H&t Group Plc Regulatory News (HAT)

RNS Number : 1245J

H&T Group PLC

25 March 2010

 

Preliminary results

For the year ended 31 December 2009

H&T Group ("H&T" or the "Group"), is pleased to announce its preliminary results for the year ended 31 December 2009.

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

"We are pleased to report another excellent year for H&T. Our gross profit increased by 43% and our profit before taxation was up 83% to £18.5 million. A final dividend of 5.6p is proposed, taking the full-year dividend to 8.1p, a 25% increase on 2008.

We continue to successfully implement our growth strategy and have invested the proceeds of our growing gold purchasing business into our core pawnbroking activities by adding a further 17 stores, taking the total estate to 122 stores at the year end. In addition we also operated 54 Gold Bar retail mall units by the end of 2009.

Market conditions remain favourable; pawnbroking is a resilient business both in recession and in times of economic growth and I have every reason to look with confidence to continued growth in the core pawnbroking activities. "

Financial highlights

£m unless stated	2009	2008	Change %
Gross profit	51.2	35.7	+43.4
Earnings before Interest, Tax, Depreciation, and Amortisation	23.1	14.9	+55.0
Operating profit	21.0	13.3	+57.9
Profit before tax	18.5	10.1	+83.2
Profit before tax, swap fair value movement and amortisation	18.5	10.9	+69.7
Basic EPS	37.75p	20.27p	+86.2
Diluted EPS	37.54p	20.26p	+85.3
Proposed final dividend	5.6p	4.5p	+24.4
Pledge book	37.9	32.0	+18.4

Operational and other highlights

Ø The national footprint reached 122 stores at 31 December 2009 (2008: 105) with 17 new stores opened during 2009 (2008: 16)

Ø In addition, the Group operated 54 Retail Mall Units at 31 December 2009 (2008: nil)

Ø In store gold purchasing volumes near tripled year on year, and the Group now reports gold purchasing as a separate business segment

Ø Gold purchasing scrap margins increased to 39.9% (2008: 35.3%) benefiting from the prevailing price level of gold (contributing an additional £4.3 million in gross profit to the combined gold purchasing and pawnbroking scrap operations)

Ø The Group expanded its debt facilities to support its future growth plans, securing a non-amortising, £50 million, four year term facility

Ø Supporting future growth, the Group rolled out a new proprietary point of sale system during the year

Preliminary results

For the year ended 31 December 2009

 

Enquiries:

 

H&T Group plc	Tel: 0870 9022 600
John Nichols, Chief Executive
Alex Maby, Finance Director
Hawkpoint Partners Limited (Nominated adviser)	Tel: 020 7665 4500
Lawrence Guthrie / Sunil Duggal
Numis Securities (Broker)	Tel: 020 7260 1000
Mark Lander
Pelham Bell Pottinger (Public relations)	Tel: 020 7337 1500
Polly Fergusson / Damian Beeley

 

Chairman's Statement

 

The directors and I are very pleased with H&T's performance in 2009. The focused delivery of our strategy and the capacity to maximise on tactical opportunities have combined to deliver record profits and a progressive year for the Group.

Financial Performance

Since flotation on 5 May 2006 to 31 December 2009, H&T has been one of the top ten performers within the FTSE AIM 100 index. I am pleased to report that 2009 has again continued the Group's consistent delivery of record profits and record new store openings.

Gross profit increased by 43 per cent to £51.2 million (2008: £35.7 million) and profit before taxation rose to £18.5 million (2008: £10.1 million), an 83% year-on-year increase.

Gold purchasing has been a major success story in 2009 with significantly increased volumes prompting the decision to report gold purchasing as a separate business segment. The Group has demonstrated great flexibility and speed in reacting to this growing market, while not detracting from its core business of pawnbroking. Indeed, following a year of record lending, the Group's pledge book stood at £37.9 million as at 31 December 2009 (2008: £32.0 million).

The additional gold purchasing profit has been invested into the group's core pawnbroking activities, with continued new store development that will contribute to further growth as they mature over the coming years. The Group opened 17 new stores in the year (2008: 16), taking its portfolio to 122 stores at the year end (2008: 105). The continued rise in the gold price during 2009 has contributed an estimated £4.3 million to the gold purchasing and pawnbroking scrap gross profit.

