REG - H&T Group PLC - Interim Results
09/08/2022 07:00
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RNS Number : 3260V H&T Group PLC 09 August 2022
9(th) August 2022
H&T Group PLC ("H&T" or "the Group" or "the Company")
UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 June 2022
H&T Group plc (AIM:HAT), the UK's largest pawnbroker and a leading
retailer of high quality new and pre-owned jewellery and watches, today
announces its interim results for the six months ended 30 June 2022 ("the
period").
Highlights
· Profit before tax of £6.7m (H1'2021: £4.7m) as the continued momentum in our
core pawnbroking business underpinned a strong performance.
· The pledge book grew 27% to £85.1m (December 2021: £66.9m) with demand for
pledge lending remaining at record levels. Daily average lending volumes are
more than 40% above pre-pandemic norms.
· Retail sales of £20.8m (H1'2021: £12.4m) reflects an increasing demand for
high quality new and pre-owned jewellery and watches.
· Net income from other services of £9.4m (H1'2021: £8.3m), driven by buoyant
gold purchasing, particularly during the second quarter, and a doubling of
foreign currency revenues as international holiday travel returns. Revenue
from personal loans has reduced as the book reduces.
· Net Asset Value of £139.1m (December 2021: £136.6m), supported by assets of
high intrinsic value.
· Net Debt of £8.6m (December 2021: net cash £17.6m). Cash balances and
funding facilities have been deployed primarily to fund the growing pledge
book and increased inventory.
· Interim dividend increased to 5p per share (H1'2021: 4p), reflecting the
Board's growing confidence in the future prospects for the Group.
· Acquired Swiss Time Services for a consideration of £4.3m, inclusive of a net
cash balance of £0.5m, on 1 July 2022. This acquisition is immediately
earnings enhancing and will bring watch repair and servicing expertise
in-house, supporting the Group's growing watch business.
Chris Gillespie, H&T chief executive, said:
"This year is the 125(th) anniversary of the founding of H&T. We have a
proud history and the growth we have seen in the first half of this year has
been very encouraging. We experienced increasing momentum across our product
set, customer base, and geographical locations. This has continued into the
second half.
I am delighted that we recently concluded the acquisition of Swiss Time
Services, allowing the Group to add watch repair services to its product
offering, which aligns well with our broader watch strategy. We look forward
to the opportunities and synergies this acquisition will bring to the Group.
We continue to invest, both in our store estate to take advantage of the
ongoing strong demand for our services, and the opportunity to expand beyond
our current footprint. We remain focused on enhancing the Group's IT
infrastructure and digital capabilities. We have begun the roll out of the new
Point of Sale (POS) system in our stores, with full roll out expected to be
completed before the end of 2022.
The positive trading momentum which began in late in 2021 has continued into
2022, with monthly demand for pledge lending growing, consistent appetite for
our new and pre-owned retail products, and a strong rebound in gold purchase
and foreign currency sales. We anticipate that demand for our services will
continue to grow in the months ahead, and we are investing in scale and
capabilities, both operational and technological, in order to take advantage
of the opportunities ahead of us.
I am extremely proud of the H&T team, wherever they work across the Group.
They consistently deliver outstanding levels of service to our customers. They
are and will remain, critical to our future success."
