ABM.L Regulatory News (ABM)

12 February 2013

ALBEMARLE & BOND HOLDINGS PLC

("Albemarle" or "the Group")

Interim results for the six months to 31 December 2012

Financial Highlights

·; In line with expectations, first half performance reflected the anticipated reduction in Gold Buying profits

·; Profits before tax reduced 33% to £8.1m (2012: £12.1m) with EPS of 11.20p (2012: 16.27p) down 31%

·; Gold Buying margins maintained above 30% with profits now stable for the last three consecutive quarters following the reduction from the H1 2012 peak

·; Operating costs increased by 2.9% against a store base increase of 8%

·; Pawnbroking profits of £17.6m up 2.3% (2012: £17.2m)

·; Pledge book of £38.1m at 31 December 2012 (31 Dec 2011: £38.3m) reflects the reduced volumes of gold in circulation and increased competition

·; Retail sales up by 16.7% to £10.5m (2012: £9.0m) and profits up 32%

·; Interim dividend maintained at 3.00p

Operational Highlights

·; Successful introduction of new products and services across our stores

·; Early Pay Day Loans fully integrated to develop unsecured lending products

·; Four London store acquisitions completed out of the planned five this year

·; Diversified Gold Buying pop up stores into a 'cash solutions' offer in 43 locations

·; Strong cost controls resulted in like for like operating costs being 5.2% lower

Barry Stevenson, Chief Executive, commented: "Profits were in line with expectations as we experienced tougher and more competitive markets in the first six months of the year and we expect these market conditions to continue in the second half. The investment we made to more than double our store base is delivering positive returns and the majority of the new stores have contributed an operating profit in the first half with potential for future growth. Demand for short term cash in the wider market is robust and we are now well-positioned to exploit that opportunity further by diversifying our core pawnbroking offer into new customer segments and products. In the second half of the year our strategy is to continue to leverage our expanded store base in combination with our online unsecured lending offer."

Enquiries:

Albemarle & Bond Holdings plc 0118 955 8100

Barry Stevenson, Chief Executive Officer

Liam Moran, Chief Financial Officer

Canaccord Genuity 020 7523 8350

Piers Coombs

Lucy Tilley

Mark Whitmore 

Cardew Group 020 7930 0777

Anthony Cardew

Shan Shan Willenbrock

Alexandra Stoneham

Chief Executive's Statement

In more demanding market conditions and with increased competition, the Group's core pawnbroking division increased income by 2.3% to £17.6m with the pledge book broadly flat. We are focused in the second half on implementing our strategy to increase our pawnbroking market share through new customer segments, such as Asian gold and small business owners, targeted promotions and marketing to recruit new customers.

The retail division contributed very strongly as ex pledge jewellery sales and profits grew, driven primarily by carefully targeted stock investment. Retail remains key to our offer as a customer signal for our pawnbroking business and a key disposition route for forfeited items.

As previously indicated, Gold Buying peaked for Albemarle in March 2012. The exceptional profits we made from Gold Buying, over the past three years, have been invested in opening or acquiring 68 full line stores providing us with a strong store footprint throughout the UK. We believe Gold Buying will provide us with a significant long term revenue stream on a reducing basis.

In response to the change in Gold Buying trading patterns and the reduced cash flow generated, our strategy has been to focus store expansion on selective well located acquisitions, with four out of the five planned for this year already completed.

We are already very well placed with our 233 store locations to serve the majority of our target market and our investment focus is increasingly centered on product and channel development. 60% of our target customer groups live within three miles of one of our stores.

Pawnbroking remains the cornerstone of our business and represents the best value and most flexible loan available to our customer base. We will continue to modernise, innovate and increase the range of cash solutions and services to meet the increasing demands of our customers. The demand for short term cash in the wider market has never been greater but with the reduction in gold jewellery for our traditional customers to pawn and sell, our objective is to reach out to growing customer segments and help all customers find other fast, affordable and convenient cash solutions.

Financial Performance

Group gross profits decreased by 8% to £33.7m driven by an expected decline in volumes and gross margin from Gold Buying.

Pawnbroking gross profit was £17.6m, a 2.3% increase over the same period last year. The pledge book at the end of December 2012 stood at £38.1m compared with £38.3m for H1 2011. The increase in gross profit was therefore a result of the actions we took to improve the yield.

Gold Buying has contributed £9.0m compared to £12.0m in the prior year period, due to the decline in volumes and percentage margins seen since April 2012.

Retail delivered an improved performance with an increase in sales of 16.7% to £10.5m (2012: £9.1m). This was driven by stock investment benefiting ex pledge retail sales with sales from this category up 40%. The resultant gross profits were up 32.0% to £3.8m (2012: £3.0m).

