H&t Group Plc Regulatory News (HAT)

19 Mar 2008 07:00

H&T Group PLC19 March 2008 Preliminary results For the year ended 31 December 2007 H&T Group ("H&T" or the "Group"), the UK's largest pawnbroker by size of pledgebook, is pleased to announce its preliminary results for the year ended 31December 2007 Financial highlights 2007 £m 2006 £m Change % Gross profit 27.7 23.3 +18.6Earnings before Interest, Tax, Depreciation, Amortisation ("EBITDA") 11.4 9.4 +20.8before exceptional itemsOperating profit before exceptional items 10.0 8.0 +24.1PBT before exceptional items 7.2 4.7 +52.5PBT 7.4 2.0 +261.5Basic EPS excluding exceptional items 14.72p 11.91p +23.6Basic EPS 15.17p 3.65p +315.6Proposed final dividend 3.4p 3.0p +13.3Pledge book 27.9 25.2 +10.4 Operational highlights • Excellent growth in all revenue lines • Total number of stores reached 89 at 31 December 2007 (2006: 77)with 12 new stores opened during the year: seven acquisitions and fivegreenfields • Full roll-out of gold purchasing in store, providing customerswith a quicker, fairly valued cash solution • Successful placing of 3.6 million shares in May 2007 raising over£7 million for store expansion • Recent acquisitions will serve as a springboard for some regionaldevelopment of strong pawnbroking markets in Yorkshire and the South coast John Nichols, Chief Executive of H&T Group commented "My fellow directors and I are extremely pleased with this set of results whereoperating profit before exceptional items reached the £10 million milestone. Against wider perception, the more difficult economic climate is notautomatically a driver for our pawnbroking business. We have seen strong growthin turnover and gross profit across all business segments. The demand for gold asset-backed lending remains strong and the business iscontinuing to benefit from the rise in the price of gold through higher marginon disposition. Our core stores continue to deliver growth while our investmentin new stores and acquisitions offer good profit prospects for the future years. I have every reason to look to the future with confidence." Enquiries: H&T Group plc Tel: 0870 9022 600John Nichols, Chief ExecutiveLaurent Genthialon, Finance Director Hawkpoint (Nominated adviser) Tel: 020 7665 4500Lawrence Guthrie/Sunil Duggal Numis Securities (Broker) Tel: 020 7260 1000Lee Aston/Charles Farquhar College Hill Tel: 020 7457 2020Gareth David/Paddy Blewer Chairman's Statement I am delighted to report that 2007 has seen excellent growth in all areas of thebusiness with H&T's 2007 profit before tax and exceptional items reaching £7.2million. Financial Performance The Group has delivered a year of double digit growth in gross profit, EBITDA(before exceptional items), profit before tax and exceptional items and numberof stores. Gross profit increased by 18.6 per cent. to £27.7 million (2006:£23.3 million). EBITDA before exceptional items increased by 20.8 per cent. to£11.4 million (2006: £9.4 million). Operating profit before exceptional itemsincreased by 24.1 per cent. to £10.0 million (2006: £8.0 million). We alsoopened 12 additional stores during 2007, taking the total number of stores at 31December 2007 to 89. Secondary placing On 16 May 2007, H&T completed the placing of 3.6 million new ordinary shares toexisting shareholders, all UK institutions. This provided the Group with £7million of additional finance for its store expansion programme in which itinvested £3.6 million during the year. Final Dividend In accordance with the dividend policy declared at the time of the flotation,the directors are pleased to recommend a final dividend of 3.4 pence perordinary share (2006: 3.0 pence). This dividend will be paid to all shareholderson the register at the close of business on 16 May 2008. Outlook Since the beginning of 2008 our expansion programme has continued and as oftoday we have already opened four new stores - two by acquisition and twogreenfields. This takes the total current number of stores to 93. We areconfident in the Group's prospects for 2008. H&T will prosper through a mix ofcontinued growth in the established estate, development of the 18 greenfieldstores opened over the last three years and profit enhancement from the recentacquisitions. The current high price of gold should also provide some profitopportunities in the short term. The hard work and commitment of staff has been central to achieving 2007'sresult and I would like to thank all of them for that. Peter J