REG - H&T Group PLC - Preliminary Results
12/03/2024 07:00
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RNS Number : 4166G H&T Group PLC 12 March 2024
12 March 2024
H&T Group PLC ("H&T" or "the Group" or "the Company")
PRELIMINARY RESULTS
FOR THE TWELVE MONTHS ENDED 31 DECEMBER 2023
Significant progress in 2023, delivering record profits and strong growth
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 2023
("the period" or "the year").
Highlights
● Profit before tax of £26.4m (2022: £19.0m), up 39% year on year
as the core pawnbroking business continued its sustained growth and
contribution to profit. Profit after tax of £21.1m (2022: £14.9m), up 42%
year on year.
● Growth in the pledge book of 28%, to end the year at a fair value
of £129m (2022: £101m), as demand for pledge lending remains at record
levels.
● Net revenue generated by the pledge book, up 36% to £69.5m (2022:
£51.0m).
● Foreign currency profits of £6.3m (2022: £5.7m), up 11% year on
year, with transaction volumes up 18% year on year.
● Retail jewellery and watch sales of £48.6m (2022: £45.2m), up 8%
year on year. Margins were impacted by challenging trading conditions for
certain watch brands in H1, and jewellery sales mix in H2, which includes the
peak Christmas trading period.
● Diluted earnings per share of 48.5p (2022: 37.2p), up 31% year on
year.
● Balance sheet remains strong with net asset value of £177m (2022:
£164m), up 8% year on year. Net asset value per share of 403.3p (2022:
374.3p). Growth in pledge lending and capital expenditure has continued to
utilise cash resources as expected. The Group ended the year with a net debt
position of £32m (2022: £3m).
● Return on average equity of 12.4% (2022: 9.9%), up 25% year on
year. The Group remains committed to delivering on its commitment to achieve a
target ROE of mid-teens through- the- cycle.
● Proposed full year dividend of 17.0p (2022: 15.0p), up 13% year on
year and in line with our stated progressive dividend policy, subject to
maintaining cover of at least two times.
Chris Gillespie, H&T chief executive, said:
"The Group has made significant progress in 2023, delivering record profits
and strong growth in a challenging environment for both businesses and
individuals.
Pawnbroking is our core business and is attracting increasing numbers of new
customers. Throughout the year, we saw record demand for our pawnbroking
service and this has continued into 2024, with January being a new record
month for lending.
Whilst retail trading conditions, particularly in the fourth quarter, were
challenging given pressure on customers' disposable incomes, sales increased
year on year by 8% to £48.6m. Pleasingly, demand has remained robust in the
early months of 2024. We believe the reasons for the strength of this demand
include the growing attractiveness of buying pre-owned products, and the
environmental and sustainability benefits this brings.
Throughout 2023 and in February 2024, we diversified and enhanced the Group's
funding arrangements. Total funding facilities available to H&T currently
amount to £85m, with current headroom available of c.£30m. This will support
the future growth of the pledge book and investment in the store estate.
At H&T, customer service is at the heart of everything we do. Our
colleagues across the Group go out of their way to put the customer first and
I thank them all for their enthusiasm and commitment to the success of
H&T.
With continued investment in scale and capabilities, along with growing 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."
Financial Highlights (£m unless stated) 2023 2022 Change
Profit before tax £26.4m £19.0m 39%
Diluted EPS (p) 48.5p 37.2p 31%
Dividends per share (p) 17.0p 15.0p 13%
Net assets £177m £164m 8%
Key Performance Indicators
Net Pledge book £129m £101m 28%
Net Pawnbroking revenue £69.5m £51.0m 36%
Retail sales £48.6m £45.2m 8%
online sales 20% 13%
new jewellery sales 25% 22%
gross margin 30% 39%
Foreign exchange gross profit £6.3m £5.7m 11%
Number of stores 278 267 +11
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@almastrategic.com
Andy
Bryant
Rebecca Sanders-Hewett
Will Merison
Chairman's Report
It gives me great pleasure to present my first report as the Chair of H&T.
The opportunity to join a leading and progressive business in an industry
which is uniquely positioned, is one that I am excited by. We expect that
demand for pawnbroking will continue to grow as many consumers find it
difficult to access mainstream financial services.
Throughout 2023, the Group has continued to make significant progress,
delivering record profits and strong growth. Demand for our core pawnbroking
product continues to rise and is attracting increasing numbers of customers
who are new to pawnbroking. This performance would not have been possible
without the hard work of our teams, and their depth of expertise and
enthusiasm for the business. My thanks go to them all. In particular, Consumer
Duty was implemented in line with the requirements of the Financial Conduct
Authority, during the course of the year. This entailed a significant
programme of work across the business, not least of which was a comprehensive
training programme for our colleagues, and our employees have embraced the new
approach to some of our operational processes.
Since taking over the role of Chair from Peter McNamara in April 2023, it has
been fantastic to work with such a great team at a time when the business has
a strong platform for growth. I would like to thank Peter again, for all his
contributions and guidance as he steered the business effectively through an
ever-changing economic landscape over the last 14 years.
In addition to my appointment, in June we were delighted to build the breadth
of expertise of the Board with the appointment of four new Non-Executive
Directors; Robert van Breda, Lawrence Guthrie, Catherine Nunn and Sally
Veitch. Their appointments have significantly progressed the Group's aim to
evolve its governance structures by broadening the range of skills, experience
and diversity around the Board table.
The Year in Review
2023 was a year in which we delivered on our well-planned strategy,
notwithstanding challenging macroeconomic conditions; delivering value and
service for our customers, growing the customer base, and continuing to invest
in the business. Demand for our core pawnbroking product remains at record
levels, across all geographies, with aggregate lending in 2023 amounting to
£260m, an increase of 19%. The Group prides itself on the high quality of
service delivered to customers through our 278 stores (2022: 267) and our
centralised support functions. We added 12 new stores in 2023, relocated two
stores and closed one store, and we have continued with the planned store
refresh programme, with 50 stores completed in 2023. In addition, a second
jewellery centre facility was opened mid-year. The implementation of our new
core IT platform has continued at pace with phase two currently in
development, and which will see the system implemented across the wider
business.
