TIDMHAT
RNS Number : 5208S
H&T Group PLC
12 March 2019
H&T Group Plc
Preliminary Results
For the year ended 31 December 2018
H&T Group ("H&T" or the "Group") today announces its
preliminary results for the year ended
31 December 2018.
John Nichols, Chief Executive of H&T Group, said:
"Against a challenging background we have produced a strong
year's trading performance.
"Development of our digital strategy, which is focused on
complementing our store estate, has been an important feature along
with investments in improving our customer experience and
partnerships.
"As a result, we saw significant growth in our secured
pawnbroking lending, largely driven by increased customer numbers.
We also saw good growth in our unsecured lending with many more
customers qualifying for our lower cost loans, and where our focus
primarily is now aimed at further leveraging our store estate.
"In retail we saw growth as we expanded our new jewellery range
and the development of click-and-collect online sales.
Click-and-collect also supported growth in our foreign exchange
business.
"The Group's performance over the past three years demonstrates
the continuing success of our strategy to access more customers and
markets. Demand for our products remains strong and with further
improvements to our delivery capability underway, we look forward
to the future with confidence."
Financial highlights (GBPm 2017 (Restated* Change
unless stated) 2018 for IFRS9) %
Gross profit 88.2 78.1 12.9%
EBITDA (note 7) 16.8 15.1 11.3%
Profit before tax 13.5 11.9 13.4%
Diluted earnings per share 29.2p 25.9p 12.7%
Dividend per share 11.0p 10.5p 4.8%
2017 (Restated* Change
Key performance indicators 2018 for IFRS9) %
Pledge book GBP52.0m GBP47.5m 9.5%
Redemption of annual lending ** 83.5% 83.6% (0.1%)
Retail gross profits GBP13.2m GBP12.9m 2.3%
Net personal loan book GBP20.5m GBP14.9m 37.6%
Personal loan revenue less impairment GBP7.0m GBP3.9m 79.5%
Number of stores 182 181 0.6%
*Certain comparative information in the financial statements has
been restated as a result of the initial application of IFRS 9 as
discussed in note 9.
** This is the actual percentage of lending in each year which
was redeemed or renewed, the 2018 figure is an estimate based on
recent trend and early performance.
Operational highlights:
-- Pledge book increased 9.5% to GBP52.0m (2017: GBP47.5m)
-- Number of Appointed Introducers and lending on high-value
watches for pawnbroking both increased
-- Personal loans grew with the net loan book increasing 37.6% from GBP14.9m to GBP20.5m
-- The retail jewellery business continued momentum from 2017
with gross profits increasing by 2.3% from GBP12.9m to GBP13.2m
-- Traffic to the est1897.co.uk retail website has increased
with higher volumes both of basket sales and click-and-collect
store fulfilled sales
-- Strong growth from foreign currency offering, with gross
profit increasing by 24.1% from GBP2.9m to GBP3.6m.
Enquiries:
H&T Group plc
Tel: 020 8225 2797
John Nichols, Chief Executive
Richard Withers, Interim Finance Director
Numis Securities (Broker and Nominated Adviser)
Tel: 020 7260 1000
Luke Bordewich, Nominated Adviser
Mark Lander, Corporate Broking
Haggie Partners (Public Relations)
Tel: 020 7562 4444
Damian Beeley
Sarah Shephard
Chairman's Statement
The Group has achieved growth in revenues from our core services
of pawnbroking, retail and personal loans. We have improved store
profitability and have also made further 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 have 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 product and channel
diversification brings.
The growth in retail, FX and buyback also provide a degree of
resilience to changes in the pawnbroking and lending
marketplace.
FINANCIAL PERFORMANCE
The Group delivered profit after tax of GBP10.8m (2017: GBP9.5m)
and diluted earnings per share of 29.2 pence (2017: 25.9 pence).
Subject to shareholder approval, a final dividend of 6.6 pence per
ordinary share (2017: 6.2 pence) will be paid on 31 May 2019 to
those shareholders on the register at the close of business on 3
May 2019. This will bring the full year dividend to 11.0 pence per
ordinary share (2017: 10.5 pence).
The Group's financial position is strong with growth in the
combined personal loan and pawnbroking loan books to GBP72.5m (31
December 2017: GBP62.4m). The growth in these loan books has been
funded through strong operating cashflows, with net debt increasing
by just GBP0.3m to GBP13.6m at 31 December 2018 (31 December 2017:
GBP13.3m).
At year end the Group had available headroom of GBP10.0m on its
GBP35.0m borrowing facilities (31 December 2017: GBP8.0m headroom
on its GBP30.0m facility).
STRATEGY
The demand for small-sum, short-term cash loans remains strong.
The Group continues to focus on strategies to grow its pawnbroking
offering while expanding its unsecured lending product and retail
offering through digital and online strategies to complement its
store estate.
We will continue to work towards our vision of helping our
customers to protect and rebuild their credit history by expanding
the proportion of them on products that falls outside high cost
short-term lending. We will achieve this by continuing to focus on
operational effectiveness aligned with the training, development
and progression of our valuable staff.
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.
REGULATION
We are focused on meeting the needs of our customers by ensuring
that we carefully assess creditworthiness and affordability, and
provide loans that achieve the best outcomes for our customers.
We engage proactively with the Financial Conduct Authority (FCA)
directly and through our trade associations and fully support the
high standards the regulator seeks to deliver.
