Earnings Release • Mar 7, 2013
Earnings Release
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RNS Number : 4174Z
H&T Group PLC
07 March 2013
Preliminary results
For the year ended 31 December 2012
H&T Group ("H&T" or the "Group"), is pleased to announce its preliminary results for the year ended 31 December 2012.
John Nichols, chief executive of H&T Group, commented:
"The Group's core pawnbroking operations continue to perform strongly and I am pleased to report that the Group has become the UK's first pawnbroker to secure a pledge book of more than £50m, while maintaining the underlying yield year on year. At a time when the availability of standard forms of credit is diminishing, the Group continues to expand its presence, offering immediate access to cash and credit from convenient high street locations. The Group opened a net 26 stores in 2012, and has opened a further six in 2013 taking our total number of stores to 192 today.
"In line with market expectations, year-on-year profit before tax has fallen due to competitive pressure on gold purchasing margins and the costs associated with our store expansion programme. The Board has always expressed its view that the high level of profits from gold purchasing has been a short term opportunity rather than a core earnings stream.
"With earnings cover of 3.0x and a strong balance sheet position, following a reduction in net debt to £27.6m, a final dividend of 8.05 pence is proposed. This will take the full year dividend to 11.85 pence - a 10.2% increase on prior year. The Group's annual dividend has grown on average 18.8% per year since 2007."
Financial highlights
| £m unless stated | 2012 | 2011 | Change % |
| Gross profit | 62.3 | 65.4 | (4.8%) |
| Profit before tax | 17.0 | 23.5 | (27.7%) |
| Diluted EPS | 33.9p | 48.4p | (29.9%) |
| Net debt | 27.6 | 29.3 | (5.7%) |
| Proposed full year dividend | 11.85p | 10.75p | +10.2% |
Key Performance Indicators
| 2012 | 2011 | Change % | |
| Gross pledge book | £51.6m | £46.6m | +10.7% |
| Redemption rate | 76.6% | 76.4% | +0.3% |
| Retail sales | £20.1m | £20.0m | +1.0% |
| Retail margin | 49.0% | 49.2% | (0.3%) |
| Purchase margin | 23.3% | 31.4% | (26.0%) |
| Number of pawnbroking outlets | 186 | 160 | +16.3% |
Preliminary results
For the year ended 31 December 2012
Enquiries:
| H&T Group plc | Tel: 0870 9022 600 |
| John Nichols, Chief Executive | |
| Alex Maby, Finance Director | |
| Canaccord Genuity Hawkpoint Limited (Nominated adviser) | Tel: 020 7665 4500 |
| Lawrence Guthrie / Sunil Duggal | |
| Numis Securities (Broker) | Tel: 020 7260 1000 |
| Mark Lander | |
| Pelham Bell Pottinger (Public relations) | Tel: 020 7861 3139 |
| Damian Beeley |
Chairman's Statement
I am pleased to announce that with continued growth in its core pawnbroking operations, the Group has become the first UK pawnbroker to grow its pledge book in excess of £50m. The Group made over £100m of pawnbroking loans during 2012 and further invested in the store estate, with an additional 26 pawnbroking stores added in the year. This takes the Group estate to 186 pawnbroking outlets and 24 GoldBar retail mall units as at the year-end.
Economic and Market Background
The UK consumer credit market is one of the largest in Europe. It is estimated that in October 2012, total outstanding debt was £156bn, the vast majority of which is derived from mainstream credit sources such as credit cards, overdrafts and personal loans. Following the financial crisis, the availability of consumer credit has however substantially reduced - estimated to have fallen by 33% as a proportion of GDP in real terms.
Consequently, an estimated 10 million people in the UK now have no access to traditional credit sources and the non-mainstream market - including pawnbroking, payday loans and home credit - is the fastest growing within the consumer credit sector. Tightening credit availability, several years of low earnings inflation and pressure on disposable incomes has further increased consumer demand for credit to assist in managing short term cash flows and in meeting day to day living expenses.
Leading non-mainstream credit providers have reacted in recent years by increasing their presence whether by expanding high street outlets or by increased marketing spend for online distribution. The pawnbroking industry has been no exception, and is becoming an increasingly well recognised and attractive proposition both to the growing unbanked market and other customers we serve.
Strategy
Our Group aims to meet this demand by offering immediate access to cash from convenient high street locations, as well as an on-line offering. We strive to be the UK's pawnbroker of choice, facilitating customers' financial needs by offering loans secured against high quality jewellery and watches. By building close relationships and lending responsibly we aim to facilitate high redemption rates and high levels of repeat business.
