
%
Gross pledge book GBP38.5m GBP44.1m
* 12.7%
Redemption of annual lending
* 80.0% 77.8% 2.8%
Retail sales GBP30.9m GBP24.9m 24.1%
Retail margin 34.6% 39.8% * 13.1%
* 8.2%
Purchase margin 17.9% 19.5%
* 1.5%
Number of stores 191 194
*Redemption of annual lending: 2013 is the actual percentage of lending which was redeemed or renewed; 2014 is an estimate based on recent trend and early performance.
Operational highlights:
-- Retail sales growth of 24.1% has been enhanced through brand redevelopment, point of sale, pricing policy and stock replenishment
-- Implementation of the "Expert Eye" system to support store valuation of specialist items -- Continued development of our Personal Loans product -- Launch of the online Personal Loans product
Preliminary Results
for the year ended 31 December 2014
Enquiries:
H&T Group plc
Tel: 0870 9022 600
John Nichols, Chief Executive
Steve Fenerty, Finance Director
Numis Securities (Broker and Nominated Adviser)
Tel: 020 7260 1000
Etienne Bottari / Freddie Barnfield - Nominated Adviser
Mark Lander - Corporate Broking
Haggie Partners (Public Relations)
Tel: 020 7562 4444
Damian Beeley
Brian Norris
Chairman's Statement
H&T Pawnbrokers has, unlike many in the sector, both survived and generated strong cash flows against a back drop of a low gold price, significant changes in consumer behaviour and a far tighter regulatory regime. The challenge now is to implement strategies to reflect this different environment.
Introduction
The Group has traded well against a challenging backdrop. The significant cash flows have enabled reduced borrowings and steps have been taken to achieve a lower cost base. We are beginning to implement new strategies. We need to become more relevant to our customers through serving them from better locations and through effective use of new media.
Financial Performance
The Group delivered profit after tax of GBP4.3m (2013: GBP4.9m) and diluted earnings per share of 11.78 pence (2013: 13.40 pence). Subject to shareholder approval a final dividend of 2.7 pence per ordinary share (2013: 2.7 pence) will be paid on 5 June 2015 to those shareholders on the register at the close of business on 8 May 2015. This will bring the full year dividend to 4.8 pence per ordinary share (2013: 4.8 pence).
The Group's plan to improve its balance sheet strength has been successful with a net debt reduction of 53.1% to GBP9.7m (31 December 2013: GBP20.7m). This reduction has lowered the risk in the business, but from this position we now need to develop a group of profitable products that reduces the impact of gold price volatility. We have seen a strong retail performance which partially addresses the profitability of the Group, but we need to develop new and more valuable product lines, including secured lending to generate a satisfactory return on capital.
Regulation
The regulation of Consumer Credit moved from the Office of Fair Trading to the Financial Conduct Authority on 1 April 2014. The Group has obtained interim permission from the FCA and has submitted its application for full authorisation in February 2015.
The Group is well prepared for the transition and we welcome the higher standards that this change will bring to our sector.
Strategy
We recognise the need to evolve our business model to address an intensely competitive environment, the declining footfall on UK high streets and the increasing use of the internet for commoditised goods and services. We need to develop a strong presence in the high footfall shopping malls of the UK, rather than the legacy of High Street locations that have been the main stay of the business. The negativity associated with the word "pawnbroking" can prevent us obtaining leases in some high footfall locations such as shopping malls. We need to look at new formats and branding for our business to attract a customer who would not use or enter a shop with a pawnbroking symbol or that shop front description. We will need to relocate stores where their location has a reducing footfall, to those places where it will grow. The combination of on-line presence, high visibility and an attractive range of products will be important.
Prospects
The Group started on a programme to address all aspects of this developing strategy during 2014. This included the creation of 39 retail stores, with the new branding 'est1897'; these stores comprise 36 rebranded H&T pawnbroker stores and three new stores in shopping centres. This is being supported by the launch of a new range of online services both through internet and mobile channels. Good growth has been seen in the provision of foreign exchange as well as an improved retail offering. We will continue to review the product range to increase the profitability of stores and the use of different asset classes as collateral for consumers' secured lending.
On behalf of the Board and our shareholders I would like to thank everyone at H&T for the hard work and dedication through a year of significant change.
Peter D McNamara
Chairman
Chief Executive's Review
H&T's continued investment in our people, stores and systems has provided a platform for growth in this rapidly evolving market.
INTRODUCTION
The alternative credit market is undergoing a seismic shift as it adjusts to a very different high street trading environment, a lower gold price and a new regulator. These factors have already reduced earnings across much of the sector and the impact of the interest rate cap on pay day loans will put some businesses under further pressure in 2015.
