item in order to repay the amount borrowed plus interest. Should there be a surplus resulting from this process, the customer is paid that amount in full.
Pawnbroking is our core business, we are the largest UK pawnbroker in terms of number of outlets, customers and amounts lent. It is the key focus area for the business and where we invest most resource in terms of training and development. Yields are attractive, and the debt is always secured on the item pledged.
Gross profits from pawnbroking increased 5.5% to £30.9m (2017: £29.3m) and the pledge book increased 9.5% to £52.0m (31 December 2017: £47.5m) because of increased customer numbers and growth in higher value loans, in particular lending on higher carat gold and watches. We have seen increased lending through both our owned store estate and through our Appointed Introducer Relationships (brokerage arrangements).
The risk-adjusted margin (revenue as a percentage of the average net pledge book) was 62.2% (2017: 64.2%). The reduction in risk-adjusted margin is a result of the changing business mix to higher value, lower interest rate loans. Redemption of annual lending has remained consistently high at an estimated 83.5% for lending in 2018 (2017 actual: 83.6%).
The Group has benefitted from the expertise provided by the Expert Eye service, recently upgraded to Unity. This allows high quality images of assets in store to be assessed by our team of experts which in turn improves both the quality of decisions made and extends the range of assets on which we can lend. This has assisted the development of lending secured on watches and diamonds during the year.
The Group is investing in software to assist the management of customer enquiries in respect of pawnbroking as well as the acquisition of new partners to introduce customers to the business. This investment will allow an expansion to the broker and online channels in respect of pawnbroking during 2019.
Pawnbroking summary:
|
|
Restated* for IFRS 9 |
|
|
2018 |
2017 |
Change |
|
£'000 |
£'000 |
% |
Year-end pledge book1 |
51,991 |
47,451 |
9.6% |
Estimated average pledge book |
49,721 |
45,637 |
8.9% |
|
|
|
|
Revenue less impairment |
30,912 |
29,299 |
5.5% |
Annualised Risk-adjusted margin2 |
62.2% |
64.2% |
|
Notes to table |
|
|
|
1 - Includes accrued interest and impairment |
|
|
|
2 - Revenue less impairment as a percentage of average loan book |
*Certain comparative information in the financial statements has been restated as a result of the initial application of IFRS 9 as discussed in note 9.
Retail
The Group offers a value for money proposition in new and second-hand jewellery. We believe there is further growth potential in this segment by leveraging our retail store estate and our e-commerce operations as well as by cross-selling to customers of other services.
Retail sales increased 8.5% to £38.3m (2017: £35.4m), gross profits increased 2.3% to £13.2m (2017: £12.9m) and margin reduced to 34.4% (2017: 36.3%). Margin reduction was due to a higher proportion of new items sold in 2018 as opposed to pre-owned, more lower margin watches sold and discounting on aged jewellery and watches during 2018.
The Group has reduced retail inventories during the year with average monthly balances being £1.7m, 5% lower during 2018 than 2017. The stock reduction has been primarily targeted around the reduction of aged items, which has been achieved by implementing targeted promotional activity and discounts during the year.
It is pleasing that the development of both our www.handt.co.uk and www.est1897.co.uk websites has led to a 238% increase in generated revenues over the year with revenue growing to £2.7m (2017: £0.8m). The development of our on-line to store customer journey has resulted in 85% of the on-line generated items sold being fulfilled in-store. These are generally higher value watches and jewellery, while opportunity exists to further develop our basket sales.
Further website improvements are planned for our est1897 website, which currently holds more than 2,000 high-end pre-owned watches and jewellery items, and to our Customer Relationship Management system. The intention is to include a larger range of items on our site and drive a higher proportion of basket fulfilled sales as opposed to in-store fulfilment. CRM enhancements are intended to improve the online to in-store experience and conversion rates.
Personal loans
The net personal loans book has increased by 37.6% to £20.5m (31 December 2017: £14.9m). Revenue less impairment is an important measure of the performance of personal loans as it represents the net profit derived directly from our lending activities. Revenue less impairment has increased by 79.5% to £7.0m (2017: £3.9m) because of increased customer numbers and the expansion in our longer term, lower interest rate loan product, delivered through our store estate.
The increase in the risk-adjusted margin (RAM) to 38.5% (2017: 35.8%) is the result of a slowdown in the growth of the book and therefore a lower proportion of the lending to new customers compared with 2017. Existing and repeat customers have a different risk profile. We have proportionally more repeat customers in 2018 than we had in 2017.
