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."
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
FR BCGDXGBGBGUS
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