Profit before tax for the period fell to GBP5.5m (2013: GBP6.7m), a fall of 17.9%, principally as a result of reduced profits from our pawnbroking scrap and gold purchasing operations.
The Group has responded well to protect earnings in the short term through effective cost control and a focus on jewellery retail, while making appropriate investments to develop the business through a focus on products, service and distribution.
H&T has always sought to be the customer's first choice for pawnbroking services by providing high quality locations with professional, knowledgeable and approachable staff. H&T has enhanced this proposition by expanding other services including our new personal loan, foreign exchange and buyback. This level of development has not affected the quality of service, as demonstrated by our independent customer research which shows customer satisfaction significantly outperforming the specialty retailers' benchmark.
Our store estate of 191 stores comprises 152 H&T Pawnbrokers stores and 39 est1897 second hand jewellery retail stores. During the year we have closed eight stores, opened one H&T Pawnbrokers store, opened three standalone est1897 stores and acquired one established pawnbroking business.
The Group has launched its online valuation service, its Personal Loans product, 'est1897' retail site and the 'My H&T' customer portal in H2 2014. These developments enhance our online capability and provide our customers with the ability to interact with us in the way they find most convenient. The main focus for 2015 will be driving adoption of these services through effective online and offline marketing and communication.
We believe that the high quality of investment made in our stores, systems and people has provided a strong platform for growth. While we will have to adapt aspects of our business model we believe we are well positioned to take advantage of the market disruption seen to date.
THE MARKET
H&T provides a range of options for customers to raise the cash they need, whether using an asset or taking out an unsecured loan. The pricing of our loan products is among the lowest in the sector, particularly versus larger chains, and almost without exception the 1.6m customers of pay day lenders would be substantially better off taking a loan with H&T instead.
The Board believe that the wider alternative credit market is likely to undergo significant change in the coming year primarily due to the implementation of the FCA's interest rate cap. The FCA has stated that "it is possible that one high--street firm may be able to operate" at the 0.8% per day cap, we would therefore anticipate store closures in that segment of the wider sector.
The Board believes that the financial stability of the Group, our range of products and our outstanding service delivery position us to take advantage of these market conditions.
OUR STRATEGY
The Group's strategy is to serve a customer base whose access to mainstream credit is limited and for whom small sum loans can help get through short term financial problems. The Group will deliver this strategy by developing a range of lending products, both secured and unsecured, offered in-store and online.
The development of a strong retail proposition supports our lending and purchasing operations, improves returns and reduces the Group's exposure to gold price volatility. The development of the standalone est1897 brand could play an important part of this strategy in the future.
The Group will address the low returns on capital over the medium term by increasing earnings through product development, release of capital in underperforming units and reinvestment into high return areas.
REGULATION
The Financial Conduct Authority
The regulation of Consumer Credit moved from the Office of Fair Trading to the Financial Conduct Authority on 1 April 2014. The Group has obtained interim permission from the FCA and has submitted its application for full authorisation in February 2015.
The Group has appointed a Compliance Manager and established a Risk Committee comprised of independent non-executive directors to oversee the compliance framework and our preparation for authorisation. Our non-executive directors have extensive experience with the regulatory requirements of the FCA and its predecessors and provide the Group with valuable support and insight into the new regime.
High cost short term credit interest rate cap
On 11 November 2014 the FCA published its rules relating to a cap on the interest rate and charges that apply to High Cost Short Term Credit ("HCSTC"). The rules took effect from 2 January 2015 and provide for:
-- a maximum charge of 0.8% per day on the amount borrowed -- a maximum of GBP15 fees on default -- a cap on the total costs incurred over the life of the loan of 100% of the amount borrowed
The definition of HCSTC is broad but provides a specific exemption for pawnbroking and certain other credit products at present; we do not expect the cap to apply to pawnbroking in the near term.
The Group's personal loan product must conform to the cap although our relatively low rates of interest compared with the wider alternative credit market mean that the cap has almost no impact on our earnings.
REVIEW OF OPERATIONS
During the year the average gold price was GBP768 per troy oz (2013: GBP903), a fall of 15.0 %. This reduction impacts on the profit derived from pawnbroking scrap and purchasing and is the principal reason for the reduction in gross profits to GBP45.7m (2013: GBP49.9m), a fall of 8.4%.
Pawnbroking
The pledge book has reduced 12.7% to GBP38.5m (2013: GBP44.1m) as a result of the competitive environment, a lower lending rate per gram and a reduction in aged pledge. The rate of reduction has slowed significantly during the course of the year, the June 2014 balance was GBP38.5m, as lending has stabilised during 2014.