Impairment as a percentage of the average monthly net loan book has improved to 68.9% (2017: 75.0%), reflecting the increased mix of lower yield, higher quality loans.
In line with the strategy of providing larger loans over longer terms at a lower interest rate, our 49.9% APR product launched in May 2017 now represents £1.2m of the book as at 31 December 2018. This product is designed to provide a "near prime" option for our best customers. Because of these initiatives 59% of the personal loans loan book is now non-High-Cost-Short-Term (HCSTC).
New customer lending of £38.0m was made through our stores during 2018 vs £3.0m lent via our online channel.
Personal loans summary: |
|
Restated * for IFRS 9 |
|
|
2018 |
2017 |
Change |
£m |
£m |
% |
Year-end net loan book |
20.5 |
14.9 |
37.6% |
Average monthly net loan book |
18.2 |
10.9 |
67.0% |
|
|
|
|
Revenue |
22.5 |
15.6 |
44.2% |
Impairment |
(15.5) |
(11.7) |
32.5% |
Revenue less impairment |
7.0 |
3.9 |
79.5% |
Interest yield1 |
123.6% |
143.1% |
|
Impairment % of revenue |
68.9% |
75.0% |
|
Impairment % of average monthly net loan book |
85.2% |
107.3% |
|
Risk-adjusted margin2 |
38.5% |
35.8% |
|
|
|
|
|
Notes to table |
|
|
|
1 - Revenue as a percentage of average loan book |
|
|
|
2 - Revenue less impairment as a percentage of average loan book |
|
|
*Certain comparative information in the financial statements has been restated as a result of the initial application of IFRS 9 as discussed in note 9.
Pawnbroking scrap
The average gold price during 2018 was £950 per troy ounce (2017: £976), a 2.7% decrease. The gold price directly impacts the revenue received on the sales of scrapped gold.
Gross profits reduced by 26.3% to £1.4m (2017: £1.9m), primarily due to a fall in gold price between the date the items were pledged and the date that they were scrapped.
Gold purchasing
Gross profits increased to £3.8m (2017: £3.4m) due to an increase in volume sold.
Other services
Other services principally comprise FX, buyback and cheque cashing. Gross profits from other services increased to £6.1m (2017: £5.9m).
The key growth components of FX and buyback improved in the year with gross profits from FX increasing to £3.6m (2017: £2.9m) and buyback increasing to £1.6m (2017: £0.9m).
FX is a simple transactional product which attracts a new customer base to the business. During the year we have made improvements to currency holdings in store, offering a wider choice, and have enhanced our point of sale materials including the introduction of improved digital rate boards. We further expanded our FX customer catchment by introducing FX click and collect to our website.
Buyback enables the Group to service a customer base who may not have appropriate assets for a pawnbroking loan. The principal assets purchased are mobile phones, tablets and games consoles. During the year we invested further in system development to support the valuation and testing of the items in store.
I would also like to add my great thanks to those of the Chairman, in recognising all our people whose skills, commitment and enthusiasm continue to drive our success, and who give us confidence in the future.
John G Nichols
Chief Executive
Notes to the preliminary announcement
For the year ended 31 December 2018
1. Finance information and significant accounting policies
The financial information has been abridged from the audited financial statements for the year ended 31 December 2018.
The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2018 or 2017 but is derived from those accounts. Statutory accounts for 2017 have been delivered to the Registrar of Companies and those for 2018 will be filed with the Registrar in due course. 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 (as adopted for use in the EU) ('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 2019.
IFRS 15 Revenue from Contracts with Customers
In the current year, the Group has applied IFRS 15 Revenue from Contracts with Customers (as amended in April 2016) which is effective for an annual periods beginning on and after 1 January 2018. IFRS 15 introduces a 5‑step approach to revenue recognition. Far more prescriptive guidance has been added in IFRS 15 to deal with specific scenarios. Details of the new requirements as well as their impact on the Group's consolidated financial statements are described below. The Group has applied IFRS 15 in accordance with the fully retrospective transitional approach without using the practical expedients.
IFRS 15 uses the terms 'contract asset' and 'contract liability' to describe what might more commonly be known as 'accrued income' and 'deferred income', however the Standard does not prohibit an entity from using alternative descriptions in the statement of financial position. The Group has retained the use of 'accrued revenue' and 'deferred revenue' in the financial statements.