To capitalise on the growth opportunity presented to the Group in the medium
term, and to fund further growth in the pledge book and investment in the
store portfolio, in July we were pleased to increase the financing facilities
provided by our longstanding bankers, Lloyds Bank plc, to £50m (previously
£35m). In November, Allica Bank Limited provided additional funding in the
form of a £10m term facility and, post period-end, we were delighted to
further diversify the sources and maturity profile of the Group's funding
arrangements with £25m of additional term financing from Pricoa Private
Capital. These arrangements will allow us to continue to grow our business
whilst serving and supporting even more customers.
Post period-end, we were delighted to complete the acquisition of the
pawnbroking and foreign currency business of Maxcroft Securities Limited
("Maxcroft"), for a cash consideration of £11.3m. Maxcroft is a longstanding
and successful pawnbroking business based in Essex and the main asset we have
acquired is its pawnbroking pledge book, amounting to c.£6.1m at the time of
acquisition. Maxcroft also brings a highly remunerative foreign currency
business, the revenue generated from which is more than twice that of our
largest existing store. We believe that the acquisition provides us with an
opportunity to expand our reach into a different customer demographic with a
requirement, typically, for larger value pawnbroking pledge loans, often
utilised by business owners looking to fund working capital. This further
underlines our strategy of growing and broadening our core pawnbroking
business.
Subject to shareholder approval, a final dividend of 10.5p (2022: 10.0p) per
ordinary share will be paid on 28 June 2024 to those shareholders on the
register at close of business on 31 May 2024. This brings the full year
dividend to 17.0p (2022: 15.0p), a 13% increase. This reflects the Board's
confidence in the future prospects of the business, whilst being mindful of
the need to continue to invest in the growth of the pledge book, and capital
investment in the store estate. The dividend remains in line with our
progressive dividend policy, and maintains a coverage ratio of at least two
times that of earnings.
Outlook
Looking to the year ahead, we will continue to build on the progress achieved
in 2023. We believe that demand for our core pawnbroking service will remain
high as the ongoing impact of inflation on customers' disposable incomes
creates record levels of demand for small sum, short term lending, at a time
of severely constricted supply. We are also seeing growing demand from
customers who are business owners, seeking finance for working capital against
pledged personal assets and this formed part of the rationale for the
acquisition of the pledge book of Maxcroft.
Further expansion of our store network remains a focus, although this will
always be in a controlled and measured manner. It is likely that between 8 and
12 new stores will be opened in 2024.
We have the funding flexibility to execute on our future growth ambitions. We
have a clear strategy, a strong investment case, a motivated team, and solid
foundations for further growth. The Board is confident in the future prospects
of the Group.
Chief Executive's Review
The past year was a challenging period for businesses and individuals alike.
The continued effects of high inflation - particularly in food, fuel,
insurance and utility prices - along with high interest rates, impacted
customers' disposable income and resulted in many people reappraising their
spending priorities. For many businesses, including H&T, cost inflation -
particularly employee related costs - was higher than expected. Against this
backdrop, H&T delivered strong growth and a resilient operational
performance.
Sustained demand for H&T's product offerings has seen the Group deliver
revenue growth across the business, with profit before tax up 39% to £26.4m
(2022: £19.0m). Challenging trading conditions for certain watch brands in
H1, jewellery sales mix in H2 (which includes the peak Christmas trading
period) together with the slower than anticipated momentum in foreign currency
transaction volumes and revenues, resulted in profits falling short of our
demanding aspirations. On-going firm action to mitigate the impact of rising
costs, coupled with positive trading momentum across the business as we enter
2024, underpins our confidence in the future.
Growth in revenue was delivered by all the Group's core product segments -
particularly our pawnbroking product - and across all channels, both in
physical stores and increasingly via our digital platforms. Online retail
sales continued at record levels.
The additional funding facilities put in place over the past year will enable
us to continue to grow the pledge book and invest in the store estate, both
existing and new stores. At the year end, the Group had 278 stores, up from
267 at the prior year end.
Review of Operations
Pawnbroking
Demand for our core pawnbroking product continues to increase, across all
geographies. This is in part as a result of broader macroeconomic conditions
and in particular, the impact of inflation on customers' disposable incomes.
This demand for borrowing continues alongside an ongoing constraint in the
supply of small sum, short term credit. These market dynamics have created a
growth opportunity for pawnbroking and, as the market leader, for H&T in
particular.
Aggregate lending for the year increased by over 19% to £260m (2022: £218m),
with the number of loans granted to customers borrowing from H&T for the
first time rising significantly. Currently, 13% of loans are to new borrowers,
with new customer volumes up 17% year on year. The pledge book grew in the
year by 28% to £129m (2022: £101m). Growth has been delivered across the
store estate. It remains the case that growth in the c.70 stores acquired in
2019, is at a faster rate than for the store estate as a whole, delivering
upon the acquisition strategy which identified pawnbroking as a key growth
opportunity in those locations. All new stores opened by the Group since late
2020 are performing at or above planned levels.
Monthly lending volumes in the first two months of 2024 have been strong, with
January a new record month for lending volume.
Average loan sizes have remained broadly consistent with H1, with a median
loan size of £201 (June 2023: £200), marginally up on the prior year end
(December 2022: £185). Mean loan sizes were £428 (June 2023: £423,
December 2022: £405). In recent months, we have seen a growing number of
requests for larger value loans, often from customers who are business owners
needing to fund working capital.
Redemption rates have been consistent at c.85%. Loan duration has been
stable at 97 days through the year (2022: 97 days), albeit there has been a
trend over the past two years for customers to repay their loans more quickly
than historic averages of c.108 days.
Loan to Value ratios continue to average c.65% (2022: c.65%). The yield on the
pledge book is consistent with last year, at 61%. The Group has recently
implemented an increase in lending interest rates, which will increase yield
on the pledge book over time. This has necessitated a review of the input
assumptions within the Group's IFRS 9 impairment models, particularly in
respect of the calculated effective interest rate ("EIR").
Action was taken in mid-2023 to reduce the risk profile of lending against
certain high-value watch brands, where price volatility was apparent. As a
result, the value of lending against watches reduced in H2 as planned, both in
respect of stock and flow. At the year end, the proportion of the pledge book
secured on watches reduced to 14% (June 2023: 17%, December 2022: 15%). These
loan values tend to be slightly larger than the average and remain on the book
for slightly longer.