The Group's Pawn Service Charge was down 1.0% to GBP28.4m (2013: GBP28.7m) and now represents 62.1% of Group gross profit (2013: 57.4%). The interest component of the Pawn Service Charge declined 3.8% to GBP28.2m (2013: GBP29.3m) which more accurately reflects the underlying performance of the pawnbroking segment than the total Pawn Service Charge. The yield on the pledge book has increased due to the improved ageing profile of the book and the higher average rate of interest.
The store based competitive environment for pawnbroking peaked in early 2013 following which the fall in the price of gold impacted both demand and the level of security available to support the loan value. Total lending in 2014 reduced 9.1% to GBP94.5m (2013: GBP104.0m) and the average lending rate per gram reduced by 6.7% as we sought to maintain a reasonable loan to value ratio.
The Group implemented a number of initiatives during the year to support the pawnbroking proposition:
1. Implementation of "Expert Eye", a system which enables high definition magnified images to be sent from a store to our centre of excellence at the jewellery centre where the images are assessed and with telephone support the store is able to make a better loan decision
2. The development of the "We lend on anything" valuation portal on the website where customers can submit an item for valuation
3. The development of mobile apps both for iOS and Android phones to enable customers to photograph items and submit to us for valuation
4. During October 2014 the sponsorship of the "Pawn Stars UK" TV programme and a promotional relationship with the stars for personal appearances and web referrals
The Group has developed these platforms to provide ways to enhance our customers engagement and maximise the returns from our marketing investments. The development of the "My H&T" customer portal to allow customers to view and manage their pawnbroking loans online together with the launch of online pawnbroking in Q2 2015 will provide further convenience and provide access to a wider customer base.
Pawnbroking Scrap
Pawnbroking Scrap produced a loss in the year of GBP0.2m (2013: GBP1.8m profit).
This loss was expected in light of the relatively higher rate per gram on forfeited items against the gold price. We would not expect margins on pawnbroking scrap to return to historical levels as we seek to maintain a competitive proposition on lending and support the pledge book.
Retail
Retail sales increased 24.1% to GBP30.9m (2013: GBP24.9m) and gross profit increased 8.1% to GBP10.7m (2013: GBP9.9m).
Retail has been a real success in 2014 as we seek to rebalance the business away from its exposure to the gold price and drive revenues in the short term. The changing business mix and the complex interaction of VAT schemes in the business resulted in an additional VAT cost in the year of approximately GBP1.9m. VAT has been a net recovery in recent years and was netted against expenses whereas VAT payable on sales has now been deducted from the retail sales.
The Group considers a successful retail offering to be a core part of our Group proposition. Pawnbroking and Gold Purchasing both generate significant amounts of saleable jewellery which must be sold. While higher historic gold prices provided a reasonable return from scrapping gold, this disposition route is not suitable for gemset items or watches. The ability to retail items rather than scrap them also provides a higher return and reduces the Group's exposure to short term gold price volatility.
The principal drivers for growth have been:
1. Increased stock in store: Through effective working capital management we have reduced stock in process, transit or central locations to allow an 19.7% increase in average store stock in 2014 vs 2013 with a 2.6% reduction in overall stock holding
2. 'est1897' retail brand: During the year we rebranded 36 H&T Pawnbrokers stores and built 3 standalone stores in shopping centre locations. Whilst too early to judge their performance, these stores provided retail sales growth higher than the company average
3. Pricing Strategy Improvements: We have developed more sophisticated methods to deliver effective pricing and discount policies in store to maximise sales and margin. This remains a key focus as we seek to maximise overall gross profits from this area
The Group also launched a fully transactional website www.est1897.co.uk in September 2014 which is used to showcase the exceptional items available from our stores.
Gold Purchasing
Gold Purchasing gross profit declined to GBP2.4m (2013: GBP4.8m) as a result of four key factors:
1. Gold price reduction: The average gold price was GBP768 per troy ounce during 2014 (2013: GBP903 per troy ounce) a reduction of 15.0% which impacts on the gross profit available on each transaction
2. Closure of GoldBar: The retail mall units contributed GBP0.7m of profit in 2013 and were closed as volumes decreased during the course of that year
3. Competitive Pressure: The margin derived from gold purchasing reduced from 19.5% in 2013 to 17.9% in 2014
4. Changing business mix: The increased cost of goods sold through retail means that a higher proportion of profits are realised in the retail segment rather than gold purchasing. Cost of goods sold through retail increased by 34.7% from 2013 to 2014
We estimate that the weight of fine gold purchased in like for like H&T stores fell by 1.7% from 2013 to 2014, with the trend in fine gold weight being encouraging since January 2014.
While gold purchasing has never been considered a core revenue stream for the Group we would expect that the improvements delivered to support pawnbroking and retail will also support gold purchasing.
Personal Loans
The Personal Loans segment comprises all unsecured lending activity in the Group, including the pay day loan product which was withdrawn in September 2013. Gross profit fell to GBP1.8m (2013: GBP2.9m).
