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REG - H&T Group PLC - Preliminary Results

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RNS Number : 0582S  H&T Group PLC  07 March 2023

H&T Group PLC ("H&T" or "the Group" or "the Company")

PRELIMINARY RESULTS

FOR THE TWELVE MONTHS ENDED 31 DECEMBER 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 preliminary results for the twelve months ended 31 December 2022
("the period" or "the year").

Highlights

 ·         Profit before tax of £19.0m (2021: £10.0m excluding non-recurring expense of
           £2.1m) as the core pawnbroking business continued its sustained growth and
           contribution to profit, supported by strong performances across all business
           segments.
 ·         Growth in the Pledge Book of over 50%, to finish the year at £100.7m (2021:
           £66.9m), as demand for pledge lending continued to rise.
 ·         Demand for retail jewellery and watches continued to grow, with sales of
           £45.2m

(2021: £36.2m) and margins moderating as expected, to 39.3% (2021: 45.9%).
           This reflects the evolving product mix and the proportion of new versus
           pre-owned items.
 ·         Foreign currency net income grew significantly to £5.7m (2021: £3.0m),
           exceeding pre-Covid levels, as international travel demand continued to build
           momentum.
 ·         Balance sheet remains robust with net asset value of £164.1m (2021:
           £136.6m), augmented by the recent capital raise which amounted to £16.1m
           net.  Net asset value per share of 374.3p (2021: 342.7p). Growth in pledge
           lending and capital expenditure has utilised cash resources as expected, with
           the Group ending the year with a net debt position of £2.8m (2021 cash
           balance: £17.6m).
 ·         Basic earnings per share of 37.2p (2021: 15.4p).
 ·         Proposed full year dividend of 15.0p (2021: 12.0p), representing a payout
           ratio of 40%, in line with our stated progressive dividend policy, subject to
           maintaining cover of at least two times.
 ·         Proposed full year dividend of 15.0p (2021: 12.0p), representing a payout
           ratio of 40%, in line with our stated progressive dividend policy, subject to
           maintaining cover of at least two times.

Chris Gillespie, H&T chief executive, said:

 

"H&T has a proud history and celebrated its 125(th) anniversary in 2022. I
am delighted with the progress we have made in growing our business and
investing in its future during the year. Our success is built upon a strong
ethos of putting customers at the heart of everything we do. This is only
possible because of the exceptional colleagues we have, right across the
Group, and I thank them all for their unwavering dedication and commitment to
the success of H&T.

 

Trading performance continued to build steadily throughout the year,
materially ahead of initial expectations. This trend has continued into the
new year. January 2023 was a record month, both for lending demand and for
online retail sales, the value of which reached £1m in a single month for the
first time. As at the end of February 2023 the pledge book had seen further
growth and stood at

c. £104m. We also continue to see strong demand for our FX services.  We
continue to believe that FX represents a growth opportunity for the Group.

 

During 2022, we opened eleven new stores with one closure, increasing the
store estate to 267

(2021: 257 stores). Two new stores have been added since the year end, taking
the total to 269, with  seven further store openings  currently in course.
All stores opened in the last two years are on track to be profitable on a run
rate basis no later than their second trading year, and the net impact of
planned new store openings on forecast earnings is not expected to be
material.

We were delighted to receive support for our growth ambitions from both new
and existing shareholders, enabling us to raise incremental growth capital in
September 2022. We continue to focus on growing our pledge book and expanding
our store estate in a measured and carefully considered manner. Further, we
are accelerating the programme of refurbishment in our existing stores, with
c. 50 store refurbishments planned for 2023. Investment in our technology
platforms continues, with the successful implementation of the in-house
developed point of sale system ("EVO") across the full store estate by Q4
2022, in line with our plans. Phase 2 of this development is underway and
further investment into our technology infrastructure and online customer
journey will continue as we commit to being at the forefront of innovation in
our industry.

We were very pleased to complete the acquisition of Swiss Time Services in
July, which has enabled the Group to bring exceptional watch expertise to our
business. The integration of the Swiss Time team into the wider H&T Group,
has and will continue to offer synergies and opportunities to further develop
our strategy in the increasingly important watch segment of our business.

I would like to personally thank Peter McNamara for the wisdom and dedication
he has brought to the Group during his long tenure as chair. On behalf of
everyone at H&T, I wish Peter well for the future and I am pleased to
welcome Simon Walker to the role. He chairs a business which has a proud
history and an exciting future, and I very much look forward to working with
him."

 Financial Highlights (£m unless stated)   2022      2021      Change %
 Profit before tax                         £19.0m    £10.0m*   90.0%
 Reported Profit before tax                £19.0m    £7.9m     140.5%
 Diluted EPS (p)                           37.2p     20.8p*    78.8%
 Reported Diluted EPS (p)                  37.2p     15.4p     141.6%
 Dividends per share (p)                   15.0p     12.0p     25.0%
 Net assets                                £164.1m   £136.6m   20.1%

 Key Performance Indicators
 Net Pledge book                           £100.7m   £66.9m    50.5%
 Net Pawnbroking Revenue                   £51.0m    £37.3m    36.7%
 Retail sales                              £45.2m    £36.2m    24.9%
 online sales (excl. refunds)              13%       13%
 new jewellery sales                       22%       16%
 gross margin                              39.3%     45.9%
 Foreign exchange Revenue                  £5.7m     £3.0m     90.0%
 Number of stores                          267       257

*Excluding non-recuring expense of £2.1m

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 Broker                                            +44(0)20 7408 4090

 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

 Andy
 Bryant

 Pippa Crabtree

 

Chairmans Report

Having joined the board of H&T in 2006, the journey since has been one of
constant evolution and growth, always underpinned by the exceptional service
provided by my colleagues in the business as they build strong and enduring
relationships with customers. This core ethos, putting the customer at the
very heart of our business, remains our biggest strength and I am confident
this will continue as I hand over to Simon Walker as incoming chair.

 

I said in my 2021 report that the Group's trading performance in our core
businesses had been the strongest I had seen in my time as chair. This remains
the case. The growth in the pawnbroking pledge book throughout the year,
demonstrates a continued increase in borrowing demand by customers during a
year of uncertainty, rising inflation, higher interest rates and in
particular, the impact of war in Ukraine upon food, fuel and utility prices.
Access to credit by those seeking a small sum over a short term, is more
restricted now than has been the case for many years and has been a key driver
of growth in our pledge book. The combination of these factors, along with a
systemic shift towards pre-owned jewellery and watch purchases, provides the
Group with a unique opportunity to grow its business in the medium term.
Pre-owned jewellery and watches represent both excellent value for money and a
store of value and have strong environmental and sustainability credentials.

