REG - H&T Group PLC - Interim Results <Origin Href="QuoteRef">HTGR.L</Origin>

H & TAnnouncement

19/08/2016 12:35

RNS Number : 2267H
H&T Group PLC
16 August 2016
H&T Group plc 
("H&T" or "the Group" or "the Company") 
UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2016
H&T Group plc, which trades under the H&T Pawnbrokers and est1897 brands, today announces its interim results for the six months ended 30 June 2016.
John Nichols, chief executive, said: "This is a promising start to the year in the face of challenging trading conditions, with a strong operational performance aided by favourable market conditions around the gold price.
We have reinvigorated and widened our product range to capture the opportunities presented by the ongoing changes in the wider market. The continued growth in our Personal Loans products and the recent increases in gold price, if sustained, will benefit the Group during the second half of the year." 
KEY FINANCIAL RESULTS
 Profit before tax up 42.3% to 3.7m (H1 2015: 2.6m)
 Basic EPS of 7.99p (H1 2015: 5.53p)
 Net debt reduced by 22.5% to 6.9m (30 June 2015: 8.9m)
 Pledge book increased by 4.3% to 39.0m (30 June 2015: 37.4m)
 Personal Loan book increased 85.3% to 6.3m (30 June 2015: 3.4m)
 Pawn Service Charge down 1.4% at 14.1m (H1 2015: 14.3m)
 Other Services income increased 68.8% to 2.7m (H1 2016: 1.6m)
 Interim dividend of 3.9p (2015 interim: 3.5p)
OPERATIONAL HIGHLIGHTS
 Launch of the new higher value, lower APR personal loan product to customers with good history
 Development of a new high-end operation on Old Bond Street, London
 Creation of a retail merchandising team to support stock efficiency and sales
 Enhancements to the field operations and leadership team to support new product development
Enquiries:
H&T Group plc
Tel: 0870 9022 600
John Nichols, chief executive
Steve Fenerty, finance director
Numis Securities (broker and nominated adviser)
Tel: 020 7260 1000
Mark Lander, corporate broking
Freddie Barnfield, nominated adviser
Haggie Partners (public relations)
Tel: 020 7562 4444
Damian Beeley
Brian Norris
INTERIM REPORT
Introduction
The trading environment remains challenging for the sector with most large businesses reporting losses and being forced to significantly restructure their operations. H&T had anticipated many of these changes and had adjusted its business model and investment approach accordingly. As a result, we have fared relatively well over the last two years.
The Group has made good progress realigning the business to capture the opportunities presented by the continuing changes in the wider market. In particular the developments in the Personal Loan and Buyback products support the core proposition of providing easy access to cash and extend our reach into new customer segments.
In the medium term we will develop these areas further by integrating the online and offline services to provide a clear proposition to the consumer irrespective of how they access our services.
Financial performance
Profit before tax increased by 42.3% to 3.7m (H1 2015: 2.6m) through a combination of strong operational performance and a rising gold price.
Gross profit increased by 2.3m with the majority of the growth from Personal Loans, Buyback and FX. The average sterling gold price during H1 2016 was 852 (H1 2015: 791), an increase of 7.7%; gross profits from Gold Purchasing and Pawnbroking Scrap activities increased by 0.9m as a result.
Total direct and administration expenses increased 6.0% to 21.2m (H1 2015: 20.0m) principally as a result of investment in people and systems to support product development.
The Group's balance sheet is strong with net debt at 6.9m (30 June 2015: 8.9m) and a leverage ratio of 0.57x (30 June 2016: 0.87x), well within the covenant test of 3.0x. The Group refinanced its existing facility on 12 February 2016 with Lloyds Bank plc; the new facility has a termination date of 30 April 2020. The 4.8m increase in net debt since year end is principally due to the planned increase in the Personal Loans and inventory balances.
The Group has closed three stores in H1 2016 resulting in 186 trading stores at 30 June 2016. The Group continues to assess underperforming stores and anticipates a small number of closures in the second half.
Dividend
The directors have approved an interim dividend of 3.9 pence (2015 interim: 3.5 pence). This will be payable on 7 October 2016 to all shareholders on the register at the close of business on 9 September 2016.
REVIEW OF OPERATIONS
Pawnbroking
The pledge book increased to 39.0m (30 June 2015: 37.4m) as a result of the development of a new distribution channel for pawnbroking services and a slight increase in the aged pledge.
The Pawn Service Charge was 14.1m (H1 2015: 14.3m); the interest component of the Pawn Service Charge was 14.1m (H1 2015: 14.2m) which more accurately reflects the underlying performance of the pawnbroking segment than the total Pawn Service Charge. The yield on the pledge book has marginally reduced due to the changing business mix and the increase in aged pledge.
Development of the pawnbroking product remains extremely challenging in this market. Over the last ten years a combination of increased competition, a reduction of gold in circulation and changing fashion have resulted in reducing numbers of customers using the service. Recent market trends have stabilised as the number of competitor stores reduces and gold purchasing activity reduces.
The Group has invested heavily in its existing stores and people to provide the highest standards of service to our customers. This investment together with enhancements to asset valuations, the Expert Eye central support and integration of our online and offline services will ultimately support the development of our pawnbroking product.
The expansion of the "we lend on anything" proposition continues with the launch of our H&T Finance branded location on Old Bond St, London. This provides a central London location to serve a more affluent customer and enables access to product experts to assist in valuation and disposition.
Pawnbroking scrap
Pawnbroking scrap produced gross profits of 0.6m (H1 2015: 0.1m profit) for the half year, on sales of 4.9m (H1 2015: 4.2m). This performance benefitted from the increased gold price during H1 2016.
The impact of the EU referendum on the US$ exchange rate has increased the sterling price of gold: the average for July 2016 was 1,017 per troy oz vs a H1 2016 average of 852. This increase, if sustained, will benefit the Group during H2 2016.
Retail
The Group regards the High Street retail offering as a core part of its business. Pawnbroking and Gold Purchasing generate significant amounts of saleable jewellery which must be sold. The ability to retail items rather than scrap them provides a higher return and reduces the Group's exposure to short term gold price volatility.
Retail sales increased by 1.5% to 13.6m (H1 2015: 13.4m) and gross profits were flat at 4.8m (H1 2015: 4.8m). During the H1 2016 the Group closed one standalone Discount Secondhand Jewellery store as we were unable to secure satisfactory lease terms.
The Group has invested in a merchandising team to provide a more focussed approach to sales and inventory management.
Gold Purchasing
Gold purchasing profits increased from 1.0m in H1 2015 to 1.5m in H1 2016. The additional profit and margin was mainly the result of the increasing gold price during H1 2016.
The impact of an increase in gold price to purchasing profits is relatively short lived. There is a delay between purchasing gold in store and realising the value through the market; if the gold price increases during this period then margins are enhanced. As the gold price stabilises, the rate that is paid for gold in store increases and ultimately we return to normal margins.