Financial Highlights 2022 2021 Change % FY 2021
(£m unless stated)
6 months ended 30 June
Reported Profit before Tax £6.7m £4.7m 42.6% £7.9m
Reported Diluted EPS (p) 13.1p 9.3p 40.9% 15.4p
Dividends per share 5p 4p 25% 12.0p
Net assets £139.1m £135.9m 2.4% £136.6m
Key Performance Indicators
Net Pledge book £85.1m £50.2m 69.5% £66.9m
Net Pawnbroking revenue £22.9m £18.5m 23.8% £37.7m
Retail sales £20.8m £12.4m 67.7% £36.2m
online sales 14% 19% 14%
new jewellery sales 18% 13% 16%
gross margin 42% 54%* 46%
Number of stores 261 254 257
* Underlying margin excluding provisions movements 46%
Enquiries
H&T Group plc
Chris Gillespie, Chief
Executive
+44(0)20 8225 2700
Diane Giddy, Chief Financial Officer
Shore Capital Ltd (Nominated Advisor and Broker)
+44(0)20 7408 4090
Stephane Auton/Iain Sexton (Corporate Advisory)
Guy Wiehahn/Chloe Booker-Triolo (Corporate Broking)
Alma PR (Public
Relations)
+44(0)20 3405 0205
Sam Modlin
handt@almarpr.co.uk
Andy
Bryant
Lily Soares Smith
INTERIM REPORT
Overview
The period under review has been one of continued momentum for the Group, with
growth seen across the entire product set, customer base, and geographical
locations. The Group delivered profit before tax of £6.7m (H1'2021: £4.7m).
The Pawnbroking and Retail segments continue to be the major contributors to
our performance, supported by returning demand for gold purchasing and foreign
currency.
We opened four new stores in the first half, growing the number of stores to
261. A further store opened in July with three more opening in August, and
further openings are planned for the remainder of the year. We have also
increased the pace of the rolling refurbishment programme for our current
store estate.
We are implementing a new POS system, which will dramatically enhance
customers' experience in store and is fundamental to the investment in our
digital capabilities. It provides a single customer view across the product
range and will enable customers to interact with us more effectively across
all channels. Roll out is expected to be completed by the end of 2022.
Financial Results
The Group delivered profit before tax of £6.7m (H1'2021: £4.7m).
The Pawnbroking and Retail segments continue to be the major contributors to
our performance, supported by returning demand for gold purchasing and foreign
currency. The growth in the pledge book was the driver of a net increase in
impairment charges as required by IFRS 9, of £6.7m (H1'2021: £1.7m), which
reduces reported profits in the short term.
The Group's balance sheet remains strong with net assets of £139.1m (December
2021: £136.6m). The balance sheet is primarily underpinned by the inherent
value, expressed at cost, of precious metals - mainly gold and watches - both
in the form of collateral for the pledge book and in inventory.
Inventories increased to £36.1m (December 2021: £28.4m). Retail stock
holding in stores is broadly flat. The significant increase in gold purchasing
demand since April is the main contributor to this short-term increase in
stock holding, along with higher quantities of pledged items released from the
pawnbroking book. We are addressing this by investing in increased capacity at
our processing centre, and in broadening contractual relationships with
smelters. We expect this increase in capacity to result in inventory levels
reducing in H2, with a subsequent realisation of revenue and profit.
At 30 June 2022 the Group had net debt of £8.6m (December 2021: net cash
£17.6m). Cash balances and funding facilities have been deployed primarily
to fund the growing pledge book and increased inventory.
Direct and administration expenses increased to £40.3m (H1'2021: £30.1m).
Impairment charges expressed under IFRS9, which are included in these
expenses, were £5m higher than prior year as a result of the significant
increase in pledge balances. Close cost control continues to be a priority at
a time of rising inflationary pressures. Employee related costs have increased
by 7% this year. We continue to negotiate improved leasehold occupancy terms
upon lease renewal, and the Group fixed its energy costs in December 2021
until the end of 2023.
Review of Operations
Pawnbroking
Pledge lending is the Group's core business, contributing 39% (H1'2021: 40%)
to total revenue. Demand for pledge lending continued to gather momentum
during the first half of 2022, as customers' increasing need to access small
sums of short-term credit comes at a time of reduced market supply following
the departure of several firms from the unsecured lending market. Demand for
lending has been growing consistently through the period, and lending volumes
are now more than 40% in excess of pre-pandemic levels.
The pledge book grew by 27% in the period, to £85.1m (December 2021:
£66.9m). As expected, the composition of the pledge book has reverted to
pre-pandemic norms across customer segments and loan values. The recovery in
demand for larger value loans began later than smaller value, higher yielding
loans and has now fully returned.
