H&t Group Plc Regulatory News (HAT)

20 Mar 2007 07:02

H&T Group PLC20 March 2007 H&T Group plc "H&T" or "the Group" Preliminary Results for the year ended 31 December 2006 H&T Group plc, which trades under the H&T Pawnbrokers and Get>Go brands, is theUK's leading pawnbroking business by size of pledge book. The Group today ispleased to announce its maiden preliminary results since listing on AIM for theyear ended 31 December 2006. Financial highlights 2006 2005 Change £m £m per centGross profit 23.7 20.1 +18.0Earnings before Interest, Tax, DepreciationAmortisation ("EBITDA") before exceptional items 9.4 7.8 +19.4Operating profit before exceptional items 7.2 5.7 +26.8Operating profit 5.3 5.7 -6.6Pledge book 25.2 24.4 +3.2Proposed dividend per share 3.0p Nil Operational highlights O Nine new stores opened during the year: seven greenfield storesand two acquisitions O Cheque Cashing & Pay Day Advance underwriting and collectingfacilities brought in-house O Prepaid debit cards now available in all stores O Admission to the Alternative Investment Market ("AIM") on 8 May2006 with share price of 172 pence per share (H&T's closing share price on 16March 2007 was 197.5 pence) John Nichols, Chief Executive Officer of H&T Group plc, commented: "This has been a very busy and exciting year for the Group with the delivery ofa strong set of results. During 2006, we completed our IPO on AIM, added ninenew stores to the estate and increased all net revenue streams on a like forlike basis. This has only been possible thanks to the diligence and commitmentof all our staff. We have every reason to look forward to the future with confidence." For further information please contact: H&T Group plc 0870 9022 600John Nichols, Chief Executive Hawkpoint Partners Limited 020 7665 4500Lawrence Guthrie / Sunil Duggal Numis Securities Limited 020 7776 1500Oliver Hemsley / Charles Farquhar College Hill Associates 020 7457 2020Gareth David / Paddy Blewer Chairman's Statement Introduction I am very pleased to report that we have successfully delivered results ahead oforiginal market expectations in our first year since our admission to AIM,achieving growth in all areas of the business. Financial Performance The Group has delivered a year of strong growth in revenue, profits (beforeexceptional items) and number of outlets. Total net revenues (gross profit)increased by 18.0 per cent. to £23.7 million (2005: £20.1 million). EBITDAbefore exceptional items increased by 19.4 per cent. to £9.4 million (2005: £7.8million). Operating profit before exceptional items increased by 26.8 per cent.to £7.2 million (2005: £5.7 million). We also opened nine additional storesduring the year, taking our store portfolio to a total of 77 stores. Initial Public Offering ("IPO") H&T was admitted to AIM on 8 May 2006. The shares were placed at 172 pence pershare, giving a market capitalisation of £54.2 million. The closing price as at16 March 2007 of 197.5 pence represents an increase of 14.8 per cent. sinceflotation. Final Dividend In accordance with the dividend policy declared at the time of the IPO, thedirectors are pleased to recommend a final dividend in respect of the year ended31 December 2006 of 3 pence per ordinary share. This dividend will be paid toall shareholders on the registrar at the close of business on 16 May 2007. Prospects I believe that we have laid the foundations for further growth throughout 2007,capitalising on the financial and commercial successes of 2006. I would like to thank all our staff for their hard work and commitment duringthis year of significant change. Peter J MiddletonChairman Chief Executive's Review of the Business Introduction My fellow directors and I are pleased with the financial performance,development and achievements of the business during 2006. During the year, we developed the business of the eight stores opened in thesecond half of 2005, opened seven new greenfield stores and acquired twobranches from a well established pawnbroker. H&T remains the UK's leadingpawnbroker by size of pledge book and now has 77 outlets across the UK. At thesame time, we successfully transitioned the back office functions of ChequeCashing and Pay Day Advance in-house, requiring the creation of an authorisationand collection team together with the development of point of sale software. New stores are not expected to make a material contribution to operating profituntil the third year of operation and, consequently, the financial performancefor 2006 represents considerable like for like ("LFL") growth. This demonstratesthe continuing growth in profitability we derive from our established stores. Pawnbroking activities, comprising Pawn Service Charge and Disposition,represented 88 per cent. (2005: 91 per cent.) of total 2006 net revenues andother financial services 12 per cent. (2005: 9 per cent.). Review of Operations Pawn Service Charge Pawn Service Charge (PSC) represents all income earned up to the completion of