Post period-end, we acquired a pawnbroking pledge book of c.£6.1m from
Maxcroft, which underpins the Group's focus on continuing to grow and broaden
its core pawnbroking business. H&T has entered into a lease in respect of
the store and will continue to operate from Maxcroft's existing location. All
employees will remain with the business and a consultancy agreement is in
place with the previous owner. Average loan sizes are considerably larger than
for H&T, with a median loan size of £1,000 (H&T: £201) and a mean
loan size of £4,063 (H&T: £428). Currently, c.15% of H&T's pledge
book is represented by loans of £5,000 or more. Collateral mix, yield and LTV
of Maxcroft's pledge book, are all broadly consistent with H&T's
corresponding metrics, whilst redemption rates are slightly higher than those
of H&T. This acquisition presents H&T with an opportunity to expand
its reach to customers who are business owners using the pawnbroking service
for working capital purposes, as well as contributing to our core strategic
objective of sustainable pledge book growth.
2023 2022 Change %
£'m £'m
Year-end net pledge book - note 1 £129m £101m 28%
Average net pledge book £115m £84m 37%
Revenue less impairment £69.5m £51.0m 37%
Risk adjusted margin - note 2 61% 61%
Notes:
1. Includes accrued interest and IFRS 9 impairment charge
2. Net revenue expressed on an annualised basis as a percentage of a
simple average of the 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, via its physical store network and increasingly, online.
Retail sales increased by 8% to £48.6m (2022: £45.2m). The continued effects
of inflation and high interest rates impacted customers' disposable incomes,
resulting in many people reappraising their spending priorities. This was
particularly the case in the peak Christmas trading period, manifesting itself
in a mix shift towards lower priced items, often new rather than pre-owned
because of the lower relative price point of new jewellery, and in some cases
towards products which earn lower margins, e.g. gold coins.
Sales of new products represented 25% (2022: 22%) of full year sales by value,
at a typical margin of 30% (2022: 34%). 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. Pre-owned jewellery
sales represented 50% (2022: 62%) of full year sales by value, at a typical
margin of 45% (2022: 46%) inclusive of coins and gold bars, which carry a
lower margin.
Sales of pre-owned watches have been encouragingly robust. Market volatility
in respect of certain watch brands affected retail sentiment, particularly in
the summer of 2023. This adversely impacted sales, prices and margins in Q2
and Q3. Action taken to address this has enabled margin recovery from Q4
onwards. Margins on watch sales are currently c.20% (historical norm: c.25%).
Watch sales represented 25% (2022: 16%) of full year sales by value at an
average retail price of c.£1,600 (2022: £1,000).
Online sales increased by 65% to £9.8m, (2022: £5.9m). This represents 20%
(2022: 13%) of total sales by value, with approximately 50% of these sales
viewed in store by the customer prior to completing their purchase.
Our online retail offering has been enhanced through the year. We combined our
two independently branded websites (H&T and est1897) into a single H&T
website. A new website platform is in development, with expected roll out in
the first half of 2024, which will significantly simplify and enhance
customers' on-line experience.
Retail gross profit was down 19% to £14.4m (2022: £17.8m) with an overall
gross margin of 30% (H1 2023: 28%; Full year 2022: 39%). The reduction in the
gross margin is a result of the combination of the changed jewellery sales
mix, sales price volatility in certain watch brands and action taken to reduce
watch stock levels in Q2 and Q3.
Retail prices have been increased across the product range and margins are
expected to improve in 2024. Trading in the first two months of 2024 has shown
a reversion to a more normal spending pattern by customers, and sales mix.
Total inventory of £41m (2022: £35m) was held as at 31 December, including
stock of parts held at Swiss Time Services. Of total inventory, £29m was
available for retail sale (2022: £25m). The Group considers the valuation
of its inventory to be conservative.
Foreign Currency
Demand for foreign holidays has remained buoyant despite challenging economic
conditions for customers.
Gross profit grew to £6.3m (2022: £5.7m), an increase of 11%, on transaction
volumes up 18% on the prior year. Customers continue to display caution in
their holiday budgeting and are tending to take less money with them when they
travel. Average store transaction values reduced slightly year on year, to
£386 (2022: £390). Click and collect transaction values are significantly
higher than store-based transactions, at £685.
Our foreign currency business continues to receive increased focus and
investment. We implemented our 'click and collect' service in June, as well
as broadening the range of currencies held in stock in stores. It has taken
longer than planned to achieve the momentum in transaction volumes that was
anticipated.
Gold Purchasing and Scrap
Gold Purchasing
Gross profit earned from scrap purchasing was £8.6m (2022: £6.8m), an
increase of 27%. Margins were broadly consistent at 20% (2022: 19%), supported
by a strong gold price, whilst both the gold price and the impact of inflation
on customers' disposable income has underpinned demand. The average gold price
per troy ounce during the period was £1,550 (2022: £1,450).
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 34% to £4.7m (2022: £3.5m), with gross margin
of 17% (2022: 19%). Margin was impacted by a decision to dispose of, by
auction primarily in Q2 and Q3, a number of higher value watches where the
cost of repair prior to retail sale was deemed uneconomic due to price
volatility.
Pawnbroking scrap margins are earned as a direct consequence of our
pawnbroking activities and represent the disposition of collateral held as
security on unredeemed pawnbroking pledges. We do not believe that this
represents a separate line of business. In future reporting periods,
pawnbroking scrap will be incorporated into the segmental performance of
pawnbroking, with prior periods restated to present an appropriate comparison.
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 reduced to £1.1m (2022:
£1.5m). Whilst the number of customers utilising the service was broadly
consistent, they have been sending and receiving smaller sums of money and
transacting less often. We believe that this reflects challenging personal
circumstances for individuals
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. This continued
in 2023, but at a lower level. Consequently, profits earned were £1.1m (2022:
£1.2m). The use of cheques in the wider economy continues to decline.
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 £0.1m (2022: £0.7m) with profits earned reducing to £0.9m
(2022: £2.1m) as the underlying book repays.
2023 Business Focus and Outlook
With continued investment in scale and capabilities, along with growing 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, in particular the core pawnbroking
product. 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 remain 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 will continue with the
planned store refresh programme, with c.50 store refreshes per annum.
We added twelve new stores during 2023, with two store relocations and one
store closure. As at the end of December 2023, the Group's store estate stood
at 278 (2022: 267). We have a prioritised list of potential locations
throughout the UK for new store openings. 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.
