TIDMHAT
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 MONTHSED 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 GBP19.0m (2021: GBP10.0m excluding
non-recurring expense of GBP2.1m) 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 GBP100.7m (2021: GBP66.9m), as demand for pledge
lending continued to rise.
-- Demand for retail jewellery and watches continued to
grow, with sales of GBP45.2m
(2021: GBP36.2m) 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 GBP5.7m
(2021: GBP3.0m), exceeding pre-Covid levels, as international
travel demand continued to build momentum.
-- Balance sheet remains robust with net asset value of
GBP164.1m (2021: GBP136.6m), augmented by the recent
capital raise which amounted to GBP16.1m 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 GBP2.8m (2021 cash
balance: GBP17.6m).
-- 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 GBP1m 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. GBP104m. 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 (GBPm 2022 2021 Change %
unless stated)
---------- ----------
Profit before tax GBP19.0m GBP10.0m* 90.0%
Reported Profit before tax GBP19.0m GBP7.9m 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 GBP164.1m GBP136.6m 20.1%
Key Performance Indicators
Net Pledge book GBP100.7m GBP66.9m 50.5%
Net Pawnbroking Revenue GBP51.0m GBP37.3m 36.7%
Retail sales GBP45.2m GBP36.2m 24.9%
online sales (excl. refunds) 13% 13%
new jewellery sales 22% 16%
gross margin 39.3% 45.9%
Foreign exchange Revenue GBP5.7m GBP3.0m 90.0%
Number of stores 267 257
-------------------------------- ---------- ---------- ---------
*Excluding non-recuring expense of GBP2.1m
Enquiries
H&T Group plc
Chris Gillespie, Chief Executive
Officer
Diane Giddy, Chief Financial
Officer +44(0)20 8225 2700
Shore Capital Ltd (Nominated
Advisor and Broker
Stephane Auton/Iain Sexton (Corporate
Advisory)
Guy Wiehahn/Isobel Jones (Corporate
Broking) +44(0)20 7408 4090
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 GBP2.1m 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 GBP100m 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 GBP16.9m
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 GBP19.0m (2021: GBP10.0m excluding
non-recuring expense of GBP2.1m). 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
GBP100.7m as at the end of December (2021: GBP66.9m) 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 GBP164.1m (2021: GBP136.6m) is
comprised of the pledge book GBP100.7m (2021: GBP66.9m), inventory
of GBP35.5m (2021: GBP28.4m) and a net debt position of GBP2.8m
(2021 cash balance: GBP17.6m).
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.
GBP200 - 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 GBP218m
(2021: GBP143m), 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 GBP100.7m (2021: GBP66.9m). 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 GBP405 (2021: GBP339). The median lending
value remained stable at GBP185 (2021: GBP175). 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 %
GBP'm GBP'm
-------------- -----------
Year-end net pledge book
- note 1 GBP100.7m GBP66.9m 50.5%
Average net pledge book GBP83.8m GBP53.7m 56.1%
Revenue less impairment GBP51.0m GBP37.3m 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 GBP45.2m (2021: GBP36.2m).
Gross profits were up 7.2% to GBP17.8m
(2021: GBP16.6m) 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. GBP1,000.
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 GBP5.9m, after adjusting for
returned items and refunds
(2021: GBP4.7m). 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
GBP1m in a single month for the first time.
Total inventory of GBP35.5m (June 2022: GBP36.1m and December
2021: GBP28.4m) was held as at 31(st) December, including stock of
parts held at Swiss Time Services amounting to GBP0.5m. The value
of watches in the process of repair as at December had increased to
c. GBP4m (2021: GBP1.7m), 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. GBP25m
at cost (2021: GBP21.4m) and has reduced to c. GBP23m 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 GBP390 (2021: GBP430) evidencing, we believe, careful
holiday budgeting by consumers.
Gross profit rose to GBP5.7m (2021: GBP3.0m), 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 GBP6.8m (2021:
GBP3.4m), 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 GBP1,450 (2021: GBP1,308).
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 GBP3.5m (2021: GBP2.0m), 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 GBP1.5m (2021: GBP1.3m) 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 GBP1.2m (2021: GBP1.1m) 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 GBP0.7m (2021:
GBP3.1m) with revenues earned reducing to GBP2.1m (2021: GBP4.3m)
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 GBP19.0m (2021: GBP7.9m
after non-recurring expense of GBP2.1m).
Reported gross profit increased to GBP101.9m (2021: GBP76.4m),
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 GBP17.8m (2021: GBP16.6m) on sales of GBP45.2m
(2021: GBP36.2m). 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 GBP5.7m
(2021: GBP3.0m) 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 GBP6.8m (2021:
GBP3.4m) 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 GBP3.5m (2021:
GBP2m), 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 GBP4.4m (2021:
GBP6.6m), decreasing by 33% as expected. Personal lending net
contribution fell to GBP2.1m (2021: GBP4.3m), 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 GBP1.2m (2021: GBP1.1m) and
commissions earned on money transfer services increased by 15% to
GBP1.5m (2021: GBP1.3m).
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 GBP12.4m (2021:
GBP11.1m).