The Group's accounting policies for its revenue streams are disclosed in detail in below. Apart from providing more extensive disclosures for the Group's revenue transactions, the application of IFRS 15 has not had an impact on the financial position and/or financial performance of the Group. Further information has been provided in note 10.
IFRS 9 Financial instruments
In the current year, the Group has applied IFRS 9 Financial Instruments. The Group has restated 2017 comparatives in respect of the classification and measurement of financial instruments. Additionally, the Group adopted consequential amendments to IFRS 7 Financial Instruments: Disclosures that were applied to the disclosures for 2018 and to the comparative period.
Notes to the preliminary announcement (continued)
For the year ended 31 December 2018
1. Finance information and significant accounting policies (continued)
Classification and measurement
With respect to the classification and measurement of financial assets, the number of categories of financial assets under IFRS 9 has been reduced compared to IAS 39. Under IFRS 9 the classification of financial assets is based both on the business model within which the asset is held and the contractual cash flow characteristics of the asset.
There is no impact on the classification and measurement of the personal loans or pawnbroking trade receivables, both are measured at amortised cost.
There is no change in the accounting for any financial liabilities.
Impairment
The impairment model under IFRS 9 reflects expected credit losses, as opposed to only incurred credit losses under IAS 39. Under the impairment approach in IFRS 9, it is not necessary for a credit event to have occurred before credit losses are recognised. Instead, an entity always accounts for expected credit losses and changes in those expected credit losses. The amount of expected credit losses should be updated at each reporting date. Under IFRS 9 there is an increase in both revenue and impairment for Pawnbroking and Personal Loans.
In respect of the personal loan receivable the Group recognises a loss allowance for 12-month expected credit losses where the loan is not in arrears. As the loan falls into arrears the loss allowance is based on the lifetime expected credit losses as there has been a significant increase in credit risk. IFRS 9 also requires the external environment to be considered as part of the calculation of expected credit losses (ECL) the form of a macro-economic overlay. Due to the nature of the alternative credit sector and historical evidence, management have determined that the effect of traditional macro-economic downside indicators is minimal and therefore such an overlay is currently not necessary. Management will continue to monitor external macro-economic trends and their impact and apply an overlay should it become appropriate to do so.
In respect of the pawnbroking loan receivable the short-term nature of the agreement results in 12-month expected credit losses being the same as lifetime expected credit losses.
Further information on the restatement of the comparatives are provided in note 9.
IFRS 16 Leases
IFRS 16 introduces a comprehensive model for the identification of lease arrangements and accounting treatments for both lessors and lessees. IFRS 16 will supersede the current lease guidance including IAS 17 Leases and the related interpretations when it becomes effective for accounting periods beginning on or after 1 January 2019. The Group currently expects to adopt IFRS 16 for the year ending 31 December 2019.
1. Finance information and significant accounting policies (continued)
IFRS 16 distinguishes leases and service contracts on the basis of whether an identified asset is controlled by a customer. Distinctions of operating leases (off balance sheet) and finance leases (on balance sheet) are removed for lessee accounting, and is replaced by a model where a right-of-use asset and a corresponding liability have to be recognised for all leases by lessees (i.e. all on balance sheet) except for short-term leases and leases of low value assets. The right-of-use asset is initially measured at cost and subsequently measured at cost (subject to certain exceptions) less accumulated depreciation and impairment losses, adjusted for any remeasurement of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at that date.
Subsequently, the lease liability is adjusted for interest and lease payments, as well as the impact of lease modifications, amongst others. Furthermore, the classification of cash flows will also be affected because operating lease payments under IAS 17 are presented as operating cash flows; whereas under the IFRS 16 model, the lease payments will be split into a principal and an interest portion which will be presented as financing and operating cash flows respectively.
In contrast to lessee accounting, IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17, and continues to require a lessor to classify a lease either as an operating lease or a finance lease. Furthermore, extensive disclosures are required by IFRS 16.
See note 11 for further information on the likely impact of IFRS 16 adoption.
Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services and interest income provided in the normal course of business, net of discounts, VAT and other sales-related taxes.
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before The Group recognises revenue from the following major sources:
• Pawnbroking, or Pawn Service Charge (PSC);
• Retail;
• Pawnbroking scrap and gold purchasing;
• Personal loans interest income; and
• Other services.
1. Finance information and significant accounting policies (continued)
Pawnbroking, or Pawn Service Charge (PSC)
PSC comprises interest on pledge book loans, plus auction profit and loss, less any auction commissions payable and less surplus payable to the customer. Revenue is recognised over time in relation to the interest accrued by reference to the principal outstanding and the effective interest rate applicable as governed by IFRS 9.
