RNS Number:4181Q
H&T Group PLC
19 March 2008
Preliminary results
For the year ended 31 December 2007
H&T Group ("H&T" or the "Group"), the UK's largest pawnbroker by size of pledge
book, is pleased to announce its preliminary results for the year ended 31
December 2007
Financial highlights
2007 �m 2006 �m Change %
Gross profit 27.7 23.3 +18.6
Earnings before Interest, Tax, Depreciation, Amortisation ("EBITDA") 11.4 9.4 +20.8
before exceptional items
Operating profit before exceptional items 10.0 8.0 +24.1
PBT before exceptional items 7.2 4.7 +52.5
PBT 7.4 2.0 +261.5
Basic EPS excluding exceptional items 14.72p 11.91p +23.6
Basic EPS 15.17p 3.65p +315.6
Proposed final dividend 3.4p 3.0p +13.3
Pledge book 27.9 25.2 +10.4
Operational highlights
* Excellent growth in all revenue lines
* Total number of stores reached 89 at 31 December 2007 (2006: 77)
with 12 new stores opened during the year: seven acquisitions and five
greenfields
* Full roll-out of gold purchasing in store, providing customers
with a quicker, fairly valued cash solution
* Successful placing of 3.6 million shares in May 2007 raising over
�7 million for store expansion
* Recent acquisitions will serve as a springboard for some regional
development of strong pawnbroking markets in Yorkshire and the South coast
John Nichols, Chief Executive of H&T Group commented
"My fellow directors and I are extremely pleased with this set of results where
operating profit before exceptional items reached the �10 million milestone.
Against wider perception, the more difficult economic climate is not
automatically a driver for our pawnbroking business. We have seen strong growth
in turnover and gross profit across all business segments.
The demand for gold asset-backed lending remains strong and the business is
continuing to benefit from the rise in the price of gold through higher margin
on disposition. Our core stores continue to deliver growth while our investment
in new stores and acquisitions offer good profit prospects for the future years.
I have every reason to look to the future with confidence."
Enquiries:
H&T Group plc Tel: 0870 9022 600
John Nichols, Chief Executive
Laurent Genthialon, Finance Director
Hawkpoint (Nominated adviser) Tel: 020 7665 4500
Lawrence Guthrie/Sunil Duggal
Numis Securities (Broker) Tel: 020 7260 1000
Lee Aston/Charles Farquhar
College Hill Tel: 020 7457 2020
Gareth David/Paddy Blewer
Chairman's Statement
I am delighted to report that 2007 has seen excellent growth in all areas of the
business with H&T's 2007 profit before tax and exceptional items reaching �7.2
million.
Financial Performance
The Group has delivered a year of double digit growth in gross profit, EBITDA
(before exceptional items), profit before tax and exceptional items and number
of stores. Gross profit increased by 18.6 per cent. to �27.7 million (2006:
�23.3 million). EBITDA before exceptional items increased by 20.8 per cent. to
�11.4 million (2006: �9.4 million). Operating profit before exceptional items
increased by 24.1 per cent. to �10.0 million (2006: �8.0 million). We also
opened 12 additional stores during 2007, taking the total number of stores at 31
December 2007 to 89.
Secondary placing
On 16 May 2007, H&T completed the placing of 3.6 million new ordinary shares to
existing shareholders, all UK institutions. This provided the Group with �7
million of additional finance for its store expansion programme in which it
invested �3.6 million during the year.
Final Dividend
In accordance with the dividend policy declared at the time of the flotation,
the directors are pleased to recommend a final dividend of 3.4 pence per
ordinary share (2006: 3.0 pence). This dividend will be paid to all shareholders
on the register at the close of business on 16 May 2008.
Outlook
Since the beginning of 2008 our expansion programme has continued and as of
today we have already opened four new stores - two by acquisition and two
greenfields. This takes the total current number of stores to 93. We are
confident in the Group's prospects for 2008. H&T will prosper through a mix of
continued growth in the established estate, development of the 18 greenfield
stores opened over the last three years and profit enhancement from the recent
acquisitions. The current high price of gold should also provide some profit
opportunities in the short term.
The hard work and commitment of staff has been central to achieving 2007's
result and I would like to thank all of them for that.