MiddletonChairman Chief Executive's Review Introduction 2007 was a record year for H&T on a number of metrics. Our business model hasproved scaleable, with new stores and continued improvements to our existingbusinesses driving strong growth. During 2007, H&T has set a number of new records. Turnover and gross profit ofall business segments increased by double digit figures. Pawnbroking activities,comprising Pawn Service Charge and Disposition, represented 87 per cent. (2006:88 per cent.) of total 2007 gross profit and grew 17 per cent. year on year.Gold asset-backed lending continues to see strong demand both in existing andnew markets. At the same time financial services activities, comprising ChequeCashing and Other Financial Services, represented 13 per cent. (2006: 12 percent.) of total 2007 gross profit and grew 29 per cent. year on year. Thetransition in 2006 of the back office functions of Cheque Cashing and Pay DayAdvance in-house gave us the opportunity to market these products moreeffectively during 2007. H&T remains the UK's leading pawnbroker by size of pledge book and had 89outlets across the UK at the end of 2007. The estate increased by the recordnumber of 12 stores (2006: nine) during 2007. Of these, five were greenfieldstores and seven were acquired branches. The acquisitions located in Yorkshire,Nottinghamshire and the South Coast will give us access to new markets wherepawnbroking has historically been strong. We will be looking at expanding inthose regions through a regional hub system and take full advantage of marketpotential. The continuing growth we derive from our established and greenfield storescombined with profit-enhancing acquisitions has led to record profits.Operating profit before exceptional items reached £10.0 million in 2007 (2006:£8.0 million), a 24.1 per cent. increase on 2006. Review of Operations Pawn Service Charge H&T has been the largest pawnbroker in the UK based on the size of the pledgebook for many years and as at 31 December 2007 had a pledge book of £27.8million (2006: £25.2 million). As indicated in the "develop and establish newproducts and services" section of this review, the growth in the pledge book wasimpacted by the full roll out of gold purchasing. The increase in pledge bookcombined with an improved yield translated to an 11.9 per cent. increase in PawnService Charge. Maintaining this market leading position remains a priority forthe Group. Disposition The sale of forfeited items to the general public ("Retail") is the mostimportant element of Disposition, generating higher margins when compared withitems that are sold in auction or scrap. Although the general tradingenvironment on the high street deteriorated during the last quarter of 2007, Iam delighted to report that trading remained good for H&T and we achievedturnover growth of 18.8 per cent. year on year (11.7 per cent. LFL) whileincreasing Retail gross profit margin to 49.4 per cent. (2006: 44.2 per cent.).This has resulted in gross profit increasing by 32.6 per cent. between 2006 and2007. This very strong performance is a result of the continued investment intraining, marketing and a wider product range. In 2007, Scrap gross profit reached £1.5 million (2006: £1.1 million). This £0.4million increase is as a result of the increase in the price of gold (£0.2million) and higher Scrap volumes (£0.2 million). Other Financial Services Cheque Cashing and Pay Day Advance In January 2006, H&T brought in-house the back office for underwriting thein-store Cheque Cashing and Pay Day Advance businesses, enabling the Group tomanage both products internally saving the fees previously paid to a thirdparty. It has also allowed us to apply our own expertise in managing thisproduct without the restrictions imposed by a third party. Our experience in 2007 on Cheque Cashing appears to go against the market trend.Whilst our competitors reported difficult times and reducing turnover, H&Tturnover grew by 7 per cent. on a like-for-like basis. Although this isencouraging we acknowledge that this is in the face of a changing market. PayDay Advance continues to provide excellent growth. We did however experience asmall increase in the percentage of bad debt which was expected in the contextof a rapidly expanding loan book. In 2007, gross revenues from Cheque Cashing increased to £2.2 million (2006:£1.9 million) and Pay Day Advance increased to £2.9 million (2006: £1.8million). The revenues net of bad debt from Cheque Cashing