The retail of quality jewellery attracts customers, informs them of the collateral we seek for pawnbroking and generates good margins on the disposition of forfeited items. The Board believes that these core business streams, together with small ticket unsecured lending and the purchasing of gold at a retail level, provide a resilient business model through the economic cycle.
Financial Performance
The Group delivered £17.0m of profit before tax in 2012, down from £23.5m in 2011. A fall in gold purchasing profits accounted for the majority of this decline, together with the increased cost base associated with the store expansion programme. The Board has always expressed its view that the high level of profits from gold purchasing has been a short term opportunity rather than a core earnings stream.
Most importantly I am pleased to report continuing growth in the Group's pledge book. With a significant contribution from new store openings and aided by the Group's decision to attract larger loans by stratifying its interest rates charged, the year-end pledge book has grown to £51.6m (2011: £46.6m). This gave rise to a 6.3% increase in the Group's core earnings stream, the Pawn Service Charge.
A further 22 pawnbroking sites were opened in the year, together with £2.3m spent on 6 acquisitions. The Group also exercised break clauses on two stores. The Group's financial position remains strong with net debt of £27.6m as at 31 December 2012. In January 2013 the Group completed a refinancing on improved terms of its debt facilities, and has secured a new four year £50m facility with Lloyds TSB Bank plc.
Basic earnings per share are 35.92 pence (2011: 51.12 pence).
Final Dividend
Subject to shareholder approval, a final gross dividend of 8.05 pence per ordinary share (2011: 7.00 pence) will be paid on 7 June 2013 to shareholders on the register at the close of business on 10 May 2013. The shares will be marked ex-dividend on 8 May 2013. This will bring the full year dividend to 11.85 pence per ordinary share. This represents an increase of 10.2% over the 2011 total dividend of 10.75 pence.
The growth in dividend reflects the Group's strong balance sheet position at the year-end and current earnings cover available.
Prospects
Reflected in the changing make-up of the UK's high streets, alternative credit providers have dramatically increased their footprints in recent years. This increased competition, lower returns from gold purchasing and a degree of cross over of business models is likely to slow the rate of expansion and in the Board's view drive medium term consolidation in the industry. In addition, there may be regulatory changes that adversely impact on the operations of those Payday Loan providers who do not follow best practice. Given that the demand for alternative credit is unlikely to decline in the medium term, we believe that this presents a significant opportunity for the Group to expand its asset base at attractive margins.
Our Group will continue to expand its footprint albeit at a slower rate than in the last few years. Focus is expected to be biased toward exploiting new opportunities and in-filling in key markets, thus gaining operational efficiencies. The Group also expects to use the strength of its balance sheet to make acquisitions. To date in 2013, the Group has converted three GoldBar units into pawnbroking stores and acquired three pawnbroking stores, taking our total estate to 192 stores.
The Group's recent new store openings continue to grow their pledge books in line with the Board's initial expectations. The Group has now opened 58 greenfield sites within the last three years and is confident of a significantly increased pawnbroking contribution from these stores over the medium term. For the remainder of the estate, focus in 2013 will be to maintain our customer count in the face of increased high street competition both from other pawnbrokers and with gold purchasing as an additional choice for consumers. With continued strong demand for alternative credit, the Group is investing in the development and expansion of both its secured and unsecured product base with the strategic aim of being able to widen lending criteria.
Key to achieving these aims is the loyalty of our customers; this is achieved through the hard work of our staff, whom I thank on behalf of the Board and shareholders for delivering these results. I would also like to extend my greatest of gratitudes to Andrew Brown, who after nearly 6 years of dedicated service as a non-Executive Director, has now taken retirement. In his place, I warmly welcome James Thornton, who with more than 15 years of experience in the UK financial services industry will be a valuable addition to the Group.
Peter D McNamara
Chairman
Chief Executive's Review
INTRODUCTION
The Group's pawnbroking operations have experienced another solid year of growth in 2012. The Group successfully expanded its estate with the net addition of a further 26 sites and became the first UK pawnbroker to achieve a pledge book of over £50m. Investment in modern store layouts, the delivery of excellent customer service and the introduction of additional product offerings has played a key part in our success in retaining our position as the UK's leading pawnbroker.
As expected, Group pre-tax profits fell year on year, from £23.5m to £17.0m due to reduced gold purchasing profits and the associated cost of our store expansion programme. Typically it takes two to three years for a greenfield pawnbroking site to achieve profitability (at a profit before tax level after full allocation of overheads). In the prior year, the Group also benefited from 'super-normal' profits due to the 24% increase in the gold price. The Group's core pawnbroking operations performed strongly with gross profits from these segments (Pawn Service Charge, Retail and Pawnbroking Scrap) increasing from £42.8m to £45.7m. The Group's pawnbroking operations now contribute 73% of gross profit (2011: 65%).