Peter J Middleton
Chairman
Chief Executive's Review
Introduction
2007 was a record year for H&T on a number of metrics. Our business model has
proved scaleable, with new stores and continued improvements to our existing
businesses driving strong growth.
During 2007, H&T has set a number of new records. Turnover and gross profit of
all business segments increased by double digit figures. Pawnbroking activities,
comprising Pawn Service Charge and Disposition, represented 87 per cent. (2006:
88 per cent.) of total 2007 gross profit and grew 17 per cent. year on year.
Gold asset-backed lending continues to see strong demand both in existing and
new markets. At the same time financial services activities, comprising Cheque
Cashing and Other Financial Services, represented 13 per cent. (2006: 12 per
cent.) of total 2007 gross profit and grew 29 per cent. year on year. The
transition in 2006 of the back office functions of Cheque Cashing and Pay Day
Advance in-house gave us the opportunity to market these products more
effectively during 2007.
H&T remains the UK's leading pawnbroker by size of pledge book and had 89
outlets across the UK at the end of 2007. The estate increased by the record
number of 12 stores (2006: nine) during 2007. Of these, five were greenfield
stores and seven were acquired branches. The acquisitions located in Yorkshire,
Nottinghamshire and the South Coast will give us access to new markets where
pawnbroking has historically been strong. We will be looking at expanding in
those regions through a regional hub system and take full advantage of market
potential.
The continuing growth we derive from our established and greenfield stores
combined with profit-enhancing acquisitions has led to record profits.
Operating profit before exceptional items reached �10.0 million in 2007 (2006:
�8.0 million), a 24.1 per cent. increase on 2006.
Review of Operations
Pawn Service Charge
H&T has been the largest pawnbroker in the UK based on the size of the pledge
book for many years and as at 31 December 2007 had a pledge book of �27.8
million (2006: �25.2 million). As indicated in the "develop and establish new
products and services" section of this review, the growth in the pledge book was
impacted by the full roll out of gold purchasing. The increase in pledge book
combined with an improved yield translated to an 11.9 per cent. increase in Pawn
Service Charge. Maintaining this market leading position remains a priority for
the Group.
Disposition
The sale of forfeited items to the general public ("Retail") is the most
important element of Disposition, generating higher margins when compared with
items that are sold in auction or scrap. Although the general trading
environment on the high street deteriorated during the last quarter of 2007, I
am delighted to report that trading remained good for H&T and we achieved
turnover growth of 18.8 per cent. year on year (11.7 per cent. LFL) while
increasing Retail gross profit margin to 49.4 per cent. (2006: 44.2 per cent.).
This has resulted in gross profit increasing by 32.6 per cent. between 2006 and
2007. This very strong performance is a result of the continued investment in
training, marketing and a wider product range.
In 2007, Scrap gross profit reached �1.5 million (2006: �1.1 million). This �0.4
million increase is as a result of the increase in the price of gold (�0.2
million) and higher Scrap volumes (�0.2 million).
Other Financial Services
Cheque Cashing and Pay Day Advance
In January 2006, H&T brought in-house the back office for underwriting the
in-store Cheque Cashing and Pay Day Advance businesses, enabling the Group to
manage both products internally saving the fees previously paid to a third
party. It has also allowed us to apply our own expertise in managing this
product without the restrictions imposed by a third party.
Our experience in 2007 on Cheque Cashing appears to go against the market trend.
Whilst our competitors reported difficult times and reducing turnover, H&T
turnover grew by 7 per cent. on a like-for-like basis. Although this is
encouraging we acknowledge that this is in the face of a changing market. Pay
Day Advance continues to provide excellent growth. We did however experience a
small increase in the percentage of bad debt which was expected in the context
of a rapidly expanding loan book.
In 2007, gross revenues from Cheque Cashing increased to �2.2 million (2006:
�1.9 million) and Pay Day Advance increased to �2.9 million (2006: �1.8
million).
The revenues net of bad debt from Cheque Cashing and Pay Day Advance increased
to �3.4 million (2006: �2.6 million).