apledge. The main items are interest and net profit from auctions after returning any surplus to the customer. H&T has been the largest pawnbroker in the UK based on the size of the pledgebook for many years - with a current pledge book of £25.2 million (2005: £24.4million). This increase in pledge book translated to a 7.4 per cent. increasein PSC. Maintaining this market leading position remains a priority for theBoard of H&T. Disposition Disposition refers to the entire process to dispose of forfeited pledges. Thekey routes are retail through the stores and scrap. The sale of forfeited items to the general public ("Retail") is the mostimportant element of Disposition, generating higher margins when compared withscrap or auction. The commentaries on the general retail climate from 2005 andinto 2006 suggest a difficult trading environment in 2006. I am therefore happyto report that against this background we achieved sales growth of 6.3 per cent.(1.4 per cent. LFL) and a significant increase in Retail gross margin to 47.8per cent. (2005: 40.8 per cent.). This has resulted in gross profit improvementof 24.6 per cent. (17.9 per cent. LFL). This very strong performance is aresult of the investment in training, improvements in display and enhancementsto our stock supply systems. Scrap profit in 2006 reached £1.1 million (2005: £0.5 million) partly as aresult of the increase in the price of gold. Total Disposition net revenues increased to £5.6 million (2005: £4.0 million). Other Financial Services Cheque Cashing and Pay Day Advance H&T had a long standing relationship with a third party service provider forunderwriting the in-store Cheque Cashing and Pay Day Advance business inexchange for a commission payment. In January 2006, we commenced our ownin-house back office service, enabling the Group to manage both productsinternally, saving the fees previously paid to the third party. Bringing the operations in-house has resulted in a significant increase in netrevenues from Cheque Cashing and Pay Day Advance. It has also allowed us toapply our own expertise in managing this product without the restrictionsimposed by a third party. In 2006 gross revenues from Cheque Cashing and Pay Day Advance both increasedsubstantially to £1.9 million (2005: £1.2 million) and £1.8 million (2005: £0.7million) respectively. The revenues net of bad debt from Cheque Cashing and Pay Day Advance increasedby £1.0 million (58.0 per cent.) compared with 2005. KwikLoan Although H&T's management has mostly focused on developing Pay Day Advance,towards the end of 2006 KwikLoan also gained some traction. Lending in December2006 was five times that in the previous year which gives confidence to theprospects of this product in 2007. The KwikLoan loan book increased from £0.16 million to £0.4 million during theyear. KwikLoan net revenues increased by 47.6 per cent. (46.3 per cent. LFL) inthe year. Point of sale development We are now well into the development of the replacement point of sale system forthe business. This system will unify the current store and head office systemswhich have developed over a number of years with one, purpose built, applicationto support all current business activities. The use of new technology will result in some improvement in operationalefficiency, but more importantly, will simplify store operations to enable us toachieve the full potential of the existing product range and implement newproducts more easily. At present this project is within budget and is expected to be fully rolled outinto all stores by the autumn. We have incurred capital expenditure of £0.8million and the total cost including implementation is expected to be in theorder of £1.8 million. Business Overview and Strategy At the time of the admission to AIM, we presented our growth strategy on threemain streams. Each of these streams is progressing in line with the Board'sexpectations. Expand geographical footprint The significant fragmentation in the UK pawnbroking market will continue toprovide the Group with acquisition opportunities. In addition, there remainssubstantial opportunity for organic growth with a significant number of townswith an appropriate population size and demographic mix to support a greenfieldstore. H&T's strategy is to develop 30 units between 2006 and 2008, both throughgreenfield stores and acquisitions, using current resources whilst maintainingcash flow and earnings growth at an appropriate level. During 2006, we addednine outlets to the store portfolio - seven greenfield and two acquisitions. Wewould expect to grow the store footprint by a similar number during 2007. Initially, new pawnbroking units tend to be loss-making. As a consequence,expanding the store base tends to suppress short term earnings growth butprovides significant medium term benefit as new stores develop. The Group is also actively pursuing larger acquisitions to accelerate theconsolidation of the industry. The Board will make acquisitions