The Group took the decision in early 2013 to simplify its unsecured loan offering from the Pay Day Advance and KwikLoan products to the new more flexible Personal Loan which is tailored to a customer's personal circumstances. The product provides loans from GBP50 to GBP1,000 over any term of up to two years, subject to affordability checks.
The H&T Personal Loan may be taken out for periods of less than a year and as the APR on the loans is more than 100% a proportion of our lending falls within the FCA definition of High Cost Short Term Credit ("HCSTC"), as such the interest rate cap applies to those loans. We estimate that approximately 1% of our lending in 2014 would have been restricted by the loan cap where they were small amounts and very short term (up to two months). We have now reviewed the pricing of our products to ensure that all loans are fully compliant and our products remain competitive in the context of the new market.
The personal loan product was launched online in August 2014 and will provide a key medium term opportunity.
Other Services
Other Services includes Third Party Cheque Cashing, Foreign Exchange, Buyback, Western Union and other income. Total gross profit from Other Services was GBP2.7m (2013: GBP1.8m), the increase being generated from Foreign Exchange and Buyback activities, both new products launched in 2013.
Third party cheque cashing gross profits reduced 8% to GBP1.1m (2013: GBP1.2m) as the number of cheques in circulation reduced.
Foreign Exchange continues to grow with an increase in gross profits of 167% to GBP0.8m (2013: GBP0.3m). This simple transactional product brings new customers and revenues into H&T's stores without detracting from the core services.
BuyBack has been a particular success as part of the wider strategic development of the "We buy anything" proposition. Gross profits increased to GBP0.5m (2013: GBP0.1m) as the value purchased increased to GBP2.9m (2013: GBP0.7m) and brought a new customer base to H&T. Buyback customers are younger - (57% are 35 or under vs 33% in Pawnbroking) and more likely to be male - (63% are male vs 40% in Pawnbroking).
PROSPECTS
The Group has made good progress in delivering our strategy described above with the initial development complete on a range of initiatives to develop our position as the UKs leading pawnbroker. The challenge for 2015 is to ensure that the investment to date yields tangible results to drive earnings growth and improve returns from the store estate.
We believe that the wider market is stabilising and future changes will be positive for the Group and we have built a solid platform for growth. Current trading is in line with management's expectations for 2015.
I would also like to add my great thanks to those of the Chairman, in recognising all our people whose skills, commitment and enthusiasm continue to drive our success, and who give us confidence in the future.
John G Nichols
Chief Executive
Finance Director's Review
FINANCIAL RESULTS
For the year ended 31 December 2014 we have delivered GBP5.5m profit before tax, down 17.9% from GBP6.7m in 2013 primarily as a result of the reduced gold price and competitive environment.
The Group has taken a measured approach to cost reduction in the year resulting in total direct and administrative expenses being GBP2.9m lower than in 2013. The reduction is mainly a result of the closure of GoldBar and the costs associated with the closure of underperforming stores provided for at 31 December 2013.
Finance costs reduced to GBP708k (2013: GBP842k) as a result of improved terms on the new four year credit agreement signed in January 2013 together with a lower average loan balance through the year.
CASH FLOW
The Group generated positive cash flow from operating activities of GBP14.4m (2013: GBP15.4m). Working capital movements produced an inflow of GBP6.2m (2013: GBP6.9m) in the year, the main component of these movements in each year being the change in the pledge balance. Effective stock management enabled us to increase retail sales whilst reducing the overall level of stock in the business. Movement in inventories represented an inflow of GBP0.4m (2013: GBP3.4m outflow).
BALANCE SHEET
As at 31 December 2014 the Group had net assets of GBP90.9m (2013: GBP88.1m) with period end net debt of GBP9.7m (2013: GBP20.7m) delivering a reduction in gearing to 10.6% (2013: 23.5%). This reduction was planned in order to de-risk the balance sheet in light of the challenging market conditions.
On 30 January 2013 the Group entered into a new four year facility with Lloyds Bank plc allowing for maximum borrowings of GBP50.0m, subject to covenants, at a margin of between 1.25% and 2.25% above LIBOR. At year end GBP16.0m was drawn on the facility and the Group was well within the covenants with a net debt to EBITDA ratio of 0.99x and interest to EBITDA ratio of 17.6x.
The combination of low gearing and a secure long term credit facility provides the Group with the ability to make selective investments in the future while maintaining appropriate headroom.
Investments
During the year the Group completed one acquisition comprising one store and two pawnbroking loan books for a total consideration of GBP0.5m. The Group also opened four new stores and closed eight stores during the year taking the total store estate to 191 units.