It is likely that 8 to 12 store openings will take place in 2024.
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, with further
functionality enhancements implemented throughout 2023. Phase 2 of the
development will bring the new system to our jewellery processing centre in H1
2024, which is expected to significantly improve productivity in the medium
term.
EVO is improving customers' experience in stores whilst providing us with
enhanced customer data. A single view of the customer relationship across all
products will be available when the programme is completed, which is expected
to be over a three-year period to 2026. In the meantime, the improvements
delivered through the EVO programme are supporting more effective and better
targeted marketing communications and merchandising.
We are improving and enhancing our online presence. The customer-facing
website is in the process of being upgraded, and the Group now has a single
online presence following the merger of the est1897 website into the H&T
website. This will be an ongoing process of continual evolution. Our aim is to
further modernise the functionality, as well as the look and feel. We intend
to make it easier for customers to do business with us through the channel
they choose.
A Growing Business
The Group offers a range of products and services which are tailored to meet
the needs of its customer base. It is common for customers to utilise more
than one service, for example a money transfer customer might take foreign
currency with them when they visit their home country. Similarly, a piece of
retail jewellery purchased from H&T may become an item pledged as
collateral for a pawnbroking loan. Our strategy is to attract footfall to our
stores, and through the outstanding service provided by our store colleagues,
establish long term relationships with customers, often spanning many years
and multiple products.
Post period-end, we completed the acquisition of the pawnbroking and foreign
currency business of Maxcroft, for a cash consideration of £11.3m. Maxcroft
is a longstanding and successful pawnbroking business based in Essex and the
main asset we have acquired is its pawnbroking pledge book, amounting to
c.£6.1m at the time of acquisition. We believe that the acquisition provides
us with an opportunity to expand our reach into a different customer
demographic with a requirement, typically, for larger value pawnbroking pledge
loans, often utilised by business owners looking to fund working capital
through pledge of personal items through pledge of personal items. This
further underlines our strategy of growing and broadening our core pawnbroking
business, including consolidation opportunities as and when they arise.
To capitalise on the growth opportunity presented to the Group in the medium
term, and to fund further growth in the pledge book and investment in the
store portfolio, in July we increased the financing facilities provided by our
longstanding bankers, Lloyds Bank plc, to £50m (previously £35m). In
November, Allica Bank Limited, provided additional funding in the form of a
£10m term facility and, post period end, we were delighted to further
diversify and broaden the maturity profile of the Group's funding arrangements
with £25m of additional term financing from Pricoa Private Capital.
Macroeconomic 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. We are also seeing increased demand from customers
who are business owners using the pawnbroking service for working capital
purposes, and who often find themselves excluded by mainstream financial
institutions.
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
has remained robust through 2023 and in the early months of 2024. We believe
that there are clear 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, notwithstanding
the challenges of broader macroeconomic pressures felt by our customers. The
Group is responding by focussing on ensuring that we have the right mix of
items for sale, particularly lower priced pre-owned jewellery, reflecting
current customer spending priorities.
Foreign Currency
We expect increasing demand for foreign exchange services as overseas travel
remains buoyant. Our foreign currency business will continue to receive focus
and investment.
Our Cost Base
Like all businesses, H&T is experiencing the impact of continued
inflation, particularly with regards to employee related costs, both in
respect of ourselves and key suppliers. 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.
We have rewarded our employees with increases in basic pay, and with bonuses
intended to recognise their hard work and contribution throughout 2023.
Employee related costs for 2024 will continue to rise at a rate above that of
headline inflation, primarily as a result of decisions taken in respect of
national living wage. Ensuring that our people are appropriately remunerated
will remain a priority for the Group.
We fixed the cost of energy supplies for two years at the end of 2021, and we
have extended this agreement for a further two years until the end of 2025. We
remain able to obtain attractive lease 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 £26.4m (2022: £19m), up 39% year on
year and profit after tax of £21.1m (2022: £14.9m), up 42% year on year.
Reported gross profit increased to £127m (2022: £102m), up 25% year on year
as sustained demand for H&T's core product offerings delivered revenue
growth.
Pawnbroking is the Group's core product offering with gross profit growing to
£90.2m (2022: £63.7m), up 42% year on year, increasing its proportion of
gross profit to 71% (2022: 63%). Pawnbroking income is strongly correlated to
the timing of growth in the underlying pledge book, the distribution of
individual pledge loan values within the portfolio and the impairment charge
required to be raised in line with International Financial Reporting Standards
(IFRS) 9. The risk adjusted yield on the pledge book has remained consistent
with that of the prior year at 61% (2022: 61%). We have seen a growing number
of requests for larger value loans, often from customers who are business
owners needing to fund their business working capital needs. We have recently
increased lending rates which will increase yield over time.
Retail revenue grew to £48.6m (2022: £45.2m), up 8% year on year. Margins
were impacted by challenging trading conditions for certain watch brands in
H1, a change in jewellery sales mix during peak Christmas trading as customer
demand shifted towards lower priced new items, and action taken to reduce
watch stock levels in Q2 and Q3. The combination of these factors saw retail
gross profits reduce by 19% to £14.4m (2022: £17.8m) with an overall gross
margin of 30% (H1 2023: 28%; Full year 2022: 39%).
Gold purchasing gross profits grew to £8.6m (2022: £6.8m), up 27% year on
year, as the combination of an increase in the prevailing gold price during
the year and rising inflation reducing customers' disposable incomes,
supported increased demand from customers wanting to sell their jewellery
and watches. Margins were broadly consistent with prior year at 20% (2022:
19%).
Pawnbroking scrap gross profit increased to £4.7m (2022: £3.5m), up 34% year
on year. Volumes are highly correlated to the size and growth 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. The margin earned of 17% (2022: 19%) was impacted by a decision to
dispose of, by auction primarily in Q2 and Q3, a number of higher value
watches, where the cost of repair prior to retail sale was deemed uneconomic
due to price volatility. With a growing pledge book and consistent rates of
customer redemptions, the volume of scrap sales is expected to rise
commensurately, with a lag typically of 10 to 11 months after the date of the
original loan.
Pawnbroking ssap profits are earned as a direct consequence of our pawnbroking
activities, as they represent the realisation of value from the disposition of
collateral held as security on unredeemed pawnbroking pledges. We do not
believe that this represents a separate line of business. In future reporting
periods, pawnbroking scrap will be incorporated into the segmental performance
of pawnbroking with prior periods restated to present an appropriate
comparison.
