REG - H&T Group PLC - Interim Results
08/08/2023 07:00
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RNS Number : 5676I H&T Group PLC 08 August 2023
8 August 2023
H&T Group PLC ("H&T" or "the Group" or "the Company")
UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2023
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 2023 ("the
period").
Highlights
· Profit before tax increased by 31% to £8.8m (H1'2022: £6.7m), as continued
momentum in our core pawnbroking business provides a robust revenue and profit
foundation for the remainder of the financial year.
· The pledge book grew 14% to £114.6m (December 2022: £100.7m; June 2022:
£85.1m) with demand for pledge lending remaining at record levels. Gross
lending grew 22% to £128m (H1'2022: £105m).
· Retail sales increased 11% to £23.0m (H1'2022: £20.8m) with online
originated sales at record levels and representing 23% (H1'2022: 14%) of total
sales value. Retail margins reduced as expected to 28% (H2'2022: 37%; H1'2022:
42%) as the Group chose to prioritise stock turnover, particularly of some
high value watch brands. Margin compression was substantially offset by
increased scrap profits. Price increases have been implemented and margins are
expected to rise in the second half.
· Foreign currency transaction volumes increased 19%, with net income up 12% to
£2.9m (H1'2022: £2.6m). Momentum is building into the peak summer months,
supported by the launch of our 'Click and Collect' service in June.
· Net Asset Value of £166.8m (December 2022: £164.1m), backed by assets of
high intrinsic value.
· Net Debt of £17.1m (December 2022: £2.8m). Funding facilities and the recent
equity raise have been deployed primarily to fund the growing pledge book,
increased inventory and investment in the store portfolio.
· Post period, funding facilities increased to £50m in July (previously £35m)
on attractive terms and with no change to existing covenants.
· Interim dividend increased 30% to 6.5p per share (2022 interim dividend: 5p
per share), reflecting the Board's growing confidence in the future prospects
for the Group.
Chris Gillespie, H&T chief executive, said:
"Following the capital raise in October 2022, we set out our plan for
increased investment in the Group's operational capabilities and store
portfolio to capitalise on the growth opportunity presented to the Group in
the medium term. I am delighted with the progress we have made and the
momentum with which we enter the busy second half of the year.
We are mindful of the impact upon our employees, suppliers and stakeholders of
persistent inflation and rising interest rates. H&T is not immune to these
factors, which have resulted in operating costs being higher than previously
envisaged. However, much of this cost inflation is now factored into the
cost run rate. We expect a lower level of cost inflation in the second half of
the year which, alongside the growing revenue momentum of the business, puts
us on track to deliver record profits in 2023.
I am extremely proud of the H&T team, wherever they work across the Group.
They deliver outstanding levels of service to our customers. They are, and
will always be, our greatest asset and I thank them for everything they do for
H&T, our customers and stakeholders."
Financial Highlights 2023 2022 Change % FY 2022
(£m unless stated)
6 months ended 30 June
Reported Profit before Tax £8.8m £6.7m 31.3% £19.0m
Reported Diluted EPS (p) 16.3p 13.1p 24.4% 37.2p
Dividends per share 6.5p 5.0p 30.0% 15.0p
Net assets £166.8m £139.1m 19.9% £164.1m
Key Performance Indicators
Net Pledge book £114.6m £85.1m 34.7% £100.7m
Net Pawnbroking revenue £32.4m £22.9m 41.5% £51.0m
Retail sales £23.0m £20.8m 10.6% £45.2m
online sales 23% 14% 13%
new jewellery sales 18% 18% 22%
gross margin 28% 42% 39%
Foreign Exchange revenue £2.9m £2.6m 11.5% £5.7m
Number of stores 273 261 267
Enquiries
H&T Group plc +44(0)20 8225 2700
Chris Gillespie, Chief Executive Officer
Diane Giddy, Chief Financial Officer
Shore Capital Ltd (Nominated Advisor and +44(0)20 7408 4090
Broker
Stephane Auton/Iain Sexton (Corporate Advisory)
Guy Wiehahn/ Isobel Jones (Corporate Broking)
Alma PR (Public Relations) +44(0)20 3405 0205
Sam Modlin handt@almapr.co.uk
Rebecca Sanders-Hewett
Andy
Bryant
Pippa Crabtree
INTERIM REPORT
Overview
The first half of 2023 has been a period of significant progress, with growth
delivered across the core product set, customer segments, and in all
geographies. The Group delivered profit before tax of £8.8m (H1'2022:
£6.7m). Rising demand for H&T's core products, and continued momentum in
our pawnbroking business provides a robust revenue foundation for the
remainder of the financial year.