Expanding into new geographical areas and in-filling around existing stores, the Group opened a further 28 stores during the year. Of these, 6 were acquired, 4 were conversions from GoldBar retail mall units and 18 were greenfield openings. The Group chose to exercise lease break options on two stores during 2012. As at 31 December 2012 the Group had 186 stores, together with 24 GoldBar retail mall units.
The Group's financial position remains strong with net debt of £27.6m and a net debt to EBITDA ratio of 1.3x. The Group successfully refinanced its debt facilities in January 2013, and has secured a £50m four year facility with Lloyds TSB Bank plc.
REVIEW OF OPERATIONS
Pawn Service Charge
The Group ended the year with a pledge balance of £51.6m (2011: £46.6m). This drove a 6.3% increase in the Group's largest income stream, the Pawn Service Charge, to £28.4m (2011: £26.7m). Excluding auction profits, which can be more variable year on year, reveals stronger underlying growth in interest collections of 9.8%.
Key drivers to the increased pledge book have been the growth from sites added in 2011 and 2012, as well as the introduction of new stratified interest rates, ensuring the Group is more competitive for larger loans. The Group's like-for-like pledge book has remained flat, with a fall in customer numbers being offset by an increased average loan. While the Group enjoys repeat business levels of over 80%, the remaining 20% of new customers now have a far wider choice on the high street than in previous years and therefore the Group's key focus in 2013 will be to drive new customer numbers.
The challenge is to drive pawnbroking customer numbers in the face of increased competition from other high street operators as well as the continued availability of gold purchasing as an alternative choice for the consumer. Key initiatives followed in 2012 included:
- New marketing campaigns, including the Group's first TV advertising campaign on prime channels
- Introduction of Western Union as a well recognised service attracting a wider customer base
- Further evolving our store layouts with the introduction of privacy booths and improvements made to the retail window
- Involvement in local community projects and charity work
- Further development and training of our staff to widen and improve product knowledge in both gemset jewellery and high-end watches
Indeed, our investment into staff, stores and community projects have been recognised externally, with the Group being accredited with the Investors in People Gold Award in July 2012. The National Pawnbroker's Association also recognised our Group with both the 'Employer of the Year' and 'Community Contribution' awards.
The Group continues to monitor its lending policy on a regular basis, with consideration of the impact on affordability (and therefore redemption rate), and its loan to value in relation to the current gold price. The Board is comfortable that the Group continues to maintain adequate headroom between lending rates and the current gold price, with the average loan to value ratio during 2012 being 61% (2011: 56%). The Group's redemption rate has remained constant year on year at 76%.
Retail Jewellery Sales
The jewellery retail environment remains difficult, mainly due to the rising price of gold having impacted customer affordability. Necessitated by the rising spot price, the Group's average retail pricing of 9 carat gold has risen by 13% year on year, thus impacting demand. The Group's retail offering remains among the most competitively priced on the high street.
Total retail sales for the year were £20.1m, against prior year of £20.0m, with like-for-like sales down 14% year on year. The Group began a complete overhaul of store stock in H2 2012 with the aim of improving retail performance and reducing stock turn. This project, together with an increased focus on premium branded watches and gemset products is expected to benefit retail performance in 2013. Gross profit from retail was £9.9m (2011: £9.8m) with a flat margin year on year.
Pawnbroking Scrap
The Group has a natural hedge to offset any potential fall in jewellery sales as its alternative disposition method is to scrap the gold at the then current gold price.
Scrapping items forfeited from the Group's pawnbroking operations generated profits of £7.4m in 2012 (2011: £6.3m). The year on year increase is due to a higher average gold price year on year (£1,053 per troy ounce vs £982), the Group's increased lending and the lower retail volumes together with the scrapping of slower moving retail stock.
The scrap margin fell slightly year on year from 33% to 30% as the impact of the increased lending rates offset the increased gold price.
Gold Purchasing
During 2010 and 2011, the Group benefited from both its first mover advantage into the high street market for gold purchasing and from the rising gold price environment. Both of these factors created an element of 'super-normal' profits.
In line with expectations of lower gold purchasing volumes year on year and a relatively stable gold price in 2012, Group gold purchasing profits fell to £12.0m (2011: £17.2m). The Group estimates that the weight of gold purchased on a like-for-like basis has fallen by 9% from the beginning of 2012, with the majority of this decline occurring in H1. Excluding December, which historically shows low gold purchasing, volumes purchased over the last six months have been relatively stable - again on a like-for-like basis. We believe that, as well as remaining competitive on pricing, the Group's longevity in this market is helping to build brand recognition and trust among our customers.