Retail
Retail comprises revenue from retail jewellery sales, with inventory sourced from unredeemed pawn loans, newly purchased inventory and inventory refurbished from the Group's gold purchasing operation. For sales of goods to retail customers, revenue is recognised when control of the goods has transferred, being at the point the customer purchases the goods at the store. Payment of the transaction price is due immediately at the point the customer purchases the goods.
Under the Group's standard contract terms, customers have a right of return within 30 days. At the point of sale, a refund liability and a corresponding adjustment to revenue is recognised for those products expected to be returned. At the same time, the Group has a right to recover the product when customers exercise their right of return so consequently recognises a right to returned goods asset and a corresponding adjustment to cost of sales.
The Group uses its accumulated historical experience to estimate the number of returns. It is considered highly probable that a significant reversal in the cumulative revenue recognised will not occur given the consistent and immaterial level of returns over previous years.
Pawnbroking scrap and gold purchasing
Scrap revenue comprises proceeds from gold scrap sales. Revenue is recognised when control of the goods has transferred, being at the point the smelter purchases the relevant metals.
Personal loans interest income
This comprises income from the Group's unsecured lending activities. Personal loan revenues are shown stated before impairment when in stages 1 and 2 of the expected credit loss model and net of impairment when in stage 3. The impairment charge is included within other direct expenses in the Group statement of comprehensive income. Revenue is recognised over time in relation to the interest accrued, as dictated by IFRS 9.
Other services
Other services comprise revenues from third party cheque cashing, foreign exchange income, buyback and other income. Commission receivable on cheque cashing, foreign exchange income and other income is recognised at the time of the transaction as this is when control of the goods has transferred. Buyback revenue is recognised at the point of sale of the item back to the customer, when control of the goods has transferred.
1. Finance information and significant accounting policies (continued)
The Group recognises interest income arising on secured and unsecured lending within trading revenue rather than investment revenue on the basis that this represents most accurately the business activities of the Group.
Gross profit
Gross profit is stated after charging inventory, pledge and other services provisions and direct costs of inventory items sold or scrapped in the year.
Other direct expenses
Other direct expenses comprise all expenses associated with the operation of the various shops and collection centre of the Group, including premises expenses, such as rent, rates, utilities and insurance, all staff costs and staff related costs for the relevant employees.
Inventories provisioning
Where necessary provision is made for obsolete, slow moving and damaged inventory or inventory shrinkage. The provision for obsolete, slow moving and damaged inventory represents the difference between the cost of the inventory and its market value. The inventory shrinkage provision is based on an estimate of the inventory missing at the reporting date using historical shrinkage experience.
Impairment of goodwill and other intangibles
Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units (stores) to which goodwill has been allocated. The value in use calculation requires the Group to estimate the future cash flows expected to arise from the cash-generating unit (CGU) and a suitable discount rate in order to calculate present value. The review is conducted annually, in the final quarter of the year. The impairment review is conducted at the level of each CGU, which for acquisitions represents the specific store or stores acquired.
There was no impairment loss recorded in the current year (2017: £nil). The principal assumptions applied by management in arriving at the value in use of each cash generating unit (CGU) are as follows:
The Group prepares cash flow forecasts over a five-year period for each CGU. Forecast EBITDA (used as a proxy for cashflows) has been derived by applying the Board approved base budget assumption to each individual stores' results for the twelve months to September 2018. For impairment review purposes, we have used conservative growth assumptions after 2018, even in this scenario there is still significant headroom on each CGU. A perpetuity formula has been applied to the cashflows i.e. we have made the assumption that periodic cashflows will be received indefinitely. The Group has discounted the cash flows at a pre-tax, risk adjusted rate of 11% (2017: 12%).
While the impairment review has been conducted based on the best available estimates at the impairment review date, the Group notes that actual events may vary from management expectation, but are comfortable that no impairment exists at the balance sheet date based on reasonably possible sensitivities.
2. Operating segments
Business segments
For reporting purposes, the Group is currently organised into six segments - pawnbroking, gold purchasing, retail, pawnbroking scrap, personal loans and other 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 interest rate of between 1.99% and 10.00%. 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 pawnbroking scrap activities of the Group.
Purchasing:
Jewellery is bought direct from customers through all of the Group's stores. The transaction is simple with the store 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:
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 refurbished items from the Group's gold purchasing operations. The retail offering is complemented with a small amount of new or second-hand jewellery purchased from third parties by the Group.