selectively,appraising each opportunity fully before proceeding with a transaction.Consequently, the timing and nature of these transactions depends on theavailability of appropriate opportunities. Our greenfield stores are performing well and are on average exceeding ourexpectations in terms of pledge book growth. Establish new products and services The prepaid debit card has been met with enthusiasm from customers. The producthas enjoyed increased publicity in recent months, although most news articlescontinue to present it as a recent development despite the fact that we wereissuing these cards at the beginning of 2006. As the first national chain tooffer prepaid debit cards, we have been pleased with the growth although, asexpected, the quantum of revenues associated with it is still small. We believethat we are well placed to capitalise on the growing awareness of prepaid cardsin the UK and this will assist in the education of the marketplace. The strategy in 2007 is to expand the portfolio of unsecured products, using thePay Day Advance and KwikLoan models to their best advantage. These productsrespond well to local marketing and our observation of the marketplace indicatessignificant potential. In 2005, H&T launched its secondary brand, Get>Go. The Get>Go stores offer theH&T suite of products with the exclusion of Retail and have a contemporaryfinancial services image. We now have two units, one in Bury (opened inNovember 2005) and one in Liverpool (opened in October 2006). These units arein the early stages of their development and the trial will continue into 2007. Develop new products We are developing and testing a number of additional products which may berolled out between 2007 and 2008. Review of the Pawnbroking Market Competition The competitive environment has not changed substantially in the last year. The pawnbroking industry remains very fragmented. Although there are noofficial statistics, the National Pawnbrokers Association estimates that thereare around one thousand pawnbrokers in the UK. In this environment it is critical to maintain the high levels of customerservice in store and by doing so we will continue to be the first choice for ourcustomers. Regulation There have been no changes to regulation that will have an impact on theproducts and services we offer. Current Trading and Outlook The increasing awareness of the pawnbroking industry, indeed of the wideralternative credit sector, will undoubtedly provide opportunities in the comingyear. I believe the Group is well placed to develop and grow in thisenvironment building on the successes delivered in 2006. Finally I would like to thank all of our staff for their excellent contributionto the success of the business during the year. John G NicholsChief Executive FINANCIAL REVIEW Turnover and gross profit Turnover in 2006 amounted to £32.1 million compared with £29.6 million in 2005.Total gross profit in 2006 increased by 18.0 per cent. to £23.7 million (2005:£20.1 million) driven by a combination of turnover growth (8.4 per cent.) and animprovement in gross margin percentage (73.7 per cent. in 2006 compared to 67.7per cent. in 2005). Administrative expenses The Group's administrative expenses before exceptional items in 2006 were £16.4million compared with £14.4 million in 2005. The 14.5 per cent. increase inadministrative expenses was primarily driven by the development of nineadditional stores and the introduction of the new Cheque Cashing authorisationand debt collection facility. Operating profit During 2006, EBITDA before exceptional items increased by 19.4 per cent. to £9.4million (2005: £7.8 million). The Group recorded a 26.8 per cent. increase inoperating profit before exceptional items reporting £7.2 million in 2006compared with £5.7 million in the previous year. Exceptional expenses of £1.9million were incurred as part of the IPO. Interest payable and similar charges Interest payable before exceptional items decreased by £1.9 million from £5.9million in 2005 to £3.9 million in 2006. This reduction was a result of therestructuring of bank facilities and loan notes at the time of H&T's admissionto AIM in May 2006. This restructuring incurred an exceptional charge of £0.8million in the period. Profit before taxation Profit before taxation and exceptional items in 2006 was £3.3 million comparedto a loss of £0.1 million in 2005. The statutory basis 2006 result was impactedby exceptional costs consisting of £1.9 million of exceptional administrativeexpenses relating to H&T's admission to AIM and £0.8 million of debtrestructuring costs. As a result, the Group recorded a profit before taxation of£0.7 million in 2006 compared with a profit before taxation of £0.8 million in2005. Taxation The effective corporation tax rate excluding exceptional items was 39 per cent.for the year. This is substantially higher than the normal tax rate of 30 percent. due to the impact of £0.2 million disallowable expenses (6 per