PROSPECTS
The Board has regularly monitored the uncertainty surrounding
Brexit during the year and we continue to evaluate the potential
impacts on our staff, customers and suppliers, of various possible
outcomes. We do have some EEA Nationals within our workforce, but
we believe the potential impact of even unfavourable Brexit
scenarios is likely to be limited. No product supply issues are
foreseen.
While the macro economic impact is uncertain we believe our
range of products is well positioned to take advantage of any
eventuality. In the case of negative economic factors accompanying
an unfavourable Brexit outcome a possible stabiliser exists if it
is accompanied by weakness in sterling. Were this scenario to occur
it would result in a higher sterling gold price which should
provide an offsetting uplift to Group profits. The business has
traded positively during the recent period of heightened
uncertainty. 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.
We have taken steps during the year to provide cover for our
Finance Director Steve Fenerty, who is recovering from illness. We
thank Richard Withers for his interim and ongoing support in this
regard. Our thanks go to Malcolm Berryman, who has retired as a
non-executive director for his excellent work on behalf of H&T
and we wish him every success. We welcome Elaine Draper and Mark
Smith to the board as non-executive-directors.
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 has
continued to make 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 GBP13.5m (2017:
GBP11.9m) due to improved gross profits in the key segments of
pawnbroking, retail and personal loans.
THE MARKET
During 2018 despite uncertainties elsewhere we experienced
relative stability in terms of external factors impacting our
business, with a stable gold price and general UK economic
stability. This has allowed us to continue to refine our
propositions and expand our customer base.
There remains a significant consumer requirement for carefully
assessing the affordability of loans, together with offering a
flexible product range.
OUR STRATEGY
The Group's strategy is to serve a customer base whose access to
mainstream credit is limited and for whom small-sum loans can help
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.
Our Vision: "H&T will be the premier provider of alternative
credit in the UK through a range of services that help our
customers protect and rebuild their credit rating and return to the
mainstream."
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 provide our online
customers 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
Pawnbroking is a small subset of the consumer credit market in
the UK and a simple form of asset-backed lending where an item of
value, known as a pledge (typically jewellery and watches), is
given in exchange for a cash loan. Customers who repay the capital
sum borrowed plus interest receive their pledged item back. If a
customer fails to repay the loan we sell (retail, auction or scrap)
the pledged
item in order to repay the amount borrowed plus interest. Should
there be a surplus resulting from this process, the customer is
paid that amount in full.
Pawnbroking is our core business, we are the largest UK
pawnbroker in terms of number of outlets, customers and amounts
lent. It is the key focus area for the business and where we invest
most resource in terms of training and development. Yields are
attractive, and the debt is always secured on the item pledged.
Gross profits from pawnbroking increased 5.5% to GBP30.9m (2017:
GBP29.3m) and the pledge book increased 9.5% to GBP52.0m (31
December 2017: GBP47.5m) because of increased customer numbers and
growth in higher value loans, in particular lending on higher carat
gold and watches. We have seen increased lending through both our
owned store estate and through our Appointed Introducer
Relationships (brokerage arrangements).
The risk-adjusted margin (revenue as a percentage of the average
net pledge book) was 62.2% (2017: 64.2%). 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 has remained consistently high at an estimated 83.5% for
lending in 2018 (2017 actual: 83.6%).
The Group has benefitted from the expertise provided by the
Expert Eye service, recently upgraded to Unity. 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 lending secured on watches and diamonds
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 2019.
Pawnbroking summary:
Restated*
for IFRS
9
2018 2017 Change
GBP'000 GBP'000 %
------------------------------------ -------- ---------- --------
Year-end pledge book(1) 51,991 47,451 9.6%
Estimated average pledge book 49,721 45,637 8.9%
Revenue less impairment 30,912 29,299 5.5%
Annualised Risk-adjusted margin(2) 62.2% 64.2%
Notes to table
1 - Includes accrued interest
and impairment
2 - Revenue less impairment as a percentage of average
loan book
*Certain comparative information in the financial statements has
been restated as a result of the initial application of IFRS 9 as
discussed in note 9.
Retail
The Group offers a value for money proposition in new and
second-hand jewellery. We believe there is further growth potential
in this segment by leveraging our retail store estate and our
e-commerce operations as well as by cross-selling to customers of
other services.
Retail sales increased 8.5% to GBP38.3m (2017: GBP35.4m), gross
profits increased 2.3% to GBP13.2m (2017: GBP12.9m) and margin
reduced to 34.4% (2017: 36.3%). Margin reduction was due to a
higher proportion of new items sold in 2018 as opposed to
pre-owned, more lower margin watches sold and discounting on aged
jewellery and watches during 2018.
The Group has reduced retail inventories during the year with
average monthly balances being GBP1.7m, 5% lower during 2018 than
2017. The stock reduction has been primarily targeted around the
reduction of aged items, which has been achieved by implementing
targeted promotional activity and discounts during the year.
It is pleasing that the development of both our www.handt.co.uk
and www.est1897.co.uk websites has led to a 238% increase in
generated revenues over the year with revenue growing to GBP2.7m
(2017: GBP0.8m). The development of our on-line to store customer
journey has resulted in 85% of the on-line generated items sold
being fulfilled in-store. These are generally higher value watches
and jewellery, while opportunity exists to further develop our
basket sales.