Gross profits from Other Financial Services were £3.3m (2011: £4.5m). This reduction was due to the removal of the cheque guarantee card in July 2011 and the impact of the transition from the old cheque based lending products to a re-designed product range. Third Party Cheque Cashing has contributed £1.1m, a 7% increase compared to the previous year.

Operating costs increased by 2.9% compared to an increase of 8% in the average number of stores in the same period. The underlying LFL operating cost reduction of 5.2 is the result of strong controls on central staff cost investment, initiatives targeting discretionary consumables costs and renegotiated key third party supplier contracts.

Operating profits decreased by 29% to £8.9m (2012: £12.5m) with profit before tax 33% down at £8.1m (2012: £12.1m) which led to EPS of 11.20p (2012:16.27p).

The Group's financial position is stable and we have headroom of £16m on facilities that run to November 2016. Net debt as at 31 December 2012 was £50.3m, an increase of £6.8m as compared to 30 June 2012. The key drivers behind the increase were lower cash generation from Gold Buying and a careful investment in stock to support the recovering Retail business.

Update on Strategy

In 2012 we initiated a review of the changing structure of our business, the market, our customers, and the competition. This has resulted in an updated growth plan for the business that will shape the evolution of the Group.

There are around 10 million cash and credit constrained consumers in the UK today under-served by the banks and by traditional forms of lending. Our pawnbroking customers use many forms of borrowing including home collected credit, unsecured loans, store cards and catalogue credit but despite its undoubted consumer advantages, pawnbroking is still one of the smallest sectors of the non-standard credit market. Growth over recent years in pawnbroking has been driven by the expansion of stores, gold price rises and improved consumer awareness. Our strategy to drive future growth will build on our pawnbroking offer and provide a broader set of lending choices and cash services to our customer base, underpinned by the roll out of our new 'Diamond' operating system during 2013.

There has been rapid growth in the 'payday' lending sector. We anticipate much tighter regulatory controls in that sector, and welcome the changes that those controls will bring. We are well positioned to carve out a larger, and profitable, niche in non-standard unsecured installment lending using our combined store and online presence.

We will focus on three strategic objectives:-

Diversifying our Profitable Pawnbroking Business

We will increase our offer to existing customers, and attract new customers by offering secured pawnbroking loans against a broader range of items including:

·; diamonds and other precious stones

·; non-hallmarked gold, as well as hallmarked gold

·; other precious metals

·; prestige watches

·; mobile phones and electronics

We have been actively growing the amount of high carat gold in our pledge book and this will remain an important focus for gold-based pawnbroking. We have increased the number of watches we 'buy, sell and lend on' and diversified our service by launching 'cash for phones' across all of our stores. We have invested in state of the art technology that enables our staff to precisely evaluate customer's jewellery for all of its precious metal content. We are currently promoting a more flexible pawnbroking approach that is more consistent with our customers' cash flow requirements, and we continue to maximise profits and lending potential by improving disposition activities, as witnessed by our growing retail business.

Offering a Broader Set of Lending and Cash Solutions

Having developed a well located store estate that enables us to serve the majority of our target market; we are now focused on expanding our product range and further improving our offer. We have already introduced a range of financial services products to each of our 43 gold buying 'pop up' stores. This enables us to support the profitability of these outlets as gold buying volumes decline. We have also been increasing the range of lending and cash solutions at all of our full line stores, with, for example, 'cash for phones' and log book loans already available in all branches. Other product launches are planned for H2 FY 2013.

Building a Profitable Unsecured Lending Business

We have successfully integrated our Early Payday Loans ('EPDL') acquisition into the group, which is trading profitably. During the second half, the current EPDL online short term loan product will be available in all 233 of our stores and we expect to pilot a multichannel 'click and collect' proposition later in this calendar year. We have already made a promising start on these three strategic objectives and will provide a further update with our full year results.

On behalf of the Board, I would like to thank all of our colleagues for their hard work and immense contribution to the progress of the business and adapting so positively to changing market conditions.

Summary and Outlook

Whilst the demand for short term cash remains robust the market continues to be highly competitive and we expect that to remain the case in the second half of the year. In the unsecured lending market consumers are increasingly looking to the ease of online with a convenient store location, while in the secured market they want a greater range of cash solutions. With our strong brand, extensive store portfolio and growing on line platform, the Group is well positioned to serve the needs of the over 10 million cash and credit constrained consumers in the UK today. Our strategy will be focused on continuing to drive operational performance as well as diversifying our pawnbroking business, offering a broader set of lending and cash solutions and building our unsecured lending business.

-END-

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

The interim report will be solely available to view online enabling the Group to communicate in a more environmentally friendly and cost effective manner.

Images of the Group's stores are available from the website.

Albemarle & Bond Holdings PLC Consolidated Statement of Changes in Equity

Albemarle & Bond Holdings plc 

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