Foreign Currency continues to receive focus and investment, increasing gross
profit to £6.3m (2022: £5.7m), up 11% year on year. We invested in improving
the customer proposition during the year, introducing an online
'click-and-collect' offering and broadening the range of currencies available
to customers in our stores.
Gross profit earned from the remaining services offered by the Group, being
Money Transfer, Cheque Cashing, and Swiss Time Services amounted to £2.6m
(2022: £3.2m), decreasing by 19% year on year. The use of cheques in the
wider economy continues to decline and money transfer customers transferred
smaller sums, often less frequently as their disposable income came under
pressure due to high inflation and rising interest rates.
Personal lending gross profit fell as expected to £0.2m (2022: £1.1m), 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.
Recognition and Measurement of Financial Assets: Pledge Book
International Financial Reporting Standards, IFRS 9, is issued by the
International Accounting Standards Board (IASB) to govern the recognition,
measurement, and disclosure of financial instruments. This requires the Group
to classify, measure and recognise expected credit losses on its financial
assets, from the point of initial recognition of the pawnbroking loan made to
the customer.
The Group's financial assets and liabilities, as defined by IFR9,measured at
amortised costs are:
Financial Asset (Amortised cost) Financial Liability (Amortised cost) December 2023 December 2022
Pawnbroking Pledge Book £129m £101m
Cash and Cash Equivalents £11.4m £12.2m
Other Assets £0.3m £0.8m
Trade and other payables (£15m) (£8m)
Borrowings due >1 year (£43m) (£15m)
Net Financial Assets/(Liabilities) £82.7m £90.8m
The Group monitors and manages the financial risks relating to these financial
instruments held, which include credit risk on financial assets and
liabilities, and liquidity and interest rate risk on financial borrowings.
Credit risk, is the risk that a counterparty will default upon its contractual
obligations, resulting in a financial loss to the Group.
For the pawnbroking pledge book, the Group is exposed to credit risk through
customers defaulting on their loans, with the key mitigation to this risk
being the requirement for all customers to provide security (the pledge item)
to H&T for safe keeping, at the point they enter into the pawnbroking
contract. This security (the pledge item) acts to minimise the credit risk as
a customer pledge becomes the property of H&T on the default of the
pawnbroking loan.
IFRS 9 requires that the Group measures loss allowances for financial assets,
specifically the pledge book, using the expected credit loss model. The
Group's expected credit loss models compare the carrying value of pledge loans
(being the principal loan value plus interest accrued for each pawnbroking
loan) to the expected recoveries through redemption and the realisable value
of the underlying collateral (the pledge).
A detailed and comprehensive review of the key estimates considered in the
Group's IFRS 9 impairment model was concluded during the course of 2023, in
conjunction with independent experts, with a further review undertaken
following the period-end. This review focused on the key estimates captured
in the IFRS 9 expected credit loss model, which are:
i) Redemption rates: this captures both the rate at which and timing of when
customers historically redeem their pledge loans.
ii) Forfeit profile: this is the time historically taken to realise the
underlying value of the collateral (the pledge) for loans which have
defaulted. Pledge loans are considered to be in default when they reach the
end of their contractual period of 6 months.
iii) Expected realisation value of collateral: this is the realisable value of
the collateral (the pledge) and this security significantly reduces the credit
risk. In the event of default, these collateral items (the pledge), can either
be either sold as retail items or scrapped by H&T to settle the
outstanding carrying value (principal plus accrued interest) of the pledge
loan. If sold as retail items, the realisable value is the retail price at
which these items are sold, through the Group's store estate or on-line. If
scrapped, the realisable value is the prevailing trade price of the underlying
metals, precious stones or watches. The Group estimates that the current fair
value of the security held (the pledge item) is in excess of the current
pledge book value.
The review further considered the effective interest rate ("EIR") applied in
determining the value of the expected future credit losses, also noting the
impact of any changes in the key assumptions noted above. We are satisfied
that the recognition and measurement of the pledge book fairly represents the
minimal exposure to credit risk, given the current fair value of the security
held (the pledge item) is in excess of the pledge book value.
The pledge book at 31 December was £129m (2022: £101m), consisting of the
gross carrying value of the pledge book of £135m (2022: £113m), less the
IFRS 9 provision of £6m (2022: £12m).
The fair value of the collateral held in support of the pledge book at 31
December is estimated to be £184m (2022: £135m).
Inventory
Inventory of £41m (2022: £35m) is valued at the lower of cost or net
realisable value. For inventory arising from unredeemed pledge loans upon
default, this cost represents the value of the pledge loan plus overheads.The
net realisable value represents the estimated selling price less all estimated
costs of completion and costs to be incurred in marketing, selling and
distribution. Relative to these measures, the Group considers the value of
inventory to be conservatively stated.
The collateral (the pledge item) which protects the Group from credit risk in
the event of default of pledge book loans, comprises 99% (2022: 99%) gold,
jewellery items and watches. The value of these items is correlated to the
prevailing gold price and they are conservatively valued as the Group applies
conservative lending policies when providing pawnbroking pledge loans. Lending
rates do not track the gold price movement in the short term. Considering
the combination of these factors, the Group considers the value of the
collateral (the pledge item) to be conservatively stated.
Costs
Direct and administrative expenses, which includes the IFRS 9 impairment
charge, increased to £97.7m (2022: £81.4m), up 20% year on year.
The IFRS 9 impairment charge includes uncollected interest on pledge loans
that have reached default and the IFRS 9 expected credit loss provision
charge. This charge increased in line with the growth in the underlying pledge
book and IFRS 9 credit loss model requirements, to £20.3m (2022: £11.8m).
Uncollected pledge book interest on loans that have reached default, is
recovered through the disposal of the collateral item, either through
pawnbroking scrap or retail activities. As such, in future reporting periods,
pawnbroking scrap will be incorporated into the segmental performance of
pawnbroking, with prior periods restated to present an appropriate comparison.
Operating expenses, being direct and administrative expenses exclusive of the
IFRS 9 impairment charge, increased to £77.4m (2022: £69.6m), up 11% year on
year. The Group is primarily a fixed and volumetric cost business. Very close
cost control during a time of persistent inflationary pressures, resulted in
increases in operating expenses moderating as expected in H2, relative to
increases of 19% reported for H1. This moderation of cost growth in H2,
reflected no significant salary cost increases in the second half of the year
and third party suppliers price increases having been concentrated in late
2022 and early H1 2023. Continued ongoing close control of costs to achieve
operating efficiencies, remains a priority of the Group.