We added eight new stores in the first half, with two closures, taking the
number of stores to 273 (H1'2022: 261). Further store openings are in course
for the remainder of the year and beyond. We have increased the pace of the
rolling refurbishment programme for our current store estate, as planned, with
35 stores having been refreshed so far this year. In May, we opened a second
facility at our jewellery centre to support increased jewellery and watch
processing capacity.
We are continuing the implementation of our new core IT platform. Phase one
deployment to all stores was completed in 2022, as planned. Further
functionality enhancements have been, and will continue to be deployed through
2023. The programme has now begun work on phase 2, which will see the system
implemented across the wider business through the remainder of 2023 and 2024.
Financial Results
The Group delivered profit before tax up 31% to £8.8m (H1'2022: £6.7m).
The Pawnbroking and Retail segments continue to be the major contributors to
performance, supported by growing demand for our foreign currency service and
strong scrap profits.
The Group's balance sheet remains strong with net assets of £166.8m (December
2022: £164.1m). The balance sheet is underpinned by the inherent value,
expressed at cost, of precious metals - mainly gold and watches - in the
form of collateral for the pledge book and inventory, and cash holdings.
Inventories increased to £37.5m (December 2022: £35.5m) having peaked at
over £40m in April. The value of watches in the course of repair as at 30
June 2023 was c.£4m (December 2022: c.£4m), as a result of continued high
volumes and ongoing watch parts supply pressures, which are evident across the
watch industry. We took action to reduce inventory levels, in particular of
certain higher value watch brands, where we identified changes to the
sentiment of some customers towards values. Overall, demand for high quality
pre-owned watches remains high.
Retail inventory available for sale in stores as at 30 June had reduced to
£23m at cost (December 2022: £25m; June 2022: £23m). We continue to refine
our approach to retail stock allocation across the store estate to better meet
demand and customer preferences.
We have invested in increased capacity at our jewellery centre and in May we
opened a second facility adjacent to the existing site. This increase in
capacity will support our growing business by improving jewellery processing
efficiency, which we anticipate will accommodate growing future processing
volumes . Processing volumes increase as the pledge book grows and matures,
resulting in the volume of items released for retail sale or scrap which
require processing, rising commensurately.
At 30 June 2023 the Group had net debt of £17.1m (December 2022: £2.8m).
Funding facilities have been deployed primarily to fund the growing pledge
book, increased inventory and investment in the store portfolio. Increased
usage of the Group's funding facilities coupled with rising interest rates,
resulted in higher financing costs of £0.7m (H1'2022: £0.1m) for the period.
Direct and administration expenses increased by 12% to £45.0m (H1'2022:
£40.3m). Impairment charges expressed under IFRS9, are included in these
expenses. Operating expenses rose 19%. The Group is primarily a fixed and
volumetric cost business. Close cost control continues to be a priority at a
time of persistent inflationary pressures. Employee related costs, which
account for approximately 59% of total operating costs, increased by 21% year
on year. This reflects the combined impact of an increase in employee numbers
over the past 12 months from 1,423 to 1,637, including 43 Swiss Time
Services employees who joined the Group in July 2022, and the impact of pay
increases.
We are acutely aware of the impact of inflation on our employees. Ensuring
they are appropriately rewarded is a priority, with pay reviews implemented in
April 2022, and again in January 2023, ahead of the April 2023 implementation
of the updated National Living Wage, which increased by 9.7%. Salary costs are
not expected to increase significantly in the second half of the year.
Recent months have seen a higher propensity for third party suppliers to pass
on above inflation price increases. We believe that the majority of 2023's
price rises are now factored into the cost run rate, which will result in the
rate of cost inflation for the full year being lower than that experienced in
the first half.
We continue to be able to negotiate improved leasehold occupancy terms upon
lease renewal. The Group fixed its energy costs in December 2021 until the end
of 2023, and has recently extended the contract further until the end of 2025,
on similar terms.
During the development and deployment phases of our new core IT platform, we
are continuing to maintain the outgoing platform, known as NEO, in parallel.
NEO is expected to be progressively decommissioned from 2024, until which time
incremental IT infrastructure costs are being incurred to the extent of
c.£0.6m per annum.