and Pay Day Advance increasedto £3.4 million (2006: £2.6 million). KwikLoan The KwikLoan product has continued to develop as a medium term alternative forour Pay Day Advance customers. As in 2006 our focus has been on the developmentof Pay Day Advance, with KwikLoan growing alongside it. We believe there isfurther opportunity to grow the KwikLoan product through the development of theloan term, loan value and the customer base. The KwikLoan loan book increased from £0.4 million to £0.5 million in the 12months to 31 December 2007. KwikLoan gross profit increased by 45.5 per cent.during the same period. Point of sale development In 2006 we commenced the development of our new point of sale system which willunify the current store and head office systems which have developed over anumber of years with one, purpose built, application to support all currentbusiness 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. Although the development of our new point of sale system is taking longer thanoriginally anticipated, the project remains within budget and is expected to befully rolled out into all stores by late summer. Since the beginning of theproject we have incurred capital expenditure of £1.3 million and the total costincluding implementation is expected to be in the region of £1.8 million. Business Overview and Strategy Our growth strategy is based on two main streams. Each of them is progressing inline or ahead of the Board's expectations. 1. 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 at IPO was to develop 30 units between 2006 and 2008, boththrough greenfield stores and acquisitions, using current resources whilstmaintaining cash flow and earnings growth at an appropriate level. During 2007,we added 12 outlets (2006: nine) to the store portfolio - five greenfield andseven acquisitions. Two of the acquisitions opened up new regions to us, inYorkshire and the South coast, and can now be used as a regional hub to furtherdevelop these key markets. We would expect to grow the store footprint by asimilar number during 2008 and exceed the original 30 unit target. Initially, new pawnbroking units tend to be loss-making. As a consequence,expanding the store base can suppress short term earnings growth but providessignificant medium term benefit. The Group is actively pursuing acquisitions to accelerate the consolidation ofthe industry. During the year the Group issued 3.6m shares to raise additionalcapital of £7m, of which £3.4m remained at the year end. This new capital andthe headroom available on existing borrowing facilities provide the Group withthe resources to complete a number of further transactions. The H&T Board willmake acquisitions selectively, appraising each opportunity fully beforeproceeding with a transaction. Consequently, the timing and nature of thesetransactions depends on the availability of appropriate opportunities. Our greenfield stores are performing well and are on average exceeding ourexpectations in terms of pledge book growth. Whilst encouraging, we note thatgiven the maturity of these stores they will not have a significant impact onrevenues in the immediate term. These stores will nevertheless deliver agreater contribution to group profitability over the next few years. 2. Develop and establish new products and services During 2007 we introduced the purchase of gold and jewellery into all of ourstores. This minimises the time required to access the asset for dispositionand also enables simpler communication with the customer. Whilst this has theeffect of reducing the pledge book as customers who would previously pledge nowsell, it allows a more efficient use of capital as those goods are held for only30 days, rather than up to eight months for a pledge. The strategy in 2008 is to further develop gold purchasing and to expand theportfolio of unsecured products, using the Pay Day Advance and KwikLoan modelsto their best advantage. All of these products provide customers with a simpleand accessible route to cash, a service that is invaluable, especially in thecurrent credit climate. We believe that through cautious development we canexpand our customer base, whilst maintaining an acceptable risk profile. The prepaid card continues to attract new customers to the stores although thegeneral market awareness has taken longer to develop than anticipated. 