Employee related costs, excluding variable remuneration, contribute
approximately 57% (2022: 53%) to the Group's total operating cost base,
increasing by 20% year on year. This reflects the combined impact of an
increase in employee numbers over the past 12 months from 1,540 to 1,625, and
the impact of pay increases. Ensuring that our employees are appropriately
rewarded remains a priority for the Group, and pay reviews were implemented in
April 2022 and January 2023 ahead of the April 2023 implementation of the
updated National Living Wage, which increased by 9.7%. Employee related
costs for 2024 will continue to rise at a rate above that of headline
inflation, primarily as a result of decisions taken in respect of National
Living Wage.
We continue to be able to negotiate improved leasehold occupancy terms upon
lease renewal and the Group fixed its energy costs in December 2021 until
December 2023, and has since extended the contract to December 2025, on
similar terms.
Headcount
The Group employed 1,625 (2022: 1,540) colleagues at 31 December 2023, with
the increase in headcount supporting the growth in store estate and in key
support functions.
Share Capital
The Group has a total of 43,987,934 (2022: 43,850,484) shares in issue.
At 31 December 2023, the Group operated a single share award scheme, the
Performance Share Plan "PSP". The charge to the income statement for the year
for this scheme was £0.2m (2022: £0.6m).
During 2023, two schemes expired, being the Approved Share Option Scheme
("ASOS"), and the Unapproved Share Option Scheme ("USOS"). These schemes,
which were originally granted in March 2013, expired on the 27 March 2023 with
the remaining shares options exercised. 57,980 were exercised at a price of
292.2p and 4,108 were exercised at a price of 292.3p.
Awards that can be granted under this current PSP scheme total a maximum of
4,398,793 shares (2022: 4,385,048 shares across three PSP, ASOS, and USOS
schemes), being 10% of the issued share capital of the Group as defined in the
Articles of Association.
Tax
The corporate taxation charge for the year was £5.3m (2022: £4.1m). The
group has an effective tax rate of 20% (2022: 22%). The Group was able to
make use of the super-deduction allowance for investment in plant and
machinery for three years from 1 April 2021. The timing difference between tax
deductibility of this investment in plant and machinery versus the timing of
the accounting recognition of this expenditure, results in deferred taxation
and contributes to the lower effective tax rate.
Balance Sheet and Capital expenditure
The Group's net asset value increased to £177m (2022: £164m). The balance
sheet is underpinned by the inherent value, expressed at cost, of precious
metals and watches 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 £129m
(2022: £101m), up 28% year on year.
Inventory increased to £41m (2022: £35m), up 18% year on year. Of this total
inventory, £29m was available for retail sale (2022: £25m). The value of
watches in the course of repair as at December 2023 had decreased to
approximately £2.7m (2022: £4m). Watch repair turn-around times remain
consistently longer than historical norms, due to increasing repair volumes
and parts supply pressures from watchmakers, which is evident across the
industry.
The Group ended the year with a net debt position of £31.6m (2022: £2.8m),
primarily funding investment in the growing pledge book and the store
estate, both new and existing stores. Cash on hand held across the store
estate at the end of December amounted to £11m (2022: £12m), as working
capital management remains a priority for management.
During the course of the year, the Group was able to increase the financing
facilities provided by its longstanding bankers, Lloyds Bank plc, to £50m
(previously £35m). In November, Allica Bank Limited, provided additional
funding in the form of a £10m term facility and, post period end, we further
diversified and enhanced the Group's funding arrangements with £25m of
additional term financing from Pricoa Private Capital. This additional
financing brings the total funding facilities available to H&T to £85m,
with all the secured funders ranking Pari Passu and the financial covenants
aligned across all three funders.
Non-current assets grew to £65m (2022: £60m) with the investment of capital
expenditure, particularly in respect of the Group's store estate, both
existing and new store stores, of £2.7m (2022: £3m) and continued
strategic investment in the Group's technology capabilities and platform of
£1.6m (2022: £1.7m). These costs have been capitalised in line with
accounting standard, IAS 38. Further costs are expected to be capitalised as
further phases of development are undertaken over a further two to three
years.
Cash Flow and Financing Facilities
The Group's net debt position at 31 December, amounted to £32m (2022: £3m)
as the growing business was funded through the increasing use of the Group's
available funding facilities. Cash in hand and held within the store estate
reduced marginally to £11m (2022: £12m).
As expected, we continued to invest available cash resources in growing the
core pawnbroking business of the Group, with £29m (2022: £31m) invested in
the increased pledge book and £18.0m (2022: £18.3m) invested in capital
expenditure, firstly in the store estate, both new stores and existing stores,
and secondly in our technology platforms.
Taxation and dividend payments were made of £6.0m (2022: £2.2m) and £7.2m
(2022: £5.1m) respectively, whilst interest paid was £2m (2022: 0.5m),
reflecting increased use of financial facilities available to the Group along
with rising interest rates.
Financing facilities available to the Group were increased and diversified
during the course of 2023 with an increase in the facilities provided by our
longstanding bankers, Lloyds Bank plc, to £50m (previously £35m) and the
addition of a £10m funding facility from Allica Bank Limited.
Post period-end, in February 2024, Pricoa Private Capital provided further
financing of £25m to the Group. This comprises a note purchase and guarantee
agreement of £10m secured notes at a fixed rate of 8.37% that fall due
February 2029 and £15m secured notes at a fixed rate of 8.43% that fall due
February 2031.
These additional financing facilities bring H&T's total funding
availability to £85m, with all three secured funders ranking Pari Passu. We
believe the quantum of these funding facilities, supported by the
diversification of lenders, financing structures, interest charges and
maturity profiles support the growth ambitions and expected medium term
borrowing needs of the Group.