cent.) and£0.1 million deferred tax and timing differences (3 per cent.). (Loss)/earnings per share Basic loss per share for 2006 was 0.85 pence compared with basic earnings pershare of 1.61 pence in 2005. After adjusting for the exceptional items referredto above, adjusted basic earnings per share for 2006 was 7.41 pence comparedwith adjusted basic loss per share of 1.64 pence in 2005. Dividend The H&T Board has recommended a final dividend of 3.0 pence per share (2005:nil). Cash flow The Group generated cash of £7.6 million in 2006 from operating activities(2005: £5.4 million). Capital expenditure Capital expenditure during the year was £2.3 million (2005: £1.5 million). Thisincludes £0.7 million on new stores, £0.9 million on the new EPOS system andother IT spend and £0.7 million on store refurbishments. Flotation/new debt structure Following the flotation of H&T, a new debt structure was put in place. Themezzanine debt (£5.3 million including capitalised interest to redemption date)and the Rutland loan notes (£18.3 million including capitalised interest toredemption date) were repaid with the placing proceeds and the new debt facilityprovided by Barclays Bank PLC. Net debt (before unamortised debt issue costs)was £34.7 million at 31 December 2006 compared with £51.9 million at 31 December2005. The Group has in place a hedging agreement fixing the interest rate on£35.0 million of banking debt for a period of 3 years. This instrument waseffective from 30 June 2006. Return On Capital Employed (ROCE) ROCE, defined as profit before tax excluding exceptional items and interestreceivable and payable as a proportion of net current assets and tangible fixedassets, increased from 15.1 per cent. in 2005 to 18.2 per cent. in 2006. International Financial Reporting Standards (IFRS) In accordance with the AIM's reporting regime, the Group will adoptInternational Financial Reporting Standards ("IFRS") for the financial yearending 31 December 2007. The Group has completed a preliminary exercise toidentify and document the differences between UK GAAP and IFRS and is in theprocess of quantifying the impact that IFRS will have on the consolidatedfinancial statements. This project is on schedule and the interim results forthe six month period to 30 June 2007 will be the first set of results reportedunder IFRS. Laurent P GenthialonFinance Director This announcement includes 'forward-looking statements'. These statementscontain the words "anticipate", "believe", "intend", "estimate", "expect", andwords of similar meaning. All statements other than statements of historicalfacts included in this announcement, including, without limitation, thoseregarding the Group's financial position, business strategy, plans andobjectives of management for future operations (including development plans andobjectives relating to the Group's products and services) are forward-lookingstatements that are based on current expectations. Such forward-lookingstatements involve known and unknown risks, uncertainties and other importantfactors that could cause the actual results, performance, achievements orfinancial position of the Group to be materially different from future results,performance, achievements or financial position expressed or implied by suchforward-looking statements. Such forward-looking statements are based onnumerous assumptions regarding the Group's operating performance, present andfuture business strategies, and the environment in which the Group will operatein the future. These forward-looking statements speak only as at the date ofthis announcement. Past performance cannot be relied upon as a guide to futureperformance. H&T Group plc Consolidated profit and loss accountYear ended 31 December 2006 Before Before Exceptional Exceptional 2006 Exceptional Exceptional 2005 Items Items Total Items Items Total Note £'000 £'000 £'000 £'000 £'000 £'000 Turnover 2 32,130 - 32,130 29,638 - 29,638 Cost of sales (8,454) - (8,454) (9,576) - (9,576) Gross profit 2 23,676 - 23,676 20,062 - 20,062 Administrative expenses 3,8 (16,440) (1,903) (18,343) (14,354) - (14,354) Operating profit 3 7,236 (1,903) 5,333 5,708 - 5,708 Profit on disposal of - 46 46 - 898 898fixed assets Interest receivable and 27 - 27 16 - 16similar income Interest payable and 4,8 (3,936) (801) (4,737) (5,860) - (5,860)similar charges Profit on ordinary 3,327 (2,658) 669 (136) 898 762activities before taxation Tax charge on profit on 5 (1,289) 386 (903) (191) (250) (441)ordinary activities (Loss)/profit for the 2,038 (2,272) (234) (327) 648 321financial year (Loss)/earnings per share 6 (0.85p) 1.61p - basic (Loss)/earnings per share 6 (0.85p) 1.55p - diluted All the results derive from continuing operations. Consolidated balance sheet31 December 2006 Group Group Note 2006 2005 £'000 £'000 Fixed assetsIntangible assets 14,283 14,346Tangible assets 6,083 5,144Investments - - 20,366 19,490 Current assetsStocks 4,070 3,373Debtors 9 32,136 31,526Cash at bank and