Costs
Direct and administrative expenses increased to GBP81.4m (2021:
GBP65.2m), 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 GBP11.8m (2021:
GBP6.0m), 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 GBP0.4m (2021:
GBP2.1m). 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 GBP4.3m, inclusive of a net cash
balance of GBP0.5m. 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 GBP16.9m 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 GBP0.9m 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
GBP0.6m (2021: GBP0.0m).
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 GBP4.1m (2021:
GBP1.8m). 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 GBP164.1m (2021:
GBP136.6m). 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 GBP100.7m
(2021: GBP66.9m).
Inventory increased to GBP35.5m (2021: GBP28.4m), including
GBP0.5m 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. GBP4m (2021: GBP1.7m), 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 GBP2.8m,
after starting 2022 with a positive cash position of GBP17.6m, as
the Group funded organic and inorganic growth opportunities.
Non-current assets grew to GBP59.6m (2021: GBP51.4m) with the
investment of capital expenditure in IT development and the store
estate by GBP3.5m (2021: GBP1.6m), and the acquisition of Swiss
Time Services of GBP3.8m.
Costs incurred in the development of the new technology platform
known as Evo during the year, have been capitalised and amounted to
GBP1.7m (2021: GBP1.1m), 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 GBP20.4m (2021: GBP16.8m) of cash resources
during the year, after paying dividends of GBP5.1m (2021: GBP4.0m),
growing the debtor book, predominately the pledge book, by GBP30.9m
(2021: GBP15.6m), the acquisition of Swiss Time Services of GBP3.8m
and capital investment of GBP14.3m (2021: GBP9.5m).
New equity was raised in September 2022 generating net proceeds
of GBP16.1m.
At 31 December 2022 the Group had a net debt position of
GBP2.8m, utilising GBP15m of the revolving credit facility and cash
balances on hand of GBP12.2m.
The Group's financing facilities were renewed on 22(nd) December
2022 to comprise a combination of a GBP30m three-year revolving
credit facility with the option to extend to a maximum period of
five years (previously GBP15m with a maximum period of four years)
and a GBP5m overdraft facility (previously GBP20m). 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 Interest Cover Fixed Charge
to EBITDA Ratio 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 GBP0.3m (2021: reversal of
GBP0.2m) 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
GBP150.4m (2021: GBP135.6m) and reported profit after tax of
GBP14.9m (2021: GBP6.0m), 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 GBP210.5m (2021:
GBP117.6m).
Basic earnings per share was 37.2p (2021: 20.8p excluding
non-recurring expense item of GBP2.1m) and diluted earnings per
share was 37.2p (2021: 20.8p excluding non-recurring expenses item
of GBP2.1m). Net asset value per share was GBP374.3p (2021:
342.7p).
GROUP STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER 2022
2022 2021
Note GBP'000 GBP'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 YEARED 31
DECEMBER 2022
Employee
Benefit
Share Trust
Share premium shares Retained
capital account reserve earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
2022 2021
Note GBP'000 GBP'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 YEARED 31 DECEMBER 2022
2022 2021
Note GBP'000 GBP'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 GBP75 (disposal proceeds being
reported in this segment) or, if the value of the pledge is GBP75
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:
Pawnbroking Gold Retail Pawnbroking Personal Foreign Other Other Total
2022 purchasing Scrap Loans Exchange services income
Revenue GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
---------------- ------------ ----------- -------- ------------ --------- --------- --------- -------- ---------
Pawnbroking Gold Retail Pawnbroking Personal Foreign Other Other Total
2021 purchasing Scrap Loans Exchange services income
Revenue GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
---------------- ------------ ----------- -------- ------------ --------- --------- --------- -------- ---------
Pawnbroking Gold Retail Pawnbroking Personal Foreign Other Other Total
2022 purchasing Scrap Loans Exchange services income
Other GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
information
--------------- ------------ ----------- -------- ------------ --------- --------- --------- --------- ---------
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)
--------------- ------------ ----------- -------- ------------ --------- --------- --------- --------- ---------
Pawnbroking Gold Retail Pawnbroking Personal Foreign Other Other Total
2021 purchasing Scrap Loans Exchange services income
Other GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
information
--------------- ------------ ----------- -------- ------------ --------- --------- --------- --------- ---------
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
GBP'000 GBP'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
GBP'000 GBP'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
GBP'000 GBP'000
Current tax
United Kingdom corporation tax charge
at 19% (2021: 19%)
based on the profit for the year 3,441 1,738
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
GBP'000 GBP'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 GBP435,000 (2021:
released from equity GBP41,000).
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 Year ended 31 December
2022 2021
Earnings Weighted Earnings Weighted
average Per-share average Per-share
number amount number amount
of shares pence of shares pence
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
GBP'000 GBP'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
GBP'000 GBP'000
------------- --------------------------------------- ---------
Operating
profit 20,553 9,101
Depreciation of the right-of-use
(i) assets 5,303 5,071
Depreciation and amortisation-
(ii) 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
GBP'000 GBP'000
Issued, authorised and fully paid:
43,850,484 (2021: 39,864,077) ordinary shares
of GBP0.05 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 GBP199,000 (2021:
GBPnil) during the year. Associated share premium of GBP15,888,000
(2021: GBPnil) was created.
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END
FR NKABKOBKDNNK
(END) Dow Jones Newswires
March 07, 2023 02:00 ET (07:00 GMT)
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