TIDMHAT
RNS Number : 4819H
H&T Group PLC
13 March 2018
Preliminary results
for the year ended 31 December 2017
H&T Group ("H&T" or the "Group") is pleased to announce
its preliminary results for the year ended
31 December 2017.
John Nichols, chief executive of H&T Group, said:
"This has been a milestone year for H&T. We have produced a
strong trading performance which is due in no small part to the
initiatives which we have implemented over the past few years. We
have sought to refine our core operations to ensure that they
produce the best possible results, while developing our credit and
online propositions. I am pleased that the impact of these efforts
is borne out in today's results.
"Personal loans and our est1897.co.uk online jewellery sales are
particular highlights, and there is significant scope to continue
to grow these aspects of the business. Over the past few years our
marketplace has changed dramatically. We have adapted to this new
environment, investing heavily in our staff, diversifying our
product suite, building out our online proposition and realigning
aspects of our business to reflect our customer base. We have also
reduced our exposure to gold price volatility. Challenges remain,
but we can look to the future with growing confidence."
Financial highlights (GBPm 2017 2016 Change
unless stated) %
Gross profit 63.8 57.1 11.7%
EBITDA 17.3 13.1 32.1%
Profit before tax 14.1 9.7 45.4%
Diluted EPS 30.94p 20.88p 48.2%
Dividend per share 10.5p 9.2p 14.1%
Key performance indicators 2017 2016 Change
%
Gross pledge book GBP46.1m GBP41.3m 11.6%
Redemption of annual lending
* 83.6% 84.3% (0.8%)
Retail gross profits GBP12.9m GBP11.2m 15.2%
Personal loan book GBP18.3m GBP9.4m 94.7%
Personal loan revenue less
impairment GBP5.7m GBP3.5m 62.9%
Number of stores 181 181 0%
* This is the actual percentage of lending in each year which
was redeemed or renewed, the 2017 figure is an estimate based on
recent trend and early performance.
Preliminary results
for the year ended 31 December 2017
Operational highlights:
-- Personal loans grew with the net loan book increasing 94.7% from GBP9.4m to GBP18.3m
-- Gross pledge book increased 11.6% to GBP46.1m (2016: GBP41.3m)
-- We increased both the concession format and lending on high-value watches for pawnbroking
-- The est1897.co.uk retail website has been significantly
improved and expanded to include more than 2,000 high-value
watches, now available to buy direct or via click-and-collect
-- We launched our lowest rate personal loan product in May 2017
Enquiries:
H&T Group plc
Tel: 020 8225 2797
John Nichols, Chief Executive
Steve Fenerty, Finance Director
Numis Securities (Broker and Nominated Adviser)
Tel: 020 7260 1000
Freddie Barnfield - Nominated Adviser
Mark Lander - Corporate Broking
Haggie Partners (Public Relations)
Tel: 020 7562 4444
Damian Beeley
Brian Norris
Chairman's statement
The Group has achieved growth in revenues from the core services
of pawnbroking, retail and personal loans. We have improved store
profitability and have also made progress in the development of our
online channel although there is still considerable work to do.
Our est1897.co.uk site for watches is a great example of how we
can successfully use the internet for retailing backed up by our
store network. The opportunity to build on this concept for our
core services is clear and will be a key part of our future
strategy.
These activities have repositioned the business within the wider
alternative credit market and allowed the Group to access a broader
customer base. The Board ensures that this growth is carefully
managed with a clear focus on the changing risks, both regulatory
and financial, that this diversification brings.
The growth in retail, FX and buyback also provide a degree of
resilience to changes in the marketplace
Financial Performance
The Group delivered profit after tax of GBP11.3m (2016: GBP7.6m)
and diluted earnings per share of 30.94 pence (2016: 20.88 pence).
Subject to shareholder approval, a final dividend of 6.2 pence per
ordinary share (2016: 5.3 pence) will be paid on 1 June 2018 to
those shareholders on the register at the close of business on 4
May 2018. This will bring the full year dividend to 10.5 pence per
ordinary share (2016: 9.2 pence).
The Group's financial position is strong with growth in the
combined personal loan and pawnbroking loan books (net) to GBP63.8m
(31 December 2016: GBP50.2m), as a result net debt increased to
GBP13.3m at 31 December 2017 (31 December 2016: GBP5.4m).
At year end the Group had available headroom of GBP8.0m on its
GBP30m borrowing facilities. I am pleased to report that in March
2018 the facility was increased by GBP5.0m.