Redemption rates remain above historic norms. However, more time is required
to determine any longer-term impact of changing customer behaviour. During the
second quarter of 2022 we have seen an increased propensity of customers to
repay their loans and redeem their items more quickly, shortening average loan
duration to 98 days (December 2021: 107 days).
Net Revenue amounted to £22.9m (H1'2021: £18.5m) an increase of 23.8% on
prior year with an annualised risk adjusted margin of 61.4% (H1'2021: 73.6%).
Interest margins before the impact of IFRS impairment charge are moderating as
expected, as the composition of the pledge book has returned to a more normal
distribution, along with the impact of shortening duration.
The average pledge lending value remains below £400, albeit the recovery in
demand for larger loans has increased this average relative to the prior year.
The median lending value for the first half of 2022 was £180 per loan (6
months to December 2021: £170). Average Loan to Value has remained below 65%.
Pawnbroking summary
6 months ended 30 June 2022 2021 Change % FY 2021
£'m
£'m
Net pledge book - note 1 £85.1 £50.2 69.5% £66.9
Average net pledge book £77.1 £48.6 58.6% £53.7
Revenue £30.0 £20.9 43.5% £44.7
Impairment charge £7.2 £2.4 200.0% £7.5
Net revenue £22.9 £18.5 23.8% £37.3
Annualised Interest margin note 2 79.2% 87.1% 83.3%
Annualised risk adjusted margin note 3 61.4% 73.6% 69.5%
Notes:
1. Includes accrued interest and impairment
2. Revenue expressed on an annualised basis as a percentage of the average net
pledge book over the previous 12 months
3. Net revenue expressed on an annualised basis as a percentage of the average
net pledge book over the previous 12 months
Retail
H&T is a leading retailer of high quality pre-owned jewellery and watches.
We also offer customers an expanding range of new jewellery items.
Retail sales for H1'2022 grew by 67.7% to £20.8m (H1'2021: £12.4m), which
generated profits of £8.7m (H1'2021: £6.7m). Margins remain above historic
levels at 42% (H1'2021 underlying margin: 46%). The reduction year on year
primarily reflects the sales mix between new and pre-owned products.
Sales of pre-owned products represented 82% (H1'2021: 87%) of total sales.
Supply of some pre-owned jewellery categories has been constrained during and
immediately following the pandemic, requiring us to source higher volumes of
new jewellery. We expect this to moderate as a result of the strong
pawnbroking and gold purchase performance.
Online sales continue to grow, representing 14% (H1'2021: 16%) of total sales
and generating income of £2.9m (H1'2021: £2.4m). We were unable to offer
retail products for sale in our stores for much of the first half of 2021 due
to pandemic-related trading restrictions. The Group's strategic objective to
improve our web capabilities and our customer journey remains a priority.
Gold Purchasing, Scrap and Other Services
Other services include Gold Purchasing, Pawnbroking Scrap, Foreign Currency
(FX), Money Transfer, Cheque Cashing and Personal Lending.
Combined net revenue generated from Gold Purchasing, Pawnbroking Scrap, FX,
Money Transfer and Cheque Cashing was up 74.5% to £8.2m (H1'2021: £4.7m),
before personal loans, a product which is no longer offered, and which was a
meaningful contributor in prior periods.
Gold Purchasing: The prevailing gold price has a direct impact on gold
purchasing as it affects customer demand. The gold price has been elevated
since February 2022. The average gold price per troy ounce during the period
was £1,445 (H1'2021: £1,301) and coupled with the impact of inflation on
customers disposable income, we have seen a significant increase in gold
purchase volumes in recent months. Some of this volume is yet to be
processed and is currently held in inventory.
Gold purchasing contributed net revenue of £2.8m (H1'2021: £1.3m) on sales
of £15.1m (H1'2021: £8.0m). The gross margin also benefited from the higher
gold price, rising to 19% (H1'2021: 16%).