Further website improvements are planned for our est1897
website, which currently holds more than 2,000 high-end pre-owned
watches and jewellery items, and to our Customer Relationship
Management system. The intention is to include a larger range of
items on our site and drive a higher proportion of basket fulfilled
sales as opposed to in-store fulfilment. CRM enhancements are
intended to improve the online to in-store experience and
conversion rates.
Personal loans
The net personal loans book has increased by 37.6% to GBP20.5m
(31 December 2017: GBP14.9m). Revenue less impairment is 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 by 79.5% to
GBP7.0m (2017: GBP3.9m) because of increased customer numbers and
the expansion in our longer term, lower interest rate loan product,
delivered through our store estate.
The increase in the risk-adjusted margin (RAM) to 38.5% (2017:
35.8%) is the result of a slowdown in the growth of the book and
therefore a lower proportion of the lending to new customers
compared with 2017. Existing and repeat customers have a different
risk profile. We have proportionally more repeat customers in 2018
than we had in 2017.
Impairment as a percentage of the average monthly net loan book
has improved to 68.9% (2017: 75.0%), reflecting the increased mix
of lower yield, higher quality loans.
In line with the strategy of providing larger loans over longer
terms at a lower interest rate, our 49.9% APR product launched in
May 2017 now represents GBP1.2m of the book as at 31 December 2018.
This product is designed to provide a "near prime" option for our
best customers. Because of these initiatives 59% of the personal
loans loan book is now non-High-Cost-Short-Term (HCSTC).
New customer lending of GBP38.0m was made through our stores
during 2018 vs GBP3.0m lent via our online channel.
Personal loans summary: Restated
* for IFRS
9
2018 2017 Change
----------------------------------------
GBPm GBPm %
---------------------------------------- ------- ------------ -------
Year-end net loan book 20.5 14.9 37.6%
Average monthly net loan book 18.2 10.9 67.0%
Revenue 22.5 15.6 44.2%
Impairment (15.5) (11.7) 32.5%
Revenue less impairment 7.0 3.9 79.5%
Interest yield(1) 123.6% 143.1%
Impairment % of revenue 68.9% 75.0%
Impairment % of average monthly net
loan book 85.2% 107.3%
Risk-adjusted margin(2) 38.5% 35.8%
Notes to table
1 - Revenue as a percentage of average
loan book
2 - Revenue less impairment as a percentage
of average loan book
*Certain comparative information in the financial statements has
been restated as a result of the initial application of IFRS 9 as
discussed in note 9.
Pawnbroking scrap
The average gold price during 2018 was GBP950 per troy ounce
(2017: GBP976), a 2.7% decrease. The gold price directly impacts
the revenue received on the sales of scrapped gold.
Gross profits reduced by 26.3% to GBP1.4m (2017: GBP1.9m),
primarily due to a fall in gold price between the date the items
were pledged and the date that they were scrapped.
Gold purchasing
Gross profits increased to GBP3.8m (2017: GBP3.4m) due to an
increase in volume sold.
Other services
Other services principally comprise FX, buyback and cheque
cashing. Gross profits from other services increased to GBP6.1m
(2017: GBP5.9m).
The key growth components of FX and buyback improved in the year
with gross profits from FX increasing to GBP3.6m (2017: GBP2.9m)
and buyback increasing to GBP1.6m (2017: GBP0.9m).
FX is a simple transactional product which attracts a new
customer base to the business. During the year we have made
improvements to currency holdings in store, offering a wider
choice, and have enhanced our point of sale materials including the
introduction of improved digital rate boards. We further expanded
our FX customer catchment by introducing FX click and collect to
our website.
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.
During the year we invested further in system development to
support the valuation and testing of the items in store.
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 review
FINANCIAL RESULTS
For the year ended 31 December 2018 gross profit increased 12.9%
from GBP78.1m (restated for IFRS 9) to GBP88.2m driven by growth in
the core segments of pawnbroking, retail and personal loans.
Total direct and administrative expenses increased by 12.5% to
GBP73.9m from GBP65.7m. Of the GBP8.2m increase, GBP5.0m relates to
increased impairment charges because of growth in the pawnbroking
and personal loan books. The GBP3.2m, 7.2% increase in costs
(excluding impairment) to GBP48.0m from GBP44.8m is principally 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 33% to GBP0.8m (2017: GBP0.6m),
reflecting the higher utilisation of the Group external loan
facility during 2018 following expansion in the pawnbroking and
personal loan books.
Profit before tax increased by GBP1.6m to GBP13.5m, up 13.4%
from GBP11.9m (restated for IFRS 9) in 2017.
CASH FLOW
The growth in profit for the year resulted in an increase in
operating cash flows (before movements in working capital) of 12.7%
to GBP16.9m (2017: GBP15.0m).
The Group accelerated the growth in its pawnbroking secured
lending and reduced the rate of growth in personal loans during
2018 resulting in an increase in receivables of GBP9.9m in the year
(2017: GBP12.0m). The retail inventory reduction of GBP4.9m and
increased profits more than offset this growth, resulting in a cash
inflow from operating activities of GBP5.9m (2017: outflow of
GBP3.5m).
BALANCE SHEET
As at 31 December 2018, the Group had net assets of GBP107.0m
(2017: GBP99.7m restated for IFRS 9) with year-end net debt of
GBP13.6m (2017: GBP13.3m) delivering a reduction in gearing to
12.7% (2017: 13.3%).