Review of Operations
Pawnbroking
Pledge lending remains the Group's core business, contributing 37% (H1'2022:
39%) to total revenue, whilst gross lending grew 22% to £128m (H1'2022:
£105m). Demand for pledge lending continued to gather momentum during the
first half of 2023, 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, across all customer
segments and all geographies.
The pledge book grew 14% to £114.6m (December 2022: £100.7m; June 2022:
£85.1m). A higher than expected level of redemptions in the months of April
and May did not continue into June. Strong growth was experienced in the
second half of May and in June.
Net Revenue amounted to £32.4m (H1'2022: £22.9m), an increase of 42% on the
prior year with an annualised risk adjusted margin of 60% (H1'2022: 61%).
Redemption rates remain above historic levels, at c.85% and have been
consistent at this level for more than two years. Average loan duration
remains shorter than historic norms at 97 days (December 2022: 97 days; long
run average 108 days) as customers choose to repay their loans early when they
are able to do so.
We have seen modest increases in the average loan size in the first half. Mean
pledge lending value was £423 (December 2022: £405) and median pledge
lending value was £200 (December 2022: £185). Average Loan to Value ratio
has remained at c.65%.
Pawnbroking summary
6 months ended 30 June 2023 2022 Change % FY 2022
£'m
£'m
£m
Net pledge book - note 1 £114.6 £85.1 34.7% £100.7
Average net pledge book £107.7 £77.1 39.7% £83.8
Net revenue £32.4 £22.9 41.5% £51.0
Annualised risk adjusted margin - note 2 60.2% 61.4% 60.9%
Notes:
1 Includes accrued interest and impairment
2 Net revenue (after impairment charge) expressed on an annualised basis as a
percentage of the average net pledge book over the previous 6 or 12 months as
applicable
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. Our retail
offering is available across all channels, both in physical stores and
increasingly via our digital platforms.
Retail sales for H1'2023 grew by 11% to £23.0m (H1'2022: £20.8m), which
generated profits of £6.3m (H1'2022: £8.7m). Margins reduced as expected to
28% (H2'2022: 37% and H1'2022: 42%). The reduction year on year primarily
reflects the change in sales mix within and between new and pre-owned
products, and the impact of action taken to reduce inventory levels, in
particular of certain higher value watch brands, where we identified changes
to the sentiment of some customers towards values. Overall, demand for high
quality pre-owned watches remains high.
Price rises have been implemented across the majority of our retail stocks and
margins are expected to improve in the second half of the year.
Sales of pre-owned products represented 82% (H1'2022: 82%) of total sales by
value. Supply of some pre-owned jewellery categories continues to be
constrained, particularly 14ct and 22ct gold jewellery. This requires us to
source higher volumes of new jewellery in substitution. We expect this dynamic
to persist for the time being and ultimately to reverse as the strong recent
pawnbroking pledge book growth reaches maturity.
Online originated sales are at record levels, following the investment into
our online store, representing 23% (H1'2022: 14%) of total sales and
generating income of £5.2m (H1'2022: £2.9m). Over half of these sales were
viewed in store by the customer prior to completing their purchase.
The Group's strategic objective to improve our web capabilities and customer
journey remains a priority. In July, the two websites were merged under a
single H&T branded website, with the "est1897" brand decommissioned.
Functionality has been improved and a major redevelopment of our online
offering is planned.
Foreign Currency (FX)
Foreign currency transaction volumes are at record levels and increased 19%
year on year, with net income up 12% to £2.9m (H1'2022: £2.6m). Momentum is
building into the peak summer months, supported by the launch of our 'Click
and Collect' service in June. In addition, we have broadened the range of
currencies held in stock at store level, and available for immediate purchase.
Average transaction size remains below historic levels at £398 (H1'2022:
£406) evidencing, we believe, careful holiday budgeting by our customers.
Purchasing and Scrap
Purchasing
The Group purchases gold, jewellery, and watches from customers. The
prevailing gold price has a direct impact on gold purchasing as it affects
customer demand. The gold price has been elevated since March 2022. The
average gold price per troy ounce during the period was £1,566 (H1'2022:
£1,445) and coupled with the impact of inflation on customers disposable
income, we have seen a 44% increase in purchase values year on year. Some of
this volume is yet to be processed and is currently held in inventory at cost.
Purchasing scrap contributed net revenue of £4.2m (H1'2022: £2.8m) on sales
of £21.8m (H1'2022: £15.1m). The gross margin was consistent year on year at
19%.