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 pawnbroking locations 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 will undoubtedly provideopportunities in the coming year. I believe that the current portfolio ofpawnbroking and other financial services products will enable H&T to capitaliseon those opportunities. Against wider perception, the general economic climate is not necessarily adriver for our business - we do not and have not seen the pawnbroking industryas cyclical. Our success has been based on the fundamentals of a well runbusiness, with the focus on the customer and an understanding of theopportunities to grow within a fragmented market. We remain confident that wecan achieve further success. Finally I would like to recognise the hard work and commitment of our staff yearafter year and give them full credit for our 2007 business achievements. Thankyou all. John G NicholsChief Executive Finance Director's Review Due to the materiality of the amount of exceptional items in 2006 and in orderto have meaningful comparatives in 2007, some of the metrics used to reportperformance are presented excluding these exceptional items. International Financial Reporting Standards (IFRS) In accordance with the AIM's reporting regime, the Group has adoptedInternational Financial Reporting Standards ("IFRS") for the financial yearended 31 December 2007 rather than UK Generally Accepted Accounting Practice ("UK GAAP") as the basis to report its financial results. This transition has leadto some differences between reported numbers under IFRS and UK GAAP that aresimply a result of the accounting framework change and are not a reflection of achange in business performance. The Group released on 1 August 2007 a report onthe impact of IFRS (relative to UK GAAP) on H&T's results which is accessible onthe Group's website (www.handtgroup.co.uk). Turnover and gross profit Turnover in 2007 grew 19.5 per cent. to £38.4 million compared with £32.1million in 2006. Total gross profit in 2007 increased by 18.6 per cent. to £27.7million (2006: £23.3 million) driven by the turnover growth across all businesssegments. Other direct expenses and Administrative expenses The other direct expenses in 2007 were £12.8 million compared with £10.9 millionin 2006. The 18.0 per cent. increase in other direct expenses was primarilydriven by the development of twelve additional stores and the overall increasein business volumes. At the same time the Group's administrative expenses beforeexceptional items increased by £0.4 million from £4.4 million in 2006 to £4.8million in 2007. Operating profit During 2007, EBITDA before exceptional items increased by 20.8 per cent. to£11.4 million (2006: £9.4 million). The Group recorded a 24.1 per cent. increasein operating profit before exceptional items reporting £10.0 million in 2007compared with £8.0 million in the previous year. Exceptional expenses in 2006 of£1.9 million were incurred as part of the IPO. After taking account of theexceptional items, H&T's operating profit was £10.0 million in 2007 comparedwith £6.1 million in 2006. Finance costs and similar charges Finance costs before exceptional items decreased by £1.2 million from £3.9million in 2006 to £2.7 million in 2007. 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 combined with the unspent new money raised in May 2007 whichhas temporarily been used to reduce the level of borrowings. The restructuringin May 2006 incurred an exceptional charge of £0.8 million in the 2006 financialyear (2007: £nil). Profit before taxation Profit before taxation and exceptional items increased by £2.5 million from £4.7million in 2006 to £7.2 million in 2007. The 2007 result was impacted by a £0.2million (2006: £0.05 million) exceptional profit relating to the disposal of afreehold property while the 2006 result included a £1.9 million exceptionaladministrative expense relating to H&T's admission onto AIM and £0.8 million ofdebt restructuring costs. As a result, the Group recorded a profit beforetaxation of £7.4 million in 2007 compared with a profit before taxation of £2.0million in 2006. Taxation The 2007 effective corporation tax rate excluding exceptional items was 31 percent. (30 per cent. in 2006). Earnings per share Basic earnings per share for 2007 were 15.17p compared with 3.65p in 2006.Diluted earnings per share for 2007 was 15.14p compared with 3.65p in 2006.After adjusting for exceptional items referred to in the profit before taxationsection, adjusted basic earnings per share increased by 23.6 per cent. from11.91p in 2006 to 14.72p in 2007. Dividend