Pawnbroking scrap:
Pawnbroking scrap comprises all other proceeds from gold scrap sales other than those reported within gold purchasing. The items are either damaged beyond repair, are slow moving or surplus to the Group's requirements, and are smelted and sold at the current gold spot price less a small commission.
Personal loans:
Personal loans comprises income from the Group's unsecured lending activities. Personal loan revenues are stated at amortised cost after taking into consideration an assessment on a forward-looking basis of expected credit losses.
2. Operating segments (continued)
Other services:
This segment comprises:
· 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.
· Buyback which is a service where items are purchased from customers, typically high-end electronics, and may be bought back up to 31 days later for a fee.
· The foreign exchange currency service where the Group earns a margin when selling or buying foreign currencies.
· Western Union commission earned on the Group's money transfer service.
Cheque cashing is subject to bad debt risk which is reflected in the commissions and fees applied.
Further details on each activity are included in the Chief Executive's review.
Segment information about these businesses is presented below:
2018 Revenue |
Pawnbroking £'000 |
Gold purchasing £'000 |
Retail £'000 |
Pawnbroking scrap £'000 |
Personal loans £'000 |
Other services £'000 |
For the year ended 2018 £'000 |
|
|
|
|
|
|
|
|
External revenue |
41,278 |
20,745 |
38,338 |
14,059 |
22,472 |
6,133 |
143,025 |
|
|
|
|
|
|
|
|
Total revenue |
41,278 |
20,745 |
38,338 |
14,059 |
22,472 |
6,133 |
143,025 |
|
|
|
|
|
|
|
|
Gross profit |
41,278 |
3,757 |
13,203 |
1,401 |
22,472 |
6,133 |
88,244 |
|
|
|
|
|
|
|
|
Impairment |
(10,366) |
- |
- |
- |
(15,515) |
- |
(25,881) |
|
|
|
|
|
|
|
|
Segment result |
30,912 |
3,757 |
13,203 |
1,401 |
6,957 |
6,133 |
62,363 |
|
|
|
|
|
|
|
|
Other direct expenses excluding impairment |
|
|
|
(34,793) |
Administrative expenses |
|
|
|
(13,272) |
|
|
|
|
|
Operating profit |
|
|
|
14,298 |
Interest receivable |
|
|
|
3 |
Finance costs |
|
|
|
(767) |
|
|
|
|
|
Profit before taxation |
|
|
|
13,534 |
Tax charge on profit |
|
|
|
(2,705) |
|
|
|
|
|
Profit for the financial year and total comprehensive income |
|
|
|
10,829 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes to the preliminary announcement (continued)
For the year ended 31 December 2018
2. Operating segments (continued)
2017 (restated) Revenue |
Pawnbroking £'000 |
Gold purchasing £'000 |
Retail £'000 |
Pawnbroking scrap £'000 |
Personal loans £'000 |
Other services £'000 |
Total £'000 |
|
|
|
|
|
|
|
|
External revenue |
38,466 |
17,651 |
35,407 |
11,696 |
15,574 |
5,903 |
124,697 |
|
|
|
|
|
|
|
|
Total revenue |
38,466 |
17,651 |
35,407 |
11,696 |
15,574 |
5,903 |
124,697 |
|
|
|
|
|
|
|
|
Gross profit |
38,466 |
3,397 |
12,859 |
1,931 |
15,574 |
5,903 |
78,130 |
|
|
|
|
|
|
|
|
Impairment |
(9,167) |
- |
- |
- |
(11,679) |
- |
(20,846) |
|
|
|
|
|
|
|
|
Segment result |
29,299 |
3,397 |
12,859 |
1,931 |
3,895 |
5,903 |
57,284 |
|
|
|
|
|
|
|
|
Other direct expenses excluding impairment |
|
|
|
(32,594) |
Administrative expenses |
|
|
|
(12,234) |
|
|
|
|
|
Operating profit |
|
|
|
12,456 |
Investment revenues |
|
|
|
- |
Finance costs |
|
|
|
(567) |
|
|
|
|
|
Profit before taxation |
|
|
|
11,889 |
Tax charge on profit |
|
|
|
(2,396) |
|
|
|
|
|
Profit for the financial year and total comprehensive income |
|
|
|
9,493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit is stated after charging the direct costs of inventory 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 consolidated statement of comprehensive income 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 pawnbroking scrap activities.