 

The Year in Review

Our priority for 2022 was to focus on the core pawnbroking and retail
segments, both of which delivered strong performances, and on our foreign
currency business which has now recovered to above pre-pandemic levels.  The
Board believes that foreign currency represents a significant growth
opportunity for the Group.

I am particularly pleased with the progress made by the c. 70 stores we
acquired in 2019, and the seamless manner in which they have been integrated
into our business. The rate of growth delivered by these stores, in both
pawnbroking and retail sales, exceeds that of the business as a whole, and the
colleagues who joined us at the time are now very much part of the H&T
family.

The acquisition of Swiss Time Services in July brings exceptional watch
expertise to the Group which will enable us to broaden the range of services
we can offer to our customers, as well as bringing a significant proportion of
our watch repair and servicing work in-house. The first few months following
the acquisition, have seen the team at Swiss Time Services transition to
become very much a key part of H&T, and the Board has high expectations of
the value they will bring to the Group over time.

In April, the Group was able to agree with the Financial Conduct Authority, a
programme of redress in respect of approximately 13% of customers who prior to
October 2019, had borrowed from us on our High Cost Short Term unsecured
credit product. The Group no longer offers unsecured loan products. A
provision of £2.1m was raised in our 2021 financial results, to cover the
estimated cost of this redress programme. Excellent progress has been made,
with over 80% of eligible customers receiving their redress payments thus
far.

The positive trading momentum has resulted in the pledge book exceeding £100m
at the year end. This is a significant milestone for the Group and, as we
enter 2023, demand continues to grow. Retail sales in the second half of the
year were robust, and I am particularly pleased to note the progress we have
made in developing our online retail offering. The foreign exchange business
represents a significant growth opportunity and is receiving increased focus
and investment. Further, we have been increasing the level of investment in
our store estate and in our technology platforms. The combination of these
factors led us to seek the support of our shareholders in raising equity of
£16.9m gross in September 2022. On behalf of the Board, I would like to thank
existing and new shareholders for the confidence they showed in our growth
ambitions by participating in the Placing and Retail Offer. We are deploying
these funds by growing the pledge book and expanding the store estate in a
careful and measured manner.

Subject to shareholder approval, a final dividend of 10.0p (2021: 8.0p) per
ordinary share will be paid on the 23(rd)  June 2023 to those shareholders on
the register at close of business on the 19(th) May 2023. This brings the full
year dividend to 15.0p (2021: 12.0p), a 25% increase and reflecting the
Board's confidence in the future prospects of the business. The dividend
remains in line with our progressive dividend policy and maintains a coverage
ratio of at least two times that of earnings.

Looking to the Future

Our store locations tend to be community based, and these locations have
proven resilient in comparison with other retail centres, which have suffered
from ongoing reduced footfall. Stores are critical to our customer experience
and our strategy is to continue to develop our retail network in those
geographical locations where opportunities exist to increase our presence. We
continue to invest in improving and modernising our existing store estate, and
2023 will see this level of investment increase significantly, with c. 50
refurbishments planned.

The Group continues to invest in the development of its technology platforms
to deliver better customer experiences while significantly improving our
ability to use transactional and product level data. Our websites and online
journeys have been refreshed in 2022, with further improvements planned for
2023 which will improve visibility, navigability and make it easier for
customers to transact with us without necessarily having to visit a store.

We remain confident that the trading environment will be positive for our
business. In particular, 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
constrained more than has been the case for many years. We also expect demand
for foreign exchange services to continue to rise as the level of overseas
travel continues to normalise post Covid, and as our investment in marketing
bears fruit, continued positive momentum in our sales of pre-owned retail
jewellery and watches.

 

However, like all businesses, H&T continues to experience supply chain
pressures, higher utility bills and in particular, wage inflation that will
contribute to upward pressure on the costs of running our business. Cost
management and achieving operating efficiencies will remain a key management
focus, while ensuring capital is invested appropriately and where attractive,
sustainable returns can be achieved.  We will always ensure our entry pay
levels are above the National Living Wage with opportunities for progression
as individuals develop their careers with H&T.

 

ESG

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 priorities 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 environmental
and sustainability benefits of pre-owned jewellery and watches with particular
emphasis on minimising waste and promoting re-use.

Following the completion of a board effectiveness review in early 2022, we
have made significant progress in the areas highlighted. I was pleased to
welcome Simon Walker and Toni Wood as members of the Board, both of whom have
broadened the range of experience and skill around the board table. I would
also like to thank Mark Smith and Elaine Draper, who stepped down at our AGM
in May 2022, for their significant contribution to the Group over recent
years.

 

Summary

The Board views the future with growing confidence, albeit with a close eye on
an increasingly challenging macro-economic environment for all our
stakeholders.

On behalf of the Board and shareholders, I would like to thank everyone at
H&T for their unwavering hard work, dedication, and resilience over this
past year. As I step away from the Group after seventeen years as a member of
the Board, I would like to offer my very best wishes for the future.

 

Chief Executive's Review

The past year has been a challenging period for businesses and individuals
alike. Following on from the Covid-19 pandemic, 2022 brought levels of
inflation not seen for a generation - particularly in food, fuel, and utility
prices - and rising interest rates.  Against this backdrop, H&T has
delivered strong growth and a resilient operational performance and enters
2023 with increasing trading momentum.

Sustained demand for H&T's product offering has seen the Group deliver
revenue growth across the business, with  profit before tax up 90% to £19.0m
(2021: £10.0m excluding non-recuring expense of £2.1m). These results are
materially ahead of initial market expectations and in line with current
market expectations, which were revised upwards following the successful
equity raise concluded in September 2022.

This growth in revenue has been delivered by all the Group's product segments
- particularly pawnbroking - and across all channels, both in physical stores
and increasingly via our digital platforms.  Online retail sales in the
all-important pre-Christmas trading period of December, were up over 100%
compared with the prior year, with January 2023 an all-time record month.

The equity raised in September 2022 is enabling us to continue to grow the
pledge book, which had increased by over 50% to £100.7m as at the end of
December (2021: £66.9m) and increasing the store estate to 267 stores from
257 at the prior year end.

The strength of the Group's balance sheet has been further enhanced by the
recent capital raise, and is underpinned by the inherent value of gold,
precious metals, jewellery and watches expressed at cost. Net assets of
£164.1m (2021: £136.6m) is comprised of the pledge book £100.7m (2021:
£66.9m),  inventory of £35.5m (2021: £28.4m) and a net debt position of
£2.8m (2021 cash balance: £17.6m).

Review of Operations

Pawnbroking

Borrowing demand by individuals and business owners has returned. This is in
part as a result of economic conditions and in particular, the impact of
inflation on disposable incomes. This borrowing need has returned at a time of
significantly constrained supply of small sum, short term credit. The
overwhelming majority of H&T's pawnbroking loans are for a small sum -
typically c. £200 - and are for a contractual term of six months.  This
market dynamic has created a growth opportunity for pawnbroking and, as the
market leader, for H&T in particular.