Regulation
H&T is authorised and regulated by the Financial Conduct
Authority (FCA) for all consumer credit business. During the year
the FCA conducted a consultation on creditworthiness and is
expected to publish the results in 2018.
We engaged with the FCA through our trade associations and have
analysed the proposals contained within the consultation. The
consultation provides helpful guidance on effective
creditworthiness assessments and clarifies some of the specific
exemptions in relation to pawnbroking. Subject to the final policy
statement we do not expect it to have an adverse impact on our
business. We fully support the higher standards that the
consultation aims to deliver.
Strategy
We are developing our capabilities to address a changing market
where we see pressures both on the high street in general and the
core product of pawnbroking in particular. We are focussed on
maximising the potential from the core services while investing in
the development of new products and channels. This approach will
allow us to improve profitability in the short term; in the longer
term we can access a wider customer base and provide those
consumers with products appropriate to their needs.
We believe that our network of stores supports this development,
whether through click-and-collect from the est1897 website or by
providing a face-to-face underwriting decision for customers we
cannot serve with an online loan. This real-world presence
supported by an effective online and mobile proposition creates an
important distinction between H&T and a purely online
business.
In developing our personal loan product, we have a clear
objective to provide our customers with a route to lower interest
rate credit products as their relationship with H&T develops.
We believe that this progression is beneficial to the customer,
builds loyalty and meets the high standards required in this
regulated marketplace.
Prospects
The overall weakness in sterling following the EU referendum
result has continued to benefit the sterling gold price for much of
the year, this in turn provides an improvement in the Group's
profits while it continues. Demand for our services remains strong
and the development in our products and distribution enables us to
capture a larger share of the significant alternative credit
market.
Our thoughtful approach to growth reflects our intention to
provide our consumers with a service that maintains the highest
standards of affordability and seeks to avoid any consumer
detriment.
On behalf of the Board and our shareholders, I would like to
thank everyone at H&T for their hard work and dedication over
the past year.
Peter D McNamara
Chairman
Chief executive's review
INTRODUCTION
The Group has produced a strong trading performance and made
good progress in its strategic development. Our intention is to get
the best possible result from our core operations, develop a range
of additional credit products and expand the online channel. We
have delivered against all of those objectives in the past
year.
The Group delivered profit before tax of GBP14.1m (2016:
GBP9.7m) as a result of improved gross profits in the key segments
of pawnbroking, retail and personal loans.
THE MARKET
Our marketplace has undergone significant changes in the past
four years, experiencing peak competition, a falling gold price and
new regulation causing a number of our competitors to restructure
their businesses or exit the market. In comparison, during 2017 we
experienced far more stability allowing us to focus on developing
our proposition.
OUR STRATEGY
Our Vision: "H&T will be the premier provider of alternative
credit in the UK through a range of services that help our
customers rebuild their credit rating and return to the
mainstream."
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
to address short-term financial challenges. The Group will continue
to deliver this strategy by developing a range of lending products,
both secured and unsecured, offered in store and online. In
expanding our credit products we aim to genuinely help our
customers and have updated our vision statement to reinforce that
vital message within the business.
The development of a diversified suite of services including
retail, buyback and FX, improves returns and reduces the Group's
exposure to gold price volatility.
We continue to innovate and explore how to interact most
effectively with our customers through the development of
introducer channels, our online capability and our brand. This
development is supported by our stores that provides our online
customer with the opportunity to speak to a trained member of staff
face to face or to collect an item that they reserved online.
REVIEW OF OPERATIONS
Pawnbroking
Gross profits from pawnbroking increased 4.5% to GBP29.7m (2016:
GBP28.4m) and the gross pledge book increased 11.6% to GBP46.1m (31
December 2016: GBP41.3m) as a result of the higher gold price, the
concession format and an increase in loans on quality watches.
The risk-adjusted margin (Revenue as a percentage of the average
net pledge book) was 68.3% (2016: 72.5%). The reduction in
risk-adjusted margin is a result of the changing business mix to
higher value, lower interest rate loans. Redemption of annual
lending was marginally lower at an estimated 83.6% for lending in
2017 (2016 actual: 84.3%).
The pawnbroking segment remains challenging with limited real
growth in like-for-like stores. There is short-term opportunity as
a result of the relatively higher gold price and in the medium term
through further expansion in our concession format and lending on
high-end products.
The Group has benefitted from the expertise provided by the
Expert Eye service. This allows high quality images of assets in
store to be assessed by our team of experts which in turn improves
both the quality of decisions made and extends the range of assets
on which we can lend. This has assisted the development of watch
and diamond lending during the year.