KwikLoan
The KwikLoan product has continued to develop as a medium term alternative for
our Pay Day Advance customers. As in 2006 our focus has been on the development
of Pay Day Advance, with KwikLoan growing alongside it. We believe there is
further opportunity to grow the KwikLoan product through the development of the
loan term, loan value and the customer base.
The KwikLoan loan book increased from �0.4 million to �0.5 million in the 12
months to 31 December 2007. KwikLoan gross profit increased by 45.5 per cent.
during the same period.
Point of sale development
In 2006 we commenced the development of our new point of sale system which will
unify the current store and head office systems which have developed over a
number of years with one, purpose built, application to support all current
business activities.
The use of new technology will result in some improvement in operational
efficiency, but more importantly, will simplify store operations to enable us to
achieve the full potential of the existing product range and implement new
products more easily.
Although the development of our new point of sale system is taking longer than
originally anticipated, the project remains within budget and is expected to be
fully rolled out into all stores by late summer. Since the beginning of the
project we have incurred capital expenditure of �1.3 million and the total cost
including implementation is expected to be in the region of �1.8 million.
Business Overview and Strategy
Our growth strategy is based on two main streams. Each of them is progressing in
line or ahead of the Board's expectations.
1. Expand geographical footprint
The significant fragmentation in the UK pawnbroking market will continue to
provide the Group with acquisition opportunities. In addition, there remains
substantial opportunity for organic growth with a significant number of towns
with an appropriate population size and demographic mix to support a greenfield
store.
H&T's strategy at IPO was to develop 30 units between 2006 and 2008, both
through greenfield stores and acquisitions, using current resources whilst
maintaining cash flow and earnings growth at an appropriate level. During 2007,
we added 12 outlets (2006: nine) to the store portfolio - five greenfield and
seven acquisitions. Two of the acquisitions opened up new regions to us, in
Yorkshire and the South coast, and can now be used as a regional hub to further
develop these key markets. We would expect to grow the store footprint by a
similar number during 2008 and exceed the original 30 unit target.
Initially, new pawnbroking units tend to be loss-making. As a consequence,
expanding the store base can suppress short term earnings growth but provides
significant medium term benefit.
The Group is actively pursuing acquisitions to accelerate the consolidation of
the industry. During the year the Group issued 3.6m shares to raise additional
capital of �7m, of which �3.4m remained at the year end. This new capital and
the headroom available on existing borrowing facilities provide the Group with
the resources to complete a number of further transactions. The H&T Board will
make acquisitions selectively, appraising each opportunity fully before
proceeding with a transaction. Consequently, the timing and nature of these
transactions depends on the availability of appropriate opportunities.
Our greenfield stores are performing well and are on average exceeding our
expectations in terms of pledge book growth. Whilst encouraging, we note that
given the maturity of these stores they will not have a significant impact on
revenues in the immediate term. These stores will nevertheless deliver a
greater contribution to group profitability over the next few years.
2. Develop and establish new products and services
During 2007 we introduced the purchase of gold and jewellery into all of our
stores. This minimises the time required to access the asset for disposition
and also enables simpler communication with the customer. Whilst this has the
effect of reducing the pledge book as customers who would previously pledge now
sell, it allows a more efficient use of capital as those goods are held for only
30 days, rather than up to eight months for a pledge.
The strategy in 2008 is to further develop gold purchasing and to expand the
portfolio of unsecured products, using the Pay Day Advance and KwikLoan models
to their best advantage. All of these products provide customers with a simple
and accessible route to cash, a service that is invaluable, especially in the
current credit climate. We believe that through cautious development we can
expand our customer base, whilst maintaining an acceptable risk profile.
The prepaid card continues to attract new customers to the stores although the
general market awareness has taken longer to develop than anticipated.
Review of the Pawnbroking Market
Competition
The competitive environment has not changed substantially in the last year.
The pawnbroking industry remains very fragmented. Although there are no
official statistics, the National Pawnbrokers Association estimates that there
are around one thousand pawnbroking locations in the UK.
In this environment it is critical to maintain the high levels of customer
service in store and by doing so we will continue to be the first choice for our
customers.
Regulation
There have been no changes to regulation that will have an impact on the
products and services we offer.