Providing for future growth the Group extended its debt facilities during the year and rolled out a new proprietary point of sale system across both our stores and our 54 Retail Mall Units.

Basic earnings per share was up from 20.27 pence in 2008 to 37.75 pence in 2009.

Final Dividend

Subject to shareholder approval, a final dividend of 5.6 pence per ordinary share (2008: 4.5 pence) up 24% on 2008 will be paid on 2 June 2010 to shareholders on the register at the close of business on 7 May 2010. The shares will be marked ex-dividend on 5 May 2010. This will bring the full year dividend to 8.1 pence per share, a 25% increase on 2008 (6.5 pence).

The growth in dividend reflects the good performance of the Group in 2009 and the Board's confidence in future prospects.

 Prospects

The Group has good growth prospects and our experience is that there is considerable capacity for new greenfield sites, whether through stores or gold purchasing units. The Board expects to have a total of 140 stores trading by the end of 2010.

Gold purchasing volumes continue to be strong, although it remains difficult to predict the sustainability of either current volumes or margins. The Board continues to monitor developments and opportunities in this relatively new market.

Finally, I would like to thank all our staff for their hard work and contribution to these excellent results.

 

Peter D McNamara

Chairman

 

Chief Executive's Review

INTRODUCTION

Once again I am pleased to report that H&T has achieved strong growth across its major business segments.

The Group has significantly outperformed its own internal forecasts set at the start of the year, delivering year on year earnings before interest, tax, depreciation and amortisation ("EBITDA") growth of 55%, another year of record profits and record expansion.

The growth in 2009 has been achieved by a strong lending performance in the Group's core pawnbroking operations, expansion in the store estate, continued favourable market conditions and our initiative in seizing a market opportunity in relation to gold purchasing. Focus has been retained on the core business and strategy of developing the Group's footprint, and I am pleased to report that the Group's pledge book has increased to £37.9m.

Significant volumes of gold have been purchased throughout the year, and the Group now reports these profits as a separate business segment. Increased volumes of gold scrapped, whether sourced via the Group's purchasing operations or pawnbroking activities, contributed an additional £6.6m gross profit in 2009. Profits were further boosted by a 32% rise in the average sterling gold price from 2008 to 2009, contributing an estimated additional £4.3m to gold purchasing and pawnbroking scrap gross profits during the year.

The Group continues its strategy of investing for the future, and the 2009 result has been achieved after the addition of a record 17 new stores (2008: 16), taking H&T to a total of 122 stores across England and Scotland. It is a credit to our staff that the existing estate has continued to perform well while new retail distribution and sales outlets have been delivered, including the development of a new route to market with the introduction of 54 Retail Mall Units (RMU's). Other achievements during the year include the rollout of a new proprietary point of sale system and a refinancing of debt facilities.

REVIEW OF OPERATIONS

Pawn Service Charge

Pawnbroking remains the core of H&T's business and the pawn service charge (PSC) is the largest component of Group gross profit, contributing £22.3m in 2009 (2008: £19.7m), and 44% of total gross profit. The increase has been driven by increased lending on a like-for-like basis while maintaining steady redemption levels, resulting in a pledge book at the year end of £37.9m, (2008: £32.0m)

H&T's growth is a reflection of the quality of customer service, the increased number of outlets and the modern design of stores, as well as high street location. Any change in the UK's economic climate is not expected to have a significant impact on the Group's lending performance.

 Retail Jewellery Sales

The Group has experienced a difficult jewellery retail environment during 2009, along with the majority of the UK high street retailers, resulting in a fall in like-for-like (LFL) sales of 3% year-on-year, albeit on the back of a very strong year in 2008. Tightened consumer spending has lowered the average price point during the year and record gold prices affected consumer demand for yellow gold. The Group has maintained it retail margin at 50%.