Impairment
The reduced gold price has impacted the earnings of the Group and of the stores that have been acquired historically. The Group performs an annual review of the expected earnings of each acquired store and considers whether the associated goodwill and other property, plant and equipment are impaired. As at 31 December 2014 the Group impaired the value of one store which was acquired in 2012. The total value of the impairment was GBP129k.
Share Price and EPS
At 31 December 2014 the share price was 160.0p (2013: 143.5p) and market capitalisation was GBP59.0m (2013: GBP52.9m). Basic earnings per share was 11.78p (2013: 13.44p), diluted earnings per share was 11.78p (2013: 13.40p) and diluted net assets per share equated to 247p (2013: 243p).
The Group's market capitalisation remained below net asset value during the year as the continued pressure on earnings depressed market confidence. The Board believe that the action taken to stabilise the pledge book, drive alternative earning streams, control costs and de-risk the balance sheet will build confidence.
Steve Fenerty
Finance Director
Group statement of comprehensive income
For the year ended 31 December 2014
Continuing operations: Note 2014 2013
GBP'000 GBP'000
Revenue 2 87,696 99,275
Cost of sales (42,019) (49,357)
Gross profit 2 45,677 49,918
Other direct expenses (31,627) (32,912)
Administrative expenses (7,833) (9,432)
Operating profit 6,217 7,574
Investment revenues 1 1
Finance costs 3 (708) (842)
Profit before taxation 5,510 6,733
Tax charge on profit 4 (1,255) (1,882)
Profit for the financial year
and total comprehensive income 4,255 4,851
2014 2013
Earnings per share Pence Pence
Basic 5 11.78 13.44
Diluted 5 11.78 13.40
Group statement of changes in equity
For the year ended 31 December 2014
Employee
Benefit
Share Trust
Share premium shares Retained
capital account reserve earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2013 1,830 25,397 (25) 59,563 86,765
Profit for the financial
year - - - 4,851 4,851
Total income for
the financial year - - - 4,851 4,851
Issue of share capital 13 12 - - 25
Share option credit
taken directly to
equity - - - 238 238
Dividends paid - - - (3,738) (3,738)
Employee benefit
trust shares - - (13) - (13)
At 1 January 2014 1,843 25,409 (38) 60,914 88,128
Profit for the financial
year - - - 4,255 4,255
Total income for
the financial year - - - 4,255 4,255
Issue of share capital - - - - -
Share option credit
taken directly to
equity - - - 246 246
Dividends paid - - - (1,769) (1,769)
Employee benefit
trust shares - - 3 - 3
At 31 December 2014 1,843 25,409 (35) 63,646 90,863
Group balance sheet
At 31 December 2014
31 December 31 December
2014 2013
GBP'000 GBP'000
Non-current assets
Goodwill 17,707 17,738
Other intangible assets 1,056 1,400
Property, plant and
equipment 9,954 12,322
Deferred tax assets 527 724
29,244 32,184
Current assets
Inventories 29,500 29,748
Trade and other receivables 49,423 54,122
Cash and cash equivalents 8,250 8,251
87,173 92,121
Total assets 116,417 124,305
Current liabilities
Borrowings (1,925) (3,000)
Trade and other payables (6,053) (5,338)
Current tax liabilities (328) (1,076)
(8,306) (9,414)
Net current assets 78,867 82,707
------------------------------ ----------- ------------
Non-current liabilities
Borrowings (15,758) (25,605)
Provisions (1,490) (1,158)
(17,248) (26,763)
Total liabilities (25,554) (36,177)
Net assets 90,863 88,128
Equity
Share capital 1,843 1,843
Share premium account 25,409 25,409
Employee Benefit Trust
shares reserve (35) (38)
Retained earnings 63,646 60,914
Total equity attributable
to equity holders 90,863 88,128
Group cash flow statement
Year ended 31 December 2014
Note 2014 2013
GBP'000 GBP'000
Net cash generated from operating
activities 6 14,373 15,405
Investing activities
Interest received 1 1
Proceeds on disposal of property,
plant and equipment 52 -
Purchases of property, plant
and equipment (1,117) (2,434)
Acquisition of trade and assets
of businesses (469) (2,366)
Net cash used in investing
activities (1,533) (4,799)
Financing activities
Dividends paid (1,769) (3,738)
Net decrease in borrowings (10,000) (5,000)
Proceeds on issue of shares - 25
Decrease in Bank overdraft (1,075) -
Loan to the Employee Benefit
Trust for acquisition of own
shares 3 (13)
Net cash absorbed by financing
activities (12,841) (8,726)
Net increase in cash and cash
equivalents (1) 1,880
Cash and cash equivalents
at beginning of the year 8,251 6,371
Cash and cash equivalents
at end of the year 8,250 8,251
Notes to the preliminary announcement
Year ended 31 December 2014
1. Finance information and basis of preparation
The financial information has been abridged from the audited financial statements for the year ended 31 December 2014.
