ABM.L Regulatory News (ABM)

23 Feb 2009 07:00



ALBEMARLE & BOND HOLDINGS PLC

("Albemarle" or the "Company")

INTERIM RESULTS FOR THE SIX MONTH PERIOD ENDED 31 DECEMBER 2008

Albemarle & Bond is the UK's market leading pawnbroking business with 114 branches across the country providing pawnbroking, jewellery retailing and associated financial services. The Company is today pleased to announce its Interim results for the 6 months to 31 December 2008.

Building on 16 years of consecutive growth

As at 31 December 2008 the pawn loan book stood at £27.0 million an increase of 18% (31 December 2007: £22.9 million)

19% rise in profit before tax to £6.2million (2007: £5.2 million)

14% improvement in adjusted EPS* to 8.17p (2007: 7.16p)

12.5% increase in interim dividend to 2.25p (2007: 2.0p)

Interest cover of 6.6x

*Basic excluding amortisation of an intangible asset

Operational highlights

Favourable market conditions 

Continued successful integration of Herbert Brown including the remodeling of a further two stores, previously Albemarle & Bond branded

Increase in the availability and affordability of retail space leading to an increase in store expansion programme

Commenting on the results, Charles Nicolson, Chairman said, "This was a good trading performance positioning the Company to deliver a strong result for the full year. Reduced activity from mainstream lenders and strong gold prices combined to make this another favourable environment, with trading further enhanced by the continued excellent performance from Herbert Brown, the UK's third largest pawnbroker, acquired in July 2007. Whilst income from financial services was reduced in the face of more difficult trading conditions, the Board is confident in the Group's trading outlook and is recommending an increased dividend for this first six month period."

Enquiries:

To access more information on the company please visit: www.albemarlebond.com

Chairman's Statement

I am pleased to be able to report a strong performance for the 6 month period to 31 December 2008. A combination of positive market conditions and the continued successful integration of Herbert Brown has led to profit before tax increasing by 19% to £6.2m and pawn loans growing by 18% to £27.0 million. 

The number of customers using pawnbroking services increased and higher gold prices enabled the Group to increase loan sizes per pledge and to benefit from higher scrap prices. Profits from the sale of new jewellery increased slightly, however, retail market conditions are difficult and are not expected to improve in the short term. The worsening economic climate which forced the Group to tighten lending criteria in order to maintain historical default rates reduced the contribution from Speedloan. Cheque Cashing, for which the construction industry is an important constituent, also suffered and the overall contribution from financial services was down. However, these factors were more than offset by the very strong performance from pawnbroking and the business remains in an excellent position to deliver continued growth.

Albemarle has now entered its seventeenth year of uninterrupted growth, during which time the mainstream banking sector has become increasingly automated and inflexible, creating demand for more personalised, flexible and transparent lending services as offered by Albemarle. Individual stores continue to grow organically over many years driven by repeat custom from a long-term customer base. The Group therefore places significant emphasis on staff training aimed at providing an environment to which customers are comfortable making repeat visits. For the majority of customers, who borrow an average of £120 per pledge and repay within 3 months, Albemarle offers a reliable pawnbroking service which does not affect customer credit ratings and is free from penalties such as early repayment and extension charges.

Financial Performance

The principal growth driver for the business is the pawn loan book which grew by 18% to £27.0 million (2007: £22.9 million), resulting in gross profit growing by 11% to £20.1 million, of which 76% was derived from pawnbroking and sales of ex pawn jewellery. Financial services contributed 17% to gross profit compared with 23% in the previous year reflecting the more difficult economic conditions which resulted in the management decision last year to tighten underwriting terms. 

The Company remains in a strong financial position; net debt is £37.9m with interest cover at a conservative 6.6x. The Company's loan facilities, which were renegotiated in 2008, have a further 3.5 years to run and are sufficient to support the Company achieving its current commercial objectives. In September 2007 the Company partially hedged scrap gold prices through to June 2011 in order to lock in the then record value of gold. Since that date gold prices have been above the strike price. During the six months Albemarle has benefited from higher gold prices but as a result of the hedge contract has surrendered £0.46 million of the gain.

This positive performance by the Company led to adjusted earnings per share increasing by 14% to 8.17p (2007: 7.16p).

Dividend

Demonstrating the Board's confidence in the future, it is pleased to propose an increased interim dividend of 2.25p (2007: 2.00p). This represents an increase of 12.5% compared to the same period last year.