The H&T Board has recommended a final dividend of 3.4 p per share (2006: 3.0 p)giving a total dividend per share of 5.0 p for 2007 (2006: 3.0 p). Cash flow and capital expenditure The Group generated cash of £6.3 million in 2007 from operations (2006: £7.6million). This result was impacted by the increase in receivables (£3.2 million)driven by the growth in the pledge book and loan portfolio and in inventories(£2.1 million) between 2006 and 2007. The Group invested £3.6 million (2006:£1.0 million) in the acquisition of pawnbroking and cheque cashing businessesand assets. Capital expenditure during the year was £1.9 million (2006: £1.6 million). Ofthis, £1.5 million related to new stores opened or acquired during the periodand store refurbishments. The Group also spent £0.4 million in store and headoffice new hardware for both the existing and future EPOS systems. An investmentof £0.2 million in the new EPOS software was reported in intangible assets. New money/ debt structure The Group placed 3.6 million new shares in May 2007 raising £7.0 million net ofexpenses. The Group repaid £1.5 million of facility A debt in 2007. Net debt (beforeunamortised debt issue costs) was £32.2 million at 31 December 2007 comparedwith £34.7million at 31 December 2006. The Group has in place a hedgingagreement fixing the interest rate on £35.0 million of banking debt for a periodending 30 June 2009. Return On Capital Employed (ROCE) ROCE, defined as profit before tax excluding exceptional items, interestreceivable, finance costs and movement in fair value of interest rate swap as aproportion of net current assets and tangible and intangible fixed assets(excluding goodwill), increased from 20.2 per cent. in 2006 to 21.7 per cent. in2007. 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. Consolidated income statementYear ended 31 December 2007 Note Before Before exceptional Exceptional 2007 exceptional Exceptional 2006 items Items Total items Items Total £'000 £'000 £'000 £'000 £'000 £'000 Revenue 2 38,363 - 38,363 32,115 - 32,115Cost of sales (10,699) - (10,699) (8,787) - (8,787) Gross profit 2 27,664 - 27,664 23,328 - 23,328 Other direct expenses (12,844) - (12,844) (10,886) - (10,886)Administrative expenses (4,836) - (4,836) (4,399) (1,903) (6,302) Operating profit 9,984 - 9,984 8,043 (1,903) 6,140 Investment revenues 35 - 35 27 - 27Other gains - 201 201 - 46 46Finance costs 3 (2,706) - (2,706) (3,936) (801) (4,737)Movement in fair value of (151) - (151) 561 - 561interest rate swap Profit before taxation 7,162 201 7,363 4,695 (2,658) 2,037 Tax charge on profit 4 (2,232) (52) (2,284) (1,421) 386 (1,035) Profit for the financial 4,930 149 5,079 3,274 (2,272) 1,002year Note 2007 2006 Pence PenceEarnings per shareFrom continuing operationsBasic 5 15.17 3.65 Diluted 5 15.14 3.65 All results derive from continuing operations. Consolidated income statementYear ended 31 December 2007 2007 2006 £'000 £'000Non-current assetsGoodwill 16,415 14,899Other intangible assets 1,480 804Property, plant and equipment 6,093 5,396 23,988 21,099 Current assetsInventories 6,720 4,237Trade and other receivables 36,105 31,869Cash and cash equivalents 1,966 2,108Derivative financial instruments - 133Assets held for sale - 37 44,791 38,384 Total assets 68,779 59,483 Current liabilitiesTrade and other payables (3,322) (3,510)Current tax liabilities (1,193) (88)Borrowings (1,766) (1,255)Derivative financial instruments (18) - (6,299) (4,853) Net current assets 38,492 33,531 Non-current liabilitiesBorrowings (31,651) (34,617)Deferred tax liabilities (365) (407)Provisions (119) - (32,135) (35,024) Total liabilities (38,434) (39,877) Net assets 30,345 19,606 2007 2006 £'000 £'000EquityShare capital 1,754 1,574Share premium account 23,994 17,112Retained earnings 4,597 920 Total equity 30,345 19,606 Consolidated statement of changes in equityYear ended 31 December 2007 Share Retained Share premium (deficit)/ capital account earnings Total £'000 £'000 £'000 £'000 At 1 January 2006 1,000 - (502) 498 Profit for the financial year - - 1,002 1,002 Total income for the financial year - - 1,002 1,002 Issue of share capital 574 17,790 - 18,364Share issue costs - (678) - (678)Share option credit taken directly to - - 19 19equityCorporation tax on share options - - 401 401 At 1 January 2007 1,574 17,112 920 19,606 Profit for the financial year - - 5,079 5,079 Total income for the financial year - - 5,079 5,079 Issue of share capital 180 7,164 - 7,344Share issue