in hand 2,108 1,434 38,314 36,333 Creditors: amounts falling due 10 (4,709) (3,569) within one year Net current assets 33,605 32,764 Total assets less current liabilities 53,971 52,254 Creditors: amounts falling due after more than 11 (34,617) (50,990)one year Provisions for liabilities (351) (133) Net assets 2 19,003 1,131 Capital and reservesCalled up share capital 12 1,574 1,000Share premium account 17,112 -Share option account 19 -Profit and loss account 298 131 Total shareholders' funds 19,003 1,131 Consolidated statement of total recognised gains and lossesYear ended 31 December 2006 2006 2005 Note £'000 £'000 (Loss)/profit for the financial year (234) 321Corporation tax on share options exercised 5 401 - Total recognised gains for the year 167 321 Combined reconciliation of movements in shareholders' funds and statement of movements on reserves31 December 2006 Share Share ProfitGroup Notes Share premium option and loss 2006 2005 capital account account account Total Total £'000 £'000 £'000 £'000 £'000 £'000 At 1 January 1,000 - - 131 1,131 810(Loss)/profit for the financial - - - (234) (234) 321yearCorporation tax on share options 5 - - - 401 401 -Issue of share capital 12 574 17,790 - - 18,364 -Issue expenses 8 - (678) - - (678) -Share options granted 7 - - 19 - 19 - At 31 December 1,574 17,112 19 298 19,003 1,131 Consolidated cash flow statementYear ended 31 December 2006 Note 2006 2005 £'000 £'000 £'000 £'000 Net cash inflow from operating activities 14 7,626 5,421 Returns on investments and servicing of financeInterest received 27 16Exceptional debt restructuring costs (801) -Interest paid (6,787) (2,850) Net cash outflow from returns oninvestments and servicing of finance (7,561) (2,834) Taxation - corporation tax paid (291) (806) Capital expenditure and financial investmentPayments to acquire tangible fixed assets (2,642) (910)Sale of tangible fixed assets 118 1,074 Net cash (outflow)/inflow from capital expenditureand financial investment (2,524) 164 Acquisitions and disposalsPurchase of unincorporated businesses 13 (1,020) (636)Cash acquired with unincorporated businesses 13 7 3 Net cash outflow from acquisitions and disposals (1,013) (633) Net cash (outflow)/inflow before financing (3,763) 1,312 FinancingIssue of ordinary shares 18,364 -Expenses of share issue (678) -New borrowings 6,251 500Repayment of borrowings (19,500) (1,000) Net cash inflow/(outflow) from financing 4,437 (500) Increase in cash in the year 674 812 Notes to the preliminary announcementYear ended 31 December 2006 AUTONUM1. Basis of preparation The financial information has been abridged from the audited financialstatements for the year ended 31 December 2006. The financial information set out above does not constitute the company'sstatutory accounts for the years ended 31 December 2006 or 2005, but is derivedfrom those accounts. Statutory accounts for 2005 have been delivered to theRegistrar of Companies and those for 2006 will be delivered following thecompany's annual general meeting. The auditors have reported on those accounts;their reports were unqualified and did not contain statements under s. 237(2) or(3) Companies Act 1985. Whilst the financial information included in this preliminary announcement hasbeen prepared in accordance with United Kingdom Generally Accepted AccountingPractice ('UK GAAP'), this announcement does not itself contain sufficientinformation to comply with UK GAAP. The Group expects to publish full financialstatements that comply with UK GAAP in May 2007. AUTONUM2. Segmental information By class of business: Turnover Gross profit 2006 2005 2006 2005 £'000 £'000 £'000 £'000 Pawn Service Charge (PSC) 15,314 14,258 15,314 14,258Retail 9,278 8,726 4,438 3,561Scrap 4,731 4,894 1,117 484Cheque cashing 2,629 1,666 2,629 1,666Other financial services 178 94 178 93 32,130 29,638 23,676 20,062 All turnover comprises sales to customers in the United Kingdom for bothaccounting periods and accordingly no analysis by geographic segment ispresented. The analysis by business is based on the Group's reporting segments. Furthersegmental information on profit before taxation is not possible due to the factthat the segments are effectively run as one business and any split of costsbetween the different segments would not give a true reflection of performance. 