Personal Loans
Personal Loans gross profits increased by 25.0% to 1.5m (H1 2015: 1.2m); the loan book net of provisions at 30 June 2016 increased 85.3% to 6.3m (30 June 2015: 3.4m).
The development of the Personal Loan product in-store and online is a significant opportunity. H&T's Personal Loan allows for loans of up to 2,500 over any term of up to three years based on affordability. Approximately 80% of the loans issued by the Group fell under the definition of High-Cost Short-Term Credit (HCSTC) during H1 2016 and as such must comply with additional rules under the Financial Conduct Authority (FCA) regulatory regime.
The Group has positioned the Personal Loan product to be cheaper and more flexible than most comparable loans in the market and has applied robust affordability assessments including a manual review of each loan application. The Group intends to reduce the proportion of HCSTC loans over time as we expand our lower APR, longer term loans for our customers. During H1 2016 the Group lent 1.0m through its larger loan product to existing customers with good repayment history.
The increase in Personal Loans has been delivered principally through operational improvements in store, the store loan book represents approximately 95% of the total Personal Loans book. Online presents a significant opportunity for the Group: during H2 2016 we will complete the implementation of new underwriting systems to support the expansion of this segment.
Other Services
Other Services revenues increased 68.8% to 2.7m (H1 2016: 1.6m). Foreign Exchange, Buyback and Western Union have collectively contributed 2.3m in H1 2016 (H1 2015: 1.0m) and brought a significant number of new customers to H&T. FX and Buyback delivered the majority of the growth with an increase in gross profits of 0.8m and 0.4m respectively.
FX is a simple transactional product based around sales of retail foreign currency on the high street. Our experience demonstrates that there are low barriers to entry and customers show a willingness to shop around for the best rates. We believe that further expansion in this product is possible through keen pricing and increasing awareness. The larger providers typically charge a significantly higher margin than H&T while also capturing the vast majority of the market. As we become established in the market we believe that more customers will seek us out.
During H1 2016 sales of FX increased by 60.4% and purchases more than doubled delivering transactional profits of 1.2m (H1 2015: 0.7m). Exchange rate gains during H1 2016 were 0.1m (H1 2015: 0.2m loss), the Group introduced hedging of the foreign currency balances in June 2016 to manage this exposure. The recent weakness of sterling and travellers' concerns about safety may result in slower growth in the short term.
Our Buyback offering supports the "we buy anything" proposition by expanding the range of assets we accept into high end consumer electronics. Demographically the Buyback customer base is younger and more likely to be male than a pawnbroking customer. Changing fashion also means that younger customers are more likely to own a high end phone than a piece of quality jewellery. The Buyback product allows us to address this changing market.
Buyback gross profit doubled to 0.8m (H1 2015: 0.4m), the value of goods purchased using the Buyback service increased 72.0% to 4.3m (H1 2015: 2.5m).