Pawnbroking Scrap

H&T has a natural hedge to offset any potential fall in jewellery sales, as its alternative disposition method is to scrap the gold for the then current gold price. Scrap profits from the disposition of items forfeited from the Group's pledge book contributed £2.1m in 2009 (2008: £2.1m). The 2009 result was impacted by delayed auctions resulting in a small proportion of the Group's forfeited pledges not being disposed of by the year end, and instead remained on the pledge book. This also gave rise to the decreased pawn service charge yield year on year. Accounting for this delay, the true yield is calculated as 62% (2008: 62%).

Gold Purchasing

Gold purchasing has been one of the success stories of 2009 with the Group maximising its opportunities in this market, demonstrating flexibility, resource and timing. This business segment now accounts for 26% (2008: 7%) of Group gross profit, having recorded gross profits of £13.5m in 2009 (2008: £2.6m).

In comparison with 2008, H&T stores experienced a near tripling of gold purchasing levels. This has been driven by:

- Effective local marketing

- Leveraging on the Group's increased size and brand with the use of TV advertising

- Postal gold companies own advertising spend raising general market awareness

- The record price of gold

Gold purchasing volumes have increased significantly following our initiative to offer this service from Retail Mall Units ("RMUs"). Operating in 54 centres nationwide at 31 December 2009 (2008: nil), under the brand of H&T Gold Bar, these units are set up on short term licences and a minimal cost outlay thus enabling the Group to respond effectively to any change in market conditions. Not only has this initiative proven financially successful, but also operationally efficient. All units have been deployed within a matter of months demonstrating great speed and flexibility, and have connectivity to the Group's new point of sale system. Importantly, existing operations have not been disrupted.

Gold purchasing generated a 40% (2008: 35%) gross margin, aided by the rise in gold price. The average sterling gold price in 2009 was £621 as compared with £472 in 2008. As with any relatively new market, it is difficult to predict a core level of profits to expect going forward, and this is reflected in the current market forecasts for 2010.

Cheque Cashing (comprising Third Party Cheque Cashing and Pay Day Advance)

Revenues net of bad debt and provisions from Third Party Cheque Cashing and Pay Day Advance increased to £4.8 million (2008: £3.8 million). These services contributed to 9% (2008: 11%) of gross profit.

Third Party Cheque Cashing turnover declined by 15 per cent in 2009 due to the diminishing use of cheques and increasing competition. We expect this downward trend to continue during 2010.

Pay Day Advance continues to provide excellent growth. The Group has invested in new systems to enhance product underwriting and the collection of arrears. I am pleased to report that despite the expanding loan book and the current economic climate, we experienced a small decline in the percentage of bad debt.

KwikLoan

In view of the economic and credit climate, the Group has continued to adopt its cautious approach to new business. As a result the KwikLoan loan book increased only marginally to £0.6m (2008: £0.4m).

REGULATION

The Department for Business Innovation & Skills commenced a High Cost Credit Review in 2009 with results expected in Q2 2010. This review covers many forms of alternative credit, and both H&T and the National Pawnbrokers Association have been assisting in the review. Currently the shared view is that a regulatory rate cap is unlikely due to its introduction in other European countries causing market distortions and due to the industry being fully competitive.

There is also an Office of Fair Trading enquiry into postal gold purchasing services, but H&T does not form part of the enquiry.

BUSINESS OVERVIEW AND STRATEGY

The Group has continued its successful expansion strategy and had a record year for new store additions. Taking advantage of increased high street availability and improved retail incentives, the Group has added 17 greenfield sites during the year, taking the total number of stores to 122 at the year end. Of the 122, 52 or 43% have been added over the past 4 years either via acquisition or greenfield rollout. The Board expect this 4 year percentage to rise by the end of 2010, demonstrating the growth in, and commitment to the rollout programme. Furthermore, of the 52 recent additions, 39 have been developed successfully on greenfield sites, implying latent growth potential in the Group's core pawnbroking business, as each store takes many years to reach a more representative and mature level of contribution. Management's current strategy is to pursue greenfield sites and to make selective acquisition opportunities as they arise.

Pursuing its development of new products and services, as with the introduction of 54 RMUs during the year, the Group will seek to expand this offering, subject to the continued market demand for gold purchasing.