2006 2005 £'000 £'000Segment net assetsPawn Service Charge (PSC) 29,197 28,271Retail 3,870 3,264Scrap 57 665Cheque cashing 1,215 1,549Other financial services 330 140 34,669 33,889 Central liabilities (15,666) (32,758) 19,003 1,131 All loan financing is treated as a component of central liabilities as the groupis unable to meaningfully allocate the loans payable by segment. AUTONUM3. Operating profit 2006 2005 £'000 £'000Operating profit is stated after charging/(crediting):Depreciation charge on owned tangible fixed assets 1,349 1,361Amortisation charge on intangible fixed assets 779 776Profit on disposal of fixed assets (12) (20)Operating leases Other 1,897 1,586Auditor remuneration audit fees 53 48 other 208 6Previous auditor audit fees - 20 other services - 25Exceptional items (IPO costs) - note 8 1,903 - The analysis of auditors' remuneration is as follows: 2006 2005 £'000 £'000Fees payable to the Company's auditors for the audit of the - -Company's annual accounts Fees payable to the Company's auditors for other services to theGroup The audit of the Company's subsidiaries pursuant to legislation 53 48 Total audit fees 53 48 Other services pursuant to legislation - Tax services 14 6 - Corporate finance services 290 - - Other assurance services 13 - Total non-audit fees 317 6 The corporate finance fees relate to work completed by Deloitte & Touche LLPwith respect to the Initial Public Offering of the shares in the Company on theAlternative Investment Market ('AIM') on 8 May 2006. Of these fees, £109,000(2005 - £nil) has been charged to the share premium account as costs associateddirectly with the issue of new shares. AUTONUM4. Interest payable and similar charges 2006 2005 £'000 £'000 Interest payable on bank loans and overdraft 2,684 3,023On other loans 896 2,273Other interest 16 29Amortisation of debt issue costs 340 535 3,936 5,860Exceptional items 801 - Total interest payable and similar charges 4,737 5,860 The £801,000 charge in 2006 relates to costs expensed associated with thearrangement fees of the bank loan restructuring disclosed in note 8. AUTONUM5. Tax charge on profit on ordinary activities (a) Tax on profit on ordinary activities Before Before Exceptional Exceptional 2006 Exceptional Exceptional 2005 items items Total items items Total £'000 £'000 £'000 £'000 £'000 £'000 Current taxUnited Kingdom corporation tax at30% (2005 - 30%) based on theprofit for the period 1,351 (402) 949 231 250 481Adjustments in respect of prior (14) (250) (264) (104) - (104)periods Total current tax 1,337 (652) 685 127 250 377 Deferred taxShort term timing differences,origination and reversal (50) 16 (34) 64 - 64 Adjustments in respect of prior 2 250 252 - - -periods Total deferred tax (48) 266 218 64 - 64 Tax charge on profit on ordinaryactivities 1,289 (386) 903 191 250 441 5. Tax charge on profit on ordinary activities (continued) (b) Factors affecting current tax charge for the year The tax assessed for the year is higher than that resulting from applying thestandard rate of corporation tax in the UK of 30% (2005 - 30%). The differencesare explained below: Before Before Exceptional Exceptional 2006 Exceptional Exceptional 2005 items items Total items items Total £'000 £'000 £'000 £'000 £'000 £'000Profit on ordinary activitiesbefore taxation 3,327 (2,658) 669 (136) 898 762 Tax charge on profit on ordinaryactivities at standard rate 998 (797) 201 (41) 270 229 Effects of:Disallowed expenses andnon-taxable income 206 395 601 348 - 348Capital allowances and othertiming differences 70 - 70 (82) - (82)Short term timing differences 77 - 77 9 - 9Disposal of properties - - - (3) (20) (23)Adjustments to tax charge inrespect of previous periods (14) (250) (264) (104) - (104) Total actual amount of currenttax charge 1,337 (652) 685 127 250 377 (c) Amounts credited to the statement of total recognised gains andlosses During the year £401,000 (2005 - £nil) of tax relief available to the Grouparising on share options exercised has been credited directly to the profit andloss reserve. AUTONUM6. (Loss)/earnings per share Basic (loss)/earnings per share is calculated by dividing the (loss)/profit onordinary activities after taxation by the weighted average number of ordinaryshares in issue during the financial year. For diluted (loss)/earnings pershare, the weighted average number of ordinary shares in issue is adjusted toassume the exercise of warrants and options over shares. The directors also present an adjusted earnings/(loss) per share as thedirectors consider that it reflects the group results on a comparable basis oncenon recurring items are taken into consideration. All the adjustments made tothe non-adjusted (loss)/earnings per share in arriving at adjusted earnings/(loss) per share are for exceptional items disclosed separately on the face ofthe profit and loss account. Other than for the adjusting items, the calculationis the same as for the statutory per share amounts. Reconciliations of the (loss)/earnings per ordinary share and weighted averagenumber of shares used in the calculations are set out below: 2006 2005 Weighted Weighted average average (Loss)/ number of Per-share Earnings/ number of Per-share earnings shares * amount (loss) shares * amount £'000 No. '000s pence £'000 No. '000s penceStatutory (loss)/earnings pershare:(Loss)/earnings per share -basic (234) 27,489 (0.85) 321 20,000 1.61 Effect of dilutive securitiesWarrants - - - - 736 - (Loss)/earnings per share-diluted (234) 27,489 (0.85) 321 20,736 1.55 Adjusted earnings/(loss) pershare:(Loss)/earnings per share-basic (234) 27,489 (0.85) 321 20,000 1.61IPO costs 1,903 - - - - -Fixed asset disposals (46) - - (898) - -Debt restructing costs 801 - - - - -Tax adjustment (386) - - 250 - - Adjusted earnings/(loss) per share-basic 2,038 27,489 7.41 (327) 20,000 (1.64) Effect of dilutive securitiesOptions - - - - - - Adjusted earnings/(loss) per share-diluted 2,038 27,489 7.41 (327) 20,000 (1.64) 6. (Loss)/earnings per share (continued) The effect of the share options disclosed in note 7 in the current period is toincrease the number of shares for the calculation of diluted adjusted earningsper share by 388 which has no impact on the diluted earnings per share. Thereare no other potentially dilutive instruments in issue nor have any suchinstruments been issued subsequent to the 31 December 2006. * Reflects the subdivision of the ordinary shares from 100p to 5p as ifthis had occurred at the beginning of the earliest period presented. 7. Equity-settled share option scheme 2006 Share Option Schemes The Group operates an approved and an unapproved share option scheme for certainemployees of the Group. Options are exercisable at a price equal to the averagequoted market price of H&T Group plc's shares on date of grant. The vestingperiod is three years. If the options remain unexercised after a period of 10years from the date of grant the options expire. Options are forfeited if theemployee leaves the Group before the options vest. Details of the share options outstanding during the year are as follows. 2006 2005 Weighted Weighted average average Number of exercise Number of exercise share value share valueGroup options (in £) options (in £) Outstanding at the beginning of the financial year - - - - Granted during the year 450,824 822,754 - -Forfeited during the year - - - -Exercised during the year - - - -Expired during the year - - - -Outstanding at the end of the year 450,824 822,754 - - Exercisable at the end of the financial year - - - - The options outstanding at 31 December 2006 had a weighted average exerciseprice of 182.5p, and a weighted average remaining contractual life of 9.7 years.In 2006, options were granted on 8 September 2006. The aggregate of theestimated fair values of the options granted on that date is £263,000. The inputs into the Binomial option pricing model utilised by the Group toestimate the fair value of the option are as follows: 2006 2005 Weighted average share price 182.5 pence -Weighted average exercise price 182.5 pence -Expected volatility 30.6% -Expected life 6.5 years -Risk-free rate 4.34% -Expected dividends 2.2% - 7. Equity-settled share option scheme (continued) Expected volatility was determined by calculating the historical volatility of asimilar sized competitor in the industry's share price over the previous 4years. The expected life used in the model has been adjusted, based onmanagement's best estimate, for the effects of non-transferability, exerciserestrictions, and behavioural considerations. The Group recognised total expenses of £19,000 related to equity-settledshare-based payment transactions in 2006. A corresponding credit has beenrecorded in equity of £19,000 in the share option account. 2004 Share Option Scheme In December 2004, the Group introduced a share option scheme whereby certainemployees of a subsidiary undertaking, Harvey & Thompson Limited, had optionsover shares already in issue in H&T Group plc (at the time H&T Group Limited).These options were granted by the ultimate controlling party at that date, TheRutland Fund, whereby the employees had the right to acquire 40,000 £1 shares,being 4% of the issued share capital of the parent company, directly from TheRutland Fund at par value of £1. The options were exercisable upon an exit eventfor The Rutland Fund, being defined as a listing, a sale, a liquidation, or anyother event that the Board considered to be an exit event. This equity basedtransaction falls within the scope of FRS 20. The Group has opted not to retrospectively apply FRS 20 with regards to theseoptions as the compensation expense which would arise from the adoption of FRS20 over the full life of the options, which was until 8th May 2006 when H&TGroup plc listed and the options were exercised is immaterial in the opinion ofthe directors. In arriving at this assessment the Group has adopted a Binomialvaluation model. On the basis of the immaterial nature of the amounts concernedand the options having been exercised in full in the period, no furtherdisclosure is provided regarding this share option scheme. 8. Exceptional costs - Initial Public Offer ('IPO') costs In 2006, the Group incurred £3,382,000 of expenses relating to the IPO and itsdebt restructuring. £801,000 was incurred for the restructuring of its debt andaccordingly was expensed to the profit and loss account (note 4). £678,000 wasdirectly allocated to the issue of new shares and written off to the sharepremium account. The balance of £1,903,000 was expensed to the profit and lossaccount (note 3). 