In line with gold purchasing volumes, and demonstrating the flexibility with which the operation was set-up, the Group has downsized its GoldBar retail mall units operation. Currently, it remains a profitable and flexible business with 24 units in operation at the year-end (2011: 54).
Cheque Cashing
Cheque cashing income fell from £4.9m to £3.7m due to the reduced number of cheques in circulation. Cheque cashing now contributes 6.0% of gross profit (2011: 7.5%).
The Group's Payday Advance product, contributing two thirds of total cheque cashing profit, has accounted for £1.0m of this decline. The product was designed to operate with the benefit of a cheque guarantee card acting as part of the Group's underwriting criteria, but since the banks have gradually stopped issuing cheque guarantee cards, the Group's Payday Advance loanbook has experienced a steady decline. Countering this decline, the Group has since widened acceptance criteria to those customers with only a debit card, and has accordingly developed its own credit scoring and underwriting criteria. While acknowledging that this market represents a significant opportunity for the Group, the Board is seeking to improve the bad debt metrics and move to a more flexible and customer friendly product before expanding the loanbook.
The OFT recently conducted a compliance review into the payday lending market. The review focused on whether payday lenders are carrying out adequate affordability checks; whether they are inappropriately targeting vulnerable customers; and whether they are rolling over loans so that charges escalate. Our Group continues to set the standards on pricing, with interest rates being considerably lower than the main industry players, and has ensured compliance with best practice guidance.
KwikLoan
The Group's KwikLoan revenues have benefited from some customers without a cheque guarantee card switching from the Payday advance product to our longer term unsecured KwikLoan product. The loan book increased to £1.2m at the year-end (2011: £1.0m).
REGULATION
The Office of Fair Trading (OFT) currently regulates consumer credit in the UK in accordance with the Consumer Credit Act. Credit providers must be licensed and the OFT, working with agencies such as local Trading Standards services, aims to ensure that only those firms fit to hold a licence do so. Key protections provided by the Act include provisions such as advertising not being misleading, affordability checks before issuing loans, and the provision of all relevant information to consumers.
The OFT will cease to exist in 2014. Most of its activities, but not credit regulation, will be transferred to a new Competition and Markets Authority. The government wishes to change the way consumer credit is regulated and to transfer responsibility for it to the Financial Conduct Authority (FCA), one of the successor bodies to the Financial Services Authority (FSA). While no final decisions are expected until mid 2013, the Board does not believe that the current regulatory changes will have a detrimental impact on the Group and continues to monitor the proposals on a regular basis.
BUSINESS STRATEGY AND OUTLOOK
The Group seeks to retain its position as the UK's leading pawnbroker by providing easy access to cash and other related services in a fair, safe and friendly environment that exceeds the expectations of our customers. The Group aims to maintain its high levels of repeat custom with a continued focus on brand recognition, excellent customer service, investment in the existing store estate and maintaining its reputation for fairness and honesty.
The Group has added 58 greenfield sites within the last three years, and with the pledge book build continuing to be in line with expectations, the Board is confident of an increased contribution from these stores over the short and medium term. Our expansion strategy and focus will be revised in 2013 to accommodate the increased competition and reduced returns from gold purchasing. The Group intends to invest less capital and secure more flexibility when testing new markets, use its balance sheet strength to make acquisitions and to continue in-filling in key markets to gain operational efficiencies. To date in 2013, we have opened 6 new stores (3 GoldBar conversions and 3 acquisitions) taking our total estate to 192 stores.
The increased gold price in recent years has allowed the Group to prudently increase lending rates and increase pledge book growth. To maintain growth and market share across the Group's older stores, the Group will launch new services in 2013 as well as diversify the nature of the asset on which we can lend on a secured basis. The Group is also seeking to redefine its Payday Advance product to one that is more flexible to customers' needs in terms of both length and pricing of loan, again to attract customers who do not necessarily have jewellery as an asset to pledge.
Current trading is in line with market expectations for 2013 and while gold purchasing remains relatively stable, the Board is mindful of the sustainability of this activity. The Board believes that current market forecasts represent a reasonable expectation of financial performance for the year ending 31 December 2013.
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
The benefits of a rising gold price and higher gold purchasing volumes in 2011 have provided challenging prior year comparatives for our 2012 results. Profit before tax fell year on year from £23.5m to £17.0m mainly due to a £5.1m year on year decline in gold purchasing profits. This expected reduction in volumes of gold purchased meant that at a headline level, gross profits fell by 4.8%. Excluding gold purchasing, the underlying core operations show a 4.0% rise in gross profits, driven by year on year growth in the key performance indicators of lending, pledge book and redemption.