Management has been active throughout the year in supporting business growth both in financial and operational terms. In July, the Group successfully refinanced its debt facilities. In spite of uncertain credit markets, H&T was able to refinance ahead of time and secure an increased facility totalling £50m, with the added advantages of a four-year term and the facility being non-amortising. This will provide security and funding for continued expansion in both the Group's loan book and store portfolio.

Our organisational field structure has also been amended to reflect the increased estate size, with the introduction of Regional Managers, reporting to the Operations Director.

Review of the Pawnbroking Market

The competitive environment has not changed substantially in the last year.

The pawnbroking industry remains fragmented providing opportunities for organic and acquisitional growth. Although there are no official statistics, the Board estimate there to be 500 locations around the UK where pawnbroking is offered as a core service, with an additional 1,000 locations where a pawnbroking is offered as an ancillary service.

Current Trading and Outlook

The Board is confident that it will continue to build successfully on H&T's proven business model and strategy, and remain optimistic on pawnbroking in 2010. The Group also expect to be able to deliver working capital improvements in 2010 as a result of recent changes to both the Jewellery Centre and the point of sale system.

The Board does not see the core pawnbroking business as cyclical, instead believing it a resilient business both in recessionary and other times.

Year to date trading in 2010 is positive and market conditions continue to be favourable. However, the price of gold and currency exchange rates continue to influence margins and volumes of our gold purchasing business.

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.

John G Nichols

Chief Executive

 

Finance Director's Review

Turnover and gross profit

Total revenues amounted to £84.0 million compared with £52.9 million in 2008. Gross profit increased from £35.7 million to £51.2 million, driven largely by increased gold purchasing volumes and the higher average gold price experienced in 2009. The Group's pawnbroking business segment also delivered double digit growth.

Other direct and Administrative expenses

Other direct and administrative expenses rose from £22.5 million in 2008 to £30.1 million in 2009. The increase was driven by the full year effect of stores opened in 2008, the 17 new stores opened in 2009 and the introduction of the Retail Mall Units during the year. Increased transactional volumes have also impacted staff numbers and costs.

EBITDA and Operating profit

The Group recorded EBITDA of £23.1 million (2008: £14.9 million). Operating profit increased by 58% to £21.0 million (2008: £13.3 million).

Finance costs and similar charges

Interest on bank loans fell during 2009 to £2.2 million (2008: £2.3 million) as the Group benefited from lower interest rates on the unhedged portion of its bank borrowings. The total finance cost rose year on year to £2.7 million (2008: £2.6 million) as during 2009 the Group refinanced its debt facilities and wrote off the £0.4 million unamortised debt fee remaining on the previous loan facility.

Profit before taxation

Profit before taxation, and fair value movement in interest rate swaps increased by £7.6 million from £10.7 million in 2008 to £18.3 million in 2009.

Taxation

The effective corporation tax rate excluding exceptional items is 28 per cent for the year (29 per cent in 2008). The decrease reflects the fall in the tax rate from a blended rate of 28.5 per cent in 2008 to a flat rate of 28% in 2009.

Earnings per share

Basic earnings per share for 2009 was 37.75 pence compared with 20.27 pence in 2008. Diluted earnings per share for 2009 was 37.54 pence compared with 20.26 pence in 2008.

 Dividend

The Board has recommended a final dividend of 5.6 pence per share (2008: 4.5 pence) bringing the 2009 full year dividend to 8.1 pence (2008: 6.5 pence).

Cash flow and investments

The Group generated cash from operations before interest payments, debt restructuring costs and taxation of £6.1 million in 2009 (2008: £8.6 million). This result was impacted by the increase in inventories (£12.3 million) driven partly by a stepped increase in gold purchasing volumes and the increased estate size. There was also an increase in receivables of £7.1million driven by the growth in the pledge book and loan portfolio.

Capital expenditure during the year was £3.9 million (2008: £3.3 million) of which £3.3 million related to the 17 new greenfield stores opened during the year and the estate refurbishment program.