9. Debtors Group Group 2006 2005 £'000 £'000 Trade debtors 26,786 26,752Other debtors 122 86Prepayments and accrued income 5,228 4,688 32,136 31,526 10. Creditors: amounts falling due within one year Group Group 2006 2005 £'000 £'000 Short term portion of bank loan 1,500 1,500Unamortised issue costs (245) (518) Net short-term portion of bank loans 1,255 982Trade creditors 1,233 859Corporation tax 38 73Other taxation and social security costs 181 239Accruals and deferred income 2,002 1,416 4,709 3,569 11. Creditors: amounts falling due after more than one year Group Group 2006 2005 £'000 £'000 Bank loan 35,351 34,365Unamortised issue costs (734) (801) Net long-term portion of bank loans 34,617 33,564The Rutland Fund loan note - 17,426 34,617 50,990 12. Called up share capital 2006 2005 £'000 £'000Authorised:Nil (2005 - 830,000) ordinary A-Class shares of £1 each - 830Nil (2005 -110,000) ordinary B-Class shares of £1 each - 110Nil (2005 - 60,000) ordinary C-Class shares of £1 each - 60Nil (2005 - 41,667) ordinary D-Class shares of £1 each - 4241,970,000 (2005 - nil) ordinary shares of £0.05 each 2,099 - 2,099 1,042 Allotted, called up and fully paid:Nil (2005 - 830,000) ordinary A-Class shares of £1 each - 830Nil (2005 - 110,000) ordinary B-Class shares of £1 each - 110Nil (2005 - 60,000) ordinary C-Class shares of £1 each - 6031,485,706 (2005 - nil) ordinary shares of £0.05 each 1,574 - 1,574 1,000 Immediately prior to the IPO in May 2006, the 41,667 Ordinary D-Class shareswere issued to warrant holders for cash consideration of £41,667. Thereafterthe cumulative authorised and issued share capital of £1,041,667 was sub-dividedinto one class of ordinary 5p share comprising 20,833,340 shares. 21,136,660 newordinary shares of 5p each have been authorised in 2006 taking the authorisedordinary share capital to 41,970,000 shares. Of these 21,136,660 new ordinaryshares, 10,652,366 were issued, called up and fully paid at the placing price of£1.72 per share upon the admission of the Company to AIM on 8 May 2006.Accordingly, of the proceeds received of £18,322,000, £532,000 has been recordedin share capital and £17,790,000 in the share premium account. At 31 December 2006, the number of ordinary shares subject to options, theperiods in which they were granted and the periods in which they may beexercised are set out below: Number Exercise Exercise Year of grant of shares period price (pence) 2006 450,824 2009 - 2016 182.5 13. Acquisitions The Group made the following acquisitions during the year: Acquisition Acquisition Total Total 1 2 2006 2005 £'000 £'000 £'000 £'000Assets acquired: Fixtures & fittings - - - 81 Retail stock - - - 229 Debtors 40 257 297 105 Cash - 7 7 3 Total assets acquired 40 264 304 418 Consideration: Cash 79 941 1,020 636 Total consideration 79 941 1,020 636 Goodwill 39 677 716 218 Acquisition 1 On 17 July 2006, the Group reached agreement to acquire the pledge book of anindependent pawnbroker. The directors consider the book values to be theprovisional fair value of those assets acquired. There are no material cashflows relating to the acquisition. Acquisition 2 On 9 October 2006, the Group reached agreement to acquire the trade and assetsof an independent pawnbroker and cheque cashing agent. The directors considerthe book values to be the provisional fair value of those assets and liabilitiesacquired. Other than the consideration paid, there are no material cash flowsrelating to the acquisition. No information is provided on the pre-acquisition trading of the abovebusinesses as this is not available. The results of the businesses acquired are not material to warrant furtherdisclosures under FRS 6 'Acquisitions and mergers' or FRS 3 'Reporting financialperformance'. 14. Cash flow from operating activities Reconciliation of operating profit to net cash inflow from operating activities:Continuing operations 2006 2005 £'000 £'000 Operating profit (including exceptional IPO costs of £1,903,000 (2005-£nil) 5,333 5,708 Amortisation of intangible fixed assets 779 776Profit on disposal of fixed assets (12) (20)Depreciation of tangible fixed assets 1,349 1,361(Increase)/decrease in stock (697) 456Increase in debtors (313) (3,429)Increase in creditors 1,168 569Share option charge 19 - Net cash inflow from operating activities 7,626 5,421 15. Post balance sheet events On 21 February 2007 the Group sold a freehold property for a consideration of£265,000. The costs of disposal were £33,000 and the net book value of thefreehold property was £36,000. The profit on disposal was £196,000. The Grouphas held over the resulting capital gains of £56,000 through re-investment inqualifying assets. On 19 March 2007 the directors proposed a final dividend of 3p per ordinaryshare, which will amount to £945,000. This dividend has not been provided inthe financial statements, in accordance with the provisions of FRS 21 'Eventsafter the balance sheet date'. This information is provided by RNS The company news service from the London Stock Exchange