Aggregate lending for the year increased by over 52% to £218m (2021: £143m),
with the number of loans granted to customers borrowing from H&T for the
first time rising significantly. Currently, over 13% of loans are to new
borrowers, with new customer volumes up over 40% year on year. The pledge book
grew in the year by over 50% to £100.7m (2021: £66.9m). Growth has been
delivered across the whole of the store estate, with a slightly higher level
of growth in our more Northerly stores, and in particular, in the c. 70 stores
acquired in 2019.

Monthly lending volumes in the first two months of 2023, have been at record
levels.

Redemption rates have been consistent at c. 85% and remain above pre-pandemic
norms.  Loan duration has been stable through 2022 at 97 days, albeit it
there has been a trend over the past two years for customers to repay their
loans more quickly than historic averages of nearer 108 days. It is possible
that in future, average duration may rise as a result of the impact of
inflation on borrowers' disposable incomes and hence, reduce their propensity
to repay their loan early.

Loan to Value ratios continue at c. 65% (2021: c. 65%) with an average loan
size of £405 (2021: £339). The median lending value remained stable at £185
(2021: £175). We have seen a normalisation of demand across the spectrum of
loan sizes, with a growing number of requests for larger value loans. As
expected, this has resulted in a moderation of the risk adjusted yield to
historic levels, which at

c. 61% is in line with the risk adjusted margin reported at the half year. We
have seen growth in the proportion of our lending where the pledged asset is a
high-quality watch. Watch lending now represents c. 15% (2021: c. 12%) of the
loan book. These loans tend to be slightly larger than the average, and also
remain on the book for a marginally longer term.

                                       2022      2021     Change %

                                       £'m       £'m
 Year-end net pledge book - note 1     £100.7m   £66.9m   50.5%
 Average net pledge book               £83.8m    £53.7m   56.1%
 Revenue less impairment               £51.0m    £37.3m   36.7%
 Risk adjusted margin - note 2         60.9%     69.5%

 Notes:
 1.     Includes accrued interest and impairment

 2.     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 new and pre-owned jewellery and
watches. The Group is currently ranked as the sixth largest jewellery and
watch retailer in the UK (source: www.professionaljeweller.com).

Retail sales increased by 25% to £45.2m (2021: £36.2m). Gross profits were
up 7.2% to £17.8m

(2021: £16.6m) with, as expected, gross margin moderating to 39.3% (2021:
45.9%). The reduction in the gross margin is as a result of changing sales mix
between new and pre-owned items, along with dynamic pricing and inventory
management. Sales of pre-owned watches have been particularly buoyant,
representing 16% of total sales by value at an average retail price of c.
£1,000.

Sales of new products represented 22% (2021: 16%) of total sales by value.
Supply of some popular pre-owned product lines remains constrained, and demand
has instead been satisfied through the sale of new items. As the growing
pledge book yields an increasing volume of pre-owned items which are deemed
suitable for retail sale, we expect the need to supplement retail stock with
new, lower margin items to reduce, and hence the proportion of pre-owned sales
to increase.

Online sales increased by c. 26% to £5.9m, after adjusting for returned items
and refunds

(2021: £4.7m). This represents 13% (2021: 13%) of total sales by value, with
almost half of these sales viewed in store by the customer prior to completing
their purchase.

Our online offering has been enhanced through the year, with a new website
platform in development for expected roll out in the first half of 2023.
January 2023 saw record online sales, reaching £1m in a single month for the
first time.

Total inventory of £35.5m (June 2022: £36.1m and December 2021: £28.4m) was
held as at 31(st)  December, including stock of parts held at Swiss Time
Services amounting to £0.5m. The value of watches in the process of repair as
at December had increased to c. £4m (2021: £1.7m), as a result of increased
volumes and parts supply pressure across the industry. In addition, demand by
consumers to sell their gold items is a contributor to the increase in
inventory, along with higher quantities of pledged items released from the
growing pawnbroking book. To address this, we are investing in further
capacity at our processing centre, with an additional facility coming on
stream in the first half of 2023. In the meantime, we have focused on
processing our inventory as efficiently as possible in order that the c. 40%
which is deemed suitable for retail sale, is made available to our retail
platforms as quickly as possible.

Retail inventory as at the end of December amounted to c. £25m at cost (2021:
£21.4m) and has reduced to c. £23m as at the end of February 2023.

Foreign Currency

Foreign currency revenues have fully recovered to pre-pandemic levels as
demand for overseas travel continues to gather momentum. Average transaction
values reduced by approximately 10% year on year, to £390 (2021: £430)
evidencing, we believe, careful holiday budgeting by consumers.

Gross profit rose to £5.7m (2021: £3.0m), an increase of 90%. The provision
of foreign currency services has been identified as a future growth
opportunity for the Group and is receiving increased focus and investment.

Gold Purchasing and Scrap

Gold Purchasing

Gross profit earned from scrap purchasing was £6.8m (2021: £3.4m), an
increase of 100%. Margins improved to 19% (2021: 17%) supported by a strong
gold price, whilst both the gold price and the impact of inflation on
customers' disposable income has underpinned increasing demand. The average
gold price per troy ounce during the period was £1,450 (2021: £1,308).

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.  Gross profit grew by 75% to £3.5m (2021: £2.0m), with gross margin
of 19% (2021: 18%). Margin was impacted by a decision to dispose of, by
auction, a small number of higher value jewellery items and watches which had
been held in inventory for some time, and where the cost of repair was deemed
uneconomic.

Other Services

Money Transfer

Money transfer activity drives significant footfall to our store estate and
represents an opportunity for colleagues to bring customers' attention to our
wider service offering. Contribution in the year increased to £1.5m (2021:
£1.3m) reflecting higher transaction volumes, particularly of inbound
transfers.

Cheque Cashing

2022 saw an increase in demand for this service for the first time in several
years, following the decision by some local authorities and government
departments to issue cost of living support payments by cheque. Consequently,
contribution in the year increased to £1.2m (2021: £1.1m) despite the
systemic decline in the use of cheques in the wider economy.

Personal Lending

The Group no longer offers an unsecured lending product. Lending volumes
reduced significantly after Q4 2019, and all lending ceased in early 2022. The
unsecured loan book has since continued to receive repayments, and
corresponding impairment provisions have been released. The outstanding book
has reduced to £0.7m (2021: £3.1m) with revenues earned reducing to £2.1m
(2021: £4.3m) 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 our product offering. Our focus is to ensure that 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 colleagues, are and will
remain at 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 added eleven new stores
during 2022, with one closure. Two further stores have been added since the
year end, bringing the total number of stores to 269. We have a prioritised
list of potential locations throughout the UK. 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 (PoS) system, known as EVO, was successfully deployed
across the store network in the second half of 2022 as planned. Further
functionality enhancements will be implemented through 2023. In addition,
phase 2 of the development will bring the new system to our jewellery
processing centre, which along with additional capacity, is expected to
significantly improve productivity.  EVO 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. This will be an ongoing process of continual evolution. 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.