Pawnbroking Scrap: The growing size of the pledge book has increased the
volume of items, if not sold at auctions, which progresses to the scrapping
process. Some of this volume is yet to be processed and is currently held in
inventory.
The gross value of pawnbroking scrap sales to June 2022 was £7.1m (H1'2021:
£5.2m) with gross margin of £1.4m (H1'2021: £1.0m) up 40% on the prior
year, with margins remaining consistent at 19%.
Foreign Currency: With the return of international holiday travel,
transaction volumes have improved and are back close to pre-pandemic levels.
Gross profit grew by 160% to £2.6m (H1'2021: £1m). We have identified this
market as a growth opportunity for the group
Money Transfer: Revenues remained flat at £0.8m (H1'2021: £0.8m) on slightly
higher transaction volumes. This activity is a major driver of footfall to our
stores.
Cheque Cashing: An increase in volumes, in part as a result of recent
government related cheque issuance, increased revenue earned to £0.5m
(H1'2021: £0.4m). Overall contribution remains modest as the use of cheques
in the UK economy is in long term decline.
Personal Lending: Following the decision to cease all unsecured lending in the
first half of 2022, the unsecured loan book has reduced to £1.8m (June 2021:
£3.4m) as repayments were received and impairment provisions released
accordingly.
2022 Business Focus and Outlook
We believe that the Group has an opportunity for significant growth in the
medium term. This applies across our product offering. Our focus is to ensure
the Group is well positioned to take advantage of these growth opportunities.
Our priorities are:
Store Estate
We believe that our stores, and our outstanding people, are and will remain
the heart of our business. There are opportunities to expand the geographic
coverage of our store network and we are investing both in new store
openings and in refreshing existing stores. We opened four new stores in the
first half of the year. A further store was opened in July with three more
opening in August. This will bring the total number of stores to 265. We have
a target list of potential locations. Further openings are planned for the
remainder of the year and beyond, with the capital investment of a new store
being relatively modest.
Digital Strategy and Customer Journey
A new Point of Sale (POS) system, known as Evo, is being deployed across the
store network. Roll out will be completed in the current year. This will
revolutionise customers' experience in stores whilst providing us with
improved data and a single view of the customer relationship across all
products. This will support more effective and better targeted marketing
communications and merchandising.
We will significantly improve and enhance our online presence. We have started
with the investor relations portal which has recently been refreshed and the
customer facing websites and our social media presence are both in the process
of being upgraded. Our aim is to further modernise the functionality, and the
look and feel. We intend to make it easier for customers to do business with
us through the channel they choose.
Broadening our Business
On the 1(st) July 2022, the Group completed the acquisition of Swiss Time
Services Limited. This is an exciting opportunity for us to bring watch
expertise in house and broaden the range of services we can offer to
customers. Watches represent a growing part of the business and a further
growth opportunity. Watches currently represent 14% of pledge lending and 15%
of retail sales by value. We believe by enhancing our capabilities in this
area we can further develop this line of business leading to improved margins.
In 2019 the Group acquired a portfolio of over 70 stores and pledge books, the
integration of which has been very successful. These stores are growing at a
rate above that of the "mature" wider estate, and the team has become very
much a part of the H&T family. We believe that further consolidation
opportunities may present themselves in future.
Macro-Economic Environment
We see the trading environment in the near term being positive across the
product range.
Pledge Book
We anticipate continued strong demand for our core pawnbroking product as the
impact of inflation on the consumer increases the need for small sum, short
term loans at a time when supply of credit is more constrained than has been
the case for many years.
Retail
H&T is a leading retailer of high quality pre-owned jewellery and watches.
We also offer our customers an expanding range of new jewellery items. Demand
is expected to remain robust for the remainder of the year, supported by the
growing attractiveness of buying pre-owned products and the environmental and
sustainability benefits this brings. Customers view these items as
representing good value for money, but also as a store of value which can be
sold or used as collateral for a future pledge loan if their circumstances
change.