Current Trading and Outlook
The increasing awareness of the pawnbroking industry will undoubtedly provide
opportunities in the coming year. I believe that the current portfolio of
pawnbroking and other financial services products will enable H&T to capitalise
on those opportunities.
Against wider perception, the general economic climate is not necessarily a
driver for our business - we do not and have not seen the pawnbroking industry
as cyclical. Our success has been based on the fundamentals of a well run
business, with the focus on the customer and an understanding of the
opportunities to grow within a fragmented market. We remain confident that we
can achieve further success.
Finally I would like to recognise the hard work and commitment of our staff year
after year and give them full credit for our 2007 business achievements. Thank
you all.
John G Nichols
Chief Executive
Finance Director's Review
Due to the materiality of the amount of exceptional items in 2006 and in order
to have meaningful comparatives in 2007, some of the metrics used to report
performance are presented excluding these exceptional items.
International Financial Reporting Standards (IFRS)
In accordance with the AIM's reporting regime, the Group has adopted
International Financial Reporting Standards ("IFRS") for the financial year
ended 31 December 2007 rather than UK Generally Accepted Accounting Practice ("
UK GAAP") as the basis to report its financial results. This transition has lead
to some differences between reported numbers under IFRS and UK GAAP that are
simply a result of the accounting framework change and are not a reflection of a
change in business performance. The Group released on 1 August 2007 a report on
the impact of IFRS (relative to UK GAAP) on H&T's results which is accessible on
the Group's website (www.handtgroup.co.uk).
Turnover and gross profit
Turnover in 2007 grew 19.5 per cent. to �38.4 million compared with �32.1
million in 2006. Total gross profit in 2007 increased by 18.6 per cent. to �27.7
million (2006: �23.3 million) driven by the turnover growth across all business
segments.
Other direct expenses and Administrative expenses
The other direct expenses in 2007 were �12.8 million compared with �10.9 million
in 2006. The 18.0 per cent. increase in other direct expenses was primarily
driven by the development of twelve additional stores and the overall increase
in business volumes. At the same time the Group's administrative expenses before
exceptional items increased by �0.4 million from �4.4 million in 2006 to �4.8
million in 2007.
Operating profit
During 2007, EBITDA before exceptional items increased by 20.8 per cent. to
�11.4 million (2006: �9.4 million). The Group recorded a 24.1 per cent. increase
in operating profit before exceptional items reporting �10.0 million in 2007
compared with �8.0 million in the previous year. Exceptional expenses in 2006 of
�1.9 million were incurred as part of the IPO. After taking account of the
exceptional items, H&T's operating profit was �10.0 million in 2007 compared
with �6.1 million in 2006.
Finance costs and similar charges
Finance costs before exceptional items decreased by �1.2 million from �3.9
million in 2006 to �2.7 million in 2007. This reduction was a result of the
restructuring of bank facilities and loan notes at the time of H&T's admission
to AIM in May 2006 combined with the unspent new money raised in May 2007 which
has temporarily been used to reduce the level of borrowings. The restructuring
in May 2006 incurred an exceptional charge of �0.8 million in the 2006 financial
year (2007: �nil).
Profit before taxation
Profit before taxation and exceptional items increased by �2.5 million from �4.7
million in 2006 to �7.2 million in 2007. The 2007 result was impacted by a �0.2
million (2006: �0.05 million) exceptional profit relating to the disposal of a
freehold property while the 2006 result included a �1.9 million exceptional
administrative expense relating to H&T's admission onto AIM and �0.8 million of
debt restructuring costs. As a result, the Group recorded a profit before
taxation of �7.4 million in 2007 compared with a profit before taxation of �2.0
million in 2006.
Taxation
The 2007 effective corporation tax rate excluding exceptional items was 31 per
cent. (30 per cent. in 2006).
Earnings per share
Basic earnings per share for 2007 were 15.17p compared with 3.65p in 2006.
Diluted earnings per share for 2007 was 15.14p compared with 3.65p in 2006.
After adjusting for exceptional items referred to in the profit before taxation
section, adjusted basic earnings per share increased by 23.6 per cent. from
11.91p in 2006 to 14.72p in 2007.
Dividend
The H&T Board has recommended a final dividend of 3.4 p per share (2006: 3.0 p)
giving a total dividend per share of 5.0 p for 2007 (2006: 3.0 p).