Operations

During the six months under review our strategy has been to continue to focus on organic growth across the store portfolio; further integration of Herbert Brown business with particular emphasis on growing its pawn loan book and financial services offering; and pursuing opportunities to exploit new markets through new branch openings. 

Pawnbroking

Focusing on high value low bulk items, the Company's pawn broking business provides pawn loans secured against jewellery only. Pawnbroking is the largest part and the key driver for our business, and we are pleased to report that the pawn loan book stood at £27 million as at 31 December 2008, an 18% increase up from £22.9 million as at 31 December 2007. Within this total, Herbert Brown's pawn loan book increased to £7.2m, an increase of 33% (2007: £5.4m), reflecting the benefits of the recent integration.

Pawnbroking income and income derived from the sales of ex pawn jewellery grew by 22% to £15.7 million driven by the increase in demand from new and existing clients and better scrapping prices. Sales of ex pawn stock were 3% lower but the retail margin was 5% up as less discounting of old stock was necessary because of the higher price of gold. Pawnbroking contributed 76% of gross profit compared with 69% in the same period last year.

New Jewellery Retailing

Through the acquisition of Herbert Brown the Company's expertise in jewellery retailing has expanded, due to the greater retail focus of Herbert Brown stores. With the gross margin improving to 50%, primarily from improved buying, the Company recorded an increase in profits from the sale of new jewellery to £1.46 million (2007: £1.39 million) despite sales reducing by 6% to £2.9 million (2007: £3.1 million).

Financial Services

In worsening economic conditions Albemarle took the decision last year to increase underwriting in its unsecured Speedloan and Pay Day Advances sectors. This has resulted in fewer 'Speedloans' being approved and older less profitable loans have eroded margins. Pay Day Advances have broadly maintained their margin on slightly lower volumes. Cheque Cashing is a product which we believe will continue to decline over several years with the increased use of alternative methods of payment. This trend was accelerated in recent months due to the reduction in casual labour in the construction industry. 

A key part of the integration strategy of Herbert Brown was to increase net income from financial services and during the period Herbert Brown stores contributed £0.50 million to net income compared to £0.34 million in the previous period.  Despite the increased contribution from Herbert Brown overall net income from financial services was £3.4 million (2007: £4.1 million). While the trading performance from this division has been impacted in this half, financial services will continue to be an important contributor to group profitability and Speedloan's contribution should improve in the second half as older less profitable loans run out and are replaced by better quality loans. 

Store Portfolio

The Company has always focused on pursuing opportunities to expand into new geographic areas both organically and through acquisition. For some time there has been substantial scope to expand the business across the UK, and the challenge historically has been the lack of available retail space that meets our investment criteria in terms of location, size, and rent. This is now changing following the impact of the economic environment on the property and retail sectors, leading to more space becoming available at more attractive rates. Consequently, the Company believes it can now step up the number of store openings to take advantage of this market opportunity. 

At the period end, the company operated a portfolio of 114 stores of which 84 were Albemarle & Bond stores and 30 were Herbert Brown. In August 2008, the Company acquired the trade and assets of a well established independent pawnbroker in Rhyl, North Wales. A greenfield site in Tooting was opened as an Albemarle & Bond store in early November. The new store is located in Tooting high street and has made a positive start benefiting from high levels of passing trade in this busy residential area. Since the half-year end, the Company acquired a store in Bermondsey which is currently being integrated into the Group. 

Since the successful acquisition of Herbert Brown in July 2007, the Company has been focused on integrating the enlarged portfolio of stores and remodeling selected stores to maximise their potential based on the management's view as to whether a store would prosper more under either the Albemarle & Bond or the Herbert Brown brand. The main difference being that Herbert Brown has a stronger retail presentation and is therefore more suited to a slightly different target market.

Outlook

Demand for small flexible loans remains strong and this is reflected in the Group's performance over the last six months, building on 16 years of uninterrupted growth. Looking ahead, we expect pawnbroking, which represents 76% of group revenues, to continue to benefit from the reduction in mainstream lending. In addition, we believe there is an opportunity to take advantage of the weakening retail environment to increase our new store opening programme as more high street space becomes available at more realistic prices. Since the half year end, trading has been positive and the Board is confident of delivering a strong performance for the full year.

Dated: 23 February 2009