Pawnbroking Scrap
As the pledge book grows and matures, the volume of items released for retail
sale or scrap rises commensurately. Typically, c.60% of such items are
processed for scrap. Pawnbroking scrap has a longer conversion cycle - usually
10 to 11 months after the date of the original loan - than purchased items.
Some of this volume is yet to be processed and is currently held in
inventory.
The gross value of pawnbroking scrap sales to June 2023 was £14.6m (H1'2022:
£7.1m) with gross margin of £2.6m (H1'2022: £1.4m). Margins remained
broadly consistent at 18% (H2'2022: 18%; H1'2022: 20%).
Other Services
Money Transfer
Revenues reduced to £0.6m (H1'2022: £0.8m) on lower overall transaction
volumes, in particular transfers to and from Romania. Customer numbers are
broadly consistent, but they have been transferring funds less often. Money
transfer continues to be a major driver of footfall to our stores, and
represents an opportunity for colleagues to bring customers' attention to our
wider service offerings.
Cheque Cashing
Volumes of cheques cashed have normalised following the short-term increase in
cheque issuance during 2022 by local authorities and government departments in
respect of cost-of-living support payments, which has now ceased. Revenue
earned reduced to £0.4m (H1'2022: £0.5m). Overall contribution remains
modest as the use of cheques in the UK economy is in long term decline.
Personal Lending
The Group no longer offers an unsecured lending product and all lending ceased
in early 2022. The unsecured loan book has since continued to receive
payments, and corresponding impairment provisions have been released. The
outstanding loan book has reduced to £0.3m (H1'2022: £1.8m) with revenues
earned reducing to £0.5m (H1'2022: £1.2m) as the underlying book repays.
2023 Business Focus and Outlook
With continued investment in scale and capabilities, along with broadening our
business in the context of wider macro-economic factors, we believe that the
Group has an opportunity for significant growth in the medium term. This
applies across both our product offering and all our geographies, as well as
online. Our focus is to ensure the Group is well positioned to take advantage
of these growth opportunities. As such 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 further opportunities to expand the
geographic coverage of our store network and we continue to invest, both in
new store openings and in refreshing existing stores. We added eight (H1'2022:
four) new stores in the first half of the year, with two closures, bringing
the total number of stores to 273 (H2'2022: 267; H1'2022: 261). We have a
list of locations where we would like to open new stores. Further openings
are planned for the remainder of the year and beyond, with the capital
investment of a new store being relatively modest and an expectation that new
stores will become profitable, on a run-rate basis, no later than their second
year of operation.
Digital Strategy and Customer Journey
A new Point of Sale system, known as EVO, was successfully deployed across the
store network in the second half of 2022. Further functionality enhancements
are being deployed throughout 2023. 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.
Phase 2 of the development will bring the new system to our jewellery centre,
which along with additional capacity, is expected to significantly improve
efficiency.
We will continue to improve and enhance our online presence. In July, the two
websites have been merged under a single H&T branded website, with the
"est1897" brand decommissioned. Functionality has been improved and a major
redevelopment of our online offering is planned. We intend to continue to make
it easier for customers to do business with us through whatever channel they
choose.
Funding a Growing Business
In September 2022, we received support for our growth ambitions from both
existing and new shareholders, enabling us to raise growth capital amounting
to £16.9m gross. These proceeds have been deployed primarily to fund the
growth in the pledge book, increased inventory and investment in the store
portfolio.
In July 2023, we were pleased to receive the further support of our bankers in
the form of an increase to our available funding facility, which has been
increased to £50m (previously £35m) on attractive terms and with no change
to existing covenants. The facility comprises a combination of a £45m
revolving credit facility expiring in December 2025, with the option to extend
for a period of up to two further years, and a £5m overdraft facility, and
will be utilised to fund further growth in the pledge book and investment in
the store portfolio.
The revolving credit facility is subject to revised margins of between 2.4%
and 3.3% (previously 1.7% and 2.45%) above SONIA, with a non-use fee of 50% of
the margin on the undrawn portion of the facility.
The overdraft margin is unchanged at 1.7% above the Bank of England base rate
and has an annual renewal date in December.
Environmental, Social and Governance
Peter McNamara stepped down from the Board at the end of March 2023 after 17
years as a Director of H&T, including over 14 years as Chair. Simon
Walker, who joined the Board as a non-Executive Director in September 2022
became Chair of the Group on 1 April 2023.