The Group has a facility with Lloyds Bank plc 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 GBP25.0m was
drawn on the facility (2017: GBP22.0m) and the Group was well
within the covenants with a net debt to EBITDA ratio of 0.72x and
an EBITDA to interest ratio of 28.86 (see note 7 for the definition
of EBITDA). 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.
IFRS 9
IFRS 9 Financial Instruments was adopted for our 2018 financial
results with 2017 comparatives restated. Under the new standard we
reflect 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. Under IFRS 9 there is an increase in both revenue
and impairment for Pawnbroking and Personal Loans. The net impact
of the change from IAS 39 to IFRS 9 provision on 2018 results has
been to decrease revenue less impairment by GBP1.3m for Personal
Loans and by GBP0.1m in relation to Pawnbroking. See note 9 for
further details.
IFRS 15
IFRS 15 Revenue from Contracts and Customers was applied in
2018. Apart from providing more extensive disclosures for the
Group's revenue transactions, application of IFRS 15 has not had an
impact on the financial position and/or financial performance of
the Group. See note 10 for further details.
IFRS 16
IFRS 16 is a new standard on lease accounting which will be
effective from 1 January 2019. The standard requires the
recognition of significant leases on the balance sheet, increasing
both the asset and liability and changes the nature of costs on the
income statement, with a positive impact on EBITDA. The overall
impact on the Group's Statement of Comprehensive Income for 2018 is
likely to be favourable by GBP0.3m. See note 11 for further
details.
ACQUISITIONS AND DISPOSALS
The Group acquired a single site pawnbroking business net of
acquired cash for GBP0.6m during the year. Net assets were acquired
at fair value. No disposals of stores or loan books took place
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 2018 (2017: GBPnil).
SHARE PRICE AND EPS
At 31 December 2018, the share price was 264p (2017: 335p) and
market capitalisation was GBP99.4m (2017: GBP124.6m). Basic
earnings per share were 29.3p (2017: 26.0p), diluted earnings per
share were 29.2p (2017: 25.9p).
James Thornton
Senior Independent Director and Chair of Audit Committee
Group statement of comprehensive income
For the year ended 31 December 2018
2018 2017
(Restated*)
Continuing operations: Note GBP'000 GBP'000
Revenue 2 143,025 124,697
Cost of sales (54,781) (46,567)
Gross profit 2 88,244 78,130
Other direct expenses (60,674) (53,440)
Administrative expenses (13,272) (12,234)
Operating profit 14,298 12,456
Investment revenues 3 -
Finance costs (767) (567)
Profit before taxation 13,534 11,889
Tax charge on profit 4 (2,705) (2,396)
Profit for the financial year and total
comprehensive income 10,829 9,493
2018 2017
Earnings per share from continuing operations Pence Pence
Basic 5 29.35 26.02
Diluted 5 29.25 25.91
All profit for the year is attributable to equity
shareholders.
*Certain comparative information has been restated because of
the initial application of IFRS 9 as discussed in note 9
Group statement of changes in equity
For the year ended 31 December 2018
Employee
Benefit
Trust
Share premium shares Retained
Share capital account reserve earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2017 1,852 25,754 (35) 71,276 98,847
IFRS 9 Restatement - - - (6,078) (6,078)
Profit for the year* - - - 9,493 9,493
Total comprehensive income - - - 9,493 9,493
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) 71,223 99,701
At 1 January 2018 1,872 26,641 (35) 71,223 99,701
Profit for the year - - - 10,829 10,829
Total comprehensive income - - - 10,829 10,829
Issue of share capital 11 511 - - 522
Share option movement - - - (72) (72)
Dividends - - - (3,986) (3,986)
At 31 December 2018 1,883 27,152 (35) 77,994 106,994
* Certain comparative information has been restated as a result
of the initial application of IFRS 9 as discussed in note 9.
Group balance sheet
As at 31 December 2018
31 December 31 December
2018 2017
GBP'000 (Restated*)
GBP'000
Non-current assets
Goodwill 17,643 17,643
Other intangible assets 343 331
Property, plant and equipment 6,032 6,381
Deferred tax assets 1,075 1,313
25,093 25,668
Current assets
Inventories 29,262 34,102
Trade and other receivables 74,670 64,478
Other current assets 877 665
Cash and bank balances 11,414 8,676
116,223 107,921
Total assets 141,316 133,589
Current liabilities
Trade and other payables (7,384) (9,731)
Current tax liabilities (797) (1,034)
(8,181) (10,765)
Net current assets 108,042 97,156
Non-current liabilities
Borrowings (24,888) (21,810)
Long term provisions (1,253) (1,313)
(26,141) (23,123)
Total liabilities (34,322) (33,888)
Net assets 106,994 99,701
Equity
Share capital 1,883 1,872
Share premium account 27,152 26,641
Employee Benefit Trust shares
reserve (35) (35)
Retained earnings 77,994 71,223
Total equity attributable
to equity holders 106,994 99,701
* Certain comparative information has been restated as a result
of the initial application of IFRS 9 as discussed in note 9
The financial statements of H&T Group plc, registered number
05188117, were approved by the Board of Directors and authorised
for issue on 11 March 2019.