Other
We expect increasing demand for foreign exchange services as overseas travel
continues to rebound. With increased focus and the introduction of on-line
options for customers, we consider this market to be a growth opportunity for
the Group.
Our Cost Base
Like all businesses, H&T is experiencing continued supply chain pressures
and the impact of inflation. We are mindful of the impact of these economic
factors on all our stakeholders. H&T is primarily a fixed cost business
and achieving operating efficiencies will remain a key management focus while
ensuring capital is invested where appropriate and where attractive returns
can be achieved.
Dividend
The Board has approved an increased interim dividend of 5p (2021 interim: 4p),
reflecting growing confidence in the future prospects of the Group whilst
adhering to the Group's stated dividend policy of maintaining at least two
times cover. The dividend will be paid on 7 October 2022 to shareholders on
the share register at the close of business on 9 September 2022.
Interim Condensed Financial Statements
Unaudited Group Statement of Comprehensive Income
For the 6 months ended 30 June 2022
Continuing operations: Note 6 months ended 30 June 2022 6 months ended 30 June 2021 12 months ended 31 December 2021
Total Total Total
Unaudited Unaudited £'000
£'000 £'000
Revenue 2 77,756 51,929 121,995
Cost of sales (30,070) (16,619) (45,640)
Gross profit 2 47,686 35,310 76,355
Other direct expenses (29,470) (21,190) (46,251)
- Impairment (included in the figure above) (6,703) (1,733) (6,012)
Administrative expenses (10,866) (8,917) (18,904)
Recurring operating profit 7,350 5,203 11,200
Non-recurring expenses - - (2,099)
Operating profit 7,350 5,203 9,101
Investment revenues - - 8
Finance costs 3 (631) (549) (1,247)
Profit before taxation 6,719 4,654 7,862
Tax charge on profit 4 (1,571) (1,015) (1,818)
Profit for the period and total comprehensive income 5,148 3,639 6,044
Pence Pence Pence
Earnings per share from continuing operations
Basic 5 13.15 9.29 15.43
Diluted 5 13.14 9.29 15.43
All profit for the period is attributable to equity shareholders.
Unaudited Group Statement of Changes in Equity
For the 6 months ended 30 June 2022
Note 6 months 6 months 12 months
ended ended ended
30 June 30 June 31 December
2022
2021
2021
Unaudited Unaudited Audited
£'000 £'000 £'000
Opening total equity 136,618 134,549 134,549
Total comprehensive income for the period 5,148 3,639 6,044
Share option movement taken directly to equity 481 120 11
Dividends paid 10 (3,133) (2,392) (3,986)
Closing total equity 139,114 135,916 136,618
Unaudited Group Balance Sheet
As at 30 June 2022
Note At 30 June 2022 At 30 June 2021 At 31 December
Unaudited Unaudited 2021
£'000 £'000
£'000
Non-current assets
Goodwill 19,341 19,330 19,330
Other intangible assets 3,630 2,229 1,892
Property, plant, and equipment 11,955 9,721 11,101
Right-of-use assets 16,973 18,311 17,400
Deferred tax assets 1,481 2,749 1,726
53,380 52,340 51,449
Current assets
Inventories 36,090 28,159 28,421
Trade and other receivables 90,522 55,951 72,449
Cash and bank balances 12,711 32,493 17,638
139,323 116,603 118,508
Total assets 192,703 168,943 169,957
Current liabilities
Borrowings 8 (6,343) - -
Trade and other payables (9,491) (10,266) (10,154)
Lease liabilities (5,768) (3,260) (3,191)
Current tax liability (1,094) (919) (375)
(22,696) (14,445) (13,720)
Net current assets 116,627 102,158 104,788
Non-current liabilities
Borrowings 8 (15,000) - -
Lease liabilities (12,530) (16,909) (15,792)
Long term provisions (3,363) (1,673) (3,827)
(30,893) (18,582) (19,619)
Total liabilities (53,589) (33,027) (33,339)
Net assets 139,114 135,916 136,618
Equity
Share capital 9 1,993 1,993 1,993
Share premium account 33,486 33,486 33,486
Employee Benefit Trust shares reserve (23) (35) (35)
Retained earnings 103,658 100,472 101,174
Total equity attributable to equity holders 139,114 135,916 136,618
Unaudited Group Cash Flow Statement
For the 6 months ended 30 June 2022
Note 6 months ended 30 June 6 months ended 30 June 12 months ended 31 December
2022 2021 2021
Unaudited Unaudited
£'000 £'000 £'000
Net cash (utilised) /generated from operating activities 6 (15,563) 5,401 (3,035)