The Group is investing in software to assist the management of
customer enquiries in respect of pawnbroking as well as the
acquisition of new partners to introduce customers to the business.
This investment will allow an expansion to the broker and online
channels in respect of pawnbroking during 2018.
Pawnbroking summary:
2017 2016 Change
GBP'000 GBP'000 %
--------------- --------- --------- --------
Year-end net
pledge book 45,549 40,806 11.6%
Average net
pledge book 43,414 39,155 10.9%
Revenue 29,670 28,384 4.5%
Risk-adjusted
margin(1) 68.3% 72.5%
Notes to table
1 - Revenue as a percentage of the average net pledge book
Retail
Retail sales increased 16% to GBP35.4m (2016: GBP30.5m), gross
profits to GBP12.9m (2016: GBP11.2m) and margin reduced to 36.3%
(2016: 36.8%).
The Group has invested in store inventories with average monthly
balances being 12% higher during 2017 than 2016. This coupled with
control over targeted discounts has resulted in the significant
improvements in gross profits despite margin pressure as a result
of increased cost of goods reflecting the higher rates on both
lending and purchasing activities.
The development of new-jewellery sales has been particularly
encouraging with sales increasing by 62% and gross profits of
GBP1.3m (2016: GBP0.9m) as we identify key segments and lines to
supplement our pre-owned offering.
The est1897 website has been enhanced during the year with
improved templates, photography and the number of items on the
site. There are now more than 2000 high-quality watches online
together with a range of high-quality jewellery. This enables us to
present store inventories to a far wider audience and equally,
through the use of tablets, we can present a far wider range of
choice to in-store customers. While in the early stages of
development we are encouraged by the results to date with almost
GBP1m in sales originating on the website being completed during
2017 (2016: GBP0.1m).
We intend to enhance the website further during 2018 with
greater integration with in-store systems, additional products
online and improved functionality for the user.
Personal Loans
The net personal loans book has increased by 94.7% to GBP18.3m
(31 December 2016: GBP9.4m). The Board considers revenue less
impairment to be an important measure of the performance of
personal loans as it represents the net profit derived directly
from our lending activities. Revenue less impairment has increased
to GBP5.7m (2016: GBP3.5m) as a result of increased customer
numbers and the expansion in our longer term, lower interest rate
loan product.
The reduction in the risk-adjusted margin (RAM) to 44.9% (2016:
55.1%) is the result of the increased proportion of new customers,
expansion in online and the introduction of our lower APR products.
Impairment as a percentage of the average monthly net loan book has
improved to 33.3% (2016: 37.0%) reflecting the increased mix of
lower yield, higher quality loans. This is in line with management
expectations for credit quality and collections performance.
In line with the strategy of providing larger loans over longer
terms at a lower interest rate we launched our 49.9% APR product in
May 2017. This product is designed to provide a "near prime" option
for our best customers.
The group now has three distinct products offered both in store
and online:
-- >100% APR loans falling into the high-cost short-term
credit (HCSTC) definition of the FCA. These loans are intended as
the starting point of the customer journey with H&T and
represent the highest volume of loans written as they tend to be
lower value and shorter term. At 31 December 2017 this segment
represented approximately 50% of the personal loan book.
-- <100% APR loans which are generally provided to customers
who have established a track record of repayment with H&T. At
31 December 2017 this segment represented approximately 46% of the
personal loan book.
-- <50% APR loans which are intended to be the final step of
the journey for our customers as they rebuild their credit rating.
At 31 December 2017 this segment represented approximately 4% of
the personal loan book.
As a result of these initiatives half of the personal loans loan
book is now non-HCSTC.
The expansion in other channels of business continues, the net
online loan book doubled in the year to GBP1.4m and remains a key
opportunity for the Group. The broker to store channel is also
beginning to show positive results as we enhance our customer
relationship management systems.
The focus for the Group is to build these alternative sources
for customers, work is underway to reduce the costs of acquisition
and processing whilst improving performance.
Personal Loans summary:
2017 2016 Change
GBP'000 GBP'000 %
----------------------------------------------- --------- --------------- -------
Year-end net loan book 18,256 9,356 95.1%
Average monthly net loan book 12,795 6,348 101.6%
Revenue 10,012 5,849 71.2%
Impairment (4,271) (2,351) 81.7%
Revenue less impairment 5,741 3,498 64.1%
Interest yield(1) 78.3% 92.1%
Impairment % of Revenue 42.7% 40.2%
Impairment % of Average monthly net loan book 33.3% 37.0%
Risk-adjusted margin(2) 44.9% 55.1%
Notes to table
1 - Revenue as a percentage of average loan book
2 - Revenue less impairment as a percentage of average loan
book
Pawnbroking scrap
Gross profits reduced to GBP1.9m (2016: GBP2.1m). The result in
2016 was enhanced as a result of the rapid increase in the sterling
gold price following the EU referendum result.