The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2014 or 2013, but is derived from those accounts. Statutory accounts for 2013 have been delivered to the Registrar of Companies and those for 2014 will be delivered following the company's annual general meeting. The auditors have reported on those accounts: their reports were unqualified, did not draw attention to any matters by way of emphasis and did not contain statements under s498 (2) or (3) Companies Act 2006 or equivalent preceding legislation.
Whilst the financial information included in this preliminary announcement has been prepared in accordance with International Financial Reporting Standards ('IFRS'), this announcement does not itself contain sufficient information to comply with IFRS. The Group will be publishing full financial statements that comply with IFRS in April 2015.
Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services and interest income provided in the normal course of business, net of discounts, VAT and other sales-related taxes.
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised:
-- Pawnbroking, or Pawn Service Charge (PSC), comprises interest on pledge book loans, plus auction profit and loss, less any auction commissions payable and less surplus payable to the customer. Interest receivable on loans is recognised as interest accrues by reference to the principal outstanding and the effective interest rate applicable, which is the rate that discounts the estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount;
-- Retail comprises revenue from retail jewellery sales, with stock sourced from unredeemed pawn loans, newly purchased stock and stock refurbished from the Group's gold purchasing operation. All revenue is recognised at the point of sale;
-- Pawnbroking Scrap and Gold Purchasing comprises proceeds from gold scrap sales and is recognised on full receipt of sale proceeds;
-- Personal Loans comprises income from the Group's unsecured lending products. Interest receivable on unsecured loans is recognised as interest accrues by reference to the principal outstanding and the effective interest rate applicable, which is the rate that discounts the estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount; and
-- Other financial services comprise revenues from third party cheque cashing, foreign exchange income, Buyback, prepaid card and other income. The commission receivable on cheque cashing is recognised at the time of the transaction. Any other revenues are recognised on an accruals basis.
The Group recognises interest income arising on secured and unsecured lending within trading revenue rather than investment revenue on the basis that this represents most accurately the business activities of the Group.
The Group recognises revenue and bad debt expenses (both impairments and movements on allowance accounts) on pawnbroking, cheque cashing and other financial services on a portfolio approach. The Group considers that the bad debts arising on the loans and receivables balances are a direct function of the revenue earned due to the nature of the activities, and accordingly records the net amount of interest or commissions due and bad debt expenses within revenue.
2. Business and geographical statements
Business segments
For reporting purposes, the Group is currently organised into six segments - Pawnbroking, Gold purchasing, Retail, Scrap, Personal Loans and Other services.
The Board have updated the segmental reporting to present all the unsecured lending products in one segment due to a change in the way the chief operating decision maker views the business. The Personal Loans segment now includes Pay Day Advance, KwikLoan and the new Personal Loan. Other Services includes Third Party Cheque Cashing, Foreign Exchange, Buyback, Western Union and Other income. The earlier periods reported below been restated.
The principal activities by segment are as follows:
Pawnbroking:
Pawnbroking is a loan secured against a collateral (the pledge). In the case of the Group over 99% of the collateral against which amounts are lent comprises precious metals (predominantly gold), diamonds and watches. The pawnbroking contract is a six month credit agreement bearing a monthly interest rate of between 2% and 9.99%. The contract is governed by the terms of the Consumer Credit Act 2008 (previously the Consumer Credit Act 2002). If the customer does not redeem the goods by repaying the secured loan before the end of the contract, the Group is required to dispose of the goods either through public auctions if the value of the pledge is over GBP75 (disposal proceeds being reported in this segment) or, if the value of the pledge is GBP75 or under, through public auctions or the Retail or Pawnbroking Scrap activities of the Group.
Notes to the preliminary announcement
Year ended 31 December 2014
2. Business and geographical statements (continued)
Gold Purchasing:
Jewellery is bought direct from customers through all of the Group's stores. The transaction is simple with the store or unit agreeing a price with the customer and purchasing the goods for cash on the spot. Gold Purchasing revenues comprise proceeds from scrap sales on goods sourced from the Group's purchasing operations.
Retail:
The Group's retail proposition is primarily gold and jewellery and the majority of the retail sales are forfeited items from the pawnbroking pledge book or refurbished items from the Group's gold purchasing operations. The retail offering is complemented with a small amount of new or second hand jewellery purchased from third parties by the Group.
Pawnbroking Scrap:
Pawnbroking Scrap comprises all other proceeds from gold scrap sales other than those reported within Gold Purchasing. The items are either damaged beyond repair, are slow moving or surplus to the Group's requirements, and are smelted and sold at the current gold spot price less a small commission.
