H&t Group Plc Regulatory News (HAT)

H&T Group

Preliminary results

For the year ended 31 December 2011

H&T Group ("H&T" or the "Group"), is pleased to announce its preliminary results for the year ended 31 December 2011.

John Nichols, chief executive of H&T Group, commented:

"I am pleased to report another strong performance, delivering growth in both earnings and dividend per share.

The Group's pawnbroking operations have performed strongly with pledge book growth of 18.0% year on year. Gold purchasing also continues to be a strong source of profitability and cash flow in supporting the Group's continued store expansion programme.

At a time when the availability of standard forms of credit are diminishing, the Group continues to expand its presence, offering immediate access to cash and credit from convenient high street locations. The Group opened 25 stores in 2011 taking its total outlets to over 200. With our strong balance sheet, we expect a similar level of store openings during 2012.

A final dividend of 7.00 pence is proposed, taking the full year dividend to 10.75 pence - a 13.2% increase on prior year."

Financial highlights

* Adjusted to remove the one-off £4.9m gross profit contribution delivered in 2010 as discussed in the Chief Executive's Review

Operational and other highlights

Ø The Group's total number of outlets now exceeds 200. An additional 25 new stores were opened during the year, taking the national store footprint to 160 stores at 31 December 2011 (2010: 135). In addition the Group operated 54 GoldBar retail mall units at 31 December 2011 (2010: 45).

Ø New store openings in 2010 and 2011 have performed, on average, ahead of the Board's expectations.

Ø The pawnbroking business experienced record levels of lending in 2011, driven by an increased average loan and additional new stores.

Preliminary results

For the year ended 31 December 2011

Enquiries:

Chairman's Statement

I am pleased to report that the Group has continued to grow and improve its performance in the core business lines. Continuing our successful expansion strategy, 25 stores were opened during 2011 taking the Group's total number of outlets, including the Group's GoldBar operation, to over 200. The performance of these new stores continues to exceed expectations and with ongoing growth from the remainder of the estate, the Group's year end pledge book stands in excess of £46m.

Economic & Market Background

Studies have shown that over the last three years the UK's high street banks have cut their unsecured lending by twenty per cent, with the number of credit card and other loan providers also falling by a similar amount. It is estimated that 8 - 10 million people in the UK now have no access to traditional credit sources. This environment, together with raised awareness of our services, has created an increased opportunity for high street pawnbrokers to expand both their secured and unsecured lending.

The majority of our customers seek small, short-term loans to fund day to day living expenses. H&T's offering of immediate access to cash from convenient high street locations is becoming an increasingly attractive proposition both to the growing un-banked market and other customers we serve.

There has been considerable growth in the alternative credit market, reflected in the changing make-up of the high street. All the leading operators are responding by continuing to increase their store footprints. H&T continues to meet this demand with its store expansion strategy and by developing its suite of lending products. As at 31 December 2011, the Group had 160 stores and 54 GoldBar retail mall units.

The wider economic environment with continuing uncertainty and the threat of sovereign defaults has given rise to a 23.7% increase in the price of gold during 2011.

Strategy

The Board and its management believe in the strength of the combination of our core business streams. These are pawnbroking, retail sales of quality jewellery, wholesale sales of surplus jewellery and gold. The provision of jewellery for the retail shop window, now supplemented by quality watches, is a crucial component of this mix attracting customers, generating good margins and informing them of the collateral we seek for pawnbroking. The core business streams, supplemented with gold purchase at a retail level, and small ticket unsecured lending provide a resilient business model. The nature and mix of these activities provides the group with some structural hedging against changing market conditions. The group seeks through developing this mix of business activity to achieve a resilient business model through the economic cycle. The board continues to believe that long term growth in shareholder value is best achieved through considered store expansion and improving all these business lines.

Financial Performance

The Group delivered £23.5m of profit before tax in 2011. This compares to £25.5m in 2010 when trading and results benefited from the inclusion of £4.9m of benefits delivered via a one-off gross profit contribution from delayed auctions and reduced inventory hold periods. Excluding the 2010 working capital component, underlying profit before tax and movement in swap value increased by 8.4% year on year, after absorbing the costs associated with the store expansion programme.