Notes to the preliminary announcement (continued)
For the year ended 31 December 2018
2. Operating segments (continued)
2018 |
Pawn-broking £'000 |
Gold purchasing £'000 |
Retail £'000 |
Pawn-broking scrap £'000 |
Personal loans £'000 |
Other services £'000 |
Unallocated assets/ (liabilities) £'000 |
For the year ended £'000 |
Other information |
|
|
|
|
|
|
|
|
Capital additions (*) |
|
|
|
|
|
|
2,279 |
2,279 |
Depreciation and amortisation (*) |
|
|
|
|
|
|
2,483 |
2,483 |
|
|
|
|
|
|
|
|
|
Balance sheet |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
Segment assets |
51,991 |
720 |
28,876 |
543 |
20,491 |
- |
|
102,621 |
|
|
|
|
|
|
|
|
|
Unallocated corporate assets |
|
|
|
|
|
|
33,933 |
33,933 |
|
|
|
|
|
|
|
|
|
Consolidated total assets |
|
|
|
|
|
|
|
141,316 |
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Segment liabilities |
- |
- |
(646) |
- |
- |
(34) |
|
(680) |
|
|
|
|
|
|
|
|
|
Unallocated corporate liabilities |
|
|
|
|
|
|
(33,642) |
(33,642) |
|
|
|
|
|
|
|
|
|
Consolidated total liabilities |
|
|
|
|
|
|
|
(34,322) |
|
|
|
|
|
|
|
|
|
2017 (restated) |
Pawn-broking £'000 |
Gold purchasing £'000 |
Retail £'000 |
Pawn-broking scrap £'000 |
Personal loans £'000 |
Other services £'000 |
Unallocated assets/ (liabilities) £'000 |
Total £'000 |
Other information |
|
|
|
|
|
|
|
|
Capital additions (*) |
|
|
|
|
|
|
1,980 |
1,980 |
Depreciation and amortisation (*) |
|
|
|
|
|
|
2,628 |
2,628 |
|
|
|
|
|
|
|
|
|
Balance sheet |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
Segment assets |
47,451 |
1,658 |
31,858 |
1,251 |
14,930 |
- |
|
97,148 |
|
|
|
|
|
|
|
|
|
Unallocated corporate assets |
|
|
|
|
|
|
31,833 |
31,833 |
|
|
|
|
|
|
|
|
|
Consolidated total assets |
|
|
|
|
|
|
|
133,589 |
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Segment liabilities |
- |
- |
(650) |
- |
- |
(100) |
|
(750) |
|
|
|
|
|
|
|
|
|
Unallocated corporate liabilities |
|
|
|
|
|
|
(33,138) |
(33,138) |
|
|
|
|
|
|
|
|
|
Consolidated total liabilities |
|
|
|
|
|
|
|
(33,888) |
|
|
|
|
|
|
|
|
|
(*) 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 (continued)
For the year ended 31 December 2018
2. Operating segments (continued)
Geographical segments
The Group's revenue from external customers by geographical location are detailed below:
|
|
|
|
|
2018
£'000
|
2017 (Restated)
£'000 |
|
|
|
|
|
|
|
United Kingdom |
|
|
|
|
141,273 |
123,492 |
Other |
|
|
|
|
1,755 |
1,205 |
|
|
|
|
|
|
|
|
143,028 |
124,697 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The Group's non-current assets are located entirely in the United Kingdom. Accordingly, no further geographical segments analysis is presented.