They were signed on its behalf by:
J G Nichols
Chief Executive
Group cash flow statement
For the year ended 31 December 2018
2018 2017 (Restated*)
Note GBP'000 GBP'000
Net cash generated/(used in) from operating
activities 6 5,906 (3,493)
Investing activities
Interest received 3 -
Proceeds on disposal of property, plant
and equipment - 7
Purchases of property, plant and equipment (2,101) (1,768)
Acquisition of trade and assets of
businesses (575) (21)
Net cash used in investing activities (2,673) (1,782)
Financing activities
Dividends paid (3,986) (3,564)
Increase in borrowings 3,000 7,000
Debt restructuring costs (31) -
Proceeds on issue of shares 522 907
Net cash (used in) / generated from
financing activities (495) 4,343
Net increase / (decrease) in cash and
cash equivalents 2,738 (932)
Cash and cash equivalents at beginning
of the year 8,676 9,608
Cash and cash equivalents at end of
the year 11,414 8,676
* Certain comparative information has been restated as a result
of the initial application of IFRS 9 as discussed in note 9.
Notes to the preliminary announcement
For the year ended 31 December 2018
1. Finance information and significant accounting policies
The financial information has been abridged from the audited
financial statements for the year ended 31 December 2018.
The financial information set out above does not constitute the
company's statutory accounts for the years ended 31 December 2018
or 2017 but is derived from those accounts. Statutory accounts for
2017 have been delivered to the Registrar of Companies and those
for 2018 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 2019.
IFRS 15 Revenue from Contracts with Customers
In the current year, the Group has applied IFRS 15 Revenue from
Contracts with Customers (as amended in April 2016) which is
effective for an annual periods beginning on and after 1 January
2018. IFRS 15 introduces a 5--step approach to revenue recognition.
Far more prescriptive guidance has been added in IFRS 15 to deal
with specific scenarios. Details of the new requirements as well as
their impact on the Group's consolidated financial statements are
described below. The Group has applied IFRS 15 in accordance with
the fully retrospective transitional approach without using the
practical expedients.
IFRS 15 uses the terms 'contract asset' and 'contract liability'
to describe what might more commonly be known as 'accrued income'
and 'deferred income', however the Standard does not prohibit an
entity from using alternative descriptions in the statement of
financial position. The Group has retained the use of 'accrued
revenue' and 'deferred revenue' in the financial statements.
The Group's accounting policies for its revenue streams are
disclosed in detail in below. Apart from providing more extensive
disclosures for the Group's revenue transactions, the application
of IFRS 15 has not had an impact on the financial position and/or
financial performance of the Group. Further information has been
provided in note 10.
IFRS 9 Financial instruments
In the current year, the Group has applied IFRS 9 Financial
Instruments. The Group has restated 2017 comparatives in respect of
the classification and measurement of financial instruments.
Additionally, the Group adopted consequential amendments to IFRS 7
Financial Instruments: Disclosures that were applied to the
disclosures for 2018 and to the comparative period.
Notes to the preliminary announcement (continued)
For the year ended 31 December 2018
1. Finance information and significant accounting policies (continued)
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 is no impact on the classification and measurement of the
personal loans or pawnbroking trade receivables, both are measured
at amortised cost.
There is no change in the accounting for any financial
liabilities.
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 is an increase in both revenue and impairment for
Pawnbroking and Personal Loans.
In respect of the personal loan receivable the Group recognises
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 is based on the lifetime expected credit losses as there
has been a significant increase in credit risk. IFRS 9 also
requires the external environment to be considered as part of the
calculation of expected credit losses (ECL) the form of a
macro-economic overlay. Due to the nature of the alternative credit
sector and historical evidence, management have determined that the
effect of traditional macro-economic downside indicators is minimal
and therefore such an overlay is currently not necessary.
Management will continue to monitor external macro-economic trends
and their impact and apply an overlay should it become appropriate
to do so.
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.
Further information on the restatement of the comparatives are
provided in note 9.
IFRS 16 Leases
IFRS 16 introduces a comprehensive model for the identification
of lease arrangements and accounting treatments for both lessors
and lessees. IFRS 16 will supersede the current lease guidance
including IAS 17 Leases and the related interpretations when it
becomes effective for accounting periods beginning on or after 1
January 2019. The Group currently expects to adopt IFRS 16 for the
year ending 31 December 2019.
1. Finance information and significant accounting policies (continued)
IFRS 16 distinguishes leases and service contracts on the basis
of whether an identified asset is controlled by a customer.
Distinctions of operating leases (off balance sheet) and finance
leases (on balance sheet) are removed for lessee accounting, and is
replaced by a model where a right-of-use asset and a corresponding
liability have to be recognised for all leases by lessees (i.e. all
on balance sheet) except for short-term leases and leases of low
value assets. The right-of-use asset is initially measured at cost
and subsequently measured at cost (subject to certain exceptions)
less accumulated depreciation and impairment losses, adjusted for
any remeasurement of the lease liability. The lease liability is
initially measured at the present value of the lease payments that
are not paid at that date.
Subsequently, the lease liability is adjusted for interest and
lease payments, as well as the impact of lease modifications,
amongst others. Furthermore, the classification of cash flows will
also be affected because operating lease payments under IAS 17 are
presented as operating cash flows; whereas under the IFRS 16 model,
the lease payments will be split into a principal and an interest
portion which will be presented as financing and operating cash
flows respectively.
In contrast to lessee accounting, IFRS 16 substantially carries
forward the lessor accounting requirements in IAS 17, and continues
to require a lessor to classify a lease either as an operating
lease or a finance lease. Furthermore, extensive disclosures are
required by IFRS 16.
See note 11 for further information on the likely impact of IFRS
16 adoption.