costs - (282) - (282)Share option credit taken directly to - - 105 105equityDividends paid - - (1,507) (1,507) At 31 December 2007 1,754 23,994 4,597 30,345 Consolidated cash flow statementYear ended 31 December 2007 Note 2007 2006 £'000 £'000 Net cash from/(used by) operating activities 6 2,647 (254) Investing activities Interest received 35 27Proceeds on disposal of property, plant and equipment 267 118Purchases of property, plant and equipment (2,155) (1,936)Purchases of intangible assets (242) (706)Acquisition of trade and assets of businesses (3,550) (1,013) Net cash used in investing activities (5,645) (3,510) Financing activities Dividends paid (1,507) -Repayments of borrowings (2,700) (19,500)Increase in borrowings - 6,251Net proceeds on issue of shares 7,063 17,687 Net cash from financing activities 2,856 4,438 Net (decrease)/increase in cash and cash equivalents (142) 674 Cash and cash equivalents at beginning of year 2,108 1,434 Cash and cash equivalents at end of year 1,966 2,108 Notes to the preliminary announcementYear ended 31 December 2007 1. Financial information and basis of preparation The financial information has been abridged from the audited financialstatements for the year ended 31 December 2007. The financial information set out in this document does not constitute thecompany's statutory accounts for the year ended 31 December 2007, but is derivedfrom those accounts. Statutory accounts for 2006 have been delivered to theRegistrar of Companies and those for 2007 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 International Financial Reporting Standards ('IFRS'), this announcement does not itself contain sufficient information tocomply with IFRS. The Group will be publishing full financial statements thatcomply with IFRS later this month. 2. Business and geographical statements Business segments For reporting purposes, the Group is currently organised into five segments -Pawnbroking, Retail, Scrap, Cheque cashing and Other financial services. Theprincipal activities by segment are as follows: Pawnbroking: Pawnbroking is a loan secured against a collateral (the pledge). In the case ofthe group over 98% of the collaterals against which amounts are lent isjewellery made of gold and/or diamonds. The pawnbroking contract is a six monthcredit agreement bearing a monthly average interest rate of 8%. The contract isgoverned by the terms of the Consumer Credit Act 2007 (previously the ConsumerCredit Act 2002). If the customer does not redeem the goods by repaying thesecured loan before the end of the contract, the Group is required to dispose ofthe 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 thepledge is under £75, through public auctions or the Retail or Scrap activitiesof the Group. Retail: The Group's retail proposition is primarily gold and jewellery and almost allretail sales are forfeited items from the pawnbroking pledge book or purchasedsecond-hand jewellery. The retail offering is complemented with a small amountof new jewellery. 2. Business and geographical segments (continued) Scrap: Items that are damaged beyond repair, are slow moving or surplus may be smeltedand sold at the current gold spot price less a small commission. Cheque cashing: This segment comprises two products: O Third Party Cheque Encashment which is the provision of cashin exchange for a cheque payable to our customer for a commission fee based onthe face value of the cheque. O Pay Day Advance which is a simple form of credit where theadvance is repaid by post dated cheques presented by the customer at the pointof the loan. H&T applies a 13% charge per 30 days on the value of the advance.At the end of the 30 days, the customer has a choice to either extend theadvance for another 30 days, repay the advance or allow the cheques to bedeposited in the Group's bank account. Both products are subject to bad debt risk which is reflected in the commissionsand fees applied. Other financial services: This segment comprises: O KwikLoan product which is an unsecured loan repayable over12 months of up to £750. H&T earns approximately £300 gross interest on a £500loan over 12 months. O The Prepaid debit card product where H&T earns a commissionwhen selling the card or when the customer is topping up their card. Only the KwikLoan product is subject to bad debt risk which is reflected in theinterest rate offered. Segment information about these businesses is presented below: Pawnbroking Retail Scrap Cheque Other