Investing activities
Interest received - - 8
Purchases of intangible assets (993) (155) (158)
Purchases of property, plant, and equipment (4,547) (2,325) (5,231)
Acquisition of trade and assets of businesses (47) - -
Acquisition of Right-of-use assets (1,987) (2,489) (4,081)
Net cash used in investing activities (7,574) (4,969) (9,462)
Financing activities
Dividends paid (3,133) (2,392) (3,986)
Increase in borrowings 15,000 - -
Increase in overdraft 6,343 - -
Debt restructuring costs - - (332)
Net cash generated / (used in) from financing activities 18,210 (2,392) (4,318)
Net decrease in cash and cash equivalents (4,927) (1,960) (16,815)
Cash and cash equivalents at beginning of the period 17,638 34,453 34,453
Cash and cash equivalents at end of the period 12,711 32,493 17,638
Unaudited notes to the Condensed Interim Financial Statements
For the 6 months ended 30 June 2022
1. Finance information and significant accounting policies
The interim financial statements of the group for the six months ended 30 June
2022, 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 2021. The group does not anticipate any change in
these accounting policies for the year ended 31 December 2022. As permitted,
this interim report has been prepared in accordance with the AIM rules but 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 IFRS.
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 2021 is
based on the statutory accounts for the year ended 31 December 2021. 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.
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.
The Group recognises revenue from the following major sources:
· Pawnbroking, or Pawn Service Charge (PSC).
· Retail jewellery sales.
· Pawnbroking scrap and gold purchasing.
· Personal loans interest income.
· Income from other services and
· Other income
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.
Pawnbroking, or Pawn Service Charge (PSC)
PSC comprises contractual interest earned on pledge loans, plus auction profit
or 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 jewellery sales
Jewellery inventory is sourced from unredeemed pawn loans, newly purchased
items 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. Whilst stores were closed owing to Covid-19 restrictions the
returns policy was extended to cover a period of 30 days after the store
reopened. Additional flexibility was offered during the year to allow
customers to return items by post rather than attend store. 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; as a proportion of sales
H1'2022 returns were 6% (H1'2021: 6%)
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.
Other services
Other services comprise revenues from personal loan interest income, third
party cheque cashing, foreign exchange income, buyback, Western Union, 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.
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.
Other income
Government grants, including monies received under the Coronavirus job
retention scheme are recognised as other income when there is reasonable
assurance that the Group will comply with the scheme conditions and the monies
will be received. There are no unfulfilled conditions and contingencies
attaching to recognised grants.
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 stores 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.
2. Operating segments
Business segments
For reporting purposes, the Group is currently organised into six segments -
pawnbroking, gold purchasing, retail, pawnbroking scrap, 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 9.99%. The contract is governed by the
terms of the Consumer Credit Act 2008 (previously the Consumer Credit Act
2002). If the customer does not redeem the goods by repaying the secured loan
before the end of the contract, the Group is required to dispose of the goods
either through public auctions if the value of the pledge is over £75
(disposal proceeds being reported in this segment) or, if the value of the
pledge is £75 or under, through public auctions or the retail or pawnbroking
scrap activities of the Group.