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 The Group recognises revenue from the following
major sources:
-- Pawnbroking, or Pawn Service Charge (PSC);
-- Retail;
-- Pawnbroking scrap and gold purchasing;
-- Personal loans interest income; and
-- Other services.
1. Finance information and significant accounting policies (continued)
Pawnbroking, or Pawn Service Charge (PSC)
PSC comprises interest on pledge book loans, plus auction profit
and loss, less any auction commissions payable and less surplus
payable to the customer. Revenue is recognised over time in
relation to the interest accrued by reference to the principal
outstanding and the effective interest rate applicable as governed
by IFRS 9.
Retail
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. For sales of goods to retail customers,
revenue is recognised when control of the goods has transferred,
being at the point the customer purchases the goods at the store.
Payment of the transaction price is due immediately at the point
the customer purchases the goods.
Under the Group's standard contract terms, customers have a
right of return within 30 days. At the point of sale, a refund
liability and a corresponding adjustment to revenue is recognised
for those products expected to be returned. At the same time, the
Group has a right to recover the product when customers exercise
their right of return so consequently recognises a right to
returned goods asset and a corresponding adjustment to cost of
sales.
The Group uses its accumulated historical experience to estimate
the number of returns. It is considered highly probable that a
significant reversal in the cumulative revenue recognised will not
occur given the consistent and immaterial level of returns over
previous years.
Pawnbroking scrap and gold purchasing
Scrap revenue comprises proceeds from gold scrap sales. Revenue
is recognised when control of the goods has transferred, being at
the point the smelter purchases the relevant metals.
Personal loans interest income
This comprises income from the Group's unsecured lending
activities. Personal loan revenues are shown stated before
impairment when in stages 1 and 2 of the expected credit loss model
and net of impairment when in stage 3. The impairment charge is
included within other direct expenses in the Group statement of
comprehensive income. Revenue is recognised over time in relation
to the interest accrued, as dictated by IFRS 9.
Other services
Other services comprise revenues from third party cheque
cashing, foreign exchange income, buyback and other income.
Commission receivable on cheque cashing, foreign exchange income
and other income is recognised at the time of the transaction as
this is when control of the goods has transferred. Buyback revenue
is recognised at the point of sale of the item back to the
customer, when control of the goods has transferred.
1. Finance information and significant accounting policies (continued)
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.
Gross profit
Gross profit is stated after charging inventory, pledge and
other services provisions and direct costs of inventory items sold
or scrapped in the year.
Other direct expenses
Other direct expenses comprise all expenses associated with the
operation of the various shops and collection centre of the Group,
including premises expenses, such as rent, rates, utilities and
insurance, all staff costs and staff related costs for the relevant
employees.
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 (stores) 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 (CGU) 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 CGU, which for acquisitions
represents the specific store or stores acquired.
There was no impairment loss recorded in the current year (2017:
GBPnil). The principal assumptions applied by management in
arriving at the value in use of each cash generating unit (CGU) are
as follows:
The Group prepares cash flow forecasts over a five-year period
for each CGU. 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 2018. 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 11% (2017: 12%).
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, but are
comfortable that no impairment exists at the balance sheet date
based on reasonably possible sensitivities.
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 Group's unsecured
lending activities. Personal loan revenues are stated at amortised
cost after taking into consideration an assessment on a
forward-looking basis of expected credit losses.
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
Gold Pawnbroking Personal Other year
2018 Pawnbroking purchasing Retail scrap loans services ended 2018
Revenue GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
External revenue 41,278 20,745 38,338 14,059 22,472 6,133 143,025
Total revenue 41,278 20,745 38,338 14,059 22,472 6,133 143,025
Gross profit 41,278 3,757 13,203 1,401 22,472 6,133 88,244
Impairment (10,366) - - - (15,515) - (25,881)
Segment result 30,912 3,757 13,203 1,401 6,957 6,133 62,363
Other direct expenses excluding impairment (34,793)
Administrative expenses (13,272)
Operating profit 14,298
Interest receivable 3
Finance costs (767)
Profit before taxation 13,534
Tax charge on profit (2,705)
Profit for the financial year and
total comprehensive income 10,829
Notes to the preliminary announcement (continued)
For the year ended 31 December 2018
2. Operating segments (continued)
Gold Pawnbroking Personal Other
2017 (restated) Pawnbroking purchasing Retail scrap loans services Total
Revenue GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
External revenue 38,466 17,651 35,407 11,696 15,574 5,903 124,697
Total revenue 38,466 17,651 35,407 11,696 15,574 5,903 124,697
Gross profit 38,466 3,397 12,859 1,931 15,574 5,903 78,130
Impairment (9,167) - - - (11,679) - (20,846)
Segment result 29,299 3,397 12,859 1,931 3,895 5,903 57,284
Other direct expenses excluding impairment (32,594)
Administrative expenses (12,234)
Operating profit 12,456
Investment revenues -
Finance costs (567)
Profit before taxation 11,889
Tax charge on profit (2,396)
Profit for the financial year and
total comprehensive income 9,493
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 2018
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
2018 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Other information
Capital
additions
(*) 2,279 2,279
Depreciation
and
amortisation
(*) 2,483 2,483
Balance sheet
Assets
Segment
assets 51,991 720 28,876 543 20,491 - 102,621
Unallocated
corporate
assets 33,933 33,933
Consolidated
total
assets 141,316
Liabilities
Segment
liabilities - - (646) - - (34) (680)
Unallocated
corporate
liabilities (33,642) (33,642)
Consolidated
total
liabilities (34,322)
Unallocated
Pawn-broking Gold Pawn-broking Personal Other assets/
2017 GBP'000 purchasing Retail scrap loans services (liabilities) Total
(restated) 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 47,451 1,658 31,858 1,251 14,930 - 97,148
Unallocated
corporate
assets 31,833 31,833
Consolidated
total
assets 133,589
Liabilities
Segment
liabilities - - (650) - - (100) (750)
Unallocated
corporate
liabilities (33,138) (33,138)
Consolidated
total
liabilities (33,888)
(*) 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 2018
2. Operating segments (continued)
Geographical segments
The Group's revenue from external customers by geographical
location are detailed below:
2018 2017
(Restated)
GBP'000 GBP'000
United Kingdom 141,273 123,492
Other 1,755 1,205
143,028 124,697
The Group's non-current assets are located entirely in the
United Kingdom. Accordingly, no further geographical segments
analysis is presented.