Consolidated cashing financial Year services ended 2007 2007 2007 2007 2007 20072007 £'000 £'000 £'000 £'000 £'000 £'000RevenueExternal sales 17,122 11,024 6,602 3,356 259 38,363 Total revenue 17,122 11,024 6,602 3,356 259 38,363 Segment result 17,122 5,443 1,484 3,356 259 27,664 Gross profit is stated after charging bad debt expenses and the direct costs ofstock items sold or scrapped in the period. Other operating expenses of thestores are included in other direct expenses. The Group is unable tomeaningfully allocate the other direct expenses of operating the stores betweensegments as the activities are conducted from the same stores, utilising thesame assets and staff. The Group is also unable to meaningfully allocate Groupadministrative expenses, or financing costs or income between the segments.Accordingly, the Group is unable to meaningfully disclose an allocation of itemsincluded in the income statement below Gross profit, which represents thereported segment results. The Group does not apply any inter-segment charges when items are transferredbetween the pawnbroking activity and the retail or scrap activities. 2. Business and geographical segments (continued) Other Consolidated Cheque financial Year Pawnbroking Retail Scrap cashing services ended 2007 2007 2007 2007 2007 2007 £'000 £'000 £'000 £'000 £'000 £'000Other information Capital additions (*) - - - - - 1,154Depreciation and - - - - - 1,368amortisation (*)Impairment losses recognised 80 - - 1,637 799 2,516in income Balance sheet AssetsSegment assets 32,283 6,182 537 2,089 531 41,622 Unallocated corporate 27,157assets Consolidated total assets 68,779 LiabilitiesSegment liabilities - (149) - (58) (95) (302) Unallocated corporate (38,132)liabilities Consolidated total (38,434)liabilities (*) See below 2. Business and geographical segments (continued) Other Consolidated Cheque Financial Year Pawnbroking Retail Scrap cashing Services ended 2006 2006 2006 2006 2006 20062006 £'000 £'000 £'000 £'000 £'000 £'000RevenueExternal sales 15,299 9,278 4,731 2,629 178 32,115 Total revenue 15,299 9,278 4,731 2,629 178 32,115 Segment result 15,299 4,250 972 2,629 178 23,328 Other Consolidated Cheque financial Year Pawnbroking Retail Scrap cashing services ended 2006 2006 2006 2006 2006 2006Other information £'000 £'000 £'000 £'000 £'000 £'000 Capital additions (*) - - - - - 1,643Depreciation and - - - - - 1,358amortisation (*) Impairment losses recognised 66 - - 901 4 971in income Balance sheet AssetsSegment assets 28,930 4,180 57 1,273 399 34,839 Unallocated corporate 24,644assets Consolidated total assets 59,483 LiabilitiesSegment liabilities - (143) - (58) (69) (270) Unallocated corporate (39,607)liabilities Consolidated total (39,877)liabilities 2. Business and geographical segments (continued) (*) The Group cannot meaningfully allocate this information by segment due tothe fact that all the segments operate from the same stores, and the assets inuse are common to all segments. Geographical segments The Group's operations are located entirely in the United Kingdom and all salesare within the United Kingdom. Accordingly, no further geographical segmentsanalysis is presented. 3. Finance costs 2007 2006 £'000 £'000 Interest on bank overdrafts and loans 2,451 2,684On other loans - 896Other interest 11 16 Total interest expense 2,462 3,596 Exceptional items - 801Amortisation of loan issue costs 244 340 2,706 4,737 The £801,000 exceptional charge in 2006 relates to costs expensed associatedwith the arrangement fees of the bank loan restructuring. The £896,000 interest charge on other loans in 2006 relates to interest payableon loan notes from the previous controlling party, The Rutland Fund. 4. Tax charge (a) Tax on profit on ordinary activities Before Before Exceptional Exceptional 2007 Exceptional Exceptional 2006 Items Items Total Items Items Total £'000 £'000 £'000 £'000 £'000 £'000Current taxUnited Kingdom corporation taxcharge/(credit) at 30% (2006 -30%) based on the profit for theyear 2,329 - 2,329 1,362 (402) 960Adjustments in respect of prior (2) - (2) (14) (250) (264)periods Total current tax 2,327 - 2,327 1,348 (652) 696 Deferred taxShort term timing differences, (136) 52 (84) 71 16 87origination and reversal Effect of change in tax rate (26) - (26) - - -Adjustments in respect of prior 67 - 67 2 250 252periods Total deferred tax (95) 52 (43) 73 266 339 Tax charge on profit 2,232 52 2,284 1,421 (386) 1,035 4. Tax charge (continued) (b) Factors affecting