Cash flow and capital expenditure
The Group generated cash of �6.3 million in 2007 from operations (2006: �7.6
million). This result was impacted by the increase in receivables (�3.2 million)
driven by the growth in the pledge book and loan portfolio and in inventories
(�2.1 million) between 2006 and 2007. The Group invested �3.6 million (2006:
�1.0 million) in the acquisition of pawnbroking and cheque cashing businesses
and assets.
Capital expenditure during the year was �1.9 million (2006: �1.6 million). Of
this, �1.5 million related to new stores opened or acquired during the period
and store refurbishments. The Group also spent �0.4 million in store and head
office new hardware for both the existing and future EPOS systems. An investment
of �0.2 million in the new EPOS software was reported in intangible assets.
New money/ debt structure
The Group placed 3.6 million new shares in May 2007 raising �7.0 million net of
expenses.
The Group repaid �1.5 million of facility A debt in 2007. Net debt (before
unamortised debt issue costs) was �32.2 million at 31 December 2007 compared
with �34.7million at 31 December 2006. The Group has in place a hedging
agreement fixing the interest rate on �35.0 million of banking debt for a period
ending 30 June 2009.
Return On Capital Employed (ROCE)
ROCE, defined as profit before tax excluding exceptional items, interest
receivable, finance costs and movement in fair value of interest rate swap as a
proportion of net current assets and tangible and intangible fixed assets
(excluding goodwill), increased from 20.2 per cent. in 2006 to 21.7 per cent. in
2007.
Laurent P Genthialon
Finance Director
This announcement includes 'forward-looking statements'. These statements
contain the words "anticipate", "believe", "intend", "estimate", "expect", and
words of similar meaning. All statements other than statements of historical
facts included in this announcement, including, without limitation, those
regarding the Group's financial position, business strategy, plans and
objectives of management for future operations (including development plans and
objectives relating to the Group's products and services) are forward-looking
statements that are based on current expectations. Such forward-looking
statements involve known and unknown risks, uncertainties and other important
factors that could cause the actual results, performance, achievements or
financial position of the Group to be materially different from future results,
performance, achievements or financial position expressed or implied by such
forward-looking statements. Such forward-looking statements are based on
numerous assumptions regarding the Group's operating performance, present and
future business strategies, and the environment in which the Group will operate
in the future. These forward-looking statements speak only as at the date of
this announcement. Past performance cannot be relied upon as a guide to future
performance.
Consolidated income statement
Year ended 31 December 2007
Note Before Before
exceptional Exceptional 2007 exceptional Exceptional 2006
items Items Total items Items Total
�'000 �'000 �'000 �'000 �'000 �'000
Revenue 2 38,363 - 38,363 32,115 - 32,115
Cost of sales (10,699) - (10,699) (8,787) - (8,787)
Gross profit 2 27,664 - 27,664 23,328 - 23,328
Other direct expenses (12,844) - (12,844) (10,886) - (10,886)
Administrative expenses (4,836) - (4,836) (4,399) (1,903) (6,302)
Operating profit 9,984 - 9,984 8,043 (1,903) 6,140
Investment revenues 35 - 35 27 - 27
Other gains - 201 201 - 46 46
Finance costs 3 (2,706) - (2,706) (3,936) (801) (4,737)
Movement in fair value of (151) - (151) 561 - 561
interest rate swap
Profit before taxation 7,162 201 7,363 4,695 (2,658) 2,037
Tax charge on profit 4 (2,232) (52) (2,284) (1,421) 386 (1,035)
Profit for the financial 4,930 149 5,079 3,274 (2,272) 1,002
year
Note 2007 2006
Pence Pence
Earnings per share
From continuing operations
Basic 5 15.17 3.65
Diluted 5 15.14 3.65
All results derive from continuing operations.