Purchasing:
Jewellery is bought direct from customers through all 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, jewellery and watches, 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 of the
Group's inventory assets 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.
Other services:
This segment comprises:
· Personal loans comprise 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.
· 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.
· 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.
Segment information for these businesses is presented below:
H1 2022 Gold Retail Pawnbroking scrap Other Other Consolidated for the 6 months ended 30 June 2022
Revenue Pawnbroking purchasing £'000 £'000 Services income
£'000 £'000 Note 1 £'000 £'000
£'000
External revenue 30,026 15,096 20,823 7,104 4,707 - 77,756
Total revenue 30,026 15,096 20,823 7,104 4,707 - 77,756
Gross profit 30,026 2,836 8,693 1,424 4,707 - 47,686
Impairment (7,161) - - - 458 - (6,703)
Segment Contribution 22,865 2,836 8,693 1,424 5,165 - 40,983
Other direct expenses excluding impairment (22,767)
Administrative expenses (10,866)
Recurring operating profit 7,350
Non-recurring expenses -
Operating profit 7,350
Interest receivable -
Financing costs (631)
Profit before taxation 6,719
Tax charge on profit (1,571)
Profit for the period and total comprehensive income 5,148
Gold Retail Pawnbroking scrap Other Other Consolidated for the 6 months ended 30 June 2021
Pawnbroking purchasing £'000 £'000 services Income £'000
£'000 £'000 Note 1 Note 2
£'000 £'000
H1 2021
Revenue
External revenue 20,949 7,995 12,438 5,240 4,037 1,270 51,929
Total revenue 20,949 7,995 12,438 5,240 4,037 1,270 51,929
Gross profit 20,949 1,319 6,718 1,017 4,037 1,270 35,310
Impairment (2,414) - - - 681 - (1,733)
Segment contribution 18,535 1,319 6,718 1,017 4,718 1,270 33,577
Other direct expenses excluding impairment (19,457)
Administrative expenses (8,917)
Recurring operating profit 5,203
Non-recurring expenses -
Operating profit 5,203
Financing costs (549)
Profit before taxation 4,654
Tax charge on profit (1,015)
Profit for the period and total comprehensive income 3,639
Gold Retail Pawnbroking scrap Other Other For the year ended 31 December 2021
Pawnbroking purchasing £'000 £'000 services income £'000
£'000 £'000 Note 1 Note 2
Full year 2021 £'000 £'000
Revenue
External revenue 44,742 20,445 36,227 11,008 8,302 1,271 121,995
Total revenue 44,742 20,445 36,227 11,008 8,302 1,271 121,995
Gross profit 44,742 3,382 16,640 2,018 8,302 1,271 76,355
Impairment (7,472) - - - 1,460 - (6,012)
Segment contribution 37,270 3,382 16,640 2,018 9,762 1,271 70,343
Other direct expenses excluding impairment (40,239)
Administrative expenses (18,904)
Recurring operating profit 11,200
Non-recurring expenses (2,099)
Operating profit 9,101
Interest receivable 8
Financing costs (1,247)
Profit before taxation 7,862
Tax charge on profit (1,818)
Profit for the period and total comprehensive income 6,044
Note 1: includes Personal Loan income
Note 2: includes 2021 income from Government Grants
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.
3. Financing costs
6 months ended 6 months ended 12 months ended
30 June 30 June 31 December 2021
2022 2021 Audited
Unaudited Unaudited £'000
£'000 £'000
Interest on bank loans 111 (10) 102
Other interest - - 1
Interest expense on the lease liability 416 501 950
Amortisation of debt issue costs 104 58 194
Total interest expense 631 549 1,247
4. Tax charge on profit
The taxation charge for the 6 months ended 30 June 2022 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 2022. The underlying effective
full year tax charge is estimated to be 19% (six months ended 30 June 2021:
19%).