The FCA published the Consumer Duty requirements in the latter half of 2022,
H&T has a strong commitment to ensuring these requirements are met.

Broadening our Business

On 1(st) July 2022, the Group completed the acquisition of Swiss Time Services
Limited. This is an exciting opportunity for us to bring exceptional 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 15% of pledge lending and 16%
of retail sales by value.  We believe that by enhancing our capabilities in
this area, we can further develop this line of business. We will, in 2023,
trial a "care and repair" service for customers, for which we believe there
will be significant appetite.

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 wider H&T store estate, particularly in respect
of pawnbroking, 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 for H&T.

 

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. H&T
is currently the sixth largest jewellery and watch retailer in the UK (source:
www.professionaljeweller.com). Demand has remained robust through 2022 and in
the early months of 2023, with January 2023 being a record month for online
sales.  We believe that there are systemic reasons for the strength of this
demand, including 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, and also as a store of value
which can be sold or used as collateral for a future pledge loan if their
circumstances change. We believe that these dynamics are likely to continue.

Other

We expect increasing demand for foreign exchange services as overseas travel
continues to rebound. With increased focus and the introduction of online
options for customers, we continue to 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,
sustainable returns can be achieved.

 

We have rewarded our employees with increases in basic pay, and with bonuses
intended to recognise their hard work and contribution throughout 2022. We
have also seen an increase in variable performance related pay, given the
strong performance of the business.

 

We fixed the cost of energy supplies for two years at the end of 2021, and we
remain able to obtain attractive renewal terms as our rental agreements fall
due for review. Typically, the store estate is subject to three or five year
rent reviews.

 

Chief Financial Officer's Review

Financial Results

The Group delivered profit before tax of £19.0m (2021: £7.9m after
non-recurring expense of £2.1m).

Reported gross profit increased to £101.9m (2021: £76.4m), up 33.4%, with
all of the Group's core business segments delivering significant growth.
Pawnbroking and Retail remain the largest segments of the business,
contributing 63% (2021: 59%) and 17% (2021: 22%) respectively to gross
profit.

Pawnbroking income is strongly correlated to the growth in the underlying
pledge book, the profile of the pledge book in both the value and the timing
of individual lending throughout the course of the year, and the impact of
International Financial Reporting Standards (IFRS) 9. The composition of the
pledge book has returned to historic norms, with demand for larger loans
returning during the year. Risk adjusted margins reduced, as expected, to
60.9 % (2021: 69.5%), with the risk adjusted margin during the second half of
the year in line with the reported H1'2022 result (June 2022: 61.4%).

Gross profit contribution from retail jewellery and watch sales grew by 7.2%
to £17.8m (2021: £16.6m) on sales of £45.2m (2021: £36.2m).  The growing
pledge book and increased volumes of gold purchases, together provide a
greater volume of pre-owned items available to be included in the retail
product mix. Margins have normalised during 2022 to 39.3% (2021: 45.9%) and
have been broadly consistent throughout the year (H1'2022: 41.7%) reflecting
the evolving product mix and the proportion of new versus pre-owned items.

Foreign Currency is a strategic growth opportunity for the Group, increasing
gross profit contribution by 90% to £5.7m (2021: £3.0m) and its proportion
of Group gross profit to 6% (2021: 4%). We are investing in improving the
customer proposition with an online offering and broadening the range of
currencies available to customers.

Gold purchasing gross profit has doubled to £6.8m (2021: £3.4m) as the
prevailing gold price and impact of inflation on customers' disposable
incomes, supported increased demand. Margins of 19% (2021: 17%) were achieved
in the year. Gold purchasing gross profit contributed 7% (2021: 4%) of Group
gross profit.

Scrap sales gross profit increased by 75% to £3.5m (2021: £2m), contributing
3% (2021: 3%) of total Group gross profit. Volumes are highly correlated to
the size of the underlying pledge book, as unredeemed pledge loan items that
are not sold at auction, and which are not of suitable retail quality, are
processed for scrap. This activity realised a margin of 19% (2021: 18%). With
an increasing underlying pledge book and consistent rates of redemptions by
customers, the volume of scrap sales are expected to rise commensurately, with
a lag typically of 10 to 11 months after the date of the original loan.

Other sources of gross profit amounted to £4.4m (2021: £6.6m), decreasing by
33% as expected. Personal lending net contribution fell to £2.1m (2021:
£4.3m), as the Group ceased all unsecured lending in the first half of 2022
and the remaining book reduces as payments are received and IFRS 9 impairment
provisions are released accordingly.  Revenue from the cashing of third party
cheques grew by 9% to £1.2m (2021: £1.1m) and commissions earned on money
transfer services increased by 15% to £1.5m (2021: £1.3m).

Pawnbroking Income, Pledge Book and IFRS 9

Pawnbroking income is recognised as contractual interest earned on a pledge
loan over its contractual maturity of 6 months, with interest accrued
reflecting the principal outstanding and the effective interest rate, as
governed by IFRS 9. Interest is charged on a daily basis, and no early
termination penalties or fees are charged to the customer if the loan is
repaid prior to its 6 month maturity.

International Financial Reporting Standards, IFRS 9, specifies how an entity
should classify and measure a financial asset and requires recognition of
impairment losses on a forward-looking basis, which means the impairment loss
is required to be recognised before the occurrence of any loss event  in the
underlying pledge loan.

A pledge loan receivable is recognised on the day a pledge loan is granted. If
a customer does not repay their pledge loan, no interest is recognised on this
unpaid loan. A customer may alternatively elect to repay their pledge loan
before its contractual maturity. Both instances will reduce the realised
effective interest earned on the pledge loan versus the initial expected
interest to be earned at the time when the pledge loan is granted.

The Group measures loss allowances for pledge loans using an IFRS 9 expected
loss model, which considers the future expected interest income to be earned
while considering the impact of redemption rates and repayment profiles.

Interest income is earned on the pledge loan over time, while IFRS 9 requires
the estimate of future impairment to be recognised on the day the pledge loan
is granted. This mismatch between the recognition of impairment costs and
interest accrued is intensified in periods of growth, or reduction, in the
underlying pledge book.  The effect of the day one impairment charge incurred
in 2022 has been to reduce the annual risk adjusted margin as the IFRS 9 loss
allowance impairment provision grew to £12.4m (2021: £11.1m).

Costs

Direct and administrative expenses increased to £81.4m (2021: £65.2m),
growing by 25% as expected.