The average gold price during 2017 was GBP976 per troy ounce
(2016: GBP926), a 5.4% increase. The gold price directly impacts
the revenue received on the sales of scrapped gold.
Gold purchasing
Gross profits reduced to GBP3.4m (2016: GBP3.9m) despite a
higher volume of gold scrapped in the year.
H&T purchases gold to achieve a particular margin and it
takes around two months to process items directly to scrap. If the
gold price increases during this processing period then our margins
are enhanced, if it reduces then our margins are compressed.
During 2016, the gold price increased by 29% from January to
December, whereas during the same period in 2017 it fell by 2.2%.
Accordingly, our margins were considerably lower in 2017 vs
2016.
We estimate that the weight of fine gold purchased in 2017
increased by approximately 2.1% from 2016 to 2017.
Other services
Other services principally comprises FX, buyback, cheque cashing
and Western Union. Gross profits from this segment increased by
GBP0.3m to GBP5.9m (2016: GBP5.6m), as growth in FX and buyback was
partially offset by declines in Western Union and cheque
cashing.
The key growth components of FX and buyback improved in the year
with gross profits from FX increasing to GBP2.9m (2016: GBP2.7m)
and buyback increasing to GBP1.8m (2016: GBP1.6m).
FX is a simple transactional product which attracts a new
customer base to the business. Improvements to currency holdings in
store, point of sale materials and the expansion of click and
collect will enhance this product in the future.
Buyback enables the Group to service a customer base who may not
have appropriate assets for a pawnbroking loan. The principal
assets purchased are mobile phones, tablets and games consoles. We
have invested in system development to support the valuation and
testing of the items in store. Further work will be completed in
2018 to fully integrate those systems and support the
clicks-to-bricks customer journey.
PROSPECTS
The Group has enhanced its ability to serve a wider customer
base, both in store and online, with growth in its well-established
core products and the newer unsecured lending offering. This
diversified approach to growth reduces the risks inherent in any
individual objective and positions the Group to capture share in
this exciting market. Current trading for 2018 is in line with
management expectations.
I would also like to add my great thanks to those of the
Chairman, in recognising all of 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 2017 gross profit increased 11.7%
from GBP57.1m to GBP63.8m driven by growth in the core segments of
pawnbroking, retail and personal loans.
Total direct and administrative expenses increased by 4.7% from
GBP46.9m to GBP49.1m, principally as a result of investment in
staff to support business volumes in Personal Loans and new
initiatives. The Board considers the continued investment in people
and systems to be vital in repositioning the business to take
advantage of the market conditions.
Finance costs increased 20% to GBP0.6m (2016: GBP0.5m),
reflecting the higher utilisation of the facility during 2017
following expansion in the pawnbroking and personal loan books.
Profit before tax increased by GBP4.4m to GBP14.1m, up 45.4%
from GBP9.7m in 2016.
CASH FLOW
The growth in profit for the year resulted in an increase in
operating cash flows before movements in working capital of 26.5%
to GBP17.2m (2016: GBP13.6m).
The Group accelerated the growth both in personal loans and
pawnbroking during 2017 resulting in an increase in receivables of
GBP14.2m in the year (2016: GBP8.2m). This growth, partially offset
by increased profits, is the principal reason the Group produced a
cash outflow from operating activities of GBP2.4m (2016: inflow of
GBP1.3m).
BALANCE SHEET
As at 31 December 2017, the Group had net assets of GBP107.6m
(2016: GBP98.8m) with year-end net debt of GBP13.3m (2016: GBP5.4m)
delivering an increase in gearing to 12.4% (2016: 5.5%).
On 1 March 2018, the Group extended the existing facility with
Lloyds Bank plc by GBP5m allowing for maximum borrowings of
GBP35.0m, subject to covenants, at a margin of between 1.75% and
2.75% above LIBOR. At year end GBP22.0m was drawn on the facility
and the Group was well within the covenants with a net debt to
EBITDA ratio of 0.76x and an EBITDA to interest ratio of 37.15. The
facility has a termination date of 30 April 2020.
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 AND DISPOSALS
The Group acquired two pawnbroking loan books for GBP0.1m, there
have been no disposals of stores or loan books during the year.
IMPAIRMENT REVIEW
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. There was no
impairment charge during 2017 (2016: GBPnil/none).