3. Finance costs
2018 2017
GBP'000 GBP'000
Interest on bank loans 657 472
Other interest 1 1
Amortisation of debt issue
costs 109 94
Total interest expense 767 567
Notes to the preliminary announcement (continued)
For the year ended 31 December 2018
4. Tax charge on profit
(a) Tax on profit on ordinary activities
2018 2017 (Restated)
Current tax GBP'000 GBP'000
United Kingdom corporation tax charge at 19% (2017:
19.25%)
based on the profit for the year 2,633 2,316
Adjustments in respect of prior years (94) 181
Total current tax 2,539 2,497
Deferred tax
Timing differences, origination and reversal 133 (100)
Adjustments in respect of prior years 33 (1)
Effects of change in tax rate - -
Total deferred tax 166 (101)
Tax charge on profit 2,705 2,396
(b) Factors affecting the tax charge for the year
The tax assessed for the year is higher than that resulting from
applying a standard rate of corporation tax in the UK of 19% (2017:
19.25%). The differences are explained below:
2018 2017 (Restated)
GBP'000 GBP'000
Profit before taxation 13,534 11,889
Tax charge on profit at standard rate 2,571 2,289
Effects of:
Disallowed expenses and non-taxable income 11 (81)
Non-qualifying depreciation 115 118
Movement in short-term timing differences 69 (110)
Adjustments to tax charge in respect of
prior years (61) 180
Tax charge on profit 2,705 2,396
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. The amount
taken to equity in the current period was GBP72,000 (2017: release
of GBP96,000).
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 Year ended 31 December
2018 2017 (Restated)
Weighted Weighted
average Per-share average Per-share
Earnings number amount Earnings number amount
GBP'000 of shares pence GBP'000 of shares pence
Earnings per share: basic 10,829 36,895,316 29.35 9,493 36,479,426 26.02
Effect of dilutive securities
Options and conditional
shares - 126,277 (0.10) - 155,374 (0.11)
Earnings per share: diluted 10,829 37,021,593 29.25 9,493 36,634,800 25.91
Notes to the preliminary announcement (continued)
For the year ended 31 December 2018
6. Notes to the Cash Flow Statement
2018 2017 (Restated)
GBP'000 GBP'000
Profit for the year 10,829 9,493
Adjustments for:
Investment revenues (3) -
Finance costs 767 567
Decrease in provisions (60) (185)
Income tax expense 2,705 2,396
Depreciation of property, plant and equipment 2,333 2,428
Amortisation of intangible assets 150 200
Loss on disposal of property, plant and equipment 133 69
Operating cash flows before movements in working
capital 16,854 14,969
Decrease/(Increase) in inventories 4,884 (4,311)
(Increase)/Decrease in other current assets (212) 184
Increase in receivables (9,851) (11,989)
(Decrease)/Increase in payables (2,351) 618
Cash generated/(used in) from operations 9,324 (529)
Income taxes paid (2,776) (2,508)
Interest paid (642) (456)
Net cash generated/(used in) from operating
activities 5,906 (3,493)
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 2018
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:
2018 2017 (Restated)
GBP'000 GBP'000
Operating profit 14,298 12,456
Depreciation and amortisation 2,482 2,629
EBITDA 16,780 15,085
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 2018 of 6.6p (2017: 6.2p).
Notes to the preliminary announcement (continued)
For the year ended 31 December 2018
9. Explanation of transition from IAS 39 to IFRS 9
In the current year, the Group has applied IFRS 9 Financial
Instruments (as revised in July 2014) and the related consequential
amendments to other IFRS Standards that are effective for an annual
period that begins on or after 1 January 2018. The transition
provisions of IFRS 9 allow an entity not to restate comparatives.
However, the Group has elected to restate comparatives in respect
of the classification and measurement of financial instruments.
Details of these new requirements as well as their impact on the
Group's consolidated financial statements are described below.
(a) Classification and measurement of financial assets
The Directors of the Company reviewed and assessed the Group's
existing financial assets as at 1 January 2018 based on the facts
and circumstances that existed at that date and concluded that the
initial application of IFRS 9 has had the following impact on the
Group's financial assets as regards their classification and
measurement: financial assets classified as held-to-maturity and
loans and receivables under IAS 39 that were measured at amortised
cost continue to be measured at amortised cost under IFRS 9 as they
are held within a business model to collect contractual cash flows
and these cash flows consist solely of payments of principal and
interest on the principal amount outstanding.