Impairment charges, required to be raised by accounting standards IFRS9, are
included in the direct expense category. These impairment charges have
increased substantially to £11.8m (2021: £6.0m), as the significant growth
in the underlying pledge book requires an appropriate level of impairment
provisioning.

Employee related costs, excluding variable remuneration, increased by 7%. The
strong growth momentum of the Group resulted in increased performance related
pay for store and other customer facing colleagues, in line with a balanced
scorecard approach.  Group share incentives granted historically, the vesting
of which requires achievement of both earnings and return targets, required
increased provisions in 2022 given the strong momentum in both earnings and
the share price.

Other costs returned to a normalised rate of expenditure following the lifting
of Covid-19 restrictions and support measures that were in place in 2021. For
example, government support in the form of rates relief was not repeated in
2022, and travel and similar costs returned to pre-pandemic run rates. We also
made the decision to increase marketing expenditure in support of our broader
strategy.

The provision raised in 2021 for the implementation of the customer redress
programme, following the regulatory review of our now closed High Cost Short
Term loans business, was disclosed separately as a non-recurring expense in
the 2021 results, and has been utilised during the course of the year as
redress payments have been made to customers. The remaining provision
available for future redress payments as at 31 December 2022 was £0.4m (2021:
£2.1m). Over 80% of eligible customers have received redress to date, with
the programme continuing.

Headcount

The Group employed 1,540 (2021: 1,423) colleagues at 31(st) December 2022,
with the increase in headcount supporting the growth in store estate and in
key support functions, along with over 30 colleagues joining the Group
following the acquisition in July of Swiss Time Services.

Acquisition of Swiss Time Services

Swiss Time Services was acquired by the Group on 1(st) July 2022, for a total
consideration of £4.3m, inclusive of a net cash balance of £0.5m. Swiss Time
Services is a UK based company operating in the watch servicing and repair
industry. The acquisition was funded from the Group's existing borrowing
facility and has been accounted for under the accounting standard IFRS 3. The
business has remained profitable in the early months following acquisition.

Share Capital

The Group successfully raised gross proceeds of £16.9m via a capital raise
concluded on the

 30(th) September 2022. A total of 3,986,407 new ordinary shares were placed
at a price of 425p per share. These new shares rank pari passu in all respects
with existing shares in issue. Following the admission of the newly issued
shares, the Group has a total of 43,850,484 shares in issue.

The total cost associated with raising the additional equity amounted to
£0.9m and has been deducted from the gross value of the capital raised, in
line with accounting standard IAS 32.

The additional capital will be deployed in growing the pledge book beyond
initial 2022 expectations, the expansion of the store estate by up to 20
stores in 2023, and in supporting further investment in our existing store
estate and in our IT infrastructure.

At the 31 December 2022, the Group operated three share award schemes:
Approved Share Options Scheme ("ASOS"), Unapproved Share Option Scheme
("USOS") and Performance Share Plan "PSP". The required provision charge for
the year for the PSP scheme was £0.6m (2021: £0.0m).

Options exercised by employees under the 2012 and 2013 share option schemes,
amounted to 16,852 which were satisfied by the Group's Employee Benefit Trust.

The 2019 PSP scheme did not meet the minimum vesting criteria and lapsed
accordingly.

Tax

The corporate taxation charge for the year was £4.1m (2021: £1.8m). The
group has an effective tax rate of 21.5% for the current year compared with
23.1% in the prior year.  The Group was able to make use of the
super-deduction allowance for investment in plant and machinery for two years
from 1(st) April 2021. The timing of qualifying tax deductibility versus
accounting recognition of expenditure, results in deferred taxation and
contributes to the effective tax rate of 21.5%.

Balance Sheet and Capital expenditure

The Group's net asset value increased to £164.1m (2021: £136.6m).  The
balance sheet is underpinned by the inherent value, expressed at cost, of
precious metals in the form of collateral for the pledge book and in
inventory, as well as cash balances.

With sustained demand for small sum short term lending, the pledge book grew
to £100.7m

(2021: £66.9m).

Inventory increased to £35.5m (2021: £28.4m), including £0.5m of stock in
parts held at Swiss Time Services. During H2 of 2022, elevated inventory
holdings at the jewellery centre were processed and either sent for scrap or
made available for retail sale. The value of watches in the course of repair
as at December 2022 had increased to c. £4m (2021: £1.7m), as a result of
higher volumes and parts supply pressures which are evident across the
industry. Subsequent to the year end, many of these watches have been made
available for retail sale.

The Group ended the year with a net debt position of £2.8m, after starting
2022 with a positive cash position of £17.6m, as the Group funded organic and
inorganic growth opportunities.

Non-current assets grew to £59.6m (2021: £51.4m) with the investment of
capital expenditure in IT development and the store estate by £3.5m (2021:
£1.6m), and the acquisition of Swiss Time Services  of £3.8m.

Costs incurred in the  development of the new technology platform known as
Evo during the year, have been capitalised and amounted to £1.7m (2021:
£1.1m), in line with accounting standard, IAS 38. Further costs are expected
to be capitalised as additional phases of development are undertaken.

Cash Flow and Financing Facilities

The Group utilised £20.4m (2021: £16.8m) of cash resources during the year,
after paying dividends of £5.1m (2021: £4.0m), growing the debtor book,
predominately the pledge book, by £30.9m (2021: £15.6m), the acquisition of
Swiss Time Services of £3.8m and capital investment of £14.3m (2021:
£9.5m).

New equity was raised in September 2022 generating net proceeds of £16.1m.

At 31 December 2022 the Group had a net debt position of £2.8m, utilising
£15m of the revolving credit facility and cash balances on hand of £12.2m.

The Group's financing facilities were renewed on 22(nd) December 2022 to
comprise a combination of a £30m three-year revolving credit facility with
the option to extend to a maximum period of five years (previously £15m with
a maximum period of four years) and a £5m overdraft facility (previously
£20m). We believe this revised structure supports the growth ambitions and
expected borrowing needs of the Group. Discussions are underway to explore the
possibility of increasing the aggregate value of available funding facilities.

The revolving credit facility is subject to unchanged margins of between 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 facility has a maturity date of 22 December 2025.

The overdraft margin is unchanged at 1.7% above the Bank of England base rate
and has an annual renewal date of 22 December 2023.

Funding covenants to which the revolving credit facility is subject, are
summarised below:

                     Total Net Debt to EBITDA  Interest Cover Ratio  Fixed Charge Cover Ratio
 Facility covenants  2.5 x                     4 x                   1.5x

 31 December 2022    0.1x                      60.8x                 46.1x
 31 December 2021    0.0 x                      172.9 x              104.4 x

 

Asset Carrying Value Review

The Group performs an annual review of the expected earnings of acquired
stores and considers whether the associated goodwill and other property, plant
and equipment values require an impairment as required by accounting
standards. The Group has also considered whether its right-of-use assets
(property leases) are fairly valued. A fair value reversal of £0.3m (2021:
reversal of £0.2m) has been applied in respect of its right-of-use-assets.