3. Finance costs
|
|
|
2018
£'000 |
2017
£'000 |
|
|
|
|
|
Interest on bank loans |
|
|
657 |
472 |
Other interest |
|
|
1 |
1 |
Amortisation of debt issue costs |
|
|
109 |
94 |
|
|
|
|
|
Total interest expense |
|
|
767 |
567 |
|
|
|
|
|
Notes to the preliminary announcement (continued)
For the year ended 31 December 2018
4. Tax charge on profit
(a) Tax on profit on ordinary activities
Current tax |
|
|
2018
£'000 |
2017 (Restated)
£'000 |
United Kingdom corporation tax charge at 19% (2017: 19.25%) based on the profit for the year |
2,633 |
2,316 |
Adjustments in respect of prior years |
|
|
(94) |
181 |
|
|
|
|
|
Total current tax |
|
|
2,539 |
2,497 |
|
|
|
|
|
Deferred tax |
|
|
|
|
Timing differences, origination and reversal |
|
|
133 |
(100) |
Adjustments in respect of prior years |
|
|
33 |
(1) |
Effects of change in tax rate |
|
|
- |
- |
|
|
|
|
|
Total deferred tax |
|
|
166 |
(101) |
|
|
|
|
|
Tax charge on profit |
|
|
2,705 |
2,396 |
|
|
|
|
|
(b) Factors affecting the tax charge for the year
The tax assessed for the year is higher than that resulting from applying a standard rate of corporation tax in the UK of 19% (2017: 19.25%). The differences are explained below:
|
|
|
2018
£'000 |
2017 (Restated)
£'000 |
|
|
|
|
|
Profit before taxation |
|
|
13,534 |
11,889 |
|
|
|
|
|
|
|
|
|
|
Tax charge on profit at standard rate |
|
|
2,571 |
2,289 |
|
|
|
|
|
Effects of: |
|
|
|
|
Disallowed expenses and non-taxable income |
|
|
11 |
(81) |
Non-qualifying depreciation |
|
|
115 |
118 |
Movement in short-term timing differences |
|
|
69 |
(110) |
Adjustments to tax charge in respect of prior years |
|
|
(61) |
180 |
|
|
|
|
|
Tax charge on profit |
|
|
2,705 |
2,396 |
|
|
|
|
|
In addition to the amount charged to the income statement and in accordance with IAS 12, the excess of current and deferred tax over and above the relative related cumulative remuneration expense under IFRS 2 has been recognised directly in equity. The amount taken to equity in the current period was £72,000 (2017: release of £96,000).
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 2018 |
Year ended 31 December 2017 (Restated) |
|
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 |
10,829 |
36,895,316 |
29.35 |
9,493 |
36,479,426 |
26.02 |
|
|
|
|
|
|
|
Effect of dilutive securities |
|
|
|
|
|
|
Options and conditional shares |
- |
126,277 |
(0.10) |
- |
155,374 |
(0.11) |
|
|
|
|
|
|
|
Earnings per share: diluted |
10,829 |
37,021,593 |
29.25 |
9,493 |
36,634,800 |
25.91 |
|
|
|
|
|
|
|
Notes to the preliminary announcement (continued)
For the year ended 31 December 2018
6. Notes to the Cash Flow Statement
|
|
2018
£'000 |
2017 (Restated)
£'000 |
|
|
|
|
Profit for the year |
|
10,829 |
9,493 |
|
|
|
|
Adjustments for: |
|
|
|
Investment revenues |
|
(3) |
- |
Finance costs |
|
767 |
567 |
Decrease in provisions |
|
(60) |
(185) |
Income tax expense |
|
2,705 |
2,396 |
Depreciation of property, plant and equipment |
|
2,333 |
2,428 |
Amortisation of intangible assets |
|
150 |
200 |
Loss on disposal of property, plant and equipment |
|
133 |
69 |
|
|
|
|
Operating cash flows before movements in working capital |
|
16,854 |
14,969 |
|
|
|
|
Decrease/(Increase) in inventories |
|
4,884 |
(4,311) |
(Increase)/Decrease in other current assets |
|
(212) |
184 |
Increase in receivables |
|
(9,851) |
(11,989) |
(Decrease)/Increase in payables |
|
(2,351) |
618 |
|
|
|
|
Cash generated/(used in) from operations |
|
9,324 |
(529) |
|
|
|
|
Income taxes paid |
|
(2,776) |
(2,508) |
Interest paid |
|
(642) |
(456) |
|
|
|
|
Net cash generated/(used in) from operating activities |
|
5,906 |
(3,493) |
|
|
|
|
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 (continued)
For the year ended 31 December 2018
7. Earnings before interest, tax, depreciation and amortisation ("EBITDA")
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:
|
|
|
2018
£'000 |
2017 (Restated)
£'000 |
|
|
|
|
|
Operating profit |
|
|
14,298 |
12,456 |
|
|
|
|
|
Depreciation and amortisation |
|
|
2,482 |
2,629 |
|
|
|
|
|
EBITDA |
|
|
16,780 |
15,085 |
|
|
|
|
|
The Board consider EBITDA to be a key performance measure as the Group borrowing facility includes a number of loan covenants based on it.
8. Events after the balance sheet date
The Directors have proposed a final dividend for the year ended 31 December 2018 of 6.6p (2017: 6.2p).