A summary of the Group's funding facilities are included in the table below:
Provider Facility Facility Value Interest rate Maturity
Lloyds Bank Plc Overdraft £5m Bank of England base rate plus 1.7% December 2024
Renews annually
Lloyds Bank Plc Revolving Credit Facility £45m Sonia plus margin of between 2.4% and 3.3% December 2026
A single + 1 extension option to 2027
Allica Bank Limited Term Loan £10m Bank of England base rate plus 4% December 2026
A single + 1 extension option to 2027
Total Funding available at 31 December 2023 £60m
Post-Event 2024:
Pricoa Private Capital (February 2024) Series A Secured Note £10m 8.37% February 2029
Pricoa Private Capital (February 2024) Series B Secured Note £15m 8.43% February 2031
Total Funding Available Post-Event 2024 £85m
At 31 December the Group had used £43m (2022: £15m) of its available
funding, having drawn £33m (2022: £15m) of the Lloyds revolving credit
facility, £10m (2022: NIL) of the Allica term loan and NIL (2022: NIL) of the
Lloyds overdraft facility. The Group had available £12m (2022: £15m) of
undrawn committed borrowing facilities and £3.8m of uncommitted overdraft
facilities (2022: £5m) in respect of which all covenants have been
comfortably met.
Financial covenants are aligned across all three of our funders and are
summarised in the table below.
Financial Covenant Ratio 31 December 2023 31 December 2022
Total Net Debt to EBITDA 2.5 x 0.9 x 0.1x
Interest Cover Ratio 4 x 18.4 x 60.8 x
Fixed Cover Charge Cover Ratio 1.5 x 14.8 x 46.1 x
Asset Cover Ratio 3 x 5.4 x 41.1
(added November 2023 post addition of funding from Allica)
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 £0.6m (2022:
£0.3m) 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 the year of £171m
(2022: £150m) and reported profit after tax of £21.1m (2022: £14.9m),
representing a post-tax return on average equity of 12.4% (2022: 9.9%), up 25%
year on year. The Group targets 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 2023 was 432p (2022: 480p), with a
market capitalisation of £190m (2022: £211m).
Basic earnings per share was 48.7p (2022: 37.2p), up 31% year on year, and
diluted earnings per share was 48.5p (2022: 37.2p). Net asset value per share
was 403.3p (2022: 374.3p), up 8% on prior year.
GROUP STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2023
2023 2022
Note £'000 £'000
Continuing operations:
Revenue 2 220,775 173,941
Cost of sales (93,539) (72,025)
Gross profit 2 127,236 101,916
Other direct expenses (73,521) (59,535)
Administrative expenses (24,204) (21,828)
Operating profit 29,511 20,553
Investment revenues 82 -
Finance costs 3 (3,233) (1,548)
Profit before taxation 26,360 19,005
Tax charge on profit 4 (5,277) (4,093)
Profit for the financial year and total comprehensive income 21,083 14,912
2023 2022
Earnings per share from continuing operations Pence Pence
Basic 5 48.74 37.16
Diluted 5 48.49 37.15
All profit for the year is attributable to equity shareholders.
GROUP STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2023
Share capital Share premium account Employee Benefit Trust shares reserve Retained earnings Total
£'000 £'000 £'000 £'000 £'000
At 1 January 2022 1,993 33,486 (35) 101,174 136,618
Profit for the year - - - 14,912 14,912
Total comprehensive income - - - 14,912 14,912
Accumulated dividends waived by the EBT 569 569
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
At 1 January 2023 2,193 49,423 (34) 112,537 164,119
Profit for the year - - - 21,083 21,083
Total comprehensive income - - - 21,083 21,083
Issue of share capital 6 300 - (306) -
Share option movement - - 3 (679) (676)
Dividends - - - (7,156) (7,156)
At 31 December 2023 2,199 49,723 (31) 125,479 177,370
GROUP BALANCE SHEET
AS AT 31 DECEMBER 2023
31 December 31 December
2023 2022
Note £'000 £'000
Non-current assets
Goodwill 21,851 20,969
Other intangible assets 7,618 6,368
Property, plant and equipment 15,686 13,045
Right-of-use assets 19,581 18,991
Deferred tax assets - 251
64,736 59,624
Current assets
Inventories 40,711 35,469
Trade and other receivables 135,271 104,046
Cash and cash equivalents 11,387 12,229
187,369 151,744
Total assets 252,105 211,368
Current liabilities
Trade and other payables (7,955) (9,097)
Lease liability (3,965) (3,743)
Current tax liability (858) (937)
(12,778) (13,777)
Net current assets 174,591 137,967
Non-current liabilities
Borrowings (43,000) (15,000)
Lease liabilities (18,002) (16,326)
Deferred tax liabilities (508) -
Long term provisions (447) (2,146)
(61,957) (33,472)
Total liabilities (74,735) (47,249)
Net assets 177,370 164,119
EQUITY
Share capital 8 2,199 2,193
Share premium account 49,723 49,423
Employee Benefit Trust share reserve (31) (34)
Retained earnings 125,479 112,537
Total equity attributable to equity holders 177,370 164,119
The financial statements of H&T Group Plc, registered number 05188117,
were approved by the Board of Directors and authorised for issue on 12 March
2024.
They were signed on its behalf by:
C D Gillespie
Chief Executive Officer
GROUP CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2023
2023 2022
Note £'000 £'000
Net cash utilised from operating activities 6 (3,387) (13,246)
Investing activities
Interest received 82 -
Proceeds on disposal of right-of-use assets - 56
Purchases of intangible assets (1,554) (2,808)
Purchases of property, plant and equipment (7,045) (4,582)
Acquisition of subsidiary - (3,759)
Acquisition of trade and assets of businesses (3,155) (372)
Acquisition of right-of-use assets (6,303) (6,676)
Net cash used in investing activities (17,975) (18,141)
Financing activities
Dividends paid (7,156) (5,092)
Increase in borrowings 28,000 15,000
Debt restructuring costs (355) (101)
Proceeds on issue of shares (net of costs) - 16,137
Employee Benefit Trust 31 34
Net cash used in financing activities 20,520 25,978
Net decrease in cash and cash equivalents (842) (5,409)
Cash and cash equivalents at beginning of the year 12,229 17,638
Cash and cash equivalents at end of the year 11,387 12,229
Notes to the Preliminary Announcement
For the year ended 31 December 2023
1. Finance information and significant accounting policies
The financial information has been abridged from the audited financial
statements for the year ended 31 December 2023.
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 31 December 2023 or 2022 but is derived
from those accounts. Statutory accounts for 2022 have been delivered to the
Registrar of Companies and those for 2023 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 2024.