The Group pledge book ended the year at £46.6m giving rise to a 15.3% year on year increase in the Pawn Service Charge, with a strong contribution from the Group's recent greenfield additions. Gold purchasing volumes have been sustained at higher than expected levels, and the rising gold price environment has enabled better than expected margins in both our gold purchasing and pawnbroking scrap operations.

The Group's financial position remains strong with net debt of £29.3m as at 31 December 2011 (31 Dec 10: £27.0m). The Group has adequate liquidity to fund both the capital expenditure and working capital requirements of its continuing new store opening programme, as it currently has available a £50.0m revolving facility.

Basic earnings per share are 51.12 pence (2010: 48.77 pence, 38.76 pence pre working capital gains.)

Final Dividend

Subject to shareholder approval, a final gross dividend of 7.00 pence per ordinary share (2010: 6.00 pence) will be paid on 7 June 2012 to shareholders on the register at the close of business on 11 May 2012. The shares will be marked ex-dividend on 9 May 2012. This will bring the full year dividend to 10.75 pence per ordinary share. This represents an increase of 13.2% over the 2010 total dividend of 9.50 pence.

The growth in dividend reflects the Group's strong balance sheet position at the year-end and current earnings cover available.

Prospects

Over the last four years the Group has invested over £18m of working capital into its pledge book, spent over £10m in almost doubling the store estate and has doubled its annual dividend. During the same period net debt has decreased.

With gold purchasing customers remaining steady, the Board is optimistic that the store expansion programme can continue to be funded via the Group's own cash flow generation during 2012.

We believe that the UK pawnbroking market remains underserved and that further opportunities exist to fill the lending gap left by the high street banks. The Group's new store pipeline remains strong and already this year the Group has either opened or secured leases on a further 18 new sites. The Board expect to open circa 25 stores in total in 2012.

The Group's recent greenfield additions continue to meet our expectations for the future. Over one third of our estate is under three years old thus providing significant latent growth potential as they currently only account for 12% of the Group's pledge book and 7% of the total Pawn Service Charge.

On the basis of the current gold price and gold purchasing levels, the board is continuing to pursue the new store expansion programme. The Management team have the proven ability to adapt our approach to a developing and changing market to achieve the best outcome for shareholders. We are therefore confident in our views for the Group's prospects in 2012.

Key to achieving these aims I must also emphasise the importance of the loyalty of our customers and the way this is achieved is through the hard work of our staff; whom I thank on behalf of the Board and shareholders for delivering these excellent results.

Peter D McNamara

Chairman

Chief Executive's Review

INTRODUCTION

With our estate increasing by 25 stores during 2011 and the pledge book growing to over £46m, the Group continues to make excellent progress both operationally and financially. The Group has experienced another record year for lending within its pawnbroking operations and the industry as a whole has benefited from considerable press coverage during the last twelve months. Raised public awareness of the simplicity and availability of our product offerings, a continued focus on delivering excellent customer service and improved brand recognition have all supported our organic business growth during 2011.

The Group delivered total gross profits of £65.4m in 2011. This compares to £66.8m a year earlier when trading and results benefited with a £4.9m contribution from 'one-off' factors as noted below and as disclosed in our 2010 annual report. Excluding this one-off contribution, gross profit has grown by 5.8% year on year, with profit before tax and swap fair value movement increasing by 8.4%.

The result is particularly pleasing as it has been driven by double digit growth in the Group's core pawnbroking operations. Achieving year on year growth was always set to be a challenge when the Group had seized first mover advantage in the gold purchasing market in H1 2010 and when considering the associated costs of the estate expansion programme. The result is a credit to the continued hard work and dedication of our staff. The rising gold price environment has also benefited profits due to the lag on disposition. The average gold price in 2011 of £982 per troy ounce represented a 23.7% increase on the 2010 average of £794.

The Group's financial position remains strong with net debt of £29.3m as at 31 December 2011 (2010: £27.0m). This has enabled the Group to continue its rollout strategy during 2011 with the addition of a further 25 new stores, taking the total estate to over 200 outlets. This comprises 160 stores and 54 GoldBar units. Over the last 5 years the Group has opened 83 new stores and H&T's senior management team has gained valuable experience and data to help identify further market opportunities. As a result, and together with improved site availability, the Group has a good pipeline of potential stores into 2012 having already opened or agreed provisional lease terms on a further 18 stores.