Debt structure

The Group refinanced its debt facilities during the year, and on 31 July 2009 contracted into a 4 year, non-amortising, £50 million facility. Net debt (before unamortised debt issue costs) increased to £42.3million at 31 December 2009 compared with £34.4 million at 31 December 2008, due partly to the store expansion programme, increased stock levels and the working capital requirements to support the gold purchasing operations. The Group has in place a hedging agreement fixing the interest rate on £34.0 million of banking debt until 30 August 2012. The Group was compliant with all its banking covenants in 2009; H&T's EBITDA to net debt ratio was 1.8x (2008: 2.3x) and its interest cover ratio (EBITDA to interest) was 10.6x (2008: 6.7x).

Return On Capital Employed (ROCE)

ROCE, defined as profit before tax excluding exceptional items, 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), increased from 26.3% in 2008 to 28.4% in 2009.

 

 

Alex Maby

Finance Director

 

Consolidated statement of comprehensive income

Year ended 31 December 2009

	Note		2009 £'000	2008 £'000
Revenue	2		83,975	52,868
Cost of sales			(32,808)	(17,129)
Gross profit	2		51,167	35,739
Other direct expenses			(23,138)	(15,862)
Administrative expenses			(6,999)	(6,603)
Operating profit			21,030	13,274
Investment revenues			1	45
Finance costs	3		(2,746)	(2,603)
Movement in fair value of interest rate swaps			227	(647)
Profit before taxation			18,512	10,069
Tax charge on profit	4		(5,168)	(2,952)
Profit for the financial year and total comprehensive income			13,344	7,117
			2009 Pence	2008 Pence
Earnings per share
From continuing operations
Basic	5		37.75	20.27
Diluted	5		37.54	20.26

 

All results derive from continuing operations

 

Consolidated statement of changes in equity

Year ended 31 December 2009

	Note			Share capital £'000	Share premium account £'000	Employee Benefit  Trust shares  reserve £'000	Retained earnings £'000	Total £'000
At 1 January 2008				1,754	23,994	-	4,597	30,345
Profit for the financial year				-	-	-	7,117	7,117
Total income for the financial year				-	-	-	7,117	7,117
Issue of share capital				13	2	-	-	15
Share option credit taken directly to equity				-	-	-	178	178
Dividends paid				-	-	-	(1,894)	(1,894)
Employee benefit trust shares				-	-	(13)	-	(13)
At 1 January 2009				1,767	23,996	(13)	9,998	35,748
Profit for the financial year				-	-	-	13,344	13,344
Total income for the financial year				-	-	-	13,344	13,344
Issue of share capital				3	86	-	-	89
Share option credit taken directly to equity				-	-	-	238	238
Deferred tax on share options taken directly to equity				-	-	-	110	110
Dividends paid				-	-	-	(2,474)	(2,474)
At 31 December 2009				1,770	24,082	(13)	21,216	47,055

Consolidated balance sheet

At 31 December 2009

	Note		31 December 2009 £'000	31 December 2008 £'000	1 January 2008 £'000
Non-current assets
Goodwill			16,806	16,806	16,415
Other intangible assets			1,046	1,171	1,480
Property, plant and equipment			9,614	7,824	6,093
Deferred tax assets			500	195	-
			27,966	25,996	23,988
Current assets
Inventories			23,029	10,730	6,720
Trade and other receivables			48,632	41,540	36,105
Cash and cash equivalents			2,221	2,744	1,966
			73,882	55,014	44,791
Total assets			101,848	81,010	68,779
Current liabilities
Trade and other payables			(6,926)	(5,324)	(3,322)
Current tax liabilities			(3,148)	(2,542)	(1,193)
Borrowings			-	(1,777)	(1,766)
Derivative financial instruments			(438)	(665)	(18)
			(10,512)	(10,308)	(6,299)
Net current assets			63,370	44,706	38,492
Non-current liabilities
Borrowings			(44,113)	(34,879)	(31,651)
Deferred tax liabilities			-	-	(365)
Provisions			(168)	(75)	(119)
			(44,281)	(34,954)	(32,135)
Total liabilities			(54,793)	(45,262)	(38,434)
Net assets			47,055	35,748	30,345
Equity
Share capital			1,770	1,767	1,754
Share premium account			24,082	23,996	23,994
Employee Benefit Trust shares reserve			(13)	(13)	-
Retained earnings			21,216	9,998	4,597
Total equity			47,055	35,748	30,345