Consolidated income statement
Year ended 31 December 2007
2007 2006
�'000 �'000
Non-current assets
Goodwill 16,415 14,899
Other intangible assets 1,480 804
Property, plant and equipment 6,093 5,396
23,988 21,099
Current assets
Inventories 6,720 4,237
Trade and other receivables 36,105 31,869
Cash and cash equivalents 1,966 2,108
Derivative financial instruments - 133
Assets held for sale - 37
44,791 38,384
Total assets 68,779 59,483
Current liabilities
Trade and other payables (3,322) (3,510)
Current tax liabilities (1,193) (88)
Borrowings (1,766) (1,255)
Derivative financial instruments (18) -
(6,299) (4,853)
Net current assets 38,492 33,531
Non-current liabilities
Borrowings (31,651) (34,617)
Deferred tax liabilities (365) (407)
Provisions (119) -
(32,135) (35,024)
Total liabilities (38,434) (39,877)
Net assets 30,345 19,606
2007 2006
�'000 �'000
Equity
Share capital 1,754 1,574
Share premium account 23,994 17,112
Retained earnings 4,597 920
Total equity 30,345 19,606
Consolidated statement of changes in equity
Year ended 31 December 2007
Share Retained
Share premium (deficit)/
capital account earnings Total
�'000 �'000 �'000 �'000
At 1 January 2006 1,000 - (502) 498
Profit for the financial year - - 1,002 1,002
Total income for the financial year - - 1,002 1,002
Issue of share capital 574 17,790 - 18,364
Share issue costs - (678) - (678)
Share option credit taken directly to - - 19 19
equity
Corporation tax on share options - - 401 401
At 1 January 2007 1,574 17,112 920 19,606
Profit for the financial year - - 5,079 5,079
Total income for the financial year - - 5,079 5,079
Issue of share capital 180 7,164 - 7,344
Share issue costs - (282) - (282)
Share option credit taken directly to - - 105 105
equity
Dividends paid - - (1,507) (1,507)
At 31 December 2007 1,754 23,994 4,597 30,345
Consolidated cash flow statement
Year ended 31 December 2007
Note 2007 2006
�'000 �'000
Net cash from/(used by) operating activities 6 2,647 (254)
Investing activities
Interest received 35 27
Proceeds on disposal of property, plant and equipment 267 118
Purchases of property, plant and equipment (2,155) (1,936)
Purchases of intangible assets (242) (706)
Acquisition of trade and assets of businesses (3,550) (1,013)
Net cash used in investing activities (5,645) (3,510)
Financing activities
Dividends paid (1,507) -
Repayments of borrowings (2,700) (19,500)
Increase in borrowings - 6,251
Net proceeds on issue of shares 7,063 17,687
Net cash from financing activities 2,856 4,438
Net (decrease)/increase in cash and cash equivalents (142) 674
Cash and cash equivalents at beginning of year 2,108 1,434
Cash and cash equivalents at end of year 1,966 2,108
Notes to the preliminary announcement
Year ended 31 December 2007
1. Financial information and basis of preparation
The financial information has been abridged from the audited financial
statements for the year ended 31 December 2007.
The financial information set out in this document does not constitute the
company's statutory accounts for the year ended 31 December 2007, but is derived
from those accounts. Statutory accounts for 2006 have been delivered to the
Registrar of Companies and those for 2007 will be delivered following the
company's annual general meeting. The auditors have reported on those accounts;
their reports were unqualified and did not contain statements under s.237(2) or
(3) Companies Act 1985.
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 later this month.
2. Business and geographical statements
Business segments
For reporting purposes, the Group is currently organised into five segments -
Pawnbroking, Retail, 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 98% of the collaterals against which amounts are lent is
jewellery made of gold and/or diamonds. The pawnbroking contract is a six month
credit agreement bearing a monthly average interest rate of 8%. The contract is
governed by the terms of the Consumer Credit Act 2007 (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 under �75, through public auctions or the Retail or Scrap activities
of the Group.
Retail:
The Group's retail proposition is primarily gold and jewellery and almost all
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.
2. Business and geographical segments (continued)
Scrap:
Items that are damaged beyond repair, are slow moving or surplus may be smelted
and sold at the current gold spot price less a small commission.
Cheque cashing:
This segment comprises two products:
O 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.
O Pay Day Advance which is a simple form of credit where the
advance is repaid by post dated cheques presented by the customer at the point
of the loan. H&T applies a 13% charge per 30 days on the value of the advance.