Return on Equity

The Group had average net asset value over the course of 2022 of £150.4m
(2021: £135.6m) and reported profit after tax of £14.9m (2021: £6.0m),
representing a post-tax return on equity of 9.9% (2021: 4.4%). At the time of
the recent capital raise, the Group set a target to achieve a sustainable
post-tax ROE % in the mid-teens, and is committed to achieving this objective.

Going Concern

The Board has assessed the impact of appropriate scenarios and believes that
it has sufficient committed funding facilities available to meet the
anticipated needs of the business. The Group has prepared the financial
statements on a going concern basis.

Share Price and EPS

The closing share price at 31 December 2022 was 480p (2021: 295p), with a
market capitalisation of £210.5m (2021: £117.6m).

Basic  earnings per share was 37.2p (2021: 20.8p excluding non-recurring
expense item of £2.1m) and diluted earnings per share was 37.2p (2021: 20.8p
excluding non-recurring expenses item of £2.1m). Net asset value per share
was £374.3p  (2021: 342.7p).

 

 GROUP STATEMENT OF COMPREHENSIVE INCOME
 FOR THE YEAR ENDED 31 DECEMBER 2022
                                                                                                               2022                                             2021
                                                                                          Note                 £'000                                            £'000
 Continuing operations:
 Revenue                                                                                  2                    173,941                                          121,995
 Cost of sales                                                                                                 (72,025)                                         (45,640)

 Gross profit                                                                             2                    101,916                                          76,355

 Other direct expenses                                                                                         (59,535)                                         (46,251)
 Administrative expenses                                                                                       (21,828)                                         (18,904)

 Recurring operating profit                                                                                    20,553                                           11,200

 Non-recurring expenses                                                                                        -                                                (2,099)

 Operating profit                                                                                              20,553                                           9,101

 Investment revenues                                                                                           -                                                8
 Finance costs                                                                            3                    (1,548)                                          (1,247)

 Profit before taxation                                                                                        19,005                                           7,862

 Tax charge on profit                                                                     4                    (4,093)                                          (1,818)

 Profit for the financial year and total comprehensive income                                                  14,912                                           6,044

                                                                                                               2022                                             2021
 Earnings per share from continuing operations                                                                 Pence                                            Pence

 Basic                                                                                    5                    37.16                                            15.43

 Diluted                                                                                  5                    37.15                                            15.43

 All profit for the year is attributable to equity shareholders.
 GROUP STATEMENT OF CHANGES IN EQUITY
 FOR THE YEAR ENDED 31 DECEMBER 2022
                                          Share capital           Share premium account   Employee Benefit Trust shares reserve     Retained earnings     Total
                                          £'000                   £'000                   £'000                                     £'000                 £'000

 At 1 January 2021                        1,993                   33,486                  (35)                                      99,105                134,549
 Profit for the year                      -                       -                       -                                         6,044                 6,044
 Total comprehensive income               -                       -                       -                                         6,044                 6,044
 Issue of share capital                   -                       -                       -                                         -                     -
 Share option movement                    -                       -                       -                                         11                    11
 Dividends paid                           -                       -                       -                                         (3,986)               (3,986)
 At 31 December 2021                      1,993                   33,486                  (35)                                      101,174               136,618
 At 1 January 2022                        1,993                   33,486                  (35)                                      101,174               136,618
 Accumulated dividends waived by the EBT                                                                                            569                   569
 Profit for the year                      -                       -                       -                                         14,912                14,912
 Total comprehensive income               -                       -                       -                                         14,912                14,912
 Issue of share capital                   200                     15,937                  -                                         -                     16,137
 Share option movement                    -                       -                       1                                         974                   975
 Dividends                                -                       -                       -                                         (5,092)               (5,092)
 At 31 December 2022                      2,193                   49,423                  (34)                                      112,537               164,119

 

 GROUP BALANCE SHEET
 AS AT 31 DECEMBER 2022
                                                    31 December      31 December 2021

                                                    2022
                                              Note  £'000            £'000
 Non-current assets
 Goodwill                                           20,969           19,330
 Other intangible assets                            6,368            1,892
 Property, plant and equipment                      13,045           11,101
 Right-of-use assets                                18,991           17,400
 Deferred tax assets                                251              1,726
                                                    59,624           51,449
 Current assets
 Inventories                                        35,469           28,421
 Trade and other receivables                        104,046          72,449
 Cash and cash equivalents                          12,229           17,638
                                                    151,744          118,508

 Total assets                                       211,368          169,957

 Current liabilities
 Trade and other payables                           (9,097)          (10,154)
 Lease liability                                    (3,743)          (3,191)
 Current tax liability                              (937)            (375)
                                                    (13,777)         (13,720)
 Net current assets                                 137,967          104,788

 Non-current liabilities
 Borrowings                                         (15,000)         -
 Lease liabilities                                  (16,326)         (15,792)
 Long term provisions                               (2,146)          (3,827)
                                                    (33,472)         (19,619)
 Total liabilities                                  (47,249)         (33,339)

 Net assets                                         164,119          136,618

 EQUITY
 Share capital                                8     2,193            1,993
 Share premium account                              49,423           33,486
 Employee Benefit Trust share reserve               (34)             (35)
 Retained earnings                                  112,537          101,174

 Total equity attributable to equity holders        164,119          136,618

The financial statements of H&T Group Plc, registered number 05188117,
were approved by the Board of Directors and authorised for issue on 6 March
2023.

They were signed on its behalf by:

C D Gillespie

Chief Executive

 

 GROUP CASH FLOW STATEMENT
 FOR THE YEAR ENDED 31 DECEMBER 2022
                                                           2022          2021
                                                     Note  £'000         £'000
 Net cash utilised from operating activities         6     (13,246)      (3,035)

 Investing activities
 Interest received                                         -             8
 Proceeds on disposal of right-of-use assets               56            -
 Purchases of intangible assets                            (2,808)       (158)
 Purchases of property, plant and equipment                (4,582)       (5,231)
 Acquisition of subsidiary                                 (3,759)       -
 Acquisition of trade and assets of businesses             (372)         -
 Acquisition of right-of-use assets                        (6,676)       (4,081)

 Net cash used in investing activities                     (18,141)      (9,462)

 Financing activities
 Dividends paid                                            (5,092)       (3,986)
 Increase in borrowings                                    15,000        -
 Debt restructuring costs                                  (101)         (332)
 Proceeds on issue of shares (net of costs)                16,137        -
 Employee Benefit Trust                                    34            -

 Net cash used in financing activities                     25,978        (4,318)

 Net decrease in cash and cash equivalents                 (5,409)       (16,815)

 Cash and cash equivalents at beginning of the year        17,638        34,453

 Cash and cash equivalents at end of the year              12,229        17,638

 

Notes to the Preliminary Announcement

For the year ended 31 December 2022

 

1.          Finance information and significant accounting policies

 

The financial information has been abridged from the audited financial
statements for the year ended 31 December 2022.