The Group generated surplus cashflow of £1.7m in 2012 (2011: £0.7m) after £6.3m of capital expenditure invested into expanding the store estate and dividend payments of £3.9m. Our year-end financial position remains strong with net debt of £27.6m (2011: £29.3m) and a net debt to EBITDA ratio of 1.3x. Together with a potentially reduced store expansion programme and less working capital investment in a flat gold price environment, this leaves the Group well placed to finance potential acquisitions, pay down debt or increase the annual dividend. On 31 January 2013, the Group signed a new four year credit agreement for £50m with Lloyds TSB Bank plc, which is available to draw upon subject to leverage ratios.
Another highlight is the proposed final dividend of 8.05p, which takes the full year dividend to 11.85p - a 10.2% increase year on year. It also maintains our track record of dividend growth in every year since the Group's flotation in 2006, despite the capital expenditure required to fund the Group's store expansion programme and the dilutive earnings profile of a new store in its early stages. Earnings per share covers the dividend by 3.0x.
Other key areas of note include:
Other direct and administrative expenses
Other direct and administrative expenses rose from £40.8m in 2011 to £44.2m in 2012. The increase was driven by the full year effect of stores opened in 2011 and the net 26 new stores opened in 2012. The Board estimates that the 2011 and 2012 greenfield store openings reduced profit before tax by £2.0m in 2012.
Finance costs
Interest on bank loans fell during 2012 to £1.5m (2011: £1.7m), as improvement in the Group's financial covenant headroom triggered a lower margin payable, and due to the Group's interest rate swap expiring on 31 August 2012. This swap agreement had hedged the one month LIBOR element of the Group's interest cost on a notional value of £34,000,000 of borrowings to 2.63%.
H&T's interest cover ratio (EBITDA to interest) was 13.7x (2011: 16.0x).
Earnings per share
Basic earnings per share was 35.92 pence (2011: 51.12 pence). Diluted earnings per share for 2012 was 33.94 pence compared with 48.39 pence in 2011.
Capital Expenditure
Cash outflow on capital expenditure during the year on property, plant and equipment was £4.6m (2011: £4.5m) of which the majority related to the 22 greenfield sites opened during the year. In addition, the Group spent £2.3m (2011: £0.4m) on six acquisitions, of which £1.4m related to intangible assets and goodwill.
Return on Capital Employed (ROCE)
ROCE, defined as profit before tax, interest receivable, finance costs and movement in fair value of interest rate swap as a proportion of net current assets (excluding borrowings) and tangible and intangible fixed assets (excluding goodwill), decreased from 26.2% in 2011 to 17.6% in 2012. This decrease reflects the reduced profitability from the Group's gold purchasing operations and the early year dilutive effect of new store openings.
Alex Maby
Finance Director
Consolidated statement of comprehensive income
Year ended 31 December 2012
| Note | 2012 £'000 |
2011 £'000 |
||
| Revenue | 2 | 129,696 | 125,516 | |
| Cost of sales | (67,413) | (60,082) | ||
| Gross profit | 2 | 62,283 | 65,434 | |
| Other direct expenses | (33,435) | (30,944) | ||
| Administrative expenses | (10,763) | (9,870) | ||
| Operating profit | 18,085 | 24,620 | ||
| Investment revenues | 2 | 1 | ||
| Finance costs | 3 | (1,532) | (1,708) | |
| Movement in fair value of interest rate swaps | 418 | 553 | ||
| Profit before taxation | 16,973 | 23,466 | ||
| Tax charge on profit | 4 | (4,077) | (5,332) | |
| Profit for the financial year and total comprehensive income | 12,896 | 18,134 | ||
| 2012 Pence |
2011 Pence |
|||
| Earnings per share | ||||
| From continuing operations | ||||
| Basic | 5 | 35.92 | 51.12 | |
| Diluted | 5 | 33.94 | 48.39 | |
All results derive from continuing operations.