Since his appointment, Simon has made significant progress in evolving the
Group's governance structure and broadening the range of skills, experiences
and diversity around the Board table. Four new non-Executive Directors joined
the Board on the 1 July 2023, and we are delighted to welcome Robert van
Breda, Lawrence Guthrie, Catherine Nunn and Sally Veitch to the Group. These
appointments will support the Group's longer term growth plans.
Through the use of the Taskforce for Climate-Related Financial Disclosure
framework, the Group has identified the relevant physical and transitional
risks, along with opportunities to which it has exposure. With the backdrop of
the identified risks and opportunities, three strategic pillars were
identified to help support the Group in lowering its carbon footprint. These
priorities are to minimise the carbon footprint across our property portfolio,
partner with proactive and responsible suppliers to jointly reduce our overall
carbon impact, and actively encourage and promote the positive environment and
sustainable benefits of pre-owned jewellery and watches with particular
emphasis on minimising waste and promoting re-use.
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. Price increases have been implemented across the majority of our
retail stocks. Accordingly, margins in retail are expected to normalise as, in
the first half of the year, we focused on stock turnover rather than margin
for tactical reasons.
Foreign Currency
We expect increasing demand for foreign exchange services as overseas travel
continues to grow. With increased focus, the introduction of our 'Click and
Collect' service in June and the expansion of the range of currencies offered,
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,
the impact of persistent inflation and higher interest rates. We are mindful
of the impact of the combination of these economic factors on all our
stakeholders. H&T is primarily a fixed and volumetric cost business. Close
cost control and operating efficiencies have and will remain a key management
focus. However, the Group has experienced higher than expected cost inflation,
as third-party suppliers pass on pricing increases. We believe that the
majority of 2023's cost increases are now in the cost run rate, which will
result in the rate of cost inflation for the full year being lower than that
experienced in the first half.
We are acutely aware of the impact of inflation on our employees. Ensuring
they are appropriately rewarded will remain a priority. However, salary costs
are not expected to increase significantly in the second half of the year.
Dividend
The Board has approved an increased interim dividend of 6.5p per share (2022
interim dividend: 5.0p per share), reflecting growing confidence in the future
prospects of the Group whilst adhering to the stated progressive dividend
policy and maintenance of at least two times cover. The dividend will be paid
on 6 October 2023 to shareholders on the share register at the close of
business on 8 September 2023.
UNAUDITED CONDENSED CONSOLIDATED GROUP STATEMENT OF COMPREHENSIVE INCOME
FOR THE 6 MONTHS ENDED 30 JUNE 2023
6 months ended 30 June 2023 6 months ended 30 June 2022 12 months ended 31 December 2022
Unaudited Unaudited Audited
Note £'000 £'000 £'000
Revenue 2 101,687 77,756 173,941
Cost of sales (46,670) (30,070) (72,025)
Gross profit 2 55,017 47,686 101,916
Other direct expenses (32,558) (29,470) (59,535)
Impairment charge (included in the figure above) (4,877) (6,703) (11,756)
Administrative expenses (12,489) (10,866) (21,828)
Operating profit 9,970 7,350 20,553
Investment revenue 19 - -
Finance costs 3 (1,239) (631) (1,548)
Profit before taxation 8,750 6,719 19,005
Tax charge on profit 4 (1,714) (1,571) (4,093)
Profit for the financial period and total comprehensive income 7,036 5,148 14,912
Earnings per share from continuing operations Pence Pence Pence
Earnings per ordinary share - Basic 5 16.26 13.15 37.16
Earnings per ordinary share - Diluted 5 16.26 13.14 37.15
All profit for the periods are attributable to equity shareholders. The
accompanying notes on pages 16 to 25 form part of these interim condensed
financial statements.