Revenue recognition
Revenue is measured at the fair value of the consideration received or
receivable and represents amounts receivable for goods and services and
interest income provided in the normal course of business, net of discounts,
VAT, and other sales-related taxes. Revenue is recognised to the extent that
it is probable that the economic benefits will flow to the Group and be
reliably measured.
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; and
● Income from other services
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 2023
returns were 7.3% (2022: 6.5%)
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
which ceased in April 2022.
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, money
transfer income, watch repairs and other income. Commission receivable on
cheque cashing 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.
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. It also includes a charge for
interest earned on pawnbroking loans that ultimately forfeit, net of the
movement in the IFRS 9 provision.
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% (2022: 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 2% 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.
Gold 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 which ceased in April 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:
2023 Pawnbroking Gold purchasing Retail Pawnbroking Scrap Personal Loans Foreign Exchange Other services Total
Revenue £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
External revenue 90,412 42,811 48,584 27,908 242 7,136 3,682 220,775
Total revenue 90,412 42,811 48,584 27,908 242 7,136 3,682 220,775
Gross profit 90,412 8,577 14,417 4,695 242 6,276 2,617 127,236
Impairment (20,930) - - - 632 - - (20,298)
Segment result 69,482 8,577 14,417 4,695 874 6,276 2,617 106,938
Other direct expenses including impairment (53,223)
Administrative expenses (24,204)
Operating profit 29,511
Interest receivable 82
Financing costs (3,233)
Profit before taxation 26,360
Tax charge on profits (5,277)
Profit for the financial year 21,083
2022 Pawnbroking Gold purchasing Retail Pawnbroking Scrap Personal Loans Foreign Exchange Other services Total
Revenue £'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)
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
2023 Pawnbroking Gold purchasing Retail Pawnbroking Scrap Personal Loans Foreign Exchange Other services Unallocated Total
Other information £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Capital additions (*) - - - - - - - 16,101 16,101
Depreciation, amortisation and impairment (*) - - - - - - - 10,409 10,409
Balance sheet
Assets
Segment assets 128,887 826 38,856 407 125 4,623 2,262 - 175,986
Unallocated corporate assets 49,609 49,609
Total assets 252,105
Liabilities
Segment liabilities - - (786) - - - (2,096) - (2,882)
Unallocated corporate liabilities (71,853) (71,853)
Total liabilities (74,735)
2022 Pawnbroking Gold purchasing Retail Pawnbroking Scrap Personal Loans Foreign Exchange Other services Unallocated 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)
(*) 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:
2023 2022
£'000 £'000
United Kingdom 217,388 171,237
Other 3,387 2,704
220,775 173,941
The Group's non-current assets are located entirely in the United Kingdom.
Accordingly, no further geographical segment analysis is presented.
3. Financing Costs
2023 2022
£'000 £'000
Interest on bank loans 2,176 486
Other interest 4 2
Interest expense on the lease liability 945 873
Amortisation of debt issue cost 108 187
Total interest expense 3,233 1,548
4. Tax Charge on Profit
(a) Tax on profit on ordinary activities
2023 2022
£'000 £'000
Current tax
United Kingdom corporation tax charge at 23.5% (2022: 19%) 6,195 3,441
based on the profit for the year
Adjustments in respect of prior years (338) (643)
Total current tax 5,857 2,798
Deferred tax
Timing differences, origination and reversal (300) 1,152
Adjustments in respect of prior years (202) 313
Effect of change in tax rate (78) (170)
Total deferred tax (580) 1,295
Tax charge on profit 5,277 4,093
(b) Factors affecting the tax charge for the year
The tax assessed for the year is lower than that resulting from applying a
standard rate of corporation tax in the UK of 23.5% (2022: 19%). The
differences are explained below:
2023 2022
£'000 £'000
Profit before taxation 26,360 19,005
Tax charge on profit at standard rate 6,195 3,610
Effects of:
Disallowed expenses and non-taxable income 6 271
Non-qualifying depreciation (45) (80)
Effect of change in tax rate (78) (170)
Movement in short-term timing differences (294) 792
Adjustments to tax charge in respect of prior years (507) (330)
Tax charge on profit 5,277 4,093
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 a credit of £179,000 (2022: debit of £435,000).
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 2023 Year ended 31 December 2022
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 21,083 43,253,136 48.74 14,912 40,132,753 37.16
Effect of dilutive securities
Options and conditional shares - 223,629 (0.25) - 14,807 (0.01)
Earnings per share: diluted 21,083 43,476,765 48.49 14,912 40,147,560 37.15
6. Notes to the Cash Flow Statement
2023 2022
£'000 £'000
Profit for the year 21,083 14,912
Adjustments for:
Investment revenues (82) -
Financing costs 3,233 1,548
Decrease in provisions (1,699) (1,680)
Income tax expense 5,277 4,093
Depreciation of property, plant and equipment 4,171 3,223
Depreciation of right-of-use assets 5,769 5,303
Amortisation of intangible assets 915 786
Right-of-use asset impairment (57) (255)
Share based payment expense 215 539
Loss on disposal of property, plant and equipment 233 3
Loss on disposal of right-of-use assets 1 37
Operating cash inflows before movements in working capital 39,059 28,509
Increase in inventories (5,079) (6,693)
Increase in receivables (29,426) (30,684)
Increase/(Decrease) in payables 901 (744)
Cash generated from operations 5,455 (9,612)
Income taxes paid (5,957) (2,230)
Interest paid on loan facility (1,939) (531)
Interest paid of lease liability (946) (873)
Net cash from operating activities (3,387) (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
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:
2023 2022
£'000 £'000
Operating profit 29,511 20,553
(i) Depreciation of the right-of-use assets 5,769 5,303
(ii) Depreciation and amortisation- other 3,418 4,009
(iii) Impairment of the right-of-use-assets (57) (255)
EBITDA 38,641 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. Share Capital
2023 2022
£'000 £'000
Issued, authorised and fully paid:
43,987,934 (2022: 43,850,484) ordinary shares of £0.05 each 2,199 2,193
The Group has one class of ordinary shares which carry no right to fixed
income.
The Group issued share capital amounting to £6,873 (2022: £199,000) during
the year. Associated share premium of £300,000 (2022: £15,888,000) was
created. The shares were issued to satisfy share option awards that vested
during the year and were at £nil consideration.
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