Consolidated statement of changes in equity
Year ended 31 December 2012
| Share capital £'000 | Share premium account £'000 |
Employee Benefit Trust shares reserve £'000 |
Retained earnings £'000 |
Total £'000 |
||||
| At 1 January 2011 | 1,782 | 24,556 | (13) | 35,356 | 61,681 | |||
| Profit for the financial year | - | - | - | 18,134 | 18,134 | |||
| Total income for the financial year | - | - | - | 18,134 | 18,134 | |||
| Issue of share capital | 23 | 405 | - | - | 428 | |||
| Share option credit taken directly to equity | - | - | - | 316 | 316 | |||
| Deferred tax on share options taken directly to equity |
- | - | - | 204 | 204 | |||
| Dividends paid | - | - | - | (3,468) | (3,468) | |||
| Employee benefit trust shares | - | - | (12) | - | (12) | |||
| At 1 January 2012 | 1,805 | 24,961 | (25) | 50,542 | 77,283 | |||
| Profit for the financial year | - | - | - | 12,896 | 12,896 | |||
| Total income for the financial year | - | - | - | 12,896 | 12,896 | |||
| Issue of share capital | 25 | 436 | - | - | 461 | |||
| Share option credit taken directly to equity | - | - | - | 416 | 416 | |||
| Deferred tax on share options taken directly to equity |
- | - | - | (350) | (350) | |||
| Dividends paid | - | - | - | (3,941) | (3,941) | |||
| Employee benefit trust shares | - | - | - | - | - | |||
| At 31 December 2012 | 1,830 | 25,397 | (25) | 59,563 | 86,765 | |||
Consolidated balance sheet
At 31 December 2012
| 31 December 2012 £'000 |
31 December 2011 £'000 |
|||
| Non-current assets | ||||
| Goodwill | 17,681 | 16,873 | ||
| Other intangible assets | 1,181 | 847 | ||
| Property, plant and equipment | 13,679 | 13,070 | ||
| Deferred tax assets | 723 | 1,137 | ||
| 33,264 | 31,927 | |||
| Current assets | ||||
| Inventories | 26,233 | 29,439 | ||
| Trade and other receivables | 64,023 | 58,539 | ||
| Cash and cash equivalents | 6,371 | 4,695 | ||
| 96,627 | 92,673 | |||
| Total assets | 129,891 | 124,600 | ||
| Current liabilities | ||||
| Borrowings | (34,000) | - | ||
| Trade and other payables | (6,426) | (8,714) | ||
| Current tax liabilities | (2,182) | (3,631) | ||
| Derivative financial instruments | - | (418) | ||
| (42,608) | (12,763) | |||
| Net current assets | 54,019 | 79,910 | ||
| Non-current liabilities | ||||
| Borrowings | - | (34,000) | ||
| Provisions | (518) | (554) | ||
| (518) | (34,554) | |||
| Total liabilities | (43,126) | (47,317) | ||
| Net assets | 86,765 | 77,283 | ||
| Equity | ||||
| Share capital | 1,830 | 1,805 | ||
| Share premium account | 25,397 | 24,961 | ||
| Employee Benefit Trust shares reserve | (25) | (25) | ||
| Retained earnings | 59,563 | 50,542 | ||
| Total equity | 86,765 | 77,283 | ||
Consolidated cash flow statement
Year ended 31 December 2012
| Note | 2012 £'000 |
2011 £'000 |
||
| Net cash generated from operating activities | 6 | 11,440 | 5,574 | |
| Investing activities | ||||
| Interest received | 2 | 1 | ||
| Proceeds on disposal of property, plant and equipment | 600 | - | ||
| Purchases of property, plant and equipment | (4,547) | (4,502) | ||
| Purchases of intangible assets | (2) | (2) | ||
| Acquisition of trade and assets of businesses | (2,337) | (353) | ||
| Net cash used in investing activities | (6,284) | (4,856) | ||
| Financing activities | ||||
| Dividends paid | (3,941) | (3,468) | ||
| Net increase of borrowings | - | 3,000 | ||
| Proceeds on issue of shares | 461 | 428 | ||
| Loan to the Employee Benefit Trust for acquisition of own shares | - | (12) | ||
| Net cash absorbed by financing activities | (3,480) | (52) | ||
| Net increase in cash and cash equivalents | 1,676 | 666 | ||
| Cash and cash equivalents at beginning of the year | 4,695 | 4,029 | ||
| Cash and cash equivalents at end of the year | 6,371 | 4,695 | ||
Notes to the preliminary announcement
Year ended 31 December 2012
1. Finance information and basis of preparation
The financial information has been abridged from the audited financial statements for the year ended 31 December 2012.
The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2012 or 2011, but is derived from those accounts. Statutory accounts for 2011 have been delivered to the Registrar of Companies and those for 2012 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.
2. Business and geographical statements
Business segments
For reporting purposes, the Group is currently organised into six segments - Pawnbroking, Gold purchasing, Retail, Pawnbroking scrap, Cheque cashing and Other financial services. 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 average interest rate of between 3% and 8%. 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 £75 (disposal proceeds being reported in this segment) or, if the value of the pledge is £75 or under, through public auctions or the Retail or Scrap activities of the Group.
Gold Purchasing:
Gold is bought direct from customers through all of the Group's stores and more recently through 24 Gold Bar units located in shopping centres throughout England and Wales. The transaction is straight forward 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 Jewellery Sales:
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 purchased second-hand jewellery. The retail offering is complemented with a small amount of new jewellery purchased from third parties by the Group.