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:
Unaudited Unaudited
6 months ended 30 June 2022 6 months ended 30 June 2021 12 months ended 31 December 2021
Earnings Weighted average number of shares Per-share amount pence Earnings Weighted average number of shares Per-share amount pence Earnings Weighted average number of shares Per-share amount pence
£'000 £'000 £'000
Earnings per share - 5,148 39,164,667 13.15 3,639 39,162,612 9.29 6,044 39,162,612 15.43
basic
Effect of dilutive securities
Options - 6,889 (0.00) - - - - - -
Earnings per share diluted 5,148 39,171,556 13.14 3,639 39,162,612 9.29 6,044 39,162,612 15.43
6. Notes to the Cash Flow Statement
6 months ended 30 June 6 months ended 30 June 12 months ended 31 December
2022 2021 2021
Unaudited Unaudited
£'000 £'000 £'000
Profit for the year 5,148 3,639 6,044
Adjustments for:
Investment revenues - - (8)
Financing costs 631 549 1,247
(Decrease)/Increase in provisions (463) 24 2,178
Income tax expense 1,571 1,015 1,818
Depreciation of property, plant and equipment 1,483 1,250 2,666
Depreciation of right-of-use assets 2,415 2,517 5,071
Amortisation of intangible assets 389 655 995
Right of use asset Impairment - - (179)
Share-based payment expense 262 134 55
Loss on disposal of property, plant and equipment 9 11 38
Loss on disposal of Right of use assets - - 3
Operating cash flows before movements in working capital 11,445 9,794 19,928
Increase in inventories (7,653) (595) (857)
Decrease in other current assets - 1 1
Increase in receivables (18,024) (200) (15,574)
Decrease in payables (300) (917) (2,009)
Cash (utilised) / generated from operations (14,532) 8,083 1,489
Income taxes paid (400) (2,010) (3,349)
Interest paid on loan facility (215) (170) (225)
Interest paid on lease liability (416) (502) (950)
Net cash (utilised) / generated from operating activities (15,563) 5,401 (3,035)
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.
7. Earnings before interest, tax, depreciation and
amortisation ("EBITDA")
EBITDA
EBITDA is a non IFRS9 measure and 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 6 months ended 12 months ended
30 June 30 June 31 December 2021
2022 2021 Audited
Unaudited Unaudited £'000
£'000 £'000
Operating profit 7,350 5,203 9,101
(i) Depreciation of the right-of-use assets 2,415 2,516 5,071
(ii) Depreciation and amortisation- other 1,872 1,905 3,660
(iii) Impairment of the right-of-use-assets - - (179)
EBITDA 11,637 9,624 17,653
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. Borrowings
6 months ended 6 months ended 12 months ended
30 June 30 June 31 December 2021
2022 2021 Audited
Unaudited Unaudited £'000
£'000 £'000
Secured borrowing at amortised cost
Bank loans and overdrafts 6,342 - -
Total borrowings due for settlement within one year 6,342 - -
Long term portion of bank loan 15,000 - -
Amount due for settlement after more than one year 15,000 - -
9. Share capital
At At At
30 June 2022 30 June 2021 31 December 2021
Unaudited Unaudited Audited
Issued, authorised and fully paid
(Ordinary Shares of £0.05 each)
£'000 Sterling 1,993 1,993 1,993
Number 39,864,077 39,864,077 39,864,077
The Group has one class of ordinary shares which carry no right to fixed
income.
10. Dividends
On 8 August 2022, the directors approved a 5 pence interim dividend (30 June
2021: 4 pence) which equates to a dividend payment of £1,958,000 (30 June
2021: £1,595,000). The dividend will be paid on 7 October 2022 to
shareholders on the share register at the close of business on 9 September
2022 and has not been provided for in the 2022 interim results. The shares
will be marked ex-dividend on 8 September 2022.
11. Post Balance sheet event
On 1 July 2022, the company acquired Swiss Time Services Limited, a leading
independent watch servicing and repair centre for a total consideration of
£4.3 million, inclusive of a net cash balance of £0.5m which is subject to
an adjustment mechanism.
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