the 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% (2006 - 30%). The differencesare explained below: Before Before Exceptional 2007 Exceptional Exceptional 2006 items items Total items items Total £'000 £'000 £'000 £'000 £'000 £'000 Profit before taxation 7,162 201 7,363 4,695 -2,658 2,037 Tax charge/(credit) on profit at 2,149 60 2,209 1,409 (797) 612standard rate Effects of:Disallowed expenses and 44 (8) 36 24 395 419non-taxable incomeChange in tax rate (26) - (26) - - -Adjustments to tax charge in 65 - 65 (12) 16 4respect of previous periods Total actual amount of current 2,232 52 2,284 1,421 (386) 1,035tax charge From April 2008, the standard rate of corporation tax in the UK will decreasefrom 30% to 28%. This new rate has been used to calculate any deferred taxexpected on timing differences that are expected to reverse in a period when thenew rate applies. In addition to the amount charged to the income statement, £401,000 of taxrelief available to the Group arising on share options exercised in 2006 wascredited directly to accumulated profits in the year ended 31 December 2006. 5. Earnings per share Basic earnings per share is calculated by dividing the profit for the yearattributable to equity shareholders by the weighted average number of ordinaryshares in issue during the year. For diluted earnings per share, the weighted average number of ordinary sharesin issue is adjusted to assume conversion of all dilutive potential ordinaryshares. With respect to the Group these represent share options granted toemployees where the exercise price is less than the average market price of theCompany's ordinary shares during the year. 5. Earnings per share (continued) The directors also present an adjusted earnings per share as the directorsconsider that it reflects the Group results on a comparable basis oncenon-recurring items are taken into consideration. All the adjustments made tothe non-adjusted earnings per share in arriving at adjusted earnings per shareare for exceptional items disclosed separately on the face of the consolidatedincome statement. Other than for the adjusting items, the calculation is thesame as for the statutory per share amounts. Reconciliations of the earnings per ordinary share and weighted average numberof shares used in the calculations are set out below: Year ended 31 December 2007 Year ended 31 December 2006 Weighted Weighted average Per-share average Per-share Earnings number amount Earnings number amount £'000 of shares pence £'000 of shares pence Earnings per share basic 5,079 33,487,898 15.17 1,002 27,489,310 3.65 Effect of dilutive securitiesOptions - 64,573 (0.03) - 388 - Earnings per share diluted 5,079 33,552,471 15.14 1,002 27,489,698 3.65 Earnings per share - basic 5,079 33,487,898 15.17 1,002 27,489,310 3.65IPO costs - - - 1,903 - 6.92Fixed assets disposal (201) - (0.60) (46) - (0.17)Debt issue costs - - - 801 - 2.91Tax adjustment 52 - 0.15 (386) - (1.4) Adjusted earnings per share - basic 4,930 33,487,898 14.72 3,274 27,489,310 11.91 Effect of dilutive securitiesOptions - 64,573 (0.03) - 388 - Adjusted earnings per share - diluted 4,930 33,552,471 14.69 3,274 27,489,698 11.91 6. Note to the cash flow statement 2007 2006 £'000 £'000 Profit for the year 5,079 1,002 Adjustments for:Investment revenues (35) (27)Other gains and losses (201) (46)Finance costs 2,706 4,737Movement in fair value of interest rate swap 151 (561)Movement in provisions 119 -Income tax expense 2,284 1,035Depreciation of property, plant and equipment 1,260 1,154Amortisation of intangible assets 107 204Share-based payment expense 105 19Profit on disposal of fixed assets (8) (12) Operating cash flows before movements in working capital 11,567 7,505Increase in inventories (2,073) (734)Increase in receivables (3,203) (298)Increase in payables 39 1,152 Cash generated from operations 6,330 7,625 Income taxes paid (1,221) (291)Debt restructuring cost - (801)Interest paid (2,462) (6,787) Net cash from/(used by) operating activities 2,647 (254) Cash and cash equivalents (which are presented as a single class of assets onthe face of the balance sheet) comprise cash at bank and other short-term highlyliquid investments with a maturity of three months or less. Interest paid in 2006 includes £3,191,000 of interest that arose in previousperiods, and was added to the principal amount of borrowings at 1 January 2006. This information is provided by RNS The company news service from the London Stock Exchange