 

Consolidated cash flow statement

Year ended 31 December 2009

	Note		2009 £'000	2008 £'000
Net cash (absorbed by)/generated from operating activities	6		(1,426)	4,087
Investing activities
Interest received			1	45
Purchases of property, plant and equipment			(4,001)	(2,828)
Purchases of intangible assets			(56)	(53)
Acquisition of trade and assets of businesses			-	(1,586)
Net cash used in investing activities			(4,056)	(4,422)
Financing activities
Dividends paid			(2,474)	(1,894)
Net increase of borrowings			7,344	3,005
Proceeds on issue of shares			89	15
Loan to the Employee Benefit Trust for acquisition of own shares			-	(13)
Net cash from financing activities			4,959	1,113
Net (decrease)/increase in cash and cash equivalents			(523)	778
Cash and cash equivalents at beginning of the year			2,744	1,966
Cash and cash equivalents at end of the year			2,221	2,744

 

Notes to the preliminary announcement

Year ended 31 December 2009

1. Finance information and basis of preparation

The financial information has been abridged from the audited financial statements for the year ended 31 December 2009.

The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2009 or 2008, but is derived from those accounts. Statutory accounts for 2008 have been delivered to the Registrar of Companies and those for 2009 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 98% of the collaterals against which amounts are lent is jewellery made of gold, precious metals and/or diamonds. The pawnbroking contract is a six month credit agreement bearing a monthly average interest rate of 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 2009

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 which is a simple form of credit where the advance is repaid by post dated cheques presented by the customer at the point of the loan. The Group 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 the advance for another 30 days, repay the advance or allow the cheques to be deposited in the Group's bank account.

 

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 on trial in a limited number of stores.
•	The LogBook Loan product where the Group earns a commission when referring a customer to a third party providing loans secured on personal vehicles. The limited trial of this service finished during 2009, with the decision not to proceed to a rollout across the estate.

 

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 2009

2. Business and geographical segments (continued)

Segment information about these businesses is presented below:

 

2009	Pawn- broking 2009 £'000	Gold Purchasing 2009 £'000	Retail 2009 £'000	Pawn-broking Scrap 2009 £'000	Cheque cashing 2009 £'000	Other Financial services 2009 £'000	Consolidated Year ended 2009 £'000
Revenue
External sales	22,318	33,923	16,409	6,260	4,799	266	83,975
Total revenue	22,318	33,923	16,409	6,260	4,799	266	83,975
Segment result - gross profit	22,318	13,519	8,118	2,147	4,799	266	51,167

 

2008	Pawn- broking 2008 £'000	Gold Purchasing 2008 £'000	Retail 2008 £'000	Pawn-broking Scrap 2008 £'000	Cheque cashing 2008 £'000	Other Financial services 2008 £'000	Consolidated Year ended 2008 £'000
Revenue
External sales	19,720	7,419	14,604	7,074	3,826	225	52,868
Total revenue	19,720	7,419	14,604	7,074	3,826	225	52,868
Segment result - gross profit	19,720	2,618	7,208	2,142	3,826	225	35,739

 

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 2009

2. Business and geographical segments (continued)

		Pawn-broking 2009 £'000	Gold Purchasing 2009 £'000	Retail 2009 £'000	Pawn-broking Scrap 2009 £'000	Cheque cashing 2009 £'000	Other Financial services 2009 £'000	Unallocated assets/ (liabilities) 2009 £'000	Consolidated 2009 £'000
Other information
Capital additions (*)		-	-	-	-	-	-	3,926	3,926
Depreciation and amortisation (*)		-	-	-	-	-	-	2,117	2,117
Balance sheet
Assets
Segment assets		43,496	4,607	17,605	817	2,679	642		69,846
Unallocated corporate assets								32,002	32,002
Consolidated total assets									101,848
Liabilities
Segment liabilities		-	-	(253)	-	(27)	(81)		(361)
Unallocated corporate liabilities								(54,432)	(54,432)
Consolidated total liabilities									(54,793)