SHARE PRICE AND EPS
At 31 December 2017, the share price was 335p (2016: 259.75p)
and market capitalisation was GBP124.6m (2016: GBP95.5m). Basic
earnings per share were 31.07p (2016: 20.94p), diluted earnings per
share were 30.94p (2016: 20.88p).
Stephen A Fenerty
Finance Director
Group statement of comprehensive income
For the year ended 31 December 2017
2017 2016
GBP'000 (Restated*)
Continuing operations: Note GBP'000
Revenue 2 110,333 96,573
Cost of sales (46,567) (39,453)
Gross profit 2 63,766 57,120
Impairment (4,271) (2,351)
Other direct expenses excluding
impairment (32,593) (32,246)
Administrative expenses (12,233) (12,325)
Operating profit 14,669 10,198
Investment revenues - 1
Finance costs 3 (567) (479)
Profit before taxation 14,102 9,720
Tax charge on profit 4 (2,766) (2,138)
Profit for the financial year
and total comprehensive income 11,336 7,582
Earnings per share 2017 2016
Pence Pence
Basic 5 31.07 20.94
Diluted 5 30.94 20.88
(*) see note 1 Revenue Recognition
Group statement of changes in equity
For the year ended 31 December 2017
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 2016 1,843 25,409 (35) 66,843 94,060
Profit for the financial
year - - - 7,582 7,582
Total income for
the financial year - - - 7,582 7,582
Issue of share capital 9 345 - - 354
Share option movement - - - (40) (40)
Dividends paid - - - (3,109) (3,109)
At 31 December 2016 1,852 25,754 (35) 71,276 98,847
At 1 January 2017 1,852 25,754 (35) 71,276 98,847
Profit for the financial
year - - - 11,336 11,336
Total income for
the financial year - - - 11,336 11,336
Issue of share capital 20 887 - - 907
Share option movement - - - 96 96
Dividends paid - - - (3,564) (3,564)
At 31 December 2017 1,872 26,641 (35) 79,144 107,622
Group balance sheet
As at 31 December 2017
31 December 31 December
2017 2016
GBP'000 GBP'000
Non-current assets
Goodwill 17,643 17,676
Other intangible assets 331 527
Property, plant and
equipment 6,381 6,874
Deferred tax assets 861 682
25,216 25,759
Current assets
Inventories 34,102 29,792
Trade and other receivables 73,277 59,058
Other current assets 665 848
Cash and cash equivalents 8,676 9,608
116,720 99,306
Total assets 141,936 125,065
Current liabilities
Trade and other payables (9,731) (8,887)
Current tax liabilities (1,460) (1,119)
(11,191) (10,006)
Net current assets 105,529 89,300
Non-current liabilities
Borrowings (21,810) (14,715)
Provisions (1,313) (1,497)
(23,123) (16,212)
Total liabilities (34,314) (26,218)
Net assets 107,622 98,847
Equity
Share capital 1,872 1,852
Share premium account 26,641 25,754
Employee Benefit Trust
shares reserve (35) (35)
Retained earnings 79,144 71,276
Total equity attributable
to equity holders 107,622 98,847
Group cash flow statement
For the year ended 31 December 2017
2017 2016
Note GBP'000 GBP'000
Net cash (used in) / generated
from operating activities 6 (3,493) 1,315
Investing activities
Interest received - 1
Proceeds on disposal of property,
plant and equipment 7 66
Proceeds on disposal of trade
and assets of businesses - 82
Purchases of property, plant
and equipment (1,768) (1,918)
Acquisition of trade and assets
of businesses (21) (106)
Net cash used in investing
activities (1,782) (1,875)
Financing activities
Dividends paid (3,564) (3,109)
Increase in borrowings 7,000 2,000
Issue of shares 907 354
Net cash generated from /
(used in) financing activities 4,343 (755)
Net decrease in cash and cash
equivalents (932) (1,315)
Cash and cash equivalents
at beginning of the year 9,608 10,923
Cash and cash equivalents
at end of the year 8,676 9,608
Notes to the preliminary announcement
For the year ended 31 December 2017
1. Finance information and basis of preparation
The financial information has been abridged from the audited
financial statements for the year ended 31 December 2017.
The financial information set out above does not constitute the
company's statutory accounts for the years ended 31 December 2017
or 2016, but is derived from those accounts. Statutory accounts for
2016 have been delivered to the Registrar of Companies and those
for 2017 will be filed with the Registrar in due course. 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 (as adopted for use in the EU)
('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 2018.