At the end of the 30 days, the customer has a choice to either extend the
advance for another 30 days, repay the advance or allow the cheques to be
deposited in the Group's bank account.
Both products are subject to bad debt risk which is reflected in the commissions
and fees applied.
Other financial services:
This segment comprises:
O KwikLoan product which is an unsecured loan repayable over
12 months of up to �750. H&T earns approximately �300 gross interest on a �500
loan over 12 months.
O The Prepaid debit card product where H&T earns a commission
when selling the card or when the customer is topping up their card.
Only the KwikLoan product is subject to bad debt risk which is reflected in the
interest rate offered.
Segment information about these businesses is presented below:
Pawnbroking Retail Scrap Cheque Other Consolidated
cashing financial Year
services ended
2007 2007 2007 2007 2007 2007
2007 �'000 �'000 �'000 �'000 �'000 �'000
Revenue
External sales 17,122 11,024 6,602 3,356 259 38,363
Total revenue 17,122 11,024 6,602 3,356 259 38,363
Segment result 17,122 5,443 1,484 3,356 259 27,664
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.
2. Business and geographical segments (continued)
Other Consolidated
Cheque financial Year
Pawnbroking Retail Scrap cashing services ended
2007 2007 2007 2007 2007 2007
�'000 �'000 �'000 �'000 �'000 �'000
Other information
Capital additions (*) - - - - - 1,154
Depreciation and - - - - - 1,368
amortisation (*)
Impairment losses recognised 80 - - 1,637 799 2,516
in income
Balance sheet
Assets
Segment assets 32,283 6,182 537 2,089 531 41,622
Unallocated corporate 27,157
assets
Consolidated total assets 68,779
Liabilities
Segment liabilities - (149) - (58) (95) (302)
Unallocated corporate (38,132)
liabilities
Consolidated total (38,434)
liabilities
(*) See below
2. Business and geographical segments (continued)
Other Consolidated
Cheque Financial Year
Pawnbroking Retail Scrap cashing Services ended
2006 2006 2006 2006 2006 2006
2006 �'000 �'000 �'000 �'000 �'000 �'000
Revenue
External sales 15,299 9,278 4,731 2,629 178 32,115
Total revenue 15,299 9,278 4,731 2,629 178 32,115
Segment result 15,299 4,250 972 2,629 178 23,328
Other Consolidated
Cheque financial Year
Pawnbroking Retail Scrap cashing services ended
2006 2006 2006 2006 2006 2006
Other information �'000 �'000 �'000 �'000 �'000 �'000
Capital additions (*) - - - - - 1,643
Depreciation and - - - - - 1,358
amortisation (*)
Impairment losses recognised 66 - - 901 4 971
in income
Balance sheet
Assets
Segment assets 28,930 4,180 57 1,273 399 34,839
Unallocated corporate 24,644
assets
Consolidated total assets 59,483
Liabilities
Segment liabilities - (143) - (58) (69) (270)
Unallocated corporate (39,607)
liabilities
Consolidated total (39,877)
liabilities
2. Business and geographical segments (continued)
(*) 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.
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
2007 2006
�'000 �'000
Interest on bank overdrafts and loans 2,451 2,684
On other loans - 896
Other interest 11 16
Total interest expense 2,462 3,596
Exceptional items - 801
Amortisation of loan issue costs 244 340
2,706 4,737
The �801,000 exceptional charge in 2006 relates to costs expensed associated
with the arrangement fees of the bank loan restructuring.
The �896,000 interest charge on other loans in 2006 relates to interest payable
on loan notes from the previous controlling party, The Rutland Fund.