The financial information set out above does not constitute the Company's
statutory accounts for the years ended 31 December 2022 or 2021 but is derived
from those accounts. Statutory accounts for 2021 have been delivered to the
Registrar of Companies and those for 2022 will be filed with the Registrar in
due course.  The auditors have reported on those accounts: their reports were
unqualified, did not draw attention to any matters by way of emphasis and did
not contain statements under s498 (2) or (3) Companies Act 2006 or equivalent
preceding legislation.

Whilst the financial information included in this preliminary announcement has
been prepared in accordance with International Financial Reporting Standards
(as adopted for use in the UK) ('IFRS'), this announcement does not itself
contain sufficient information to comply with IFRS. The Group will be
publishing full financial statements that comply with IFRS, in April 2023.

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;

·      Foreign exchange;

·      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. 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 2022
returns were 6.5% (2021: 7.1%)

Pawnbroking scrap and gold purchasing

Scrap revenue comprises proceeds from gold scrap sales, jewellery items and
watches . Revenue is recognised when control of the goods has transferred,
being at the point the smelter purchases the relevant metals or the items are
sold or auctioned.

Personal loans interest income

This comprises income from the Group's former unsecured lending activities.
All unsecured lending ceased in early 2022. Personal loan revenues are shown
stated before impairment when in stages 1 and 2 of the expected credit-loss
model, and net of impairment when in stage 3. The impairment charge is
included within other direct expenses in the Group statement of comprehensive
income. Revenue is recognised over time in relation to the interest accrued,
as dictated by IFRS 9.

Foreign exchange

The foreign exchange currency service where the Group earns a margin when
selling or buying foreign currencies.

Other services

Other services comprise revenues from third party cheque cashing, foreign
exchange income, money transfer income, watch repair income and other income.
Commission receivable on cheque cashing, foreign exchange income and other
income is recognised at the time of the transaction as this is when control of
the goods has transferred. Buyback revenue is recognised at the point of sale
of the item back to the customer, when control of the goods has transferred.
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.

Other income

Government grants, including monies received in 2021 under the Covid-19
support schemes, 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,
before loan and pawnbroking impairments.

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.

Inventory stock provisions

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

 

For reporting purposes, the Group is currently organised into seven segments -
pawnbroking, gold purchasing, retail, pawnbroking scrap, personal loans,
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, 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 1.5% 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.

Purchasing:

Jewellery is bought direct from customers through all of the Group's stores.
The transaction is simple with the store agreeing a price with the customer
and purchasing the goods for cash on the spot. Gold purchasing revenues
comprise proceeds from scrap sales on goods sourced from the Group's
purchasing operations.

Retail:

The Group's retail proposition is primarily gold, 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 an 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.

Personal loans:

Personal loans comprise 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.

 

 

Foreign exchange:

The foreign exchange currency service where the Group earns a margin when
selling or buying foreign currencies.

Other services:

This segment comprises:

·      Third party cheque encashment which is the provision of cash in
exchange for a cheque payable to our customer for a commission fee based on
the face value of the cheque.

·      Money Transfer commission earned on the Group's money transfer
service.

·      Watch repair services provided by Group company, Swiss Time
Services Limited

 

Cheque cashing is subject to bad debt risk which is reflected in the
commissions and fees applied.

Further details on each activity are included in the Chief Executive's review.

Segment information about these businesses is presented below:

 

 

 2022                                        Pawnbroking  Gold purchasing  Retail  Pawnbroking Scrap  Personal Loans  Foreign Exchange  Other services  Other income  Total
 Revenue                                     £'000        £'000            £'000   £'000              £'000           £'000             £'000           £'000         £'000
 External revenue                            63,745       36,246           45,197  18,286             1,143           5,749             3,575           -             173,941
 Total revenue                               63,745       36,246           45,197  18,286             1,143           5,749             3,575           -             173,941
 Gross profit                                63,745       6,815            17,778  3,468              1,143           5,749             3,218           -             101,916
 Impairment                                  (12,719)     -                -       -                  963             -                 -               -             (11,756)
 Segment result                              51,026       6,815            17,778  3,468              2,106           5,749             3,218           -             90,160
 Other direct expenses including impairment                                                                                                                           (47,779)
 Administrative expenses                                                                                                                                              (21,828)
 Recurring operating profit                                                                                                                                           20,553
 Non-recurring expenses                                                                                                                                               -
 Operating profit                                                                                                                                                     20,553
 Interest receivable                                                                                                                                                  -
 Financing costs                                                                                                                                                      (1,548)
 Profit before taxation                                                                                                                                               19,005
 Tax charge on profits                                                                                                                                                (4,093)
 Profit for the financial year                                                                                                                                        14,912

 2021                                        Pawnbroking  Gold purchasing  Retail  Pawnbroking Scrap  Personal Loans  Foreign Exchange  Other services  Other income  Total
 Revenue                                     £'000        £'000            £'000   £'000              £'000           £'000             £'000           £'000         £'000
 External revenue                            44,742       20,445           36,227  11,008             2,857           2,993             2,452           1,271         121,995
 Total revenue                               44,742       20,445           36,227  11,008             2,857           2,993             2,452           1,271         121,995
 Gross profit                                44,742       3,382            16,640  2,018              2,857           2,993             2,452           1,271         76,355
 Impairment                                  (7,472)      -                -       -                  1,460           -                 -               -             (6,012)
 Segment result                              37,270       3,382            16,640  2,018              4,317           2,993             2,452           1,271         70,343
 Other direct expenses including 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 profits                                                                                                                                                (1,818)
 Profit for the financial year                                                                                                                                        6,044

 

 

 2022                                           Pawnbroking    Gold purchasing  Retail         Pawnbroking Scrap  Personal Loans  Foreign Exchange  Other services  Other income  Total
 Other information                              £'000          £'000            £'000          £'000              £'000           £'000             £'000           £'000         £'000
 Capital additions (*)                          -              -                -              -                  -               -                 -               9,464         9,464
 Depreciation, amortisation and impairment (*)  -              -                -              -                  -               -                 -               9,248         9,248
 Balance sheet
 Assets
 Segment assets                                 100,732        1,698            32,935         836                722             3,595             -               -             140,518
 Unallocated corporate assets                                                                                                                                       52,138        52,138
 Total assets                                                                                                                                                                     211,368
 Liabilities
 Segment liabilities                            -              -                (650)          -                  -               -                 (405)           -             (1,055)
 Unallocated corporate liabilities                                                                                                                                  (46,194)      (46,194)
 Total liabilities                                                                                                                                                                (47,249)