Notes to the preliminary announcement
Year ended 31 December 2012
2. Business and geographical statements (continued)
Pawnbroking scrap:
Pawnbroking Scrap comprises all other proceeds from gold scrap sales other than those reported within Gold Purchasing. Items that are damaged beyond repair, are slow moving or surplus may be smelted and sold at the current gold spot price.
Cheque cashing:
This segment comprises two products:
· 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.
· Pay Day Advance is a short term cash loan repayable within 30 days, offered both in stores and on-line. Customers can secure a loan of up to £650 either by writing a cheque to the value of the loan plus a 15% charge, or by giving their debit card details and agreeing a date for repayment of loan and associated interest.
Both products are subject to bad debt risk which is reflected in the commissions and fees applied.
Other financial services:
This segment comprises:
· KwikLoan product which is an unsecured loan repayable over 12 months of up to £750. The Group earns approximately £300 gross interest on a £500 loan over 12 months.
· The Prepaid debit card product where the Group earns a commission when selling the card or when the customer is topping up their card.
· The foreign exchange currency (Euro and US Dollar) service where the Group earns a commission when selling or buying foreign currencies. This service is currently offered in a limited number of stores only.
· Western Union commission earned on the Group's money transfer service offering.
Only the KwikLoan product is subject to bad debt risk which is reflected in the interest rate offered.
Further details on each activity are included in the Chief Executive's Review.
Notes to the preliminary announcement
Year ended 31 December 2012
Segment information about these businesses is presented below:
| 2012 | Pawn- broking 2012 £'000 |
Gold Purchasing 2012 £'000 |
Retail 2012 £'000 |
Pawn-broking Scrap 2012 £'000 |
Cheque cashing 2012 £'000 |
Other Financial services 2012 £'000 |
Consolidated Year ended 2012 £'000 |
| Revenue | |||||||
| External sales | 28,415 | 51,774 | 20,149 | 24,795 | 3,746 | 817 | 129,696 |
| Total revenue | 28,415 | 51,774 | 20,149 | 24,795 | 3,746 | 817 | 129,696 |
| Segment result - gross profit | 28,415 | 12,045 | 9,881 | 7,379 | 3,746 | 817 | 62,283 |
| 2011 | Pawn- broking 2011 £'000 |
Gold Purchasing 2011 £'000 |
Retail 2011 £'000 |
Pawn-broking Scrap 2011 £'000 |
Cheque cashing 2011 £'000 |
Other Financial services 2011 £'000 |
Consolidated Year ended 2011 £'000 |
| Revenue | |||||||
| External sales | 26,727 | 54,563 | 19,953 | 18,835 | 4,907 | 531 | 125,516 |
| Total revenue | 26,727 | 54,563 | 19,953 | 18,835 | 4,907 | 531 | 125,516 |
| Segment result - gross profit | 26,727 | 17,151 | 9,815 | 6,303 | 4,907 | 531 | 65,434 |
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 income statement 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 2012
| 2012 | Pawn-broking 2012 £'000 |
Gold Purchasing 2012 £'000 |
Retail 2012 £'000 |
Pawn-broking Scrap 2012 £'000 |
Cheque cashing 2012 £'000 |
Other Financial services 2012 £'000 |
Unallocated assets/ (liabilities) 2012 £'000 |
Consolidated 2012 £'000 |
|
| Other information | |||||||||
| Capital additions (*) | - | - | - | - | - | - | 5,654 | 5,654 | |
| Depreciation and amortisation (*) | - | - | - | - | - | - | 3,218 | 3,218 | |
| Balance sheet | |||||||||
| Assets | |||||||||
| Segment assets | 58,272 | 1,472 | 23,779 | 981 | 1,168 | 1,229 | 86,901 | ||
| Unallocated corporate assets | 43,493 | 43,493 | |||||||
| Consolidated total assets | 130,394 | ||||||||
| Liabilities | |||||||||
| Segment liabilities | - | - | (459) | - | (50) | (29) | (538) | (538) | |
| Unallocated corporate liabilities | (42,765) | (42,765) | |||||||
| Consolidated total liabilities | (43,303) | ||||||||
| 2011 | Pawn-broking 2011 £'000 |
Gold Purchasing 2011 £'000 |
Retail 2011 £'000 |
Pawn-broking Scrap 2011 £'000 |
Cheque cashing 2011 £'000 |
Other Financial services 2011 £'000 |
Unallocated assets/ (liabilities) 2011 £'000 |
Consolidated 2011 £'000 |
|
| Other information | |||||||||
| Capital additions (*) | - | - | - | - | - | - | 5,124 | 5,124 | |
| Depreciation and amortisation (*) | - | - | - | - | - | - | 2,770 | 2,770 | |