Notes to the preliminary announcement (continued)
For the year ended 31 December 2018
9. Explanation of transition from IAS 39 to IFRS 9
In the current year, the Group has applied IFRS 9 Financial Instruments (as revised in July 2014) and the related consequential amendments to other IFRS Standards that are effective for an annual period that begins on or after 1 January 2018. The transition provisions of IFRS 9 allow an entity not to restate comparatives. However, the Group has elected to restate comparatives in respect of the classification and measurement of financial instruments.
Details of these new requirements as well as their impact on the Group's consolidated financial statements are described below.
(a) Classification and measurement of financial assets
The Directors of the Company reviewed and assessed the Group's existing financial assets as at 1 January 2018 based on the facts and circumstances that existed at that date and concluded that the initial application of IFRS 9 has had the following impact on the Group's financial assets as regards their classification and measurement: financial assets classified as held-to-maturity and loans and receivables under IAS 39 that were measured at amortised cost continue to be measured at amortised cost under IFRS 9 as they are held within a business model to collect contractual cash flows and these cash flows consist solely of payments of principal and interest on the principal amount outstanding.
There have been no other reclassifications of financial assets have had any impact on the Group's financial position, profit or loss, other comprehensive income or total comprehensive income in either year.
(b) Impairment of financial assets
As the Group has elected to restate comparatives, for the purpose of assessing whether there has been a significant increase in credit risk since initial recognition of financial instruments that remain recognised on the date of initial application of IFRS 9 (i.e. 1 January 2018), the Directors have compared the credit risk of the respective financial instruments on the date of their initial recognition to their credit risk as at 1 January 2017.
The result of the assessment is as follows:
Notes to the preliminary announcement (continued)
For the year ended 31 December 2018
9. Explanation of transition from IAS 39 to IFRS 9 (continued)
|
|
Cumulative additional loss allowance recognised on: |
Items existing as at 1 January 2018 that are subject to the impairment provision of IFRS 9 |
Credit risk attributable at 1 January 2017 and 2018 |
1 January 2017 £'000 |
1 January 2018 £'000 |
|
|
|
|
Pledge Book |
A proportion of these balances are assessed to have credit risk other than low. Accordingly, the Group recognises lifetime ECL for these loans until they are derecognised. For the remaining proportion the Group has assessed that the credit risk on these financial instruments has not increased significantly since initial recognition and have recognised 12-months ECL for these assets. |
5,101 |
5,473 |
Trade receivables (loan book) |
1,486 |
3,326 |
Cash and bank balances |
All bank balances are assessed to have low credit risk at each reporting date as they are held with reputable international banking institutions. |
- |
- |
The additional credit loss allowance of £8,799,000 as at 1 January 2018 and £6,587,000 as at 1 January 2017 has been recognised against retained earnings on the respective dates, net of their related tax impact of £878,000 and £509,000 respectively, resulting in a net decrease in retained earnings of £7,921,000 and £6,078,000 as at 1 January 2018 and 2017 respectively. The additional loss allowance is charged against the respective asset. The application of the IFRS 9 impairment requirements has resulted in additional loss allowance of £1,843,000 to be recognised in year ended 31 December 2017.
|
Original measurement category under IAS 39 |
New measurement category under IFRS 9 |
Original carrying amount under IAS 39 |
Additional loss allowance recognised under IFRS 9 |
New carrying amount under IFRS 9 |
Trade and other receivables |
Loans and receivables |
Financial assets at amortised cost |
73,277 |
(8,799) |
64,478 |
9. Explanation of transition from IAS 39 to IFRS 9 (continued)
The tables below show the amount of adjustment for each financial statement line item affected by the application of IFRS 9 for the prior year.
Impact on profit or loss, other comprehensive income and total comprehensive income as at 31 December 2017 |
£'000 |
Increase in revenue |
14,363 |
Increase in administrative expenses |
(16,575) |
Decrease in income tax |
369 |
Decrease in profit for the year |
(1,843) |
|
|
Impact on assets, liabilities and equity as at 1 January 2017 |
|
|
|
Decrease in trade and other receivables |
(6,587) |
Increase in deferred tax assets |
509 |
Total effect on net assets |
(6,078) |
Retained earnings |
(6,078) |
|
|
Impact on assets, liabilities and equity as at 31 December 2017 |
|
|
|
Decrease in trade and other receivables |
(8,799) |
Increase in deferred tax assets |
452 |
Decrease in tax liabilities |
426 |
Total effect on net assets |
(7,921) |
Retained earnings |
(7,921) |
The application of IFRS 9 has had no impact on the consolidated cash flows of the Group.