UNAUDITED CONDENSED CONSOLIDATED GROUP STATEMENT OF CHANGES IN EQUITY
FOR THE 6 MONTHS ENDED 30 JUNE 2023
6 months ended 30 June 2023 6 months ended 30 June 2022 12 months ended 31 December 2022
Unaudited Unaudited Audited
Note £'000 £'000 £'000
Opening total equity 164,119 136,618 136,618
Accumulated dividends waived by the Employment Benefit Trust - - 569
Total comprehensive income for the period 7,036 5,148 14,912
Issue of share capital 7 - 16,137
Share option movement 10 481 975
Dividends paid 10 (4,399) (3,133) (5,092)
Closing total equity 166,773 139,114 164,119
UNAUDITED CONDENSED CONSOLIDATED GROUP BALANCE SHEET
AS AT 30 JUNE 2023
30 June 2023 30 June 2022 31 December 2022
Unaudited Unaudited Audited
Note £'000 £'000 £'000
Non-current assets
Goodwill 21,233 19,341 20,969
Other intangible assets 6,759 3,630 6,368
Property, plant and equipment 14,707 11,955 13,045
Right-of-use assets 18,164 16,973 18,991
Deferred tax assets 35 1,481 251
60,898 53,380 59,624
Current assets
Inventories 37,538 36,090 35,469
Trade and other receivables 119,214 90,522 104,046
Cash and bank balances 12,859 12,711 12,229
169,611 139,323 151,744
Total assets 230,509 192,703 211,368
Current liabilities
Borrowings 8 - (6,343) -
Trade and other payables (12,399) (9,491) (9,097)
Lease liability (6,217) (5,768) (3,743)
Current tax liabilities (343) (1,094) (937)
(18,959) (22,696) (13,777)
Net current assets 150,652 116,627 137,967
Non-current liabilities
Borrowings 8 (30,000) (15,000) (15,000)
Lease liabilities (12,828) (12,530) (16,326)
Long term provisions (1,949) (3,363) (2,146)
(44,777) (30,893) (33,472)
Total liabilities (63,736) (53,589) (47,249)
Net assets 166,773 139,114 164,119
EQUITY
Share capital 9 2,200 1,993 2,193
Share premium account 49,423 33,486 49,423
Employee Benefit Trust share reserve (31) (23) (34)
Retained earnings 115,181 103,658 112,537
Total equity attributable to equity holders 166,773 139,114 164,119
UNAUDITED CONDENSED CONSOLIDATED GROUP CASH FLOW STATEMENT
FOR THE 6 MONTHS ENDED 30 JUNE 2023
6 months ended 30 June 2023 6 months ended 30 June 2022 12 months ended 31 December 2022
Unaudited Unaudited Audited
Note £'000 £'000 £'000
Net cash utilised from operating activities 6 (2,447) (15,563) (13,246)
Investing activities
Interest received 19 - -
Proceeds on disposal of right-of-use assets - - 56
Proceeds on disposal of property, plant and equipment 1 - -
Purchases of intangible assets (427) (993) (2,808)
Purchases of property, plant and equipment (3,275) (4,547) (4,582)
Acquisition of subsidiary - - (3,759)
Acquisition of trade and assets of businesses (1,842) (47) (372)
Acquisition of right-of-use assets (1,994) (1,987) (6,676)
Net cash used in investing activities (7,518) (7,574) (18,141)
Financing activities
Dividends paid (4,399) (3,133) (5,092)
Increase in borrowings 15,000 15,000 15,000
Debt restructuring costs (13) - (101)
Increase in overdraft - 6,343 -
Proceeds on issue of shares (net of costs) 7 - 16,137
Employee Benefit Trust - - 34
Net cash used in financing activities 10,595 18,210 25,978
Net decrease in cash and cash equivalents 630 (4,927) (5,409)
Cash and cash equivalents at beginning of the period 12,229 17,638 17,638
Cash and cash equivalents at end of the period 12,859 12,711 12,229
Unaudited notes to the Condensed Consolidated Interim Financial Statements
For the 6 months ended 30 June 2023
1. Finance information and significant accounting
policies
The condensed consolidated Group interim financial statements of the Group for
the six months ended 30 June 2023, 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 2022. The Group does not anticipate
any change in these accounting policies for the year ended 31 December 2023.
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 IFRS's 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 2022 is
based on the statutory accounts for the year ended 31 December 2022. 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 purchasing;
· Foreign exchange 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 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 or online. 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; as a proportion of sales
H1'2023 returns were 8% (H1'2022: 7%).
Pawnbroking scrap and Purchasing
Scrap revenue comprises proceeds from scrap sales of gold, jewellery and
watches. Revenue is recognised when control of the goods has transferred,
being at the point the smelter purchases the relevant metals or items are sold
and auctioned.
Foreign exchange
The foreign exchange currency service where the Group earns a margin when
selling or buying foreign currencies. Income is recognised at the time of the
transaction as this is when control of the goods has transferred.