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
inventory sourced from unredeemed pawn loans, newly purchased
inventory and inventory 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 Company unsecured
lending activities. Personal loan revenues have historically been
recognised net of related impairment charges. In light of the
growth of the personal loans segment the Group has changed the
personal loan revenue recognition policy to better reflect the
underlying nature and substance of such revenues. From 1 January
2017 onwards, revenue has been stated before impairment, with any
impairment charge shown on a separate line in the Group statement
of comprehensive income. 2016 revenue, gross profit and other
direct expenses have been restated. The revenue and other direct
expenses as previously stated have been increased by GBP2,351,000.
There have been no changes to previously reported operating profit,
profit before tax, profit after tax, earnings per share; nor any
change to the Group balance sheet or the Group cash flow statement;
and
Notes to the preliminary announcement (continued)
For the year ended 31 December 2017
1. Finance information and basis of preparation (continued)
Revenue recognition (continued)
-- Other services comprise revenues from third party cheque
cashing, foreign exchange income, buyback and other income. The
commission receivable on cheque cashing is recognised at the time
of the transaction. Buyback revenue is recognised at the point of
sale of the item back to the customer. Foreign exchange income
represents the margin when selling or buying foreign currencies and
is recognised at the point of sale. 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.
Inventories provisioning
Where necessary provision is made for obsolete, slow moving and
damaged inventory or inventory shrinkage. The provision for
obsolete, slow moving and damaged inventory represents the
difference between the cost of the inventory and its market value.
The inventory shrinkage provision is based on an estimate of the
inventory missing at the reporting date using historical shrinkage
experience.
Impairment of goodwill and other intangibles
Determining whether goodwill is impaired requires an estimation
of the value in use of the cash-generating units to which goodwill
has been allocated. The value in use calculation requires the Group
to estimate the future cash flows expected to arise from the
cash-generating unit and a suitable discount rate in order to
calculate present value. The review is conducted annually, in the
final quarter of the year. The impairment review is conducted at
the level of each cash generating unit, which for acquisitions
represents the specific store or stores acquired.
There was no impairment loss recorded in the current year (2016:
GBPnil). The principal assumptions applied by management in
arriving at the value in use of each cash generating unit are as
follows:
The Group prepares cash flow forecasts over a five-year period
for each cash generating unit. Forecast EBITDA (used as a proxy for
cashflows) has been derived by applying the Board approved base
budget assumption to each individual stores' results for the twelve
months to September 2017. For impairment review purposes, we have
used conservative growth assumptions after 2018, even in this
scenario there is still significant headroom on each CGU. A
perpetuity formula has been applied to the cashflows i.e. we have
made the assumption that periodic cashflows will be received
indefinitely. The Group has discounted the cash flows at a pre-tax,
risk adjusted rate of 12% (2016: 9%).
While the impairment review has been conducted based on the best
available estimates at the impairment review date, the Group notes
that actual events may vary from management expectation.
Notes to the preliminary announcement (continued)
For the year ended 31 December 2017
2. Operating segments
Business segments
For reporting purposes, the Group is currently organised into
six segments - pawnbroking, gold purchasing, retail, pawnbroking
scrap, personal loans and other 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 interest rate of between 1.99%
and 10.00%. 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.
Purchasing:
Jewellery is bought direct from customers through all of the
Group's stores. The transaction is simple with the store 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 income from the Company unsecured
lending activities. Personal loan revenues have historically been
recognised net of related impairment charges. In light of the
growth of the personal loans segment the Group has opted to change
the personal loan revenue recognition policy to better reflect the
underlying nature and substance of such revenues. From 1 January
2017 onwards, revenue has been stated before impairment, with any
impairment charge included within other direct expenses in the
group statement of comprehensive income. 2016 revenue, gross profit
and other direct expenses have been restated accordingly. There
have been no changes to previously reported operating profit,
profit before tax, profit after tax, earnings per share; nor any
change to the group balance sheet or group cash flow statement.
Notes to the preliminary announcement (continued)
For the year ended 31 December 2017
2. Operating segments (continued)
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
margin when selling or buying foreign currencies.
-- Western Union commission earned on the Group's money transfer service.
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.