4. Tax charge
(a) Tax on profit on ordinary activities
Before Before
Exceptional Exceptional 2007 Exceptional Exceptional 2006
Items Items Total Items Items Total
�'000 �'000 �'000 �'000 �'000 �'000
Current tax
United Kingdom corporation tax
charge/(credit) at 30% (2006 -
30%) based on the profit for the
year 2,329 - 2,329 1,362 (402) 960
Adjustments in respect of prior (2) - (2) (14) (250) (264)
periods
Total current tax 2,327 - 2,327 1,348 (652) 696
Deferred tax
Short term timing differences, (136) 52 (84) 71 16 87
origination and reversal
Effect of change in tax rate (26) - (26) - - -
Adjustments in respect of prior 67 - 67 2 250 252
periods
Total deferred tax (95) 52 (43) 73 266 339
Tax charge on profit 2,232 52 2,284 1,421 (386) 1,035
4. Tax charge (continued)
(b) Factors affecting the tax charge for the year
The tax assessed for the year is higher than that resulting from applying the
standard rate of corporation tax in the UK of 30% (2006 - 30%). The differences
are explained below:
Before Before
Exceptional 2007 Exceptional Exceptional 2006
items items Total items items Total
�'000 �'000 �'000 �'000 �'000 �'000
Profit before taxation 7,162 201 7,363 4,695 -2,658 2,037
Tax charge/(credit) on profit at 2,149 60 2,209 1,409 (797) 612
standard rate
Effects of:
Disallowed expenses and 44 (8) 36 24 395 419
non-taxable income
Change in tax rate (26) - (26) - - -
Adjustments to tax charge in 65 - 65 (12) 16 4
respect of previous periods
Total actual amount of current 2,232 52 2,284 1,421 (386) 1,035
tax charge
From April 2008, the standard rate of corporation tax in the UK will decrease
from 30% to 28%. This new rate has been used to calculate any deferred tax
expected on timing differences that are expected to reverse in a period when the
new rate applies.
In addition to the amount charged to the income statement, �401,000 of tax
relief available to the Group arising on share options exercised in 2006 was
credited directly to accumulated profits in the year ended 31 December 2006.
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 granted to
employees where the exercise price is less than the average market price of the
Company's ordinary shares during the year.
5. Earnings per share (continued)
The directors also present an adjusted earnings per share as the directors
consider that it reflects the Group results on a comparable basis once
non-recurring items are taken into consideration. All the adjustments made to
the non-adjusted earnings per share in arriving at adjusted earnings per share
are for exceptional items disclosed separately on the face of the consolidated
income statement. Other than for the adjusting items, the calculation is the
same as for the statutory per share amounts.
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 2007 Year ended 31 December 2006
Weighted Weighted
average Per-share average Per-share
Earnings number amount Earnings number amount
�'000 of shares pence �'000 of shares pence
Earnings per share basic 5,079 33,487,898 15.17 1,002 27,489,310 3.65
Effect of dilutive securities
Options - 64,573 (0.03) - 388 -
Earnings per share diluted 5,079 33,552,471 15.14 1,002 27,489,698 3.65
Earnings per share - basic 5,079 33,487,898 15.17 1,002 27,489,310 3.65
IPO costs - - - 1,903 - 6.92
Fixed assets disposal (201) - (0.60) (46) - (0.17)
Debt issue costs - - - 801 - 2.91
Tax adjustment 52 - 0.15 (386) - (1.4)
Adjusted earnings per share
- basic 4,930 33,487,898 14.72 3,274 27,489,310 11.91
Effect of dilutive securities
Options - 64,573 (0.03) - 388 -
Adjusted earnings per share
- diluted 4,930 33,552,471 14.69 3,274 27,489,698 11.91
6. Note to the cash flow statement
2007 2006
�'000 �'000
Profit for the year 5,079 1,002
Adjustments for:
Investment revenues (35) (27)
Other gains and losses (201) (46)
Finance costs 2,706 4,737
Movement in fair value of interest rate swap 151 (561)
Movement in provisions 119 -
Income tax expense 2,284 1,035
Depreciation of property, plant and equipment 1,260 1,154
Amortisation of intangible assets 107 204
Share-based payment expense 105 19
Profit on disposal of fixed assets (8) (12)
Operating cash flows before movements in working capital 11,567 7,505
Increase in inventories (2,073) (734)
Increase in receivables (3,203) (298)
Increase in payables 39 1,152
Cash generated from operations 6,330 7,625
Income taxes paid (1,221) (291)
Debt restructuring cost - (801)
Interest paid (2,462) (6,787)
Net cash from/(used by) operating activities 2,647 (254)
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.
Interest paid in 2006 includes �3,191,000 of interest that arose in previous
periods, and was added to the principal amount of borrowings at 1 January 2006.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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