Other services
Other services comprise revenues from personal loan interest income, third
party cheque cashing, money transfer income, watch repair income, and other
income. Commission receivable on cheque cashing, money transfer, and other
income is recognised at the time of the transaction as this is when control of
the goods has transferred. Watch repair income is recognised when the repair
has been completed.
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,
before loan and pawnbroking impairments
Other direct expenses
Other direct expenses comprise all expenses associated with the operation of
the store estate, support functions and operational centres of the Group,
including premises expenses, such as rent, rates, utilities and insurance, all
staff costs and staff related costs for the relevant employees.
Inventory stock provisioning
Where necessary provision is made for obsolete, slow moving, damaged goods, or
inventory shrinkage. The provision for obsolete, slow moving, and damaged
inventory represents the difference between the cost of the inventory and its
net realisable 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, retail, purchasing, pawnbroking scrap, foreign exchange and other
services. Operating segments are reported in a manner consistent with the
internal reporting provided to the Board of Directors, who are the chief
operating decision-makers. The Board of Directors are responsible for
allocating resources and assessing performance of the operating segments and
has been identified as the steering committee that makes strategic decisions.
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, c.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. 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.
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.
Purchasing:
Jewellery and watches are bought directly 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. Purchasing
revenues comprise proceeds from scrap sales on goods sourced from the Group's
purchasing operations.
Pawnbroking scrap:
Pawnbroking scrap comprises all other proceeds from scrap sales of the
Group's inventory assets other than those reported within purchasing. The
items are either damaged beyond repair, are slow moving or surplus to the
Group's requirements, and are sold in the case of watches, while jewellery is
smelted and sold at the current gold spot price less a small commission.
Foreign exchange:
The foreign exchange currency service offers the selling and buying of foreign
currency where the Group earns a margin on the transaction.
Other services:
This segment comprises:
● Personal loans income from the Group's former unsecured lending
activities. All unsecured lending ceased in early 2022. 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. Cheque cashing is subject to bad debt risk which
is reflected in the commissions and fees applied.
● Money transfer commission earned on the Group's money transfer
service.
● Watch repair services provided by the Group company, Swiss Time
Services Limited.
Segment information for these businesses is presented below:
6 months ended 30 June 2023 Pawnbroking Retail Purchasing Pawnbroking Scrap Foreign Exchange Other Services Total
Revenue £'000 £'000 £'000 £'000 £'000 £'000 £'000
External revenue 37,686 22,953 21,757 14,595 2,855 1,841 101,687
Total revenue 37,686 22,953 21,757 14,595 2,855 1,841 101,687
Gross profit 37,686 6,319 4,198 2,566 2,855 1,393 55,017
Impairment (5,258) - - - - 381 (4,877)
Segment result 32,428 6,319 4,198 2,566 2,855 1,774 50,140
Other direct expenses * (27,681)
Administrative expenses (12,489)
Operating profit 9,970
Interest receivable 19
Financing costs (1,239)
Profit before taxation 8,750
Tax charge on profits (1,714)
Profit before taxation 7,036
* Excluding impairment
6 months ended 30 June 2022 Pawnbroking Retail Purchasing Pawnbroking Scrap Foreign Exchange Other Services Total
Revenue £'000 £'000 £'000 £'000 £'000 £'000 £'000
External revenue 30,026 20,823 15,096 7,104 2,598 2,109 77,756
Total revenue 30,026 20,823 15,096 7,104 2,598 2,109 77,756
Gross profit 30,026 8,693 2,836 1,424 2,598 2,109 47,686
Impairment (7,161) - - - - 458 (6,703)
Segment result 22,865 8,693 2,836 1,424 2,598 2,567 40,983
Other direct expenses * (22,767)
Administrative expenses (10,866)
Operating profit 7,350
Financing costs (631)
Profit before taxation 6,719
Tax charge on profits (1,571)
Profit before taxation 5,148
Year ended 31 December 2022 Pawnbroking Retail Purchasing Pawnbroking Scrap Foreign Exchange Other Services Total
Revenue £'000 £'000 £'000 £'000 £'000 £'000 £'000
External revenue 63,745 45,197 36,246 18,286 5,749 4,718 173,941
Total revenue 63,745 45,197 36,246 18,286 5,749 4,718 173,941
Gross profit 63,745 17,778 6,815 3,468 5,749 4,361 101,916
Impairment (12,719) - - - - 963 (11,756)
Segment result 51,026 17,778 6,815 3,468 5,749 5,324 90,160
Other direct expenses * (47,779)
Administrative expenses (21,828)
Operating profit 20,553
Financing costs (1,548)
Profit before taxation 19,005
Tax charge on profits (4,093)
Profit before taxation 14,912
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 30 June 2023 6 months ended 30 June 2022 12 months ended 31 December 2022
Unaudited Unaudited Audited
£'000 £'000 £'000
Interest payable on bank loans and overdraft 719 111 486
Other interest 1 - 2
Amortisation of debt issue costs 58 104 187
Interest on expense on the lease liability 461 416 873
Total financing costs 1,239 631 1,548
4. Tax charge on profit
The Group recognised an effective tax rate of 19.6% (H1'2022: 23.4%). This
is lower than the standard blended UK statutory rate for the year of 23.5% due
to timing differences and depreciation in excess of capital allowances.