| Balance sheet | |||||||||
| Assets | |||||||||
| Segment assets | 52,865 | 2,506 | 26,306 | 627 | 2,280 | 1,026 | 85,610 | ||
| Unallocated corporate assets | 38,990 | 38,990 | |||||||
| Consolidated total assets | 124,600 | ||||||||
| Liabilities | |||||||||
| Segment liabilities | - | - | (595) | - | (23) | (22) | (640) | ||
| Unallocated corporate liabilities | (46,677) | (46,677) | |||||||
| Consolidated total liabilities | (47,317) | ||||||||
(*) 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 2012
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
| 2012 £'000 |
2011 £'000 |
|||
| Interest on bank loans | 1,530 | 1,705 | ||
| Other interest | 2 | 3 | ||
| Total interest expense | 1,532 | 1,708 | ||
Notes to the preliminary announcement
Year ended 31 December 2012
4. Tax charge on profit
a) Tax on profit on ordinary activities
| Current tax | 2012 £'000 |
2011 £'000 |
||
| United Kingdom corporation tax charge at 24.5% (2011 - 26.5%) based on the profit for the year | 4030 | 6,258 | ||
| Adjustments in respect of prior years | (17) | (274) | ||
| Total current tax | 4,013 | 5,984 | ||
| Deferred tax | ||||
| Timing differences, origination and reversal | (31) | (87) | ||
| Effects of change in tax rate | 65 | 62 | ||
| Adjustments in respect of prior years | 30 | (627) | ||
| Total deferred tax | 64 | (652) | ||
| Tax charge on profit | 4,077 | 5,332 | ||
(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 24.5% (2011 - 26.5%). The differences are explained below:
| 2012 £'000 |
2011 £'000 |
|||
| Profit before taxation | 16,973 | 23,466 | ||
| Tax charge on profit at standard rate | 4,159 | 6,218 | ||
| Effects of: | ||||
| Disallowed expenses and non-taxable income | (192) | (151) | ||
| Non-qualifying depreciation | 32 | 104 | ||
| Effect of change in tax rate | 65 | 62 | ||
| Adjustments to tax charge in respect of previous periods | 13 | (901) | ||
| Total actual amount of tax charge | 4,077 | 5,332 | ||
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 £350,000 (2011: credit of £204,000).
Notes to the preliminary announcement
Year ended 31 December 2012
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 December 2012 | Year ended 31 December 2011 | |||||
| Earnings £'000 |
Weighted average number of shares | Per-share amount pence | Earnings £'000 |
Weighted average number of shares | Per-share amount pence | |
| Earnings per share basic | 12,896 | 35,897,434 | 35.92 | 18,134 | 35,475,781 | 51.12 |
| Effect of dilutive securities | ||||||
| Options and conditional shares | - | 2,094,734 | (1.98) | - | 2,001,577 | (2.73) |
| Earnings per share diluted | 12,896 | 37,992,168 | 33.94 | 18,134 | 37,477,358 | 48.39 |
Notes to the preliminary announcement
Year ended 31 December 2012
6. Notes to the cash flow statement
| 2012 £'000 |
2011 £'000 |
||
| Profit for the financial year | 12,896 | 18,134 | |
| Adjustments for: | |||
| Investment revenues | (2) | (1) | |
| Finance costs | 1,532 | 1,708 | |
| Movement in fair value of interest rate swap | (418) | (553) | |
| Movement in provisions | (36) | 68 | |
| Tax expense - Consolidated Statement of Comprehensive Income | 4,077 | 5,332 | |
| Depreciation of property, plant and equipment | 2,952 | 2,557 | |
| Amortisation of intangible assets | 266 | 213 | |
| Share-based payment expense | 416 | 316 | |
| Loss on disposal of fixed assets | 89 | 117 | |
| Operating cash flows before movements in working capital | 21,772 | 27,891 | |
| Decrease / (increase) in inventories | 3,206 | (5,298) | |
| Increase in receivables | (4,628) | (8,226) | |
| Decrease in payables | (1,914) | (349) | |
| Cash generated from operations | 18,436 | 14,018 | |
| Income taxes paid | (5,462) | (6,714) | |
| Interest paid | (1,534) | (1,730) | |
| Net cash generated from operating activities | 11,440 | 5,574 | |
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 2012
7. Earnings before Interest, Tax, Depreciation and Amortisation ("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:
| 2012 £'000 |
2011 £'000 |
|||
| Operating profit | 18,085 | 24,620 | ||
| Depreciation and amortisation | 3,218 | 2,770 | ||
| EBITDA | 21,303 | 27,390 | ||
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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