REVIEW OF OPERATIONS

Pawnbroking

The Pawn Service Charge continues to be the Group's largest income stream contributing £26.7m of gross profits (2010: 23.2m). Another year of record lending has seen the Group's year-end pledge book rise by 18.0% to £46.6m. This is a pleasing result given the current competitive alternative credit market and the continued availability of gold purchasing as a choice for the consumer.

 Lending has been driven by a year on year increase in customer numbers and a 13% increase in the average loan size ensuring that the Group remains competitive on the high street. The Group constantly monitors its lending policy with consideration of the impact on affordability (and therefore redemption rate) and its loan to value in relation to the current gold price. The Board is comfortable that the Group continues to maintain adequate headroom between lending rates and the current gold price, with the average loan to value during 2011 being only 56%.

Retail Jewellery Sales

Jewellery retail in 2011 has been challenging due to the increase in the underlying gold commodity price impacting on customer affordability. The Group has performed relatively well however, with total retail sales increasing to £20.0m (2010: £19.6m). Our ability to continue offering good value products has meant that the Group is now the high street's largest retailer of second-hand jewellery.

Like-for-like sales were down 9.4% year on year, but the Group has delivered a gross margin improvement from 45% to 49% therefore recovering much of the sales shortfall. The Group continues to focus on retail as an important revenue stream as it can act as a valuable means of disposition in the event of a falling gold price.

Pawnbroking Scrap

The Group has a natural hedge to offset any potential fall in jewellery sales as its alternative disposition method is to scrap the gold at the then current gold price.

Scrap profits from the disposition of forfeited items from the Group's pledge book contributed £6.3m in 2011. This compares to the 2010 gross profit realised from scrap of £9.0m, which was boosted by the inclusion of £2.1m of profits realised from delayed 2009 auctions.

Gold Purchasing

The Group has seen gold purchasing as a steady source of cash flow and profitability albeit at lower levels than the exceptional period enjoyed in the first half of 2010 when the Group was benefiting from being one of the first companies to take advantage of the development in the gold purchasing market.

Gross profits in the year totalled £17.2m (2010: £20.1m). Within the 2010 result is a working capital gain of £2.8m delivered via shortening the time to process and dispose of purchased gold. Gold purchasing profits continue to be boosted by the rising price of gold. The higher absolute price benefits scrap proceeds but also a rising price environment helps to achieve higher than expected margins due to the time lag between purchase and disposition. The average daily gold price in 2011 was £982 per troy ounce, up 23.7% year on year.

Gold purchasing trends over the last 12 months have remained steady with customer numbers being broadly constant. The Group continues to remain competitive both on pricing and with its longevity in this market helping to build brand recognition and trust among our customers. H&T's GoldBar retail mall units remain a profitable and flexible business with 54 units in operation at the year end (2010: 45).

Cheque Cashing

Revenues net of bad debt and provisions from the Group's Third Party Cheque Cashing and Payday Advance products decreased to £4.9m (2010: £5.1m) and now contribute 7.5% of gross profit (2010: 7.7%).

Payday Advance revenues have been impacted by the gradual withdrawal of the cheque guarantee card. Allowing the Group to continue offering this product to the widest possible audience, we have developed, in conjunction with a third party, our own credit scoring and underwriting criteria. This has enabled customers to use the product when only presenting a debit card - there is no need for either a cheque book or cheque guarantee card. I am encouraged to note that the Group's overall net debt percentage has not increased year on year.

We have also taken the opportunity to launch the Payday advance product online to take advantage of the rapidly increasing awareness of this product. We have applied the same high standards operated in store to the online offering which addresses the criticisms often levelled at online Payday loan operators. In addition to leading lending practices we have also set the standard on pricing with interest rates less than half the industry leader. We aim to establish this product during the course of 2012.

Gross commission earned from third party cheque cashing was broadly stable year on year, in contrast to declines experienced in previous years in this product. The Group is also pleased to note the decision taken by the Payments Council in 2011 in having decided to withdraw its target end date to the close the centralised cheque clearing system in the UK.