Segment information about these businesses is presented
below:
For the
year
Gold Pawnbroking Personal Other ended
2017 Pawnbroking purchasing Retail scrap loans services 2017
Revenue GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
External
revenue 29,670 17,651 35,407 11,696 10,012 5,897 110,333
Total revenue 29,670 17,651 35,407 11,696 10,012 5,897 110,333
Gross profit 29,670 3,397 12,859 1,931 10,012 5,897 63,766
Impairment - - - - (4,271) - (4,271)
Segment result 29,670 3,397 12,859 1,931 5,741 5,897 59,495
Other direct expenses excluding
impairment (32,593)
Administrative expenses (12,233)
Operating profit 14,669
Finance costs (567)
Profit before taxation 14,102
Tax charge on profit (2,766)
Profit for the financial
year and total comprehensive
income 11,336
Notes to the preliminary announcement (continued)
For the year ended 31 December 2017
2. Operating segments (continued)
For the
Personal year
ended
Gold loans Other 2016
Pawnbroking
2016 Pawnbroking purchasing Retail scrap (Restated*) services (Restated*)
Revenue GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
External
revenue 28,384 15,021 30,549 11,136 5,849 5,634 96,573
Total revenue 28,384 15,021 30,549 11,136 5,849 5,634 96,573
Gross profit 28,384 3,941 11,228 2,084 5,849 5,634 57,120
Impairment - - - - (2,351) - (2,351)
Segment result 28,384 3,941 11,228 2,084 3,498 5,634 54,769
Other direct expenses excluding
impairment (32,246)
Administrative expenses (12,325)
Operating profit 10,198
Investment revenues 1
Finance costs (479)
Profit before taxation 9,720
Tax charge on profit (2,138)
Profit for the financial
year and total comprehensive
income 7,582
As disclosed in note 2, gross profit is stated after charging
the direct costs of inventory 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
pawnbroking scrap activities.
Notes to the preliminary announcement (continued)
For the year ended 31 December 2017
2. Operating segments (continued)
Unallocated For the
Pawn-broking Gold Pawn-broking Personal Other assets/ year
GBP'000 purchasing Retail scrap loans services (liabilities) ended
2017 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Other information
Capital
additions
(*) 1,980 1,980
Depreciation
and
amortisation
(*) 2,628 2,628
Balance sheet
Assets
Segment
assets 52,924 1,658 31,858 1,251 18,256 - 105,947
Unallocated
corporate
assets 31,381 31,381
Consolidated
total assets 141,936
Liabilities
Segment
liabilities - - (650) - - (100) (750)
Unallocated
corporate
liabilities (33,564) (33,564)
Consolidated
total
liabilities (34,314)
Unallocated For the
Pawn-broking Gold Pawn-broking Personal Other assets/ year
GBP'000 purchasing Retail scrap loans services (liabilities) ended
2016 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Other information
Capital
additions
(*) 1,768 1,768
Depreciation
and
amortisation
(*) 2,940 2,940
Balance sheet
Assets
Segment
assets 47,301 1,005 29,066 570 9,375 - 87,317
Unallocated
corporate
assets 33,040 33,040
Consolidated
total assets 125,065
Liabilities
Segment
liabilities - - (649) - - (260) (909)
Unallocated
corporate
liabilities (25,309) (25,309)
Consolidated
total
liabilities (26,218)
(*) 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 (continued)
For the year ended 31 December 2017
2. Operating segments (continued)
Geographical segments
The Group's revenue from external customers by geographical
location are detailed below:
2017 2016
GBP'000 GBP'000
United Kingdom 109,128 95,837
Other 1,205 736
110,333 96,573
The Group's non-current assets are located entirely in the
United Kingdom. Accordingly, no further geographical segments
analysis is presented.
3. Finance costs
2017 2016
GBP'000 GBP'000
Interest on bank loans 472 348
Other interest 1 1
Amortisation of debt
issue costs 94 130
Total interest expense 567 479
Notes to the preliminary announcement (continued)
For the year ended 31 December 2017
4. Tax charge on profit
(a) Tax on profit on ordinary activities
2017 2016
Current tax GBP'000 GBP'000
United Kingdom corporation tax charge
at 19.25% (2016: 20%)
based on the profit for the year 2,742 2,143
Adjustments in respect of prior
years 181 191
Total current tax 2,923 2,334
Deferred tax
Timing differences, origination
and reversal (156) (278)
Adjustments in respect of prior
years (1) 12
Effects of change in tax rate - 70
Total deferred tax (157) (196)
Tax charge on profit 2,766 2,138
(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
19.25% (2016: 20%). The differences are explained below:
2017 2016
GBP'000 GBP'000
Profit before taxation 14,102 9,720
Tax charge on profit at standard
rate 2,716 1,944
Effects of:
Disallowed expenses and non-taxable
income (130) (29)
Effect of change in tax rate - 70
Movement in short-term timing differences - (50)
Adjustments to tax charge in respect
of previous periods 180 203
Tax charge on profit 2,766 2,138
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
released from equity in the current period of GBP96,000 (2016:
charge of GBP56,000).