 2021                                           Pawnbroking    Gold purchasing  Retail         Pawnbroking Scrap  Personal Loans  Foreign Exchange  Other services  Other income  Total
 Other information                              £'000          £'000            £'000          £'000              £'000           £'000             £'000           £'000         £'000
 Capital additions (*)                          -              -                -              -                  -               -                 -               9,409         9,409
 Depreciation, amortisation and impairment (*)  -              -                -              -                  -               -                 -               8,731         8,731
 Balance sheet
 Assets
 Segment assets                                 66,862         262              28,030         129                3,051           3,146             -               -             101,480
 Unallocated corporate assets                                                                                                                                       50,337        50,337
 Total assets                                                                                                                                                                     169,957
 Liabilities
 Segment liabilities                            -              -                (878)          -                  -               -                 (220)           -             (1,098)
 Unallocated corporate liabilities                                                                                                                                  (32,241)      (32,241)
 Total liabilities                                                                                                                                                                (33,339)

 (*) The Group cannot meaningfully allocate this information by segment due to
 the fact that all the segments operate from the
 same stores and the assets in use are common to all segments.

 

Geographical Segments

The Group's revenue from external customers by geographical location is
detailed below:

 

 

                   2022         2021

                   £'000        £'000

 United Kingdom    171,237      120,278
 Other             2,704        1,717
                   173,941      121,995

 

 

The Group's non-current assets are located entirely in the United Kingdom.
Accordingly, no further geographical segment analysis is presented.

 

3.          Financing Costs

                                            2022         2021

                                            £'000        £'000

 Interest on bank loans                     486          102
 Other interest                             2            1
 Interest expense on the lease liability    873          950
 Amortisation of debt issue cost            187          194
 Total interest expense                     1,548        1,247

 

4.          Tax Charge on Profit

 

(a)        Tax on profit on ordinary activities

                                                             2022         2021

                                                             £'000        £'000

 Current tax
 United Kingdom corporation tax charge at 19% (2021: 19%)    3,441        1,738

 based on the profit for the year
 Adjustments in respect of prior years                       (643)        (973)

 Total current tax                                           2,798        765

 Deferred tax
 Timing differences, origination and reversal                1,152        453
 Adjustments in respect of prior years                       313          1,240
 Effect of change in Tax rate                                (170)        (640)
 Total deferred tax                                          1,295        1,053

 Tax charge on profit                                        4,093        1,818

 

(b)       Factors affecting the tax charge for the year

 

The tax assessed for the year is higher than that resulting from applying a
standard rate of corporation tax in the UK of 19% (2021: 19%). The differences
are explained below:

 

                                                        2022         2021

                                                        £'000        £'000

 Profit before taxation                                 19,005       7,862

 Tax charge on profit at standard rate                  3,610        1,494

 Effects of:
 Disallowed expenses and non-taxable income             271          547
 Non-qualifying depreciation                            (80)         39
 Effect of change in tax rate                           (170)        (640)
 Movement in short-term timing differences              792          112
 Adjustments to tax charge in respect of prior years    (330)        266

 Tax charge on profit                                   4,093        1,818

 

 

 

In addition to the amount charged to the income statement and in accordance
with IAS 12, the excess of current and deferred tax over and above the
relative related cumulative remuneration expense under IFRS 2 has been
recognised directly in equity. The amount taken to equity in the current
period was £435,000 (2021: released from equity £41,000).

 

5.         Earnings per share

Basic earnings per share is calculated by dividing the profit for the year
attributable to equity shareholders by the weighted average number of ordinary
shares in issue during the year.

For diluted earnings per share, the weighted average number of ordinary shares
in issue is adjusted to assume conversion of all dilutive potential ordinary
shares. With respect to the Group these represent share options and
conditional shares granted to employees where the exercise price is less than
the average market price of the Company's ordinary shares during the year.

 

Reconciliations of the earnings per ordinary share and weighted average number
of shares used in the calculations are set out below:

                                 Year ended 31 December 2022                                                Year ended 31 December 2021
                                 Earnings    Weighted average number of shares  Per-share amount pence      Earnings    Weighted average number of shares  Per-share amount pence
                                 £'000       £'000                              £'000                       £'000       £'000                              £'000

 Earnings per share: basic       14,912      40,132,753                         37.16                       6,044       39,162,612                         15.43

 Effect of dilutive securities
 Options and conditional shares  -           14,807                             (0.01)                      -           -                                  -

 Earnings per share: diluted     14,912      40,147,560                         37.15                       6,044       39,162,612                         15.43

 

 

6.      Notes to the Cash Flow Statement

 

                                                                                    2022          2021
                                                                                    £'000         £'000
 Profit for the year                                                                14,912        6,044
 Adjustments for:
                                 Investment revenues                                -             (8)
                                 Financing costs                                    1,548         1,247
                                 (Decrease)/Increase in provisions                  (1,680)       2,178
                                 Income tax expense                                 4,093         1,818
                                 Depreciation of property, plant and equipment      3,223         2,666
                                 Depreciation of right-of-use assets                5,303         5,071
                                 Amortisation of intangible assets                  786           995
                                 Right-of-use asset impairment                      (255)         (179)
                                 Share based payment expense                        539           55
                                 Loss on disposal of property, plant and equipment  3             38
                                 Loss on disposal of right-of-use assets            37            3
 Operating cash inflows before movements in working capital                         28,509        19,928

                                 Increase in inventories                            (6,693)       (857)
                                 Decrease in other current assets                   -             1
                                 Increase in receivables                            (30,684)      (15,574)
                                 Decrease in payables                               (744)         (2,009)
 Cash generated from operations                                                     (9,612)       1,489

                                 Income taxes paid                                  (2,230)       (3,349)
                                 Interest paid on loan facility                     (531)         (225)
                                 Interest paid of lease liability                   (873)         (950)
 Net cash from operating activities                                                 (13,246)      (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 defined as earnings before interest, taxation,
depreciation, and amortisation. It is calculated by adding back depreciation
and amortisation to the operating profit as follows:

                                                              2022         2021

                                                              £'000        £'000

 Operating profit                                             20,553       9,101
 (i)        Depreciation of the right-of-use assets           5,303        5,071
 (ii)       Depreciation and amortisation- other              4,009        3,660
 (iii)      Impairment of the right-of-use-assets             (255)        (179)

 EBITDA                                                       29,610       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.    Share Capital

 

                                                               2022       2021

                                                               £'000      £'000
 Issued, authorised and fully paid:

 43,850,484 (2021: 39,864,077) ordinary shares of £0.05 each   2,193      1,993

 

The Group has one class of ordinary shares which carry no right to fixed
income.

The Group issued share capital amounting to £199,000 (2021: £nil) during the
year.  Associated share premium of £15,888,000 (2021: £nil) was created.

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