 

		Pawn-broking 2008 £'000	Gold Purchasing 2008 £'000	Retail 2008 £'000	Pawn-broking Scrap 2008 £'000	Cheque cashing 2008 £'000	Other Financial services 2008 £'000	Unallocated assets/ (liabilities) 2008 £'000	Consolidated 2008 £'000
Other information
Capital additions (*)		-	-	-	-	-	-	4,436	4,436
Depreciation and amortisation (*)		-	-	-	-	-	-	1,645	1,645
Balance sheet
Assets
Segment assets		36,999	412	9,935	383	2,642	474		50,845
Unallocated corporate assets								30,165	30,165
Consolidated total assets									81,010
Liabilities
Segment liabilities		-	-	(216)	-	(94)	(51)		(361)
Unallocated corporate liabilities								(44,901)	(44,901)
Consolidated total liabilities									(45,262)

(*) 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 2009

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

			2009 £'000	2008 £'000
Interest on bank loans			2,181	2,338
Other interest			2	31
Total interest expense			2,183	2,369
Amortisation of loan issue costs			193	234
Write off of loan issue costs			370	-
			2,746	2,603

 

Notes to the preliminary announcement

Year ended 31 December 2009

4. Tax charge on profit

a) Tax on profit on ordinary activities

Current tax			2009 £'000	2008 £'000
United Kingdom corporation tax charge at 28% (2008 - 28.5%) based on the profit for the year			5,368	3,463
Adjustments in respect of prior years			(5)	49
Total current tax			5,363	3,512
Deferred tax
Timing differences, origination and reversal			(221)	(526)
Adjustments in respect of prior years			26	(34)
Total deferred tax (note 24)			(195)	(560)
Tax charge on profit			5,168	2,952

 

(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 28% (2008 - 28.5%). The differences are explained below:

			2009 £'000	2008 £'000
Profit before taxation			18,512	10,069
Tax charge on profit at standard rate			5,183	2,870
Effects of:
Disallowed expenses and non-taxable income			16	67
Adjustments to tax charge in respect of previous periods			(31)	15
Total actual amount of tax charge			5,168	2,952

 

Notes to the preliminary announcement

Year ended 31 December 2009

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:

	Year ended 31 December 2009			Year ended 31 December 2008
	Earnings £'000	Weighted average number of shares	Per-share amount pence	Earnings £'000	Weighted average number of shares	Per-share amount pence
Earnings per share basic	13,344	35,345,702	37.75	7,117	35,113,078	20.27
Effect of dilutive securities
Options and conditional shares	-	201,909	(0.21)	-	8,997	(0.01)
Earnings per share diluted	13,344	35,547,611	37.54	7,117	35,122,075	20.26

 

Notes to the preliminary announcement

Year ended 31 December 2009

6. Notes to the cash flow statement

		2009 £'000	2008 £'000
Profit for the financial year		13,344	7,117
Adjustments for:
Investment revenues		(1)	(45)
Finance costs		2,746	2,603
Movement in fair value of interest rate swap		(227)	647
Movement in provisions		93	(44)
Tax expense - Consolidated Statement of Comprehensive Income		5,168	2,952
Depreciation of property, plant and equipment		1,936	1,486
Amortisation of intangible assets		181	159
Share-based payment expense		238	178
Loss on disposal of fixed assets		144	113
Loss on disposal/write off of intangible assets		-	845
Operating cash flows before movements in working capital		23,622	16,011
Increase in inventories		(12,299)	(3,708)
Increase in receivables		(7,092)	(4,892)
Increase in payables		1,885	1,208
Cash generated from operations		6,116	8,619
Income taxes paid		(4,759)	(2,163)
Debt restructuring cost		(600)	-
Interest paid`		(2,183)	(2,369)
Net cash (absorbed by)/generated from operating activities		(1,426)	4,087

 

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.

 

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:

 

			2009 £'000	2008 £'000
Operating profit			21,030	13,274
Depreciation and amortisation			2,117	1,645
EBITDA			23,147	14,919

 

 

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

 

 

 

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