KwikLoan

The Group's KwikLoan revenues have benefited from some customers without a cheque guarantee card switching from the Payday advance product to our longer term unsecured KwikLoan product. The loan book increased to £1.1m at the year-end (2010: £1.0m).

REGULATION

2011 saw the implementation of the European Credit Directive in the UK. This imposed certain requirements on lenders in respect of pre-contractual information, early settlement and the right of withdrawal. More recently the Department for Business, Innovation & Skills (BIS) has commissioned research into the potential impact of interest rate caps on credit agreements. H&T Group is fully engaged in this process, as are the relevant trade associations. At this stage we do not anticipate a change in the law given that the OFT, the industry's official regulator, published the High Cost Credit Review findings only last year stating that they did not believe a cap was necessary.

BUSINESS STRATEGY AND OUTLOOK

The Group seeks to retain its position as the UK's leading pawnbroker by providing easy access to cash and other related services in a fair, safe and friendly environment that exceeds the expectations of our customers. The Group aims to maintain its high levels of repeat custom with a continued focus on brand recognition, excellent customer service, investment in the existing store estate and maintaining its reputation for fairness and honesty. In addition, a focus on marketing and our continued store expansion strategy will drive new customers. Of the 160 stores open at the year end, 34% have been opened within the last three years either via acquisition or greenfield rollout.

The Group also continues to demonstrate its innovation skills, with the introduction of new products and services. In 2011, the Group has launched an on-line Payday advance service, charging a considerably lower interest rate than any of the leading players in this market.

Review of the Pawnbroking Market

The UK landscape of pawnbrokers, buy-back operators, and general cheque cashing / Payday advance firms has changed substantially over the last five years. Each of the market leaders in their respective category has expanded rapidly during this period, fuelled in the main by gold purchasing and the expansion in Payday lending.

Internal research suggests that over this five year period the number of traditional pawnbroking outlets has increased from 200 to 500, albeit that this growth is driven almost entirely by existing operators - H&T for example, has contributed 71 greenfield stores alone. The other high street alternative credit providers where pawnbroking is currently more of an ancillary service have also expanded rapidly; our research suggests from 350 to 1,100 outlets over the same period.

We continue to believe that the pawnbroking market remains underserved. Only a fraction of the population has ever visited a pawnbroker, whereas the performance and pledge book build of recent store openings in new localities support the Board's view that the potential market is far greater. One obstacle to greater growth has been general awareness as well as people's perception of pawnbroking. With recent positive press coverage of our industry, the expansion in number of outlets and greater advertising from the leading players, awareness is increasing. In addition, the open and modern layout of our stores and the excellent customer experience when visiting our stores continues to improve the wider public perception of pawnbroking.

Current Trading and Outlook

The Group holds strong organic growth prospects as it is already incurring the full operational costs for the 55 stores (34% of the Group estate) opened in the last three years, whereas these same stores contributed just 13% of Group gross profits during the year. As these stores age over the medium term, our experience shows that the pledge book continues to grow thus driving future profitability. The Board closely monitors new store performance and on average the recent new store openings are ahead of the investment model. This investment model is founded upon the store attaining a certain level of pledge balance and does not account for gold purchasing profits at current levels beyond the first year.

Future growth is also likely to be driven by further expansion of the Group's geographical footprint, either via development of greenfield sites or acquisitions. Given the financial position of the Group, with net debt to EBITDA of under 1 times, and current market conditions, the Board expect to open a further 25 new stores in the current financial year. As at 1 March 2012, the Group had already opened or agreed provisional lease terms on 18 sites.

 I would also like to thank all our people whose skills, commitment and enthusiasm continue to drive our success, and give us confidence in the future. These efforts have also been externally recognised by the National Pawnbroker's Association with the Group having won both an Employer of the Year Award and Store of the Year Award in the last 18 months. I am also proud to announce that the Group has recently been accredited with the Investor's In People Silver Award, demonstrating our commitment to further developing and supporting our staff in achieving their full potential.