REGULATION
The Financial Conduct Authority
The regulation of Consumer Credit moved from the Office of Fair Trading (OFT) to the Financial Conduct Authority (FCA) on 1 April 2014. The Group obtained authorisation from the FCA on 11 February 2016 and we welcome the higher standards that this change will bring to our sector.
High-cost short-term cost cap
On 1 January 2015 the FCA implemented its cap on the interest rate and charges that apply to High-Cost Short-Term Credit (HCSTC). The FCA has stated that it will review the price cap during the first half of 2017.
The vast majority of H&T Personal Loans are well within the current cap; we therefore believe that this review will have a limited impact on our product.
THE MARKET
The market is now characterised by store closures and trading losses, with few exceptions. H&T had planned for many of the changes experienced by the market, particularly around HCSTC and the risk of a reducing gold price. We have stabilised the business, strengthened the balance sheet and reinvigorated and widened our product range.
There will be more store closures among our competitors and further regulatory pressure on the market, only those businesses with the right products and capabilities to address the market will prosper.
STRATEGY AND OUTLOOK
The demand for small-sum, short-term cash loans remains strong. By increasing the range of assets the Group accepts, by expanding Personal Loans and expanding our online services we will be ideally positioned to grow as the market adjusts in the future.
Current trading is in line with management's expectations. The recent increases in gold price, if sustained, will benefit the Group in the remainder of the year.



Interim Condensed Financial Statements
Unaudited statement of comprehensive income
For the 6 months ended 30 June 2016




6 months ended 30 June 2016
6 months ended 30 June 2015
12 months ended 31 December 2015

Note


Total
Total
Total




Unaudited
Unaudited
Audited




'000
'000
'000







Revenue
2


42,385
40,848
89,355
Cost of sales



(17,192)
(17,922)
(41,782)




________
________
________
Gross profit
2


25,193
22,926
47,573







Other direct expenses



(15,841)
(15,802)
(32,079)
Administrative expenses



(5,398)
(4,167)
(7,976)




________
________
________
Operating profit
3


3,954
2,957
7,518







Investment revenues



-
1
1
Finance costs
5


(208)
(334)
(679)




________
________
________
Profit before taxation



3,746
2,624
6,840







Tax on profit
6


(857)
(626)
(1,462)




________
________
________
Total comprehensive income for the period 



2,889
1,998
5,378




________
________
________











Pence
Pence
Pence







Earnings per ordinary share - basic
7


7.99
5.53
14.88
Earnings per ordinary share - diluted
7


7.97
5.52
14.86







All results derive from continuing operations.