Personal Loans:
Personal Loans comprises Pay Day Advance, KwikLoan and the new Personal Loan. Interest receivable on unsecured loans is recognised in turnover on an accruals basis less provision for loans not expected to be repaid. Personal Loans are subject to bad debt risk which is reflected in the interest rate applied.
Other Services:
This segment comprises:
-- Third Party Cheque Encashment which is the provision of cash in exchange for a cheque payable to our customer for a commission fee based on the face value of the cheque.
-- Buyback which is a service where items are purchased from customers, typically high end electronics, and may be bought back up to 31 days later for a fee.
-- The Foreign Exchange currency service where the Group earns a commission when selling or buying foreign currencies.
-- Western Union commission earned on the Group's money transfer service.
-- The Prepaid debit card product where the Group earns a commission when selling the card or when the customer is topping up their card.
Cheque Cashing is subject to bad debt risk which is reflected in the commissions and fees applied.
Further details on each activity are included in the Chief Executive's Review.
Notes to the preliminary announcement
Year ended 31 December 2014
2. Business and geographical statements (continued)
Segment information about these businesses is presented below:
2014 Consolidated
Revenue Gold Pawnbroking Personal Other Year ended
Pawnbroking Purchasing Retail Scrap Loans Services 2014
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
External
sales 28,393 13,325 30,894 10,620 1,780 2,684 87,696
Total revenue 28,393 13,325 30,894 10,620 1,780 2,684 87,696
Segment
result
- gross
profit 28,393 2,387 10,677 (244) 1,780 2,684 45,677
Other direct expenses (31,627)
Administrative expenses (7,833)
Operating profit 6,217
Investment revenues 1
Finance costs (708)
--------------
Profit before taxation 5,510
Tax charge on profit (1,255)
--------------
Profit for the financial year
and total comprehensive income 4,255
==============
2013 Gold Pawnbroking Personal Other Consolidated
Revenue Pawnbroking Purchasing Retail Scrap Loans Services Year ended
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
External
sales 28,672 24,487 24,928 16,478 2,929 1,781 99,275
Total revenue 28,672 24,487 24,928 16,478 2,929 1,781 99,275
Segment
result
- gross
profit 28,672 4,784 9,922 1,830 2,929 1,781 49,918
Other direct expenses (32,912)
Administrative expenses (9,432)
Operating profit 7,574
Investment revenues 1
Finance costs (842)
--------------
Profit before taxation 6,733
Tax charge on profit (1,882)
--------------
Profit for the financial year
and total comprehensive income 4,851
==============
Gross profit is stated after charging bad debt expenses and the direct costs of stock items sold or scrapped in the period. Other operating expenses of the stores are included in other direct expenses. The Group is unable to meaningfully allocate the other direct expenses of operating the stores between segments as the activities are conducted from the same stores, utilising the same assets and staff. The Group is also unable to meaningfully allocate Group administrative expenses, or financing costs or income between the segments. Accordingly, the Group is unable to meaningfully disclose an allocation of items included in the Consolidated Statement of Comprehensive Income below Gross profit, which represents the reported segment results.
The Group does not apply any inter-segment charges when items are transferred between the pawnbroking activity and the retail or scrap activities.
Notes to the preliminary announcement
Year ended 31 December 2014
2. Business and geographical statements (continued)
2014 Unallocated
Gold Pawn-broking Personal Other assets/
Pawn-broking Purchasing Retail Scrap Loans Services (liabilities) Consolidated
2014 2014 2014 2014 2014 2014 2014 2014
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Other information
Capital
additions
(*) 1,008 1,008
Depreciation
and
amortisation
(*) 3,569 3,569
Balance sheet
Assets
Segment assets 43,888 473 28,749 278 3,129 - 76,517
Unallocated
corporate
assets 35,323 35,323
Consolidated
total
assets 116,417
Liabilities
Segment
liabilities - - (640) - - (212) (852)
Unallocated
corporate
liabilities (24,702) (24,702)
Consolidated
total
liabilities (25,554)
2013 Other Unallocated
Gold Pawn-broking Personal assets/
Pawn-broking Purchasing Retail Scrap Loans Services (liabilities) Consolidated
2013 2013 2013 2013 2013 2013 2013 2013
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Other information
Capital
additions
(*) 3,229 3,229
Depreciation
and
amortisation
(*) 4,121 4,121
Balance sheet
Assets
Segment assets 49,824 1,900 26,582 1,266 2,019 - 81,591
Unallocated
corporate
assets 35,364 35,364
Consolidated
total
assets 124,305
Liabilities
Segment
liabilities - - (478) - - (86) (564)
Unallocated
corporate
liabilities (35,613) (35,613)
Consolidated
total
liabilities (36,177)
(*) The Group cannot meaningfully allocate this information by segment due to the fact that all the segments operate from the same stores and the assets in use are common to all segments.