John G Nichols

Chief Executive

Finance Director's Review

The realisation of £4.9m of working capital gains in H1 2010 together with the peak in gold purchasing volumes has provided tough prior year comparables for our 2011 results. At a headline level, gross profits fell by 2.0% year on year, but this is not reflective of current trends. Excluding the one-off working capital gains of £4.9m made in 2010, underlying gross profits have risen 5.8% year on year. Comparing H2 2010 with H2 2011, thus removing the impact of both the one-off gains and the period of peak gold purchasing volumes, reveals a growth rate of 18.4%. Key drivers have been the 18.0% increase in the Group's pledge book, the rising gold price and an increase in store numbers.

The year end balance sheet position remains healthy both in terms of gearing and credit headroom. The Group currently has a £50.0m credit facility of which £34.0m (2010: £31.0m) was drawn at the year end, leaving £16.0m of available funding for future store expansion. Current gearing, defined as debt as a proportion of debt plus equity, is 31% (2010: 33%) and the Group's net debt to EBITDA ratio stands at 1.1x (2010: 0.9x). Net debt in the year increased to £29.3m from £27.0m, due to continued working capital investment into the Group's pledge book. This resulted in EBITDA of £27.4m converting to cash generated from operations of £14.0m. This cash flow and movement in net debt funded £6.7m of tax, £1.7m in interest, £4.9m of capital expenditure and £3.5m of dividends.

Another highlight is the proposed final dividend of 7.00p, which takes the full year dividend to 10.75p - a 13.2% increase year on year. It also maintains our track record of dividend growth in every year since the Group's flotation in 2006, despite the capital expenditure required to fund the Group's store expansion programme and the dilutive earnings profile of a new store in its early stages. Earnings per share covers the dividend by 4.8x.

Other key areas of note include:

Other direct and administrative expenses

Other direct and administrative expenses rose from £38.1m in 2010 to £40.8m in 2011. The increase was driven by the full year effect of stores opened in 2010 and the 25 new stores opened in 2011.

Finance costs

Interest on bank loans fell during 2011 to £1.7m (2010: £2.6m), as improvement in the Group's financial covenant headroom triggered a lower margin payable above LIBOR on the loan balance.

H&T's interest cover ratio (EBITDA to interest) was 16.1x (2010: 15.1x).

Earnings per share

A low taxation charge, principally due to a prior year adjustment on deferred tax as disclosed in note 4, resulted in an effective tax rate of 22.7% for 2011. As a result, while PBT fell year on year, basic earnings per share increased to 51.12 pence (2010: 48.77 pence). Diluted earnings per share for 2011 was 48.39 pence compared with 47.52 pence in 2010.

Capital Expenditure

Capital expenditure during the year on property, plant and equipment was £4.9 million (2010: £3.7 million) of which the majority related to the 25 new stores opened during the year.

Return on Capital Employed (ROCE)

ROCE, defined as profit before tax, interest receivable, finance costs and movement in fair value of interest rate swap as a proportion of net current assets and tangible and intangible fixed assets (excluding goodwill), decreased from 37.7% in 2010 to 26.2% in 2011. This decrease partly reflects the one-off working capital contribution of £4.9m delivered in 2010, the early year dilutive effect of new store openings and the £15.6m increase in net current assets.

Alex Maby

Finance Director

Consolidated statement of comprehensive income

Year ended 31 December 2011

All results derive from continuing operations.

Consolidated statement of changes in equity

Year ended 31 December 2011

Consolidated balance sheet

At 31 December 2011

Consolidated cash flow statement

Year ended 31 December 2011

Notes to the preliminary announcement

Year ended 31 December 2011

1. Finance information and basis of preparation

The financial information has been abridged from the audited financial statements for the year ended 31 December 2011.

The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2011 or 2010, but is derived from those accounts. Statutory accounts for 2010 have been delivered to the Registrar of Companies and those for 2011 will be delivered following the company's annual general meeting. 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 ('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.

2. Business and geographical statements

Business segments

For reporting purposes, the Group is currently organised into six segments - Pawnbroking, Gold purchasing, Retail, Pawnbroking scrap, Cheque cashing and Other financial services. 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 average interest rate of between 4% and 8%. The contract is governed by the terms of the Consumer Credit Act 2008 (previously the Consumer Credit Act 2002). If the customer does not redeem the goods by repaying the secured loan before the end of the contract, the Group is required to dispose of the goods either through public auctions if the value of the pledge is over £75 (disposal proceeds being reported in this segment) or, if the value of the pledge is £75 or under, through public auctions or the Retail or Scrap activities of the Group.