Notes to the preliminary announcement (continued)
For the year ended 31 December 2017
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 2017 December 2016
Earnings Weighted Per-share Earnings Weighted Per-share
GBP'000 average amount GBP'000 average amount
number pence number pence
of shares of shares
Earnings per share:
basic 11,336 36,479,426 31.07 7,582 36,212,688 20.94
Effect of dilutive
securities
Options and conditional
shares - 155,374 (0.13) - 101,947 (0.06)
Earnings per share:
diluted 11,336 36,634,800 30.94 7,582 36,314,635 20.88
Notes to the preliminary announcement (continued)
For the year ended 31 December 2017
6. Notes to the Cash Flow Statement
2017 2016
GBP'000 GBP'000
Profit for the financial year 11,336 7,582
Adjustments for:
Investment revenues - (1)
Finance costs 567 479
Movement in provisions (184) 192
Tax expense - Group Statement of
Comprehensive Income 2,766 2,138
Depreciation of property, plant and
equipment 2,429 2,686
Amortisation of intangible assets 200 256
Share-based payment expense - 16
Loss on disposal of property, plant
and equipment 68 265
Operating cash flows before movements
in working capital 17,182 13,613
Increase in inventories (4,311) (4,991)
Increase/(decrease) in other current
assets 184 (202)
Increase in receivables (14,202) (8,156)
Increase in payables 618 3,585
Cash (used in) / generated from operations (529) 3,849
Income taxes paid (2,508) (1,860)
Debt restructuring costs - (325)
Interest paid (456) (349)
Net cash (used in) / generated from
operating activities (3,493) 1,315
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 (continued)
For the year ended 31 December 2017
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:
2017 2016
GBP'000 GBP'000
Operating profit 14,669 10,198
Depreciation
and amortisation 2,628 2,942
EBITDA 17,297 13,140
The Board consider EBITDA to be a key performance measure as the
Group borrowing facility includes a number of loan covenants based
on it.
8. Events after the balance sheet date
The directors have proposed a final dividend for the year ended
31 December 2017 of 6.2p (2016: 5.3p).
9. IFRS 9 Financial instruments
The Group will apply IFRS 9 from 1 January 2018. The Group plans
to restate comparatives on initial application of IFRS 9. The full
impact of adopting IFRS 9 on the Group's consolidated financial
statements will depend on the financial instruments that the Group
has during 2018 as well as on economic conditions and judgements
made as at the year end. The Group has performed an assessment of
potential impact of adopting IFRS 9 based on the financial
instruments as at the date of initial application of IFRS 9 (1
January 2018).
Classification and measurement
With respect to the classification and measurement of financial
assets, the number of categories of financial assets under IFRS 9
has been reduced compared to IAS 39. Under IFRS 9 the
classification of financial assets is based both on the business
model within which the asset is held and the contractual cash flow
characteristics of the asset.
There will be no impact on the classification and measurement of
the personal loans or pawnbroking trade receivables, both are
measured on amortised cost.
There will be no change in the accounting for any financial
liabilities.
9. IFRS 9 Financial instruments (continued)
Impairment
The impairment model under IFRS 9 reflects expected credit
losses, as opposed to only incurred credit losses under IAS 39.
Under the impairment approach in IFRS 9, it is not necessary for a
credit event to have occurred before credit losses are recognised.
Instead, an entity always accounts for expected credit losses and
changes in those expected credit losses. The amount of expected
credit losses should be updated at each reporting date. Under IFRS
9 there will be a material increase in both revenue and impairment
for Pawnbroking and Personal Loans.
In respect of the personal loan receivable the Group expects to
recognise a loss allowance for 12-month expected credit losses
where the loan is not in arrears, as the loan falls into arrears
the loss allowance will be based on the lifetime expected credit
losses as there has been a significant increase in credit risk. The
Group's estimate of the loss allowance for these assets as at 1
January 2018 is GBP2.6m greater compared to IAS 39.
In respect of the pawnbroking loan receivable the short-term
nature of the agreement results in 12-month expected credit losses
being the same as lifetime expected credit losses. The Group's
estimate of the loss allowance for these assets as at 1 January
2018 is GBP5.2m greater compared to IAS 39.
At the date of initial application of IFRS 9, the estimated
impact is a decrease in receivables as at 1 January 2018 of GBP7.8m
which, net of deferred tax, results in a reduction in net assets of
GBP6.3m.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR FKBDBFBKDNND
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