Notes to the preliminary announcement
Year ended 31 December 2014
2. Business and geographical statements (continued)
Geographical segments
The Group's operations are located entirely in the United Kingdom and all sales are within the United Kingdom. Accordingly, no further geographical segments analysis is presented.
3. Finance costs
2014 2013
GBP'000 GBP'000
Interest on bank loans 554 700
Other interest 1 2
Amortisation of debt
issue costs 153 140
Total interest expense 708 842
Notes to the preliminary announcement
Year ended 31 December 2014
4. Tax charge on profit
a) Tax on profit on ordinary activities
Current tax 2014 2013
GBP'000 GBP'000
United Kingdom corporation tax charge
at 21.5% (2013 - 23.25%) based on
the profit for the year 1,070 2,055
Adjustments in respect of prior
years (12) (172)
Total current tax 1,058 1,883
Deferred tax
Timing differences, origination
and reversal 88 (143)
Effects of change in tax rate 83 69
Adjustments in respect of prior
years 26 73
Total deferred tax 197 (1)
Tax charge on profit 1,255 1,882
b) Factors affecting the tax charge for the year
The tax assessed for the year is higher than that resulting from applying a blended standard rate of corporation tax in the UK of 21.5% (2013 - 23.25%). The differences are explained below:
2014 2013
GBP'000 GBP'000
Profit before taxation 5,510 6,733
Tax charge on profit at standard
rate 1,185 1,565
Effects of:
Disallowed expenses and non-taxable
income (63) 125
Non-qualifying depreciation 100 89
Effect of change in tax rate 26 69
Movement in short term timing
differences (64) 133
Adjustments to tax charge in respect
of previous periods 71 (99)
Total actual amount of tax charge 1,255 1,882
In addition to the amount charged to the income statement and in accordance with IAS 12, the excess of current and deferred tax over and above the relative related cumulative remuneration expense under IFRS 2 has been recognised directly in equity. This amounted to a charge to equity in the current period of GBPnil (2013: GBPnil).
Notes to the preliminary announcement
Year ended 31 December 2014
5. Earnings Per Share
Basic earnings per share is calculated by dividing the profit for the year attributable to equity shareholders by the weighted average number of ordinary shares in issue during the year.
For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. With respect to the Group these represent share options and conditional shares granted to employees where the exercise price is less than the average market price of the Company's ordinary shares during the year.
Reconciliations of the earnings per ordinary share and weighted average number of shares used in the calculations are set out below:
Year ended 31 Year ended 31
December 2014 December 2013
Weighted Weighted
average Per-share average Per-share
Earnings number amount Earnings number amount
GBP'000 of shares pence GBP'000 of shares pence
Earnings per share
basic 4,255 36,124,298 11.78 4,851 36,085,485 13.44
Effect of dilutive
securities
Options and conditional
shares - - - - 125,272 (0.04)
Earnings per share
diluted 4,255 36,124,298 11.78 4,851 36,210,757 13.40
Notes to the preliminary announcement
Year ended 31 December 2014
6. Notes to the Cash Flow Statement
2014 2013
GBP'000 GBP'000
Profit for the financial year 4,255 4,851
Adjustments for:
Investment revenues (1) (1)
Finance costs 708 842
Movement in provisions 332 640
Tax expense - Consolidated Statement
of Comprehensive Income 1,255 1,882
Depreciation of property, plant and
equipment 3,087 3,185
Amortisation of intangible assets 383 419
Impairment 99 517
Share-based payment expense 246 238
Loss on disposal of fixed assets 181 187
Operating cash flows before movements
in working capital 10,545 12,760
Decrease / (increase) in inventories 405 (3,359)
Decrease in receivables 4,941 10,970
Decrease / (increase) in payables 846 (731)
Cash generated from operations 16,737 19,640
Income taxes paid (1,806) (3,009)
Debt restructuring cost - (535)
Interest paid (558) (691)
Net cash generated from operating
activities 14,373 15,405
Cash and cash equivalents (which are presented as a single class of assets on the face of the balance sheet) comprise cash at bank and other short-term highly liquid investments with a maturity of three months or less.
Notes to the preliminary announcement
Year ended 31 December 2014
7. Earnings before Interest, Tax, Depreciation and Amortisation ("EBITDA")
EBITDA
EBITDA is defined as Earnings Before Interest, Taxation, Depreciation and Amortisation. It is calculated by adding back depreciation and amortisation to the operating profit as follows:
2014 2013
GBP'000 GBP'000
Operating profit 6,217 7,574
Depreciation and
amortisation 3,470 3,604
Impairment 129 517
EBITDA 9,816 11,695
The Board considers EBITDA as a key measure of the Group's financial performance.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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