Unaudited condensed consolidated statement of changes in equity 
For the 6 months ended 30 June 2016

Note 
6 months
ended
30 June
2016
6 months
ended
30 June
2015
12 months 
ended
31 December
2015


Unaudited
Unaudited
Audited


'000
'000
'000





Opening total equity

94,060
90,863
90,863





Total comprehensive income for the period

2,889
1,998
5,378
Share option credit taken directly to equity

16
70
104
Dividends paid
9
(1,666)
(996)
(2,285)


Closing total equity

95,299
91,935
94,060


Unaudited condensed consolidated balance sheet
At 30 June 2016


At 30 June
2016
At 30 June
2015
At 31 December 
2015


Unaudited
Unaudited
Audited

Note
'000
'000
'000
Non-current assets




Goodwill

17,692
17,707
17,707
Other intangible assets

619
893
752
Property, plant and equipment

7,365
9,059
8,138
Deferred tax assets

542
528
542




26,218
28,187
27,139
Current assets




Inventories

29,043
31,595
24,802
Trade and other receivables

53,889
48,187
50,893
Other current assets

834
493
646
Cash and cash equivalents

14,118
7,929
10,923




97,884
88,204
87,264


Total assets

124,102
116,391
114,403


Current liabilities




Trade and other payables

(6,081)
(5,825)
(5,482)
Current tax liabilities

(718)
(602)
(645)
Borrowings
4
-
(1,755)
-




(6,799)
(8,182)
(6,127)


Net current assets

91,085
80,022
81,137


Non-current liabilities




Borrowings
4
(20,667)
(14,835)
(12,911)
Provisions

(1,337)
(1,439)
(1,305)




(22,004)
(16,274)
(14,216)


Total liabilities

(28,803)
(24,456)
(20,343)


Net assets

95,299
91,935
94,060







EQUITY




Share capital
8
1,843
1,843
1,843
Share premium account

25,409
25,409
25,409
Employee Benefit Trust share reserve

(35)
(35)
(35)
Retained earnings

68,082
64,718
66,843


Total equity attributable to equity holders of the parent

95,299
91,935
94,060




Unaudited condensed consolidated cash flow statement
For the 6 months ended 30 June 2016

Note
6 months 
ended
30 June
2016
6 months 
ended
30 June
2015
12 months ended
31 December 2015


Unaudited
Unaudited
Audited


'000
'000
'000
Cash flows from operating activities




Profit for the period

2,889
1,998
5,378
Adjustments for:




Investment revenues

-
(1)
(1)
Finance costs

208
334
679
Movement in provisions

32
(51)
(216)
Income tax expense

857
626
1,462
Depreciation of property, plant and equipment

1,419
1,454
2,897
Amortisation of intangible assets

133
163
321
Share based payment expense

16
70
104
Loss on disposal of fixed assets

172
16
75


Operating cash inflows before movements in working capital

5,726
4,609
10,699





(Increase)/decrease in inventories

(4,241)
(2,324)
4,469
Increase in other current assets

(188)
(264)
(417)
(Increase)/decrease in receivables

(3,036)
1,236
(1,367)
Increase/(decrease) in payables

340
(222)
(507)


Cash (used in)/generated from operations

(1,399)
3,035
12,877





Income taxes paid

(785)
(352)
(1,160)
Debt restructuring cost

(326)
-
-
Interest paid

(138)
(222)
(508)


Net cash (used in)/generated from operating activities

(2,648)
2,461
11,209


Investing activities




Interest received

-
1
1
Purchases of property, plant and equipment
(572)
(540)
(1,207)
Proceeds on disposal of property, plant and equipment
81
-
-
Acquisition of trade and assets of business
-
-
(120)

Net cash used in investing activities
(491)
(539)
(1,326)

Financing activities



Dividends paid 
9
(1,666)
(996)
(2,285)
Net increase /(decrease) in borrowings
8,000
(1,247)
(3,000)
Decrease in Bank overdraft
-
-
(1,925)