Gold Purchasing:

Gold is bought direct from customers through all of the Group's stores and more recently through 54 Gold Bar units located in shopping centres throughout England and Wales. The transaction is straight forward with the store or unit 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 Jewellery Sales: 

The Group's retail proposition is primarily gold and jewellery and the majority of the retail sales are forfeited items from the pawnbroking pledge book or purchased second-hand jewellery. The retail offering is complemented with a small amount of new jewellery purchased from third parties by the Group.

Notes to the preliminary announcement

Year ended 31 December 2011

2. Business and geographical statements (continued)

Pawnbroking scrap: 

Pawnbroking Scrap comprises all other proceeds from gold scrap sales other than those reported within Gold Purchasing. Items that are damaged beyond repair, are slow moving or surplus may be smelted and sold at the current gold spot price.

Cheque cashing: 

This segment comprises two products:

·; 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.

·; Pay Day Advance is a short term cash loan repayable within 30 days, offered both in stores and on-line. Customers can secure a loan of up to £650 either by writing a cheque to the value of the loan plus a 13% charge, or by giving their debit card details and agreeing a date for repayment of loan and associated interest.

Both products are subject to bad debt risk which is reflected in the commissions and fees applied.

Other financial services: 

This segment comprises:

·; KwikLoan product which is an unsecured loan repayable over 12 months of up to £750. The Group earns approximately £300 gross interest on a £500 loan over 12 months.

·; The Prepaid debit card product where the Group earns a commission when selling the card or when the customer is topping up their card.

·; The foreign exchange currency (Euro and US Dollar) service where the Group earns a commission when selling or buying foreign currencies. This service is currently offered in a limited number of stores only.

Only the KwikLoan product is subject to bad debt risk which is reflected in the interest rate offered.

Further details on each activity are included in the Chief Executive's Review.

Notes to the preliminary announcement

Year ended 31 December 2011

2. Business and geographical segments (continued)

Segment information about these businesses is presented below:

Gross profit is stated after charging bad debt expenses and the direct costs of stock items sold or scrapped in the period. Other operating expenses of the stores are included in other direct expenses. The Group is unable to meaningfully allocate the other direct expenses of operating the stores between segments as the activities are conducted from the same stores, utilising the same assets and staff. The Group is also unable to meaningfully allocate Group administrative expenses, or financing costs or income between the segments. Accordingly, the Group is unable to meaningfully disclose an allocation of items included in the income statement below Gross profit, which represents the reported segment results.

The Group does not apply any inter-segment charges when items are transferred between the pawnbroking activity and the retail or scrap activities.

Notes to the preliminary announcement

Year ended 31 December 2011

2. Business and geographical segments (continued)

(*) 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.

Notes to the preliminary announcement

Year ended 31 December 2011

2. Business and geographical segments (continued)

Geographical segments

The Group's operations are located entirely in the United Kingdom and all sales are within the United Kingdom. Accordingly, no further geographical segments analysis is presented.

3. Finance costs

Notes to the preliminary announcement

Year ended 31 December 2011

4. Tax charge on profit

a) Tax on profit on ordinary activities

(b) Factors affecting the tax charge for the year

The tax assessed for the year is higher than that resulting from applying a blended standard rate of corporation tax in the UK of 26.5% (2010 - 28%). The differences are explained below:

In addition to the amount charged to the income statement, £204,000 (2010: £31,000) relating to tax has been recognised in other comprehensive income. This is relating to the deferred tax on share options taken directly to equity.

Notes to the preliminary announcement

Year ended 31 December 2011

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:

Notes to the preliminary announcement

Year ended 31 December 2011

6. Notes to the cash flow statement

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.

Notes to the preliminary announcement

Year ended 31 December 2011

7. Earnings before Interest, Tax, Depreciation and Amortisation ("EBITDA")

EBITDA is defined as Earnings Before Interest, Taxation, Depreciation and Amortisation. It is calculated by adding back depreciation and amortisation to the operating profit as follows:

The Board considers EBITDA as a key measure of the Group's financial performance.