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 Audited
6 months ended 30 June 2023 6 months ended 30 June 2022 12 months ended 31 December 2022
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 - 7,036 43,263,656 16.26 5,148 39,164,667 13.15 14,912 40,132,753 37.16
basic
Effect of dilutive securities
Options - - - - 6,889 (0.01) - 14,807 (0.01)
Earnings per share diluted 7,036 43,263,656 16.26 5,148 39,171,556 13.14 14,912 40,147,560 37.15
6. Notes to the Cash Flow Statement
6 months ended 30 June 2023 6 months ended 30 June 2022 12 months ended 31 December 2022
Unaudited Unaudited Audited
£'000 £'000 £'000
Profit for the period 7,036 5,148 14,912
Adjustments for:
Investment revenues (19) - -
Financing costs 1,239 631 1,548
(Decrease)/Increase in provisions (197) (463) (1,680)
Income tax expense 1,714 1,571 4,093
Depreciation of property, plant and equipment 2,032 1,483 3,223
Depreciation of right-of-use assets 2,866 2,415 5,303
Amortisation of intangible assets 423 389 786
Right-of-use asset impairment - - (255)
Share based payment expense 252 262 539
Loss on disposal of property, plant and equipment - 9 3
Loss on disposal of right-of-use assets - - 37
Operating cash inflows before movements in working capital 15,346 11,445 28,509
Increase in inventories (2,070) (7,653) (6,693)
Increase in receivables (14,024) (18,024) (30,684)
Increase /(decrease) in payables 1,724 (300) (744)
Cash generated from operations 976 (14,532) (9,612)
Income taxes paid (2,336) (400) (2,230)
Interest paid on loan facility (626) (215) (531)
Interest paid of lease liability (461) (416) (873)
Net cash utilised from operating activities (2,447) (15,563) (13,246)
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 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 30 June 2023 6 months ended 30 June 2022 12 months ended 31 December 2022
Unaudited Unaudited Audited
£'000 £'000 £'000
Operating profit 9,970 7,350 20,553
Depreciation and amortisation 2,456 1,872 4,009
Depreciation of right-of-use assets 2,866 2,415 5,303
Impairment of the right-of-use assets - - (255)
EBITDA 15,292 11,637 29,610
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 30 June 2023 6 months ended 30 June 2022 12 months ended 31 December 2022
Unaudited Unaudited Audited
£'000 £'000 £'000
Secured borrowing at amortised cost
Bank loans and overdraft - 6,343 -
Total borrowings due for settlement within one year - 6,343 -
Long term portion of bank loan 30,000 15,000 15,000
Amount due for settlement after more than one year 30,000 15,000 15,000
9. Share capital
At 30 June 2023 At 30 June 2022 At 31 December 2022
Unaudited Unaudited Audited
Allotted, called and fully paid
(Ordinary Shares of £0.05 each) £'000 2,200 1,993 2,193
Number of shares Number 43,987,934 39,864,077 43,850,484
The Group has one class of ordinary shares which carry no right to fixed
income.
The Group issued share capital amounting to £7,000 during H1'2023 (H1'2022:
nil). There was no share premium created.
10. Dividends
On 7 August 2023, the directors approved a 6.5 pence per share interim
dividend (2022 interim dividend: 5.0 pence per share) which equates to a
dividend payment of £2,819,000 (30 June 2022: £1,958,000). The dividend
will be paid on 6 October 2023 to shareholders on the share register at the
close of business on 8 September 2023 and has not been provided for in the
2023 interim results. The shares will be marked ex-dividend on 7 September
2023.
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