Net cash generated from/(used in) financing activities
6,334
(2,243)
(7,210)





Net increase/(decrease) in cash and cash equivalents
3,195
(321)
2,673




Cash and cash equivalents at beginning of period
10,923
8,250
8,250

Cash and cash equivalents at end of period
14,118
7,929
10,923



Unaudited notes to the condensed interim financial statements
For the 6 months ended 30 June 2016
Note 1 Basis of preparation
The interim financial statements of the Group for the six months ended 30 June 2016, which are unaudited, have been prepared in accordance with the International Financial Reporting Standards ('IFRS') accounting policies adopted by the Group and set out in the annual report and accounts for the year ended 31 December 2015. The Group does not anticipate any change in these accounting policies for the year ended 31 December 2016. As permitted, this interim report has been prepared in accordance with the AIM rules and not in accordance with IAS 34 "Interim financial reporting". While the financial figures included in this preliminary interim earnings announcement have been computed in accordance with IFRSs applicable to interim periods, this announcement does not contain sufficient information to constitute an interim financial report as that term is defined in IFRSs. 
The financial information contained in the interim report also does not constitute statutory accounts for the purposes of section 434 of the Companies Act 2006. The financial information for the year ended 31 December 2015 is based on the statutory accounts for the year ended 31 December 2015. The auditors reported on those accounts: their report was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
After conducting a further review of the Group's forecasts of earnings and cash over the next twelve months and after making appropriate enquiries as considered necessary, the directors have a reasonable expectation that the Company and Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the half yearly condensed financial statements.


Note 2 Segmental Reporting
2016
Revenue
Pawnbroking
'000
Gold
Purchasing
'000
Retail
'000
Pawnbroking Scrap
'000
Personal
Loans
'000
Other
Services
'000
Consolidated
for the 6 months ended 
30 June 2016
Unaudited
'000
External sales
14,130
5,599
13,555
4,898
1,481
2,722
42,385

Total revenue
14,130
5,599
13,555
4,898
1,481
2,722
42,385

Segment result - gross profit
14,130
1,471
4,820
569
1,481
2,722
25,193

Other direct expenses



(15,841)
Administrative expenses



(5,398)





Operating profit



3,954
Investment revenues



-
Finance costs



(208)





Profit before taxation



3,746
Tax charge on profit 



(857)





Profit for the financial year and total comprehensive income



2,889
2015
Revenue
Pawnbroking
'000
Gold
Purchasing
'000
Retail
'000
Pawnbroking Scrap
'000
Personal
Loans
'000
Other
Services
'000
Consolidated
for the 6 months ended 
30 June 2015
Unaudited
'000
External sales
14,283
6,279
13,364
4,196
1,158
1,568
40,848

Total revenue
14,283
6,279
13,364
4,196
1,158
1,568
40,848

Segment result - gross profit
14,283
1,047
4,797
73
1,158
1,568
22,926

Other direct expenses



(15,802)
Administrative expenses



(4,167)





Operating profit



2,957
Investment revenues



1
Finance costs



(334)





Profit before taxation



2,624
Tax charge on profit 



(626)





Profit for the financial year and total comprehensive income



1,998


Note 2 Segmental Reporting (continued)
2015
Revenue
Pawnbroking
'000
Gold
Purchasing
'000
Retail
'000
Pawnbroking Scrap
'000
Personal
Loans
'000
Other
Services
'000
Consolidated
For the year 
ended 2015
Audited
'000
External sales
28,437
15,260
29,543
9,718
2,389
4,008
89,355

Total revenue
28,437
15,260
29,543
9,718
2,389
4,008
89,355

Segment result - gross profit
28,437
2,297
10,326
116
2,389
4,008
47,573

Other direct expenses



(32,079)
Administrative expenses



(7,976)





Operating profit



7,518
Investment revenues



1
Finance costs



(679)





Profit before taxation



6,840
Tax charge on profit 



(1,462)