There have been no other reclassifications of financial assets
have had any impact on the Group's financial position, profit or
loss, other comprehensive income or total comprehensive income in
either year.
(b) Impairment of financial assets
As the Group has elected to restate comparatives, for the
purpose of assessing whether there has been a significant increase
in credit risk since initial recognition of financial instruments
that remain recognised on the date of initial application of IFRS 9
(i.e. 1 January 2018), the Directors have compared the credit risk
of the respective financial instruments on the date of their
initial recognition to their credit risk as at 1 January 2017.
The result of the assessment is as follows:
Notes to the preliminary announcement (continued)
For the year ended 31 December 2018
9. Explanation of transition from IAS 39 to IFRS 9 (continued)
Cumulative additional
loss allowance recognised
on:
Items existing Credit risk attributable 1 January 1 January
as at 1 January at 1 January 2017 and 2018 2017 2018
2018 that are subject GBP'000 GBP'000
to the impairment
provision of IFRS
9
A proportion of these balances
are assessed to have credit
risk other than low. Accordingly,
the Group recognises lifetime
ECL for these loans until
they are derecognised.
For the remaining proportion
the Group has assessed
that the credit risk on
these financial instruments
has not increased significantly
since initial recognition
and have recognised 12-months
Pledge Book ECL for these assets. 5,101 5,473
Trade receivables
(loan book) 1,486 3,326
Cash and bank balances All bank balances are assessed - -
to have low credit risk
at each reporting date
as they are held with reputable
international banking institutions.
The additional credit loss allowance of GBP8,799,000 as at 1
January 2018 and GBP6,587,000 as at 1 January 2017 has been
recognised against retained earnings on the respective dates, net
of their related tax impact of GBP878,000 and GBP509,000
respectively, resulting in a net decrease in retained earnings of
GBP7,921,000 and GBP6,078,000 as at 1 January 2018 and 2017
respectively. The additional loss allowance is charged against the
respective asset. The application of the IFRS 9 impairment
requirements has resulted in additional loss allowance of
GBP1,843,000 to be recognised in year ended 31 December 2017.
Original New Original Additional New
measurement measurement carrying loss carrying
category under category under amount allowance amount
IAS 39 IFRS 9 under recognised under IFRS
IAS 39 under IFRS 9
9
Financial
assets at
Trade and other amortised
receivables Loans and receivables cost 73,277 (8,799) 64,478
9. Explanation of transition from IAS 39 to IFRS 9 (continued)
The tables below show the amount of adjustment for each
financial statement line item affected by the application of IFRS 9
for the prior year.
Impact on profit or loss, other comprehensive
income and total comprehensive income as at GBP'000
31 December 2017
Increase in revenue 14,363
Increase in administrative expenses (16,575)
Decrease in income tax 369
Decrease in profit for the year (1,843)
Impact on assets, liabilities and equity as
at 1 January
2017
Decrease in trade and other receivables (6,587)
Increase in deferred tax assets 509
Total effect on net assets (6,078)
Retained earnings (6,078)
Impact on assets, liabilities and equity as
at 31 December 2017
Decrease in trade and other receivables (8,799)
Increase in deferred tax assets 452
Decrease in tax liabilities 426
Total effect on net assets (7,921)
Retained earnings (7,921)
The application of IFRS 9 has had no impact on the consolidated
cash flows of the Group.
Notes to the preliminary announcement (continued)
For the year ended 31 December 2018
10. IFRS 15 Revenue from Contracts with Customers
In the current year, the Group has applied IFRS 15 Revenue from
Contracts with Customers which is effective for an annual periods
beginning on and after 1 January 2018. IFRS 15 introduces a 5--step
approach to revenue recognition. Far more prescriptive guidance has
been added in IFRS 15 to deal with specific scenarios.
The Group has applied IFRS 15 in accordance with the fully
retrospective transitional approach without using the practical
expedients. Apart from providing more extensive disclosures for the
Group's revenue transactions, the application of IFRS 15 has not
had an impact on the financial position and/or financial
performance of the Group.
11. IFRS 16 Leases
IFRS16 is a new standard on lease accounting which will be
introduced for year ended 31 December 2019. The standard requires
the recognition of significant leases on balance sheet, increasing
both the asset and liability and will change the nature of costs on
the income statement, with a positive impact on EBITDA.
As at 31 December 2018, the Group has non-cancellable operating
lease commitments of GBP25,297,000. IAS 17 does not require the
recognition of any right-of-use asset or liability for future
payments for these leases; instead, certain information is
disclosed as operating lease commitments. Our assessment indicates
that these arrangements will meet the definition of a lease under
IFRS 16, and hence the Group will recognise a right-of-use asset
and a corresponding liability in respect of all these leases unless
they qualify for low value or short-term leases upon the
application of IFRS 16. The new requirement to recognise a
right-of-use asset and a related lease liability is expected to
have a significant impact on the amounts recognised in the Group's
consolidated financial statements. Preliminary calculations
indicate that the impact on the balance sheet will be a net
reduction in retained earnings of GBP2.8m as at 31 December 2018,
with the fixed asset capitalised at net book value of GBP19.8m
offset by lease liability of GBP22.6m. The impact on the Group's
Statement of Comprehensive Income for 2018 is likely to be
favourable by GBP0.3m.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR CKDDDKBKBKND
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