Profit for the financial year and total comprehensive income



5,378
Note 3 Operating profit and EBITDA 
EBITDA
The Board considers EBITDA as a key measure of the Group's financial performance.
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:
6 months ended 30 June 2016
Unaudited
6 months ended
30 June
2016
Unaudited
6 months ended
30 June
2015
Unaudited
12 months ended
31 December 2015
Audited

Total
Total
Total

'000
'000
'000




Operating profit
3,954
2,957
7,518
Depreciation and amortisation
1,552
1,617
3,218

EBITDA
5,506
4,574
10,736



Unaudited notes to the condensed interim financial statements (continued)
For the 6 months ended 30 June 2016
Note 4 Borrowings 

6 months
ended
30 June
2016
6 months
ended
30 June
2015
12 months 
ended
31 December
2015

Unaudited
Unaudited
Audited

'000
'000
'000
Secured borrowing at amortised cost



Short term portion of bank loan
-
1,755
-





Amount due for settlement within one year
-
1,755
-








Long term portion of bank loan
21,000
15,000
13,000
Unamortised issue costs
(333)
(165)
(89)




Amount due for settlement after more than one year
20,667
14,835
12,911








Note 5 Finance costs

6 months
ended
30 June
2016
6 months
ended
30 June
2015
12 months 
ended
31 December
2015

Unaudited
Unaudited
Audited

'000
'000
'000




Interest payable on bank loans and overdraft
126
258
524
Other interest
-
-
2
Amortisation of debt issue costs
82
76
153

Total finance costs
208
334
679



Unaudited notes to the condensed interim financial statements (continued)
For the 6 months ended 30 June 2016
Note 6 Tax on profit
The taxation charge for the 6 months ended 30 June 2016 has been calculated by reference to the expected effective corporation tax and deferred tax rates for the full financial year to end on 31 December 2016. The underlying effective full year tax charge is estimated to be 20% (six months ended 30June 2015: 20.3%).
Note 7 Earnings per share 
Basic earnings per share is calculated by dividing the profit for the period attributable to equity shareholders by the weighted average number of ordinary shares in issue during the period.
For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. With respect to the Group these represent share options granted to employees where the exercise price is less than the average market price of the Company's ordinary shares during the period.
Reconciliations of the earnings per ordinary share and weighted average number of shares used in the calculations are set out below:

Unaudited
Unaudited
Audited

6 months ended 30 June 2016
6 months ended 30 June 2015
12 months ended 31 December 2015


Earnings
'000
Weighted average number of shares
Per-share amount pence
Earnings
'000
Weighted average number of shares
Per-share amount pence
Earnings
'000
Weighted average number of shares
Per-share amount pence










Earnings per share -
basic
2,889
36,154,799
7.99
1,998
36,154,799
5.53
5,378
36,154,799
14.88










Effect of dilutive securities









Options
-
74,159
(0.02)
-
29,533
(0.01)
-
34,805
(0.02)

Earnings per share diluted
2,889
36,228,958
7.97
1,998
36,184,332
5.52
5,378
36,189,604
14.86



Unaudited notes to the condensed interim financial statements (continued)
For the 6 months ended 30 June 2016
Note 8 Share capital

At
30 June 2016
At 
30 June 2015
At 
31 December 2015

Unaudited
Unaudited
Audited
Allotted, called up and fully paid 
(Ordinary Shares of 0.05 each)



'000 Sterling
1,843
1,843
1,843

Number
36,856,264
36,856,264
36,856,264

Note 9 Dividends
On 11 August 2016, the directors approved a 3.9 pence interim dividend (30 June 2015: 3.5 pence) which equates to a dividend payment of 1,440,000 (30 June 2015: 1,290,000). The dividend will be paid on 7 October 2016 to shareholders on the share register at the close of business on 9 September 2016 and has not been provided for in the 2016 interim results. The shares will be marked ex-dividend on 8 September 2016.
On 28 April 2016, the shareholders approved the payment of a 4.5 pence final dividend for 2015 which equates to a dividend payment of 1,666,000 (2014: 996,000). The dividend was paid on 6 June 2016.

This information is provided by RNS
The company news service from the London Stock Exchange
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